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STRATEGIC MANAGEMENT
UNIT I - STRATEGY AND PROCESS
Conceptual framework for strategic management, the Concept of Strategy and the
Strategy Formation Process – Stakeholders in business – Vision, Mission and
Purpose – Business definition, Objectives and Goals - Corporate Governance and
Social responsibility-case study.
TABLE OF CONTENTS
1.1 INTRODUCTION TO STRATEGIC MANAGEMENT ....................................................................... 2
1.1.1 STRATEGY - MEANING ........................................................................................................ 2
1.1.2 DEFINITION(S) FOR STRATEGY ........................................................................................... 2
1.1.3 STRATEGY EVOLUTION ....................................................................................................... 3
1.1.4 LEVELS / HIREACHY/ FORMS/ TYPES OF STRATEGIES ........................................................ 4
1.1.4. A CORPORATE LEVEL STRATEGY ................................................................................... 4
1.1.4. B BUSINESS LEVEL STRATEGIES ..................................................................................... 5
1.1.4.C FUNCTIONAL LEVEL STRATEGIES ................................................................................ 5
1.1.5 STAKEHOLDERS TO BUSINESS ............................................................................................ 5
1.1.7 ADVANTAGES OF STRATEGIC MANAGEMENT ................................................................... 6
1.1.8 DISADVANTAGES OF STRATEGIC MANAGEMENT .............................................................. 8
1.2 STRATEGIC PLANNING MODEL AND FRAMEWORK ................................................................... 9
1.2.1 MODEL OF STRATEGIC PLANNING PROCESS ...................................................................... 9
1.2.2 STRATEGY FORMULATION PROCESS / STRATEGIC FRAMEWORK .................................... 11
1.3. VISION, MISSION AND STRATEGIC OBJECTIVES ..................................................................... 14
1.3.1 VISION - MEANING ........................................................................................................... 14
1.3.2 DEFINITION FOR A VISION ................................................................................................ 14
1.3.3 PROPERTIES/ ELEMENTS/COMPONENTS OF A GOOD VISION STATEMENT .................... 15
1.3.4 STEPS INVOLVED IN DEVELOPING A VISION .................................................................... 15
1.3.5 MISSION - MEANING ........................................................................................................ 16
1.3.6 MISSION – DEFINITION..................................................................................................... 16
1.3.7 CHARACTERISTICS / COMPONENTS OF AN EFFECTIVE MISSION STATEMENT ................ 16
1.3.8 OBJECTIVES – MEANING .................................................................................................. 18
1.3.9 TYPES OF OBJECTIVES ...................................................................................................... 18
1.3.10 MISSION Vs VISION ........................................................................................................ 18
1.4 INTRODUCTION TO CORPORATE GOVERNENCE ..................................................................... 20
1.4.1 MEANING AND DEFINITION OF CORPORATE GOVERNANCE ........................................... 20
1.4.2 BENEFITS OF CORPORATE GOVERNANCE ........................................................................ 21
1.5 CORPORATE SOCIAL RESPONSIBILITY (CSR) ............................................................................ 22
1.5.1 CORPORATE SOCIAL RESPONSIBILITY – MEANING .......................................................... 22
1.5.2 GENERAL OVERVIEW AND EVOLUTION OF CSR .............................................................. 23
1.5.3 CSR – DEFINITION ............................................................................................................. 24
1.5.4 BENEFITS OF CSR .............................................................................................................. 24
1.6 QUESTION BANK ...................................................................................................................... 25
1.6.1 2 MARKS ........................................................................................................................... 25
1.6.2 16 MARKS ......................................................................................................................... 25
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1.1 INTRODUCTION TO STRATEGIC MANAGEMENT
1.1.1 STRATEGY - MEANING
Strategy is all these — it is perspective, position, plan, and pattern. Strategy is the bridge
between policy or high-order goals on the one hand and tactics or concrete actions on
the other. Strategy and tactics together straddle the gap between ends and means. In
short, strategy is a term that refers to a complex web of thoughts, ideas, insights,
experiences, goals, expertise, memories, perceptions, and expectations that provides
general guidance for specific actions in pursuit of particular ends.
1.1.2 DEFINITION(S) FOR STRATEGY
According to B. H. Liddell Hart strategy is "the art of the employment of battles as a
means to gain the object of war’
According to Moltke: "the practical adaptation of the means placed at a general’s
disposal to the attainment of the object in view.".
According to George Steiner “A way of referring to what one did to counter a
competitor’s actual or predicted moves”.
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Strategy is that which top management does that is of great importance to
the organization.
Strategy refers to basic directional decisions, that is, to purposes and
missions.
Strategy consists of the important actions necessary to realize these
directions.
According to Henry Mintzberg
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Strategy is a plan, a "how," a means of getting from here to there.
Strategy is a pattern in actions over time; for example, a company that regularly
markets very expensive products is using a "high end" strategy.
Strategy is position; that is, it reflects decisions to offer particular products or
services in particular markets.
Strategy is perspective, that is, vision and direction.
According to Kenneth Andrews "Strategy is the pattern of decisions in a company that
determines and reveals its objectives, purposes, or goals, produces the principal policies
and plans for achieving those goals, and defines the range of business the company is to
pursue, the kind of economic and human organization it is or intends to be, and the
nature of the economic and non-economic contribution it intends to make to its
shareholders, employees, customers, and communities”.
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According to Michael Porter "It means deliberately choosing a different set of activities
to deliver a unique mix of value." In short, Porter argues that strategy is about
competitive position, about differentiating yourself in the eyes of the customer, about
adding value through a mix of activities different from those used by competitors.
Porter defines competitive strategy as "a combination of the ends (goals) for which the
firm is striving and the means (policies) by which it is seeking to get there."
1.1.3 STRATEGY EVOLUTION
PHASE 1 - The first phase in the evolution of the strategy paradigm involved “basic
financial planning” in the 1950s where the typical planning focus for the firm was the
preparation of the financial budget with a time horizon barely beyond 12 months. These
rganisations tended to exhibit strong strategies however these strategies were rarely
documented. The success of the organisation was dependent on the quality of the CEO
and the top management team and their knowledge of products, markets and rivals
(Gluck et al, 1980). In the literature Drucker (1954, p. 77) drew attention to this issue
arguing that it is the role of top management to address the key questions with respect
to strategy: “What is our business and what should it be?”
PHASE 2 The second phase of “forecast-based planning” in the 1960s resulted in
organizations embracing a longer time horizon, environmental analysis, multi-year
forecasts and a static resource allocation as the firm responded to the demands of
growth (Gluck et al, 1980). Important contributions to the evolution of the strategy
literature were offered in this period by Chandler (1962), Andrews (1965) and Ansoff
(1965). In particular Andrews (1965) and Ansoff (1965) were the first writers to address
explicitly strategy content and process. Chandler’s (1962) contribution from an
historian’s perspective explained the development of large corporations and the way
their administrative structures changed to accommodate the demands thrust upon
management as a result of business growth. Chandler (1962, p. 13) offered a broad
definition of strategy which did not distinguish between strategy formulation and
content noting: “Strategy can be defined as the determination of the basic long-term
goals and objectives of an enterprise, and the adoption of courses of action and the
allocation of resources necessary for carrying out these goals.”
PHASE 3 In the 1970s there was a move to the third phase of “externally oriented
planning” in response to markets and competition as strategic planning enjoyed the
peak of its popularity. Planning in this form included a thorough situation analysis and
review of competition, an evaluation of alternative strategies and dynamic resource
allocation (Gluck et al, 1980). Prescriptive techniques for strategy were at their peak at
this time with the planning school dominant (Mintzberg, Ahlstrand and Lampel, 1998)
and numerous simplified frameworks for strategic analysis were put forward mainly by
industry consultants. These frameworks included the Experience Curve, the Boston
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Consulting Group’s (BCG) portfolio matrix and the Profit Impact of Marketing Strategies
(PIMS) empirical project.
PHASE 4 - In the 1980s firm’s embraced what became known as the strategic
anagement phase - the fourth phase - being the combination of the firm’s resources to
achieve competitive advantage. This phase included: “(1) A planning framework that
cuts across organizational boundaries and facilitates strategic decision making about
customer group s and resources. (2) A planning process that stimulates entrepreneurial
thinking. (3) A corporate values system that reinforces managers’ commitment to the
company strategy” (Gluck et al, 1980, p. 158). The strategy process came to be
increasingly performed by line managers with occasional assistance from internal
strategy experts operating in fewer numbers compared with the past. Initiatives in the
field were driven by unprecedented levels of change and complexity confronting
organisations (Prahalad and Hamel, 1994) as firms endeavoured to keep pace with
environmental developments. At this time there was also a shift from quantitative
forecasting to greater use of qualitative analysis (Stacey, 1993). The focus became
establishing the firm’s mission and vision for the future, analysis of customers, markets,
and the firm’s capabilities (Wilson, 1994).
1.1.4 LEVELS / HIREACHY/ FORMS/ TYPES OF STRATEGIES
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Corporate Level Strategies
Business Level Strategies
Functional Level Strategies
1.1.4. A CORPORATE LEVEL STRATEGY
This comprises the overall strategy elements for the corporation as a whole,
 Making the necessary moves to establish positions in different businesses and
achieve an appropriate amount and kind of diversification. A key part of corporate
strategy is making decisions on how many, what types, and which specific lines of
business the company should be in. This may involve deciding to increase or
decrease the amount and breadth of diversification.
 Initiating actions to boost the combined performance of the businesses the
company has diversified into: This may involve vigorously pursuing rapid-growth
strategies in the most promising line of business’s, keeping the other core
businesses healthy, initiating turnaround efforts in weak-performing line of
business’s with promise, and dropping line of businesses that are no longer
attractive or don't fit into the corporation's overall plans. It also may involve
supplying financial, managerial, and other resources, or acquiring and/or merging
other companies with an existing line of business..
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Pursuing ways to capture valuable cross-business strategic fits and turn them into
competitive advantages -- especially transferring and sharing related technology,
procurement leverage, operating facilities, distribution channels, and/or customers.
Establishing investment priorities and moving more corporate resources into the
most attractive line of business.
1.1.4. B BUSINESS LEVEL STRATEGIES
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Business strategy is about being different. It means deliberately choosing to
perform activities differently or to perform different activities than rivals to deliver a
unique mix of value. (Michael E. Porter)
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The essence of strategy lies in creating tomorrow's competitive advantages faster
than competitors mimic the ones you possess today.
1.1.4.C FUNCTIONAL LEVEL STRATEGIES
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Functional strategies are relatively short-term activities that each functional area
within a company will carry out to implement the broader, longer-term corporate
level and business level strategies.
Each functional area has a number of strategy choices that interact with and must be
consistent with the overall company strategies.
Functional strategy deals with the major functional areas such as, marketing,
finance, production/operations, research and development, and human resources
management. Marketing strategy deals with product/service choices and features,
pricing strategy, markets to be targeted, distribution, and promotion considerations.
Financial strategies include decisions about capital acquisition, capital allocation,
dividend policy, and investment and working capital management. The production
or operations functional strategies address choices about how and where the
products or services will be manufactured or delivered, technology to be used,
management of resources, plus purchasing and relationships with suppliers
1.1.5 STAKEHOLDERS TO BUSINESS
A party that has an interest in an enterprise or project. The primary stakeholders in a
typical corporation are its investors, employees, customers and suppliers. However,
modern theory goes beyond this conventional notion to embrace additional
stakeholders such as the community, government and trade associations.
Christopher Bart says a mission statement is A person, group or organization that has
interest or concern in an organization.
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Stakeholders can affect or be affected by the organization's actions, objectives and
policies. Some examples of key stakeholders are
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customers
creditors
directors
employees
government (and its agencies)
owners (shareholders)
suppliers
unions
Community from which the business draws its resources.
1.1.6 SIGNIFICANCE/ IMPORTANCE OF STRATEGIC MANAGEMENT
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Strategic management takes into account the future and anticipates for it.
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A strategy is made on rational and logical manner, thus its efficiency and its
success are ensured.
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Strategic management reduces frustration because it has been planned in such a
way that it follows a procedure.
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It brings growth in the organization because it seeks opportunities.
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Strategic management also adds to the reputation of the organization because
of consistency that results from organizations success.
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Often companies draw to a close because of lack of proper strategy to run it.
With strategic management companies can foresee the events in future and
that’s why they can remain stable in the market.
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Strategic management looks at the threats present in the external environment
and thus companies can either work to get rid of them or else neutralizes the
threats in such a way that they become an opportunity for their success.
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Strategic management focuses on proactive approach which enables
organization to grasp every opportunity that is available in the market.
1.1.7 ADVANTAGES OF STRATEGIC MANAGEMENT
DISCHARGES BOARD RESPONSIBILITY
The first reason that most organizations state for having a strategic management
process is that it discharges the responsibility of the Board of Directors.
FORCES AN OBJECTIVE ASSESSMENT
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Strategic management provides a discipline that enables the board and senior
management to actually take a step back from the day-to-day business to think about
the future of the organization. Without this discipline, the organization can become
solely consumed with working through the next issue or problem without consideration
of the larger picture.
PROVIDES A FRAMEWORK FOR DECISION-MAKING
Strategy provides a framework within which all staff can make day-to-day operational
decisions and understand that those decisions are all moving the organization in a single
direction. It is not possible (nor realistic or appropriate) for the board to know all the
decisions the executive director will have to make, nor is it possible (nor realistic or
practical) for the executive director to know all the decisions the staff will make.
Strategy provides a vision of the future, confirms the purpose and values of an
organization, sets objectives, clarifies threats and opportunities, determines methods to
leverage strengths, and mitigate weaknesses (at a minimum). As such, it sets a
framework and clear boundaries within which decisions can be made. The cumulative
effect of these decisions (which can add up to thousands over the year) can have a
significant impact on the success of the organization. Providing a framework within
which the executive director and staff can make these decisions helps them better focus
their efforts on those things that will best support the organization's success.
SUPPORTS UNDERSTANDING & BUY-IN
Allowing the board and staff participation in the strategic discussion enables them to
better understand the direction, why that direction was chosen, and the associated
benefits. For some people simply knowing is enough; for many people, to gain their full
support requires them to understand.
ENABLES MEASUREMENT OF PROGRESS
A strategic management process forces an organization to set objectives and measures
of success. The setting of measures of success requires that the organization first
determine what is critical to its ongoing success and then forces the establishment of
objectives and keeps these critical measures in front of the board and senior
management.
PROVIDES AN ORGANIZATIONAL PERSPECTIVE
Addressing operational issues rarely looks at the whole organization and the
interrelatedness of its varying components. Strategic management takes an
organizational perspective and looks at all the components and the interrelationship
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between those components in order to develop a strategy that is optimal for the whole
organization and not a single component.
1.1.8 DISADVANTAGES OF STRATEGIC MANAGEMENT
THE FUTURE DOESN'T UNFOLD AS ANTICIPATED
One of the major criticisms of strategic management is that it requires the organization
to anticipate the future environment in order to develop plans, and as we all know,
predicting the future is not an easy undertaking. The belief being that if the future does
not unfold as anticipated then it may invalidate the strategy taken. Recent research
conducted in the private sector has demonstrated that organizations that use planning
process achieve better performance than those organizations that don't plan regardless of whether they actually achieved their intended objective. In addition, there
are a variety of approaches to strategic planning that are not as dependent upon the
prediction of the future.
IT CAN BE EXPENSIVE
There is no doubt that in the not-for-profit sector there are many organizations that
cannot afford to hire an external consultant to help them develop their strategy. Today
there are many volunteers that can help smaller organizations and also funding agencies
that will support the cost of hiring external consultants in developing a strategy.
Regardless, it is important to ensure that the implementation of a strategic
management process is consistent with the needs of the organization, and that
appropriate controls are implemented to allow the cost/benefit discussion to be
undertaken, prior to the implementation of a strategic management process.
LONG TERM BENEFIT VS. IMMEDIATE RESULTS
Strategic management processes are designed to provide an organization with longterm benefits. If you are looking at the strategic management process to address an
immediate crisis within your organization, it won't. It always makes sense to address the
immediate crises prior to allocating resources (time, money, people, opportunity, cost)
to the strategic management process.
IMPEDES FLEXIBILITY
When you undertake a strategic management process, it will result in the organization
saying "no" to some of the opportunities that may be available. This inability to choose
all of the opportunities presented to an organization is sometimes frustrating. In
addition, some organizations develop a strategic management process that become
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excessively formal. Processes that become this "established" lack innovation and
creativity and can stifle the ability of the organization to develop creative strategies. In
this scenario, the strategic management process has become the very tool that now
inhibits the organization's ability to change and adapt.
A third way that flexibility can be impeded is through a well-executed alignment and
integration of the strategy within the organization. An organization that is well aligned
with its strategy has addressed its structure, board, staffing, and performance and
reward systems. This alignment ensures that the whole organization is pulling in the
right direction, but can inhibit the organization's adaptability. Again, there are a variety
of newer approaches to strategy development used in the private sector (they haven't
been widely accepted in the not-for-profit sector yet) that build strategy and address
the issues of organizational adaptability.
1.2 STRATEGIC PLANNING MODEL AND FRAMEWORK
1.2.1 MODEL OF STRATEGIC PLANNING PROCESS
The Strategic planning process model consists of the following steps:
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Define the organization’s Vision
Define the strategic mission,
Define the strategic objectives,
Define the competitive strategy,
Implement strategies
DEFINE THE ORGANIZATION’S VISION
A vision enables an organization to move forward with clarity. It links the business'
specific objectives and targets with the core values that govern how the business will
operate in order to meet those targets. It therefore goes further than a mission
statement.
DEFINE THE STRATEGIC MISSION
An organization’s strategic mission offers a long-range perspective of what the
organization strives for going forward. A clearly stated mission will provide the
organization with a guide for carrying out its plans. Elements of a strong strategic
mission statement should include the values that the organization holds the nature of
the business, special abilities or position the organization holds in the Marketplace, and
the organization’s vision for where it wants to be in the future.
DEFINE THE STRATEGIC OBJECTIVES
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This third step in the strategic formulation process requires an organization to identify
the performance targets needed to reach clearly stated objectives. These objectives
may include: market position relative to the competition, production of goods and
services, desired market share, improved customer services, corporation expansion,
advances in technology, and sales increases. Strategic objectives must be communicated
with all employees and stakeholders in order to ensure success. All members of the
organization must be made aware of their role in the process and how their efforts
contribute to meeting the organization’s objectives. Additionally, members of the
organization should have their own set of objectives and performance targets for their
individual roles.
DEFINE THE COMPETITIVE STRATEGY (INTERNAL & EXTERNAL ANALYSIS)
The next step in strategy planning requires an organization to determine where it fits
into the marketplace. This applies not only to the organization as a whole, but to each
individual unit and apartment throughout the enterprise. Each area must be aware of its
role within the company and how those roles enable the organization to maintain its
competitive position. Another step in the competitive strategy process requires an
organization to develop proactive responses to potential changes in the marketplace.
An organization must not wait for events in the marketplace to occur before taking
steps; they must identify possible events and be prepared to take action. The final step
in defining a competitive strategy is identifying an organization’s Resources and
determining how those resources will be used. Each department, division, or location
will have its own set of needs, and a company must determine how it will allocate
resources in order to meet those needs. Three factors must be considered when
determining the overall competitive strategy: the industry and marketplace, the
company’s position relative to the competition, and the company’s internal strengths
and weaknesses.
The Industry
When evaluating the overall industry, factors to be looked at include:
 size of the market,
 past and potential market growth,
 competitive profitability,
 new market entries, and
 Industry threats.
These market factors must be evaluated on a regular basis, as small changes may have a
large impact on an organization’s business activities. For example, if an organization
becomes aware of new technology that is on the verge of being introduced into the
marketplace, then it can avoid making any new plans that would involve the older,
existing technology available. Also, if an organization is considering global expansion,
then it would be beneficial to be aware of emerging markets, other areas of potential
growth, and what other companies have already entered in those markets.
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The Competition
An organization cannot be successful unless it has a full understanding of the other
players in marketplace. A company must be able to identify the strengths and
weaknesses of the competition and analyze the ways in which the competition’s
products or services meet the needs of its customer base. Has the competition created a
significant product differentiation strategy? Has the competition cornered a specific
target market? Is the competition in full-scale competition with another company? It is
essential for these questions to be answered in order to develop the appropriate
strategy for successful competition. As mentioned earlier, we discussed how
competition for an airline is not only other airlines, but also other modes of
transportation. valuating competition requires a company to look at organizations that
provide substitutes for its product or service as well as those who provide the same
products and services.
Strengths, Weaknesses, Opportunities, and Threats.
Opportunities and threats are external factors; strengths and weaknesses are internal
factors. When developing a competitive strategy, it is vital for an organization to be fully
aware of its internal strengths and how those strengths relate to the competition. These
strengths should be maximized and leveraged to the company’s advantage as well as
highlighted in all business and marketing activities that the company undertakes. It is
equally important for an organization to take an honest look at its areas of weakness.
This is where a company can become vulnerable to outside market conditions, such as
competitive gains, advances in technology, economic shifts, and other factors. By
identifying areas in need of improvement and taking steps to remedy those areas, a
company will be in a stronger competitive position.
IMPLEMENT STRATEGIES
Developing a strategy is only effective if it is put into place. An organization may take all
the necessary steps to understand the marketplace, define it, and identify the
competition. However, without implementing the strategy, the organization’s work will
be of little to no value. The methods employed for implementing strategies are known
as tactics. These individual actions enable an organization to build a foundation for
implementation. Companies are able to identify which of their efforts are more
successful than others and will uncover new methods of implementation, if necessary
1.2.2 STRATEGY FORMULATION PROCESS / STRATEGIC FRAMEWORK
Strategy formulation refers to the process of choosing the most appropriate course of
action for the realization of organizational goals and objectives and thereby achieving
the organizational vision. The process of strategy formulation basically involves six main
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steps. Though these steps do not follow a rigid chronological order, however they are
very rational and can be easily followed in this order.
STEPS INVOLVED IN STRATEGIC MANAGEMENT / STRATEGY FORMULATION PROCESS
 Strategy Formulation
 Strategy Implementation
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 Strategy Evaluation And Control
STRATEGY FORMULATION
Planning consists of all those managerial activities related to preparing for the future.
Specific tasks include forecasting, establishing objectives, devising strategies, developing
policies, and setting goals
Setting Organizations’ Vision, Mission and objectives - The key component of any
strategy statement is to set the long-term objectives of the organization. It is known
that strategy is generally a medium for realization of organizational objectives.
Objectives stress the state of being there whereas Strategy stresses upon the process of
reaching there. Strategy includes both the fixation of objectives as well the medium to
be used to realize those objectives. Thus, strategy is a wider term which believes in the
manner of deployment of resources so as to achieve the objectives. While fixing the
organizational objectives, it is essential that the factors which influence the selection of
objectives must be analyzed before the selection of objectives. Once the objectives and
the factors influencing strategic decisions have been determined, it is easy to take
strategic decisions.
Evaluating the Organizational Environment - The next step is to evaluate the general
economic and industrial environment in which the organization operates. This includes a
review of the organizations competitive position. It is essential to conduct a qualitative
and quantitative review of an organizations existing product line. The purpose of such a
review is to make sure that the factors important for competitive success in the market
can be discovered so that the management can identify their own strengths and
weaknesses as well as their competitors’ strengths and weaknesses. After identifying its
strengths and weaknesses, an organization must keep a track of competitors’ moves and
actions so as to discover probable opportunities of threats to its market or supply
sources.
Setting Strategies- In this step, an organization must practically fix the quantitative
target values for some of the organizational objectives. The idea behind this is to
compare with long term customers, so as to evaluate the contribution that might be
made by various product zones or operating departments.
Choice of Strategy - This is the ultimate step in Strategy Formulation. The best course of
action is actually chosen after considering organizational goals, organizational strengths,
potential and limitations as well as the external opportunities.
STRATEGY IMPLEMENTATION
Organizing includes all those managerial activities that result in a structure of task and
authority relationships. Specific areas include organizational design, job specialization,
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job descriptions, job specifications, span of the control, and unity of command,
coordination, job design, and job analysis.
Motivating involves efforts directed toward shaping human behavior. Specific topics
include leadership, communication, work groups, behavior modification, and delegation
of authority, job enrichment, job satisfaction, needs fulfillment, organizational change,
employee morale, and managerial morale.
Staffing activities are centered on personnel or human resource management. Included
are wage and salary administration, employee benefits, interviewing, hiring, firing,
training, management development, employee safety, affirmative action, equal
employment opportunity, union relations, career development, personnel research,
discipline policies, grievance procedures, and public relations.
STRATEGY EVALUATION AND CONTROL
Controlling refers to all those managerial activities directed toward ensuring that actual
results are consistent with planned results. Key areas of concern include quality control,
financial control, sales control, inventory control, and expense control, analysis of
variances, rewards, and sanctions.
1.3. VISION, MISSION AND STRATEGIC OBJECTIVES
1.3.1 VISION - MEANING
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A vision statement is sometimes called a picture of a company in the future
Vision statement is the inspiration, the framework for all strategic planning.
It reminds of what a business is trying to build.
A vision statement may apply to an entire company or to a single division of that
company. Whether for all or part of an organization, the vision statement
answers the question, "Where we want to be?"
1.3.2 DEFINITION FOR A VISION
Kotter (1990) defines it as a “description of something (an organization, corporate
culture, a business, a technology, an activity) in the future”.
ElNamaki (1992) considers it as a “mental perception of the kind of enviro nment an
individual, or an organization, aspires to create within a broad time horizon and the
underlying conditions for the actualization of this perception”.
Miller and Dess (1996) view it simply as the “category of intentions that are broad, all
inclusive, and forward thinking”. The common strand of thought evident in these
definitions and several others available in strategic management literature relates to
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‘vision’ being future aspirations that lead to an inspiration to be the best in one’s field of
activity
1.3.3 PROPERTIES/ ELEMENTS/COMPONENTS OF A GOOD VISION STATEMENT
A good vision is a mental model of a future state. It involves thinking about the future,
and modeling possible future states. A vision doesn't exist in the present, and it may or
may not be reached in the future. t
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A good vision is idealistic. The vision is realistic enough so that people believe it
is achievable, but idealistic enough so that it cannot be achieved without
stretching. If it is too easily achievable, it will not set a standard of excellence,
nor will it motivate people to want to work toward it.
A good vision is appropriate for the organization and for the times. A vision must
be consistent with the organization's values and culture, and its place in its
environment. It must also be realistic.
A good vision sets standards of excellence and reflects high ideals. The vision
does reflect measurable standards of excellence and a high level of aspiration.
The actual measure could be the external reputation of the company, as
assessed by having users evaluate the company and its products.
A good vision clarifies purpose and direction. In defining that "realistic, credible,
attractive future for an organization," a vision provides the rationale for both the
mission and the goals the organization should pursue.
A good vision inspires enthusiasm and encourages commitment. An inspiring
vision can help people in an organization get excited about what they're doing,
and increase their commitment to the organization.
A good vision is well articulated and easily understood. In order to motivate
individuals, and clearly point toward the future, a vision must be articulated so
people understand it. Most often, this will be in the form of a vision statement
A good vision reflects the uniqueness of the organization, its distinctive
competence, what it stands for, and what it is able to achieve..
1.3.4 STEPS INVOLVED IN DEVELOPING A VISION
1. Understand the organization - Understanding the organization’s mission and purpose
are, what value it provides to society, what the character of the industry is, what
institutional framework the organization operates.
2. Conduct a vision audit. - Assessing the current direction and momentum of the
organization through the organization's structures, processes, personnel, incentives, and
information systems support the current direction?
3. Target the vision. – Starting to narrow in on a vision.
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4. Set the vision context. -This is where you look to the future, and where the process of
formulating a vision gets difficult. Your vision is a desirable future for the organization.
5. Develop future scenarios
6. Generate alternative visions.
7. Choose the final vision.
1.3.5 MISSION - MEANING
The Mission Statement is a crucial element in the strategic planning of a business
organization. Creating a mission is one of the first actions an organization should take.
This can be a building block for an overall strategy and development of more specific
functional strategies. By defining a mission an organization is making a statement of
organizational purpose.
1.3.6 MISSION – DEFINITION
Thompson (1997) defines mission as the “essential purpose of the organization,
concerning particularly why it is in existence, the nature of the businesses it is in, and
the customers it seeks to serve and satisfy”
Hunger and Wheelen (1999) say that mission is the “purpose or reason for the
organization’s existence”.
Drohan says "A vision statement pushes the association toward some future goal or
achievement, while a mission statement guides current, critical, strategic decision
making”.
Jeffrey Abrahams defines a mission statement as, "A mission statement is an enduring
statement of purpose for an organization that identifies the scope of its operations in
product and market terms, and reflects its values and priorities”
1.3.7 CHARACTERISTICS / COMPONENTS OF AN EFFECTIVE MISSION STATEMENT
FUNCTION
The mission statement needs to include some description of the function of the
business. For example, "to promote industrial excellence," tells customers and
employees nothing. A more effective description would be "To provide management
consulting services."
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TARGET CONSUMERS
An effective mission statement sets out, in broad terms, the target market. A
manufacturer that makes nuts and bolts might set its target market as retail hardware
stores, machine manufacturers, or both.
TARGET REGION
The business must determine what region it serves best and relay that information by
way of the mission statement. A garage, for example, might limit its target region to the
community while a magazine company might target an entire country.
VALUES
Mission statements typically include a statement of company values. Values such as
customer service, efficiency and eco-consciousness often appear on lists of company
values. At their best, company values should express principles the company explicitly
tries to affirm in day-to-day operations.
TECHNOLOGY
For businesses that rely heavily on technology, the mission statement should include a
description of the essential technology the company does or plans to employ. If nothing
else, this directs purchasing agents toward the appropriate vendors for goods and
services.
EMPLOYEES
Every company has a policy regarding its relationship with employees. A mission
statement provides an opportunity to describe that policy in brief so employees know
the essentials of where they stand.
STRATEGIC POSITIONING
Effective mission statements also include a brief description of the business's strategic
position within the market. For example, the company might excel at serving residential
clients and seek to maximize that strategic advantage.
FINANCIAL OBJECTIVES
For for-profit ventures, businesses require clear financial objectives. A start-up company
might set one of its financial objectives as making an initial public offering of common
stock within two years. This lets the employees and potential investors know the
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company intends to go public, with all of the legal and record keeping ramifications that
entails.
IMAGE
Like people, companies develop public images. Careful companies craft the public image
they want to establish and lay out the major features of it in the mission statement. This
helps manager’s direct employees that stray from the sanctioned public image.
1.3.8 OBJECTIVES – MEANING




MISSION converted into performance targets
Creating yardsticks to track performance
Establish performance oriented goals
Push firm to be inventive, intentional and focused
1.3.9 TYPES OF OBJECTIVES


Financial Objectives - that relate to improving firm's financial performance
Strategic Objectives - that will result in greater competitiveness and stronger
long-term market position
1.3.10 MISSION Vs VISION
Mission Statement
A Mission statement talks about HOW
you will get to where you want to be.
About Defines the purpose and primary
objectives related to your customer
needs and team values.
Answer
Time
Vision Statement
A Vision statement outlines WHERE
you want to be. Communicates both
the purpose and values of your
business.
It answers the question, “What do we
do? What makes us different?”
It answers the question, “Where do
we aim to be?”
A mission statement talks about the
present leading to its future.
A vision statement talks about your
future.
It lists the broad goals for which the
organization is formed. Its prime
Function function is internal; to define the key
measure or measures of the
organization's success and its prime
It lists where you see yourself some
years from now. It inspires you to
give your best. It shapes your
understanding of why you are
working here.
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Mission Statement
Vision Statement
audience is the leadership, team and
stockholders.
Your mission statement may change, but As your organization evolves, you
it should still tie back to your core values, might feel tempted to change your
customer needs and vision.
vision. However, mission or vision
Change
statements explain your
organization's foundation, so change
should be kept to a minimum.
What do we do today? For whom do we Where do we want to be going
Developing a do it? What is the benefit? In other
forward? When do we want to reach
statement words, Why we do what we do? What, that stage? How do we want to do it?
For Whom and Why?
Purpose and values of the organization:
Who are the organization's primary
Features of
"clients" (stakeholders)? What are the
an effective
responsibilities of the organization
statement
towards the clients?
Clarity and lack of ambiguity:
Describing a bright future (hope);
Memorable and engaging expression;
realistic aspirations, achievable;
alignment with organizational values
and culture.
1.5.11 EXAMPLES OF VISION AND MISSION STATEMENTS
VISION STATEMENTS
Disney – To make people happy.
Microsoft – A computer on every desk and in every home; all running Microsoft
software.
Nike – Current: To be the number one athletic company in the world.
Wal-Mart – Become a $125 billion company by the year 2000.
Ford – To become the world’s leading Consumer Company for automotive products
and services.
Coca Cola – To achieve sustainable growth, we have established a vision with clear
goals:
MISSION STATEMENTS
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Ferrari - To Build Unique Sports Cars Destined To Represent The Excellence Of Italian
Cars, Whether On The Road Or On Racing
Microsoft's - "To Create A Family Of Devices And Services For Individuals And
Businesses That Empower People Around The Globe At Home, At Work And On The
Go, For The Activities They Value Most.
Coca Cola - To Refresh The World, To Inspire Moments Of Optimism And Happiness,
To Create Value And Make A Difference.
Infosys - Work To Understand The Needs And Requirements Of Our Clients Before
Proposing A Solution, Develop Responsive Proposals That Provide Cost-effective
Solutions To Our Clients Needs, Deploy The Right Mix Of People And Products To
Deliver Value-added Services And Solutions To Our Clients, Follow-up On The Quality
Of Our Services And Solutions To Our Clients, Appreciate The Trust That Our Clients
Put In Us As We Work With Them To Improve Their Business And Information
Technology.
1.4 INTRODUCTION TO CORPORATE GOVERNENCE
Corporate governance is about good decisions being made by the right person and is not
just the domain of companies – small businesses need corporate governance too. A
good structure will allow you to ensure that the start-up of your business occurs
smoothly, with minimal confusion about responsibilities. As this can have many flow-on
benefits to your business, it’s worthwhile considering how to implement a corporate
governance structure best suited to your business. Corporate governance is often
associated with public companies, but small businesses can also benefit from this
practice. Corporate governance consists of rules that direct the roles and actions of key
people rather than processes. Unlike simple policies and procedures, such as a dress
code or expense reimbursement procedure, corporate governance rules focus on
creating better management and fewer ethical or legal problems. Examples of corporate
governance include setting rules for using business funds for personal use; serving on a
board of directors; hiring family members; conflicts of interest; notifying owners,
investors and partners of key meetings and decisions; and disbursing profits.
1.4.1 MEANING AND DEFINITION OF CORPORATE GOVERNANCE
The framework of rules and practices by which a board of directors ensures
accountability and transparency in company’s relationship with all stakeholders
 explicit and implicit contracts between the company and the stakeholders
for distribution of responsibilities, rights, and rewards,
 procedures for reconciling the sometimes conflicting interests of stakeholders in
accordance with their duties, privileges, and roles, and
procedures for
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proper supervision, control,
and information-flows to
a system of checks-and-balances.
serve
as
1.4.2 BENEFITS OF CORPORATE GOVERNANCE
CREATING AND DELEGATING AUTHORITY
When making important decisions, it’s important to have the right person making them.
Simply by setting up and communicating clear lines of authority, you can guide your
employees to recognize the decisions that they can and cannot make on their own.
DEVELOPING CLEAR POLICIES AND PROCEDURES
Written policies and procedures are essential for creating planned business outcomes.
These are particularly helpful in communicating clear steps to achieving a goal, such as a
sale, which you wish your staff to repeat frequently. The best policies are clear, concise,
and easy to understand. They should also reflect your brand, compliment your business
goals and objectives as well as your risk management plans.
Creating formal policies and procedures allows you and your staff to make better
decisions. They also add legitimacy to a decision. Having an agreed process will allow
you to guide behaviours and reduce risk within your business.
MANAGING EMPLOYEES AND ENSURING ACCOUNTABILITY
With policies and procedures in place, everyone can be more accountable and
comfortable about the decisions they make. Accountability is important and can involve
rewarding or disciplining staff. Your established policies and procedures can also help
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when providing constructive feedback and ensuring that better decisions are made in
the future. With a good governance structure, your employees become enabled to take
on more responsibility. As the business owner, you can then focus more on other core
management activities that can help make your business a success
IMPROVED REPUTATION
A corporate governance program can boost your company's reputation. If you publicize
your corporate governance policies and detail how they work, more stakeholders will be
willing to work with you. This can include lenders who see you have strong fiscal policies
and internal controls, charities you might partner with to promote your business,
government agencies, employees, the media, vendors and suppliers. The practice of
sharing internal information with key stakeholders is known as transparency, which
allows people to feel more confident you have little or nothing to hide.
FEWER FINES, PENALTIES, LAWSUITS
Corporate governance includes instituting policies that require the company to take
specific steps to stay compliant with local, state and federal rules, regulations and laws.
For example, as part of corporate governance, an executive management team or board
of directors might conduct a review of the company’s hiring practices if it falls under the
guidelines of the Equal Opportunity Employment Commission. You might require that
your accounting department undergo an external audit by an independent auditor every
quarter or year.
DECREASED CONFLICTS AND FRAUD
Corporate governance limits the potential for bad behavior of employees by instituting
rules to reduce potential fraud and conflict of interest. For example, the company might
draft a conflict of interest statement that top executives must sign, requiring them to
disclose and avoid potential conflicts, such as awarding contracts to family members or
contracts in which an executive has an ownership interest. The company might forbid
loans to officers and family members or the hiring of family members. External audits or
requiring checks over a certain amount to be approved and signed by two people help
reduce errors and fraud.
1.5 CORPORATE SOCIAL RESPONSIBILITY (CSR)
1.5.1 CORPORATE SOCIAL RESPONSIBILITY – MEANING
Mallen Baker says CSR is about how companies manage the business processes to
produce an overall positive impact on society. That is
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

The quality of their management - both in terms of people and processes (the inner
circle).
The nature of, and quantity of their impact on society in the various areas.
A company’s sense of responsibility towards the community and environment (both
ecological and social) in which it operates.
Companies express this citizenship
(1) through their waste and pollution reduction processes,
(2) by contributing educational and social programs, and
(3) by earning adequate returns on the employed resources. See also corporate
citizenship.
1.5.2 GENERAL OVERVIEW AND EVOLUTION OF CSR
Social responsibility becomes an integral part of the wealth creation process - which if
managed properly should enhance the competitiveness of business and maximise the
value of wealth creation to society. When times get hard, there is the incentive to
practice CSR more and better - if it is a philanthropic exercise which is peripheral to the
main business, it will always be the first thing to go when push comes to shove. It is a
key difference, when many business leaders feel that their companies are ill equipped to
pursue brooders societal goals, and activists argue that companies have no democratic
legitimacy to take such roles. That particular debate will continue.
Traditionally in the United States, CSR has been defined much more in terms of a
philanthropic model. Companies make profits, unhindered except by fulfilling their duty
to pay taxes. Then they donate a certain share of the profits to charitable causes. It is
seen as tainting the act for the company to receive any benefit from the giving. The
European model is much more focused on operating the core business in a socially
responsible way, complemented by investment in communities for solid business case
reasons.
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1.5.3 CSR – DEFINITION
The World Business Council for Sustainable Development defines
“Corporate Social Responsibility is the continuing commitment by business to behave
ethically and contribute to economic development while improving the quality of life of
the workforce and their families as well as of the local community and society at large”
CSR definition used by Business is: Operating a business in a manner that meets or
exceeds the ethical, legal, commercial and public expectations that society has of
business.
1.5.4 BENEFITS OF CSR
IMPROVED FINANCIAL PERFORMANCE:
A recent longitudinal Harvard University study has found that “stakeholder balanced”
companies showed four times the growth rate and eight times employment growth
when compared to companies that focused only on shareholders and profit
maximization.
ENHANCED BRAND IMAGE & REPUTATION:
A company considered socially responsible can benefit -both by its enhanced reputation
with the public, as well as its reputation within the business community, increasing a
company’s ability to attract capital and trading partners. For example, a 1997 study by
two Boston College management professors found that excellent employee, customer
and community relations are more important than strong shareholder returns in earning
corporations a place an Fortune magazine’s annual “Most Admired Companies” list.
INCREASED SALES AND CUSTOMER LOYALTY:
A number of studies have suggested a large and growing market for the products and
services of companies perceived to be socially responsible. While businesses must first
satisfy customers’ key buying criteria – such as price, quality, appearance, taste,
availability, safety and convenience. Studies also show a growing desire to buy based on
other value-based criteria, such as ” sweatshop-free” and “child labor-free” clothing,
products with smaller environmental impact, and absence of genetically modified
materials or ingredients.
INCREASED ABILITY TO ATTRACT AND RETAIN EMPLOYEES:
Companies perceived to have strong CSR commitments often find it easier to recruit
employees, particularly in tight labor markets. Retention levels may be higher too,
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resulting in a reduction in turnover and associated recruitment and training costs. Tight
labor markets as well the trend toward multiple jobs for shorter periods of time are
challenging companies to develop ways to generate a return on the consideration
resources invested in recruiting, hiring, and training.
REDUCED REGULATORY OVERSIGHT:
Companies that demonstrate that they are engaging in practices that satisfy and go
beyond regulatory compliance requirements are being given less scrutiny and freer rein
by both national and local government entities. In many cases, such companies are
subject to fewer inspections and paperwork, and may be given preference or “fasttrack” treatment when applying for operating permits, zoning variances or other forms
of governmental permission.
EASIER ACCESS TO CAPITAL:
The Social Investment Forum reports that, in the U.S. in 1999, there is more than $2
trillion in assets under management in portfolios that use screens linked to ethics, the
environment, and corporate social responsibility. It is clear that companies addressing
ethical, social, and environmental responsibilities have rapidly growing access to capital
that might not otherwise have been available.
1.6 QUESTION BANK
1.6.1 2 MARKS
1.6.2 16 MARKS
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