1 DIRECTION SETTING: VISIONS, MISSIONS, VALUES, AND OBJECTIVES Payne (2) Key Text Reading: Chapter 5

2 Determining Strategic Direction Strategic direction setting refers to the development of roadmap or set of guidelines that help strategists make key organizaitonal decisions. Generally, there are four types of guiding statements or ideals. –Vision –Mission –Values –Goals / Objectives

3 What is a Vision? “An articulation of what the company wishes to become or where it seeks to go” or, “the firm’s aspirations of what it really wants to be…designed to capture the imagination of the firm’s people and galvanize their efforts to achieve a higher purpose.” Visions often describe organizations in a lofty, even romantic or mystical tone – and “expression of hope”. Four attributes of “good” visions: 1) Idealism 2) Uniqueness 3) Future Orientation 4) Imagery A well-conceived strategic vision:  Guides managerial decision-making  Arouses employee buy-in and commitment  Prepares a company for the future

4 Examples: Strategic Visions BIOGEN: “We dedicate ourselves daily to improving the lives of people around the world.” “TENET will distinguish itself as a leader in redefining health care delivery and will be recognized for the passion of its people and partners in providing quality, innovative care to the patients it serves in each community.” Allina Hospitals: “We will 1) put the patient first, 2) make a difference in people’s lives by providing exceptional care and service, 3) create a healing environment where passionate people thrive and excel, 4) lead collaborative efforts that solve our community’s health care challenges. Disneyland: “To be the happiest place on earth.”

5 What is a Mission? “A mission statement is more a statement of corporate purpose, and often defines the area of business in which it competes.” “Captures the organization’s distinctive purpose or reason for being.” Or, “Describes the firm or organization in terms of its business. Mission statements answer the questions, ‘What business are we in?’ and ‘What do we intend to do to succeed?’ …[they] are more concrete than visions, but still do not specify the goals and objectives necessary to translate the mission into reality.”

6 Mission Statements Encompasses both the purpose of the company as well as the basis of competition and competitive advantage. Should answer, “What is unique about our organization?” More specific, focused, and concrete than the vision. Employees are usually the most important audience for mission statements. Components: 1)Should explicitly target customers and market. 2)Should indicate the principal products and/or services provided by the organization. 3)Should specify the geographical area of concentration. “Writing a mission statement is important; however, living it is more important.”

7 Mission Statement Examples MedCath: “Improve clinical outcomes for cardiac patients through a physician-driven, patient-focused approach.” Alcon: “To discover, develop, produce and market innovative, high-quality eye care products that preserve, restore and enhance sight. We accomplish this by partnering with eye care professionals around the world to advance the treatment of eye disease and help people to experience the best vision possible.”

8 Value Statements Values are the things organizations and people stand for or the fundamental principles that, along with the mission, make an organization unique. Usually associated with ethical behavior and social responsibility. Questions for discussion: 1)Why are value statements important (or not)? 2)Are value statements (or codes of ethics) simply impression management devices? 3)How do you get employees to exhibit behaviors that reflect the stated values of the organization? 4)Can creating organizational virtue (i.e., integrity, courage, empathy, conscientiousness, warmth, and zeal) create a competitive advantage for your organization?

9 Our business is preserving and improving human life. All of our actions must be measured by our success in achieving this goal. We value, above all, our ability to serve everyone who can benefit from the appropriate use of our products and services, thereby providing lasting consumer satisfaction. We are committed to the highest standards of ethics and integrity. We are responsible to our customers, to Merck employees and their families, to the environments we inhabit, and to the societies we serve worldwide. In discharging our responsibilities, we do not take professional or ethical shortcuts. Our interactions with all segments of society must reflect the high standards we profess. We are dedicated to the highest level of scientific excellence and commit our research to improving human and animal health and the quality of life. We strive to identify the most critical needs of consumers and customers, and we devote our resources to meeting those needs. We expect profits, but only from work that satisfies customer needs and benefits humanity. Our ability to meet our responsibilities depends on maintaining a financial position that invites investment in leading-edge research and that makes possible effective delivery of research results. We recognize that the ability to excel -- to most competitively meet society's and customers' needs -- depends on the integrity, knowledge, imagination, skill, diversity and teamwork of our employees, and we value these qualities most highly. To this end, we strive to create an environment of mutual respect, encouragement and teamwork -- an environment that rewards commitment and performance and is responsive to the needs of our employees and their families. Values:

10 Core Value Proposition (CVP) (Hardy, 2005) Provides a starting point for business planning and/or innovative business development. Developed through 5 “Value Drivers” and related questions: 1.IDEA: What does your service or product do for customers? 2.BENEFIT: What benefit does your product or service provide to customers (above and beyond competitors or substitutes)? 3.TARGET: Who are your key customers? How can they be identified and reached? 4.PERCEPTION: How do you want to be perceived by customers, employees and other stakeholders? 5.REWARD: What is in it for you, your employees, and stockholders?

11 Goals & Objectives Follows vision, mission, and values to more specifically give direction and goals for the organization. These also serve to determine if appropriate control is been set for strategic decisions: Represent commitment to achieve specific performance targets by a certain time. Must be stated in quantifiable terms and contain a deadline for achievement. Spell-out how much of what kind of performance by when.

12 Types of Objectives (Controls) Required Outcomes focused on improving a firm’s financial performance. Outcomes focused on improving a firm’s competitiveness and its long-term business position. Financial Objectives Strategic Objectives Every company needs both strategic and financial objectives!

13 Examples: Financial Objectives Increase sales growth 6 to 8 percent and accelerate core net earnings per share growth to 13 to 15 percent in each of the next five years (P&G) Generate Internet-related revenue of $1.5 billion (Automation) Cut overhead costs by $30 million per year (Fortune Brands) Capitalize on e-commerce (FedEx) We want a majority of our customers,when surveyed, to say they consider us the best financial institution in the community (Wells Fargo) We want to operate 6,000 stores by 2010—up from 3000 in the year 2000 (Walgreen’s) Examples: Strategic (Non-financial) Objectives

14 Strategic vs Financial Objectives Pressures for better short-term (~1 yr) financial performance become pronounced when – Firm is struggling financially – Resource commitments for new strategic initiatives may hurt bottom-line for several years – Proposed strategic moves are risky A firm that consistently passes up opportunities to strengthen its long-term (3-5 yrs) competitive position – Risks diluting its competitiveness – Risks losing momentum in its markets – Can hurt its ability to fend off rivals’ challenges

15 Setting Objectives Birnbaum (2004) suggests a 3-step process: 1. Decide on the essence of the objective (e.g., profitability, product quality, absenteeism). - These should be specific to the organization...the “Key Performance Indicators” and tied to Key Success Factors 2. Decide on the formula to measure the objective (e.g., annual profit as % of sales, # of product defects, ratio of hours missed to total employee hours). 3. Quantify (outcome and timeframe) the objectives. (Ask yourself what matters most? How do we track it?)

16 Objectives Are Needed at All Levels Process is top-down, not bottom-up! 1. First, establish organization-wide objectives 2. Next, set business and product line objectives 3. Then, establish functional and departmental objectives 4. Individual objectives come last Objective-setting needs to be more of a top-down than a bottom- up process in order to guide lower-level managers and organizational units toward outcomes that support the achievement of overall business and company objectives.