CHAPTER TWO

2. STRATEGY FORMULATION: THE BUSINESS MISSION, VISION AND VALUES

Strategy formulation is the process of determining appropriate courses of action for achieving
organizational objectives and thereby accomplishing organizational purpose.
Strategy formulation is vital to the well-being of a company or organization. It produces a clear
set of recommendations, with supporting justification, that revise as necessary the mission and
objectives of the organization, and supply the strategies for accomplishing them. In formulation,
we are trying to modify the current objectives and strategies in ways to make the organization
more successful. This includes trying to create "sustainable" competitive advantages – although
most competitive advantages are eroded steadily by the efforts of competitors.

2.1. Vision statement

The first task in the process of strategic management is to formulate the organisation’s vision and
mission statements. These statements define the organisational purpose of a firm. Together with
objectives, they form a “hierarchy of goals.”
Figure 2.1: Hierarchy of Goals

Vision
Mission
Goals
Objectives
Plans

A clear vision helps in developing a mission statement, which in turn facilitates setting of
objectives of the firm after analyzing external and internal environment. Though vision, mission
and objectives together reflect the “strategic intent” of the firm, they have their distinctive
characteristics and play important roles in strategic management.

2.1.1. Defining Vision

Vision can be defined as “a mental image of a possible and desirable future state of the
organization” (Bennis and Nanus). It is “a vividly descriptive image of what a company wants to
become in future”. Vision represents top management’s aspirations about the company’s
direction and focus. Every organization needs to develop a vision of the future.

Vision has been defined in several different ways. Richard Lynch defines vision as “a
challenging and imaginative picture of the future role and objectives of an organization,
significantly going beyond its current environment and competitive position.” E1-Namaki
defines it as “a mental perception of the kind of environment that an organization aspires to
create within a broad time horizon and the underlying conditions for the actualization of this
perception”. Kotter defines it as “a description of something (an organization, corporate culture,
a business, a technology, an activity) in the future.”

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 1) Johnson: Vision is "clear mental picture of a future goal created jointly by a group for the
benefit of other people, which is capable of inspiring and motivating those whose support
is necessary for its achievement".
2) Kirkpatrick et al: Vision is "an ideal that represents or reflects the shared values to which
the organization should aspire".
3) Thornberry: Vision is "a picture or view of the future. Something not yet real, but ima -
gined. What the organization could and should look like. Part analytical and part emo-
tional".
4) Shoemaker: Vision is "the shared understanding of what the firm should be and how it
must change".
5) Kanter et al: Vision is "a picture of a destination aspired to, an end state to be achieved via
the change. It reflects the larger goal needed to keep in mind while concentrating on con-
crete daily activities".
6) Stace and Dunphy: Vision is "an ambition about the future, articulated today, it is a pro-
cess of managing the present from a stretching view of the future".

To sum up, the vision represents, the mental projection in the present of the company’s future
expectations. It is a picture of what the firm wants to be and, in broad terms, what it wants to
ultimately achieve.

Vision statement
 A vision statement articulates the ideal description of an organization and gives shape to
its intended future.
 In other words, a vision statement points the firm in the direction of where it would
eventually like to be in the years to come.
 A vision statement tends to be relatively short and concise, making it easily remembered.
It should be also simple, positive, and emotional.
 However, an effective vision must stretch and challenges people as well.
Experience shows that the most effective vision statement results when a host of
stakeholders (e.g., top-level managers, employees working in different parts of the
organization, suppliers, and customers) are involved in developing it.

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 In addition, to help the firm reach its desired future state, a vision statement should be
clearly tied to the conditions in the firm’s external environment and internal organization.
Moreover, the decisions and actions of those involved with developing the vision,
especially the CEO and the other top-level managers, must be consistent with that vision.

Advantages of Vision
Several advantages accrue to an organization having a vision. Parikh and Neubauer point out
the following advantages:
1) Good vision fosters long-term thinking.
2) It creates a common identity and a shared sense of purpose.
3) It is inspiring and exhilarating.
4) It represents a discontinuity, a step function and a jump ahead so that the company
knows what it is to be.
5) It fosters risk-taking and experimentation.
6) A good vision is competitive, original and unique. It makes sense in the market place.
7) A good vision represents integrity. It is truly genuine and can be used for the benefit of
people.

Vision Statement Examples

1. “To be the world leader in transportation products and related services.” (General
Motors)
2. “Our vision is to be the world’s best quick service restaurant.” (McDonald’s)
3. “To make the automobile accessible to every American.” (Ford Motor Company’s vision
when established by Henry Ford)

2.2. Mission statement

Whether developing a new business or reformulating direction for an ongoing company, the
basic goals, characteristics, and philosophies that will shape a firm’s strategic posture must be
determined.
The company mission is defined as the fundamental, unique purpose that sets a business apart
from other firms of its type and identifies the scope of its operations in product and market terms.
An organization’s mission is the purpose or reason for the organization’s existence.
Many companies prefer the term business purpose to mission statement, but the two phrases are
essentially conceptually identical and are used interchangeably. The Mission is a broadly framed
but enduring statement of company intent.
Mission Statement
 An enduring statement of purpose that distinguishes one organization from other similar
enterprises.

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  It is a declaration of an organization’s “reason for being”.
 A mission statement written by a company represents ‘what it is about’, it describes an
organization’s basic purpose.
 Mission Statements are also called:
 Creed statement
 Statement of purpose
 A statement “defining our business”

The Need for an Explicit Mission

 Defining the company mission is time consuming, tedious and not be required as such by
any external body.
 What then a company mission designed to accomplish?

King and Cleland provide seven good answers:

1. To ensure unanimity of purpose within the organization.
2. To provide a basis for motivating the use of organization’s resources.
3. To develop a basis, or standard, for allocating organizational resources.
4. To establish a general tone or organizational climate, for example, to suggest a business
like operation.
5. To serve as a focal point for those who can identify with the organization’s purpose and
direction, and to deter those who cannot from participating further in the organization’s
activities.
6. To facilitate the translation of objectives and goals into a work structure involving the
assignment of tasks to responsible elements within the organization.
7. To specify organizational purposes and translation of these purposes into goals in such a
way that cost, time, and performance parameters can be assessed and controlled.
Specifically, a mission statement should reflect the following set of elements:
i. The basic type of product to be offered,
ii. The primary markets or customer groups to be served
iii. The technology to be used in production or delivery
iv. The fundamental concern for survival through growth and profitability
v. The management philosophy of the firm
vi. The public image sought
vii. The self-concept those affiliated with it should have of the firm.

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 viii. Employees sense of ownership towards the organization

Examples of a mission statement

1. Dell- “to be the most successful computer company in the world at delivering the best
customer experience in markets we serve. In doing so, Dell will meet consumer
expectations of highest quality; leading technology; competitive pricing; individual and
company accountability; best-in-class service and support; flexible customization
capability; superior corporate citizenship; financial stability”.
2. We shall build good ships here-at a profit if we can-at a loss if we must-but always good
ships. (Newport News Shipbuilding, unchanged since its founding in 1886)
3. Pepsico “We aspire to make PepsiCo the world’s premier consumer products company,
focused on convenient foods and beverages. We seek to produce healthy financial
rewards for investors as we provide opportunities for growth and enrichment to our
employees, our business partners and the communities in which we operate. And in
everything we do, we strive to act with honesty, openness, fairness and integrity.”
Characteristics of Good Mission Statement
 The characteristics of good mission statements are that they are brief, distinctive and
wide in scope; they are ‘short in numbers and long in rhetoric’ in that they identify the
purpose of the organization without too many limitations.
Specifically, it should be:
1. Broad in scope; do not include monetary amounts, numbers percentages, ratios or
objectives
2. Less than 250 words in length
3. Inspiring
4. Identify the utility of the products of the firm
5. Reveals that the firm is socially and environmentally responsible
6. Include nine components: customers, products, markets, technology, concern for
survival/growth/profit, philosophy, self-concept, concern for public image, concern for
employees.
7. Reconciliatory enduring.
2.3. Business values
Some companies prefer to list their values and philosophy of doing business in a separate
publication called a values statement.

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The values of a company state how managers and employees should conduct themselves, how
they should do business, and what kind of organization they should build to help the company
achieve its mission.
Values are moral principles or core beliefs.
 Enterprise values may act as a driving force or as “animating principles” that underpin
the organization’s activities.
 Values create or give rise to required standards and expectations of behavior within the
enterprise.
 In particular, they shape attitudes as to how things should be done within the enterprise;
how the enterprise should deal with people and relationships; and how it should deal with
external stakeholders and its wider environment.
 Values derive from prevailing ethical principles.
 Ethics are defined as “a conception of right or wrong conduct”. They indicate the basic
standards and parameters for making decisions.
 Insofar as they help drive and shape behavior within a company, values are commonly
seen as the bedrock of a company’s organizational culture: the set of values, norms, and
standards that control how employees work to achieve an organization’s mission and
goals.
 Core values rarely or ever change.

For example, the Eastman Kodak Company’s values were listed as being based on:
 respect for the dignity of the individual
 integrity
 trust
 credibility
 continuous improvement and personal renewal
 The value set of the enterprise underpins its core ideology and its ethos.

Exercise
The following is a mission statement of Ford Motors Company. Evaluate it and rewrite by
including your comments.
“Ford Motors Company is a worldwide leader in automotive and automotive related
products and services as well as in new industries such as aerospace, communications,
and financial services. Our mission is to improve continually our products and services

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 to meet our customers’ needs, allowing us to prosper as a business and to provide a
reasonable return for our stockholders, the owners of our business.”

2.4. Strategic issues

“If a window of opportunity appears, don’t pull down the shade.” Tom Peters.
Who formulates strategy?
There will be a relationship between the type of enterprise and the people who formulate the
strategic component of the strategy hierarchy. The process of strategy formulation depends, in
part, on the type of organization in which it is taking place, thus:
The small to medium sized enterprise (SME)- typically owned and controlled by an entrepreneur
as proprietor. Strategy formulation and decision-making are in the hands of the owner, and
derive from his or her objectives for the business.
The partnership- in which strategy formulation and decision-making are jointly the responsibility
of the partners. Strategy formulation will therefore depend on the interpersonal processes used by
the partners to establish agreement among themselves. The prior joint agreement on the
strategies
to be pursued by the enterprise may be an essential pre-requisite to management harmony in a
partnership, given the legal condition that the actions of any one partner are binding on the
others.
The private company- in which control is vested in the hands of a relatively small (or restricted)
number of shareholders, trustees, or their representatives. Private companies often develop out of
successful sole trader ships or partnerships; and are a common form for family businesses to
adopt.
Strategy formulation and decision-making are likely to be controlled by dominant shareholders
or family representatives.
The public company or shareholder corporation- in which there is commonly the separation of
ownership from the processes of strategy formulation and management. A chief executive officer
(CEO) or president, and a board of directors (perhaps comprising “executive” and
“nonexecutive” directors) or management board nominally elected by the shareholders, direct
and control the affairs of the company.

NB: Dear students the details of strategy will be discussed on chapter five separately as
{corporate level strategy, business level strategy and functional level strategy}.

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2.5. Setting Goals and Objectives
 Objectives are an organization’s performance targets – the results and outcomes it wants
to achieve.
 They function as yardsticks for tracking an organization’s performance and progress.
 The managerial purpose of setting objectives is to convert the strategic vision into specific
performance targets – results and outcomes the company’s management wants to achieve
and then use these objectives as yardsticks for tracking the company’s progress and
performance.
 Ideally, managers ought to use the objective setting exercise as a tool for truly stretching
an organization to reach its full potential.
 The company mission is described at the beginning of this Chapter as encompassing the
broad aims of the organization.
 The most specific statement of wants appeared as the goals of the firm.
 However, these goals, which commonly dealt with profitability, growth, and survival,
were stated without specific targets or time frames.
 Long term objectives are statements of the results a business seeks to achieve over a
specified period of time, typically five years.
 Objectives are an organization’s performance targets – the results and outcomes it wants
to achieve.
 They function as yardsticks for tracking an organization’s performance and progress.
 The managerial purpose of setting objectives is to convert the strategic vision into
specific performance targets – results and outcomes the company’s management wants to
achieve and then use these objectives as yardsticks for tracking the company’s progress
and performance.
 Ideally, managers ought to use the objective setting exercise as a tool for truly stretching
an organization to reach its full potential.
What Kinds of Objectives to Set?
To achieve long-term prosperity, strategic planners commonly establish long-term objectives in
the following seven areas:
1. Profitability 5. Employee Relations
2. Productivity 6. Technological Leadership
3. Competitive position 7. Public Responsibility
4. Employee Development

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Qualities of Long-term Objectives
 Achievable  Suitable
 Flexible  Understandable
 Measurable  Acceptable
 Motivating

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