The Strategic Position 4: Strategic Purpose

Slide 4.
The Strategic Position

4: Strategic Purpose
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Slide 4.2
TOP 100 Economies

TOP 100nEconomies
Name Name Name
11-2
Slide 4.3
TOP 100 Economies

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Slide 4.4
TOP 100 Economies

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Slide 4.5
Learning outcomes
• Consider appropriate ways to express the strategic purpose of

an organisation in terms of statements of purpose, values,
vision, mission or objectives.
• Identify the components of the governance chain of an
organisation.
• Understand differences in governance structures and the
advantages and disadvantages of these.
• Identify differences in the corporate responsibility stances taken
by organisations and how ethical issues relate to strategic
purpose.
• Undertake stakeholder analysis as a means of identifying the
influence of different stakeholder groups in terms of their
power and interest.
Slide 4.6
Influences on strategic purpose
Figure 4.1 Influences on strategic purpose
Slide 4.7
Mission statements
• A mission statement aims to provide
employees and stakeholders with clarity about
the overriding purpose of the organisation
• A mission statement should answer the
questions:
‘What business are we in?’
‘How do we make a difference?’
‘Why do we do this?’
Slide 4.8
Mission statements
• ‘What business are we in?’
Slide 4.9
Mission statements
Slide 4.10
Mission statements
Slide 4.11
Mission statements
• In the mid-80s, Parker Pens believed they were in the
gift business, not the writing industry (after all, haven’t
most of us got a Parker Pen as a gift).
• Is McDonalds in the real estate business? Think
about it.
Slide 4.12
Mission statements
• Are television companies in the business of
delivering programs to audiences or in the business of
delivering audiences to their advertisers?
• Does Rolex sell watches or luxury?
• What business is your travel agent, who books your

flight tickets, in? If he is only in the ticket-booking
business, online booking will soon put him out of
business. Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Slide 4.13
Mission statements
A Customer Orientation
Good mission statements identify the utility of a firm’s
products to its customers. This is why:
• AT&T’s mission statement focuses on communication rather
than on telephones;
•ExxonMobil’s mission statement focuses on energy rather
than on oil and gas;
•Union Pacific’s mission statement focuses on transportation
rather than on railroads;
•Universal Studios’ mission statement focuses on
entertainment rather than on movies.
Slide 4.14
Mission statements
•Do not offer me things.
•Do not offer me clothes. Offer me attractive looks.
•Do not offer me shoes. Offer me comfort for my feet and the
pleasure of walking.
•Do not offer me a house. Offer me security, comfort, and a
place that is clean and happy.
•Do not offer me books. Offer me hours of pleasure and the
benefit of knowledge.
•Do not offer me CDs. Offer me leisure and the sound of
music.
•Do not offer me things. Offer me ideas, emotions, mood,
feelings, and benefits.
•Please, do not offer me things.
Slide 4.15
Mission statements
Revlon Cosmetics: “In the factory we make a soap; in the
store we sell…
hope!”
– Charles Revson
.
Slide 4.16
Mission statements
Construction Instruments: “Customers don’t want to buy a
quarter-inch drill. They want a …
quarter-inch holes! “
– Theodore Levitt.
Slide 4.17
Mission statements
Slide 4.18
Mission statements
Slide 4.19
Mission statements
ბრენდის მისია ჯანმრთელობაზე ზრუნვაა
"პსპ"-ს მისია ჯამრთელობაზე ზრუნვის

გაადვილებაა
მისია: გაუადვილოს ადამიანებს საკუთარ და

სხვების ჯანმრთელობაზე ზრუნვა
Slide 4.20
Vision statements
• A vision statement is concerned with the

desired future state of the organisation; an
aspiration that will enthuse, gain commitment
and stretch performance.
• A vision statement should answer the
question : ‘What do we want to achieve?’
Slide 4.21
Vision vs. Mission statements
• Whereas the mission statement answers

the question “What is our business?” the
vision statement answers the question “What
do we want to become?” Many organizations
have both a mission and vision statement.
• Vision is “a possible and desirable future
state of an organization” with specific goals,
whereas mission is more associated with
behavior and the present.
Slide 4.22
Statement of corporate values

• A statement of corporate values should
communicate the underlying and enduring core
‘principles’ that guide an organisation’s strategy
and define the way that the organisation should
operate.
• Such core values should remain intact whatever
the circumstances and constraints faced by the
organisation.
Slide 4.23
Objectives
• Objectives are statements of specific
outcomes that are to be achieved.
• Do objectives need to be specific and
quantified targets?
Slide 4.24
Issues in setting objectives
• The need to identify core objectives that are

crucial for survival.
• Long-Term Objectives:
– Long-term objectives represent the results
expected from pursuing certain strategies. The
time frame for objectives and strategies should
be consistent, usually from two to five years.
Slide 4.25

• The need for a hierarchy of objectives that
cascade down the organisation and define
specific objectives at each level.
Slide 4.26

• Varying performance measures by
organisational level:
Slide 4.27
Objectives
• Objectives are frequently expressed in:

financial terms (e.g. desired profit levels)
market terms (e.g. desired market share)
and increasingly
social terms (e.g. corporate social
responsibility targets)
Slide 4.28
Objectives
• Although financial objectives are especially

important in firms, oftentimes there is a trade-off
between financial and market objectives.
• For example, to improve financial gain in the short
run through higher prices (higher margins) may
jeopardize/reduce long-term market share.
Slide 4.29
Corporate governance
Corporate governance is concerned with

the structures and systems of control by
which managers are held accountable to
those who have a legitimate stake in an
organisation.
Slide 4.30
The principal-agent model
• Governance can be seen in terms of the

principal agent model
• Principals pay agents to act on their behalf
(e.g. beneficiaries/trustees pay investment
managers to manage funds, Boards of
Directors pay executives to run a company).
• Agents may act in their own self interest.
Slide 4.31
Issues in governance (1)
• The key challenge is to align the interests of

agents with those of the principals.
• Misalignment of incentives and control – e.g.
beneficiaries may require long term growth but
executives may be seeking short term profit.
• Responsibility to whom – should executives
pursue solely shareholder aims or serve a
wider constituency of stakeholders?
Slide 4.32
History of the formation of the term

”Management”
• First used in the English language in the 16th century

(1588) by Shakespeare
The linguistic origin of the word is from Latin “manus”

(hand), via the Italian “maneggiare”, which means “the
training of horses in a manege”
Slide 4.33

”Management”
• Scott Adam Smith, 1776, Book “The Wealth of the

Nations”: Used the words dealing with process and
the persons involved in operating JSCs (paradoxically
– “bad management”)
• John Stuart Mill (1806-1873), used these terms to
express distrust of the people who were not driven by
ownership.
Slide 4.34

”Management”
• Occasionally in writings by American Engineers;
• Canonised as a modern science by Frederick W.

Taylor in “Shop Management” (1903) and in the
“Principles of Scientific Management” (1911).
Slide 4.35
The growing importance of

governance
• The separation of ownership and management

control – defining different roles in governance.
• Increased accountability to wider stakeholder
interests and the need for corporate social
responsibility (e.g. green issues).
• Corporate failures and scandals (e.g. Enron) –
focussing attention on governance issues.
Slide 4.36

governance
Slide 4.37

governance
Slide 4.38
The
governance
chain
The chain of corporate

Figure 4.2
governance: typical reporting
structures
Source: Adapted from David Pitt-Watson, Hermes Fund Management
Slide 4.39
Slide 4.40
Slide 4.41
• Who are the shareholders – should boards

respond to the demands of institutional
investment managers or the needs of the
ultimate beneficiaries?
• The role of institutional investors – should they
actively intervene in strategy?
• Establishing the specific role of the board – in
particular the role of non-executive directors.
• Scrutiny and control – statutory requirements
and voluntary codes to regulate boards.
Slide 4.42
Different governance systems
Table 4.1 Benefits and disadvantages of governance systems

Slide 4.43
The role of boards
• Operate ‘independently’ of the management – the

role of non-executives is crucial.
• Be competent to scrutinise the activities of
managers.
• Have time to do their job properly.
• Behave appropriately given expectations for trust,
role fluidity, collective responsibility, and
performance.
Slide 4.44
Corporate social responsibility
Corporate social responsibility (CSR) is the

commitment by organisations to ‘behave
ethically and contribute to economic
development while improving the quality of life
of the workforce and their families as well as
the local community and society at large’.1
1
World Business Council for Sustainable Development.
Slide 4.45
Business Ethics
• Business ethics
– principles of conduct within organizations that
guide decision-making and behavior
Slide 4.46
Business Ethics
• No society anywhere in the world can compete long

or successfully with:
– people stealing from one another, or
– not trusting one another, or
– with every bit of information requiring notarized
confirmation, or
– with every disagreement ending up in litigation, or
– with government having to regulate businesses to keep
them honest.
Slide 4.47
Business Ethics
• “Does Business Ethics Pay?”
– Although, companies appear to be rewarded for
unethical behavior, especially so in short-term
gains. However, the study examining the
penalties imposed on nearly 600 firms for
financial misrepresentation found not only
monetary penalties, but also reputational ones
imposed by the market. Firms lost 41 percent of
market value when misconduct was revealed;
most of this decrease was attributed to damaged
reputations.
Slide 4.48
Does Business Ethics Pay?
Slide 4.49
Questions of corporate social

responsibility – internal aspects (1)
Table 4.3 Some questions of corporate social responsibility
Slide 4.50
Questions of corporate social

responsibility – external aspects (2)
Table 4.3 Some questions of corporate social responsibility (Continued)

50
Slide 4.51
The ethics of individuals and

managers
Ethical issues have to be faced at the individual
level :
• The responsibility of an individual who
believes that the strategy of the organisation is
unethical – resign, ignore it or take action.
• ‘Whistle-blowing’ - divulging information to
the authorities or media about an organisation if
wrong doing is suspected (e.g. Enron Issue).
The US Securities and Exchange Commission
(SEC) recently mandated anyone seeing unethical
activity to report such behavior.
Slide 4.52

managers
Slide 4.53

managers
Slide 4.54

managers
Slide 4.55
The ethics of individuals and managers

Lehman Brothers’ 2007 annual report included twelve principles amongst which were
‘doing the right thing’, ‘demonstrating a commitment to excellence’, ‘demonstrating
smart risk management’, ‘acting always with ownership mentality’ and, of course,
‘maximizing shareholder value’.
Slide 4.56

managers – Madoff’s Case
Slide 4.57

managers
Slide 4.58

managers
Ethical issues
Slide 4.59

managers
Ethical issues
Slide 4.60

managers
Texas instruments’ guidelines (Some organizations
set down explicit guidelines they expect their
employees to follow)
•Is the action legal? . . . If no, stop immediately.
•Does it comply with our values? . . . If it does not, stop.
•If you do it would you feel bad? . . . Ask your own conscience
if you can live with it.
•How would this look in the newspaper? . . . Ask if this goes
public tomorrow would you do it today?
•If you know it’s wrong . . . don’t do it.
•If you are not sure . . . ask; and keep asking until you get an
answer.
Slide 4.61
Who are the stakeholders?
Stakeholders are those individuals or groups

who depend on an organisation to fulfil their
own goals and on whom, in turn, the
organisation depends.
•include employees, managers, stockholders,
boards of directors, customers, suppliers,
distributors, creditors, governments (local, state,
federal, and foreign), unions, competitors,
environmental groups, and the general public.
Slide 4.62
Stakeholders of a large organisation
Figure 4.3 Stakeholders of a large organisation

Source: Adapted from R.E. Freeman, Strategic Management: A Stakeholder Approach, Pitman, 1984. Copyright 1984 by R. Edward Freeman.
Slide 4.63
Stakeholder conflicts of
expectations
Some
Table 4.4
common
conflicts of
expectations
Slide 4.64
Corporate social responsibility

stances
Table 4.2 Corporate social responsibility stances

laissez-faire translates to “leave us alone” meaning that the government
should remain out of the economy and instead allow individuals to freely carry
out their own economic affairs. th
Johnson, Whittington and Scholes, Exploring Strategy, 9 Edition, © Pearson Education Limited 2011
Slide 4.65
Three views on the

purpose of a
business
Slide 4.66
Slide 4.67
Stakeholder mapping
Stakeholder mapping identifies stakeholder

expectations and power and helps in
understanding political priorities.
Slide 4.68
Stakeholder mapping: the

power/interest matrix
Figure 4.4 Stakeholder mapping: the power/interest matrix

Source: Adapted from A. Mendelow, Proceedings of the Second International Conference on Information Systems, Cambridge, MA, 1986
Slide 4.69
Stakeholder mapping issues
• Determining purpose and strategy – whose

expectations need to be prioritised?
• Do the actual levels of interest and power reflect
the corporate governance framework?
• Who are the key blockers and facilitators of
strategy?
• Is it desirable to try to reposition certain
stakeholders?
• Can the level of interest or power of key
stakeholders be maintained?
• Will stakeholder positions shift according to the
issue/strategy being considered.
Slide 4.70
Power
Power is the ability of individuals or groups to

persuade, induce or coerce others into
following certain courses of action.
Slide 4.71
Sources of power
Table 4.5 Sources and indicators of power
Slide 4.72
Indicators of power
Table 4.5 Sources and indicators of power (Continued)
Slide 4.73
Summary (1)
• An important managerial task is to decide how the

organisation should express its strategic purpose
through statements of mission, vision, values or
objectives.
• The purpose of an organisation will be influenced by
the expectations of its stakeholders.
• The influence of some key stakeholders is represented
formally within the governance structure of an
organisation. This can be represented in terms of a
governance chain, showing the links between ultimate
beneficiaries and the managers of an organisation.
Slide 4.74
Summary (2)
• There are two generic governance structures systems:

the shareholder model and the stakeholder model
though there are variations of these internationally.
• Organisations adopt different stances on corporate
social responsibility depending on how they perceive
their role in society. Individual managers may face
ethical dilemmas relating to the purpose of their
organisation or actions it takes.
• Different stakeholders exercise different influence on
organisational purpose and strategy, dependent on the
extent of their power and interest. Managers can
assess the influence of different stakeholder groups
through stakeholder analysis.

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Slide 4.

The Strategic Position

TOP 100 Economies

Name Name Name

TOP 100 Economies

Name Name Name

TOP 100 Economies

Name Name Name

• Consider appropriate ways to express the strategic purpose of

Influences on strategic purpose

Figure 4.1 Influences on strategic purpose

• What business is your travel agent, who books your

ბრენდის მისია ჯანმრთელობაზე ზრუნვაა

"პსპ"-ს მისია ჯამრთელობაზე ზრუნვის

მისია: გაუადვილოს ადამიანებს საკუთარ და

• A vision statement is concerned with the

Vision vs. Mission statements

• Whereas the mission statement answers

Statement of corporate values

Issues in setting objectives

• The need to identify core objectives that are

Issues in setting objectives

Issues in setting objectives

• Objectives are frequently expressed in:

• Although financial objectives are especially

Corporate governance is concerned with

The principal-agent model

• Governance can be seen in terms of the

Issues in governance (1)

• The key challenge is to align the interests of

History of the formation of the term

• First used in the English language in the 16th century

The linguistic origin of the word is from Latin “manus”

History of the formation of the term

• Scott Adam Smith, 1776, Book “The Wealth of the

History of the formation of the term

• Occasionally in writings by American Engineers;

• Canonised as a modern science by Frederick W.

The growing importance of

• The separation of ownership and management

The growing importance of

The growing importance of

The chain of corporate

Issues in governance (1)

Issues in governance (1)

Issues in governance (2)

• Who are the shareholders – should boards

Different governance systems

Table 4.1 Benefits and disadvantages of governance systems

The role of boards

• Operate ‘independently’ of the management – the

Corporate social responsibility

Corporate social responsibility (CSR) is the

• No society anywhere in the world can compete long

Does Business Ethics Pay?

Questions of corporate social

Table 4.3 Some questions of corporate social responsibility

Questions of corporate social

Table 4.3 Some questions of corporate social responsibility (Continued)

The ethics of individuals and

The ethics of individuals and

The ethics of individuals and

The ethics of individuals and