Vision, Mission, and Values

STRATEGY AS A QUEST FOR VALUE

What is Business For?

 Every business has a unique purpose—typically this reflects

the motives of the entrepreneurs who created these
businesses

E.g. Henry Ford (Ford Motor Company), Steve Jobs (Apple), Jack
Ma (Alibaba) were each motivated by a distinct vision.

 Common to every business : the desire/need to create value

 Value

 Value is the monetary worth of a product.

 Hence, the purpose of business is

 To create value for customers

 To appropriate some of that customer value in the form of

profit—thereby creating value for the firm

[Though not-for-profit enterprises aim just to cover their costs]

Purposes of Strategy Analysis
Primary goal of the firm is profit maximization

Rationale:

1) Competition: To survive a firm must earn return on capital > cost of

capital. This is difficult when competition is strong.

2) Acquisition: Firms that do not maximize profits are vulnerable to

acquisition.

3) Convergence of interests: long run profitability requires satisfied

customers, motivated employees, and good relations with governments
and communities.

Hence: Strategy analysis is concerned with identifying and

accessing the sources of profit available to the firm
STRATEGY AS A QUEST FOR VALUE

Linking Profit to Enterprise Value

Profit maximization an ambiguous goal:
– Total profit vs. Rate of profit
– Over what time period?
– What measure of profit?
– Accounting profit versus economic profit
Estimating the value of the enterprise:
Net present value of free cash flows: V = ∑ Ct
(1 + re+d)t
Where: V =market value of the firm.
Ct =free cash flow in time t
re+d= WACC = weighted average
cost of capital
STRATEGY AS A QUEST FOR VALUE

Value Maximization and Strategy Choice

In principle, DCF approach to enterprise value maximization is the
correct approach to choosing a strategy:
 Identify strategy alternatives
 Estimate cash flows and cost of capital for each strategy
 Select the strategy which generates the highest NPV.

But in practice:
 Difficult to estimate cash flows more than 2 or 3 years
ahead
 Hence, value maximization may encourage short-termism.
Implications for strategy analysis

■Simple guidelines can approximate value

maximization, e.g.
a) On existing assets—seek to maximize rate of
return
b) On new investment—seek rate of return > cost of
capital
Use qualitative strategy analysis to evaluate future
profit potential.
 Vision and Mission
■ Vision:
o What do we want to accomplish?

■ Mission:
o How do we accomplish our goals?
 Key Aspects of an Effective Vision
1. Captures an organization’s aspiration - Feasibility

2. Identifies what it ultimately wants to accomplish - Clarity

3. Motivates employees to aim for a target - Challenging

4. Providing effective guidance to employees - Organisation’s

Purpose

5. Describes the company’s on-going action - Future focused

6. Leaves room for contributions - Desirable Goal

 Mission Statement Components

■ Customer-market
■ Product-service
■ Geographic Domain
■ Technology
■ Concern for Survival
■ Philosophy
■ Self-concept
■ Concern for Public Image
■ Consumers
■ Quality

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 Mission Statements Differ from Vision
Statements

■ Vision statements: what an organization wants to accomplish

– Teach for America’s vision: “to attain an excellent education for all
children”
■ Mission statements: how the vision will be accomplished

– TFA says it will achieve its vision by “enlisting our nation’s most
promising future leaders in the effort”
BEYOND PROFIT: VALUES AND CORPORATE SOCIAL RESPONSIBILITY

Values and Principles

Values and principles commit an organization to certain ethical

precepts, provide guidelines for the behavior of its members,
and shape its character and identity.

Deeply-held, widely-shared values and principles are conducive

to superior organizational performance through:
 Motivating employees
 Reinforcing strategic direction
 Enhancing organizational unity
 BEYOND PROFIT: VALUES AND CORPORATE SOCIAL RESPONSIBILITY

Efficacy Arguments for Corporate

Social Responsibility

The Evolutionary Argument:

The firm as embedded within an ecosystem of social and natural
environments, sensitivity to this ecosystem enhances the firm’s
adaptability (Arie De Geus, The Living Company)

Michael Porter and Mark Kramer’s “Shared Value”:

Firms should “create economic value in a way which also creates value
for society.”
The benefits to the firm include:
 By sustaining its natural and social environment, the firm improves
its opportunities for survival and growth
 Enhancing the firm’s reputation
 Endowing the firm with a license-to-operate.
Corporate Social Responsibility

■ Corporate social responsibility (CSR), is

the idea that business has a duty to
serve society in general as well as the
financial interests of stockholders.

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 CSR and Profitability

■ The dynamic between CSR and success (profit) is complex.

They are not mutually exclusive, and they are not
prerequisites of each other.
■ Better to view CSR as a component in the decision-making
process of business that must determine, among other
objectives, how to maximize profits.

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Factors Complicating a Cost-Benefit Analysis of
CSR
1. Some CSR activities incur no dollar costs at all. In fact, the
benefits from philanthropy can be huge.
2. Socially responsible behavior does not come at a prohibitive
cost.
3. Socially responsible practices may create savings, and, as a
result, increase profits.
4. Proponents argues that CSR costs are more than offset in the
long run by an improved company image and increased
community goodwill.

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 CSR Today

■ Priority of businesses
■ Sustainability and the Resurgence of
Environmentalism
■ Increasing Buying Power among
Consumers
■ Globalization of Business

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