Chapter 3-Mission and Objectives

Process of Establishing Organizational Direction

The process of establishing direction consists of three major steps as shown in Figure 3.1

1. Reflecting on the results of an environmental analysis,

2. Establishing an appropriate organizational mission, and

3. Establishing appropriate organizational objectives.

Developing mission and objectives helps a manager to

 Contribute primarily to manager’s purpose

 Identify primarily among manager’s tasks

 Examine the pervasiveness of planning and

 Outline the efficiency of resulting plans.
The terms mission, objectives, goals, and targets are used many a time interchangeable.
However, in corporate literature they are often used distinctively. Mission leads to objectives
(which are designed to achieve the mission), objectives lead to goals (which are designed to
achieve the objectives) and goals lead to targets.

Elements in Strategy Formulation

Strategic Intent
CK Prahald and Hamel coined the term ‘strategic intent’ to indicate an obsession of an
organization, sometimes having ambitions that may even be out of proportion to their resources
and capabilities. They explain the term ‘strategic intent’ like this.

“On the one hand, strategic intent envisions a desired leadership position and establishes the
criterion the organization will use to chart its progress…. At the same time, strategic intent is
more than simply unfettered ambition.

The concept also encompasses an active management process that includes

 focusing the organization’s attention on the essence of winning,

 motivating people by communicating the value of the target,

 leaving room for individual and team contributions,

 sustaining enthusiasm by providing new operational definitions as circumstances change
and

 using intent consistently to guide resource allocations”.

Hamel and Prahlad quote several examples of global firms, almost all American and Japanese
origin, to support their view. In fact, the concept of strategic intent –as evident from their path
breaking article, published in 1989 in the Harvard Business Review- seems to have been
proposed by them to explain the lead taken by Japanese firms over their American and European
counterparts.

Indian examples of companies with strategic internet are late Dhirubai Ambani’s Reliance group
with the strategic intent of being a global leader of being the lowest cost producer of polyester
products a status achieved with vertical integration and operational effectiveness. The Indian
hardware giant, HCL’s aspiration to become global software and service company is working
with the strategic intent of putting hardware, software and networking together and making it
work At Procter & Gamble (P&G) employees participate in a program the CEO calls “combat
training, “The program’s intent is to focus on ways P&G can beat the competition.

Mission or Purpose

Its name or articles of incorporation do not define a business. The business mission defines it.
Only a clear definition of mission and purpose of the organization makes possible clear and
realistic business objectives.

Mission statements can vary in length, content, format, and specificity. Most practitioners and
academicians of strategic management feel that an effective statement exhibits nine
characteristics or components. Because a mission statement is often the most visible and public
part of the strategic-management process, it is important that it includes all these essential
components:

Customers: Who are the firm’s customers?

Product or services: What are the firm’s major products or services?

Markets: Geographically, where does the firm compete?

Technology: Is the firm technologically current?

Concern for survival, growth, and profitability: Is the firm committed to growth and financial
soundness?

Philosophy: What are the basic beliefs, values, aspirations, and ethical priorities of the firm?
Self-concept: What is the firm’s distinctive competence or major competitive advantage?

Concern for public: Is the firm responsive to social, community, and environmental concerns?

Concern for employees: Are employees an asset of the firm?

Pepsi Co’s mission is to increase the value of our shareholders’ investment. We do this through
sales growth, cost controls, and wise investment resource. We believe our commercial success
depends upon offering quality and value to our consumers and customers; providing products
that are safe, wholesome, economically efficient, and environ-mentally sound; and providing a
fair return to our inventors while adhering to the highest standards of integrity.

Dell Computer’s mission is 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
customer 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.

Establishing an organizational mission is an important part of management’s job because the

existence of a formally expressed organizational mission generally makes it more likely that the
organizational will succeed. Having an established and documented organizational mission
accomplishes several important things. A mission statement once established serves an
organization for many years. But a mission may become unclear as the organization grows and
adds new product, markets, and technologies to its activities. So, a mission statement should be
broad enough to accommodate any new changes to avoid reformulation.

Objectives

An organization’s mission gives a framework or direction to a firm. The next step in planning is
focusing on establishing progressively more specific organizational direction by setting
objectives. An organizational objective is a target toward which the organization directs its
efforts. Objectives in organizations, as shown in Figure 3.3 exhibit a hierarchy.
 Hierarchy of Objectives

The BOD is more concerned with mission, purpose, and overall objectives. Middle managers are
involved in key result areas (KRAs), division and department objectives. At the lower level,
group personal objectives are set. The objectives can be top down or bottom up taking the
initiative from lower management.

Managers should develop organizational objectives that are:

 Specific

 Require a desirable level of effort

 Flexible

 Measurable and operational

 Consistent in the long and short run

Peter Drucker, perhaps the most influential business writer of modern times, has pointed out that
it is a mistake to manage organizations by focusing primarily on one and only one objective.
According to Drucker, organizations should aim at achieving several objectives instead of just
one. Enough objectives should be set so that all areas important to the operation of the firm are
covered. Eight key areas in which organizational objectives should normally be set are:

1. Market standing: The position of an organization – where it stands

 – relative to its competitors

2. Innovation: Any change made to improve methods of conducting organizational

business.

3. Productivity: The level of goods or services produced by an organization relative to the

resources used in the production process. Organizations that use fewer resources to
produce a specified level of products are said to be more ‘productive than organizations
that require more resources to produce at the same level.

4. Resource levels: the relative amounts of various resources held by an organization, such
as inventory, equipment, and cash. Most organizations should set objectives indicating
the relative amount of each of these assets that should be held.

5. Profitability: The ability of an organization to earn revenue dollars beyond the expenses
necessary to generate the revenue. Organizations commonly have objectives indicating
the level of profitability they seek.

6. Manager performance and development: The quality of managerial performance and

the rate at which managers are developing personally.
7. Because both areas are critical to the long-term success of an organization, emphasizing
them by establishing and striving to reach related organizational objectives is very
important.

8. Worker performance and attitude: The quality of non-management performance and

such employee’s feelings about their work. These areas are also crucial to long-term
organizational success. The importance of these considerations should be stressed
through the establishment of organizational objectives.

9. Social responsibility: The obligation of business to help improve the welfare of society
while it strives to reach organizational objectives.
Synergy

Derived form the Greek word “synergos,” which means “working together” exceeds the value
those units could create working independently. Another way of saying this is that synergy exists
when assets” are worth more when used in conjunction with each other than separately.
Synergies can involve physical and non-physical assets” such as human capital. For
shareholders, synergy generates gains in their wealth that they could not duplicate or exceed
through their own portfolio diversification decisions.
Synergy exists when the value created by business units, working together exceeds the value
those same units create working independently. But, as a firm increases its relatedness between
business units, it also increases its risk of corporate failure, because synergy produces joint
interdependence between business units and the firm’s flexibility to respond is constrained. This
threat may force two basic decisions. First, the firm may reduce its level of technological change
by operating in more certain environments. Alternatively, the firm may constrain its level of
activity sharing and forego the benefits of synergy. Either or both decisions may lead to further
diversification. The latter may produce additional, but unrelated, diversification. Synergetic
effects occur across functional areas and core competencies emerge because of the concentration
of resources to the areas where an organization wishes to build up strategic advantages. This can
be observed in the case of a company, which is, or intends to be, a market leader, a low-cost
producer, a technologically superior competitor, or an ideal employer. For achieving each of
these objectives, an integrated approach to functional plans and policies would be necessary. For
instance, a company, which intends to be a market leader, would have to offer products of the
best quality at a competitive price through an efficient distribution network supported by an
aggressive promotion policy. The other functional area plans, and policies would have to
supplement these marketing policies.

Summary

Two main organizational ingredients are commonly used to establish organizational direction:
Organizational mission and organizational objectives. Organizational mission is the purpose for
which, or reason why, the organization exists. An organizational mission should help focus
human effort, ensure compatibility of organizational purposes, provide a rationale for resource
allocation, indicate broad areas of job responsibility, and provide the foundations for
organizational objectives. Objectives are the end points of an activity. They help define the
direction of an organization in concrete form for accomplishment. Objectives of an organization
form a hierarchy and are multiple. Objectives are needed in key result areas. They include
market-standing, innovation, productivity, profitability, public responsibility, physical and
financial resources, employee performance and attitude and manager performance and
development. Synergy is necessary for competitive advantage. For instance, a company, which
intends to be a market leader, would have to offer products of the best quality at a competitive
price through an efficient distribution network supported by an aggressive promotion policy. The
other functional area plans, and policies would have to supplement these marketing policies.