Session

4
Vision, Goal Setting and Strategy Formulation

1-1

Key Elements of a Strategic Vision
 Delineates management’s aspirations for the business –
 Charts a strategic path for the future

“Where are we going?”  Steers energies of employees in a common direction  Molds organizational identity  Is distinctive and specific to a particular organization  Avoids use of generic language  Triggers strong emotions  Is challenging, uncomfortable, nail biting
1-2

1-3

1-4 .

Strategic Vision vs. Mission  A strategic vision concerns a  The mission statement of firm’s future business path “where we are going”  Markets to be pursued  Future technologyproduct-customer focus  Kind of company management is trying to create most companies focuses on current business activities “who we are and what we do”  Current product and service offerings  Customer needs being served  Technological and business capabilities 1-5 .

Examples of vision statements A telecommunication services supplier: “To become the most successful worldwide telecommunications group” A life assurance company: “First Choice for Life” A car manufacturer: “To be the world’s most desired and successful specialty car brand” 1-6 .

VISION เป็ นสายการบินที่ลก ู ค้าเลือกเป็ นอั นดั บแรก ให้บริการดีเลิศด้วย เสน่ห์ไทย The First Choice Carrier with Touches of Thai 1-7 .

and  Why we are here A company’s mission is not to make a profit! Its true mission is its answer to “What will we do to make a profit?” Making is profit is an objective or intended outcome! 1-8 . highlighting boundaries of current business  Present products and services  Types of customers served  Conveys  Who we are.  What we do.Characteristics of a Mission Statement  Defines current business activities.

Key Elements of a Mission Statement  Three factors to consider  Customer needs – What is being satisfied groups – Who is being satisfied approaches used and  Customer  Technologies/resources/business activities performed – How customer needs are satisfied 1-9 .

The mission will guide the organisation’s business conduct  To manage hospital  To collect contributions and  To provide healthcare  To provide social security manage social security fund  To produce perfectly benefits to insured persons  To satisfy customers’ needs engineered cars  To provide secured for medium-sized cars  To be the leader in the energy market electricity supply with due regard to the environment  To fly airplanes  To fly people 1-10 .

” A pharmaceutical company: “To extend and enhance human life. known for uncompromised levels of distinctiveness.Examples of mission statements Cadillac Motor Co. produce and market the world’s finest automobiles. convenience.” 1-11 .” British Airways: “To be the undisputed leader in world travel. and refined performance. “To engineer. comfort.

) 3M: “To solve unsolved problems innovatively” Wal-Mart: “To give ordinary folks the chance to buy the same things as rich people” Walt Disney: “To make people happy” Marriott: “To make people away from home feel that they are among friends and are really wanted” 1-12 .Examples of mission statements (cont.

) Newport News Shipbuilding (1886): “We shall build good ships here – at profit if we can – at loss if we must – but always good ships 1-13 .Examples of mission statements (cont.

Linking the Vision With Company Values  A statement of values is often provided to guide the company’s pursuit of its vision  Values – Beliefs. and operating practices 1-14 . strategy. business principles. and ways of doing things that are incorporated into  Company’s  Behavior operations of workforce  Values statements  Contain  Are between four and eight values ideally tightly connected to and reinforce company’s vision.

Overcoming Resistance to a New Strategic Vision  Mobilizing support for a new vision entails  Reiterating basis for the new direction  Addressing  Calming  Lifting employee concerns head-on fears spirits  Providing updates and progress reports as events unfold 1-15 .

intentional.Setting Objectives Phase 2 of the Strategy-Making Process  Purpose of setting objectives  Converts  Creates vision into specific performance targets yardsticks to track performance  Pushes firm to be inventive. and focused in its actions  Setting challenging. achievable objectives guards against  Complacency  Internal  Status 1-16 confusion quo performance .

Characteristics of Objectives  Represent commitment to achieve specific performance targets  Spell out how much of what kind of performance by when  Well-stated objectives are  Quantifiable  Measurable  Contain a deadline for achievement Establishing objectives converts the vision into concrete performance outcomes! 1-17 .

Types of Objectives Required Financial Objectives Strategic Objectives Outcomes focused on improving financial performance Outcomes focused on improving long-term competitive business position $ 1-18 .

Examples of Financial Objectives   Grow earnings per share 15% annually Boost annual return on investment (or EVA) from 15% to 20% within three years  Increase annual dividends per share to stockholders by 5% each year Strive for stock price appreciation equal to or above the S&P 500 average Maintain a positive cash flow every year Achieve and maintain a AA bond rating    1-19 .

Examples of Strategic Objectives  Increase firm’s market share  Overtake key rivals on quality or customer service or product       performance Attain lower overall costs than rivals Boost firm’s reputation with customers Attain stronger foothold in international markets Achieve technological superiority Become leader in new product introductions Capture attractive growth opportunities 1-20 .

 A return on stockholders’ equity of 20-25%. and  Have at least 30% of sales come from products introduced in the past four years.  A return on capital employed of 27% or better.Example: Financial and Strategic Objectives 3M Corporation  Annual growth in earnings per share of 10% or better. on average. 1-21 .

CFROI.Balanced Scorecard Financial Customer Customer Satisfaction New Customers/Month Customer Profitability Sales Growth Return on Equity EVA. etc. Internal Process Defects Administrative Expense Ratio New Product Launches Learning and Growth Employee Retention Training Levels Customer Database Accuracy 1-22 .

2. 5. 6. Drive rapid revenue growth Manage operating costs and profitability Achieve profitability Effectively utilize assets Manage risk Improved Shareholder Value Customer Perspective 1.Develop key business objectives that will help you to attain your strategy —Objectives— Financial Perspective 1. 1-23 . 2 3. 4. In the balanced scorecard development process. 6. Sustain employee satisfaction Maintain employee productivity Retain employees Innovate operationally Measure training quantities Measure training effectiveness Measure and evaluate innovations The diagram illustrates an example of a client’s organizational objectives. Internal Business Process Perspective Develop provocative offers Build brand awareness Expand distribution Drive incremental revenues Offer leading high-speed Internet service Provide compelling internet experience Maintain technological leadership Innovation & Learning Perspective 1. 2. 3. 4. 3. Rapidly penetrate market segments Sustain significant customer growth Retain customers Achieve high customer satisfaction Provide extremely positive customer on-line experience 6. 7. 2. 6. 4. 5. 5. Achieve customer satisfaction Vision and Strategy 1. 5. 3. t he organizational objectives should provide a balance across the four dimensions of performance. 7. 4.

and financial planning. • How do we look to shareholders? Customer Perspective How do customers see us? Vision and Strategy Internal Business Process Perspective What must we excel at? Innovation & Learning Perspective Can we continue to improve our employees’ skills and create value for our clients? Innovation & Learning Perspective .Metrics set for all areas • Financial Perspective The balanced scorecard is one of several tools for performance measurement and management. customer retention. The strategy drives the choice of performance measures.How is the company performing from the perspective of those who purchase the company’s products or services? Internal Business Process . internal business process. Norton have developed what is considered to be the standard Balanced Scorecard template Source: Robert S. The Kaplan and Norton model provides a more holistic approach by supplementing the traditional financial measures with three additional perspectives: customer. Norton.” Harvard Business Review (January-February 1996) • 1-24 .How is the company managing its internal business processes to meet its client’s expectations? Is throughput improving? Other processes include fulfillment. “Using the Balanced Scorecard as a Strategic Management System. improve. A failure to meet targets could be because the strategy is wrong Robert S. innovation and learning: Financial Perspective . and learn? • • It incorporates both leading and lagging indicators.Is the company improving its ability to innovate. Kaplan and David P. Kaplan and David P.Is the company creating value for its shareholders? Customer Perspective . The emphasis is on balance across multiple dimensions of performance. ensuring that good performance in one area is not offset by poor performance elsewhere.

Help communicate strategy. Help increase accountability. Help align objectives.Why Senior Managers Should Be Concerned About Metrics  Five ways in which metrics can have a positive effect on the growth and • • • • • vitality of the organization: Help define the Business Model. Help track performance. 1-25 .

Objectives Satisfied Clients Measures & Metrics • Seamless Service • Improved Quality • Cost Reduction Effective performance measures have a number of key characteristics: • Measures are part of a cause and effect relationship • • Measures are process-focused Measures are balanced Measures are actionable Measures are vertically & horizontally aligned Measures are integrated Measures encourage teamwork Measures focus priorities Motivated People • Strong Leadership • Effective Training • Reward & Recognition • • • Balanced Growth • Reduce Cost • Reduce Backlog • Best clients • • The above example shows Vendor’s objectives and some corresponding measures & metrics.Develop specific measures and metrics to track progress The next step after identifying the organizational objectives is to identify measures & metrics for achieving those objectives. 1-26 .

Balanced Scorecard 1-27 .

Long-Term Objectives  Short-term objectives  Targets to be achieved soon  Milestones or stair steps for reaching long-range performance  Long-term objectives  Targets  Prompt to be achieved within 3 to 5 years actions now that will permit reaching targeted long-range performance later 1-28 .Short-Term vs.

establish organization-wide objectives and performance targets 2. Next. Individual objectives are established last 1-29 . Then. establish functional and departmental objectives 4.Objectives Are Needed at All Levels 1. First. set business and product line objectives 3.

K.What can we do today and in response to the external environment? Positive Negative Internal Strengths Weaknesses External Opportunities Threats 1-30 The Concept of Corporate Strategy. Andrews .R.

Examples Strengths and Weaknesses Potential Strengths • A distinctive competence • Good competitive skills • Well thought of by others • Better advertising campaign • Product innovation skills • Proven management • Ahead on experience curve Potential Weaknesses • No clear strategic direction • Obsolete facilities • Lack of managerial talent • Falling behind in R&D • Too narrow a product line • Weak market image • Weaker distribution network • Better production facilities • Superior technological skills 1-31 • Higher overall unit costs • Poor marketing skills .

Examples Opportunities and Threats Potential Opportunities • Additional customer groups • Entry into new market • Diversity into related products or services • Falling trade barriers • Faster market growth • Complacency among rivals Potential Threats • Entry of low-cost competitors • Rising sales of substitute • Slower market growth • Expansion of product line or services to meet customer needs 1-32 • • • • • Adverse shift in exchange rates Policies of foreign government Costly regulatory requirements Vulnerability to recession cycle Growing bargaining powers of customers or suppliers • Changing buyer needs and tastes .

TOWS matrix 1-33 .Strategy formulation .

Assignment  Read Thompson Textbook  Develop Vision Statement for your Travel Magazine business (if not already have) or comment one (if already have)  Perform SWOT/TOWS analysis for Travel Magazine business 1-34 .