Chapter 2

Company Mission

Learning Objectives
1. 2.

3. 4. 5.

6. 7.

Describe a company mission and explain its values Explain why the mission statement should include the companys basic product or service, its primary markets, and its principal technology Explain which goal of a company is most important: survival, profitability, or growth Discuss the importance of company philosophy, public image, and company self-concept to stockholders Give examples of the newest trends in mission statement components: customer emphasis, quality, and company vision Describe the role of a companys board of directors Explain agency theory and its value
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What is a Company Mission?

Company Mission: A broadly framed but enduring statement of a firms intent. It is the unique purpose that sets a company apart from others of its type and identifies the scope of its operations in product, market, and technology terms.
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Developing Missions & Strategies

Mission statements tell an organization where it is going The Strategy tells the organization how to get there

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Mission
Mission - where are
you going?
Organizations purpose for being Answers What do we provide to society? Provides boundaries and focus

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Questions Addressed in a Mission Statement

1. Why is this firm in business? 2. What are our economic goals? 3. What is our operating philosophy in terms of quality, company image, and self-concept? 4. What are our core competencies and competitive advantages? 5. What customers do and can we serve? 6. How do we view our responsibilities to stockholders, employees, communities, environment, social issues, and competitors?
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Formulating a Mission
The typical business begins with the

beliefs, desires, and aspirations of a single entrepreneur

These beliefs are usually the basis for the

companys mission
As the business grows or is forced to alter

its product, market, or technology, redefining the company mission may be necessary
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Mission Statement Components

Customers Product or service Geographic Domain Technology Concern for Survival, growth & profitability 6. Philosophy 7. Self-concept 8. Concern for Public Image
1. 2. 3. 4. 5.
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Excerpts From Actual Mission Statements

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Excerpts From Actual Mission Statements (contd.)

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Three Essential Components:

Basic Product or Service Primary Market Principal Technology
If a firm uses a silver bullet mission for outsiders to read, it will include these three components.

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Primary Company Goals

Survival A firm that is unable to

survive will be incapable of satisfying the aims of any of its stakeholders.

This goal is often taken for granted If neglected, firm may focus on

short-term aims

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Primary Company Goals (contd.)

Profitability A firms profitability is the

mainstay goal of a business.

Clearest indication of firms ability to satisfy

principal claims and desires of employees and stockholders

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Primary Company Goals (contd.)

Growth A firms growth is tied

inextricably to its survival and profitability. Growth in this sense must be broadly defined.
Important to define growth i.e., in terms of

market share, etc.

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Company Philosophy
Company philosophy is often called

company creed
Usually companys philosophy

accompanies or appears within the mission statement

Reflects the basic beliefs, values,

aspirations, and philosophical priorities to which strategic decision makers are committed in managing the company
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Public Image
Both present and potential customers

attribute certain qualities to particular businesses.

Firms seldom address the question of

their public image in an intermittent fashion.

Firms should be concerned with their

public image even when there is no public agitation.

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Company Self-Concept
A major determinant of a firms success is the

extent to which the firm can relate functionally to its external environment.
The ability of firms to survive in a dynamic and

highly competitive environment would be severely limited if they did not understand their impact on others or of others on them.
Ordinarily, descriptions of the

company self-concept per se do not appear in mission statements.

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Mission:
To refresh the world. To inspire moments of

optimism and happiness. To create value and make a difference.

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TOYOTA
moving forward

"To attract and attain customers with high-valued products and services and the most satisfying ownership experience in America. "To be the most successful and respected car company in America."

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Our Mission: Delight our customers, employees, and shareholders by relentlessly delivering the platform and technology advancements that become essential to the way we work and live. Our goal is to be the preeminent provider of semiconductor chips and platforms for the worldwide digital economy
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Mission:
Global market leader of the international express and logistics industry, specializing in providing innovative and customized solutions from a single source.

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University
Cornells Mission: To discover, preserve, and

disseminate knowledge; produce creative work; and promote a culture of broad inquiry throughout and beyond the Cornell community. Cornell also aims, through public service, to enhance the lives and livelihoods of our students, the people of New York, and others around the world. University of Cambridges Mission: is to contribute to society through the pursuit of education, learning, and research at the highest international levels of excellence.
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Newest Trends in Mission Components

Sensitivity to customer wants The customer is our top priority Importance of consumer satisfaction The Penney Idea Importance of customer service

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Newest Trends in Mission Components (contd.)

Quality Quality is job one! The work of W. Edwards Deming and

J.M. Juran Malcolm Baldridge Awards

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Newest Trends in Mission Components (contd.)

Statement of companys vision A statement that presents a firms

strategic intent designed to focus the energies and resources of the company on achieving a desirable future

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Companies summarize their goals and objectives

in Mission and Vision statements.

Both these things serve different purposes for

the company but are often confused with each other.

While a mission statement describes what the

company wants now, the vision statement describes what the company wants to be in the future.
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Comparision chart
Mission Statement Vision Statement
A Mission statement talks about HOW you will A Vision statement outlines where you About: get to where you want to be. Defines the want to be. Communicates both the purpose and primary objectives. purpose and values of your business Answer: It answers the question, What do we do? Time: A mission statement talks about the present leading to its future. It answers the question, Why are we here? A vision statement talks about your future.

It lists the broad goals for which the organization is formed. Its prime function is It lists where you see yourself some internal, to define the key measure or years from now. It inspires you to give Function: measures of the organization's success and its your best. It shapes your understanding prime audience is the leadership team and of why are you working here stockholders. Your mission statement may change, but it Change: should still tie back to your core values and vision. Your vision should remain intact, even if the market changes dramatically, because it speaks to what you represent, not just what you do.

Demings 14 Points for management:

1. Create constancy of purpose. 2. Adopt the new philosophy. 3. Cease dependence on mass inspection to achieve quality. 4. End the practice of awarding business on price tag alone. Instead, minimize total cost, often accomplished by working with a single supplier. 5. Improve constantly the system of production and service. 6. Institute training on the job. 7. Institute leadership.
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Demings 14 Points (contd):

8. Drive out fear. 9. Break down barriers between departments. 10. Eliminate slogans, exhortations, and numerical targets. 11. Eliminate work standards (quotas) and management by objective. 12. Remove barriers that rob workers, engineers, and managers of their right to pride of workmanship. 13. Institute a vigorous program of education and selfimprovement. 14. Put everyone in the company to work to accomplish the transformation. 2-29

Boards of Directors
The board of directors is the group of stockholder representatives and strategic managers responsible for overseeing the creation and accomplishment of the company mission.

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Major Board Responsibilities:

Establish and update mission Elect top officers & CEO Establish compensation for top officers Determine amount & timing of dividends Set broad company policy Set objectives and authorize managers to

implement long-term strategy

Mandate companys legal and ethics compliance
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Agency Theory
Agency theory is a set of ideas on organizational control based on the belief that the separation of the ownership from management creates the potential for the wishes of owners to be ignored.

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Agency Costs
The cost of agency problems plus the

cost of actions taken to minimize agency problems are collectively termed agency costs.

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How Agency Problems Occur

Moral hazard problem Executives are often free to pursue their own interests because of the disproportionate access they have to company information. This is the moral hazard problem.

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How Agency Problems Occur (contd.)

Adverse selection is an agency problem caused by the

limited ability of stockholders to determine the competencies and priorities of executives at hire.

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Problems Resulting from Agency

1. Executives pursue growth in company size rather than earnings 2. Executives attempt to diversify their corporate risk 3. Executives avoid risk 4. Managers act to optimize their personal payoffs 5. Executives protect their status
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Solutions to Agency Problem

Owners pay executives a premium for their
service to increase loyalty

Executives receive back-loaded

compensation (handsome premium for future performance)

Creating teams of executives across

different units of a corporation can help to focus performance measures on organizational rather than personal goals.
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Aligning Executive Interests with Owner Interests

Stock Option Plans Bonus plans Incentives for Long-Term

Performance
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Key Terms
Adverse selection Agency costs Agency theory Board of directors Company creed Company mission Moral hazard problem Vision statement

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