Chapter 2
Company
Mission
© 2015 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Learning Objectives
1.
2.
3.
4.
5.
6.
7.
Describe a company mission and explain its value
Explain why the mission statement should include
the company’s 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 company’s board of directors
Explain agency theory and its value in helping a
board of directors improve corporate governance
2
What is a Company Mission?
• Company Mission:
A broadly framed but enduring statement
of a firm’s 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.
3
Questions Addressed in a Mission
Statement
• Why is this firm in business?
• What are our economic goals?
• What is our operating philosophy in terms of quality,
company image, and self-concept?
• What are our core competencies and competitive
advantages?
• What customers do and can we serve?
• How do we view our responsibilities to stockholders,
employees, communities, environment, social issues,
and competitors?
4
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 company’s
mission
• As the business grows or is forced to alter its
product, market, or technology, redefining the
company mission may be necessary
5
Mission Statement
Components
Ex. 2.2 (adapted)
•
•
•
•
•
•
•
•
•
•
Customer-market
Product-service
Geographic Domain
Technology
Concern for Survival
Philosophy
Self-concept
Concern for Public Image
Consumers
Quality
6
Ex. 2.2
Excerpts From Actual Mission
Statements
7
Ex. 2.2 Excerpts
From Actual Mission
Statements (contd.)
8
Three Indispensable 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.
9
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 shortterm aims
10
Primary Company Goals (contd.)
• Profitability – A firm’s profitability is the
mainstay goal of a business.
– Clearest indication of firm’s ability to satisfy
principal claims and desires of employees and
stockholders
11
Primary Company Goals (contd.)
• Growth – A firm’s 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.
12
Company Philosophy
• Company philosophy is often called company
creed.
• Usually 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
13
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.
14
Company Self-Concept
• A major determinant of a firm’s 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 selfconcept per se do not appear in mission
statements.
15
Newest Trends in Mission Components
• Sensitivity to customer wants
– “The customer is our top priority”
– Importance of consumer satisfaction
– Importance of customer service
16
Newest Trends in Mission Components
(contd.)
• Quality
– “Quality is job one!”
– The work of W. Edwards Deming and J.M.
Juran
– Malcolm Baldridge Awards
17
Deming’s 14 Points:
1.
2.
3.
4.
5.
6.
7.
Create constancy of purpose.
Adopt the new philosophy.
Cease dependence on mass inspection to achieve
quality.
End the practice of awarding business on price tag
alone. Instead, minimize total cost, often
accomplished by working with a single supplier.
Improve constantly the system of production and
service.
Institute training on the job.
Institute leadership.
18
Deming’s 14 Points (cont’d):
8.
9.
10.
11.
Drive out fear.
Break down barriers between departments.
Eliminate slogans, exhortations, and numerical targets.
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.
19
Newest Trends in Mission Components
(contd.)
• A vision statement presents a firm’s strategic
intent designed to focus the energies and
resources of the company on achieving a
desirable future.
20
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.
21
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 company’s legal and ethics compliance
22
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.
23
Agency Costs
• The cost of agency problems plus the cost of
actions taken to minimize agency problems
are collectively termed agency costs.
24
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.
25
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.
26
Problems Resulting from Agency
• Executives pursue growth in company
size rather than earnings
• Executives attempt to diversify their
corporate risk
• Executives avoid healthy risk
• Managers act to optimize their
personal payoffs
• Executives protect their status
27
Solutions to Agency Problem
Owners pay executives a premium for their service
to increase loyalty
Executives receive back-loaded compensation.
Creating teams of executives across different units
of a corporation can help to focus performance
measures on organizational rather than personal
goals.
28
Aligning Executive Interests with Owner Interests
• Stock Option Plans
• Bonus plans
• Incentives for LongTerm Performance
29
Key Terms
•
•
•
•
Adverse selection
Agency costs
Agency theory
Board of directors
•
•
•
•
Company creed
Company mission
Moral hazard problem
Vision statement
30