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distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
Chapter 2
Company Mission
Chapter Summary
goals.
The principal value of the mission statement is its specification of the firm’s ultimate aims. A firm
gains a heightened sense of purpose when its board of directors and its top executives address
A mission statement that is clearly articulated can promote a sense of shared expectations among
all levels and generations of employees. It consolidates values over time and across individuals
Learning Objectives
1. Describe a company mission and explain its value.
2. Explain why it is important for the mission statement to include the company’s basic product
or service, its primary markets, and its principal technology.
3. Explain which goal of a company is most important: survival, profitability, or growth.
Lecture Outline
I. What is a Company Mission?
A. Company mission is a broadly framed but enduring statement of a firm’s intent. It is the
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distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
1. The Need for an Explicit Mission
a) No external body requires a company to define its mission. Furthermore,
b) The mission statement is a message designed to include the expectations of all
c) The writers attempt to provide a unifying purpose for the company that will
d) Mission statements address the following questions:
(1) Why is this firm in business?
(2) What are our economic goals?
II. Formulating a Mission
A. The typical business begins with the beliefs, desires, and aspirations of a single
entrepreneur.
1. Such an owner-manager’s sense of mission usually is based on the following
fundamental beliefs:
a) The product or service of the business can provide benefits at least equal to
its price.
b) The product or service can satisfy a customer need of specific market segments
that is currently not being met adequately.
2. As the business grows or is forced to alter its product, market, or technology,
1. Three indispensable components of the mission statement are specification of the
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distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
2. Often the most referenced public statement of a company’s selected products and
C. Company Goals: Survival; Growth; Profitability
1. Three economic goals guide the strategic direction of almost every business. The
2. A firm that is unable to survive will be incapable of satisfying the aims of any of
a. Often, survival is taken for granted to the point of being neglected as a
b. Concerns for a quick fix or a bargain may displace the assessment of long-
3. A firm’s profitability is the mainstay goal of a business.
a. No matter how profit is measured or defined, profit over the long term is the
b. The emphasis is over the long term.
4. A firm’s growth is tied inextricably to its survival and profitability. Growth in this
sense must be broadly defined.
a. Although product impact market studies (PIMS) have shown that growth in
(1) Growth in the number of markets served, in the variety of products
b. The issue of growth raises a concern about the definition of the company
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distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
D. Company Philosophy
1. The statement of a company’s philosophy, often called company creed, usually
a. Fortunately, the philosophies vary little from one firm to another. Owners
2. Exhibit 2.3, Strategy in Action, demonstrates Cadbury’s position on
3. Exhibit 2.4, Strategy in Action, shows AIM’s board of directors and executives
4. Exhibit 2.5, Global Strategy in Action, shows how the philosophy of Nissan
Motor Manufacturing is expressed by the company’s People Principles and Key
Corporate Principles.
a. They form the basis of the way the company operates on a daily basis.
b. They address the principal concepts used in meeting the company’s
established goals.
5. Exhibit 2.6, Strategy in Action, provides an example of how GM uses a
6. Exhibit 2.7, Top Strategist, profiles Aetna’s CEO’s quest to fulfill the company’s
E. Public Image
1. Both present and potential customers attribute certain qualities to particular
businesses.
a. Mission statements should reflect the public’s expectations, because this
b. A negative public image often prompts firms to reemphasize the beneficial
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distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
2. Firms seldom address the question of their public image in an intermittent fashion.
a. Although public agitation often stimulates greater attention to this question,
b. Exhibit 2.8, Strategy in Action, presents a marketing translation of the
F. Company Self-Concept
1. A major determinant of a firm’s success is the extent to which the firm can relate
functionally to its external environment.
a. To achieve its proper place in a competitive situation, the firm must
2. 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.
a. Firms take on personalities of their own.
b. Much behavior is organizationally based; it acts on its members in other
3. Ordinarily, descriptions of the company self-concept per se do not appear in
G. Newest Trends in Mission Components
1. Recently, several issues have become so important in the strategic planning
2. Customers
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distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
b. Many U.S. firms maintain extensive product safety programs to help ensure
c. A focus on customer satisfaction causes managers to realize the importance
d. Strong customer service initiatives have led some firms to gain competitive
3. Quality
a. “Quality is job one!” is a rallying point for many resurging U.S.
b. W. Edwards Deming and J. M. Juran’s messages foster a worldwide
c. Deming’s ideas are summarized in 14 points:
(1) Create constancy of purpose.
(2) Adopt the new philosophy.
supplier.
(5) Improve constantly the system of production and service.
(6) Institute training on the job.
d. Firms in the United States responded aggressively. The new philosophy is
e. Exhibit 2.9, Strategy in Action, presents the integration of the quality
initiative into the mission statements of three corporations.
4. Vision Statement
a. The vision statement is a statement that presents a firm’s strategic intent
b. A vision statement and mission statement are frequently combined into a
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distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
d. A vision is often expressed as a unique way to combine competitive
H. An Exemplary Mission Statement
1. The Chapter 2 Appendix presents BB&T’s vision, mission, and purpose
statement in its entirety.
2. It also includes detailed expressions of the company’s values and views on the
III. Boards of Directors
A. Strategic decision makers are responsible for the following:
1. Determining the firm’s mission
B. Most organizations have multiple levels of strategic decision makers; typically, the
C. The board of directors is the group of stockholder representatives and strategic
1. The board operates as the representatives of the firm’s stockholders.
a. To establish and update the company mission.
b. To elect the company’s top officers, the foremost of whom is the CEO.
c. To establish the compensation levels of the top officers, including their
salaries and bonuses.
3. In the current business environment, boards of directors are accepting the
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whole or part.
4. The board’s greatest impact on the behavior of a firm results from its
determination of the company mission. The philosophy espoused in the company
IV. Agency Theory
A. Whenever there is a separation of the owners (principals) and the managers (agents) of
a firm, the potential exists for the wishes of the owner to be ignored.
1. Agency theory is a set of ideas on organizational control based on the belief that
2. Whenever owners (or managers) delegate decision-making authority to others, the
3. Agency relationships can be very effective as long as managers make investment
a. In general, owners seek stock value maximization.
b. When managers hold important blocks of company stock, they too prefer
5. If, as agency theory argues, self-interested managers act in ways that increase their
own welfare at the expense of the gain of corporate stockholders, then owners who
a. The cost of agency problems plus the cost of actions taken to minimize
b. Agency costs can often be identified by their direct benefit for the agents and
their negative present value.
competing departments or branch offices.
B. How Agency Problems Occur
1. Because owners have access to only a relatively small portion of the information
that is available to executives about the performance of the firm and cannot afford
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distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
2. As a result of moral hazards, executives may design strategies that provide the
3. Unchecked executives may advance their own self-interests by doing the
following:
a. Slacking on the job
4. A second major reason for agency costs is adverse selection: an agency problem
5. Because principals cannot initially verify an executive’s appropriateness as an
6. The most popular solution to moral dilemma and adverse selection problems is for
a. Foremost among these plans are stock option plans, which enable executives
to benefit directly from the appreciation of the company’s stock just as other
stockholders do.
b. Mostly, executive bonus plans are unabashed attempts to align the interests
strategies that increase stockholder wealth.
c. These plans do help to reduce the costs associated with moral dilemmas and
adverse selections.
C. Problems That Can Result from Agency
1. From a strategic management perspective there are five different kinds of
a. Executives pursue growth in company size rather than earnings.
(1) Shareholders generally want to maximize earnings, because earnings
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distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
b. Executives attempt to diversify their corporate risk.
(1) Stockholders can vary their investment risks through management of
their individual stock portfolios. Managers’ careers and stock
(2) Executives are tempted to diversify their corporation’s operation,
(3) This approach serves the executives’ personal agendas and
c. Executives avoid risk.
(1) Executives are willing to restrict the diversification of their companies,
and are tempted to minimize the risk that they face.
(2) Executives are often fired for failure, but rarely for mediocre corporate
performance.
d. Managers act to optimize their personal payoffs.
(1) If executives can gain more from an annual performance bonus by
achieving objective 1 than from stock appreciation resulting from the
achievement of objective 2, then owners must anticipate that the
(1) When their companies expand, executives want to ensure that their
incremental improvement.
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distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
(4) Revolutionary strategies are most likely to occur when executives are
D. Solutions to the Agency Problem
a. In addition to defining an agent’s responsibilities in a contract and including
problems:
(1) Owners pay executives a premium for their service. This helps
(2) Executives receive backloaded compensation. This means executives