Formulating the Business Vision & Mission

Jocelyn L. Walter Corporate Planning

A Customer Orientation
According to Vern McGinnis, a mission statement should

1) Define what the organization is and what the organization aspires to be 2) Be limited enough to exclude some ventures and broad enough to allow for creative growth 3) Distinguish a given organization from all others 4) Serve as a framework for evaluating both current and prospective activities 5) Be stated in terms sufficiently clear to be widely understood throughout the organization

A Declaration of Social Policy

Social policy embraces managerial philosophy and thinking at the
highest levels of an organization. Social issues mandate that strategists consider not only what the organization owes it stakeholders but also what responsibilities the firm has to consumers, environmentalists, minorities, communities, and other groups. Social policies directly affect a firms customers, products and services, markets, technology, profitability, self-concept, and public image.

Mission Statement Components

1) 2) 3) 4) 5) 6) 7) 8) 9) Customers Products or services Markets Technology Concern for survival, growth, and profitability Philosophy Self-concept Concern for public image Concern for employees

Characteristics of a Mission Statement

Broad in scope Less than 250 words in length Inspiring Identify the utility of a firms products Reveal that the firm is socially responsible Reveal that the firm is environmentally responsible Include the nine components Enduring

Making an External Assessment

Jocelyn L. Walter Corporate Planning

Nature of an External Audit

Purpose: Develop a finite list of opportunities that could benefit a firm and threats that should be avoided. Finite suggests, the external audit is not aimed at developing an exhaustive list of every possible factor that could influence the business; rather it is aimed at identifying key variables that offer actionable responses.

Economic forces Social, cultural, demographic, & environmental forces Political, legal, & governmental forces Technological forces Competitive forces

Competitors Suppliers Distributors Creditors Customers Employees Communities Managers Stockholders Labor unions Governments Trade associations Special interest groups Roducts Services Markets Natural environment

AN ORGANIZATIONS OPPORTUNITIES & THREATS

Relationships Between Key External Forces and an Organization

Process of Performing an External Audit

A company must first gather competitive intelligence and information about economic, social, cultural, demographic, environmental, political, governmental, legal, and technological trends. The information gathered should be assimilated and evaluated. A final list of the most important key external factors should be communicated and distributed widely in the organization.

The Industrial Organization (I/O) View

The Industrial Organization (I/O) approach to competitive advantage advocates that external (industry) factors are more important than internal factors in a firm achieving competitive advantage.

Economic Forces
Availability of credit Level of disposable income Propensity of people to spend Interest rates Inflation rates Money market rated Gross domestic product trend Consumption patterns Unemployment trends Worker productivity levels Stock market trends Foreign countries economic conditions Import/export factors

Demand shifts for different categories of goods & service Income differences by regions & consumer groups Price fluctuations Monetary policies Fiscal policies Tax rates European Economic Community (EEC) policies Organization of Petroleum Exporting Countries (OPEC) policies Coalition of Lesser Developed Countries (LDC) policies

Social, Cultural, Demographic, & Environmental Forces

Childbearing rates # of marriages # of births # of deaths Life Expectancy rates Location of retailing, mfg, & service businesses Attitude toward business Lifestyles Traffic congestion Average disposable income Attitudes toward government Buying habits Ethical concerns
Racial equality Ave level of education Pollution control Energy conservation Social programs Social responsibility Population changes by race, age, sex, & level of affluence Population changes by city, country, state, region, & country Value placed on Leisure Regional changes in tastes & preferences # of high school & college graduates by geographic area Recycling Waste mgmt Air pollution Water pollution Ozone depletion Endangered species

Political, Governmental, and Legal Forces

Government regulations or deregulations Changes in tax laws Special tariffs Political action committees Voter participation rates Number, severity, and location of government protests Number of patents Changes in patent laws Environmental protection laws Level of defense expenditures Legislation on equal employment Level of government subsidies Antitrust legislation Import-export relationships Government fiscal & monetary policy changes Political condition in foreign countries Size of government budgets World oil, currency and labor markets Location and severity of terrorist activities Local, state, and national elections

Technological Forces
Internet is acting as a national and global economic engine that is spurring productivity. Internet is changing the very nature of opportunities and threats by altering the life cycles of products, increasing the speed of distribution, creating new products and services, erasing limitations of traditional geographic markets, and changing the historical tradeoff between production standardization and flexibility.

Competitive Forces
Collecting and evaluating information on competitors is essential for successful strategy formulation. Competitive intelligence (CI) is a systematic and ethical process for gathering and analyzing information about the competitions activities and general business trends to further a businesss own goals. Three basic missions of a CI program: To provide a general understanding of an industry & its competitors To identify areas in which competitors are vulnerable& to assess the impact strategic actions would have on competitors To identify potential moves that a competitor might make that would endanger a firms position in the market

Cooperation Among Competitors

Cooperative agreements between competitors are even becoming popular. For collaboration between competitors to succeed, both firms must contribute something distinctive.

Market Commonality and Resource Similarity

Market commonality is the number and significance of markets that a firm competes in with rivals Resource similarity is the extent to which the type and amount of a firms internal resources are comparable to a rival

Competitive Analysis: Porters Five-Forces Model

Potential development of substitute products

Bargaining power of suppliers

Rivalry among competing firms

Bargaining power of consumers

Potential entry of new competitors

Rivalry Among Competing Firms

Is the most powerful of the five competitive forces. The strategies pursued by one firm can be successful only to the extent that they provide competitive advantage over the strategies pursued by rival firms.

Potential Entry of New Competitors

Barriers to entry can include the need to gain economies of scale quickly, the need to gain technology and specialized know-how, the lack of experience, strong customer loyalty, strong brand preferences, large capital requirements etc.

Potential Development of Substitute Products

Competitive pressure arising from substitute products increase as the relative price of substitute products declines and as consumers switching costs decreases.

Bargaining Power of Suppliers

It affects the intensity of competition in industry, especially when there is a large number of suppliers, when there are only a few good substitute raw materials or when the cost of switching raw materials is especially costly.

Bargaining Power of Consumers

When customers are concentrated or large or buy in volume, their bargaining power represents a major force affecting the intensity of competition in an industry.

Sources of External Information

Unpublished sources
Customer surveys, market research, speeches at professional and shareholders meetings, television programs, interviews, and conversations with stakeholders.

Published sources
Periodicals, journals, reports, government documents, abstracts, book, directories, newspapers, and manuals.

Internet

Forecasting Tools and Techniques

Forecasts are educated assumptions about future trends and events. o Forecasting tools can be broadly categorized into two groups: Quantitative techniques and Qualitative techniques

Making Assumptions
Assumptions best present estimates of the impact of major external factors, over which the manager has little if any control, but which may exert a significant impact on performance or the ability to achieved desired results.

The Global Challenge

The international challenge faced by firms is twofold: (1) How to gain and maintain exports to other nations (2) How to defend domestic markets against imported goods

Globalization
Is a process of worldwide integration of strategy formulation, implementation, and evaluation activities. Strategic decisions are made based on their impact upon global profitability of the firm, rather than on just domestic or other individual country considerations.

Industry Analysis: The External Factor Evaluation (EFE) Matrix

An External Factor evaluation (EFE) Matrix allows strategists to summarize and evaluate economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive information. Steps in developing a EFE Matrix: a) List key external factors as identifies in the external audit process. b) Assign to each factor a weight that ranges from 0.0 (not important to 1.0 (very important). c) Assign a rating between 1 to 4 to each key external factor to indicate how effectively the firms current strategies respond to the factor. d) Multiply each factors weight by its rating to determine a weighted score. e) Sum the weighted scores for each variable to determine the total weighted score for the organization.

EFE Matrix for a Local ten-Theatre Cinema Complex

Key External Factors
Opportunities 1. Rowan Province is growing 8% annually in population 2. TDB University is expanding 6% annually 3. Major competitor across town recently ceased operations 4. Demand for going to cinema growing 10% annually 5. Two new neighborhoods being developed within 3 miles 6. Disposable income among citizens grew 5% in prior year 7. Unemployement rate in country declined to 3.1% Threats 8. Trend toward healthy eating eroding concession sales 9. Demand for online movies and DVDs growing 10% annually 10. Commercial propoerty adjacent to cinemas for sale 11. TDB University installing an on-campus movie threatre 12. Country and city property taxes increasing 25% this year 0.12 0.06 0.06 0.04 0.08 4 2 3 3 2 0.48 0.12 0.18 0.12 0.16 0.05 0.08 0.08 0.07 0.09 0.06 0.03 3 4 3 2 1 3 2 0.15 0.32 0.24 0.14 0.09 0.18 0.06

Weight

Rating

Weighted
Score

13. Local religious groups object to movies being shown

14. Movies being rented from local Blockbuster store up 12% 15. Movies rented last quarter from Time Warner up 15% Total

0.04
0.08 0.06 1.00

3
2 1

0.12
0.16 0.06 2.58

The Competitive Profile Matrix (CPM)

Competitive Profile Matrix (CPM) identifies a firms major competitors and its particular strengths and weaknesses in relation to a sample firms strategic position. Some important differences between EFE and CPM: a) The critical success factors in a CPM are broader, they do not include specific or factual data, and they even may focus on internal issues. b) The critical success factor in CPM also are not grouped in opportunities and threats as they are in EFE. c) In CPM, the ratings and total weighted scores for rival firms can be compared to the sample firm.

An Example for Competitive Profile Matrix

Company 1
Critical Success Factors Advertising Product Quality Price Competitiveness Management Financial Position Customer Loyalty Global Expansion Market Share Total Weight 0.20 0.10 0.10 0.10 0.15 0.10 0.20 0.05 1.00 Rating 1 4 3 4 4 4 4 1 Score 0.20 0.40 0.30 0.40 0.60 0.40 0.80 0.05 3.15

Company 2
Rating 4 3 2 3 2 3 1 4 Score 0.80 0.30 0.20 0.30 0.30 0.30 0.20 0.20 2.60

Company 3
Rating 3 2 4 3 3 2 2 3 Score 0.60 0.20 0.40 0.30 0.45 0.20 0.40 0.15 2.70