Vision Statement and Strategy Outline

This assignment asked you to develop a Vision Statement for your company. Let's begin by placing vision into a strategy context. From shortest to longest time scale, we have:

Tactics Strategy Vision Business Model Business Mission Corporate Mission

Tactics and Strategy. Tactics and strategy are closely related. They differ in two
ways, time scale and scope. First, strategies are on a longer time scale. A strategy that lasts a year encompasses tactics that last a month. But the tactic that lasts a month is a strategy for tactics that take a day. On any time scale, tactics are nested within a larger strategy. Even in strategies that are on a scale of hours (an auction, a football game, etc.) we find tactics that last minutes or seconds. Second, strategies have more scope - a single strategy incorporates many tactics. For example, a strategy might call for a sales campaign, a product introduction, and a plant opening. While it is true that any of these major tactics have strategies of their own, we can observe that a strategy has tactics, not the other way around. When we diagram a company's strategies and tactics, the result looks like something like a tree. The strategies are the branches and the tactics still smaller branches, a process that continues until ultimately we arrive at particular leaf -- a tactic that cannot be subdivided. However, now we come to a problem. We observe three different "types" of strategies. To use an analogy, it is one thing to create a hammer, another to target it, and still another to swing it. Unfortunately, there are no universally agreed labels for these three types, so let us pick three. 1. Directional strategies tell us where we are going. 2. Resource strategies develop competencies and capabilities. 3. Action strategies apply the resources to solve problems for various stakeholders. Further, these three types appear to have a hierarchy of their own. In general, we prefer to know where we are going before acquiring the resources for the trip, and we want the resources before we start marching.

Typically, middle managers design and execute the resource and action strategies. Directional strategies are the domain of senior managers.

Vision. Vision selects a particular directional strategy from many potential ones. From
the direction, we can deduce and develop the resource and action strategies that are needed. However, given our bottom-up, building block approach in this discussion, we should make a distinction at this point between a "line of business" and a collection of businesses. A line of business answers a specific need for its customers. It requires directional, resource, and action strategies that are distinct from other lines of business the company might pursue. At a corporation like General Electric, where lines of business include nuclear reactors, television networks, and jet engines, the need for different strategies is obvious. Even at a company like Marriott, where lines of business include resorts, hotels, and motels, we observe distinct strategies between the lines, even though the businesses are similar. We will return to the problem of "collections of businesses" when we arrive at "Corporate Mission". For now, let us restrict discussion to a single line of business, and just call it a "business". Vision addresses the direction of the business. It is here that we find ideas like competency, capability, infrastructure, activity systems, and competitive advantage. A vision statement presents a detailed picture of the business at a specific date in the future. For example, imagine that you stepped into a time machine, jumped five years into the future, and took pictures with a camera. Your vision statement is a report of what you see in the pictures. "We are in three segments. We have five products. Our employee turnover is at 7%." A vision statement is for internal consumption by managers and employees. Like the future, it is not cast in stone. It is subject to change and refinement, particularly near its creation. It triggers debate, exposes assumptions, raises questions, and creates a tension between the present and future. A strategic outline lists the major objectives and milestones the business will pass getting from today's reality to tomorrow's vision. It can be organized several ways - as functional plans, a timeline, even a Gantt chart. It sets priorities and deadlines. It projects and allocates resources. A strategic outline can also be thought of as a series of vision statements with the redundancies removed. That is, you prepare a vision statement for 2010, then 2009, then 2008 all the way back to the present. Leaving 2010 intact, if you remove repetitive statements, the end result is an outline for getting your company from today to the vision for 2010.

Business Model. The business model addresses the question, "Can the business exist
profitably?" If the answer is "yes", we can select a particular vision, strategy, and tactics

from many possible solutions. For example, today's marketplace offers several pizza delivery businesses -- Dominoes, Little Ceasars, etc. In the 1930's, there were no pizza delivery businesses because the answer to the question, "Can the business exist profitably?" was "no". A business model is concerned with the business opportunity, required competencies and resources, and the potential for competitive advantage.

Business Opportunity. The business opportunity addresses two questions. Can the business exist within the political economy? Can it make a profit appropriate for the risks? For example, a business opportunity exists today that would take tourists into near Earth orbit. However, one must question whether the regulatory environment would permit it. If that problem was resolved, few tourists could pay the prices required to make the venture profitable. Never-the-less, a business opportunity exists, and in coming decades these problems may be resolved and businesses emerge. Similarly, a business opportunity might be viable in one country but not in another because of differences between the political economies or the balance between risk and reward. Competencies and resources. What sort of people, skills, technology, equipment, and capital are required? How can they be assembled and improved over time? Competitive advantage. Can we create a competitive advantage, something that distinguishes us from competitors and makes us more attractive to customers? This always requires trade-offs, and the business model exposes the alternatives and our choices. For example, we might choose cost leadership over differentiation, or top level decision making over decisions made closer to the customer, or support systems that encourage tailoring over consistency. Tradeoffs distinguish one business model from another.

Often the business model can be told as a compelling story. It explains in simple language why customers prefer to do business with us, and how we create a profit from the exchange.

Business Mission. The business mission centers around:

Stakeholders. The groups of people that the business affects directly. Needs. The problems the business solves for stakeholders.

The primary stakeholder is the customer, with other stakeholders including employees, stockholders, vendors, bankers -- in short, anyone whose needs are satisfied by the company. The primary need satisfied is the customer's need. However, it is worth observing that if other stakeholder's needs are not met, the company may cease to exist. All stakeholders are vital to the business. The mission differs from the business model in only one way. A mission statement is 3

"timeless". So long as the stakeholders and their needs exist, a series of business models could serve them, even though a change in the business model would likely to be traumatic. For example, customers want instant photography. That mission was served by film cameras during the 20th century. In the 21st century it is primarily served by digital cameras. Conceivably a business could have had a 20th century business model based around film, and a 21st century model based around digital cameras. A mission statement is concerned with scope -- the number of stakeholder types, and the number of needs. Broad scope (lots of stakeholder groups, lots of needs) implies a large business and a longer lifecycle. Narrow scope (fewer stakeholders, fewer needs) implies a smaller business and a shorter lifecycle. For example, consider air passenger services. A large airline business transports business travelers and tourists to destinations around the globe. A regional business might focus upon the Midwestern United States. A still smaller business might serve tourists or business travelers but not both. The narrower the scope of needs satisfied and the fewer the stakeholder groups, the easier it is to develop a business model to satisfy the mission. For example, it is easier to develop a commuter airline service than a global airline. This presents two problems. First, the company might outgrow its original business. Suppose a Caribbean tour company expands into hotels. Constructing a mission statement that includes tours and hotels does not do a good job with either. Second, industries have life cycles, and companies wish to exist longer than a particular business. For example, software utility businesses lived and died in a series of environments (CP/M, DOS, Windows, and Internet) between 1980 and today. Each platform required different business missions because the mix of stakeholders and needs differed from one platform to another. On the one hand, a company that defined itself around "DOS utilities" performed better than one that defined itself more broadly around "operating system utilities". Its narrow scope allowed it to be more competent and efficient than a competitor spread across, say, Unix, DOS, and Apple DOS operating systems. On the other hand, a company that limited itself to DOS died when Windows emerged unless it could transition to a new business model based upon Windows. There is an intrinsic dilemma here. Define the mission too broadly and the company will fail for lack of focus. Define it too narrowly and the company lives and dies with the industry niche that it occupies.

Corporate Mission. Most large companies are in many businesses. They may, like
Monsanto, offer a generalist mission for an economic sector (agriculture) that speaks of core values and purposes at the top level of the company. Or they may, like General Electric or Proctor and Gamble, offer no top level mission statement at all, substituting an 4

open letter from top executives about their goals and values. When a company consists of a portfolio of businesses, we must ask two questions. What stakeholders are served at the top level of the corporation? What needs are satisfied? In general, the primary stakeholder becomes the "ownership group", which includes both stockholders and senior management. The primary need is reduced to "create wealth". This sharply contrasts with a business mission, which emphasizes customers and their needs.

Applying these terms to Capstone.

Having gone from bottom to top, let us now go from top to bottom. In Capstone there is no real need for a Corporate Mission Statement because the company is in only one business. If you chose to write one, it would make general assertions about values and purpose. The Business Mission Statement identifies stakeholders and needs. Limiting stakeholders and needs establishes a scope. For example, suppose we limit stakeholders and needs to:

Stakeholders
High End customers Performance customers Size customers Shareholders Vendors Bondholders Employees

Needs
Ideal positioning (small size, high performance) and new designs, easy credit terms, reliable product delivery High reliability, ideal positioning, easy credit terms, reliable product delivery Ideal positioning, young designs, easy credit terms, reliable product delivery High stock price, high dividend stream Quick payment, predictable orders Assets/Equity (leverage) between 1.8 and 2.8 High salaries, high productivity, low job uncertainty

From this list one can easily craft a short mission statement that offers real value to managers, employees, and stakeholders. Note that the list above leaves out several possible stakeholder groups (bankers, low technology customers, government, special interest groups like environmentalists, etc.) and needs (low price, time-tested designs, high profit sharing, etc.) that a different mission might include. For example, this statement is constructed from the list above: Ferris Corporation serves high technology customers with cutting edge designs. We promise customers easy credit terms and reliable deliveries. Our stockholders

can expect excellent returns from both appreciation and dividends. We work in partnership with our vendors to stabilize our supply chain and insure its financial health. We offer bondholders a solid return at a reasonable risk. Our employees strive for high productivity and its natural rewards, financial gain and low job uncertainty. The Business Model examines the business opportunity, required competencies and resources, and competitive advantage. In our case: The company is an ongoing entity within the political economy, and customers are willing to pay prices sufficiently above our costs to satisfy our other stakeholder groups. In our chosen high technology segments, contribution margins are high, but at today's volumes the contribution margins are mostly consumed by fixed costs. These are fast growing segments that will almost triple in size over the next six years. As volumes grow, the spread between contribution margin and fixed costs will grow. The business opportunity depends upon establishing high market share in the near future and holding onto it as the segments mature and become more profitable. Because the technology in our chosen segments advances quickly, we need a strong competence in R&D, and we cannot automate to the degree we could in lower technology segments. We need high caliber, highly trained workers at high productivity levels. Our capital requirements are lower than they would be in the low technology segments because plants are smaller with lower automation ratings. We will develop a competitive advantage based upon differentiation -- strong designs, high awareness, easy accessibility, good credit terms, two or more products in each segment. Our prices will be at the top of the expected price range, creating healthy contribution margins. However, the SG&A expenses that drive this differentiation are fixed costs. To cover them, we need high unit sales volume in these segments. The vision statement describes our company six years from now. In 2013 (Round 8) Ferris Corporation is focused in the high tech segments:
High End three products Performance two products Size three products

We have exited the low technology segments, Traditional and Low End. Our product lines operate at 175% plant utilization. While acknowledging the trade-off between automation and R&D cycle time, we have automated as much as possible. We anticipate automation levels of at least 5.5 in High End, 6.5 in Performance, and 6.5 in Size.

Our designs strive to give the customer precisely what they want on the top two buying criteria in each segment. 100% of customers are aware of our products. 100% of our customers have easy access to our products. We offer 60 day credit terms. Our customer survey scores are above 50 on all products. Our prices are high, at the top of the range. Our workers are highly trained, and we have recruited the highest caliber of new worker. We routinely spend $5000 to recruit new workers and send each worker to training for 80 hours each year. Our employees are among the highest paid in the industry. We keep "working capital days" between 90 and 120 days. We are leveraged at 2.0. We fund new investments with a 50/50 mix of new debt and retained earnings. Our dividend policy gives stockholders our earnings less reinvestment. Our AP policy is at 10 days. We never stock out, but our inventories never exceed 100 days of sales. A new manager will compare this vision with todays reality, note the discrepancies, and develop a plan to get to the vision. The higher the clarity in the vision, the easier it is to identify next steps. When a vision is first developed, it triggers debate. The bulk of the debate should occur early. If you offer fuzzy generalities, employees spend as much time debating what your vision means as they do executing. It is better to have colleagues and employees clearly understand your vision AND disagree with you than it is to have them interpret your meaning in a direction that favors their own thinking, either consciously or unconsciously. Clarity surfaces disagreements and misunderstandings, produces constructive debate, and leads to improved, shared vision statements. For example, imagine two managers reading the following statements (taken from homework submissions in earlier classes): The vision of the Erie Corporation is to develop pioneering technology and strive for excellent customer service. The purpose is to provide our customer with the most innovative and reliable sensors in the industry at a competitive price. With a vision of being the number one supplier of sensors in the world.

If you separately asked your two managers to tell you what segments Erie served, one might say, "Pioneering technology means the high tech segments." The other might say, "Number one supplier of sensors means all segments." - or Baldwin plans to exceed every customers expectations of satisfaction in all segments of operation through attention to detail and delivering detail with technology and efficiency. Also, by bringing each segment to the forefront through aggressive growth strategies and commitment to long term preservation of capital. From this, a manager can say you are in at least one segment, but probably not all of them. To some, "aggressive growth strategies" means "cut the price", while to others it means "spend a lot on marketing". To some, "long term preservation of capital" means "take no chances", while to others it means "avoid debt". - or Digby will be the premiere firm in the sensor market. We will primarily concentrate our efforts in the Traditional, Low End, and High End markets. We will have the number one or number two products in these markets. Our goal is to have 25% or more of any market we are in. Additionally, we want to be number one or two in profitability when compared to other firms in the industry. However, we will do whatever is necessary (even at the expense of profitability) to meet our market share goals. Although this is an improvement, it will trigger the wrong sorts of debate. The root problem is that it introduces competitors -- an external factor which is more properly in the domain of strategy and tactics. The vision statement is focused internally, at your own competencies and capabilities. It lists things that are entirely in your control. For example, if you say, "In 2013 we have 25% or more of the High End segment", you are making assumptions about competitors that are out of your control. But if you say, "In 2013 we have three products in the High End segment, our designs are excellent, our awareness is 100%, our accessibility is 100%, and our credit terms are 60 days", you have listed characteristics that are within your control, and will likely lead to high market share. All of these sample vision statements (taken from prior homework) attempt to mix the mission statement with a vision statement. This is a mistake. The mission statement is timeless. A vision statement is a snapshot of the company at a specific data in the future. As you prepare your vision statement, be descriptive. Imagine that you are looking at photographs transported from the future, and put your statements in the present tense. Your goal is to describe a possible outcome to your teammates.