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Strategic direction-setting

Strategic direction-setting
Learning objectives
1.

Outline and explain strategic direction-setting in the business strategy

process and the importance of establishing strategic objectives for a
firm

2.

Outline and discuss the role of a firms vision and mission

3.

Understand the nature, scope and attributes of strategic objectives

4.

Identify and define stakeholders of a firm and their role in setting

strategic objectives

5.

Understand how business ethics and stakeholder expectations

determine a firms strategic objectives

6.

Understand how to develop a set of strategic objectives for a firm

using a stakeholder analysis table

7. Articulate the link between strategic objectives and evaluation of a

firms strategic performance.

Strategic direction-setting
Outline

Introduction
Organisational vision and mission

Strategic objectives

What are strategic objectives?

Scope of strategic objectives
Attributes of strategic objectives

Major determinants of strategic objectives

Business ethics

Vision
Mission

Four broad levels of ethical stance

Corporate code of ethics statement

Stakeholder expectations
The bottom line on strategic objectives
Conclusion
Strategic direction-setting: Summary
Summary of strategic objectives identified using stakeholder analysis
Postscript: Some strategic performance reporting systems.

References

Hanson et al., (2014) Chapter 1 (especially pp. 17-22), Chapter 10 (especially

p. 312) ; and Chapter 12 (especially pp. 374-375).

Article 6: Mitchell, R.K., Agle, B.R. & Wood, D.J. (1997). Toward a theory
of stakeholder identification and salience: Defining the principle of who
and what really counts. Academy of Management Review, Vol. 2, No. 4:
853-886.

Article 7: Uren, D. (2003). The power of profit. AFR BOSS Magazine,

August: 66-69.

Article 1(e): Viljoen and Dann (2003) Chapter 8 (especially pp. 208-211).

Readings in bold black are important.

A business strategy process: Rational or formal model

2.

Strategic analysis
3.

Analyse the
environment

Strategic
direction-setting

6.

Identify the
organisations
current vision,
mission, and
strategic
objectives

Reassess the
organisations
vision, mission
and strategic
objectives

Analyse the
organisations
resources

Strategic
Strategic
implementation evaluation

Identify
opportunities
and threats

1.

4.

Strategic choice

7.
Formulate
strategies
to achieve
strategic
objectives

8.

Implement
strategies

9.

Evaluate
results

5.
Identify
strengths and
weaknesses

(Source: Robbins, S. P., Bergman, R., Stagg, I. and Coulter, M. 2009. Management, 5th edition, Pearson Education, Australia: 276; and
Robbins, S. P., Bergman, R., and Stagg, I. 1997. Prentice Hall, Australia: 248 )

Introduction
Strategic direction-setting is about:
Determining vision and mission
Setting strategic objectives.
Aimed at communicating organisational purpose to stakeholders
and proving a basis for evaluation of a firms strategic
performance.

Organisational vision and mission

Vision

a picture of what the firm wants to be and, in broad terms, what

it wants to ultimately achieve
(Hanson et al., 2014: 18)

Organisational vision and mission

Vision
Examples of vision statements

Our purpose is to create long term value through the discovery,

development and conversion of natural resources and provision of
innovative customer and market-based solutions. (BHP)
Our vision is to be the worlds best quick service restaurant.
(McDonalds)

Copyright 2014 Cengage Learning Pty Limited

Hanson et al., 2014: 18

Organisational vision and mission

Vision

Questions
Does the firm clearly articulate a vision?
Does the firm live the vision?
If so, what do you conclude?
If not, what do you conclude?

Organisational vision and mission

Mission
Mission statement
specifies the business in which the firm intends to compete and the
[stakeholders] it intends to serve (Hanson et al., 2014: 18-19; modified to replace
the word customers with stakeholders as shown in brackets)

Tends to be more specific than a vision statement

Widely adopted in 1990s and 2000s
Often criticised as too bland and broad
Often very difficult and complex to write a mission statement that
works.

Organisational vision and mission

Mission
Purposes of mission statements
Develop commitment to the organisation
Direct search for new projects
Highlight an organisation's point of differentiation
Establish organisational climate
Attract prospective employees, customers and other
stakeholders.
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Organisational vision and mission

Mission
Elements of a mission statement
The vision statement is often included as part of the mission
statement
Stakeholder promises: who are the stakeholders and what
the firm will endeavour to do for them
Ethical standards that guide firm and employee behaviour
Public image: how the firm wishes to be perceived in public
How the firm differs or stands out in the market.

Organisational vision and mission

Elements of a mission statement

Strategic distinctiveness
How the organisation
differentiates itself
from others of its type

Fundamental purpose
the business of the
organisation -its reason for
existence

THE MISSION
STATEMENT

Values and beliefs

Guidelines on how
things are to be done
in the organisation

Standards and behaviours

the major policies an procedures
used to implement the strategy
and reinforce the values and beliefs
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Stakeholder promises
the commitment of the
organisation to all
interested parties

Public image
How the organisation
wishes to be seen by
external constituents

Organisational vision and mission

Mission
Example of a mission statement

Be the best employer for our people in each community around the
world and deliver operational excellence to our customers in each of
our restaurants. (McDonalds)

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LimitedHanson et al., 2014: 19

Organisational vision and mission

Mission

Questions
Does the firm clearly articulate a mission?
Does the firm live the mission?
Does the mission statement identify the firms stakeholders?
Who are they?

If so, what do you conclude?

If not, what do you conclude?

Strategic objectives
What are strategic objectives?

specify exactly what (a firm ) hopes to achieve in the future

(Viljoen, J. and Dann, S. (2003). Strategic Management, 4th edition,
Longman, Pearson Education, Australia: 201)

Strategic objectives embrace the entire firm

Strategic objectives link a firm to its environment
Strategic objectives therefore flow from strategic
analyses: both internal and external
Strategic objectives change over time.

Strategic objectives are the focus of the CEO and top management.

Strategic objectives
Scope of strategic objectives
Strategic objectives may be:
Financial
Non-financial
Examples of financial strategic objectives:

Growth in dividends
Eps
Profits
Sales

Strategic objectives
Scope of strategic objectives
Examples of areas for non-financial strategic objectives:

Employee relations, development and safety

Customer service and satisfaction levels
Fair treatment and payment of suppliers
Ethical standards of behaviour in communities
Environmental responsibility.

Strategic objectives
Attributes of strategic objectives

Specific

Measureable

Achievable

Realistic

Timeframe

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Major determinants of strategic objectives

Two major determinants of a firms strategic objectives are:

Business ethics
Stakeholder expectations.

These two determinants of strategic objectives are closely related. Why?

Because business ethics focuses upon a firms attitudes and responsibilities
towards its stakeholders.

Major determinants of strategic objectives

Defining stakeholders
We use Freemans (1984) classic definition of stakeholders:
any group or individual who can affect or is affected by the achievement of the
firms objectives
(Freeman, R.E. 1984. Strategic management: A stakeholder approach. Pitman, Marshfield, USA, p. 25).

Note the linkage in this definition between stakeholders and strategic

objectives. Why is this linkage important?

Because strategic objectives are developed to address the demands of

a firms stakeholders. The rest of this topic examines this linkage.

Major determinants of strategic objectives

Four stakeholder groups

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Hanson et al., 2014: 20

Major determinants of strategic objectives

Another view of stakeholder groups
( Johnson, G., Scholes, K. and Whittington, R. (2008). Exploring Corporate
Strategy: Text and Cases, 8th edition, Prentice-Hall, Pearson Education, UK: 154).

Business ethics
(Hanson et al., 2014: 312)

Strategic objective-setting is heavily influenced by a firms

ethical stance towards its stakeholders.
Ethical stance: standards of behaviour and moral judgement
practised by a firm
Ethical stance shaped by:
Societys expectations (legal, social, moral) about business
behaviour
Individuals ethical views/practices within a firm,
ESPECIALLY those of top management and CEO.

Business ethics
Four broad levels of ethical stance
Ethical
responsibility to

Other
commitments

Comment

Short-term shareholder
interests

Legal minimum to all

other stakeholders

Fewer large firms appear

to be in this category

Longer-term shareholder
interests

May need to heed certain

stakeholder interests; all
others, legal minimum

Many large firms appear

to be in this category

Multiple stakeholders

Recognise multiple
stakeholder interests
beyond legal minimum

More and more large firms

moving into this category

Many stakeholders
(society)

Commitments to many
major stakeholders

Some foundations and

charitable trusts fit this
category.

(Please note this diagram is based on a diagram in the earlier edition of

Johnson, G., Scholes, K. and Whittington, R. 2005. Exploring Corporate
Strategy, 7th edition: 189-191)

Business ethics
Corporate code of ethics or conduct statement
(Hanson et al., 2014: 374-375)

Some large firms codify their ethical stance in a corporate code of ethics
or conduct statement:
The statement often identifies key stakeholders
Highlights ethical behaviour within a firm towards key stakeholders
Signals expectations of behaviour to all managers and employees
Signals expectations to new employees and other stakeholders
Provides a standard against which all corporate actions can be measured.

Business ethics
Example of a corporate code of ethics or conduct statement
Endeavour Energy

Business ethics
In sum
A firms mission statement and corporate code of ethics or conduct statement
should answer the questions:

Who are the firms stakeholders (including whether there is only one or
are multiple stakeholders)
The firms view about the ethical stance and responsibilities it has towards
these stakeholders.

Stakeholder expectations
Problem

Stakeholders are not passive

They have demands on the firm and expectations that the firm will
satisfy those demands
Those expectations or demands are often in conflict!
How does a CEO:

Determine these expectations or demands of stakeholders?

Prioritise those often conflicting expectations or demands?
Determine how those expectations or demands should be met?

The Mitchell, Agle and Wood (1997) stakeholder theory model provides a
way to address these vital questions.

Stakeholder expectations
The Mitchell, Agle and Wood model (1997: 874)

Stakeholder expectations

The stakeholder salience model (Mitchell, Agle and Wood, 1997) is

based on three criteria of power, legitimacy and
urgency.
Stakeholders fall into one of three typologies:

Satisfy one criterion: low salience: discretionary, dormant

or potential stakeholders

Satisfy two criteria: moderate salience: dominant

stakeholders

Satisfy three criteria: high salience: definitive stakeholders.

Stakeholder expectations

Stakeholder expectations

Stakeholder salience analysis therefore enables CEOs to:

Identify those stakeholders and their demands that
must be satisfied
Rank those demands in order of priority.

Stakeholder expectations
THE NEXT STEP
CEOs then develops STRATEGIC OBJECTIVES to
address those prioritised stakeholder demands.
In other words, strategic objectives are developed to
address the demands of a firms stakeholders.
This linkage between stakeholder salience and strategic objectivesetting is vitally important to CEOs but is often not properly
understood or well addressed in the literature.

Stakeholder expectations

The bottom line on strategic objectives

Probably the single most dominant strategic objective
for commercial organisations (especially public
companies) is profit growth:
It is expressed in many ways eg. growth in revenues
(surrogate for profit); growth in $ profits; improving
returns on shareholder funds; growth in eps (earnings
per share); growth in ROI
The problem of short-term versus long-term profit
growth objectives.

The bottom line on strategic objectives

Why is profit growth often (usually?) the dominant
strategic objective?
Shareholders are usually the definitive stakeholders
The Ball and Brown research (Uren, D. (2003). The power of
profit. AFR BOSS Magazine, August: 66-69).

Other reasons?

A reminder: How best to grow profitably?

The right approach to achieve profitable growth?
Focus on developing strategies that strengthen core
competencies and hence SCA
Focus on developing strategies that deliver the SCA to
customers and markets that most value the SCA.

Examples: Maytag, David Jones.

Conclusion
Strategic direction-setting involves:
Determining mission and vision
Setting strategic objectives.

The next step in the business strategy process is to

identify, choose and implement strategies that will
achieve the strategic objectives of the organisation.

Example of strategic objectives identified using a stakeholder

analysis table
Source: Woolworths strategic case study by Lynda OHanlon, Mitch Soree and Seyed Zoheir Mirkarimi,
Newcastle Business School, MBA program, trimester 3, 2010.

Postscript
Some strategic performance reporting systems
A peek at the last stage of the business strategy journey.

Strategic evaluation: where the CEOs success in

achieving strategic objectives is measured.

Postscript
Some strategic performance reporting systems
2.

Strategic analysis
3.

Analyse the
environment

Strategic
direction-setting

6.

Identify the
organisations
current vision,
mission, and
strategic
objectives

Reassess the
organisations
vision, mission
and strategic
objectives

Analyse the
organisations
resources

Strategic
Strategic
implementation evaluation

Identify
opportunities
and threats

1.

4.

Strategic choice

7.
Formulate
business
strategies

8.

Implement
strategies

9.

Evaluate
results

5.
Identify
strengths and
weaknesses

Source: Hanson et al., 2014: 4; Viljoen and Dann, 2003: 42 and 59; Robbins et al., 1997: 248

Postscript
Some strategic performance reporting systems
The balanced scorecard
(Hanson et al., 2014: 377-379)

Cash flow

Copyright 2014 Cengage Learning Pty Limited

Hanson et al., 2014: 378

Postscript
Some strategic performance reporting systems
Triple bottom line reporting
(Viljoen and Dann, 2003: 208-211)

Focuses on evaluating strategic performance in three areas:

The environmental bottom line - the organisations achievement of
environmental objectives
The social justice bottom line - the organisations achievement of
community and relevant social objectives
Financial or economic bottom line the organisations achievement of
financial and related objectives.