Strategic Purpose

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4 – STRATEGIC PURPOSE

4.1 Introduction

The example of Lehman Brothers show that there is a failure of both strategy and governance. In this chapter we will able to : * Consider appropriate ways to express the strategic purpose * Identify the components of the governance chain of an organisation * Understand differences in governance structures

* Identify differences in the corporate responsibility
* Undertake Stakeholder analysis

4.2 Organisational purpose: values, mission, vision and objectives

* Statements of mission, vision and value

Harvard University’s Cynthia Montgomery argues that the purpose of the organization is an important thing to understand the strategy of a company, moreover for someone who observes it from the outside. There is a primordial question to that: What is the organisation there to do that makes a difference and to whom ? Montgomery suggest that executives need to find a way of expressing strategic purpose in ways that are easy to grasp and that people can relate to. There are three ways in which executives typically attempt to do this :

* A mission statement aims to provide employees and stakeholders with clarity about the overriding purpose of the organisation. A mission statement should explain in details the actions of the manager, and answer several questions like “What business are we in?” “What would be lost if the organisation did not exist” and “Why do we do this?” * A vision statement is concerned with the desired future state of the organisation. This is simple, with a vision statement a manager should explain want does we want for the next year. The fundamental question is : “If we were sitting here in twenty years what do we want to have created or achieved” * Statements of corporate values communicate the underlying and enduring core “principles” that guide an organisation’s strategy and define the way that the organisation should operate. So the question here is : “Would these values change with circumstances?”

Collins and Porras claim that the long run success of many US corporates such as Disney or General Electric can be attributed to their clarity on such statements of purpose.

* Objectives

Objectives are statements of specific outcomes that are to be achieved and are often expressed in financial terms. They could be the expression of desired sales or profit levels, rate of growth, dividend levels or share valuation. They could also have market-based objectives and environmental and social objectives. There are three related issues that managers need to consider with regard to setting objectives.

* Objectives and measurement. Some managers argue that objectives are not helpful unless their achievement can be measured. But sometimes there is no time to make measurement, if the choice is between going out of business and surviving, there is no room for requirements. Quantified objectives are not always better than qualitative statements. * Identifying core objectives. In most companies objectives are financial because they could make profits and satisfy shareholders and allow for reinvestment in the business. But there are other aspects of business performance upon which survival and prosperity of the business are based. For example, how the organisation is distinctive from its rivals, or how it is to achieve competitive advantage and sustain it. * Objectives and control. A recurring problem with objectives is that managers and employees “lower down” in the hierarchy are unclear as to their day-to-day work contributes to the achievement of higher level of objectives. It’s necessary to define objectives at each stage.

4.3 Corporate Governance

Corporate governance is concerned with the structures and systems of control by which managers are held accountable to those who have a legitimate stake in an organisation. Governance has become an increasingly important issue for organisations for three...
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