Goals differ from company to company, depending on the firm’s vision and mission. Every organization has a vision (or purpose) that indicates why it exists and what kind of organization it wants to be. For example, businesses seek profit, universities discover and transmit new knowl- edge, and government agencies provide services to the public. Most organizations also have a mission statement—a statement of how they will achieve their purpose. DaimlerChrysler’s mission statement empha- sizes “delighted customers,” while Atco Ltd.’s mission is to provide prod- ucts and services to the energy and resource industries and to invest in energy-related assets in North America. Mission statements often include some statement about the company’s core values and its commitment to ethical behaviour.
STRATEGIC MANAGEMENT The process of helping an organiza- tion maintain an effective alignment with its environment.
GOALS Objectives that a business plans to attain.
STRATEGY The broad set of organizational plans for implementing the decisions made for achieving organizational goals.
VISION (OR PURPOSE) A statement indicating why an organization exists and what kind of organization it wants to be.
MISSION STATEMENT An organization’s statement of how it will achieve its purpose in the environment in which it conducts its business.
Part 2The Business of Managing134
Some Complications in Setting Green Goals
Many private-sector businesses set goals to improve their performance with respect to sustainability and environmental protection.
Here are some examples:
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Scotiabank set a goal to be in the top 10 percent of the companies listed on the Dow Jones sustainability World Index.Ţ
Employees on different floors of the Air Miles building in Toronto competed to see who could reduce energy usage the most in a specific month.Ţ
Co-operators Life Insurance Co. set a goal to reduce emissions from business travel and climate control by 50 percent.Ţ
Dillon Consulting Ltd. (Toronto) set a goal to invest 1 percent of revenue into social, environmental, and community initiatives.<<<
OF BUSINESS THE GREENING
When companies set goals like these, it is generally assumed that they have enough control over their corporate activities that they can achieve the goals. And a lot of the time they actually do achieve the goals. But on various occasions factors in the external environment interfere with the achievement of green goals. This is true for both business firms and government agencies.
For example, in 2007 the province of British Columbia set a goal to reduce greenhouse gas (GHG) emissions 33 percent by 2020.
But now there are concerns that this goal will not be reached because of the rather sudden growth in the natural gas industry and the emissions that will result. Another example is the federal government’s goal for reducing fuel consumption in cars from 8.6 litres of gas per 100 kilometres in 2010 to 5.1 litres by 2025. But the dramatic decline in gas prices that occurred in 2014 increased consumer interest in buying
bigger, gas-guzzling cars. So that goal may not be reached either.
Private-sector companies can also run into unexpected problems. In 2014, Canada’s Oil Sands Innovation Alliance (COSIA) announced that it would not be able to meet its goal of reducing GHG emissions because they had run into unexpected complexities when trying to share new technologies. The Alliance also set a goal to reduce the amount of fresh water used to produce a barrel of oil by 50 percent by 2022. That goal may be more achievable since it depends largely on applying a more efficient technology to the production process.
CRITICAL THINKING QUESTIONS 1. What are the advantages of setting green
goals? Are there disadvantages? Explain.
2. Describe some of the uncertainties that must be taken into account when a business or a government agency sets green goals.
<<<
Whatever the time frame of the goals set, research shows that managers who set SMART goals (goals that are Specific, Measurable, Achievable, Relevant, and Time-framed) have higher performance than managers who don’t. The boxed insert entitled “Some Complications in Setting Green Goals” describes a few dilemmas managers face when they set goals that take the environment into account.
Formulating Strategy
After a firm has set its goals, it must develop a strategy for achieving them. In contrast to planning, strategy is wider in scope and is a broad program that describes how a business intends to meet its goals, how it will respond to new challenges, and how it will meet new needs. For example, Brookfield Asset Management’s strategy is to buy high-quality assets at less than replacement cost.29 Strategy formulation involves three basic steps: (1) setting strategic goals, (2) analyzing the organiza- tion and its environment, and (3) matching the organization and its envi- ronment (see Figure 6.4).
STEP 1: SETTING STRATEGIC GOALS
Strategic goals are long-term goals derived directly from the firm’s mission statement. When Martin Winterkorn took over as CEO of Volkswagen, he set a clear strategic goal for the company to become more successful and more profitable. By 2013, Volkwagen was making big profits and was the third-largest car producer in the world. But the emission scandal of 2015 (see Chapter 3, p. 49) hurt the company’s reputation, and led to Winterkorn’s resignation. The company will now have to reconsider its strategic goals.
Two business firms can have the same vision—for example, to sell watches at a profit—yet have very different missions. Timex sells low-cost, reliable watches in outlets ranging from department stores to corner drugstores. Rolex, on the other hand, sells high-quality, high- priced fashion watches through selected jewellery stores. Regardless of a company’s purpose and mission, it must set long-term, intermediate, and short-term goals.
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Long-term goals relate to extended periods of time—typically five years or more into the future. American Express, for example, might set a long-term goal of doubling the number of participating mer- chants during the next ten years.Ţ
Intermediate goals are set for a period of one to five years into the future. When Kazuo Hirai became CEO of Sony in 2012, he was determined to improve the performance of the consumer electronics company. He therefore set a sales target of US$105 billion for the division that makes medical equipment and electric car batteries.The goal was to be achieved in two years. He also set a goal to triple revenue in the mobile phone division.28
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Like intermediate goals, short-term goals—which are set for one year or less—are developed for several different areas. Increasing sales by 2 percent this year, cutting costs by 1 percent next quarter, and reducing turnover by 4 percent over the next six months are all short-term goals.SMART GOALS Goals that are Specific, Measurable, Achievable, Relevant, and Time-framed.
STRATEGY FORMULATION Creation of a broad program for defin- ing and meeting an organization’s goals.
STRATEGIC GOALS Long-term goals derived directly from the firm’s mission statement.
Chapter 6Managing the Business Enterprise135 Opportunities and threats are factors external to the firm and are assessed using environmental analysis. Opportunities include things like market demand for new products, favourable government legislation, or shortages of raw materials that the company is good at producing. For example, when Pepsi managers recognized a market opportunity for bot- tled water, they moved quickly to launch their Aquafina brand and position it for rapid growth. Threats include new products developed by com- petitors, unfavourable government regulations, and changes in consumer tastes. For example, online music services such as iTunes proved a major threat to manufacturers of CDs and CD players. Likewise, the emergence of digital photography dramatically weakened companies tied to print photography. The Province of Ontario introduced a new law that reduced the revenue pharmacies received for dispensing prescription drugs. Some external threats are unpredictable, like the volcanic eruption in Iceland in 2010 that halted air travel in Europe for a week. Commercial airlines lost hundreds of millions of dollars of revenue, while alternative service provid- ers like trains saw demand for their services soar.
STEP 3: MATCHING THE ORGANIZATION AND ITS ENVIRONMENT
The final step in strategy formulation is matching environmental threats and opportunities with corporate strengths and weaknesses. Matching companies with their environments lays the foundation for successfully planning and conducting business. A firm should attempt to leverage its strengths so as to capitalize on opportunities and counteract threats.
It should also attempt to shield its weaknesses, or at least not allow them to derail other activities. For example, knowing how to distribute consumer products (a strength) allows Pepsi to add new businesses and extend existing ones that use the same distribution models. But a firm that lacked a strong understanding of consumer product distribution would be foolish to add new products whose success relied on efficient distribution. Just because two companies are in the same industry does not mean they will use the same strategies. The Toronto-Dominion Bank, for example, aggressively expanded into the U.S. retail banking industry by acquiring U.S. banks, but the Royal Bank of Canada has been much less aggressive in this area.30
STEP 2: ANALYZING THE ORGANIZATION AND ITS ENVIRONMENT
After strategic goals have been set managers assess both their organiza- tion and its environment using a SWOT analysis. This involves identifying organizational Strengths and Weaknesses, and identifying environmental Opportunities and Threats. Strengths and weaknesses are factors inter- nal to the firm, and are assessed using organizational analysis. Strengths might include surplus cash, a dedicated workforce, an ample supply of managerial talent, technical expertise, or weak competitors. For exam- ple, Pepsi’s strength in beverage distribution through its network of soft- drink distributors was successfully extended to distribution of its Aquafina brand of bottled water. Weaknesses might include a cash shortage, aging factories, and a poor public image. Garden.com’s reliance on the internet-based e-tailing model was its downfall when the dot-com bub- ble burst.
strategicSet goals
Analyze the organization
Analyze the environment
Match the organization
and its environment
Formulate strategy 1
2 3
>>> FIGURE 6.4 Strategy formulation
THERE’S AN
APP
FOR THAT!APP DETAILS PLATFORMS
1. McKinsey Insights
Source: McKinsey and Company Key Features: The latest thinking on the biggest issues facing senior executives, everything from leadership and corporate strategy to globalization and technology’s impact on business and society.
Apple, Android
2. SWOT Chart
Source: K. Kaleeswaran
Key Features: Strategic planning method used to evaluate strengths, weaknesses, opportunities, and threats.
Apple, BlackBerry, Windows
3. Goal Tracker: SmartGoals Source: MSurf Lab
Key Features: Tool to help you set SMART (specific, measurable, attainable, reason- able and timely) goals.
Android
APP DISCOVERY EXERCISE
Since app availability changes, conduct your own search for the
“Top Three” management apps and identify the key features.
SWOT ANALYSIS Identification and analysis of organizational strengths and weaknesses and environmental opportunities and threats as part of strategy formulation.
Part 2The Business of Managing136
McDonald’s, for example, establishes operational plans when it explains precisely how Big Macs are to be cooked, warmed, and served.
Levels of Strategy
There are three levels of strategy in a business firm (see Figure 6.5).
A corporate-level strategy identifies the various businesses a com- pany will be in and how they will relate to each other. A business-level (competitive) strategy identifies the ways a business will compete in its chosen line of products or services. Functional strategies identify the basic courses of action each department will pursue so that it contributes to the business’s overall goals.