Chapter 2: Charting a Company's Direction

The Five Tasks of Strategic Management

Strategic management is a continuous process that helps an organization achieve long-term
success. It involves five major tasks that guide a company from setting its direction to evaluating
its performance.

Task Explanation Example

1. Develop Vision, Management determines the Tesla's vision is to
Mission & Core company's future direction, present accelerate the world's
Values purpose, and guiding principles. transition to sustainable
energy.
2. Set Objectives Specific and measurable goals are Increase annual sales by
established to achieve the vision 15%.
and mission.
3. Craft Strategy Managers prepare action plans to Apple focuses on product
achieve organizational objectives innovation and premium
and gain competitive advantage. quality.
4. Execute Strategy The planned strategy is McDonald's trains
implemented through proper employees to provide fast
leadership, motivation, and and consistent service.
resource utilization.
5. Evaluate and Managers review performance and A company changes its
Make Corrections make necessary adjustments when marketing strategy if sales
required. decline.

Task 1: Developing a Strategic Vision

Definition

A strategic vision describes the future direction of a company. It explains where the
organization wants to go and what it hopes to achieve in the long run. In other words, it
provides a clear roadmap for future growth and success.

Characteristics

• Provides a clear future direction.

 • Reflects management's long-term aspirations.
• Creates a unique identity for the company.
• Uses specific and meaningful language.
• Differentiates the company from competitors.

Example

Tesla's Vision: "To create the most compelling electric vehicle company."

Importance of Communicating the Strategic Vision

A strategic vision should be communicated effectively throughout the organization. When
employees and stakeholders understand the vision, they become more committed to achieving
the company's long-term goals.

Importance Explanation
Employee Employees become more dedicated to achieving
Commitment organizational goals.
Better Understanding Everyone clearly understands the company's future direction.
Motivation It inspires employees to work harder and perform better.
Management Support It demonstrates that top management is committed to the
vision.
Stakeholder Customers, investors, and suppliers gain greater trust in the
Confidence organization.

Why a Sound, Well-Communicated Strategic Vision

Matters
A well-developed strategic vision is important because it helps guide the entire organization
toward a common goal. It also improves decision-making and prepares the company for future
challenges.

Importance

• Clarifies the company's long-term direction.

• Reduces confusion in decision-making.
• Encourages employees to support organizational goals.
 • Helps managers set departmental objectives.
• Ensures all departments work toward the same vision.
• Prepares the organization for future opportunities and challenges.

Example

Apple's vision of continuous innovation encourages every department to focus on developing

advanced and user-friendly products.

Developing a Company Mission Statement

Definition

A mission statement describes the company's present purpose. It explains who the company is,
what it does, and why it exists. Unlike a vision statement, a mission focuses on the
organization's current business activities rather than its future ambitions.

Characteristics

• Focuses on the current business.

• Gives the company a unique identity.
• Explains products or services offered.
• Emphasizes customer needs instead of profit.
• Guides employees in their daily activities.

Example

Google's Mission: "To organize the world's information and make it universally accessible and
useful."

Difference Between Vision and Mission

Strategic Vision Mission Statement
Focuses on the future. Focuses on the present.
Explains where the company wants to go. Explains what the company currently does.
Inspires long-term growth. Defines the organization's purpose.
Long-term orientation. Current business orientation.
Linking Vision and Mission with Core Values
Definition of Core Values

Core values are the beliefs, ethical principles, and behavioral standards that guide employees in
performing their work. These values shape the organization's culture and support the
achievement of its vision and mission.

Importance of Core Values

• Guide employee behavior.

• Build a strong organizational culture.
• Support the company's vision and mission.
• Improve teamwork and cooperation.
• Increase customer trust and organizational success.

Examples of Core Values

• Integrity
• Honesty
• Innovation
• Teamwork
• Customer Focus
• Respect

Example

Google promotes innovation and respect as important core values, encouraging employees to
develop creative solutions while maintaining ethical standards.
Task 2: Setting Objectives
Definition

Objectives are the specific, measurable, and time-bound goals that an organization aims to
achieve. They convert the company's vision and mission into practical targets and provide a clear
direction for employees. Well-defined objectives also help managers evaluate the organization's
performance.

Purposes of Setting Objectives

Purpose Explanation
Convert Vision into Objectives translate the vision and mission into specific and
Action measurable performance targets.
Focus Organizational They ensure that all employees work toward the same
Efforts organizational goals.
Measure Performance Objectives act as standards for evaluating the company's
progress and success.
Motivate Employees Clear goals encourage employees to work harder and improve
their performance.

Example

A company's vision is to become the market leader. An objective could be "Increase market
share by 15% within the next two years."

The Imperative of Setting Stretch Objectives

Definition

Stretch objectives are challenging and ambitious goals that require employees to put in extra
effort and develop innovative ideas. These objectives encourage organizations to achieve
outstanding performance instead of being satisfied with average results.

Importance of Stretch Objectives

• Encourages creativity and innovation.

• Increases the urgency to improve performance.
• Helps strengthen the company's competitive position.
• Keeps employees focused on achieving higher standards.
 • Prevents complacency and average performance.

Example

Instead of targeting a 5% increase in sales, a company sets a goal of 20% sales growth within
one year. This motivates employees to develop new marketing strategies and improve customer
service.

Types of Objectives
Organizations generally set two types of objectives: Financial Objectives and Strategic
Objectives.

Financial Objectives Strategic Objectives

Focus on financial performance. Focus on market position and competitiveness.
Internal in nature. External in nature.
Aim to increase profit and Aim to improve customer satisfaction and market
revenue. share.
Measure financial success. Measure competitive success.

Examples

Financial Objectives

• Increase annual profit by 20%.

• Reduce production costs by 10%.
• Improve return on investment (ROI).

Strategic Objectives

• Become the market leader.

• Improve product quality.
• Increase customer satisfaction.
• Expand into international markets.
Difference Between Financial and Strategic Objectives
Basis Financial Objectives Strategic Objectives
Focus Financial performance Competitive performance
Nature Internal External
Purpose Increase profitability Strengthen market position
Examples Profit, sales, ROI Market share, customer satisfaction, innovation

Need for Short-Term and Long-Term Objectives

Organizations should set both short-term and long-term objectives because they complement
each other and help achieve sustainable growth.

Short-Term Objectives

Short-term objectives focus on immediate performance, usually within one year. They help
managers achieve quick improvements and monitor day-to-day progress.

Examples

• Increase monthly sales by 10%.

• Reduce customer complaints this quarter.
• Complete employee training within six months.

Long-Term Objectives

Long-term objectives focus on future success and usually require more than one year to achieve.
They help organizations prepare for future opportunities and maintain sustainable growth.

Examples

• Become the market leader within five years.

• Expand operations to ten new countries.
• Develop a globally recognized brand.
Difference Between Short-Term and Long-Term Objectives
Short-Term Objectives Long-Term Objectives
Achieved within one year. Achieved over several years.
Focus on immediate improvements. Focus on future growth.
Support daily operations. Support the company's long-term vision.

Balanced Scorecard
Definition

A Balanced Scorecard is a performance measurement tool that evaluates an organization's

success using both financial and strategic (non-financial) measures. It provides a balanced
view of overall organizational performance instead of focusing only on profits.

Importance

• Measures both financial and strategic performance.

• Helps improve competitiveness.
• Supports better decision-making.
• Encourages long-term business success.
• Monitors organizational progress effectively.

Example

A company evaluates its performance based on:

• Profit growth
• Customer satisfaction
• Employee productivity
• Product innovation

This provides a complete picture of organizational performance.

Setting Objectives for Every Organizational Level
Definition

Objectives should be established at every level of the organization, including top management,
departments, teams, and individual employees. This ensures that everyone contributes to
achieving the organization's overall goals.

Importance

• Aligns departmental goals with organizational goals.

• Improves coordination among departments.
• Increases employee accountability.
• Enhances efficiency and productivity.
• Ensures all employees work toward a common objective.

Example
Organizational Level Example Objective
Top Management Increase company profit by 20%.
Marketing Department Increase market share by 10%.
Sales Team Achieve monthly sales target of 500 units.
Individual Employee Contact 20 new customers each week.

Task 3: Crafting a Strategy

Definition

Strategy is a long-term action plan designed to achieve organizational objectives and gain a
competitive advantage. It answers the question, "How will the company achieve its goals?"

Characteristics

• Focuses on achieving organizational objectives.

• Selects the best strategic alternative.
• Helps the company perform differently from competitors.
• Requires teamwork among managers at different levels.
Example

Apple follows a strategy of continuous innovation and premium product quality to maintain
its competitive advantage.

Strategy Making Involves Managers at All Organizational

Levels
Strategy is not developed by the CEO alone. Managers at different levels contribute according to
their responsibilities.

Manager Responsibility
CEO Provides overall strategic direction and makes major
strategic decisions.
Senior Executives Develop strategies for their departments or business
functions.
Division/Regional Implement strategies based on local conditions and
Managers business needs.

Example

The CEO sets the goal of expanding internationally, while regional managers decide how to
enter their local markets.

Task 4: Executing the Strategy

Definition

Strategy execution is the process of putting the planned strategy into action. It ensures that
organizational resources and employees work together to achieve strategic objectives.

Key Activities

• Direct organizational activities.

• Motivate employees.
• Build skills and capabilities.
 • Create a supportive work environment.
• Achieve performance targets.

Example

McDonald's trains employees and maintains service standards to successfully implement its
customer service strategy.

Task 5: Evaluating Performance and Initiating Corrective

Adjustments
Definition

After implementing a strategy, managers evaluate the company's performance. If results do not
meet expectations, corrective actions are taken to improve future performance.

Three Tests of a Winning Strategy

Test Explanation
Good Fit The strategy matches the company's internal and external
environment.
Competitive The strategy helps the company perform better than
Advantage competitors.
Strong Performance The strategy achieves financial and strategic objectives.

Corrective Adjustments
If necessary, managers may revise:

• Strategic vision
• Mission statement
• Objectives
• Strategy
• Strategy implementation methods

These changes help the organization adapt to new challenges and improve performance.
Example

If customer demand changes, a company may introduce new products or modify its marketing
strategy.