FINANCE & MANAGEMENT Mission control True strategic thinking can only exist where a company has clear principles and is able to articulate <strong>the</strong>m, says Morgen Witzel. So it’s a shame many companies lapse into vague mission statements and bland values ALAMY 32 MAY 2012 FINANCE & MANAGEMENT
STRATEGIC THINKING W hat is <strong>the</strong> purpose of strategy? Textbooks tell us that strategy is <strong>the</strong> means by which an organisation attempts to achieve its goals. We decide where we want to be – more market share, higher profits, expansion into new markets, new products, and so on. Then we map out a strategy that will help us to achieve <strong>the</strong>se goals. That seems simple enough. But problems start at <strong>the</strong> outset, with <strong>the</strong> setting of those goals. Do we always set <strong>the</strong> right ones? Do we remember, when talking about profits or market share, what <strong>the</strong> company is actually <strong>the</strong>re to do? Are goals congruent with <strong>the</strong> company’s mission? All too often <strong>the</strong>y are not. The mission and purpose that sustain <strong>the</strong> company are set aside in favour of a short-term pursuit of quick profits or growth. In <strong>the</strong> 1990s <strong>the</strong> supermarket chain Royal Ahold was a household name in <strong>the</strong> Ne<strong>the</strong>rlands. The company had been trading <strong>for</strong> more than 100 years and had a reputation <strong>for</strong> quality food and service. It had built a close relationship with its customers. By some accounts, one in ten Dutch people owned shares in <strong>the</strong> company. Then in <strong>the</strong> late 1990s, CEO Cees van der Hoeven embarked on a new strategy. The new goal was rapid growth – through acquisitions and geographical expansion. Royal Ahold embarked on a buying spree, acquiring supermarket chains around <strong>the</strong> world. It entered tough markets in areas such as <strong>the</strong> USA and Latin America, where it had no experience. Debts mounted as some of <strong>the</strong> new acquisitions ran into trouble and did not per<strong>for</strong>m as expected. In 2003 <strong>the</strong> bubble burst. Royal Ahold teetered on <strong>the</strong> brink of collapse, van der Hoeven lost his job and <strong>the</strong> value of <strong>the</strong>ir shares dropped to almost nothing. Royal Ahold <strong>for</strong>got what it was <strong>for</strong>. It chased short-term growth and neglected <strong>the</strong> things that made <strong>the</strong> company great in <strong>the</strong> first place. The same thing has happened, be<strong>for</strong>e and since, to Marconi, Ratner, Woolworths, Royal Bank of Scotland... The list goes on. MISSION AND VISION Any large and successful company was founded with a particular purpose or guiding idea in mind. Nearly always, that purpose is not just “to make money”. “Profit is a by-product of what we do,” says R Gopalakrishnan, executive director of Tata Sons, <strong>the</strong> holding company <strong>for</strong> India’s largest business group. Tata was founded in <strong>the</strong> 1860s to provide goods and services <strong>for</strong> <strong>the</strong> Indian people, to create jobs and spread prosperity among a largely impoverished population. “What comes from <strong>the</strong> people, goes back to <strong>the</strong> people” has been one of Tata’s guiding principles. Sony and Matsushita were established in post-war Japan with <strong>the</strong> explicit purpose of providing goods that people needed to make <strong>the</strong>ir lives better. Henry Heinz, founder of <strong>the</strong> Heinz food group, believed that his products were safer than o<strong>the</strong>r processed foods and thus contributed to public health. Nestlé marketed <strong>the</strong> first milk chocolate as a way of providing a clean and safe milk product <strong>for</strong> children. Our big national banks were founded not to make money <strong>for</strong> <strong>the</strong>ir shareholders, but to provide secure credit and lending facilities, which would enable entrepreneurs to grow <strong>the</strong>ir businesses and drive national prosperity. How easily <strong>the</strong>se principles are <strong>for</strong>gotten. Most companies of any size articulate <strong>the</strong>se principles as a mission statement – often, sadly, a collection of mere platitudes. A good mission statement should pull toge<strong>the</strong>r <strong>the</strong> underlying reasons why a company exists. More than a hundred years ago, business historian John Davis pointed out that every business exists to fill a need, and in doing so it makes sales and earns profits. This is axiomatic – yet, says Davis, many companies <strong>for</strong>get this. And when <strong>the</strong>y <strong>for</strong>get <strong>the</strong> need <strong>the</strong>y were meant to fulfil, companies start to lose <strong>the</strong>ir way. The same <strong>the</strong>me can be found in writings on strategy today. Stewart Hamilton and Alicia Micklethwait, in <strong>the</strong>ir study of corporate collapses, have shown how easy it is <strong>for</strong> companies like Royal Ahold to be seduced into chasing short-term profits or growth and <strong>for</strong>getting <strong>the</strong> reasons why <strong>the</strong>y exist in <strong>the</strong> first place. Closely related to mission is vision. If mission explains why <strong>the</strong> company exists, vision describes how it will fulfil that purpose. Vision tells us who <strong>the</strong> company thinks its customers are, how it will serve <strong>the</strong>m, and where and when. Vision does not just react to customer needs, it also tries to anticipate <strong>the</strong>m. Sony is regarded as one of <strong>the</strong> world’s most visionary companies, creating a string of new products such as <strong>the</strong> Walkman and <strong>the</strong> video recorder. Some<strong>times</strong> Sony fails; <strong>for</strong> example, it lost out in <strong>the</strong> video recorder market to its rival Matsushita, which produced a cheaper and FINANCE & MANAGEMENT MAY 2012 33
Change language