Chapter 2: Leading Strategically

Chapter 2: Leading Strategically

2.1 Leading Strategically

2.2 Vision, Mission, and Goals

2.3 Assessing Organizational Performance

2.4 The CEO as Celebrity

2.5 Entrepreneurial Orientation

2.6 Conclusion

2.1 Leading Strategically

Learning

Objectives

After reading this chapter, you should be able to understand and articulate answers to the following questions:

1. What are vision, mission, and goals, and why are they important to organizations?

2. How should executives analyze the performance of their organizations?

3. In what ways can having a celebrity CEO and a strong entrepreneurial orientation help or harm an organization?

Questions Are Brewing at Starbucks

Starbucks’s global empire includes this store in Seoul, South

Korea.

Wikimedia Commons – public domain.

March 30, 2011, marked the fortieth anniversary of Starbucks first store opening for business in Seattle, Washington. From its humble beginnings, Starbucks grew to become the largest coffeehouse company in the world while stressing the importance of both financial and social goals. As it created thousands of stores across dozens of countries, the company navigated many interesting periods. The last few years were a particularly fascinating era.

In early 2007, Starbucks appeared to be very successful, and its stock was worth more than $35 per share. By 2008, however, the economy was slowing, competition in the coffee business was heating up, and Starbucks’s performance had become disappointing. In a stunning reversal of fortune, the firm’s stock was worth less than $10 per share by the end of the year. Anxious stockholders wondered whether Starbucks’s decline would continue or whether the once high-flying company would return to its winning ways.

Riding to the rescue was Howard Schultz, the charismatic and visionary founder of Starbucks who had stepped down as chief executive officer eight years earlier. Schultz again took the helm and worked to turn the company around by emphasizing its mission statement: “to inspire and nurture the human spirit—one person, one cup and one neighborhood at a time (Starbucks).” About a thousand underperforming stores were shut down permanently. Thousands of other stores closed for a few hours so that baristas could be retrained to make inspiring drinks. Food offerings were revamped to ensure that coffee—not breakfast sandwiches—were the primary aroma that tantalized customers within Starbucks’s outlets.

By the time Starbucks’s fortieth anniversary arrived, Schultz had led his company to regain excellence, and its stock price was back above $35 per share. In March 2011, Schultz summarized the situation by noting that “over the last three years, we’ve completely transformed the company, and the health of Starbucks is quite good. But I don’t think this is a time to celebrate or run some victory lap. We’ve got a lot of work to do (Starbucks, 2011).” Indeed, important questions loomed. Could performance improve further? How long would Schultz remain with the company? Could Schultz’s eventual successor maintain Schultz’s entrepreneurial approach as well as keep Starbucks focused on its mission?

References

Starbucks, Our Starbucks mission statement. Retrieved from http://www.starbucks.com/about-us/company-

information/mission-statement. Accessed March 31, 2011.

Starbucks, Onward: How Starbucks fought for its life without losing its soul by Howard Schultz]. 2011, March

28. NPR Books. Retrieved from http://www.npr.org/2011/03/28/134738487/starbucks-ceo-can-you-get-big-and-

stay-small.

2.1 Leading Strategically 32

2.2 Vision, Mission, and Goals

Learning Objectives

1. Define vision and mission and distinguish between them.

2. Know what the acronym SMART represents.

3. Be able to write a SMART goal.

The Importance of Vision

“Good business leaders create a vision, articulate the vision, passionately own the vision, and relentlessly drive it

to completion.”

–Jack Welch, former CEO of General Electric

Many skills and abilities separate effective strategic leaders like Howard Schultz from poor strategic leaders. One

of them is the ability to inspire employees to work hard to improve their organization’s performance. Effective

strategic leaders are able to convince employees to embrace lofty ambitions and move the organization forward.

In contrast, poor strategic leaders struggle to rally their people and channel their collective energy in a positive

direction.

As the quote from Jack Welch suggests, a vision is one key tool available to executives to inspire the people

in an organization (Table 2.1 “The Big Picture: Organizational Vision”). An organization’s vision describes what

the organization hopes to become in the future. Well-constructed visions clearly articulate an organization’s

aspirations. Avon’s vision is “to be the company that best understands and satisfies the product, service, and

self-fulfillment needs of women—globally.” This brief but powerful statement emphasizes several aims that

are important to Avon, including excellence in customer service, empowering women, and the intent to be a

worldwide player. Like all good visions, Avon sets a high standard for employees to work collectively toward.

Perhaps no vision captures high standards better than that of aluminum maker Alcoa. This firm’s very ambitious

vision is “to be the best company in the world—in the eyes of our customers, shareholders, communities and

people.” By making clear their aspirations, Alcoa’s executives hope to inspire employees to act in ways that help

the firm become the best in the world.

The results of a survey of one thousand five hundred executives illustrate how the need to create an inspiring

vision creates a tremendous challenge for executives. When asked to identify the most important characteristics

of effective strategic leaders, 98 percent of the executives listed “a strong sense of vision” first. Meanwhile, 90

percent of the executives expressed serious doubts about their own ability to create a vision (Quigley, 1994).

Not surprisingly, many organizations do not have formal visions. Many organizations that do have visions find

that employees do not embrace and pursue the visions. Having a well-formulated vision employees embrace can

therefore give an organization an edge over its rivals.

Table 2.1 The Big Picture: Organizational Vision

An organization’s vision describes what the organization hopes to become in the future. Visions highlight the

values and aspirations that lay at the heart of the organization. Although visions statements have the potential to

inspire employees, customers, and other stakeholders, vision statements are relatively rare and good visions are

even rarer. Some of the visions being pursued by businesses today are offered below.

Company Vision

Alcoa To be the best company in the world–in the eyes of our customers, shareholders, communities and people.

Avon To be the company that best understands and satisfies the product, service and self-fulfillment needs women–globally.

Chevron To be the global energy company most admired for its people, partnership and performance.

Google To develop a perfect search engine.

Kraft Foods Helping people around the world eat and live better.

Proctor and Gamble

Be, and be recognized as, the best consumer products and services company in the world.

Mission Statements

In working to turnaround Starbucks, Howard Schultz sought to renew Starbucks’s commitment to its mission

statement: “to inspire and nurture the human spirit—one person, one cup and one neighborhood at a time.” A

mission such as Starbucks’s states the reasons for an organization’s existence. Well-written mission statements

effectively capture an organization’s identity and provide answers to the fundamental question “Who are we?”

While a vision looks to the future, a mission captures the key elements of the organization’s past and present

(Table 2.2 “Missions”).

Table 2.2 Missions

While a vision describes what an organization desires to become in the future, an organization’s mission is

grounded in the past and present. A mission outlines the reasons for the organization’s existence and explains

what role it plays in society. A well-written mission statement captures the organization’s identity and helps to

answer the fundamental question of “Who are we?” As a practical matter, a mission statement explains to key

stakeholders why they should support the organization. The following examples illustrate the connections between

organizations and the needs of their key stakeholders.

2.2 Vision, Mission, and Goals 34

Company Mission Statement

Harley Davidson

We ride with our customers and apply this deep connection in every market we serve to create superior value for all of our stakeholders.

Internal Revenue Service

Provide America’s taxpayers top-quality srevice by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all.

Starbucks To inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.

The Estée Lauder Company

Bringing the best to everyone we touch and being the best in everything we do.

Limited Brands

Limited Brands is committed to building a family of the world’s best fashion brands offering captivating customer experiences that drive long-term loyalty and deliver sustained growth for our shareholders.

Fender Musical Instruments

We will exceed the expectations of music enthusiasts worldwide and create a community for individual expression by focusing on our people, products, and business excellence.

Organizations need support from their key stakeholders, such as employees, owners, suppliers, and customers, if

they are to prosper. A mission statement should explain to stakeholders why they should support the organization

by making clear what important role or purpose the organization plays in society. Google’s mission, for example,

is “to organize the world’s information and make it universally accessible and useful.” Google pursued this

mission in its early days by developing a very popular Internet search engine. The firm continues to serve its

mission through various strategic actions, including offering its Internet browser Google Chrome to the online

community, providing free e-mail via its Gmail service, and making books available online for browsing.

35 Mastering Strategic Management

Many consider Abraham Lincoln to have been one of the greatest strategic leaders in modern history.

Wikimedia Commons – public domain.

One of Abraham Lincoln’s best-known statements is that “a house divided against itself cannot stand.” This

provides a helpful way of thinking about the relationship between vision and mission. Executives ask for trouble

if their organization’s vision and mission are divided by emphasizing different domains. Some universities have

fallen into this trap. Many large public universities were established in the late 1800s with missions that centered

on educating citizens. As the twentieth century unfolded, however, creating scientific knowledge through research

became increasingly important to these universities. Many university presidents responded by creating visions

centered on building the scientific prestige of their schools. This created a dilemma for professors: Should they

2.2 Vision, Mission, and Goals 36

devote most of their time and energy to teaching students (as the mission required) or on their research studies

(as ambitious presidents demanded via their visions)? Some universities continue to struggle with this trade-off

today and remain houses divided against themselves. In sum, an organization is more effective to the extent that

its vision and its mission target employees’ effort in the same direction.

Pursuing the Vision and Mission through SMART Goals

An organization’s vision and mission offer a broad, overall sense of the organization’s direction. To work toward

achieving these overall aspirations, organizations also need to create goals—narrower aims that should provide

clear and tangible guidance to employees as they perform their work on a daily basis. The most effective goals

are those that are specific, measurable, aggressive, realistic, and time-bound. An easy way to remember these

dimensions is to combine the first letter of each into one word: SMART (Table 2.3 “Creating SMART Goals”).

Employees are put in a good position to succeed to the extent that an organization’s goals are SMART.

Table 2.3 Creating SMART Goals

While missions and visions provide an overall sense of the organization’s direction, goals are narrower aims

that should provide clear and tangible guidance to employees. The most effective goals are those that are SMART

(specific, measurable, aggressive, realistic, and time-bound). SMART goals help provide clarity, transparency,

and accountability. As detailed below, one SMART goal is Coca-Cola’s aim to “by 2012, improve our water

efficiency by 20%, compared with a 2004 baseline.”

Specific Coca-Cola is seeking to improve its water efficiency by a specific amount–20%. In contrast, goals such as “do your best” are vague, making it difficult to decide if a goal is actually reached.

Measurable Water efficiency can be calculated, so Coca-Cola is able to track its progress relative to its 20% target. If progress is slow, more resources can be devoted to achieving the goal.

Aggressive A series of research studies have established that performance is strongest when goals are challenging but attainable. Reaching a 20% improvement will requires aggressive work by Coke, but the goal can be reached.

Realistic

If Coca Cola’s water efficiency goal was 95% improvement, Coca Cola’s employees would probably react with surprise. Reaching a goal must be feasible in order for employees to embrace it. Unrealistic goals make most people give up. And basing goals on impossible clichés, such as “give 110%” creates confusion.

Time-bound Coca Cola is seeking to achieve its 20% improvement by 2012. Some universities, such as Texas Tech University, provide incentives, including preferred scheduling for students who sign contracts agreeing to graduate on a four-year schedule. Deadlines such as these are motivating and they create accountability.

A goal is specific if it is explicit rather than vague. In May 1961, President John F. Kennedy proposed a specific

goal in a speech to the US Congress: “I believe that this nation should commit itself to achieving the goal, before

this decade is out, of landing a man on the moon and returning him safely to the earth (National Aeronautics and

Space Administration).” Explicitness such as was offered in this goal is helpful because it targets people’s energy.

A few moments later, Kennedy made it clear that such targeting would be needed if this goal was to be reached.

Going to the moon, he noted, would require “a major national commitment of scientific and technical manpower,

materiel and facilities, and the possibility of their diversion from other important activities where they are already

37 Mastering Strategic Management

thinly spread.” While specific goals make it clear how efforts should be directed, vague goals such as “do your

best” leave individuals unsure of how to proceed.

A goal is measurable to the extent that whether the goal is achieved can be quantified. President Kennedy’s

goal of reaching the moon by the end of the 1960s offered very simple and clear measurability: Either Americans

would step on the moon by the end of 1969 or they would not. One of Coca-Cola’s current goals is a 20 percent

improvement to its water efficiency by 2012 relative to 2004 water usage. Because water efficiency is easily

calculated, the company can chart its progress relative to the 20 percent target and devote more resources to

reaching the goal if progress is slower than planned.

A goal is aggressive if achieving it presents a significant challenge to the organization. A series of research

studies have demonstrated that performance is strongest when goals are challenging but attainable. Such goals

force people to test and extend the limits of their abilities. This can result in reaching surprising heights. President

Kennedy captured this theme in a speech in September 1962: “We choose to go to the moon. We choose to go to

the moon in this decade…not because [it is] easy, but because [it is] hard, because that goal will serve to organize

and measure the best of our energies and skills.”

In the case of Coca-Cola, reaching a 20 percent improvement will require a concerted effort, but the goal can

be achieved. Meanwhile, easily achievable goals tend to undermine motivation and effort. Consider a situation in

which you have done so well in a course that you only need a score of 60 percent on the final exam to earn an

A for the course. Understandably, few students would study hard enough to score 90 percent or 100 percent on

the final exam under these circumstances. Similarly, setting organizational goals that are easy to reach encourages

employees to work just hard enough to reach the goals.

It is tempting to extend this thinking to conclude that setting nearly impossible goals would encourage even

stronger effort and performance than does setting aggressive goals. People tend to get discouraged and give up,

however, when faced with goals that have little chance of being reached. If, for example, President Kennedy had

set a time frame of one year to reach the moon, his goal would have attracted scorn. The country simply did not

have the technology in place to reach such a goal. Indeed, Americans did not even orbit the moon until seven

years after Kennedy’s 1961 speech. Similarly, if Coca-Cola’s water efficiency goal was 95 percent improvement,

Coca-Cola’s employees would probably not embrace it. Thus goals must also be realistic, meaning that their

achievement is feasible.

You have probably found that deadlines are motivating and that they help you structure your work time. The

same is true for organizations, leading to the conclusion that goals should be time-bound through the creation

of deadlines. Coca-Cola has set a deadline of 2012 for its water efficiency goal, for example. The deadline for

President Kennedy’s goal was the end of 1969. The goal was actually reached a few months early. On July

20, 1969, Neil Armstrong became the first human to step foot on the moon. Incredibly, the pursuit of a well-

constructed goal had helped people reach the moon in just eight years.

2.2 Vision, Mission, and Goals 38

Americans landed on the moon eight years after President Kennedy set a moon landing as a key goal for the United States.

Wikimedia Commons – public domain.

The period after an important goal is reached is often overlooked but is critical. Will an organization rest on its

laurels or will it take on new challenges? The US space program again provides an illustrative example. At the

time of the first moon landing, Time magazine asked the leader of the team that built the moon rockets about the

future of space exploration. “Given the same energy and dedication that took them to the moon,” said Wernher von

Braun, “Americans could land on Mars as early as 1982 (Time, 1969).” No new goal involving human visits to

Mars was embraced, however, and human exploration of space was de-emphasized in favor of robotic adventurers.

Nearly three decades after von Braun’s proposed timeline for reaching Mars expired, President Barack Obama set

in 2010 a goal of creating by 2025 a new space vehicle capable of taking humans beyond the moon and into deep

space. This would be followed in the mid-2030s by a flight to orbit Mars as a prelude to landing on Mars (Amos,

2010). Time will tell whether these goals inspire the scientific community and the country in general (Table 2.4

“Be SMART: Vision, Mission, Goals, and You”).

Table 2.4 Be SMART: Vision, Mission, Goals, and You

Many of the principles for effective organizational vision, missions, and goals apply to individuals too. Here

39 Mastering Strategic Management

are some ideas that might help you think differently about your own aspirations and how you are working to reach

them.

Vision Young children often have grandiose visions, such as “I want to be the president of the United States.” Now that you are in college, what do you aspire to become? Is your education setting the stage for you to reach this vision?

Mission I