Chapter Company Mission © 2015 by McGraw-Hill Education This is proprietary material solely for authorized instructor use Not authorized for sale or distribution in any manner This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part Learning Objectives Describe a company mission and explain its value Explain why the mission statement should include the company’s basic product or service, its primary markets, and its principal technology Explain which goal of a company is most important: survival, profitability, or growth Discuss the importance of company philosophy, public image, and company self-concept to stockholders Give examples of the newest trends in mission statement components: customer emphasis, quality, and company vision Describe the role of a company’s board of directors Explain agency theory and its value in helping a board of directors improve corporate governance What is a Company Mission? • Company Mission: A broadly framed but enduring statement of a firm’s intent It is the unique purpose that sets a company apart from others of its type and identifies the scope of its operations in product, market, and technology terms Questions Addressed in a Mission Statement • • • • • • Why is this firm in business? What are our economic goals? What is our operating philosophy in terms of quality, company image, and self-concept? What are our core competencies and competitive advantages? What customers and can we serve? How we view our responsibilities to stockholders, employees, communities, environment, social issues, and competitors? Formulating a Mission • The typical business begins with the beliefs, desires, and aspirations of a single entrepreneur • • These beliefs are usually the basis for the company’s mission As the business grows or is forced to alter its product, market, or technology, redefining the company mission may be necessary Ex 2.2 (adapted) • • • • • • • • • • Mission Statement Components Customer-market Product-service Geographic Domain Technology Concern for Survival Philosophy Self-concept Concern for Public Image Consumers Quality Ex 2.2 Excerpts From Actual Mission Statements Ex 2.2 Excerpts From Actual Mission Statements (contd.) Three Indispensable Components: • • • Basic Product or Service Primary Market Principal Technology If a firm uses a “silver bullet” mission for outsiders to read, it will include these three components Primary Company Goals • Survival – A firm that is unable to survive will be incapable of satisfying the aims of any of its stakeholders – This goal is often taken for granted – If neglected, firm may focus on short-term aims 10 Newest Trends in Mission Components • Sensitivity to customer wants – “The customer is our top priority” – Importance of consumer satisfaction – Importance of customer service 16 Newest Trends in Mission Components (contd.) • Quality – “Quality is job one!” – The work of W Edwards Deming and J.M Juran – Malcolm Baldridge Awards 17 Deming’s 14 Points: Create constancy of purpose Adopt the new philosophy Cease dependence on mass inspection to achieve quality End the practice of awarding business on price tag alone Instead, minimize total cost, often accomplished by working with a single supplier Improve constantly the system of production and service Institute training on the job Institute leadership 18 Deming’s 14 Points (cont’d): Drive out fear Break down barriers between departments 10 Eliminate slogans, exhortations, and numerical targets 11 Eliminate work standards (quotas) and management by objective 12 Remove barriers that rob workers, engineers, and managers of their right to pride of workmanship 13 Institute a vigorous program of education and self-improvement 14 Put everyone in the company to work to accomplish the transformation 19 Newest Trends in Mission Components (contd.) • A vision statement presents a firm’s strategic intent designed to focus the energies and resources of the company on achieving a desirable future 20 Boards of Directors The board of directors is the group of stockholder representatives and strategic managers responsible for overseeing the creation and accomplishment of the company mission 21 Major Board Responsibilities: • • • • • • • Establish and update mission Elect top officers & CEO Establish compensation for top officers Determine amount & timing of dividends Set broad company policy Set objectives and authorize managers to implement long-term strategy Mandate company’s legal and ethics compliance 22 Agency Theory Agency theory is a set of ideas on organizational control based on the belief that the separation of the ownership from management creates the potential for the wishes of owners to be ignored 23 Agency Costs • The cost of agency problems plus the cost of actions taken to minimize agency problems are collectively termed agency costs 24 How Agency Problems Occur • Moral hazard problem • Executives are often free to pursue their own interests because of the disproportionate access they have to company information This is the moral hazard problem 25 How Agency Problems Occur (contd.) • Adverse selection • is an agency problem caused by the limited ability of stockholders to determine the competencies and priorities of executives at hire 26 Problems Resulting from Agency • • • • • Executives pursue growth in company size rather than earnings Executives attempt to diversify their corporate risk Executives avoid healthy risk Managers act to optimize their personal payoffs Executives protect their status 27 Solutions to Agency Problem  Owners pay executives a premium for their service to increase loyalty  Executives receive back-loaded compensation  Creating teams of executives across different units of a corporation can help to focus performance measures on organizational rather than personal goals 28 Aligning Executive Interests with Owner Interests • Stock Option Plans • Bonus plans • Incentives for Long-Term Performance 29 Key Terms • • • • Adverse selection Agency costs Agency theory Board of directors • • • • Company creed Company mission Moral hazard problem Vision statement 30 ... Geographic Domain Technology Concern for Survival Philosophy Self-concept Concern for Public Image Consumers Quality Ex 2. 2 Excerpts From Actual Mission Statements Ex 2. 2 Excerpts From Actual Mission... standards (quotas) and management by objective 12 Remove barriers that rob workers, engineers, and managers of their right to pride of workmanship 13 Institute a vigorous program of education and. .. a desirable future 20 Boards of Directors The board of directors is the group of stockholder representatives and strategic managers responsible for overseeing the creation and accomplishment