IMPORTANCE
OF VISION AND MISSION STATEMENTS
BY
SMART
LEARNING WAY
One of the first things that any observer of
management thought and practice asks is whether a particular organization has a
vision and mission statement. In addition, one of the first things that one
learns in a business school is the importance of vision and mission statements.
This article is intended to elucidate on the
reasons why vision and mission statements are important and the benefits that
such statements provide to the organizations. It has been found in studies that
organizations that have lucid, coherent, and meaningful vision and mission
statements return more than double the numbers in shareholder benefits when
compared to the organizations that do not have vision and mission statements.
Indeed, the importance of vision and mission statements is such that it is the
first thing that is discussed in management textbooks on strategy.
Some of the benefits of having a vision and
mission statement are discussed below:
Above everything else, vision and mission
statements provide unanimity of purpose to organizations and imbue the
employees with a sense of belonging and identity. Indeed, vision and mission
statements are embodiment of organizational identity and carry the
organizations creed and motto. For this purpose, they are also called as
statements of creed.
Vision and mission statements spell out the
context in which the organization operates and provides the employees with a
tone that is to be followed in the organizational climate. Since they define
the reason for existence of the organization, they are indicators of the
direction in which the organization must move to actualize the goals in the
vision and mission statements.
The vision and mission statements serve as
focal points for individuals to identify themselves with the organizational
processes and to give them a sense of direction while at the same time
deterring those who do not wish to follow them from participating in the
organization’s activities.
The vision and mission statements help to
translate the objectives of the organization into work structures and to assign
tasks to the elements in the organization that are responsible for actualizing
them in practice.
To specify the core structure on which the
organizational edifice stands and to help in the translation of objectives into
actionable cost, performance, and time related measures.
Finally, vision and mission statements provide
a philosophy of existence to the employees, which is very crucial because as
humans, we need meaning from the work to do and the vision and mission
statements provide the necessary meaning for working in a particular
organization.
As can be seen from the above, articulate,
coherent, and meaningful vision and mission statements go a long way in setting
the base performance and actionable parameters and embody the spirit of the
organization. In other words, vision and mission statements are as important as
the various identities that individuals have in their everyday lives.
It is for this reason that organizations spend
a lot of time in defining their vision and mission statements and ensure that
they come up with the statements that provide meaning instead of being mere
sentences that are devoid of any meaning.
Environmental Scanning - Internal &
External Analysis of Environment
Organizational environment consists of both
external and internal factors. Environment must be scanned so as to determine
development and forecasts of factors that will influence organizational
success. Environmental scanning refers to possession and utilization of
information about occasions, patterns, trends, and relationships within an
organization’s internal and external environment.
It helps the managers to
decide the future path of the organization. Scanning must identify the threats and
opportunities existing in the environment. While strategy formulation, an
organization must take advantage of the opportunities and minimize the threats.
A threat for one organization may be an opportunity for another.
Internal analysis of the environment is the
first step of environment scanning. Organizations should observe the internal
organizational environment. This includes employee interaction with other
employees, employee interaction with management, manager interaction with other
managers, and management interaction with shareholders, access to natural
resources, brand awareness, organizational structure, main staff, operational
potential, etc. Also, discussions, interviews, and surveys can be used to
assess the internal environment. Analysis of internal environment helps in
identifying strengths and weaknesses of an organization.
As business becomes more competitive, and
there are rapid changes in the external environment, information from external
environment adds crucial elements to the effectiveness of long-term plans. As
environment is dynamic, it becomes essential to identify competitors’ moves and
actions. Organizations have also to update the core competencies and internal
environment as per external environment. Environmental factors are infinite,
hence, organization should be agile and vigile to accept and adjust to the
environmental changes. For instance - Monitoring might indicate that an
original forecast of the prices of the raw materials that are involved in the
product are no more credible, which could imply the requirement for more
focused scanning, forecasting and analysis to create a more trustworthy
prediction about the input costs. In a similar manner, there can be changes in
factors such as competitor’s activities, technology, market tastes and
preferences.
While in external analysis, three correlated
environment should be studied and analyzed —
- immediate / industry environment
- national environment
- broader socio-economic environment / macro-environment
Examining the industry environment needs an
appraisal of the competitive structure of the organization’s industry,
including the competitive position of a particular organization and it’s main
rivals. Also, an assessment of the nature, stage, dynamics and history of the industry
is essential. It also implies evaluating the effect of globalization on
competition within the industry.
Analyzing the national environment needs an
appraisal of whether the national framework helps in achieving competitive
advantage in the globalized environment. Analysis of macro-environment includes
exploring macro-economic, social, government, legal, technological and
international factors that may influence the environment. The analysis of
organization’s external environment reveals opportunities and threats for an
organization.
Strategic managers must not only recognize the
present state of the environment and their industry but also be able to predict
its future positions.
Porter’s Five Forces Model of Competition
Michael Porter (Harvard Business School
Management Researcher) designed various vital frameworks for developing an
organization’s strategy. One of the most renowned among managers making
strategic decisions is the five competitive forces model that determines
industry structure.
According to Porter, the nature of competition
in any industry is personified in the following five forces:
·
Threat of new
potential entrants
·
|
Threat of
substitute product/services
·
Bargaining power
of suppliers
·
Bargaining power
of buyers
·
Rivalry among
current competitors
|
The five forces mentioned above are very
significant from point of view of strategy formulation. The potential of these
forces differs from industry to industry. These forces jointly determine the
profitability of industry because they shape the prices which can be charged,
the costs which can be borne, and the investment required to compete in the
industry. Before making strategic decisions, the managers should use the five forces
framework to determine the competitive structure of industry.
Let’s discuss the five factors of Porter’s
model in detail:
Risk of entry by potential competitors:
Potential competitors refer to the firms which are not currently competing in
the industry but have the potential to do so if given a choice. Entry of new
players increases the industry capacity, begins a competition for market share
and lowers the current costs. The threat of entry by potential competitors is
partially a function of extent of barriers to entry. The various barriers to
entry are-
·
Economies of
scale
·
Brand loyalty
·
Government
Regulation
·
Customer
Switching Costs
·
Absolute Cost
Advantage
·
Ease in
distribution
·
Strong Capital
base
Rivalry among current competitors: Rivalry refers to the competitive
struggle for market share between firms in an industry. Extreme rivalry among
established firms poses a strong threat to profitability. The strength of
rivalry among established firms within an industry is a function of following factors:
·
Extent of exit
barriers
·
Amount of fixed
cost
·
Competitive
structure of industry
·
Presence of
global customers
·
Absence of
switching costs
·
Growth Rate of
industry
·
Demand conditions
Bargaining Power of Buyers: Buyers refer to the customers who finally
consume the product or the firms who distribute the industry’s product to the
final consumers. Bargaining power of buyers refer to the potential of buyers to
bargain down the prices charged by the firms in the industry or to increase the
firms cost in the industry by demanding better quality and service of product.
Strong buyers can extract profits out of an industry by lowering the prices and
increasing the costs. They purchase in large quantities. They have full
information about the product and the market. They emphasize upon quality
products. They pose credible threat of backward integration. In this way, they
are regarded as a threat.
Bargaining Power of Suppliers: Suppliers refer to the firms that provide
inputs to the industry. Bargaining power of the suppliers refer to the
potential of the suppliers to increase the prices of inputs( labour, raw
materials, services, etc) or the costs of industry in other ways. Strong
suppliers can extract profits out of an industry by increasing costs of firms
in the industry. Suppliers products have a few substitutes. Strong suppliers’
products are unique. They have high switching cost. Their product is an
important input to buyer’s product. They pose credible threat of forward
integration. Buyers are not significant to strong suppliers. In this way, they
are regarded as a threat.
Threat of Substitute products: Substitute
products refer to the products having ability of satisfying customers needs
effectively. Substitutes pose a ceiling (upper limit) on the potential returns
of an industry by putting a setting a limit on the price that firms can charge
for their product in an industry. Lesser the number of close substitutes a
product has, greater is the opportunity for the firms in industry to raise
their product prices and earn greater profits (other things being equal).
The power of Porter’s five forces varies from
industry to industry. Whatever be the industry, these five forces influence the
profitability as they affect the prices, the costs, and the capital investment
essential for survival and competition in industry. This five forces model also
help in making strategic decisions as it is used by the managers to determine
industry’s competitive structure.
Porter ignored, however, a sixth significant
factor- complementary. This term refers to the reliance that develops between
the companies whose products work is in combination with each other. Strong
complementors might have a strong positive effect on the industry. Also, the
five forces model overlooks the role of innovation as well as the significance
of individual firm differences. It presents a stagnant view of competition.
BIBLIOGRAPHY
John A. Pearce II , Richard B Robinson , JR.,
Amita Mital “Strategic Management” 10th Addition Tata Mc Graw Hill
Education Pvt.Ltd New Delhi.
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