Mission Statement
The first step in the strategic planning process is an assessment of the market.
Businesses depend on consumers for their existence. If you are facing a rapidly growing
consumer base, you probably will plan differently than if your clientele is stable or
shrinking. If you are lucky enough to be in a business where brand loyalty still prevails,
you may take risks that others cannot afford to take. Before you begin to assess the
market, it is important that you complete a careful assessment of your own business and
its goals.
The outcome of this self-assessment process is known as the mission statement.
According to Glueck and Jauch, "The mission can be seen as a link between performing
some social function and the more specific targets or objectives of the
organization." Another definition states that the mission statement is a "term
that refers to identifying an organization's current and future business. It is viewed as
the primary objective of the organization".
Because these authors are writing for an audience of managers or would-be managers of
larger businesses, their definitions may sound a bit lofty. If, however, you go back to
the earlier example of a successful small business, you can see it started with a clear
direction--what was to be achieved and, in a broad sense, how best to achieve it. While
your own goal may be to survive, make a profit, be your own boss or even be rich, your
business must first perform a social function, i.e., I must serve someone. Given this you
must determine (1) the ultimate purpose and (2) the specific targets or objectives of your
business.
The investors of Franchise A discussed above clearly had determined they wanted a
business with the potential for international sales. With this objective they were able to
determine the kind of franchise they wanted and the terms. They knew that some goods and
services were more likely to be marketable overseas than others. Early research helped
them determine which areas of the world would be the best places to start. This, in turn,
helped them to further narrow their list of potential products. Also, they were able to
assess the financial demands of various approaches to overseas markets. Their financial
analysis enabled them to affirm that a franchise would be one of the alternatives with a
high profit potential. All of these directions were derived from an initially vague desire
to "go international." And, as the investors developed their ideas into a
clearly defined business purpose, many issues were discovered that were critical to
success.
Defining Your Business
A primary concern in defining a mission statement is addressing the question "What
business are you in?" Answering this may seem fairly easy: however, it can be a
complex task. Determining the nature of your business should not be strictly tied to the
specific product or service you currently produce. Rather, it must be tied to the result
of your output--your social function--and the competencies you have developed in producing
that output.
Management theorist Peter Drucker suggests that if the railroad companies of the early
1900s or the wagonmakers of the 1800s had defined their business purpose as that of
developing a firm position in the transportation business, rather than limiting themselves
strictly to the rail or wagon business, they might still enjoy the market positions they
once did. The obvious concern here is to ensure that you do not define your business too
narrowly, leaving yourself open to economic changes or competitive challenges that make
you vulnerable. The primary reason the service company mentioned earlier (Franchise B)
failed was that it lacked a consumer base. These consumers were already being served by
the current market. In another example, an entrepreneur developed a device to provide
greater security for homes and vehicles. But, by focusing on the product rather than the
service it was meant to provide, he failed to consider other services that already
provided essentially the same level of protection at lower costs.
Your Firm's Philosophy
Once you have defined your mission statement, the next step is to define the firm's
basic philosophy. Such a statement will help explain to your employees and associates how
you would like to see the firm operate. Are you a risk taker, or would you prefer to build
your business slowly from a solid base? How will you relate to customers, suppliers and
competitors? What type of community involvement do you plan for your business, e.g.,
participation in recycling and volunteer activities? These questions, and many more, need
clear answers to help your employees make operational decisions and conduct themselves in
a manner consistent with your wishes. Much has been written about this concept in business
literature under the term corporate culture. A clear explanation of your business's
philosophy in the mission statement will provide a basis for the development of a
consistent business culture.
Your Firm's Goals
The next step is to set clear goals to guide and maintain the business on a path
consistent with its mission. Daniel Robey provides an excellent list of the key functions
of business goals. To summarize his comments, goals serve to:
- Justify or legitimize the organization's activities.
- Focus attention and set constraints for member behavior.
- Identify the nature of the organization and elicit commitment.
- Reduce uncertainty by clarifying what the organization is pursuing.
- Help an organization to learn and adapt by showing discrepancies between goals and
actual progress (providing feedback).
- Serve as a standard of assessment for organization members.
- Provide a rationale for organization design.
At one time, it was widely assumed that the owner of a company set that firm's goals.
Glueck and Jauch refer to this as a "trickledown" theory because it was assumed
that others in the organization simply accepted these goals. Chester Barnard, believing
that it was naive to assume such ready acceptance, suggested that organizational
objectives arose from a consensus of the employees. This "trickle-up" theory,
however, is also naive in assuming that an organization is simply the sum of individual
perspectives, and that it can achieve direction from an unguided and usually disparate
group of people. Modern theories spring from combinations of these two approaches,
suggesting goal development is a complex goal-bargaining process that enjoys some
advantages of both basic theories.
Bargaining, while seeming a rather negative and poorly developed goal-setting approach,
has the advantage of involving most, if not all, employees in the process. As a result, it
is more likely that key concerns, internal as well as external, will be taken into
account. By involving employees, you improve their understanding of and commitment to the
firm.
Pierce and Robinson captured the complexity of goal setting in this statement:
Strategic choice is the simultaneous selection of long-range objectives and grand
strategy.... When strategic planners study their opportunities, they try to determine
which are most likely to result in achieving various long-range objectives. Almost
simultaneously, they try to forecast whether an available grand strategy can take
advantage of preferred opportunities so that the tentative objectives can be met. In
essence then, three distinct but highly interdependent choices are being made at one time.
Usually several triads or sets of possible decisions are considered.
To improve the structure of this strategic approach, most experts suggest that a
repetitive method be used in developing goals. This begins with the owner and perhaps a
few key employees agreeing on a long-term direction for the business and suggesting major
goals in line with this direction. Then, other employees are asked to suggest specific
objectives, which are then reviewed before being implemented. Goals become the shared
purposes of the owner and employees and thus, it is much easier to get the support of
employees and their clear understanding of what needs to be accomplished.
Goals are defined as broad, ideal conditions. A possible goal could be "To become
the leading small-package delivery service in the Kansas City metropolitan area." In
defining goals it is important to understand (1) how the goal was derived and (2) how it
provides guidance.
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Objectives to Achieve Goals
Accomplishing a goal requires establishing and achieving several specific objectives,
which must
- Be clear, concise and attainable.
- Be measurable.
- Have a target date for completion.
- Include responsibility for taking action.
- Be arranged according to priority.
An objective to the above-stated goal could require that the dispatcher develop a route
structure capable of providing three-hour service to any area within 20 miles of the
city's center, with the service beginning within six months.
An objective has to fit within a hierarchical network of other objectives that together
contribute to the firm's ultimate goals and mission. For example, a subsidiary objective
to the one mentioned above may be "To purchase three new or late-model used delivery
vans within five months." Another objective could specify expanding staff to drive
the additional vehicles and to handle the expected increase in dispatching chores. This
system of setting priorities is called a hierarchy of objectives.
Anthony Raia provides a list of guidelines to help you avoid pitfalls in setting
objectives. Some of the most important include:
- Adapt your objectives directly to organizational goals and strategic plans. Do not
assume that they support higher level management objectives.
- Quantify and target the results whenever possible. Do not formulate objectives where
attainment cannot be measured or at least verified.
- Test your objectives for challenge and achievability. Do not build in cushions to hedge
against accountability for results.
- Adjust the objectives to the available resources and the realities of organizational
life. Do not keep your head either in the clouds or in the sand.
- Establish performance reports and milestones that measure progress toward the objective.
Do not rely on instinct or crude benchmarks to appraise performance.
- Put your objectives in writing and express them in clear, concise and unambiguous
statements. Do not allow them to remain in loose or vague terms.
- Limit the number of statements of objectives to the key result areas (for your
business). Do not obscure priorities by slating too many objectives.
- Review your statements with others to assure consistency and mutual support. Do not fall
into the trap of setting your objectives in a vacuum.
- Modify your statements to meet changing conditions and priorities.
- Do not continue to pursue objectives that have become obsolete.
The formulation of a mission, goals and objectives is a complex, repetitive and
continual process. As a small business owner-manager, your first reaction may be that you
don't have the time or the resources to accomplish this. This may be true; however, you
must develop a process that you can implement and be comfortable with. You will need to be
aware of this process, the relationship of goals to ultimate performance and the need to
be specific and consistent. A carefully throughout set of goals provides the base on which
the rest of strategic planning will proceed. The time you put into carefully assessing
what you hope to achieve and how you will measure it will reduce the time required to
assess and control performance.
Environmental and Industry Analysis
In determining appropriate goals, you will need to consider the position of your
business within its industry and the broader business environment. Several trends may
affect your business prospects. Examples may include shifts in population (e.g., the
purchasing status of "baby boomers"), trends in the economy, technological
developments, legislation (e.g., safety or antipollution regulation) and the activities of
special interest groups. As you clarify your mission and goals, you will find that some
factors are important while others may not require your attention.
There are several approaches to dealing with fluctuation and change in your business
environment. James Thompson presents a list of general strategies that provides a good
"first cut" at the complicated process of making strategic choices related to
the business environment. He argues that most organizations search for certainty in an
uncertain, fluctuating environment. Depending on the business' resources and the specific
situation, a business may adopt one of four approaches to the business environment.
Buffering can be used when you have an abundance of resources, sometimes referred to as
organizational slack. However, this is a luxury few efficiently run businesses enjoy. If,
for example, you possess a technological edge, you may be able to relax your vigilance in
the confidence that you have the resources to adapt to changes that may occur. You are
then able to concentrate on other environmental factors that may affect areas of your
business in which you don't have such an advantage.
Smoothing is a useful approach when you enjoy surplus resources in one area but your
ability to meet demand is overtaxed in others. A good example is a chimney cleaning
service that was unable to meet demands for chimney repair and service during the winter
months, but had to lay off employees during the spring and summer months. In an attempt to
change the environment, the owner developed advertising and pricing strategies aimed at
attracting more business during slow times. In addition the owner assessed the skills of
his employees. He found that by doing general masonry jobs in slow times, he could retain
workers while actually increasing the size of his business. This example also provides a
clear illustration of how a small business can manage, and even change, its environment.
Forecasting is something, that all businesses must do. When you don't have the
resources to use a buffering strategy or when conditions make smoothing impossible, you
must anticipate environmental changes. The immediate need of most businesses is to monitor
the competition. Other events that you can anticipate with an effective forecasting system
include:
- Technological breakthroughs.
- New competitors (either a company "purchases in to" your industry or a new
competitor enters from an overseas market).
- Changes in the cost and availability of raw materials.
- Changes in consumer taste.
Effective forecasting is possible only when probabilities can be predicted; for
example, you have a pretty good idea of what the odds are that shortages will occur in a
raw material, or what the chances are that a law will pass providing new sources of
assistance to small businesses. Unfortunately, many trends and changes are very difficult,
if not impossible, to anticipate, even with the best forecasting system.
As a result you may find that you must resort to Thompson's fourth approach -
rationing. An unanticipated technological breakthrough or a sudden change in the spending
habits of your customers may force you to reallocate resources. In this situation, goals
may need to be delayed or foregone altogether, and parts of your business may need to be
reduced. All needs of the business will not be completely met, but you will move to a base
from which you will have the best chance to recover. With time you will rebuild to
compensate for any losses incurred.
Information Needs
The most important consideration in developing an effective approach to forecasting and
planning is the development of your information system. In the world of personal
computers, you may equate information systems with microchips and programming, but the
concept as used here is much broader, referring to the way you gather, screen, analyze and
use information that may affect your business. This guide is part of your information
system. You are using it to inform yourself of modern approaches to managing, improving
and possibly enlarging your business.
Too many businesses still have information systems that might be described as
"shoebox" systems. Information about the business and its environment are
collected in various documents that are stored in shoeboxes, or it is picked up through
contacts between the owner and customers. The owner "analyzes" this information
and the results are used to make further decisions.
The problems with this system are obvious. First, no effort has been made to determine
what critical elements--internal or external to the business-should be assessed. Second,
assessment is based entirely on what strikes the owner as memorable or important.
Unfortunately, what is remembered is not necessarily what is important. Memory is
influenced by preconceptions and perceptions, and by how busy, tired or distracted the
owner was at the time an event occurred. An additional problem with this informal approach
is that, should the owner want to verify his or her impressions of some series of events,
it would be time consuming--if not impossible--to locate the records that would allow a
full analysis. While "seat-of-the-pants" decision making based on this type of
information system sometimes works remarkably well, much is left to chance.
Setting up an effective information system is integrally related to your mission and
goals and to the specific environmental factors defined in your strategic purpose. Collect
enough information, but don't collect too much-- this leads to information overload, where
decision makers are so swamped they become incapable of making sense of the information,
or of using it to make good decisions.
Developing a good system is a dynamic process. It is easy to determine what information
you need to collect and how to obtain it. However, as the environment and your situation
change, the information you need also changes. Items that were once important now are not.
Other considerations, impossible to anticipate at the time you developed your system, have
become critical.
Employees should be involved in determining what information is needed and where to
obtain it. They are often the first line for data collection. They can provide insights
and perspectives that you may not have considered. Together, you will be able to develop a
reasonably thorough list of concerns that the information system should address.
In any information system, a variety of sources should always be used. You already
collect much information in the documents you use to conduct everyday business. Other
sources may include periodicals (particularly those published specifically for your
industry), newspapers (or clipping services), books and experts in areas of concern.
Once you have collected the data, you will need to condense and analyze it. This is the
information reporting system. You already produce reports for various government agencies
and banks, which are nothing more than a presentation of the data you collect in a way
that is useful to the particular agency. A good information system will provide
information to employees in your business in a form that they need to make effective
decisions and carry out their jobs. It will provide enough information, but not more than
is necessary and useful. As the type of data collected changes over time, so will the
reports needed. As a result, report requirements must be periodically reassessed so time
is not spent producing useless reports.
Finally, information should be stored for easy retrieval to accommodate new situations
that may require different analyses. In data processing, this system of storage is
referred to as the company's data base. Whether you rely on an electronic or a manual
system, storing information so it is easily retrievable requires considerable forethought.
Much of the business software available today focuses on storing data in ways that allow
it to be retrieved in many different forms and later combined for analyses that were not
originally anticipated or necessary.
Internal Business Analysis
Once you've begun to collect the necessary information about your external environment,
you will be able to consider how to best fit your business into the situations that
surface. To do this you must clearly understand the strengths and weaknesses of your firm.
For a long time, people assumed that small businesses were always at a disadvantage
because they were small. Today, there are few commercial areas that don't have room for
smaller competitors if they are focused and efficient.
The primary task in the business analysis phase is to identify those factors that may
give you a competitive advantage. If you hold a patent or an exclusive license on a
particular product or service, you may enjoy a competitive advantage. Flexibility is a
major advantage that small businesses often enjoy over larger rivals. You may be able to
respond more quickly and with less cost to mood swings or taste changes in the market.
Also, small businesses can often move into new product or service lines more quickly than
larger firms.
The nature of the technology used to make your product may often yield competitive
advantages. If you employ individuals skilled in areas unique to your business, their
skills will often yield cost advantages that may offset disadvantages in other areas. For
example, your competitor may be further ahead in using computer-aided scheduling, but you
are able to rely on specialists in your own firm and can market your product as a unique
value while you move to minimize the technological differential. Once you are clear about
the areas in which you are ahead, assess your weaknesses. Having done this, you can
develop a strategy that has the best chance of succeeding. Instead of simply trying to
compete for customers on a single dimension, such as price, or to catch up in one area of
technology, you are now able to consider alternatives derived from a combination of
factors. You may, for example, see that a traditional competitor has an apparently
insurmountable cost advantage from adopting a technology that yielded unforeseen benefits.
An effort to compete strictly on the basis of price while attempting to catch up
technologically is probably doomed to failure. On the other hand, a move into other
product lines that take advantage of the skills used by your firm may give you a better
chance for survival. Eventually, this strategy may give you the time needed to acquire the
technology to compete in your original product area.
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Finalizing a Plan
When you have a clear grasp of the competitors, customers, suppliers and situations you
face, and you combine this with a realistic understanding of your own strengths and
weaknesses, you can develop a strategic plan with a strong chance of success. You may
decide that you have the strengths to compete with other businesses
"head-to-head" in their best markets. You may choose to target a market that has
not been touched by your competitors. You may see opportunities to influence local or
state legislation in a way favorable to your needs. Or you may realize that you are
constrained by a combination of circumstances that severely restrict your opportunities
and leave you only limited chances for success. You should, however, under any of these
scenarios, be able to make better choices.
Before you develop a detailed plan to implement, attempt to identify several possible
alternative approaches. Frequently, when an individual or organization faces a problem or
opportunity, solutions will appear to "pop up." You've faced similar situations
before, you have a "gut feeling" that the way to solve the problem is to....
" While your first idea may, in fact, work, the odds are it won't be as effective as
other possibilities. The reason that this obvious choice may not be the best option is
that it is usually based on experiences that, while appearing similar, are actually very
different. You may struggle a bit to identify other possible approaches. No alternative
will be perfect. But once you have considered several and listed the advantages,
disadvantages and overall chances of success for each alternative, you will be in a better
position to settle on a plan with greater potential.
