ORGANISATIONAL PURPOSE

OVERVIEW OF SESSION• PART 1

• Mission, vision and values• Objectives• Business ethics• Corporate governance• Shareholder and stakeholders

• PART 2• Coursework assignment• Case study – RS Chemicals

PART 1THE COMPANY’S MAIN PURPOSE IS

PROFIT MAXIMISATION ???

• Profit maximisation is fundamental– Profit after tax– Returns to shareholders– Retained earnings– Pursuit of ‘profitable growth’

• But… vision, mission & values are stated in terms other than profit

DEVELOPING THE PURPOSE OF THE ORGANISATION:

4 MAIN QUESTIONS• What is our area of activity - what should it be?• What kind of organisation do we wish to be?• What is the relative importance of shareholders &

other stakeholders?• Do we want to grow?

STRATEGIC PLANNING: SOME DEFINITIONS RE-VISITED

• Mission What business are we in?

• Objectives & goalsWhat we seek to achieve (& when)

• Strategies Key plan(s) by which objectives will be met

“to achieve … through…”

• Programmes Grouping of main activities

• Action plans Detailed actions with responsibilities & dates

2. DEVELOPING A STRATEGIC VISION FOR THE FUTURE:

MISSION AND OBJECTIVES

MISSION, VISION & VALUE STATEMENTS

• Mission statement: ‘what business are we in?’• Vision statement: ‘where do we want to be?

– Our aspirations– Our view of the company in 10, 20…years

• Corporate Values– Underlying, core enduring ‘principles’ that guide

strategy & operations– ‘would these values change with circumstances’? If

no, then these are core & enduring

VISION FOR THE FUTURE

‘A vision articulates a view of a realistic, credible, attractive future for the organisation, a condition that is better in some ways than what now exists’

‘ A mental image of a possible and desirable future state of the organisation’

Bennis & Nanus

VISION FOR THE FUTURE

‘a deep dissatisfaction with what is and… a clear grasp of what could be’

John Stott

VISION FOR THE FUTURE

• Points the way ahead - articulates where they want to be

• More than just extrapolation of current picture• Not the same as purpose:

– Vision A challenging & imaginative picture of the future

– Purpose The long-term objectives of the business

• Challenging - intellectually stretched

CRITERIA FOR JUDGING VISION• Foresight• Breadth• Uniqueness• Consensus• Actionability

Hamel & Prahalad, Competing for the future, 1994

Vision: related to the organisation, its resources and the likely market /competitive developments

Grounded in the possible

VISION STATEMENTS

SHELL: ‘to engage efficiently, responsibly and

profitably in oil, oil products, gas, chemicals and …other selected businesses’

McDonalds:‘to be the world’s best quick-service

restaurant chain’

OBJECTIVES:WHAT IS TO BE ACHIEVED AND WHEN

• 2 types:– Financial objectives– Business (strategic) objectives

• Objectives at different levels– Corporate– Business unit (SBU)– Functional

THE STRATEGIC PLANNING PROCESS : SMART OBJECTIVES

Clear Objectives: SMART Objectives

• S Specific• M Measurable• A Attainable• R Result orientation• T Time constrained

Reward system designed to encourageachievement of objectives

FINANCIAL OBJECTIVES: AN EXAMPLE

• Sales Rapid growth at 25% pa to £80m• Earnings Maintain high margins in 8-12% PBIT

range throughout; at best, 14% in year 5• Assets Grow asset base but more slowly than

sales; halve working capital as % sales by year 5; hold fixed assets at current % of sales

• ROC 15% by year 3, 25% by year 5; implies capital turnover of 1.78x by year 5

• Cash Reduce borrowings by 50% to £xxm by reverting to cash generation

FINANCIAL OBJECTIVES

A common objective in the last few years:

•Operating Cash Flow

•Free Cash Flow– Operating Cash Flow less Capex (Capital

Investment)

BUSINESS OBJECTIVES

• Portfolio of activities• Position in sectors• Sustainable competitive advantage• Technology stance• Human resources• Ownership /dividend policy

4. PURPOSE SHAPED BY ETHICAL CONSIDERATIONS

BUSINESS ETHICS• What are ethics?

– Conception of right or wrong conduct– Underpin the ethos and the value of the enterprise – Guides to moral behaviour; what is morally acceptable or

unacceptable

• Ethical principles stem from:– religious beliefs or moral codes – a society’s history, experience and tradition – national culture – kinship and family context – peers & reference groups– opinion leaders and role models– education

BUSINESS ETHICS: STANDARDS AND CONDUCT

Why does it matter?

• Unavoidable (eg law)• Sanction of society (eg petrol price increases)• Professionalism (eg treatment of minorities)• Self-interest (eg pre-empting accusations of poor

behaviour)

Need to be reflected in mission statement(cf stakeholder perspective)

BUSINESS ETHICSEthically and socially responsible behaviour

• Expected by the public • Prevents harm to stakeholders, the public and wider society • Basic principle: ‘do no harm’ (primum non nocere). • Protects organisations from abuse by employees or competitors

(unfair competitive practices, bribery and corruption)• Protects employees from harmful actions by employers • Allows people to act consistently in their work

(cf personal ethics /beliefs)

5. CORPORATE GOVERNANCE AND THE PURPOSE OF THE

ORGANISATION

CORPORATE GOVERNANCE: RESPONSIBLE USE OF POWER

• 2 main areas:– selection & conduct of senior management– their relationships with owners, employees &

other stakeholders• Structures & systems of control

Non-executive directors, supervisory boards,accounting standards

THE BOARD OF DIRECTORS

‘Something where a comprehensive view of corporate activity comes together with the

responsibility for understanding social, economic and stakeholder demands for

performance accountability.’

THE INTERNATIONAL INSTITUTE OFMANAGEMENT DEVELOPMENT

TWO MODELS OF CORPORATE GOVERNANCE

Germany• 2 tier board• Banks have large shareholdings

Japan• Top management fill the board• Monitoring by banks

– cross-shareholdings and contracts– majority stakes in industry

6. STAKEHOLDERS AND PURPOSE

SHAREHOLDER OR STAKEHOLDER?

• How does a shareholder differ from a stakeholder?• Shareholders Investors share financially

in success• Stakeholders Individuals or groups with

interests• Shareholders are stakeholders

STAKEHOLDERS:INDIVIDUALS & GROUPS WITH AN

INTEREST

CONTRACTUAL COMMUNITY Shareholders Managers Employees Customers Distributors Suppliers Financial institutions

Consumers Regulators Government Pressure groups The media Local communities

SHAREHOLDER OR STAKEHOLDER?DIFFERENT APPROACHES

• US, UK more profit-focused– Priority: shareholder’s interests– Legal obligation– Smoothing earnings & dividend growth

• Continental Europe, Asia see company as balancing stakeholder’s interests– Wider legal obligation to:

• Employees, state & company

SHAREHOLDER OR STAKEHOLDER?DIFFERENT APPROACHES

• Problems with maximising shareholder value:– Short-term perspective, not building for l/t– Financial manipulation (Enron)– Inadequate emphasis given to risk (bank lending)

• Ethical & social justice are real issues:– Employees– Customers & suppliers– Natural resources, pollution

BREAK!!!

PART 2: An Ethical Dilemma

Touching on ‘Culture’

• Dr Sheena Chung works for RS Chemicals Ltd and is based at their plant in Leicestershire, England. She is involved in a project with the RS’s French factory in Lille developing lubricants for the shipping industry. Sheena moves to Lille for 3 months and continues to report back regularly to Richard Sykes, a rather unpleasant Managing Director of RS. Richard has made it clear that the success of the project is vital to the firm.

• Sheena is made to feel very welcome by the French especially a friendly French project manager Jean Thoreau and is re-assured that the project is going well and is actually ahead of schedule.

• One lunchtime Sheena decides to try lunch in a local bistro.

• She notices that there are three of the factory floor workers on a nearby table. They work with heavy machinery and corrosive chemicals. Whilst eating lunch she notices that they are drinking rather heavily; empty wine bottles are evidence of this.

• On returning to her office, she decides to have a word with Jean Thoreau and raise her concerns. Jean shrugs his shoulders and says that such drinking at lunchtime is “not unusual”.

Task – in your groups 1. What is the nature of the ethical dilemma facing Sheena? 2. What are the choices facing her?  3. Which is your preferred option for her to follow, and why?

Coursework Assignment

• Case study and questions now available on Study Direct

• 2000 words (+/- 10%) in essay style• Submission by 16:00 hrs on Monday of

Week 8 (i.e. 9th March 2015)• Questions to tutors in first instance, after

that generic questions via the Forum