Corporate or Company headquarters establish the framework by preparing statements of mission, policy, strategy, and goals, within which the divisions and business units prepare their plans. Some corporations give their business units a lot of freedom to set their own sales and profit goals and strategies. Others set goals for their business units but let them develop their own strategies. Still others set the goals and participate in developing individual business unit strategies.
All corporate headquarters undertake four planning activities:
1.Defining the corporate mission.
2.Establishing strategic business units.
3.Assigning resources to each SBU.
4.Assessing growth opportunities.
Defining the Corporate Mission:
An organization exists to accomplish something to make cars, lend money, and provide a night’s lodging, and so on. Its specific mission or purpose is usually clear when the business starts. Over time the mission may change, to take advantage of new opportunities or respond to new market conditions. Amazon.com changed its mission from being the world’s largest online bookstore to aspiring to become the world’s largest online store. eBay changed its mission from running online auctions for collectors to running online auctions covering all kinds of goods.
To define its mission, a company should address Peter Drucker’s classic questions. What is our business? Who is the customer? What is of value to the customer? What will our business be? These simple-sounding questions are among the most difficult a company will ever have to answer. Successful companies continuously raise these questions and answer them thoughtfully and thoroughly. A company must redefine its mission if that mission has lost credibility or no dlonger defines as optimal course for growth.
Organizations develop mission statements to share with managers, employees, and (in many cases) customers. A clear, thoughtful mission statement provides employees with a shared sense of purpose, direction, and opportunity. The statement guides geographically dispersed employees to work independently and yet collectively toward realizing the organization’s goals.
Mission statements are at their best when they reflect a vision, an almost “impossible dream�? that provides a direction a direction for the company for the next 10 to 20 years. Sony’s former president, Akio Morita, wanted everyone to have access to “personal portable sound�? so his company created the Walkman and Portable CD player. Fred Smith wanted to deliver mail anywhere in the United States before 10:30 A.M the next day, so he created FedEx.
Good mission statements have three major characteristics. First, they focus on a limited number of goals. The statements, “We want to produce the highest-quality products, offer the most service, achieve the widest distribution, and sell at the lowest prices�? claims too much. Second, mission statements stress the company’s major policies and values. They narrow the range of individual discretion so that employees act consistently on important issues. Third, they, define the major competitive spheres within which the company will operate.
Some companies will operate in only one industry; some only in a set of related industries; some only in Industrial goods; consumer goods, or services; and some in any industry. For example, DuPont prefers to operate in the industrial market, whereas Dow is willing to operate in the Industrial and consumer markets. 3M will get into almost any industry where it can make money.
Products and Applications:
The range of products and applications a company will supply. St. Jude Medical aims to “serve physicians worldwide with high-quality products for cardiovascular care�?
Competence is the range of technological and other core competencies that a company will master. Japan’s NEC has built its core competencies in computing, communications, and components to support production of laptop computers, television receivers, and handheld telephones.
The type of market or customers a company will serve. For example, Porsche makes only expensive cars. Gerber serves primarily the baby market.
The number of channel levels from raw material to final product and distribution in which a company will participate. At one extreme are companies with a large vertical scope; at one time Ford owned its own rubber plantations, sheep farms, glass manufacturing plants, and steel foundries. At the other extreme are “hollow corporations�? or “pure marketing companies�? consisting of a person with a phone, fax, computer, and desk who contracts out for every service, including design, manufacture, marketing and physical distribution.
The range of regions or countries in which a company will operate is its geographical range.. At one extreme are companies that operate in a specific city or state. At the other are multinationals such as Unilever and Caterpillar, which operate in almost every country in the world.
Defining the Business
Companies often define their businesses in terms of products. They are in the “auto business�? or the “clothing business.�? Market definitions of a business are superior to product definitions. A business must be viewed as a customer-satisfying process, not a goods-producing process. Products are transient; basic needs and customer groups endure forever. Transportation is a need: the horse and carriage, the automobile, the railroad, the airline, and the truck are products that meet the need.
Companies must redefine their business in terms of needs, not products. Pitney-Bowes Inc., an old-line manufacturer of postage meters, is in the process of doing just that. With old-fashioned paper mail under siege, Pitney–Bowes, a U.S. company, can no longer afford to be defined by its main product,, even though it currently holds 80% of the domestic market and 62% of the global market. The company is redefining itself as a leading service provider in the much larger mail and document management industry. With its wealth of engineers, cryptographers, and even workplace anthropologists, as well as 2,300 patents and several labs, Pitney-Bowes is well positioned to help companies organize their communications. In a new series of ads in business publications such as Fortune, Pitney–Bowes is spreading the word about its new mission. For instance, one ad boasts that “we can generate remarkable changes across your entire business, including a sizeable increase in profits.�?
A business can be defined in terms of three dimensions: customer groups, customer needs, and technology. Consider a small company that defines its business as designing incandescent lighting systems for television studios. Its customers group is television studios; the customer need is lighting; and the technology is incandescent lighting. The company might want to expand. It could make lighting for other customer groups, such as homes, factories, and offices; or it could supply other services needed by television studios, such as heating, ventilation, or air conditioning. It could design other lighting technologies for television studios, such as infrared or ultraviolet lighting.
Large companies normally manage quite different businesses, each requiring its own strategy. General Electric classified its businesses into 49 strategic business units (SBU). An SBU has three characteristics:
1.It is a single business or collection of related businesses that can be planned separately from the rest of the company.
2.It has its own set of competitors.
3.It has a manager who is responsible for strategic planning and profit performance and who controls most of the factors affecting profit.
The purpose of identifying the company’s strategic business units is to develop separate strategies and assign appropriate funding. Senior management knows that its portfolio of businesses usually includes a number of “yesterday’s has-beens�? as well as “tomorrow’s breadwinners.�? Yet it cannot rely on impressions; it needs analytical tools to classify its businesses by profit potential.