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 1
THE COMPANYS 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 & goals

What 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, 20years

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
Purpose

A challenging & imaginative

picture of the future
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 worlds 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
M
A
R
T

Specific
Measurable
Attainable
Result orientation
Time constrained

Reward system designed to encourage

achievement 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 societys 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 ETHICS
Ethically 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 OF
MANAGEMENT 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
Shareholders
Managers
Employees
Customers
Distributors
Suppliers
Financial institutions

COMMUNITY
Consumers
Regulators
Government
Pressure groups
The media
Local communities

SHAREHOLDER OR STAKEHOLDER?
DIFFERENT APPROACHES
US, UK more profit-focused
Priority: shareholders interests
Legal obligation
Smoothing earnings & dividend growth

Continental Europe, Asia see company as

balancing stakeholders 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 RSs 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