Leading Strategically and Mastering Strategic Management
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L e a r n i n g o b j e c t i v e s
After reading this chapter, you should be able to understand and articulate answers to the following
What are vision, mission, and goals, and why are they important to organizations?
How should executives analyze the performance of their organizations?
In what ways can having a celebrity CEO and a strong entrepreneurial orientation help or harm an
Questions Are Brewing at Starbucks
Starbucks’s global empire includes this store in Seoul, South Korea.
Image courtesy of Wikimedia,http://commons.wikimedia.org/wiki/File:Starbucks-seoul.JPG.
Chapter 2 from Mastering Strategic Management was adapted by The Saylor Foundation under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 license without attribution as requested
by the work’s original creator or licensee. © 2014, The Saylor Foundation.
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March 30, 2011, marked the fortieth anniversary of Starbucks first store opening for business in Seattle,
Washington. From its humble beginnings, Starbucks grew to become the largest coffeehouse company in
the world while stressing the importance of both financial and social goals. As it created thousands of
stores across dozens of countries, the company navigated many interesting periods. The last few years
were a particularly fascinating era.
In early 2007, Starbucks appeared to be very successful, and its stock was worth more than $35 per share.
By 2008, however, the economy was slowing, competition in the coffee business was heating up, and
Starbucks’s performance had become disappointing. In a stunning reversal of fortune, the firm’s stock was
worth less than $10 per share by the end of the year. Anxious stockholders wondered whether Starbucks’s
decline would continue or whether the once high-flying company would return to its winning ways.
Riding to the rescue was Howard Schultz, the charismatic and visionary founder of Starbucks who had
stepped down as chief executive officer eight years earlier. Schultz again took the helm and worked to turn
the company around by emphasizing its mission statement: “to inspire and nurture the human spirit—one
person, one cup and one neighborhood at a time.” About a thousand underperforming stores were shut
down permanently. Thousands of other stores closed for a few hours so that baristas could be retrained to
make inspiring drinks. Food offerings were revamped to ensure that coffee—not breakfast sandwiches—
were the primary aroma that tantalized customers within Starbucks’s outlets.
By the time Starbucks’s fortieth anniversary arrived, Schultz had led his company to regain excellence,
and its stock price was back above $35 per share. In March 2011, Schultz summarized the situation by
noting that “over the last three years, we’ve completely transformed the company, and the health of
Starbucks is quite good. But I don’t think this is a time to celebrate or run some victory lap. We’ve got a lot
of work to do.”  Indeed, important questions loomed. Could performance improve further? How long
would Schultz remain with the company? Could Schultz’s eventual successor maintain Schultz’s
entrepreneurial approach as well as keep Starbucks focused on its mission?
 Our Starbucks mission statement. Retrieved from http://www.starbucks.com/about-us/company-
information/mission-statement. Accessed March 31, 2011.
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 Starbucks CEO: Can you “get big and stay small” [Review of the book Onward: How Starbucks fought for its life
without losing its soul by Howard Schultz]. 2011, March 28. NPR Books. Retrieved
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Vision, Mission, and Goals
L E A R N I N G O B J E C T I V E S
Define vision and mission and distinguish between them.
Know what the acronym SMART represents.
Be able to write a SMART goal.
The Importance of Vision
Good business leaders create a vision, articulate the vision, passionately own the vision, and relentlessly
drive it to completion.
Jack Welch, former CEO of General Electric
Many skills and abilities separate effective strategic leaders like Howard Schultz from poor strategic
leaders. One of them is the ability to inspire employees to work hard to improve their organization’s
performance. Effective strategic leaders are able to convince employees to embrace lofty ambitions and
move the organization forward. In contrast, poor strategic leaders struggle to rally their people and
channel their collective energy in a positive direction.
As the quote from Jack Welch suggests, a vision is one key tool available to executives to inspire the
people in an organization. An organization’s vision describes what the organization hopes to become
in the future. Well-constructed visions clearly articulate an organization’s aspirations. Avon’s vision is
“to be the company that best understands and satisfies the product, service, and self-fulfillment needs
of women—globally.” This brief but powerful statement emphasizes several aims that are important to Avon,
including excellence in customer service, empowering women, and the intent to be a worldwide player.
Like all good visions, Avon sets a high standard for employees to work collectively toward.
Perhaps no vision captures high standards better than that of aluminum maker Alcoa. This firm’s very ambitious
vision is “to be the best company in the world—in the eyes of our customers, shareholders, communities
and people.” By making clear their aspirations, Alcoa’s executives hope to inspire employees to act in ways that
help the firm become the best in the world.
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The results of a survey of one thousand five hundred executives illustrate how the need to create an
inspiring vision creates a tremendous challenge for executives. When asked to identify the most important
characteristics of effective strategic leaders, 98 percent of the executives listed “a strong sense of vision”
first. Meanwhile, 90 percent of the executives expressed serious doubts about their own ability to create a
vision.  Not surprisingly, many organizations do not have formal visions. Many organizations that do
have visions find that employees do not embrace and pursue the visions. Having a well-formulated vision
employees embrace can therefore give an organization an edge over its rivals.
In working to turnaround Starbucks, Howard Schultz sought to renew Starbucks’s commitment to
its mission statement: “to inspire and nurture the human spirit—one person, one cup and one
neighborhood at a time.” A mission such as Starbucks’s states the reasons for an organization’s existence.
Well-written mission statements effectively capture an organization’s identity and provide answers to the
fundamental question “Who are we?” While a vision looks to the future, a mission captures the key
elements of the organization’s past and present.
Organizations need support from their key stakeholders, such as employees, owners, suppliers, and
customers, if they are to prosper. A mission statement should explain to stakeholders why they should
support the organization by making clear what important role or purpose the organization plays in
society. Google’s mission, for example, is “to organize the world’s information and make it universally
accessible and useful.” Google pursued this mission in its early days by developing a very popular Internet
search engine. The firm continues to serve its mission through various strategic actions, including offering
its Internet browser Google Chrome to the online community, providing free e-mail via its Gmail service,
and making books available online for browsing.
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Many consider Abraham Lincoln to have been one of the
greatest strategic leaders in modern history.
Image courtesy of Alexander Gardner,
One of Abraham Lincoln’s best-known statements is that “a house divided against itself cannot stand.”
This provides a helpful way of thinking about the relationship between vision and mission. Executives ask
for trouble if their organization’s vision and mission are divided by emphasizing different domains. Some
universities have fallen into this trap. Many large public universities were established in the late 1800s
with missions that centered on educating citizens. As the twentieth century unfolded, however, creating
scientific knowledge through research became increasingly important to these universities. Many
university presidents responded by creating visions centered on building the scientific prestige of their
schools. This created a dilemma for professors: Should they devote most of their time and energy to
teaching students (as the mission required) or on their research studies (as ambitious presidents
demanded via their visions)? Some universities continue to struggle with this trade-off today and remain
houses divided against themselves. In sum, an organization is more effective to the extent that its vision
and its mission target employees’ effort in the same direction.
Pursuing the Vision and Mission through SMART Goals
An organization’s vision and mission offer a broad, overall sense of the organization’s direction. To work
toward achieving these overall aspirations, organizations also need to create goals—narrower aims that
should provide clear and tangible guidance to employees as they perform their work on a daily basis. The
most effective goals are those that are specific, measurable, aggressive, realistic, and time-bound. An easy
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way to remember these dimensions is to combine the first letter of each into one word: SMART.
Employees are put in a good position to succeed to the extent that an organization’s goals are SMART.
A goal is specific if it is explicit rather than vague.
In May 1961, President John F. Kennedy proposed a specific goal in a speech to the US Congress: “I believe that this nation should commit itself to achieving
the goal, before this decade is out, of landing a man on the moon and returning him safely to the earth.”  Explicitness such as was offered in this goal is helpful because it targets people’s energy. A few moments later, Kennedy made it clear that such targeting would be needed if this goal was to be reached.
Going to the moon, he noted, would require “a major national commitment of scientific and technical
manpower, materiel and facilities, and the possibility of their diversion from other important activities
where they are already thinly spread.”
While specific goals make it clear how efforts should be directed, vague goals such as “do your best” leave individuals unsure of how to proceed.
A goal is measurable to the extent that whether the goal is achieved can be quantified. President Kennedy’s goal of reaching the moon by the end of the 1960s offered very simple and clear measurability:
Either Americans would step on the moon by the end of 1969 or they would not. One of Coca-Cola’s current goals is a 20 percent improvement to its water efficiency by 2012 relative to 2004 water usage.
Because water efficiency is easily calculated, the company can chart its progress relative to the 20 percent target and devote more resources to reaching the goal if progress is slower than planned.
A goal is aggressive if achieving it presents a significant challenge to the organization. A series of research studies have demonstrated that performance is strongest when goals are challenging but
attainable. Such goals force people to test and extend the limits of their abilities. This can result in reaching surprising heights. President Kennedy captured this theme in a speech in September 1962: “We choose to go to the moon. We choose to go to the moon in this decade…not because [it is] easy, but
because [it is] hard, because that goal will serve to organize and measure the best of our energies and skills.”
In the case of Coca-Cola, reaching a 20 percent improvement will require a concerted effort, but the goal can be achieved. Meanwhile, easily achievable goals tend to undermine motivation and effort. Consider a situation in which you have done so well in a course that you only need a score of 60 percent on the final
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exam to earn an A for the course. Understandably, few students would study hard enough to score 90 percent or 100 percent on the final exam under these circumstances. Similarly, setting organizational goals that are easy to reach encourages employees to work just hard enough to reach the goals.
It is tempting to extend this thinking to conclude that setting nearly impossible goals would encourage even stronger effort and performance than does setting aggressive goals. People tend to get discouraged and give up, however, when faced with goals that have little chance of being reached. If, for example,
President Kennedy had set a time frame of one year to reach the moon, his goal would have attracted scorn. The country simply did not have the technology in place to reach such a goal. Indeed, Americans
did not even orbit the moon until seven years after Kennedy’s 1961 speech. Similarly, if Coca-Cola’s water efficiency goal was 95 percent improvement, Coca-Cola’s employees would probably not embrace it. Thus
goals must also be realistic, meaning that their achievement is feasible. You have probably found that deadlines are motivating and that they help you structure your work time.
The same is true for organizations, leading to the conclusion that goals should be time-bound through the creation of deadlines. Coca-Cola has set a deadline of 2012 for its water efficiency goal, for example.
The deadline for President Kennedy’s goal was the end of 1969. The goal was actually reached a few months early. On July 20, 1969, Neil Armstrong became the first human to step foot on the moon.
Incredibly, the pursuit of a well-constructed goal had helped people reach the moon in just eight years. Saylor URL: http://www.saylor.org/books Saylor.org 45
Americans landed on the moon eight years after President Kennedy set a moon landing as a key
goal for the United States.
Image courtesy of NASA Apollo Archive,
The period after an important goal is reached is often overlooked but is critical. Will an organization rest on its laurels or will it take on new challenges? The US space program again provides an illustrative example. At the time of the first moon landing, Time magazine asked the leader of the team that built the moon rockets about the future of space exploration. “Given the same energy and dedication that took them to the moon,” said Wernher von Braun,
“Americans could land on Mars as early as 1982.”  No new goal involving human visits to Mars was embraced, however, and human exploration of space was de- emphasized in favor of robotic adventurers. Nearly three decades after von Braun’s proposed timeline for
reaching Mars expired, President Barack Obama set in 2010 a goal of creating by 2025 a new space
vehicle capable of taking humans beyond the moon and into deep space. This would be followed in the mid-2030s by a flight to orbit Mars as a prelude to landing on Mars.  Time will tell whether these goals
inspire the scientific community and the country in general.
K E Y T A K E A W A Y
Strategic leaders need to ensure that their organizations have three types of aims. A vision states what the organization aspires to become in the future. A mission reflects the organization’s past and present by stating why the organization exists and what role it plays in society. Goals are the more specific aims that organizations pursue to reach their visions and missions. The best goals are SMART: specific, measurable,
aggressive, realistic, and time-bound.
E X E R C I S E S
Take a look at the website of your college or university. What is the organization’s vision and mission?
Were they easy or hard to find?
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As a member of the student body, do you find the vision and mission of your college or university to be
motivating and inspirational? Why or why not?
What is an important goal that you have established for your career? Could this goal be improved by
applying the SMART goal concept?
 Quigley, J. V. 1994. Vision: How leaders develop it, share it, and sustain it. Business Horizons, 37(5), 37–41.
 Key documents in the history of space policy: 1960s. National Aeronautics and Space Administration. Retrieved
 The Moon: Next, Mars and beyond. 1969, July 15. Time. Retrieved
 Amos, J. 2010, April 15. Obama sets Mars goal for America. BBC News. Retrieved from
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Assessing Organizational Performance
L E A R N I N G O B J E C T I V E S
Understand the complexities associated with assessing organizational performance.
Learn each of the dimensions of the balanced scorecard framework.
Learn what is meant by a “triple bottom line.”
Organizational Performance: A Complex Concept
Organizational performance refers to how well an organization is doing to reach its vision, mission, and
goals. Assessing organizational performance is a vital aspect of strategic management. Executives must
know how well their organizations are performing to figure out what strategic changes, if any, to make.
Performance is a very complex concept, however, and a lot of attention needs to be paid to how it is
Two important considerations are (1) performance measures and (2) performance referents (Figure 2.5 “How Organizations and Individuals Can Use Financial Performance Measures and Referents”).
A performance measure is a metric along which organizations can be gauged. Most executives examine measures such as profits, stock price, and sales in an attempt to better understand how well their
organizations are competing in the market. But these measures provide just a glimpse of organizational performance. Performance referents are also needed to assess whether an organization is doing well. A performance referent is a benchmark used to make sense of an organization’s standing along a
performance measure. Suppose, for example, that a firm has a profit margin of 20 percent in 2011. This sounds great on the surface. But suppose that the firm’s profit margin in 2010 was 35 percent and that the average profit margin across all firms in the industry for 2011 was 40 percent. Viewed relative to these two
referents, the firm’s 2011 performance is cause for concern.
Using a variety of performance measures and referents is valuable because different measures and referents provide different information about an organization’s functioning. The parable of the blind men
and the elephant—popularized in Western cultures through a poem by John Godfrey Saxe in the nineteenth century—is useful for understanding the complexity associated with measuring organizational
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performance. As the story goes, six blind men set out to “see” what an elephant was like. The first man touched the elephant’s side and believed the beast to be like a great wall. The second felt the tusks and thought elephants must be like spears. Feeling the trunk, the third man thought it was a type of snake.
Feeling a limb, the fourth man thought it was like a tree trunk. The fifth, examining an ear, thought it was like a fan. The sixth, touching the tail, thought it was like a rope. If the men failed to communicate their different impressions they would have all been partially right but wrong about what ultimately mattered.
Figure 2.5 How Organizations and Individuals Can Use Financial Performance Measures and