21632 Chapter Notes - Chapter 4: Vision Statement, Root Mean Square
Strategic Purpose I
Influences on strategic purpose - ownership, governance, stakeholders, social responsibility.
Four ways of defining the purpose of an organisation:
•Mission statement - provides employees and stakeholders with clarity about what the
organisation is fundamentally there to do (Doing Piece)
•Vision statement - concerned with the future the organisation seek to create (Dreaming Piece)
•Statement of corporate values - communicates the underlying and enduring core principles that
guide an organisation’s strategy and define the way that the organisation should operate
•Objectives - Statements of specific outcomes that are to be achieved
Three principles guiding vision, mission and values statements:
•Focus - statements should define what is included and excluded from the organisation’s strategy
•Motivation - statements should motivate employees to full potential
•Clarity - statements should be clearly communicated, understandable and easy to remember
Ownership models:
•Public companies - equity owned by investors, mangled by hired professionals
•State-owned enterprises - owned by national or regional governments
•Entrepreneurial businesses - owned and controlled by founders
•Family businesses - SME’s
•NPO’s, Partnerships and Employee-owned firms
Corporate governance - concerned with the structures and systems of control by which mangers
are held accountable to those who have a legitimate stake in the organisation.
Governance chain - illustrates the roles and relationships of different groups involved in the
governance of an organisation.
Principal-agent model - ‘principals’ pay ‘agents’ to act on their behalf to manage a company,
resulting three problems:
•Knowledge imbalances - agents typically know more about the organisations than the principals
•Monitoring limits - difficulty for owners to monitor the performance of agents
•Misaligned incentives - agents are liable to reuse other objectives that reward them better
Shareholder model of governance - public companies owned by shareholders, assuming a
financial interest. Advantages include:
-Higher raters of return
-Reduced risk
-Increased innovation and entrepreneurship
-Better decision making
Disadvantages include:
-Diluted monitoring
-Vulnerable minority shareholders
-Short-termism
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