3: The purpose of an organisation Flashcards

1
Q

How may the purpose of an organisation be communicated?

A

The purpose of an organisation may be communicated in a mission statement.

The role and value of such statements has been a matter of debate.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Define a mission.

A

The values and expectations of those who most strongly influence strategy about the scope and posture of the organisation (Johnson, Scholes and Whittington).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are the Elements of mission according to the Ashridge College model of mission?

A
  1. Purpose: Why does the organisation exist? Who does it exist for?
  2. Strategy: the competitive position and distinctive competence of the organisation.
  3. Policies and standards of behaviour: the policies and behavioural patterns underpinning its
    work.
  4. Values: what the company believes in, which is replicated in employees’ personal values.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

How is the role of mission determined in various approaches to strategy?

A
  1. Rational approach: Mission is the starting-point of strategy formulation. It is the basis on which strategic objectives are set. Any strategy developed must be shown to be consistent with the mission before it is adopted. The culture and values of the organisation must be moulded to serve the strategy.
  2. Emergent approach: Mission is embedded in the culture of the organisation and used to generate strategic initiatives.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What are mission statements?

A

Mission statements are formal documents that state the organisation’s mission. There is no standard format, but the four element Ashridge model of mission is a good basis for writing a mission statement. Mission statements are published within organisations to promote desired behaviour: support for strategy and purpose, adherence to values and adoption of policies and standards of behaviour.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are some benefits of mission statements?

A
  1. Provide a basis for the control of organisations, ie, managerial and operational goals can be set on the basis of them
  2. Communicate the nature of the organisation to stakeholders
  3. Help to instil core values in the organisation
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are some criticisms of mission statements?

A
  1. They are often public relations exercises rather than an accurate portrayal of the firm’s actual values
  2. They can often be full of generalisations from which it is impossible to tie down specific strategic implications or develop meaningful strategic objectives.
  3. They may be ignored by the people responsible for formulating or implementing strategy
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is the purpose of profit seeking organisations?

A

The primary goal of these is assumed to be to deliver economic value to their owners ie, to increase shareholder wealth. Goals such as satisfying customers, building market share, cutting costs, and demonstrating corporate social responsibility are secondary goals which enable economic value to be delivered.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is the purpose of Not-for-profit organisations (NFP)?

A

The primary goals of these vary enormously and include meeting members’ needs, contributing to social well-being and pressing for political and social change. Secondary goals will include the economic goal of not going bankrupt and, in some cases, generating a financial surplus to invest in research or give to the needy. Often the goals of NFP organisations will reflect the need to maximise the benefit derived from limited resources, such as funds. Their objectives may be more heavily influenced by external stakeholders such as the government.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

How is the concept of shareholder wealth maximisation relied on?

A
  1. As a decision-making criterion: techniques such as NPV and IRR assume this as the goal of the business.
  2. As a criterion to evaluate divisional managers: using performance measures such as Return on Capital Employed (ROCE) or sometimes Return on Investment (ROI) which should exceed cost of capital and rise from year to year.
  3. As the basis for financial incentives for managers. Bonuses may be based on improvements in the ROCE, earnings per share (EPS) or share price from year to year.
  4. As a benchmark against which to evaluate the board. Investment analysts and ‘active value’ investors use shareholder value measures to evaluate corporate performance and some newspapers publish league tables to name and shame underperforming boards.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are the limitations of the shareholder value assumption?

A
  1. Corporate governance is too weak to give shareholders sufficient information or influence to ensure management maximise shareholder wealth rather than, say, their own emoluments.
  2. It ignores the non-financial goals of shareholders.
  3. It is impossible to verify: Seen in retrospect a board’s decisions may be seen to have failed to maximise shareholder wealth.
  4. Ignores the nature of the financial return required: shareholders receive their wealth from dividends and from capital growth. They are assumed to be indifferent between the two, but may not be in practice due to income needs and the different tax treatments of income and capital growth.
  5. Overlooks the power of stakeholders other than shareholders, eg, increasing shareholder wealth at the expense of staff benefits may lead to loss of staff and industrial action.
  6. Ignores corporate responsibility (CR): many cultures take the view that profits should be balanced against the good of society and the natural environment.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is the Mission and objectives hierarchy?

A

Mission –> Objectives –> Strategies –> Action plans/Budget

There should be goal congruence, ie, the mission and objectives set at each level should be consistent with each other and not in conflict.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What does SMART stand for?

A

For objectives to be of use in practice, they must be SMART – Specific, Measurable, Achievable, Relevant and Timebound – eg, ‘increase online revenues by 25% within one year’.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Define stakeholders.

A

Are those groups or persons with an interest in what an organisation does.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What are the types of shareholders?

A
  1. Internal stakeholders (employees, management)
  2. Connected stakeholders (shareholders, customers, suppliers, financiers)
  3. External stakeholders (the community, government, pressure groups)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are managers and employees’ interests to defend and response risk?

A

Interests to defend:

  1. Jobs/careers
  2. Money
  3. Promotion
  4. Benefits
  5. Satisfaction

Response risk:

  1. Pursuit of ‘systems goals’ rather than shareholder interests
  2. Industrial action
  3. Negative power to impede implementation
  4. Refusal to relocate
  5. Resignation
17
Q

What are shareholders’ (corporate strategy) interests to defend and response risk?

A

Interests to defend:

  1. Increase in shareholder wealth, measured by profitability, P/E ratios, market capitalisation, dividends and yield
  2. Risk

Response risk:

  1. Sell shares (eg, to predator) or remove management
18
Q

What are bankers’ (cash flows) interests to defend and response risk?

A

Interests to defend:

  1. Security of loan
  2. Adherence to loan agreements

Response risk:

  1. Denial of credit
  2. Higher interest charges
  3. Receivership
19
Q

What are suppliers’ (purchasing strategy) interests to defend and response risk?

A

Interests to defend:

  1. Profitable sales
  2. Payment for goods
  3. Long-term relationship

Response risk:

  1. Refusal of credit
  2. Court action
  3. Wind down relationships
20
Q

What are customers’ (product strategy) interests to defend and response risk?

A

Interests to defend:

  1. Goods as promised
  2. Future benefits

Response risk:

  1. Buy elsewhere
  2. Su
21
Q

What are the government’s interests to defend and response risk?

A

Interests to defend:

  1. Jobs, training, tax

Response risk:

  1. Tax increases
  2. Regulation
  3. Legal action
22
Q

What are interest/pressure groups’ interests to defend and response risk?

A

Interests to defend:

  1. Pollution
  2. Rights
  3. Other

Response risk:

  1. Publicity
  2. Direct action
  3. Sabotage
  4. Pressure on government
23
Q

Which criteria can be used to analyse the degree of dependence or reliance of an organisation on stakeholders?

A
  1. Disruption: Can the stakeholder disrupt the organisation’s plans (eg, a bank withdrawing overdraft facilities)?
  2. Replacement: Can the firm replace the relationship?
  3. Uncertainty: Does the stakeholder cause uncertainty in the firm’s plans? A firm with healthy positive cash flows and large cash balances need not worry about its bank’s attitude to a proposed investment.
24
Q

What is Mendelow’s power interest matrix?

A

Mendelow suggests that stakeholders may be positioned on a matrix whose axes are power held and the likelihood of showing an interest in the organisation’s activities.

These factors will help define the type of relationship the organisation should seek with its stakeholders.

A: Low Power and Low Level of interest
B: Low Power and High Level of interest
C: High Power and Low Level of interest
D: High Power and High Level of interest

25
Q

Describe appropriate strategies that should be adopted regarding the types of stakeholders in Mendelow’s power matrix.

A
  1. Key players are found in segment D: strategy must be acceptable to them, at least. An example would be a major customer.
  2. Stakeholders in segment C must be treated with care. While often passive, they are capable of moving to segment D. They should, therefore be kept satisfied. Large institutional shareholders might fall into segment C.
  3. Stakeholders in segment B do not have great ability to influence strategy, but their views can be important in influencing more powerful stakeholders, perhaps by lobbying. They should therefore be kept informed. Community representatives and charities might fall into segment B.
  4. Minimal effort is expended on segment A.
26
Q

Give some examples of not-for-profit organisations (NFP).

A
  1. Volunteer organisations
  2. Charitable trusts: set up around clear objectives to achieve some cultural or social goal eg, education of the young, art and music.
  3. Governmental bodies: Police, state schools, etc.
  4. Mutually-owned public benefit corporations: these are effectively companies which do not issue shares to the public but rather whose capital is provided, and debts guaranteed to a certain limit, by others.
27
Q

What are some possible objectives for NFP?

A

(a) Surplus maximisation (equivalent to profit maximisation)
(b) Revenue maximisation (as for a commercial business)
(c) Usage maximisation (as in leisure centre swimming pool usage)
(d) Usage targeting (matching the capacity available, as in the National Health Service (NHS) in the UK)
(e) Full/partial cost recovery (minimising subsidy)
(f) Budget maximisation (maximising what is offered)
(g) Producer satisfaction maximisation (satisfying the wants of staff and volunteers)
(h) Client satisfaction maximisation (the police generating the support of the public)

28
Q

Give examples of stakeholders of NFPs?

A

There are no buyers in the NFP sector, but rather a number of different audiences (or stakeholders):

(a) A target public is a group of individuals who have an interest or concern (a) about the charity.
(b) Those benefiting from the organisation’s activities are known as the client public.
(c) Relationships are also vital with donors and volunteers from the general public.
(d) There may also be a need to lobby local and national government and businesses for support.