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In the fast changing competitive world in which companies operate today, the importance of strategic management cannot be overemphasized. A company statement is helpful to define and communicate the company’s goals and strategy to all stakeholders (MaRS, 2013). Company statements are designed to act as a guide and a motivating element; targeting all the stakeholders. The Mission statement defines the ‘reason for existence’ of the organization. Next is the Values or Goals statement, which defines how an organization will work, what it believes in, what will be the organization’s culture and how employees will behave. A Vision statement on the other hand, is a statement of intent which defines the future path of the organization. The Mission, Vision and Values statements typically impact the company’s strategy. The Mission statement is a guide which helps different stakeholders and aids in decision making (Kokemuller, n.d.). It gives details of the business, its products and services, the customers it serves and how it plans to grow revenues and profits. Vision statements are more futuristic and directional in nature and do not define the current business situation or immediate goals. It includes more altruistic, world-changing, softer statements involving elements like human values, integrity, diversity, responsibility, transparency and so on. It is generally a definition of the larger purpose of a company (Kokemuller, n.d.). For example, Shell’s Vision is – To be the best and widely admired refinery. Shell defines its Mission by reinforcing commitment to deliver shareholder value. The mission aims to do this by understanding the needs of customers and then manufacturing the right oil products and services. By excelling in its operations, in a safe, economical and environmentally stable manner. Making sure that the team is innovative, diverse and focused on results (Shell, n.d). The Values or Objectives are defined by Shell too. It shows their commitment to enhance business operations by delivering profits to shareholders, fulfilling the employees’ potential, meeting customer needs, increasing refinery profitability, protecting its assets, reduce costs, through an efficient management process and focus on health, safety, security and environmental excellence (Shell, n.d). As we can see, the Values and Mission statements help guide companies towards their Vision. It is critical that these statements are defined by management after due research, thought and strategic inputs.
Diverse views exist on the real importance of Mission and Vision statements. Some believe that these are necessary to help inform stakeholders like employees, partners and shareholders, about the company’s short-term and long-term goals; while others believe that these statements are developed more as an internal communication tool, because other competitors are doing so. While the truth may lie somewhere in between, the argument holds that it is the company management which really creates these statements and they may incorporate some bias based on their self-interest in addressing various stakeholders (Bart and Baetz, 1998).
Bart and Baetz conducted a study among the top 100 listed Fortune 500 firms to understand the relationship between their mission statements and their ability to deliver to stakeholder commitments. The results showed that there were no significant differences in the hypotheses related to use of employees, environment or other stakeholders in the mission statement. This could be attributed to the fact that most of the Mission statements are written after the company has achieved some of its objectives. However, companies who were more concerned about issues related to diversity were prone to mention it in their Mission statements. In many companies, the mission statements did not contain relevant terms, though that parameter was one of the strengths of the company (1998). According to Piercy & Morgan (Amran, 2012), “There is a lack of empirical evidence for the acclaimed and assumed positive effects of mission statements”. They further state that “few studies have lent to empirical support that mission statements are valuable and contribute to higher profits”. Though some experts maintain that mission statements are meant to motivate employees, provide guidance and direction, to make the firm more competitive, Germain & Cooper (1990) (Amran, 2012) “concluded that firms with a customer service mission statement improve customer performance due to a more intensive effort to monitor firm performance”. In another study by Pearce and David (1987) (Amran, 2012), it was seen that a firm’s financial performance had a close association with the components of the Mission statement. There are many objective measures to track financial performance. ROE, Return on Equity, is the profit generated by the company with its stock. ROA, or Return on Assets, is the profitability of a company as a percentage of its assets. This measure is a good indicator of efficient management of assets. Similarly VAE or Value Added per Employee gives a good idea about how much value is being added by the products or services of the company. In a study conducted by Dermol (2011), among 394 Slovenian companies, to measure the correlation between the mission statements and the ROE, ROA and VAE values; it was found that only one variable – VAE had a statistically significant relationship to Mission statements, while ROE and ROA did not. In another study conducted by Amran, among 429 companies in Malaysia, it was found that there was no statistically significant relationship between Mission statements and ROA, however there was a relationship with ROE and EPS (Earnings per Share). In general, it was seen that companies which published its Mission statement showed a better financial performance compared to those that didn’t.
In conclusion we can say that more research needs to be conducted in this area, but the overall expert opinion is in favor of formulating a company Mission and Vision, which will act as a qualitative guide to stakeholders.
References
Amran, N. A. (2012). Mission Statement and Company Performance: Evidence from Malaysia.
International Journal of Business and Behavioral Sciences, 2 (4), 1-10.
Bart, C. K. & Baetz, M. C. (1998). The relationship between mission statements and firm
performance: An exploratory study. The Journal of Management Studies, 36: 823-853
Dermol, V., (2011). RELATIONSHIP BETWEEN MISSION SATEMENT AND COMPANY
PERFORMANCE. Management Knowledge and Learning. Retrieved from:
http://issbs.si/press/ISBN/978-961-6813-10-5/papers/ML12_171.pdfKokemuller, N. (n.d.). Importance of Mission Vision in Organizational Strategy. Demand Media.
Retrieved from: http://smallbusiness.chron.com/importance-mission-vision-organizational-strategy-16000.html
MaRS. (2013). Strategy statement: Articulating your competitive advantage, objectives and
scope. MaRS Library. Retrieved from: https://www.marsdd.com/mars-library/strategy-
statement-articulating-your-competitive-advantage-objectives-and-scope/
Shell.com. (n.d.). Vision, Mission, Objectives. Shell. Retrieved from: http://src.shell.com/about-
src/vision.html
