1.2 Organisational purposes
The starting point for any strategy is the purposes of an organisation. Being clear about organisational purposes is not a trivial exercise. The very phrase ‘organisational purposes’ is potentially misleading, suggesting as it does some clear and agreed set of goals. In practice, the purposes of an organisation are often unclear and often contested. Different groups both inside and outside the organisation may have competing views (with varying degrees of influence) of what those purposes should be. Further, organisational purposes are often tacit rather than clearly articulated.
Common purposes include:
Profitability – This is the dominant performance measure for commercial western organisations. It is measured either in terms of absolute profits or as a ratio, such as return on capital or earnings per share. But this should not be assumed to be the dominant objective of all organisations, for the following reasons:
• Public-sector service organisations have no profit objectives. They are likely to use service measures of output and to relate these to their cost base – an approach that may have been forced upon them by governments’ emphasis on cash-limited budgets.
• Voluntary-sector organisations may measure success in terms of levels of funding obtained and levels of service provision.
Commercial organisations outside the UK and the USA often give less emphasis to profitability as the dominant measure than their Anglo-American counterparts.
Small organisations – or at least those that survive – will give equal weighting to cash flow as to profitability
Growth – This is an important objective for many organisations. Indeed, for some organisations (for example organisations entering new markets) it is the overriding objective.
Shareholder value – As shareholders are the owners of commercial organisations, it is logical that one objective should be to maximise the value of their holdings. What is surprising is the limited extent to which this objective features in many strategic management processes, although some organisations do tie their strategy to an explicit analysis of shareholder value. This is due in part to the impracticability of shareholder value as a basis for many management decisions, and in part to the limited control that shareholders are, in practice, able to exert over the managers of their assets.
Customer satisfaction – The three previous objectives ignore the interests of customers, without which neither commercial nor non-commercial organisations can long survive. The massive increase in competition in many commercial markets, the erosion of monopolies and the shift towards increased consumer power are obliging commercial organisations to give greater weight to customer interests.
Some organisations pursue other objectives, including ones relating to operations, innovation and employee satisfaction. Increasingly, albeit often reluctantly, organisations in all sectors are recognising that performance objectives need to take account of a wider range of stakeholders, and that the needs of these stakeholders should be balanced against each other.