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The Four Foundations that Should Frame Every Business Strategy

If you look closely at the inner workings of successful companies, you quickly come to the realization that truly solid market-leading organizations and business strategies are built on four critical foundations: a set of core values; a mission or purpose statement; a timed vision statement; and a clearly articulated customer or stakeholder value proposition.

While this list won’t represent a new insight or a “rocket-science” approach to business strategy for many of you, it still surprises me how many companies seem content to cherry pick from this list of the four essentials and how they rarely incorporate all four elements into their business strategy. By not taking steps to incorporate all four foundations in their strategic thinking process, organizations are setting themselves up to sub-optimize their business strategy and strategy execution results.

Let’s take a closer look at each of these important foundational elements and talk about how they fit into the strategy picture.

Core Values

Core values represent the basic, shared beliefs that govern individual and group behavior in any organization. They both define and represent the way things get done and, as a result, form the foundation for the strategic objectives in a company’s business strategy and on its strategy map. Every action an organization takes should be in absolute alignment with its stated core values. In fact, the difference between successful and unsuccessful organizations is that the successful ones actually live up to their values all the time in everything they do. It is important to note that a company’s core values ideally remain stable over time.

Because you want your employees to put your core values into action every day, you need to keep your list of core values to a short, focused one – three to five core value maximum is usually a good number. In addition, it’s not just good enough to simply identify your organization’s core values. You should also write a clear behavioural definition for each value – that is, what it is and what it looks like in action. This is often a missing piece in company core values statements. By defining your core values in actionable terms, you make it much easier for your employees to make decisions and behave in ways that are in complete alignment with the company’s core values.

Successful organizations take their use of core values even further and build the expectation that employees will act in alignment with core values into the performance management process. They go so far as to include an assessment of employees’ performance against core values behaviour standards as part of performance review discussions. Taking this approach (1) communicates the importance of a company’s core values; (2) supports the requirement to align individual actions with core values at all times; and (3) evaluates and rewards behaviour and performance that is aligned with values and helps move the organization forward.

Imperative: It’s not good enough to go through the motions of creating a list of organizational core values. To achieve real business success, it is critical to take the time to identify and define core values and then ensure that they are put into action by all employees at all levels of your organization every day.

Mission

An organization’s mission defines why it exists, describes what business it is in and the contribution it makes, and states the value it adds to either society or the corporation it operates within. A good mission statement communicates the purpose of an organization and, importantly, it aligns with the organization’s core values. Mission statements endure over time and do not change unless a change in organizational direction results in a change in the nature of your organization’s purpose.

A winning mission statement is short, inspirational, and lofty – companies should always be striving to deliver on and achieve their purpose however they never actually get there. A typical mission statement says a lot and provides direction in broad terms but still leaves room for creative thinking about how to take action and actually achieve the mission or purpose.

Here are some sample mission statements that I particularly like:

3M – To solve unsolved problems innovatively.

Merck – To preserve and improve human life.

St. Mary’s Duluth Clinic Health System – Bringing the soul and science of healing to the people we serve.

Mary Kay Cosmetics – To give unlimited opportunity to women.

Many people believe that mission statements only apply for public sector and non-profit organizations largely because their ultimate purpose is to do good for society. The thinking is that, in the private sector, the ultimate goal is to make money/a profit – full stop. And while the making money bit is true, smart for-profit organizations realize that making money isn’t a purpose that truly inspires customers and employees. Most progressive thinking companies believe that if they focus on achieving an inspirational purpose that adds real value, the money, and if they plan right, the profits will follow.

Imperative: As you can see from the mission statements provided above, even private sector organizations today take the time to define an ultimate purpose for their company. By ensuring that its core values and mission are aligned, a company is setting the stage for the development of a more coherent business strategy.

Vision

An organization’s vision is built on its core values and is an extension of its mission. A vision should include a clear timeframe (often a three to five year horizon) and acts as a signpost on the journey to achieving the mission. It paints a clear and measurable picture of what a company wants to achieve by a defined point in the future. As a result, a vision provides an organization with a tangible way of assessing its strategic progress over a specific time period.

A vision stretches the organization’s capabilities and image of itself and it clarifies the direction of the organization. In addition, a clear vision helps all of a company’s stakeholders understand why and how they can support the organization as it strives to achieve these specific goals and objectives. Because they are time-limited, vision statements change after the vision period has been completed.

Imperative: Because an organization never achieves its mission, a time-limited vision offers the ability to assess progress on the mission journey against some clear measures of performance. The thinking goes that if the progress measures included within the vision have been set in the context of the mission (and, by extension, the values), achievement of the vision implies forward progress in the achievement of an organization’s mission.

Customer Value Proposition

An organization’s customer value proposition (CVP) is the combination of benefits it is going to provide to its customer. In other words, it is the big promise it makes to its customer that differentiates it from its competitors in the market place.

The key to success with customer value propositions is to leverage your understanding of your target customer AND the value propositions of your competitors to differentiate your company in the eyes of your target customer.

There are three classic customer value propositions that vary slightly based on the business sector but generally revolve around the same three ideas of value creation:

Operational excellence (leading to lowest price/cost for our products and services)

Product or Service leadership (by continuously updating products and services to keep them on the cutting edge)

Customer/Stakeholder intimacy (customizing our products and services to meet each customer’s/stakeholder’s unique needs)

Successful organizations (1) can clearly state their CVP and (2) every employee in the organization knows what it is. In addition, a company’s CVP, mission, vision, and core values must all be in alignment if it hopes to define and execute a successful business strategy.

Imperative: A company’s customer value proposition is the fourth fundamental for strategy success. Unfortunately, making the effort to define a clear and differentiating CVP is the most frequently skipped element in the strategy creation process, regardless of sector. I think this is largely due to the fact that developing a CVP requires multiple steps, a complex thought process, and the willingness to make a bet on a focused customer strategy – all of which can be daunting in a competitive marketplace. Even when companies do define a CVP, they rarely take the step of creating a customized CVP statement that is clearly communicated and understood across their organization. While better than not defining a CVP at all, failing to follow through in this way can also result in the sub-optimization of strategy development and execution success.

Once they have been defined, the four foundational elements of core values, mission, vision, and customer value proposition should be arranged on the strategy map in a certain way (just click on the link below to see a sample strategy map).

Private Sector Strategy Map

With the four foundations in place, they can be leveraged to define the value creating business strategy an organization is going to execute to satisfy its target customer or stakeholder and achieve its mission/purpose and identify the strategic objectives that populate the strategy map. Practically, strategic objectives are identified by keeping the four foundations top of mind as these questions are answered in the following order (in the case of a for-profit company):

Financial: How must we perform financially and what returns must we deliver to our shareholders?

Customer: What must we do for our customers and what benefits/big promise must we deliver so that they reward us with their business and loyalty?

Internal Process: What processes must we excel at to give our customers what they what, need, and expect from us?

Organizational Capabilities: What skills, capabilities, people, culture, technology, tools, and infrastructure must we have access to/in place to execute our processes and deliver our customer promise/value proposition?

There are four foundations that are essential for building a sound and solid business strategy: core values, mission, vision, and customer value proposition. By keeping these four elements in mind while answering the critical questions outlined above, companies are virtually guaranteed of creating a business strategy that is aligned with their core values, is geared to delivering their differentiating big customer promise, and gets the company moving on a path to mission and vision achievement.

Though simple enough in concept, in my experience, companies frequently fail to follow through on defining the four foundations. As a result, organizations that actually make the effort to complete this work find that they are able to lead and win in their selected markets more easily than they might have imagined.

4 Comments

  1. kishen kaul
    Mar 28, 2012

    very intresting,informative and practical

  2. Sandy Richardson
    Mar 29, 2012

    I’m glad you liked it!

  3. Phil Roach
    Sep 26, 2012

    Great stuff Sandy! Do you ever see organizations that have the definitions of Mission and Vision, as you have described, reversed? Does that matter as long as the terminology is understood internally?
    Cheers!

  4. Sandy Richardson
    Sep 26, 2012

    Hi Phil: glad you liked the post.
    I generally don’t see a mix up between mission and vision the way I have defined them here. What I do see quite often though is a lack of clarity on the difference between a mission and a vision so that they end up looking the same. I believe that this is an opportunity lost – here’s a link to a blog I wrote on this very topic: Traditional Vision Statements – An Opportunity Lost http://sfo-blog.typepad.com/sfo-blog/2010/07/traditional-vision-statements-an-opportunity-lost.html
    The most important thing from my perspective is to clearly define what a mission is and what a vision is for your organization and then write them with those definitions in mind. It is fairly common practice to make your mission statement relate to your overall purpose – the semantics battle seems to center on the definition of “vision” The most important thing in my opinion is that both types of statements are included in a company’s strategy and that everyone understands what each statement is telling them (and that they help them put the strategy into action).
    So I suppose that if an organization called what I call a mission a vision that shouldn’t matter too much as long as the people using the information know what they’re looking at. However,when it comes to mission statements, it could look a bit confusing when looking at the strategies of others because most organizations tend to define “mission” in a fairly uniform way (our purpose).
    Hope this helps – Sandy