Strategic Management: Strategic Goal Setting and Stakeholders

Introduction to Strategic Goal Setting and Stakeholders

• Session Overview: This is Session 2 of 12 for the Strategic Management course at the Department of Strategic and International Management, Moscow 2026. The instructor is Knatko D.M., Ph.D. (Economics).

• Core Focus: Exploration of strategic intent, the hierarchy of goals, and the fundamental question of "Why?" in business operations.

• Defining Strategy through Goals:

  • A strategy without a goal is considered an intellectual exercise rather than a management tool.

  • Goal setting is defined as the process of determining the specific destination for the organization.

  • As illustrated by the dialogue in Alice in Wonderland: "'Would you tell me, please, which way I ought to go from here?' — 'That depends a good deal on where you want to get to,' replied the Cat."

Strategic Intent: Stretch vs. Resource Fit

• Concept Origin: Developed by Gary Hamel and C.K. Prahalad.

• Strategic Intent: This involves the ambition to go beyond existing resources, known as "Stretch."

  • It deliberately creates a significant gap between current resources and future ambitions.

  • This gap forces companies to innovate and develop entirely new competitive advantages.

• Resource Fit: The traditional approach to strategy which limits a company’s strategy to its current capabilities and existing resources.

• Historical Case Studies:

  • Komatsu versus Caterpillar: Komatsu established the strategic intent to "encircle Caterpillar." Despite lacking the necessary resources at the start, they achieved success through continuous innovation and learning.

  • HP vs. Xerox: A similar trajectory where strategic intent drove outcomes beyond initial resource parity.

The Hierarchy of Goals: Strategy Pyramid

• Structure: The strategy pyramid moves from abstract concepts at the top to concrete actions at the base.

• Mission vs. Vision:

  • Mission: Focuses on the present. It defines the current business and the customers served. It answers the question: "What is our business?"

    • Example (Nike): "To bring inspiration and innovation to every athlete* in the world. (*If you have a body, you are an athlete.)"

    • Analogy: The mission serves as a compass.

  • Vision: Focuses on the future. It describes what the company strives to achieve and provides a picture of future success. It answers: "Who do we want to become?"

    • Example (Early Amazon): "To be Earth's most customer-centric company, where people can find and discover anything they might want to buy online."

    • Analogy: The vision is the destination.

Values as Decision-Making Guardrails

• Definition: Values are not merely slogans on a wall; they are the fundamental basis for how decisions are made within an organization.

• Lived Values: These are integrated into core business processes including hiring, employee evaluation, and reward systems. They act as behavioral "guardrails."

• Corporate Fluff: This refers to values that are declared by the organization but remain unenforced in practice.

• Case Study (Enron):

  • Official Values: Respect, Integrity, Communication, Excellence.

  • Reality: The company engaged in systemic deception and fraud, which ultimately led to its collapse.

Simon Sinek’s Golden Circle: Start with Why

• The Framework:

  • What: Every company knows the products or services they provide.

  • How: Some companies understand the processes or unique selling points that allow them to do what they do.

  • Why: Very few can clearly formulate the purpose, goal, or belief that drives them. This is the core of the circle.

• Case Study (Apple under Steve Jobs): Apple did not just sell computers or phones (the "What"). They challenged the status quo and focused on how the customer's life could be different (the "Why"), and their products served as proof of that belief.

Purpose-Driven Business: The Patagonia Example

• Mission Statement: "We're in business to save our home planet."

• Strategic Manifestations:

  • Products: Focus on durability, the use of recycled materials, and the "Worn Wear" program to encourage repair over replacement.

  • Marketing: The famous "Don't Buy This Jacket" campaign.

  • Activism: The company commits $1\%$ of all sales to environmental protection.

• Legal Status: Patagonia is a Benefit Corporation, which legally obliges the company to consider the interests of society and nature alongside shareholders.

The Great Debate: Shareholders vs. Stakeholders

• Milton Friedman (Shareholder Theory): Argues that the only social responsibility of a business is to use its resources to increase its profits for its owners.

• Edward Freeman (Stakeholder Theory): Contends that business must create value for all stakeholders (customers, employees, suppliers, and society), not just exclusively for shareholders.

• Stakeholder Ecosystem Defined: Any individuals or groups that can influence the achievement of organizational goals or are influenced by the organization's activities.

  • Internal: Employees, managers, and the Board of Directors.

  • External:

    • Capital Market: Shareholders, banks.

    • Product Market: Customers, suppliers, communities, trade unions.

    • Organizational: Government and regulators.

Stakeholder Management and Trade-offs

• Mendelow Matrix: A strategic tool used for analyzing and prioritizing stakeholders based on their sources of power (control over resources, formal authority, knowledge/expertise) and their level of interest.

• Strategy as Choice: Strategy is defined as the art of choice and compromise; it is impossible to satisfy all stakeholders simultaneously.

• Case Study (Uber): Prioritized passengers (low prices) and investors (rapid growth), leading to conflicts with drivers (low earnings) and regulators.

• Case Study (Costco): Prioritized employees (high wages) and customers (low prices), which resulted in significant pressure from Wall Street investors.

Creating Shared Value (CSV)

• Origin: Concept developed by Michael Porter and Mark Kramer as an evolution of Social Responsibility.

• Definition: Creating economic value in a way that simultaneously creates value for society. It focuses on expanding the overall pool of value rather than just redistributing existing value through charity.

• Specific Comparison:

  • Fair Trade: Increases farmer income by $10\text{--}20\%$.

  • CSV (Efficiency Investment): Investing in agricultural technology can increase farmer income by $300\%$ while reducing costs for the company.

• Example: Walmart's investment in organic cotton.

• Related Frameworks: ESG and the Triple Bottom Line.

Evolution of Goal-Setting Systems

• 1954: MBO (Management by Objectives): Introduced by Peter Drucker. Focuses on aligning individual goals with company goals via the principle: "Tell me what needs to be done, not how."

  • Uses SMART criteria: Specific, Measurable, Achievable, Relevant, Time-bound.

• 1992: BSC (Balanced Scorecard): Developed by Kaplan and Norton. Moves away from purely financial metrics to a balanced system across four perspectives:

  • Finance: "How do shareholders see us?" (e.g., cash flow, sales growth).

  • Customers: "How do customers see us?" (e.g., new products, modern delivery).

  • Internal Processes: "What must we be the best at?" (e.g., productivity, cycle time).

  • Learning and Growth: "Can we continue to develop?" (e.g., technological leadership).

  • Indicator Linkage: Connects leading indicators (processes/learning) with lagging indicators (finance).

• KPI Risks (Goodhart's Law): "When a measure becomes a target, it ceases to be a good measure."

  • Leads to distorted behavior; e.g., a nail factory set a KPI by weight and produced one massive, useless nail to meet the plan.

• 1999: OKR (Objectives and Key Results): Popularized by Andy Grove at Intel and John Doerr at Google.

  • Objective: Qualitative, inspiring statement (e.g., "Launch a fantastic MVP").

  • Key Results: $2\text{--}5$ quantitative, measurable metrics (e.g., "$40\%$ of users return within a week", "App Store rating $\\ge 4.6$").

• 2020s: FAST: Proposed as an adaptation for the AI era.

  • Frequent: Goals discussed in short cycles (quarter/month).

  • Specific: Results/actions clearly defined.

  • Ambitious: Encourages stepping beyond the norm.

  • Transparent: Goals are open to the entire organization for alignment.

OKR vs. KPI: Run vs. Grow

• KPI (Key Performance Indicator): Focuses on "Run." Measures the health of existing processes. Goal is to maintain and improve what already works (e.g., website availability at $99.9\%$).

• OKR: Focuses on "Change/Grow." It is an "expedition into the unknown." Goal is to create something new (e.g., Entering the Latin American market with $10,000$ active Brazil users).

Strategic Fit and Synthesis

• Profit as Fuel: Profit is a necessary condition for business existence (like breathing for life), but it is not the ultimate purpose.

• Strategic Alignment (Strategic Fit):

  • Domino Principle: All decisions and actions must align to create a powerful strategic position.

  • Gap Check: Continuous verification between high-level Mission statements and operational KPIs.

  • Dissonance Example: Claiming "Innovation Leadership" while setting KPIs solely for "Cost Reduction."

Key Takeaways

• Strategic Intent: Start with 'Why'. Mission and Vision set direction.

• Stakeholder Management: Success requires balancing varied interests.

• Frameworks: Use KPIs for 'health' (status quo) and OKRs/FAST for 'growth' (breakthroughs).

• Consistency: Strategy is a system where goals, resources, actions, and metrics must work in unison.

Recommended Reading Materials

• M. Porter (1996), "What Is Strategy?" (HBR)

• H. Mintzberg, "The 5 P’s of Strategy"

• J. Collins & J. Porras (1996), "Building Your Company’s Vision" (HBR)

• M. Porter & M. Kramer (2011), "Creating Shared Value" (HBR)

• D. Sull (2018), "With Goals, FAST Beats SMART" (MIT Sloan Management Review)