What is the purpose of strategy? Textbooks tell us that strategy is the means by which an organisation attempts to achieve its goals. We decide where we want to be – more market share, higher profits, expansion into new markets, new products, and so on. Then we map out a strategy that will help us to achieve these goals.

That seems simple enough. But problems start at the outset, with the setting of those goals. Do we always set the right ones? Do we remember, when talking about profits or market share, what the company is actually there to do? Are goals congruent with the company’s mission? All too often they are not. The mission and purpose that sustain the company are set aside in favour of a short-term pursuit of quick profits or growth.

In the 1990s the supermarket chain Royal Ahold was a household name in the Netherlands. The company had been trading for more than 100 years and had a reputation for quality food and service. It had built a close relationship with its customers. By some accounts, one in ten Dutch people owned shares in the company.

Then in the late 1990s, CEO Cees van der Hoeven embarked on a new strategy. The new goal was rapid growth – through acquisitions and geographical expansion. Royal Ahold embarked on a buying spree, acquiring supermarket chains around the world. It entered tough markets in areas such as the USA and Latin America, where it had no experience.

Debts mounted as some of the new acquisitions ran into trouble and did not perform as expected. In 2003 the bubble burst. Royal Ahold teetered on the brink of collapse, van der Hoeven lost his job and the value of their shares dropped to almost nothing.

Royal Ahold forgot what it was for. It chased short-term growth and neglected the things that made the company great in the first place. The same thing has happened, before and since, to Marconi, Ratner, Woolworths, Royal Bank of Scotland... The list goes on.

This is an extract from the Finance & Management Magazine, Issue 199, May 2012, p.32-34.

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Download the complete article Mission control.

Since Morgen Witzel wrote this article in 2012, he and others have carried out further research into strategy and mission statements.

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