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Mission statements and company financial performance revisited

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314 Int. J. Managerial and Financial Accounting, Vol. 4, No. 3, 2012

Mission statements and company financial

performance revisited

Pradeep Dharmadasa and

Yasantha Maduraapeurma
Faculty of Management and Finance,
University of Colombo,
Colombo 03, CO, Sri Lanka
E-mail: pradeep@[Link]
E-mail: ma_yassa@[Link]

Siriyama Kanthi Herath*

School of Business Administration,
Clark Atlanta University,
223 James P. Brawley Drive at Fair Street,
Atlanta, Georgia 30314, USA
E-mail: sherath@[Link]
E-mail: dinushka_h@[Link]
*Corresponding author

Abstract: The purpose of this research was to explore the components in the
content of mission statements and investigate the impact of such statements on
company performance. Both qualitative and quantitative approaches were used
to explore the mission statements and their impact on performance respectively.
Data were obtained from the companies listed in Colombo Security Exchange
in Sri Lanka.
The results revealed that self-concept, concern for survival, and company
products and services are predominant in the contents of mission statements.
Moreover, considerable attention is paid to include a staff/employee component
in the contents of current mission statements. Finally, it was found that the
presence of a mission statement has no impact on company performance.
Therefore, managers must be aware that these dominating components when
crafting their mission statements.
Keywords: mission statements; company financial performance; components
of mission statement; publicly traded companies; Sri Lanka.
Reference to this paper should be made as follows: Dharmadasa, P.,
Maduraapeurma, Y. and Herath, S.K. (2012) ‘Mission statements and company
financial performance revisited’, Int. J. Managerial and Financial Accounting,
Vol. 4, No. 3, pp.314–324.
Biographical notes: Pradeep Dharmadasa is the Head of the Department of
Marketing of the Faculty of Management and Finance at the University of
Colombo, Sri Lanka. He has an MBA from the University of Colombo and
PhD from Bond University, Australia. His research profile resides within
business strategy and strategic planning, family-controlled businesses, and
entrepreneurship.

Copyright © 2012 Inderscience Enterprises Ltd.

 Mission statements and company financial performance revisited 315

Yasantha Maduraapeurma is a Lecturer in the Department of Business

Economics of the Faculty of Management and Finance, University of Colombo,
Sri Lanka. He has a BCom from the University of Colombo and Masters degree
in Management and Information Technology from the University of Kelaniya,
Sri Lanka. His research interests include business strategy, entrepreneurship
and micro-finance.

Siriyama Kanthi Herath is an Associate Professor of Accounting at Clark

Atlanta University, USA. She has a MCom (Hons) (ACCY) and PhD in
Accounting from the University of Wollongong in Australia and an MBA and
BCom (Hons) from the University of Colombo, Sri Lanka. She has published
over 35 articles in refereed journals. She is a member of the editorial boards of
International Journal of Electronic Finance, Asian Journal of Business and
Management Sciences, African Journal of Economic and Sustainable
Development and International Journal of Accounting and Finance.

1 Introduction

Mission statements are regarded as the critical starting point for almost every major
strategic initiative (Bart et al., 2001; Pearce and David, 1987; Want, 1986) and they
accentuate the organisation’s raison d’être – its reason for being (Leuthesser and Kohli,
1997; Pearce, 1982). Mission statements are further considered a cornerstone for
employee motivation (Horn, 1998; Klemm et al., 1991) and eventually stimulate them to
work passionately (Collins and Porras, 1991; Verma, 2009/10), providing necessary
direction for streamlining the strategy and achieving the strategic outcomes of
organisations (Ireland and Hitt, 1992). Moreover, in a recent study, Rigby and Bilodeau
(2009) found the mission statement to be the pre-eminent management tool in the recent
past used by senior managers worldwide after benchmarking and strategic planning.
However, despite this widespread evidence that mission statements provide a strategic
platform for organisations to develop their strategies (Sheaffer et al., 2008), their content
(Bart and Tabone, 1999) and the impact of such statements on company performance are
poorly understood (Bart and Hupfer, 2004; Krohe, 1995) because research findings
related to mission statements are still inconclusive and inconsistent. Consequently,
researchers have called for more study of the content of mission statements and also for
investigation of the extent to which contents predict performance (Bart and Hupfer,
2004). With the prevalence of mission statements in business organisations in mind, this
study explores frequently occurring components within mission statements and the
impact of such statements on organisational performance, with the objectives of
reconciling the existing divergent literature and enhancing knowledge in the field.
The remainder of this article is organised as follows. Section 2 briefly reviews the
literature pertaining to the contents of mission statements and performance outcomes of
such statements. In Section 3, the research method is outlined. Section 4 presents the
empirical results concerning frequently used components in the contents of mission
statements and the impact of such statements on company performance. Finally, we
discuss the findings, present the research limitations, and suggest directions for future
research.
316 P. Dharmadasa et al.

2 Literature review

2.1 Mission statement

Mission statements are ubiquitous. Their literature is both descriptive and prescriptive
(O’Gorman and Doran, 1999). Previous researchers (Bart and Hupfer, 2004; Campbell
and Yeung, 1991a, 1991b; Kempa and Dwyer, 2003; Pearce and David, 1987; Want,
1986) have devoted much effort to defining mission statements and exploring frequently
used components in the contents. Some view mission as an esoteric and somewhat
irrelevant preoccupation which haunts senior managers whereas others see it as the
bedrock of a company’s strength, identifying success – its personality and character
(Horn, 1998). Want (1986) perceives mission like a rudder. It serves both to reflect a
company and its people and to set a course for the organisation’s future. Some understand
mission statements as commercial evangelism, whereas others write about strong
corporate culture and still others about business definition. Ireland and Hitt (1992)
recognise that an effective mission statement describes a company’s fundamental, unique
purpose and indicates how it is unique in its scope of operations, products or service
offerings. Concerning the role of mission statements, Thompson and Strickland (2003)
highlight that mission statements provide an organisation’s self-identity, business
emphasis, and path for development, which typically set it apart from other similar
organisations. In a nutshell, mission statements capture, in a few succinct sentences, the
essence of a company’s goals and the philosophies underlying them, proclaiming
corporate purpose. The views summarised here suggest that good mission statements
should be highly personalised, unique to the organisations for which they are developed.
Fundamentally, a mission must answer the questions of why a company exists, what
is it purpose/business, and what should it be (Bart and Tabone, 1999; Horn, 1998). Some
researchers (Pearce and David, 1987) advocate eight important components of mission
statements, but others (Campbell and Yeung, 1991b; Klemm et al., 1991) propose much
simpler, parsimonious versions. The literature in the area provides considerable diversity
in the contents of various mission statements (Bart and Hupfer, 2004), and there are
inconsistent findings regarding the connection of the contents of mission statements with
performance outcomes. Thus there is little agreement as to the items that such statements
should contain and their impact on organisational performance. Moreover, there is some
disparity as to which elements more important than others, what distinguishes
a ‘luxuriant’ mission statement from a weakly designed one, and whether a
mission statement improves companies’ strategic planning and performance (Bart and
Hupfer, 2004).
Broadly speaking, mission statements can be viewed from two different schools of
thought. The ‘strategy’ school of thought describes mission in terms of business strategy
and views it as a strategic tool, an intellectual discipline which defines the company’s
commercial rationale and target market (Horn, 1998). The mission statement is perceived
as the first step in strategic management, answering two fundamental questions: What is
our business? and What should it be? The ‘philosophy and ethical’ school views mission
as the cultural ‘glue’ which enables an organisation to function as collective unity (Horn,
1998). This cultural glue consists of strong norms and values that influence the way in
which people behave, how they work together and how they pursue the goals of the
organisation. This form of mission emphasises business philosophy, helping employees
to perceive and interpret events in the same way and to speak a common language (Horn,
 Mission statements and company financial performance revisited 317

1998) and is concerned with generating cooperation among employees through shared
values and standards of behaviour.
Bart (1997) found six drivers – providing a common purpose, defining the business
scope, setting behaviour standards, helping employees’ identity with the company,
creating shared values, and inspiring employees – that promote the development of
mission statements in organisations. On the other hand, Bartkus et al. (2000) contend that
mission statements have four primary objectives: making a public declaration of the
company’s direction, stating where the company is headed; providing a control
mechanism by identifying boundaries that prevent a company from engaging in unrelated
or inappropriate business activities; assisting employees in making non-routine decisions
by expressing the company’s values; and motivating and inspiring employees by creating
a shared sense of purpose. These findings underline the significance of mission
statements and their contributions to long-term organisational direction.
Research demonstrates that although social issues such as the environment and
diversity are less frequently included, their mention in mission statements is significantly
associated with behaviours of companies regarding these issues (Bartkus and Glassman,
2008). However, highlighting the low tangible value of mission statements to business,
some authors assert that mission statements are nothing more than a fad and window
dressing (Verma, 2009/10). Verma’s (2004) study of the contents of mission statements
revealed that companies try to promote environmental excellence, team orientation,
empowerment and worker satisfaction, and to encourage dissent, as espoused values. If a
mission statement is effective as suggested in the literature it should unify the behaviour
and decisions of the organisation towards the same end (Davis et al., 2007) and improve
subsequent outcomes of the organisation. Then, more importantly, the mission would
become a driving force for organisational performance (Want, 1986).

2.2 Mission statements and company performance

The notion that mission statements provide a platform for more fertile strategies suggests
the argument that companies with a mission statement should be more successful than
those without (Want, 1986; Williams, 2008). Furthermore, this argument is backed by the
ability of mission statements to direct a company reflectively to plan its strategies
carefully, work collaboratively, and make well-informed decisions which lead to overall
improved performance (Williams, 2008).
However, studies investigating mission statements and company performance have
yielded mixed and equivocal results (Palmer and Short, 2008; Peyrefitte and David,
2006). Some studies (Bart, 1996a, 1996b; Bart and Tabone, 1999) have found evidence
of a performance impact of mission statements in a wide range of organisational contexts.
For example, Pearce and David (1987) found that high- and low-performing Fortune 500
companies differed significantly in the extent to which three of eight components, namely
organisational philosophy, self-concept and public image, were mentioned in their
mission statements. They found that the mission statements of high performing
companies frequently specified the company’s philosophy and identified the company’s
self-concept and desired public image. In Bart’s (1997) investigation of 25 mission
statement components, companies with mission statements that included a concern for
survival had a higher return on assets but a lower return on sales (ROS). However,
Sidhu’s (2003) findings suggest that mission statements can lead to better company
performance because of their ability to form coherence in creating organisational
318 P. Dharmadasa et al.

strategies. Want (1986) concluded that mission statements resulted in improved

productivity and eventually helped to increase profits. He further emphasised that mission
statements build more confidence in management so that new business will be initiated.
Similarly, if employees of the company begin to see the mission statement as a source of
guidance and direction for individual and work unit productivity, then the company’s
performance will be enhanced.
Highlighting the impact of mission statements on shareholder equity, Rarick and
Vitton (1995) concluded that the existence of a mission statement significantly increased
shareholder equity. They found that the average return on shareholder equity for
companies with a mission statement was 16.1% compared to 9.7% for those without
mission statements. Moreover, Bart and Baetz (1998) found significant performance
differences between organisations with satisfactory versus unsatisfactory mission
statements, companies with satisfactory mission statements performing better than those
that lacked such statements. Bart and Tabone (1999) contended that mission statements
that included specific components, namely distinctive competency, target market,
products/services, unique identity, desired public image, concern for satisfying
customers, and concern for employees, were associated with managerial satisfaction with
company financial performance. Some studies indicate that more successful companies
are likely to mention stakeholder groups, – employees and society – and the component
of company values (Bartkus et al., 2006). Researchers emphasise that organisations
should set their goals considering the individual goals of stakeholders. To protect the
stakeholders’ interests, to ensure they can exercise their rights properly, to ensure
information regarding the corporations’ activities and performances are adequately and
properly disseminated to every related party and last but not least, to ensure a transparent,
responsible and caring way out for the progress of the corporations, there must be
well-clarified, well-defined and generally accepted principles and guidelines [Nurunnabi
et al., (2011), p.47]. However, more importantly, it is generally accepted in the literature
that simply having a mission statement does not necessarily imply superior performance
(Bart and Baetz, 1998). What is essential is the communication of such statements to
stakeholders of the company. In light of the above we hypothesise that:
Hypothesis 1 Companies with a mission statement will be characterised by higher
financial performance than companies that lack such a statement.
However, it should be noted that inconsistent relationships between financial
performance and the existence of a formal mission statement were found by Bart and
Baetz (1998). Studying Canadian companies they found, somewhat surprisingly, that the
inclusion of financial goals in the mission statements was negatively related to
performance. Studies have produce limited and conflicting evidence linking mission
statements to any important financial variable (see Bart, 1997; Bart and Baetz, 1998; Bart
and Hupfer, 2004; Bart and Tabone, 1999; Bartkus et al., 2006; O’Gorman and Doran,
1999; Pearce and David, 1987). Analysing the mission orientation of 143 UK listed
companies, Atrill et al. (2005) found an insignificant relationship between mission
orientation and return on equity in the service sector. However, in the non-service-sector
they found shareholder-oriented missions to have a positive impact on return on equity
over three years. Their overall conclusion was that there might be some value-relevance
attached to mission orientation, but a mission based on customer orientation did not affect
performance.
 Mission statements and company financial performance revisited 319

3 Methods

This study used both qualitative and quantitative research approaches. First, content
analysis, a fairly popular qualitative research approach, was used to identify items in
the contents of mission statements. In doing so, we used the eight components
identified by Pearce and David (1987) in their influential study of mission statements in
large organisations, namely organisational philosophy, self-concept, public image,
customer/market, product/services, geographical domain, core technology, and concern
for survival. Second, using a quantitative approach, the Mann-Whitney U Test was
performed to capture the performance differences of companies with mission statements
and those without.
Data for both analyses were obtained from annual reports of the companies listed on
the Colombo Security Exchange (CSE), Sri Lanka. Although there were 231 companies
listed on the CSE by mid-2010, only 90 included their mission statements in annual
reports. Each statement was read and coded by two raters, both of whom had extensive
business and academic experience. The raters began coding and analysing by
familiarising themselves with the definitions, explanations, and examples of mission
statement content components provided by David (1989) and Pearce and David (1987).
Cohen’s Kappa coefficient was used to determine the reliability of the coding.
This measure indicates the strength of agreement in coding among raters (Fleiss, 1971).
For quantitative analysis, 187 listed companies were selected, consisting of 74 companies
with mission statements and 113 companies without. In the analysis of company
performance, companies that were in the financial and petroleum distribution
sectors were eliminated because such sectors are still under direct intervention of the
government in Sri Lanka, a situation that has a direct bearing on their performance.
Further, eight companies were eliminated because of lack of complete data due to their
temporary non-operation. Gross profit ratio (GP), ROS, return on total assets (ROTA),
return on capital employed (ROCE), and Tobin’s q were used to capture company
performance. In calculating the Tobin’s q, this study used the Tobin’s q approximation1
(Chung and Pruitt, 1994). The hypothesised relationships between mission statements and
company performance were tested employing Mann-Whitney U test statistics using
SPSS 16.

4 Results

4.1 Components in the contents of mission statements

Analysis of 90 mission statements showed that the companies tended to place greater
emphasis on self-concept (59.6%), concern for survival (57.3%), and products and
services (53.9%) in their mission statements. Moreover, the analysis found that most
mission statements were little concerned about core technology (13.5%), geographical
domain (14.6%) and public image (29.2%). In addition, 37.1% of the mission statements
included a further component which was not in the Pearce and David study, namely is
staff (see Table 1).
320 P. Dharmadasa et al.

Table 1 Components in the contents of mission statements

Component Percentage Rank

Philosophy 42.7 4
Self-concept 59.6 1
Public image 29.2 7
Customer/market 33.7 5
Product/service 53.9 3
Geographic domain 14.6 8
Core technology 13.5 9
Concern for survival 57.3 2
Staff 37.1 6

4.2 Mission statements and company financial performance

Table 2 presents the Mann-Whitney U test statistics for selected financial performance
measures that were used to test Hypothesis 1. The U test results relating to all measures
(GP: U = 3.286, p > 0.110, ROS: U = 4.121, p > 0.790, ROTA: U 3.690, p > 0.175,
ROCE: U = 3.857, p > 0.332 and Tobin’s q: U =3.909, p > 0.924) reported statistically
insignificant relationships, suggesting an absence of performance difference between
companies with mission statements and those without, rejecting Hypothesis 1.
Table 2 Mann-Whitney U test statistics

Performance measure GP ratio ROS ROTA ROCE Tobin q

Mann-Whitney U 3.284 4.121 3.690 3.857 3.909
Z –1.562 –0.266 –1.357 –0.990 –0.095
Asymp. Sig. (two-tailed) 0.110 0.790 0.175 0.322 0.924
Notes: N = 179 (companies with mission = 74, companies without mission = 113)
**Significant at the 99% confidence interval (two-tailed)
*Significant at the 95% confidence interval (two-tailed).

5 Discussion and conclusions

In recent years there has been growing interest in the contents of mission statements and
the existence of a link between mission statements and company performance. In
particular, scholars have emphasised the importance of creating clear and compelling
mission statements (Sheaffer et al., 2008) with certain frequently used components
(Campbell and Yeung, 1991b; David, 1989; Klemm et al., 1991; Pearce and David, 1987;
Williams, 2008). The findings of this study highlight that self-concept, concern for
survival, and company products and services were predominant in the contents of mission
statements in Sri Lankan publicly traded companies. Such inclusions, in particular
self-concept, illustrate the need for organisations to build and secure their uniqueness in
the mind of stakeholders and to provide a sense of identity and legitimacy (Want, 1986).
Concern for survival reflects companies’ long-term efforts to become more productive
 Mission statements and company financial performance revisited 321

and profitable in increasingly competitive markets. The frequent inclusion of company

products and services in the contents of mission statements demonstrates the companies’
intention to foreground their offerings in the minds of stakeholders. These inclusions are
mostly aligned with the business strategy school of thought that seeks company longevity
through commercial rationales and target marketing. It is interesting to note that quite a
number of the companies included a staff/employee component in their mission
statements. This inclusion is an indicative of an employee orientation in management,
reflecting the fact that each company needs to attract and retain sufficiently skilled and
motivated workers who will ensure its sustainability in the competitive marketplace
(Want, 1986).
Because of the inconclusive research findings, the hypothesis that mission statements
influence organisational performance remains unresolved. More research is needed to
reconcile these findings. Supporting previous findings (Bart, 1997; Bart and Baetz, 1998;
Bart and Hupfer, 2004; Bart and Tabone, 1999; O’Gorman and Doran, 1999; Pearce and
David, 1987), this study also indicates that mission statements are not associated with
organisational performance. Instead, it is suggested that research should focus on the
post-mission process, that is, the strategy-mission alignment (Crotts et al., 2005),
resource allocation (Ireland and Hitt, 1992), and behavioural changes (Bart et al., 2001)
that make the mission active. Failure to establish such an alignment and allocation would
necessarily hinder organisational performance, and the ensuing strategies may yield poor
results (Sheaffer et al., 2008). This is an important concern for both researchers and
practitioners, because mission statements frequently lie on a shelf or in a drawer, unread
(Want, 1986). Also changes in the business environment require changes in the mission
statements. As Anbalagan et al. (2008, p.199) explained, “Organisations have to confront
with new developments brought about by the shift of industrial age competition to
information age competition. As a result of this, certain assumptions with regard to the
running and measurement of organisational performance have become obsolete”.
Researchers, further advocate the use of multidimensional performance measurement
systems. Evaluating the organisation’s growth and success solely based on financial
indicator is insufficient in today’s business which is dynamic and competitive particularly
in the manufacturing industries [Anbalagan and Ramasamy, (2011), p.403]. Mission
statements, thus, should include multidimensional performance goals.

5.1 Limitations and future research

Qualifying these conclusions, we recognise some limitations in our study. First, although
we analysed the mission statements of companies, their use in strategy formation,
implementation and communication to employees was not considered. Further, the use of
cross-sectional data rather than longitudinal data for performance measures could be seen
as a limitation, because to effect any strategy to enhance company performance would
take some time. Furthermore, this research did not take into account the possibility that
other variables might intervene in the associations between mission statement and
company performance. It is possible, for example, that other dimensions of the
organisation (e.g., CEO tenure, organisational culture, levels of risk-taking of top
management, organisational resources in general, low resources in particular) moderate
the causal links of our model variables. Exploration of these issues will be the subject of
future research.
322 P. Dharmadasa et al.

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 324 P. Dharmadasa et al.

Notes
1 Tobin’s q approximation is the modified version of Lindenberg and Ross (1981)
‘Tobin’s q ratio and industrial organization’, The Journal of Business, Vol. 54,
No. 1, pp.1–32, original Tobin’s q. The formula of Tobin’s q approximation is;
MV (CS ) + BV ( PS ) + BV ( LTD) + BV ( INV ) + BV (CL) − BV (CA)
, where MV and BV denote
BV (TA)
market and book value respectively. CS, PS, LTD, INV, CL, CA and TA are the common
stock, preferred stock, long-term debt, inventory, current liabilities, current assets and total
assets respectively.

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