What is Objective?
The objective is the target that is set to accomplish the organization’s vision and mission. It is the expected outcome of the organization.
Determining objectives is an integral part of strategic management. They translate the strategic vision into concrete performance objectives. The managerial commitment to performance attainment is demonstrated by objectives.
They are, in other words, the end product of planned effort. Every organization was formed with the intention of achieving specific objectives. As a result, organizational activities are geared toward achieving them. Long-term and short-term objectives can both be set. They can also be expressed at several levels, such as corporate, business, operational, and individual.
An organization’s objective gives it direction. It also establishes coordination and establishes the priority of organizational actions. The organizational stakeholders’ interests are reflected in the objectives.
- “Objectives are end results of planned activity.” – Wheelen and Hunger
- “Objectives can be defined as specific results that an organization seeks to achieve in pursuing its basic mission.” – David
Components of Objectives
Objectives are the expected end results of the organization over a certain period of time. Following are the main components or features of an effective objective.
Specific
An objective must be specific. A specific objective can be understood very easily. For example, the objective “Revise website based on client feedback” isn’t very specific. “Change to new color scheme and headers” of the website is more specific.
Measurable
An objective should be clearly measurable, if it is not measurable, it cannot be accomplished. For example, objectives like “make sales calls” are not measurable. However, the measurable objective would be “make 10 new calls per day”.
Achievable
It must be achievable in a given period of time. It means objectives should be set with due consideration of the organizational resources and capability.
For example, for a local business to expand globally within a limited time would not be achievable. However, increasing its market share in the local area by 20% would be achievable.
Realistic
An objective must be based on reality. For it to be realistic, it needs to be something that the business actually does. To be realistic, it should be based on the organizational as well as external situations.
Timely
An objective must cover a certain period of time. For example, increasing sales by 20% is not timely. However, increasing sales by 20% over the period of 1 year is timely.
Motivating
People are the most important resource of an organization. Their activities largely determine the achievement of objectives. Hence, the objective should be such that motivates the people in the organization.
Flexible
Objectives should be able to address the changes in the firm’s environment. For this, it should be flexible. In other words, the objective must have sufficient ground for adjustment to the changes in the environment.
Hierarchical
An objective should be hierarchical. For this, It should be set for different levels of an organization. They are corporate level, business level, functional level, and individual level.
Congruent Across Departments
Objectives should be congruent across different departments and units of an organization. It helps to bring synergy and remove unnecessary conflicts between the departments.
Levels of Objective
An organization has different levels. Objectives are formulated for each level. On the basis of the level of organization, objectives may be classified into the following.
Corporate Level
The objective that sets the desired outcome of the whole organization is called the corporate level objective. This is the top management decision that provides the overall direction of the organization. It is derived from the vision and mission statement of the organization.
Business Level
The business-level objective is set for a particular strategic business unit. More simply, the desired outcome of a particular strategic business unit within a certain period is called business level objective. It is more related to how to achieve a competitive advantage, product/service scope, diversification, and search for business opportunities.
Functional Level
A firm has various functional units that perform various functions. The functional level objectives are set for each function. Production, marketing, finance, human resources, research, and development are all part of these objectives.
They are short-term objectives that are critical to the strategy’s implementation. They are concerned with cost reduction, market expansion, customer happiness, fund acquisition, human resource development, new product creation, and sales promotion.
Individual Level
The objectives that are set for the individual employee of a business are called individual-level objectives. They are basically related to the performance of employees within a certain period of time say daily, weekly, and monthly.
These objectives are derived from the functional objectives. They are mainly related to the output and sales of employees.
Role of Objective in Strategic Management
Determination of objectives is an integral part of strategic management. They convert the strategic vision into specific performance targets. Following are some points to show the importance of objectives in strategic management.
- Objectives define the relationship of the organization with the environment. They reveal the contribution and responsibility of the organization towards customers, employees, and society.
- Objectives show the relevance of the vision and mission of the organization.
- Objectives provide direction to the organization and aid in performance evaluation.
- They reveal priorities and focus coordination.
- They provide a basis for effective planning, organizing, motivating, and controlling activities.
- They provide the base of strategic decision-making.
- They provide foundations for the development of work standards.
- Effective objectives help develop the distinctiveness and existence of an organization and enhance organizational attractiveness.
Types of Objective
The types of objectives may also be classified into financial, strategic, short-term, and long-term objectives.
Financial Objectives
Financial objectives are related to financial performance targets, they are expressed in quantitative terms, set for usually one year, and are supportive of strategic objectives.
Financial performance is a must for the long-term growth and survival of an organization. Low profitability and weak balance sheet alarm the stakeholders mainly shareholders and creditors. They also risk the jobs of shareholders. The financial objectives include the following.
- Annual percentage increase in sales
- Annual percentage increase in after-tax profit
- Annual percentage increase in earnings per share
- Percentage return on capital employed or equity
- Sufficient cash flow
Developing financial objectives is a decentralized process. Managers can acquire acceptance and commitment by actively participating in the development of financial objectives. The distribution of resources is based on financial objectives.
They also serve as a benchmark for measuring manager performance. They serve as a tool for tracking progress toward reaching strategic objectives.
Strategic Objectives
Strategic objectives are an organization’s long-term goals, usually greater than five years. They have to do with increasing market power, competitiveness, and future company opportunities. They are also expressed in qualitative terms, unlike financial objectives. They have a broad scope and contribute to the overall vision.
The strategic objective includes the following.
- Percentage increase in market share
- Achieving lower overall cost than the competitors
- Achieving technological leadership
- Superior product performance or quality or customer service
There must be a trade-off between financial and strategic objectives when crucial decisions are made. In some cases, short-term financial objectives would harm long-term strategic objectives. For example, improving the financial condition in the short run through higher prices may threaten long-term market share.
Short-Term and Long-Term Objectives
Each division and the entire corporation have its own number of objectives. Long-term is defined as more than a year. As a result, long-term objectives refer to an organization’s desired achievements over a one-year period.
Short-term objectives are those with a life span of less than a year. They are insufficient to achieve long-term profitability and growth. Strategic managers commonly establish long-term objectives in seven areas.
- Profitability – Earning per share or return on equity.
- Productivity – Number of items produced or a number of services rendered per unit of output.
- Competitive Position – Sales amount/ quantity or sales growth.
- Employee Development – Increase in productivity or decrease in turnover.
- Employee Relations – Create a vibrant working environment.
- Technological Leadership – Innovation in product and process.
- Public Responsibility – Charitable and educational contribution, minority training, public or political activity, community welfare, urban revitalization.
Annual objectives are another word for short-term objectives. Annual objectives are short-term goals that businesses must meet in order to accomplish long-term objectives. Management, marketing, finance/accounting, production/operations, research and development, and management information systems (MIS) accomplishments are all listed in the annual objectives.
Annual objectives are particularly significant in strategy implementation, although long-term objectives are crucial in strategy creation. Annual objectives serve as the foundation for resource allocation.