Setting business objectives
Hierarchies of objectives are normally constructed in the following way:
- Mission
- Main objectives
Statements of intent to particular stakeholders, e.g. shareholders or employees, such as the open corporate objectives below. - Sub-objectives
These convert the main objectives into a series of targets for the business. These typically include profit or sales targets for immediate implementation. The closed business unit objective below is a good example. Sub-objectives can be passed further and further down the organization resulting in short-term objectives for particular departments, such as reducing costs by a given percentage or signing up a particular level of customers each month.
There should be goal congruence, i.e. the mission and objectives set at each level should be consistent with
each other and not in conflict.
Quantifying objectives
Objectives must be capable of being quantified, otherwise progress towards them cannot be measured. For a government agency or charity, for instance, to state its objective as ‘to improve the welfare of old age pensioners’ is not precise enough. It must state how it is going to measure the achievement – in terms perhaps of the number of places in old people’s homes, the number of meals-on-wheels served, the number of patients treated in geriatric wards – so that several targets may make up its overall objective.
3 Components of Corporate Objectives
In other words, for objectives to be of use in practice, they must have three components
Attribute chosen to be measured, e.g. profit, return on capital, output;
Scale by which it is measured, e.g. CU, %, tonnes;
Target, i.e. the level on the scale which it is hoped to achieve, e.g. CU1m, 8%, 200,000 tonnes.
Setting SMART Business Objectives
One way of expressing the above is to say that objectives must be SMART, i.e.
Specific – unambiguous
Measurable – quantified
Achievable – within reach
Relevant – congruent with the mission
Timebound – with a completion date
For example, ‘increase online revenues by 25% within one year’. Objectives specified in this way are often referred to as ‘closed’ objectives.
Example of objectives
In practice objectives vary in attributes and in terms of the precision with which they are specified. The following gives some examples.
Corporate objective: open
Our primary aims are to provide a sound investment for our shareholders by increasing shareholder
value and also worthwhile job prospects for our employees. Our objectives are customer satisfaction,
real growth in earnings per share and a competitive return on capital employed.
Corporate objective: closed
The most important objective remains the achievement of a minimum return of 20% on average capital
employed, with a target return of 25%.
Business unit objective: open
One of the main aims for one of the business areas in which the company is involved is to play a
leading role in meeting the requirements of the widening and expanding home entertainments
industry.
Business unit objective: closed
In Bangladesh we are budgeting our house building unit to sell 2,500 homes next year – a figure that
will put it among the top ten house builders. Ideally, existing performance statistics should be used to
measure objectives; if a new system of data collection or processing has to be instituted in order to
measure progress towards objectives, extra cost will be incurred.
