Author: Jim Riley Last updated: Sunday 23 September, 2012
Introduction - What is an Objective?
What is an objective? A good definition is:
"Objectives are statements of specific outcomes that are to be achieved"
As we shall see, objectives are set at various levels in a business - from the top (corporate) and through the layers underneath (functional and unit).
Objectives are often set in financial terms. That means that the objective is expressed in terms of a financial outcome that is to be achieved. Those could include:
Desired sales or profit levels
Rates of growth
Amount of cash generated
Value of the business or dividends paid to shareholders
However, it is incorrect to say that objectives have to be expressed in money terms, or that they have to be able to be measured. Some objectives are hard to measure, but are often important. For example, an objective to be:
An innovative player in the market
A leading in the quality of customer service
A popular way to look at objectives is to see them as part of a hierarchy of forward-looking terms which help set and shape the strategy of a business. That hierarchy can be summarised as follows:
Corporate objectives are those that relate to the business as a whole. They are usually set by the top management of the business and they provide the focus for setting more detailed objectives for the main functional activities of the business.
This can be illustrated as follows:
Corporate objectives tend to focus on the desired performance and results of the business. It is important that corporate objectives cover a range of key areas where the business wants to achieve results rather than focusing on a single objective.
Peter Drucker suggested that corporate objectives should cover eight key areas:
Market share, customer satisfaction, product range
New products, better processes, using technology
Optimum use of resources, focus on core activities
Physical & financial resources
Factories, business locations, finance, supplies
Level of profit, rates of return on investment
Management structure; promotion & development
Organisational structure; employee relations
Compliance with laws; social and ethical behaviour
A well-established business will divide its activities into several business functions. These traditionally include areas such as:
Finance & administration
Marketing & sales
Production & operations
Human resource management
Whilst each of these functional areas requires specialist expertise, their activities are not carried out in isolation from the rest of the business. It is vital in your studies to consider the ways in which the functional activities are connected to each other.
However, it is common for each functional area to be set its own objectives, which should be consistent with the higher-level corporate objectives.
So, functional objectives are:
Set for each major business function and are designed to ensure that the corporate objectives are achieved
Consider some example objectives for the marketing function. Examples of functional marketing objectives” might include:
We aim to build customer database of at least 250,000 households within the next 12 months
We aim to achieve a market share of 10%
We aim to achieve 75% customer awareness of our brand in our target markets
Many business textbooks suggest that both corporate and functional objectives need to conform to a set of criteria referred to as an acronym SMART.
The SMART criteria are summarised below:
The objective should state exactly what is to be achieved.
An objective should be capable of measurement – so that it is possible to determine whether (or how far) it has been achieved
The objective should be realistic given the circumstances in which it is set and the resources available to the business.
Objectives should be relevant to the people responsible for achieving them
Objectives should be set with a time-frame in mind. These deadlines also need to be realistic
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