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Objectives in Business Strategy

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:

Hierarchy of objectives

Corporate objectives

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:

Examples of objectives

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:

Area

Examples

Market standing

Market share, customer satisfaction, product range

Innovation

New products, better processes, using technology

Productivity

Optimum use of resources, focus on core activities

Physical & financial resources

Factories, business locations, finance, supplies

Profitability

Level of profit, rates of return on investment

Management

Management structure; promotion & development

Employees

Organisational structure; employee relations

Public responsibility

Compliance with laws; social and ethical behaviour

Functional objectives

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

SMART objectives

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:

Specific

The objective should state exactly what is to be achieved.

Measurable

An objective should be capable of measurement – so that it is possible to determine whether (or how far) it has been achieved

Achievable

The objective should be realistic given the circumstances in which it is set and the resources available to the business.

Relevant

Objectives should be relevant to the people responsible for achieving them

Time Bound

Objectives should be set with a time-frame in mind. These deadlines also need to be realistic


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Revision quizzes for business students

Starting a Business

Sources of Finance for a Startup
Franchising
Cash Flow Forecasting for a Startup
Creating & Protecting Business Ideas
Startups and Understanding the Market
Market Research for a Startup
Locating the Startup Business
Choosing a Legal Structure for a Startup
Employing People in a Startup
Generating and Protecting a Business Idea
Using Breakeven in Decision-Making

Finance

Revenues
Breakeven Basics
Costs, Revenues and Profits
Business Costs
Using Budgets
Using Breakeven in Decision-Making
Investment Appraisal Basics
Financial Strategies
Measuring and Improving Profit
Improving Cash Flow
Working Capital
Balance Sheet
Income Statement
Financial Efficiency Ratios
Profitability Ratios and ROCE
Liquidity Ratios
Gearing

Marketing

Competition
Products & Brands
Place (Distribution)
Promotion
Pricing
Price Elasticity of Demand

Business Organisation

Basics of Business Growth
Business Activities
Legal Structure Basics
Franchising
Sole Traders and Partnerships
Limited Companies
Generating and Protecting a Business Idea
Organisational Structures

People

Working in Teams
Communication Basics
Communication Methods
Workforce Planning
Recruitment, Selection & Training
Employee Motivation
Organisational Structures

Operations

Operational Objectives
Critical Path Analysis
Scale and Resource Mix
Lean Production
Capacity Management
Customer Service Basics
Managing Quality
Operational Decision-making
Using Technology in Operations
Working with Suppliers

Economic Environment

Economic Sectors
Government Spending & Taxation
Inflation
Unemployment
Interest Rates & Monetary Policy

Business Strategy

Leadership styles
Business Culture
Change Management







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