ESTABLISHING OBJECTIVES: SETTING STAGE FOR STRATEGY

FORMULATION

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“Establishing objectives is generally a political process, characterized by bargaining and conflict coupled with rational analysis” Peter Fitzroy and James Hulbert

ESTABLISHING OBJECTIVES

Objectives will form the basis for formulating strategy.

There can be no strategy without objective. Establishing objectives is a direction setting

task. Establishing objectives converts vision and

mission into specific performance outcomes. Top managers et broader objectives with

longer time horizons.

MEANING AND NATURE OF OBJECTIVES

An objective is a specific commitment to achieve a measurable result within a give time frame.

An objective describes the end result to be achieved by the firm.

An objectives need to written in quantitative, measurable and concrete terms.

An objective must clearly show what the company wants to achieve and when it wants to achieve it.

SMART OBJECTIVES

A well formulated objective must be SMART where-

S stands for specific M for measurable A for achievable or Appropriate R for realistic T for time-bound

EXAMPLES OF SMART OBJECTIVES

To increase the sales of all products of the company by 5% during the year 2014.

To reduce the overhead costs of the company by Tk. 100000 during the next six months.

To achieve 20% increase in the sales of brand-X by December 31, 2014.

To increase unit sales of ‘5M Family Software-APONJON’ in Dhaka area by 5000 units by June 30, 2014.

GOALS VERSUS OBJECTIVES

Goal is seen as being concerned with the long term end points that the organization seeks to achieve.

Objective is seen as detailing out the steps along the way to achieve the goal.

Formulation of strategy usually starts with the broad, wider vision, and from there moves to the specific.

STRATEGIC PERFORMANCE OBJECTIVES

“Strategic performance objectives are concerned with sustaining and improving company’s long term market position and competitiveness”.

EXAMPLES OF STRATEGIC PERFORMANCE OBJECTIVES

A longer market share Higher product quality Superior customer service Lower cost relative to key competitors Achieving ISO certificate Wider geographic coverage Quicker on time delivery than competitors

EXAMPLES OF FINANCIAL PERFORMANCE OBJECTIVES

Faster revenue Higher dividends Larger profit margin Stable earnings during recessionary periods Higher return on invested capital Rising stock price Higher earnings per share Bigger cash flow Enhancing financial resources

CLASSIFICATION OF OBJECTIVES

Based on time dimension- Short-term (One year or less than one year) Long-term (More than one year) Intermediate-term objective (between one and

three year)

CLASSIFICATION OF OBJECTIVES: LONG TERM OBJECTIVES

Definition of long term objectives from author to author or organization to organization

Long term objectives are results a business seeks to achieve over a specific period of time, typically five years. ( Pearce and Robinson)

Strategic planners commonly establish long term objectives in seven areas: profitability, productivity, competitive position, employee involvement, employee relations, technological leadership and public responsibility.

CLASSIFICATION OF OBJECTIVES

Based on the business-structure of an organization:

Corporate objectivesBusiness-unit objectivesFunctional objectivesOperating objectives

CLASSIFICATION OF OBJECTIVES

Corporate objectives are set at the top level of the organization by the board of directors and the senior managers

Business unit objectives are formulated on the basis of corporate objectives

Based on the business-unit objectives, the functional objectives are set by the mid-level or departmental mangers for the short run.

NECESSITY OF OBJECTIVES

Provide direction to the organization as a whole and to employees in particular.

Help in evaluation of the performance of employees and the departments

Reveal priorities in what the organization wants to achieve and also in allocation of resources;

Provide a basis for effective planning in the organization;

Assist in organizing, motivating, and controlling the activities.

FIGURE: A DOWNWARD CASCADE OF OBJECTIVES WITH TYPICAL EXAMPLES

Levels of organization

objectives Examples

Corporate level Corporate objectives

Increasing shareholder returnAchieving synergy

Business-unit level Business-unit objectives

Double digit annual earning

growthExpanding market

share

Functional level/departmental

level

Functional objectives

Increasing profits on brand-A by 10%

during the year

Operating level Operating objectives

Adding 20 more salespeople in the

northern sales territory

APPROACHES TO OBJECTIVE SETTING: TOP DOWN OR BOTTOM UP APPROACH?

In case of top down approach, senior managers set the objectives based on the needs of the organization, and then they pass down these to the lower levels.

In bottom up approach, senior managers ask the lower level managers to set objectives for their units and send them to the top level for review and approval.

LONG TERM OBJECTIVES AND COMPETITIVE STRATEGY

Competitive strategy is formulated based on long term objective, which should have a time line.

For effective implementation of competitive strategy, long term objectives are broken down to annual objectives.

Annual objectives serve as milestones for reaching the long term objectives.

Each long term objectives may require a set of annual objectives.

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