Once the organization finalizes its vision, mission, values and undertakes the SWOC analysis, the next step is to specify the objectives.
Strategic Decision-Making Process
Objectives are the important ends towards which organizational and individual activities are directed. Writers and practitioners find it difficult to distinguish between the terms ‘goals’ and ‘objectives’. Some of the definitions of strategy include goals and objectives as integral part of strategy. According to Chandler (1962), “Strategy can be defined as the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals…”
Anthony (1965) defined strategic planning as “the process of deciding on objectives of the organization, on changes in these objectives, on the resources used to attain these objectives, and on the policies used to govern the acquisition, use, and disposition of these resources”.
Many textbooks use the terms objectives and goals interchangeably. Objectives and goals offer the basis for all managerial activity; they are the ends or aims towards which all activities are directed. Brown and Moberg (1980) listed several functions objectives and goals provide.
Goals aid in legitimizing an organization and creating a place for it in the environment.
Goals help managers identify inter-organizational relationships.
Goals have public relations value; they might help in attracting support from various groups in the environment, and also in attracting the right people to join the organization.
Organizational goals can also help in image building with suppliers, customers, public policy makers and the government.
Goals can help in coordinating the multiplicity of tasks in organizations; conflicts can be more easily resolved if relevant stated goals are available.
Goals provide the fundamental standards for measuring performance.
Goals act as motivators. They provide a challenge to many organizational members. They generate commitment.
Objectives are open ended elements signifying a future state or an outcome and are stated in general terms. Once the objectives are indicated in specific terms, they become goals to be accomplished. In strategic management, at times, a different viewpoint is taken. Goals indicate a broad category of financial and non-financial issues that an organization sets for itself. Objectives are the culminations that testify specifically how the goals shall be achieved. It is to be observed that objectives are the manifestation of goals whether specifically stated or not.
Though the terms “goals” and “objectives” are used synonymously, most strategy thinkers differentiate between objectives and goals on following points…
The goals are broad while objectives are specific.
The goals are set for a relatively longer period of time.
Goals are more influenced by external environment.
Goals are not quantified while objectives are quantified.
King and Cleland have differentiated objectives from goals. According to them, objectives should be broad and timeless statements, though they may be stated in quantitative or qualitative terms. On the other hand, goals are specific, time-based points of measurement that the organization intends to meet in the pursuit of its broad objectives. Usually, goals are stated as specifically and as quantitatively as possible, the emphasis being on measurement of progress towards the achievement of objectives.
Broadly, it is more appropriate to use one term rather than both. The difference between the two is simply a matter of degree and it may vary widely.
On the lines of the levels of strategy, organizational goals may be classified into three types…
The official goals: These are the general aims of the organization as described in a memorandum of association, charter or annual report. Goals have a public relations value, and the official goals are the ones which serve this function. The official goals or the stated goals also perform the function of legitimising the organization in its environment.
The operative goals: These indicate what the organisation is really attempting to do. They may be inferred from the actual operating policies of the organization. They help organizational managers to focus attention, reduce uncertainty and choose among organizational design alternatives.
The operational goals are used by supervisory personnel or managers in organizations to influence the behaviour of subordinates and to measure their performance.
Objectives and the organizational hierarchy
Objectives state the end results, and overall objectives need to be supported by sub-objectives. Objectives thus form a hierarchy as well as a network. The top management of the organization which articulates the vision then determines the mission of the organization, which sets the objectives for the organization, and the next level of hierarchy encompasses more specific objectives such as those in the key result areas.
Peter Drucker has suggested eight important areas of business objectives…
1. Marketing objectives are generally expressed in terms increase in market share to 20 percent within five years or to increase total sales by 10 percent annually. They are related to a functional area.
2. Innovation objective may be expressed in terms of product development, product diversification etc.
3. Human resource objective may be defined in terms of absenteeism, turnover, number of grievances, strikes and lockouts etc. An example may be “to reduce absenteeism to less than 10 percent by the end of six months”.
4. Financial objective concerns to cash flow, debt equity ratio, working capital, new issues, stock exchange operations, collection periods, debt instruments etc. For instance, a company may state to decrease the collection period to 30 days by the end of this year.
5. Physical Resources
6. Productivity objective may be stated in terms of ratio of input to output. This objective may also be stated in terms of cost per unit of production.
7. Social Objective may be expressed in terms of social orientation. It may be tree plantation or provision of drinking water or development of parks or setting up of community centres.
8. Profit objectives is one the most principal objective for any organization. An organization has to set various objectives in key result areas such as market share, new product development, quality of service etc.
The board of directors and top-level managers are very much entailed in establishing the purpose, the mission and the overall objectives of the firm, as well as the more explicit inclusive objectives in the key result areas. The next level managers, such as the Vice President or Marketing Manager or the production manager, are engaged in the setting of key-result-area objectives, divisional objectives, and departmental objectives etc. The prime involvement of lower-level managers is in setting objectives of departments and units as well as of their subordinates. Although individual objectives, comprising of performance and development goals, are established at the bottom of the hierarchy, managers at higher levels also should set objectives for their own performance and development.
There are two approaches in setting objectives, top-down or the bottom-up approach. In the top-down approach upper-level managers establish the objectives for subordinates, while in the bottom up approach subordinates begin the process of setting objectives for their positions and give them to their superior. Either approach along is deficient. Both are crucial but the prominence should depend on the condition, including factors such as the size of the organization, the organizational culture, the favourite leadership style of the executive and the exigency of the plan.
Following table shows the organizational hierarchy and the corresponding objectives .
Goals and plans are seldom linear; that is, when one objective has been accomplished, it is not neatly followed by another, and so on. Goals and programs form an interlocking network. Managers must make sure that the components of the network ‘fit’ one another. Fitting is a matter not only of having the various programs carried out but also of timing their completion, since undertaking one program often depends on first completing another.
Following is a network of programs constituting a typical new-product program .
It is effortless for one department of a company to establish goals that may seem entirely proper for it, only to discover itself functioning at cross-purposes with another department. The manufacturing department may realize that its goals are best attended by long production runs, but this might inhibit with the marketing department’s aspiration to have all products in the line readily obtainable or with the finance department’s objective of upholding investment in inventory at a certain low level.
Management by objectives
Management by objectives (MBO), despite some calling it an appraisal tool, a motivational technique, a planning or a control device, is practiced around the world. By definition MBO is a comprehensive managerial system that integrates many key managerial activities in a systematic manner and that is consciously directed towards the effective and efficient achievement of organizational and individual objectives.
Management by objectives has gone through many modifications; it has been used in performance appraisal, as a mechanism for motivating individuals, and in strategic planning. But there are quiet additional managerial subsystems that can be incorporated into the MBO process. They comprise of design of organizational structure, portfolio management, management development, career development, compensation programs, and budgeting. These diverse managerial activities need to be assimilated into a system. For instance, George Odiorne, considered it to be a system of managerial leadership. Others discuss the systematic relationships of MBO and many other key managerial activities in different environments .
Most vital managerial activities can and should be incorporated in the MBO process. The degree of incorporation, however, differs from individual activities. It was found, that the highest degree of integration of MBO with managerial functions was in controlling, planning, and directing. But several key managerial activities in staffing and organizing also were well integrated into the MBO process. These findings suggest that MBO, to be effective, has to be viewed as a comprehensive system. In short it must be considered as a way of managing, and not an addition to the managerial job .
The objectives have to determined based on the SWOC analysis. To determine the objectives organization should look forward to overcoming the weaknesses and challenges while leveraging the strengths and opportunities. Company must also identify the areas of emphasis while determining the objectives.
The eight business objectives listed by Peter Drucker, Marketing, Innovation, Human Organization, Financial Resources, Physical Resources, Productivity, Social Responsibility and Profit Requirements. To achieve objectives among these verticals, organization may employ various strategies. Achievement of these objectives in turn gives the organization the growth. Depending on the mission of the organization and its SWOC analysis organization may employ relevant of the strategies.
In their book Great by Choice, Jim Collins and Morten T. Hansen (2011) note “We placed the greatest weight on evidence from the actual time of the events. The core of our analysis always rested on comparing the 10X cases to the comparisons across time and asking, “What was different?”. This method of inquiry proved particularly powerful for not only developing insights but also shattering deeply entrenched myths. In fact, many of the findings ran absolutely counter to our intuition and every major finding surprised at least one of us. As a preview of what’s to come, following are sampling myth undermined by the research.
Entrenched myth: Successful leaders in a turbulent world are bold, risk seeking visionaries.
Contrary finding: The best leaders we studied did not have a visionary ability to predict the future. They observed what worked, figured out why it worked, and built upon proven foundations. They were not more risk taking, more bold, more visionary, and more creative than the comparisons. They were more disciplined, more empirical and more paranoid.
Entrenched myth: Innovation distinguishes 10X companies in a fast-moving uncertain and chaotic world.
Contrary finding: To our surprise, no. Yes, the 10X cases innovated, a lot. But the evidence does not support the premise that 10X companies will necessarily be more innovative than their less successful comparisons; and in some surprise cases, the 10X cases were less innovative. Innovation by itself turns out not to be the trump card we expected, more important is the ability to scale innovation, to blend creativity with discipline.
Entrenched myth: A threat-filled world favours the speedy; you’re either the quick or the dead.
Contrary finding: The idea that leading in a “fast world” always requires “fast decisions” and “fast actions” – and that we should embrace an overall ethos of “Fast! Fast! Fast!” – is a good way to get killed. 10X leaders figure out when to go fast, and when not to.
Entrenched myth: Radical change on the outside requires radical change on the inside
Contrary finding: The 10X cases changed less in reaction to their changing world than the comparison cases. Just because your environment is rocked by dramatic change does not mean that you should inflict radical change upon yourself.
Entrenched myth: Great enterprises with 10X success have a lot more good luck.
Contrary finding: The 10X companies did not generally have more luck than the comparisons. Both sets had luck – lots of luck, both good and bad – in comparable amounts. The critical question is not whether you’ll have luck, but what you do with the luck that you get.
Companies for the growth need to achieve objectives with respect to marketing, innovation, human resources, financial resources, physical resources, productivity, social responsibility and profit requirements. To achieve these objectives organization must keep its fundamentals right with respect to vision, mission, values, SWOC analysis, specifying objectives, implementation, and monitoring. Company must monitor for its output, goods of services, its quality, quantity and quickness in being responsive. These three Qs of organization warrant strategies to improve quality, quantity and quickness along with the resources and relationships.
We start with the first element STRATEGY.
References:
Chandler Jr. Alfred D. (1962), Strategy and Structure, MIT Press: Cambridge
Anthony, R.N., (1965), Planning and Control: A framework for analysis, GSBA, Harvard University, Boston p.16
Brown, Warren B. and Denis J. Moberg, (1980) Organization Thoery and Management: A macro approach, John Wiley: New York
King, W.R. and Cleland, D.I., (1978), Strategic Planning and Policy, Van Nostrand Reinhold: New York. p, 50-51
Perrow, Charles (1986), The analysis of goals in complex organization, American Sociological Review, pp 854-6
Drucker, Peter, (1974), Management: Tasks, Responsibilities, Practices, Harper and Row: New York.
Based on H. Weihrich and J. Mendleson, Management: An MBO Approach (Dubuque, Iowa: Wm. C. Brown Co. 1978)
Weihrich, Heinz & Koontz, Harold (1993) Management a Global Perspective, Tenth Edition, International Edition McGraw-Hill, Inc
Anthony P. Raja (1974), Managing by Objectives (Glenview, Ill.: Scott, FOresman and Company); Dale D. McConkey (1975), MBO for non-profit organizations (New York: AMACOM, American Management Association); George L Morrisey (1976), Management by Objective and Results in the Public Sector (Reading, Mass.: Addison-Wesley Publishing company)
Heinz Weihrich (1973), “A study of the integration of management by objectives with key managerial activities and the relationship to selected effectiveness measures,” Doctoral dissertation, University of California, Los Angeles
Collins, Jim and Hanses Morten T. (2011) Great by Choice, Random House Business Books pp 9-10