Strategic Objectives Examples and Explanation
Once the strategic analysis of the firm has been completed, the strategy-makers responsibility is now to take initiative for setting strategic objectives. These strategic objectives would form the basis for formulating the strategy. As stated earlier, there can be no strategy without an objective. In fact, the strategic management analysis provides adequate information for setting strategic objectives for the firm. Strategy-makers review the information and use them for establishing (or setting) objectives. Choosing appropriate objectives requires a deep understanding of the external environment. And the opportunities it presents, together with an analysis of the competences of the firm, the vision, and values of the firm, and the demands of financial markets.
Establishing an objective is a direction-setting task. A mission statement provides an overall goal for the organization but does not enable managers to go for action. Managers require to change the mission into certain performance strategic objectives. Forming objectives alter vision and mission into precise performance results. Objectives must be set for strategic performance and financial performance for achievement. Top-level managers fixed wider objectives with longer time horizons than do continuously lower levels of managers. Lower level managers create objectives based on the middle-level objectives. In force, lower-level strategic objectives afford the means for attaining middle-level strategic objectives. And, in order, middle-level objectives afford the means for attaining top-level strategic objectives.
Meaning and Nature of Strategic Objectives:
An objective describes the end results to be achieved by the firm. It refers to measurable targets. An objective is a definite obligation to attain a quantifiable outcome within a given time surround. A strategic objective must evidently display what the corporation desires to accomplish and when it desires to attain it. An objective needs to write in qualitative, measurable and concrete terms.
A well-formulated objective must be SMART, where
S stands for Specific
M for Measurable
A for Attainable or Achievable or Appropriate
R for Relevant or Realistic, and
T for Time-Based.
Examples of SMART Strategic Objectives:
- To increase the sales of all products of the company by 5% during the years 2010.
- Achieving a 20% increase in the sales of brand-X by December 31, 2010.
- To increase unit sales of ‘5M Family Software-APANJON’ in Chittagong area by 5000 units by June 30, 2010.
Some writers are of the view that there should be the distinction between ‘goal’ and ‘objective’. However, managers generally prefer to use both the terms interchangeably. The above are the examples of operating strategic objectives, used by operational managers. And mid-level managers for implementing their plans with specific targets in mind.
We are more concerned with two strategic objectives as like strategic performance objectives and financial performance objectives in strategic management. Strategic performance objectives are concerned with sustaining and improving the company’s long-term market position and competitiveness. Alternatively, financial performance objectives are interrelated to reaching financial advantages for having a strong financial upright. Underneath are certain samples of strategic performance objectives and financial performance objectives in accordance with strategic objectives.
Examples of Strategic Performance Objectives:
- A longer market share
- Higher product quality
- Lower costs relative to key competitors
- Superior customer service
- Quicker on-time delivery than competitors
- Exceeding customer satisfaction
- Wider geographic coverage
- Achieving ISO certificate
- Increased easily to compete in international markets
Examples of Financial Performance Objectives:
- Faster revenue
- Higher dividends
- Larger profit margins
- Stable earnings during recessionary periods
- Higher returns on invested capital
- Rising stock price
- Higher earnings per share
- Bigger cast flow
- Enhancing financial resources
Classification of Strategic Objectives:
Based on the time dimension, there may be broadly two types of strategic objectives. Such as:-
- Short-term strategic objectives
- Long-term strategic objectives
Short-term strategic objectives mean one year or less than one year. Long-term strategic objectives mean more than one year. However, some people in the business world talk of ‘intermediate-term strategic objectives’, which are established for a time period between one and three years. In such a situation, the long-term strategic objectives are one which is set for a period of more than three years. Hover, we should keep in mind that the definition of long-term strategic objectives differ from author to author and also from organization to organization.
For example, Pearce and Robinson are of the view that long-term strategic objectives are “results a business seeks to achieve over a specific period of time, typically five years.” According to them, strategic planners commonly establish long-term strategic objectives in seven areas: profitability, productivity, competitive position, employee involvement, employee’s relations, technological leadership, and public responsibility. In order to ensure attainability, the long-term strategic objectives need to be acceptable, flexible, and measurable over a period of time motivating suitable, understandable, and achievable.
Based on the business-structure of an organization, of an organization, there may be corporate objectives, business-unit objectives, functional objectives, and operating objectives. These strategic objectives cascade down from the top to the lowest levels of the organization, thus creating a hierarchy (see the following table). The board of directors and the senior managers set the organization’s top level to make the corporate strategic objectives. The business-unit level strategic objectives are formulated on the basis of the corporate strategic objectives. Based on the business-unit strategic objectives, the functional strategic objectives are set by the mid-level or departmental level managers that are meant to be achieved in the short run.
|Corporate level||Corporate Objectives|
|Business-Unit level||Business-Unit Objectives|
|Functional level or Departmental level||Functional Objectives|
|Operating level||Operating Objectives|
The necessity of Strategic Objectives:
Organizational success depends substantially on sound objectives. Strategic objectives are essential for a variety of reasons. They-
- Help in the evaluation of the performance of employees and the departments;
- Make available a basis for action planning in the business;
- Reveal priorities in what the organization wants to achieve and also in the allocation of resources;
- Provide the way to the business as an entire and to employees in specific;
- Assist in controlling, organizing and motivating the activities.
Approaches to Strategic Objectives Setting: Top Down or Bottom-up Approach?
Objectives need to be set for the entire organization as well as for each division and department. Even individual objectives, consistent with departmental objectives, are also common. Organizations may use different approaches for setting objectives at different levels.
What should be the approach to setting objectives in an organization? There is no short-cut answer. You can follow either the top-down approach or bottom-up approach. Some organizations follow a combination of both the approaches. In the case of the top-down approach, the senior managers set the objectives based on the needs of the organization, and then they pass down these to the lower levels. When managers at the top level foresee that there would be a downside in the market in near future due to some environmental reasons, they may find no alternative but to take drastic measure to improve profitability. So, they may set an objective like this:
“Reduce the number of operating level employees by 7% in Factory A and Factory C within the next three months.” The mid-level and operating level managers would simply undertake steps for the realization of the objective. This is a top-down approach. On the other hand, in some organizations, managers follow the bottom-up approach. That means the senior manager ask the lower level managers to set objectives for their units and send them to the top level for review and approval. This approach encourages ‘buy-in’ of the objectives of all employees.
Long-Term Strategic Objectives and Competitive Strategy:
Strategic management is primarily concerned with formulating and implementing a competitive strategy. It does not mean that functional strategies ignore. Management specialists argue that the time frame for competitive strategy should be consistent, usually from two to five years. The timeframe for long-term objective should also be the same, for both long-term objective and competitive strategy are interdependent. It is common among business firms to set long-term objectives in terms of growth in assets, growth in sales, growth in market share, improvement of profitability, adoption of vertical integration, expansion of business through diversification, corporate social responsibility, etc. competitive strategy is formulated based on long-term objective, which should have a timeline.
For effective implementation of the competitive strategy, long-term objectives are broken down to annual objectives. We should keep in mind that annual objectives serve as milestones for reaching the long-term objectives. Each long-term objective may require a set of annual objectives. An organization should set annual objectives for production, marketing, finance, research and development, human resources, management information systems etc. as a strategy-maker, you have to use the annual objectives for strategy implementation. You will use the long-term objectives for strategy formulation.
Since long-term Strategic objectives are important measures of managerial performance, they should establish at the corporate and functional levels of an organization. All objectives should communicate to stakeholders so that they can understand their role, make appropriate decisions, reduce conflicts among themselves during strategy implementation, set organizational priorities, and set standards for evaluating the performance of the departments, divisions, employees and the entire organization.
Once you have decided and set long-term Strategic objectives for your organization, you are now ready to formulate strategies in line with the objectives. The next articles detail out the issues related to the formulation of business-level strategies and corporate-level strategies.