Business objectives are more specific quantitative goals of the business (expressed in numbers) – measurable outcomes or clearly defined targets that the business needs to gain in order fulfill its mission.
The business aim, and the vision and mission statements of a business share the same problems – they lack specific details for making operational decisions. They are also rarely expressed in quantitative terms making it difficult to measure their outcomes. That is why, they need to be turned into goals quite specific to each business, and then down the line broken down into even more specific departmental targets. Corporate objectives are designed to do just this.
Objectives are the short-to-medium-term and specific targets which an organization sets in order to achieve its general aim. They state what the company needs to accomplish to meet that aim making them being foundation for decision making.
Objectives must be consistent with the firm’s future aim. They are, of course, based upon the central aim or mission of the business, but they are expressed in terms that provide a much clearer guide for management action or strategy. Plans (business strategies) will then be made to achieve these targets.
The organizational culture and whether a business operates in the private or public sector are also factors that affect the aims and objectives it sets.
Who sets business objectives?
They are usually set by department directors and mid-level managers, and their subordinates. Business objectives help to motivate employees and enable measuring progress towards its stated aim.
Hierarchy of Objectives
The links between the aim, objectives, strategies and tactics can be made clearer by studying the hierarchy of objectives. It shows visually the balance and dependencies between the different stages in the setting of the aim and objectives. A hierarchy of objectives always starts with the corporate aim.
Examples of business objectives: Corporate, Departmental, Individual
Corporate objectives
Corporate objectives are targets that the whole business is trying to achieve. They are often related to what the owners of the business want to focus on (e.g. survival, growth, profits).
EXAMPLE 1: Let’s think about a famous motorcycle company Harley-Davidson. The typical corporate aim can be to achieve profitable growth by continuing to play a leading role in the industry – to become and remain the market leader in the motorcycle industry. Then, in order to achieve that aim, the business objective could include achieving a market share of 60% and annual sales revenue of USD$20 million.
EXAMPLE 2: A school’s objective could be to achieve a 99% pass rate within 5 years or to encourage the use of differentiation and scaffolding to improve the quality of daily teaching and learning.
EXAMPLE 3: A soft drinks producer can have the business aim of maximizing the value of the business for shareholders. In order to achieve this aim, the company set up corporate objectives such as to increase earnings per share, and to increase the dividends by 5% each year in the next 3 years.
EXAMPLE 4: A car producer may have the business aim of profitable growth in the next decade. In order to achieve its aim, it set up two business objectives including selling at least 3 million passenger cars each year by 2030 and leading the way in the middle-class segment in terms of sales volume.
Departmental objectives
Then, based on corporate objectives, departmental objectives are decided upon. Departmental objectives are set up for specific functions in the business, e.g. objectives for the marketing department or the finance department to achieve. They need to be consistent with all corporate objectives.
EXAMPLE 1 (continuation): In order to become the market leader in the motorcycle industry by achieving a market share of 60% and annual sales revenue of USD$20 million, the marketing department of Harley-Davidson will have departmental objectives to achieve an increase of sales of existing products by 20%, launch two new products into the market in 2021 and gain at least 10% market share.
Individual objectives
And finally, after departmental objectives are ready, individual objectives will be established for each employee, linked to performance appraisal of individual workers, e.g. sales target for a member of the sales team in the marketing department. Individual objectives must align with departmental and corporate objectives.
EXAMPLE 1 (continuation): Individual targets for employees in the marketing department of Harley-Davidson will include creating a new advertising campaign to promote the launch of two new products in 2021 and decreasing the price of existing products with high price elasticity of demand by 10% to boost sales.
Examples of business objectives: Strategic, Tactical
Strategic objectives
Strategic business objectives are required to achieve the general aim of the company. They guide the general direction of the business and overall policy. Strategic objectives are higher-level, medium-term to long-term and involve more risk.
Some examples of typical strategic objectives are outlined below. They will vary between businesses, based on their own circumstances and priorities of the business owners:
a.) Profit maximization. The main strategic objective of most private sector businesses is to maximize profits – an incentive for entrepreneurs to take risks in setting up and running a business, and for investors to invest their capital in a business. Incorporated businesses will distribute a part of their profits to shareholders in the form of a dividend, and reinvest the remaining part of the profit back into the business for future growth.
b.) Business growth. Growth is essential for its initial survival, later dominance in the marketplace and long-term prosperity of the business. The failure to grow may result in losses and declining competitiveness. Business growth is usually measured by an increase in sales revenues, market share, capital employed, number of customers, number of workers or profit.
c.) Improving market standing and market leadership. This refers to the extent to which a business has strong presence in its industry. Having high market standing means that the company is the market leader, or is a very well-recognizable brand such as Microsoft in the computer software industry, Walmart being the world’s largest retailer, Toyota as the world’s largest car producer or The Body Shop for being a very socially responsible business.
d.) Improving image and reputation. Having good image and reputation results from having high quality products, improved levels of customer service, better facilities and superior after-sales services. Positive corporate image can help to attract highly-skilled and knowledgeable employees during the recruitment process, attract new customers, maintain customer loyalty and keep positive relationship with suppliers who prefer to do business with reputable and reliable companies. Having bad business image can turn customers against a firm’s products and services which will drastically lower sales.
Tactical objectives
Tactical business objectives are lower level, short-term objectives to be achieved within 12 months. They are calculated and the likelihood of achieving them is more predictable. They generally involve less risk, require less planning and can be achieved quickly. Tactical objectives must also align with strategic objectives of the business.
Tactical objectives are usually initiated in response to an external event or an emergency situation that requires immediate actions, e.g. a new competitor entering the market offering aggressive sales promotion, the economic recession or a health crisis among customers resulting from using faulty products.
Tactical objectives refer to targets which are to be achieved in the next several months or so, such as:
a.) Survival. For brand new and unestablished businesses, a number of problems will emerge within the first few months of operations such as limited sources of finance, lack of customers or cash flow problems. Therefore, the company’s tactical objective is to survive among market competition. For medium-size companies, surviving an attempt of being taken over also becomes the key tactical objective. For more established large business organizations, survival during an economic recession will also be important as it can easily threaten the existence of even the biggest and oldest businesses.
b.) Sales revenue maximization. Brand new businesses will strive to maximize their sales revenue from Day 1 in order to become established in the competitive marketplace. Medium-size companies will try to maximize their sales revenue in order to cover the costs and maximize profit as firms with moderate sales but high costs will struggle to generate profit and returns for the owners.
In practice, businesses use a combination of the aforementioned strategic objectives. These objectives will also change from time to time, such as survival being a key objective, if a firm is threatened by a takeover.
