In order to make setting objectives clear and effective, businesses often use ‘SMART’ criteria.
In general, the business owners set the business aim and business objectives. In many cases (particularly in small and medium-sized businesses) the owners are also the directors of the firm.
A ‘SMART’ business objective may look like this: ‘Achieve sales of refrigerators worth €10 million in North European markets in 2004.’.
The following ‘SMART’ criteria are explained in details below.
How to set SMART objectives?
S like SPECIFIC
The business objective should state exactly what is for the business to be achieved. Objectives should focus on what the business does and should apply directly to that particular business organization.
This objective is specific to this business because it talks about selling a particular product which belongs to the company’s product portfolio: ‘Achieve 10% higher sales of refrigerators worth €10 million in North European markets in 2004.’.
Other examples of being specific may include a bus company such as Eurolines, one of the largest low-cost operator of international coach lines in Europe, setting an objective about the level of seat occupancy on its long-distance coaches, or a hotel setting an objective of 90% room occupancy over the summer period.
M like MEASURABLE
The business objective needs to be capable of being measured, so that it is possible for managers to determine whether (or how far) it has been achieved. Also, business objectives that have a quantitative value are likely to be more effective targets for directors and employees to work towards.
This objective is measurable because it talks about achieving a particular amount of sales revenue of the particular product: ‘Achieve 10% higher sales of refrigerators worth €10 million in North European markets in 2004.’.
Other examples of being measurable may include an increase in sales in the North American market by 15% this year.
A like ACHIEVABLE & AGREED
The business objective should be realistic given the circumstances in which it is set, and the resources available to the business. Setting objectives that are impossible to achieve is pointless – they will not only not be achieved, but will also demotivate employees.
This objective is achievable because it tries to reach 10% more in sales revenue while the whole economy is growing at 12%, so 10% growth of sales is quite realistic: ‘Achieve 10% higher sales of refrigerators worth €10 million in North European markets in 2004.’.
The level of seat occupancy in the bus company must be discussed with the marketing department in advance and set based on realistic sales forecasting from the past years.
R like RELEVANT
The business objective should be relevant to the people responsible for achieving them. Objectives should be realistic when compared with the resources of the company and should be expressed in terms relevant to the people who have to carry them out. Therefore, objectives for the marketing manager should not be expected to be achieved by the finance manager.
This objective is relevant because it applies to the company that has a strong presence in the countries located in Northern Europe like Sweden, Finland and Norway: ‘Achieve 10% higher sales of refrigerators worth €10 million in North European markets in 2004.’.
Another example may include a bus company setting an objective about the level of seat occupancy. As it will require promoting new bus routes, the marketing department manager will need to be responsible for promotion and setting appropriates ticket prices, not the human resources manager.
T like TIME-SPECIFIC
The business objective should be set with a time-frame in mind, which also needs to be realistic. A time limit should be set when an objective is established and should mention when the business is expecting to reach the target. Without time limit, it will be impossible for managers to assess whether the business objective has actually been met on time.
This objective is time-specific because it requires the company to achieve a certain amount of sales revenue in a very specific time period: ‘Achieve 10% higher sales of refrigerators worth €10 million in North European markets in 2004.’.
The bus company may be setting an objective about the level of seat occupancy on its long-distance coaches to be achieved within the next 18 months.
Setting objectives helps managers to develop a plan for the business. That plan will also list the resources needed in order to achieve the ‘SMART’ business objectives.
