This article focuses on the importance of business objectives for every business, different forms of business objectives, how they can be used to help direct the work of all employees in a business organization, why they are important, and why they are often causes of conflicts.
Think about the dream that you want to achieve in your life. This is your personal aim. This is something that you strive for – a general goal of your life. In order to achieve your dream, you need careful planning because most likely nothing will happen by accident. And even with very careful planning of each step of your entire life, there is no guarantee that you will be successful. The future is uncertain and many unforeseen events may cause you to change your plans derailing you from your original path toward achieving your big aim.
Importance of business objectives in general
Businesses also have the aim which they want to achieve in the long term. It is the statement of what the business wants to achieve through its activities. It is the general goal of the business.
In order to achieve that big aim, every aspect of a business needs objectives. Business objectives are the short-to-medium-term more specific targets which a business organization sets in order to achieve its future aim. Objectives are specific guides, well-defined goals of a business, to reach the general aim. In other words, outcomes or targets that the business wants to gain in order to achieve its aim.
For example, if a medium-size local coffee shop aims to become the biggest coffee chain in the country like Starbucks, its business objectives will include: owning the biggest number of coffee shops, having the biggest number of customers, having the largest Product Portfolio and occupying the largest market share.
Based on these objectives, the business can now produce a plan (a strategy). This plan will be implemented to achieve the aim through achieving objectives. The plan describes the actions regarding how these more specific targets will be achieved. The strategy needs to be reviewed regularly by the management to make sure, to constantly check, that the business is on the right path to achieve its objectives. Therefore, business objectives are re-evaluated often to check the progress.
All companies set the aim, objectives to work towards and strategies no matter the business size. While small sole traders often do not formalize them by writing them all down, the owners will often have a clear idea in their heads of what they are trying to achieve. In partnerships, all partners will need to agree on the direction of the partnership to avoid future disagreements. In limited liability companies, the overall business objectives will be approved by the board of directors and stated in the Memorandum of Association.
The detailed plan (the strategy) also ensures that all business resources are correctly allocated towards achieving the objectives and then the final aim. If a company moves away from the target, then it might need to change how it operates by moving resources from one area to another, or even modify the objectives themselves.
Importance of business objectives in details
With a distinct aim, the existence of a business can be made clearer and more focused, as the business aim helps to direct, control and review the success of a business activity. Without having a dreamy aim and more specific well-defined objectives, a business organization has no direction or purpose – it does not know where it wants to go and how to get there.
Business objectives can be categorized by groups within the firm as they are divided into corporate objectives for the whole firm, divisional objectives for different geographical regions or product departments, or departmental objectives that apply to different business functions, e.g. marketing objectives, finance objectives, production objectives and HR objectives.
Therefore, the organizational aim and objectives are important to every business for a few reasons:
1. To direct. The aim and objectives provide an agreed clear focus in which direction the business wants to go. They not only give the sense of purpose for the business and are the foundation for the whole process of decision-making, but also are used to devise more detailed action plans (business strategies) for all individual employees and departments of the organization to follow.
2. To motivate. The aim and objectives help to inspire employees and managers to reach a common goal, therefore help to unify and motivate the workforce. They also encourage managers to think and plan long-term about the future success of the business.
3. To control and measure performance. The aim and objectives help to control company’s activities as they set the boundaries within the company shall operate. They also give managers the basis for measuring the performance of the business as a whole, and evaluate business activities.
Business objectives often create a lot of conflict. Different stakeholder groups, who are individuals or groups of individuals both internal and external to the business, have their own objectives. Objectives of different stakeholders (e.g. owners or suppliers) often differ from one another creating a zero-sum game – if I win, you lose. Hence, the objectives of business organizations will be shaped by various stakeholders. And, stakeholders’ objectives will be shaped by the objectives of a business.
Both the aim of a business and the strategies it adopts to achieve that aim will often change over time. And because a change of objectives will almost certainly require a change of detailed plan too (the strategy), a poor plan or strategy (or the lack of one) will lead to a failure to reach the overall target for the business organization.
