Guidelines For Ideal Business Objectives

GUIDELINES FOR IDEAL BUSINESS OBJECTIVES For success, objectives should have certain qualities. Important factors to consider when formulating objectives: Participation: To the extent possible, people responsible for achieving the objectives should participate in formulating them. This provides motivation and accountability. Clarity: Objectives shouldn't be vague or ambiguous. They should be clearly spelled out and communicated to people working to accomplish them. Realism: Objectives should be realistic given the internal and external environment. They should be achievable with best efforts within the environment, yet high enough to fully utilize company resources and capabilities. Flexibility: Objectives shouldn't be rigid but flexible to accommodate changes. The environment and organizational strengths/weaknesses may necessitate modifying objectives over time. Objectives can become obsolete as the environment changes, so companies should provide for suitable modifications when needed. Consistency: Objectives should be mutually consistent across the organization. All organizational objectives should support the overall enterprise objectives. Prioritization: An organization with multiple objectives should assign relative priorities and timelines for achieving each one. Verifiability: Objectives should be measurable for performance verification. For example, "reasonable profit" is subjective but "15% return on investment" can be specifically verified. Balance: There should be appropriate balance between different objectives like profitability, employee welfare, customer welfare, community welfare etc. Overemphasizing one may negatively impact others. Factors Affecting Objectives Objectives aren't formulated in a vacuum. As per Glueck, who said objectives are formulated by top managers, three factors affect the choice of objectives: 1. External environmental forces 2. Internal forces like resources and power relationships 3. Value systems of top executives There are many environmental factors influencing business decisions and objectives, like government policies. Internal factors like resources and internal power dynamics also affect objective formulation. For example, shareholder confidence in top management and employer-employee relations impact it. The value systems of top executives influences objectives. For instance, Tata Iron and Steel's objectives regarding social/moral responsibilities reflect the values of its leaders. Profit objective, business practices, corporate citizenship etc. depend on leaders' values. Hierarchy of Objectives  Return on Investment: An important objective for most enterprises, private and public sector. Private firms are often profit-motivated but social outlook and environment influence the target profit level.  Growth: Most enterprises have a growth objective, vertically, horizontally or by diversification. Growth benefits promoters, shareholders, consumers, suppliers and the economy.  Innovation: According to Peter Drucker, business has two basic functions - marketing and innovation. Marketing and innovation produce results; the rest are costs. Business must provide not just any goods/services but better, more economic ones. Business need not grow bigger but must constantly grow better.  Market Share: Many firms aim to increase or maintain market share, with some wanting market leadership for prestige or recognition. Some prioritize leadership over profit maximization. Organizations with multiple levels usually have a hierarchy of objectives. The organizational mission shaped by promoter vision/values, shareholder expectations and environment is at the top. Below it is overall long-range corporate objectives set by the board and top managers. More specific objectives in key result areas like ROI targets or market share growth targets are next. In multi-SBU firms, SBU objectives come next, followed by divisional objectives based on the SBU objectives. Then are departmental objectives for departments like production, marketing, finance etc. to achieve corporate objectives. Departments may have sectional objectives, and individual personnel have objectives contributing to sectional objectives. The hierarchical objectives at different levels aim to achieve the overall organizational objectives. Classification of Objectives Broadly, there are economic and social objectives. Economic Objectives  Survival: The primary objective is to stay in business, as industrial sickness shows. Strategic planning and monitoring the environment are key for survival. Social Objectives There is increasing recognition of business' social objectives and responsibilities, beyond traditional economic performance. Educated, interdependent societies with discretionary resource use expect business to address social issues proactively. Business is at the interface between company and society, so marketing personnel have the responsibility to not just devise strategy but sensitize business to social as well as product demands of society. Social objectives may be grouped as: 1. Protecting consumer interests 2. Protecting worker interests 3. Protecting societal interests In sum, economic objectives drive enterprise health and serve shareholders while social objectives address societal needs and welfare. Economic objectives justify social objectives, and social objectives justify economic ones. Economic objectives are clear, tangible, and cardinal while social objectives are often less definitive and ordinal. But social objectives provide the base for economic objectives and are vital for justification and survival.