Business Policy & Strategy What Objectives are Pursued by General Managers Business Goals are the primary outcomes, towards which efforts and actions are directed in a business. Normally these provide the general direction and are not quantified. Business Objectives are more specific, often measurable and with shorter time frame. They are measurable steps an organization takes to achieve its goals. A number of objectives may serve a single business goal, over a number of years.

Business Policy & Strategy SMART OBJECTIVES Specific (what?) Measurable (by how much?) Achievable (can it be done?) Relevant (why?) Time bound (when?)

Business Policy & Strategy Examples of Business Objectives Profit growth by 10% in 2016 Improved efficiency by lowering costs by 5% in 2016 Employee satisfaction by improving the internal survey score by 5 units. Employee development by providing 5 training days per person in a year Product quality improvement by reducing recalls or defects by 10% Customer Satisfaction by improving the external survey score by 5 units Increase shareholders satisfaction by increasing dividend by 2% Social responsibility by contributing to road safety

Business Policy & Strategy Business Objectives A company may pursue multiple objectives Some objectives may be repeated for several years and others may be just for one year The aggregate of all business unit objectives must provide the corporate objectives The usual dilemma, short term objectives vs longer term objectives. Not all objectives carry the same weighting and not all have the same priority

Business Policy & Strategy Business Objectives (2) Official Objectives vs Operative Objectives Official objectives are those that the organisation say that they pursue on official occasions such as public speaking, press conference. Operative objectives are those that the organisation is actually pursuing. For example, an official objective may be to reduce pollution but if the organisation does not invest towards this then the objective does not become operative

Business Policy & Strategy Business Objectives (3) There may be constraints to reaching the set objectives. For example, pursuing higher market shares may require additional funds for promotional activities and these may not be available at that moment. Businesses need to operate in a way that the social environment in which they are located is at least unharmed and at best promoted. Businesses are urged to be concerned with human rights, environmental protection, equality of opportunity, safety of people etc. Company objectives need to address some of these.

Business Policy & Strategy Why set business objectives? Objectives are more tangible targets than mission. They are the stepping stones in achieving the ultimate goals. Objectives help define the organisation in its environment. Firms need to justify their existence and to legitimize themselves in the eyes of the customers, the government and society. By stating their objectives, they attract people who identify with those objectives and would like to work with. Thus objectives define the enterprise. Objectives help to co-ordinate decisions and decision makers. Stated objectives direct attention of employees to desirable standards of behaviours. Reduces conflict. Objectives provide standards for assessing performance. Without objectives the firm has no clear standards to judge itself. .

Business Policy & Strategy How are Mission and Objectives Formulated Mission and Objectives are formulated by the corporate level strategists. Their choices are affected by several factors such as the external environment, firm’s resources, shareholders expectations, external and internal power relationships, past strategies, experience and goals of top executives External Environment: For example, let’s assume that one of the objectives is to maximise sales volume. This may be limited by anti trust legislation, or government regulations on excessive profits. Trade unions may demand higher, unrealistic benefits for employees, competitors may react by offensive strategies. Suppliers may become stronger and demand outrageous higher prices. Hence, the organisation’s objective of sales maximisation may be limited by the most powerful and most dependent stakeholder.

Business Policy & Strategy How are Mission and Objectives Formulated (2) Firm’s resources – The firm may not have the available resources to pursue a specific objective. In addition, the internal power relationships can influence the availability of the resources. Does management have the support of the shareholders? Does the CEO enjoy the support of the top, middle and lower management? The power relationships between the various business units can affect the objectives. Also the withholding competitive and market intelligent information by the lower level employees may constitute an informal power which can affect the setting of objectives. Value system of top executives – Organisations with strong cultures and values will attract and retain managers with similar values. These values will essentially dictate what is good, bad, desirable or undesirable for the organisation. Thus the setting of objectives will be guided by the values of the firm. Risk takers vs risk aversive Aggressive vs passive Quality vs quantity Autocratic vs participative

Business Policy & Strategy How are Mission and Objectives Formulated (3) Awareness by Management of the past development of the firm – The past experience and history of the firm will play a role in setting the objectives. The process is usually incremental from previous state , given the present environmental factors The momentum of large organisations makes step changes difficult to accomplish. Overall, Resources Environment Organizational objectives Values Past Development

Business Policy & Strategy Why do Objectives Change Could be due to gap analysis between expected and desired outcomes. Managers could attempt to surpass their predecessors Arrival of a new CEO from outside the organisation who attempts to initiate changes. Significant and unexpected changes in the environment Under crisis either internally or externally New entrants into the market, new exits from the market, new government regulations

Business Policy & Strategy The Specificity of Objectives How broadly or narrowly should the objectives be stated? Objectives are usually more narrow as one moves down the organisation Formulation of objectives is often an evolving process and tends to change with the size of the organisation Smaller and newer firms may set some objectives but in informal and often only top managers know them. As firms gain more experience, they may start to formulate and communicate objectives in writing. Then they start quantifying and prioritising objectives Management by Objectives (MBO) technique

Business Policy & Strategy Performance Contracts for Business Units and Individuals Corporate Objectives can then be translated into targets for business units and individuals. Performance Contracts are then developed and agreed between line managers and individuals with quantifiable targets. For example: Sales increase by 10% overall Sales increase by 15% for a new product Gain three new customers in the industrial sector Reduce costs by 5% Train new sales person for three months Attend training to improve knowledge on new sales techniques Improve team work and spirit by introducing team building events , 3 per year