2 - Long-Term Objectives - PDF
2 - Long-Term Objectives - PDF
2 - Long-Term Objectives - PDF
Learning objectives
After studying this chapter, student should be able to do the following:
Key words
Financial Objectives, Long-term Objectives, Strategic Objectives, Profitability,
Productivity, Competitive Positioning, Employee Development, Employee Relations,
Technological Leadership, Social Responsibility, SMART objectives, OKR principle.
Contents
2.1 The Nature of Long-Term Objectives
2.2 Characteristics and Benefits of Objectives
2.3 Areas decisive for sustainable corporate growth and long-term prosperity
2.4 Qualities of Long-term Objectives
2.5 SMART Objectives
2.6 Avoid Not Managing by Objectives
2.7 What is an OKR?
Summary
2.1 The Nature of Long-Term Objectives
Long-term objectives represent the results expected from pursuing certain strategies.
Strategies represent the actions to be taken to accomplish long-term objectives. The
time frame for objectives and strategies should be consistent, usually from two to five
years. Without long-term objectives, an organization would drift aimlessly toward some
unknown end. It is hard to imagine an organization or individual being successful
without clear objectives. Success only rarely occurs by accident; rather, it is the result of
hard work directed toward achieving certain objectives.
Long-term objectives are needed at the corporate, divisional, and functional levels of an
organization. They are an important measure of managerial performance. A particular
organization could tailor its guidelines to meet its own needs, but incentives should be
attached to both long-term and annual objectives.
Objectives are commonly stated in terms such as growth in assets, growth in sales,
profitability, market share, degree and nature of diversification, degree and nature of
vertical integration, earnings per share, and social responsibility.
Clearly established objectives offer many benefits. They provide direction, allow
synergy, aid in evaluation, establish priorities, reduce uncertainty, minimize conflicts,
stimulate exertion, and aid in both the allocation of resources and the design of jobs.
Objectives provide a basis for consistent decision making by managers whose values
and attitudes differ. Objectives serve as standards by which individuals, groups,
departments, divisions, and entire organizations can be evaluated.
Two types of objectives are especially common in organizations: financial and strategic
objectives. Financial objectives include those associated with growth in revenues,
growth in earnings, higher dividends, larger profit margins, greater return on
investment, higher earnings per share, a rising stock price, improved cash flow, and so
on; while strategic objectives include things such as a larger market share, quicker on-
time delivery than rivals, shorter design-to-market times than rivals, lower costs than
rivals, higher product quality than rivals, wider geographic coverage than rivals,
achieving technological leadership, consistently getting new or improved products to
market ahead of rivals, and so on.
Ultimately, the best way to sustain competitive advantage over the long run is to
relentlessly pursue strategic objectives that strengthen a firm’s business position over
rivals. Financial objectives can best be met by focusing first and foremost on
achievement of strategic objectives that improve a firm’s competitiveness and market
strength.
quantitative,
measurable,
realistic,
understandable,
challenging,
hierarchical,
obtainable, and
congruent across departments.
Main goal of strategic managers is achieving sustained corporate growth and
profitability (rather than focus on the short-run profit maximization).
profitability,
productivity,
competitive positioning,
employee development,
employee relations,
technological leadership,
social responsibility.
2.3.1 Profitability
Profitability is one of four building blocks for analyzing financial statements and
company performance as a whole. The other three are efficiency, solvency, and market
prospects. Investors, creditors, and managers use these key concepts to analyze how
well a company is doing and the future potential it could have if operations were
managed properly.
The two key aspects of profitability are revenues and expenses. Revenues are the
business income. This is the amount of money earned from customers by selling
products or providing services. Generating income isn’t free, however. Businesses must
use their resources in order to produce these products and provide these services.
Resources, like cash, are used to pay for expenses like employee payroll, rent, utilities,
and other necessities in the production process. Profitability looks at the relationship
between the revenues and expenses to see how well a company is performing and the
future potential growth a company might have.
Strategically managed firms usually have a profit objective: gross profit margin,
operating profit margin, earnings per share, return on equity.
2.3.2 Productivity
Productivity refers to the rate of output per unit of labor, capital or equipment (input).
We can measure it in different ways. We can measure the productivity of a factory
according to how long it takes to produce a specific good. In the services sector, on the
other hand, where units of goods do not exist, it is harder to measure. Some service
companies base their measurement on how much revenue each worker generates. They
then divide that amount by their salary.
In a factory, you can measure it by dividing the total output by the number of workers.
Imagine a table factory that employs 100 people producing 2000 tables per day. The
productivity of each employee is:
Productivity focuses on getting the maximum production per worker or unit of machine
per minute, hour, day, or week, etc. A company can improve output per worker by
investing in better equipment, training its staff, and improving the management of
workers. Also, if workers know there is concern for their well-being, output per head
can improve significantly.
Competitive positioning is about defining how the company will “differentiate” its
offering and create value for the market. It’s about carving out a spot in the competitive
landscape, putting its stake in the ground, and winning mindshare in the marketplace –
being known for a certain “something.”
What sets the product, service and company apart from the competitors? What value
does the particular company provide and how is it different from the alternatives?
In other words we can state that good positioning strategy is influenced by:
When the market clearly sees how the offering is different from that of other
competition, it’s easier to influence the market and win mindshare. Without brand
differentiation it takes more time and budget to entice the market to engage with the
company. As a result many companies end up competing on price – a tough position to
sustain over the long term.
Employee development is defined as a process where the employee with the support of
his/her employer undergoes various training programs to enhance his/her skills and
acquire new knowledge and skills. It is of utmost importance for employees to keep
themselves abreast with the latest developments in the industry to survive the fierce
competition.
Leaders Aided by Technology (LATs) use technology to achieve stated goals. For
them, technology is a mean to these ends, a tool that must be employed productively.
LATs have an intuitive feel for the work they do and what it takes to meet their goals.
They seek ways to meet the goals and technology or ways to do so.
Technology leaders view technology leadership in terms of four components; they differ
in how they go about these components. These leaders can assess the value of a genre
or a particular item of technology to a firm’s processes, make reasonably accurate
forecasts of when the general state of technological development will reach a level at
which it can be productively applied to the firm’s activities, manage aspects of the
technology’s life cycle and transfer that technology throughout the organization.
Although being socially responsible isn't free – it can cost time, money and resources –
it is important to remember that every little bit can help the environment.
2.4.1 Flexible
2.4.2 Measurable
Objectives must clearly and concretely state what will be achieved and when it will be
achieved. Should be measurable over time.
E.g. “substantially improve our ROI“ would be better stated as “increase the return on
investment on our line of xxx products by a minimum of 1 per cent a year and a total of
5 per cent over the next three years“.
2.4.3 Motivating
2.4.4 Suitable
Objectives must be suited to the broad aims of the firm – expressed in its mission
statement. Each objective should be a step toward the attainment of overall goals.
Objectives inconsistent with the company mission can subvert the firm´s aims.
Ten benefits of a company with clear, suitable objectives can be summarized as:
2.4.5 Understandable
Strategic managers at all levels must understand what is to be achieved. They also must
understand the major criteria by which their performance will be evaluated = very
specific KPIs = key performance indicators.
One of the most important, but often overlooked, aspects of KPIs is that they are a form
of communication. As such, they abide by the same rules and best-practices as any other
form of communication. Brief, clear and relevant information is much more likely to be
absorbed and acted upon.
A specific SMART goal has a much greater chance of being accomplished than a
general goal. To set a specific goal the company must answer the six “W” questions:
Each objective should be: Specific, Measurable, Achievable, Realistic, and Time-
oriented.
Specific
Specific answers the questions "What is to be done?" "How will you know it is done?"
and describes the results (end product) of the work to be done. To ensure that an
objective is specific is to make sure that the way it is described is observable.
Measurable
Measurable answers the question "How will you know it meets expectations?" and
defines the objective using assessable terms (quantity, quality, frequency, costs,
deadlines, etc.). It refers to the extent to which something can be evaluated against
some standard.
Achievable/Attainable
Achievable answers the questions "Can the person do it?" "Can the measurable
objective be achieved by the person?" "Does he/she have the experience, knowledge or
capability of fulfilling the expectation?" It also answers the question "Can it be done
giving the time frame, opportunity and resources?" These items should be included in
the SMART objective if they will be a factor in the achievement.
Relevant/Realistic/Reachable
Relevant answers the questions, "Should it be done?", "Why?" and "What will be the
impact?" Is the objective aligned with the corporate implementation plan and the
strategic plan?
Time-oriented/Time-based/Time bound
Time-oriented answers the question, "When will it be done?" It refers to the fact that an
objective has end points and check points built into it. Sometimes a task has several
milestones or check points to help assess how well something is going before it is
finished. These corrections or modifications can be made as needed to make sure the
end result meets expectations.
Setting SMART goals means the managers can clarify their ideas, focus their efforts,
use their time and resources productively, and increase their chances of achieving what
they want.
Managing by Extrapolation - adheres to the principle “If it isn’t broke, don’t fix it.”
The idea is to keep on doing the same things in the same ways because things are going
well.
Managing by Crisis - based on the belief that the true measure of a really good
strategist is the ability to solve problems. Because there are plenty of crises and
problems to go around for every person and every organization, strategists ought to
bring their time and creative energy to bear on solving the most pressing problems of
the day. Managing by crisis is actually a form of reacting rather than acting and of
letting events dictate the What and When of management decisions.
Managing by Subjectives - built on the idea that there is no general plan for which way
to go and what to do. Just do the best you can to accomplish what you think should be
done.
Managing by Hope - based on the fact that the future is laden with great uncertainty
and that if we try and do not succeed, then we hope our second (or third) attempt will
succeed. Decisions are predicated on the hope that they will work and the good times
are just around the corner, especially if luck and good fortune are on our side.
Setting goals is key to making progress in any area. It is known that those who write
down their goals are 95 % more likely to achieve them and that two best practices for
goal-setting include making them measurable and giving them a deadline.
The development of OKRs is generally attributed to Andy Grove the "Father of OKRs"
and was later popularized by Google. OKRs are now the way many companies like
LinkedIn, Twitter, Uber and more set and achieve goals.
A Key Result is a metric with a starting value and a target value that measures progress
towards an Objective. A key result helps answer “How will I know I’m getting there?”
They should be measurable and quantifiable, make the objective achievable, lead to
objective grading and should be difficult, but not impossible.
Can be stated that results can be based on growth, performance, revenue and
engagement.
Implementing OKRs:
Summary
Clear objectives set out what a company wants to achieve from its business activities.
They need to be consistent with overall aims and objectives of the corporate. They also
provide an important focus for the employees.
Provided the business objectives are relevant and achievable, there are some important
business benefits from setting them and monitoring progress against them. Effective
corporate objectives:
Objectives are essential for organizational success because they state direction in the
first place. They also aid in evaluation, create synergy, reveal priorities, focus
coordination and provide a basis for effective planning, organizing, motivating, and
controlling activities within the company.
Review questions
1. What makes a good business objective?
2. List reasons why objectives are essential for organizational success.
3. In order of importance, list six “characteristics of objectives.”
4. In order of importance, list six “benefits of objectives.”
5. What OKR stands for?
References
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[cit. 2019-09-14]. Available from:
https://www.bamboohr.com/hr-glossary/employee-relations/
Market Business News. 2019. What is productivity? Definition and meaning. [online].
Wisconsin USA: MBN Market Business News, 2019 [cit. 2019-09-02]. Available from:
https://marketbusinessnews.com/financial-glossary/productivity-definition-meaning/
MILLER, Nicole. 2016. How Google Sets Goals: Inside Buffer’s Experiment with
OKRs. [online]. California USA: Buffer Inc. 2019. [cit. 2019-08-01]. Available from:
https://open.buffer.com/okrs-experiment/
Wayne LEADS. 2017. S.M.A.R.T. Objectives [online]. Michigan USA: Wayne State
University. 2017 [cit. 2019-09-14]. Available from:
https://hr.wayne.edu/leads/phase1/smart-objectives