A Guide to Setting Effective Business Objectives

Business objectives are specific targets set within a defined timeframe to guide decision-making and prioritize actions for a company’s desired success. These objectives are influenced by the company’s orientation, industry sector, life stage (survival for startups, profit for mature companies), and even internal/external environment changes. For instance, a recession might shift a defensive company’s focus to market share, while cyclical companies may prioritize survival.

This article discusses many aspects of organizational objectives, starting with hierarchy and the types and factors influencing them. Let’s dig deeper.

Why objectives matter

Business objectives define the targets to be achieved and, therefore, provide direction for the organization. It must state what the organization wants, how to achieve it, when, and how success is measured.

Several reasons explain why business objectives are essential, including:

• Clarify what the business wants to achieve
• Become a guide in making decisions and selecting alternative strategies
• Become a means to measure performance
• Measure the organization’s progress against goals – and, therefore, corrective action
• Motivate employees by giving them clear direction
• Become the basis for setting targets within the organization
• Give reasons for shareholders to invest in the company

Objective hierarchy

Business objectives have the following levels:

• Vision/aim
• Mission
• Corporate objective
• Departmental objective
• Unit/individual objectives

In other classifications, levels include:

• Strategic objective
• Tactical objective
• Operational objective

Vision/aim

The vision serves as a cornerstone for any organization’s strategic framework. It succinctly encapsulates the company’s long-term aspirations, outlining the desired future state and answering the fundamental question: “What do we want to be?” The company translates it into a statement, a vision statement. This concise statement, often just a single sentence, acts as a powerful guiding star, inspiring employees and stakeholders alike.

Consider LinkedIn’s Vision Statement: “Create economic opportunity for every member of the global workforce.”

LinkedIn’s vision statement reflects the company’s aspirations to impact the professional lives of people worldwide meaningfully. It emphasizes LinkedIn’s commitment to providing a platform that enables individuals to access economic opportunities regardless of their location or background.

The vision statement also highlights the global scope of LinkedIn’s intended impact, aiming to reach and benefit every member of the workforce on a planetary scale. This underscores the company’s ambition to be a transformative force in the world of professional networking and career development.

Mission

The mission states the business’s purpose and answers the questions “What is our business?” and “Why do we exist?”. It provides the framework or context in which strategy is formulated. It differentiates the company from competitors and identifies its scope of operations, especially concerning the products offered and the markets served. Meanwhile, the mission statement is a formal written statement about it, supporting the vision and serving to communicate goals and directions to stakeholders.

LinkedIn’s Mission Statement: “Connect the world’s professionals to make them more productive and successful.“

LinkedIn’s mission statement complements its vision by outlining the company’s primary purpose and the means by which it aims to achieve its vision. The mission focuses on connecting professionals globally, creating a vast network that facilitates collaboration, knowledge sharing, and career advancement.

The mission statement also emphasizes the outcomes LinkedIn strives to deliver to its members: increased productivity and success. By providing a platform that enables professionals to connect, learn, and grow, LinkedIn aims to empower its users to achieve their career goals and reach new levels of professional fulfillment.

Corporate objective

Corporate objectives outline a clear goal to achieve the vision and mission. They specify vision and mission statements for operational decisions.

Corporate objectives include:

• Maximizing profits
• Profit satisficing
• Growth
• Market share
• Survival
• Corporate social responsibility (CSR)
• Maximizing shareholder value

Departmental objective

Departmental objectives are short-term objectives for business functions. They outline corporate objectives. In other words, they are set to support and achieve corporate objectives.

Examples of departmental objectives:

• Increase sales volume by 15% in the next five years
• Reduce operating costs by 5% over three years
• Generates 5% higher return on investment than benchmarks

Unit/individual objectives

Individual/unit objectives are set for teams or individuals in each function. They are daily goals or targets for the group or each individual. An example is recruiting 5 new clients for a sales force.

This objective is essential for two reasons. First, it provides the basis for ensuring that individuals know what to do to achieve departmental objectives. Second, it is necessary for the appraisal of every employee.

Strategic objective

Strategic objectives include those in the corporate vision, mission, and objectives. They represent the desired results at the corporate level and describe what the company must do to fulfill its vision and mission.

Strategic objectives affect the company, including corporate-level policies and strategies. Top-level management is responsible for establishing them, determining the required actions, and mobilizing resources for implementation.

Tactical objective

Tactical objectives, also called departmental objectives, define medium-term targets to be achieved at the organization’s mid-level, such as divisions or departments.

Middle-level managers are responsible for tactical objectives. They translate strategic objectives into their business functions. For this reason, the objectives will differ for each function (department or division), but they are interrelated.

For example, in the marketing department, the manager determines to increase market share by 10% in five years. This objective should be supported by objectives in the operational function, e.g., targeting zero defects.

Tactical objectives guide short-term, routine decisions in each business function, for example, what price to charge for a product. And as a whole, middle-level managers break it down into tactical plans.

• A tactical plan outlines the steps to be taken to implement the parts of the strategic plan.

Operational objective

Lower-level management is responsible for a unit or small-group objectives. Together with individual objectives, we also call them operational objectives.

Operational objectives represent short-term goals or targets at the team or individual level. First, lower-level managers break down tactical objectives into operational objectives. Then, they develop short-term daily action plans to achieve the company’s tactical goals as efficiently as possible.

Operational objectives serve as a guide for lower-level managers to make day-to-day and recurring decisions. Meanwhile, for individuals, they become a guide for daily activities and work.

For example, an operational objective to increase customer satisfaction by 10% might guide a manager to prioritize resolving customer complaints quickly, while an individual employee’s objective of achieving daily sales targets would help them focus on closing deals.

Here are some additional examples of how operational objectives serve as a guide for different areas:

Human resources:

• Objective: Reduce employee onboarding time by 20%. This would guide HR managers in streamlining the onboarding process, identifying areas for improvement, and ensuring new hires have the resources they need to be productive quickly.
• Objective: Increase employee participation in training programs by 15%. HR professionals could then focus on developing engaging training content, offering flexible scheduling options, and recognizing employees who complete training.

Finance:

• Objective: Decrease accounts payable processing time by 10%. This would lead the finance team to analyze their workflow, identify bottlenecks, and implement new technology or procedures to expedite payments.
• Objective: Maintain a cash flow reserve equal to two months of operating expenses. This financial objective would guide daily cash management decisions, ensuring sufficient funds are available for ongoing operations and unexpected expenses.

Types of corporate objectives

While profitability is a natural objective for most businesses, it’s not the only factor to consider. Organizations can pursue a variety of objectives depending on their stage of development, industry, and values.

• Survival: For startups, the initial focus might be on survival, establishing a customer base, and overcoming the challenges of a new venture. This could involve objectives like increasing brand awareness, securing funding, or building a strong customer service reputation.
• Growth: Once established, businesses often aim for growth, increasing revenue, market share, or production capacity. Growth objectives might target expanding into new markets, developing new product lines, or acquiring strategic partnerships.
• Profitability: Profitability can take two forms: maximizing profits for rapid growth or achieving a satisfactory level of profit (profit satisficing) to ensure stability and reinvestment. Here, business objectives could focus on cost reduction strategies, optimizing pricing models, or improving operational efficiency.
• Market share: Some companies strive to become the industry leader in terms of market share, aggressively expanding their customer base. Their business objectives might involve increasing brand recognition through marketing campaigns, developing unique selling propositions, or outmaneuvering competitors.
• Corporate Social Responsibility (CSR): Integrating social and environmental responsibility into business practices is a growing priority for many organizations. This might involve using sustainable materials, minimizing environmental impact, or giving back to communities. CSR objectives could target reducing carbon footprint, implementing fair labor practices, or increasing charitable giving.
• Maximizing shareholder value: Publicly traded companies may prioritize increasing shareholder wealth through dividends and stock price appreciation. Business objectives here could focus on increasing profitability, managing debt effectively, or implementing share buyback programs.

The above business objectives are relevant for organizations in the private sector. They may differ for organizations in other sectors.

Organizations in the public sector:

• Providing public services at affordable prices
• Working within a budget
• Operating ethically
• Serving the local community

Non-profit organizations in the third sector:

• Providing services to members
• Maximizing donations
• Operating ethically
• Survival
• Increasing the number of volunteers
• Reducing poverty
• Promoting well-being

The SMART Criteria

Effective business objectives should be SMART:

• Specific: Clearly define what the company wants to achieve. Don’t settle for vague statements like “improve customer satisfaction.” Instead, aim for something like “increase customer satisfaction scores by 10% within the next year.”
• Measurable: Quantify the business objective whenever possible. This allows tracking progress and determining if the goal is achieved.
• Attainable: Be ambitious but realistic. Consider resources and capabilities when setting business objectives.
• Relevant: Ensure business objectives align with the overall vision, mission, and strategy. Don’t pursue goals that are tangential to the core purpose.
• Time-bound: Set a specific timeframe for achieving the business objective. This creates a sense of urgency and helps with action planning.

Strategy and tactics

Several key concepts form the foundation for guiding a company’s direction and decision-making processes. These concepts, ranging from the overarching vision to the day-to-day tactics, work together to create a cohesive framework for achieving organizational success. To better understand how these elements interplay, it’s essential to define and differentiate between the following terms: 

• Vision is the big picture and the desired position for the company in the long run.
• Mission is about how the business will achieve the vision, providing the context in which strategy is formulated.
• Strategy is how to use the mission statement to achieve the vision statement.
• Goals are about what needs to be achieved to implement the strategy.
• Objectives are specific milestones to achieve a goal within a certain time frame.
• Tactics are short-term actions planned to achieve an objective. A tactical plan is a specific implementation plan of how the business will achieve an objective.
• Core values are about how the organization and its people will behave throughout the process, from outlining the vision to executing tactics.

Factors affecting objectives

Business objectives can change and develop over time. For example, a startup has a survival objective. When successful, they set other objectives, namely growth and market share. Once established, maximizing profits and shareholder value may become another objective.

Why have business objectives changed? Several reasons explain this. Broadly speaking, changes in external and internal factors underlie changes in business objectives.

Internal factors affecting business objectives include changes in the following:

• Company culture and values. For example, ethical values encourage companies to prioritize social responsibility over profit maximization.
• Business size. For instance, a small business targets growth to get bigger and, after big, sets profit maximization as an objective.
• Change in ownership. For example, new owners may have a deeper concern for environmental issues.
• Business age. For example, a young company trying to survive, then grow and increase market share.
• Finance available. For example, a company with little available finance may struggle to survive. When it has strong finances, it targets market share.
• Risk tolerance. For example, higher risk tolerance encourages management to set ambitious goals such as overseas expansion and innovation.

Meanwhile, external factors affecting business objectives include changes in the following:

• Economic condition. For example, businesses seek to survive during a recession and grow as the economy expands.
• Competition conditions. For example, the business objective in a hypercompetitive environment is survival, and when competitive pressures weaken, they pursue profit maximization.
• Changes in government policy. For example, the government launched policies related to the environment, forcing businesses to prioritize social responsibility over pursuing other business objectives.
• Changes in market conditions. For example, consumers’ concern for environmental issues forces businesses to pursue social responsibility.

Ethical considerations

Business ethics is a set of moral principles, especially regarding how business is conducted and management’s responsibilities towards stakeholders, the environment, and society. Business ethics become a moral guideline for running a business. It underlies decisions and behavior by organizations and the people within them.

Four terms related to business ethics are:

• Ethical principles: Beliefs about what is good, acceptable, or mandatory behavior and what is bad, unacceptable, or prohibited behavior.
• Code of ethics: A formal statement of the ethical or moral principles a company adheres to.
• Code of conduct: A series of guidelines for professional ethical principles and standards and employee behavior. They serve as general guidelines for how employees should act, often sourced from codes of conduct.
• Ethical responsibility: Ability to recognize, interpret, and act in a way that society considers right.

Benefits and challenges of ethical behavior

Here’s how ethical behavior benefits an organization:

• Enhanced reputation and brand image: Consumers are increasingly drawn to companies that operate ethically. A strong reputation attracts loyal customers and strengthens the brand.
• Attracting and retaining top talent: Talented individuals are more likely to be drawn to and stay with companies that share their values. Ethical practices foster a positive work environment and reduce employee turnover.
• Increased customer loyalty: Customers who trust the commitment to ethical practices are more likely to be loyal to the brand and become advocates.
• Reduced legal and financial risks: Unethical behavior can lead to lawsuits, fines, and reputational damage. Operating ethically mitigates these risks and protects the bottom line.

While the benefits of ethical behavior are clear, there can be challenges:

• Short-term costs: Ethical practices may require upfront investments or limit immediate profits. Companies need to find a balance between ethics and financial sustainability.
• Integration costs: Sustainable sourcing, fair labor, and environmental responsibility can be expensive. Businesses need to integrate them efficiently, potentially through innovation or cost-cutting elsewhere.
• Measurement challenges: Quantifying the impact of some ethical practices can be difficult. Companies need robust measurement frameworks and transparent reporting.
• Supply chain complexity: Ensuring ethical practices across a complex supply chain requires partnering with like-minded suppliers and implementing strong auditing procedures.