Business Objectives

Objectives refer to something set to be achieved by the business within a specific time frame. It becomes an integral part of running operations because it helps companies prioritize what they need to do to achieve their desired success.

Businesses have several different objectives. Influencing factors include their orientation and which sector they operate in.

Another factor is the age or stage in which the business is growing. For example, startups are trying to survive because they are in the early stages. In contrast, maximizing profits is an objective for mature companies.

Changes in the internal and external environment also affect changes in objectives. For example, a defensive company such as an electrician might target market share during a recession because their sales are relatively stable. Conversely, cyclical companies may set survival objectives during this period because they see a significant drop in sales.

Reasons business objectives are important

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

Organizational 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, mission, corporate objectives, departmental objectives, and unit/individual objectives

The vision describes the desired position for the company in the long term. Then, it succinctly states the company’s ambitions and answers the question, “What do we want to be?”

Vision statement – a written statement of the company’s vision. It should be short and often consist of only one sentence.

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.

Mission statement – a formal written statement of the company’s mission. It supports the vision and serves to communicate goals and directions to stakeholders.

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 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

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, they provide the basis for ensuring that individuals know what to do to achieve departmental objectives. Second, they are necessary for the appraisal of every employee.

Strategic, tactical, and operational objectives

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

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 is developed to implement the parts of the strategic plan, outlining the steps to be taken.

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.

Vision, objectives, strategy and tactics, and their relationship

The vision is the big picture and the desired position for the company in the long run.

The 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.

Types of corporate objective

Let’s break down the corporate objectives mentioned earlier:

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

Survival

Survival is the objective for startups. And that is a critical objective for them.

There are several reasons why survival is a critical objective for startups. First, they had just started operations. So, they have yet to have a strong customer base. Loyalty to their products is relatively low.

Second, startups face high costs but low revenues. On the one hand, they have to spend a lot of money on promotions to support sales. But, on the other hand, their revenue is still tiny. Thus, they have low profits or cannot even cover costs from sales.

Third, startups must face stiff competition from more established companies. Competition forces them to find ways to attract customers to buy their products rather than competitors’ products. And it carries risks. Competitors can retaliate fiercely because they are threatened.

In addition to startups, established businesses may also set survival as an objective when facing high pressure due to changes in their business environment, such as a recession or hypercompetitive environment.

Growth

Most businesses target growth. Growth objectives may be related to the following:

Production capacity
Total assets
Revenue dollars
Sales volume
Number of customers

Survival success encourages new businesses to target growth. Growth objectives are essential for the following reasons:

Increase revenue by selling more products
Cost reduction through increased economies of scale
More profits as revenue rise while costs fall
Less risk of being taken over by competitors

However, the growth objective carries risks, including:

Competitor threats. Growth may be achieved through aggressive marketing strategies, which invite retaliation from competitors.
Lower short-term returns to shareholders. Say, a business is pursuing growth, for example, by lowering prices. If not offset by reduced costs, this leads to reduced profit margins.

Maximizing profit

Businesses strive to make as much money as possible. In other words, they seek to maximize profits.

Profit is maximum when the positive difference between total revenue and the total cost is highest. Businesses achieve this by generating as much revenue as possible at a minimal cost. It requires the right balance between the following:

Selling price
Sales volume
Operating costs

Businesses are likely to face challenges as they pursue these objectives, including:

More competition. High profits attract potential competitors to enter the market.
Internal opposition. Upper management may have to suppress cost increases such as salary to maximize profits, which employees do not like.

Profit satisficing

This objective is slightly different from maximizing profits, although both focus on profits. Profit satisficing means achieving enough profit to make the owner happy.

This objective is prevalent for small businesses. Their owners generally set up businesses to generate enough money and wealth for their present and future existence.

This objective has opposing sides. First, the business squanders the potential for higher profits.

Businesses may have a good market position to make more profit. But they may not maximize it. Therefore, competitors can seize it.

Second, businesses don’t have enough money to grow. Or they lack funds to implement social responsibility programs.

Market share

Businesses may try to be number one in the industry. And that requires them to increase their market share and make it the biggest among competitors.

Typically, the market share objective is calculated from sales, perhaps volume or value (dollars). For example, the company targets to increase its market share from 10% to 15% in five years.

Achieving increased market share requires the company to post higher sales growth than the industry. In other words, the company outsells the average competitor.

Increasing market share can be achieved by:

Increasing repeat purchases
Acquire new customers
Diverting customers from competitors

The strategy to achieve this can be through aggressive promotion. Improvements in product features are another way.

Corporate social responsibility (CSR)

Social responsibility prioritizes two other aspects besides profits: the environment and society. In this case, the business is not only after profit. But they also ensure their operations do not cause harm to the environment or people.

For example, companies use biodegradable packaging to reduce harm to the environment. A paperless office is another example where it can save billions of trees and, therefore, the oxygen in our atmosphere. Instilling diversity is also a social responsibility.

There are pros and cons related to social responsibility objectives. Gaining public acceptance and reducing negative publicity are among the advantages. In addition, it is also a way to attract customers because, nowadays, they are paying more and more attention to environmental issues.

However, social responsibility also comes with additional costs. Thus, it could reduce profits and, therefore, conflict to maximize profits.

In addition, companies may face more criticism and lose loyalty if something goes wrong with their social responsibility programs.

Initiating social responsibility requires companies to carry out environmental audits and social audits.

An environmental audit systematically examines a company’s performance and position concerning its environmental responsibilities. Audits answer questions such as:

Has the company complied with environmental regulations and requirements?
Have the policies and practices been carried out by the objectives?

Meanwhile, the social audit focuses on examining corporate social responsibility. It reviews company practices and policies and the company’s impact on society. It helps assess how well a company achieves its social goals.

Maximizing shareholder value

Maximizing shareholder value connotes maximizing shareholder wealth. So how do businesses do it?

When investing in a company, shareholders can potentially derive wealth from two sources:

Dividends paid
Capital gain from rising stock prices

Thus, maximizing shareholder wealth requires the company to pay more dividends and increase the share price. It is achieved by making more profit, which means more money will be distributed as dividends. In addition, high profits are also positively correlated with its stock price.

Objectives across organizations

Objectives vary between organizations in different sectors. This is because they have different orientations or motives in their activities.

Organizations in the private sector generally have the following objectives:

Survival
Growth
Market share
Maximizing profits
Maximizing shareholder value
Corporate social responsibility
Superior customer service
Operating ethically

Meanwhile, organizations in the public sector have the following objectives:

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

Finally, non-profit organizations in the third sector may have the following objectives:

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

Changes in business objectives

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. And 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 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 objectives.
Changes in market conditions. For example, consumers’ concern for environmental issues forces businesses to pursue social responsibility.

Ethical objective

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
Code of ethics
Code of conduct
Ethical responsibility

Ethical principles are beliefs about what is good, acceptable, or mandatory behavior and what is bad, unacceptable, or prohibited behavior.

A code of ethics is a formal statement of the ethical or moral principles a company adheres to.

Meanwhile, the code of conduct is 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.

The code of ethics is different from the code of conduct. For example, the company prioritizes environmentally friendly ethics in its operations. The company then encourages employees to use less paper, except for what they should. The first is a code of ethics, while the second is a code of conduct.

Finally, ethical responsibility is the ability to recognize, interpret, and act in a way that society considers right.

Why is behaving ethically important? The benefits and challenges

Ethical objectives are important in business. For example, it creates a perception in the view of consumers. Nowadays, people are increasingly paying attention to company behavior when making product choices, which can influence their buying decisions.

A clear example is a concern for the environment. High concern for the environment encourages consumers to deal only with environmentally friendly companies and avoid others.

In addition, ethical companies tend to get better output. This is because their employees are motivated, and ultimately, they can be more productive.

Apart from these two things, other benefits of behaving ethically are:

Potential to attract qualified and experienced staff
Improve the company’s image, including its product and brand
Acquire more customers with values aligned with the company
Avoid costly court cases for ethics-related crimes

Nonetheless, behaving ethically presents challenges, including:

Costs increase, such as paying a fair wage during a tough economy
Profits decrease due to increased costs
Conflicts with other objectives, for example, profit maximization, which demands high profits

Reasons business objectives are important

Objective hierarchy

Vision, mission, corporate objectives, departmental objectives, and unit/individual objectives