Cost, quality, delivery, and flexibility are examples of operational objectives. Some companies may emphasize costs because they adopt a cost leadership strategy, which requires them to operate with a lower cost structure than the industry average. Others may emphasize quality due to pursuing a differentiation strategy in which superior quality allows them to charge a premium price.
Companies set objectives for their operational areas to be achieved within a specific timeframe. They are the basis for developing strategy and for allocating resources. Moreover, they are a means to achieve a higher objective, i.e., business objectives. Management breaks them down into specific daily, weekly, or monthly tasks to perform.
Why are operational objectives important?
Operational objectives are prerequisites for achieving business objectives. Management divides business objectives into functional areas, including operational functions. Although each functional area has its own objectives, they must be aligned and synergized for smooth business operations and achieving business objectives.
In addition, operational objectives guide people in operational areas on what is to be achieved. As a result, they understand what needs to be done and how their work contributes to the company. So, objectives don’t just give them direction. But, they can also motivate by providing employees with clear goals.
What are examples of operational objectives?
Companies may emphasize different operational objectives, often related to their competitive strategy. For example, a cost leadership strategy emphasizes costs. Meanwhile, the differentiation strategy emphasizes quality. The following are examples of common operational objectives:
- Cost
- Quality
- Flexibility
- Response speed
- Value-added
- Environmental objective
Cost
All companies try to keep costs down. Because they are profit-oriented, lowering costs is a way to achieve higher profits in addition to increasing revenue.
Lowering costs becomes essential when a company has a high fixed cost structure. Such costs cannot decrease even when they are not producing output. I mean, they still bear the fixed costs even if production equals zero. And to keep their fixed costs down, they have to sell as many products as possible. That way, they can spread their fixed costs over more output, lowering their cost per unit.
In addition, keeping costs down is also essential for companies with a cost leadership strategy. They compete directly on price. And costs affect how many dollars they can charge customers. So when they offer prices at the industry average, they must have a lower cost structure than their competitors to operate more profitably.
And suppose companies with a cost leadership strategy can drive costs down. In that case, they can sell products at slightly lower-than-average prices to encourage consumers to switch to them. As a result, they can book higher sales volumes but still be profitable because they have lower operating costs.
The cost objective is also closely related to the conditions in which the company operates, not only related to the competitive strategy adopted. For example, during a recession, companies seek to lower costs further to survive in the industry. Their revenue is squeezed as demand falls. So, to stay, they have to streamline their operations and ensure the dollars they receive are enough to cover costs.
Quality
Quality becomes the key to the differentiation strategy. The company emphasizes product uniqueness to attract customers and encourage them to spend more dollars. So, it is almost impossible to attract them to buy the product without superior quality.
Besides, quality is strategic to ensure customers are satisfied. If product quality persists over time, it will affect customer perceptions. And, when they buy the product, they already understand what quality they will get. Finally, consistent superior quality creates a positive impression, influencing future purchasing decisions.
For these reasons, improving quality as an operational goal helps companies to generate sales. Consistent superior quality allows customers to continue buying time after time. In addition, the positive impression it creates encourages them to promote their products to others. Finally, it will strengthen the brand and make it easier for the company to generate sales when launching new products.
In addition, improving quality can also contribute to efficiency and lower costs. For example, good quality reduces associated costs such as repairs, complaints, and returns.
Flexibility
Flexibility is how companies can adapt their operations to changes in the business environment. For example, companies vary production volumes relatively quickly in response to unexpected changes in demand. Thus, they can quickly increase production when demand increases to reap more sales. Conversely, when demand falls, they easily streamline production and reduce costs.
In addition to changes in demand volume, flexibility in customizing products according to demand is also essential. Products may be relatively standard, but companies add customized features or services to meet each customer’s needs.
For example, a sports shoe manufacturer offers customers to engage in designing a product in their version. They follow a step-by-step customization process, selecting colors and materials, and adding a logo, name, and personalized message to create a unique product.
And advanced technology then allows those customizations to be mass-produced at a lower cost. That’s what we call mass customization. This method is applied in several industries, such as automotive, finance, and software.
Response speed
Success in marketing a product is about more than just offering superior quality at the right price and selling it to suitable locations and segments. It also requires companies to ensure goods are available when customers need them. In addition, the company must also be present when customers need assistance with post-purchase services.
The response speed is an essential aspect because it also affects customer satisfaction. Delivering products right when customers need them creates a positive impression. Likewise, handling customer complaints or providing post-purchase assistance quickly is also key to satisfying them. Failure to do so is likely to create customer dissatisfaction. And what’s worse, it encourages customers to switch to competitors’ products.
Response speed not only requires a shorter production process. But, it also requires support from other functional areas such as logistics and after-sales service.
And in the production process, ensuring operating standards are met is the way to a faster process. Companies must ensure production systems run smoothly. Thus, the product can pass smoothly from one stage to the next. Other areas to look out for are scheduling improvements, worker training, and new equipment. In addition, integrated information from input to goods sent to customers is also essential. Streamlined production processes help reduce time, allowing products to be ready for delivery to customers more quickly.
Value-added
Creating added value is vital for businesses to operate and generate profits. In addition, they need added value to operate sustainably in the long term.
Businesses add value to products by processing inputs into outputs. They then sell the output at a higher price than it costs to produce.
Maximizing added value allows companies to create high profits. For example, those profits are reinvested into the business in research and development to develop superior offerings over time. Exceptional offerings allow customers to be willing to pay a higher price. Apart from that, they also want the product over time and become loyal.
Then, profits can also be invested to lower costs. That way, even if companies don’t change their selling price, they can still make a higher profit by reducing their costs. So, for example, they invest profits in new technology or higher capacities.
Environmental objective
An environmentally friendly business is another example of an operational objective. For example, companies target zero emissions and minimize waste and pollution. Or, they will digitize the process and reduce paper usage. Alternatively, they aim to transition to eco-friendly packaging and inputs. Or they will adopt energy saving in their production process.
Environmental objectives are becoming increasingly important these days. Stakeholders have seen the environment as an essential aspect of sustainability. And they demand companies implement elements such as environmental, social, and corporate governance (ESG). Thus, transforming into an environmentally friendly company will create a positive corporate image, which in turn will impact the company’s sales in the long term.
