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What’s it? Operational objectives refer to short-term, action-oriented goals within business operations. They are specific objectives for the operations department that not only align with objectives in other business functions but also embody objectives at a higher level, business objectives.
Operational objectives can be related to cost, quality, added value, flexibility, and agility. A company may have more than one objective.
Objectives are important for us to evaluate and continuously improve efficiency and effectiveness in the production chain, from the raw materials sent to the factory to the products delivered to the customer.
Setting effective objectives requires considering the “SMART” criteria: They must be specific, measurable, achievable, relevant, and time-bound.
Why set operational objectives?
Why do businesses set operational objectives? There are several answers to that. And they underlie why operational objectives are important. First, objectives help decision-making. We can focus more on what we have to do and decide. Objectives give us the direction we will take.
Second, having objectives can also motivate teams and employees in the operations department. They have a target and a direction to go. It encourages them to work harder and give their best.
Third, we can use objectives to measure progress. By having a target, we can understand our progress towards achieving it. Are we successful? And how fast do we get there? Or, on the other hand, have we failed? And why did it happen? Meanwhile, failure requires us to take corrective steps. So, overall, we continue to take positive steps in the operational area to support our competitive advantage.
Strategic vs. Operational objectives
Operational objectives are what we want to achieve in the operational area. They are short-term objectives to bring the company closer to its business objectives. They also differ from strategic objectives, which represent long-term objectives at the corporate level.
We break down the business objectives into each department to arrive at operational objectives. For example, we set objectives for our marketing, human resources, finance, and operations departments. Thus, we can achieve business objectives only if operational objectives are met.
Therefore, operational objectives must be relevant to higher objectives, namely business objectives. They support the company’s overall strategy.
In addition, they must also complement objectives in other business functions. For example, we target the marketing department to reduce customer complaints. These targets also require support in the operational area.
Let’s say we target zero defects to reduce complaints. However, without aligned operational support, complaints may continue to arise. The marketing department couldn’t handle that because the complaints were due to bad products from a poor production process.
Operational objectives differ across companies
Which objectives are most vital to achieving may vary between companies. For example, they depend on the company’s competitive strategy. Under a differentiation strategy, operational objectives may focus more on product quality and uniqueness than cost. Conversely, achieving lower costs than competitors’ averages is a key objective under a cost leadership strategy.
However, cost is by no means unimportant under a differentiation strategy. A differentiation strategy also requires companies to achieve lower costs over time, which can increase their profits. However, cost is not the main focus in building competitive advantage, but rather the product uniqueness.
Take Apple, for example. Companies offer uniqueness and charge premium prices for their products. Nonetheless, the trade war between China and the United States under Trump has increased tariffs, making retail prices too high on the US market because the company assembles iPhones in China. The situation forced the company to lower costs to absorb the increase in tariffs.
Likewise, quality is by no means unimportant under cost leadership. Companies develop a cost advantage by achieving a lower cost structure than the average competitor. However, they also strive to produce standard quality products like their competitors. If they sacrifice quality, low prices do not guarantee to attract customers.
Examples of operational objectives
Operational objectives come in various forms, catering to different strategic priorities. Here are some key examples, along with potential implementation strategies:
Cost reduction
Minimizing operational expenses directly improves a company’s profitability. This objective might involve streamlining processes to reduce waste, negotiating better deals with suppliers, or implementing energy-efficient practices.
For instance, a clothing manufacturer could focus on reducing fabric waste during the cutting process by investing in computer-aided design (CAD) software for pattern optimization. Additionally, the company could renegotiate bulk purchase agreements with fabric suppliers to secure lower material costs.
Quality enhancement
A focus on quality enhancement ensures products or services consistently meet or exceed customer expectations. This could involve implementing stricter quality control measures, investing in employee training programs, or gathering and analyzing customer feedback to identify areas for improvement.
For example, a restaurant chain might introduce a more rigorous food safety inspection program throughout its kitchens. The company could also implement a customer feedback system that allows patrons to easily report issues or suggestions, enabling the restaurant to address quality concerns and improve the dining experience.
Increased response speed
In today’s fast-paced business environment, increased response speed is crucial. Companies can achieve this objective by optimizing production and delivery timelines, leveraging technology to automate processes, or adopting agile methodologies that allow for faster adaptation to changing customer demands.
A logistics company, for instance, could invest in warehouse automation solutions to expedite order fulfillment and delivery times. Additionally, the company could implement a real-time shipment tracking system to provide customers with greater transparency and improve overall responsiveness.
Flexibility and adaptability
The ability to adapt to market fluctuations and customer preferences is essential for business success. Flexibility as an operational objective might involve implementing just-in-time inventory management practices, diversifying product offerings, or cross-training employees to handle different tasks.
For example, a clothing retailer could adopt a just-in-time inventory model to minimize storage costs and ensure they have the right amount of stock readily available based on seasonal trends. The retailer could also expand its product line to cater to a wider range of customer preferences and demographics or cross-train employees to seamlessly transition between departments during peak seasons, ensuring they can efficiently meet customer demands.
Environmental sustainability
With growing environmental consciousness, environmental sustainability is becoming a prominent operational objective for many businesses. This could involve reducing waste generation, adopting eco-friendly packaging materials, or implementing energy-efficient technologies.
A food manufacturer, for instance, could focus on minimizing food waste throughout the production process. This might involve reformulating recipes to reduce spoilage or partnering with food banks to donate surplus edible products.
The company could also switch to biodegradable packaging materials to minimize environmental impact and potentially enhance the brand image with environmentally conscious consumers.
Value-added improvement
Value-added refers to the additional worth a company creates for its products or services beyond the raw materials and production costs. This operational objective focuses on increasing customers’ perceived value proposition. Strategies might include enhancing product features or functionality, providing exceptional customer service, or offering bundled packages at competitive prices.
A software company, for instance, could introduce new features to its flagship product based on customer feedback, making it more user-friendly and feature-rich. The company could also offer exceptional customer support through multiple channels, such as live chat and phone support, to ensure customer satisfaction and loyalty.
Additionally, the company could bundle its software with complementary programs at a discounted price, creating a more attractive value proposition for potential customers. This bundled offering could streamline the customer buying journey and provide greater perceived value for the overall package.
Setting SMART operational objectives
Operational objectives become truly actionable through the SMART framework. This framework ensures objectives are clear, measurable, achievable, relevant, and time-bound. Let’s delve deeper into each element of SMART objectives:
Specific: Clearly define the desired outcome, leaving no room for misinterpretation. For instance, instead of a vague objective like “improve customer service,” a more specific objective might be “reduce customer wait times by 20% within the next quarter.”
Measurable: Establish quantifiable metrics to track progress towards the objective. This allows for data-driven decision-making and adjustments as needed. In the previous example, measurable progress can be monitored by tracking average customer wait times before and after implementing changes.
Achievable: Set realistic and attainable objectives considering available resources and capabilities. While ambition is important, overly ambitious objectives can lead to discouragement and hinder progress.
For instance, an objective to completely eliminate customer wait times might not be achievable, given staffing limitations or technological constraints. A more achievable objective might be to reduce wait times by a specific percentage within a defined timeframe.
Relevant: Ensure operational objectives align with overall business goals and support objectives set in other departments. Operational objectives should not exist in isolation.
For example, an objective to reduce production costs might conflict with a marketing objective to launch a new premium product line. Relevant objectives promote synergy and collaboration across departments, fostering a unified approach towards achieving overall business goals.
Time-bound: Establish a clear deadline for achieving each operational objective. This creates a sense of urgency and facilitates timely course correction if necessary. Without a defined timeframe, objectives can become open-ended and lose their effectiveness.
For instance, an objective to “improve product quality” lacks direction. A more time-bound objective might be to “achieve a 99% defect-free production rate within the next six months.”
Crafting SMART operational objectives: A step-by-step approach
Writing effective operational objectives is a multi-step process:
- Vision, mission, and strategic goals: Begin by examining the company’s vision, mission, and strategic goals. What competitive advantage are you striving to achieve? Is it cost leadership or differentiation? Understanding these overarching goals lays the foundation for developing aligned operational objectives.
- Breaking down strategic objectives: Next, break down broad strategic objectives into smaller, more actionable operational objectives. These operational objectives should directly contribute to achieving the larger strategic goals.
- Applying the SMART framework: For each operational objective, apply the SMART framework to ensure clarity, measurability, achievability, relevance, and timeliness.
- Communication and collaboration: Once objectives are established, communicate them clearly to relevant stakeholders, especially the operations team and other departments. Open communication fosters collaboration and ensures everyone is working towards the same goals.
- Action plans and monitoring: Develop detailed action plans to break down operational objectives into smaller, more manageable steps. Identify key performance indicators (KPIs) to monitor progress and make adjustments as needed. Regular performance reviews allow for continuous improvement and ensure operational objectives remain on track for successful achievement.
Implementing operational objectives
Once you’ve established clear and operational objectives, the next step is to translate them into actionable plans. Here’s a breakdown of the key implementation stages:
Communication with stakeholders
Spreading the word: Effective communication is crucial. Clearly communicate operational objectives to the operations team and relevant departments. This ensures everyone understands the goals, their roles in achieving them, and the importance of collaboration. For instance, an objective to reduce production costs might require collaboration between the operations team and the purchasing department to identify cost-saving opportunities with suppliers.
Alignment and synergy: Open communication fosters alignment across departments. By understanding the operational objectives, other departments can adjust their strategies to support those goals. For example, the marketing department might tailor its messaging to emphasize the cost-effectiveness of the product if a cost-reduction objective is in place.
Developing action plans
Breaking down objectives: Don’t overwhelm your team with broad goals. Break down operational objectives into smaller, more manageable steps. This makes them easier to understand, implement, and track.
For instance, an objective to reduce customer wait times might be broken down into steps like streamlining the ordering process, increasing staffing during peak hours, or implementing a self-service kiosk system.
Timelines and ownership: Assign clear timelines and ownership for each action step within the plan. This creates a sense of accountability and ensures everyone is working towards achieving specific milestones within a defined timeframe. For example, the task of streamlining the ordering process might be assigned to the IT department with a two-week deadline.
Monitoring and evaluating progress
Tracking performance: Establish key performance indicators (KPIs) – for example, manufacturing operations management – to monitor progress towards operational objectives. These KPIs should be quantifiable metrics directly linked to the specific objective.
Regularly track and analyze performance data to identify areas where adjustments might be necessary. For instance, to monitor progress on the objective of reducing customer wait times, you might track the average wait time each week.
Making adjustments: The business landscape is dynamic. Be prepared to adapt your strategies as needed. Regularly evaluate the effectiveness of your action plans based on the performance data collected.
If KPIs aren’t being met, identify roadblocks and make adjustments to the plan or the operational objective itself. Perhaps additional resources are needed, or the timeframe needs to be extended.
