What’s it: Operational objectives refer to something we aim for or target through operational functions. They are specific objectives for the operations department, which not only align with objectives in other business functions but also embody objectives at the 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 set 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 us to consider the “SMART” criteria. They must be specific, measurable, achievable, relevant, and time-bound.
Why do businesses 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.
What is the difference between operational objectives and strategic 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. But, without aligned operational support, complaints may continue to arise. And the marketing department couldn’t handle that because the complaints were due to bad products from a poor production process.
Are operational objectives the same 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, the cost is by no means unimportant under a differentiation strategy. A differentiation strategy also requires companies to achieve lower costs over time. That way, they can increase their profits. However, the 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.
What are examples of operational objectives?
Cost and quality may be the main operational objectives. As mentioned earlier, cost becomes essential under a cost leadership strategy. Meanwhile, the essential quality is under the differentiation strategy.
In addition to these two aspects, other operational objectives may include:
- Response speed
- Environmental objectives
Agility or response speed. Consumers are happy if they can get the product right away when needed. Therefore, this requires companies to cut time along the production chain.
Besides being important to satisfy customers, response speed also contributes to cost reduction. For example, inventory costs fall because goods are shipped to customers faster.
Flexibility. Companies are adaptive to changes in demand. They respond effectively to unexpected increases or decreases in demand. On the one hand, they can save on costs associated with stockpiling during a downturn in demand. On the other hand, they can optimize sales during unexpected spikes in demand.
Flexibility is not only related to production volume. But, it may also be related to the company’s ability to adapt or modify the product range to meet customer requirements.
Environmental objectives. This aspect is increasingly important today as consumers are increasingly concerned about the environment. Personal values encourage them to be reluctant to deal with environmentally-unfriendly companies.
Thus, being environmentally friendly is an important objective today and in the future. There are several possible objectives regarding this. For example, we produce less waste and pollution. Or we adopt a new process that is more energy efficient.
And producing more efficiently can also be another target because it minimizes raw materials without sacrificing output.
Value-added. This objective requires us to increase the difference between the output value and the input cost.
So, if implemented, it can lead to cost objectives, where we lower costs while maintaining quality output. Or we increase quality while maintaining costs.
And more profitable, we improve the quality at a lower cost. Higher quality makes the product more valuable and allows us to sell at a higher price.
How do we set operational objectives?
There are several steps to writing operational objectives. First, we must look at our vision and mission and realize it through strategic goals. What competitive advantage do we build? Does it cost leadership? Or is it differentiation?
Second, we break these strategic objectives into smaller objectives. These objectives must be essential to achieving strategic objectives. In addition, they must also be SMART:
- S – Specific. We must define it clearly and at the slightest level.
- M – Measurable. We can quantify objectives into specific metrics to measure and monitor our progress.
- A – Achievable. Objectives are possible to achieve using our best resources and capabilities.
- R – Relevant. Objectives align with objectives in other departments, support business objectives and align with the context in which we compete.
- T – Time-bound. There is a deadline when we have to reach the target.
Third, after identifying the target, we need to communicate it to the relevant stakeholders. The team in the operations department is the first. In addition, we also need to communicate with other departments for their synergy and collaboration.
Fourth, we create steps to follow up on objectives. Breaking the objective into smaller indicators and shorter periods, such as a month, can be a good way to go. We then select specific metrics to measure progress and set concrete deadlines.
What to read next
- Business Objective: Importance, Examples, Criteria, How to Write
- Marketing Objectives: Examples, Importance, and How to Write With SMART
- Operational Objectives. What are some examples?
- Financial Objective: Examples and Detailed Explanations
- Human Resource Objectives: Examples and Why It Matters
- Strategic Direction: How To Write It And Its Relation To The Ansoff Matrix
- Operations Department: Roles and Relationships With Other Business Functions