Contents
What’s it: Organizational objectives are the steps an organization needs to take to meet its overall goals. Establishing them is the first task before management designs policies and strategies and allocates organizational resources. It gives them clear direction on what policies, strategies, and actions to achieve them.
Setting objectives not only involves upper management but also involves lower management. It is then divided into several levels, where the lower objective describes and specifies the upper objective. In other words, they must be connected and mutually supportive.
Why organizational objective matters
Several reasons explain why organizational objectives are important to business, including:
- Helping businesses to have a clear direction by setting out what they should be in the future.
- Mapping out what the company must do now and in the future to achieve the target.
- Allowing management to have priority to allocate resources appropriately, ensuring they are properly routed to the final destination.
- Assisting management in designing appropriate and detailed strategies and action plans.
- Controlling and reviewing whether the strategy is successful? And do the business activities support the goals?
- Evaluating the company’s strategy to keep it relevant to the business environment.
Should the organizational objective be formalized?
Do company objectives require formality or not? It depends on the business organization. In small business organizations such as sole proprietorships, it may be implied, not written down and formalized. Nonetheless, owners should have a clear idea of what they want to achieve as it guides them in making business decisions.
In partnerships, where there are several partners, they must agree on the business’s direction. Thus, formalized objectives become a way to avoid future disputes.
Then, in a limited liability company, the objectives are usually formalized and stated in their articles of association. Nonetheless, it may not be in detail.
What is the difference between organizational aims and objectives?
Aims and objectives provide business direction and purpose for what a business does, so all businesses should have them. However, although they look similar, they are different.
- Aims are the overall target or goal of the business. It doesn’t detail how it is achieved. Sometimes also called the goal. For example, the company intends to make a profit of $120 million.
- Objectives describe how the business meets these goals. For example, to achieve a profit of $120 million, the company targets increasing revenue by 10% and streamlining operations by lowering costs by about 10% in the next year. Thus, the company can achieve a profit of $120 million in the next year.
What are the types of organizational objectives?
Organizational objectives can be divided based on where they are to be achieved at the hierarchical level, whether at the top, middle, or bottom. Thus, it has the following three levels:
Strategic objectives are about where the organization wants to be in the future. Top management establishes them and guides them in operating the business. They focus on general, broad, and long-term issues. Finally, they affect the entire company and serve as a guide in setting the objectives under them.
Tactical objectives are about what major divisions and departments want to achieve. Middle managers design and define them to focus efforts on supporting and achieving strategic objectives. Then, they map out how their division or department contributes to achieving strategic goals and what they must do and achieve. So, tactical objectives specifically affect only a division or department.
Operational objectives are about the specific results the team and individuals are expected to achieve. Lower-level managers set them to address short-term problems and achieve tactical objectives.
What are the criteria for good organizational objectives?
A good organizational objective must meet SMART criteria: specific, measurable, achievable, realistic, and time-bound.
Specific—The objective should specify what is to be achieved, whether related to market share, revenue, quality of output, or production volume. For example, the company targets increasing sales of product ABC and product XYZ.
Measurable—objective as much as possible should be quantifiable. For example, the company targets sales of ABC products to increase 10% and XYZ products to increase 5%.
Achievable—objectives must be within the company’s internal capabilities, neither too easy nor too difficult to achieve. For example, targeting an increase in sales of ABC products by 120% may not be achievable, as the company must at least book a sales increase of about 10% every month; moreover, market demand is down.
Realistic—the objective must be in accordance with the conditions under which it must be achieved – considering market conditions, competition, capabilities, and company resources. For example, the company targets a high sales increase because the economy is prospering. On the other hand, those percentages are unlikely to be reached if a recession hits.
Time-specific—The target requires the company to determine when to hit it. For example, the company targets sales of ABC products to increase 10 percent and XYZ products to increase 5 percent next year.
How business size influences organizational objectives
The size of a business significantly impacts the objectives it prioritizes. Here’s a deeper dive into how organizational objectives often differ based on company scale:
Small businesses
Small businesses, typically with limited resources and a smaller customer base, often find themselves in a constant race for survival and growth. Their primary objectives often revolve around:
- Establishing a market presence: Building brand awareness, attracting new customers, and carving out a niche in the market are crucial goals. Objectives might involve effective marketing campaigns, competitive pricing strategies, and delivering exceptional customer service to establish a loyal customer base.
- Financial sustainability: Maintaining a healthy cash flow is the lifeblood of any small business. Objectives might focus on securing funding, managing expenses efficiently, and ensuring timely collections from customers to avoid cash flow shortages. Operational efficiency becomes paramount, as maximizing resource utilization allows them to compete with larger players.
- Adaptability and innovation: Small businesses often have the advantage of agility. They can adapt to changing market conditions and customer needs more quickly than larger corporations. Objectives might involve staying informed about industry trends, being receptive to customer feedback, and embracing new technologies to improve processes and create value for customers.
Large businesses
Large corporations with established market positions and significant resources can afford to take a more strategic approach when setting objectives. Their focus often shifts from initial survival to maximizing long-term growth and shareholder value:
- Market dominance and expansion: Maintaining or increasing market share in existing markets is a primary concern. However, large corporations also have the resources to explore opportunities for expansion into new markets and product lines. Objectives might involve strategic acquisitions, product diversification, and entering emerging markets.
- Profitability and return on investment (ROI): Maximizing shareholder value is a key objective for large corporations. This translates to achieving sustained profitability, delivering high returns on investments, and ensuring efficient resource allocation. Objectives might involve optimizing production processes, implementing cost-reduction initiatives, and increasing shareholder dividends.
- Innovation and long-term growth: Large corporations typically have dedicated research and development (R&D) departments to foster innovation. Objectives might involve staying ahead of market trends, developing cutting-edge technologies or products, and investing in long-term growth strategies to ensure their continued competitiveness in the future.
Understanding this relationship between size and objectives is crucial for businesses at all stages. Small businesses can leverage their agility and focus on establishing a strong market presence and achieving early growth. Conversely, large corporations can utilize their resources to pursue strategic objectives that drive market leadership and long-term success.
Additional factors to consider
Industry: Different industries have unique challenges and opportunities which can influence organizational objectives. For example, a tech startup might prioritize rapid innovation to stay ahead of the curve, while a well-established financial institution might focus on risk management and regulatory compliance to ensure operational stability.
Business model: The way a business generates revenue and delivers value shapes its objectives. An e-commerce company might prioritize customer acquisition and retention through targeted marketing campaigns. In contrast, a manufacturing company might focus heavily on production efficiency and cost control to ensure competitive pricing for their products.
Organizational objectives across business sectors
Every organization, regardless of its sector, needs clear objectives to function effectively. These objectives act as a roadmap, guiding decision-making and resource allocation towards achieving desired outcomes. Let’s explore how organizational objectives differ across various business sectors:
Private sector
The private sector, encompassing for-profit businesses, operates with distinct organizational objectives compared to public or non-profit sectors. Here’s a breakdown of some key organizational objectives that drive success in the private sector:
- Profit maximization: This is a primary objective for most private sector companies. They aim to generate revenue that exceeds their expenses, resulting in a net profit. Objectives might involve increasing sales volume, expanding into new markets, or implementing cost-saving measures to improve their bottom line.
- Market share growth: Gaining a larger share of the target market allows companies to solidify their competitive position and increase profitability. Objectives might involve developing innovative products or services, launching targeted marketing campaigns, or offering competitive pricing to attract customers away from competitors.
- Survival and sustainability: While profit and growth are crucial, survival is the foundation. Businesses need to generate enough cash flow to cover their ongoing operating expenses and stay afloat in the competitive landscape. Objectives might involve managing cash flow effectively, securing funding for operations, and adapting to changing market conditions.
- Customer satisfaction: Loyal customers are vital for long-term success. Companies strive to provide excellent customer service, offer high-quality products or services, and build strong relationships with their customers. Objectives might involve implementing customer satisfaction surveys, addressing customer feedback promptly, and offering loyalty programs to retain customers.
- Shareholder value: Businesses with publicly traded shares aim to maximize shareholder value. This can be achieved through increasing stock prices, paying dividends, or reinvesting profits back into the company for future growth. Objectives might also involve implementing strategies to improve profitability, managing risks effectively, and increasing shareholder confidence in the company’s long-term prospects.
These objectives often work in tandem. For example, a company might focus on customer satisfaction to boost sales and ultimately enhance shareholder value. However, there can also be tensions between these goals. For instance, prioritizing short-term profits might come at the expense of long-term investments in product development.
Public sector
Public sector organizations prioritize serving the public good. Their objectives often focus on:
- Delivering essential services: This includes healthcare, education, infrastructure, and social security. Public sector entities strive to provide these services efficiently and at an affordable cost for taxpayers.
- Responsible budget management: Operating within a budget is crucial for public sector organizations. They need to carefully allocate resources to ensure they can meet public needs without exceeding their financial limitations.
- Ethical conduct: Public trust is paramount for the public sector. Organizations in this sector must prioritize ethical practices in all aspects of their operations.
- Serving local communities: Many public sector entities focus on addressing the specific needs of their local communities. Their objectives might involve improving infrastructure, promoting economic development, or providing social services.
Non-profit sector (third sector)
Non-profit organizations operate with a mission-driven focus, aiming to create social impact. Their objectives might include:
- Meeting member needs: Many non-profits cater to specific membership groups, such as professional associations, charitable foundations, or advocacy organizations. Their objectives revolve around providing services, resources, or advocacy that benefit their members.
- Maximizing donations: Securing funding is vital for non-profit organizations. They may aim to increase donations through fundraising campaigns, grantsmanship, or building strong donor relationships.
- Ethical operations: Similar to the public sector, non-profits must maintain high ethical standards. They should be transparent in their operations and ensure that donations are used effectively to achieve their mission.
- Sustainability and growth: While some non-profits focus solely on survival, others aim for long-term sustainability and growth. This could involve expanding their service offerings, increasing their volunteer base, or reaching a wider audience.
- Social impact: Ultimately, non-profit organizations aim to create positive social change. Their objectives might involve reducing poverty, promoting education, improving environmental sustainability, or advocating for social justice issues.
