Organizational Objective: Definition, Importance, Criteria for Good Ones

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 involve upper management, but it 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 does organizational objective matter?

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 to increase revenue by 10% and streamline 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 – about where the organization wants to be in the future. Top management establishes them, guides them in operating the business. It focuses on general, broad, and long-term issues. Finally, it affects the entire company and serves as a guide in setting the objectives under it.

Tactical objectives – 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, it specifically only affects a division or department.

Operational objectives – about what specific results the team and individuals are expected to achieve. It is set by lower-level managers to address short-term problems and to achieve tactical objectives.

What are the criteria for good organizational objectives?

A good organizational objective must meet SMART criteria: specific, measurable, achievable, realistic, time-specific.

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 sales of product ABC and product XYZ to increase.

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 – it requires the company to determine when to hit the target. For example, the company targets sales of ABC products to increase 10 percent and XYZ products to increase 5 percent next year.