What do you mean by financial objectives?

What is a strategic objective? How is it different from a goal? What should I consider when setting strategic objectives? These questions and more are answered in this comprehensive guide to strategic objectives.

Questions to Ask:

• Is my objective broad?
• Is my objective non-measurable?
• Is my objective continuous, ongoing, and non-dated?
• Does my objective convert my mission/vision into action?
• Does my objective help to sustain my competitive advantage?

There are numerous articles on both short and long-term objectives and planning. However, the most straightforward short reference guide was this piece from Purdue University. It is little more than a checklist for long-term and short-term goal setting. What made it useful as a future reference guide was a simple definition of long-term and short-term planning, and a brief statement connecting the two. One unusual aspect of the checklist is the suggestion that the planner consider long-term goals in relation to family values. This is probably more applicable to someone in the commercial sector (as suggested by the title), but the author admits that such comparisons are probably valid in most business situations.

In what areas will we continue being actively involved in the future?

In this step the firm’s mission and vision is converted into tangible actions (objectives) and later into results (goals) to be achieved. Objectives are broad categories. They are non-measurable, non-dated, continuous, and ongoing. With objectives the company moves from motive to action. Objectives are the general areas in which your effort is directed to drive your mission statement. (Bobb Biehl)

To write an objective ask these questions:

• When creating a strategic plan, what 3-7 areas will our company continue being actively involved in the future?
• What areas do we need to be involved in to accomplish our mission statement?
• What is our company going to do about our competitive advantage categorically?

One of the best ways to tell whether or not an area is a clearly defined objective area, is to ask the question:

Could I assign a person to be responsible for this area of activity?

If you can assign a person, on a continuing basis, to be responsible for everything going on in their area, it is probably a clear objective area.

Use the following criteria in evaluating your objective:

• Is my objective broad?
• Is my objective non-measurable?
• Is my objective continuous, ongoing, and non-dated?
• Does my objective help to sustain my competitive advantage?
• Does my objective convert my mission/vision into action?
• Could I assign a person to be responsible for this area of activity?

A few examples of objectives are:

• Expand sales to existing customers (build on a strength)
• Introduce existing products into a new market (build on a strength)
• Develop an incentive plan for research and development staff who are slow to innovate (correct a weakness)

Objectives are needed for each key area the company deems important to success. From a company perspective, there are four distinct types of objectives:

Financial Objectives

Financial objectives focus on achieving acceptable profitability in a company’s pursuit of its mission/vision, long-term health, and ultimate survival. Financial objectives signal commitment to such outcomes as good cash flow, creditworthiness, earnings growth, an acceptable return on investment, dividend growth, and stock price appreciation.

The following are examples of financial objectives:

• Growth in revenues
• Growth in earnings
• Wider profit margins
• Bigger cash flows
• Higher returns on invested capital
• Attractive economic value added (EVA) performance
• Attractive and sustainable increases in market value added (MVA)
• A more diversified revenue base

Strategic Market Objectives

Strategic market objectives focus on the company’s intent to sustain and improve their competitive strength and long-term market position through
creating customer value.

Strategic objectives focus on winning additional market share, overtaking key competitors on product quality or customer service or product innovation, achieving lower overall costs than rivals, boosting the company’s reputation with customers, winning a stronger foothold in international markets, exercising technological leadership, gaining a sustainable competitive advantage, and capturing attractive growth opportunities.

Strategic objectives need to be competitor-focused and strengthen the company’s long-term competitive position. A company exhibits strategic intent when it pursues ambitious strategic objectives and concentrates its competitive actions and energies on achieving that objective. The strategic intent of a small company may be to dominate a market niche. The strategic intent of an up-and-coming company may be to overtake the market leaders. The strategic intent of a technologically innovative company may be to create a new product. Small companies determined to achieve ambitious strategic objectives exceeding their present reach and resources, often prove to be a more formidable competitor than larger, cash-rich companies with modest strategic intents.

The following are examples of strategic market objectives:

• A bigger market share
• Quicker design-to-market times than rivals
• Higher product quality than rivals
• Lower costs relative to key competitors
• Broader or more attractive product line than rivals
• A stronger reputation with customers than rivals
• Superior customer service
• Recognition as a leader in technology and/or product innovation
• Wider geographic coverage than rivals
• Higher levels of customer satisfaction than rivals

Internal Operational Objectives

Internal operational objectives focus on business processes that have an impact on creating customer value and satisfaction. Internal objectives focus on maintaining the firm’s core competencies.

Management objectives focus on running a major functional activity or process within a business, such as, research and development, production, marketing, customer service, distribution, finance, human resources, and other strategy-critical activities.

Operational objectives focus on how a company manages frontline organizational units with a business (plants, sales districts, distribution centers) and how to perform strategically significant operating tasks (materials purchasing, inventory control, maintenance, shipping, advertising campaigns)

Small Business Unit (SBU)Objectives – The company’s mission and vision needs to be turned into detailed supporting objectives for each level of management. Each manager should have objectives and be responsible for reaching them.

Objective setting needs to be top-down in order to guide lower-level managers and organizational units toward outcomes that support the achievement of overall business and company objectives. A top-down process

1. Helps produce cohesion among objectives and strategies of different parts of the organization, and
2. Helps unify internal efforts to move the company along the chosen strategic plan.

Innovative and Learning Objectives

Innovative and learning objectives focus on activities that assist to improve and build the company’s value creating activities. It involves increases the firm’s knowledge base and learning best practices so the company is continually on the cutting edge.