Unit 1.3

Organizational Objectives

To accomplish great things, we must not only act, but also dream, not only plan, but also believe.

Anatole France (1844-1924), Nobel Prize for Literature.

Key topics...

The importance of organizational objectives. Mission and vision statements Organizational aims, strategic objectives and tactical objectives. Ethical objectives Corporate social responsibility (CSR) Social and environmental audits

Higher Level extension Changes in corporate objectives and strategy over time Changes in society’s expectations of business behaviour

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Introduction...

Decision-making is the core role of management. In going through this process, businesses ask themselves four key questions:

1. Where are we now?

2. Where do we want to be?

3. How do we get there?

4. How do we know we are there?3

Introduction...

We focus on the second question in this unit, i.e. the aims and objectives. Organizational objectives have three key functions:

1. To control – Objectives can help to control a firm’s plans, i.e. they set the boundaries for business activity.

2. To motivate - Objectives can help to inspire managers and employees to reach a common goal.

3. To direct – Objectives provide an agreed and clear focus for all individuals and departments of an organization.

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THE IMPORTANCE OF OBJECTIVES…

Target setting is vital in all business. Without having clear aims and objectives, organizations have no sense of direction or purpose. Organizational aims and objectives are set for several crucial reasons:

To give a sense of direction, purpose and unity. They help to unify and motivate management and workers.

Form foundation for business decision-making. Organizations can create strategies to achieve these goals.

Encourage strategic thinking.

Basis for measuring and controlling the performance of the workforce, the management and the business as a whole. 5

THE IMPORTANCE OF OBJECTIVES…

There are many groups, stakeholders, that have different objectives and expectations of the business.

Business objectives can be set at different levels:

Corporate objectives deal with the whole organization’s goals, such as business survival, growth or profit maximization.

Departmental objectives are specific objectives for the various sections of a business.

Individual objectives are targets that are set for and/or by individual employee. They are often used as performance appraisal where productivity of a worker is measured. 6

MISSION AND VISION STATEMENTS…

Vision means to have an image of an ideal situation in future. A Vision Statement therefore outlines a business’s aspirations in distant future.

Mission means to have a clear purpose. It explains in general terms what the business is trying to achieve and outlines the organization’s values.

A mission statement tends to be a simple declaration that broadly states the underlying purpose of an organization’s existence. 7

MISSION AND VISION STATEMENTS…

Although vision and mission statements are quite often confused, they do serve complementary purposes. There are, however several important differences:

Vision statement focuses on the very long-term, whereas mission statement can focus on the medium and the long-term.

Mission statements are updated frequently than the Vision.

Vision statements do not have actual targets that must be realized, instead it allows people to see what could be.

Mission statement tends to outline or highlight the values of the business. This sets the tone for managers and employees on day-to-day basis. 8

AIMS AND OBJECTIVES…

Aims are the general long-term goals of an organization. They are broadly expressed as vague and unquantifiable statements. Aims serve to give a purpose to the general direction of the organization.

Objectives are the short term and more specific goals of an organization, based on its aims. They are more likely to be quantifiable or measurable.

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SHORT-TERM VS LONG-TERM OBJECTIVES…

Strategy is the term used to refer to any plan or scheme to achieve the long-term aims of a business.

Strategy is used for trying to achieve strategic objectives.

Tactics are short-term ways that firms can use to achieve their aims and objectives, i.e. they are used to achieve an organization’s tactical objectives.

Once a business has decided on its short- and long-term objectives, it will then decide on the most suitable methods to use in order to achieve these objectives.

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SHORT-TERM VS LONG-TERM OBJECTIVES…

There are several levels of strategy that a business can adopt:

Operational strategies are the day-to-day methods used to improve the efficiency of an organization. These are aimed to achieve the tactical objectives of a business.

Generic strategies are those that affect the business as a whole.

Corporate strategies are aimed at the long-term objectives of a business, i.e. they are used to achieve the strategic objectives of an organization.

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Tactical (Operational) Objectives12

TACTICAL (OPERATIONAL) OBJECTIVES…

Tactical objectives (also known as operational objectives or secondary objectives), are short-term objectives that affect a segment of the organization, such as a department.

They refer to specific goals that guide the daily functioning of certain operations that are in line with the primary objectives of the business.

Short-term objectives tend to refer to targets set for the next 6-12 months.

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TACTICAL (OPERATIONAL) OBJECTIVES…

A tactical objective for many businesses is survival.

New and unestablished businesses are likely to encounter a number of problems. Hence, survival becomes a key priority.

Survival can also be important for more established organizations. For example, an economic recession can quite easily threaten the survival of the business, especially if the recession is prolonged.

Another potential threat to business survival is a sudden takeover bid from a rival company.

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Strategic Objectives

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STRATEGIC OBJECTIVES…

Strategic objectives, or primary objectives, refer to the longer term aims of a business organizations, e.g. targets for the next few years.

Typical strategic objectives are

Profit maximization

Growth

Image and reputation

Market Standing16

STRATEGIC OBJECTIVES…Profit Maximization Profit acts as an incentive to the entrepreneurs to take risks in

setting up and running their business.

For limited companies, dividends are distributed to its shareholders.

Without profit, the owners and the investors of a business will find it difficult to justify its existence.

Some business may have short-term profit maximization goals, whereas, other firms will plan to achieve profit maximization over a longer term by developing strategies to achieve the organization’s aim. 17


Growth

Many businesses plan for growth as a key strategic objective.

Growth is usually measured as an increase in sales or by market share.

The benefits of growth include

Economies of scale

Market power

Reduced Risks. 18


Image and Reputation Businesses may aim to enhance their image and reputation.

A bad image, perhaps portrayed by the media, can turn the customers against a firm’s products and services.

Increasingly, businesses are delivering better level of customer service.

In order to stay competitive against the rivals, businesses needs to increasingly consider the needs of their customers.

Employees are likely to be motivated and proud of their business. Finally, suppliers prefer to do business with firms that are reputable and reliable.

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Market Standing

Market standing refers to the extent to which a firm has presence in the market place.

For market standing, people need to feel that the business offers something extra special.

For example, Microsoft has high market standing for being number one computer software industry, with its innovative product. Wal-mart being the largest retailer. Toyota recently enjoyed high market standing by taking over General Motors as the world’s largest car producer. 20

ETHICAL OBJECTIVES… Ethics are the moral principles that guide decision-making and

strategy. Morals are concerned with what is considered to be right and wrong.

Business ethics are therefore the actions of people and organizations that are considered to be morally correct.

Examples of ethical objectives might include: Reducing pollution by using more environmentally friendly production process.

Increased recycling of waste materials.

Disposal of waste in an environmentally friendly manner.

Offering staff sufficient rest breaks during their work shift.

Fairer conditions of trade with less economically developed countries. 21

ETHICAL OBJECTIVES…

Pressures to act ethically may come from within the business, or by external factors and organization.

Examples of unethical business behaviour include: Financial dishonesty Environmental neglect Exploitation of work force Exploitation of suppliers Exploitation of consumer

An increasing number of businesses have adopted an ethical code of practice and publish this as a part of their mission statement or in their annual report. 22


Advantages of ethical behaviour

Improved corporate image

Increased customer loyalty

Cost cutting

Improved staff motivation

Improved staff morale

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There are many ways in which a business may try to meet its social responsibility Providing accurate information and labeling. Active community work. Having consideration for the environment Adhering to fair employment practices.

An ethical code of practice is important because people need to know what is considered acceptable or not acceptable within an organization.Hence, a code of ethics can provide a framework for consistency and uniformity.

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Limitations of ethical behaviour

Compliance costs: This refers to the potentially high costs of acting ethically.

Lower profits: If the compliance costs cannot be passed onto the consumer in the form of higher prices, then its likely that profitability will fall.

Stakeholder conflict: It is not necessary the case that all stakeholders are keen on the business adopting an ethical approach, especially if this conflicts with other organizational objectives such as profit maximization.

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CORPORATE SOCIAL RESPONSIBILITY (CSR)…

Socially responsible firms are businesses that act morally towards their stake holders, such as their employees and the local community. These responsibilities are known as corporate social responsibility (CSR).

According to Fortune magazine, the top 500 American businesses donate more than 2% of their post-tax profits to charity.

Being socially responsible can help to improve the reputation of a business, but compliance costs are likely to result in higher costs for the firm.

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There are different views and attitudes towards the role of business in delivering social responsibility:

Free-market (or non-compliance) CSR attitude: Many economists believe the role of businesses is to generate profits for their owners. They believe in pursuing the profit motive, business will become more efficient and prosperous, thereby helping society indirectly.

Altruistic CSR attitude: Altruism refers to acting humanitarian and unselfish manner. These businesses do what they can to improve the society, regardless of their actions help to increase their profits.

Strategic CSR attitude: those that adopt this view argue that businesses ought to be socially responsible only if such actions help the business to become more profitable. Such firms see CSR as a method of long-term growth. 27


The extent to which a firm will act socially responsible manner depends on several factors:

The level and power of various stakeholder groups.

Corporate culture and attitudes towards CSR

Consumer awareness of, and concerns for, CSR issues

Exposure and pressure from the media

Short-term versus long-term perspectives

The financial and human resources of the business

Compliance costs. 28

SOCIAL AUDITING…

A key part of social auditing is for the firm to devise CSR policies.These policies may include:

Using renewable and sustainable resources.

Using reputable and socially suppliers

Systems that cater for the well-being of employees

Establishment of an ethical code of conduct, e.g. integrity of marketing

practices

Methods to monitor management and employee commitment to CSR

policies. 29

SOCIAL AUDITING…

There are potential limitations in using social audits.

First, the business must have sufficient financial and other resources to satisfy any recommendations made in the audit.

Second, the contents of the audit may not be positive and this can publicize the weaknesses of the business.

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Changes in Corporate Objectives and Strategy over time

Higher Level Extension31

Factors Effecting Aims & Objectives

Some of the internal factors include:

Corporate culture: Businesses with a flexible and adaptable workforce are more likely to have varying objectives over time.

Type and size of organization: Any change in the legal structure of a business is likely to cause a change in the organization’s objective.

Age of Business: Newly established firms will tend to place break-even and survival as their key objective. More established businesses may strive for market leadership or corporate growth as their key objective.

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Finance: The amount of finance will determine the scale of a firm’s objectives.

Risk profile of key stakeholders: If managers and owners, for example, have a relatively high willingness and ability to take risks, then more ambitious objectives are likely to be sought after.

Private versus public sector organizations: Whether a firm is in private or public sector will affect its objectives.

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External factors that affect the objectives of a business:

State of economy: Whether the economy is in boom or a slump will also change corporate objectives.

Government constraints: Some government rules and regulations can limit what a business might strive to achieve.

Presence and power of pressure groups: Pressure groups may force a business to review its approach to ethics through their lobbying.

A change in any of the above factors is therefore likely to change the significance of an organization’s objective over time. 34

CHANGES IN SOCIETY’S EXPECTATIONS OF BUSINESS BEHAVIOUR…

Changes in social norms mean that businesses need to review their objectives from time to time.

Media exposure in many countries has meant that large firms are expected to donate part of their profits to charity.

Pressure group action has also affected organizational objectives.

Hence, society’s changing views of what is considered socially moral will directly affect a firm’s view of its own social responsibilities.

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ORGANIZATIONAL OBJECTIVES AND BUSINESS STRATEGY… Businesses need to be able to assess the effectiveness of their

aims and objectives.

One popular way do this is SMART . Specific – Objectives need to be precise and succinct rather than

vague. Measurable – Objectives should me quantifiable. Agreed – Objectives must be accepted and understood by everyone in

the organization. Realistic – Firms should ensure that they are not attempting too much

given their limited resources. Time constrained – There should be a time frame within which

objectives should be achieved.36

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Unit 1.3

Education

business objectives

objectives aims

corporate objectives

shortterm objectives

specific objectives

direct objectives

departmental objectives

individual objectives