|Categories of Objectives
In addressing strategic planning's second key question,
"Where do we wish to arrive, and when?," your management team will develop a set
of quantified Objectives. And when developing objectives for your organization, you've got
six categories to consider:
5. Human Resources
Within each of these six categories, you can select from a
number of specific measurements for each objective. For example, you can set your
financial objective to measure profitability. Like gross
profit; or operating profit; or net profit, either before or after tax. Or you can write
your financial objective in terms of return on assets, return on investment, or cash on
You might write your marketing or sales objective in terms
of sales volume, sales growth rate, or market share – and your product and service objective as quality of
products and services, new products and services introduced, or customer satisfaction. And
your operational objective might measure efficiency, productivity or cost reduction.
Your objective dealing with human resources – the people
side of the business – can measure employee benefits, employee satisfaction, employee
training or employee turnover. Finally, your social objective – your non-economic or
community-related objective – might deal with non-pollution of air and water; equal
opportunity employment; being a good corporate citizen.
Prioritizing Your Objectives
The order in which we've listed the
categories of objectives is not arbitrary. This order
beginning with financial and ending with community
referred to as the "Hierarchy of Objectives."
It's the order in which senior managers
generally prioritize their objectives. When you arrive at the step in
the planning process where you're ready to set your objectives, the
first suggestion you'll likely hear is "Let's make a profit." Even the
not-for-profit institutions –
governmental, educational, charitable
– jump to develop their financial
objective first. Like their for-profit cousins, they too have financial
needs and constraints. And their financial needs are first on the minds
of management when setting objectives
And if the financial objective is so
important, how can management attain that objective? In the jargon of
for-profit firms, "How can we make a buck?"
The way you do it is you sell something
to somebody. Simple as that. All businesses must exchange a product or a
service for money. And since its selling something that produces a
profit, the marketing or sales objective must support the financial
And what is it you're going to sell to
somebody? You need a product or service, don't you? So now the product
or service objective supports the marketing/sales objective. Just as the
marketing/sales objective supports the financial objective. Do you see
how we're working our way down the hierarchy?
Operationally, you have to build your
product or deliver your service. And it takes people to run the
operation. And so you evolve the "Hierarchy."
Balance Your Objectives
Be careful though. Don't take the
hierarchy too seriously. Don’t assign too much weight to the categories
nearest the top of the list. Avoid ending up with all of your objectives
in the top two categories –
finance and marketing.
For if you do, you'll have a problem.
Here's why. Employees outside of the executive planning group care a
whole lot more about the categories in the middle and bottom of the list
than they do those near the top. That's simply a fact of life. After you
get a level or so down from the top of your organization, you find a lot
less interest in the financial and marketing objectives, and a lot more
interest in operations and in people. So if your objectives focus on
profit and sales only, your employees will wonder, "What's in it for
me?" If they ask that question out loud, you've got a problem. If they
ask it silently to themselves, you've got an even more serious
And don't forget – to successfully
accomplish your objectives, you'll need the help of all the people in
your organization. So balance your objective list. Consider including
objectives in each of the six categories. Not that you must necessarily
have an objective in each category. But at least consider each. Try to
develop a balanced list of objectives. So you'll gain the
commitment of employees who might otherwise ask, "What's in it for me?"
If you'll benefit from developing more
than one objective in a particular category – do it. For example, you
may write an objective for total sales; another for sales of a
particular product line; or sales to a specific market segment.
Limit Your Objectives
But again, caution. Be careful not to set
too many objectives. If you do, you'll lose focus. You won't be able to
use your objectives in managing day-to-day. Consider this – If you
can't memorize your objectives, you've probably got too many. For the
memories of most of us, that's about six.
Some years ago, I worked with a high-tech
manufacturing client in Los Angeles. On the second day of that company's
planning retreat, the executive management team developed its list of
objectives. I opened the objective setting session with a brief
discussion on the categories of objectives, spoke for a few moments on
the criteria of objectives, and asked for suggestions on the first
objective we might consider.
After a lengthy discussion, the group
agreed on a financial objective – pre-tax profit. From there, they
moved ahead nicely, developed four or five well-quantified, challenging
(yet achievable) objectives. So far, so good. But they kept going. There
were another three or four suggested objectives still "alive." I stood
up and gave my first little "mini-speech" about the hazards of setting
too many objectives.
Just the same, the group continued
developing objectives. When they completed writing their eighth
objective, I delivered my second mini-speech. My third warning came
between their tenth and eleventh.
In all, the group set thirteen
objectives. About twice the number they should have. Knowing they
couldn't possibly focus on all thirteen, I then had the group prioritize
And I'm glad I did. Because within six
months, the company's managers had abandoned their "C" priority
objectives. They were working on all of the "A" and a couple of the "B"
objectives. But they had spent nearly six months scrambling in an
unfocused attempt to accomplish all thirteen. Efficient use of
Keep your objective lists short.
Criteria for Objectives
For an objective to be useful, it has to meet certain
criteria. First, it must carry a single theme. It should tell you to do one thing only, not
two or more. Example: If you decided to increase sales by 15% next year,
you might write an
objective that said exactly that.
But let's imagine you'd also like to increase net profit by
1%. Couldn't you write one objective that said "do both." Let's suppose
Suppose you write an objective that said, "We will increase sales by 15% next year
and, at the same time, improve net profit by 1%." If by the end of
the year you
achieved the 15% increase in sales but missed the 1% increase in profit, have
you made or
missed the objective? You could argue it either way. At best, it's ambiguous.
Worse however, is that the objective does not provide
with guidance in operating your business. Here's why ... Imagine that six months after
write your objective calling for 15% increase in sales and 1% increase in net profit,
sales manager comes running in with the "golden opportunity of the month."
"Here's the deal," he says. "We have a grand
opportunity to land a really sizable order. And if we get it, this order should be enough
to put us over the top – to give us the 15% increase in sales we're shooting for."
"Oh yeah," continues your sales manager. "There's some bad news. Since the
market is so fiercely competitive, and since our competitors know about this large
potential order, we're really going to have to sharpen our pencils to land
the order. We'll have to
shave our price just as far as we can."
So while the "golden opportunity" will go a long
way toward achieving the 15% increase in sales volume, it will actually detract from the
1% increase in profit. Should you go after the big order, or not? Notice
that your objective
statement hasn't provided you any guidance in this decision. Why? Because in the same
statement, you've bundled together the sales revenue increase and the profitability
increase. The objective leaves you to debate which of the two (sales or profit) is the more
Wouldn't it be better to pull the objective statement
apart? To have one statement that addresses the increase in sales revenue; another, the
increase in profit. And then be sure to do one more thing – give a different priority
to each of the two potentially conflicting objectives. During your planning sessions,
you can argue all you like about whether sales volume or profit is more important. But when
your sales manager appears with his "golden opportunity," you'll know how to
Eliminate "Why" and
In writing objectives, you should eliminate the
"why" and the "how." If you need to discuss "why"
interested in increasing sales by 15% next year, you'll have that conversation during
planning sessions. You won't explain "why" in your objective statement,
and you won't
attempt to justify your objective to those who read your plan.
Neither will you describe "how"
the objective. At least not at this point in the process. You won't write an objective that
says, "We'll increase sales volume by 15% next year by implementing the following
three programs...." The answer to "how" is really a strategy.
your strategies during the next step in the planning process.
You should establish results-oriented
objectives whenever possible. There are two kinds of objectives you can
develop – results-oriented and activities-oriented. Results-oriented
objectives are stronger. Use them.
Example: "We will increase dollar sales by 15% next
year." That's a results-oriented objective. "We will increase the number of
sales calls by 15% next year." That's an activities- oriented objective. Obviously,
the first is a stronger statement. Whenever possible, write your objectives in terms of
a result, rather than an activity.
There are times when you simply can't write a results-oriented objective, and if so, write
your objective as an activity. But these are
the exceptions. "Install the new computer system by the end of the year,"
"Hire a manager of human resources by June 15th," "Launch
the new product by the third quarter." Each is an activity-oriented objective. Each is
used because no result (other than the completion of the activity) can be measured. Each,
however, is an exception. Generally, your objectives should be results-oriented.
Quantify Your Objectives
Objectives must be quantified. When your objective is due
for accomplishment, you've got to be able to measure it to figure out whether or not
succeeded. More importantly, everyone in your organization has to know how hard to
"push to go get it."
Sometimes quantifying an objective is easy. Sometimes it's not.
It all depends on the
category of the objective. Financial objectives are the easiest to quantify. After all,
the world of finance is a number on a piece of paper. And marketing objectives are usually
easy also. Certainly you can quantify sales volume. And market share
too, if you can agree on a measurement for industry sales.
But how about something like customer satisfaction? A
pretty gray area isn't it? Some say customer satisfaction is so difficult to quantify,
that you can't do it. Or can you?
Sure you can! You can count complaints. You
can measure defective product. You can count referrals to new accounts.
Or repeat business. Or warranty costs. In every case
– in all
of these suggested ways to measure customer satisfaction – You've taken
the same approach. You've decided that customer satisfaction is so
difficult to measure directly, that you'll measure something else.
Something which you believe parallels customer satisfaction. In effect,
you’ll measure customer satisfaction indirectly.
So when warranty cost gets below 1.5%; or when the reorder
ratio goes over 75%; or when referrals to new accounts reaches 25% of total billings –
then you'll believe that customer satisfaction is where you want it to be. The point is,
quantify your objectives even if you have to "force" your measurement.
Managers often attempt to use market share as a measurable
objective. But we discourage their doing so. here's why...
It's difficult to get agreement on the total market size
used in calculating market share. And even if you could agree on total market size, data on
market size is never available right now. This lack of timely information means
can't use a market share objective to manage your business day-to-day. For these
reasons, market share is most often viewed as an approximate, rather than an exact
measurement. It makes for a poor objective.
But suppose market share is important to your organization,
as it is to many. If so, you can write your objective in terms of sales volume. Then
estimate total market size, and put that estimate in your list of "planning
assumptions." Finally, in an appendix to your plan, you can divide your sales objective
by your estimated market size to arrive at your intended market share. That way,
an objective (sales volume), whose measurement is familiar to, and accepted by, those who
must accomplish it. And just as important, it's a measurement that's available
now. So you can use it as a day-to-day tool in managing your business.
Keep Your Objectives "in
Objectives should be "in concert." It's one thing
to write down an objective and say "Yes, that's fine. I think we can do it. Let's
commit to it." Then go on to the next objective and do it again. And again. It's one thing
to take each objective one at a time. And it's quite another to write all of
objectives on a piece of paper, tack them up at the front of the room, take a long
hard look at them, and ask, "Can we do this whole bunch of objectives all at the same
Example: Let's imagine your industry
is enjoying very fast growth. During your objective setting session, you decide, because
in a fast-growth industry, to set an objective that says "We will build sales
revenue by 35% next year." O.K., you write it down, and you've got your first objective.
A bit later, you remember that cash was tight last
year. "Recall that in April we had trouble meeting payroll. Why don't we set an
objective that deals with our cash position? Let's set an objective that says, 'During
next year, we'll have, on average, 30% more cash in the bank than we had last year.'"
See what you've done? You wrote a set of objectives calling
for growing by 35% in one year and, at the same time, having more cash laying around. But
the two are conflicting objectives, aren't they? Because growth doesn't produce cash. To
grow fast, you'll use cash to fuel your way up the growth curve.
My point is obvious
– look at
your objectives all together to make sure they're in concert. If
not, make a choice. Choose among conflicting objectives. Cross out one
or the other. Or modify one or the other. Either way. So when you're all
finished writing your list of objectives, everyone on your planning team
believes you can accomplish them all at the same time.
Both Challenging and Attainable
Finally, an objective – any objective – should be
challenging and, at the same time, attainable. People in your organization should
understand that accomplishment of the objective requires that they "reach." But
given that reach, they should expect they can accomplish the objective. That the objective
The analogy I like is that of the
basketball hoop. The hoop is ten feet above the floor of the gymnasium.
At that ten foot level, the game is both challenging and also
attainable. If the hoop were four feet above the floor of the gymnasium,
it wouldn’t be challenging. Your players wouldn’t work too hard at
playing the game. If it were thirty feet above the floor of the
gymnasium, it wouldn’t be attainable. Again, your players wouldn’t too
hard at playing the game.
It's your job, as a manager, to keep your
players working hard at playing the game. You‘ll need to find that "ten
foot level" for each objective. So that each of your objectives is both
challenging and, at the same time, attainable.
Article adapted from Bill
Birnbaum's new book, Strategic Thinking: A Four Piece Puzzle