Explain the characteristics of annual objectives

“The result of an organization seeks to achieve within a one-year period are annual objectives.
Annual objectives translate long-range aspiration into this year’s budget. If annual objectives
are well developed, they provide clarity, which is a powerful, motivating facilitator of effective
strategy implementation” John A Pearce II & Richard B. Robinson, JR

Establishing annual objectives is a decentralized activity that directly involves all managers in
an organization. Active participation in establishing annual objectives can lead to acceptance
and commitment.

Annual objectives are essential for strategy implementation because they

o Represent the basis for allocating resources;

o Are a primary mechanism for evaluating managers;
o Are the major instrument for monitoring progress toward achieving long-term
objectives; and
o Establish organizational, divisional, and departmental priorities.
Considerable time and effort should be devoted to ensuring that annual objectives are well
conceived, consistent with long-term objectives, and supportive of strategies to be implemented.
Approving, revising, or rejecting annual objectives is much more than a rubber-stamp activity

The purpose of annual objectives can be summarized as follows:

- Annual objectives serve as guidelines for action, directing and channeling efforts and
activities of organization members.
- They provide a source of legitimacy in an enterprise by justifying activities to
stakeholders.
- They serve as standards of performance.
- They serve as an important source of employee motivation and identification.
- They give incentives for managers and employees to perform.
- They provide a basis for organizational

Clearly stated and communicated objectives are critical to success in all types and sizes of
firms. Annual objectives, stated in terms of profitability, growth, and market share by business
segment, geographic area, customer groups, and product, are common in organizations.

Annual objectives are short-term milestones that organizations must achieve to reach long term
objectives. Like long-term objectives, annual objectives should be measurable, quantitative,
challenging, realistic, consistent, and prioritized. They should be established at the corporate,
divisional, and functional levels in a large organization.

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Annual objectives should be stated in terms of management, marketing, finance/accounting,
production/operations, research and development, and management information systems (MIS)
accomplishments. A set of annual objectives is needed for each long-term objective.

Annual objectives are especially important in strategy implementation, whereas long-term

objectives are particularly important in strategy formulation. Annual objectives represent the
basis for allocating resources.

Objectives, as measures of organizational behavior and performance, should possess certain

desirable characteristics in order to be effective.
According to Azhar & Adela, Seven such characteristics are provided as follows:
1. Objectives should be understandable
Because objectives play an important role in strategic management and are put to use in
a variety of ways, hey should be understandable by those who have achieved them. A
chief executive who says that something ought to be done to set things right’ is not
likely to be understood by his managers. Subsequently, no action will be taken or even a
wrong action might be taken.
2. Objectives should be concrete and specific
To say that ‘ours company plans to achieve a 112 percent increase its sales’ is certainly
better than stating that ‘ours company seeks to increase its sales’. The first statement
implies a concrete and specific objective and is more likely to lead and motivate the
managers.
3. Objectives should be related to a time Frame
If the first statement given earlier is restated as ‘our company plans to increase its sales
by 12 per cent by the end of 2 years’, it enhances the specificity of objectives. If
objectives are related to a timeframe, then managers know the duration within which
they have to be achieved.
4. Objectives should be Measurable and controllable
Many organizations perceived themselves as companies which are attractive to work for.
If measures like the number and quality of job applications received, average
emoluments offered or staff turnover per year could be devised, it would be possible to
Measure and control the achievement of this objective with respect to comparable
companies in a particular industry and in general.
5. Objectives should be challenging
Objectives that are too high or too low are both demotivating and, therefore, should be
set at challenging but not unrealistic levels. To set a high sales target in a declining
market does not lead to success. Conversely a low sales target in a burgeoning market is
easily achievable and, therefore, leads to sub-optimal performance.
6. Different objective should correlate with each other
Organizations set many objectives in different areas. If objectives are set in one area
disregarding the other area such an action is likely to lead to problems. A classic

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 dilemma in organizations, and a source of inter- departmental conflict, is setting sales
and production objectives. Marketing departments typically insist on wider variety of
products to cater to a variety of market segments while production departments
generally prefer to have greater product uniformity in order to have economic of scale.
Obviously, trade-offs are required to be made so that different objectives correlate with
each other, are mutually supportive and result in synergistic advantages. This is
especially true for organizations which are organized on profit- center basis.
7. Objective should be set within constraints
There are many constraints- internal as well as external- which has to be considered in
objectives-setting. For example, resource availability is an internal constraint which
affects objective –setting. Different objectives compete for scarce resources and trade –
offs are necessary for optimum resource utilization. Organizations face many external
constraints like legal requirements, consumer activism and environmental protection. All
these limits the organization’s ability to set and achieve objective

Annual objectives should be measurable, consistent, reasonable, challenging, clear,

communicated throughout the organization, characterized by an appropriate time
dimension, and accompanied by commensurate rewards and sanctions. Too often,
objectives are stated in generalities, with little operational usefulness. Annual objectives,
such as “to improve communication” or “to improve performance,” are not clear,
specific, or measurable. Objectives should state quantity, quality, cost, and time—and
also be verifiable. Terms and phrases such as maximize, minimize, as soon as possible,
and adequate should be avoided.
Annual objectives should be compatible with employees’ and managers’ values and
should be supported by clearly stated policies. More of something is not always better.
Improved quality or reduced cost may, for example, be more important than quantity. It
is important to tie rewards and sanctions to annual objectives so that employees and
managers understand that achieving objectives is critical to successful strategy
implementation. Clear annual objectives do not guarantee successful strategy
implementation, but they do increase the likelihood that personal and organizational
aims can be accomplished. Overemphasis on achieving objectives can result in
undesirable conduct, such as faking the numbers, distorting the records, and letting
objectives become ends in themselves. Managers must be alert to these potential
problems.
In sum, Objective –setting is complex process. We will further examine a few issues
relevant to objectives, in order to understand this complex process.

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