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Subject COMMERCE

Paper No and PAPER NO. 12: STRATEGIC MANAGEMENT

Title
Module No and MODULE NO. 6: OBJECTIVES AND GOALS
Title
Module Tag COM_P12_M6

COMMERCE PAPER NO.12: STRATEGIC MANAGEMENT

MODULE No.6: OBJECTIVES AND GOALS
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TABLE OF CONTENTS
1. Learning Outcomes
2. Introduction
3. Goals and Objectives
4. Balance Score Card Approach to Goal Setting
5. Critical Success Factors
6. Key Performance Indicators
7. Strategic Objectives and Financial Objectives
8. Summary

COMMERCE PAPER NO.12: STRATEGIC MANAGEMENT

MODULE No.6: OBJECTIVES AND GOALS
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1. Learning Outcomes

After Studying this module, we shall be able to:

 Know about objectives and their significance
 Understand the Balanced Scorecard approach to goal setting
 Know about the Critical Success Factors and Key Performance Indicators
 Distinguish between strategic and financial objectives

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MODULE No.6: OBJECTIVES AND GOALS
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2. Introduction

For every organization, setting goals and objectives is very crucial for not only its growth but its
survival as well. It is very important for every organization to put together a comprehensive
strategy and translate such strategy into reasonable and practical goals and objectives. Objectives
and goals provide an essential vehicle for growth, organizational identity and understanding the
business direction of an organization. The terms ‘Objectives’ and ‘Goals’ are often used
interchangeably, goals are referred to as objectives, objectives are referred to as goals. Objectives
are the desired ultimate end results that are to be accompanied by an overall plan. The vision,
mission and the business definition defines the philosophy of an organization to be adopted in the
long run; the goals and objectives are set to achieve them. Goals are the broad category of financial
and non-financial measures that the organization sets for itself and the objectives are the ends that
specifically state how the goals should be accomplished. Objectives are the manifestation of goals,
whether specifically stated or not.

This module aims at providing understanding of the essential differences between the two terms.
With a clear understanding of what these terms mean, you’ll be able to write and articulate more
accurately about goals and objectives. This module would also discuss the various types of
objectives. In a bid to have a clear understanding, this module would also covert the Balance Score
Card approach to goal setting and critical success factors and key performance indicators.

3. Goals and Objectives

Every organization, irrespective of its size of operations, the market in which it operates and other
factors, needs to define the goals and objectives that it strives to achieve. Goals and objectives
provide direction to the efforts that an organization makes for its survival and growth. Objectives
are the desired ultimate end results that are to be accompanied by an overall plan. The vision,
mission and the business definition defines the philosophy of an organization to be adopted in the
long run; the goals and objectives are set to achieve them.
Goals denote what an organization strives to accomplish in a future period of time. Goals can be
represented as a function of all the efforts put in today to have a specified future outcome. Goals
address a broad category of financial and non-financial issues faced by the organization. A goal is
a statement that serves as a purpose; they do not specify how that purpose can be achieved but they
do provide the direction towards which the organization should direct its efforts.

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MODULE No.6: OBJECTIVES AND GOALS
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The most essential characteristic that every goal should possess is that it should always be in
tandem with the organization’s mission and vision statements. Goals provide a framework for the
owners to think conceptually and not be stifled in their creative thought process.
Objectives are the attainable, quantifiable and measurable tools that specifically states how the
goals shall be achieved within a specified time. The major difference between goals and objectives
lies in their concreteness. Objectives are more concrete and specific in nature as against goals
which are generalized and less structured. Objectives are the basic tools that underlie all the
planning and strategic activities. As students of Strategic Management, it is very crucial to
understand the subtle difference between goals and objectives. The goal of a shampoo
manufacturing company may be “to establish itself as the most widespread shampoo maker in the
country” and the corresponding objective might be “to sales by 5% annually and another objective
might be to open up new branches in two states per year”.
Every organization has a set of prospective goals. A choice from amongst these goals needs to be
exercised and this choice must be further elaborated and expresses as operational and measurable
objectives.

All organizations exist to achieve certain goals. To make these goals effective and efficient
objectives are important. Objectives have the following importance:-

1. Direction:

Objectives help an organization to pursue its mission and vision. They provide needed guidelines
for the organization. Objectives aim at providing direction to the organization such that all the
efforts of the organization might work in a unified direction to accomplish the goals of the
organization. Once objectives are framed all activities are directed towards achieving such
objectives. Without objectives, a manager would be expending useless efforts and creating havoc
in the organization.

2. Coordination:

Objectives provide a stage for the organization to make a commitment to itself to work in a unified
direction to achieve what it has to achieve for its employees, customers, the society and other
stakeholders. Common objectives of organization trigger the efforts of managers and their
subordinates to focus their efforts towards achieving the common goal.

3. Standards for performance appraisal:

Objectives states the targets to be achieved in a given time period for the organizations. They
become measuring points of the achievements or failures of organizations and thus, lay down the
standards against which organizational as well as individual performances would be measured.

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4. Motivation:

Setting objectives does not only help employees get involved in setting the direction for the
company but also helps employees feel motivated on an individual level. People at all level are
motivated to achieve goals set through objectives. They ignite the enthusiasm and spirits of
employees at all levels to work towards accomplishment of the set objectives.

4. Balance Score Card Approach to Goal Setting

The Balanced Scorecard (BSC) is a strategic tool meant to measure organizational performance,
used by management to keep the way of the implementation of undertakings by the administrative
staff within its governor and to observer the significances rising from these activities.
It is a strategic organization and administration system that is used broadly to bring into line
business activities to the visualization and strategy of the association, develop internal and external
communications, and observe organization performance beside strategic goals.
The conception was established by Robert Kaplan and David Norton as a performance
measurement agenda that added strategic non-financial performance procedures to traditional
monetary metrics to do away with the unnecessary emphasis on short term business objectives and
to develop organizational presentation and give directors and managers a more 'balanced' and
improved view of organizational presentation. The balanced record has changed from its early use
as a modest performance dimension framework to a full strategic planning and management
structure. It promotes a top-down method to performance management, starting with strategic
committed being communicated through the organization, done to operationally applicable targets.
It offers a framework that not only offers performance measurements, but helps organizers classify
what should be done and restrained. It allows managers to truly perform their strategies. It provides
reaction around both the internal corporate processes and external outcomes in order to constantly
improve strategic presentation and results.

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Kaplan and Norton describe the innovation of the balanced scorecard as:

• "The balanced scorecard retains traditional financial measures. But financial

measures tell the story of past events, an adequate story for industrial age companies
for which investments in long-term capabilities and customer relationships were not
critical for success. These financial measures are inadequate, however, for guiding
and evaluating the journey that information age companies must make to create
future value through investment in customers, suppliers, employees, processes,
technology, and innovation."

The BSC Model requires that an organization be viewed from four perspectives. These are:
1. The Learning & Growth Perspective:
This perspective lays emphasis on the learning aspect of an organization. In order to cope up with
the challenges of changes in the ever dynamic business environment, the organization need to take
up new responsibilities and its employees to familiarize new skills and information set. This
perception comprises employee preparation and commercial cultural approaches associated to both
specific and corporate self-improvement.
Kaplan and Norton underline that 'learning' is more than 'training'; it also comprises things like
mentors and tutors within the society, as well as the level of statement among workers that would
let them to sort out the organization problem, as and when required. It contains events such as
morale, knowledge, employee suggestions, employee turnover, etc.
2. The Business Process Perspective

This perspective refers to internal business processes. These processes are the mechanisms through
which performance expectations are achieved. Measures based on this perspective allow the
managers to know how well their business is running, and whether its products and services
conform to customer requirements. To accomplish the organizational objectives and meet up
customer satisfaction, the key internal business processes must be identified and worked upon.
Such measures include productivity index, efficiency levels and quality measures.

3. The Customer Perspective

Recent management philosophy has shown an increasing realization of the importance of

customer-focus and customer satisfaction in any business. This perspective is meant to measure the
organizational ability to meet up its customers’ satisfaction level and provide quality goods and
services. Poor performance from this perspective is thus a leading indicator of the declining
customer base. Such measures include customer satisfaction measure, market share and customer
loyalty.

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4. The Financial Perspective

Kaplan and Norton do not disregard the traditional need for financial data. Timely and accurate
check on finances of the organization should always be a priority. In fact, often there is more than
enough handling and processing of financial data. This perspective takes into consideration the
financial measures arising from the strategic intent of the organization. Such measures include
earnings, revenues, return on capital and cash flow.

5. Critical Success Factors

Critical Success Factors (CSF’s) are management tools which are necessary for an organization to
accomplish its mission. These are serious factor or an activity requisite for confirming the
achievement of a company or an association. For example, a CSF for a positive IT project is user
participation. The term was initially used in the context of data analysis and business analysis.

The idea of CSFs was first introduced by D. Ronald Daniel in the 1960s. Later, it was popularized
by John F. Rockart between 1979 and 1981 and has since been used in the implementation of
strategies in business settings.

Rockart defined CSFs as:

• "The limited number of areas in which results, if they are satisfactory, will ensure
successful competitive performance for the organization. They are the few key
areas where things must go right for the business to flourish. If results in these
areas are not adequate, the organization's efforts for the period will be less than
desired."

Critical success factors are limited number of key variables or conditions or characteristics or
variables that have a tremendous direct impact on success, effectiveness, efficiency, and viability
of an organization, program, or project. They are the determinants of how effectively an
organization meets its mission or the strategic goals or objectives of a program or a project.
Organization must perform the activities associated with critical success factors at the highest
possible level in order to meet its intended objectives and achieve competitive advantage. They are
also called key success factors (KSF) or key result areas (KRA)

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As these factors are essential to the success of every organization, the organizations must strive to
identify such factors and communicate these factors to all the levels involved in order to ensure
that that the organization is well focused and least efforts and resources are wasted on less
important areas. By making CSFs explicit and communicating theses with everyone involved, the
organization can be kept on track towards common aims and goals.

CSF’s for an NGO might be number of donors, people served, volunteers engaged, etc. while in
case of a restaurant, these might be customer satisfaction, food quality, market share and employee
turnover.

It should be noted that CSFs are not measurable as such until they are complemented by key
performance indicators.

6. Key Performance Indicators

A Key Performance Indicator (KPI) is a business metric or measure used to evaluate critical
success factors that are crucial to the success of an organization. The ‘key’ in the KPIs is their
important relationship with CSFs and thus to the vision of the organization. KPIs vary across
organizations; business KPIs may be net revenue or a customer loyalty metric, while government
might consider unemployment rates as the KPI. Accordingly, the choice of KPIs depends upon a
good understanding of organization’s existence and what is important for the organization. 'What
is important' further depends on the department or the division measuring the performance for
instance, the KPIs for the finance division will differ from the KPIs assigned to sales. Performance
indicators are routinely associated with 'performance improvement' initiatives as the assessment of
the state of business for the purpose of identification of performance indicators lead to
identification of potential improvements

David Parmenter defined seven characteristics of effective KPIs after doing an extensive analysis
and discussions with over 3,000 participants in KPI workshops, covering most organization types
in both public and private sectors. These characteristics are:
1. Non-Financial: They are non-financial measures.
2. Timely: They are measured frequently (e.g., 24/7, daily or weekly).
3. CEO focus: They are acted upon by the CEO and senior management team.
4. Simple: The staff understands the measures and the corrective action required to be taken.
5. Team-based: Responsibility can be assigned to a team or a cluster of teams who work closely
together in a unitary direction.
6. Significant impact: They affect more than one of the organization’s top CSFs and more than
one balanced scorecard perspective.

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7. Limited dark side: They encourage appropriate action - i.e., they have been tested to ensure
they have a positive impact on performance.
Selecting the right measures is crucial for the effectiveness of the organization. The metrics must
be incorporated into the performance measurement system in such a way that it makes the
individuals and the groups understand the manner in which their behavior and efforts are
contributing to the accomplishment of overall corporate goals.
The key stages in identifying KPIs are:

 Define a business process.

 Find out the requirements for the business process.
 Measure the results quantitatively/qualitatively and compare with the set standards.
 Analyze the variances and improve processes or resources accordingly, to achieve short-term
goals.
Key performance displays (KPIs) are means to at times measure the presentations of organizations,
their business elements, their detachment, departments and employees. Accordingly, KPIs are most
frequently distinct in a way that is understandable, meaningful, and assessable.
A KPI can follow the SMART criteria. This means:
 It has a Specific purpose for the business,
 It is Measurable to really get a value of the KPI,
 The defined norms have to be Achievable,
 The improvement of a KPI has to be Relevant to the success of the organization, and finally
 It must be Time phased, which means the value or outcomes are shown for a predefined and
relevant period.
KPIs have obtained a great level of importance and popularity in the corporate world owing to
their utility in helping an organization define and measure movements towards its objectives.

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7. Strategic Objectives and Financial Objectives

This section would cover the basic conceptual differences between the strategic and financial
objectives and what are the plunge areas of the two types of purposes. Strategic objectives focus on
the company’s set on to stand and expand the organization’s competitive strength and long-term
market position through creating customer value. Strategic objectives might include expanding
market share, changing market position or under-cutting a competitor's costs.

Strategic objectives focus on winning additional market share, surpassing key contenders on
product quality or customer administration or product innovation, achieving minor overall costs
than opponents, boosting the administration's reputation with consumers, winning a stronger
position in international markets, exercising technological leadership, gaining a sustainable
competitive advantage, and capturing attractive growth opportunities.

Strategic objectives must to be competitor-focused and should reinforce the company’s long-term
economic position. A company exhibits strategic intent when it pursues strategic objectives and
deploys its competitive efforts on accomplishing that objective. A small company may have
strategic intent to dominate a market niche; an upcoming company, on the other hand, may have
strategic intent to overtake the market leaders. The strategic objectives includes acquiring a bigger
market share, introducing new product design than its rivals, ensuring higher product quality than
rivals and lower costs relative to key competitors.

Financial purposes emphasis on attaining acceptable effectiveness in a company’s pursuit of its

mission, long-term health, and eventual survival. Financial objectives signal commitment to such
consequences as good cash flow, solvency, earnings growth, an acceptable return on investment,
dividend growth, and stock price appreciation. (Thomas Strickland, p.7).

Financial objectives are used to measure strategic performance. They form the basis for the
measurement of level of accomplishment of strategic objectives. They seek to provide a metrics for
the strategic objectives. For example, if the firm's strategic objective is to increase efficiency, the
financial objective could be to increase return on capital employed.

The examples of financial objectives may include growth in revenues, growth in earnings, wider
profit margins, bigger cash flows, higher returns on invested capital, etc.

Although there’s no denying the fact that there are conceptual differences between the two, but
strategic objectives and financial objectives flow in a concerted manner in the working of an
organization. Both concepts are mutually inclusive, a major strategic move the organization makes
has financial implications, and vice a versa. Thus, both the strategic objectives and financial

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objectives must be set in tandem so that both facilitates in the accomplishment of the overall goal
of the organization.

8. Summary

 Every organization, irrespective of its size of operations, the market in which it operates and
other factors, needs to define the goals and objectives that it strives to achieve.
 Goals and objectives provide direction to the efforts that an organization makes for its
survival and growth.
 Objectives are the desired ultimate end results that are to be accompanied by an overall plan.
The vision, mission and the business definition defines the philosophy of an organization to
be adopted in the long run; the goals and objectives are set to achieve them.
 Goals denote what an organization strives to accomplish in a future period of time.
 The Balanced Scorecard (BSC) is a strategic tool meant to measure organizational
performance, used by management to keep track of the execution of activities by the
organizational staff within its control and to monitor the consequences arising from these
actions.
 The BSC Model requires that an organization be viewed from four perspectives. These are
the Learning and Growth Perspective; the Business Perspective; the Financial Perspective;
and the Customer Perspective.
 Critical Success Factors (CSF’s) are administration tools which are essential for an
organization to achieve its mission. It is a serious factor or an activity required for ensuring
the success of a company or an organization.
 Strategic objectives focus on the company’s intent to sustain and improve the organization’s
competitive strength and long-term market position through creating customer value. While
financial objectives focus on achieving acceptable profitability in a company’s pursuit of its
mission, long-term health, and ultimate survival.

COMMERCE PAPER NO.12: STRATEGIC MANAGEMENT

MODULE No.6: OBJECTIVES AND GOALS