- The most effective objectives are clearly stated and allow progress to be assessed
- These types of objectives can be summarised using the acronym SMART
SMART Objectives
- Strategic, tactical and operational objectives should be
- Specific - what exactly the business is measuring, such as the value of sales or sales volume
- Measurable - a quantifiable success measure, such as a percentage increase
- Agreed - the objective is shared with workers and perhaps mutually agreed
- Realistic - whilst ambitious, it is capable of being achieved in normal circumstances
- Time-bound - a date or time by which the objective should be achieved
An example of a SMART tactical objective
- Once objectives have been determined leaders develop strategies which plan how they are to be achieved
- Strategies are medium- to long-term plans which should be monitored carefully and reviewed if necessary
- Effective strategies take into account the businesses position in the market as well as external factors that may affect their chances of success
An Explanation of the Common Strategic Objectives in the Private Sector
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Strategic Objective
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Explanation
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Profit Maximisation
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- Most firms have the rational strategic objective of profit maximisation
- Profit = Total Revenue (TR) - Total Costs (TC)
- To maximise profits, firms can either increase their sales revenue or decrease their costs
- Firms continuously analyse their costs to see if they can reduce them so that profit can be maximised
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Growth
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- Some firms have the strategic objective of growth
- Firms with a growth objective often focus on increasing their sales revenue or market share
- Firms will also maximise revenue in order to increase output and benefit from economies of scale
- A growing firm is less likely to fail
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Ethics & Social Responsibility
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- An increasing number of firms are launching with ethical or socially responsible objectives
- These typically include a focus on climate action & addressing poverty or inequality
- They still require profit to survive, but will accept less than if they were profit maximising as long as they are meeting their social objective
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Survival
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- Challenging market conditions or difficult periods of change or crisis can require a focus on keeping the business going
- Survival is also a common strategic objective for new business start-ups and careful cash-flow management is likely to be at its core
- The recent pandemic required many businesses to adopt a short-term survival objective with many taking advantage of government support to enable them to continue trading and recover
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Protecting shareholder value
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- A common objective for public limited companies where the value of shares and dividends payable to shareholders are important metrics
- Strategic objectives may seek to protect shareholder value above all else
- Having this objective will help to encourage new investors and satisfy existing shareholders
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