Process Of Setting Objectives

At the very beginning of the process of setting objectives, an SBU should attempt to take an inventory of objectives as they are currently understood. For example, the SBU head and senior executives may state the current objectives of the SBU and the type of SBU they want it to be in the future. Various executives perceive current objectives differently; and, of course, they will have varying ambitions for the SBU's future. It will take several top-level meetings and a good deal of effort on the part of the SBU head to settle on final objectives.

Each executive may be asked to make a presentation on the objectives and goals he or she would like the SBU to adopt for the future. Executives should be asked to justify the significance of each objective in terms of measuring performance, satisfying environmental conditions, and achieving growth. It is foreseeable that executives will have different objectives; they may express the same objectives in terms that make them appear different, but there should emerge, on analysis, a desire for a common destiny for the SBU. Disharmony of objectives may sometimes be based on diverse perceptions of a business's resource potential and corporate strategy. Thus, before embarking on setting SBU objectives, it is helpful if information on resource potential and corporate strategy is circulated.

Before finalizing the objectives, it is necessary that the executive team show a consensus; that is, each one should believe in the viability of the set objectives and willingly agree to work toward their achievement. A way must be found to persuade a dissenting executive to cooperate. For example, if a very ambitious executive works with stability-oriented people, in the absence of an opportunity to be creative, the executive may fail to perform routine matters adequately, thus becoming a liability to the organization. In such a situation, it may be better to encourage the executive to look for another job. This option is useful for the organization as well as for the dissenting executive. This type of situation occurs when most of the executives have risen through the ranks and an "outsider" joins them. The dynamism of the latter is perceived as a threat, which may result in conflict. The author is familiar with a $100 million company where the vice president of finance, an "outsider," in his insistence on strategic planning came to be perceived as such a danger by the old-timers that they made it necessary for him to quit.

To sum up, objectives should be set through a series of executive meetings. The organizational head plays the role of mediator in the process of screening varying viewpoints and perceptions and developing consensus from them.

Once broad objectives have been worked out, they should be translated into specific goals, an equally challenging task. Should goals be set so high that only an outstanding manager can achieve them, or should they be set so that they are attainable by the average manager? At what level does frustration inhibit a manager's best efforts? Does an attainable budget lead to complacency? Presumably a company should start with three levels of goals: (a) easily attainable, (b) most desirable, and (c) optimistic. Thereafter, the company may choose a position somewhere between the most desirable goals and the optimistic goals, depending on the organization's resources and the value orientation of management. In no case, however, should performance fall below easily attainable levels, even if everything goes wrong. Attempts should be made to make the goals realistic and achievable. Overly elusive goals can discourage and affect motivation. As a matter of fact, realistic goals may provide higher rewards. In 1992, Eastman Kodak lowered its 6 percent annual revenue growth from the core film and photographic paper business to 3 percent. Subsequently, its stock price went up from $40 to $50.24

There are no universally accepted standards, procedures, or measures for defining objectives. Each organization must work out its own definitions of objectives and goals—what constitutes growth, what measures to adopt for their evaluation, and so on. For example, consider the concept of return on investment, which for decades has been considered a good measure of corporate performance. A large number of corporations consider a specified return on investment as the most sacrosanct of goals. But ponder its limitations. In a large, complex organization, ROI tends to optimize divisional performance at the cost of total corporate performance. Further, its orientation is short-term. Investment refers to assets. Different projects require a varying amount of assets before beginning to yield results, and the return may be slow or fast, depending on the nature of the project. Thus, the value of assets may lose significance as an element in performance measurement. As the president of a large company remarked, "Profits are often the result of expenses incurred several years previously." The president sug gested that the current amount of net cash flow serves as a better measure of performance than the potential amount of net cash flow: "The net cash contribution budget is a precise measure of expectations with given resources."

The following six sources may be used to generate objectives and goals:

1. Focus on material resources (e.g., oil, minerals, forest).

2. Concern with fabricated objects (e.g., paper, nylon).

3. Major interest in events and activities requiring certain products or services, such as handling deliveries (Federal Express).

4. Emphasis on the kind of person whose needs are to be met: "Babies Are Our Business" (Gerber).

5. Catering to specific parts of the body: eyes (Maybelline), teeth (Dr. West), feet (Florsheim), skin (Noxzema), hair (Clairol), beard (Gillette), and legs (Hanes).

6. Examination of wants and needs and seeking to adapt to them: generic use to be satisfied (nutrition, comfort, energy, self-expression, development, conformity, etc.) and consumption systems (for satisfying nutritional needs, e.g.).

Whichever procedure is utilized for finally coming out with a set of objectives and goals, the following serve as basic inputs in the process. At the corporate level, objectives are influenced by corporate publics, the value system of top management, corporate resources, the performance of business units, and the external environment. SBU objectives are based on the strategic three Cs of customer, competition, and corporation. Product/market objectives are dictated by product/ market strengths and weaknesses and by momentum. Strengths and weaknesses are determined on the basis of current strategy, past performance, marketing excellence, and marketing environment. Momentum refers to future trends— extrapolation of past performance with the assumption that no major changes will occur either in the product/market environment or in its marketing mix.

Identified above are the conceptual framework and underlying information useful in defining objectives at different levels. Unfortunately, there is no computer model to neatly relate all available information to produce a set of acceptable objectives. Thus, whichever conceptual scheme is followed and no matter how much information is available, in the final analysis objective-setting remains a creative exercise.

Once an objective has been set, it may be tested for validity using the following criteria:

1. Is it, generally speaking, a guide to action? Does it facilitate decision making by helping management select the most desirable alternative courses of action?

2. Is it explicit enough to suggest certain types of action? In this sense, "to make profits" does not represent a particularly meaningful guide to action, but "to carry on a profitable business in electrical goods" does.

3. Is it suggestive of tools to measure and control effectiveness? "To be a leader in the insurance business" and "to be an innovator in child care services" are suggestive of measuring tools in a helpful way; but statements of desires merely to participate in the insurance field or child care field are not.

4. Is it ambitious enough to be challenging? The action called for should in most cases be something in addition to resting on one's laurels. Unless the enterprise sets objectives that involve reaching, there is the threat that the end of the road may be at hand.

Canon illustrates this point clearly. In 1975, Canon was a mediocre Japanese camera company. It was scarcely growing and had recently turned unprofitable for the first time since 1949. It set a few enormously aggressive goals, most of them quantitative. Its key goals were to increase sales fivefold over the next decade, to achieve 3 percent productivity improvement per month, to cut in half the time required to develop new products, and to build the premier manufacturing organization.

To achieve these goals, Canon established policies that focused on continuous improvement through the elimination of waste, broadly defined. Among other new policies, Canon put in place a number of organizational measures to promote active employee cooperation. A prime objective was to increase the number of suggestions per employee to 30 per year by 1982, up from one in 1975. This goal was achieved and then surpassed: by 1986, each employee was contributing, on average, 50 suggestions annually.

Planning within the company was refocused on methods to reach targets and, more importantly, on identifying internal capabilities required to achieve targets. Another policy was to make every performance measure visual, so employees could see at a glance where they were in relation to goals. In each factory, for example, there are visual representations of ongoing improvement activity in relation to goals.

By 1982, Canon had achieved each of its goals. It is now a significant and vigorous competitor in cameras, copiers, and computers.25

5. Does it suggest cognizance of external and internal constraints? Most enterprises operate within a framework of external constraints (e.g., legal and competitive restrictions) and internal constraints (e.g., limitations in financial resources).

In the late 1970s, Toyota set as its goal to defeat General Motors. It realized that to do so, it needed scale. To achieve scale, it needed first to defeat Nissan. Toyota initiated a battle against Nissan in which it rapidly introduced a vast array of new autos, capturing market share from Nissan. That battle won, Toyota could turn its attention to its long-term goal—besting General Motors. Targeting the leader is a great way to build momentum and create an organizational challenge.

6. Can it be related to both the broader and the more specific objectives at higher and lower levels in the organization? For example, can SBU objectives be related to corporate objectives, and in turn, do they also relate to the objectives of one of its products/markets?

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