Objectives of Business

One of the basic functions of management is to identify and define the

objectives of business. It is the basis of all managerial functions. Without
objectives, management will very much like Alice in Wonderland. The
following dialogue between Alice and the cat is reproduced here from this
classic fiction by Lewis Carrol, to focus on the importance of objectives.
Would you tell me, please which way I ought to go from here?,Asked Alice
That depends a good deal on where you want to go, said the cat
I dont much care where I go, said Alice,
Then it doesnt matter which way you go, said the cat.

A management which does not define its objectives would not know where it
wants to go, and become a victim of confusion and indecisiveness in
determining what functions, activities and tasks should be performed by
its employees.
 The concept and Nature of objectives
Objectives are broad statements of the values
which an organization aims at attaining in the
future. In the case of business enterprises,
objectives generally relates to profit, market
standing, employee development,
technological leadership, and so forth.
Objectives must be SMART.
Purpose, Mission, objectives and Goals
Purpose: Refers to the basic intention in the establishment of an
organization.
E.g. The purpose of establishing a hospital may be to provide medical
care to patients, to safeguard the health of the community, or to
provide practical training to medical students, or a combination of
all these purposes.
Mission: A broadly stated definition of the organizations basic
business scope and operations that distinguishes it from similar
types of organizations.
Objectives: They are more specific than purpose and have a time
dimension. objectives refer to the values that a organization seeks
to attain in the future.
Goals: These constitute elements of objectives, and are more specific.
Objectives are broken down into goals for the attainment by its
various components divisions, departments, sections and
individuals.
 Purposes of goals and plans
Legitimacy. An organization mission describes what
the organization stands for and its reason for
existence. It symbolizes legitimacy to external
audiences such as investors, suppliers, and
customers.
Source of motivation and commitment. Goals and
plans facilitate employees identification with the
organization and help motivate them by reducing
uncertainty and clarifying what they should
accomplish.

Goal provides the why of an organization

or subunits existence, a plan tells the how.
 Guides to action. Goals and plans provide a sense of
direction. They focus attention on specific targets
and direct employee efforts toward important
outcomes.
Standard of performance. Because goals define
desired outcomes for the organization, they also
serve as performance criteria.
Example:

Mission Statement for Mail Boxes Etc.

Our Mission

Making Business Easier Worldwide Through Our Service and

Distribution Network, Delivering Personalized and Convenient
Business Solutions With World-Class Customers Service.

Our Core Values

Caring Honesty Fairness Commitment

Integrity Trust Respect Accountability

 Examples of Mission & Vision
Southwest Airlines:
Mission: To provide high quality service at a
lower price in the airline industry.
Vision: Opening air travel to a wider group of
leisure travelers while infusing the organization
with a sense of fun.
Apple Computer:
Mission: To bring the best personal computing
products and support to consumers around the
world.
Vision: One person, one computer.
 Vision Statement
Futuristic view regarding the ideal state
or conditions that the organizations
aspires to change or create.
McDonalds Vision Statement:
Where the world buys more
McDonalds than any other
fast food
 Mission Statement
A statement of the businesss core aims,
phrased in a way to motivate
employees and stimulate interest
by outside groups.

McDonalds Mission Statement:

McDonalds aims to be the worlds best quick
service restaurant experience. Being the best
means providing outstanding quality, service,
cleanliness and value so that we make every
customer in every restaurant smile.
 Difference of Vision vs Mission
Vision statement describes the future if the
mission is accomplished.

Mission statement outlines the purpose of the

organization.
What we do
For whom we do it
What is the benefit
 External Message
Legitimacy for:
investors,
suppliers,
customers,
Mission community
Stateme
nt

Strategic
Goals/Plans
Senior Management Internal Message
(organization as a legitimacy,
whole) motivation,
guides,
rationale,
Tactical Goals/Plans standards
Middle Management
(major divisions, functions)

Operational Goals/Plans
Lower Management
(departments, individuals)
 Goals and plans
Strategic goals. Broad statements of where
the organization wants to be in the future;
pertain to the organization as a whole rather
than to specific divisions or departments.

Strategic plans. The actions steps by which an

organization intends to attain strategic goals.
 Tactical goals. Goals that define the outcomes
that major divisions and departments must
achieve in order for the organization to reach
its over-all goals.

Tactical plans. Plans designed to help execute

major strategic plans and to accomplish a
specific part of the companys strategy.
 Operational goals. Specific, measurable results
expected from departments, work groups, and
individuals within the organization.

Operational plans. Plans developed at the

organizations lower levels that specify action
steps toward achieving operational goals and
that support tactical planning activities.
 MISSION

Manufacture both standard and custom metal products for various applications in the
machine tool industry

STRATEGIC GOALS

President
12% return on investment; 5% growth
No employee layoff; Excellent service to customer

TACTICAL GOALS

Finance V.P. Production V.P.

Keep outstanding accounts below $500,000
Keep borrowing below $2 million
Provide monthly budget statements for departments
Have delinquent accounts of no more than 2% of
total
Manufacture 1,200,000 products at average cost of $19
Increase manufacturing productivity by 2%
Resolve employee grievances within 3 working days

OPERATIONAL GOALS

Accounts Receivable Manager Supervisor Automatic Machines

Issue invoices within 5 days of sale Produce 150,000 standard units at average cost of $16
Check new customers credit within 1 working day Have machine downtime of less than 7%
Allow no account to be overdue more than 5 months Respond to employee grievances within 24 hours
Call delinquent accounts weekly
 Types of objectives
Survival
Growth
Profit
Efficiency and Productivity
Innovation
Employee development
Social Responsibility
 Survival
Survival objective is essential for any business in that no survival
means no today and no future.
Circumstances for a business to consider survival to be important
can be seen in the following table:
 Growth
Growth objective may refer to the goal of a business to
become larger, stronger or more competitive. Possible
reasons for a business to regard growth as an objective:
1. To survive, no growth may mean final death.
2. To introduce new products in order to meet customer
changing needs.
3. To reduce risks of business: In fierce competition, if a
business can not become strong enough, it is more likely
to be eaten up by other stronger competitors.
4. To have low costs and more profits on a larger scale
(economy of scale).
5. To make employees, managers, and owners all feel happy
and secure
 Profit
One of the basic and most important objectives of a business
is to make profit.
1. Major motivating force for investors to contribute to its
capital resources by buying its stocks.
2. Creditors lend money to an enterprise which earns good
profit.
3. Any enhancement in salaries, wages and perquisites of
employees can come only out of profits.
4. A growth company needs substantial internal financing for
diversification, expansion in production capacity and so
forth.
5. Profits provide the most important quantitive measure of
the operating efficiency of an enterprise.
 Efficiency & Productivity
Efficiency & Productivity are closely interrelated
objectives. Efficiency means economy in the
utilization of resources. Productivity is the
measurement of efficiency.
 Innovation
Innovation is needed in technology, methods
and processes of production in order to keep a
pace with scientific and technological
inventions.
Rapid changes in production technology,
information systems, social expectations from
business and customers needs make it
imperative for business enterprises to
innovate continually.
 Employee Development
Most precious, provides long term edge over its
competitors
Creating a socio-technical environment which not
only permits them but also encourages them to
utilize and develop their abilities and
competence.
Give them responsibility , authority and resources
for the performance of their functions.
Environment of tolerance of mistakes
 Social Responsibility
The obligation of any business to protect and
serve public interest is known as social
responsibility of business.
 Possible reasons for a businesses to pursue image and
social responsibility as its objectives

Possible Reasons Brief Explanations

1) Government legislation
2) Competitive pressure
3) Benefits for the business
4) Sustainable development
Many laws have been passed to protect workers
health and safety, reduce discrimination against
disabled workers and protect the environment.
Increasing competition has become a challenge for
modern businesses. If customers think badly of a
business, then the business is finished. The
businesss market share will be taken over by other
companies.
Good image may mean more sales and more profit.
A company can benefit a lot if it has a good relation
with its suppliers. Reliable supply of raw materials
is key to production.
Paying attention to image and social responsibility
is key to long term development.
Balancing the objectives
 Management By Objective(MBO)
Description of an accountants job:
My job is to establish and produce management
accounting records of the company and the
preparation of budgets and financial
statements in accordance with the company
policies and the company act.
My job is to produce management accounting
data that will aid decision making at all levels
of management.
 Management by Objectives (MBO)
Is a method whereby managers and employees
define goals for every department, project, and
person and use them to monitor subsequent
performance.
4 major activities:

1. Set goals
2. Develop action plans
3. Review progress
4. Appraise overall performance
Step 1: Set Goals Step 2: Develop Action Plans

Corporate Strategic Goals

Departmental Goals
Individual Goals Action Plans

Review Progress

Step 3: Review Progress

Take Corrective Action

Appraise Performance

Step 4: Appraise Overall Performance

 Goal Setting
Organizational objectives: Tentative

Divisional, Departmental, Sectional & individual

objectives: tentative

Organizational objectives: Modified & Finalized

Divisional, Departmental, Sectional & individual

objectives: Modified & Finalized
 Benefits of MBO Problems with MBO

1. Manager and employee efforts 1. Constant change prevents MBO from

are focused on activities that will taking hold.
lead to goal attainment.

2. Performance can be improved at 2. An environment of poor employer-

all company levels. employee relations reduces MBO
effectiveness.

3. Employees are motivated. 3. Strategic goals may be displaced by

operational goals.

4. Departmental and individual 4. Mechanistic organizations and values

goals are aligned with company that discourage participation can
goals. harm the MBO process.

5. Too much paperwork saps MBO

energy.