Objective Setting

Virtually all organizations have a formal, explicitly recognized, legally specified organ for setting the initial objectives or their amendments. Generally top management determines the overall objectives which the members of the organization unite to achieve. In some organizations, the objectives may be set by the vote of the share-holders; in others, by a vote of the members, by a small number of trustees or by a few individuals who own and run the organizations. In large corporate entities, such bodies as board of directors, governing board, executive committee may set the objectives. These bodies may formulate or change the objectives according to the needs. In practice, the objectives are set in a complicated power play involving various individuals and groups within and without the organization, and by reference to the values which govern behavior in general and the specific behavior of the relevant individuals and groups in a particular society. There are many factors which enter into the struggle to determine the organizational objectives. From management point of view, these Factors may be: value system of managers, particularly at the top level, organizational strengths and weaknesses, and external environment. As such, while setting the organizational objectives, managers should take into account all these factors. On the ‘basis of this interaction, management should set the general objectives The general objectives are quite broad in nature and show the direction in which the\organization will like to proceed. For example, the general objectives of the business organizations may be survival, growth, contribution to the need of the society, profit earning, etc. These objectives may not be mutually exclusive; rather these can be achieved simultaneously. It is the question of giving relative importance to these.

General objectives are too broad and sometimes intangible to be transformed into action. As such, within the framework of general objectives, managers deter-mine the specific objectives which they and their units of the organization will seek to attain. Most of these objectives tend to be of shorter range in character and have definite time limits within which the organization has to achieve them. The specific objectives may prescribe the manner in which the general objectives may be achieved as there is always ends-means chain. These objectives may be in the form of diversification of the firm, liquidation of unprofitable divisions, reorganization of the company, etc. For example, a company has defined its specific objectives as expansion of present range of product, higher sale targets, import substitution, reducing cost without affecting the quality of the product, and expanding range of markets. These specific objectives may fulfill two criteria. First, translation of general objectives into specific objectives should be tangible and meaningful. As far as possible, these objectives should be easily measurable as organizational performance is measured against these objectives. Second, short-term objectives should contribute to the long-term objectives. In fact, the time-bound objectives are set to make the achievement of long-term objectives more feasible. For example, long-term objectives involving plans for the distant future may fail to make individual objective tangible and meaningful standards for control.

This can be overcome by setting short-term objectives as different steps or stages of long-term objectives.

Guidelines for Objective Setting

• Objectives must be clearly specified.
• Objectives must be set taking into account the various factors affecting their achievement.
• Objectives should be consistent with organizational mission.
• Objectives should be rational and realistic rather than idealistic.
• Objectives should be achievable but must provide challenge to those responsible for achievement.
• Objectives should yield specific results when achieved.
• Objectives should be desirable for those who are responsible for the achievement.
• Objectives should start with the word ‘to’ and be followed by an action verb.
• Objectives should be consistent over the period of time.
• Objectives should be periodically reviewed.

Areas of Objective Setting

As discussed earlier, organizational objectives are of multiple characters. Even major objectives are multiple in natures. Thus, an organization has to set objectives in many areas. However, what objectives should be selected must meet three criteria:

They must be consistent with the values of the management in the organization. (ii) They must pinpoint the organizational strengths and weaknesses. (iii) They must satisfy the external environmental forces. From these points of view, the organization will set its objectives in several areas. For example, Peter Drucker has emphasized the area’s which an organization must emphasize as its objectives. These are: “market standing, innovation, productivity, physical and financial resources, profitability, manager performance and development, worker performance and attitude, and public responsibility.”

Some research studies also indicate that companies set objectives in different areas. A research study on setting objectives in 65 companies shows that organizations set objectives in terms of corporate growth, maximization of profit or return’s, supply of quality products, employee satisfaction, and other objectives strengthening of manufacturing base, maintaining market leadership, change in product mix, technological leadership, growing returns to shareholders, social obligations, interest of consumers and labour, maintaining organizational assets as national assets, export development, and funds management. In another study of 28 companies, it has been found that the companies emphasize objectives in five broad areas in varying proportion-profit, marketing, growth, employee, and social. In a study of 72 companies, conducted later, it has been found that the companies have emphasized their objectives in the areas of growth through expansion in the same line of business, diversification in related product lines, manufacturing products requiring high technology., development of product base, and cooperative existence with rival companies. It can be emphasized here that objectives are intertwined and interrelated. For example”, growth of the company may result into profitability, _consequently shareholder’s higher returns either in terms of higher dividend or in terms of bonus and consequently higher dividend. However, the emphasis on the strategic management .may differs in these two cases.

Various, objectives identified above are more in the form of common denominators rather than a true reflection of the objectives that the companies actually set for themselves. In the case of individual companies, there may be wide variations in the objectives that they set. The examples of two companies- Bharat Heavy Electricals Limited (BHEL) and Associated Cement Companies (ACC) Limited illustrate what objectives have been set by these companies.

Change in Objectives

Organizational objectives are not static but dynamic and these are modified over the period of time to have better alignment of the organization with its environment. This process is known as objective or goal succession. This may happen in three specific conditions:

• If existing objectives have been achieved and the organization has no alternative, it must adopt new objectives for its continuous existence.
• If it is not desirable to pursue the existing objectives because of change in environment and/ or internal conditions, the organization has to evolve new objectives.
• If the existing objectives are such that they cannot be achieved, the organization has to modify or alter them.

The change in objectives may take the character of objective multiplication expansion, or substitution of objectives depending on the situations. Many organizations have expanded their objectives over the period of time. For example, Reliance has expanded its objectives to include petrochemical business along with its textile business and the contribution of petrochemicals to its revenues is significantly more than textiles. Similarly, ITC Limited has added hotel, paper- and packaging business in its fold along with tobacco business. Many organizations have trans-formed themselves from a mere marketing organization to manufacturing organizations like Hindustan Lever, Voltas, etc. Similarly, many organizations have substituted their original objectives with new objectives. For example, Re-Cross Society was established primarily for helping those who suffered from war or any other casualty. After the World Wars, this objective became meaningless and the Cross has now adopted the objective of preserving and improving public health.