Strategic Management – the 2nd task

Converting the mission into specific

objectives

Miss s
ion ve
j e cti
O b
 Setting Objectives – 2nd task
• to convert the mission into specific
performance targets
• Objective-setting implies challenge,
establishing a set of desired
outcomes, to close the gap between
actual and desired performance
• Setting challenging but achievable
objectives
 Setting Objectives

• Objectives represent a managerial

commitment to produce specified
results in a specified time.
• They spell out how much of what
kind of performance by when.
• They direct attention and energy to
what needs to be accomplished.
 What Kinds of Objectives to Set
• Objectives are needed for each key
result = important to success.
• goals and objectives
• Goals - long term, common. general
• Objectives – short term. Specified as
production. Managerial. Marketing.
R^D
• Financial and strategic performance
 Objectives
• Objective-setting is required of all
managers.
• Every unit in an organization needs
concrete, measurable performance
targets indicating its contribution to
the organization’s overall objectives.
 Short-/ Long- range objectives
• Short-range – Mostly Financial
• Long- range – Mostly Strategic
 Financial and strategic objectives.

Financial objectives –
• earnings growth,
• return on investment,
• cash flow.
Financial Objectives
 Strategic objectives - 1

• to provide consistent direction in

strengthening a company's overall
business position.
• management not only must deliver
good financial performance but also
must deliver on strengthening the
organization’s long-term business
and competitive position
 Strategic objectives - 2
• a company's overall competitive
situation,
• growing faster than the industry
average,
• market share,
• overtaking key competitors on
product quality or customer service,
 Strategic objectives - 3
• achieving lower overall costs than
rivals (look to quality)
• company’s reputation,
• international markets,
• technological leadership
 FINANCIAL – STRATEGIC OBJECTIVES

Faster revenue A bigger market

growth share
Faster earnings A higher more
growth secure industry
rank
Higher dividends Higher product
quality
 Financial – Strategic Objectives
Wider profit Relative to key
margins - Lower competitors
costs
Higher returns on Broader or more
invested capital - attractive product
line
Stronger bond and A stronger
credit ratings - reputation with
customers
 FINANCIAL – STRATEGIC OBJECTIVES

Bigger cash flows Superior customer

service
A rising stock a leader in
price technology /
product innovation
 Financial-Strategic Objectives

A more diversified Increased ability to

revenue base compete in
international
markets

Stable earnings Expanded growth

during opportunities
recessionary
periods
 The Managerial Value
Companies, whose managers set
objectives for each key result area and
then aggressively pursue actions
calculated to achieve their
performance targets are strong
candidates to outperform
Companies whose managers operate
with hopes, prayers, and good
intentions.
 Objectives
avoiding statements like
• "maximize profits,"
• "reduce costs,"
• "become more efficient," or
• "increase sales"
• which specify neither how much or
when.
 SMART OBJECTIVES
In any case, for any type of objectives we can say that
objectives, goals, aims must be SMART i.e.
• Specific (exact, precise, definite,
understandable and clear for all level of
management),
• Measurable,
• Achievable,
• Related to the chosen strategy, and
• Time-bond (time-based)- deadline for
achievement
Henry Ford =
To be a low-cost
producer of the
highest quality
products and
services that
provide the best
customer value
To continue
the expansion
global network
linking key
markets
around the
world by
• merging dissimilar
networks,
• providing service to additional
countries,
• increasing the number of flight
destinations,
• opening new hubs, and
• adding U.S. gateways for the
distribution of packages and freight.
Eastman
Kodak

To be the
world's best
in chemical
and
electronic
imaging
 Alcan Aluminum To be the lowest cost
producer of aluminum and to outperform
the average return on equity of the
Standard & Poor's Industrial Stock Index
To offer the best
possible personal
computing
technology, and to
put that technology
in the hands of as
many people as
possible
 Strategic vs Financial Objectives
a dilemma - short-term financial
performance or a stronger business
position for the long term?
 • short-term financial - an
SEE COMPETITIORS
organization's financial
performance is poor.
• Healthy financial results
are enough to avert crisis -
the objective of building a
stronger competitive
position for the long term
outweighs better financial
payoffs in the short term.
 COMPETITORS
• The risks are especially great when a
company has growth-minded
competitors who place more value
on achieving long-term industry
leadership than on current profits.
 Competitors who will accept lower
prices and lower profit margins for
long periods in return for annual
gains in market share can in time
build a leading market position at the
• expense of companies that are
preoccupied with their short-term
profitability.
 The Concept of Strategic Intent
• A company's strategic objectives are
important for another reason—they
delineate (draw, outline) its strategic
intent to stake out a particular
business position.
 The strategic intent of

• a large company - industry

leadership on a national or global
scale.
• a small company may be to dominate
a market niche and gain recognition
as an up-and-coming (energetic,
promising)
 Long-Range vs Short-Range Objectives
• both.
• Long-range objectives serve two
purposes.
- targets five or more years ahead =
what actions to take now in order to
achieve the targeted long-range
performance later
 long-range objectives

pushes managers to weigh the impact

of today's decisions on longer-range
performance.
Without the pressure to make
progress in meeting long-range
performance targets, it is human
nature to base decisions on what is
most expedient and worry about the
future later.
 Short-range objectives
• The problem with short-sighted decisions, put
a company's long-term business position at
greater risk.
• Short-range objectives spell out the
immediate and near-term results to
be achieved.
• They indicate the speed at which
management wants the organization
to progress as well as the level of
performance being aimed for over
the next two or three periods.
 Short-range objectives can be
identical with long-range objectives
any time an organization is already
performing at the targeted long-term
level.
The "Challenging but Achievable" Test

• Objectives should not represent

whatever levels of achievement
management decides would be
"nice."
• Wishful thinking has no place in
objective -setting.
 challenging but achievable
• For objectives to serve as a tool for
stretching (expansion) an
organization to reach its full
potential, they must meet the
criterion (indicators) of being
challenging but achievable.
 "inside-outside" considerations
• What performance levels will industry
and competitive conditions realistically
allow?
• What results will it take for the
organization to be a successful
performer?
• What performance is the organization
capable of when pushed!
 managers must judge:
what performance is possible in light
of external conditions and
what performance the organization is
capable of achieving.
 setting/making
The tasks of objective-
setting and strategy making
often become intertwined
(connected). Strategic
choices, cannot be made
in a financial vacuum;
the money has to be
available to execute
whatever strategy is
chosen.
• decisions about strategy are
contingent (possibility) on setting the
organization's financial performance
objectives high enough to
• 1) execute the chosen strategy,
• 2) fund other needed actions, and
• 3) please investors and the financial
community.
 Objectives and strategy
• Objectives and strategy also intertwine
when it comes to matching the means
(strategy) with the ends (objectives).
• If a company can't achieve established
objectives by following its current
strategy (either because the objectives
are unrealistic or because the strategy
is), the objectives or the strategy need
adjustment to produce a better fit.
 Objectives - Management Levels
• performance targets must be
established not only for the
organization as a whole but also for
each of the organization's separate
businesses and product lines down
to each functional area and
department within the business-
unit/product-line structure.
 CRITERION - indicators
• "What's measured improves.“
• criterion - as a measure for
comparing of achieved results with
planned performance
• Criterions = financial, strategic
• Criterion – test for checking of
effectiveness of strategic
management process
 KEY POINTS - 1
• Establishing objectives converts the
mission and directional course into
designated performance outcomes.
• Objectives represent a managerial
commitment to produce specified
results in a specified time.
 2
• Objectives spell out how much of
what kind of performance by when.
• Objectives direct attention and energy
to what needs to be accomplished.
• Objectives must be stated in
quantifiable or measurable terms, and
they must contain a deadline for
achievement.
 3 - Objectives must be SMART

• Avoiding statements like:

"maximize profits,“ "reduce costs,"
"become more efficient," or
"increase sales“ which specify neither
how much or when.
• Objectives are needed for each key
result that managers consider
important to success
 4

• In case of poor an organization's

financial performance business has to
focus on short-term financial
performance.
• In case of an organization's financial
performances are healthy enough to
avert (prevent)crisis, the objective of
building a stronger competitive position
for the long term outweighs better
financial payoffs in the short term.
 5 - strategic intent

• A company's strategic objectives

delineate its strategic intent to show
borders a particular business position.
• a large company may be industry
leadership on a national or global
scale.
• a small company may be to dominate
a market niche and gain recognition as
an up-and-coming enterprise.
 6- challenging but achievable.
• An organization needs both long-range
and short-range objectives.
• Wishful thinking has no place in
objective -setting.
• For objectives to serve as a tool for
stretching an organization to reach its
full potential, they must meet the
criterion of being challenging but
achievable.
 7. Managers must judge:

• What performance levels will

industry and competitive conditions
realistically allow?
• What results will it take for the
organization to be a successful
performer?
• What performance is the
organization capable of when
pushed!
 8. Managers must judge:

• what performance is possible in light

of external conditions and
• what performance the organization
is capable of achieving.
 9.
• The tasks of objective-setting and
strategy-making often become
intertwined.
• Objectives and strategy also
intertwine when it comes to
matching the means (strategy) with
the ends (objectives).
 10
• If a company can't achieve
established objectives by following
its current strategy (either because
the objectives are unrealistic or
because the strategy is), the
objectives or the strategy need
adjustment to produce a better fit.
 11

decisions about strategy are

contingent on setting the
organization's financial performance
objectives high enough to :
• execute the chosen strategy,
• fund other needed actions, and
• please investors and the financial
community.
 12. Strategy & organization hierarchy
• strategic thinking and strategy-driven
decision-making to,
• Targets not only for the organization
as a whole but also for each of the
organization's separate businesses
and product lines down to each
functional area and department within
the business-unit/product-line
structure.
 13. Indicators
• "What's measured improves.“ The
objectives must have the criterion as
a measure for comparing of achieved
results with planned performance.
• Objectives are a managerial
commitment to achieve specific
performance targets by a certain
time.
 14. both strategic and financial
• Every company needs to establish
both strategic objectives and
financial objectives
• Strategic objectives tend to be
competitor-focused, often aiming at
unseating a competitor considered
to be the best in a - particular
category
 15
A market leader can become an ex-market
leader by putting more emphasis on the
financial objective of boosting next
quarter's profits than on the strategic
objective of strengthening long-term
market position
A company exhibits strategic intent when
it relentlessly pursues a long-term
strategic objective and concentrates its
actions on achieving that objective
 16.

• Company performance targets should

be challenging but achievable.
• Objective -setting should be more of a
top-down than a bottom-up process
in order to guide lower-level units
toward objectives that support overall
business and company objectives
 SM-principles
• Strategic objectives are coequal in
importance to financial objectives.
• A company's strategic action plan is
dynamic, undergoing continues
review, refinement, enhancement,
and occasional major revision
• Strategy-making is not a proper task
for strategic planners
 Quiz – Objectives

• What are the main characteristic of

objectives?
• What are objectives and why are they
needed?
• What are financial and strategic objectives
and in what cases they should be used?
• What are long-term and short-term
objectives and in what cases they should
be used?