Effective Techniques for Business Target Setting: A Practical Guide

Goal setting is the second most important task in strategic management after the business mission. A goal translates a company’s mission into a specific result in a specific period of time and is a management commitment. Its purpose is to draw the company’s attention to what needs to be accomplished by when.

(Note that within parentheses the terms “goal” and “objective” are used interchangeably and differently. While goals can often be viewed as the broader, longer-term goals of an organization, goals are viewed as specific, more immediate goals that contribute to the pursuit of broader goals. We use the term goal here, but think of it as the same as a goal, whether it is short-term, long-term.

Defining and types of goals

Goals are very important in business. When a company’s mission is not translated into tangible, measurable results and managers do not demonstrate progress in meeting those goals in a timely manner, it is as if the mission does not exist.

Determining these outcomes is one of the most important tasks of strategic management. Goals have two basic elements that are valuable to management. First, these are specific amounts, and second, they contain deadlines for achieving them. In other words, desires such as “I want to increase future sales”, “I want to increase profits”, and “I want to reduce costs” flow in. As far as goals go, it’s just air.

Business experience has repeatedly shown that companies who set specific goals and pursue them diligently achieve better results than those based on improvisation and wishful thinking.

Objectives are needed for any activity that managers consider important to the business. But generally there are two types of goals: strategic and financial. Strategic goals are important because they are related to improving the company’s competitive position in the market in the long term.

Examples of such goals are market share, lower cost compared to competitors, wider product range, better product quality, good name in the market, leadership in innovation, new product development skill, strong presence in international markets, etc. For example, a strategic goal of Apple, which announced the launch of the new iPhone mobile phone in January 2007, was to have a 1% share of the global market by the end of 2008. The financial goals are necessary because without a specific financial performance, the business does not exist.

Examples in this case are profit margins, revenue growth, earnings growth, return on investment, cash on hand, share price, etc. For example, a financial goal for Procter & Gamble is to have an operating profit margin of at least 24% by 2025.

Both types of goals are important in strategic management. It would be a mistake to emphasize only the short-term financial performance of a company. For example, in some exceptional cases, the financial situation of a troubled company requires a short-term focus on financial performance rather than long-term strategic position in the market.

But when the market is under pressure, management often puts too much emphasis on short-term financial performance and neglects the long-term future, even if the company is financially sound.  Firms that sacrifice short-term economic performance, such as paystubs, to enhance long-term competitiveness risk becoming uncompetitive and lazy in the future, making them particularly vulnerable to the conduct of powerful competitors. This is especially true in industries where companies have a long-term strategic vision and are willing to make temporary financial sacrifices to gain market leadership positions. For example, the classic strategy of many Japanese companies is to enter international markets (mainly the United States and Europe) by offering high-quality products at low prices and low margins, with the long-term goal of gaining high market share and ultimately market leadership.

Goals can be long-term or short-term. Long-term goals have two main purposes. First, they prepare the business today for its path beyond the next five years or so. It is obvious that something like this should be done today and not in four years. The second, and perhaps more important, purpose is that long-term goals force managers to make their decisions today within a framework of the long-term welfare of the business, rather than short-term criteria and benefits. Too often the motivations in many businesses and human nature are such that the future is not given much importance when the present may be rosy.

Short-term goals aim for more immediate results both quantitatively and temporally. They are of a different nature from the long-term in that they provide some indication of the speed at which managers want the business to move and the performance it should achieve. It is possible in some cases that long-term and short-term goals coincide in a business. But managers usually try to achieve some long-term goal by taking specific short-term steps.

Nature of objectives

A company’s goals, as a result of its mission, must intrigue, challenge, and require all human resources to perform beyond their normal limits of performance. At the same time, you also need to be successful.

Both qualities are relevant and necessary to set goals for a successful course. Managers must assess what is feasible based on both external conditions and the company’s internal health and capabilities. This is not always easy, and many internal and external factors need to be considered, such as the competitive conditions of the industry and how it can realistically perform, how the company performs under pressure, and what results are considered successful. Keep in mind that strategic and financial goals are closely related when making these decisions, as strategic goals always require a certain amount of funding and, therefore, financial goals.

Target area

Objectives are required not only for the company as a whole but also at all levels, for all departments, and for all its functions. Only then are all decisions guided by some strategic way of thinking and acting. When everyone, from the CEO to the last employee, has responsibility and is accountable for achieving specific results, then only can the company as a whole follow a certain correct path.

Source of targets

In the most common case goals are set at the top of the hierarchy and diffuse downwards. The goals in one level determine the goals in the next.

For example, if a business aims to make a profit of 10 million euros next year, this can be achieved by selling 500,000 products at a price of 100 euros and a profit of 20 euros each. With this general goal, the production department knows that it must have as its goal the production of 500,000 pieces at a unit cost of 80 euros. The marketing department knows that its goal is to promote 500,000 pieces at 100 euros each and can geographically set targets in three different markets eg 300,000, 150,000 and 50,000 pieces, which are now targets for the respective sellers.

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