Setting strategic objectives needs to be more of a top-down than a bottom-up process in order to:
- Provide guidance to lower level managers and units.
- Support Companywide interests.
- Be cascaded downwards
A strategic objective is an objective of medium and long term nature that aims either at exploiting an opportunity or strength, or deals with a threat or weakness facing the organization. Strategic objectives therefore are based on factors identified in environmental analysis. They take advantage of favourable factors and deal with unfavourable factors identified in external and internal analyses. For example, due to advancement in communication technology (opportunity), Kenya Airways may set for itself the following objective: In three years, at least 90% of Kenya Airways customers should be able to make bookings and reservations on-line. This objective
would be realistic if the airline is strong financially to be able to install the required information technology system (strength). The objective would be necessary if information technology was an area of weakness in the company (weakness). To respond to the threat of competition (threat), Kenya Airways could set the following objectives:
- In three years, at least 70% of Kenya Airways employees should be professionally qualified in their jobs.
- In three years the airline should achieve at least 95% customer satisfaction.
These two objectives would be realistic if the airline is strong financially to be able to train its employees, as well as, improve on the airline‘s services (strength). Training employees would be necessary if lack of qualifications was one of the weaknesses of the
airline (weakness). As is evident from these examples, strategic objectives like strategies help align the firm‘s strengths and weaknesses to the environmental opportunities and threats.
STRATEGIC AND OPERATIONAL OBJECTIVES
- Strategic objectives are different from operational objectives in a number of significant ways.
- Strategic objectives are of medium and long term nature, while operational objectives are short term, covering a period of one year or less.
- Strategic objectives are for the organization or business unit as a whole, while operational objectives provide guidance for specific functional or operational units only e.g. marketing function.
- Strategic objectives are concerned with developing the organization‘s future potential, while operational objectives are concerned with current performance i.e. converting potential business into actual results.
Building a stronger long term competitive position benefits shareholders more lastingly than improving short term profitability.
- Strategic objectives focus mainly on effectiveness of the organization while operational objectives are for implementation of strategies and hence focus mainly on efficiency.
- Strategic objectives are derived from environmental analysis, while operational objectives are usually derived from strategic objectives
CHARACTERISTICS OF GOOD OBJECTIVES
This may require:
- Operationalization of abstract concepts.
- Quantification of the objective.
- Giving time frame to the objective
Acceptable to those responsible for implementation
- If set participatorily
- If challenging i.e. difficult but attainable i.e. neither too difficult nor too easy.
- If can easily be modified to match changed circumstances or conditions i.e. not too rigid.
- If challenging
- If linked to rewards i.e. contribution towards attainment is rewarded.
- Consistent with the other objectives
- If does not conflict with the other objectives.
- In harmony with the vision and mission
- If does not contradict vision and mission but leads to the realization of such vision and mission.
- Not abstract, but are capable of being developed into strategies and actions.
- If capable of being operationalized i.e. translated into operational plans and tactics for implementation.
- Relates directly to factors discovered in the SWOT analysis.
If aims at one or more of the following:
- Exploit an opportunity in the external environment.
- Exploit strength of the firm.
- Deal with a threat in the external environment.
- Deal with a weakness of the firm.
AREAS FOR STRATEGIC OBJECTIVES
- Strategic objectives usually are set on key aspects of the organization, such as:
- Profitability e.g. to increase net profits by 30% by the end of three years from now.
- Productivity e.g. to improve the firm‘s rate of return on total assets by 50% in the next 3 years.
- Competitive position e.g. to improve the firm‘s leadership in the industry to at least position three in the next 3 years.
- Employee development e.g. in the next three years, at least 70% of the employees should be professionally qualified in their jobs.
- Employee relations e.g. to reduce employee complaints by 60% in the next 3 years.
- Technology e.g. in the next 3 years at least 70% of the firm‘s functions should be computerized. To double the number of computers in the next 2 years.
- Public and social responsibility e.g. to increase the budget for public and social responsibility by 200% in the
next 3 years.
- Quality e.g. product/service quality E.g. to reduce the percentage of defective products by 50% in the next 3 years. To increase customer satisfaction by 100% in the next 2 years.
- Customer care or service e.g. in the next three years the organization should realize at least 95% customer satisfaction.
- Growth e.g. to increase total assets by 50% in the next 3 years. To increase market share by 30% in the next 3 years.