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Business Goals and Objectives
Setting business goals and objectives is important for the success of your company. They create a roadmap that helps you identify and manage risk, gain employee support, improve team performance, and execute strategy.
They are also an excellent indicator to measure the performance of your business.
However, meeting those goals can be difficult. According to a study by The Economist (pdf), 90 percent of senior executives from companies with annual revenues of one billion dollars or more admitted they failed to reach all their strategic goals due to poor implementation. To execute a strategy, it’s important to first understand what is achievable when developing organizational goals and objectives.
If you're struggling to set realistic benchmarks for your business, here is an overview of what business goals and objectives are, how to set them, and what you should consider during the process.
What Are Business Goals and Objectives?
Business objectives dictate how your company plans to achieve its goals and address the business’s strengths, weaknesses, and opportunities. While your business goals may change, your objectives won’t until there is an organizational change.
Business goals describe where your company wants to end up and define the expected achievements of your business strategy.
According to the Harvard Business School Online course on Strategy Execution, there are different types of strategic goals. Some may even push you and your team out of your comfort zone, but they are important to implement.
For example, David Rodríguez, global chief human resources officer at Marriott, describes in Strategy Execution the importance of stretch goals and “pushing people to not accept today’s level of success as a final destination but as a starting point for what might be possible in the future.”
It is important to find a balance between bold and unrealistic, however. To achieve this, you must understand how to responsibly set your business goals and objectives.
How to Set Business Goals and Objectives
While setting your company’s business goals and objectives may seem like a simple task, it’s important to remember that these goals should not be based solely on what you hope to achieve. There should be a correlation between your company’s key performance indicators (KPIs)—measurable success metrics—and your business strategy to justify why the goal should and needs to be achieved.
This is often illustrated through a strategy map, a representation of the cause-and-effect relationships that underpin your strategy. This valuable tool can help you identify and align your business goals and objectives.
“A strategy map gives everyone in your business a roadmap to understand the relationship between goals and measures, and how they build on each other to create value,” says HBS Professor Robert Simons in Strategy Execution.
While this roadmap can be incredibly helpful in creating the right business goals and objectives, a balanced scorecard—a tool to help you track and assess non-financial measures—ensures they are achievable through your current business strategy.
“Ask yourself, if I picked up a scorecard and examined the measures on that scorecard, could I infer what the business's strategy was?” Simons says. “If you’ve designed the measures well, the answer should be yes.”
According to Strategy Execution, these measures are necessary to ensure your performance goals are achieved. When used together, a balanced scorecard and strategy map can also tell you whether your goals and objectives will create value for you and your customers.
“The balanced scorecard combines the traditional financial perspective with additional perspectives that focus on customers, internal business processes, and learning and development,” says Simons.
These four perspectives are key considerations when setting your business goals and objectives. Here’s an overview of what these perspectives are and how they can help you set the right goals for your business.
4 Things to Consider When Setting Business Goals and Objectives
1. Financial Measures
It’s important to ensure that your plans and processes lead to the desired levels of economic value. Therefore, some of your business goals and objectives should be financial.
Some examples of financial performance goals include:
Cutting costs
Increasing revenue
Improving cash flow management
“Businesses set financial goals by building profit plans—one of the primary diagnostic control systems managers use to execute strategy,” says Simons in Strategy Execution. “They’re budgets drawn up for business units that have both revenues and expenses, and summarize the anticipated revenue inflows and expense outflows for a specified accounting period.”
Profit plans are essential when setting your business goals and objectives because they provide a critical link between your business strategy and economic value creation.
According to Simons, it’s important to ask three questions when profit planning:
Does my business strategy generate enough profit to cover costs and reinvest in the business?
Does my business generate enough cash to remain solvent throughout the year?
Does my business create sufficient financial returns for investors?
By mapping out monetary value, you can weigh the cost of different strategies and the likelihood of meeting your company and investors’ financial expectations.
2. Customer Satisfaction
To ensure that your business goals and objectives contribute to your company’s long-term success, you need to think critically about your customers’ satisfaction. This is especially important in a world where customer reviews and testimonials are crucial to your organization’s success.
“Everything that’s important to the business, we have a KPI and we measure it,” says Tom Siebel, founder, chairman, and CEO of C3.ai, in Strategy Execution. “And what could be more important than customer satisfaction?”
Unlike your company’s reputation, measuring customer satisfaction has a much more personal touch in identifying what customers love and how to capitalize on it through future strategic initiatives.
3. Internal Business Processes
Internal business processes are another perspective that should factor into your goal setting. They refer to several aspects of your business that aren’t directly affected by external factors. Since many goals and objectives are driven by factors such as business competition and market shifts, considering internal processes can create a balanced business strategy.
“Our goals are balanced to make sure we’re holistically managing the business from a financial performance, quality assurance, innovation, and human talent perspective,” says Tom Polen, CEO and president of Becton Dickinson, in Strategy Execution.
According to Strategy Execution, internal business operations are broken down into the following processes:
Operations management
Customer management
Innovation
Regulatory
Social
While improvements to internal processes aren’t driven by economic value, these types of goals can still yield a positive return on investment.
“We end up spending much more time on internal business process goals versus financial goals,” says Polen. “Because if we take care of them, the financial goals will follow at the end of the day.”
4. Learning and Growth Opportunities
Another consideration when setting business goals and objectives is learning and growth opportunities for your team. These are designed to increase employee satisfaction and productivity.
According to Strategy Execution, learning and growth opportunities touch on three types of capital:
Human: Your employees and the skills and knowledge required for them to meet your company’s goals
Information: The databases, networks, and IT systems needed to support long-term growth
Organization: Ensuring your company’s leadership and culture provide people with purpose and clear objectives
Employee development is a common focus for learning and growth goals. Your team will build valuable business skills through professional development opportunitiesand feel empowered to take more risks and innovate.
To create a culture of innovation, it’s important to ensure there’s a safe space for your team to make mistakes—and even fail.
“We ask that people learn from their mistakes,” says Rodríguez in Strategy Execution. “It’s really important to us that people feel it’s safe to try new things. And all we ask is people extract their learnings and apply it to the next situation.”
Achieve Your Business Goals
Business goals aren’t just about your organization’s potential successes. It’s also about your potential failures.
“When we set goals, we like to imagine a bright future with our business succeeding,” says Simons in Strategy Execution. “But to identify your critical performance variables, you need to engage in an uncomfortable exercise and consider what can cause your strategy to fail.”
Anticipating potential failures isn’t easy. Enrolling in an online course—like HBS Online’s Strategy Execution—can immerse you in real-world case studies of past strategy successes and failures to help you better understand where these companies went wrong and how to avoid it in your business.
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