If you are going to get somewhere specific, you have to plan. To start planning, you need objectives; a high level definition of where you are trying to get to. I am not sure how many organizations really think of any objectives beyond total sales and maybe EBIDA.
Before any organization starts planning, ideally there will be some combination of vision, mission statement and a solid business model. That sets the tone and general direction of a company but setting tangible objectives are the first step to turning a vision into reality.
A common method for setting objectives is called S.M.A.R.T.:
- Specific – Articulate what you are going to do as clearly as possible
- Measurable – A numeric yardstick
- Achievable - Is this even Possible?
- Realistic – Given the available resources
- Time – A specific time to achieve and possibly milestones
While this framework is a good starting point, we need to drill down a level to define how an objective is structured. Imagine an annual kick-off and you have fifty of your top managers in a room and you say that we are going achieve EBIDA of $XXm in the next financial year. Odds are it would be like catching a whole herd of deer in the headlights. In their minds they are thinking “so what does that mean to me and my department?
Objectives are not specific plans but there has to be enough substance to be credible. If the management does not have credible objectives, how can the management be credible with its employees? So let’s take a realistic look at writing an objective:
In 2010, ABC Enterprises will achieve a EBIDA of $X by:
- Increasing sales by 3% through additional investment in marketing programs, and by increasing the direct sales force by 5 people.
- Improve the Gross Margin by 2% through closer management of sales discounts and negotiating better discounts with suppliers.
- Placing a freeze in hiring except the previously mentioned sales positions.
- Increasing the direct marketing spend by 10%
- Reducing general and administrative expenses by 3%.
This is not a plan, but it sure let’s every manager know, in broad terms, the kind of results that will be expected by him or her. Sales can have more people, but need to deliver increased sales. Marketing has more money, but they need to drive the demand for Sales. The rest of the organization knows that they will need to get into a heavy cost management frame of mind.
When compare it to the SMART criteria, it meets the requirements (well hopefully it is realistic). What is different to what I have seen in the marketplace is that the five bullet points are often not conveyed to the managers and the result is they are unsure of their role in achieving the high level objective. Sure, they will eventually figure it out, but being specific and getting mid-level managers planning their contribution early is important if not essential. It may be the difference between success and failure.
Often we think of objectives as strictly financial. The reality is that to make a company run effectively, there are other objectives that are necessary. Sometimes people have trouble quantifying objectives. Here is where we distinguish between activity and results. For example, Microsoft could have set an objective of releasing Windows 7 by October 31st, 2009. Well, the accomplished that; but just releasing it is not enough. Certainly Microsoft has defined the number of upgrades they expect within a defined time frame as well as a lift in new system sales as a result of the launch with a total contribution to profitability.
Activity in itself is not enough. In this case the Development organization cannot throw the product over the fence to Sales and say they met their objective. If the product is not of sufficient quality or does not have sufficient compelling features for Sales to be successful, then the Development organization failed. In fact, hitting a sales target is not an adequate objective; just an activity on the way to profitability. Activity alone is like a journey without a destination.
As I write this I wonder how all those worthy programs that HR or Professional Development sponsor fit in. Really it is quite simple. It either has to improve performance of the participants, which may be hard to measure, or it has to reduce costs. So if we are absolutely brutal about this, many internal training activities are investments in people best measured achieving our objectives with fewer employees or by reducing employee turnover and therefore costs. Six Sigma also comes to mind. How do you justify training all those black belts? Again, stop thinking about how many black belts you are training and think about the tangible business improvement in results you are expecting within a given time frame.
How many objectives can a business have? I like three to five but the real answer is in how many you can execute. Best to have one or two objectives that are exceeded rather than five of six you realistically can’t achieve. If people see objectives as achievable, they are more likely to buy-in to them.
It is the responsibility of every manager to put every activity under a microscope to understand how it contributes to the company’s objectives. Of course, the management of the company has a greater responsibility to provide clear, complete and measurable objectives. You can arrive at a destination by travelling without an ultimate objective. The only question is if it is where you wanted to go?
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