After reading this article you will learn about:- 1. Corporate Strategy 2. The Planning Process 3. Nature of Organisational Goals 4. Managing Multiple Goals.
Corporate Strategy:
Organisations Round the world have been experimenting with different ways to organise the way they do business. These organisations are some of the most influential and publicised in the world, and their actions will surely influence other organisations to attempt similar innovations. – J. H. Donnelly, Jr.
Establishing long term objectives and strategy is the first step in any planning programme. Corporate strategy is a complex business concept. It consists of “a set of management guidelines which specify the firm’s product-market”, In the words of H.l. Ansoff- “Position, the directions in which the firm seeks to grow and change, the competitive tools it will employ, the means by which it will enter new markets, the manner in which it will configure its resources, the strengths it will seek to exploit and conversely the weaknesses it will seek to avoid. Strategy is a concept of the firm’s business which provides a unifying theme for all of its activities.”
Strategies can be offensive or defensive. Offensively they can be directed, as John Colley argues, at opening new markets or expanding existing ones. Alternatively, they may be directed to protect the existing situations, defending against competition.
Strategy should recognise outside influence, including those brought on by the overall economic situation on the company and its industry. Strategies should also recognise an organisation’s internal strengths and weaknesses. Finally, strategies should reflect the personal interests and desires of the company’s owners and management.
John Colley has also pointed out that ‘a company’s strategic objectives are usually expressed in general terms. Before an operational plan can be developed it is necessary to refine these strategic objectives in to planning goals. Table 4.1 illustrates how the process of converting strategic objectives into planning goals is carried out.
The Planning Process:
Perhaps the best way to properly understand the importance of organisational goals is to approach them from the standpoint of the planning process. The planning framework in Fig.4.1 may be used in our discussion of goals and their role in planning.
This framework, developed by Griffin and Arthur Thompson, begins with five basic processes: purpose, mission, environment, values and experience. While an organisation’s purpose is the reason for its existence, its mission is the way it tries to fulfill that purpose.
The organisation’s environment influences its operation and management. There are various elements of an organisation’s general environment (economic, technology, socio-cultural, political-legal and international). Its task environment has also several components such as competitors, customers, suppliers, regulators, labour unions and associates.
Any of these elements can come into play as soon as the planning process is executed. Management values and ethics play a role in determining how much resource a manager is willing to denote to social responsibility, how a manager responds when a competitor is particularly vulnerable, and the like.
A related point may also be noted in this context. Experience gained from previous planning cycles influences how subsequent planning activities are carried out.
As Griffin has commented:
“An organisation that has made substantial inroads in a new market may choose to increase its efforts in the future. On the other hand, if an attempt to enter a new market has failed the organisation may decide to pull out — and also to investigate how the original plan to enter that market was developed”.
These premises are used by managers as a foundation in setting organisational goals.
As Fig. 4.1 shows there are variations in these goals in terms of the following:
(i) The level of abstraction
(ii) Focus on subject matter
(iii) Degree of openness
(iv) Organisational level and
(v) Time frame.
After determining the goals of the organisation, managers develop strategic plans to attain the goals. Since the development of strategies and strategic plans is very important to the organisation, it is usually carried out by top level managers. Strategies are developed at three levels — corporate, business and functional.
Strategic planning is the first necessary step of the planning function. It leads to the formulation and implementation of action plans. Whereas, strategies are typically broad and long-term action plans (such as tactical planning, single-use plans, and standing plans) tend to be more narrow and short-term. The latter help managers carry out the former in a step-by-step fashion.
Finally, Fig. 4.1 suggests the various phases of the planning process affect the earlier phases as the process is repeated in the future.
As Griffin has rightly commented:
“As a result of carrying out an action plan and reviewing the results, it may become necessary to modify one or more goals, such as growth rate or market share. At the most general level, goals, strategic plans and action plans all affect future planning premises. The experience they provide can affect the purpose, mission and environment of an organisation. More narrowly, action plans may affect strategic plans, and both action and strategic plans can affect organisational goals”.
Numerous American companies follow this basic planning framework. For example, Texas Instruments (TI), one of the pioneers in electronic goods, uses a system called OST (Objectives, Strategies, Tactics). After establishing a series of broad, general business objectives, top managers at TI — in collaboration with engineers—develop strategies to achieve those objectives. And, middle and first-line managers are assigned the task of carrying out a variety of tactical plans derived from these strategies.
Fig. 4.1 is not a rigid construct showing how the planning process should be carried out. Rather, it presents a general framework illustrating how the components of the process are logically related to one another.
After briefly reviewing actual planning process, we may examine how organisational goals are developed.
Nature of Organisational Goals:
Since most organisations have multiple goals (or goals of different kinds) rather than a single one, it is of considerable importance to coordinate them and to ensure that they all move the organisation in the same direction.
In this context, we have to first analyse five major characteristics in which individual goals can differ. After this, we will consider a matrix approach for conceptualising the entire set of goals of an organisation to ensure proper goal achievement throughout the organisation.
Modern writers on management have found it useful to differentiate individual goals in terms of five variables which are briefly reviewed below:
(i) Level of Abstraction:
Since the goals vary in specificity, time frame and so on they exhibit different levels of abstraction. The highest level of abstraction express the overall purpose of the organisation, whereas organisational objectives of the lowest level of abstraction are relatively specific and concrete.
At the intermediate level of abstraction is the organisation’s mission, the goal that best sets the organisation apart from similar organisations.
The Organisation’s Purpose:
The purpose of an organisation can be viewed as its basic goals, defined by the societal context in which it operates. The purpose of most business firms is to earn profits for their owners. The purpose of most universities is to discover and transmit knowledge. The purpose of the government is to provide its citizens with social services and protection. The basic purpose of a hospital is to supply health care.
The common basic goal of all organisations—business, governmental units, or non-profit seeking private firms — to carry out its avowed purpose, a firm must survive long enough to do so. The ultimate concern of any firm is ensuring its own survival.
Of course, there are exceptions to this general rule. Long-term survival may not be the most appropriate goal for all situations. A group of benevolent persons may form a committee which may work for a year or so for setting up a school in a village. Once the school is completed and starts functioning the committee dissolves. Such a task force like a committee has a limited mission.
What actually determines the general purpose of an organisation? Certainly, the aims of its founders and managers have much to do with the basic purpose of an organisation. But this purpose must also be deemed appropriate by society at large.
The Organisation’s Mission:
No doubt, society frames an organisation’s general purpose. But managers choose which path to take to best achieve that purpose. Their choice constitutes the organisation’s mission. It may be noted that within the same industry different firms may adopt variations of the same mission.
The Organisation’s Objectives:
At the lowest level of abstraction lie the objectives of an organisation. Objectives are statements of how an organisation intends to fulfill its mission.
As Harold Koontz has pointed out:
“They are generally expressed in more specific terms and include a more definite time frame than the organisation’s mission”.
Thus, a business firm plans to fulfill its purpose (earning sufficient profit) for its owners by adopting a mission (competing in a certain industry). It is quite likely that the firm will also develop specific goals for the level of sales it wants to achieve, the growth rate it hopes to maintain and the image it wishes to cultivate.
Each of these specific goals is an objective the firm expects to accomplish. Organisations usually have a fairly large number of objectives.
Table 4.2 gives a few examples of the purpose, mission, and objectives of two business firms, a university and a hospital.
We find diversity among the different kinds of organisations. It may also be noted that although Indian Airlines and Hindustan Motors have the same purpose, their missions and objectives are quite different.
(ii) Focus on Subject Matter:
Some goals are financial, others are socio-political, or even environmental. Whatever the content of the goal, we call it the goal’s focus. There are several ways of classifying the areas that organisations focus on.
Peter Drucker observes that well-managed businesses have goals in the areas of market standing, innovation, productivity, physical and financial resources, profitability, manager performance and development, worker performance and attitude, and public responsibility. Table 4.3 gives a broad list of such goals in each of these areas.
As a general rule, organisational goals focus on four major areas:
(i) Financial and other monetary measures,
(ii) Environmental relationships,
(iii) Participants in the organisation, and
(iv) Survival.
Financial goals:
Such goals involve costs and other monetary measures. For a business like the Tata Chemicals, financial goals may include target levels of profit, a minimum return on new capital employed, productivity levels, sales and so on. For non-profit seeking organisations like hospitals, such goals may relate more to cost control and effective use of space.
Environmental goals:
These goals describe how the organisation wants to relate to its external environments. Examples include adaptability, growth, social responsibility, market share, and so on. Such goals are usually stated less clearly than financial goals which are measurable.
Participant goals:
Such goals involve the people in the organisation. They include objective variables such as turnover and absenteeism and such non-measurable factors as job satisfaction, personal development and quality of life at the work place.
(iii) Degree of Openness:
In this context, we may draw a distinction between official goals and operative goals. The former are derived from the purpose and mission of the organisation and are incorporated in annual reports and are made publicly known. These goals include such broad considerations as earning a reasonable profit for the others and making a positive contribution to society at large.
Such goals are those which the society wants the organisation to seek. By contrast, operative goals represent the un-publicised private goals of an organisation such as delaying the purchase of anti-pollution equipment as long as possible, to force a competitor out of the market, or to increase the profit margin by 5%.
(iv) Organisation Level:
It also possible to differentiate goals by their level in the organisation. Goals are normally defined from the general organisational level — the goals that the overall organisation hopes to achieve. At least four other organisational levels, however, have their own sets of goals.
Firstly, the various departments, division and other primary sub-units have goals associated with the functions of those sub-units. Secondly, work groups within departments have goals. Thirdly, individuals typically set goals for themselves such as career improvement (beyond work-related goals such as increasing sales turnover).
(v) Time-Frame for Goals:
Organisations normally draw distinction among three time-frames for goals: short run, intermediate, and long-run. Examples of short-term goals are employee turnover and various production costs, also sales per year and annual return on investment.
The time-frame also implies a degree of specificity within the goals. Short-run goals tend to be quite specific (such as achieving an annual sales volume of Rs 1,000,000 next year).
As a general rule, the lower the organisational level, the more specific and short-run are the goals. Intermediate goals are slightly less specific. Such goals are sought to be achieved within one to five years. Finally, long-term goals are those which will be attained within five to ten years. However, it should not be missed that organisations vary what they regard as short-run and long-run goals.
Managing Multiple Goals:
The Goal Framework:
Managers have to face a complex set of goals. It is absolutely essential to make sense of them and to reconcile and manage them. The best way to identify and reconcile various discrepancies that may exist in an organisation’s goal set is to establish a goal framework. Such discrepancies may arise between goals and also across time.
Goal Optimization:
On rare occasions do managers maximise, or completely achieve, any goal or set of goals. Rather, they must optimise their relevant goal set if they are to be successful. The process of balancing goals is optimisation, an important part of the planning process in organisations.
Establishing Goals:
Since the goals a business can establish are diverse the process of goal development is usually very complex.
To ensure integration of organisational goals with the strategic planning process, it is essential for goals to address five primary policy issues:
(i) Business Posture:
The business posture of a firm is the stance it adopts in its primary business and operations. This normally include three things, viz., growth, stability and survival. While growth postures suggest aggressive actions and the development of momentum, a posture of stability is often appropriate when sales on profits are no longer increasing or when the organisation is contemplating changes in mission or strategy.
Survival assumes significance when the industry (to which the firm belongs) is declining or when the organisation has committed errors in the past.
(ii) Business Mix:
It refers to the combination of products and services an organisation intends to market. Most modern firms are diversified companies offering a variety of products and services within a single organisational framework.
(iii) Market Share and Growth Rate:
Most company goals relate market share and growth rate. Market share is expressed as the percentage of the total market for a particular good or service that is under the control of the organisation. Growth is another organisational goal. As a general rule, the larger an organisation the more difficult is further growth.
(iv) Resource Allocation and Risk Analysis:
As an organisation develops it becomes necessary for it to consider resource allocation and risk analysis. The term ‘resource allocation’ refers to the extent to which the organisation intends to allocate its resources across possible demands for those resources. For example, a goal of rapid growth entails ploughing back fits into the business and merely paying a minimum dividend (or maintaining the existing dividend rate).
By contrast, a goal of high returns to investors, however, dictates high dividends and (usually) a slower growth rate.
Risk analysis is a technique of financial management and capital budgeting. It enables a firm or its management to have a clear understanding of the risks associated with various courses of action.
It is anybody’s guess that, as a general rule, entering new markets rapidly or borrowing heavily is more risky than expanding slowly and not borrowing at all. However, more return is associated with more risk, i.e., a riskier course of action may also have a higher potential payoff.
(v) Social issues:
Finally, organisational goals must also encompass various social issues. A firm’s goal development programme must take into consideration social responsibility of business, which may relate to particular environmental, consumer, or human issues.
An Illustration:
A real-life example will throw additional light on business goals. Table 4.4 summarises the major goals of Hewlett-Packard company, a reputed electronics firm of the U.S.A. Goal 1 (profit) relates to business posture, growth and risk- taking. Goal 2 (customers) has implications for business posture and resource allocation.
Goal 3 (field of interest) reflects considerations of posture, business mix, market share and resource allocations. Goal 4 (growth) is also related to mix, growth and risk analysis. The remaining goals (5 to 7, i.e., people management and citizenship) are also related to social issues and Goal 6 is additionally related to risk analysis.
Barriers to Effective Goal Setting:
Various factors create barriers to effective goal setting. Some such factors are associated with the goals themselves and others with the process of goal setting.
Inappropriate Goals:
There are various forms of inappropriate goals; for example, paying a large dividend at the cost of necessary research and development expenditure. Other examples are: driving a competitor out of business by adopting unethical practices, bribing government officials to obtain a favour such as a trade or import licence and violating anti-pollution regulations.
Inappropriate goals may arise from the reversal of a cause-and-effect relationship or what may be called a means-end inversion. In this situation, the means added to obtain an end (or goal) become the end itself. Other inappropriate goals are those that are inconsistent without organisations purpose or mission, or both.
Unattainable Goals:
The second major obstacle to the goal-setting process is attainable goals — goals which cannot be accomplished under the existing circumstances. Goals may be challenging in nature but within the reach of the organisation. It is important to note that most business successes are the result of a long-term steady application of the organisations resources, via good strategic and action planning, to attainable goals.
Over-emphasis on Quantitative or Qualitative Goals:
Another barrier to goal setting is placing too much emphasis on either quantitative or qualitative goals. Some goals, especially those relating to financial considerations, are by nature quantifiable, objective and verifiable. Others such as employee satisfaction are difficult to quantify.
So, proper balance has to be maintained between these two types of goals. In other words, both kind of goals should be taken into consideration while developing goals and in evaluating the results.
Improper Reward Systems:
At times, an improper reward system acts as a barrier to the goal-setting process. For various reasons people may be rewarded for poor goal setting and they may go unrewarded or even be punished for proper goal setting. Furthermore, in some settings, people may be rewarded for achieving goals that counterproductive to the organisation’s intent.