Setting goals is the second most crucial step in strategic management, right after defining the business mission. A goal essentially turns a company’s mission into a tangible result to be achieved within a specific timeframe. It represents the management’s commitment and keeps the company focused on what needs to be done and when.
In this context, the terms “goal” and “objective” are used interchangeably. Generally, goals refer to broader and longer-term aspirations, while objectives are narrower and more immediate steps towards those grander ambitions. Here, we use “goal” to encapsulate both.
Goals are vital for businesses. When a mission doesn’t translate into measurable results, and managers fail to show progress within a reasonable time, it’s as if the mission doesn’t truly exist. Outlining these outcomes is a key element of strategic management. Goals typically include specific targets and deadlines. Vague wishes like wanting to increase sales or cut costs don’t cut it. Companies that set precise goals and pursue them diligently often outperform those that rely on improvisation and wishful thinking.
For any activity considered important to business, goals are necessary. Generally, goals can be classified into strategic and financial categories. Strategic goals help improve the company’s competitive stance in the market over the long haul. Examples include gaining market share, reducing costs compared to competitors, expanding product ranges, and enhancing product quality. For instance, Apple aimed to capture 1% of the global market by the end of 2008 after launching a new iPhone in 2007.
Financial goals are crucial because without solid financial performance, a business cannot survive. These goals might include profit margins, revenue growth, or return on investment. For example, Procter & Gamble aims to achieve an operating profit margin of at least 24% by 2025.
Both strategic and financial goals are critical in strategic management. Focusing only on short-term financial results can sometimes be necessary, particularly if a company is struggling financially. However, prioritizing short-term gains while ignoring the long-term outlook can backfire, especially in industries where competitors are willing to make financial sacrifices in pursuit of long-term leadership. For example, many Japanese companies have entered international markets by offering high-quality products at low prices, aiming ultimately for market supremacy.
Goals can be either long-term or short-term. Long-term goals prepare the business for the future, encouraging managers to think beyond immediate gains. Short-term goals focus on immediate results, providing a sense of urgency and direction. While long-term and short-term goals can sometimes overlap, managers usually achieve long-term goals through a series of specific short-term actions.
For goals to be effective, they need to be engaging and challenging, pushing the company’s workforce to excel beyond usual performance levels while also being realistic. Managers must evaluate feasible targets based on both internal capabilities and external conditions. Strategic and financial goals are interrelated since strategic goals typically require financial resources.
Goals must be established not only at the company-wide level but also across all departments and functions. This ensures that everyone, from the CEO to the entry-level employee, operates with a strategic mindset and accountability.
Typically, goals are set at the top and trickle down through the organization. For example, if a company targets a profit of 10 million euros by selling 500,000 products at 100 euros each with a profit margin of 20 euros per product, the production and marketing departments will tailor their own targets accordingly to support this overarching goal.
