An organization must have an objective to guide its destiny. Although the objective in itself cannot guarantee the success of a business, its presence will certainly mean more efficient and financially less wasteful management of operations. Objectives form a specific expression of purpose, thus helping to remove any uncertainty about the company’s policy or about the intended purpose of any effort. To be effective, objectives must present startling challenges to managers, jolting them away from traditional in-a-rut thinking. If properly designed, objectives permit the measurement of progress. Without some form of progress measurement, it may not be possible to know whether adequate resources are being applied or whether these resources are being managed effectively. Finally, objectives facilitate relationships between units, especially in a diversified corporation, where the separate goals of different units may not be consistent with some higher corporate purpose. Despite its overriding importance, defining objectives is far from easy: there is no mechanical or expert instant-answer method. Rather, defining goals as the future becomes the present is a long, time-consuming, and continuous process.

In practice, many businesses run either without any commonly accepted objectives and goals or with conflicting objectives and goals. In some cases, objectives may be understood in different ways by different executives. At times, objectives may be defined in such general terms that their significance for the job is not understood. For example, a product manager of a large company once observed that “our objective is to satisfy the customer and increase sales.” After crosschecking with the vice president of sales, however, she found that the company’s goal was making a minimum 10 percent after-tax profit even when it meant losing market share. “Our objective, or whatever you choose to call it, is to grow,” the vice president of finance of another company said. “This is a profit-oriented company, and thus we must earn a minimum profit of 15 percent on everything we do. You may call this our objective.” Different companies define their objectives differently. It is the task of the CEO to set the company’s objectives and goals and to obtain for them the support of his or her senior colleagues, thus paving the way for other parts of the organization to do the same. The purpose of this article is to provide a framework for goal setting in a large, complex organization. A first step in planning is usually to state objectives so that, knowing where you are trying to go, you can figure out how to get there. However, objectives cannot be stated in isolation; that is, objectives cannot be formed without the perspectives of the company’s current business, its past performance, resources, and environment. Thus, the subject matter discussed in previous articles becomes the background material for defining objectives and goals.

FRAMEWORK FOR DEFINING OBJECTIVES This article deals with defining objectives and goals at the SBU level. Because SBU objectives should bear a close relationship to corporate strategic direction, this article will start with a discussion of corporate direction and will then examine SBU objectives and goals. Product/market objectives will also be discussed, as they are usually defined at the SBU level and derived from SBU objectives. The framework discussed here assumes the perspectives of a large corporation. In a small company that manufactures a limited line of related products, corporate and SBU objectives may be identical. Likewise, in a company with a few unrelated products, an SBU’s objectives may be no different from those of the product/market. It is desirable to define a few terms one often confronts in the context of objective setting: mission, policy, objective, goal, and strategic direction. A mission (also referred to as corporate concept, vision, or aim) is the CEO’s conception of the organization’s raison d’être, or what it should work toward, in the light of long-range opportunity. A policy is a written definition of general intent or company position designed to guide and regulate certain actions and decisions, especially those of major significance or of a recurring nature. An objective is a long-range purpose that is not quantified or limited to a time period (e.g., increasing the return on stockholders’ equity). A goal is a measurable objective of the business, judged by management to be attainable at some specific future date through planned actions. An example of a goal is to achieve 10 percent growth in sales within the next two years. Strategic direction is an all-inclusive term that refers to the network of mission, objectives, and goals. Although we recognize the distinction between an objective and a goal, we will consider these terms simultaneously in order to give the discussion more depth. The following are frequently cited types of frustrations, disappointments, or troubling uncertainties that should be avoided when dealing with objectives:

    1.  Lack of credibility, motivation, or practicality.
    2.  Poor information inputs.
    3.  Defining objectives without considering different options.
    4.  Lack of consensus regarding corporate values.
    5.  Disappointing committee effort to define objectives.
    6.  Sterility (lack of uniqueness and competitive advantage).

Briefly, if objectives and goals are to serve their purpose well, they should represent a careful weighing of the balance between the performance desired and the probability of its being realized: Strategic objectives which are too ambitious result in the dissipation of assets and the destruction of morale, and create the risk of losing past gains as well as future opportunities. Strategic objectives which are not ambitious enough represent lost opportunity and open the door to complacency.

CORPORATE STRATEGIC DIRECTION Corporate strategic direction is defined in different ways. In some corporations, it takes the form of a corporate creed, or code of conduct, that defines perspectives from the viewpoint of different stakeholders. At other corporations, policy statements provide guidelines for implementing strategy. In still others, corporate direction is outlined in terms of objective statements. However expressed, corporate direction consists of broad statements that represent a company’s position on various matters and serve as an input in defining objectives and in formulating strategy at lower echelons in the organization. A company can reasonably expect to achieve a leadership position or superior financial results only when it has purposefully laid out its strategic direction. Every outstanding corporate success is based on a direction that differentiates the firm’s approach from that of others. Specifically, strategic direction helps in

1. Identifying what “fits” and what needs the company is well suited to meet.

2 Analyzing potential synergies.

3. Undertaking risks that simply cannot be justified on a project basis (e.g., willingness to pay for what might appear, on a purely financial basis, to be a premium for acquisition).

4. Providing the ability to act fast (presence of strategic direction not only helps in adequately and quickly scanning opportunities in the environment but capitalizing on them without waiting).

5. Focusing the search for opportunities and options more clearly.

Corporate Strategic Direction: An Example To illustrate the point, consider the corporate direction of Dow Chemical Company, which has persisted for more than 60 years. Herbert Dow founded and built Dow Chemical on one fundamental and energizing idea: start with a cheap and basic raw material; then develop the soundest, lowest-cost process possible. This idea, or direction, defined certain imperatives Dow has pursued consistently over time:

1. First, don’t copy or license anyone else’s process. In other words, as Dow himself put it, “Don’t make a product unless you can find a better way to do it.”

2. Second, build large, vertically integrated complexes to achieve maximum economies of scale; that is, maintain cost leadership by building the most technologically advanced facilities in the industry.

3. Third, locate near and tie up abundant sources of cheap raw materials.

4. Fourth, build in bad times as well as good. In other words, become the largevolume supplier for the long pull and preempt competitors from coming in. Be there, in place, when the demand develops.

5. Fifth, maintain a strong cash flow so that the corporation can pursue its vision.

Over the years, Dow has consistently acted in concert with this direction, or vision. It has built enormous, vertically integrated complexes at Midland, Michigan; Freeport, Texas; Rotterdam, Holland; and the Louisiana Gulf Coast. And it has pursued with almost fanatical consistency the obtaining of secure, lowcost sources of raw materials.

Strategic Direction and Organizational Perspectives. Pursuing this direction has, in turn, mandated certain human and organizational characteristics of the company and its leadership. For example, Dow has been characterized as a company whose management shows “exceptional willingness to take sweeping but carefully thought out gambles.”3 The company has had to make leaps of faith about the pace and direction of future market and technological developments. Sometimes, as in the case of shale oil, these have taken a very long time to materialize. Other times, these leaps of faith have resulted in failure. But as Ben Branch, a top Dow executive for many years, was fond of saying, “Dow encourages well-intentioned failure.” To balance this willingness to take large risks, the company has had to maintain an extraordinary degree of organizational flexibility to give it the ability to respond quickly to unexpected changes. For example, “Dow places little emphasis on, and does not publish, organization charts, preferring to define areas of broad responsibility without rigid compartments. Its informal style has given the company the flexibility to react quickly to change.”4

Changing the Strategic Direction. Over the years, Dow’s direction has had to expand to accommodate a changing world, its own growth, and expanding horizons of opportunity. The expansion of its direction, or vision, has included, for example:

1. Recognition of the opportunities and the need to diversify downstream into higher-value-added, technologically more sophisticated intermediate and end-use products, with the concomitant requirement for greater technical selling capability after World War II.

2. The opportunity and the imperative to expand abroad. In fact, Herbert Dow’s core vision may have initially been retarded expansion abroad, since raw material availability was not as good in Europe or in Japan as it was in the United States and since it was harder to achieve comparable economies of scale.

3. The need to reorganize and decentralize foreign operations, setting them up on a semiautonomous basis to give them room for growth and flexibility. But throughout its history, Dow’s leadership has consistently held to a guiding concept that perhaps has been best articulated as this: “In this business, it’s who’s there with the vision, the money, and the guts to seize an opportunity.”5

In the 1980s, Xerox Corporation faced the task of redefining its strategic direction in response to a new technological era. There were three different schools of thought within the company. One school believed it should stick to its core competency copying and that paper would be there for a long time. Another view, held by a smaller group, felt Xerox ought to quickly transform itself into a systems company. Based on its leading-edge technology at Palo Alto Research Center, this view suggested getting out of the paper world as quickly as possible. A third school of thought said that the company should finesse the differences and focus on being “the” office company. After all, it was reasoned, the company had a worldwide direct sales force that reached into almost every office around the world; it could sell anything through that direct sales force. Looking carefully at the future, the company concluded that paper would not go away, but that its use would change. The creation, storage, and communication of documents will increasingly be in electronic form; however, for many years, people will prefer the paper document display to the electronic document display. They will print out their electronic documents closer to their end use and then throw them away, thereby making paper a transient display medium. Xerox chose to bridge the gap between the paper and electronic world. The strategic direction was defined to not remain the copier company, but to become the document company.