How To Set Objectives in Business

Setting Objectives in Business – The Importance


a) To provide greater direction: Everyone needs some sense of purpose or direction and time spent on questioning aims and purpose, on studying future patterns, on detailed planning and control, can prove to be most beneficial. Closely related to the idea of better planning is the acceptance that objectives allow a more objective and thorough analysis of the alternative opens to the organisation before action is taken.

b) To provide Unity : If objectives are clearly set and understood at al levels and everyone is aware of the part he has to play in reaching these objectives, then there is a common unifying force.

c) To provide a motivated force: Today motivation must be broad and related to status, create satisfaction in performance when working together in groups and so on there must be positive development, an opportunity to grow, to search for new opportunities. Imaginative objectives (for individual, organisation and nation) go a long way to providing the right motivational force.

d) To aid control and future action. Once an objective has been set, a course pursued and the goal reached, it is possible to review the decisions, examine the strengths and weakness involved and, in the light of this knowledge, improve on future objectives and course of action. In this way, objectives enable better control over existing operation and a sounder base for future operation

On these points then (direction unity, motivation, control) the setting of objectives can be justified.


The objective of an organisation is often formally stated. The objective clause of the memorandum of association states the purposes for which an organisation is formed. The memorandum usually provides a long list of activities. Usually, the company only undertakes one or two of these. Anything the company does the outside the objective clause is ultra virus.


Objectives are statements of what top management of the organisation want to achieve; policies are statement of how objectives are to be achieve. The more concrete the specification of objective, the more self evident is the choice of policies needed to pursue them.

Brech refers to the overall objective of the firm as profitability, growth and the continued life of the business (survival).

Francis in an empirical research on “Company objectives, managerial motivations and the behavior of large firms” listed the objectives being pursued by the firm as

1) Maximizing the level of rewards and benefits for employees,

2) Maximizing growth in total profits

3) Return on capital employed,

4) Maximizing growth in sales in volume terems

5) Maximizing growth of the firm (in terms of net assets)

6) Maximizing growth in dividends paid to share holders

7) Maximizing price of company shares

8) Maximizing company’s prestige

9) Maximising the risk of being take over, sold off or survival (listed in order of importance)

Whatever may be the objective being pursed by the firm, the management is judged by the shareholders creditors and other interested parties by the amount of profits generated out of assets entrusted by the amount of profits generated out of assets entrusted to them. The list of objectives portrays that profit as an objective or as motive is becoming increasingly qualified by questions of public importance-social responsibility.

O.E Williamson postulates that management is interested in pursuing the following:

1. Salary

2. Security

3. Status

4. Power

5. Prestige

6. Professional Excellence

The concept of expense preference is used to describe the process whereby the non-pecuniary goals are achieved. Hence, the classical economist’s assumption of cost minimization is abandoned.

Galbraith (1967) suggested that whereas the expansion of industry in the eighteenth and nineteenth centuries resulted in power shift from land owners to capitalists, the increasing rates of development in ‘technology’ broadly defined) in the letter half of this century has resulted in a shift of power from owners of capital to the technostructure, (the management elite). Capital is no longer in scare supply for the well run large organizations.

The techno-structure has three objectives:

i) To make sufficient profit to secure the independent life of the organizations

ii) To achieve maximum rate of growth

iii) To produce things which are challenging-technological ingenuity.

The techno-structure designs new products, establishes levels of production and their influences the consumers to buy the products. It may also have scant regard for the wider interests of society with regard to pollution, congestions etc.

Berle and Means’ empirical investigation into the ownership and control of U.S business resulted in a need to reconsider the entrepreneur view of firm. They discovered that for many corporation in the U.S. the people who managed it (the share often being dispersed among a large number of passive stockholders whilst the day to day decisions about the firm were being made by hired managers, usually non-stockholding.


An organization is a cluster of groups bounded together so that each group can achieve some of its objectives by belonging to it. These groups are in turn clusters of individual objectives. Groups can be formal or informal.

The organization comes in contact with others called stakeholders who have some interest or stake in the organizations operation (such as customers, suppliers, creditors, clients, competitors, governments and local residents). These stakeholders in turn exert pressure or forces on the organizations in an effort to meet their own needs. At the same time groups within the organization exert pressure on the organisation internally.

The stakeholders forces are normally direct and fairly obvious. However, there are forces that are less direct which affect the organizations and most of all of the stakeholders at the same time. These forces can be of an economic, technological, political, sociological or physical nature. They are forces over which the organization has almost no control. They create many opportunities and limitations for the organization.

For example, in periods of inflation, there are strong internal forces from workers for wages increases and strong external forces from government to hold prices or costs down.


Group Forces

External Customers Improved services

Also See:  New Product Development & Product Life Cycle

Lower prices

Public Reduce noise level pollution etc.

Suppliers Larger orders, faster payments

Government Employment of minorities tax

Internal Unions

Minorities Bigger pay, pensions more management positions

Finance dept.

Sales dept. Reduce inventories

Increase inventories


Approaches to Objective Setting

There are three major approaches to objective setting shareholders (Dominant coalition) stakeholders and Cyert and March approach.


This method recognize that there are people who have power to decide the firms objectives e.g. Directors. These statements usually come from the managers, values, long term aspirations and from their experience on what are reasonable objectives taking into consideration on what are reasonable objectives taking into consideration the interest groups and the macro forces; but the dominant function here is the maximization of shareholders capital.

Secondly, companies are formed for the sole purpose of making a return on the shareholders capital profit. Hence, this will always remain the objective of companies at least due to nature of the relationship between directors and shareholders (the shareholders have the power to appoint and disqualify a director that is not performing to expectation).

However, if the power of shareholder declines for any reason, or if the power of another group grows, then the company may well become multipurpose.

Stakeholders Approach

This is a new approach to the consideration of objective setting. The stakeholders theory suggests that a firm has responsibility to maintain and equitable ad working balance among the claims of the interest groups i.e. shareholders employees, customers, suppliers, vendors and the public.

The theory maintains that the objective of the firm should be derived by balancing the conflicting claims of the various “stakeholders”. The firm has a responsibility of all these and must structure its objectives to give each a measure of satisfaction. In this context, the ideas of Maslow seem relevant. That is managers have a hierarchy of goals or motives and once managers have achieved one goal e.g. X percent profits, then they will turn to satisfy other goals e.g. improved working conditions for employees.

The stakeholders consideration can be made possible either by the will of the people who benefit it was called into existences e.g. shareholders or as a result of the exercise of power by some other groups e.g. Trade union, Government etc. “Thus, the stakeholders theory suggests that a country is now really a social institution run for the benefits of all.”

For this approach to hold a company will require all the complex representational apparatus of a constitutional democracy. It makes it imperatives for senior managers to allocate benefits and to approve and refuse demands made to a company; which imply the need to be trained to make socio-political decisions rather than business decisions.

Cyert and March Approach

This is another related approach to the stakeholders theory.

Cyert and March states that “organisations do not have objections, only people have objectives.” They suggest that firm objectives are in reality a consensus of objectives of the participants which have been negotiated.

They suggest that in large firms, the task of decision making is distributed throughout the firm, and that companies have five main goals; sales, production, inventory, market share and profit. These are target areas for managers who are aiming to achieve their particular goal. Managers therefore bargain among themselves and eventually this “conflict” will be resolved by compromise and the goals achieved by the organization may then be satisfactory.

Cyert and March’s behavioural theory of the firm (1963) was in a sense freed from many of the constraints imposed by the economists perspectives. They present a well-developed model of the firm which tackles the “behavior” explicitly.

The main elements in the theory are:

1) The firm is a coalition of subgroups whose individual goals are inherently contradictory.

2) In the classical model the shareholders determine the objectives (profit) and other groups, such as the employees are paid a wage in return for an agreement to work for the firm. In the Cyert and March model, these “side payments” to subgroups can take the form of policy commitments, not jut wage. So, in the process of bargaining over side

3) Some of those objectives are stated in terms of aspirations level constraints, rather than maximizing constraints (satisfying)

4) Conflicting objectives can be dealth with by the organization dealing with each in turn (sequential attention to goals).

5) Problems lead to search behavior aimed at finding the simple least painful solutions first (and if non exists, more complex solution will be explored).

6) “organizational slack” is a reverse of “fat” in the organistion that comes about through the imperfect matching (in an upward direction) between the minimum necessary level of resources required to maintain the condition (deployed as inducements to sub-grouops) and the actual level absorbed by subgroups.

The picture of a rather many process of bargaining, policy compromises and the need to tackle goals sequentially (rather than expecting some synthesis of conflicting goals to emerge) probably relates more to the reader’s experience than the single-minded, all knowing, efficient, maximizing corporate person which mya be conjured up in the economic model.

This theory see employee as having “needs” which can to an extent be satisfied at work (typified by the writings of Maslow, Herzberg, Argyris etc) through the enlightened redesigning of jobs, organisations structures and management styles, the employee is satisfied and the firm’s objectives are satisfied. The employee achieves self actualization through applying achieve their objective of profit.

Setting Objectives in Business – The Importance

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