An organizational objective is the target toward which the open management system is directed. Organizational input, process, and output—topics discussed in Chapter 2—help managers reach organizational objectives (see Figure 5.5). Properly developed organizational objectives reflect the purpose of the organization—that is, they flow naturally from the organization’s mission. The organizational purpose is what the organization exists to do, given a particular group of customers and customer needs. Table 5.1 contains several statements of organizational purpose, or mission, as developed by actual companies.²³ If an organization is accomplishing its objectives, it is accomplishing its purpose and thereby justifying its reason for existence.

Organizations exist for various purposes and thus have various types of objectives. A hospital, for example, may have the primary purpose of providing high-quality medical services to the community. Therefore, its objectives are aimed at furnishing this service. The primary purpose of a business organization, in contrast, is usually to make a profit. The objectives of the business organization, therefore, concentrate on ensuring that a profit is made. Some companies, however, assume that if they focus on such organizational objectives as producing a quality product at a competitive price, profits will be inevitable.

Such is the case at Lincoln Electric Company. Although profitability is essential for all profit-oriented businesses, management at Lincoln Electric attracted attention when it seemed to diminish the role of profit in the company’s organizational objectives:²⁴

In a 1956 article that has become a classic, John F. Mee suggested that organizational objectives for businesses can be summarized in three points:²⁵

1. Profit is the motivating force for managers.

2. Service to customers by the provision of desired economic values (goods and services) justifies the existence of the business.

3. Managers have social responsibilities in accordance with the ethical and moral codes of the society in which the business operates.

Deciding on the objectives for an organization, then, is one of the most important actions managers take. Unrealistically high objectives are frustrating for employees, while objectives that are set too low do not encourage employees to maximize their potentials. Managers should establish performance objectives that they know from experience are within reach for employees but are not within easy reach.²⁶

Peter F. Drucker, one of the most influential management writers of modern times, believed that the survival of a management system is endangered when managers emphasize only the profit objective because this single-objective emphasis encourages managers to take action that will make money today but with little regard for how a profit will be made tomorrow.²⁷

Managers should strive to develop and attain a variety of objectives in all areas where action is critical to the operation and success of the management system. Following are the eight key areas in which Drucker advised managers to set management system objectives:

1. Market standing—Management should set objectives indicating where it would like the company to be in relation to its competitors.

2. Innovation—Management should set objectives outlining its commitment to the development of new methods of operation.

3. Productivity—Management should set objectives outlining the target levels of production.

4. Physical and financial resources—Management should set objectives regarding the use, acquisition, and maintenance of capital and monetary resources.

5. Profitability—Management should set objectives that specify the profit the company would like to generate.

6. Managerial performance and development—Management should set objectives that specify rates and levels of managerial productivity and growth.

7. Worker performance and attitudes—Management should set objectives that specify rates of worker productivity as well as desirable attitudes for workers to possess.

8. Public responsibility—Management should set objectives that indicate the company’s responsibilities to its customers and society and the extent to which the company intends to live up to those responsibilities.

According to Drucker, the first five goal areas relate to tangible, impersonal characteristics of organizational operation, and most managers would not dispute their designation as key areas. Designating the last three as key areas, however, could arouse some managerial opposition because these areas are more personal and subjective. Regardless of this potential opposition, an organization should have objectives in all eight areas in order to maximize its probability of success.

Increasing shareholder value represents an additional planning consideration for many publicly traded companies. For example, global oil producer ConocoPhillips unveiled plans to sell $10 billion in assets over a two-year period. Proceeds from the sale, the company said, would be used to pay down debt and increase shareholder value.²⁸

Appropriate objectives are fundamental to the success of any organization. Theodore Levitt noted that some leading U.S. industries could be facing the same financial disaster as the railroads faced years ago because their objectives were inappropriate for their organizations.²⁹

Managers should approach the development, use, and modification of organizational objectives with the utmost seriousness. In general, an organization should set three types of objectives:³⁰

1. Short-term objectives—targets to be achieved in one year or less

2. Intermediate-term objectives—targets to be achieved in one to five years

3. Long-term objectives—targets to be achieved in five to seven years

The necessity of predetermining appropriate organizational objectives has led to the development of a management guideline called the principle of the objective. This principle holds that before managers initiate any action, they should clearly determine, understand, and state organizational objectives.

Planning for the future often requires an organization to revisit its original objectives. For example, consider recent planning efforts at Audi. The company reached its goal of delivering 1.5 million cars more than one year ahead of schedule. To celebrate the occasion, leaders set a new goal of delivering 2 million cars. To achieve this goal, Audi wants to increase the number of models it produces from 49 to 60. These goals help to support the company’s primary objective of surpassing BMW as the world’s largest luxury sales manufacturer.³¹

The quality of goal statements, like that of all humanly developed commodities, can vary drastically. Here are some general guidelines that managers can use to increase the quality of their objectives:³²

1. Let the people responsible for attaining the objectives have a voice in setting them—Often the people responsible for attaining the objectives know their job situation better than managers do and can therefore help make the objectives more realistic. They will also be better motivated to achieve objectives that they have had a say in establishing. Work-related problems that these people face should be thoroughly considered when developing objectives.³³

2. State objectives as specifically as possible—Precise statements minimize confusion and ensure that employees have explicit directions for what they should do.³⁴ Research shows that when objectives are not specific, the productivity of individuals attempting to reach those objectives tends to fluctuate significantly over time.

3. Relate objectives to specific actions whenever necessary—In this way, employees do not have to infer what they should do to accomplish their goals.

4. Pinpoint expected results—Employees should know exactly how managers will determine whether an objective has been reached.

5. Set goals high enough that employees will have to strive to meet them but not so high that employees will give up trying to meet them—Managers want employees to work hard but do not want them to become frustrated.³⁵ At the same time, however, research suggests that setting high goals may lead to unethical behavior.³⁶

6. Specify when goals are expected to be achieved—Employees must have a time frame for accomplishing their objectives. They then can pace themselves accordingly.

7. Set objectives only in relation to other organizational objectives—In this way, suboptimization can be kept to a minimum.

8. State objectives clearly and simply—The written or spoken word should not impede communicating a goal to organization members.