Chapter 8

Formulating Strategic Objectives

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Objectives

explain why explicit strategic objectives and key result areas (KRAs) are critical prerequisites to organisational success

establish objectives for all aspects of organisational performance – internal, social and environmental

appreciate the importance of a rigorous process of formulating objectives in motivating employees at all levels, and

describe the range of factors affecting the nature of strategic objectives, and be able to use them in creating objectives for an organisation.

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Common mistakes in formulating objectives

establishing objectives by edict

delegation of the process to middle management

basing strategic objectives on financial hurdle rates

allowing divisional heads to drive the process

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The source of strategic objectives

opportunities and threats

strengths and weaknesses

expectations of stakeholders

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The Triple Bottom Line (TBL)

The triple bottom line means establishingstrategic objective in three areas:

financial/operational

social

environmental

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Attributes of strategic objectives

an attribute

a yardstick

a goal

a time scale

acceptance

flexibility

motivation

consistency

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Linking strategic objective to strategies and action plans

strategy analysis

strategic objectives

performance targets

strategy selection

implement action plans

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Key performance indicators (KPIs)

what are KPIs?

selecting core processes in an organisation

why bother with KPIs?

basic ingredients of KPIs

misuse of KPIs

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Outcomes and Drivers

Outcomes based KPIs

1. Customer satisfaction levels

2. Percentage of clients serviced

3. Cost per customer

Drivers-based KPIs

1. Knowledge of product / service

2. Staff skill level

3. Fixed/variable cost level

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Evolution of Performance Measurement

Efficiency

Functionalfocus•Inputs•Financials

Customer focus•Customer satisfaction•Inputs•Financials

Process focus•Horizontal KPIs• Customer satisfaction•Financials

Strategic focus•Balanced scorecards•Outcome KPIs•Performance drivers

Products/services Synergy Effectiveness

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Establishing and validating strategic objectives

theories of goal formulationattainable strategic objectivegoals down plans upcreating ownership of strategic objectives

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Key

= Goals

= Plans

CEO

Division n Head: Division 2 Head: Division 1

Head: Function AHead: Function B

Work Unit Y Work Unit X

Head: Function AHead: Function B

“Goals down, plans up” process of setting strategic objectives