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With the start of October we are already into the fall holiday backstretch, where the weeks fly by even faster. The best way to close out this business year, especially at the leadership level, is to start thinking about next year. Most management systems require at least an annual review of company goals and objectives, as well as its vision and mission. Now, not in January, is the time to conduct reviews so that all changes and revisions can be honed and finalized. This allows you to start the New Year with a clear image in place of where your business or department should be going, and to have it wellcommunicated throughout the organization at the start of the New Year. In the next few articles we will discuss a foundation of strategic management: setting and reviewing organizational vision and mission; goals and objectives, strategy and tactics. I believe most of you would agree that having a clear destination and planned route is the best way to get somewhere, even in business. All men can see these tactics whereby I conquer, but what none can see is the strategy out of which victory is evolved. - Sun Tzu The best way to start the discussion might be to review and clarify some terms and definitions. At times they seem to be used interchangeably and ambiguously, and perhaps it doesnt really matter as long as they are communicated, understood, and used consistently within an organization (and it doesnt cause confusion or conflict in interactions with other organizations). For our purposes, however, it will be useful to establish exactly what is meant when you hear terms like goals and objectives.
Organizational Goals
Goals should be general and somewhat open ended. While vision and mission should encompass the whole organization, individualized goals should be created for all segments of the organization. Goals are usually not specifically measured, because they are too general. For example, a personal goal might be to be well-educated. How do you measure that? In a business your goals should focus on the core processes that are key to you business success.
SMART Objectives
Objectives, unlike goals, should be very specific, and should be created to fulfill goals. We frequently hear the term SMART goals, but the acronym is more appropriately applied to objectives. They should be specific, measurable, attainable, relative and time-based. So while a personal goal of being well-educated may be vague, its associated long-term and short term objectives should not be. So the long term objective may be to receive a bachelor degree in engineering, and short term objectives to pass 4 required/elective courses each semester.
In recent articles we have discussed several aspects of business finance. Topics so far have included internal controls, capital planning, and managing working capital. While almost every business pays attention to financial performance, studies show that small and medium sized businesses in particular frequently do not engage in thorough financial planning - if at all.
This article covers an important aspect of using planning and the continually improving process approach to enhance performance setting and reviewing objectives, then taking appropriate action.
An Objective Example
For example, if your company has significant cash reserves in investment accounts, setting objectives followed with action plans can improve financial performance in this area. It allows you to actively affect performance instead of just accepting whatever return results happen to occur that year.
Lets say you set an aggressive but realistic objective of a 5% annual return on account balances. The plan should call for a monthly review of account statements and of how well current account types and providers are helping you reach your objective. If current accounts are not meeting the objective, then the action plan would call for searching out and reviewing other account options in order to find accounts that would meet, or at least come closer to meeting, return objectives. If these accounts meet other criteria (such as insurance and convenience), then funds would be shifted to the higher return accounts. As this example illustrates, using objectives, leading indicators, and action plans provide the kind of proactive approach that doesnt leave results to chance. Plus, the same philosophy can be applied to all areas of finance such as cost of capital, days sales outstanding, and inventory turns.
Keep in mind, however, as the Balanced Scorecard approach emphasizes, financial numbers are not the only factor employed in driving a business. Numbers themselves do not mean everything. Consider our above example. If you have a great relationship with a bank and conduct most of you business there, it may not be worth moving a large money market account over one-tenth of one percent. (You may, however, want to mention to the account manager that a competitor is beating their rate.) If there is a more considerable difference that could lead to significantly missing an objective, then it calls for action. Key components of well-defined processes are objectives that are consistently measured and reviewed. All of the Bizmanualz Policies, Procedures & Forms product line use continually improving, well-defined process approach to managing business segments, including our soon to be released Finance Policies, Procedures & Forms Manual. Having control of your business or department means having control of the processes that make your business run on a daily and weekly basis. This includes a clear picture of what you are trying to accomplish and how well you are doing. Are you in control? To learn more about changing your paradigm and using process improvement programs for your organization then attend the next How to Align a System of People and Processes for Results class. If you are eager to learn more about creating more order out of the chaos you are feeling at work then the How to Create Well-Defined Processes class is right for you. ISO 9000 Internal Auditor classes are forming now. Call for information on having your own private in-house classes today.