A Business Guide on the Three Basic Objectives to Set a Firm's Course

A company must decide where it's going, or it may fall into the trap expressed so well by the quotation: "Having lost sight of our objective, we redoubled our efforts." Company objectives should shape the direction and operation of the whole business. It is difficult to set objectives that really guide the present and future development of a company. The process forces top management to look at the whole business, relate its present objectives and resources to the external environment, and then decide what the firm wants to accomplish in the future.

It would be convenient if a company could set one objective - such as making a profit - and let that serve as the guide. Actually, however, setting objectives is much more complicated, which helps explain why it's often done poorly - or not done at all.

The following three objectives provide a useful starting point for setting a firm's course. They should be sought together because - in the long run - a failure in even one of the three areas can lead to total failure of the business:

1. Should be socially useful. Engage in specific activities that will perform a socially and economically useful function. This first objective says that the company should do something useful for society. This isn't just a "do-gooder" objective. Businesses can't exist without the approval of consumers. If a firm's activities appear to be contrary to the consumer "good," it can be wiped out almost overnight by political or legal action - or consumers' own negative responses. This first objective also implies that a firm should try to satisfy customer needs. This is why the marketing manager should be heard when the company is setting objectives. But setting whole-company objectives - within resource limits - is ultimately the responsibility of top management.

2. Should organize to innovate. Develop an organization to carry on the business and implement its strategies. In a macro-marketing sense, consumers in market-directed economies have granted businesses the right to operate - and to make a profit if they can. With this right comes the responsibility for businesses to be dynamic agents of change, adjusting their offerings to meet new needs. Competition is supposed to encourage innovation and efficiency. A business firm should develop an organization that ensures these consumer-assigned tasks are carried out effectively - and that the firm itself continues to prosper.

3. Should earn some profit. Earn enough profit to survive. In the long run, a firm must make a profit to survive. But just saying that a firm should try to make a profit isn't enough. Management must specify the time period involved since many plans that maximize profit in the long run lose money during the first few years. On the other hand, seeking only short-term profits may steer the firm from opportunities that would offer larger long-run profits. Further, trying to maximize profit won't necessarily lead to big profits. Competition in a particular industry may be so fierce as to almost guarantee failure. It might be better to set a target rate of profit that will lead the firm into areas with more promising possibilities. Further complicating the process, management must specify the degree of risk it is willing to assume for larger returns. Very large profits are possible in the oil exploration business, for example, but the probability of success on each hole is quite low.

These three general objectives provide guidelines, but a firm has to develop its own specific objectives. Inspite of their importance, a firm seldom states its objectives explicitly. Too often it does so after the fact! If objectives aren't clear and specific from the start, different managers may hold unspoken and conflicting objectives - a common problem in large companies and in nonprofit organizations. [Read the Original Article]