Goals and Plans of the firm

1. Overview  of  Goals  and  Plans

Goals and plans have become general concepts in our society. A goal is a desired  future state that the organization attempts to realize.2  Goals are important because organizations exist for a purpose and goals define and state that purpose. A plan is a blueprint  for goal achievement and specifies the necessary resource allocations,  schedules, tasks, and other actions. Goals specify future ends; plans specify today’s means. The word planning usually incorporates both ideas; it means determining  the organization’s  goals and defining the means for achieving them.3

Exhibit 5.1 illustrates the levels of goals and plans in an organization. The planning process starts  with a formal mission that defines the basic purpose  of the organization, especially for external audiences. The mission is the basis for the strategic (company) level of goals and plans, which in turn shapes the tactical (divisional)  level and the operational (departmental) level.4

Top managers typically are responsible for establishing strategic goals and plans that reflect a commitment to both organizational efficiency and effectiveness, as described  in Chapter 1. Tactical goals and plans are the responsibility of middle  managers, such as the heads of major divisions or functional units. A division manager formulates tactical plans that focus on the major actions the division must take to fulfill its part in the strategic plan set by top manage- ment. Operational plans identify  the specific procedures or processes needed at lower  levels of the organization,  such as individual  departments and employees. Front-line managers and supervisors develop operational plans that focus on specific  tasks and processes and that  help to meet tactical and strategic goals. Planning  at each level supports the other levels.

2. Purposes  of  Goals  and  Plans

The complexity of today’s environment and uncertainty about the future overwhelm many managers and cause them  to focus on operational issues and short-term  results rather than long-term goals and plans. Planning,  however, generally positively  affects a company’s performance.5 In addition to improving financial and operational performance, developing explicit goals and plans at each level illustrated  in Exhibit 5.1 is important because of the external and internal messages they  send. These  messages go to both external and internal audiences and provide important benefits for the organization:6

• Legitimacy. An organization’s  mission describes what the organization  stands for and its reason for existence. It symbolizes legitimacy  to external audiences such as investors, customers, suppliers, and the local community.  The mission helps them look on the company in a favorable  light.

Companies  have to guard their reputations,   as evidenced  by recent criticism of Wal-Mart. After years of ignoring critics, who targeted the company for everything from its labor practices to its environmental impact to its tactics with suppliers, managers launched a massive public  relations campaign to try to mend relationships. As society’s expectations of Wal-Mart  change, the company’s mission  of bringing everyday low prices to average people is being fine-tuned to emphasize  a strong commitment to doing business in an ethical and socially responsible way.7

A strong mission also has an impact  on employees, enabling them to become commit- ted to the organization because they identify with its overall purpose and reason for existence. One of the traits often cited by employees in Fortune magazine’s list of the “100 Best Companies to Work For” is a sense of purpose and meaning.8  For example, at mutual fund company Vanguard, helping people pay for a happy retirement  is a guiding mission for employees.

• Source of motivation and commitment.  Goals and plans facilitate  employees’ identification with the organization and help motivate them by reducing uncertainty and clarifying what they should accomplish. At Boeing, the manufacturing department  has a goal of moving  a plane, once the wings and landing  gear are attached, along the assembly line and out the door in only 5 days.

Managers are revising processes and procedures,  mechanics  are coming up with innovative machine adjustments, and assembly-line workers are trying new techniques to meet this ambitious goal.9 Lack of a clear goal can damage employees’ motivation and commitment because people don’t understand what they’re working toward. Whereas a goal provides the “why” of an organization or subunit’s existence, a plan tells the “how.” A plan lets employees know what actions to undertake to achieve the goal.

• Resource allocation. Goals help managers decide where they should allocate resources, such as employees, money, and equipment.  For example, DuPont has a goal of generat- ing 25 percent of revenues from renewable resources by 2010. This goal lets managers know that they must use resources to develop renewable and biodegradable materials, acquire businesses that produce products with renewable resources, and buy equipment that reduces waste, emissions, and energy usage.

As another example, following  the new goals of fighting domestic terrorism, the Fed- eral Bureau of Investigation (FBI) pulled more than 600 agents off their regular beats and reassigned them to terrorist-related cases. The FBI also is allocating  resources to rebuild an archaic computer network, open foreign offices, and form terrorism task forces.10

• Guides to action. Goals and plans provide  a sense of direction. They direct attention to spe- cific targets and direct employee efforts toward important  outcomes. Managers at Guitar Center, one of the fastest-growing retailers in the United States, emphasize sales growth. Sales teams at every Guitar Center store are given sales goals each morning, and employees do whatever they have to, short of losing the company money, to meet the targets. The fast- growing retailer’s unwritten  mantra of “Take  the deal” means that salespeople are trained  to take any profitable  deal, even at razor-thin margins, to meet daily  sales targets.11
• Rationale for decisions. Through goal setting and planning,  managers learn what the organization is trying to accomplish. They can make decisions to ensure that internal policies, roles, performance, structure, products, and expenditures will be made in accor- dance with desired outcomes. Decisions throughout  the organization will be in align- ment with the plan.
• Standard of performance. Because goals define the desired outcomes for the organization, they also serve as performance criteria. They provide a standard of assessment. If an or- ganization wishes to grow by 15 percent and actual growth is 17 percent, managers will have exceeded their prescribed standard.

The overall planning process prevents managers from thinking merely in terms of day-to- day activities. When organizations drift away from goals and plans, they typically get into trouble.

3. Goals  in  Organizations

Setting goals starts with top managers. The overall planning process begins with a mission statement and strategic goals for the organization as a whole.

3.1. ORGANIZATIONAL   MISSION

At the top of the goal hierarchy is the mission—the organization’s reason for existence. The mission describes  the organization’s   values, aspirations,  and reason  for  being.

A well-defined mission is the basis for development of all subsequent goals and plans. Without a clear mission, goals and plans may be developed haphazardly  and not take the organization in the direction it should be going.

The formal mission statement is a broadly  stated definition of purpose that distin-guishes the organization  from others of a similar type. A well-designed mission statement can enhance employee motivation and organizational performance.12 The content of a mis- sion statement  often  focuses on the market and customers and identifies  desired fields of endeavor. Some mission  statements  describe company  characteristics  such as corporate values, product  quality,  location  of facilities, and attitude  toward employees. Mission  state- ments often reveal the company’s philosophy  as well  as purpose. An example is the mission statement for Bristol-Myers Squibb  Company,  presented in Exhibit 5.2. Such short, straightforward mission statements describe basic business activities  and purposes, as well as the values that guide the company. Another  example of this type of mission statement is that of State Farm Insurance.

State Farm’s mission is to help people manage the risks of everyday life, recover from the unexpected, and realize their dreams.

We are people who make it our business to be like a good neighbor; who built a premier company by selling and keeping promises through our marketing partnership; who bring diverse talents and experiences to our work of serving the State Farm customer.

Our success  is built on a  foundation of shared  values—quality   service and relationships, mutual trust, integrity, and financial strength.13

Mission  statements such as those  of Bristol-Myers  Squibb and State Farm let employees, as well  as customers, suppliers, and stockholders, know the company’s stated purpose and values.

3.2. GOALS AND PLANS

Broad statements describing where the organization  wants to be in the future are called strategic goals. They pertain to the organization as a whole  rather  than  to specific divi- sions or departments.  Strategic goals often are called official goals, because they  are the stated intentions of what the organization wants to achieve. For example, a strategic  goal for the Wm. Wrigley Jr. Co., which for more than 100 years made only gum, now is to become  a major player in the broader candy market.14

Strategic plans define the action steps by which the company intends to attain strategic goals. The strategic plan is the blueprint that defines the organizational activities and resource allocations—in  the form of cash, personnel,  space, and facilities—required for meeting these  targets.  Strategic  plan-ning tends to be  long-term and may define organizational  action steps from 2 to 5 years in the future.

The purpose of strategic  plans is to turn organizational  goals into  realities within that time period. Elements of the strategic  plan at Wrigley, for example, included acquiring candy brands  from food companies such as Kraft and invest- ing in a global innovation  center.

As another example,  consider the strategic goals and plans at Nintendo in the Benchmarking Box below.

After strategic  goals are formulated, the next step is to define tactical goals, the results that  major divisions and departments within the organization intend to achieve. These goals apply to middle management and describe what major subunits must do for the organi- zation to achieve its overall goals.

Tactical plans are designed to help execute  the major strategic  plans and to  accomplish   a  specific part of  the company’s strategy.15  Tactical  plans typically  have a shorter  time horizon than strategic plans—covering the next year or so. The word tactical originally  comes from the military. In a business  or nonprofit organiza- tion, tactical plans define what major departments and organizational subunits will do to implement the organization’s strategic plan.

For example,  the overall strategic  plan of a  large florist might involve becoming the Number 1 telephone and Internet-based purveyor of flowers, which requires high- volume  sales during peak seasons such as Valentine’s   Day and Mother’s Day. Human resource managers will develop tactical plans to ensure that the company has the dedicated order takers and customer service representatives it needs during  these critical  periods.

Tactical plans might include cross-training  employees so they can switch to different jobs as departmental needs change, allowing order takers to transfer to jobs at headquarters during off-peak times to prevent burnout, and using regular order takers to train and supervise temporary  workers  during peak seasons.16  These  actions  help top managers implement their overall strategic plan. Normally, it is the middle  manager’s job to take the broad strategic plan and identify specific tactical plans.

The results expected from departments, work groups, and individuals  are the opera-tional goals. They are precise and measurable. Examples of operational  goals are: “Pro- cess 150  sales applications  each week”; “Achieve  90 percent of deliveries on time”; “Reduce overtime by 10 percent next month”; “Develop two new online  courses in accounting.” An example of an operational goal at the Internal  Revenue Service (IRS) is to “give accurate responses to 85 percent of taxpayer questions.”17

Operational  plans are developed at the lower levels of the organization to specify action steps toward achieving operational goals and to support tactical plans. The opera- tional plan is the department  manager’s tool for daily and weekly operations. Goals are stated in quantitative terms, and the department plan describes how goals will be achieved. Operational  planning specifies plans for department  managers, supervisors, and individual employees.

Schedules  are  an important component of operational  planning. Schedules  define precise time frames for the completion of each operational  goal required to meet the orga- nization’s tactical and strategic goals. Operational  planning  also must be coordinated with the budget,  because resources must be allocated  for desired activities. For example, Apogee Enterprises,  a window  and glass fabricator  with 150 small divisions, is rigorous in opera- tional planning  and budgeting. Committees  are set up to review and challenge budgets, profit plans, and proposed expenditures. Assigning the dollars makes the operational plan work for everything from hiring new salespeople to increasing travel expenses.

3.3. ALIGNMENT   OF   GOALS

Effectively  designed organizational  goals are aligned into a hierarchy  in which the achieve- ment of goals at low levels permits the attainment  of high-level  goals, also called a means- ends chain. Achievement  of operational  goals leads to the achievement of tactical goals, which in turn leads to the attainment of strategic goals. Organizational  performance is an outcome of how well these interdependent  elements are aligned, so that individuals, teams, departments,  and so forth are working in concert to attain specific goals that ultimately help the organization fulfill its mission.18 Traditionally, strategic goals are considered the responsibility of top management, tactical goals that of middle management, and opera- tional goals that of first-line supervisors and workers.

Today, some companies are pushing greater involvement of all employees in goal setting and planning at each level. Microsoft, facing greater competition  and new threats from the shifting technological  and economic environment,  developed a goal-setting process that emphasizes individual commitments and alignment of goals.

An example of a goal hierarchy is illustrated  in Exhibit 5.3. Note how the strategic goal of “excellent service to customers” translates into “Open one new sales office” and “Respond to customer inquiries within two hours” at lower management levels.

4. Criteria  for  Effective  Goals

To ensure goal-setting  benefits for the organization,  certain characteristics and guidelines should be adopted. The characteristics of both goals and the goal-setting  process are listed in Exhibit 5.4. These characteristics pertain to organizational goals at the strategic, tactical, and operational levels:

• Specific and measurable. When possible, goals should be expressed in quantitative terms, such as increasing profits by 2 percent, having zero incomplete sales order  forms,  de- creasing scrap by 1 percent, or increasing average teacher effectiveness ratings from 3.5 to 3.7. Although not all goals can be expressed in numerical  terms, vague goals have little motivating power for employees. By necessity, goals are qualitative  as well as quantita- tive, especially at the top of the organization. The key point is that the goals be defined precisely and allow for measurable progress.
• Cover key result areas. Goals cannot be set for every aspect of employee behavior or orga- nizational performance. If they were, their sheer number would render them meaning- less. Instead, managers establish  goals based on the idea of choice and clarity. A few carefully chosen, clear, and direct goals can be aimed more powerfully  at organizational attention,  energy, and resources.20 Managers should identify a few key result areas— perhaps up to four or five for any organizational department or job. Key result areas are activities that contribute most to company performance and competitiveness.21  Most companies  take a balanced approach to goal setting. For example, Northern States Power Co. tracks measurements in four key areas: financial  performance, customer service and satisfaction, internal processes, and innovation and learning.22
• Challenging but realistic. Goals should be challenging  but not unreasonably difficult. When goals are unrealistic,  they set up employees for failure  and a decrease in employee morale. For example, one team at a Texas-based company that was recognized as tops in the organization had its quota raised by 65 percent, an impossible goal to reach, while lesser-performing  teams had their targets raised by only 15 percent. Members of the high-performing team were so discouraged that most of them began looking for other jobs.23 If goals are too easy, however,  employees may not feel motivated.

Stretch goals are extremely ambitious but realistic goals that challenge employees to meet high standards. An example comes from 3M, where top managers set a goal that 30 percent of sales must  come from products introduced during the past 4 years (the old standard was 25 percent). Setting ambitious  goals helps to keep 3M churning out inno- vative new products—more than 500 in one recent year alone—and has entrenched the company as a leader  in some of today’s most dynamic markets.24 The key to attaining ef- fective stretch goals is to ensure that goals are set within the existing  resource base, not beyond departments’ time, equipment, or financial resources.

• Defined time period. Goals should specify the time period over which they will be achieved. A time period is a deadline stating the date against which goal attainment  will be measured. A goal of implementing  a new customer relationship management system, for instance, might have a deadline  of September 1, 2008. If a strategic goal involves a 2- to 3-year time horizon,  specific dates for achieving parts of it can be set up. For example, strategic sales goals could be established on a 3-year time horizon, with a $100 million target in year one, a $129 million target in year two, and a $165 million target in year three.
• Linked to rewards. The ultimate impact of goals depends on the extent to which salary in- creases, promotions, and awards are based on goal achievement.  Employees  pay attention to what is noticed and rewarded in the organization,  and people who attain goals should be rewarded for doing so. Rewards give meaning and significance to goals and help com- mit employees to achieving goals. Managers also should remember that failure to attain goals often relates to factors outside employees’ control.  For example, failure to achieve a financial  goal may be associated with a drop in market demand  because of an industry re- cession; thus, an employee could not be expected to reach that goal. A reward still might be appropriate  if the employee partially achieves goals under difficult circumstances.

Source: Daft Richard L., Marcic Dorothy (2009), Understanding Management, South-Western College Pub; 8th edition.