ESTABLISHING LONG RANGE OBJECTIVES

As discussed in Chapter 1, long range objectives specify the results desired in pursuing the organization`s mission and normally extend beyond the current fiscal year of the orga­nization. Short range objectives should follow logically from long range objectives. Short range objectives, sometimes called "annual objectives," are performance targets normally covering one year or less, designed to achieve the organization`s long range objectives.

American managers have been criticized for failing to look beyond the accom­plishment of short range objectives. However, establishing and achieving long range objectives is extremely important. While extended planning horizons are critical to industries with large capital investments (e.g., utilities and automobiles), they are also important for most other industries. Even in the rapidly changing high technology field the most savvy companies are, and have been for years, thinking about home robots, telecommunications, and electronic libraries, applications of which are now in existence. Without losing sight of short range performance, top managers must be strategically planning for the future (5, 10, 15, or more years ahead) of their organization.

Ideally, an organization`s long range objectives should match its strengths to opportunities, minimize its threats to the organization, and eliminate its weak­nesses in the organization. Thus, an organization`s long range objectives should be directly impacted by the SWOT analysis. Exhibit 5 illustrates the interrelationships between the components of the SWOT analysis and organizational long range objectives. Organizational long range objectives should support the organization`s mission, and they need to be established for every area of the organization where performance directly influences its survival and success.

EXHIBIT 5
SWOT ANALYISIS AND ORGANIZATIONAL OBJECTIVES

Mix of Organizational Objectives

No one mix or combination of long range objectives is applicable to all organiza­tions. The type of objectives that are established depends on the nature of the par­ticular organization. For example, the Boy Scouts of America would have a set of objectives different from the American Express Company.

The mix of organizational objectives is influenced by the purpose, mission, the SWOT analysis, and the mix of objectives from prior years. The degree of achievement of prior objectives influences the aspiration level of the management team and often serves as a starting point for determining the mix and exact nature of the objectives for a future time period.

Objectives should be expressed as clearly as possible and in quantitative terms whenever possible. The following items provide potential areas and examples for establishing objectives for most organizations:

1. Customer Service. Expressed in terms of delivery times or customer complaints. Example:

a. To reduce the number of customer complaints by 40 percent over the next three years.

2. Financial Resources. Expressed in terms of the capital structure, new issues of common stock, cash flow, working capital, dividend payments, and collection periods. Examples:

a. To increase working capital to $10 million within five years.

b. To reduce long term debt to $8 million within three years.

3. Human Resources. Expressed in terms of rates of absenteeism, tardiness, turnover, or number of grievances. Also can be expressed in !terms of number of people to be trained or number of training programs to be conducted. Examples:

a. To reduce absenteeism by 8 percent within three years.

b. To conduct a 40-hour supervisory development program for 300 supervisors at a cost not to exceed $400 per participant over the next four years.

4. Markets. Expressed in terms of share of the market or dollar or unit volume of sales. Examples:

a. To increase commercial sales to 85 percent of total sales and reduce military sales to 15 percent of total sales over the next three years.

b. To increase the number of units of product X sold by 500,000 units within four years.

5. Organizational Structure. Expressed in terms of changes to be made or projects to be undertaken. Example:

a. To establish a decentralized organizational structure within three years.

6. Physical Facilities. Expressed in terms of square feet, fixed costs, or units of production. Examples:

a. To increase storage capacity by 15 million units over the next three years.

b. To decrease production capacity in the West Coast plant by 20 percent within three years.

7. Product. Expressed in terms of sales and profitability by product line or product or target dates for development of new products. Example:

a. To phase out the product with the lowest profit margin within two years.

8. Productivity. Expressed in terms of a ratio of input to output or cost per unit of production. Example:

a. To increase the number of units produced per worker by 10 percent per eight hour day over the next three years.

9. Profitability. Expressed in terms of profits, return on investment, earnings per share, or profit to sales ratios. Example:

a. To increase return on investment to! 15 percent after taxes within four years.

10. Research and Development. Expressed in terms of the amount of money to be spent on projects to be completed. Example:

a. To develop an engine in the medium price range within five years at a cost not to exceed $3 million.

11. Social Responsibility. Expressed in terms of types of activities, number of days of service, or financial contributions. Example:

a. To increase our contribution to United Way by 30 percent over the next three years.

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