How are Objectives Formulated?

The central theme in traditional goal setting is that goals are set at the top levels, that is, it is a one way process. It is believed that top management knows what is best, because only they can see the big picture. This group formulates goals for middle management which, in turn, provides the necessary platform for the development of subsidiary goals at lower levels. In order to achieve results there must be multiple goals in the form of a means ends chain. The organization structure should be carefully selected from out of the available alternatives so as to be effective. Goals should be clear and should be prescribed at the beginning of organizational activity. The primary role of goals is to control the behavior of organizational members. Goal setting process is perfectly rational and there is no need to account for the difference in stated and operational goals.

The traditional goal setting process, however, suffers from many limitations: (1) goal setting may not always precede organizational activity. Quite often, organizations start not with goals but with resources that are readily available, (2) The goals of many organizations are ambiguous and it is very difficult to reduce everything in writing and interpret the same uniformly (3) Goals are rarely integrated into a hierarchy in the form of a means ends chain. There are bound to be differences between stated and operational goals.

Stated vs Operational (official Vs Real) goals

Stated or official goals are simply statements about desired results. They reflect what the organization should be doing. They are normally expressed in writing and communicated to all employees by the top management through formal documents news, releases etc. Operational goals are the real goals of an organization. They tell us what the organization is trying to do, irrespective of what the official goals say the aims are. Official goals generally reflect the basic philosophy of the company and are expressed in abstracted phraseology. Goals like achieving sufficient profits and market leadership are very ambiguous and not digested by the lower level people. As goals filter down through the organization people assign real meaning to these terms. Thus, operational goals specify the way in which certain formal goals are to be achieved . For example profit goals can be met through the pursuit of operative goals such as market penetration emphasis on quality, employee morale, competitive pricing etc. Operative goals indicate alternative means of achieving formal goals. The following are the important operative goals:

1) Environment Goals: These goals satisfy the people and organizations in the external environment of the organization. For example, in profit making organizations goals like customer satisfaction and social responsibility may be important environmental goals.
2) Output Goals: Output goals are related to the identification of customer needs. Questions like what market should be entered, which product lines must be emphasized or lopped of are looked into while formulating and designing output goals.
3) System Goals: These are concerned with the maintenance of the organization itself. Features like growth, profitability, stability a and efficiency are include in this category.
4) Product Goals: Product goals emphasize the nature of the product delivered to customers. They define quantity , quality, variety, styling ,a availability or innovativeness of products
5) Derived Goals: These goals refer to the utilization of an organization’s power in secondary or derived areas like contributions to political activities recruiting handicapped persons, promoting social service institutions.

The organizational goal setting process is not a perfect rational activity. Perfect rationality implies full knowledge of opportunities constraints, capacity, and willingness to focus attention on the entire goals setting process. These conditions are rarely satisfied and, in most organizations. Goals are compromises only. Actual goals come about from a constant series of negotiations among both internal and external. Each group will try to influence the goals. This leads to coalition (groups) formation and these coalitions will ultimately decide the goals for the organization. Instead of trying to maximize the organization would try to accomplish goals in a satisfying manner negotiating with various pressure groups in the organization. Satisfying means that organizations would accept a satisfactory rather than a maximum level of performance.

Excerpts from Strategic Management