Business Plans For Dummies. Paul Tiffany
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that people have bandied back and forth for years: efficiency and effectiveness. The terms were first thrown together in an absolutely captivating business classic, Functions of the Executive, written by Chester Barnard back in 1939 (why are you snoring?). Old Chester was president of the New York Telephone Company, and perhaps he had a bit too much time on his hands (monopolies, you know, can lead to that). But he did come up with one useful notion for working with your company’s goals and objectives: efficiency versus effectiveness.
We all strive to be both efficient and effective in our individual work, of course. Effectiveness is often described as “doing the right thing,” whereas efficiency is described as “doing things right.” President Barnard came up with the idea that you can apply these concepts to a company and its activities.
In this context, effectiveness — doing the right thing — has a great deal to do with choosing the right goals to pursue. For example, consider an imaginary company we’ll call Global Gadgets. Its mission statement may emphasize becoming customer-focused and market-driven in all product areas. If Global Gadgets is to be effective, management must set goals that encourage product designers and engineers to be in touch with their customers first and to be aware of market demands before they start designing and creating new products.
Efficiency — doing things right — is concerned more with how well the company applies resources in pursuit of its goals. To be efficient, Global Gadgets’ employees must have objectives that ensure the company can achieve its goals of becoming customer-focused and market-driven. Among other results, these objectives should lead to a proper allocation of the research budget among design, product development, and market testing. Resources are always scarce, and Global Gadgets can’t afford to squander them.
Minding Your Own Business: Setting Goals and Objectives
Your company’s goals and objectives reflect your primary business intentions, and they determine both the itinerary and timetable for getting you there. In other words, your goals and objectives focus the company on the important work at hand and provide a mechanism for measuring your progress.
Goals and objectives are ultimately meant to make your company more efficient and effective. How can you see to it that setting them is also as efficient and effective as it can be? Here are some guidelines to get you started.
Creating your business goals
Determine who to involve in setting your company’s goals. Because goals are the core of your company’s business, the group members should include the people who are responsible for all your major business activities. If you’re going it alone in business, try to develop a core group of advisers who can meet with you periodically to confirm your goals.
Develop a procedure for monitoring your company’s goals on a routine basis, revising or reworking them as business circumstances change.
Create individual goals that clarify your company’s business activities without limiting flexibility and creativity.
Confirm that your company’s goals, taken together, provide an effective blueprint for achieving your broad business intentions.
Make sure that your company’s stated goals closely comport with your company’s mission and vision statements (see both Chapter 3 and the earlier section “Creating Your Company’s Mission Statement” for more info). If you spot a contradiction, it’s time to revisit one or the other and undertake appropriate action.
Laying out your objectives
Objectives are the statements that fill in the details, specifying exactly how you plan to reach each of your company’s goals. As much as possible, you should tie your objectives to cold, hard numbers: the market share percentage you want to achieve or number of new customers you want to serve, the quantified volume of products you want to sell, or the number of revenue dollars you want to generate.
Determine who should set business objectives in your company. While overall firm profit objectives might best be reserved for senior management to make, you don’t want these same folks alone determining the optimal level of product quality metrics on the shop floor.
Develop a system for reviewing and managing business objectives throughout your company.
Make sure that objectives are achievable and verifiable by including numbers and dates where appropriate.
Create business objectives that can clearly advance and achieve larger company goals.
Confirm that your company’s objectives, taken together, result in an efficient use of resources — money and people — in pursuit of broader business intentions.
Consider using a formal method, such as management by objectives (MBO), to involve everyone in your company in the continuous process of setting, reviewing, and meeting business objectives. (For more on the ins and outs of MBO, see the nearby sidebar “Management by objectives.”)
Matching goals and objectives with your mission
MANAGEMENT BY OBJECTIVES
In 1954, management guru Peter Drucker came up with a novel way to generate and communicate a company’s intentions (its mission, goals, and objectives): You simply involve all the employees who have to actually carry them out, giving each her or his own specific list. Not surprisingly, he also coined a term for his method, calling it management by objectives (MBO).
MBO turned out to be a wildly successful idea when it was introduced. By the mid-1970s, more than half of the U.S. Fortune 500 companies were using the technique. Granted, not everybody was happy with the process. Some companies balked at the time and effort that it took to set MBO goals and related objectives. Other companies failed to carry out the paperwork that the system requires. Still other companies, basking in an authoritarian regime lodged at the top, found the entire concept of shared decision-making to be just plain weird and the new culture to be too alien. Pity them.