Functional Objectives and Strategies Part 1
Objectives are statements of specific outcomes that are to be achieved.Objectives can be set finanically (Rate of growth) and non financially (customer service quality)
Corporate objectives - Those that relate to the business as a whole
- Provide the focus of setting functional objectives
- Focus on desired performance and results of the business
- Covers a range of key areas where the business wants to achieve results rather than a single area.
Functional Objectives - Set for each major business function and are designed to ensure that the corporate objectives are achieved. These areas being Finance and administration , Marketing and sales ,Production and operations ,Human resource management.
- Specific - Details exactly what needs to be done
- Measurable - Achievement or progress can be measured
- Achievable - Objectives are accepted by those responsible for achieving it
- Realistic- Is possible to attain
- Timed - Time period can be set
Functional Objectives and Strategies Part 2
- Where a business is trying to get to in long term
- The markets a business should compete in and the kind of activities that are involved in such markets
- How the business can perform better than the competition in those markets
- The resources (Skills , assets finance , relationships , technical competence , facilities) that are required to compete.
- The external environmental factors that affect the businesses ability to compete.
This is concerned with the overall purpose and scope of the business to meet stake holders expectations.
Business unit strategy
This is concerned with how a business competes in a certain market.
This is concerned with how each part of the business is organised to deliver the corporate and business unit level strategic direction.Operational strategy focuses on resources , people and processes.
Using financial objectives Part 1
Cash flow targets
Revenues vanity - Profit is sanity - Cash is king : This is due to a business that runs out of trade is insolvent
Example of cash flow targets
- Reduce bank borrowing
- Minimise customer credit
- Extend supplier credit
- Build a buffer of cash in case unfortunate events occur
- Minimise amounts paid of intrest charge
- Reduce seasonal swings in cash flow
Returns on investment objectives
The investments of business need a return in which at least matches it or better exceeds it
Main performance measure of return is - Return on capital employed (ROCE)
ROCE is about how a business turns assets into profits.
Can be used in several ways - Evaluate overall business performance , provide a target return for projects and compare performance with competitors.
Using financial objectives Part 2
Gain there financial reward in two ways
- A share of the profits earned by the company - paid out as a dividend
- Growth of value of there shareholding - Worth more tahn in which they bought it for
Share holders in public companies whose shares are traded on the stock market have a daily insight into the returns there investment is making
- Share price - indicates market value
- Latest and most recent annual earnings
- Latest annual dividend
Public limited companies may set financial objectives such as :
- Targeted growth of share price
- Increase in dividend per share
- Increase in earnings per share