Operational objectives (1)
A company meets its strategic objectives by breaking them down into smaller objectives. These help each individual department know what it's supposed to be doing. Operational objectives might be linked to:
- Quality: This type of objective is likely to involve either maintaining or improving levels of quality. E.g. a company might aim to ensure that 95% of their products last 5 years or longer, or they might aim to reduce the number of customer complaints they get in a month.
- Cost: Many firms aim to cut costs, especially if they compete on price. Depending on the type of company, there are different ways of doing this. Costs can be cut in a particular department or the costs of an individual product can be reduced.
- Volume: Volume objectives often involve increasing the amount of goods or services that a company is producing, e.g. a hotel might aim to have more rooms full on weeknights. However, a company might also set an objective to ensure that volume doesn't exceed demand, e.g. if it knows people buy fewer healthy choice ready-meals at Christmas, it might reduce production in December.
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Operational objectives (2)
- Efficiency: Efficiency objectives aim to make better use of resources in order to reduce costs and increase profit. This might mean increasing capacity utilisation (increasing output so it's closer to the maximum amount of goods the firm could produce with current levels of staff and machinery) or taking steps to improve labour and capital productivity (how much output a particular worker or piece of machinery generates in a set time period).
- Innovation: Companies can set their Research & Development (R&D) departments innovation targets, e.g. a car manufacturer might set an objective to produce the world's first pollution-free car by 2017. These objectives can be hard to achieve, as unexpected problems often occur.
- Environment: Pressure from customers and the government often leads to firms setting environmental objectives, such as cutting carbon emissions or using a greater number of recycled raw materials.
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Influence of internal and external factors
- Nature of the Product: a computer technology firm is likely to have very different targets to a family-run bed and breakfast. The computer technology company is likely to focus on innovation whereas the B & B may be trying to increase its capacity utilisation by having lots of rooms full.
- Availability of Resources: many businesses would like to increase output but are limited by whether they have enough resources. E.g. it won't be possible to produce 50 handpainted dolls houses in 3 days if the company only employs five carpenters.
- Competitors' Performance: many firms set targets in reaction to their rivals' actions. E.g. if a rival gains market share, you would also probably try to increase your share of the market to make sure they don't overtake you or leave you further behind. Competition from abroad, e.g. China, is forcing companies to set stricter cost and efficiency objectives.
- Demand for Product: businesses should try to make sure that output is not higher than demand.
- Changing Customer Needs: e.g. if customers indicate that they'd like a firm to behave more ethically this can affect cost and environmental goals.
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