Any person involved in the running of a business must set objectives. Objectives are the future-oriented anchor points that help management navigate through the present to achieve a mutually desirable outcome. Setting the right objectives is crucial to providing the mental models and strategic focus of all the role players inside and outside the organisation.
An organisation sets objectives within the landscape of a strategic plan. Strategic planning starts with a clear idea of the purpose of the business, the vision, and the mission of the business. A business that sets itself the purpose of making as much money as possible for the owners or shareholders is unlikely to be as successful as an organisation that sets out to provide a valuable product or service to society.
When an organisation has as its primary focus the provision of a valuable good or service to society, the marketplace has a valid reason to take their custom to that company. This in turn enables the long-term viability and success of the company. It is for this reason that organisations should not lose sight of their overarching purpose and their vision – that future state to which they aspire.
What constitutes an appropriate set of objectives for a company? Strategic success relies on a tension between the hard numerical goals of the organisation, and the societal goals of the organisation. An exclusive obsession with financial performance can mean the organisation loses touch with its customers and with society. Too strong an emphasis on providing value will boost sales in the short term but will not be conducive to long term viability.
In the previous century, firms tended to maximise shareholder wealth, that is, to provide the best possible returns to the owners of the business. But over the longer term, this began to harm organisations. You can only gouge the prices of your suppliers so much before they take their business elsewhere or give you inferior service. Employees will put up with decreasing real remuneration up to a point before taking industrial action. Focusing purely on increasing the wealth of the owners of the business was putting the longer-term sustainability in jeopardy.
This led to a revised view of organisations, one in which the needs of stakeholders were considered. An organisation was seen as an ecosystem of suppliers, customers, employees, regulators, and owners. If the needs of these primary stakeholders are addressed, the business has a greater chance of sustained success. And this in turn has progressed into the concept of ESG, taking account of the organisation’s impact on the environment and society, and applying ethically sound corporate governance. Environmental, social, and corporate governance is an approach that encourages the extent to which a business works on behalf of social goals that go beyond the role of a business to maximise profits on behalf of the business’s shareholders.
All this has a profound impact on how we define and achieve our business objectives. A responsible firm will take account of ESG priorities and at the same time will provide a sustainable return to shareholders. When an organisation takes care of its most important constituencies, those constituencies have a shared interest in the success of the organisation. Let us consider some of these properties.
A fair wage and comfortable working conditions will assist with garnering the loyalty of employees. This in turn reduces labour turnover and costly onboarding of new replacement employees.
When fair, win-win prices and payment terms are negotiated with suppliers, these suppliers are less motivated to skimp on quality and service. Over time these savings mount up to significant amounts.
In a shareholder-dominated view of the organisation, it was acceptable to dump raw effluent into the environment or pump out noxious gases to increase short term profits. Organisations that refrain from these and other damaging actions have less to fear from vociferous social media activists.
When customers know that their legitimate requirements and concerns are taken care of, respond with loyalty to promote long term relationships. Who would not want to trade with a supplier to make the effort to provide you with products and services that meet your needs?
An ethical ESG-inspired company will pay its taxes and comply with regulatory requirements. A reputation as an honest corporate citizen reduces the likelihood of costly audits and investigations.
Companies that have been around for a long time have a purpose higher than merely making money.
Adcock Ingram aims to provide quality products that improve the health and lives of people in the markets they serve.
The Tata Group sees it thus: “Business, as I have seen it, places one great demand on you: it needs you to self-impose a framework of ethics, values, fairness and objectivity on yourself at all times.” – Ratan N Tata, 2006
Barloworld describes its purpose as defying limits by delivering breakthrough performance and results for Barloworld and its stakeholders.
For MTN, its mission is to utilise innovative information and communication technologies to empower their communities to grow from strength to strength.
Dangote Group has the vision of becoming the leading provider of essential needs in food and shelter in sub-Saharan Africa.
People want to work for an organisation that has a broader goal than narrowly making owners wealthy. So, when you go into the next strategy cycle, look carefully at the objectives you are setting for the next period. Are your objectives stakeholder-friendly? Does everybody win when they interact with your organisation? Are your objectives environmentally respectful? Do your objectives underpin a sustainable organisation, one that customers will appreciate years from now? Do you and your team operate, like Ratan Tata, from a framework of ethics, values, fairness, and objectivity?
Financial objectives alone will not produce superior performance over the long term.