Organizational Operating Goals

Operating Goals: An Aspect of Organizational Purpose

The organization’s mission and overall goals provide a basis for developing specific operating goals.

Operating goals designate the ends sought through the actual operating procedures of the organization and explain what the organization is actually trying to do.

Operating goals describe specific measurable outcomes and are often concerned with the short run.

Operating goals typically pertain to the primary tasks an organization must perform. For example, one of the critical tasks at technology companies is fixing bugs, but the work is tedious and most programmers prefer designing new features to fixing bugs in current ones.

To motivate employees, top leaders at Mozilla CorporationOpens in new window, maker of the Firefox Web browserOpens in new window, gave them two goals:

  1. to close 40 high-priority bugs on the browser between February 2017 and the next beta release of Firefox in September, and
  2. to bring Mozilla’s performance within 20 percent of Chrome’s score on a browser benchmarking service.

The goals worked! By late August, Mozilla’s programmers had closed nearly 400 bugs and were close to the goal of closing the performance gap with rival ChromeOpens in new window.

Specific goals for each primary task provide direction for the day-to-day decisions and activities within departments. Typical operating goals that define what an organization is trying to accomplish include:

  • performance goals,
  • resource goals,
  • market goals,
  • employee development goals,
  • productivity goals, and
  • goals for innovation and change.

Figure X-2 illustrates the operating goals.

illustration of organizational operational goals Figure X-2. Credit — Slide Player Opens in new window
  1.    Overall Performance

Profitability reflects the overall performance of for-profit organizations. Profitability may be expressed in terms of net income, earnings per share, or return on investment.

Other overall performance goals are growth and output volume.

  • Growth pertains to increases in sales or profits over time.
  • Volume pertains to total sales or the number of products or services delivered.

Government and nonprofit organizations such as social service agencies or labor unions do not have goals of profitability, but they do have goals that attempt to specify the delivery of services to clients or members within specified expense levels. The Internal Revenue ServiceOpens in new window has a goal of providing accurate responses to 85 percent of taxpayer questions about new tax laws.

Growth and volume goals also may be indicators of overall performance in nonprofit organizations. Expanding their services to new clients is a primary goal for many social service agencies, for example.

  1.    Resources

Resource goals pertain to the acquisition of needed material and financial resources from the environment. They may involve obtaining financing for the construction of new plants, finding less expensive sources for raw materials, or hiring top-quality technology graduates.

StarbucksOpens in new window formed an alliance with India’s Tata GroupOpens in new window to obtain Indian premium Arabica coffee beans for use in Starbucks stores. Eventually, the alliance will also enable Starbucks to find prime locations for outlets in India, which can also be considered valuable resources.

A new resource goal for WalmartOpens in new window is to hire every veteran who wants a job, provided the person left the military in the previous year and did not have a dishonorable discharge. For nonprofit organizations, resource goals might include recruiting dedicated volunteers and expanding the organization’s funding base.

  1.    Market

Market goals relate to the market share or market standing desired by the organization. Market goals are largely the responsible of marketing, sales, and advertising departments.

At L’Oreal SAOpens in new window, the world’s largest cosmetics company, executives set a goal of adding one billion customers by 2020. As one step to achieve the goal, managers are making changes in marketing and selling approaches designed to win over more customers in Brazil.

Women are some of the biggest spenders on beauty products, but L’OrealOpens in new window has had trouble adapting to the Brazilian market.

Market goals can also apply to nonprofit organizations. Cincinnati Children’s Hospital Medical CenterOpens in new window, not content with a limited regional role in healthcare, has gained a growing share of the national market by developing expertise in the niche of treating rare and complex conditions and relentlessly focusing on quality.

  1.     Employee Development

Employee development pertains to the training, promotion, safety, and growth of employees. It includes both managers and workers.

Strong employee development goals are one of the characteristics common to organizations that regularly show up on Fortune magazine’s list of “100 Best Companies to Work For.” Moreover, employee learning goals have been found to be related to higher levels of department performance.

Wall Street banks have long been known for encouraging long work hours, but some are now taking a critical look at that hard-charging culture. Bank of America Merril LynchOpens in new window (rebranded BofA Securities), for example, issued an internal memo saying junior bankers should have two weekends off a month.

To expand employee development, the bank also intends to “make certain that junior bankers work on a wider variety of different assignments… and ensure that the development of core skills is an important factor in making staffing assignments.”

  1.    Productivity

Productivity goals concern the amount of output achieved from available resources. They typically describe the amount of resource inputs required to reach desired outputs and are thus stated in terms of “cost for a unit of production,” “units produced per employee,” or “resource cost per employee.”

Illumination EntertainmentOpens in new window, the production company behind the hit movie “Hop,” has productivity goals that help the company make animated films at about half the cost of those made by larger studios. CEO Christopher Meledandri believes strict cost controls and successful animated films are not mutually exclusive, but it means Illumination’s 30 or so employees have to be highly productive.

  1.    Innovation and Change

Innovation goals pertain to internal flexibility and readiness to adapt to rapid changes in the environment. Innovation goals are often defined with respect to the development of specific new services, products, or production processes.

Kraft HeinzOpens in new window has been falling behind competitors since leaders cut funding and attention for research and development. After the Brazilian private-equity firm 3G CapitalOpens in new window acquired H.J. Heinz and Kraft FoodsOpens in new window, executives focused heavily on goals of cost-cutting. There have been some positive results, but weak attention to goals of innovation and change has limited the company’s ability to adapt to the shift away from processed foods toward fresher, simpler and more natural products.

Successful organizations use a carefully balanced set of operating goals. For example, some of today’s best companies recognize that a single-minded focus on bottom-line profits may not be the best way to achieve high performance.

Innovation and change goals are increasingly important, even though they may initially cause a decrease in profits. Employee development goals are critical for helping to maintain a motivated, committed workforce.

The Importance of Goals

Both official goals and operating goals are important for the organization, but they serve very different purposes.

  • Official goals and mission statements describe a value system for the organization and set an overall purpose and vision.
  • Operating goals represent the primary tasks of the organization.
  • Official goals legitimize the organization.
  • Operating goals are more explicit and well defined.

Operating goals serve several specific purposes. For one thing, goals provide employees with a sense of direction so that they know what they are working toward.

This can help to motivate employees toward specific targets and important outcomes. Numerous studies have shown that specific high goals can significantly increase employee performance.

A recent study verified that departments perform significantly better when employees are committed to the goals. People like having a focus for their activities and efforts. Jennifer Dulski, currently head of Groups and community at Facebook, talks about how she motivated people at a previous organization.

“One quarter we had three big goals. I said, ‘If we hit all three, it’s the trifecta and we’re going to all go the horse races.’ And I gave everybody $50 to bet with at the races. I learned as a teacher that everybody has a little kid inside them, but they do.” This provides example of just how powerful goals can be as a motivational tool.

As shown by this example, another important purpose of goals is to act as guidelines for employee behavior and decision making.

Managers can establish appropriate goals that act as a set of constraint on individual behavior and actions so that employees behave within boundaries that are acceptable to the organization and the larger society. Goals also help to define the appropriate decisions concerning organization structure, innovation, employee welfare, or growth.

Finally, goals provide a standard for assessment. The level of organizational performance, whether in terms of profits, units produced, degree of employee satisfaction, level of innovation, or number of customer complaints, needs a basis for evaluation. Operating goals provide this standard for measurement.

Goal Conflict

Organizations perform many activities and pursue many goals simultaneously to accomplish an overall mission. But who decides what mission and goals to strive?

Pursuing some goals means that others have to be delayed or set aside, which means managers often disagree about priorities. Employee development goals might conflict with productivity goals; goals for innovation might hurt profitability.

As one real-life example of goal conflict, recent analyses of company operations at Facebook reveal that goals of protecting user privacy and personal data have long been in conflict with goals of growth and increased advertising revenue.

Many companies mix value systems and behaviors that represent different sectors of society, which leads to tensions and conflict within the organization over goals and priorities. For example, a social mission, such as helping the community, often conflicts with business goals of making money.

Differences in goal orientation can trigger manipulation, avoidance, or defiance on the part of one side versus the other unless managers can balance the conflicting demands. When the goals and values of the two sides are mutually exclusive, managers must negotiate and come to some agreement on which direction the company will take.

Remember This
  • Operating goals designate specific ends sought through the actual operating procedures of the organization. Operating goals include performance goals, resource goals, market goals, employee development goals, productivity goals, and innovation and change goals.
  • Goal conflict is inevitable in organizations and managers sometimes have to negotiate to reach agreement about the important goals to pursue.
  • Official and operating goals are a key element in organizations because they meet these needs—establishing legitimacy with external groups, providing employees with a sense of direction and motivation, providing decision guidelines, and setting standards of performance.
    Research data for this work have been adapted from the manual:
  1. Managerial Accounting: Tools for Business Decision Making By Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso