Five steps to setting effective corporate objectives

New technologies and methods which brought the definition and implementation of objectives closer to each other in the 1990s resulted in more and more targets being set, even in non-financial business units. Given all the objectives, it is easy to forget what the management’s main duty actually is: to deliver the best possible performance. Objectives can certainly make a contribution to this. The decisive factor is that they are expedient and can be implemented effectively. The following five steps help to set realistic targets and introduce an efficient performance management system:

1. Base target setting on the overall strategy

Corporate objectives should always be based on the company’s main strategy. This means that managers need to break down the overriding strategic objectives into individual components of the entire value chain, i.e. into the respective divisions and departments. The challenge lies in defining the relevant measures and responsibilities in such a way that they are not only expedient on paper but also during day-to-day business operations and in a way that avoids duplications.

2. Make the right choice

Having too many targets results in employees not being able to see the forest for the trees. If too few are set, it is not possible to connect the dots. It is therefore crucial to make the right choice and focus on the important aspects. So on the one hand, the targets should be linked to the relevant value drivers in the company like income, return on sales or investments. On the other hand, a healthy balance must be found between financial targets (e.g. sales growth, earnings yield or free cashflow) and non-financial objectives (e.g. customer satisfaction, production lead times or customer returns). This is only possible if the measures and responsibilities are defined and distributed across divisions and functions.

3. Pull together

The defined business strategy must be communicated to the whole company on a personal level. The decisive success factor is that the Executive Board – and especially the CEO – leads by example by living by the values and objectives. The CFO’s duty is to monitor the implementation of the targets in day-to-day business and ensure that the various measures are harmonized expediently. The most important actors for implementing the objectives are nevertheless the respective departments and employees. It is necessary to pave the way for them through targeted coaching so that they can apply their individual skills in the best possible manner to ensuring that the targets are met.

4. Do not carve objectives in stone

Objectives are relative and are also based on internal and external framework conditions which can quickly change. Implementing targets is therefore a constant experimentation process. It is important in this respect also sometimes to accept performance that is not in line with expectations over a limited period. This is the only way of being able to respond effectively to changing conditions and adjust the objectives accordingly.

5. Optimize performance management

The target setting process should be institutionalized as part of an all-embracing performance management system. To this end, CEOs and CFOs can resort to integrated planning solutions which support the company in the areas of strategy, budgeting, forecasting and financial planning. Such applications help to introduce an effective performance management system in the company by combining the respective areas with each other and enable decision-makers to focus on their main skills.

More resources

Lower your data latency and improve your business decision-making

There’s a term in network technology called ‘latency’ which refers to the delay between the execution of a command and the instruction given by the user. You’ll hear it most often in the world of high-speed training where a slight increase in latency (to the effect of a couple of milliseconds) can have a drastic negative impact on speed and thus performance.

Read this article

How strong FP&A solutions improve data literacy

As most of us realise, there is useful data and not-so-useful data. And merely having it at your disposal doesn’t necessarily mean that you’re able to discern between these two camps. It’s often only in the processing phase where we dig into the data and look for insights that we discover whether the data we’ve collected can actually drive us forward, rather than remaining a red herring.

Read this article

5 common mistakes when building financial models

Critics of financial modelling will always tell you that there are simply too many moving parts and interdependencies within a company to arrive at an accurate prediction of the future. They’ll point to how easy it is to adjust an input assumption and completely change the entire scope of what the model outputs. And to a certain extent – they’re right.

Read this article

Unlocking a new operating model for finance

Much has been written about how changing tides, rapid disruption, and global trends impact the customer-facing side of business today.  You can open any business publication of your choice and hear stories of how technology has completely changed how they think about their offering and their messaging to the market. 

Read this article

The 10 commandments of FP&A

Here at Apliqo, the FP&A process is at the heart of what we do and so in this post, we thought we’d share our 10 commandments for what strong FP&A execution looks like. While somewhat tongue-in-cheek, there’s a lot to be gained from getting these things right. Now, without any further ado, onto the ten commandments.

Read this article
Ten commandments of FP&A