Change is the only constant in the business world. Amidst an ever-changing business landscape, organizations must set clear strategic goals and objectives that guide their efforts and decision-making.
Strategic goals are a key component of the strategic planning process. Done right, they position an organization to gain a competitive advantage by responding to change and future opportunities.
But how does an organization decide which goals are vital, which are actionable and measurable, and which to prioritize?
This article will examine proven ways of strategic goal-setting and some common pitfalls to avoid.
Characteristics Of Strategic Goals
Strategic goals are an organization’s measurable objectives that indicate its long-term vision. Hence, they must precede the strategic plan. Here are four important characteristics of a good strategic goal:
1. Purpose Driven
Strategic goals must be aligned with the organization’s overarching vision, mission, and core values. Hence, the starting point for crafting strategic goals is to ask what the organization’s purpose and values are and what it strives for.
The answers to these questions guide the development of strategic goals. When goals are authentic and purpose-driven, they naturally drive business performance [2].
Consumers and employees increasingly consider the bigger picture of accountability when committing money. They want to know if the recipients of their investment and efforts are also considering the same.
Research clearly indicates that purpose-driven companies outperform their counterparts in the areas where performance matters most: productivity, retention, growth, and the ability to pivot into different business models [3].
Linking an organization’s strategic goals with its purpose really gets people aligned and moving in the right direction – the most proven way to outperform the competition.
2. Long-Term and Forward-Focused
Strategic goals are the organization’s long-term objectives. They differ from operational goals, which are the daily milestones that need to be reached to achieve them.
Hence, when setting strategic goals, it is important to consider the organization’s values and long-term vision and ensure that strategic and operational goals are not mixed.
For instance, a good strategic goal of a company specializing in software development would be “to enter the healthcare market and become a leading provider of innovative software solutions within the next five years.”
For the same company, an operational goal could be to “release a new software specifically designed for hospital management within the next six months.”
While the strategic goal defines the long-term objective, the operational goal sets a specific milestone within a shorter timeframe. By separating the two, the company ensures that the operational goal contributes to the overall strategic direction without interfering with the organization’s long-term vision and values.
Keeping a forward-focused vision ensures that the organization sets challenging strategic goals that have a lasting impact.
3. Actionable
Strong strategic goals must be actionable. If they cannot be linked to actionable operational goals that teams can accomplish, the organization is better off spending time and resources elsewhere.
When formulating strategic goals, organizations must consider the operational goals that fall under them.
Do they create an action plan that teams can follow to achieve the organization’s objective?
For example, “Increase market share in Edtech by 10% in next financial year” is an actionable strategic goal that can drive operational objectives. However, “Be the most respected company in Edtech by next year” does not mean much when it comes to driving actions.
4. Measurable
When crafting strategic goals, it’s important to define how progress and success will be measured. There are many well-established management frameworks to aid this tracking process.
Key Performance Indicators (KPIs) [4], Objectives and Key Results (OKRs) [5], Objectives, Goals, Strategies and Measures, Management by Objectives (OGSMs) [6], and Big Hairy Audacious Goals (BHAGs) [7] are some of the popular goal-setting frameworks used by organizations.
Another effective tool organizations can use to create measurable goals is a Balanced Scorecard [9] – particularly effective for tracking and measuring non-financial variables.
It combines the traditional financial perspective with additional perspectives focusing on customers, internal business processes, and learning and development.
How do we build strategic goals?
Because strategic goals must be far-reaching and measurable, finding the words to define them isn’t simple. You don’t want these goals to be too broad or too narrow in scope.
Here is a six-step approach to strategic goal-setting:
1. Start with the purpose
Start by understanding your organization’s overall vision, mission, and strategy. This will provide the foundation to define strategic goals.
- What does the organization want to achieve in broad terms?
- What is the mission?
- What is the overall vision?
- How do you want the organization to develop or change?
Strategic goals are the high-level targets to achieve an organization’s mission. Ideally, these are three to five key ambitions, which, if attained, the organization can confidently say it won.
2. Use the “SMART” criteria
Using “SMART” criteria ensures your goals are Specific, Measurable, Actionable, Relevant, and Time-bound [10]. This makes them clear, actionable, and measurable and makes communicating and monitoring simpler.
3. Break down goals into actionable steps
Outline the specific actions and tactics required to achieve each strategic goal. This helps with execution and tracking progress.
4. Communicate clearly and consistently
Employees are strapped for time and have limited resources to actively educate themselves on a company’s goals and shifting strategic directions.
Strategic goals should be a management tool for employees to learn and work together—not a yearly report. Leaders must speak about them every week and make them a part of
how people work – they need to be thought about on a day-to-day basis.
The most significant benefit of communicating goals well is greater transparency about an organization’s priorities and purpose.
5. Ensure alignment
Strategic goals must cascade down to department, team, and individual levels. It is essential to ensure everyone is working towards the same objectives.
Often, the best way to achieve this is to talk to key stakeholders and share the draft criteria. Ensure the language is familiar and allow people to shape outcomes. This will foster ownership and ensure everyone is on board.
6. Monitor and adapt
While measurability is an essential criterion of a strategic goal, it is only half the story. The other half is monitoring, which is important for several reasons:
- It allows an organization to assess whether it is on track to achieve its objectives.
- It brings accountability and ensures that all levels of the organization, from business units to individuals, are aligned and working towards the same objectives.
- It ensures Informed decision-making. Data and insights gathered from monitoring strategic goals provide valuable information to make data-driven decisions about resource allocation, priorities, and necessary changes to the strategic plan.
- Regularly reviewing progress motivates the team and maintains momentum toward achieving the strategic goals. It also helps recognize efforts and contributions.
Traditional metrics used to monitor goals are either financial or business-related. These include revenue growth, profit margins, market expansion, etc.
The balanced scorecard [9] goes beyond these standard metrics to bring additional perspectives focusing on customers, internal business processes, and learning and development, which helps businesses measure all the activities essential to creating value.
Another advantage of monitoring is it forces adaptability. Because business environments are never static, organizations must constantly identify and respond to changes in the internal or external environment to maintain a competitive edge.
Prioritizing Strategic Goals
“The essence of strategy is choosing what not to do.”
Michael Porter
The number one mistake companies make is setting too many goals. Because employees don’t have the time or the “working memory” to juggle a long list of strategic priorities, this can lead to missed objectives and employee frustration.
Determining which goals are worth pursuing and selecting three to four key goals is thus important to ensure effectiveness.
This can become a lengthy process, especially if other decision-makers have differing priorities and opinions. The following steps help prioritize strategic goals:
- Reiterate the purpose – ensure everyone knows the purpose behind each strategic goal.
- Calculate anticipated ROI –operational goals under strategic objectives are expected to deliver results. Calculating their Return on Investment (ROI) is a good way to prioritize goals based on their impact [11].
- Consider the impact of current events – the importance of the present moment can’t be overlooked. What’s happening in the world that could impact the timeliness of each goal?
- Assess the Big Picture – consider the broader impact of each goal – how it creates value for various stakeholder groups and aligns with the organization’s purpose. Goals that create value for multiple stakeholders and contribute to KPIs should be given priority.
- Independence from bias – are the goals independent of biases, personal agendas, and power struggles? Prioritize based on relevance, dependence, and ease rather than individual preferences or wish lists.
Pitfalls to avoid in setting strategic goals
Good strategic goals serve as a North Star for organizations, driving powerful growth as they navigate an uncertain business environment. Yet very few companies consistently achieve long-term growth.
Research by Bain & Company showed that just 1 in 11 companies outperformed their market over a 10-year period [12]. While there are no easy answers on how to set goals that consistently drive results, but here are some common pitfalls to avoid:
1. Setting goals influenced by existing business
All too often, strategic vision is limited by what the business is currently doing. Consequently, organizations ignore opportunities to capitalize on adjacencies or build new, transformative profit engines. They aren’t attuned to threats from new players.
2. Leaning on management routines
Managers tend to get locked into their existing reporting structures and routines because it is easy to define their business this way. They fail to recognize the true boundaries and interdependencies among business units.
When setting strategic goals, look across the organization to determine where units share customers, costs, and capabilities.
Leaders also tend to consider the potential of each of their businesses incrementally relative to today’s results. This leads to “satisfactory underperformance” and discourages a full-potential perspective aimed at accelerating away from today’s performance.
3. Extrapolating strategy from the past, not taking a “future-back” approach
Companies tend to derive strategic goals by extrapolating past events and spend much time scrutinizing short-term forecasts. Good strategic goals, however, require a future-focused approach.
Teams must produce a fresh and radical set of alternative industry scenarios, consider potential disruptions, and understand shifts in their ecosystems and how these might affect their position.
4. Allocating resources democratically
Realizing strategic goals requires leaders to set clear priorities and resolve trade-offs across business portfolios. Goals tend to fall apart when resources and capital are spread too thin, often because they are spread evenly across the organization.
Organizations tend to focus too much on protecting against downside scenarios and not enough on capturing the upside.
5. Ignoring holistic value-creation
Too often, organizations only consider P&L, which narrows the focus on top-line growth and margin improvement. Total shareholder return goes beyond P&L considerations and relies on external valuation, cash-flow choices, and capital structure.
Strategic goals must consider all these factors, and leaders must understand and articulate the “equity story” that underlies a clear path toward full potential.
6. Failing to account for uncertainty
Technology is shifting business boundaries at an ever-increasing speed [13]. Strategic goals must consider these uncertainties by augmenting the company’s no-regret initiatives with strategic options based on well-developed scenarios.
Goals are effective when they include options and hedges that get triggered as conditions change on the way to the target state.
7. Creating Goals in silos without considering interdependencies
Strategic goals address the organization’s biggest challenges, which are often complex in nature. They require collaborative and cross-functional efforts.
Whether developing a product, rolling out a process, or delivering a service, there are critical cross-functional stakeholders on whom employees depend.
When goals are developed in silos, they suffer from a lack of alignment, lack of ownership, reduced collaboration, and ultimately fragmented decision-making.
Strategic goals must confront the future, not avoid fear
Strategic planning is the process of using available knowledge to document a business’s intended direction. As a part of this process, a good strategic goal must force executives to confront a future they can only guess.
This means making decisions that explicitly exclude possibilities and options, which can look scary. Hence, executives tend to make the challenge less daunting by preparing comprehensive plans for how the company will achieve its goal. They spend weeks and months detailing spreadsheets that project costs and revenue far into the future.
While this is an excellent way to cope with fear, it’s a terrible way to set goals and develop a strategy. [14]
If your strategic goals make you entirely comfortable, there’s a strong chance they aren’t very good.
In business and leadership, the pursuit of comfort is the antithesis of growth. This applies to strategic goals, too. Good strategic goals involve placing bets and making hard choices. The objective is not to eliminate risk but to increase the odds of success.
Strategic goals are critical to the success of an organization regardless of industry, region, or size, strategic. To realize real value, organizations must overcome considerable obstacles, including time-strapped teams, an unclear roadmap, and potentially conflicting priorities within the organization.
To survive today’s fast-paced business environment, bold strategic goals are required – goals that take the organization out of its comfort zone and put it on a path of success.
Sources
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3. “The Power of Putting Purpose Before Profit.” Inc., https://www.inc.com/inc-masters/the-power-of-putting-purpose-before-profit.html. Accessed 20 Dec 2024.
4. “What Are Your KPIs Really Measuring?”. Harvard Business Review, https://hbr.org/2020/09/what-are-your-kpis-really-measuring. Accessed 20 Dec 2024.
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6. “OGSM”. Wikipedia, https://en.wikipedia.org/wiki/OGSM. Accessed 21 Dec 2024.
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9. “Balanced Scorecard”. Strategic Management Insight, https://strategicmanagementinsight.com/tools/balanced-scorecard/. Accessed 21 Dec 2024.
10. “SMART criteria”. Wikipedia, https://en.wikipedia.org/wiki/SMART_criteria. Accessed 22 Dec 2023.
11. “ROI Formula (Return on Investment)”. Corporate Finance Institute, https://corporatefinanceinstitute.com/resources/accounting/return-on-investment-roi-formula/. Accessed 22 Dec 2024.
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13. “How technology is redrawing the boundaries of the firm.” The Economist, https://www.economist.com/business/2023/01/08/how-technology-is-redrawing-the-boundaries-of-the-firm. Accessed 22 Dec 2024.
14. “The Big Lie of Strategic Planning”. Harvard Business Review, https://hbr.org/2014/01/the-big-lie-of-strategic-planning. Accessed 22 Dec 2024.