When a business consistently is losing money, top leadership may vent a frustration and an urgency that department heads are not doing the kinds of things necessary to prevent the operational demise that is unfolding and to deal with it effectively. To right the organization's operating ship, senior executives may formulate fresh financial and strategic goals that functional heads must follow to the letter.
Financial goals touch on everything money-related that a company wants to achieve within a given period — say, one month, quarter or fiscal year. These objectives may span a shorter stretch if top leadership must cope with an immediate operational crisis, the kind that may happen if a major customer owing substantial amounts suddenly files for bankruptcy. For a company, economic objectives may be making a specified amount of money at year-end, increasing sales by 15 percent, cutting costs by 20 percent in segments that are bleeding cash and raising long-term debts on credit markets by targeting interest rates between 4 and 5 percent and avoiding lender restrictions that are too stringent.
Formulating strategies is what company executives do to cope with competitive tedium, understand the tactical moves that rivals surreptitiously are making, deal with the hybrid problem of customer loyalty and brand positioning, hire competent professionals and nurture the company's mid-level brass. Strategic objectives may cover things like expanding market share overseas and domestically by 8 percent and 10 percent, respectively; reducing the corporate employee turnover ratio by 2 percent; cultivating more amicable ties with lenders, business partners and shareholders; and communicating with regulators more effectively. Employee turnover deals with how many employees leave a company compared to its total work force.
Notwithstanding their conceptual distinction, financial objectives and strategic goals flow symbiotically in the way a company runs its businesses. Both concepts are mutually inclusive — meaning, a major strategic move the organization makes has financial repercussions, and vice versa. For example, if a business wants to expand overseas but does not have a deep operating pocket, it must raise funds by selling stocks or bonds. These activities have financial consequences in terms of dividend or interest remittances.
When pondering strategic and financial objectives, an organization's leadership must review not only internal factors but also external factors. Business commentators group the latter factors under the PEST acronym, which stands for politics, economy, social and technology. Reviewing PEST factors helps department heads formulate strategic and financial blueprints that align with ground conditions.
- Kent State University; Organization Budgeting and Financial Management; Teniell Trolian; January 2010
- The American College; "The Financial Planning Process"; Robert W. Cooper, et al.
- Corporate Health Group; Strategic Planning: A Growth Strategy: Making It Work Within; Carolyn Merriman, et al.
- "Operations Management — Sixth Edition"; Jay Heizer, et al.; 2001