A number of companies provide conflicting departmental objectives where one department’s objectives are misaligned with another. In essence, in order for one department to be successful, another must fail. It all sounds somewhat counterproductive doesn’t it? Why does this happen and what can be done to remedy the situation? We’ll look at the importance behind strategic planning and properly aligned departmental objectives.
Afterwards, we'll provide a summary of why strategic planning initiatives must include one goal, or set of goals for the entire company, with individual objectives linked to those goals. In the end, it's essential that your goals are aligned.
Why are Objectives Important in Strategic Planning?
Most companies have good intentions when coming up with departmental objectives. They envision a situation where they can provide the impetus to lower costs, achieve excellence in performance and improve efficiencies. Objectives provide a benchmark and period of reflection where employees and departments can review what worked, versus what didn’t. They allow companies to assess their strengths and weaknesses and put plans in motion to adopt change. They are also the main component of continuous improvement initiatives. Most importantly, they give individuals a sense of accomplishment when they’ve been successful.
The issues a number of companies have with their strategic planning initiatives is when one department’s objectives conflict with the objectives of another. This happens when companies micromanage the department’s objectives and don’t align those objectives with one all encompassing goal for the company.
The right approach is to start with a strategic plan that states the company's goals, the objectives to attain those goals and the resources the company has to attain those objectives. Consider the following examples. In each of these cases the departmental objectives are focused only on that department’s specific job function.
- Inventory Objectives can Adversely Affect Sales & Manufacturing Objectives
Every company is burdened by the holding costs of inventory and all of them try to mitigate these costs as much as possible. Companies often provide incentives to purchasing and inventory management on maintaining minimal counts and reducing costs. The mindset is the lower the inventory, the higher the savings. However, low inventory often conflicts directly with sales and manufacturing objectives. In order to appreciate this position, consider the following questions:
- Does the company save money when inventory is not available to sell?
- Does the company save money when machines and production work cells are sitting idle because of a shortage of raw materials and parts?
In both instances the costs are much higher than any potential savings. However, because inventory’s objectives are predicated on maintaining a low inventory cost of ownership, they often run extremely tight inventory levels and this can adversely affect the objectives of other departments. In a number of cases, it simply raises costs.
Inventory has always been about finding the middle ground between having too much and too little. Either end means high costs. The above video explains the costs associated with having too much inventory and too little inventory. If you want to read more, please go to: Inventory Carrying Costs vs. Lost Sales: Both Destroy Your Bottom Line
- Sales Objectives Can Exhaust Engineering Resources and Increase Inventory
Every company wants to increase sales and grow market share. To incentivize sales professionals, companies often include substantial sales objectives with heavily laden rewards and bonuses. Mistakes are made when the company provides too low a base salary and a commission structure that’s simply too high. From the company’s perspective, how else can they incentivize sales other than to provide a lower base salary and a higher commission structure? Unfortunately, this forces sales professionals to make promises that simply can’t be met.
The fear for the sales professional is losing the sale means lost income. As a result, inventory can become overburdened by high sales forecasts for finished product. In addition, sales can become so invested in a given sale or opportunity that they end up pushing engineering for new products, without first considering workload. This only drains resources and increases costs for engineering.
- Accounting & Finance Objectives Impede Customer Service and Sales
Given the current state of the economy and the rising number of business closures, it’s hard to argue with companies that decide to tighten their customers' credit limits. A company may decide that an accounting objective is to shorten terms and credit limits, thereby reducing losses incurred from customer bankruptcies and ensuring the business gets paid sooner. However, what happens when accounting is given the mandate to tighten customer terms and it stops a critical shipment from taking place? Does this rule apply to all accounts or only to some? If so, which accounts need to be closely watched and which accounts are allowed some leniency?
Without some clearly defined limitations and some in-depth discussions with sales and customer service, accounting can easily impede the company’s growth and sales objectives by alienating key customer accounts. The problem is not in the objective, but in how the objective is implemented and how it isn’t tied into the company’s goals.
One tool to make sure your goals are aligned is to use the value-chain analysis.
Given These Scenarios, What’s the Solution?
It’s easy to see how these conflicting departmental objectives do nothing more than raise costs. Savings in one department is easily offset in another. So, what’s the solution? Well, it lies in ensuring that the company’s strategic plans focus on a set of goals for the entire company. Having clearly defined goals allows all departments to reflect on the ultimate purpose of the company. For instance, if the goals of a given company include becoming a dominant player in their given market, growing their sales and reducing costs, then it’s easy to convey those goals into separate departmental objectives. In essence, it forces management to always keep the company’s goals in mind when setting objectives for departments and employees.
In this case, inventory may be asked to reduce costs but never at the expense of downtime in manufacturing or lost sales. Consequently, sales and marketing may have an objective to grow sales but never at the expense of higher inventory and engineering costs. Finally, accounting, finance and operations must protect the company’s gross profit but never at the expense of losing an important customer account.
To read about how proper strategic planning can help your business grow and align company wide objectives, read "How Can Strategic Planning Help Your Business Grow?"
Companies must adopt strategic planning initiatives that clearly define the company’s goals. Afterwards these goals can be broken down into specific departmental objectives that can be aligned with other departmental objectives. Linking these objectives to the company’s goals is essential to success.
When all departments understand how their objectives play a role in attaining the company’s goals, then it allows for reflection and encourages communication between departments before taking decisions.
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