Setting business goals and objectives has always been essential to workplace success, but only recently have executives begun to see the power behind corporate goal setting frameworks like OKRs, SMART goals, and BHAG goals. Here, we’ll discuss why they’re so critical to driving performance, as well as how you can begin setting goals in your own company.
Types of business goals setting frameworks
There are several methods for setting business goals. When you need to decide on which goal setting framework to adopt in your organization, examine each option and choose one that fits your culture and approach. Some of the most popular goal setting frameworks for businesses include:
OKRs are business goals organized around objectives and the key results required in order to achieve your objective. This goal setting framework was championed by Google in the late 90s and is used by companies like Spotify, Walmart, ING Bank, Twitter, and more.
Learn more about OKR
SMART goals is an approach to business goal setting which stands for Specific, Measurable, Attainable, Relevant, and Time-Bound. Using the SMART method for goal setting ensures that business goals are well-defined and are geared towards execution over a specified time period.
Learn more about SMART goals
MBO (Management by Objectives) is a framework based on a need to manage business based on its needs and goals. The MBO goal setting process starts by defining top business goals and using them to determine employees’ objectives.
Learn more about MBO
BHAG (Big Hairy Audacious Goal) is a long-term business goal, typically a 10 to 25-year goal, used as a big target for the organization to achieve. BHAG is used as a way to guide current and future employees towards the long-term business goals of the organization.
How to set business goals
Step 1: Get executive input
If you’re a CEO, it’s mostly up to you to determine your most important company-level goals. Some organizations use a SWOT analysis to identify Strengths, Weaknesses, Opportunities, and Threats, then set goals based on how to use each to their advantage. You can also ask fellow executives to weigh in.
If you’re unsure of where to start, consider identifying where you’d like to be in five years. Then, take that information to the next step to figure out where you’d like to be within one year.
Step 2: Choose business goals and objectives for 1 year
Even though you have a vision of where you’d like your company to go within the next five years, your business goals should never extend further than one year. Otherwise, you’re looking at long-term strategies, not goals. Strategizing for the long haul can be beneficial, but without the ability to focus on broken down, measurable goals, you won’t be able to laser-focus on what’s most important right now.
To set yearly goals during annual planning, identify what you have to do within the next year to support your five-year vision. For instance, if you hope to have 500,000 users within 5 years, your goal for your first year might be to focus on growing your global business. Another goal might be to launch a new product successfully.
Step 3: Break it down by quarter
Once you’ve developed your business goals for the year, break them down by identifying what you need to accomplish for each quarter in a quarterly plan. Set specific dates for your Key Results. Recall that the Objective is the thing to be accomplished, and the Key Result is the set of 1-3 KPIs to measure the achievement of the Objective. It can be either a qualitative milestone or a quantified metric.
Step 4: Make goals SMART
In addition to making goals time-bound, you should also verify that they satisfy the other components of SMART criteria: Specific, Measureable, Aligned, Relevant and Time-bound. By using these five guidelines to create your business goals, you’ll ensure clarity and make it easier to track progress when it comes time for follow-through.
Step 5: Set no more than 3-5 OKRs
At any given time, you should have no more than 3-5 OKRs per quarter. Having more than that will make it too difficult to focus on goals. Remember, these are your most important priorities. Even high-performing organizations like Google use caps on OKRs to allow their teams to laser focus on the most critical current company Objectives – read more about why here.
Step 6: Use examples
The business goals and objectives you decide to set on your company will depend on a few key factors, including your current opportunities and threats as discussed in the first point. Thus, no two organizations will have the exact same goals. However, it can still be helpful to look at other companies’ corporate goals for guidance. To make sure you’re on the right track, take a look at our list of OKR examples. For your convenience, we’ve also included OKRs for every department, making it even easier to see how goals can be cascaded down and aligned up, which brings us to our next point.
Step 7: Cascade down and align up
After setting 3-5 SMART company goals for the quarter, you can then begin cascading goals down through departments or units. These will then be broken down further among teams and individuals. Keep in mind that individuals should also be setting some of their own OKRs, creating a system by which goals are both cascaded down and contributed up. The end result is an aligned network of goals that gives all employees a direct line of sight into how their contributions are driving progress on company priorities.
Why it’s important to set and track business goals
Setting and tracking business goals is critical to success in any organization. Think of it in terms of football: if there wasn’t an end zone, how would you know when your team scored a touchdown? Goals are enterprise end zones, and you need to track your progress toward them to make sure you’re staying ahead of the competition.
Of course, this is an over-simplified comparison, but it may be helpful for shedding light on the importance of business goals. The reality is that many executives set them, but fail in terms of follow-through. One of the main reasons they fail is because they’re not measuring progress.
That’s why it’s so important to set goals that are measurable in the first place. Doing so will allow you to continually monitor progress so you know whether you’re on track, falling behind, or if the goal needs to be put on hold so other priorities can be addressed. For these reasons, business goals should be SMART.
When you set SMART goals for your business, they naturally become easier to track. Since workers already know exactly what’s expected of them because you’ve set clear goals, it will be easier for managers to have regular check-ins with their teams to discuss goal progress. They can ensure everything is on track, and if not, offer course-correcting guidance to get their teams headed in the right direction. That way, by the time deadlines roll around, the goals will be completed.
Benefits of setting business goals
Choosing the right goals sets your company in the best possible direction. Business goals are essential to keeping your entire organization focused on desirable outcomes, and they also help to ensure everyone is supporting the most critical priorities in your company right now. When done properly, business goal setting can even motivate teams, drive engagement, and accelerate results.
Too often, companies fail to hit their goals. Usually, it’s because goals weren’t properly set in the first place, or they weren’t specific or measurable to begin with. As a result, there’s no way for people to know if they’re on track. They waste time doing busywork, and putting out fires instead of making collective progress on the company’s most critical priorities.
Business goals and objectives supports alignment
When you strategically set business goals using a system like OKRs, you can achieve corporate alignment. And, there’s a direct correlation between effective goal setting and alignment and financial performance. Companies that have goals aligned tend to outperform organizations that lack a direct connection between top company priorities and employees’ individual goals.
When you create alignment, employees have a direct line of sight as to how their efforts impact organizational success.
Company goals helps you execute your business strategy
One of the most common reasons organizations fail to achieve their goals is that there’s a disconnect between the CEO’s priorities and the employees’ goals. When you set top company goals and cascade them from the bottom down (as well as aligning them upwards), you guarantee that all employees’ goals are directly supporting the most important priorities to the company right now. As a result, every single contributor is supporting the execution of your business strategy.
Moreover, cascaded and aligned goals allow all teams to see each other’s goals. This prevents redundant efforts from taking place and gives managers a clear understanding of exactly what their direct reports are responsible for, so they can track progress and coach their people to keep them laser-focused.
Goal setting improves employee retention
Another benefit of business goal setting is an uptick in employee retention. Gallup research indicates that companies with a dissatisfied workforce unsurprisingly have a 51% higher rate of turnover than others, along with lower productivity rates and more employee absences. Because goal setting can drive employee satisfaction by giving teams a way to see how their contributions support company progress, corporate goal setting is one of the most powerful tools you can use to retain your top talent.