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134 PART 2 • STRATEGY FORMULATION

TABLE 5-1 Varying Performance Measures by Organizational Level
Organizational Level Basis for Annual Bonus or Merit Pay
Corporate 75% based on long-term objectives
25% based on annual objectives
Division 50% based on long-term objectives
50% based on annual objectives
Function 25% based on long-term objectives
75% based on annual objectives

TABLE 5-2 The Desired Characteristics
of Objectives
1. Quantitative
2. Measurable
3. Realistic
4. Understandable
5. Challenging
6. Hierarchical
7. Obtainable
8. Congruent across departments

TABLE 5-3 The Benefits of Having Clear
Objectives

1. Provide direction by revealing expectations
2. Allow synergy
3. Aid in evaluation by serving as standards
4. Establish priorities
5. Reduce uncertainty
6. Minimize conflicts
7. Stimulate exertion
8. Aid in allocation of resources
9. Aid in design of jobs
10. Provide basis for consistent decision making

Financial versus Strategic Objectives
Two types of objectives are especially common in organizations: financial and strategic
objectives. Financial objectives include those associated with growth in revenues, growth in
earnings, higher dividends, larger profit margins, greater return on investment, higher earn-
ings per share, a rising stock price, improved cash flow, and so on; while strategic objectives
include things such as a larger market share, quicker on-time delivery than rivals, shorter
design-to-market times than rivals, lower costs than rivals, higher product quality than
rivals, wider geographic coverage than rivals, achieving technological leadership, consis-
tently getting new or improved products to market ahead of rivals, and so on.
Although financial objectives are especially important in firms, oftentimes there is a
trade-off between financial and strategic objectives such that crucial decisions have to be
made. For example, a firm can do certain things to maximize short-term financial objec-
tives that would harm long-term strategic objectives. To improve financial position in
the short run through higher prices may, for example, jeopardize long-term market share.
The dangers associated with trading off long-term strategic objectives with near-term