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Financial & Non-Financial Corporate Objectives Video

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  • 0:04 Strategic Objective Importance
  • 0:48 Financial Objective Examples
  • 1:35 Non-Financial…
  • 2:30 Financial Vs Non-Financial
  • 6:11 Lesson Summary
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Lesson Transcript
Instructor: Nick Chandler
What can be done to ensure an organization's survival? This lesson looks at how the setting of financial and non-financial objectives will result in the increased value of a company and the satisfaction of its stakeholders.

Strategic Objective Importance

When organization executives are putting together their strategic plan, a fundamental part of their work involves the setting of strategic objectives. These strategic objectives must be in line with the mission of the organization and where they want the organization to be in the future, or what the vision for the organization is. Thus, strategic objectives must be long-term.

Strategic objectives are usually split into two categories: financial objectives and non-financial objectives. The financial objectives are the ones that most people think of for companies and they involve profits, costs and so on. Everything else falls into the category of non-financial objectives. Let's have a look at a few examples of each:

Financial Objective Examples

  • To increase turnover to over $5 million in the next 8 years
  • To increase total revenue by 15% annually for the next 5 years
  • To decrease marketing expenses by 5% annually for the next 7 years
  • To increase net profit by 15% annually

The first two examples relate to financial growth, since the objectives are concerned with increasing some financial area, such as turnover or revenue. The second two relate to financial efficiency, which is about controlling the costs, and this, in turn, will have an effect on profits. Although the objectives are long-term, some financial objectives stipulate a yearly targeted figure, rather than a total over a long period.

Non-Financial Objective Examples

Some organizations are not focused on profit - such as non-profit organizations. Some non-financial objectives relate to the current customers, potential customers or customer services, as follows:

  • To expand sales to existing customers (current customers)
  • To increase customer loyalty to the weaker brands (current customers)
  • To develop new products for current and potential customers (current and potential customers)
  • To become international by setting up an online ordering service (current and potential customers)
  • To improve customer satisfaction with customer services (customer services)

Other non-financial objectives might relate to other areas, such as technology (for example, when a hotel chain increases efficiencies with security and virtual technology) or the organization's people (for example, when a software developer aligns performance and rewards management with corporate core values).

With these examples in mind let's have a look at the two types in a bit more detail.

Financial vs. Non-Financial Objectives

Financial Objectives

The overall objective of many organizations is to make a profit because profits are passed on to shareholders or owners, which is called maximizing shareholder wealth. Organization executives decide each year how much profit is reinvested in the company and how much is paid out to shareholders in the form of dividends. If the company is successful and the share price is increasing, then this will also be beneficial for shareholders, as the value of their investment in the company will have increased.

Besides shareholders, other stakeholders may have different interests, such as suppliers getting paid on time, banks getting the interest on loans or employees looking for competitive salaries and a decent range of benefits; however, high salaries or interest payments to banks will cut into profits, reducing dividends. Since companies want to satisfy as many stakeholders as possible, the reality of this main financial objective is 'to maximize profit while addressing the needs of other stakeholders.'

Non-Financial Objectives

The examples of non-financial objectives we saw earlier often involve extra costs, whether it's about improving technology or customer services, these activities cost money, and so, reduce profits.

Organizations cannot survive by focusing solely on profit. Without, for example, good quality products or services, customers will buy less and profits will drop. Thus, strategic objectives should also involve areas such as the welfare of employees, quality products and after-sales service, and the needs and preferences of other stakeholders.

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