I have a theory on how tasks are best approached. I can guess what you are thinking, there are a lot of theories out there and this may also be one of them. I can’t recall having read it anywhere even thought this approach always seems like common sense to me. However, I was talking with someone about it the other day and they’d never heard of it or considered it this way. Maybe it is unique. Either way, it’s free to share. One thing though, I’m not saying this is the solution to world hunger or that following it will make you a millionaire, it’s just a tool I find useful.
Root Objective Theory – a method for deciding which action to take in order to achieve your goals
In order to achieve your goals, you have to have a clear and unambiguous goal.
With that goal defined, you can work out methods to achieve that goal. Those methods in themselves may be objectives, requiring further methods & objectives to achieve them. If you find a way of scoring each method/objective then you have a way of choosing the most effective method to achieve your primary goal. The cost could be measured in money, time, use of a particular set of limited resources or any other cost definition that works for you.
Business X would like to make 100 profit over a defined period of time this is OBJECTIVE 1
Business X already makes 50 profit with it’s current sales of 500. This is information to help decisions
Business X has a number of methods at its disposal to increase it’s profit by 50.
Sell more This is METHOD 11
Make the product for lessThis is METHOD 12
“Sell more” (METHOD 11) is really a new objective, so we call it OBJECTIVE 12. We can “sell more” by using other methods like:
Reduce the selling price This is METHOD 111
Increase the advertising to put the product in front of more customers This is METHOD 112. As you probably have guessed, 111 and 112 are also just new objectives, so we further refine them.
Let’s take OBJECTIVE 112 and say that we can advertise in paper Z for 25 and expect an increase in sales to 100 at a reduced profit margin, let’s say the new profit will be 55. This is METHOD 1121. It remains a method as we have now reached a point where we know how much an action will cost and what it’s benefit will be. We can then compare all methods in our table to decide the best route of action. This makes more sense when you use a spreadsheet to make notes.
|1 (this is our ROOT OBJECTIVE)||Increase profit £100 per month|
|111||Reduce price||£0.00||20% increase in sales but reduction in contribution per sale, overall no increase in profit.|
|112||Advertise to new markets||£50.00||10% increase in sales, increase in contribution of £100 for 1 month only|
|121||Reduce direct cost|
|1211||Change to supplier X who offers similar raw material at cheaper price. Saving £10% direct cost, increasing overhead by £40 due to more faulty product returns||£40 increase in overhead||£80 at current sales level|
|1212||Change to supplier W who offers similar product at higher quality. Increasing direct raw material cost but reducing faulty product claims||£50 at current sales level||£40 reduction in overhead|
|1221||Update business software to speed up quoting to customers, saving X amount of time per quote, allowing X% increase in staff productivity||£50.00||£10 per month for 12 months|
I’ll explain the table. Firstly the ID column is NOT a number, in your spreadsheet you force it to be CHARACTERS (in many spreadsheets put the ‘ character in front of the number, like ‘1111 or ‘242). This means that when you sort the spreadsheet, the sort will work in number order reading from the left. So 1111 will be above 242. The first objective is given number 1. If you have more than one core goal, give the second objective number 2. Methods (or sub objectives) for objective number 1 get an additional number, so 11 and 12 are sub objectives of objective 1. If you later add objective 13 at the end of your spreadsheet, it can be sorted easily to come below 12 and before objective 2.
Let’s work through the example and see what the best decision is for this business. Row 1 is the objective, nice and specific. Row 11 gives as away of reaching that objective (sell more). How do we sell more, Row 111 and 112 give two ways we know we can increase sales. Row 111 says we will reduce the price. We then work our what implications that has. This itself may be quite an in depth study, but here we have summarised the result. Reducing price will increase sales but it will also reduce the amount of profit per item sold. In this case we discover reducing price will not earn any more profit for us. Good job we did the calculations on that one.
Row 112 says we should spend some money on advertising. Spending 50 will increase our contribution by 100, a net gain of 50 (contribution is the business term given to the difference between your products direct costs and it’s selling price. That bit of money “Contributes” to your overhead and hopefully profit). Once again this line could be split out further, would different advertising methods lead to different sales performance? Would this advert work again for the same increase next month?.. Ah, hang on – our objective doesn’t include next month to think about next month we need to change our corps objective, or have a second corps objective. That’s the nice thing about working to specific objectives, you can avoid researching the wrong way (sometimes). Of course, nothing will help you if you have a bad Root Objective!
Enough about selling more, Row 12 had the thought we could reduce our costs to make more profit. How? Row 121 looked at our direct costs and row 1211 said we could use a cheaper supplier and row 1212 said we could use a more expensive supplier. In fact, this covers in part our indirect costs of warranty. If a product fails we have to repair it and that cost is seen by our company as an overhead. Using better quality raw materials may increase our direct cost but reduce our overhead. Here we discover that row 1211 says we could make more money using a cheaper raw material even though we increase our costs of warranty. I wonder if this things of any loss of repeat business in month 2? Oh, hang on, this is a short term chart so I can think about that…. Sure about that primary objective still?
Row 1212 shows buying a more expensive raw material just isn’t going to help us make more money.
Finally we look at row 122 and 1221, reducing the overhead by improving our business systems. This has a very high cost of 50 for a return of just 10 this month. However, it also shows that once again if we plan for the long term it will earn us more money.
This table has shown us that we need to take the method on row 112 to best achieve our goals.
In an ideal world, we’d probably want to do row 1221 as well but you haven’t always got the time or the budget to do everything.
This example is also very simplistic, normally the decisions have to take a mixed approach to best use the resources available. For example doing row 122 this month to have the extra resource (cash) to do row 1221 next month for a longer term gain. There’s also an element of risk in all of these options, the advert may not work in the same way the new system may not work as planned. This choice of decisions is often called the “opportunity cost”, both decisions may lead to profit but which will lead to the most? Assuming profit is your goal of course, if you made it your Root Objective. Your Root Objective needn’t be profit of course, it could be market share, in the ATC squadron I help at our Root Objective is to deliver the “Aims of the Air Training Corps”, those 3 aims are also objectives. Another sub objective is to recruit more cadets (no cadets = no one to deliver the aims too!). So there you have it, “Root Objectives”, my little system on achieving goals.