Hierarchy of objectives can be explained in two approaches: top- down approach and bottom-up approach. Understanding of this phenomenon is essential because a question arises whether objectives should be set at the top and communicated lower down the line or it is in reverse direction. In the top-down approach, at the extreme top of the hierarchy is the purpose which has two dimensions. First, there is the purpose of the society, such as requiring the organization to contribute to the welfare of the people by providing goods and services at the reasonable cost. Second, there is the purpose of the business which may be the ultimate objectives of the business such as what an organization would like to be. For example, mission might be described as the basic philosophy of the organization. However, the distinction between purpose and mission is not\ very obvious and are often used synonymously.
At the next level of the hierarchy, overall organizational objectives as specified by various strategies and policies are defined. These lead to specify overall objectives in forms of quantitative standards. These objectives are further carried into divisional, departmental, and individual objectives. At individual level, two types of objectives exist: performance of individuals which contributes to the achievement of or- generational objectives and personal objectives of individuals which they want to satisfy while working in the organization. At each level of objectives, managers of different levels are involved. For example, overall objectives are formulated by top management. It also sets objectives for all key-result areas where performance is necessary to achieve organizational objectives. Middle-level managers are involved in the setting of key-result- area objectives, divisional objectives, as well as depart-mental objectives. The primary concern of lower-level managers is the setting of objectives on the departmental and unit level as well as the objectives of their subordinates. Although in the hierarchy of objectives, individual performance and objectives have been shown at the bottom level, managers at the higher levels also should set objectives for their performance and development. Thus, in top-down approach, upper-level managers determine the objectives for their subordinates, while in bottom-up approach; subordinates initiate the setting of objectives for their position and present them to their superiors.
There is a controversy whether an organization should use the top-down approach for setting the objectives or it should use bottom-up approach. Proponents of top-down approach suggest that the total organization needs direction through or generational objectives provided by the top management which may include owners of the organization. Proponents of the bottom-up approach, on the other hand, argue that top management needs to have information from lower levels in the form of objectives. Subordinates are more likely to be motivated and committed by the objectives which they initiate. While both approaches have certain positive and negative aspects, in order to take the advantages of both, a combination of the two is followed to what extent both will be combined depends on situations such as size of the organization, organizational culture, leadership styles of managers, etc.
