5 Business objectives and

stakeholder objectives
This chapter will explain:
• the need for and importance of business objectives
• about different business objectives
• about the objectives of social enterprises
• the main internal and external stakeholder groups
• the objectives of different stakeholder groups
• how these objectives might conflict with each other, with examples
• the differences in the objectives of private and public sector
enterprises.
Need for and importance of
business objectives
An objective is an aim or a target to work towards. All businesses
should have objectives. They help to make a business successful –
although just setting an objective does not ‘guarantee success’. There
are many benefits of setting objectives:
• They give workers and managers a clear target to work towards and
this helps motivate people.
• Taking decisions will be focused on: ‘Will it help achieve our
objectives?’
• Clear and measurable objectives help unite the whole business
towards the same goal.
• Business managers can compare how the business has performed
to their objectives – to see if they have been successful or not.
So setting objectives is very important for all businesses – small or
large, newly formed or well established.
Different business objectives
Objectives are often different for different businesses. A business may
have been formed by an entrepreneur to provide employment and
security for the owner or his/her family. It could have been started to
make as big a profit as possible for the owner. On the other hand, the
business might have a more charitable aim in mind – many of the
leading world charities are very large businesses indeed.
The most common objectives for businesses in the private sector
are to achieve:
• business survival
• profit
• returns to shareholders
• growth of the business
• market share
• service to the community.
Survival
When a business has recently been set up, or when the economy is
moving into recession, the objectives of the business will be more
concerned with survival than anything else. New competitors can also
make a business feel less secure. The managers of a business
threatened in this way could decide to lower prices in order to survive,
even though this would lower the profit on each item sold.
Profit
When a business is owned by private individuals rather than the
government it is usually the case that the business is operated with
the aim of making a profit. The owners will each take a share of these
profits. Profits are needed to:
• pay a return to the owners of the business for the capital invested
and the risk taken
• provide finance for further investment in the business.
Without any profit at all, the owners are likely to close the business.
Will a business try to make as much profit as possible? It is often
assumed that this will be the case. But there are dangers to this aim.
Suppose a business put up its prices to raise profits. It may find that
consumers stop buying its goods. Other people will be encouraged to
set up in competition, which will reduce profits in the long term for the
original business.
It is often said that the owners of a business will aim for a
satisfactory level of profits which will avoid them having to work too
many hours or pay too much in tax to the government.
Returns to shareholders
Shareholders own limited companies (see Chapter 4). The managers
of companies will often set the objective of ‘increasing returns to
shareholders’. This is to discourage shareholders from selling their
shares and helps managers keep their jobs!
Returns to shareholders are increased in two ways:
• Increasing profit and the share of profit paid to shareholders as
dividends.
• Increasing share price – managers can try to achieve this not just
by making profits but by putting plans in place that give the business
a good chance of growth and higher profits in the future.
Growth
The owners and managers of a business may aim for growth in the
size of the business – usually measured by value of sales or output –
in order to:
• make jobs more secure if the business is larger
• increase the salaries and status of managers as the business
expands
• open up new possibilities and help to spread the risks of the
business by moving into new products and new markets
• obtain a higher market share from growth in sales
• obtain cost advantages, called economies of scale, from business
expansion. These are considered in more detail in Chapter 19.
Growth will be achieved only if the business’s customers are satisfied
with the products or services being provided. For this reason it might
be important to put meeting customers’ needs as a very high priority.
Market share
If the total value of sales in a market is $100 million in one year and
Company A sold $20 million, then Company A’s market share is 20
per cent.

Increased market share gives a business:

• good publicity, as it could claim that it is becoming ‘the most
popular’
• increased influence over suppliers, as they will be very keen to sell
to a business that is becoming relatively larger than others in the
industry
• increased influence over customers (for example, in setting prices).
Providing a service to the community –
the objectives of social enterprises
Social enterprises are operated by private individuals – they are in
the private sector – but they do not just have profit as an objective.
The people operating the social enterprise often set three objectives
for their business:
• Social: to provide jobs and support for disadvantaged groups in
society, such as the disabled or homeless.
• Environmental: to protect the environment.
• Financial: to make a profit to invest back into the social enterprise
to expand the social work that it performs.
An example of a social enterprise is RangSutra in India. This helps
very poor village communities develop skills in craft work and clothing
products and helps them market their products at a fair price.
A display of RangSutra products. RangSutra’s core value is ‘respect
for both the producer and the customer’. They ensure a fair price to
the producer as well as quality products to the customer. Profits
earned from sales go back to ensure a better life for their
communities, as the producers are also the owners of RangSutra.

Key info
You may think of Google as just a search engine. However, its
objective of growth has expanded it far beyond its original claim to
fame as a search engine. Through its holding company Alphabet
Inc., Google owns more than 200 companies, including those
involved in robotics, mapping, video broadcasting,
telecommunications, scholarship and smoke alarms.
Why business objectives could
change
It is most unusual for a business to have the same objective forever!
Here are some examples of situations in which a business might
change its objective.
1 A business set up recently has survived for three years and the
owner now aims to work towards higher profit.
2 A business has achieved higher market share and now has the
objective of earning higher returns for shareholders.
3 A profit-making business operates in a country facing a serious
economic recession so now has the short-term objective of survival.

Activity 5.1: Which objective for which

business?
Here are brief details of four businesses:

• A small firm of builders which has noticed new businesses being

set up in the building industry.
• A recently established business in the rapidly expanding computer
industry, which is owned by two young and ambitious
entrepreneurs.
• A large book publisher which dominates the market in textbooks in
your country.
• A group of people who are concerned about the lack of clean water
provided to poor communities.
a Explain the most likely main objective of the managers of each of
these businesses.
b In each example, explain the decisions that could help the
business to achieve these objectives.
Study tips
Do not suggest that ‘making as much profit as possible’ is always the
most likely objective of a business. It might depend on economic
conditions and the original aims of the owners – for example, they
could have been more focused on helping groups in society than
making money.
The main internal and external
stakeholder groups and their
objectives
The following groups of people are involved in business activity in one
way or another, or are affected by it:
• owners
• workers
• managers
• consumers
• government
• the whole community
• banks.
These groups are sometimes called the stakeholders of the business
as they have an interest in how the business is run. Some of these
groups are internal to the business – they work for it or own it – and
others are external – they are groups outside of the business.
Why are these groups of people important to business? How are
they affected by business activity? Consider the table on page 55.
Stakeholder Main features Most likely objectives for
group the stakeholder group
Owners • They put capital in to set • share of the profits so
(Internal) up and expand the that they gain a rate of
business. return on the money put
• They will take a share of into the business
the profits if the business • growth of the business
succeeds. so that the value of their
• If the business does not investment increases
attract enough
customers, they may
 lose the money they
invested.
• They are risk takers.
Workers • They are employed by • regular payment for their
(Internal) the business. work
• They have to follow the • contract of employment
instructions of managers • job security – workers do
and may need training to not want to look for new
do their work effectively. jobs frequently
• They may be employed • job that gives
on full- or part-time satisfaction and provides
contracts and on a motivation
temporary or permanent
basis.
• If there is not enough
work for all workers,
some may be made
redundant
(retrenchment) and told
to leave the business.
Managers • They are also • high salaries because of
(Internal) employees of the the important work they
business and control the do
work of other workers. • job security – this
• They take important depends on how
decisions. successful they are
• Their successful • growth of the business
decisions could lead to so that managers can
the business expanding. control a bigger and
• If they make poor better known business.
decisions, the business This gives them more
could fail. status and power
Customers • They are important to • safe and reliable
(External) every business. They products
 buy the goods that the • value for money
business produces or • well-designed products
the services that the of good quality
business provides. • reliability of service and
• Without enough maintenance
customers, a business
will make losses and will
eventually fail.
• The most successful
businesses often find out
what consumers want
before making goods or
providing services – this
is called market
research.
Government • It is responsible for the • wants businesses to
(External) economy of the country. succeed in its country.
• It passes laws to protect Successful businesses
workers and consumers. will employ workers, pay
taxes and increase the
country’s output
• expects all firms to stay
within the law – laws
affect business activity
The whole • The community is greatly • jobs for the working
community affected by business population
(External) activity. For example, • production that does not
dangerous products damage the environment
might harm the • safe products that are
population. Factories socially responsible
can produce pollution
that damages rivers, the
sea and air quality.
• Businesses also create
jobs and allow workers
 to raise their living
standards. Many
products are beneficial
to the community, such
as medicines or public
transport.
Banks • They provide finance for • expect the business to
(External) the business’s be able to pay interest
operations. and repay capital lent –
business must remain
liquid
Objectives of public sector
businesses
In Chapter 2 we explained that the government owns and controls
many businesses and other activities in mixed economies. These
were in the public sector. What are the likely objectives for public
sector businesses and organisations?
• Financial: Meet profit targets set by government – sometimes the
profit is reinvested back in the business and on other occasions it is
handed over to the government as the ‘owner’ of the organisation.
• Service: Provide a service to the public and meet quality targets set
by government. For example, health services and education
services will be expected to achieve targets laid down for them, and
state-owned train and postal services will have reliability and
punctuality targets.
• Social: Protect or create employment in certain areas – especially
poor regions with few other business employers.

Study tips
You should not suggest that public sector businesses ‘do not want to
make a profit’. Most of them do have this aim – but they have other
objectives set for them by governments too.
REVISION SUMMARY
Business objectives (private sector)
Activity 5.2: Coca-Cola’s objectives
Coca-Cola’s senior managers have set the objective of increasing
returns to owners of the company – that is, its millions of
shareholders. However, the managers believe that this can only be
achieved if Coca-Cola meets three other objectives:

• Remain the world’s largest soft drinks company by value of sales.

• Continue to satisfy consumers with a top-value and clearly
branded product.
• Protect the environment of the local communities where Coca-Cola
drinks are made.
a Why do you think the senior managers believe that ‘increasing
returns to owners’ is important?
b Explain why Coca-Cola has set three other objectives as well as
‘returns to owners’?
c By referring to the market in your own country, explain how you
think Coca-Cola could achieve its aim of remaining the world’s
largest soft drinks company.

Senior managers set clear objectives for Coca-Cola

Conflict of stakeholders’ objectives
In the previous section we assumed that businesses could set one
objective and aim for that. However, life is not that simple and most
businesses are trying to satisfy the objectives of more than one group,
as the diagram below shows.
Case study: Business stakeholders
Oilco is a large oil company operating in your country. The following
stakeholder groups are interested in the work of this company:

• Owners of the company. They are likely to want the business to

work towards as much profit as possible.
• Directors (senior managers of the company appointed by the
owners). They will be interested in growth of the business as their
salaries are likely to depend on this.
• Workers. They will want as high a wage as possible with security
of employment.
• Local community. It will be concerned about jobs too, but it will also
be worried about pollution from the oil refinery.
• Consumers. They will want reasonably priced products of
appropriate quality – or they may buy goods from competitors.
In practice, these stakeholder objectives could conflict with each
other. For example:

• it could be that a cheap method of production increases profits but

causes more pollution
• a decision to expand the plant could lead to a dirtier, noisier local
environment
• a decision to introduce new machines could reduce the jobs at the
refinery but lead to higher profits
• expansion could be expensive, reducing payments to owners, and
this could reduce short-term profits.

Activity 5.3
Read the case study above.
a Define ‘stakeholder group’.
b Explain one other possible conflict of objectives between Oilco’s
stakeholders.
Study tips
Be prepared to explain how a business objective might satisfy some
stakeholders but not others.

Key info
Consumers throw plastic bottles away but they are not biodegradable
and many end up in the oceans. This garbage is harming fish and
spoiling the coastlines of many countries. Manufacturers want a
cheap way to package their products but people also want an
unpolluted place to live. Can these two objectives be reconciled?

Managers therefore have to compromise when they come to decide

on the best objectives for the business they are running. They would
be unwise to ignore the real worries or aims of other groups with an
interest in the operation of the business. Managers will also have to
be prepared to change the objectives over time. Growth could be the
best option during a period of expansion in the economy, but survival
by cost cutting might be better if the economy is in recession.
REVISION SUMMARY
Business stakeholders and their aims
International business in focus
Toyota makes clear its business objectives
Toyota recently announced a set of objectives to be achieved over
the next 35 years to reduce the negative impact of manufacturing
and the driving of vehicles as much as possible. It has the following
objectives:

• Producing ever-better cars Toyota is developing electric and

hybrid cars that use reclaimed energy, which is the same
technology used in Formula 1 cars. Hydrogen-powered vehicles,
such as the Mirai, are also important to Toyota’s strategy for
promoting widespread use of fuel cell vehicles. Toyota’s plan is to
reduce global average new-vehicle carbon emissions by 90 per
cent by 2050, compared to its 2010 global average.
• Using ever-better manufacturing Toyota wants to reduce all
carbon emissions from its factories to zero by 2050. This will be
achieved through use of low-carbon methods of production. It will
also use renewable power, such as wind, biomass and
hydroelectric to run its factories.
• Enriching lives of communities when driving their cars by
establishing a ‘recycling-based society and systems’ through the
promotion of a global rollout of end-of-life vehicle-recycling
technologies developed in Japan.
Toyota’s other main objective over the next few years is sales growth
in the emerging markets of Asia, Africa and South America. Although
profits are important, Toyota sets quite low earnings targets,
preferring to focus on growth in a competitive market. However,
China’s emission and fuel economy rules have been making it harder
for Toyota to achieve its objective of selling 2 million vehicles a year
in China by around 2025. In order to meet these regulations, Toyota
will need to sell a large number of smaller cars and hybrid cars.

Discussion points
• Why did Toyota set objectives for the next few years?
• Why do you think developing new models seems to be more
important than making as much profit as possible?
• Which stakeholder groups will be affected – positively or negatively
– by Toyota working towards these objectives?
• Do any of these objectives conflict with each other?

One of Toyota’s objectives is to produce and sell more hybrid cars

Exam-style questions: Short answer and
data response
1 Sunita and her partner Sunil decided to start a business selling
flowers called S and S Blooms. They agreed on the business
objectives they would set. There are several other flower shops in
their town and there is much competition. Sunita and Sunil had
very little cash to start their shop. However, five years after being
set up, it is still open. Business objectives have changed. There
are plans to open two or three more shops – perhaps by taking
over some of their competitors. The business now employs five
workers and uses several local flower growers as suppliers.
a Define ‘business objective’.
[2]
b Identify two of S and S Blooms’ stakeholder groups, other than
workers and suppliers.
[2]
c Outline two likely business objectives for S and S Blooms when
the business was first established.
[4]
d Explain two likely reasons why Sunita and Sunil have changed
the business objectives of S and S Blooms.
[6]
e Do you think that setting business objectives for S and S
Blooms will make sure that the business is successful? Justify
your answer.
[6]
2 The Big Pit Mining business (BPM) owns and operates coal and
gold mines in several different countries. It employs thousands of
workers. Most of them work in very dangerous conditions for low
pay. Waste from the mines is often dumped in local rivers. ‘Making
higher profits and raising returns to our shareholders are our most
important objectives,’ said the Managing Director of BPM to his
 other senior managers recently. ‘Shareholders are our most
important stakeholder group,’ he added.
a Define ‘stakeholders’.
[2]
b Identify two objectives that the managers could set for BPM,
apart from profits and returns to shareholders.
[2]
c Outline two possible reasons why BPM has profit as an
objective.
[4]
d Explain how a decision to open a new BPM mine might affect
two stakeholder groups.
[6]
e Do you agree with the Managing Director when he said that
shareholders are the most important stakeholder group? Justify
your answer.
[6]

Revision checklist
In this chapter you have learned:
why a business needs objectives and the different objectives that
can be set
what objectives may be set by social enterprises
what stakeholder groups are and their objectives and potential for
conflicts between objectives
how objectives of private and public sector enterprises differ.
NOW – test your understanding with the revision questions in the
Student etextbook and the Workbook.
Understanding business
activity: end-of-section case
study
A new business but which one?
Derek’s job is to repair motorcycles. He works for a large motorcycle
sales business that sells new and second-hand motorcycles. Derek’s
uncle died earlier this year and left him $10 000. He has always
wanted to work for himself and now he has some money to start his
own business. He could do this by opening his own business or
buying a franchise.
Derek is going to choose between opening his own shop selling
motorcycle clothes or buying a franchise from a big motorcycle
clothes retail business. To open his own motorcycle clothes shop will
take a lot of effort to find a suitable location with the shop fittings
needed. Buying a franchise for a clothes shop will be expensive.
However, the franchise company will help Derek with a lot of the
start-up problems such as finding a suitable shop.
Appendix 1: Letter to bank manager
Dear Sir/Madam
I want to set up my own business. I have $10 000 to invest in my
business but I need additional funds. I have two possible business
ideas.
The first one is to set up my own motorcycle clothes shop and for
that I will need an additional $15 000 to buy clothes to sell in the
shop. I will rent my shop.
The second idea is to buy a franchise for a motorcycle clothes shop
and for that I will need an additional $100 000. $50 000 will be
needed to buy the franchise and $50 000 to buy clothes inventories. I
will rent my shop.
I would like to come to see you to discuss my two ideas.
Yours faithfully,
Derek
Exam-style questions: Case study
1 a Explain four personal characteristics that Derek needs to be a
successful entrepreneur.
[8]
b Derek has to decide which type of business organisation to
choose if he sets up his own business. Consider the
advantages and disadvantages of the following types of
business organisation. Recommend which one Derek should
choose. Justify your choice.
• Sole trader.
• Partnership.
• Private limited company.
[12]
2 a Identify two stakeholders in Derek’s new business. Explain why
each stakeholder is interested in his business.
[8]
b Consider the advantages and disadvantages to Derek of buying
a franchise from a big clothes retail business instead of setting
up his own clothes shop. Which option do you think he should
take? Justify your choice.
[12]

Definitions to learn
Business objectives are the aims or targets that a business works
towards.
Profit is total income of a business (revenue) less total costs.
Market share is the percentage of total market sales held by one
brand or business.
A social enterprise has social objectives as well as an aim to make
a profit to reinvest back into the business.
A stakeholder is any person or group with a direct interest in the
performance and activities of a business.