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BUSINESS AND ITS ENVIRONMENT

1.4. Business Objectives.
1) Business Objectives must be explained to the higher management,
Departmental heads and individual workers. In this way objectives
across an organization will be aligned.
2) Corporate Social Responsibility is the concept that a business has a
responsibility to do well. CSR means that a company should self-
regulate its actions and be socially accountable to its customers,
stakeholders, and the society at large.
3) Mission Statements of a company mention objectives, strategy and
tactics for successful operations.
4) Business Decision Making involves series of steps to follow.
5) Companies change their objectives over time.
6) Business objectives must be communicated to the entire workforce for
efficient work.
7) Business Ethics are Moral Rules of any business that determine how
best to treat employees, shareholders and customers. An example of
business ethics are accounting ethics - especially for accountants of
publicly-held corporations - which depend upon complete honesty and
transparency.

Objective is a specific step or action owner takes to reach his/her goal.

Accomplishing the business goals requires achieving a series of strong
objectives. Managers set their objectives to make a business successful.
Clear and measurable objectives help unite the whole business towards the
same goal. Business objectives give workers and managers a clear target to
work towards and this helps motivate employees. All decisions are focused
on objectives. Well-defined objectives help managers to assess the success
of business and efficiency of employees. Objectives of a firm involve
profitability, growth and customer service.
Businesses are usually set up to earn higher incomes as compared to do job
in other organization. The first and foremost objective of business is to earn
profit. Maintaining profitability means making sure that revenue stays ahead
of the costs of doing business. Profits are needed to pay a return to the
shareholders of the business for the capital invested and the risk taken.
Profit is also used for further investment in the business. Profit can be
increased by reducing cost of raw material. It does not mean that
substandard material is used in the production. For business growth and
survival, it is necessary that firm produce high-standard products on
reasonable prices.
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Good customer service helps in retaining clients and generates repeat

revenue. This results in higher market share. Market share is the proportion
of total market sales achieved by one business. Increased market share
gives a business good publicity. The firm which has greater market share can
influence over suppliers, as they will be very keen to sell to a business that is
becoming relatively larger than others in the industry.

Managers aim for growth in the business. Growth is usually measured by

value of sales or output. Increase in output requires the careful use of
resources. Maintaining the ability to finance operations means that owner
can prepare for long-term projects and address short-term needs such as
payroll and accounts payable. If businesses fail to grow then it results in a
loss of competitiveness, a decline in demand and eventual closure of
business. Managers keep on making strategies to increase output and plant
size. Larger and expanded business makes jobs more secure and increase
status of managers. Growth in business brings cost advantages to firms.

Apart from profit and market share, Business Survival is also a very essential
objective of a firm. In today's uncertain economic climate, the first priority
for the small business entrepreneur is survival. When a business is recently
set up, the owners are more concerned with the survival of business not to
earn profit. New competitors make a firm feel less secure. Business survival
becomes critical when an economy suffers from recession. 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.

Mission Statement, Aims, Objectives, Strategy and Tactics:

Mission is the result that an organization is trying to achieve through its
plans or actions. It is the purpose of the business.
It is a statement that defines why the organization is in business. A
marketing consultant can state the mission as follows:
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“To help the clients achieve success by learning, incorporating and

executing marketing strategies and programs that take their business
from mediocre to marvelous.”
Corporate Aims:
Corporate aims express the long-term intentions of the organization.
The purpose of the AIMS is to create a common approach/idea which
everyone should work towards achieving.
Goals/objectives are the end results which must be achieved in order to fulfil
the corporate aims.
The corporate aims are often set out in a mission statement, form the basis
upon which goals/objectives are developed.
Corporate Vision:
The ability to imagine how something could develop in the future. It
defines what the owner wants a business to be or be known for. For
example, X.Y. Company can state their vision like this,
One year: By December 30, 2014, our consultancy will be offering quality
information products in addition to coaching services that make up 20% of
the overall revenue for the company.
Three year: By December 30, 2017, consultancy will be recognized as one
of the top three marketing brands for small businesses in the United States

Corporate Goals/Objectives:
Goal/Objective is an observable and measurable end result. Goals are well-
defined, targeted statements that give clear direction and focus to business.
Example:
By the end of Q4, the sales department will convert 200 new leads into
customers (a 20% boost from last quarter) to boost revenue.”
Strategy and Tactics:
The dictionary meaning of Strategy is ‘a plan of action designed to achieve a
long-term or overall aim.’
For a business
‘The art of planning and directing overall corporate functions and resources
to achieve greater market share and return.’
Business strategy is part of a business plan. At the functional level, the
strategy is set by departments such as marketing, sales, operations, finance,
etc. Functional-level strategies are needed to ensure the efficiency of day-to-
day functions and achieve a common corporate aim.

Tactics refer to the specific set of actions taken to reach the organizational
goals or strategy.
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Tactics are the short-term actions that define how the task should be
delivered.
For example, a company aims to dominate the market. They make a strategy
that they will become the cheapest supplier of a particular product in the
market. Now they adopt the tactic that the managers negotiate with
suppliers to reducing the purchase costs. This, is a tactical move to fulfill the
strategy and finally the corporate aim.
other examples:
 A recruiting plan to find a sufficient number of prospective salespeople
to achieve the sales goal.
 A training plan to make the new salespeople sufficiently familiar with
company products to be able to sell them to customers.
 To announce bonus incentive to salesperson.

Budget means money that is available to a business. A business budget

includes the revenue a company expects to take in and the money it expects
to pay out for expenses. The variances are the difference between the
budgeted figures and the actual figures. Businesses compare each their
Actual income with Budgeted Income. Reasons are identified. Income
shortfall may be due to lower sales volumes or underperforming products.
Higher turnover may be due to lower targets.

S.M.A.R.T. framework for setting Corporate Goals/Objectives.

Specific:
What exactly are you trying to accomplish? The more specific you can be,
the more likely the goal will be accomplished.

Measurable:
How do you know if you are successful? Answer the questions “How much?”,
“How Many?”, and “By When?”

Attainable:
Is this realistic based on the resources you have or can acquire to achieve
them or a major obstacle to success? The best goals should encourage you
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to reach, but not so far as to involve unavailable resources or unrealistic

expectations.

Relevant:
Will this goal help you reach your vision? Setting goals that do not align
themselves with your ultimate outcome will divert your attention from those
that help you get where you want to go.

Timely:
What is the deadline for this effort? Without having specific time frames
associated with each goal, you most likely will not achieve them because the
day-to-day interruptions will take over.
Source:
https://stevens-tate.com/articles/5-smart-goal-examples/

Decision Making in Business:

A decision may be defined as "a course of action which is consciously chosen
from among a set of alternatives to achieve a desired result." A right
decision should allow a business to achieve its objectives.

According to Peter Drucker, "Whatever a manager does, he does through

decision-making". A manager has to take a decision before acting or before
preparing a plan for execution. Moreover, his ability is very often judged by
the quality of decisions he takes. Thus, management is always a decision-
making process. Managers have to take decisions on various policy and
administrative matters. It is a never-ending activity in business
management.

Decision-taken needs to be communicated to all concerned departments for

suitable follow-up actions.
Identification of the real problem before a business enterprise is the first step
in the process of decision-making. It is rightly said that a problem well-
defined is a problem half-solved.

Problem is to be analyzed in depth. This is necessary to classify the problem

in order to know who must take the decision and who must be informed
about the decision taken.
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Managers obtain the relevant information/ data about the problem. All
available information should be utilized fully for analysis of the problem. This
brings clarity to all aspects of the problem.

The manager has to determine available alternative courses of action that

could be used to solve the problem at hand. Only realistic alternatives should
be considered. It is equally important to take into account time and cost
constraints.
After preparing alternative solutions, the next step in the decision-making
process is to select an alternative that seems to be most rational for solving
the problem.

After the selection of the best decision, the next step is to convert the
selected decision into an effective action.
Without such action, the decision will remain merely a declaration of good
intentions. Here, the manager has to convert 'his decision into 'their decision'
through his leadership. For this, the subordinates should be taken in
confidence and they should be convinced about the correctness of the
decision.

Feedback is the last step in the decision-making process. Feedback is

possible in the form of organized information, reports and personal
observations. Feedback is necessary to decide whether the decision already
taken should be continued or be modified in the light of changed conditions.
Why business objectives change?
Businesses change their objective due to political or economic shocks. Wars,
pandemics, recession affect the business decisions greatly. A small startup
business may aim to survive in the first year. Once successful, the business
then sets itself the objective of increasing profits or growing in size. A
profitable business that is hard hit by an economic recession may struggle to
maintain the same level of output. Faced with declining sales, a business
may change its objective from growth or making a profit, to simply surviving.
When an established business enter in new market it has to rephrase its
objectives for survival in that market.

The Communication of Objectives and their likely impact on the workforce:

If a company that has hundreds or even thousands of employees, organized
into many departments, it is difficult to keep everyone on the same page.
While management wants employees to develop their individual and team
goals to achieve overall corporate mission.
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Managers plan employees’ goals in such a way that these goals are aligned
with organizational goals.
To achieve goal alignment, manager must first clearly communicate business
objectives across the company.
Once company-wide goals have been established, managers can then set
goals for their individual departments which clearly support overall business
mission. Goals are set according to the industry requirements.

Realistic objectives make employees efficient who will ultimately be

evaluated against these the standards set by the company owners and
industry. Avoid making significant changes in corporate mission and
objectives once the employees have started working on these objectives.

Managers have to be extremely well-versed on the capabilities of their team

members.
Goal redundancies and conflicts should be avoided.
Managers share the deadlines and details of project with colleagues and with
each team member during the goal-setting stage so that everyone is in
agreement. Create an environment of open communication with team so
they can voice concerns about their progress.
Properly communicated company objectives enable managers to implement
policies quickly.
Companies that more closely aligned goals across their organization enjoyed
much higher levels of financial success.
Employees in the weakest-performing companies did not clearly understand
the connection between their individual efforts and the overall goals of their
employers. These same people remains confused as to their roles in the
hierarchy of an organization, which naturally resulted in less productive-work
activity.
Employees who clearly understand their individual goals-and the way they
relate to those of company-naturally become more engaged with their work.
This boost in employee productivity will naturally lead to increased
profitability of company.
When workers work under a disciplined environment, they take interest in
work and organization. They will not leave the job for any minor reason.
Goal alignment also lets establish a true pay-for-performance culture in
company. When an employee consistently meets goals with good behavior
and a positive attitude, management rewards him to ensure that this
performance continues.
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Social Enterprise, Business Ethics and Corporate Social Responsibility.

Businesses set their objectives that cover Economic, Social and
Environmental Targets. This is called Triple bottom line.
A triple bottom line measures a company's degree of social responsibility, its
financial strength, and its environmental impact.
This approach has the argument that companies should be preparing three
different bottom lines.

One is the traditional measure of corporate profit—the “bottom line” of the

profit and loss account.

Second is the bottom line of a company's “people account”—a measure that

how a socially responsible an organisation has been throughout its
operations.

Third is the bottom line of the company's “planet” account—a measure of

how environmentally responsible it has been.
The triple bottom line (TBL) thus consists of three Ps: profit, people and
planet.

In effect, TBL is the idea that it is possible to run an organization in a way

that not only earns financial profits but also betters people’s lives and helps
the planet. Adding the "people" element of social responsibility to corporate
bottom lines implies fair treatment of employees. The bottom line referred to
as the "planet" represents the reduction of pollution.

Social Enterprises reinvests profits to benefit society/community rather than

maximise returns to owners.
It is a business without a profit maximization purpose where the objective is
to reduce poverty and unemployment.
These organizations are directly involved in the sale of goods and services to
a market, but profits are principally used to fund social programs. Workforce
receives market wage and better working conditions. Funding is provided
primarily through selling goods and services, though they may also receive
money from grants. Often described as not-for-profit businesses.
Example: TOMS Shoes was established by Blake Mycoskie in California. He
introduced the idea of One for One®, a business model that helps a person
in need with every product purchased. He provided shoes to needy children.
With every pair of shoes customers buy from them they will donate an
adequate pair to a child in need.
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Business Ethics are the moral principles that act as guidelines in business
procedures and decision making. Basic standards exist around the world that
dictate what is wrong or unethical in terms of business practices. For
example, unsafe working conditions are generally considered unethical
because they put workers in danger.
Treating customers and employees with a sense of fairness and justice is a
key type of ethics. Fair dealing with workers, suppliers, debtors, and
consumers bring trustworthiness to a business. Ethics keep the business
working within the boundaries of the law. Incorporating best practices into
production and marketing procedures ensure that they aren't committing
crimes against their stakeholders.
By adopting ethical practices, businesses build trust between the business
and consumers. If consumers feel that a business can be trusted, they will be
more likely to choose that business over its competitors. Employees prefer to
work in organization where work ethics are followed. Transparency and clear
communication are basic ethical workplace behaviors. Employees and
consumers alike should never be lied to, as this breaks trust within the
business.

Businesses may be faced with some of the following issues, which have
ethical dimensions:
 Promote products that might damage health.
 Pay minimum wage rates to the employees.
 Diversification at work place.

If two of a manager's employees are in conflict, it is important for the

manager to remain as neutral as possible. When a manager gives preference
to a favorite or senior employee or provides a solution that only works in
favor of one party, they are participating in unethical behavior.
Many employees misuse company time in a variety of ways, whether it's
surfing the internet during business hours, taking extended breaks, altering
time sheets, or similar. Misusing company time is unethical because the
employee is being paid a salary for work that they did not complete or time
they did not dedicate to their job.
Some companies develop hostility among employees to increase
productivity. However, cultivating this kind of environment can tax employee
mental health, and even encourage unethical, sabotaging behavior among
employees who want to get ahead at work.
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Corporate Social Responsibility (CSR) refers to the moral and ethical

obligations of a company with regards to their stakeholders. Management
policies and operations of company must be beneficial for shareholders,
employees and society. Environmental pollution should be minimized.
Working conditions for employees and dealings with business partners and
investors must be fair. Promoting equal opportunities for men and women at
the executive level. A company has the responsibility to correctly inform the
customer about the preparation and composition of the product. Companies
must comply with the laws of the countries they operate within. Companies
often also fulfil their social responsibility by sponsoring events that pursue
charitable goals. Often, this helps companies improve their reputation with
local residents.

Businesses that are socially responsible and follow ethical code of conduct
get following benefits:
1. Businesses have good reputation. Customers and Investors are
attracted. This boosts sales and profits.
2. Employees want to stay with the business. It reduces labour turnover
and recruitment costs.
3. Attract experienced and qualified employees. It increases productivity.
4. Attract investors and keep the company’s share price high, thereby
protecting the business from takeover.
5. Government support/grants/subsidies might be available unlike in
businesses with purely a profit motive.

However, an ethical approach to business operations may have a number of

potential problems. These may include:
1. Higher costs - using ethically sourced raw materials, or producing in a
way that is more ethical, is likely to raise costs. If the company is able
to use the ethical considerations to develop the brand, then this may
not be a problem, but if they are in a highly price competitive market
then it may be more of an issue.
2. Problems with suppliers - suppliers may not hold the same ethical
views as the firm and this may lead to possible conflicts. It may also
make sourcing supplies more problematical.
3. Lower profit - if the higher costs cannot be passed on to the consumer,
then this is likely to lead to lower profitability for the firm.
4. Stakeholder conflict - not all stakeholders will be keen on an ethical
approach if it compromises their objectives. For example, some
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investors may withdraw if they feel that the ethical stance of the
company is affecting its long-term viability or profitability.
CSR = Business Ethics
Social responsibility and business ethics are often regarded as having the
same concepts. However, the social responsibility movement is only one
aspect of the overall discipline of business ethics.
CSR to Employees
Health and safety in new and developing locations and countries. Reasonable
staff working hours, Avoidance of work place stress, opportunities for
promotion and increments
CSR to Customers
Brochures telling the truth without hiding anything, No pressure selling
techniques, Acknowledging if something goes wrong and dealing with it
quickly, Priority of waiting customers–who to serve first?
CSR to Suppliers
Prompt payment to suppliers, Using Local Suppliers as much as possible,
CSR to Environment
Recycling of materials, reducing transport related energy and costs, Cutting
carbon emissions.
CSR to Local Community:
Assisting local charities, controlling noise and limiting traffic for nearby
residents

In corporate management, Compliance refers to the company obeying all of

the legal laws and regulations in regards to how they manage the business,
their staff, and their treatment towards their consumers. The concept of
compliance is to make sure that corporations act responsibly. Compliance is
just doing what legally the organization is “bound” to do so as not the break
laws. Ethics is about doing the “right” thing–which often goes way beyond
the legal minimum.

1.5. Stakeholders in Business.

A Stakeholder is a party that has an interest in a company. Stakeholders can
either affect or be affected by the business.
The primary stakeholders in a typical corporation are its investors,
employees, customers, and suppliers. Stakeholders include anyone who has
an interest in how well business performs. This includes employees,
customers, shareholders, management, customers and banks. Each of these
groups may have different objectives for business.
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Shareholder/Owners: These are the risk takers of the business. They invest
capital into the business to set up and expand it. Owners or shareholders are
liable to a share of the profits made by the business.
Objectives:
Shareholders are entitled to a rate of return on the capital they have
invested into the business and will therefore have profit maximization as an
objective. Business growth will also be an important objective as this will
ensure that the value of the shares will increase.

Workers: These are the people that are employed by the business and are
directly involved in production.
Objectives:
They want safeguard of their rights and responsibilities. Increment, Job
satisfaction and Job security so that they work without the fear of being
dismissed or made redundant.

Managers: Managers are also employees but control the important

departments and in charge of making key business decisions. Their job
requires more skills and effort.
Objectives:
Like regular employees, managers too will aim towards a secure job and
higher salaries. They put their best effort to grow the reputation and size of
business so that they can enjoy better financial and social standing.

Customers: Customers purchase and consume the goods and services that
the business produces. Businesses earn revenue from the customers.
Objectives: Customers demand quality product on fair prices.

Government: Government makes policies that support business and the

rights of other stakeholders.
Objectives:
The government wants the business to grow and survive. It increases the
total output (GDP) of the country and people get employment as well as
increase government revenue through payment of taxes.

Banks: Banks provide loans to support the business operations.

Objectives: They want business growth and survival so that business can
repay the loans and can further take loan.
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Conflicts of Stakeholders:
Many business objectives complement each other and are acceptable to all
stakeholders.
Higher revenue or survival would be supported by nearly all the
stakeholders. It is in no-one’s interest for a business to fail.
Conflicts occur among stakeholders in following ways:

1. Investors want to lower the costs to increase their profits. This objective
requires less wages and salaries.
Objective of higher profits may require less investment in training, welfare
and career development of employees.
Employees demand higher wages career growth opportunities.
To increase profits managers may also bargain from suppliers to reduce the
prices of inventory.

2. Customer demand high quality product on affordable prices. Business may

use cheaper raw materials.
But to use sub-standard inputs is unethical and legally forbidden.

3. Government laws demand that production process should be environment

friendly. However, to make the environment friendly production process
requires higher cost. This higher cost will increase the prices of final product
that may reduce the revenue.

4. An objective of increasing the size and scale of a business might be

supported by managers, employees, suppliers and the local community –
largely for the extra jobs and sales that expansion would bring.
However, an expansion is often associated with increased costs in the short-
term (e.g. extra marketing spending, new locations opened, more production
capacity added). This might result in lower overall profits in the short-term,
which may cause conflict with the business shareholders or owners. In the
longer-term, however, most business owners would be pleased to support an
expansion if it increases the overall value of the business.

This has been a big issue for many businesses during the economic
downturns. In order to reduce costs and conserve cash, business managers
have often made redundancies amongst the workforce or introduced other
measures like short-time working to reduce wage costs. This will have been
supported by business owners and managers. However, it creates a potential
conflict with stakeholders such as employees (who are directly affected), the
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local community (affected by local job losses) and suppliers (who suffer from
a reduction in business).

Stakeholder Main Features Most Likely to Objectives for

Group the Stakeholder Groups
Owners [Internal]  They put capital in to set up and  Share of the profits so that they gain a
expand the business. rate of return on the money put into
 They will take a share of the profits the business.
if the business succeeds.  Growth of the business so that the
 If the business does not attract value of their investment increases.
enough customers, they may lose
the money they invested.
 They are risk takers.
Workers [Internal]  They are employed by the business.  Regular payment for their work.
 They have to follow the instructions  Contract of employment
of managers and may need training  Job security – workers do not want to
to do their work effectively. look for new jobs frequently.
 They may be employed on full or  Job that gives satisfaction and
part-time contracts and on a provides 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 [Internal]  They are also employees of the  High salaries because of the
business and control the work of important work they do.
other workers.  Job security – this depends on how
 They take important decisions. successful they are.
 Their successful decisions could  Growth of the business so that
lead to the business expanding. managers can control a bigger and
 If they make poor decisions, the better known business. This gives
business could fail. them more status and power.
Customers [External]  They are important to every  Safe and reliable products.
business. They buy the goods that  Value for money.
the business produces or the  Well-designed products of good
services that the business provides. quality.
 Without enough customers, a  Reliability of service and
business will make losses and will maintenance.
eventually fail.
 The most successful businesses
often find out what consumers want
before making goods or providing
services – this is called market
research.
Government [External]  It is responsible for the economy of  Wants businesses to succeed in its
the country. country. Successful businesses will
 It passes laws to protect workers employ workers, pay taxes and
and consumers. increase the country’s output.
 Expects all firms to stay within the law
– laws affect business activity.
The Whole Community  The community is greatly affected  Jobs for working population.
[External] by the business activity. For  Production that does not damage the
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example, dangerous products might environment.

harm the population. Factories can  Safe products that are socially
produce pollution that damages responsible.
rivers, the sea and air quality.
 Businesses also create job and
allows workers to raise their living
standards. Many products are
beneficial to the community, such
as medicines or public transport.