16/02/24 Business objectives

 Business objectives are stated measurable targets that a business plans to achieve.

The importance of business objectives

 It is important for managers to set clear business objectives because objectives;
 provide a sense of direction and purpose for all employees i.e. everyone knows what
the business is working towards.
 show specific targets for business strategies to aim for i.e. business strategies will lack
focus if there are no objectives to work towards.
 are used to assess the success of the business by comparing actual performance
against objectives set.
 are motivational to employees since they know what needs to be achieved.
 are also motivational if employees are involved in setting them.

Objectives of private-sector businesses

(1)Profit maximisation –
 Implies producing at an output level where there is the highest positive difference
between total revenue and total costs.
 Profit maximisation is essential since profits are;
(i) a reward for investors in a business
(ii) used to finance further growth.
(iii) Useful in persuading business owners or entrepreneurs to take risks.
 However, limitations to this objective include;
(i) the focus on high short-term profits encourages competitors to enter the market.
(ii) many businesses seek to maximise sales and gaining a higher market share.
(iii)small business owners may be concerned with ensuring they protect leisure time,
independence and a work–life balance than earning more profits.
(iv)business performance is assessed through return on capital employed than profit .
(v) profit maximisation may only be the owners and shareholders objective , whilst other
stakeholders have other objectives.
(vi)concerns over workers’ job security or environmental protection may result profitable
business decisions being changed, leading to lower profit levels.
(vii) it is difficult to assess whether profit maximisation has been reached.
(viii) changing prices regularly to increase profits leads to negative consumer
reactions.

(2)Profit satisficing -
 This means aiming to achieve enough profit to keep the owners satisfied.
 Is contradictory to profit maximisation where owners aim to earn the most profit
possible.
 Is a common objective of small business owners who are unwilling to work longer hours
to earn more profit.
 Once owners have achieved satisfactory profit, they prioritise other aims such as
leisure.

(3) Growth -
 An objective where the business aims to expand or increase its size.
 Has potential benefits such as;
(i) larger firms are less likely to be taken over.
(ii) larger firms can benefit from economies of scale.
(iii) motivates managers since they can earn higher salaries and fringe benefits.
(iv) Enables the business to become competitive.
 However limitations of growth include
(i) rapid expansion can lead to cash flow problems.
(ii) sales growth may be achieved by lowering profit margins
(iii)growth may lead to diseconomies of scale for large businesses.
(iv)using profits to finance growth leads to lower short-term returns to shareholders.
(v) conglomerate growth away from the firms core activities can lead to a loss of focus
and direction for the organisation.

(4) Increasing market share

 An objective where the business seeks to increase the proportion of its total market
sales.
 Benefits of being the brand leader with the highest market share include:
(i) retailers are keen to stock and promote the best-selling brand.
(ii) products can be supplied to retailers at higher prices since shops are keen to stock
them, which gives the producer higher profit margins.
(iii) results in successful promotional campaigns since the firm is the brand leader.

(5) Survival
 An objective where a business simply aims to survive.
 Mainly associated with new businesses.
 Once the business has survived the first years of operation and is established, it
comes up with longer-term objectives.

(6) Corporate social responsibility (CSR)

 An objective where a business considers the interests of society by taking
responsibility for the impact of their decisions and activities on customers,
employees, communities, and the environment.
 The business aims operate in socially responsible ways thus having a positive impact
on society.
 Thus a business develops objectives associated with social, environmental, and
ethical issues.
 Such businesses feel they have a public responsibility to operate in socially
responsible ways;
 The businesses benefit from:
(i) getting positive publicity. e.g. can be recognised as the most ethical, the most
environmentally conscious or the least polluting business.
(ii) less chances of being sued by e.g., environmental or animal rights groups or of being
fined by government over pollution.
(iii) more opportunities to reach consumers and other stakeholders who support
businesses that act socially responsible ways.

Examples include;
 firms that promote organic, vegetarian, and vegan foods
 retailers that advertise the proportion of their products made from recycled materials.
 businesses that refuse to stock goods that have been tested on animals or foods
based on genetically modified ingredients.

(7) Maximising short-term revenue

 Implies increasing revenue in the short run.
 Is beneficial to managers and workers whose salaries and bonuses depend on sales
revenue .
 However, may reduce profits if increase in sales is achieved by reducing prices.
(8) Increasing shareholder value
 This means pursuing strategies to increase returns to shareholders.
 Achieved through increasing profit, resulting in the business’s ability to pay out higher
dividends, which leads to higher share prices.
 However, this objective prioritises shareholders’ interests and ignores other
stakeholder objectives.

Objectives of social enterprises

 Social enterprises have three main aims which are:
(a) economic (financial) – to make a profit to re-invest back into the business and
provide some financial return to the owners.
(b) social – to provide jobs or support for local, often disadvantaged, communities.
(c) environmental – to protect the environment and to manage the business in an
environmentally sustainable way.
 These aims are the triple bottom line.
 The triple bottom line are the three objectives of social enterprises: economic, social
and environmental.
 Thus profit is not the only objective of social enterprises.
 Other businesses, besides social enterprises also aim to be socially responsible and
have a triple bottom line objective.
e.g. firms that engage in CSR are considered to have ‘triple bottom line’ targets.

Objectives of public-sector businesses

 Public-sector businesses such as nationalised industries or public corporations have
objectives such as:
(a) to provide an efficient, reliable service to the public, such as water supply or postal
service.
(b) to encourage economic and social development, especially in deprived areas
(c) to create employment or prevent major job losses if the industry is making a
financial loss.
(d) to meet financial targets set by the government, but not necessarily make a profit.
(e) to achieve high environmental standards.

 However, public-sector businesses are less efficient compared to private-sector

businesses since they do not have the profit motive.
 However, in achieving social or environmental objectives, they help government
achieve its overall political objectives.

The relationship between mission statement, aims, objectives, strategy and

tactics

The hierarchy of objectives

(1) Business aims – the long-term goals that a business hopes to achieve.
 Express the core central purpose of a business’s activity.
 Are a broad indicator of what a business hopes to achieve in future.
 Aims must be converted into specific and measurable objectives.

(2) Mission statement - a brief statement of the business’s core aims, phrased in a
way to motivate employees and to stimulate interest from outside groups.
 They condense the central purpose of a business’s existence into one statement.
 They are not concerned with specific, quantifiable goals, but attempt to sum up the
business aim in a motivating and appealing way.

Examples of mission statements:

 Huawei: ‘To invest resources in the making of a digitally connected world.’
 Google: ‘To organise the world’s information and make it universally accessible and
useful.’

 Businesses communicate their mission statements by including them in;

o published accounts and in other communications to shareholders.
o business plans – the detailed report on the company’s aims and strategies for the
future.
o internal company newsletters and magazines.
o advertising campaigns based on the themes of the mission statements.

Evaluation of mission statements

Benefits
 inform the central aim and vision of the business to its external stakeholders.
 motivate employees, as they are associated with the positive qualities the statement
refers to.
 include moral statements or values which might help to guide and direct individual
employee’s behaviour at work.
 help to establish what the business is about, for the benefit of its stakholders.

Limitations
 can be too vague and general, such that they end up saying little about the business
and thus cannot be used as actual targets.
 act as just a public relations exercise to make stakeholder groups feel good about
the organisation.
 can be virtually impossible to really analyse or disagree with.
 can be too general and lack specific detail, such that two different businesses can
have similar mission statements.

Objectives, strategies and tactics

 Business aims and objectives provide the focus for business strategies and tactics.
 Objectives can be broken down into strategic departmental targets based on the
central aims or mission of the business.
 A business strategy is a long-term plan of action to achieve a business objective.
 A tactic is a short-term action as part of an overall strategy.
 Without clear objectives, managers are unable to make important strategic decisions
for the business as a whole or for individual departments.
e.g., a marketing manager may need to decide between other selling products in new
markets or selling more in existing markets,
 After making a strategic decision, small-scale tactical decisions must be made.
e.g. after deciding to sell a product in a new market, tactical decisions about the
methods of promotion and pricing for the market must be made.

Links between objectives, strategies and tactics