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Chapter 5: Business Objectives and Stakeholder Objectives (Stakeholder…
Chapter 5: Business Objectives and Stakeholder Objectives
Business Objectives
The aims or targets that a business works towards.
Benefits of setting objectives
They give managers and workers 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 with their objectives
The most common objectives for businesses in the private sector are to achieve:
business survival
When business has recently been set up, or when economy is moving into recession, business will be more concerned with survival
New competitors can make firm insecure. If feel threatened, they could decide for lower prices even though lower profit.
profit
Total income of a business (sales revenue) less total costs
Profits are needed to:
Pay a return to the owners of business for capital invested and the risk taken
Provide finance for further investment
Without profit, most likely business will be closed.
But if price too high = consumers stop buying goods
returns to shareholders
Ways to increase:
Increasing profit and the share of profit paid to shareholders as dividends
Increasing share price - not only profit but put plans in place that gives business good chance and higher profits in future
growth of the business
Why owners and managers aims for growth in size of business
to make jobs more secure if the business is larger
to increase the salaries and status managers as the business expands
to open up new possibilities and help spread risks by moving into new products and markets
to obtain a higher market share from growth in sales
to obtain cost advantages, called economies of scale, from business expansion
market share
Increased market share gives a business:
good publicity (most popular)
increased influence over suppliers
increased influence over customers
service to the community
Social enterprises
Operated by private individuals - they are in private sector
Has social objectives as well as an aim to make a profit or reinvest back into the business
The people operating the social enterprise often set three objectives for their business:
Social
provide jobs and support for disadvantaged groups (disabled/homeless)
Environmental
protect the environment
Financial
make a profit to invest back into the social enterprise to expand the social work that it performs
The likely objectives of public-sector business and organisations:
Financial
meet profit targets set by government - sometimes profit reinvested back into business or for government
Service
provide a service to the public and meet quality targets set by government
example: health and education services
Social
Protect or create employment in certain areas - esp poor regions
Example of businesses changing its objectives
1) Has survived for years, now aiming for higher profit
2) Has achieved higher market shares so now aims to earn higher returns for shareholders
3) Facing economic recession so now has a short-term objective of survival
Stakeholder Groups
owners (internal)
Main features
put in capital to set up and expand business
take a share of profits if business succeeds
if business fails, may lose money they invested
risk takers
Objectives
share of profits so they gain a rate of return on the money they invested
growth of business so the value of investment increases
costumers (external)
Main Feature
buy the goods that the business produces or the services that they provide
without enough customers, business will fail
Market research - business find out what customers want
Objectives
safe and reliable products
well-designed products of good quality
reliability of service and maintenance
workers (internal)
Main Features
Employees
have to follow instructions and need training to do work effectively
may be employed on full or part-time contracts and on temporary or permanent basis
if there isn't enough work for workers, may be made redundant and asked to leave
Objectives
regular payment for their work
contract of employment
job security
job that gives satisfaction and provides motivation
government (external)
Main Features
responsible for the economy of the country
pass laws to protect workers and consumers
Objectives
wants business to succeed - will employ workers, pay taxes and increase the country's output
expect all firms to stay within the law - laws affect business activity
managers (internal)
Main Features
they are also employees of the business and control the work of other workers
they take important decisions
their successful decisions could lead to the business expanding
if they make poor decisions, the business could fail
Objectives
high salaries because of the important work they do
job security - depends on how successful
growth of the business so that managers can control a bigger and better known business. Gives them more status and power
banks (external)
Main Feature
They provide finance for the business's operations
Objectives
expect the business to be able to pay interest and repay capital lent - business must remain liquid
the whole community (external)
Main Features
the community is greatly affected by the business activity
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
Objectives
jobs for the working population
production that does not damage the environment
safe products that are socially responsible
internal - work inside business
external - groups outside of business
Stakeholders: any person or group with a direct interest in the performance and activities of a business
Conflict of stakeholders' objectives
Not all business could set one objective and aim for that. Most businesses are trying to satisfy the objectives of more than one group
Managers have to compromise when they come to decided best objectives for the business
Managers will be unwise to ignore the real worries/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.