Chapter 5
Business objectives : The aims or targets that a business works towards
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. New competitors could make a business fell less secure
Profit : The total income of a business (revenue) minus total costs. Businesses have an objective of making a profit as it is needed to pay a return to the owners of the business for the capital invested and provide finance for further investment into the business
Returns to shareholders : Shareholders own limited companies and therefore the company would want to give returns in order to discourage shareholders from selling their shares.
This can be done in 2 ways :
- Increasing profit and the share of profit paid to shareholders as dividends
- Increasing share price
Growth
Owners may aim for growth 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
- Obtaining a higher market share from growth in sales
- Obtain economies of scale
Market share : The percentage of total market sales held by one brand or business
Increased market share means :
- The business will have good publicity as it could claim it is becoming the most popular
- It will have an increased influence over suppliers and an increased influence over customers
Providing a service to the community (Social enterprises)
A social enterprise has social objectives as well as an aim to make a profit and reinvest it back into the business, operated by private individuals.
Their three objectives are :
- Social : To provide jobs and support for disadvantaged groups in society
- Environmental : To protect the environment
- Financial : To make a profit
Main internal and external stakeholder groups and their objectives
Why business objectives could change
Examples
A business has achieved higher market share and now has the objective of earning higher returns for shareholders
A profit-making business operates in a country facing a serious economic recession so now has a short-term objective of survival
A business set up recently has survived for 3 years and now has the objective to make higher profits
Owners (Internal)
Main features
- They put capital in to set up and expand the business
- They will take a share of the profits if the business succeeds
- Risk takers
Most likely objectives
- Share of the profits so they gain a rate of return on the money they put into the business
- Growth of the business so that the value of their investment increases
Workers (Internal)
Main features
- They are employed by the business
- They have to follow their employer's instructions in order to do their work effectively
- May be employed on full or part-time contracts
- If there is not enough work for all workers then some may be made redundant and told to leave
Most likely objectives
- Regular payment for their work
- Contract of employment
- Job security
- Jobs that give satisfaction and provides motivation
Managers (Internal)
Main features
- They are the employees of the business and control the work of the other workers
- They take the important decisions
- Their successful decisions could lead to the businss expanding
- If they make poor decisions, the business could fail
Most likely objectives
- High salaries because of the important work they do
- Job security
- Growth of the business so the managers can control bigger and better businesses
Customers (External)
Main features
- They are important to every business as they buy the goods that the business produces or the services that the business provides
- Without enough customers a business will eventually fail
- Most successful businesses often find out what consumers want before making the goods (market oriented)
Most likely objectives
- Safe reliable products
- Value for money
- Well-designed products of good quality
- Reliability of service and maintainence
Government (External)
Main features
- Responsible for the economy of the country
- Passes laws to protect workers and consumers
Most likely objectives
- Wants business to succeed in its country
- Expects all firms to stay within the law