1.2: Business objectives

why do businesses have objectives

* employee motivation
* to motivate owners
* help decide business decisions
* to assess performance

what kind of objectives do businesses in the private sector usually have

financial

financial objectives

* survival
* profit
* sales
* increased market share
* financial security

survival

* businesses are vulnerable at the beginning
* businesses may have a core objective of survival during the first few months
* is also threatened when competition enters the market or trading conditions worsen

profit

* businesses aim to make a profit for financial return
* some want profit maximisation
* shareholders try to maximise profit for large dividends

sales

* some owners want businesses to grow sales
* high sales mean more benefits
* growth of a business affects stakeholders

what are the benefits to a business of increased sale

* lower costs
* larger market share
* higher public profile
* generation of wealth

increased market share

* business want a large market share for a higher profile
* helps win customers from competitors
* helps dominate the market
* businesses can charge higher prices
* easier to launch new products

financial security

* profit satisficing
* don’t want to expand their business
* some run ‘lifestyle’ businesses
* allows owners to spend time away from the business

can businesses have non-financial and financial objectives

yes

non-financial objectives

* social objectives
* personal satisfaction
* challenge
* independence and control

social objectives

* important in the public sector
* designed to improve human well being
* provide a public service
* link to quality of service and reduced costs
* social/environmental missions
* some businesses improve social responsibility to take into account stakeholder needs

personal satisfaction

* some owners set up a business for happiness and satisfaction
* they enjoy taking risks and success
* some of these are a business

challenge

* some people are motivated by challenge
* requires commitment, hard work and multi-skill
* business owners need several skills and be ready to face challenges

independence and control

* some owners want control
* driven by desire for independence
* freedom to make decisions
* key benefit of entreprenuership

SMART objectives

specific, measurable, achievable, realistic, time specific

why do business objectives change as businesses evolve

* market conditions
* technology
* performance
* legislation
* internal reasons

market conditions

* new objectives are important when market conditions change
* new competitors, rivals introducing new products, economic decline
* businesses have to prioritise objectives depending on their situation

technology

* businesses may have to adjust their objectives depending on technological advancements
* businesses may go under pressure to sell more to exploit economies of scale

performance

* linear
* sustained profitability isn’t always constant
* performance levels affect objectives

legislation

* businesses need to cater to environmental, employment or consumer legislation
* businesses have to consider needs of a wider range of stakeholders

internal reasons

businesses can change their objectives for internal reasons like change in ownership or management

objectives of a small business

* may be content staying small
* may want to avoid responsibility with growth
* interested in non-financial objectives

objectives of a large business

* aim for profit
* aim to expand and grow
* financial objectives