Business SUBUNIT 1.5

What are business objectives?

The specific, measurable goals that a business sets out to achieve. They provide direction for the business and a way to measure success.

What does SMART stand for in business objectives?

Specific, Measurable, Achievable, Relevant, Time-bound.

Give an example of a SMART objective.

"Increase sales by 15% in the UK market within the next 12 months."

What is the survival objective?

The objective of keeping the business operating, especially in difficult times. This is the most basic objective

When is survival the main objective for a business?

New businesses in their first few years, during an economic recession, when there is intense competition, when the business is facing financial difficulties, during a crisis (e.g., pandemic, natural disaster).

How can a business achieve survival?

Reducing costs, cutting prices to attract customers, reducing investment and expansion, focusing on core products/services, seeking loans or investment, reducing staff.

What common mistake do students make about survival?

Thinking survival is only for new businesses. Established businesses also focus on survival during recessions, crises, or periods of intense competition.

What is the profit objective?

The objective of making a financial gain from business activities. Profit is the surplus after all costs have been deducted from revenue.

Why is profit important for a business?

Reward for risk-taking, source of finance for reinvestment, attracts investors and lenders, measures business success and efficiency, provides dividends for shareholders, signals the business is healthy.

What are the three types of profit objectives?

Profit maximisation (making as much profit as possible), satisfactory profit (making enough to keep owners/shareholders happy), profit growth (increasing profit over time).

What common mistake do students make about profit objectives?

Thinking all businesses aim to maximise profit. Some aim for satisfactory profit, and non-profit organisations have different primary objectives.

What is the growth objective?

The objective of increasing the size of the business, measured by sales, market share, number of employees, or value of assets.

Why do businesses want to grow?

Increased profits, increased market share, economies of scale, survival (larger businesses are more resilient), attract better staff, increased status and recognition, ability to access finance more easily.

How can business growth be measured?

Increase in sales revenue (turnover), increase in market share, increase in number of employees, increase in number of outlets/branches, increase in capital employed, increase in volume of output.

What common mistake do students make about growth?

Thinking growth is always a good objective. Growth brings problems too

What is market share?

The proportion of total market sales that a business has. Calculated as: (Business's Sales ÷ Total Market Sales) × 100.

Why is market share important?

Indicates the business's position in the market, higher market share means more influence and power, dominant businesses can set prices and standards, brand recognition and customer loyalty increase, economies of scale become possible.

How can a business increase market share?

Price reductions, better advertising and promotion, improved product quality or features, better customer service, new product development, entering new markets.

What common mistake do students make about market share?

Confusing market share with market size. Market size is the total sales in the market; market share is the proportion a business has.

Give 5 other business objectives besides survival, profit, growth, and market share.

Customer satisfaction, social and environmental objectives, employee welfare, innovation, efficiency.

Why are business objectives important?

Provide direction, help with decision-making, motivate employees, measure performance, communicate to stakeholders, coordinate activities, establish priorities, allocate resources.

How do objectives change over time for a business?

Start-up: survival, building customer base, breaking even. Growth: expansion, increasing market share. Mature: maintaining position, maximising profits. Decline: survival again, cost cutting.

What factors cause business objectives to change?

Changes in the economy (recession, boom), new competition, changes in technology, changes in law/regulations, changes in customer preferences, new management/ownership, internal problems.

What common mistake do students make about objectives changing?

Thinking objectives are fixed and never change. Objectives evolve as the business grows, as the market changes, and as circumstances develop.

Give 3 examples of conflicts between business objectives.

Profit vs Growth (growth requires investment which reduces profit), Profit vs Customer Satisfaction (satisfying customers costs money), Profit vs Employee Welfare (higher wages cost money), Short-term vs Long-term, Market Share vs Profit.

What is a stakeholder?

Any individual, group, or organisation that has an interest in, or is affected by, the activities of a business.

What are internal stakeholders?

Stakeholders who are inside the business (owners, managers, employees).

What are external stakeholders?

Stakeholders who are outside the business (customers, suppliers, lenders, government, local community).

Who are the owners as stakeholders?

Sole traders (single owner), partners (individuals who own the partnership), shareholders (individuals/organisations that own shares in a limited company).

What are the objectives of owners?

Profit, growth, survival, security (protecting their investment), control, satisfaction (personal achievement, status, independence), ethical objectives.

Why do owners matter as stakeholders?

They provide the capital to start and grow the business, they take the financial risk, they make key decisions, they ultimately determine the direction of the business.

What common mistake do students make about owners' objectives?

Thinking all owners have the same objectives. Sole traders want personal profit and independence; shareholders want dividends and share price growth.

Who are managers as stakeholders?

The individuals responsible for running the business and making decisions (CEO, Finance Director, Marketing Director, Operations Manager, Department Managers).

What are the objectives of managers?

Good salary and benefits, job security, status and recognition, achievement (meeting targets), growth of the business, good working conditions, personal satisfaction.

Why do managers matter as stakeholders?

They make day-to-day decisions, they coordinate employees, they implement the business's objectives, they represent the interests of owners and employees, they drive business performance.

What is the principal-agent problem?

The conflict that arises when managers (agents) pursue their own objectives rather than the objectives of the owners (principals).

What common mistake do students make about managers?

Thinking managers always act in the owners' best interests. Managers have their own objectives and may conflict with owners.

Who are employees as stakeholders?

The people who work for the business, ranging from junior staff to senior executives.

What are the objectives of employees?

Fair wages and salaries, job security, good working conditions, career progression, training and development, recognition and appreciation, work-life balance, job satisfaction, good relationships with colleagues and managers.

Why do employees matter as stakeholders?

They produce the goods or provide the services, they represent the business to customers, motivated employees are more productive, high staff turnover is expensive, they contribute ideas and innovation.

What common mistake do students make about employees?

Thinking employees only care about wages. They also care about job security, working conditions, career progression, and job satisfaction.

Who are customers as stakeholders?

The individuals or businesses that buy the business's products or services (consumers B2C or other businesses B2B).

What are the objectives of customers?

Good quality products/services, fair prices (value for money), good customer service, choice, safe products, convenience, after-sales service, reliability, ethical business practices.

Why do customers matter as stakeholders?

They provide the revenue that keeps the business operating, they can choose to take their business elsewhere, satisfied customers return and recommend, customer complaints damage reputation, customer loyalty is valuable.

What common mistake do students make about customers?

Thinking customers only care about low prices. They also care about quality, service, convenience, safety, and ethics.

Who are suppliers as stakeholders?

The businesses or individuals that provide the business with goods, services, or materials needed for its operations (raw material suppliers, component suppliers, energy providers, IT services).

What are the objectives of suppliers?

Regular orders, prompt payment, good relationship, fair prices, security of contract (long-term contracts), growth, profit.

Why do suppliers matter as stakeholders?

They provide essential inputs for production, suppliers can affect quality/cost/delivery, a good relationship is valuable, supplier problems can disrupt the business.

What common mistake do students make about suppliers?

Thinking suppliers only care about getting paid. They also want regular orders, fair prices, good relationships, and long-term contracts.

Who are lenders/banks as stakeholders?

The financial institutions or individuals that lend money to the business (banks, building societies, credit unions, private lenders).

What are the objectives of lenders/banks?

Repayment (on time and in full), interest, security (collateral), good financial health of the business, low risk, good relationship.

Why do lenders matter as stakeholders?

They provide capital for start-up and growth, they can provide financial advice and support, without lenders many businesses could not operate.

What common mistake do students make about lenders?

Thinking lenders only care about interest payments. They also care about repayment, security, the business's financial health, and risk minimisation.

Who is the government as a stakeholder?

The government (national, regional, or local) that makes laws and regulations affecting the business, including government agencies, local authorities, and regulators.

What are the objectives of government?

Tax revenue, employment (jobs reducing unemployment), economic growth, following laws and regulations, social objectives, environmental objectives, protecting consumers, international trade.

Why does government matter as a stakeholder?

Government sets the legal framework for business, government can provide grants/support/incentives, government is a major customer, government can create or remove barriers, government policies affect the economy.

What common mistake do students make about government?

Thinking the government only cares about taxes. It also cares about employment, economic growth, regulation compliance, social and environmental objectives.

Who is the local community as a stakeholder?

The people and organisations living and working near the business (residents, local businesses, schools, community groups, local authorities).

What are the objectives of the local community?

Job creation, economic activity in the local area, no negative effects (pollution, noise, traffic), community support (sponsorship), good corporate citizen, investment in the area, consultation and engagement.

Why does the local community matter as a stakeholder?

The business operates in the community, negative community relations can harm reputation, community support can help the business thrive, businesses rely on local labour and customers, planning permission may depend on community support.

What common mistake do students make about the local community?

Thinking the local community only cares about jobs. It also cares about environmental impact, traffic, noise, and the business's contribution to the community.

Give 5 examples of stakeholder conflicts.

Owners vs Employees (higher profits vs higher wages), Owners vs Customers (higher prices vs lower prices), Owners vs Suppliers (lower costs vs higher prices), Owners vs Government (lower taxes vs higher taxes), Employees vs Customers (reasonable hours vs convenience).

How can businesses manage stakeholder conflicts?

Communication, negotiation, prioritisation, balance, Corporate Social Responsibility (CSR).

What is Corporate Social Responsibility (CSR)?

Businesses acting ethically and responsibly, considering social and environmental impacts. Builds trust and goodwill and can help resolve conflicts.

What is the shareholder value view (Friedman view)?

The view that the primary responsibility of a business is to maximise shareholder value. Other stakeholders are considered only if it benefits shareholders. "The social responsibility of business is to increase its profits"

What is the stakeholder approach?

The view that businesses should consider all stakeholders, not just shareholders. More ethical and sustainable approach that can lead to better long-term performance.

What common mistake do students make about prioritising stakeholders?

Thinking businesses should always prioritise shareholders. Businesses that ignore other stakeholders risk damage to reputation, loss of customers, staff turnover, and legal problems.

What is a stakeholder map?

A diagram that plots stakeholders by their power and interest. Helps businesses decide how to manage different stakeholder groups.

What are the four categories in a power vs interest stakeholder matrix?

Key Players (High Power, High Interest)

Why are stakeholders important to a business?

They influence business decisions, affect business performance, provide resources (capital, labour, materials, revenue), provide legitimacy and support.

What common mistake do students make about stakeholders?

Thinking only shareholders matter. All stakeholders are important to a business's success and survival.

Define: Business objectives.

The specific, measurable goals that a business sets out to achieve.

Define: Stakeholder.

Any individual, group, or organisation that has an interest in, or is affected by, the activities of a business.

Define: Internal stakeholders.

Stakeholders who are inside the business (owners, managers, employees).

Define: External stakeholders.

Stakeholders who are outside the business (customers, suppliers, lenders, government, local community).

Define: Market share.

The proportion of total market sales that a business has. Calculated as (Business's Sales ÷ Total Market Sales) × 100.

Define: Principal-agent problem.

The conflict that arises when managers (agents) pursue their own objectives rather than the objectives of the owners (principals).

Define: Corporate Social Responsibility (CSR).

Businesses acting ethically and responsibly, considering social and environmental impacts.

Define: Shareholder value.

The view that the primary responsibility of a business is to maximise returns for shareholders.

Define: Stakeholder approach.

The view that businesses should consider all stakeholders, not just shareholders.