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Chapter 5 - Business Objectives
^^Business Objectives^^ : A business objective is an aim or a target that a business collectively works towards
- These help make the business successful but don’t guarantee sucess
- Business objectives gives workers & managers a clear target to work towards
- Decisions will all be focused on basis of “Will it help achieve out objectives”
- Managers can compare how the business has performed to their objectives
- Vital to all businesses
- Different objectives or different companies
Private sector business are to achieve:
Business Survival
When a company has been recently set up, or when the economy is moving into recession, they are more concerned about survival about all else. New competitors also cause insecurity
Profit
When owned by private individuals rather than the govt, the business’ main goal is profit. Owners each take a share of the profit.
Pay a return to the owners of the business for the capital invested & the risk taken
Provide finance for further investments in the business
- However, with this aim, other people will be set up in competition, which only reduces profits in the long term
- Owners should always aim for a satisfactory level of profit , which avoids them having to work too many hours or pay too much in tax to the government
Returns to shareholders
Shareholder own limited companies, the managers if of companies will often set the objective of ‘increasing' returns to shareholders’. This is done to discourage shareholders from selling their shares & helps the managers to keep their jobs
- Increasing profit & the share of profit paid to shareholders as dividends
- increasing share price - managers can try to achieve this not just by making profits but by putting plans in place that give the business a good chance of growth & higher profits in the future
Growth
May aim for growth in size of the business - usually measured by value of sales or output - in order to:
Make jobs more secure
increase the salaries & statuses of managers
Open up new possibilities to spread the risk of the business (conglomerate integration) by moving into new markets
Obtain a higher market share from growth in sales
obtain cost advantages, called economies of scale, from business expansion
Growth will only be achieved if the customers are satisfied with the product or services being provided. It is important to put meeting customers’ needs as a very high priority
Market Share
Market share % = (company sales / total market sakes) x 100
- leads to good publicity & can claim as most popular
- Increased influence over suppliers, they’ll be very keen to sell to a business that is becoming relatively larger than others in the industry
- increased influence over customers
Social enterprises
A social enterprise has social objectives as well as am aim to make a profit to reinvest back into the business
Social enterprises are operated by private individuals
- Social Objectives : to provide jobs & support for disadvantaged groups in society, such as the disabled or homeless
- Environmental objectives: To protect the environment
- Financial objectives : To make a profit to invest back into the social enterprise to expand the social work that it performs
Objectives of public sector businesses
- Financial : meet profit targets set by the govt. Sometimes the profit is re-invested back into the business. Otherwise it is handed over to the govt as the ‘owner’ of the org
- Service : Provide a service to the public & meet quality targets set by the govt
- Social : Protect or create employment in certain areas → especially poorer regions with higher level or unemployment
Stakeholder groups & their objectives
- Stakeholders are people who have a direct interest in the performance & activities of a business
- Stakeholders can be external or internal
| Stakeholder groups | Main features | Most likely objectives for the stakeholder groups |
|---|---|---|
| Owners (internal) | They put capital in to set up & expand the business. They will take a share of the profits if the business succeeds. If the business doesn’t attract enough customers, they may lose the money they invested. They are risk-takers | Share of the profits so that they gain a rate of return on the money put into the business. Growth of the business so that the value of their investment increases |
| Workers (internal) | Employed by the business. Have to follow instructions of managers & may need training to work effectively. May be employed part-time or full-time & on a temporary or permanent basis. May be made redundant & told to leave the business, if not enough work for them. | Regular payment for their work. Contract of employment. Job security - workers don’t want to look for new jobs frequently. Job that gives satisfaction & provides motivation. |
| Managers (internal) | Also employees, and control the work of other workers, Take important decisions, which if successful may lead to business expansion. However, if unsuccessful, business may fail. | High salaries because of the important work & decision making. Job security. Growth of the business so that they can control larger & better known business. This gives them more power & status |
| Customers (external) | Without enough customers a business will fail. Most successful businesses often find out what consumers want before producing goods & services (Market research) | Safe & reliable products. Value for money. Well-designed products & good quality. Reliability of service & maintenance |
| Government (external) | Responsible for the country’s economy. Passes laws to protect workers & consumers | Wants business to succeed in it country, as successful businesses employ, pay taxes & increase country’s output. Expect all firms to stay with the law - law affects business activity |
| The whole community (external) | The community is greatly affected by business activity. Factories might pollute rivers, seas & air quality. Businesses also create jobs & allows their workers to improve their living standard. | Jobs for the working population. Production that doesn’t harm the environment. Safe products that are socially responsible |
| Banks (external) | They provide finance for the business’ operations | Expect businesses to be able to pay interest & repay capital lent → Businesses must remain liquid |
Conflict of stakeholder’s objectives
- Most businesses have several objectives
- Managers would be unwise to ignore the real worries or aims of other groups with an interest in the operation of the business. Furthermore, they also have to be prepared to change the objectives, when required.
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