Chapter – 2

Business Objectives

Definitions –

1. Executives - managers in an organisation or company who help make important

decisions
2. Diversify - if a business, company or country diversifies, it increases the range of goods
or services it produces
3. Financial return – monetary return
4. Profit maximization – making as much profit as possible in a given time period
5. Shareholders – owners of limited companies
6. Dividends – share of the profit paid to shareholders in a company
7. Profit satisficing – making enough profit to satisfy the needs of the business owners
8. Automation – use of computers and machines instead of people to do a job
9. Economies of scale – financial advantages (falling average costs) of producing something
in very large quantities.
10. Large business – a business that employs more than 250 people
11. Small business – a business that employs fewer than 50 people
12. Revenue – money from the sale of goods and services

The importance of clear objectives

Businesses are more likely to be successful if they set clear objectives. Businesses need to have
objectives for the following reasons.

Employees need something to work towards. Objectives help to motivate people.

Without objectives owners might not have the motivation needed to keep the business going.
Owners might allow their business to 'drift'. This might result in business failure.

Objectives help to decide where to take a business and what steps are necessary to get there.

It is easier to assess the performance of a business if objectives are set. If objectives are
achieved it could be argued that the business has performed well.

Financial Objectives

In the private sector, where individuals or groups of individuals own businesses, financial
objectives are particularly important. This is because most business owners in the private sector
want to make money. The main financial aims and objectives are outlined below.
Survival: All businesses will consider survival as important. However, from time to time survival
may be the most important objective. When a business first starts trading it may be vulnerable.
The owners may lack experience and there may be a shortage of resources. Therefore, an
objective for a new business may be to survive in the first 12 months. The survival of a business
might also be threatened when trading conditions become difficult or if a strong competitor
emerges.

Profit: Most businesses aim to make a profit because their owners want a financial return. Some
businesses try to reach profit maximisation. This means they make as much profit as they
possibly can.

Sales: Some owners want their businesses to grow their sales. This is because businesses with
large volumes of sales may enjoy a number of benefits.

The growth of a business might also benefit a wide range of stakeholders linked with the
business.

Increase market share: Businesses often want to build a larger market share. They may be able
to do this if they can win customers from competitors. Businesses with a large market share
may be able to dominate the market.

Financial security: Some business owners do not aim for profit maximisation. Instead, they
might aim to make enough profit to give them financial security. This is sometimes called profit
satisficing. One reason why some owners do not seek to maximise profits is because they do not
want to take on the extra responsibility of expanding their business - which is often required to
make more profit. Also, some entrepreneurs run 'lifestyle' businesses. This involves running a
business that generates enough profit and financial security to provide the flexibility needed to
allow a particular lifestyle. This type of business allows owners to spend more time on their
other interests or with family. However, to do this they first need financial security. This can be
an important business aim.

NON-FINANCIAL OBJECTIVES

Some businesses may have non-financial objectives. These are objectives that are not
connected with money. Whether owners have such objectives often depends on the nature of
the business. Some business owners might have both financial and non-financial objectives.

SOCIAL OBJECTIVES

In the public sector, where the government owns businesses, social objectives are important.
Social objectives are designed to improve human well-being. In the public sector most
businesses aim to provide a public service and the objectives will be linked to quality of service
and reducing costs.
Some businesses operate as social enterprises, not-for-profit organisations, such as charities and
cooperatives and also aim to improve human and environmental well-being. They usually have a
clear social or environmental mission.

PERSONAL SATISFACTION

Many business owners set up a business because they think they will be happier and feel more
satisfied in their work environment than when working for an employer. Such owners are likely
to enjoy taking risk and seeing their idea succeed. Some owners have developed their hobby
into a business.

CHALLENGE

Some people are motivated by challenges and starting a business can be very challenging. To be
successful in business people need to be committed, hardworking and multi-skilled.

INDEPENDENCE AND CONTROL

Some people want to be 'their own boss' - they want to be in control. This is an important non-
financial objective for many business owners. These entrepreneurs are driven by the desire to
be independent and to take control of their own futures. The freedom to make all the decisions
when running a business is very appealing. Some people often dislike being told what to do at
work.

WHY MIGHT OBJECTIVES CHANGE AS BUSINESS EVOLVE?

As a business develops and evolves over time, its aims and objectives are likely to change. This is
usually because businesses have to respond to events or changes in circumstances. Some of the
main examples are outlined below.

MARKET CONDITIONS

Businesses operate in dynamic markets. This means they have to deal with regular changes.
When market conditions change, it may be necessary to set new objectives.

TECHNOLOGY

As the pace of technological development increases businesses may have to adjust their
objectives. Alternatively, a business might decide to win a larger share of the market after
introducing online selling technology.
PERFORMANCE

The performance of a business is not likely to stay constant. Periods of sustained profitability
may be interrupted by less successful periods. The performance levels of businesses may have
an impact on their objectives.

LEGISLATION

New legislation might have an impact on the objectives of a business. In recent years, many
businesses have become more socially responsible. This might be a reaction to new
environmental, employment or consumer legislation.

INTERNAL REASONS

The reasons outlined above for a business changing its objectives are mainly owing to external
factors, things beyond the control of businesses. However, sometimes a business might change
its objectives for internal reasons.