Ch. 4: Business Objectives Business 9609 - AS Ms.

Saira Ansari

UNIT 1: BUSINESS AND ITS ENVIRONMENT

CHAPTER 4: BUSINESS OBJECTIVES

BUSINESS OBJECTIVES:

Business objectives are targets for the business that are based on its long term aim, and can be
further broken down in to divisional, departmental and individual targets. They should be
specific, measurable, agreeable, realistic and time-bound. Some examples of corporate objectives
are survival, growth, increasing sales revenue, increasing market share and corporate social
responsibility.

Importance of business objectives:

 Help to direct, control, review the success of business activity.

 Create a sense of direction and purpose for all employees, which will increase their
motivation
 Provide specific targets for future business strategies to aim for
 Means of assessing success or failure when actual business performance is judged
 It should be checked time to time whether or not objectives are achieved.
 A poor plan will lead to failure to reach a target.
 The most effective business objectives contain SMART criteria.

OBJECTIVES OF PRIVATE-SECTOR BUSINESSES:

Survival:

 Important for new startups.

 It is set as an objective when business is new, or when competition is tough or when there
are tough economic circumstances.
 Surviving for the first two year of trading is important for entrepreneurs.
 Once business is established, this objective changes.

Growth:

 Growth is usually measured in terms of sales or value of output.

 Larger firms are less likely to be taken over.
 Benefits from economies of scale.
 Managers get motivated by increasing monetary rewards.
 Limitations of growth:
- Rapid expansion can create liquidity problems (cash flow).
- Sales growth but fewer profit margins.

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Ch. 4: Business Objectives Business 9609 - AS Ms. Saira Ansari

- Larger businesses experience diseconomies of scale.

- Using profits to finance growth leads to lower short-term returns to shareholders.
- Focusing on only growth, might result in a loss of direction for the whole organization

Profit Maximization:

- It is creating the maximum difference between total cost and total revenue.
- For rewarding investors and for financing further growth.
- Profits are necessary to persuade owners.
- Limitations of Profit Maximization:
 Focus on high short terms profits can attract competition.
 Businesses seek to maximize sales to gain higher market share
 Owners of smaller businesses prefer leisure time, independence and work–life
balance over just earning more money
 Few owners and shareholders prefer profit maximization, but other stakeholders
will prioritize other objectives
 Difficult to assess whether the point of profit maximization has been reached
practically.
 The business would expect to make a target rate of profit from these sales.
 Return on capital employed matters in comparison rather than profit
maximization.
 Profit max may lead to cost cutting which is a major problem.
 Profit max usually requires charging higher prices which may lead to consumers’
negative reactions.

Profit Satisficing:

 Achieving enough profit that keeps owners happy.

 Common objective in small businesses.
 Owners don’t have to work long hours.
 Once the business achieves satisfactory level of profit, the priority is then given to other
aims like more leisure time.

Increasing Market Share:

 Linked with overall growth of the business.

 Sometimes a fast growing market can reduce firm’s market share.
 Increasing market share means business’s marketing mix is working.
 The higher market share means;

 Retailers keep your stock and promote it.

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Ch. 4: Business Objectives Business 9609 - AS Ms. Saira Ansari

 Lower profit margin offered to retailer than other small competing ones, making
producer extract more profits.

 Becomes brand leader and consumer buys with confidence.

Corporate Social Responsibility (CSR):

 This is where business considers the interest of society by taking responsibility for the
impact of decisions and activities on its stakeholders.
 It is actually going for what is ethical.
 Pressure groups do force businesses to reconsider their decision-making approach.
 Avoids bad publicity.
 E.g. not testing on animals, no GMF (genetically modified foods) and so on.
 Sometimes it is concerned that this is just to show off.
 Peter Drucker describes it as public responsibility.

Maximizing Short Term Sales Revenue:

 Benefit managers and staff when salaries and bonuses are dependent of sales revenue.
 If it is achieved by reducing price, the profits will decrease.
 Better to consider elasticities for this.

Maximizing Shareholders Value:

 Applies to public limited companies.

 Increasing the share price and dividends.
 Achieved by profit maximization objective.
 Puts the interests of shareholders above those of other stakeholders.

Objectives of Social Enterprise:

1. Economic (financial): Make profit to re-invest back into the business and provide
financial return to the owners
2. Social: To provide jobs or support for local, disadvantaged communities
3. Environmental: To protect the environment and to manage the business in an
environmentally sustainable way.
 These aims are often referred to as the triple bottom line.

Objectives of Public-sector Businesses:

 To provide an efficient, reliable service to the public

 To encourage economic and social development
 To create employment or prevent major job losses
 To meet financial targets set by the government
 Don’t have the profit motive as their main objective
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Ch. 4: Business Objectives Business 9609 - AS Ms. Saira Ansari

SMART criteria:

S-Specific: According to the business.

M-Measurable: Objectives that quantifies will prove to be more effective.

A-Achievable: Should be possible to achieve

R-Realistic and relevant: Should be achievable

T-Time bound: Have certain period else the achievement could not be assessed.

FACTORS THAT DETERMINE BUSINESS OBJECTIVES:

1. Business Culture:
- A way of doing things shared by all within an organization.
- Impacts greatly on the decisions made
- If directors are concerned in defeating rivals, they will little care about social and
environmental objectives.
2. Size and legal form of business:
- Small business is concerned with satisfying profit
- Public limited companies focus on rapid growth to increase directors’ status and power
3. Public sector or private sector:
- Profit and shareholder value are common business objectives in the private sector
- Quality of service measures is the common objective for public sector.
- Revenue-earning businesses in the public sector
- Maintaining services in non-profitable locations is also part of public sector
4. The number of years’ business has been in operation:
- New business will work on survival
- Established will work on profits and growth.

Hierarchy of Objectives:

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Ch. 4: Business Objectives Business 9609 - AS Ms. Saira Ansari

Business Aims:

 Long term goals.

 Core central purpose of business is expressed here.
 All corporate aims have certain characteristics in common.
 Designed to provide guidance.
 Helps develop sense of purpose and direction.
 Allow an assessment to be made that how successful a business is attaining goals.
 Provides framework within which strategies or plans of the business can be drawn up.

Mission Statements:

 A statement of the business core aims, phrased in a way to motivate employees and to
stimulate interest by outside groups.
 Attempt to condense the central purpose of a business’s existence into one statement.
 Often featured in published accounts.
 Appear in corporate plans of business.
 BENEFITS:
- It quickly informs central aim and vision to outside groups.
- Can be motivating to employees.
- Often includes moral statements or values to be worked towards.
- They are not meant to be detailed working objectives.

 LIMITATIONS:
- They are criticized for being too vague and general.
- Say little that is specific.
- Criticized for being an exercise to make PR with stakeholders.
- Virtually impossible to really analyze or disagree with.
- Woolly and general, making it similar with other businesses.
- Insufficient for operational guidelines.
- Do not tell managers about managing and decision making.

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Ch. 4: Business Objectives Business 9609 - AS Ms. Saira Ansari

Business/ Corporate Objectives:

 Based upon central aims or mission of the business.

 They are expressed in terms that provide a much clearer guide for management action or
strategy.
 Common corporate objectives includes;

1) Profit maximization
2) Profit satisficing
3) Growth
4) Increasing market share
5) Survival
6) Corporate Social Responsibility (CSR)
7) Maximizing short term sales revenue
8) Maximizing shareholders value

 Corporate objectives are targets set for the whole organization.

 They are based on the aim and mission of the business
 Broken down into divisional, departmental and individual targets.
 Good corporate objectives should be set according to the SMART criterion.

Relationship between Mission, Objectives, Strategy and Tactics:

 Strategies are based on objectives.

 Strategies are long term plans of action of a business that focus on achieving its aims.
 Without clear objectives decision making will lack direction and a means of assessing
success.
 The setting of clear and realistic objectives is one of the primary roles of senior
management before strategy for future action can be established, objectives are needed.
 Tactics are short term plans/ decisions.

BUSINESS DECISION MAKING MODEL/ FRAMEWORK:

Stages in Decision Making:

1. Set objectives

2. Assess the problem or situation

3. Gather data about problems and possible solutions.

4. Consider all decision options.

5. Make the strategic decision

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Ch. 4: Business Objectives Business 9609 - AS Ms. Saira Ansari

6. Plan and implement the decision

7. Review its success against the original objectives

Changes in Objectives over time:

 New business has initial objective of survival, after being successful it changes to growth
or increased profits.
 Changes in competitive and economic environment like recession in an economy or a
powerful rival.
 Short term objective of increase in sales or market share can change to profit max at
higher level of sales.

Translation of objectives into targets and budgets:

 Important role of senior management is to convert the overall objectives of the business
into targets
 Specific and measurable short-term targets must be set for each business section
 Targets shall be for limited time period
 Targets form part of a department’s budget or financial plan

Communicating Objectives:

 It is actually communicated to employees.

 If employees are communicated with and involved in setting individual targets it will;

1) Employees and managers achieving more as greater understanding.

2) Employees seeing overall plan understand how their individual goals fit into business.

3) Creating shared employee responsibility by interlinking their goals with one another
in the company.

4) Managers more easily staying in touch with employees’ progress by regular

monitoring of employees letting them assess their performance.

Ethical influences on business objectives and decisions:

 Ethical code or code of conduct is a document detailing a company's rules and guidelines
on staff behavior that must be followed by all employees.
 The growing acceptance of CSR has led to business adopting an ethical code to influence
the way in which decisions are taken.
 Ethical dilemmas; Is it acceptable to take bribes to place an order with another company?
Is it acceptable to feed genetically modified food to cattle?
 Businesses take it differently; some would do it with justification.

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Ch. 4: Business Objectives Business 9609 - AS Ms. Saira Ansari

Evaluating ethical decisions:

Being ethical can be expensive in short term:

- Using ethical and Fair trade suppliers can add to business costs.
- Not taking bribes
- Limiting the advertising
- Accepting that it is wrong to fix prices with competitors
- Paying fair wages

Benefits in the longer run:

 It may avoid a business paying fines.

 Avoids bad publicity.
 Ethical businesses attract ethical customers
 Likely to be awarded with government contracts.
 International competitiveness and reputation becomes better. Easy to obtain licenses and
franchises.
 Well qualified staff may be attracted.

ACTIVITY 1:
Owners have different objectives
June Wong was satisfied that her business Health and Beauty for You had survived its first three
years of trading. This had been the first objective she had set for the business. She set up the hair
and beauty business three years ago with her brother Will. It is still trading after three years of
economic recession and increased competition. The business has built up a good customer base
and has covered all of its costs.
Now June and Will are thinking about future business objectives. June wants the business to
grow. She thinks the best way to do this is to buy another beauty salon in another town. ‘This
will get the business name well known and will give us further sales growth of at least 20% a
year,’ she told Will. He was not so sure. He said, ‘Do we want the employee and marketing
problems associated with another salon? I think our objective should be to make as much profit
as we can from the existing salon. I think we could aim for a profit of $40 000 per year. We
could offer a wider range of services and increase our prices.’

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Ch. 4: Business Objectives Business 9609 - AS Ms. Saira Ansari

After much discussion, they agreed that the new business objective should be to open a new
salon and to double revenue within three years. After achieving this, the aim would be to
maximize long-term profits from the two locations by improving image and raising prices. Will
thought that, for five
years from now, a profit target of $90 000 per year was realistic.
Q. Analyse two benefits to June and Will of setting objectives for their business.
Q. Discuss whether the objective they set for the business is a SMART objective.

Answers might include:

1. • It provides targets to achieve and a measure of success (e.g. achieving the profit target of
$90000 within five years).
• With objectives set, June and Will can identify how to achieve them. They have identified the
need to improve image and raise prices.

2. Specific and measurable: a profit target of $90 000 per year has been set.
Achievable: opening a new salon and doubling revenue is achievable within the time frame.
However, Will is concerned about the employee and marketing problems associated with a new
salon.
Realistic: the business has survived economic recession and increased competition. Although it
is covering costs, does it have the resources to open a new salon? The case does not suggest any
significant profits being available. However, its survival and their planning may mean that the
business can access necessary finance.
Time-limited: there is a clear timescale of opening the new salon and doubling revenue within
three years and long-term profit of $90 000 in five years.

PAST PAPER QUESTIONS FOR PRACTICE (P1)

1. (a) Analyse two reasons why changing a business’ objectives might affect its
shareholders. [8] (March 2023/P12)
2. (a) Analyse two reasons why a business should set SMART objectives. [8]
(b) ‘Ethics should always influence the human resource management (HRM) activities of
a mining business.’ Evaluate this view. [12] (M/J 2023/P11)
3. (a) Define the term ‘ethics’. [2]
(b) Explain two ways ethics might affect the activities of a business. [3] (O/N 2022/P12)
4. (a) Define the term ‘corporate social responsibility’ (CSR). [2]
(b) Explain two disadvantages to a business of having CSR as a business objective. [3]
(M/J 2022/P13)
5. (b) Discuss the view that the activities of banks should be significantly influenced by
ethics. [12] (M/J 2022/P12)
6. (b) Discuss the importance to an expanding business of effectively communicating its
objectives to its workforce. [12] (M/J 2021/P11)
7. (a) Analyse why mission statements are important to many businesses. [8]
(b) Discuss why the shareholders of a public limited company might not support
corporate social responsibility (CSR) as a business objective. [12] (O/N 2020/P13)

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Ch. 4: Business Objectives Business 9609 - AS Ms. Saira Ansari

8. Explain why the objectives of a business may change over time. [5] (O/N 2019/P12)
9. (a) Define the term ‘ethics’. [2]
(b) Briefly explain two ways ethics might influence the activities of a business. [3] (O/N
2019/P11)
10. Explain why the objectives of a business might change over time. [5] (M/J 2018/ P13)
11. (a) Analyse the importance of corporate objectives and departmental objectives to the
success of a business. [8]
(b) Discuss why a bank might change its corporate objectives over time. [12] (O/N 2017
P12)
12. Explain why corporate objectives are important to a business. [5] (M/J 2017/ P11)
13. Explain why a mission statement might be important for a multinational business. [5]
(March 2017/P12)
14. Discuss how ethics may influence the decisions of private sector banks. [12] (March
2017/ P12)
15. Discuss why senior managers leading large public limited companies might decide not to
have corporate social responsibility.[12] (O/N 16/P13/Q5/b)
16. Briefly explain two limitations of mission statements.[3] (O/N 16/P11/Q1/b)
17. Define the term ‘mission statement’.[2] (O/N 16/P11/Q1/a)
18. Discuss how a large food retailer, with many shops could effectively communicate
corporate objectives to its workforce.[12] (M/J 16/P12/Q7/b)
19. Analyse the importance to a large business of setting corporate objectives.[8](M/J
16/P12/Q7/a)
20. Explain how the objectives of social enterprise might differ from those of other private
sector businesses.[8] (O/N 15/P12/Q7/a)
21. Discuss with examples how unethical business behavior could damage the reputation of a
company.[12] (O/N 15/P11/Q7/b)
22. Explain why a business might not behave ethically.[8] (O/N 15/P11/Q7a)
23. Briefly explain two ways in which the objectives of a social enterprise might be similar to
those of other types of business. [3] (M/J 15/P12/Q1/b)
24. Explain why many businesses have corporate responsibility as an objective.[3] (O/N
14/P12/Q3)
25. Discuss why some businesses do not set a growth objective.[12] (O/N 14/P11/Q7/b)

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