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Business Objectives and Strategies Explained

The document discusses the primary objectives of profit-oriented and non-profit organizations, highlighting their differences. It also explores corporate objectives, including the concept of 'satisficing' and the importance of secondary objectives in achieving growth. Additionally, it touches on the classification of organizations and the components of effective mission statements.

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15 views3 pages

Business Objectives and Strategies Explained

The document discusses the primary objectives of profit-oriented and non-profit organizations, highlighting their differences. It also explores corporate objectives, including the concept of 'satisficing' and the importance of secondary objectives in achieving growth. Additionally, it touches on the classification of organizations and the components of effective mission statements.

Uploaded by

ngochuongotuon
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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viii Business, Technology and Finance ICAEW 2023

Chapter 1: Introduction to business


1 What are the primary objectives of profit-oriented and non-profit oriented organisations?

Option Profit-oriented organisation Non-profit oriented organisation

1 Output of goods/services Minimise costs

2 Output of goods/services Provision of goods/services

3 Maximisation of wealth Minimise costs

4 Maximisation of wealth Provision of goods/services

A Option 1
B Option 2
C Option 3
D Option 4
LO 1a

2 At the Annual General Meeting (AGM) of Vortex plc, a major shareholder claimed that the company
was suffering from the symptoms of ‘satisficing’. In the context of corporate objectives, ‘satisficing’
means that:
A managers seek to make satisfactory profits rather than maximise wealth
B managers seek to keep all stakeholders satisfied
C owners seek to meet a satisfactory level of corporate responsibility obligations
D owners seek to make satisfactory profits
LO 1a

3 Joe, the Managing Director of Gargoyle Ltd, has set a primary objective of growth in profits for the
company. He aims to concentrate on product development to support this objective. Identify
whether the following will be suitable secondary objectives to achieve the growth in profits via
product development.
(1) Bringing in new products
(2) Reducing labour turnover
(3) Investing in research and development
A 1 and 2 only
B 2 and 3 only
C 1 and 3 only
D 1, 2 and 3
LO 1a

4 Maximising the wealth of its shareholders is the stated goal of Avernanche plc. The company’s
objectives have been expressed as a hierarchy of primary and secondary objectives. Identify which of
the following is most likely to be Avernanche plc’s primary business objective.
A To increase the annual profit after tax by 125% in the next 10 years
B To introduce an average of two new products each year for the next six years
C To double the share price within the next 10 years
D To become the market leader in four market segments within the next 10 years
LO 1a

ICAEW 2023 1: Introduction to business 1


5 A major shareholder has stated that for three years the directors of Barrington plc have run the
company in a manner designed solely to increase their prestige in the business community.
According to William Baumol, this is most likely to be shown in the directors’ aim to:
A maximise wealth
B maximise sales revenue
C minimise costs
D minimise social impact
LO 1a

6 To establish whether a particular organisation should be classified as a business or not, it is necessary


to enquire about the nature of its:
A primary objective
B mission
C vision
D secondary objective
LO 1a, 1b

7 The primary objective of ABC Car Rental Ltd is as follows: “We aim to be the fastest growing
company with the highest profit margin in the global vehicle rental and leasing business.”
One of its secondary objectives is: “To increase our market share for global family car rentals to 20%
within a reasonable time.”
Requirement
Which three components of the SMART acronym are present in the company’s secondary objective?
A S
B M
C A
D R
E T
LO 1a

8 For a business, which two of the following would be classified as secondary objectives?
A The business’s market share target for next year
B The business’s productivity improvement target for next year
C The business’s mission statement
D The business’s financial objective of shareholder wealth maximisation
E The business’s vision
LO 1a, 1b

9 A major airline, FlotAir plc, has been drawing up a mission statement.


Requirement
Which three of the following items could be expected in it?
A We will double profits in three years
B We will encourage diversity in the workplace

2 Business, Technology and Finance ICAEW 2023

Common questions

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Satisficing in corporate objectives implies that managers or owners aim to achieve satisfactory profits rather than maximizing wealth, or they seek to satisfy various stakeholders, including fulfilling certain corporate responsibility obligations .

Introducing new products and investing in research and development are aligned with growing profits through product development, as they directly contribute to innovation and market competitiveness. Reducing labor turnover does not directly focus on product enhancement but can indirectly support this by maintaining skilled teams .

Shareholders, like the major one in Barrington plc, can highlight issues of misalignment between corporate actions and shareholder interests. Here, directors focusing on prestige rather than wealth maximization might indicate a lack of accountability and could lead to strategic shifts if shareholders demand a focus on financial performance .

The primary objective of increasing profit margins can be integrated into a mission statement by emphasizing key aspects such as efficiency, innovation, and competitive pricing strategies that contribute to overall profitability while aligning with the broader vision of rapid growth and market leadership .

The secondary objective of ABC Car Rental Ltd contains specific, measurable, and time-related components, focusing on attaining a 20% market share for global family car rentals within a defined timeframe .

Profit-oriented organizations primarily focus on the maximization of wealth or the output of goods/services, whereas non-profit oriented organizations prioritize the provision of goods/services or minimizing costs .

Identifying the primary objective is crucial for classifying an entity as a business, as it reflects its core mission and guides its operations, strategic planning, and decision-making processes, differentiating it from non-business entities .

Potential items for FlotAir plc's mission statement could include encouraging workplace diversity, improving service quality, and investing in sustainability. These items enhance corporate identity by demonstrating the company's values, long-term vision, and commitment to stakeholder engagement .

Primary objectives are the central goals that guide an organization, such as maximizing shareholder wealth, while secondary objectives support the primary goals, like improving market share or productivity .

A feasible primary objective for Avernanche plc could be to double the share price within the next 10 years, justified by its direct impact on shareholder value and its alignment with wealth maximization goals through increased profitability and market perception .

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