Chapter 5
Business objectives and stakeholder objectives
Need for and importance of business
objectives
An objective is an aim or a target to work
towards.
All businesses should have objectives.
They help to make a business successful –
although just setting an objective does not
‘guarantee success’.
many benefits of setting objectives:
They give workers and managers a clear target to
work towards and this helps motivate people.
Taking decisions will be focused on: ‘Will it help
achieve our objectives?’
Clear and measurable objectives help unite the
whole business towards the same goal.
Business managers can compare how the business
has performed to their objectives – to see if they
have been successful or not.
Different business objectives
Objectives are often different for different businesses
The most common objectives for businesses in the
private sector are to achieve:
business survival
» profit
» returns to shareholders
» growth of the business
» market share
» service to the community.
Survival
theobjectives of the business will be more
concerned with survival than anything else.
New competitors can also make a business
feel less secure. The managers of a business
threatened in this way could decide to lower
prices in order to survive, even though this
would lower the profit on each item sold.
Profit
Profits are needed to:
pay a return to the owners of the business for the
capital invested and the risk taken
provide finance for further investment in the
business.
Returns to shareholders
Returns to shareholders are increased in two ways:
» Increasing profit and 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 and higher profits in the future.
Growth
make jobs more secure if the business is larger
increase the salaries and status of managers as the
business expands
open up new possibilities and help to spread the
risks of the business by moving into new products
and new markets
obtain a higher market share from growth in sales
obtain cost advantages, called economies of scale,
from business expansion.
Market share
Market share is the percentage of total market
sales held by one brand or business
the objectives of social
enterprises
Three objectives for their business:
» Social: to provide jobs and support for
disadvantaged groups in society, such as the
disabled or homeless.
» Environmental: to protect the environment.
» Financial: to make a profit to invest back into the
social enterprise to expand the social work that it
performs.
Why business objectives could change(p-
54)
A business set up recently has survived for
three years and the owner now aims to work
towards higher profit.
A business has achieved higher market
share and now has the objective of earning
higher returns for shareholders.
A profit-making business operates in a
country facing a serious economic recession
so now has the short-term objective of
survival
stakeholder
A stakeholder is any person or group with a direct interest in the
performance and activities of a business.
The main internal and external
stakeholder groups and their objectives
owners
workers
managers
consumers
government
the whole community
banks.
Owner (internal)
Main features Most likely objectives for
the stakeholder group
They put capital in to set up share of the profits so that they
and expand the business. gain a rate of return on the
money put into the business
They will take a share of the
profits if the business growth of the business so that
succeeds. the value of their investment
increases
If the business does not attract
enough customers, they may
lose the money they invested.
They are risk takers.
Workers (internal)
Main features Most likely objectives for
the stakeholder group
They are employed by the business. regular payment for their work
They have to follow the instructions contract of employment
of managers and may need training
to do their work effectively. job security – workers do not
They may be employed on full- or want to look for new jobs
part-time contracts and on a frequently
temporary or permanent basis. job that gives satisfaction and
If there is not enough work for all provides motivation
workers, some may be made
redundant (retrenchment) and told
to leave the business.
managers (internal)
Most likely objectives for the
stakeholder group
Main features
They are also employees of the high salaries because of the
business and control the work important work they do
of other workers. job security – this depends on
They take important decisions. how successful they are
Their successful decisions growth of the business so that
could lead to the business managers can control a bigger
expanding. and better known business.
This gives them more status
If they make poor decisions,
and power
the business could fail.
Customers (External)
Main features
Most likely objectives for
the stakeholder group
They are important to every safe and reliable products
business. They buy the goods that
value for money
the business produces or the
services that the business provides. well-designed products of good
Without enough customers, a quality
business will make losses and will
reliability of service and
eventually fail.
maintenance
The most successful businesses
often find out what consumers want
before making goods or providing
services – this is called market
research.
Government (External)
Main features
Most likely objectives for
the stakeholder group
It is responsible for the wants businesses to succeed in
economy of the country. its country. Successful
businesses will employ
It passes laws to protect
workers, pay taxes and
workers and consumers.
increase the country’s output
expects all firms to stay within
the law – laws affect business
activity
The whole community (External)
Main features Most likely objectives for the
stakeholder group
The community is greatly affected by jobs for the working population
business activity. For example, production that does not damage the
dangerous products might harm the
environment
population. Factories can produce
pollution that damages rivers, the sea safe products that are socially
and air quality. responsible
Businesses also create jobs and allow
workers to raise their living standards.
Many products are beneficial to the
community, such as medicines or public
transport.
Banks (External) (External)
Main features Most likely objectives for the
stakeholder group
expect the business to be able to pay
They provide finance for the business’s interest and repay capital lent – business
operations. must remain liquid
Objectives of public sector business
Financial: Meet profit targets set by government – sometimes the
profit is reinvested back in the business and on other occasions it is
handed over to the government as the ‘owner’ of the organisation.
Service: Provide a service to the public and meet quality targets set
by government.
Social: Protect or create employment in certain areas – especially
poor regions with few other business employers.
Conflict of stakeholders’
objectives
businesses could set one objective and aim for that.
However, life is not that simple and most businesses are trying to
satisfy the objectives of more than one group, as the diagram below
shows
Conflict of stakeholders’
objectives
Managers therefore have to compromise when they come to decide
on the best objectives for the business they are running.
They would be unwise to ignore the real worries or aims of other
groups with an interest in the operation of the business. Managers
will also have to be prepared to change the objectives overtime.
Growth could be the best option during a period of expansion in the
economy, but survival by cost cutting might be better if the economy
is in recession.
Exam style question
1 business objectives are the aims or
targets that a business works towards
2- Bank
Customers
i) Survival: new, small business owned by
Sunita and Sunil may not have had much experience
in this market.
ii) Break-even (at least) or profits: many
competitors so break-even in first year would be a
reasonable objective for this business.
d) Having survived for some time, the owners
now want to expand the business as it seems to
have been a successful business idea.
The owners may have kept profits made over five
years in the form of savings and they now wish to use
these to buy other shops/ competitors in order to gain
market share.
)It will make the business more likely to be
successful: helps to give direction to the
owners and their decisions; can be
communicated to employees and this can be
motivating; can assess progress against
original objectives. Seem to have helped S
and S so far. But unlikely to ‘guarantee’
success as, in business, this can never be
‘sure’.