A business needs clear objectives to decide what it wants to achieve.
An objective is a target or goal that a business wants to achieve.
Businesses may have several objectives at the same time. These objectives can change as the business grows or as conditions in the market change.
Business Objectives
Survival
→ Survival means staying in business and continuing to operate.
→ This is often an important objective for a new business.
→ A new business may focus on survival before trying to make large profits.
Example:
A new café may initially aim to attract enough customers to cover its costs and continue operating.
Why survival may be important:
→ The business is new and has limited customers.
→ The business may face strong competition.
→ The owners may have limited finance.
→ The business needs time to establish itself.
Profit
Profit = Revenue − Total costs
→ Profit is the money left after a business has paid all its costs.
→ Businesses may aim to increase profit to reward owners and provide finance for future growth.
Example:
A business has revenue of $100,000 and total costs of $70,000.
→ Profit = $100,000 − $70,000
→ Profit = $30,000
Why profit may be important:
→ Provides a return to owners.
→ Can be reinvested into the business.
→ Can provide finance for expansion.
→ Can help the business survive in the long term.
Growth
Growth means increasing the size or scale of a business.
A business may grow by:
→ Increasing sales
→ Opening new branches
→ Developing new products
→ Entering new markets
→ Increasing the number of employees
→ Increasing production
Example:
A successful restaurant opens five new branches in different cities.
→ The business has grown.
Why businesses may want growth:
→ Increase sales and profit.
→ Increase market share.
→ Gain economies of scale.
→ Increase the power of the business in the market.
→ Provide opportunities for the owners and employees.
Market Share
Market share is the percentage of total market sales made by a particular business.
Formula:
Market share = Business’s sales ÷ Total market sales × 100
Example:
A business has sales of $2 million.
Total market sales = $10 million.
→ Market share = $2m ÷ $10m × 100
→ Market share = 20%
A business may aim to increase its market share by:
→ Lowering prices
→ Improving quality
→ Increasing promotion
→ Developing new products
→ Improving customer service
Why Business Objectives Are Important
Business objectives give a business a clear direction.
Help decision-making
→ Managers can compare different decisions with the objectives of the business.
Example:
If growth is an objective, managers may choose to open a new branch rather than keep all profits in the existing business.
Help measure performance
→ Objectives provide targets that can be used to measure whether the business is successful.
Example:
If the objective is to increase market share from 10% to 15%, the business can compare its actual market share with this target.
Give employees a clear direction
→ Employees understand what the business is trying to achieve.
→ This can help employees work towards common goals.
Help planning
→ Objectives help managers decide what resources and actions are needed.
Can motivate employees
→ Clear and achievable objectives can give employees targets to work towards.
Objectives Can Change
Business objectives are not always the same throughout the life of a business.
New business:
→ Survival may be the main objective.
↓
Business becomes established:
→ Profit and growth may become more important.
↓
Large established business:
→ Growth, market share, profit or other objectives may become important.
Objectives can also change because of:
→ Changes in customer demand
→ Competition
→ Economic conditions
→ Availability of finance
→ Changes in government policies
→ Changes in technology
Stakeholders
A stakeholder is any person or group that has an interest in the activities or decisions of a business.
Stakeholders can be divided into:
→ Internal stakeholders
→ External stakeholders
Internal Stakeholders
Internal stakeholders are people inside the business.
They include:
→ Owners
→ Managers
→ Employees
Owners
Owners provide finance and have an ownership interest in the business.
Different types of owners include:
→ Sole traders
→ Partners
→ Shareholders
Objectives of owners
Owners may want:
→ Higher profits
→ Business growth
→ Higher dividends
→ Increased value of their investment
→ Business survival
Example:
Shareholders in a company may want the business to make higher profits so that they receive larger dividends.
Managers
Managers are responsible for running the business or particular parts of it.
Objectives of managers
Managers may want:
→ Higher salaries
→ Promotion
→ Job security
→ Increased status
→ Business growth
→ Good working conditions
Managers may also want the business to grow because a larger business can create more management opportunities.
Employees
Employees work for the business in return for wages or salaries.
Objectives of employees
Employees may want:
→ Higher wages
→ Job security
→ Good working conditions
→ Promotion opportunities
→ Training and development
→ Reasonable working hours
External Stakeholders
External stakeholders are groups outside the business that are affected by or have an interest in the business.
They include:
→ Customers
→ Suppliers
→ Lenders and banks
→ Government
→ Local community
Customers
Customers buy the goods and services provided by the business.
Objectives of customers
Customers may want:
→ Good-quality products
→ Low or reasonable prices
→ Reliable products
→ Good customer service
→ Choice
→ Safe products
Example:
Customers of a mobile phone company may want reliable phones at reasonable prices.
Suppliers
Suppliers provide businesses with raw materials, components, goods or services.
Objectives of suppliers
Suppliers may want:
→ Regular orders
→ High sales
→ Prompt payment
→ Long-term business relationships
→ Higher prices for their products
Example:
A bakery’s flour supplier wants the bakery to continue ordering flour regularly and paying on time.
Lenders and Banks
Banks and other lenders provide finance to businesses.
Objectives of lenders
→ Receive repayment of the money lent.
→ Receive interest on loans.
→ Reduce the risk of the business failing to repay the loan.
Example:
A bank that lends money to a business wants the business to generate enough cash to make its loan repayments and interest payments.
Government
The government is interested in the activities of businesses because businesses contribute to the economy.
Objectives of government
→ Increased employment
→ Economic growth
→ Tax revenue
→ Businesses following laws and regulations
→ Protection of consumers and employees
→ Reduced environmental damage
Example:
The government may want businesses to create more jobs because this can reduce unemployment.
Local Community
The local community includes people living close to the business.
Objectives of the local community
→ Employment opportunities
→ Less pollution
→ Less noise and traffic
→ Safe business operations
→ Support for local economic development
Example:
People living near a factory may want the factory to provide local jobs but may also want it to reduce noise and pollution.
Stakeholder Objectives
| Stakeholder | Possible objectives |
|---|---|
| Owners | Profit, growth, survival, higher returns |
| Managers | Higher salary, promotion, job security, growth |
| Employees | Higher wages, job security, good working conditions |
| Customers | Good quality, reasonable prices, good service |
| Suppliers | Regular orders, prompt payment, higher prices |
| Banks/lenders | Repayment of loans, interest, low risk |
| Government | Employment, tax revenue, economic growth, legal compliance |
| Local community | Jobs, less pollution, less noise, local development |
Conflict Between Stakeholders
Stakeholders do not always have the same objectives.
A stakeholder conflict occurs when the objectives of two or more stakeholder groups are different.
Owners and Employees
Owners may want to:
→ Keep wages low to reduce costs and increase profit.
Employees may want to:
→ Receive higher wages.
Conflict:
Higher wages
→ increase business costs
→ may reduce profit
Employees may benefit, while owners may receive lower profits.
Owners and Customers
Owners may want:
→ Higher prices to increase revenue and profit.
Customers may want:
→ Lower prices.
Conflict:
Higher prices
→ may increase profit per product
→ but customers may buy less or switch to competitors.
Owners and Managers
Owners may want:
→ Higher profits and lower costs.
Managers may want:
→ Higher salaries, better offices or more employees.
Conflict:
Higher management costs
→ increase business costs
→ may reduce profit available to owners.
Business and Suppliers
A business may want:
→ Lower prices for raw materials.
Suppliers may want:
→ Higher prices for the materials they provide.
Conflict:
Lower supplier prices
→ reduce the business’s costs
→ but reduce the supplier’s revenue per sale.
Business and Banks
A business may want:
→ Lower interest rates and longer repayment periods.
Banks may want:
→ Higher interest payments and timely repayment.
Conflict:
Lower interest payments benefit the business
→ but reduce the bank’s income.
Business and Government
A business may want:
→ Lower taxes and fewer regulations.
The government may want:
→ Higher tax revenue and businesses to follow regulations.
Conflict:
Higher business taxes
→ increase government revenue
→ but increase business costs.
Business and Local Community
A business may want:
→ To increase production and operate for longer hours.
The local community may want:
→ Less noise, traffic and pollution.
Conflict:
More production
→ may increase business revenue
→ but may create more noise, traffic or pollution for local residents.
Why Stakeholder Conflict Matters
→ Managers need to consider the objectives of different stakeholder groups when making decisions.
→ A decision that benefits one stakeholder group may negatively affect another.
Example:
A business decides to increase wages.
→ Employees benefit from higher income.
→ Business costs increase.
→ Owners may receive lower profits.
→ Customers may face higher prices if the business passes the higher costs on to them.
Therefore, one business decision can affect several stakeholder groups in different ways.