Business objectives and stakeholder objectives
Business objectives are the specific goals or targets that a business aims to achieve over a set period. They act as the direction for the entire organization.
Without clear objectives, a business lacks focus. Objectives provide:
- Direction: They tell employees and managers what needs to be achieved, ensuring everyone works towards the same goal.
- Motivation: Clear targets (e.g., increasing sales by 10%) motivate staff to perform better.
- Measurement: They allow the business to measure success. If a business does not know its target, it cannot determine if it has succeeded or failed.
- Decision Making: Objectives help in making strategic choices. For example, if the objective is growth, the business might decide to open new branches; if the objective is profit maximization, it might cut costs.
| Explanation and Importance |
|---|
| Essential for new or struggling businesses. If a business cannot cover its costs, it must close. New businesses often prioritize survival over profit in the first few years. |
| The primary objective of most private sector businesses. Profit provides funds for reinvestment, rewards owners/shareholders, and ensures long-term survival. |
| Increasing the size of the business (e.g., more sales, more employees, larger market share). Growth can lead to economies of scale and greater market power. |
| The percentage of total industry sales owned by the business. Increasing market share often leads to dominance in the market and higher profits. |
| Common in social enterprises or large corporations with CSR (Corporate Social Responsibility) policies. Aims to help society or protect the environment, even if it reduces short-term profit. |
The Error: Students often list barriers to business success (e.g., 'lack of capital', 'high competition') when asked for objectives.
The Correction: An objective is a goal the business wants to achieve. A barrier is an obstacle preventing achievement.
- Correct: 'To increase profit.'
- Incorrect: 'Because of high costs.' (This is a reason/barrier, not an objective.)
Why examiners accept this: Examiners look for the link between the objective and the specific context of the case study. A generic definition is not enough; you must show why that objective matters to this specific business.
Correct Usage Example:
Instead of just saying 'The objective is profit,' write: 'Santhosh’s primary objective is profit maximization because he needs the surplus cash flow to repay his bank loan and fund the expansion of his retail store, RF.'
Key Phrase: Always use the structure: [Objective] + [Reason linked to context].
- Survival: To cover costs and stay in operation during the initial risky period.
- Profit: To generate income for the owner and provide funds for future reinvestment.
Key Characteristics:
- Primary Objective: Social or environmental impact. The main goal is to help the community or protect the environment.
- Profit Use: Any profit made is reinvested into the social cause or the business itself, not distributed to private owners as dividends.
- Examples: A café that employs ex-offenders to help them reintegrate into society, or a company that sells eco-friendly products to reduce waste.
Contrast with Private Sector: While a private sector business might sell eco-friendly products to make a profit (profit-driven), a social enterprise sells them primarily to reduce environmental damage (mission-driven).
Different stakeholders have different, often conflicting, objectives. Understanding these is crucial for business management.
| Stakeholder Group | Type | Main Objectives | How They Influence Objectives |
|---|---|---|---|
| Owners/Shareholders | Internal | Profit maximization and growth. They want high returns on their investment (dividends) and an increase in the value of their shares. | Use voting rights to appoint directors who pursue profit goals. |
| Managers | Internal | High salaries, bonuses, and job security. Managers may also seek prestige or power. | Set operational targets that align with their bonus structures, potentially conflicting with long-term shareholder goals. |
| Employees | Internal | High wages, good working conditions, job security, and career progression. | Use strikes or industrial action to force higher wages, which reduces short-term profit objectives. |
| Customers | External | Low prices, high quality, and good customer service. | Switch to competitors if prices are too high, forcing the business to lower prices (reducing profit margin). |
| Suppliers | External | Timely payment and long-term contracts. They want stable revenue from selling to the business. | Refuse to supply goods if not paid, halting production and affecting the business's ability to meet sales objectives. |
| Government | External | Tax revenue, employment levels, and compliance with laws (e.g., environmental standards). | Impose taxes or regulations that increase costs for the business, reducing profit objectives. |
| Local Community | External | Job creation, minimal pollution, and support for local events. | Protest against expansion plans or pollution, damaging the business's reputation and potentially leading to regulatory action. |
The Error: Students often describe stakeholders vaguely, such as saying 'privately owned people' or just listing 'pressure groups' without explaining their specific interest.
The Correction: Be specific about who they are and what they want.
- Incorrect: 'Pressure groups want to help.'
- Correct: 'Environmental pressure groups (e.g., Greenpeace) aim to force the business to reduce pollution, which may conflict with the objective of cost minimization.'
Why examiners accept this: Examiners want to see a direct trade-off. You must show how satisfying one group's objective makes it harder to satisfy another's.
Correct Usage Example:
'If the business increases employee wages (objective of employees), its costs rise. This reduces the net profit available for shareholders (conflict with shareholder objective). Therefore, the business cannot fully satisfy both groups simultaneously without reducing the quality of service provided to customers.'
Key Phrase: Use 'This conflicts with...' or 'This makes it difficult to achieve...'
| Feature | Private Sector Enterprises | Public Sector Enterprises |
|---|---|---|
| Ownership | Owned by private individuals or shareholders. | Owned and controlled by the government/state. |
| Primary Objective | Profit maximization. Survival depends on generating enough revenue to cover costs and reward owners. | Social welfare. To provide essential services (e.g., healthcare, education, transport) that are necessary for society, regardless of profit. |
| Secondary Objectives | May pursue growth, market share, or CSR to improve brand image and long-term sustainability. | May pursue efficiency and cost-recovery to justify government funding, but never at the expense of service quality. |
| Funding Source | Sales revenue, loans, issuing shares. | Government grants/taxes. |
| Example | Apple, Tesla, local bakery. | NHS (UK), Public Schools, State-owned Railways. |
Nuance for High Marks: Modern public sector bodies often have commercial objectives like 'best value' or 'efficiency' to ensure taxpayer money is used wisely. However, they will never prioritize profit over social need. For example, a public transport company may run unprofitable routes in rural areas because the community needs them, whereas a private bus company would not.
Why examiners accept this: Examiners look for the distinction between financial gain (private) and social need (public). Avoid saying public sector businesses 'never make money.' They can, but it is not their primary goal.
Correct Usage Example:
'The private sector business aims to maximize profit to reward its shareholders. In contrast, the public sector enterprise aims to provide essential services to the community, even if it operates at a loss, because social welfare is more important than financial return.'
Key Phrase: 'Primary objective is... whereas...'