It’s important to note that a business can have a variety of objectives, and often does have a combination rather than just one.
- Try your luck, what are business objectives?
- Your answer should include: Target / Targets
Non-profit related business objectives
SURVIVAL – a common objective during a recession, when a business seeks to ‘weather the storm’ and just survive! They can then switch to a different objective post survival! Think - How might it achieve this objective?
INCREASE MARKET SHARE – Market share is your sales as a % of the total market sales. A firm might seek to increase its market share at the expensive of its competitors. Think - How might it achieve this objective?
COST EFFICIENCY – A common business objective in the modern competitive day is to reduce business costs. Think - How might it achieve this objective?
RETURN ON INVESTMENT – A ‘return on capital employed’ is the reason why people go into business! Think - How might it achieve this objective?
EMPLOYEE WELFARE – Some businesses are concerned with the well being of their employees. A good example is Richard Branson and his Virgin Brand, he believes his brand is his employees this employee welfare (pay, conditions, motivation, rewards, etc) is very important to him!
CUSTOMER SATISFACTION – Likewise, some businesses are concerned with the opinion of their customers thus a good customer service is essential. A good example is Toyota and how they handled their customers with their recent product recall scandals!
SOCIAL OBJECTIVES – Some businesses operate for the good of society, it is not about making money. An excellent example is ‘One Water’ which is advocated by Brad Pitt – they reinvest all their profits into building wells in Africa!
Profit related business objectives
PROFIT MAXIMISATION – Occurs when MR=MC. A good example is Harrods of London, where they try to make as much profit as possible. Think - How might it achieve this objective?
SALES MAXIMISATION – Occurs when MR=0. When a business seeks to maximise the quantity of its sales. Think - How might it achieve this objective?
PROFIT SATISFICING – Occurs when only a satisfactory level of profit is made which is adequate enough to keep shareholders just about happy. Think - How might it achieve this objective?
- Name the three 'profit' business objectives.
Objectives in conflict
Stakeholders will have an interest in the actions of a business, but they all will not want the same thing. For example – owners and shareholders want profit maximisation though employees want higher wages and customers want low prices (which will subsequently mean lower wages and no profit maximisation = stakeholder objective conflict!). This is called “stakeholder conflict of interest”. In fact different stakeholders are likely to have different objectives and there can be a trade-off between their interests.
Owners, employees and customers are sometimes called primary stakeholders because they have the most direct interest in the business. Each stakeholder group has its own specific concerns.
The traditional ‘shareholder view’ (operate a business to keep shareholder’s happy) is to make profit making number 1. The more modern ‘stakeholder view’ (operate a business to keep the majority of stakeholder’s happy) is to view decisions from many group’s perspectives. Arguably the BP Deepwater horizon oil spill in 2010 was caused from neglecting safety precautions in order to cut costs. If BP had made decisions via the ‘stakeholder view’ then this would not have happened!
Stakeholders – ___An economic agent, or stakeholder, are groups of people who have any sort of ___interest in a business. (‘Economic agents’ is a general term used to cover people and organisations involved in business.
- Define the term stakeholder.
- Your answer should include: people / interest