Business objectives

1.
5
and stakeholder
objectives
You should be able to explain:
• the need for and importance of business objectives
• about different business objectives
• about the objectives of social enterprises
• the main internal and external stakeholder groups
• the objectives of different stakeholder groups
• how these objectives might conflict with each other, with examples
• the differences in the objectives of private and public sector
enterprises
Need for and importance of
business objectives
Business objectives are the aims or targets that a business works towards.
Businesses need objectives to help them be successful. However, they
don’t guarantee success.
Benefits of setting business objectives
• Clear targets to work towards improve motivation.
• It can help in decision-making.
• Help to unite the whole business towards the same goal.
• It can be used to compare how the business performs through
objectives.
Business objectives in a private
sector
• Business Survival – When a business is new, when the economy is
moving into recession, or when there are new competitors in the
market, the business will be more concerned with survival than
anything else. To achieve this, firms may lower prices.
• Profit – Businesses owned by private individuals are operated with
the aim of making a profit. This is because profits are needed to pay a
return to owners for capital invested and risk taken; and to provide
finance for further investment in the business.
• Return to shareholders – Managers will often set the objective of
increasing returns to shareholders to discourage them from selling their
shares. This can be done by increasing profit or increasing the share
price.
• Growth – Owners and managers of a business may aim for growth in
the size of the business in order to increase salaries and economies of
scale. This is only achieved if customers are satisfied with the products.
• Market share – (the total percentage of total market sales held by one
brand or business) - Increased market share gives a business
good publicity and more influence over suppliers and customers.
• Service to the community – this is done through social enterprises
which do not aim for profit. They have three objectives;
• Social objectives: to provide jobs and support for disadvantaged
groups
• Environmental objectives: to protect the environment.
• Financial objectives: to make a profit to reinvest in the
enterprise and expand its social work.

Example, RangSutra in India

(Refer the textbook, page 53)
Why business objectives could
change
A business’ objectives do not remain the same forever. As market
situations change and the business itself develops, its objectives will
change to reflect its current market and economic situation.
Examples of situations in which a business might change its objective
• A business that has survived for three years for example, can now aim
to get higher profits.
• After achieving a high market share, it aims earning higher returns for
shareholders.
• A profit-making business hit with a crisis now has the short-term
objective of survival.
Stakeholder groups
• A stakeholder is any person or group with a direct interest in
the performance and activities of a business.
• They are grouped into 2 groups:
• Internal stakeholders – people who work for the business or own it
(owners, managers, workers).
• External stakeholders – people outside the business (customers,
government, banks, the whole community).
Shareholder/Owners
• These are the risk takers of the business. They invest capital into the
business to set up and expand it. These shareholders are liable to a
share of the profits made by the business.
• Objectives:
• Shareholders are entitled to a rate of return on the capital they have
invested into the business and will therefore have profit maximization as an
objective.
• Business growth will also be an important objective as this will ensure that
the value of the shares will increase.
Workers
• These are the people that are employed by the business and are
directly involved in its activities.
• Objectives:
• Contract of employment that states all the right and responsibilities to and of
the employees.
• Regular payment for their work.
• Workers will want to benefit from job satisfaction as well as motivation.
• The employees will want job security– the ability to be able to work without
the fear of being dismissed or made redundant.
Managers
• They are also employees, but managers control the work of others.
Managers oversee making key business decisions.
• Objectives:
• Like regular employees, managers too will aim towards a secure job.
• Higher salaries due to their jobs requiring more skill and effort.
• Managers will also wish for business growth as a bigger business means that
managers can control a bigger and well-known business.
Customers
• Customers are a very important part of every business. They purchase
and consume the goods and services that the business produces/
provides. Successful businesses use market research to find out
customer preferences before producing their goods.
• Objectives:
• Price that reflects the quality of the good.
• The products must be reliable and safe.i. e, there must not be any false
advertisement of the products.
• The products must be well designed and of a perceived quality.
Government
• The role of the government is to protect the workers and customers
from the business’ activities and safeguard their interests.
• Objectives:
• The government will want the business to grow and survive as they will bring
a lot of benefits to the economy. A successful business will help increase the
total output of the country, will improve employment as well as increase
government revenue through payment of taxes.
• They will expect the firms to stay within the rules and regulations set by the
government.
Banks
• These banks provide financial help for the business’ operations.
• Objectives:
• The banks will expect the business to be able to repay the amount that has
been lent along with the interest on it. The bank will thus have business
liquidity as its objective.
The whole community
• This consists of all the stakeholder groups, especially the third parties
that are affected by the business’ activities.
• Objectives:
• The business must offer jobs and employ local employees.
• The production process of the business must in no way harm the
environment.
• Products must be socially responsible and must not pose any harmful effects
from consumption.
REVISION SUMMARY
Business stakeholders
and their objectives
Objectives of public sector
businesses
The government owns and controls many businesses and other
activities in mixed economies. These are in the public sector. The likely
objectives for public sector businesses and organisations include:
• Financial – To meet profit targets set by the government. Sometimes
profit is reinvested back to the business or handed over to the
government as the owner of the organisation.
• Service – To provide a service to the public and meet quality targets
set by the government (e.g, education and health services).
• Social – To protect or create employment in certain areas (especially
poor regions with few other business employers)
REVISION SUMMARY
Business objectives
(private sector)
Conflicts of stakeholders’
objectives
• As all stakeholders have their own aims they would like to achieve, it
is natural that conflicts of stakeholders’ interests could occur.
Therefore, if a business tries to satisfy the objectives of one
stakeholder, it might mean that other stakeholders’ objectives could
go unfulfilled.
• For example, workers will aim towards earning higher salaries.
Shareholders might not want this to happen as paying higher salaries
could mean that less profit will be left over for payment of return to
the shareholders.