1.2 Business Objectives- Understanding Business Flashcards
Private sector business objectives
Maximise profit Profit satisfying Provision of a quality service Market domination/ remove competitors Survival Managerial objectives Maintain/ increase market share Corporate social responsibility
Not- for- profit organisation objectives
Survival Provision of a quality service Participation Raise awareness Image/social responsibility
Public sector organisations
Remain within budget
Provide essential services
Value for money/ provide a quality service
Image/social responsibility
Internal growth (organic)
Profits made by the business are reinvested into the business to improve various factors.
This can be achieved by:
Taking on additional workers to produce more goods and services
Opening new branches or factories-locally, nationally, internationally
Increasing the productivity of existing staff
Advantages of internal growth
Can be less risky than taking over a new business
Can be financed through internal sources
Can build on existing strengths
Disadvantages of internal growth
Slower method of growth
Limited by the size of the market
External growth- horizontal intergration
This occurs when two firms operate in the same industry and at the same stage of production join together. Eg two bakers integrating. They do this for survival, increased market share, removes competitors and to gain extra resources.
External growth- Backwards vertical integration
This is when firms operating at different stages of production but in the same industry join together. A firm may take over its supplier of raw materials. E.g. a bakers taking over a wheat farm.
Reasons for backwards vertical integration
To avoid paying the price which includes an element of profit paid to the supplier.
To enable greater economies of scale from operating on a larger scale.
To ensure that supplies of raw materials are guaranteed.
To control the quality of raw materials or components.
External growth- Forwards vertical integration
This is when a firm takes over another at a later stage in the production process. E.g. a bakery taking over a retail outlet.
Reasons for forwards vertical integration
To gain control of the distribution outlets for the product and therefore to control the way in which the product is marketed and sold.
To gain more profits instead of selling to another business that adds a share of profit before the product is sold to the consumer.
External growth- conglomerate integration
This involves the joining of firms that operate in completely different markets. E.g an airline company taking over a chain or records shops.
Reasons for conglomerate integration
It allows the firm to spread risk, failure in one industry can be compensated for by success in another.
It enables a firm to overcome seasonal fluctuations in its markets, e.g. a ski resort taking over an ice cream manufacturer.
It may make separately struggling businesses more financially secure, enabling them to raise more finance.
De-integration
The opposite of integration. This is when firms cut back on the areas of the market in which they operate.
De- merger
This involves splitting up a conglomerate so that its subsidiaries become new separate companies. Shareholders are given shares in the new company according to how many they had in the original one.
Reasons for de-merging
To disassociate firms from one another, e.g. if one is at risk of failure or is harming the reputation of the rest of the group.
To overcome diseconomies of scale- these are problems of becoming too big, e.g. the management structure is over complicated and control is being lost.
Divestment
This involves selling off some of the businesses assets. E,eg the premises, or selling a subsidiary company- for example, British aerospace sold Rover to BMW.
Reasons for divestment
This might cut costs and increase profits if the subsidiary is loss making.
Allows the business to concentrate on areas in which it has greatest expertise.
It generates funds which can be used to invest in other areas of the business.
Contracting out/ out sourcing
This means that a business pays another firm to carry out certain aspects of their work. Might be a particular area like a area of operations, like catering or cleaning.
Management buy- out/ buy in
This involves a team of managers getting together to buy shares and take control of the company. As the subsidiary being sold is often making a loss, managers may be asked to pay only a small amount for the shares. A ‘buy-out’ involves managers from within the business taking control. A ‘buy-in’ involves managers from out with the sines coming I and taking control of the business.
