1.3 Organisational objectives Flashcards
Mission statement
A statement of the business’s core aims, phrased in a way to motivate employees and to stimulate interest by outside groups
Vision statement
A statement of what the organisation would like to achieve or accomplish in the long term
Reasons for vision and mission statement
Quickly inform groups outside the business of aim and vision
Motivate employees
Guide individual employee behaviour if it is based on work
Explains what the business is about
Criticisms of vision and mission statement
Too vague
Based on a public relations exercise to make stakeholders feel good
impossible to analyse
No specific detail
Corporate aims
The long term goals which a business hopes to achieve
Divisional/operational objectives
Short or medium term goals or targets usually specific in nature which must be achieved for an organisation to attain its corporate aims
Benefits of a corporate aim
Become the starting point for divisional/operational objectives on which effective management is based.
Can help develop a sense of purpose and direction for the whole organisation
Allow an assessment to be made
provide the framework within which the strategies or plans of the business can be drawn up
What should operational objectives be?
SMART
What does SMART stand for?
Specific
Measurable
Achievable
Realistic and relavant
Time specific
Why are divisional, operational objectives set by senior managers?
Coordination between all divisions
Consistency with strategic corporate objectives
Adequate resources are provided to allow for the successful achievement of the objectives
Hierarchy of objectives
Aim
Corporate objectives
Divisional objectives
Departmental objectives
Individual targets
Example of an aim
To maximise shareholder value
Example of a corporate objective
To increase profits of all division by 10% per year
Example of a divisional objective
For marketing would be to increase profit margins by 7%
Example of an individual target
For marketing would be increase shares by an average of 5% per client
Strategy
A long term plan of action for the whole organisation, designed to achieve a particular goal
Tactic
Short term policy or decision aimed at resolving a particular problem or meeting a specific part of the overall strategy
Differences between strategy and tactics
Strategy decisions are long term
Strategy decisions are difficult to reverse once made
Strategy decisions are taken by directors
Strategy decisions are cross functional
What are the common corporate aims
Profit maximisation
Profit satisfying
Growth
Increasing market share
Survival
Maximising short term sales revenue
Maximising shareholder value
Disadvantages of profit maximisation objective
High short term profits can lead to competitors to enter the market
Small business owners are more concerned over independence
Most businesses look at return on capital employed
Not liked by all stakeholders
Difficult to determine profit maximisation
Disadvantages of growth objective
Over rapid expansion can lead to cash flow problems
Can come at the expense of profit margins
Large businesses can experience diseconomies of scale
Growth in new business areas can lead to loss of focus
Advantages of being brand leader with the highest market share
Retailers want to stock the best selling brand
Profit margins offered to retailers can be lower than for competing brands as shops are so keen to stock it, more profit for the producer
Promotional campaigns can say that they are the brand leader
Ethics
Moral guidelines that determine decision making
Ethical code
A document detailing a company’s rules and guidelines on staff behaviour that must be followed by all employees
3 examples of ethical codes being expensive in the short term
Using ethical and Fairtrade suppliers can add to a business’s costs
Not taking bribes to secure business contracts can lead to a loss in sales
Paying fair wages raises costs
3 advantages of ethical codes in the long term
Avoiding expensive court cases can reduce costs of fines
Lead to good publicity
More likely to be awarded government contracts
Stakeholders
People or groups of people who can be affected by, and therefore have an interest in, any actionably an organisation
Corporate social responsibility
This concept applies to those businesses that consider the interests of society by taking responsibility for the impact of their decisions and activities on customers, employees, communities and the environment
Benefits of a business adopting CSR policies
Image can be improved - competitive advantage
Attracting the best motivated and most efficient employees
Better relations with stakeholders
Higher long term profitability
Disadvantages of a business adopting CSR policies
Short run costs could increase
Shareholder may be reluctant to accept lower short run profits
Loss of cost and price competitiveness if rival business do not follow
Consumers may prefer low prices during recession
Social audits
An independent report on the impact a business has on society. This can cover pollution levels, health and safety record, sources of supplies, customer satisfaction and contribution to the community
What details can social audits include?
Health and safety record
Contribution to local community events and charities
Proportion of supplies that come from ethical sources
Employee benefit schemes
Feedback from customers and suppliers on how they perceive the ethical nature of the business’s activities
Environment
Advantages of social audits
Identifies what social responsibilities the business is meeting - and what still needs to be achieved
Sets targets for improvement in social performance by comparing audits with the best performing firms in the industry
Gives direction to the action plans a business still needs to put into effect to achieve its objectives
Improves a company’s public image and this can be used as a marketing tool to increase sales
Disadvantages of social audits
If the social audit is not independently checked - as published accounts must be - will it be taken seriously by stakeholders
Time and money must be devoted to producing a detailed social audit
Many consumers may just be interested in cheap goods
A social audit does not prove that a business is being socially responsible
Evaluation of social audits
Social audits need to be made compulsory as otherwise they will not be taken seriously
Companies need to be accused of using them as a publicity stunt
Time consuming and expensive to produce and publish, limit their value
Issues relating to corporate objectives
Must be based on the corporate aim and should link in with it
They should be achievable and measurable if they are to motivate employees
They need to be communicated to employees and investors in the business.
They form the framework for more specific departmental or strategic objectives
Should indicate time scale (SMART)
Conflicts between corporate objectives
Growth versus profit
Short term versus long term
Stakeholder conflict
Factors determining corporate objectives
Corporate culture
Size and legal form of the business
Public sector or private sector businesses
Well established businesses
Reasons for a business to change objectives
Satisfied the survival objective
External competitive and economic environment changes
Short term objective of growth in sales or market share
What do businesses need to consider when changing objectives?
Is the internal/external change significant and long lasting enough to make a change in objectives?
What are the risks of not changing
How can the new objective be managed?
SWOT analysis
A form of strategic analysis that identifies and analyses the main internal strength and weaknesses and external opportunities and threats that will influence the future direction and success of a business
Strengths of a SWOT analysis
Internal factors that can be looked upon as real advantages.
Basis for developing competitive advantage.
Weaknesses of a SWOT analysis
Negative factors
Eg: poorly trained workforce, limited capacity, obsolete equipment
Opportunities of a SWOT analysis
Potential areas for expansion of the business and future profits
Threats of a SWOT analysis
Hindrances to the business
How does a SWOT analysis help managers?
Assess the most likely successful future strategies and the constraints on them.
Issue with SWOT analysis
Subjective
Not quantitative
Ansoff’s matrix
A model used to show the degree of risk associated with the four growth strategies of: market penetration, market development, product development and diversification
What type of strategy is the Ansoff’s matrix used for?
Growth strategies
How is market penetration made?
Existing product + existing market
Market penetration
Achieving higher market shares in existing market with existing products
How is market penetration made?
New product + existing market
Product development
The development and sale of new products or new developments of existing products in existing markets
How is market development made?
Existing product + new market
Market development
The strategy of selling existing products in new markets
How is diversification made?
New product + new market
Diversification
The process of selling different, unrelated goods or services in new market
Advantage of diversification
If successful, higher gains can be reaped from various industries
Spreads out risks and safeguards against economic shocks over diverse product portfolio
Advantage of market development
New distribution channel
Expanding geographically
Attract new market segments
New consumers may not like the product
Advantage of product development
Innovation to replace existing products Focusing on consumer needs Brand extension Capitalize on technology Consumers in existing market may not like the new product
Advantage of market penetration
Seeks to maintain or increase market share Price adjustments Increase of market promotion Minor product improvements Intense competition
Issue with Ansoff’s matrix
Only considers two factors
No detailed marketing options
