1.4: Business Objectives

Question 1

What is the importance of objectives?

Answer 1

1. A business aims to direct, control and review the success of its activities.
2. There has to be a detailed plan of action to ensure resources are correctly directed towards the final goal.
3. A poor plan strategy will lead to failure.

Question 2

What does an effective business objective meets?

Answer 2

SMART criteria.

Specific: objectives should focus on what the business does.
Measurable: Have to have a quantitative value
Achievable: To motivate staff
Realistic and Relevant: Realistic compared to resources and Relevant to people who have to carry them out.
Time specific: To assess whether the objective been met.

Question 3

What’s the order of hierarchy of objectives?

Answer 3

1. Aim
2. Mission Statement
3. Corporate objectives
4. Divisional objectives
5. Departmental objectives
6. Individual targets

Question 4

Importance of corporate aims?

Answer 4

-Corporate aims are designed to provide guidance to the whole organisation.

Question 4

What are corporate aims?

Answer 4

It is a very long term goal that a business wishes to achieve, where the core of businesses activities is expressed. They are comon to be expressed in one short statement.
E.g. Cadburry aim to give shareholders maximum returns on their investment by expanding the business in existing markets, new markets and by increasing market share through product innovation.

Question 4

Benefits of corporate aims?

Answer 4

1. Starting point for the entire set of objectives
2. Develop a sense of purpose and direction
3. Allow assessment, to measure business success
4. Provide framework within which the plans are drawn up.

Question 5

Def. Mission statements

Answer 5

A statement of business core aims, phrased in a way to motivate employees and to stimulate interest by outside groups.
For example, Google’s “To organise the world’s information and make it universally accessible and useful”.

Question 5

What are corporate objectives?

Answer 5

Corporate objectives are corporate aims and mission statements broken down into strategic, specific plans. They are a much clearer guide for management action of strategy.

Question 6

Advantages of Mission statements (3)

Answer 6

1. Quickly inform outer stakeholders the business’s central aim.
2. They are motivating for employees as they are associated with the positive qualities mentioned in the mission statement.
3. Help guide individuals

Question 7

Disadvantages of Mission statements (4)

Answer 7

1. Too vague and general, 2 businesses may have similar mission statements.
2. Raise further questions on how they are going to be achieved
3. Based on public relations research to make stakeholder groups support the business
4. Virtually impossible to analyse or disagree with.

Question 8

What are the 8 common corporate objectives?

Answer 8

1. Profit maximisation
2. Profit satisficing
3. Growth
4. Increasing market share
5. Survival
6. Corporate Social Responsibility (CSR)
7. Maximising short term sales revenue
8. Maximising shareholder value

Question 9

Corporate objective: Profit maximisation (1 + 5disad)

Answer 9

Producing at a level of output where the greatest positive difference between total revenue and total costs is achieved.
-It’s limitations:
+Jeopardises the long term survival of the business
+Does not secure greatest possible market share.
+Most business analyses don’t care about profit when assess performance, they focus on return of capital employed
+May arise concern over workforce’s job security, and environmental concerns
+Very difficult to assess whether the point of profit maximisation has been reached.

Question 10

Corporate objective: Profit satisficing (3)

Answer 10

1. To achieve enough profit to keep the owners happy, but not working long hours.
2. Common between small businesses who like to have leisure time and live comfortably.
3. “Satisfactory” level of profit must be achieved.

Question 11

Corporate objective: Growth (1 + 3ad+ 5disad)

Answer 11

-Usually measured in terms of sales and value of output
-Benefits:
+Larger firms are less likely to be taken over and benefit from economies of scale
+Higher salaries and higher fringe benefits for managers and employees -> motivation
+The business ceases to be competitive => appealing for investors.
-Limitations:
+Too rapid expansion leads to cash flow problems
+Sales growth might be achieved at lower profit margins
+Larger businesses can experience diseconomies of scale
+Retained profits can lead to lower shareholder dividends
+Can result in loss of direction and focus

Question 12

Corporate objective: Increasing market share (1+ 2ad)

Answer 12

-Increasing market share indicates that the marketing mix of the business is more successful than of competitors.
-Benefits:
+Retailers keen to promote best selling brands
+Effective promotion materials due to the brand image

Question 13

Corporate objective: Survival

Answer 13

Key objective for start up businesses.
- Once the businesses is firmly established, then longer term objectives may be set.

Question 14

Corporate objective: Corporate social responsibility (CSR)

Answer 14

The 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.

Question 15

Why is CSR being utilised more?

Answer 15

+Due to influential pressure groups
+Legal changes
+Managers wish to avoid conflicts with the law and bad publicity.

Question 16

Corporate objective: Maximising short term sales revenue

Answer 16

Beneficial when salaries contain bonuses
- However if sales are increased by price reduction then profits may fall.

Question 17

Corporate objective: Maximising shareholder value

Answer 17

1. Taking decisions that would increase the company’s share price and dividends paid to shareholders.
2. Profit Maximisation
3. This objective puts the interest of shareholders above any other stakeholders.