1.4 Business objectives

Question 1

Mission statement

Answer 1

A statement of the business’s core aims, phrased in a way to motivate employees and to stimulate interest by outside groups

Question 2

Ads of mission statement

Answer 2

• Quickly inform groups outside the business what’s the central aim + vision
• Prove motivating to employees
• Include moral statements or values to be worked towards -> guide and direct individuals
• Establish in the eyes of other groups what the business is about

Question 3

Disads of mission statement

Answer 3

• Too vague and general -> saying little that’s specific about the business and its future plans
• Based on a PR exercise to make ‘stakeholder’ feel good abt the business
• Virtually impossible to analyse and criticize
• Too general -> businesses of different industries have the same mission statement

Question 4

Corporate objectives

Answer 4

A target Based upon the central aim or mission of the business, but they are expressed in terms that provide much clearer guide for management and strategy

Question 5

Profit maximisation and maximising short-term sales revenue

Answer 5

Producing at the level of output where the greatest + difference b/w total revenue and total costs is achieved

Question 6

Limitations of profit maximisation

Answer 6

• Focus on high short-term profit ->May encourage competitors to enter market bc they think the market is lucrative -> jeopardize long-term survival
• Owners of small businesses have to spend much more time to work -> no leisure time
• Business analysts assess company’s performance by capital employed, not profits
• Only benefits owners and shareholders -> conflict b/w shareholders and stakeholders
• Difficult to assess whether profit is maximized

Question 7

Profit satisficing

Answer 7

Aiming to achieve enough profit to keep owners happy –> common for those who wish to live comfortably but don’t want to work alot

Question 8

Growth

Answer 8

• Economies of scale
• Less risk of being taken over
• Don’t grow -> lose appeal to customers

Question 9

Limitations of growth

Answer 9

• Rapid expansion -> cash flow problems
• Sales growth -> maybe lower profit margins
• Use profits to finance growth -> lead to lower short-term returns to shareholders -> they lose interest
• Growth into new areas -> loss of focus and direction of the whole organisation

Question 10

Increasing market share

Answer 10

• Indicates the marketing mix of the business is more successful than that of its competitors
  + Retailers will be keen to stock and promote best-selling brand
  + Effective promotional campaigns e.g: Buy from the brand leader

Question 11

Survival

Answer 11

Key objective of newly started business

Can only achieve other objectives if the business survives

Question 12

Corporate social responsibility (CSR)

Answer 12

The concept applies to 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 13

Maximising shareholder value

Answer 13

Taking decisions to increase the company’s share price and dividends paid to the shareholders.

Question 14

Mission, Aim, Objectives, Strategy and Tactic

Answer 14

Mission: Qualitative statement of business’s aim
Aim: Long term plan for which objectives derived from
Objectives: - Target must be achieved in order to realize the stated aims
- Time assigned targets derived from goals, set in advance of strategy
Strategy: A plan of action designed to achieve an objective. Strategies tell you how you’re going to get there, the overall direction you are going to take.
Tactic: A specific action step required to deliver on a strategy.

Question 15

Some changes to corporate objectives

Answer 15

Newly formed business:
Survival -> growth and increased profits
Competitive environment and external changes:
Growth -> survival
Short term obj e.g: Growth in sales -> long term ibj e.g maximising profits from higher level of sales

Question 16

Factors that determine the objectives of the business

Answer 16

• The size and legal form of the business
• Corporate culture ( code of behaviour and attitudes that influence the decision-making style of the managers)
• Public/Private sector
• Number of years in operation
• Ethics

Question 17

Hierarchy of objectives

Answer 17

Aim -> Corporate objectives -> Divisional objectives -> Departmental objectives -> Individual targets
Divisional is important bc it ensures:
+ Coordination b/w all divisions
+ consistency w/ corporate obj
+ Adequate resources are provided to allow successful achievement of the objectives ( for departmental )

Question 18

Management by objectives (MBO)

Answer 18

A method of coordinating and motivating all staff in an organisation by dividing its overall aim into specific targets for each department, manager and employee

Question 19

Decision making process

Answer 19

Identify problem 
Establish decision criteria 
Weigh decision criteria 
Generate alternatives 
Evaluate the alternatives 
Choose the best 
Implement decision 
Evaluate decision
(Repeat) 

Strategic decision (Board of directors) -> Tactical( Managers) -> Operational (employees)

Question 20

Ethics

Answer 20

The moral guidelines that determine decision making

Question 21

Ethical code of conduct

Answer 21

A document detailing a company’s rules and guidelines on staff behaviour that must be followed by all employees

Question 22

Ads of ethical decisions

Answer 22

+ Avoid potential expensive court cases
+ Good publicity and customer loyalty
+ Likely to be awarded government contracts
+ Well-qualified staffs want to work in ethical and socially responsible companies

Question 23

Business’s objectives change overtime because

Answer 23

○initial objectives achieved (e.g. survival).
○ competitive environment changes.
○ technology might change product design.
○ new management and leadership.
○ new opportunities arise.
○ internal/external growth may lead to a revision of mission/purpose and objectives.
○ economic recession – external constraints.
○ becomes more ethical.

Question 24

Ads of CSR

Answer 24

Companies exercise their moral duty to promote social justice.
– It is good business practice.
– Such approaches can become powerful competitive advantages.
– It encourages greater loyalty from customers.
– It enhances the reputation of the business.
– It affects the bottom line-increases profitability.
– Contributes to company and environmental sustainability.
– Companies have a duty to correct any adverse social impacts caused.

Question 25

Disads of CSR

Answer 25

– Costs are imposed that make businesses less efficient and this will subtract from overall
social welfare.
– It is unfair to shareholders as profits that belong to them are diverted to social projects.
– The market is likely to allocate resources more efficiently than political pressures – ‘the
business of business’ should be business and the making of profits.
– Accountability should be only to shareholders.
– Customers will have to pay higher prices.
– Leads to lack of business focus and is often done for negative reasons as a defensive
measure rather than for positive reasons.

Question 26

Disads of ethical decision

Answer 26

• Using Fairtrade suppliers can add to business’s costs
• Fair wages -> more costs
• Changes in advertising tactics -> lower level of sales E.g Tobacco prints horrific images of the damaged lungs …

Question 27

Benefits of clear statement of business ethics and the code of conduct

Answer 27

Company: - More Gov. contracts in countries where bribery is not acceptable
- Enhance public reputation
- Attract high quality employee bc promoting fair treatment -> low labour turnover -> recruitment costs reduced
- Reduced chance of being investigated
- Conflicts reduced b/w stakeholders
- Greater local community support
Employees:
- Not behave in a way they consider 2b inappropriate
- Fair treatment to all staffs
- Better working atmosphere