Business Objectives and Stakeholder Objectives (Chapter 5).

Question 1

Define business objectives.

Answer 1

Business objectives are the aims or targets that a business works towards.

Question 2

What are the benefits of setting objectives? (4 benefits)

Answer 2

• Motivates workers and gives workers and managers a clear target to work towards.
• Business manager can compare how the business has preformed to their objectives.
• Clear and measurable objectives help unite the whole business towards the same goal.
• Taking decisions will be focused on: ‘Will it help achieve our objectives?’

Question 3

What are the most common objectives for businesses in the private sector are to achieve:

Answer 3

• Business survival.
• Profit.
• Returns to shareholders.
• Growth of the business.
• Market share.
• Service to the community.

Question 4

Define profit.

Answer 4

Profit is the total income of a business [revenue] less total costs.

Question 5

What are profits needed for?

Answer 5

• To pay a return to the owners of the business for the capital invested and the risk taken.
• To provide finance for further investment in the business.

Question 6

Why would the owners of a business aim for a satisfactory level of profits?

Answer 6

The owners of a business aim for a satisfactory level of profits which will avoid them having to work too many hours or pay too much in tax to the government.

Question 7

Why would a business set increasing returns to shareholders as an objective?

Answer 7

This is to discourage shareholders from selling their shares and helps managers keep their jobs.

Question 8

How are returns to shareholder increased? (2 ways).

Answer 8

• Increasing profit and the share of profit paid to shareholders as dividends.
• Increasing share price.

Question 9

How can managers increase share price?

Answer 9

Managers can try to achieve this by putting plans in place that give the business a good chance of growth and higher profits in the future.

Question 10

The owners and managers of the business may aim for growth in the size of the business in order to: (5).

Answer 10

• make jobs more secure if the business is larger.
• increase the salaries and status of managers as the business expands.
• open up new possibilities and help to spread the risks of the business by moving into new products and new markets.
• obtain a higher market share from growth in sales.
• obtain cost advantages.

Question 11

Why is it important to put meeting customers’ needs as a very high priority?

Answer 11

Growth will be achieved only if the business’s customers are satisfied with the products or services being provided.

Question 12

Define Market share.

Answer 12

Market share is the percentage of total market sales held by one brand or business.

Question 13

What is the formula for market share?

Answer 13

Market share % = company sale/total market sales x 100

Question 14

What three things does increased market share give a business?

Answer 14

• Good publicity.
• Increased influence over suppliers.
• Increased influence over customers.

Question 15

What is a social enterprise?

Answer 15

A social enterprise has social objectives as well as an aim to make a profit to reinvest back into the business.

Question 16

Who operates social enterprises?

Answer 16

Social are operated by private individuals.

Question 17

People operating the social enterprise often set three objectives for their business:

Answer 17

• Social: To provide jobs and support for disadvantaged groups in society (homeless or disabled).
• Environment: To protect the environment.
• Financial: To make a profit to invest back into the social enterprise to expand the social work that it performs.

Question 18

Give three examples of situations in which a business might change its objective:

Answer 18

• A business set up recently has survived for three years and the owner now aims to work towards higher profit.
• A business has achieved a higher market share and now has the objective of earning higher returns for shareholders.
• A profit-making business operates in a country facing a serious economic recession so now has the short-term objective of survival.

Question 19

The following groups of people are involved in business activity in one way or another or are affected by it:

Answer 19

• Owners.
• Workers.
• Managers.
• Consumers.
• Government.
• The whole community.
• Banks.

NOTE - These groups are sometimes called the stakeholders.
Some of these groups are internal to the business - they work for/own it.
Some of these groups are external to the business - they are groups outside of the
business.

Question 20

What is a stakeholder?

Answer 20

A stakeholder is any person or group with a direct interest in the performance and activities of a business.

Question 21

Main features of Owners [Internal] (4).

Answer 21

• Invest capital to set up and expand the business.
• They will take a share of the profits if the business is successful.
• If the business does not succeed, they may lose the money they invested.
• They are risk-takers.

Question 22

Main features of Workers [Internal] (4).

Answer 22

• They are employed by a business.
• They have to follow the instructions of managers/ May need training to work effectively.
• Many be employed on full/part-time contracts and on a temporary/permanent basis.
• If there is not enough work for all workers, some may be retrenched.

Question 23

Main features of Managers [Internal].

Answer 23

• They take important decisions.
• If they make successful decisions, the business could expand.
• If they make poor decisions, the business could fail.
• They are employees of a business and control the work of other workers.

Question 24

Main features of Customers [External] (3).

Answer 24

• Without customers, a business will make a loss and eventually fail.
• The most successful business often find out what consumers want before making good or providing services (market research).
• Customers are important to business because they buy goods or pay for services.

Question 25

Main features of Government [External] (2).

Answer 25

• It is responsible for the economy of the country.

- It passes laws to protect workers and consumers.

Question 26

Main features of the whole community [External] (2).

Answer 26

• The community is greatly affected by business activity e.g. pollution which can damage air quality.
• Businesses also create jobs which allow workers to raise their living standards and many products are beneficial to the community e.g. medicine or public transport.

Question 27

Main features of Banks [External] (1).

Answer 27

• They provide finance for the business’s operations.

Question 28

Most likely objectives for the stakeholder group of Owners [Internal] (2).

Answer 28

• Share the profits so that they gain a rate of return on the money invested into the business.
• Growth of the business so that investment value increases.

Question 29

Most likely objectives for the stakeholder group of Workers [Internal] (4).

Answer 29

• Regular payment for their work.
• Contract of employment.
• Job security.
• Job that gives satisfaction and provides motivation.

Question 30

Most likely objectives for the stakeholder group of Managers [Internal] (3).

Answer 30

• High salaries because of the important work they do.
• Job security.
• Growth of the business so that managers control a bigger and better known business (more status and power).

Question 31

Most likely objectives for the stakeholder group of Customers [External] (4).

Answer 31

• Safe and reliable products.
• Value for money.
• Well-designed products of good quality.
• Reliability of service and maintenance.

Question 32

Most likely objectives for the stakeholder group of Government [External] (2).

Answer 32

• Wants businesses to succeed in its country to increase employment, the country’s output, and more tax.
• Expects all firms to stay within the law.

Question 33

Most likely objectives for the stakeholder group of the whole community [External] (3).

Answer 33

• Jobs for the working population.
• Production that does not damage the environment.
• Safe products that are socially responsible.

Question 34

Most likely objectives for the stakeholder group of Banks [External] (1).

Answer 34

• Business must remain liquid (able to pay interest and repay capital lent).

Question 35

What are the three likely objectives for public sector businesses and organisation?

Answer 35

• Financial = meet profit targets set by the government to reinvest back into the business or handed over to the government.
• Service = Provide a service to the public and meet quality targets set by the government.
• Social = Protect or create employment in certain areas.

Question 36

Most business try to satisfy more than one objective. How could they satisfy the following groups:

• Consumers.
• Local community.
• Workers.
• Directors.

Answer 36

• Consumers = price and quality.
• Local community = environment/low pollution/jobs.
• Workers = jobs.
• Directors = growth.