business objectives chapter 4

Question 1

business objectives

Answer 1

stated measurable target that business plans have to achieve

Question 2

what will managers do with business objectives 3

Answer 2

create a sense of direction and purpose for all employees, which will increase their motivation.

provide specific targets for future business strategies to aim for, as new business strategies will lack focus without an objective to work towards.

give means of assessing success or failure when actual business performance is judged against the original objectives.

Question 3

profit maximization (business objective) (3)

Answer 3

it means producing at the level of output where the greatest positive difference between total revenue and total cost is achieved.

profits are essential for rewarding investors.

profits are important to persuade business owners or entrepreneurs to take risks.

Question 4

limitations to profit maximization 7

Answer 4

focus on high short-term profits may encourage competitors to enter the market.

Many businesses seek to maximize sales to gain higher market share, rather than to maximize profits.

Owners of smaller businesses may be more concerned with ensuring that leisure time, independence and work-life balance are protected rather than just earning more money.

Most business analysts assess the performance of a business through return on capital employed rather than through total profit figures.

Profit maximization may be the preferred objective of the owners and shareholders, but other stakeholders will priorities other objectives.

In practice, it is very difficult to assess whether the point of profit maximization has been reached.

Constant pricing changes to increase profit may lead to negative consumer reactions.

Question 5

Profit satisficing (business objective) (3)

Answer 5

aiming to achieve enough profit to keep owners satisfied.

common in small businesses.

once satisfactory level of profit is achieved, some owners will consider that other aims take priority

Question 6

growth (business objective) (3)

Answer 6

larger firms are less likely to be taken over and should be able to benefit from economies of scale.

managers might get higher salaries and fringe benefits.

business that does not attempt to grow could become uncompetitive.

Question 7

limitations to growth (5)

Answer 7

Expansion that is too rapid can lead to cash flow problems.

Sales growth might be achieved at the expense of lower profit margins.

Larger businesses can experience diseconomies of scale.

Using profits to finance growth can lead to lower short-term returns to shareholders.

Growth into new business areas and activities - away from the firm’s core activities - can result in a loss of focus and direction for the whole organisation.

Question 8

increasing market share (business objective) (2)

Answer 8

an indicator of success is the proportion of total market sales a business has.

increase in market share indicates that the business’s marketing strategies are proving more successful than those of its competitors

Question 9

benefits of increasing market share (4)

Answer 9

Retailers will be keen to stock and promote the best selling brand.

Products can be supplied to retailers at a low discount rate, since the shops will be more keen to stock them.

This will give the producer a higher profit margin.

Effective promotional campaigns are often based on ‘You can buy our product with confidence as it is the brand leader.’

Question 10

Survival (business objective) (3)

Answer 10

likely to be the key objective of most new business start ups.

high failure rate of new businesses means that to survive for the first two years of trading is important.

once business has been firmly established, then the other longer-term objectives can be established

Question 11

Corporate Social Responsibility (business objective)

Answer 11

when businesses consider the interests of society by taking responsibility for the impact of their decisions and activities on customers, employees, communities and the environment. business must adopt a wider perspective than just profit when setting their objectives. pressure groups are forcing business to reconsider their decisions. legal changes are forcing businesses to stop activities that harm the environment or damage the social and ethical interest of external stakeholders. stakeholders are reacting positively to businesses that act in green or socially responsible ways

Question 12

Pressure groups

Answer 12

organizations created by people with a common interest or aim, who put pressure on businesses and governments to change policies so that an objective is reached.

Question 13

maximizing short term revenue (business objective) (2)

Answer 13

This objective could benefit managers and workers when salaries and bonuses are dependent on sales revenue levels.

However, if increased sales are achieved by reducing prices, the actual profits of the business might fall.

Question 14

Increasing shareholder value (business objective) (3)

Answer 14

This means pursuing strategies to increase returns to shareholders.

By increasing profit, the business will be able to pay out higher dividends, which should lead to higher share prices.

This shareholder value objective puts the interests of shareholders above those of other stakeholders.

Question 15

Triple bottom line

Answer 15

the three objectives of social enterprises: economic, social and environmental. to make a profit to reinvest back into the business and provide some financial return to the owners. to provide jobs or support for local, often disadvantaged, communities. to protect the environment and to manage the business in an environmentally sustainable way. other forms of businesses can have triple bottom objective, used if they are really committed to achieving CSR objectives.

Question 16

objectives of public sector businesses (3)

Answer 16

importance of objectives will vary from countries and political motives of the government.

less efficient than private sector businesses.

if social or environmental objectives are met, this might help government achieve its overall political objectives

Question 17

SMART criteria

Answer 17

most effective business objectives meet this. aims that are specific, measurable, achievable, realistic and time-limited.

Question 18

specific (SMART)

Answer 18

Objectives should focus on what the business does and should apply directly to that business.

Question 19

measurable (SMART)

Answer 19

Objectives that have a quantitative value are likely to prove to be more effective targets for directors and staff to work towards.

Question 20

achievable (SMART) (3)

Answer 20

Setting objectives that are almost impossible in the time frame given will be pointless.

They will demotivate the staff who have the task of trying to reach these targets.

So, objectives should be achievable.

Question 21

realistic and relevant (SMART) (2)

Answer 21

Objectives should be realistic when compared with the resources of the company

be expressed in terms that are relevant to the people who have to carry out the objectives.

Question 22

time limited (SMART) (2)

Answer 22

A time limit should be set when an objective is established. Without a time limit, it will be impossible to assess whether the objective has actually been met.

Question 23

factors that determine business objectives (5)

Answer 23

business culture

The size and legal form of the business

Private sector or public sector

The number of years the business has been operating

ethics

Question 24

How does business culture affect business objectives (2)

Answer 24

Culture is a way of doing things that is shared by all those within an organisation. The culture of a business and its senior managers impacts greatly on the decisions made.

Question 25

How does the size and legal form of the business affect business objectives (2)

Answer 25

Owners of small businesses may solely be concerned with a satisfactory level of profit (called satisficing).

Larger businesses might be more concerned with rapid business growth in order to increase the directors’ status and power.

Question 26

How does Private sector or public sector affect business objectives (2)

Answer 26

Profit and shareholder value are common business objectives in the private sector.

In the public sector, quality of service measures are often used

Question 27

How does The number of years the business has been operating affect business objectives (2)

Answer 27

Newly formed businesses are likely to be driven by the desire to survive at all costs, as the failure rate of new firms in the first year of operation is very high.

Later, once well established, the business may pursue other objectives such as growth and profit.

Question 28

what is the hierarchy of objectives (6)

Answer 28

AIM
MISSION
BUSINESS OBJECTIVES
DIVISIONAL OBJECTIVES
DEPARTMENTAL OBJECTIVES
INDIVIDUAL TARGETS

Question 29

business aim (3)

Answer 29

long term goal that a business hopes to achieve.

core central purpose of business’s activity is expressed

these aims must be converted into specific and measurable objectives

Question 30

mission statements (5)

Answer 30

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

often feature in the published accounts and in other communications to shareholders.

will appear in the business plans.

Internal company newsletters and magazines may draw their title from part of the mission statement.

Advertising campaigns are frequently based around the themes of the mission statements.

Question 31

benefits of mission statements (3)

Answer 31

inform groups outside the business what the central aim and vision are.

motivate employees, as they are associated with the positive qualities the statement refers to.

often include moral statements or values to be worked towards, which might help to guide and direct individual employees’ behavior at work help to establish what the business is about, for the benefit of other groups.

Question 32

limitations of mission statements (4)

Answer 32

too vague and general, so that they end up saying little that is specific about the business and cannot be used as actual targets.

just a public relations exercise to make stakeholder groups feel good about the organisation.

virtually impossible to really analyze or disagree with.

too general and lacking in specific detail, so two completely different businesses could have very similar mission statements.

Question 33

annual (company) report

Answer 33

a document that gives details of a company’s activities over the year, including its financial accounts.

Question 34

business strategy (2)

Answer 34

a long-term plan of action for a business, designed to achieve a particular objective.

Once a strategy has been decided, then small-scale tactical decisions must be taken.

Question 35

tactic (1)

Answer 35

short-term action as part of an overall strategy.

Question 36

why are business strategies and tactics needed (2)

Answer 36

They need to be turned into SMART objectives.

These can then be broken down into strategic departmental targets.

Question 37

why is a clear objective needed (3)

Answer 37

Aims and objectives provide the focus for business strategies

managers will be unable to make important strategic decisions for the business as a whole or for individual departments.

Without a clear business objective translated into a marketing objective, any strategic decisions will lack focus and direction.

Question 38

stages of setting clear objectives (7)

Answer 38

1.Set objectives to provide focus for strategic decisions.

2.Assess and clarify the problem that requires strategic action.

3.Gather data about the problem and identify possible strategic solutions.

4.Analyse the likely impacts of all decision on the chance of achieving business objectives.

5.Make the strategic decision.

6.Plan and implement the decision.

7.Review its success against the original business objectives. Has the business, through its decisions, achieved its objectives?

Question 39

how can objectives change over time (4)

Answer 39

A newly formed business may have satisfied the survival objective by operating for several years, and now the owners wish to pursue objectives of growth or increased profit.

The competitive economic environment may change.

The entry into the market of a powerful rival or the start of an economic recession may force a business to switch from growth to survival as its main aim.

A short-term objective of growth in sales or market share might be adapted to a longer-term objective of maximizing profits from the higher level of sales.

Question 40

Translation of objectives into targets and budgets (4)

Answer 40

Specific and measurable short-term targets must be set for each business section, based on the overall objective of the business.

These targets will be for limited time periods.

These targets must be reached if the overall objective is to be achieved.

targets usually form part of a department’s budget of financial plan.

Question 41

targets

Answer 41

short-term goal that must be reached before an overall objective can be achieved.

Question 42

budget

Answer 42

detailed financial plan for the future

Question 43

how do businesses communicate objectives with shareholders and external stakeholders (3)

Answer 43

through the annual published report.

This contains details of the objectives the senior managers have established for the business.

Mission statements are often widely publicized as well

Question 44

why do businesses communicate objectives with employees (2)

Answer 44

If employees are unaware of the business objectives, how can they contribute to achieving them?

Communicating business objectives, and translating them into individual targets, are essential for the effective motivation of employees.

Question 45

how do companies benefit from communicating objectives with employees (4)

Answer 45

Employees and managers have a greater understanding of both individual and company wide goals.

Employees understand the overall plan and how their individual goals fit into the company’s business objectives.

Employees share responsibility for targets and objectives by interlinking their goals with those of others in the company.

Managers stay in touch with employees’ progress more easily, as regular monitoring of employees’ work allows for praise or training to keep performance and deadlines on track.

Question 46

ethical code (code of conduct) (2)

Answer 46

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

growing acceptance of CSR has led to businesses adopting an ethical code to influence in which ways decision are taken.

Question 47

Ethical influences on business objectives and activities (2)

Answer 47

growing acceptance of CSR has led to businesses adopting an ethical code to influence in which ways decision are taken.

employees decisions and behavior should be covered and explained by a company’s ethical code of conduct.

Question 48

limitations to following a strict ethical code (5)

Answer 48

Using ethical and Fairtrade suppliers can add to business costs.

Not taking bribes to secure business contracts can mean failing to secure significant sales.

Limiting the advertising of toys to just adults, so that children do not pester them to buy, may result in lost sales.

Accepting that it is wrong to fix prices with competitors might lead to lower prices and profits.

Paying fair wages, even in very low-wage economies, raises wage costs and may reduce a firm’s competitiveness against businesses that exploit workers.

Question 49

benefits from following a strict ethical code (6)

Answer 49

Avoiding potentially expensive court cases can reduce the cost of fines.

Acting unethically can lead to bad publicity, lose in consumer loyalty and long-term reductions in sales.

can lead to good publicity and increased sales.

attract ethical customers and, as world pressure grows for CSR, this group of consumers is increasing.

more likely to be awarded government contracts.

Well-qualified employees may be attracted to work for the companies with the most ethical and socially responsible policies.