Chapter 4 (business objectives) Flashcards
What are SMART objectives?
S - Specific
M - Measurable
A - Achievable
R - Realistic & Relevant
T - Time-limited
What is a business aim?
a long-term goal that a business hopes to achieve.
What are business objectives?
a stated measurable targets that a business plans to achieve
What are the benefits of having business objectives?
- Creates a sense of direction and purpose for all employees, increasing motivation
- Provide specific targets for future business strategies to aim for
- Allows assessment of success or failure when actual business performance is judged against the original objectives.
What is a mission statement?
a statement of the businesses core aims, phrased in a way to motivate employee’s and to stimulate interest by outside groups (e.g Google: “to organise the worlds information and make it universally accessible and useful”)
What are the benefits of mission statements?
- 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 / values to be worked towards, which might help to guide and direct employees’ behavior at work
What are the drawbacks of mission statements?
- Can be too vague and general, which will provide no direction for employees to follow.
- Just a public relations exercise designed to make stakeholder group feel good about the organisation; insufficient for forming actual business strategies.
What are the common objectives of private-sector businesses?
- Profit maximisation
- Profit satisficing
- Growth
- Increasing market share
- Survival
- Corporate social responsibility (CSR)
- Maximising short-term revenue
- Increasing shareholder value
What is profit maximisation?
Producing at the that level of output where the greatest positive difference between total revenue and total costs is achieved.
What are the limitations of profit maximisation?
- Focus on high short-term profits may encourage competitors to enter the market
- Many businesses prefer to maximise sales to gain higher market share, instead of maximising profits
- Smaller business owners may be more concerned with protecting their leisure time, independence and work-life balance than just earning more money
- Very difficult to assess whether the point of profit maximisation has been reached. Constant pricing changes to increase profit may also lead to negative consumer reactions.
What is profit satisficing?
Aiming to achieve enough profits to keep the owners satisfied. Common aim for owners of small businesses, who wish to live comfortably but do not want to work longer hours to earn more profit.
What are the benefits of business objectives based on growth?
- Larger firms will be less likely to be taken over
- Benefit from economies of scale
- Managers will be motivated by business growth if it means they could gain higher salaries and fringe benefits
- The business will remain competitive
What are the limitations of business objectives based on growth?
- Can lead to cash flow problems if the business expand too quickly
- Sales growth might be achieved at the expense of lower profit margins
- May experience diseconomies of scale if the business becomes too large (e.g. poor communication, lack of motivation, loss of coordination etc.)
- Using profits to finance growth can lead to lower short-term dividends paid to shareholders.
What are the benefits of being the market leader with the highest market share?
- Increased sales to retailers as they will be keen to stock and promote the best-selling brand
- Products can be supplied to retailers at a lower discount rate (rather than at a higher discount rate if they were a less well-known brand), since firms will be more keen to stock them. This will lead to a higher profit margin for the producer
- Effective promotional campaigns since they are the brand leader
What is the survival objective?
The key objective of most new business start-ups. High rate of failure within the first 2 years of a business means that survival is important. Once the firm has become firmly established, then other longer-term objectives can be set.
What is a corporate social responsibility (CSR)
When businesses consider the interests of society by taking responsibility for the impact their actions and activities on its stakeholders
ways in which businesses promote corporate social responsibility (CSR)
- firms the promote organic and vegetarian foods 2. retailers the emphasise the promotion of their products being made from recycled materials 3. businesses that refuse to stock goods that have been tested on animals, or foods that base on genetically modified ingredients
benefit and downside of maximising short term sales revenue are?
ADV 1. it will benefit managers and staff when salaries and bonuses are dependent on sales revenue levels DISADV 1. if sales are achieved by reducing prices the actual overall profits of the buisness might fall
maximising shareholder value is
decitions that would increase the companies share price and dividends paid to workers paid to shareholders
Important issues relating to corporate objectives
- must be based on the corporate aim and should clearly link with it 2. should be achievable and measurable if they are to motivate employees 3. need to be communicated to employees and investors in the business, effective communication is vital in order to be successful 4.
whats the difference between corporate aims, mission statement and corporate objectives?
both the corporate aims and the mission statement have the same problems, they lack specific detail for operational decisions. corporate objectives turns the aims into targets and goals quite specific to each business which can be broken down into strategic departmental targets. they provide a much clearer guide for management action plan.
conflicts between corporate objectives
- growth vs. profit 2. short-term vs. long-term 3. stake holder conflicts
possible changes to corporate objective
- newly formed business might change from survival to growth or increased profit. 2. the competitive and economical environment may change, (e.g new powerful rival, economic recession) forcing objectives from growth to survival.
management by objective (MBO) is?
a method of co-ordinating and motivating all staff in and organisation by dividing its overall aim into specific targets for each department, manager and emplyee
hierarchy of objectives
see picture
ethics are?
the moral guidelines thet determine decision making
ethical code (code of conduct) is?
a document detailing the company’s rules and guidelines on staff behaviour that must be followed by all employees
