Chapter 4 - Business Objectives Flashcards
Define “business objective”
A stated measurable target that a business plans to achieve
Explain what managers achieve by setting clear business objectives (3)
- Create sense of direction and purpose for employees. Increases 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 a means of assessing success or failure when actual performance is judged against original objectives.
Explain the objectives of a private sector business (8)
- Profit Maximisation.
Producing at that level of output where the greatest positive difference between total revenue and total costs is achieved. Essential for rewarding investors, financing further growth, persuading owners to take risks. - Profit Satisficing.
Aiming to achieve enough profits to keep owner satisfied. Common aim for owners of small businesses, live comfortably, don’t want to work longer hours to earn more. - Growth
Larger firms less likely to be taken over and should be able to benefit from economies of scale. Managers motivated by growth, higher salaries, fringe benefits. Business not growing could become uncompetitive. - Increasing Market Share
Increase in market share is indicating that the business’s marketing strategies are proving more successful than those of its competitor - Survival
High failure rate of new businesses means that to survive in first years of trading is important aim. - Corporate Social Responsibility (CSR)
Having objectives about social, environmental and ethical issues. Adverse publicity given to business activity that is seen to be damaging to stakeholder groups and wider world. Consumers and other stakeholders reacting positively to businesses that act in green or socially responsible ways. - Maximising short-term revenue
Could benefit managers / workers when bonuses dependent on sales revenue levels. If increased sales achieved by reducing prices, annual profits might fall. - Increasing shareholder value
Pursuing strategies to increase returns to shareholders. Increasing profits, higher dividends, higher share price.
Explain the limitations of the objective of profit maximisation (6)
- Focus on high short-term profits encourages competitors to enter market.
- Many businesses seek to maximise sales to gain higher market share, not maximise profits.
- Owners of small 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 total profit figures.
- Profit maximisation may be the preferred objective of owners and shareholders, but other stakeholders might prioritise other objectives.
- Constant pricing changes to increase profit may lead to negative consumer reactions.
Explain the limitations of business objectives based on growth (5)
- Expansion too rapid, lead to cash flow problems
- Sales growth might be achieved at 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 can result in a loss of focus for whole organisation.
Explain the benefits of being the brand leader with the highest market share (3)
- Retailers will be keen to stock and promote the best-selling brands
- Products can be supplied to retailers at a low discount rate since shops keen to stock them. Gives higher profit margin.
- Effective promotional campaigns can make use of the fact that product is brand leader.
Define “corporate social responsibility”
When a business considers the interests of society by taking responsibility for the impact of their decisions and activities on customers, employees, communities and the environment.
(Having objectives about social, environmental and ethical issues.)
Define “pressure groups”
Organisations 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.
Explain the 3 main aims of social enterprises. (Triple Bottom Line)
- Economic (financial): make profits to reinvest and provide some financial returns to owners
- Social: to provide jobs or support for local, often disadvantaged communities
- Environmental: protect environment, manage business in environmentally sustainable way.
Explain the typical objectives of public sector businesses (5)
- To provide efficient, reliable service to public.
- To encourage economic and social development (especially in deprived areas)
- To create employment or prevent major job losses if industry making loss
- To meet financial targets set by government, not necessarily make profit.
- Achieve high environmental standards.
Explain the meaning of SMART objectives
S- Specific: specific to business.
M- Measurable: Objectives with quantifiable value likely to be more effective targets
A- Achievable: setting objectives that are impossible in time frame given is pointless. Demotivating.
R- Realistic/relevant: Should be realistic when compared to resources of company. Expressed in terms that are relevant to people carrying out objective.
T- Time limited: Time limit should be set when objective established.
Explain the factors that determine business objectives (5)
- Business Culture:
Culture is way of doing things shared by all those in organisation. If managers aggressively pursue only profit objectives, decisions will be different to those managers with people-centred or society centred business. - Size and legal form of business:
Owners of small business concerned with profit satisficing whereas public limited companies concerned with rapid growth. - Ethics
- Private sector or public sector:
Profit and shareholder value are common objectives in private sector. In public sector, quality of service measures often used. - Number of years business has been operating:
newly formed business likely driven by desire to survive. Once established, business may pursue other objectives like growth/profit.
Define “business aim”
A long-term goal / a broad indication of what a business hopes to achieve. The core central purpose of a business’s activity is expressed in its business aims.
Define “mission statement”
A mission statement is a brief statement of the business’s core aims and central purpose, phrased in a way to motivate employees and to stimulate interest from outside groups.
Explain the advantages of mission statements (4)
- Inform groups outside the business, what central aim and vision is
- Motivate employees as they are associated with positive qualities statement refers to
- Often include moral statements or values to be worked towards, Guides and directs behaviour at work.
- Help to establish what business is about, for benefit of other groups.
Explain the limitations of a mission statement (4)
- Too vague and general. End up saying little that is specific to business, cannot be used as actual targets
- Just a public relations exercise to make stakeholder groups feel good about organisation
- Virtually impossible to really analyse or disagree with
- Too general and lacking in specific detail, so two completely different businesses could have very similar mission statement.
Define “business strategy”
A long term plan of action for a business, designed to achieve a particular objective.
Define “tactic”
A short-term action as part of an overall strategy
Explain the role of objectives in the stages of business decision making (7 stages)
- Set objectives to provide focus for strategic decisions
- Assess and clarify the problem that requires strategic action
- Gather data about problem and identify possible strategic solutions
- Analyse the likely impacts of all decision options on the chance of achieving business objectives
- Make strategic decision
- Plan and implement the decision
- Review its success against original objectives. Has business achieved objective through decisions?
Provide an example of how objectives can change over time
A newly formed business may have satisfied survival objective by operating for several years, now owners wish to pursue objectives of growth / increased profit,
Explain the benefits of communicating objectives with employees and involving them in the setting of targets. (4)
- Employees and managers have greater understanding of both individual and companywide goals
- Employees understand overall plan and how individual goals fit into company’s business objectives.
- Employees share responsibility for targets and objectives by interlinking their goals with those of others in company.
- Managers stay in touch with employee’s progress more easily, as regular monitoring allows praise or training to keep performance and deadlines on track.
Explain the consequences of managers failing to communicate objectives or changes in objectives to employees.
Fear and uncertainty. Might lead to resistance to change and potential industrial action.
Explain how following a strict ethical code in decision making can be expensive in long term (5)
- Using ethical and fairtrade suppliers adds to business costs.
- Not taking bribes to secure contracts could mean failing to secure significant sales.
- Limiting advertising of toys to adults may result in lost sales.
- Accepting that it is wrong to fix prices with competitios might lead to lower prices and profits.
- Paying fair wages, even in low wage economies, raise wage costs and reduce firms’ competitiveness against firms that exploit workers.
Explain the long-term benefits of acting ethically (5)
- Avoiding court cases, reduces cost of fines
- Acting unethically= bad publicity, lost customer loyalty and long-term reductions in sales. Ethical policies=good publicity= increased sales.
- Ethical businesses attract ethical customers. As world pressure grows for CSR, this group of consumers is increasing.
- Ethical businesses are 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.
