chapter 5 - business objectives and stakeholder objectives

Question 1

what are the benefits of setting business objectives? (3)

Answer 1

• Give a clear target to work towards and this helps motivate employees.
• Helps unite the whole business towards the same goal.
• Business managers can compare how the business has performed to their objectives – to see if they are successful or not.

Question 2

what are the different business objectives? (5 (2,4, 2,7,4))

Answer 2

• Business survival
• When a business has recently set up, or when the economy is moving into recession, the objectives of the business will be more concerned with survival than anything else.
• The managers of a business threatened in this way could decide to lower prices in order to survive, even though this would lower the profit on each item sold.
• Profit
• When a business is owned by private individuals rather than the government, it is usually the case that the business is operated with the aim of making a profit.
• Profits are needed to pay a return to the owners for the capital invested and the risk taken. It is also needed to provide finance for further investment in the business.
• Suppose a business put up its prices to raise profits. It may find that consumers stop buying its goods.
• It is often said that the owners of the business will aim for a satisfying level of profits which will avoid them having to work too many hours or pay too much in tax.
• Returns to shareholders
• This is to discourage shareholders from selling their shares and helps managers keep their jobs.
• Returns to shareholders are increased in two ways: increasing profits  increase in dividends and increasing share price. The managers can try to achieve this (increasing share prices) not just by making profits but by putting plans in place that give the business a good share of growth and higher profits in the future.
• Growth
• The owners and managers of a business may aim for growth in the size of the business in order to:
   Secure jobs
   Increase salaries and promote, talented workers to higher positions
   Open up new possibilities and spread risks by moving into new markets and products
   Higher market share
   Economies of scale from business expansion.
• Growth will be achieved only if the business’s customers are satisfied with the products or services being produced.
• Market share
• Increased market share gives a business:
   Good publicity
   Increased influence over suppliers
   Increased influence over customers.
• Providing social enterprise
• Social enterprises are operated by private individuals, but they do not just have profit as an objective.
• They often have three objectives for their business:
   Social – provide jobs and support for disadvantaged groups.
   Environment – protect the environment.
   Financial – to make profit and invest back into social enterprise.

Question 3

why business objectives could change? (7)

Answer 3

• Due to the current condition of the market (ex. Economic recession)
• Competitors
• Environmental change
• Human resources
• Change in market
• In response to performance
• Change in product range.

Question 4

who are the internal stakeholders? (3) what are their main features (4,4,4) and most likely objectives? (2,4,3)

Answer 4

Owners (internal)
* Main features:
- Put capital to set up and expand the business.
- Will take a share of profits if the business succeeds.
- If the business does not attract enough customers, they may lose the money they invested.
- They are risk takers.
* Most likely objectives:
- Share of the profits so that they gain a rate of return on the money put into the business.
- Growth of the business so that the value of their investment increases.

Workers (internal)
* Main features:
- Employed by the business.
- Have to follow the instructions of managers and may need training to do their work effectively.
- May be employed on full-time or part-time contracts.
- If there is not enough work for all workers, some may be made redundant.
* Most likely objectives:
- Regular payment for their work
- Contract of employment
- Job security
- Job satisfaction

Managers (internal)
* Main features:
- Also employees of the business and control the work of other workers.
- Take important decisions.
- Their successful decisions could lead to the business expanding.
- If they make poor decisions, the business could fail.
* Most likely objectives:
- High salaries
- Job security
- Growth of the business so that managers can control a bigger and better known business. this gives them more status and powder.

Question 5

who are the external stakeholders? (4) what are their main features (3, 2, 2, 1) and most likely objectives? (4,2,3,1)

Answer 5

Customers (external)
* Main features:
- Important to every business.
- Without enough customers, a business will make losses and will eventually fail.
- The most successful businesses often find out what consumers want before making goods or providing services – market research.
* Most likely objectives:
- Safe and reliable products
- Value for money
- Well-designed products of good quality
- Reliability of service and maintenance

Government (external)
* Main features:
- Responsible for the economy of the country.
- Passes laws to protect workers and consumers.
* Most likely objectives:
- Wants businesses to succeed in its country. Successful businesses will employ the workers, pay taxes and increase the country’s output.
- Expects all firms to stay within the laws.

The whole community (external)
* Main features:
- Greatly affected by business activity.
- Businesses also create jobs and allow workers to raise their living standards.
* Most likely objectives:
- Jobs for the working population
- Production that does not damage the environment
- Safe products that are socially responsible.

Banks (external)
* Main features:
- Provide finance for the business’s operations.
* Most likely objectives:
- Expect the business to be able to pay interest and repay capital lent – business must remain liquid.

Question 6

what are the objectives of public sector businesses? (3)

Answer 6

• Financial – meet profit targets set by 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 (esp. poor regions).

Question 7

what are the jobs of the managers in relation with the business objectives? (2)

Answer 7

• Managers have to compromise when they come to decide on the best objectives for the business they are running. They would be unwise to ignore the real worries or aims of other groups of an interest in the operation of the business.
• Managers will also have to be prepared to change the objectives over time.