Theme 1 - 1.5.3 - Business Objectives

Question 1

Whats a business objective ?

Answer 1

A business objective is a goal or aim that a business wants to achieve. The best objectives are SMART and not vague, so that everyone in the business knows what direction the business is going.

Question 2

What does the acronym SMART stand for ?

Answer 2

Specific
Measurable
Achievable
Realistic
Timely

Question 3

What is survival as a business objective ?

Answer 3

Survival is a short-term objective of a business and is usually applied to a new business or start-up

A business in the first year may just have survival as the objective as it builds a customer base and establishes itself on the market

The objective is to reach a sustainable level of sales that allows the business to reach its BEP

This may mean using penetration pricing and this may mean that not much profit is made at the start - but when the business starts to grow it will be able to comfortably raise its prices

Question 4

What are business objectives useful for ?

Answer 4

Having a business objective helps the employees to focus on shared aims of the business

Different businesses have different objectives, it can depend on the product, service or industry and even on the goals of the entrepreneur starting the business

Question 5

What is profit maximisation?

Answer 5

Profit maximisation is when a business wants to make the most profit possible from a given amount of resources

Question 6

Why is profit maximisation important ?

Answer 6

Profit maximisation is important as an objective because it helps a business to recoup any research and development costs ( R&D ) costs

Profit maximisation is needed to help a business to maintain high levels of product development and innovation

Question 7

What is profit maximisation - shrinkflation ?

Answer 7

Lots of supermarket items are getting smaller - this is known as shrinkflation - where a manufacturer keeps the price the same but makes the product smaller

This means less money has to be used to make each item therefore while the product is getting sold for the same price - the amount of money that the business spends on making that product shrinks down therefore there is a bigger profit margin for the business

Question 8

What are the 6 most important business objectives ?

Answer 8

Aside from survival or profit maximisation there are lots of other business objectives that a business may have:

1. Sales maximisation
2. Market share
3. Cost efficiency
4. Employee welfare
5. Customer satisfaction
6. Social objectives

Question 9

What is Sales maximisation ?

Answer 9

Profit figure of a business tend to be annually so sales figure can be examined on daily, weekly or monthly basis

And managers find sales figures more satisfying as targets as profits go to owners and salaries are often linked to sales levels

Anyone interested in investing in the business may want to see the sales data and judge it as an indicator of performance

Sales maximisation is often found in a sales drive environment like an estate agent or a car dealership

Question 10

What is Market share as a business objective ?

Answer 10

Market share is the % of a market that a business has - either in revenue or in units sold

This may be a business objective in a very competitive market where consumers switch between suppliers ( supermarkets for e.g. ) therefore each supplier wants to gain the most customers and control the market

It is vert important for investors to judge how a business is doing against competitors - Loss in market share can be an indicator of long term serious financial problems

Question 11

What is Cost efficiency as a market objective ?

Answer 11

It’s the most common objective in transport and construction industries where goods and services make up 70% of the cost of a project - to achieve cost efficiency

Cost efficiency can be achieved by:
• Paying minimum wage to unskilled workers
• Subcontracting where economically viable
• Lean production or construction where material, time and
process waste is eliminated to save costs
• Increase the perceived value of the product through strong
branding
• Lower the quality and the price of the product

Lowering the average costs means economies of scale

Question 12

What is employee welfare as a business objective ?

Answer 12

• Some businesses seek the harmonious relations with their workforce as an objective, and they aim to achieve this through employee welfare

• External examples: Medical insurance, housing, education for family

• Internal examples: Canteen, crèche, toilets, uniform

• Employees that are satisfied are loyal and hard working, they have increased morale, motivation and productivity

• The business also benefits from an enhanced public image as a good place to work – which makes recruitment easier

Question 13

What is customer satisfaction as an objective ?

Answer 13

This objective is common in service industry and the coffee corner shop competitive market

• Businesses who follow this objective wills eek to monitor customer service levels through surveys and will focus on quality

• They will attempt to identify and understand what the customer wants and then provide this

• They also aim to reduce the number of complaints

A customer centred approach will:
• Ensure repeat sales
• Create brand loyalty to prevent customers from switching to similar brands

Satisfied customers will tell others and reputation and word

Question 14

What is Social objectives as a business objective ?

Answer 14

• Social objectives are also known as corporate social responsibility or CSR objectives
• This may involve:
• Reducing impact on the environment
• Fair wages in developing countries
• Helping society
• Compliance with laws to minimise externalities like operating sensible hours so not as to noise pollute the local community

• May be the USP of the business (Body
Shop) video
• May be to improve corporate image