Business Objectives, Resources and Accountability

Definition of Business

The term 'business' is used to describe all the

commercial activities undertaken by diverse
organizations producing goods and services.
Classifications of businesses:
By sector
By level of activity
By size
By legal structure
Session 1

Business Objectives
Objectives
All

are statements of specific outcomes that are to be achieved

businesses have certain objectives.

Objectives

give the business a clearly defined target.

Plans

can then be made to achieve these targets. This can motivate the
employees.

It

also enables the business to measure the progress towards to its stated
aims.

Targets may be different for different businesses.

Objectives

can also be set at any level of an organisation (from the top

(corporate) and through the layers underneath (functional and unit).

Corporate aims
A corporate aim is simply an intention of what

a particular business is trying to achieve and

how it seeks to develop in the long term.
It is intended as a shared vision that all

stakeholders in an organisation will agree with

and work together to achieve.

Corporate Objectives
Corporate objectives are those that relate to

the business as a whole (Mission).

They are usually set by the top management

of the business and they provide the focus for

setting more detailed objectives for the main
functional activities of the business.

Objectives can be set in financial and non financial terms:

Financial terms (easy to measure)

Non Financial Terms (difficult to measure)

Desired sales or profit levels

An innovative player in the market

Rates of growth

A leading in the quality of customer service

Amount of cash generated

Value of the business or dividends paid to

shareholders

The most effective objectives meet the following criteria: SMART

Specific: The objective should state exactly what is to be achieved. objectives are aimed

at what the business does, e.g. a hotel might have an objective of filling 60% of its beds
a night during October, an objective specific to that business.
Measurable: An objective should be capable of measurement so that it is possible to

determine whether (or how far) it has been achieved. The business can put a value to
the objective, e.g. 10,000 in sales in the next half year of trading.
Achievable: The objective should be realistic given the circumstances in which it is set

and the resources available to the business. Agreed by all those concerned in trying to
achieve the objective.
Realistic/Relevant: Objectives should be relevant to the people responsible for achieving

them the objective should be challenging, but it should also be able to be achieved by
the resources available.
Time specific/Time Bound: Objectives should be set with a time-frame in mind. These

deadlines also need to be realistic they have a time limit of when the objective should
be achieved, e.g. by the end of the year.

Changing Objectives

The aim of a business can change over time.

This can happen in response to:
1.
internal factors (such as business growth, or in response to external factors, such as
an economic recession)
2. the different phases of its life.
A business may change its objectives over time due to the following reasons:
. A business may achieve an objective and will need to move onto another one (e.g.
survival in the first year may lead to an objective of increasing profit in the second
year).
. The competitive environment might change, with the launch of new products from

competitors.
. Technology might change product designs, so sales and production targets might

need to change.

 Some businesses set short term objectives and some set long

term objectives that differ from each other.

LONG TERM OBJECTIVES

SHORT TERM OBJECTIVES

Long-term objectives- the organisation is Short-term objectives- this is much closer

looking into the future, setting plans over a in time. Tactical objectives may be daily,
period of 1- 5 years
weekly or monthly. Anything relating to
activities below one year is normally called
short-term.

Different objectives leads to different targets and

changes.

Objectives, Growth and the Business Life Cycle

The main objectives that a business might have are:

Survival a short term objective, probably for small business just starting out, or when a new firm enters the
market or at a time of crisis. For most businesses, it is the primary objective. This objective helps business to break
even (Total Cost = Total Revenue).

Profit maximisation try to make the most profit possible most like to be the aim of the owners and shareholders.

Profit satisficing try to make enough profit to keep the owners comfortable probably the aim of smaller
businesses whose owners do not want to work longer hours.

Sales growth where the business tries to make as many sales as possible. This may be because the managers
believe that the survival of the business depends on being large. Large businesses can also benefit from economies
of scale.

Level of service - Good customer service helps businesses retain clients and generate repeat revenue. Keeping
customers happy should be a primary objective of organization.

Sales maximisation - where the business tries to make as many sales as possible. This may be because the
managers believe that the survival of the business depends on being large. Large businesses can also benefit from
economies of scale.

Business growth - For many firms the main objective is to increase the level of sales or market share. Firms set this
aim because they believe that the best way to achieve greater profits is to achieve greater sales. For example one
of Volkswagens aims is to grow the business over the next ten years and overtake Toyota as the worlds largest car
manufacturer.

Diversification
Technical Excellence
Satisficing
Market Penetration
Market Share

Alternate Business Objectives

Not all businesses seek profit or growth.
Some organisations have alternative objectives:
Ethical and socially responsible objectives
provide a service

Conflicting Objectives
A business may find that some of their objectives conflict
with one and other:
Growth versus profit: for example, achieving higher sales in the

short term (e.g. by cutting prices) will reduce short-term profit.

Short-term versus long-term: for example, a business may

decide to accept lower cash flows in the short-term whilst it

invests heavily in new products or plant and equipment.
Large investors in the Stock Exchange are often accused of

looking too much at short-term objectives and company

performance rather than investing in a business for the longterm.

STRATEGY

TACTICS

Strategy - this is a long-term plan illustrating Tactics - these are the short-term activities
how the business will achieve its corporate carried out on a daily basis to implement the
objectives.
business strategy.
Strategic objectives are significant long-term It should be possible to arrive at a set of
goals.
checkpoints when performance can be
measured against success criteria.
They normally relate to key business objectives
such as profitability, asset value and market
share.

Corporate strategy

CORPORATE STRATEGY is the direction an organization takes

with the objective of achieving business success in the long

term.
Recent approaches have focused on the need for companies

to adapt to and anticipate changes

environment, i.e. a flexible strategy.

in

the

business

The development of a corporate strategy involves establishing

the purpose and scope of the organization's activities and the

nature of the business it is in, taking the environment in which
it operates, its position in the marketplace, and the
competition it faces into consideration; most times analyzed
through a SWOT analysis

BUSINESS RESOURCES Factors of production

Businesses require resources to produce goods and

services.
A factor of production is indispensable for production

because without it no production is possible.

The resources can be regrouped into the following

factors known as the factors of production:

.
.
.
.

Land (Reward : Rent)

Labour (Reward : Wages)
Capital (Reward : Interest)
Entreprenuership or Management Skills (Reward : Profit)

Session

LAND

Land is all the natural resources on the planet available for

production of goods and services.

It comprises of surface of land and also natural resources like

such as metal ores, coal and oil.

Land is a significant part of production which facilitates in the

production of goods and services in one way or the other.

However, land is a finite resource as it cannot be replaced easily.
Hence, over exploitation of such resources can cause an issue
It also include factory/office.

LABOUR

Labour is the human input (workers, managers

etc) into the production process.

Each worker has different expertise and skills

known as human capital.

Hence man power comprises of the services of a

factory worker or any professional worker (doctor

and engineer).
Thus, this form of resource is an essential aspect

of production.

CAPITAL
Capital

refers to man-made physical goods used to produce other goods and services.
For instance, machines, factories and tools. Capital can also be referred as an
investment in the production of goods and services (Real Capital).

Further,

capital also includes financial capital and working capital. This is simply the
amount of money the initiator of the business has invested in it. "Financial capital"
often refers to his or her net worth tied up in the business (assets minus liabilities) but
the phrase often includes money borrowed from others.

Financial

capital - This form of capital can be used to operate and expand a business.

Working

capital - his includes the stocks of finished and semi-finished goods that will be
economically consumed in the near future or will be made into a finished consumer
good in the near future. These are often called inventories. The phrase "working
capital" has also been used to refer to liquid assets (money) needed for immediate
expenses linked to the production process (to pay salaries, invoices, taxes, interests...)
either way, the amount or nature of this type of capital usually changed during the
production process.

To

be able to survive a business should inject capital throughout its life.

Entrepreneurship or Management Skills

This element of resources relates to the entrepreneur and the

input of the entrepreneur known as the management skills.

The entrepreneur provides the initial ideas. They risk their own

resources in business ventures.

They are also responsible for the organisation of the other 3

factors of production.
Entrepreneur = Risk taker & Opportunity seeker
Real life Example : Sir Richard Branson, Lakshmi Mittal & Bill

Gates.

Entrepreneurs in Mauritius

Mrs Rekkha Cowaloosur, the managing

director of Arvani Excellence Ltd.

Mr. D. Sarjua, the owner of Conserverie

Sarjua.
Other example: tantebazar (

www.tantebazar.com)

Relationship between organizational objectives and human

resources.

There is a direct correlation between organisational objectives and Human

resources management.
Effectiveness of human resources determine the survival of an organisation in the

long run.
The right mix of labour (quantity & quality) is essential for a business to meet its

corporate objectives.
Right people assist in meeting the company goals and objectives such as

profitability.
Most profitable corporations point out their successes to proper management of

their human resources (HR). Managing employees involves balancing between

their goals and aspirations with those of the company. A company's goals and
objectives are survival, making profits, gaining market share or gaining global
recognition. By getting employees to make things happen in a productive way,
HR ensures that the business prospers.

Suppliers and customers

Suppliers and customers can be an essential aid to

businesses that do not have enough resources to carry out

of production to achieve their targets.
Suppliers can be in the form of intermediaries, For

example, raw material suppliers and real estate agents.

(JIT)
Businesses have to build relationship with customers so

that the former can inform the latter about the availability
of goods and services and other related information.

Accountability
when a superior assigns some work to a subordinate, he is

answerable to his superior for its success or failure.

In other words, accountability means answering the success

or failure (performance) of ones work before ones superior.

Thus, subordinates have to report to superiors regarding

various objectives set.

For instance, profits, sales volume and cost reductions.

Superiors, i.e., the managers are accountable to owners and

other stakeholders.

session3

Stakeholders
All business activity involves people who are involved in

business activity in one way or another and are affected

by it.
They are also referred to as the stakeholders as they

have a direct interest in how the business is run.

.
.
.
.
.
.
.
.

Owners
Workforce
Consumers/customers
Suppliers
Creditors
Competitors
Government
The community as a whole

Shareholder V/s Stakeholder

shareholder owns part of a company

through stock ownership, while a stakeholder
is interested in the performance of a company
for reasons other than just stock appreciation.

Owners/Shareholders

Owner/Shareholder is an internal stakeholder who owns the business.

Hence, they will have most influence upon decisions.

Since large companies tend to have many and different shareholders,

there might be conflicts (may want different things). Profits are likely to
be important to this group of stakeholders. They share profit and losses
equally.
Owners are therefore risk takers.
The key interest for the owners of any business is going to be profit.
For shareholders, that is likely to be just as clearly focused on dividend

payments, but they will also have an interest in overall business

performance, especially as it could affect share prices.

Workforce

Employees are also form part of the INTERNAL stakeholders.

They work in the business and they have to follow the instructions given to them by the

owners.
Some (e.g. managers) will make decisions whilst others will have little say in decisions.
Objectives are likely to involve improving working conditions and improving their pay.
They are likely to working to specific targets and will have an obvious interest in how

successfully these have been achieved.

The outcomes will have effects on management job security and promotion prospects, as

well as their remuneration packages.

In general, then, they will have an interest in the success of the business overall, but will

be more particularly concerned with objectives closer to their division or section and
level of authority and responsibility

Consumers/Customers
Important to every business.
Creating and maintaining good relations with this stakeholder

group is very important.

Customers have an interest in the company doing well it

means that they can be sure that it will keep producing their
favourite products.
Customers may well have an ambivalent attitude to profit,

recognising that firms need to make profit, but also realising

that large profits can result from customer exploitation. There
may also be an interest in the continued existence of the
business.

Suppliers
Suppliers is categorized as an EXTERNAL stakeholder.
They Provide the raw materials needed by the business. They can

influence decisions.
Eg if they cannot meet delivery schedules.
They Will want the business to do well so they can supply more

and Will also expect prompt payment.

services on credit terms. These creditors need to be assured that

payments will be made. This extends to lenders as well, who will

want guarantees about interest payments and the eventual
repayment of the loan.

Creditors

Creditors,

An

EXTERNAL

stakeholder,

provide

financial

supports

to

businesses.
They Will not be involved in daily decisions but are likely to influence major

decisions where money is required.

However, Will want to make sure the business can afford to pay money back.

For example, banks.

other financial institutions that lend money to businesses.
They want the businesses to succeed so that the loans and interest charged

are paid on time.

If a business does not repay its loan, the bank may sell the businesss

assets to get its money back.

Government

The state/Govt is An EXTERNAL stakeholder.

They are Not directly involved in decisions - but can be a

major influence on decisions, e.g. by introducing laws.

They will want a business to do well since this will create

jobs and bring in more tax revenue.

However, there is also a longer term interest in relation to

overall employment levels and the contribution to general

prosperity, which the businesses in general and occasionally
particular business organisations, could deliver.

Community as a whole

The

community is An EXTERNAL stakeholder.

They

are unlikely to have much influence upon business decisions unless people with the same views get
together.

They

Will usually want a business to do well since they will rely on jobs or money from the business.

Sometimes

will protest e.g. pollution

In

the local community, there will be interest in the overall business performance of organisations as it
affects local employment and prosperity.

The

success of many small local businesses is likely to be linked to the continued presence and success of
big local businesses.

However,

there may be other issues related to the quality of life, such as land use, pollution, traffic flows,
etc. which affect the local community.

The

term "community" can be taken to include all those with whom an organisation has a relationship that
is not a direct business relationship. This will include local Competitors- benchmark to form our own
strategies

The Interests of Stakeholders

STAKEHOLDER

INTEREST

Owners/Shareholders

Profit maximization/dividend payment

Workforce

Pay

Consumers/Customers

Price
Good product and service quality

Suppliers

Lasting business relationship and fair treatment future orders

Creditors

Payment of loan and interest on time

Government

Meet tax and social security obligation

Contribution to employment level

Community as a whole

overall business performance of organisations as it affects local employment

and prosperity

Conflicts of Interest
When stakeholders want different outcomes from a business activity and are

unable to meet or accomplish their needs or wants, this is referred to as a

conflict of interest
Different stakeholders have different have different needs and priorities.
Hence, it is important for businesses to balance the interest of its various

stakeholders.
Conflict arises when the needs of some stakeholder groups compromises with

the expectation of others.

For example, owners interest of maximizing profit may clash with workers

interest of having an increased pay.

However, compromises exist in such situations where trade unions negotiate

with management for a compromise.

Stakeholder Influence

Stakeholders

Currently,

directly and indirectly influence strategies and business activities in their own way.

social responsibility has been integrated into business management.

Customers,

employees, communities and business partners are among key stakeholder groups that
carry weight in company decisions and activities.

First

of all, owners/Shareholders have a big impact on business activities since they invest in the
business. As a result, their main aim is profit maximization.

Hence,

the way they influence business strategies, it can be to the disadvantage of other
stakeholders.

The

workforce also tends to have an impact in a way or another. Employees usually join in trade
unions to make their interest more prominent.

For

instance, trade union may negotiate for a better working environment and a higher pay with the
top management. Hence, if their demands are not met they might take actions which can lead to
strikes. Thus, if a raise in pay is set by the management, it can affect both the owners (lower profit)
and consumers (cost pass on to them thro higher price)

Additionally, Customers have taken over as a central influence for many companies.

Although companies want to maximize profits, they have generally recognized that satisfied
customers and long-term relationships are key to building sustainable success and profiting
over time. Ultimately, companies have to satisfy their customer through higher quality and
meeting changing customer demands (organic food).
The government also can affect businesses if it starts to cut on its subsidy and increase

taxes. As a result of which businesses might raise its prices. Moreover, banks also influences
the ways in which businesses are run as they want the loans repaid by a viable business.
Every stakeholder will seek to influence to fulfill their interest. Some stakeholders can

successfully strengthen their interests while others cannot. Since some stakeholders are
able to influence business activities to meet their interests, organizations have pondered
and developed policies to ensure that businesses are run in an ethical manner.
consequently, ethical codes prevent stakeholders from exploiting their power and position

by:
- taking into account the interest of all the stakeholders when taking a decision
- not misuing authority for personal gain
- complying with ethical business practices

satisficing as a business strategy to recognise the needs of all stakeholders.

Satisficing

The Cyert and March theory of decisions being

a compromise between the different
stakeholders has certain features in common
with the idea of satisficing behaviour which is
associated with Herbert Simon (
http://en.wikipedia.org/wiki/Satisficing)
This

strategy
attempts
acceptability threshold

to

meet

an

How Stakeholder Objectives Affect the

Behaviour and Decisions of the Firm
Owners and Shareholders

Others:
influence business to take most
profitable option, (regardless of
the effect on society).

How Stakeholder Objectives Affect the

Behaviour and Decisions of the Firm
Directors and Managers

May have their own agenda eg

increased pay, power, status
make business decisions which
help achieve these goals, rather
than the owner(s).

How Stakeholder Objectives Affect the

Behaviour and Decisions of the Firm
Employees

Higher expectations:
demand better working
conditions, better quality of
working life, want to be
consulted.

How Stakeholder Objectives Affect the

Behaviour and Decisions of the Firm
Employees

Forces business to look for ways

of attracting and retaining staff,
particularly if high competition
for staff, eg by offering:

How Stakeholder Objectives Affect the

Behaviour and Decisions of the Firm
Employees

attractive rewards packages

a chance to participate
flexible working arrangements

How Stakeholder Objectives Affect the

Behaviour and Decisions of the Firm
Customers / Consumers

Generally more educated,

experienced higher
expectations, different objectives
to previous generations.

How Stakeholder Objectives Affect the

Behaviour and Decisions of the Firm
Customers / Consumers

Force firm to adopt a more

customer orientated approach
led to customer care
departments / policies / charters,
plus increased provision of after
sales services.

How Stakeholder Objectives Affect the

Behaviour and Decisions of the Firm
Suppliers

Want profit and / or organisational

growth timely payment important.
May offer discounts influence a
business to ensure payment is
made on time.

How Stakeholder Objectives Affect the

Behaviour and Decisions of the Firm
Government

Government macro economic

objectives include:

Stable economic growth

Low inflation
Low unemployment
A healthy balance of payments.

How Stakeholder Objectives Affect the

Behaviour and Decisions of the Firm
Government

General ways these objectives

benefit business:
Stable economic growth greater
income to spend on goods /
services greater sales, profits,
better cashflow.

How Stakeholder Objectives Affect the

Behaviour and Decisions of the Firm
Government

General ways these objectives

benefit business:
Stable prices / low inflation helps
ensure workers dont become
concerned about wage levels and
forceful about pay increases (above
rate of inflation).

How Stakeholder Objectives Affect the

Behaviour and Decisions of the Firm
Government

General ways these objectives

benefit business:
Low unemployment helps keep
steady demand for a firms products
as consumers have a regular
income.

How Stakeholder Objectives Affect the

Behaviour and Decisions of the Firm
Government

To achieve objectives government use:

Monetary policy: the money supply,
rates of interest, exchange rates,
amount of credit available, to control
the level of spending within the
economy.

How Stakeholder Objectives Affect the

Behaviour and Decisions of the Firm
Government

Monetary policy:
Eg if inflation the government will
increase interest rates to reduce
demand.

How Stakeholder Objectives Affect the

Behaviour and Decisions of the Firm
Government

To achieve objectives government use:

Fiscal policy: The use of
government taxes to control level of
consumer spending and business
activity

How Stakeholder Objectives Affect the

Behaviour and Decisions of the Firm
Government

Fiscal policy:
Eg if low demand (resulting in
unemployment) Govt will lower
taxes people more money to
spend.

How Stakeholder Objectives Affect the

Behaviour and Decisions of the Firm
Government

To achieve objectives government use:

Exchange rate / trade policy: The
price at which one countrys
currency is converted into another.

How Stakeholder Objectives Affect the

Behaviour and Decisions of the Firm
Government

To achieve objectives government use:

Fixed central bank buys when market
pressures are forcing the value down,
(and vice versa).
Freely floating central bank does not
intervene.

How Stakeholder Objectives Affect the

Behaviour and Decisions of the Firm
Government

To achieve objectives government use:

Supply side policies: Those
designed to encourage the free
working of markets, including
labour, capital, land

How Stakeholder Objectives Affect the

Behaviour and Decisions of the Firm
Government

Supply side policy:

Eg restricting union activities,
reducing unemployment benefit
(labour);
Ending monopoly controls +
restrictive practices (capital).

How Stakeholder Objectives Affect the

Behaviour and Decisions of the Firm
Government

Policies used have a direct and indirect

influence eg:
increase in interest rates may
make an investment too costly.
Changes in corporation tax or VAT
impinge on profit, encourage
business to reinvest.

How Stakeholder Objectives Affect the

Behaviour and Decisions of the Firm
Government

Policies used have a direct and indirect

influence eg:
Government grants and subsidies
(supply side policies) persuade a
business to locate in one area over
another.

How Stakeholder Objectives Affect the

Behaviour and Decisions of the Firm
Pressure Groups

May force a business to pursue an

environmental objective to avoid
negative publicity, and subsequent
fall in sales.

How Stakeholder Objectives Affect the

Behaviour and Decisions of the Firm

Overall, the influence the various

stakeholders have will depend upon:
the nature of the businesss activities.
its size, type of legal structure.

How Stakeholder Objectives Affect the

Behaviour and Decisions of the Firm

Overall, the influence the various

stakeholders have will depend upon:
the amount of capital invested and
position held within the business
(where applicable).
government legislation.

How Stakeholder Objectives Affect the

Behaviour and Decisions of the Firm

Overall, the influence the various

stakeholders have will depend upon:
degree of media attention given
to a particular stakeholders
cause.

How Stakeholder Objectives Affect the

Behaviour and Decisions of the Firm

Businesses who recognise the

influence stakeholders can have on
their business, especially their image
and reputation, and take into account
their objectives when setting
business objectives / deciding how to
meet them, are likely to be the most
successful.

who is responsible for the success or failure of a company and how devolving responsibility can act as a
motivator

Based on the pie chart, common reasons of business

distress come from two forces, internal causes and

external causes. Figure, shows some of the common
reasons for business distress. The reasons are not ranked
in accordance of severity, however to highlight some of
the common threads the caused most distress situations.
During any stage of the business life cycle, potential

failure is a threat that businesses normally face. A key is

to recognize signs, the signals that the business may
need to be restructured in order to turn around the
situation. Each situation tends to be unique, but have
common elements.