Chapter 2: Business Objectives
KEY TERMS
1. The goals or targets set by a business are called objectives.
2. The managers in an organization or company who help make important
decisions are called executives.
3. If a business, company or country diversifies , it increases the range of
goods or services it produces.
4. The Importance Of Clear Objectives
Businesses have higher chances of success if they set clear objectives.
They set objectives for many reasons.They are:
1. Objectives help to motivate people and this provides employees
something to work towards.
Eg - Some common examples include that the sales staff are
eligible for bonuses if they reach their respective targets.
2. Business failure is a result of when owners allow their business to
“drift”.No clear objectives means that the owners will not have
sufficient motivation and allow their business to “drift”.
3. Objectives help to plan where to take a business and how to take
the necessary steps to achieve the target.
4. When the clear objectives are set it is easier to assess the
improvement and performance of the business.
Financial Objective
Financial objectives are particularly important in the private sector as most
business owners aim to make profit and money.
● Survival:
● Survival is an important aspect considered by all businesses.
● From time to time it is the most important objective.
● Eg- when a business first starts trading,it has the higher chances of
being vulnerable, the owner having lack of experience handling a
business and there will be shortage of resources.
● When trading conditions become tough or a strong competitor emerges
the survival of a business is severely threatened.
● Profit:
● The owners have invested some money and lots of time when starting a
business.They aim to make a profit and expect financial return.
● Shareholders have invested money in the business and may pressurize
the businesses to pay them large dividends.This pressure makes the
businesses try profit maximization.
KEY TERMS
● The profit from the business or monetary return is called financial
return.
● The owners of limited companies are called shareholders.
● The share of profit paid to shareholders in a company is called
dividends.
● When businesses try to make as much profit as they can, it is called
profit maximization.
● Sales
● Businesses with a larger number of sales enjoy many advantages
and benefits.This makes some owners want to grow their
business sales.
Some of the benefits include:
● may enjoy lower costs
● have a larger market share
● enjoy a higher public profile
● generate more wealth for the business/owners
● Benefit stakeholders
Eg- employees enjoy higher job security , shareholders get higher
dividends of profits.
● Increased Market Share:
Building a higher market share helps to :
● win more customers from competitors
● Dominate the market
● Have a higher profile in the market
● Charge a higher price for the goods and services as they have a higher
profile in the market
● Easier to launch their new products
● Financial Security:
● Making enough profit to satisfy the business owner(s) needs is called
profit satisficing.
● Profit satisficing gives the business and owner(s) financial security.
● Some businesses do not aim for profit maximization as they don’t want
the responsibility of expanding their business , which is a sure
requirement for generating more profit.
Lifestyle Businesses:
● Involves running a business that generates enough profit and financial
security to provide flexibility needed to allow a particular lifestyle.This
type of business allows entrepreneurs to spend time on their interest or
with family .
Non-Financial Objectives
● Some businesses have objectives that are not connected to
money and these objectives are called non-financial
objectives.This depends on the nature of their business.
● Some business owners may have both financial and non-financial
objectives.
● Social Objectives:
● When the government owns businesses in the public sector, social
objectives are vital.They aim to provide high quality services and reduce
costs.Some examples include reducing response time by emergency
services and increasing the recycling rates.
● Social objectives are designed to improve human well-being.
● Some businesses are operated as social enterprises and not for profit.
They have a clear social or environmental mission.
● Nowadays some businesses have made attempts to include social
objectives in their business.Some of the activities by businesses
include reducing pollution,employing local people and by visiting
schools and sponsoring local events.
● Personal Satisfaction:
● Some owners are willing to take the risk by starting a business as they
feel that they would be happier and more satisfied in their work
environment than as an employee.
● Investing money into your business idea and watching it succeed is
extremely satisfying and a matter of high pride for many.Some owners
transfer their hobbies into business.
Eg- Someone who enjoys baking can start a bakery,Someone who
enjoys playing musical instruments can start a music academy ,etc
● Challenge:
● To start a business and make it successful is never an easy task.It
requires the owner to be committed, hardworking and multi-skilled.
● Running a business can provide endless opportunities and challenges
and some people are motivated because of them.
● You need skills like organization,financial
management,communication,decision making,negotiation,interpersonal
skills and IT.
● Official discussions between the representatives of opposing groups
who are trying to reach an agreement,especially in business or politics
is called negotiation.
● The final result of an action is called an outcome.
● Independence and Control:
● An important non-financial objective for many is that they want control
and become “their own boss”.
● The freedom the owner has while making decisions is very appealing
and important to many.
● It has been proven using a survey that 90% of the people preferred to
take the risk and start their own business because of the independence
that came with it.This proves that this is a significant non-financial
objective.
Did you know that many businesses set
SMART objectives?
It should be :
Specific- Stating clearly what is to be
achieved
Measurable- An outcome that can be measured in numbers
Achievable- Possible to complete by the people involved
Realistic-able to be achieved with the resources available
Time Specific- stating a period of time in which to achieve it.
Why Might Objectives Change as Businesses evolve?
● As a business evolves and develops,its objectives may change.It
changes as response to events and circumstances.
● To develop and change gradually over a long period of time is called
evolve.
● Market Conditions:
● Businesses operate in dynamic markets and have to deal with many
regular changes.
● When market conditions change ,the businesses set new objectives.if
trading conditions get extremely difficult,the business decides that
survival is more important than making profit during that duration and
the market “settles down”.
● Technology:
● Businesses may have to renew their objectives as technology advances.
● They may need to increase the automation into production and this may
also help lower costs.
● A business may be facing pressure to sell more products in order to
exploit economies of scale.
● The usage of computers and machines instead of a person to do a job is
called automation.
● The financial advantages of producing something in very large
quantities is called economies of scale.
● Performance:
● The performance of a business is never stable.
● At times periods of stability and sustained profitability may change into
less successful periods.
● The business is affected by the performance levels.
● When something is continued for a long period of time it is called
sustained.
● Legislations:
● A law or a set of laws is called legislation.
● New legislation can have an impact on business.
● Nowadays many businesses are being socially responsible and this can
be a reaction to a new environmental , employment or social legislation.
● Eg- In 2013, EU regulation made compulsory that the construction
industry had to reduce energy use in order to help protect the
environment and reduce carbon dioxide emissions.More energy efficient
buildings were constructed as a result of this legislation and this was a
socially and environmentally responsible thing to do.
● Internal Reasons:
● There are both external and internal factors that cause a business to
change its objectives.
● Some internal factors include a change in ownership or a change in the
senior management team.
● When these happen the new owner or the new management team may
have new objectives to increase the profit to pay higher dividends to
shareholders.
● A business that employs more than 250 people is called a large
business.
● A business that employs less than 50 people is called a small business.
Objectives SMALL VS LARGE Businesses:
● Whether a business is small or large ,they aim to make profit.
Small Business Large Business
People who own them just want to Large Businesses aim to grow even
make enough money to support their larger and maximize profits for their
families and lifestyle and are content owners.
to stay small.
They may want to avoid the They are more interested in
responsibilities that may come with financial objectives.
growth.
They may be interested in non-financial
objectives such as personal
satisfaction and independence.
