Chapter – 4
Business objectives
Importance of objectives
They clarify to the stakeholders what the business is working to achieve.
They aid in decision making and choice of alternative strategies.
They enable to check on progress made by the business and take corrective
action when required.
They provide means by which performance can be measured.
They help to motivate employees.
They can be broken down to provide targets for each department or part of
the organization.
They provide shareholders with a clear idea of the business in which they
have invested.
SMART criteria
Objectives have to meet the smart criteria.
S-Specific: Objectives should be more precise. They should focus on what the
business does and should apply directly to that business. Eg: A hotel might have
an objective of filling 60% of its beds a night during October. Thus the issue of
accommodation is specific to Hotels. It answers the questions, ‘What is to be
done’.
M-Measurable: Objectives should be defined in quantitative terms as they prove
to be more effective targets for directors and staff to work towards. Eg: to
increase monthly sale by 15%.
A-Achievable: It is pointless to have objectives that are impossible to achieve
within the time period set. This demotivates the employees. So objectives should
be achievable.
R-Realistic and relevant: The objectives should be realistic when compared with
the resources of the company and should be expressed in terms relevant to the
people who have to carry them out. Eg: A target of reducing cleaning materials by
15% to a cleaner.
T-Time-specific: The objectives must have a time limit of when they should be
achieved. Without a time limit it will become impossible to assess whether the
objective has actually been met.
Hierarchy of objectives
Corporate aims
Aims refers to the very long term goals that a business hopes to achieve. The core
purpose of the business activity is expressed in its corporate aims. Aims states
what you want or your overall intention in the project. It is generally broader than
an objective.
Mission
A formal summary of the aims and values of a company. It explains the
organisation’s purpose, what it stands for and why it exists. It is a statement of the
business’s core aims, phrased in a way to motivate employees and stimulate
interest by outside groups.
Corporate objectives
They are realistic goals based upon the corporate aims. They are expressed much
clearly usually in quantitative terms and has a specific time frame within which it
has to be achieved.
Common corporate objectives
Profit maximisation: It is the main aim for most of the private firms. Profit
maximisation refers to the greatest positive difference between total revenue and
total cost. Profit is very important for businesses because it is used for rewarding
the investors. Profit is also used for business expansion in the future. Without
profits the business cannot survive.
Profit satisficing: The objective will be to achieve enough profit to keep the
owners happy but not to maximise profits. This objective is pursued by owners of
small businesses who wish to have more leisure time. The business will be
satisfied by making a certain level of profit.
Growth: One of the main objective of the owners or managers can be growth in
the size of the business. Growth is usually measured on the basis of sales
achieved. Larger firms are less likely to be taken over by other firms. Growth can
be achieved only by providing goods and services according to consumers’
demands and preferences.
Increasing market share: Market share refers to the proportion of a company’s
sales to the total sales in the market. Market share is related to business growth.
Thus increased market share indicates that the marketing mix of the business is
proving to be more successful than that of its competitors. This indicates that the
goods and services of the firm is becoming more popular among the customers
when compared to that of the competitors.
Market share = Company sales X 100
Total market sales
Survival: This is one of the key objective especially for a newly set up business.
The failure rate of new businesses are very high and hence for the first few years
survival is the important aim for the entrepreneurs. Even for the established
businesses survival becomes an important aim when the competition is very high
or the economy is going through recession.
Maximising shareholders’ value: It is an objective usually for public limited
companies. Management will be concerned about increasing the company’s share
prices and dividends paid to shareholders. Thus the interests of shareholders will
be considered as first priority. Increased shareholders value is achieved through
profit maximisation.
Corporate Social Responsibility (CSR): CSR applies to those businesses that
considers the interests of society by taking responsibility for their decisions and
activities on consumers, employees, communities and the environment. Some
business activities are very damaging to other stakeholders.
Maximising short-term sales revenue: Maximising short-term sales revenue is
also one of the corporate objective. This will benefit the managers and staff when
salaries and bonuses are dependent on the sales revenue.
Factors that determine the corporate objective of the business
Corporate culture: There are many factors that influence the nature of objectives
established for any business. Culture is about how people perform and deal with
others. If directors are very keen to achieve their aims and to defeat rival
businesses, then they will not care much about social or environmental factors.
The size and legal form of the business: Owners of small business is usually
concerned only with a satisfactory level of profit. Large firms will be concerned
with profit maximisation and rapid business growth.
The number of years the business has been operating: The newly set up
businesses will have survival as their prime objective. Once the firms are well
established the business will change its objectives to profit maximisation and
growth etc.
Management by objectives (MBO)
It is a method of coordinating and motivating all staff in an organization by
dividing its overall aims into specific targets for each department, manager and
employee.
Communicating objectives
The employees should be made aware of the business objectives so that they can
devise their own individual targets and work towards achieving them.
Communicating objectives has the following benefits:
It helps the employees and managers to achieve more as they have a greater
understanding of both individual and company goals.
Employees seeing the overall plan and understanding how their individual
goals fit into the company’s objectives.
Employees can create shared responsibilities with the others in the
company.
Managers are able to monitor the employees regularly and can make
corrections immediately.
Ethical code
It is a document detailing a company’s rules and guidelines on staff behavior that
must be followed by all the employees.
Evaluating ethical decisions:
Adopting ethical code is expensive in the short term.
Using ethical and fair trade suppliers can add to business costs.
Not taking bribes to secure business contracts can mean failing to secure
significant sales.
Accepting that it is wrong to fix prices with the competitors may lead to
lower prices and profits.
Limiting the advertisement of toys and other child related products to just
adults to reduce ‘pester power’ may lead to lost sales.
Paying fair wages to workers may increase business costs.
By acting ethically in the above situations there could be some long term benefits.
It helps in avoiding expensive court cases and fines.
It helps in avoiding bad publicity caused from being caught acting
unethically. This can also lead to lost consumer loyalty and long term
reduction in sales.
Ethical businesses attracts ethical consumers. Consumers are supporting
businesses that act ethically.
Ethical businesses can easily get government contracts.
Well qualified staff can be attracted easily to work for the ethical
businesses.
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