Backnotes

Business Objectives

  • Refers to stated, measurable targets of how to achieve business aims or the targets that must be achieved to in order to realise the aims of the business.
  • Objectives can be seen as the more specific and quantifiable aims, designed to assist in the achievement of the goals identified in the mission statement.
  • Objectives must state what the organisation is trying to achieve, how this can be done, when it must be done and how they will know that it has succeeded

IMPORTANCE OF BUSINESS OBJECTIVES

  • They clarify to everyone what the business is working to achieve
  • They aid in decision making and choice of alternative strategies
  • They enable checks on progress and corrective action
  • They provide means by which performance can be measured
  • They motivate employees
  • They can be broken down to provide targets for each part of the organisation
  • They provide shareholders with a clear idea of the business in which they have invested
  • They facilitate the resolution of conflict between departments

OBJECTIVES SHOULD BE SMART

  • S-SPECIFIC: objectives should be more precise and specific to the business
  • M-MEASURABLE: define the objective using assessable terms; express it in terms of quantities, frequency, quality, costs, deadlines etc. It refers to the extent to which something can be evaluated against
  • A-ACHIEVABLE: setting objectives that don’t work with the given time frame are pointless as it may just demotivate the staff who were assigned to achieving the target
  • R-REALISTIC/ RELEVANT: the objective should be achievable using the available resources
  • T-TIME FRAMED: an objective should have end points and check points built into it. They must have a time limit of when the objective should be achieved

CORPORATE AIMS

  • Refers to a broad statement where a business wants to go in the future. Corporate aims states what you want or your overall intention. It is generally broader than an objective.
  • Benefits of establishing corporate aims:
    • They become the starting point for the entire set of objectives on which effective management is based. This is shown by their position at the top of the hierarchy of objectives.
    • Corporate aims can help develop a sense of purpose and direction for the whole organisation if they are clearly and unambiguously communicated to the workforce.
    • They allow an assessment to be made, at a later date, of how successful the business has been in attaining its goals.
    • Aims provide the framework within which the strategies or plans of the business can be drawn up. A business without long-term corporate aims is likely to drift from event to event without a clear plan of action for the future. This will quickly become obvious to the workforce and customers, who may respond in adverse ways.

MISSION STATEMENTS

  • 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 (or aims of the business in a motivating and appealing way)
  • Mission statement should explicitly state things related to its business, such as industry, products or services, employees, culture, customers, and the adherence to things like quality, efficiency, pricing, social responsibility
  • Purpose of the mission statement:
    • Quickly inform groups outside the business what the central aim and vision are
    • Help to guide and direct individual employee’s behaviour at work
    • To motivate employees
    • They help to establish in the eyes of other groups what the business is all about
  • Benefits of mission statements:
    • quickly inform groups outside the business what the central aim and vision are
    • can prove motivating to employees, especially where an organisation is looked upon, as a result of its mission statement, as a caring and environmentally friendly body- employees will then be associated with these positive qualities
    • often include moral statements or values to be worked towards, and these can help to guide and direct individual employee behaviour at work
    • are not meant to be detailed working objectives, but they help to establish in the eyes of other groups ‘what the business is about’.
  • Drawbacks of mission statements:
    • too vague and general, so that they end up saying little that is specific about the business or its future plans
    • based on a public relations exercise to make stakeholder groups feel good about the organisation
    • virtually impossible to really analyse or disagree with
    • often rather woolly and general, so it is common for two completely different businesses to have very similar mission statements

CORPORATE OBJECTIVES

  • Refers to a detailed plan of a step you plan to take in order to achieve a stated aim.
  • Mission statements and aims should be complemented with corporate objectives because they specify details for operational decisions, and they are rarely expressed in quantitative terms.
  • Thus, aims and mission statements should be turned into objectives that are specific to the business that can be themselves be broken down into strategic departmental targets.
  • Corporate objectives provide more details about the course of action or strategy to follow

COMMON CORPORATE OBJECTIVES

  • Profit Maximisation- It is the main aim for most of 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, as well as for business expansion in the future- to finance internal growth
    • Challenges faced by firms as they pursue this objective:
      • Maximising profit may encourage new competitors to enter into the industry and the chances for business success will be reduced
      • This objective can conflict with that of mangers who aim to maximise sales
      • Other stakeholders may give priority to other issues besides profit maximisation
  • 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.
    • Challenges faced by firms as they pursue this objective:
      • The business won’t be having money to grow in the future
      • The business may lack funds to implement social responsibility programmes
  • Growth- growth involves increasing the operation of the business expanding to other regions or countries. It is also measured by the number of employees, number of products sold etc. Growth benefits managers in terms of higher salaries. Growth helps the business to avoid takeovers. Furthermore, the business will benefit from economies of scale and it becomes more appealing to new investors
    • Challenges faced by firms as they pursue this objective:
      • Rapid growth can lead to diseconomies of scale e.g financial diseconomies; managerial diseconomies etc
      • Growth can lead to lower short term returns to shareholders since it can be achieved through lowering prices
  • 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, increasing market share indicates that the marketing mix of the business is proving to be more successful than that of its competitors. Increasing market share reflects to the firm as a brand leader (customers will be loyal to certain brands offered by the firm)
  • 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
    • Challenges faced by firms as they pursue this objective:
      • The objective conflicts with the objectives of other stakeholders
  • Corporate Social Responsibility (CSR): refers to a set of policies designed to demonstrate the commitment of a business to the well-being of society and others by taking responsibility for the impact of business decisions on all stakeholders.
    • Some businesses have objectives which are based on their beliefs of how one should treat the environment and people. 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.
    • Benefits of being socially responsible:
      • The business can be given government contracts/ tenders
      • The business can easily attract highly skilled and experienced personnel
      • Business will gain public acceptance and reduced risk of negative publicity
      • Employees committed to the same values
      • Customer loyalty
    • Challenges faced by firms as they pursue this objective:
      • It conflicts with the profit maximisation objective
      • Time is wasted on social responsibility programmes
      • The business won’t have enough money for expansion
      • Greater criticism and loss of loyalty if things go wrong

RELATIONSHIPS BETWEEN MISSION, OBJECTIVES, STRATEGY, AND TACTICS

  • Mission statements and objectives provides the basis and focus for business strategy i.e. The long-term plans of action of a business that focus on achieving its aims. Without a clear objective, a manager will be unable to make important strategic decisions.
  • The setting of clear and realistic objectives is one of the primary roles of senior management. Before strategy for future action can be established, objectives are needed. Thus, setting mission and objective gives a business a sense of purpose and direction
  • A strategy is a plan setting out how a business as a whole will achieve its overall long-term objectives. For strategies to work well in the business they need to be complemented with tactics. At tactic is a short term plan for day-to-day operations of a business with the aim of contributing towards the overall strategy.

STAGES IN THE DECISION MAKING PROCESS

  • Set objectives: it is impossible to make decisions in the future if the objectives are not clear or if they are non-existent.
  • Identify and analyse the problem: managers make decisions to solve a problem. It is imperative that you must understand the problem before finding a solution for it, otherwise, you might make a wrong decision.
  • Collect relevant information: gather data about the problem and possible solutions. It is always important to analyse all possible solutions to find which one is the best
  • Analyse/Evaluate all options: consider the advantages and disadvantages of each option or
  • possible solution
  • Make the final decision: make a strategic decision. Select the best option with more advantages and few disadvantages
  • Implement a decision: this means that the manager must see to it that the decision is carried out and is working according to plan
  • Review and evaluation of the decision: review its success against the original objective. If the decision didn’t work, then a corrective action must be done for the objectives to be achieved

HOW AND WHY OBJECTIVES MIGHT CHANGE OVER TIME

  • Change in owners’ priority: the owners shift from one object to the next as time unfolds
  • Change in market conditions: in a recession the business may aim for survival
  • Change in size of the business: owners’ objective could be growth in early stages and then profit maximisation as the business becomes well established
  • Change in management: when new management comes in, they can introduce new changes which could be new objectives
  • Change in competitor behaviour: the business can change its objectives in responses to changes made by the competitors
  • Change in legislation: a change in government laws can force a business to come up with new objectives in a new environment

FACTORS THAT DETERMINE THE CORPORATE OBJECTIVES OF A BUSINESS

  • Corporate culture- defined as the code of behaviour and attitudes that influence the decision-making style of the managers and other employees of the business. Culture is a way of doing things that is shared by all those in the organisation. Culture is about people, how they perform and deal with others, how aggressive they are in the pursuit of objectives and how adaptable they are in the face of change
  • The size and legal form of the business- owners of small businesses may be concerned only with a satisfactory level of profit – called ‘satisficing’. Larger businesses, perhaps controlled by directors rather than owners, such as most public limited companies, might be more concerned with rapid business growth in order to increase the status and power of the managers. This
    • This is often a result of a development known as the ‘divorce between ownership and control’, which nearly always exists in large companies with professional directors who do not own it. They may be more concerned about their bonuses, salaries, and fringe benefits – which often depend on business size – than on maximising returns to shareholders.
  • Public-sector or private-sector businesses- state-owned organisations tend not to have profit as a major objective. The aims of these organisations can vary greatly, but when the service they provide is not charged for, such as education and health services, then a financial target would be inappropriate. Instead, ‘quality of service’ measures are often used.
  • The number of years the business has been operating- newly formed businesses are likely to be driven by the desire to survive at all costs – the failure rate of new firms in the first year of operation is very high. Later, once well established, the business may pursue other objectives, such as growth and profit.

DIVISIONAL, DEPARTMENTAL, AND INDIVIDUAL OBJECTIVES

  • These divisional objectives must be set by senior managers to ensure:
    • coordination between all divisions – if they do not work together, the focus of the organisation will appear confused to outsiders and there will be disagreements between departments
    • consistency with corporate objectives
    • that adequate resources are provided to allow for the successful achievement of the objectives.
  • Once the divisional objectives have been established, then these can be further divided into departmental objectives and budgets and targets for individual workers. This process is called management by objectives (MBO).
    • Management by objectives- a method of coordinating and motivating all staff in an organisation by dividing its overall aim into specific targets for each department, manager, and employee

COMMUNICATING OBJECTIVES

  • Communication of corporate objectives – and translating these into individual targets is essential for the effective setting of aims and objectives
  • Benefits of communicating objectives to employees:
    • Employees and managers achieving more – through greater understanding of both individual and companywide goals.
    • Employees seeing the overall plan – and understanding how their individual goals fit into the company’s business objectives.
    • Creating shared employee responsibility – by interlinking their goals with others in the company.
    • Managers more easily staying in touch with employees’ progress – regular monitoring of employees’ work allows immediate reinforcement or training to keep performance and deadlines on track.

DIFFERENCES BETWEEN BUSINESS ETHICS AND CODE OF CONDUCT

  • Business ethics
    • Making the business gains in a proper manner
    • Avoiding discrimination on staff and stakeholder groups
    • Not linked to political parties
    • Being fair to all who have business relationships with the company
    • Protecting the environment
  • Code of Conduct- a document detailing a company’s rules and guidelines on staff behaviour that must be followed by all employees
    • Upholding the principal of honesty and fairness
    • Protecting the properties and reputation of the business
    • Conducting business in the best interest of the owners
    • Behaving appropriately at all times towards others
  • Unethical business activities
    • Buying supplies from businesses that use child labour
    • Exploiting suppliers in poor countries by demanding and paying low prices
    • Wilful selling of harmful products to the people
    • Not paying a fair wage
    • Avoiding paying tax
    • Polluting the environment
  • Benefits of acting ethically
    • The business will be offered with government contracts
    • The business may attract qualified and experienced staff
    • The business may get more customers
    • Avoiding expensive court cases on ethical related crimes
    • Lead to good publicity and increased sales
  • Challenges of acting ethically
    • Charging lower prices leads to lower profits
    • Paying fair wages in harsh economic environments may raise wage costs and this reduces the firm’s competitiveness
    • Not taking bribes may lead to lower sales
    • Disposing of waste material can be costly to the business