UNIT 1

1.3 BUSINESS OBJECTIVES

Sonia Jiménez Soto

A mission statement set out the
A vision statement sets out what
overall purpose of the company. the business wants to be in the
future: the aim

Visió
n and
missi
Inspire on
state
ment
They both are determined by owners and senior managers; however, they are
produced in consultation with employees so they are compelling statements that
people identify with.

These statements are tipically broad, nevertheless, can be useful to influence the
long-term planning of a business and help with decision making.

The mission and vision may be and help employees to identify with what the
business is (mission) and where is heading (vision).

They can be used in promoting materials so that, stakeholders, such as suppliers,

know more about the business and what it is aiming to be.

They are rather general statement, it is not easy to measure if they have been
achieved.

To turn them measurable, specific and time-related target we use objectives

(objectives=targets)

Once this objectives or targets have been set, a business has to decide how to
achieve them most efficiently. The long-term plan to achieve the objectives is the
strategy.(plan: strategies)
A strategy is a long-term plan to achieve the objective of a business
Common business objectives
An objective is a target that is measurable and has given timescale. They are SMART
 Coordinate Priorities
Decision
Monitor
Control

A good objective might be to increase profits 25% over the next four years. By
comparison a bad objective would be `to do much better´, it is not clear what actually
mean or how you can achieve it.

Business objectives set out what a business wants to achieve. This provides a focus for
all decisions.

Employees also know what they are supposed to achieve and can make suitable
decisions about the resources to use. Without them employees do not know the
priorities and do not know how success will be measured.

The setting and pursuit of the objectives of a business helps it to coordinate,

monitor and control its activities, whether it operates within the private or the
public sector.
Long
term

Short term
The communication of objectives
and their likely impact on the
workforce
They provide a sense of direction, so that employees know what they are
doing and why. Also how this fits in with the overall strategy of the
business. They give employees something to aim for and something that
can be reviewed.
MOTIVATION

However objectives may be demotivating if the person who set them does not
believe in them and sets them without the SMART characteristics. This means that
how an objective is set and what resources are allocated to it are very
important. Also if a target is forced on an employee, they may not try very hard
to achieve it because they may not think it is feasible or even possible to meet.
Business objectives and functional objectives.

A corporate objective is a target set for the business as a whole

A functional objective is a target for one of the functions of the business ( the
marketing objective)

Labour productivity measures the out-put per time period of an

employee=units/day, units/hour…
Business objectives in the private sector

Profit maximisation
Profits are measured by the difference between total
revenue and total costs in a given period.

Profits are a common measure of business success. A profit

shows that the value of the output is greater than the input :
that is the business ads value and a surplus had been
generated. This surplus may be used to finance investments or
to be paid to the owners. This ensure that managers stay
focused on profit which is what many owners and
investors want.
Profits are maximized when the difference between sales and
costs is at its greatest. This is advisable to mantain shareholders
as investors as they will receive dividends. Investing in
expansion may reduce short-term profits but put the business in
a stronger position for the long-term.
Business objectives

Survival This objective is for the business to continue to trade over a defined period of time,
rather than be forced to cease trading because poor financial performance such as
negative cash flow. Even the largest business at certain times have needed to survive.

It is an objective when:
-the start up period when the firm has little market power
and low demand
-periods of recession or intense competition where it is
more difficult to sustain demand
-times of crisis where sales decrease.
Business objectives

Growth If a firm grows it should be able to exploit its market position and
earn higher profits. Growth may bring lower unit costs through
economies of scale and great brand awareness. Larger business
may also have more assets to reduce the risks to lenders and also
reduce the interest rate in case they borrow money.
Growth can benefit shareholders in the long run by providing greater
dividends as well as offering better salaries and more job security to
employees and managers. This can be expressed in quantified
objectives (sales or market share)

Market share of a business measures its sales as a % of the total market sales.
 Business objectives

Protecting shareholders value

Shareholders are the owners of the companies. Managers are employed in a
company to maintain their trust. They have to focus on:

-The value of the shares: shareholders want their value to increase over time. This means they will
want there to be growing demand of their shares from other investors looking to own part of the
business. This will increase the share price. Demand of shares will depend on the perception of
what is going to happen in the future. Good plans for the business that leads to higher earnings
will increase the value of the company.
-the dividends paid: Shareholders will be interested in the dividends paid each year as well as the
increase in the share price. Managers will need to consider how much they recommend to shareholders
as a dividend and how much they recommend to retain for investment. Ultimately the shareholders
decide on the dividends paid out.
In some companies dividends paid out are relatively low because the focus is on investment and long-
term growth in the business and its share price. In others, there is more focus on short-term dividends .
Cash flow

Cash flow is the movement of cash into and out of a business over a time period.
It is a vital element of success as it is essential to be able to pay debts on time.
Gaps between cash going out to pay suppliers and cash coming from customers is important CASH
CYCLE

Business as pharmaceutical and construction have long cash cycles.

If business do not pay its debts as they fall due, they could have dire consequences, resulting in a
cease of treading. To avoid this business may charge less (discounts) if a customers pays in
cash, this may result in less profits and a improvement in cash flows.
Diversification
It occurs when a business offers new products or services or the
same product in new markets.

It allows it to spread its risk by selling a range of unrelated products or by trading in different
markets with the same product. So that if one product becomes obsolete or one market becomes more
competitive, then the alternative products or markets provide a secure source of revenue for the
business while it seeks new projects.

Diversification allows a business to avoid relying on one or two products and has been the principle
behind the creation of conglomerate businesses .
Business objectives in the public sector

Providing a
service to the
community

Business in the public sector are owned by the government. The main objective is provide a
service to all the country’s population. For example, if a transport system is owned by the
government, it may operate bus services to remote areas where a few people live (as it may not
be profitable due to the number of passengers).

Public sector businesses may also provide some products that otherwise may not be available
(gas, water and electricity).
Financial objectives

They are expected at least, cover their operating costs to avoid becoming a
drain on government funds.

In some cases they clan have the objective to generate a financial surplus which is
reinvested to improve the service offered by the business.
Development of relatively poor regions

This help to raise standards

of living in less affluent parts
of the nation
 Ethical
objectives

Ethical objectives are those that are based on moral principles

Promoting protecting the environment through the use of sustainable production

techniques and ensuring that suppliers receive fair and prompt payment

The more ethical a business is the more trustworthy would be.

However, there will be occasions when ethical decisions reduce profits.

Business objectives and ethical behavior

For example, using more environmental friendly inputs may be seen as the right
thing to do but may be more expensive.

Sometimes the objectives of the business can encourage unethical

behavior.

The drive to boost sales can lead a business’s employees to behave badly.

In recent years, there have been many sales scandals, usually driven by a desire to
hit high targets or to keep a job or to earn bonuses.

So it must be clear what is and what is not acceptable this is why some companies
have a code of ethics or a code of conduct. The overall values of the business
must be clear.
Corporate social responsibility (CSR)

Many businesses are increasingly thinking about the impact that their activities
have on society.

They want to reduce any harmful effects and increase the positive contribution
they make to society

Business believe that their activities can make the world a better place. They do
not see the purpose of making profits because they think more broadly about the
positive impact they do on different groups and the environment.
Business must behave legally , that is the minimum to comply with the law, but
CSR is something else, CSR accepts obligations to society over and above the legal
minimum.

Examples
CSR AND THE TRIPLE BOTTON LINE
While profit is important to business, they may also be concerned about
how this profit is made and the impact of their activities on others

In their Business Plan should be specified

their social and environmental objectives
relating to how they treat suppliers, how
they treat staff and how their activities
affect society.

A business may be willing to accept lower

profits if this helps it achieve other
objectives such as reduced pollution,
greater use of recycled resources or
improvements in the local community.
The increase in corporate social responsibility may be because there is more
information about these issues and managers can make better informed
decisions.

It may also be a response to the fact that consumers, employees and investors
are increasingly interested in the social environmental impact of business
behavior.

John Elkington, a business author and adviser, suggested business performance

should be measured by examining the three Ps and not only focusing on profits:

This is the triple bottom

line:profit , planet and
people

Business profits

Its treatment of people

And its impact on the planet

STRATEGIC AND TACTICAL OBJECTIVES
HOW OBJECTIVES MIGHT CHANGE OVER TIME

REASONS

INTERNAL: New managers who want to achieve different things.

EXTERNAL: external factors make the priorities different.

Decision making is a continuous process in which decision are being taken and
reviewed and new objectives are set as internal and external factors change.