Business Activities, Objectives,
Strategies and the Business
Environment
Lecture 1
Business Studies – BUS101
1
Learning Outcomes
• What is business and its activities
• What are business aims and objectives
• Understand the types and hierarchy of business objectives
• What determines business objectives and setting SMART
objectives
• Understand the factors that determines business objectives
• Types of businesses private and public sector
• Discussion on Privatization
• Understanding Business Environment –PESTEL
2
What is a business organization?
Businesses are often referred to as organizations.
An organization is a body that is set up to meet needs.
Business organizations satisfy needs
by providing goods and services.
What is a business organization?
Business Organization can be divided into
Private and Public Sector
What is a business organization?
The Private sector
includes
all those businesses
which are set up by
individuals or
groups of
individuals.
What is a business organization?
SOLE TRADER
The simplest and
most common form
of private sector
business is sole
trader.
This type of business
is owned by just one
person.
What is a business organization?
PARTNERSHIP
Partnership has more
than one owner.
The joint owners will
share responsibility
for running the business
and also share profits.
What is a business organization?
Co -operatives
Another form of business ownership is the Cooperative,
in which a group people agree to work together for
their common benefit.
Limited to serving its special needs of its members.
Cooperatives divide all profits among their members.
Ocean Spray is an agricultural cooperative of growers of
cranberries and grapefruit and currently has more than
750 member growers.
Limited Companies
Another common
form of business
organization is the
regular
corporation.
Almost all larger
businesses use this
form.
Trends in corporate ownership
Multinational corporation:
A corporation that conducts operation and marketing
activities on an international level.
Joint venture:
A collaboration between two or more organizations on
an enterprise.
Public Sector Organizations
Owned and
controlled by
the
government
Provide Public goods
and merit goods
'Public Good' is a product that
one individual can consume
without reducing its availability
to another individual and from
which no one is excluded.
Public Sector Organizations
Merit goods are products, such as education, which consumers may
undervalue but which the government believes are ‘good’ for
consumers as they exhibit positive externalities.
For example, people underestimate the
benefit of education or vaccinations.
Examples of Merit Goods:
Health Care – people underestimate the
benefits of getting a vaccination. If people do
get a vaccination, then there will be external
benefits to the rest of society because it will
help reduce disease in the rest of society.
Museums – the educational benefit of
museums.
Education – People may undervalue benefits
of studying.
Public Sector Organizations- TYPES
Government / Publicly owned organization may take a number
of forms :-
1. Public Corporations- MNBC
2. Post Office
3. Central government department – supply important service
to implement government policy
4. Executive Agencies – responsible for the supply of service
that are previously provided by government department
Privatization –
Transfer of public sector resources to the private.
Advantages
It stops loss-making public sector enterprises from adding to
government debts;
It depoliticizes public sector, enterprises remove governmental
pressures for over-manning and the sub-optimal use of resources;
It gives new owners a strong incentive to turn around failing public
sector enterprises into successful businesses;
Privatization –
Transfer of public sector resources to the private.
Advantages
It gives new businesses access to investment capital that
government cannot provide;
It raises more money for government through taxing former public
sector enterprises;
Government can raise funds to pay off other debts fast because of
relief from financial burden of the public sector enterprises;
Privatization
Advantages
Profit incentive may deliver better outcomes, for
example, staff down-sizing to increase efficiency,
more staff motivation, and cheaper prices to be
competitive.
If floated on the stock exchange at a good price,
investors can make a lot of money through
increased business revenue, efficiency and
profitability.
Privatization
Disadvantages
Labor impact of privatization on job security and
employment. Worker layoffs, erosion of wages and
benefits, and decreased levels of union membership could
be parts of labor's setbacks for embracing privatization.
Privatized company will no longer operate in the public
interest.
If the private party is inefficient, there is every possibility
of the business winding up.
Business Environments
PESTEL -analysis of the macro-environment
Political factors.
These refer to government policy such as the degree of intervention
in the economy.
What goods and services does a government want to provide?
To what extent does it believe in subsidizing firms?
PESTEL -analysis of the macro-environment
Economic factors.
These include interest rates, taxation changes, economic
growth, inflation and exchange rates.
For example:
- higher interest rates may deter investment because it costs
more to borrow –
- a strong currency may make exporting more difficult because
it may raise the price in terms of foreign currency
PESTEL -analysis of the macro-environment
Social factors.
Changes in social trends can impact on the demand for a firm's
products and the availability and willingness of individuals to work.
In the UK, for example, the population has been ageing.
This has increased the costs for firms who are committed to pension
payments for their employees because their staff are living longer.
PESTEL -analysis of the macro-environment
Technological factors:
New technologies create new products .
Online shopping, bar coding and computer aided design are all
improvements to the way we do business as a result of better
technology.
Technology can reduce costs, improve quality and lead to
innovation.
These developments can benefit consumers as well as the
organizations providing the products.
PESTEL -analysis of the macro-environment
Environmental factors:
Environmental factors include the weather and climate change.
Changes in temperature can impact on many industries including
farming, tourism and insurance.
for example, more taxes being placed on air travel;
the success of hybrid cars and the general move towards more
environmentally friendly products and processes is affecting
demand patterns and creating business opportunities.
PESTEL -analysis of the macro-environment
Legal factors:
These are related to the legal environment in which firms operate.
Legal changes can affect a firm's costs
e.g. if new systems and procedures have to be developed
and demand
e.g. if the law affects the likelihood of customers buying the good
or using the service.
Business objectives
What is Business?
An economic system
in which goods and
services
are exchanged for one
another or money,
on the basis of their
perceived worth.
Business objectives
Every business requires some form of investment
and a sufficient number of customers to whom
its output can be sold at profit.
Business objectives
Business produces output - goods and services
Goods and services are consumed
Resources are used up
Business functions–
Administration, Managing staff ,
Marketing, Accounting,
Finance and Production .
Business Goals
Business objectives
are the goals of the
business
– what the business
wants to achieve.
Business Goals
The objectives of the business organisations will be
shaped by various stakeholders.
The stakeholders of a business are
owners or shareholders,
managers, employees,
customers, government,
suppliers and the community.
Business Goals
Stakeholders can be defined as
the people who have interest
towards the organizations and
affected by its decisions.
Hierarchy of objectives
Objectives of a business are listed at different levels.
Mission statement
A sentence describing a company's
function, markets and competitive advantages;
a short written statement of your
business goals and philosophies .
Mission statement
A mission statement defines
what an organization is,
why it exists, its reason for being.
mission statement should define
who your primary customers are,
identify the products and services you produce,
and describe the geographical location
in which you operate.
Business Goals
Hierarchy of objectives
Corporate objectives
Corporate objectives are those that
relate to the business as a whole.
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.
Hierarchy of objectives
Strategic objectives
Relate to market share, sales revenue, cash flow and
productivity.
Tactical objectives
Are short-term departmental performance targets.
These goals have to be achieved to satisfy its strategic
objectives.
Operational objectives
Are statements addressed to small groups and individuals
SMARTobjectives
Objectives can be seen as more specific and quantifiable.
Specific The objective should state exactly what is to be achieved.
Measurable An objective should be capable of measurement – so that it is
possible to determine whether (or how far) it has been
achieved
Achievable The objective should be realistic given the circumstances in
which it is set and the resources available to the business.
Relevant Objectives should be relevant to the people responsible for
achieving them
Time Bound Objectives should be set with a time-frame in mind. These
deadlines also need to be realistic
SMARTobjectives
Objectives can be seen as more specific and quantifiable.
Specific The objective should state exactly what is to be achieved.
Measurable An objective should be capable of measurement – so that it is
possible to determine whether (or how far) it has been
achieved
Achievable The objective should be realistic given the circumstances in
which it is set and the resources available to the business.
Relevant Objectives should be relevant to the people responsible for
achieving them
Time Bound Objectives should be set with a time-frame in mind. These
deadlines also need to be realistic
Business objectives
1. Survival
All businesses regardless of their size and status will
consider survival important and this can occur in three
scenarios:
Early stages of trading
When trading becomes difficult
Threat of takeover
Business objectives
2. Growth
Business people argue that firms must grow in order to
survive.
If the company is able to dominate the market they can
enjoy;
Monopoly power and raise its prices
Diversify and reduce the risk of business enterprises
Introduce new products
Exploit economies of scale
Business objectives
3. Profit
Most organizations seek to make profit unless of
course they are a non-profit making organization.
Businesses need to make a profit so that:
There is sufficient money available to keep the
business growing.
Owners are rewarded for the risks that they take.
Business objectives
Rather than to adopt the main three objectives ,
some firms will adapt other sources, these include;
Managerial objectives
Sales revenue maximisation
Image and social responsibility
What determines business objectives
The size of the firm :- Large companies may focus on growth or
market penetration.
The age of the business:-when the business is just at infant
stage, the objective is whether to achieve break-even
Whether the business is in the public or private sector :-
public sector normally will target to provide the best facilities
to the society.
External pressure- Is the external environment that affecting
the business.
For example, in the Maldives, increase in cost of fuel and diesel
may lead to changes in business operating objectives.
What determines business objectives
Internal pressure- the change of the new chairman of an
organization may bring to the change of the business objective
if the new chairman seem no to agree with the current
objectives.
Risk- business likes to engage in risk because they may perceive
the reward may be higher. Objective can be laid down to
penetrate unknown market.
Business /Organization Culture :- depending on the culture. If
the culture is toward innovation, organization will focus more
in setting the objective on innovation.
Long term objective and short term objectives.
Strategy
Once business objectives have been decided,
a business must begin to plan
how they will be achieved.
Strategy
A business strategy is the means
by which business try to achieve its objectives.
It can simply be described as the
long-term business planning.
Typically a business strategy will cover
a period of about 3-5 years (sometimes even longer).
Business strategy is essentially
the “map” of how the business can get from
where it is “today” to where is wants to be “tomorrow”.
Strategy
A business strategy is the means
by which business try to achieve its objectives.
It can simply be described as the
long-term business planning.
Typically a business strategy will cover
a period of about 3-5 years (sometimes even longer).
Business strategy is essentially
the “map” of how the business can get from
where it is “today” to where is wants to be “tomorrow”.
