‘AS’

Business Studies
Chapter 4
Business Objective
 Objectives
■ understand the importance of setting objectives
■ understand the importance of these being SMART
■ appreciate the links between mission statements, corporate objectives and business
strategy
■ understand the relationship between objectives and strategies
■ assess the importance of communicating objectives to stakeholders, especially
employees
■ analyse why objectives might change over time
■ critically assess how corporate social responsibility and ethics can influence
business objectives and activities.
 The importance of Business
Objectives
An objective is an aim or target for the future. 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. They are important as :
• They clarify to everyone what the business is working to achieve, so there is a sense of direction and focus.
• 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, and provide a way of assessing “success” or “failure”
• They motivate employees as the employees know what they are aiming to achieve.
• 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 and provide potential investors have a

clear future strategy

 
 “SMART” Objectives
The most effective business objectives usually meet the following ‘SMART’ criteria:

S – Specific: Objectives should focus on what the business does and should apply directly to that business. A hotel may set an
objective of 75% bed occupancy over the winter period. This objective is specific to this business.

M – Measurable: Objectives that have a quantitative value are likely to prove to be more effective targets for directors and staff to
work towards. For instance, to increase sales in the south-east region by 15% this year.

A – Achievable: Setting objectives that are almost impossible in the time frame given will be pointless. They will demotivate staff
who have the task of trying to reach these targets. So objectives should be achievable.

R – Realistic and relevant: 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. So informing a factory cleaner about ‘increasing market share’ is less
relevant than a target of reducing usage of cleaning materials by 20%.

T – Time-specific: A time limit should be set when an objective is established – by when does the business expect to increase profits
by 5%? Without a time limit, it will be impossible to assess whether the objective has actually been met.
Hierarchy of Objectives
Ai
m
Mission
Corporate Objectives
Divisional Objectives
Departmental Objective
Individual Targets
 Corporate Aim
This is the long-term goal of the business. Corporate aims are designed to provide guidance to the whole
organisation and not just a part of it.

• Corporate aims are the starting point for the corporate objectives, and all objectives lead back to the aim of
the company.

• They help to develop a sense of purpose and direction if they are clearly communicated to the workforce.

• They allow an assessment to be made in the future of how successful the business has been in attaining its
goals.

• Aims guide the strategies or plans of the business. 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 Statement
A mission statement is a statement of the business’s core aims, phrased in a way to motivate employees and to
stimulate interest by outside groups.

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. 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.

Examples of Mission Statements

FACEBOOK: to give people the power to share and make the world more open and connected

FORD MOTOR COMPANY: ‘One team, one plan, one goal, one Ford’
Advantages 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
•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'
Disadvantages of Mission Statements

•Too vague and general, so that they end up saying little that is specific about the business or its future
plans. It can be very general and just ‘wishful thinking’

•Often 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

•It does not provide SMART objectives for use within the business

•It may need to be revised frequently if the nature of the business changes
 Communication of Mission
Statements
It is important to communicate the mission statement effectively so that the company may derive all the
possible benefits from them. There is little point in taking time to produce a mission statement if it is not
communicated to its targets.

•They often feature in the published accounts and in other communications to shareholders

•They will appear in the corporate plans of the business - the detailed report on the company's aims and
strategies for the future

•Internal company newsletters and magazines may draw their title from part of the mission statement

•Advertising slogans or posters are frequently based around the themes of the mission statement
 Common Corporate Objectives
Mission statements and corporate aims are insufficient for operational guidelines: they do not tell managers what decision to take or how to manage the
business. Corporate objectives are specific goals and targets set for the business to achieve which are derived from the corporate aim and mission statement.
They provide a clear guide for operations.

1. Profit Maximisation
Profit Maximisation is when a business is producing at a level of output where the greatest positive difference between total revenue and total costs is
achieved.
Limitations of Profit Maximisation:
•The focus on high short-term profits may encourage competitors to enter the market and jeopardise the long-term survival of the business
•Many businesses seek to maximise sales in order to secure the greatest possible market share, rather than to maximise profits.
•The issues of independence and retaining control may assume greater significance than making higher profits. Small business owners are concerned with
safeguarding leisure time.
•Most business analysts assess the performance of a business through return on capital employed rather than through total profit figures
•Profit maximisation may well be the preferred objective of the owners and shareholders, but other stakeholders will give priority to other issues. The
growing concern over job security for the workforce or the environmental concerns of local residents may force profitable business decisions to be
modified, yielding lower profit levels.
•In practice, it is very difficult to assess whether the point of profit maximisation has been reached, and constant changes to prices or outputs to attempt to
achieve it may well lead to negative customer reactions.
 Common Corporate Objectives
2. Profit Satisficing is aiming to achieve enough profit to keep the owners happy but not aiming to work flat out to
earn as much profit as possible. Objective is suggested to be common among owners of small businesses who wish to
live comfortably but do not want to work longer to earn even more profit. Once a satisfactory level of profit has been
achieved, the owners consider that other aims take priority - such as more leisure time.

3. Growth is usually measured in terms of sales or value of output.

Advantages:
Larger firms will be less likely to be taken over
Should be able to benefit from economies of scale
Managers will be motivated by the desire to see the business achieve its full potential (gaining higher salaries and
fringe benefits)
A business that does not attempt to grow will cease to be competitive and, eventually, lose their appeal to new investors
 Common Corporate Objectives
Disadvantages of Growth as an objective:
•Expansion that is too rapid can lead to cash-flow problems
•Sales of a business may grow, but it may have low profit margins
•Larger businesses can experience diseconomies of scale
•Using profits to finance growth - retained earnings - can lead to lower short-term returns to shareholders
•Growth into new business areas and activities - away from the firm's core activities - can result in a loss of focus and direction for the whole
organisation
4. Increasing Market Share
Increasing market share indicates that the marketing mix of the business is proving to be more successful than that of its competitors. It increases
power over suppliers and prices. Having a high market share also increases the risk of monopoly investigation. Benefits of being brand leader include:
•retailers will be keen to stock and promote the best-selling brand
•profit margins offered to retailers may be lower than competing brands as the shops are so keen to stock it - this leaves more profit for the producer
•effective promotional campaigns are often based on 'buy our product with confidence - it is the brand leader'
 Common Corporate Objectives
5. Survival

•Likely to be the key objective of most new business start-ups and is important during a recession.

•Once the business has become firmly established, then other longer-term objectives can be established

6. Corporate Social Responsibility (CSR)

Firms must adopt a wider perspective when setting their objectives and not just be aiming for profits or expansion. There are reasons for these trends in
business objectives:
•Consumer and other stakeholders are reacting positively to businesses that act in 'green' or socially responsible ways

•There is a much greater harmful publicity given to business activity that is considered damaging to stakeholder groups and the wider world

•Legal changes (locally, nationally and in an EU Level) have forced businesses to refrain from certain practices

•Influential pressure groups are forcing businesses to reconsider their approach to decision making

•Firms that are being ethical or environmentally conscious because they have an objective called 'public responsibility', because they want to behave in
these ways.
Common Corporate Objectives
7. Maximising Short-Term Sales Revenue

•Can benefit managers and staff when salaries and bonuses are dependant on sales revenue levels.

•If increased sales are achieved by reducing prices, the actual profits of the business might fall

8. Maximising Shareholder Value

•Applies to public limited companies and directs management action towards taking decisions that
would increase the company share price and dividends paid to shareholders

•Targets can be achieved by pursuing the goal of profit maximisation

•Shareholder-value objective puts interest of shareholders above those of other stakeholders

 Relationships between Mission,
Objectives, Strategy and Tactics
Mission and Objectives Mission statements and objectives provides the basis and focus for business strategy ie 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
Strategies and Tactics Mission statements and objectives alone cannot guarantee business success. They have to be developed into
actual courses of action known as strategies and tactics. 
Strategy: is a plan setting out how a business as a whole will achieve its overall long-term objectives. For example the business objective
of a car manufacturer could be, “To manufacture 4 million cars by 2018.” The strategies to achieve such an objective could include:
increasing efficiency, building a new factory , designing new models of cars.
For strategies to work well in the business they need to be complemented with tactics. A tactic is a short-term plan for day-to-day
operations of a business with the aim of contributing towards the overall strategy. For example, in order to achieve productivity
improvements the workforce might get prizes for the teams that make the biggest improvements to productivity.
NB Tactics refer to a short-term course of action for the day-to-day management of a business for trying to meet part of an overall
strategy
 Stages of Decision-Making
Framework
Effective decision-making requires clear objectives. Business managers cannot decide on future plans of
action – strategies – if they are uncertain of which direction, they want to take the business in. After setting
an objective, the framework below is followed to make a decision on the strategy.

1. Assess the problem or situation

2. Gather data about the problem and possible solutions

3. Consider all decision options

4. Make the strategic decision

5. Plan and implement the decision

6. Review its success against the original objectives

Without setting relevant objectives at the start of this process, effective decision-making for the future of
the business becomes impossible
 How corporate objectives might
change
There are many examples of businesses changing their corporate objectives over time. These are some of the reasons
for this:

• 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 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 output

• Larger businesses, 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 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. 
 Factors That Determine The
Corporate Objectives of a Business
Public-sector or Private-sector Businesses
• Private Sector businesses most often have the following objectives : To earn high profits, To maximise wealth of
shareholders, To fulfil needs and wants of the people
• Public Sector businesses most often do not have profit as an objective, but instead their objectives are more likely to
be : To create employment, To operate even if no profit is generated, To provide certain products such as electricity,
transport, defence etc, To provide goods and services at affordable prices
• Objectives of Non-profit organisations are usually : To provide services to members, To provide employment,
Operating for the welfare of members e.g schools, hospitals, To eliminate poverty in communities

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

• Later, once well established, the business may pursue other objectives, such as growth and profit
 Divisional, Departmental and
Individual Objectives
• Once corporate objectives have been established, they need to be broken down into specific targets for separate divisions, departments and
individuals.

• These divisional objectives must be set by senior managers to ensure:

• Coordination between all divisions

• Consistency with corporate objectives

• 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.
 Translation of objectives into targets
and budgets
• This statement simply means a process by which objectives are translated into targets and budgets. Thus corporate
objectives should be broken down into individual targets.
• Target or key performance indicators (KPIs) refers to a detailed operational objective for a specific area of a
business to be achieved by a specific date.
• Once targets have been set for individuals or groups they can be monitored and adjusted to increase the chances of
achieving overall objectives, and can be used as a motivational tool.
• Communication is very important to make the employees aware of the business objectives. Targets can also be used
in the budgeting process.
• A budget refers to a plan expressed in financial terms for targets to be achieved, financial resources to be made
available.
• Employees must be involved in the setting of targets. Unrealistic targets will, however, lead to unobtainable and
misleading budgets.
 Advantages of targets
• Employees will be motivated to work harder

• Productivity of employees and managers will improve

• Encourages team work which then reduces mistakes at the business

• Managers will always be in touch with employees and this helps employees to meet deadlines

• Help managers to identify problem areas

• An easy way to translate corporate objectives into individual and other subsidiary objectives

Disadvantages of targets

• Can be demotivation especially if they cannot be achieved or an employee fails to achieve them. There can be many reasons for failing to reach a
target.

• Can dehumanise a job. People are treated like machines rather than as humans

• Can lead to ‘blame culture’

• Difficult and expensive to monitor

•
•
•
 Communicating Objectives to
Employees
Communication of corporate objectives and translating these into individual targets is essential for the effective setting
of aims and objectives.  If employees are communicated with - and involved in the setting of individual targets - then
these benefits should result in :

•Employees and managers achieving more - through greater understanding of both individual and company-wide 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
Business Ethics
‘What is meant by business ethics,’ and ‘Should businesses behave ethically?’

Use your textbook and the Anglo American case study to answer these questions.
 Ethical Decisions
Adopting and keeping to a strict ethical code in decision-making can be expensive in the short term:

•Using ethical and Fairtrade suppliers can add to business's costs

•Not taking bribes to secure business contracts can mean failing to secure significant sales

•Limiting the advertising of toys and other child-related products to just adults to reduce 'pester power' may result in lost sales

•Accepting that it is wrong to fix prices with competitors might lead to lower prices and profits

•Paying fair wages raises wages costs and may reduce a firm's competitiveness against businesses that exploit workers

However, in the long term there could be substantial benefits from acting ethically:
•Avoiding potential expensive court cases can reduce costs of fines

•Ethical policies can lead to good publicity and increased sales

•Ethical businesses attract ethical customers and as world pressure groups grows for corporate social responsibility, this group of consumers is increasing

•Ethical businesses are more likely to be awarded government contracts

•Well-qualified staff may be attracted to work for the companies with the most ethical and socially responsible policies