An objective is an aim or target to work towards. All business should have objectives as they help make business successful. The following are reasons why setting objectives is important for a firm:
- They act as a motivator as they give managers and workers a target to move towards
- Helps with decision making
- Can make the entire business work toward a goal
- Managers can see if the business has achieved its goals or not.
All objectives set by every business or firm must be Specific, Measurable, Agreed, Realistic and Time Bound (SMART)
Setting Business Objectives
There are many objectives businesses could set and they vary overtime during the course of their journey. These objectives include:
- Business survival: This is common for new businesses and businesses in bad economic times
- Profit: Businesses want to maximise profit. Without profit, business will struggle to stay open.
- Growth: Businesses may want to grow for various reasons. Common reasons for business growth is to obtain a higher market share, increase jobs etc.
- Selling Abroad: Large business may set objectives to expand their business into new markets or countries so that they can increase their sales and revenue.
- Return to shareholders: incorporated businesses (Private and public limited companies) are owned by shareholders. Businesses profits can be paid to shareholders as dividends and increasing share price will keep the shareholders happy so managers won’t be voted out.
- Market share: Businesses want to obtain a higher market share. The advantages of this is to make the business more well known. With a higher market share, the businesses may also be able to negotiate lower costs from suppliers (economies of scale)
- Providing a service to society – Social enterprises are privately owned businesses that focus on 1. providing a service to society such as providing jobs to disabled or homeless people or 2. Protecting the environment.
The role of stakeholder groups
A stakeholder is a person or group with a direct interest in the performance and activities of a business. Stakeholders could be Internal (within the business) and External (outside the business).
- Business Owners: These are people who invested and set up the business. Objective = Increased revenue which guarantees profit so they make money from the business.
- Workers – Employees of the business who earn their living through business performance. Objective = Payment for their work, job promotion (increased salary), job security.
- Consumers: Customers who buy goods and services from the business. Objective = Good products from business, reliable service and maintenance from the company.
- Government: Responsible for the economy of the country, laws to protect customers and employees. Objective = Successful business means more jobs (less unemployment), Tax paid by the business and the business’ contribution to the country’s output.
- Community: Interested in how the business affects the local community, e,g, employment, environment. Objective = Jobs for people, environmentally friendly business, safe products for the customers.
- Trade Union: These groups represent the employees in discussions with businesses and government over the pay and working conditions. Objective = They expect objectives that support staff, their working conditions and wages.
- Bank: Lend money for the business to startup. Objective = Wants the business to have enough money to pay them back.
- Pressure Groups: they try to influence policy in the interest of a particular cause or issue. Objective = They want objectives that aim to reduce any negative effects on the environment or work space or population.
These stakeholder objectives may conflict for example,
- Managers of a business want to build a factory in an area however the local community are against this as it may cause pollution and noise in the area.
- Owners want to use cheaper low-quality materials to lower product costs and increase profits however consumers are against this as the quality of the products they are buying will be lowered.