Lecture notes
Business Objectives
- Institution
- CCEA
A look at the advantages and disadvantages of growth, survival and profit maximisation as business objectives.
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Business ObjectivesProfit Maximisation:
This objective can be taken to mean operating a business at that level of output
whereby a business yields the maximum available profit since total costs have been
minimised.
Very few businesses achieve profit maximisation (due to pressure from stakeholders,
industry regulators etc.) but instead aim for a satisfactory level of profit – called
satisficing.
Is a long-term goal.
Growth:
The most common objective and is mainly an objective of an existing business.
Can be measured in various ways, measurement of sales quantities, revenues, profit
levels or market share.
Achievement of growth of revenues or market share could secure the future prospects
of a business – enhance the competitive position or minimise the chance of business
failure.
Factors Determining Business Objectives:
Age: New firms = survival + established firms – more ambitious = growth + profit.
Size: Small - satisfactory level of profit or breakeven + a large firm – interested in
market share + growth.
Nature of Business: Public Sector vs. Private sector, profit vs. non-profit making.
Stakeholder power: If shareholders are dominant = profit. If they are ethical they may
put pressure on firm to make ethical decisions + goals that fit this. Pressure groups –
could influence the course of action.
State of the Economy: Recession = survival as growth is unrealistic. High interest rates
investment + growth too costly.
Market: If the market is saturated, a business may have to be content the in ST with
maintaining market share rather than growth.
Legislation: Government + planning regulation could prevent expansion.
Attitude to risk: Risk takers will gamble + diversify into new markets. Risk averse will not
take risks + will seek to have a satisfactory level of profit in existing markets. Culture of
the organisation will have an influence.
Conflict of Objectives:
Conflict can be defined as the contradiction of ideas or objectives.
Which generally means that one objective cannot be achieved, that it might be
achievable at the expensive of another related objective.
Conflict tends to arise when one or more business objectives are unclear.
It has been suggested that business objectives should be SMART.
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