1.5.1 Businesses Can Have Several Objectives and the Importance of Them Can Change
Need for business objectives and their importance
Business objectives are simply aims or targets that a business sets out to achieve.
So why are they important? Perhaps the best way of explaining the importance of business objectives is to imagine how a business would perform without targets.
If there weren’t objectives, no one in the business would know what they should be working towards. This would lead to demotivation of the workforce. As there is nothing to measure performance against it is also impossible to find out how well the business is doing.
On the other hand, with targets leaders in a business can set a clear direction on where the business is going and what they want to achieve. This motivates staff and allows progress to be measured, so businesses can celebrate success and take action if targets have not been met.
Different business objectives
Survival Business start-ups have a very high failure rate, especially in the first year. So for many new businesses their objective is survival, earning enough income to cover costs and break-even. Survival may also become an objective for established businesses during a recession, or adverse market conditions. During the Covid-19 pandemic, the main focus for many hospitality and travel businesses was survival.
Growth If businesses survive their next objective will be to grow. This may mean reinvesting profits on advertising to gain new customers or new equipment to improve quality and efficiency. A good example is Netflix. For the first years after the launch of the streaming service, Netflix made large losses, as their focus was on making new content to attract users to their service, and building their customer base.
Profit is the most obvious business objective. All entrepreneurs and investors will expect to make a profit after achieving adequate growth. Facebook is a great example of a company which has shifted from growth to maximising profit.
However, a business may also have an objective beyond their own selfish interests.
Objectives of social enterprises
Social enterprises still have the objective of making a profit. However, they use the profits earned to pursue environmental or social objectives.
This idea of businesses not just focusing on profit but also the impact of business activity on other stakeholders is explored in much more detail in Unit 6.2.
A good way of remembering the objectives of social enterprises are the “3 Ps”. They earn a profit, to help people in the local community and protect the planet.
| ⭐⭐⭐Top Tip ⭐⭐⭐ Social enterprise objectives: earn a profit, to help people in the local community and or helping the planet |
1.5.2 The Role of Stakeholder Groups Involved in Business Activity
Stakeholder objectives require students to see a business situation from different points of view. You could be asked questions like this:
| Past Paper Question Example Paper 2 (a)Explain how the following four stakeholder groups will be impacted by the decision to build a new paint factory in country Z. – Employees – Government – Owners – Suppliers [8] |
Main internal and external stakeholder groups
A stakeholder is an individual or group impacted by business activity.
Internal Stakeholders are those impacted by business activity inside the business: owners, shareholders, managers and employees.
External stakeholders are not owners or employees but are affected by the activity of the business. For example, customers, government, banks, local community and suppliers.
Objectives of different stakeholder groups
Each different stakeholder group will have different objectives that may vary depending on the situation.
| ⭐⭐⭐Top Tip ⭐⭐⭐ Put yourself in the shoes of the stakeholder. If you were in their position what would you want from the business? |
Examples of different stakeholder objectives
| Stakeholder Group | Objectives (expectations from the business) |
| Owners/Shareholders | High profits so high dividends Business growth to increase the return on capital invested in the business |
| Managers/Leaders | Job security and high salaries Business growth so higher status and an increased chance of promotion |
| Employees | Job security and high pay Safe work environment and favourable working conditions Job satisfaction |
| Customers | High-quality products and effective customer service Good value for money |
| Suppliers | Payment for orders on time Regular orders from the business at a fair price |
| Banks | Payment of loans or overdrafts on time |
| Government | The business follows laws, regulations and pays taxes |
| Local Community | The business provides jobs The business does not pollute the local environment |
However, a really good way of figuring out stakeholder objectives is to put yourself in the shoes of the stakeholder. Let’s look at an example.
How would different stakeholders feel about new machinery that will replace some jobs at a factory?
As an employee, your priority is protecting your job.
As a business owner, your primary concern may not be employees job security, but how the new machinery could reduce costs and increase profits.
How these objectives might conflict with each other
So we can see how stakeholders objectives may conflict. If employees get higher pay this will involve greater costs for the business. This means that profits will be reduced, so workers’ objective of higher pay conflicts with owners’ objective of higher profits.
There is a strong link between stakeholder conflict and unit 6 external influences on business activity, in particular how business decisions can impact on the environment and society.
For example, the owners’ objectives of a polluting factory may come into conflict with the stakeholder objectives of the local community who want to have clean air to breathe. The factory may have to close, relocate or invest in new equipment to decrease air pollution. This will result in higher costs for the factory owners and means their objective of increasing profits will not be achieved.
However, it’s important to remember that even within stakeholder groups there can be conflict over objectives. There may be some members of the local community who depend on a factory for jobs and income. Some factory owners may feel the long term profitability of the factory will be improved by investing in technology to reduce air pollution, as the business’s brand image will be improved.
1.5.3 Differences in the Objectives of Private Sector and Public Sector Enterprises
The public sector is government-owned and controlled, so their objectives are generally focused on providing a service to the public. The public sector is often government-funded or subsidised, so if a train service or a hospital can’t cover its costs and makes a loss, the government will guarantee the bills are paid.
In the private sector, businesses have to make enough revenue to cover their costs, or they will go bankrupt. Therefore, businesses in the private sector will commonly have the objectives of survival, growth or profit.
