02

Business Objectives
Case Study-
What are business objectives?
Micromax
 Importance of a clear objectives

Objectives: goals or targets set by a business

Businesses need to have clear objectives for the following reasons.

1) Employees need something to work toward, that can help people motivate.
2) Without objectives, owners might allow their business to ‘drift’, resulting in
business failure.
3) Objectives help to decide where to take a business and what steps are
necessary to get there.
4) It is easier to assess the performance of a business if objectives are set.
 SMART Objectives

Specific • Stating clearly what is to be achieved

Measurable • An outcome that can be measured in numbers.

Achievable • Possible to complete by the people involved

Realistic • Able to be achieved with the resources available

Time-specific • Stating a period of time in which to achieve it.

 Types of Business Objectives
Financial Objectives Non-financial Objectives

Survival Social Objectives

Profit Personal satisfaction

Sales Challenge

Increase in market share Independence & Control

Financial security
 Survival – 1st Financial Objectives

 From time to time survival may be the most important objective.

 An objective for a new business may be to survive in the first 12 months.
 For example, when a business first starts trading it may be
vulnerable.
 The owners may lack experience and there may be a shortage of
resources.
 The survival of a business might also be threatened when trading
conditions become difficult or if a strong competitor emerges.
 Profit – 2nd Financial Objectives

 Most businesses aim to make a profit because their owners want a

financial return. (monetary return)

 Some businesses try to reach profit maximization (making as much profit as

possible in a given time period)

 Shareholders often put pressure on companies to pay out large

dividends. (share of profit paid to shareholders in a company)

 Sale – 3rd Financial Objectives

 Businesses with large volumes of sales may enjoy a number of benefits for a

wide range of stakeholders, e.g.

Promise their
employees for
Generate more secured
more wealth jobs.
Higher public
for the owners
profile
Larger market
share
Lower costs
(economies of
scale)
 Market Share – 4th Financial Objectives

 Businesses often want to build a larger market share by winning customers

from competitors.

To have a
To dominate higher profile
the market. in the market.

To be able to To make easier

charge higher to launch new
prices. products.
 Financial Security– 5 th Financial Objectives

 Some business owners do not aim for profit maximization but just aim to
make enough profit to give them financial security (profit satisficing:
making enough profit to satisfy the needs of the business owners).

 They do not want to take on the extra responsibility of expanding their

business – which is often required to make more profit.
 Some entrepreneurs run ‘lifestyle’ businesses.
 This involves running a business that generates enough profit and
financial security to provide the flexibility needed to spend more time
on their other interests or with family.
 Social Objectives– 1 st Non-financial Objectives

Government Not-for-profit
Business
Organizations organizations

• To provide public • To improve human and • Social Responsibility

services environmental well- (Profit, People &
• Link to the quality of being Planet)
services and reducing • Social and • To take into account
costs environmental mission the needs of a wider
range of stakeholders,
such as customers
 Personal Satisfaction – 2nd Non-financial Objectives

 As an owner/boss of a business, people can enjoy sense of freedom and

thus they will be happier and feel more satisfied in their work

environment.

 Such owners are likely to enjoy taking risk and seeing their idea succeed.

 Some owners have developed their hobby into a business.

 Challenge –3rd Non-financial Objectives

 Starting a business can be very challenging & to be successful in business

people need to be committed, hardworking and multi-skilled.
 Business owners need skills in organisation, financial management,
communication, decision making, negotiation, (official discussions between the
representatives of opposing groups who are trying to reach an agreement, especially in

business or politics outcome result of an action) IT and people management.

 Even if a business becomes successful, owners might set new challenges for
their business when, for example,
1) they may decide to grow by selling overseas or
2) invest in developing new products.
 Independence & Control –4th Non-financial Objectives

 Some people want to be their own boss, driven by the desire to be

independent and to take control of their own futures.

 Freedom to make all the decisions when running a business is very

appealing.

 Some people often dislike being told what to do at work.

 Large Vs Small Businesses

Small Business Large Business

(Employs fewer than 50 people) (Employs more than 250 people)

• May be content to stay small • To grow even larger

(Profit satisficing) • Try to maximize profits
• Non-financial objectives: personal
satisfaction and independence
Why might objectives change as business evolve?

 As a business develops and evolves (Change gradually) over time, its

aims and objectives are likely to change.

 Events or changes in the following can definitely affect the businesses.

Market
Technology Performance Legislation
Conditions

Internal Reasons
 Market Conditions

 Businesses operate in dynamic markets.

 This means they have to deal with regular changes.
 For example, a new entrant may appear in the market, a rival might
introduce a new product or the economy may start to decline.
 When market conditions change, it may be necessary to set new
objectives.
 For example, if trading becomes difficult as a result of changing
market conditions, a profit-seeking business may decide that survival
is more important until the market ‘settles down’
 Technology

 As the pace of technological development increases, businesses may have to

adjust their objectives.
 For example, a manufacturer that introduces more automation (use of
computers and machines instead of people) into production may decide to switch
its objective to sales growth.
 A business may be under pressure
1) To sell more in order to exploit economies of scale (financial advantages of falling
average costs of producing something in very large quantity)

2) To win a larger share of the market after introducing online selling technology
 Performance

 The performance of a business is not likely to stay constant.

 Periods of sustained (continued for long time) profitability may be interrupted by
less successful periods.
 The performance levels of businesses may have an impact on their objectives.
 For example, a business that has been growing sales for several years
might decide to focus more on profitability.
 This might be because sales growth has been achieved by lowering prices
and the owners are unhappy with the negative impact this has had on
profits.
 Legislation

 Much of the new legislation aimed at businesses is putting pressure on them

to consider the needs of a wider range of stakeholders and behave in a more
socially responsible way.
 For example, in 2013, EU regulations for the construction industry were
tightened to reduce energy use in order to help protect the environment from
carbon dioxide emissions from the generation of power.
 This meant that businesses in the industry had to construct buildings that
were more energy efficient.
 Internal Reasons

 The reasons outlined above for a business changing its objectives are mainly
owing to external factors: things beyond the control of businesses.
 However, sometimes a business might change its objectives for internal
reasons.
 For example, there may be a change in ownership or a change in the senior
management team.
 That new owners might want to maximise profits so that higher
dividends can be paid to shareholders
ANY QUESTION!