1.5 – Business Objectives and Stakeholder Objectives

Business objectives

Business objectives are the aims and targets that a business works towards to help it run successfully.  Although the setting of these objectives does not always guarantee the business success, it has its benefits.

• Setting objectives increases motivation as employees and managers now have clear targets to work towards.
• Decision making will be easier and less time consuming as there are set targets to base decisions on. i.e., decisions will be taken in order to achieve business objectives.
• Setting objectives reduces conflicts and helps unite the business towards reaching the same goal.
• Managers can compare the business’ performance to its objectives and make any changes in its activities if required.

Objectives vary with different businesses due to size, sector and many other factors. However, many business in the private sector aim to achieve the following objectives.

• Survival:  new or small firms usually have survival as a primary objective. Firms in a highly competitive market will also be more concerned with survival rather than any other objective. To achieve this, firms could decide to lower prices, which would mean forsaking other objectives such as profit maximization.
• Profit: this is the income of a business from its activities after deducting total costs.  Private sector firms usually have profit making as a primary objective. This is because profits are required for further investment into the business as well as for the payment of return to the shareholders/owners of the business.
• Growth: once a business has passed its survival stage it will aim for growth and expansion. This is usually measured by value of sales or output. Aiming for business growth can be very beneficial. A larger business can ensure greater job security and salaries for employees. The business can also benefit from higher market share and economies of scale.
• Market share: this can be defined as the proportion of total market sales achieved by one business. Increased market share can bring about many benefits to the business such as increased customer loyalty, setting up of brand image, etc.
• Service to the society: some operations in the private sectors such as social enterprises do not aim for profits and prefer to set more economical objectives. They aim to better the society by providing social, environmental and financial aid. They help those in need, the underprivileged, the unemployed, the economy and the government.

A business’ objectives do not remain the same forever. As market situations change and as the business itself develops, its objectives will change to reflect its current market and economic position. For example, a firm facing serious economic recession could change its objective from profit maximization to short term survival.

 

Stakeholders

A stakeholder is any person or group that is interested in or directly affected by the performance or activities of a business. These stakeholder groups can be external – groups that are outside the business or they can be internal – those groups that work for or own the business.

Internal stakeholders:

• Shareholder/ Owners: these are the risk takers of the business. They invest capital into the business to set up and expand it. These shareholders are liable to a share of the profits made by the business.
  Objectives:
  • Shareholders are entitled to a rate of return on the capital they have invested into the business and will therefore have profit maximization as an objective.
  • Business growth will also be an important objective as this will ensure that the value of the shares will increase.
• Workers: these are the people that are employed by the business and are directly involved in its activities.
  Objectives:
  • Contract of employment that states all the right and responsibilities to and of the employees.
  • Regular payment for the work done by the employees.
  • Workers will want to benefit from job satisfaction as well as motivation.
  • The employees will want job security– the ability to be able to work without the fear of being dismissed or made redundant.
• Managers: they are also employees but managers control the work of others. Managers are in charge of making key business decisions.
  Objectives:
  • Like regular employees, managers too will aim towards a secure job.
  • Higher salaries due to their jobs requiring more skill and effort.
  • Managers will also wish for business growth as a bigger business means that managers can control a bigger and well known business.

External Stakeholders:

• Customers: they are a very important part of every business. They purchase and consume the goods and services that the business produces/ provides. Successful businesses use market research to find out customer preferences before producing their goods.
  Objectives:
  • Price that reflects the quality of the good.
  • The products must be reliable and safe. i.e., there must not be any false advertisement of the products.
  • The products must be well designed and of a perceived quality.
• Government: the role of the government is to protect the workers and customers from the business’ activities and safeguard their interests.
  Objectives:
  • The government will want the business to grow and survive as they will bring a lot of benefits to the economy. A successful business will help increase the total output of the country, will improve employment as well as increase government revenue through payment of taxes.
  • They will expect the firms to stay within the rules and regulations set by the government.
• Banks: these banks provide financial help for the business’ operations’
  Objectives:
  • The banks will expect the business to be able to repay the amount that has been lent along with the interest on it. The bank will thus have business liquidity as its objective.
• Community: this consists of all the stakeholder groups, especially the third parties that are affected by the business’ activities.
  Objectives:
  • The business must offer jobs and employ local employees.
  • The production process of the business must in no way harm the environment.
  • Products must be socially responsible and must not pose any harmful effects from consumption.

 

Public- sector businesses

Government owned and controlled businesses do not have the same objectives as those in the private sector.

Objectives:

• Financial: although these businesses do not aim to maximize profits, they will have to meet the profit target set by the government. This is so that it can be reinvested into the business for meeting the needs of the society
• Service: the main aim of this organization is to provide a service to the community that must meet the quality target set by the government
• Social: most of these social enterprises are set up in order to aid the community. This can be by providing employment to citizens, providing good quality goods and services at an affordable rate, etc.
• They help the economy by contributing to GDP, decreasing unemployment rate and raising living standards.

This is in total contrast to private sector aims like profit, growth, survival, market share etc.

 

Conflicts of stakeholders’ objectives

As all stakeholders have their own aims they would like to achieve, it is natural that conflicts of stakeholders’ interests could occur. Therefore, if a business tries to satisfy the objectives of one stakeholder, it might mean that another stakeholders’ objectives could go unfulfilled.

For example, workers will aim towards earning higher salaries. Shareholders might not want this to happen as paying higher salaries could mean that less profit will be left over for payment of return to the shareholders.

Similarly, the business might want to grow by expanding operations to build new factories. But this might conflict with the community’s want for clean and pollution-free localities.

 

 

Notes submitted by Lintha

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