Objectives and Business Success

Objectives and Business Success

1. A Firm and its Stakeholders may have Different Objectives

   • 1) For a business to be successful it has to meet its objectives. The business will also set itself success criteria- these are the target it will use measure whether or not it has met its objectives.
   • 2) The way that a business coordinates the activities of its various departments in order to try and achieve its objectives is called a strategy.
   • 3) Different stakeholders will have different opinions about what a business needs to do to be successful. Some of these might be in conflict with the objectives the firm sets itself.

2. Success for a Business Can Mean Different Things

   • 1) Survival is the main short-term objective of any business. Over two thirds of new businesses close within five years of starting. Unless a business survives, it can't achieve its other objectives.
   • 2) Profitabilty is measured by indicators such as Profit Margin and Return on Capital Employed. These are explained in Section 5, but basically the bigger they are the more profitable the firm is. Profitable firms are an important source of wealth creation for the economy.
   • 3) Growth can be measured in different ways - e.g. number of employees, number of products sold, or income from sales. Larger businesses tend to be more successful.
   • 4)Market Share is measured by dividing the sales of the firm's products into the total sales of the market (and multiplying by 100%). The bigger the market share, the greater the firm's ability to control the market.
   • 5) Customer Satisfaction measured how happy consumers are with the products made by the firm. The firm can measure this by carrying out customer opinion surveys, a type of market research.
   • 6) Ethical Considerations are about whether the company acts in a way that society believe is morally right (e.g. many consumers think that it is wrong to test consmetics on snimals).
   • 7)Environmental Sustainbility means minimising the impact of the firm's activities on the evironment.

3. Different Stakeholders

   • Pressure group- I think most firms are too big and powerful. They pollute the environment and treat animals badly. I know they create lots of jobs but i think we'd be better off with lower income and a healthier planet.
   • Shareholder- i want a firm to be as profitable as possible so that i can earn a large dividend when the profit gets divided up. I don't care how they do this, but i don't want the firm upsetting the shareholders too much- otherwise profitability might suffer.
   • Consumer- I want the firm to make good quality products with a low coast - but i worry that some firms are too powerful and charge too much. I am also concerned about the environment but i can't always afford environmentally friendly products.
   • Government- I want a business to create wealth and jobs for the economy- that way the voters will think I'm doing a good job and vote for me next time.

4. Business Set Themselves Success Criteria

   • Success criteria are linked to objectives. It is important that success criteria are quite specific, So that a business can measure whether it's actually been successful.
   • Set Numerical Targets For A Period, And Afterwards Compare Them To Actual Performance
     • 1) E.g. a business could set itself a target of £25m sales, and profit of £5m, after one year.
     • 2) It could then aim to increase sales by 5% and profit of 10% for each of the next five years.
     • 3) At the end of each year, the business can measure how well it has met these targets, and take action to improve its performance.
     • 4) And if it found the first target was easy to meet, it might decide to make the later targets harder- e.g. increase profits by 15% each year.
   • Conduct Impact Assessments
     • 1) It's simple to set targets for things that can be described as a number (sales and profits).
     • 2) It's more difficult for 'soft' objects such as 'behaving in an ethical way'.
     • a) A business could list some ethical activities it will do, and some unethical activities which it won't do- then it can check later whether it has kept its promises.
     • b) Or a business can conduct impact assessments- these are surveys (sometimes done by researches with no connection to the business) to find out what stakeholder think of the business's behaviour. For example it could carry out an environmental impact assessment.
   • 1) Most medium and large businesses publish an annual report describing their performance- in particular whether or not they met their fanancial objectives. The report would usually inculde details about the profit and loss account and balance sheet.

5. A Company's Objectives can Change Over Time

   • 1) New and small business are most likely to be concerned with survival.
   • 2) But as a business grows, it might focus more on the needs of its wider stakeholders.
   • 3) PLCs have to protect the interests of their shareholders- meaning they're likely to place profit as their most important pbjective. But PLCs often consider stakeholders' interests too.
   • 4) A business needs to reacts to the changing needs to its stakeholders.The power of different stakeholder groups may change overtime. For example, employees were a very powerful stakeholder group in many large UK businesses in the 1970s. Today, consumers are much more powerful and businesses have had to react to the growing importance of ethical groups and environmental concerns.