106, S.D.

S Jayasinghe Mw,
Kohuwela. Nugegoda A/S & A/L Cambridge
337/1 Negombo Road, Wattala
Business objectives

• These are what the firm wants to achieve in the future.

• Objectives are the starting point for making plans.
• Objectives have to be clearly communicated to all employees. If the employees are
not aware of the objectives they will not be able to contribute.

Corporate objectives

✓ Maximizing profits: profits are needed for rewarding investors as they have
invested money. It is the reward for risk taking.
✓ Growth: usually measured in sales. It leads to EOS. By making use of opportunities
a firm will grow and provide good benefits to all stakeholders.
✓ Increasing market share: By doing this sales will increase and a firm’s profits
will increase. The firm will dominate the market. It would become the market leader.
✓ Maximizing revenue: managers and staff will be benefited as they would get
higher salaries. The company will grow.
✓ Maximizing shareholder value: will help to increase share prices and returns
to shareholders.
✓ Focusing on core activities: the firm will focus on the key activities that have
high profit margin – adds value.
✓ Focusing on CSR

Limitations of corporate objectives

o Maximizing profits: seeking to maximize profits means firms have to compromise

on social objectives. A business must look after employees, customers, local
community and not always think of profits. Maximizing profits may not be possible
during recession.
o Growth:
▪ Rapid growth leads to diseconomies of scale.
▪ Rapid growth may cause cash flow problems.
▪ If retained profit is used to finance growth, less profit will be available to pay
dividend.
▪ Growth into new areas may lead to loss of focus- moving away from core area
of the business.
o Increasing market share:
1
Sameer Anis
CIMA Passed Finalist, Post Graduate Diploma (University of West London)
106, S.D.S Jayasinghe Mw,
Kohuwela. Nugegoda A/S & A/L Cambridge
337/1 Negombo Road, Wattala
▪ To increase market share, price will have to be reduced. This will
reduce profit margin.
▪ If market share is increased the firm will grow larger. Management may find it
difficult to control a larger organization.
▪ The firm will have to incur heavy cost of advertising to increase market share.
Eg: Nike spending millions of dollars on advertisements.

Objectives of social enterprise

Economic: make a profit to reinvest back into the business and provide some return to owners.

Social: provide jobs or support for local, often disadvantaged communities.

Environmental: to manage the business in an environmentally sustainable way.

Objectives of Public sector business

• To provide an efficient, reliable service to the public such as water or postal service
• To encourage economic and social development
• To create employment
• To meet financial targets
• To achieve high environmental standards

Characteristics of good objectives.

1. Specific: precise and clear. Eg: our objective is to make high profits – not precise

Eg 2 : our objective is to make a profit of $1 million in 1 year ending 31 Dec

2014 - Precise

2. Measurable: can be measured.

3. Attainable: should be achievable or realistic
4. Relevant: appropriate to the firm. Eg: objective of an orphanage -

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Sameer Anis
CIMA Passed Finalist, Post Graduate Diploma (University of West London)
106, S.D.S Jayasinghe Mw,
Kohuwela. Nugegoda A/S & A/L Cambridge
337/1 Negombo Road, Wattala
Our objective is to achieve maximum profits on our activities. This is not relevant
to an orphanage because it’s not a profit making organization.

5. Time bound: deadline for achieving it.

Factors that determine corporate objectives

1) Size of a business: small firms will try to achieve satisfactory level of profit whereas
larger MNC’s will wasn’t to expand into new markets.
2) Public and private sector: public sector will try to maximize consumer welfare
whereas private firms aim to maximize shareholder wealth.
3) No of years in the industry: new entrants will initially try to survive whereas
established firms may look to grow and achieve higher profits.
4) Business culture: if the culture is to pursue profits their decisions will be different to
another business with society centred culture.

Hierarchy of objectives

• Aim: these are long term goals of a business to maximize shareholder value.
• Corporate objectives: to increase profits by 10%, this can be achieved by
increasing market share in existing markets and entering new markets that are more
profitable.
• Divisional objectives: to increase sales by 10% and reduce cost by 5%. This can
be achieved by reducing prices and providing excellent customer service. Cost can be
reduced by cutting down wastage.
• Departmental objectives: to increase customer satisfaction to 98% level. This
can be done through regular feedback from customers about the quality of service and
promptly attending to customer complaints.
• Individual objectives: each sales rep to increase sales by 10% per annum. This
can be done by visiting clients more often and persuading them to buy more. Also
look out for new business contracts.

The aim can be achieved only if all the objectives including the individual targets are
achieved.

3
Sameer Anis
CIMA Passed Finalist, Post Graduate Diploma (University of West London)
106, S.D.S Jayasinghe Mw,
Kohuwela. Nugegoda A/S & A/L Cambridge
337/1 Negombo Road, Wattala
Objectives, strategies and tactics

Mission statement

❖ A statement of the business’s core aims, phrased in a way to motivate employees and to
stimulate interest by outside group. Eg: Superdry mission statement was to sell high
quality garments at affordable prices.
❖ The mission statement is the conversion of the corporate aim into words. Eg: to provide a
premium quality wine that allows wine lovers to have sensations that bring to mind the
timeless environment of northern France.
❖ The mission statement therefore informs all the department of the company on what work
has to be done; it provides a common purpose. However a firm may elect not to specify
mission statement because it wants to maintain some flexibility or because the complexity
of their operations can’t be summed up in a single statement

4
Sameer Anis
CIMA Passed Finalist, Post Graduate Diploma (University of West London)
106, S.D.S Jayasinghe Mw,
Kohuwela. Nugegoda A/S & A/L Cambridge
337/1 Negombo Road, Wattala
Advantages of mission statement.

➢ Inform all stakeholders what the company objectives are.

➢ Provides direction to employees. This will motivate them as they will have a clear
idea what they are expected to do.
➢ It is a publicity document as the good values are communicated to the customers.
➢ Full support of all stakeholders can be obtained of company achieves its mission.

Limitation of mission statement.

➢ Some mission statements are pretty vague. They don’t clearly communicate what the
company intends to do.
➢ If the promises are not kept, the credibility of the firm is affected.
➢ Some organizations are not serious about their mission. In such cases mission
statement loses its value.

Overall a company needs a mission statement because people need to know about the
company values.

Ethics

What is ethics?

Ethics simply refers to good moral principles.

Certain examples.

1) Wal-Mart exerts its bargaining power on suppliers. Since Wal-Mart is the biggest
supermarket chain in US, suppliers somehow want their products to be sold to them,
and Wal-Mart tries to take advantage by asking for very low price or even get the
products with Wal-Mart logo. This is unethical.
2) McDonalds targets children for the “kiddie’s meal” product by advertising on cartoon
network. Burgers lead to obesity within children.
3) MNC’s moving to lower wage rate countries to exploit workforce and run sweat
shops is unethical.

5
Sameer Anis
CIMA Passed Finalist, Post Graduate Diploma (University of West London)
106, S.D.S Jayasinghe Mw,
Kohuwela. Nugegoda A/S & A/L Cambridge
337/1 Negombo Road, Wattala
How ethics may influence business.

1) Many consumers (especially in developed countries) are concerned about ethics

and will not purchase unethical products. Unethical companies tend to lose
customers in the long run and this leads to fall in sales and profitability affecting
shareholder value.
2) Ethical firms attract skilled labour because they have better working conditions
and pay rate than others, this reduces the labour turnover and retains quality
employees.
3) Brand value increases in the long run for ethical companies. Eg: customers tend
to purchase ethical products, this leads to higher sales and profitability which in
turn increases brand value.
4) Ethical organizations can save themselves from unnecessary penalties. Eg: BP
faced billions of dollars in penalty due to oil spill in the Gulf of Mexico, and
Boeing faced huge penalty for favouring men over women at work.

Limitations of being ethical.

1) Ethical company’s costs are higher. Eg: an ethical company cannot pay low wages
which means the labour cost of an ethical company is higher than others.
2) Ethical companies cannot sell certain products such as alcohol, cigarettes. These
products are very profitable but not ethical.
3) Not giving bribes may result in significant loss in sales
4) Not fixing prices with competitors may lead to lower profits

Stakeholders

Definition:

a) A stakeholder is a person who is affected by a person’s activity.

b) A stakeholder is an individual or a group that has a vested interest in
organizations activity.

6
Sameer Anis
CIMA Passed Finalist, Post Graduate Diploma (University of West London)
106, S.D.S Jayasinghe Mw,
Kohuwela. Nugegoda A/S & A/L Cambridge
337/1 Negombo Road, Wattala
Stakeholders can be divided into 2 groups.

Internal (person within organization) External (person outside the

organization)

• Managers.
• Owners. - Customer.
• Employees. - Suppliers.
o Creditors
o Pressure groups.
o Banks.
o Government/ EU.
o Community.
o Shareholders.

Stakeholder objectives.

a) Shareholders-

i. Attractive dividends.
ii. Increase in share price.
iii. Increase in capital gains.

b) Employees-

i. Job security.
ii. Fair pay.
iii. Good working conditions.
iv. Social environment and a friendly culture.

7
Sameer Anis
CIMA Passed Finalist, Post Graduate Diploma (University of West London)
106, S.D.S Jayasinghe Mw,
Kohuwela. Nugegoda A/S & A/L Cambridge
337/1 Negombo Road, Wattala
c) Customers-
i. Good quality products at affordable products.
ii. Good customer care.
iii. Ethical marketing.

What is ethical marketing?

• Ethics means sound moral value.

• When advertising the company should make sure to provide the correct information to
the customers without misleading them.
• McDonalds is famous for advertising their kiddie’s meal during cartoon commercials.
Their burgers are very rich in calories and cause obesity within children. This type of
advertising can be deemed unethical.

d) Suppliers and banks.

i. Settlement of dues on time.
ii. Good relationship with customer.
e) Government and EU
i. Collection of tax revenue.
ii. To ensure firms follow govt & EU legislation.
iii. To ensure firms create jobs and do not harm the environment.
f) Local community:
i. To improve the standard of living.
ii. To obtain jobs in the firm.
iii. To make sure the firm does not harm the environment.

g) Pressure group: it is an orgn that works for a cause and win its demands using
pressure tactics.
i. Consumer lobby protects consumer interests.
ii. Environment group to protect the environment.
iii. Trade unions safeguard rights of workers.

8
Sameer Anis
CIMA Passed Finalist, Post Graduate Diploma (University of West London)
106, S.D.S Jayasinghe Mw,
Kohuwela. Nugegoda A/S & A/L Cambridge
337/1 Negombo Road, Wattala
How stakeholders can influence business organization.

1) Customers influence through demand. If they are not very happy they may stop
buying from the firm. If they stop buying the company will lose revenue, may
incur a loss.
2) Shareholders can influence by selling the shares. This will result in a fall in share
price. E.g.: Apple experienced a fall of 30% since sept 2012
3) Banks can influence by not lending money. This will create cash flow problems to
the firm.
4) Employees can influence by reducing their productivity or leaving the
organization.
5) Government can influence by introducing new taxes, increasing interest rate,
introducing new laws.
6) Trade unions can influence by organizing a strike.
7) Local community can influence by supporting or withdrawing support to a
business organization.

Conflicting objectives of stakeholders.

1) Management vs Staff.
The board of directors, their objectives is to show higher profits so that they can pay higher
dividends to the shareholder whereas the employees want higher salaries, wages and bonuses.
If the salaries are increased, the board cannot show higher profits.

2) Customer vs shareholder

Customers want high quality products and services and they want them at reasonable prices in
which case the company cannot maximise its profits but the shareholders want profit
maximization therefore customer objectives are conflicting with shareholder aims.

3) Shareholder vs community.

Shareholders are focused on maximising their profits so that they can get good dividends but
the local community want the company to spend on community welfare such as providing
donations to local charities, providing scholarships to low income people, sponsoring local

9
Sameer Anis
CIMA Passed Finalist, Post Graduate Diploma (University of West London)
106, S.D.S Jayasinghe Mw,
Kohuwela. Nugegoda A/S & A/L Cambridge
337/1 Negombo Road, Wattala
events and so on. If the company spends a lot of money on community welfare it
will not be able to maximise its profits and the shareholders will be disappointed.

Can objectives of a business change?

• When the economy is doing well the objective of a business orgn should be growth
and Maximising profits.
• If the economy goes down and there is a recession it is not realistic to have growth as
an objective because during a recession the demand falls and it is not possible for the
business to grow. During recession the objectives have to be changed. A more
realistic objective is survival.

This example proves the objectives of a business organization may not always be the
same; it may change from time to time.

Can changing objectives affect stakeholder?

• Yes, if the objective is growth shareholders are benefited as the company will expand
and they should get higher dividends. If the objective is survival the company will not
pay any dividends to shareholders. This shows changing objectives will have an
impact on the shareholders.
• If the objective is growth employees are benefitted as the company will expand and
they should get higher dividends. If the objective is survival the company will not pay
any dividends to shareholders. This shows changing objective will have an impact on
shareholders.
• When objectives change all the stakeholders are affected.

10
Sameer Anis
CIMA Passed Finalist, Post Graduate Diploma (University of West London)