Business objectives

By setting clear business objectives, managers will:

• create a sense of direction and purpose for all employees, which will increase their motivation

• provide specific targets for future business strategies to aim for, as new business strategies will lack
focus without an objective to work towards

• give a means of assessing success or failure when actual business performance is judged against
the original objectives.

Objectives of private-sector businesses

Businesses in the private sector can set various objectives, as explained below.

1. Profit maximisation

It means producing at that level of output where the greatest positive difference between total
revenue and total costs is achieved.

However, there are limitations with this business objective:

• The focus on high short-term profits may encourage competitors to enter the market.
• Many businesses seek to maximise sales to gain higher market share, rather than to maximise
profits.

• The owners of smaller businesses may be more concerned with ensuring that leisure
time,Independence and work–life balance are protected rather than just earning more money.

• Most business analysts assess the performance of a business through return on capital employed
rather than through total profit figures.

• Profit maximisation may be the preferred objective of the owners and shareholders, but other
stakeholders will prioritise other objectives. Managers’ concerns over workers’ job security or
environmental protection may force profitable business decisions to be modified, yielding lower
profit levels.

• In practice, it is very difficult to assess whether the point of profit maximisation has been reached.

Constant pricing changes to increase profit may lead to negative consumer reactions.

2. Profit satisficing

This means aiming to achieve enough profit to keep the owners satisfied. This objective is in contrast
to profit maximisation where the aim is to earn as much profit as possible. Profit satisficing is a
common aim for owners of small businesses, who wish to live comfortably but do not want to work
longer hours to earn more profit. Once a satisfactory level of profit has been achieved, some owners
will consider that other aims take priority, such as more leisure time.

3. Growth
Business growth has many potential benefits for the managers and owners. Larger firms will be less
likely

To be taken over and should be able to benefit from economies of scale. Managers will be motivated
by

Business growth if it means they could gain higher salaries and fringe benefits. A business that does
not

Attempt to grow could become uncompetitive.

Business objectives based on growth do have limitations:

• Expansion that is too rapid can lead to cash flow problems.

• Sales growth might be achieved at the expense of lower profit margins.

Larger businesses can experience diseconomies of scale.

• Using profits to finance growth can lead to lower short-term returns to shareholders.

• Growth into new business areas and activities – away from the firm’s core activities – can result in a
loss of focus and direction for the whole organisation.

4. Survival
This is likely to be the key objective of most new business start-ups. The high failure rate of new
businesses means that to survive for the first two years of trading is an important aim for
entrepreneurs.

Once the business has become firmly established, then other longer-term objectives can be
established.

5. Corporate social responsibility (CSR)

Influential pressure groups are forcing businesses to reconsider their approach to decision-making.
Also, legal changes at local, national and international level are forcing businesses to stop activities
that harm the environment or damage the social and ethical interests of external stakeholders.

Objectives of social enterprises

Social enterprises have three main aims. These are:

1 economic (financial) – to make a profit to re-invest back into the business and provide some
financial return to the owners
2 social – to provide jobs or support for local, often disadvantaged, communities

3 environmental – to protect the environment and to manage the business in an environmentally

These aims are often referred to as the triple bottom line. This means that profit is not the sole
objective of these enterprises

The most effective objectives are SMART

The most effective business objectives meet the following SMART criteria:

S – Specific: Objectives should focus on what the business does and should apply directly to that
business. A hotel business might set the objective of a 15% return on capital in each of its hotels. This
objective is specific to this business.

M – Measurable: Objectives that have a quantitative value are likely to prove to be more effective
targets for directors and staff to work towards. An example would be to increase sales in the south-
east region by 15% this year.
A – Achievable: Setting objectives that are almost impossible in the time frame given will be
pointless. They will demotivate the staff who have the task of trying to reach these targets. So,
objectives should be achievable.

R – Realistic and relevant: Objectives should be realistic when compared with the resources of the
company and should be expressed in terms that are relevant to the people who have to carry out the
objectives. So, informing hotel cleaners about increasing market share is less relevant than giving
them a target to reduce the amount of cleaning materials they use by 20%.

T – Time-limited: A time limit should be set when an objective is established. Without a time limit, it
will be impossible to assess whether the objective has actually been met. An example would be to
increase profits by 5% over the next three years.