1.

4 Private Sector Business Objectives

• Private sector businesses usually aim for commercial success
• In order to achieve this, they commonly pursue a limited range of objectives

Common Objectives in the Private Sector

Objective Explanation
Profit maximisation • Most firms have the rational strategic objective of profit maximisation
• Profit = Total Revenue (TR) - Total Costs (TC)
• To maximise profits, firms can either increase their sales
revenue or decrease their costs
o Firms continuously analyse their costs to see if they can reduce
them so that profit can be maximised

Growth • Firms with a growth objective often focus on increasing their sales
revenue or market share

• Firms will also maximise revenue in order to increase output and

benefit from economies of scale

• A growing firm is less likely to fail

Ethics & social • An increasing number of firms are launching with ethical or socially
responsibility responsible objectives
o These typically include a focus on climate action &
addressing poverty or inequality

• They still require profit to survive, but will accept less than if they
were profit-maximising as long as they are meeting their social
objective

Survival • Challenging market conditions, difficult periods of change or crisis can

require a focus on keeping the business going

• Survival is also a common strategic objective for new business start-

ups and careful cash-flow management is likely to be at its core

• The recent pandemic required many businesses to adopt a short-term

survival objective, with many taking advantage of government support
to enable them to continue trading and recover

Protecting • A common objective for public limited companies where the value of
shareholder value shares and dividends payable to shareholders are important metrics

• Strategic objectives may seek to protect shareholder value above all

else
 • Having this objective will help to encourage new investors and satisfy
existing shareholders

Public Sector Objectives

• The public sector refers to organisations that are owned or controlled by the
government
• The main goal of organisations in the public sector is usually to provide
services such as education, healthcare or emergency services that may not be
provided by businesses
• Public sector organisations tend to be focused on service objectives, including
o The provision of reliable and efficient services at a reasonable cost
o Meeting performance targets set by the government
o Encouraging social and economic development
o Creating jobs or increasing employment levels
• Public sector organisations may also set financial objectives to provide a return to the
government to reinvest
o Although not the primary aim, having a positive financial return in the public
sector is generally welcomed by governments

Social Enterprise Objectives

• Social enterprises operate in the private sector but do not have making a profit as
their primary focus
o They seek to make a profit in order to spend the money on achieving their
social objectives

• Objectives may include:

o Social: to provide jobs and support for disadvantaged groups in society, such
as the disabled or homeless
o Environmental: to protect the environment
o Ethical: to operate the business in a responsible way
o Financial (economic): to make a profit to invest back into the social
enterprise to expand the social work that it performs

• Butterfly Books is a social enterprise that publishes children’s educational books in

the UK
o Their aim is to 'work to educate, inspire and entertain children, aiming to
change future generations by reducing gender bias in job roles'
o A recent book entitled 'My Mummy is an Engineer' challenges gender
stereotypes

1.5 The Role of Objectives in Business Decision Making

• Objectives provide a sense of direction and focus to those running and making decisions
within a business
 o Objectives act as targets

▪ Decisions that contribute to achieving these targets can be pursued, whilst

those that make little contribution can be discarded

▪ Poor decisions that fail to achieve objectives can be avoided in future and
may inform management training

o Objectives allow success criteria to be determined and outcomes to be measured

▪ Suitable strategies that have the greatest chances of success can be

implemented

▪ Inappropriate or risky strategies may be avoided

The Hierarchy of Aims, Mission & Objectives

• A business's aim is its long-term direction, which is usually broadly stated and
often aspirational

o It is usually set by senior executives

o E.g. To be the most successful independent coffee shop chain in the country

• Some businesses express their aim in a mission statement

o Mission statements usually include words or attractive phrases that appeal to

key stakeholders

o E.g. Bring the World of Coffee to Every Neighbourhood

• Business objectives are derived from the aim and mission

o Objectives state, specifically and in measurable terms, what the business wants to
achieve

o E.g. Increase sales of coffee by 25% in 2024

▪ Corporate objectives are whole-business targets

▪ Functional objectives are derived from corporate objectives and describe

the targets of business departments or functional areas

• The link between a business's aim, mission and objectives can be illustrated as a hierarchy
The business aim informs its mission, corporate objectives and functional objectives

SMART Objectives

• The most effective objectives are clearly stated and allow progress to be assessed

• These types of objectives can be summarised using the acronym SMART

o Specific: what exactly the business is measuring, such as the value of sales or sales
volume

o Measurable: a quantifiable success measure, such as a percentage increase

o Agreed; the objective is shared with workers and perhaps mutually agreed

o Realistic: Ambitious, but capable of being achieved in normal circumstances

o Time-bound: a date or time by which the objective should be achieved

This objective is specific, measurable and time-bound

Strategy & Tactics

• A business strategy is a long-term approach a business adopts to achieve its key objectives

o E.g. A business pursuing an objective of growth may choose to adopt a strategy

of diversification, targeting new customers with innovative products

• Tactics are the short-term actions a business takes as part of its overall strategy

o E.g. A business pursuing a strategy of diversification may choose to adopt the tactic
of conducting research in the target market before establishing sales outlets in a new
location
Diagram: Objectives, Strategy & Tactics

Businesses decide on a suitable strategy to achieve their objectives, which informs short-term
tactics

Strategy, Tactics & Budgets

• Once tactics have been determined, managers can set targets and allocate budgets to teams
and individuals

• Adhering to budgets and meeting these targets contribute to achieving the overall business
objectives

o Careful monitoring and adjustment, taking account of the external environment, is

crucial

▪ Budgets may need to be increased or more tightly controlled

▪ If targets change, their impact on the likelihood of achieving objectives will

need to be considered

▪ Further resources may be required to meet deadlines or achieve budgetary

targets

Exam Tip

This topic area contains a large number of key terms that you could be asked to define or explain in
an exam.

Whilst 'define' questions simply ask for the meaning of a key term, you need to remember that
'explain' questions will need some reference to the business scenario you are given.
How Objectives Change over time

• Businesses operate in a dynamic environment, which may require them to pivot between
different objectives

• These changes are often necessary to ensure that the business remains competitive,
profitable, and compliant with regulations

Factors Which Cause Business Objectives to Change over Time

Factor Explanation Example

• Market conditions such as • Uber and Lyft were initially focused
competition, demand, on capturing the largest share of the
and changing consumer price ride-hailing market (market share)
sensitivity can have a significant
Market conditions impact on a business's aims and
• As competition intensified, both
objectives
companies shifted their focus to
profitability, and their objectives
changed accordingly (profit
maximisation)

• A business may shift its focus from • Amazon began as an online

traditional brick-and-mortar retail bookstore, but as technology
to online retail as technology advanced, it expanded into a wide
allows for a more cost-effective range of retail categories such as
Technology way to reach customers electronics, clothing and groceries

• Their objective changed

from increasing market
share to market development

• If a business is not meeting • In 2018 Ford announced that it was

its sales goals in one area, it may shifting its focus away from
change its objectives to try producing passenger cars and
an improve its financial focusing more on SUVs and trucks
performance
Performance
• The move was driven by the
• In some cases, this may company's poor financial
involve retrenchment (moving out performance and the new objectives
of existing markets) were aimed at improving sales and
profitability

• A company may need to shift its • With the passage of the Affordable
Legislation focus to comply with new Care Act in the USA in
regulations or capitalise on new 2014, healthcare providers had to
opportunities created by changes adjust their aims and objectives to
 in legislation comply with new regulations and
take advantage of new opportunities
created by the law

• Over time, attitudes • Until the 1950s, tobacco companies'

towards social issues and what is marketing objectives
considered to be right and included promoting health-giving
wrong develop, forcing a business effects of smoking and increasing
Ethics & social to change its objectives sales to young people
change
• By 2023, British American Tobacco
(BAT) had changed its sales objective
'To have 50 million consumers of our
non-combustible products by 2030'

• Factors such as changes • In 2014, Microsoft appointed Satya

in management or the company Nadella as the company's CEO
culture can also influence a
o He shifted the
business's aims and objectives
Internal reasons company's focus from
software to cloud
• Innovation or advances in services and the company's
processes might mean that more objectives changed
ambitious objectives may be set accordingly

Communicating the Business Objectives

• Communicating the business objectives effectively, helps to ensure that employees are all
working towards the same purposes

o A range of other stakeholders benefit from this too

• Businesses share objectives with key stakeholders in a range of ways

• Public limited companies publish an annual report that shows a company's operations and
financial performance in the preceding 12 months and details the objectives it expects to
achieve over the next twelve months

• Shareholders and potential investors can use this information to determine the likely return
on investment they will receive

• Businesses often share their mission statement in marketing materials such as brochures or
via their websites

o Customers, employees and the local community are often interested in

understanding the broad aim of a business in which they have an interest

• Objectives are also commonly shared with employees in business meetings and, particularly,
during the appraisal process
 o Individual targets can be set for workers that set out the contribution they will make
to achieving objectives

o Performance of staff can be measured and rewarded

o Understanding their role in meeting objectives can be a powerful intrinsic motivator

Ethics & Objectives

• Many businesses consider the ethical impact of their decisions and are increasingly adopting
an ethical approach in their decision making, including the setting of aims and objectives

• Some have adopted an ethical code of practice that provides a framework for responsible
and fair strategic decision making and provides guidelines on staff behaviour
Questions

1. Explain one purpose of a mission statement. (3)

2. Define the term ‘SMART objectives’. (2)
3. Analyse one way in which a company’s marketing strategy depends on the company’s
objectives? (5)

Data response