Understanding the nature and purpose of business

• Businesses exist essentially to provide goods and services for their customers
• Customers can be in the UK, or abroad, they can be individuals, businesses or the government
• Meeting the needs of customers in terms of cost and quality of goods and services it provides is the key to being successful and surviving long term
• A good is a physical product such as a house or a designer suit
• A service is an intangible item such as insurance or decorating
• A product is a more general term which includes goods and services
• Why businesses are important?

  • create employment
  • create wealth
  • create new products
  • can enhance a countries reputation
• Individuals who have a business idea that they develop by setting up a business are known as entrepreneurs
• Mission - is an organisations aims or long-term intentions, its ultimate purpose
• Mission statement - a qualitative statement of an organisations aims that uses language intended to motivate employees and convince customers, suppliers and those outside the business of its sincerity and commitment
• Business objectives - are goals that must be achieved in order to realise the stated aims or mission of the organisation, they can be set at corporate, departmental or even individual team level
• Mission - an organisations aims or long term intentions, its ultimate purpose
• Corporate objectives - specific goals set for the whole organisation that will give a sense of organisation that will give a sense of organisation to help them achieve the businesses mission
• Functional objectives - specific goals of each of the functional areas, they are designed to ensure the business achieves its corporate objectives and therefore the overall mission, they are set to coordinate activities give a sense of direction and guide the actions of departments
• Team objectives - these are goals that are set for teams within the functional areas, these goals should help the teams work towards achieving the functional objectives set for the department
• Individual objectives - these are goals that are set for individuals within teams, these goals should help individuals work towards achieving the teams objectives
• Profit / Profit maximisation - often seen as the most important objective but in practice businesses are more likely to aim for a level of profit that satisfies the owners of the business
• If profit maximisation is the objective, different functional areas will be set objectives to acheive this e.g. the finance department may set an objective of reducing costs to help increase profits (quality could be affected)
• Growth objective - may relate to increasing market share, sales turnover or increasing the number of outlets or business areas, functional areas such as marketing might therefore be set the objectives to launch a new marketing campaign to increase sales
• Survival objective - many new or small businesses may simply set survival as an objective especially if they are in competitive markets
• Survival is also important in times of uncertainty or difficult economic trading conditions such as a recession
• Cash flow objective - a business must ensure it has sufficient cash flowing into the business in order to cover the amount that it must pay out in any period, maintaining cash flow is therefore vital for all businesses, even large businesses can be vulnerable if they fail to manage their cash flow effectively
• Diversification objective - this is where a business moves into a new market with a new product, businesses diversify in order to spread risk by reducing its dependency on one product or one market
• Market standing objective - this might relate to changing corporate image and reputation or trying to become seen in a certain way
• Meeting the needs of stakeholders - a business may set objectives of meeting the needs of other stakeholders such as employees or the local community which will enhance reputation
• Stakeholders are individuals or groups with a vested interest in the business
• Social objectives include targets that relate to matters such as providing employment for people or improving facilities for local people
• Ethical objectives are those that are based on moral principles
• Social and ethical objectives are often evident in non-profit organisations such as charities
• Often now profit making organisations will also set ethical objectives as it encourages investors and makes the company more appealing to customers
• SMART Objectives

  Specific - clearly and easily defined

  Measurable - quanitifiable, have a numerical element to see if they have been achieved

  Agreed - managers and subordinates should be involved with the setting of the targets

  Realistic - acheivable and not conflict with other objectives

  Time-bound - based on a time scale
• Business objectives are set to co-ordinate business activity and give a sense of direction and to guide the actions of the organisation as a whole
• Business objectives provide a focus for decision making and effort
• Objectives also provide a yard stick with which success and failure can be measured
• Clear objectives can provide a sense of purpose amongst the workforce and help to motivate them.
• Objectives can make it easier to coordinate actions and create team spirit
• Objectives form the basis for decisions on strategy
• Financial objectives relate to profitability or return on investment (ROI)
• Strategies are the long to medium plans that allow a business to achieve its objectives
• Strategy plans include details about what is to be done and the financial, production and personnel resources required to implement plans