ch. 5: business objectives & stakeholder objectives

• Business objective: A statement of specific target to be achieved.
• The advantages of setting business objective:

  • Having a target or an aim to work towards, as employees and managers will know what they have to do to be seen as successful and motivate people.
  • Provide a sense of direction knowing what you have to do, so able to take decisions and allocate the resources more efficiently.
  • Measure of success and judge the performance of the business.
  • Helps in budgeting, planning and decision making as able to effectively identify what is needed to help achieve their annual target.
• Different business objectives:

  • Expansion/growth
  • Profit
  • Survival
  • High market share
  • Corporate social responsibility
• Social enterprises: a business with both social objectives as well as aims to make a profit.
• Objectives of social enterprises:

  • Social: to provide jobs and support for disadvantaged groups on society such as disabled and homeless.
  • Environmental: to protect the environment.
  • Financial: to make profit to invest back into the social enterprise to expand the social work that it performs
• Stakeholder groups: Any individual or group with a direct interest in a business because they are affected by its activity.
• Internal stakeholder - Owners / shareholders:

  • They are risk takers.
  • They put capital to set up and expand a business.
  • They take a share of profit as the business succeeds, they will lose the money invested if the business failed.

  Objective:

  • Receive high return (profit/dividends) as a return for their investment.
  • Increase the value of shares.
  • Attracting more investors to increase the value of shares if the business is profitable.
• Internal stakeholder - Managers:

  • Employees of the business who manage the business, they take important decisions and if they are successful it may lead to business expansion.

  Objective:

  • If successful, they will get an increase in salary or bonus.
  • They might gain promotion.
  • As business grows larger, they will have more job security and high status.
• Internal stakeholder - Employees:

  • They give their time and effort to make a business successful and follow managers instructions.

  Objective:

  • They want to receive fair wage that reflects their contribution to business.
  • Better job security and may have profit sharing scheme for employees.
• External stakeholder - Lenders/banks:

  • They provide finance for the operation of the business.

  Objective:

  • They want to know about the profitability of the business to assess the ability of it to pay back the amount borrowed and interest rate.
  • The value of assets the business has to use as a collateral “security” against any lending.
• External stakeholder - Consumers:

  • They are the people who buy the goods and services of the business, without enough customers the business will lose.

  Objective:

  • They expect to be charged fair prices, have a wider variety of goods and services, better quality products and after sale service.
• External stakeholder - Suppliers:

  • They provide the needed supplies of raw materials and components for the business.

  Objective:

  • The ability of the business to pay on time for any goods bought on credit.
  • As business expands they will expect regularity of orders so increasing revenues for suppliers.
  • However they might have to reduce the price when business order large quantities which will reduce profit margin.
• External stakeholder - Local community:

  • Any individuals who are affected directly or indirectly by business activity and its actions.

  Objective:

  • They expect to receive benefits for community such as employment and subsidising communities and avoid the negative effect of the business activities on environment.
• External stakeholder - Government:

  • The government manages the economy and pass laws to protect workers and consumers.

  Objective:

  • Higher profit means higher tax revenues for government which is important source of finance of government spending.
  • Business provides jobs for the unemployed which will reduce the unemployment.
• Objectives and how they conflict: There is often a conflict between two or more business stakeholders as it is always possible for a business decision or activity to satisfy the differing objectives of different groups of stakeholders.
• Why objectives might change:

  • Change in economic conditions such as taxes and interest rate.
  • They have met their previous objective.
  • Change in competition as there might be a high competition entering the business so survival will become an objective.
  • Change in the profit of the business.
• The difference in the aims between private sector and public sector enterprises, public sector must be:

  • Accessible: they can be used by everyone regardless of their income and location.
  • Affordable: they must be cheaper than if the service was provided by the private sector. The service may be free at the point of sale.
  • Open to all: they must be available for everyone regardless of their income, culture and religion.