Business | Business objectives and strategy

Welcome to Business Objectives and Strategy!

Hello future business leader! This chapter is incredibly important because it moves us from simply understanding what a business does, to understanding why it does it and how it plans to succeed. If objectives are the destination, strategy is the map and the vehicle used to get there.

Don’t worry if some of the concepts—like Ansoff’s Matrix—seem complicated at first. We will break them down using simple analogies and step-by-step explanations. Let’s get started!

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1. The Foundation: Mission, Aims, and Objectives

1.1 Establishing Purpose: The Hierarchy

Before a business can decide on its strategy, it needs a clear sense of purpose. Think of this as a journey: you need to know the ultimate destination before you choose the route.

The goals of a business exist in a hierarchy, moving from the very broad to the very specific:

1. Mission Statement
2. Corporate Aims
3. Corporate Objectives (or Goals)
4. Functional Objectives/Targets

What is the Mission Statement?

The Mission Statement is a brief, written summary of the core purpose of the business. It is usually long-term, vague, and inspiring. It answers the question: "Why do we exist?"

Example: Tesla’s mission is “to accelerate the world’s transition to sustainable energy.”

Aims vs. Objectives

Aims are long-term, general goals, usually derived from the mission statement (e.g., "We want to grow into new international markets").

Objectives are specific, short-to-medium-term targets that must be achieved to reach the aims (e.g., "We will open two new stores in Europe by the end of next year").

Key Takeaway: Objectives drive decisions. If managers don't know the objectives, they can't make smart, aligned choices.

1.2 Setting Effective Objectives: The SMART Framework

For objectives to be useful, they must follow the SMART framework. This is a crucial concept, especially for struggling students—memorise this acronym!

S - Specific: The objective must clearly state what is to be achieved.

M - Measurable: You must be able to quantify the success (using numbers, percentages, or money).

A - Achievable (or Agreed): The objective must be realistic given the resources and market conditions.

R - Relevant: The objective must matter to the overall aims of the business.

T - Time-bound: There must be a deadline set for achievement.

Common Mistake to Avoid: Setting a non-SMART objective like "We want to make more profit."

A SMART Objective: "We aim to increase net profit by 15% within the next financial year (T) by reducing production costs (S, A, R) and tracking monthly performance (M)."

2. Types of Business Objectives

Businesses often pursue a mix of objectives, which can sometimes conflict (e.g., maximising profit vs. being socially responsible).

2.1 Financial Objectives

These relate directly to money and wealth creation:

• Profit Maximisation: Achieving the highest possible difference between revenue and costs. This is often the primary objective for shareholders (owners).
• Revenue Maximisation: Generating the highest possible sales figure. Did you know? Sometimes firms maximise revenue over profit in the short term to gain market share or push out competitors.
• Cost Efficiency/Minimisation: Reducing expenses without sacrificing quality.
• Return on Investment (ROI): Measuring the profit generated relative to the capital invested.

2.2 Non-Financial Objectives

These focus on position, people, and ethics:

• Survival: Often the most important objective for a new business or one facing severe economic hardship. This means simply staying afloat and breaking even.
• Growth: Increasing the size of the business (e.g., measured by sales volume, number of employees, or number of branches).
• Market Share: The percentage of the total market sales held by the business. Achieving high market share often gives a business market power.
• Customer Satisfaction: Ensuring customers are happy, leading to repeat business and positive reputation.
• Corporate Social Responsibility (CSR): Operating ethically and considering the impact of business decisions on employees, the community, and the environment.

The Balancing Act: Remember, financial and non-financial objectives can often be in tension. For example, spending money on ethical sourcing (CSR) might decrease short-term profits but improve long-term reputation and sales.

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3. Strategy: Defining the Path to Success

3.1 Strategy vs. Tactics

A business needs both long-term plans (strategy) and short-term moves (tactics) to achieve its objectives.

Strategy (The Big Picture)

Strategy is the long-term plan of action designed to achieve the overall aims and objectives of the business. It involves making decisions about the major resources and direction of the company (e.g., "Our strategy is to enter the Asian market by 2025.")

Tactics (The Daily Moves)

Tactics are the short-term, specific steps or methods used to execute the strategy (e.g., "Our tactic is to offer a 10% discount this month to launch the product in Singapore.")

Analogy: When building a house, the strategy is the architect’s blueprint and the overall plan for construction. The tactics are the daily jobs: laying bricks, mixing cement, or fixing the roof.

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4. Strategic Analysis Tools

Before managers can choose a strategy, they must understand their current situation—both internally (what they are good at) and externally (what is happening in the market).

4.1 Internal and External Environment

• Internal Environment: Things the business can control, such as its resources, culture, staff skills, and financial position.
• External Environment: Things the business cannot control, such as economic changes, competitor actions, new laws, and consumer trends.

4.2 SWOT Analysis

The SWOT analysis is a foundational tool for strategic planning. It organises the internal and external factors affecting a business.

Internal Factors (The Present Situation):

• S: Strengths: What the business does well (e.g., strong brand loyalty, unique patents, highly skilled staff).
• W: Weaknesses: Internal limitations that hinder success (e.g., old machinery, high staff turnover, limited cash flow).

External Factors (Future Opportunities/Threats):

• O: Opportunities: External conditions the business can exploit (e.g., a gap in the market, a rival exiting the industry, new government grants).
• T: Threats: External challenges that could damage the business (e.g., rising interest rates, new strong competitor, change in customer tastes).

Action: By combining these four elements, a business can develop strategies. For instance, using a Strength to exploit an Opportunity (SO strategy), or developing a plan to counter a Threat that targets a Weakness (WT strategy).

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5. Strategic Choices for Growth and Competition

Once analysis is complete, managers must choose the best strategy. Two critical models guide these choices: Ansoff’s Matrix (for growth) and Porter’s Generic Strategies (for competition).

5.1 Ansoff’s Matrix: Strategies for Growth

Ansoff’s Matrix helps managers decide how to grow the business based on two dimensions: whether they use Existing or New Products, and whether they target Existing or New Markets. The higher the risk, the further away you move from the ‘Existing/Existing’ box.

We’ll use the example of a successful local bakery, "Bread Heaven."

1. Market Penetration (Existing Product, Existing Market)

Definition: Selling more of the current products to existing customers or finding new customers within the existing market.

Risk: Lowest risk.

Example (Bread Heaven): Running a "buy two loaves, get one free" offer to encourage current customers to buy more frequently.

2. Market Development (Existing Product, New Market)

Definition: Taking existing products into new geographical areas or selling them to new customer segments.

Risk: Medium risk.

Example (Bread Heaven): Starting a nationwide delivery service or selling their products wholesale to large supermarkets.

3. Product Development (New Product, Existing Market)

Definition: Developing new products to sell to the current customer base.

Risk: Medium risk.

Example (Bread Heaven): Launching a new range of expensive artisan coffees or offering gluten-free products to their existing loyal customer base.

4. Diversification (New Product, New Market)

Definition: Launching entirely new products into completely new markets.

Risk: Highest risk, as the business has little experience in either the product or the market.

Example (Bread Heaven): Opening a chain of fitness gyms (new product) in a new city (new market).

5.2 Porter’s Generic Strategies: Achieving Competitive Advantage

Harvard academic Michael Porter argued that businesses must choose one of three strategies to gain a competitive advantage (something that makes them superior to rivals) or risk getting "stuck in the middle."

1. Cost Leadership

Strategy: Achieving the lowest production costs in the industry, allowing the firm to charge the lowest prices while still making a profit.

Requirements: High efficiency, economies of scale, strict cost controls.

Example: Low-cost airlines like Ryanair or budget supermarkets often use cost leadership. They must be highly efficient at every stage.

2. Differentiation

Strategy: Offering a unique product or service that customers perceive as superior or different in a way that justifies a higher price.

Requirements: Excellent marketing, high quality, strong brand image, superior design, or unique features.

Example: Apple relies on design and brand status. Luxury car brands differentiate through performance and prestige.

3. Focus (Niche Strategy)

Strategy: Concentrating on a specific, narrow segment of the market (a niche) and either becoming the cost leader *within that niche* (Cost Focus) or the differentiator *within that niche* (Differentiation Focus).

Requirements: Deep understanding of the target customer group.

Example: A company selling highly specialised equipment for deep-sea oil drilling (Differentiation Focus) or a local fast-food chain focusing only on late-night students (Cost Focus).

Why Choose? According to Porter, firms that try to achieve cost leadership AND differentiation simultaneously often fail because the two strategies require very different company structures and cultures.

Keep reviewing these tools—they are the heart of strategic decision-making!