Business | Business objectives

Welcome to Business Objectives! Your Business Roadmap

Hello future Business leaders! This chapter is super important because it answers the fundamental question: "Why does a business exist, and what is it trying to achieve?"

Think of running a business like driving across a country. You need a destination (your objective) and a map (your business plan) to know if you're going the right way. Business objectives are those crucial destinations!

Don't worry if this seems tricky at first. We will break down these goals step-by-step, ensuring you understand why different businesses aim for different things.

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1. Understanding What Business Objectives Are

What is a Business Objective?

A Business Objective is a target or goal that a business sets out to achieve. They give the business direction and allow managers to measure whether they are succeeding or failing.

Objectives guide everything a business does, from deciding how much product to make, to setting the price, and hiring staff.

Key Takeaway: Objectives are the measurable goals that give the business purpose and allow it to track success.

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2. The Main Types of Business Objectives

Not every business has the same goal. A new small café will have very different priorities compared to a huge multinational company like Coca-Cola. Let's look at the main objectives businesses pursue.

A. Survival

This is often the first and most important objective for a new business, or any business facing a tough time (like an economic recession).

• What it means: Simply staying open, covering all costs, and avoiding bankruptcy.
• When it matters most: During the first year of trading, when competition is very tough, or when customer spending is low.

Analogy: If you're lost at sea, your first objective isn't to win a race; it's just to stay afloat!

B. Profit Maximisation and Satisficing

For many large companies, profit is the ultimate goal. But we need to understand two key concepts here:

Profit Maximisation

Profit is calculated as: Total Revenue (money coming in) - Total Costs (money going out).

Profit Maximisation means the business aims to achieve the largest possible difference between its revenue and its costs. Every decision—from pricing to sourcing materials—is made to achieve the highest possible profit figure.

Did You Know?

The profit earned is vital because it can be used for reinvestment (buying new equipment, research) or to provide a reward (a return) for the owners and shareholders.

Satisficing (Owner Satisfaction)

In contrast to large corporations, many small businesses or sole traders aim for Satisficing. This means they aim to make 'enough' profit to live comfortably and satisfy the owner, but they don't necessarily push for the absolute maximum.

Example: A self-employed graphic designer might choose to work fewer hours, even if it means less profit, because their main goal is work-life balance or independence, rather than maximum income.

C. Growth

Once a business is surviving and making a reasonable profit, it often wants to get bigger. Growth can make the business more secure and competitive.

Growth can be measured in several ways:

• Increasing the number of stores or locations.
• Increasing the number of employees.
• Increasing the total volume of sales (revenue).
• Developing new products.

Why aim for growth? Growing businesses are usually more secure, can negotiate better deals with suppliers (because they buy in bigger bulk), and often attract better staff.

D. Market Share

Market Share is closely linked to growth. It measures how successful a business is compared to its rivals.

What is Market Share?

It is the percentage of the total sales in a specific market that are held by one specific business.

Simple Example: Imagine 100 people buy coffee every day in your town (total market). If your café sells 20 cups, your market share is 20%. If a new objective is to reach 30%, you need to attract 10 more customers every day.

A high market share means the business is dominant, which increases its power and influence in the industry.

E. Social and Ethical Objectives

In the modern world, businesses aren't just focused on money. Many businesses now set goals related to their impact on people and the planet. These are often called Corporate Social Responsibility (CSR) objectives.

These objectives include:

• Reducing pollution or carbon emissions.
• Ensuring suppliers are paid fair wages (fair trade).
• Recycling waste products.
• Donating a percentage of profit to charity.

Why set these goals? Having strong ethical objectives can improve the business's reputation, attract customers who care about these issues, and sometimes attract high-quality employees.

Key Takeaway: Businesses pursue a range of objectives, moving from basic needs (Survival) to ambitious targets (Profit Maximisation and Market Share).

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3. Changing Objectives and Conflict

A business’s objectives are not fixed. They change over time depending on the age of the business, the economic situation, and how successful the business has been so far.

How Objectives Change Over Time (The Business Life Cycle)

1. Start-up Phase: The primary objective is Survival and getting the business known. Profit is secondary.
2. Growth Phase: Once stable, the objective shifts to Growth and increasing Market Share.
3. Maturity Phase: The main objective becomes Profit Maximisation (to reward shareholders) and maintaining a high Market Share.
4. Economic Downturn/Crisis: Objectives immediately shift back to Survival to protect the business until conditions improve.

Example: When the COVID-19 pandemic hit, airlines immediately changed their objective from 'Profit Maximisation' to 'Survival'—cutting costs aggressively just to stay in business.

Conflict Between Objectives

Sometimes, achieving one objective makes it harder to achieve another. This is called objective conflict.

Common Objective Conflicts:

1. Profit Maximisation vs. Social/Ethical Objectives:

• Conflict: Paying fair wages (ethical) increases labour costs, which reduces profit. Using cheap, polluting materials (high profit) goes against environmental goals (ethical).

2. Growth vs. Profit Maximisation:

• Conflict: To achieve rapid Growth, a business might lower prices significantly or spend huge amounts on marketing. This high spending temporarily reduces current Profit.

3. Survival vs. Owner Satisfaction:

• Conflict: If a small business is struggling to Survive, the owner might have to sacrifice their own desired Independence (e.g., working 16 hours a day instead of 8, or taking a pay cut).

Common Mistake to Avoid: Assuming a business always wants to maximise profit. Remember, Survival, Market Share, and ethical goals often take precedence, especially in the short run!

Key Takeaway: Objectives are dynamic and change based on the environment and the business's age. Managers must constantly balance conflicting goals.

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Chapter Summary

You’ve just mastered the different destinations a business can set for itself!

Remember that objectives are the targets that drive all business activity. They range from simply surviving tough times to dominating the entire market through profit and growth.

A strong understanding of objectives will help you understand why businesses make the decisions they do. Keep up the great work!