Welcome to Business Objectives!
Ever wondered why some businesses seem happy just to keep their doors open, while others want to take over the world? Or why some shops focus on being "green" while others focus on being the cheapest? The answer lies in their business objectives.
Think of an objective as a GPS destination for a business. Without one, the entrepreneur is just driving around aimlessly. In this chapter, we’ll explore the different destinations businesses aim for and why they might change their route along the way. Don’t worry if this seems like a lot to remember—we’ll break it down into simple, bite-sized pieces!
1. Survival: The "Just Keep Swimming" Phase
For many new businesses, the primary objective is simply to survive. This means reaching a point where the business can pay all its bills and keep trading.
When is this most important?
- During the first year of trading (the "start-up" phase).
- During a difficult economic time, like a recession.
- When a new, powerful competitor opens up next door.
Example: A local independent coffee shop might focus purely on survival during its first six months, aiming just to cover the rent and the cost of the beans.
2. Profit Maximisation: The "Classic" Goal
Most private sector businesses ultimately want to make a profit. Profit maximisation means making as much profit as possible over a certain period of time.
The Formula:
\( \text{Profit} = \text{Total Revenue} - \text{Total Costs} \)
Why aim for this?
- To provide a reward for the entrepreneur's risk.
- To provide funds that can be reinvested to help the business grow.
- To make the business more attractive to investors or banks.
Quick Review:
Remember, profit is not the same as cash. Profit is what's left over after all costs are subtracted from sales, but cash is the actual money in the bank account right now!
3. Sales Maximisation and Market Share
Sometimes, a business isn't worried about making the biggest profit right now. Instead, they want to be the biggest player in the game.
Sales Maximisation: This involves trying to sell as many units as possible. A business might lower its prices significantly just to get people through the door.
Market Share: This is the percentage of the total market that the business owns. It is calculated as:
\( \text{Market Share} = \left( \frac{\text{Business Sales}}{\text{Total Market Sales}} \right) \times 100 \)
Memory Aid: The "Pizza Analogy"
If the whole industry is one big pizza, Market Share is how many slices your business gets to eat. The bigger your slice, the more power you have over the other people at the table!
4. Cost Efficiency
In competitive markets where you can't really change the price (like selling petrol or milk), the best way to stay ahead is to be cost efficient. This means keeping costs as low as possible without ruining the quality.
How do they do it?
- Finding cheaper suppliers.
- Reducing waste in the factory.
- Using technology to do things faster.
5. Employee Welfare and Customer Satisfaction
These are "softer" objectives, but they are incredibly important for long-term success.
Employee Welfare: Looking after staff. Happy staff are usually more productive and less likely to quit. This includes things like fair pay, good working conditions, and training.
Customer Satisfaction: Making sure the customer is happy. A satisfied customer will come back (loyalty) and tell their friends about you (free advertising!).
Example: A high-end hotel might prioritise customer satisfaction over profit in the short term by giving a guest a free room upgrade to fix a minor issue.
6. Social Objectives
Some businesses are set up to do good for society or the environment. This is often linked to social entrepreneurship.
Social objectives might include:
- Reducing carbon emissions (Environment).
- Providing jobs for people in the local community (Social).
- Ensuring all products are ethically sourced (Ethics).
Did you know?
Many businesses now follow a "Triple Bottom Line" approach, meaning they measure success based on Profit, People, and Planet.
Summary of "Other" Objectives
Use this mnemonic to remember the list of objectives beyond just profit and survival:
S.M.C.E.C.S (pronounced like "Smacks")
- Sales maximisation
- Market share
- Cost efficiency
- Employee welfare
- Customer satisfaction
- Social objectives
Common Mistakes to Avoid
1. Thinking objectives never change: In reality, a business might start with survival, then move to market share, and eventually focus on profit maximisation once they are established.
2. Confusing "Sales" with "Profit": Selling 1,000,000 items (Sales) is great, but if it costs you more to make them than you sold them for, you have made a loss, not a profit!
3. Thinking Social Objectives mean "Non-profit": Even a business with strong social objectives usually needs to make some profit to stay alive and continue doing good.
Key Takeaway Box
Objectives are the targets a business sets to achieve its aims. While survival and profit are the most common, entrepreneurs also focus on growth (market share), efficiency, and looking after their people and the planet.