Welcome to the World of Business Objectives!
Ever wondered why some businesses seem to focus only on making money, while others spend a lot of time making sure their employees are happy or the environment is protected? That is because every business has a different objective—a target or a goal they want to achieve. Think of an objective like a GPS destination; without it, the business is just driving around aimlessly!
In these notes, we will break down the different types of objectives a business might set, why they choose them, and how they help a business stay on track. Don't worry if this seems like a lot to learn—we will take it one step at a time!
1. Survival: The First Step
For many businesses, the most important goal is simply to keep the doors open. This is called survival. This is often the primary objective for start-ups (new businesses) or businesses going through a difficult time, like a recession (an economic downturn).
Why focus on survival?
• The business is new and people don't know the brand yet.
• There is a lot of competition.
• The economy is weak, and customers are spending less money.
Analogy: Imagine you are learning to swim. Before you try to win an Olympic gold medal, your first goal is just to keep your head above water!
Quick Review: Survival is usually a short-term objective. Once a business feels safe, it will move on to other goals like profit or growth.
2. Profit Maximisation
Most private sector businesses exist to make money. Profit maximisation means making the largest amount of profit possible over a period of time.
To understand this, we need a simple formula:
\( \text{Profit} = \text{Total Revenue} - \text{Total Costs} \)
How do businesses maximise profit?
1. By increasing revenue (selling more items or raising prices).
2. By decreasing costs (finding cheaper suppliers or being more efficient).
Common Mistake to Avoid: Don't confuse revenue with profit! Revenue is the total money coming in from sales, but profit is what is left after all the bills (costs) are paid.
3. Growth and Market Share
Sometimes, a business isn't worried about making a huge profit right now because it wants to get bigger. This involves two main ideas: Sales Maximisation and Market Share.
Sales Maximisation
This is when a business tries to sell as many units as possible, even if it means lowering the price and making less profit per item. They do this to get their products into as many hands as possible.
Market Share
Market share is the percentage of total sales in a market that one business has.
\( \text{Market Share} = \frac{\text{Sales of one business}}{\text{Total sales in the market}} \times 100 \)
Analogy: Imagine the whole market is a giant pizza. Market share is the size of the slice your business gets to eat. The bigger your slice, the more power you have in the "pizza shop" (the market)!
Key Takeaway: Increasing market share helps a business become a "market leader," which can make it easier to influence prices and scare away competitors.
4. Cost Efficiency
Cost efficiency means doing things as cheaply as possible without losing quality. If a business can produce a phone for \$100 while its competitor spends \$120, the first business is more cost-efficient.
Why is this important?
• It allows the business to offer lower prices to customers.
• It leads to higher profit margins on every item sold.
Memory Aid: Think of Efficiency as "Value for Money." It’s about not wasting time, materials, or effort.
5. Social and Ethical Objectives
Not all objectives are about money! Some businesses focus on Social Objectives. This means doing things that benefit society or the environment.
Examples include:
• Employee Welfare: Making sure workers are happy, safe, and paid well. Happy workers are usually more productive!
• Customer Satisfaction: Focusing on making customers so happy that they keep coming back (building loyalty).
• Environmental Goals: Reducing plastic waste or using renewable energy.
Did you know? Many modern customers prefer to buy from businesses that have "good" values. This means having a social objective can actually help a business make more profit in the long run!
6. Why Do Objectives Change?
A business’s objectives are not set in stone. They change based on the situation. This is often called a trade-off, where a business chooses one goal over another.
Factors that change objectives:
1. Size and Age: A tiny new shop focuses on survival. A massive company like Amazon focuses on market share.
2. Economic Conditions: In a "boom" (good economy), a business might aim for growth. In a "slump" (bad economy), they switch back to survival.
3. Competition: If a new rival enters the market, a business might focus on customer satisfaction to keep its current customers from leaving.
Summary Checklist: The "Big Eight" Objectives
Make sure you can explain these eight terms from your syllabus:
1. Survival (Staying in business)
2. Profit maximisation (Making the most money)
3. Sales maximisation (Selling the most items)
4. Market share (Winning the biggest "slice" of the market)
5. Cost efficiency (Saving money on production)
6. Employee welfare (Looking after the staff)
7. Customer satisfaction (Keeping the buyers happy)
8. Social objectives (Helping the community or environment)
Final Tip: When answering exam questions, always ask yourself: "Is this business new or established?" and "Is the economy doing well or badly?" This will help you decide which objective is most likely!