STRUCTURE, CONTROL & ORGANISATION £ AIMS & OBJECTIVES STRUCTURE, CONTROL & ORGANISATION £ What are the aims and objectives of a firm? How can the success of the firm be measured? The sole trader wishes primarily to maximise his or her own wealth. This can be achieved in a number of ways: Maximising profit Maximising the value of the business Maximising the personal satisfaction of the sole trader.

STRUCTURE, CONTROL & ORGANISATION £ AIMS & OBJECTIVES STRUCTURE, CONTROL & ORGANISATION £ Sole trader: Profit - Value of the business - Personal satisfaction

STRUCTURE, CONTROL & ORGANISATION £ AIMS & OBJECTIVES STRUCTURE, CONTROL & ORGANISATION £ Sole trader: Profit - Value of the business - Personal satisfaction The sole trader will usually work to maximise profit within the constraints of the amount of time that can be put into the business. Some profit will need to be retained within the business to enable new stock and assets to be purchased.

STRUCTURE, CONTROL & ORGANISATION £ AIMS & OBJECTIVES STRUCTURE, CONTROL & ORGANISATION £ Sole trader: Profit - Value of the business - Personal satisfaction The sole trader will sometimes wish to maximise the value of the business. If a future sale is anticipated, such as upon retirement, the business could be sold as a going concern or the assets of the business sold off separately. Either way, there may be reasons, especially from the point of view of taxation, for maximising the value of the business rather than the profits (although the two are usually intrinsically linked).

STRUCTURE, CONTROL & ORGANISATION £ AIMS & OBJECTIVES STRUCTURE, CONTROL & ORGANISATION £ Sole trader: Profit - Value of the business - Personal satisfaction Profit and the value of the business are straightforward to measure. Personal satisfaction is not but it can be a driving force for sole traders. Sole traders in particular are likely to pursue an aspect of the business that they find interesting, rather than one which will yield a greater financial profit.

STRUCTURE, CONTROL & ORGANISATION £ AIMS & OBJECTIVES STRUCTURE, CONTROL & ORGANISATION £ Sole trader: Where do other stakeholders stand? Lenders: will be looking for profit and value maximisation plus good cash flow Customers: are likely to want lower prices plus quality and timely supply they sometimes have great loyalty due to the personal nature of their relationship to the sole trader Suppliers: concerns will be the same as lenders’ concerns

STRUCTURE, CONTROL & ORGANISATION AIMS & OBJECTIVES STRUCTURE, CONTROL & ORGANISATION £ Individuals can own businesses which have employees. The employees’ concerns will be varied but include: Stability and good wages / salaries Job satisfaction Safety at work All of these things could be improved by profit maximisation but they require cooperation between the workers and the owner.

STRUCTURE, CONTROL & ORGANISATION AIMS & OBJECTIVES STRUCTURE, CONTROL & ORGANISATION £ Other types of organisations all have stakeholders and each will have their own aims and objectives. Some are more obvious than others. Profit: You might expect profit to be of prime importance to all stakeholders. This is usually the case but not always. Consider the workers’ co-operative. Certain co-operatives might be more interested in promoting their ethos and not making a loss rather than making a profit. Customers of any firm, in the very short-term, are only interested in price. The higher the firms profit, the more the customers might feel that they have been taken advantage of. Banks have recently had this problem.

STRUCTURE, CONTROL & ORGANISATION AIMS & OBJECTIVES STRUCTURE, CONTROL & ORGANISATION £ Other types of organisations all have stakeholders and each will have their own aims and objectives. Some are more obvious than others. Value of the business: The valuations of most shares include anticipated future dividend streams. Most stakeholders will be pleased by a greater value for the business – it is likely to imply continued existence of the firm and the product.

STRUCTURE, CONTROL & ORGANISATION AIMS & OBJECTIVES STRUCTURE, CONTROL & ORGANISATION £ The main objective of any business is to make a profit. It allows the business to continue to trade. PROFIT Profit is the excess of turnover over operating costs. Turnover is the money received for the provision of goods and services (less any taxes such as VAT and duty). Operating costs is the money spent on running the business (less any taxes such as VAT and duty). Profit allows a firm to pay employees, shareholders (dividends), lenders, suppliers and all of its taxes to the government. Making a profit encourages new investors, allows expansion and risk taking (e.g. developing new products).

STRUCTURE, CONTROL & ORGANISATION AIMS & OBJECTIVES STRUCTURE, CONTROL & ORGANISATION £ The main objective of any business is to make a profit. It allows the business to continue to trade. PROFIT Maximisation of profit – making the biggest possible profit: Can lead to greater efficiency Can give great satisfaction to owners and employees Is a driving force in the private sector (in businesses which are privately owned) However …

STRUCTURE, CONTROL & ORGANISATION AIMS & OBJECTIVES STRUCTURE, CONTROL & ORGANISATION £ The main objective of any business is to make a profit. It allows the business to continue to trade. PROFIT In the public sector (government run services such as the NHS) the provision of a good service can be considered more important than profit. If running profitably was not deemed possible, subsidies were provided. In the UK, most subsidies have now been abolished for the majority of public sector services but it is still fairly common throughout a large part of the world.

STRUCTURE, CONTROL & ORGANISATION AIMS & OBJECTIVES STRUCTURE, CONTROL & ORGANISATION £ The main objective of any business is to make a profit. It allows the business to continue to trade. PROFIT Certain traders are more interested in the satisfaction they get from the finished product or service than profit – artists for example. Even large companies might sacrifice profit for increased market share (the percentage of the market for a type of good provided by the company) or to venture into a new market. In the long run, all private sector firms must make a profit, whatever their other objectives, if they are to survive.

STRUCTURE, CONTROL & ORGANISATION £ AIMS & OBJECTIVES STRUCTURE, CONTROL & ORGANISATION £ So what other business objectives might there be? Customer satisfaction Expansion Market share Cost cutting

STRUCTURE, CONTROL & ORGANISATION £ AIMS & OBJECTIVES STRUCTURE, CONTROL & ORGANISATION £ So what other business objectives might there be? Customer satisfaction Many businesses put customer satisfaction as their main objective The businesses are market oriented which means that they want to make goods that customers want Expansion Market share Cost cutting

STRUCTURE, CONTROL & ORGANISATION £ AIMS & OBJECTIVES STRUCTURE, CONTROL & ORGANISATION £ So what other business objectives might there be? This has taken over from being product oriented where businesses want to make quality products which would last a long time and be better than those of their rivals Although businesses still want to make quality products, their main aim is to provide what the customers want, allowing for the customers’ changing needs Customer satisfaction Expansion Market share Cost cutting

STRUCTURE, CONTROL & ORGANISATION £ AIMS & OBJECTIVES STRUCTURE, CONTROL & ORGANISATION £ So what other business objectives might there be? Expansion could be measured in terms of numbers of: Employees Turnover Capital investment in business Or market capitalisation (stock market value) Customer satisfaction Expansion Market share Cost cutting

STRUCTURE, CONTROL & ORGANISATION £ AIMS & OBJECTIVES STRUCTURE, CONTROL & ORGANISATION £ So what other business objectives might there be? Note that the number of employees might rise and profitability might fall. The turnover might rise but profitability might fall. The capital invested and market capitalisation* might rise but still profits might fall. Customer satisfaction Expansion Market share Cost cutting *It is unlikely that market capitalisation will remain high for long if profits keep falling.

STRUCTURE, CONTROL & ORGANISATION £ AIMS & OBJECTIVES STRUCTURE, CONTROL & ORGANISATION £ So what other business objectives might there be? A company that is the market leader has the largest market share. It may be measured in financial terms or in volume. E.g. Volume: the weight of fruit sold by the business compared to the weight of all fruit sold in the whole market. E.g. Sales: the sales of rice compared to the sales value of all the rice sold. Customer satisfaction Expansion Market share Cost cutting

STRUCTURE, CONTROL & ORGANISATION £ AIMS & OBJECTIVES STRUCTURE, CONTROL & ORGANISATION £ So what other business objectives might there be? If a company has a good market share, that indicates a highly successful firm – it is selling a large proportion of goods rather than its rivals. It is a sign of a highly successful firm and is a good indicator. Customer satisfaction Expansion Market share Cost cutting

STRUCTURE, CONTROL & ORGANISATION AIMS & OBJECTIVES STRUCTURE, CONTROL & ORGANISATION £ Market share The Risotto Pot had a turnover of £17.5m last year when the total market turnover was £25m. What was The Risotto Pot’s market share? Solution: £17.5m x 100 / £25m = 70%

STRUCTURE, CONTROL & ORGANISATION AIMS & OBJECTIVES STRUCTURE, CONTROL & ORGANISATION £ Market share Frank’s Oils sold 2,000,000 litres of linseed oil last year. The total market was 5,000,000 litres. What was Frank’s Oils market share? Solution: 2,000,000 x 100 / 5,000,000 = 40% Market volume will consist of the market that the firm competes in. this might be national (e.g. supermarkets) or even global (e.g. cars).

STRUCTURE, CONTROL & ORGANISATION £ AIMS & OBJECTIVES STRUCTURE, CONTROL & ORGANISATION £ So what other business objectives might there be? Customer satisfaction Cost cutting is a way of increasing profit. Employees are usually a high percentage of total costs so are prime targets for cost cutting. Expansion Market share Cost cutting

STRUCTURE, CONTROL & ORGANISATION £ AIMS & OBJECTIVES STRUCTURE, CONTROL & ORGANISATION £ So what other business objectives might there be? Outsourcing is a popular way of cost cutting. This involves getting specialist outside firms to subcontract work. Moving labour intensive jobs to areas where wages are cheaper is also popular (e.g. moving manufacturing to China). Customer satisfaction Expansion Market share Cost cutting

STRUCTURE, CONTROL & ORGANISATION AIMS & OBJECTIVES STRUCTURE, CONTROL & ORGANISATION £ So what other business objectives might there be? Additionally, it is important for most firms to update or replace their product range in order to retain their market share. An objective of many firms will be to keep developing and launching new products or new models of existing products. The place of the customer is now seen to be so important that the new products may well be developed around the results of customer surveys – the businesses are trying to find out exactly what the customer wants.

STRUCTURE, CONTROL & ORGANISATION AIMS & OBJECTIVES STRUCTURE, CONTROL & ORGANISATION £ So what other business objectives might there be? Businesses are constantly making choices between possible scenarios. “Do we refit all the older shops? If we do, we cannot afford to develop the new range of cosmetics!” Forfeiting the next best thing in order to do the best thing is called the opportunity cost. The opportunity cost of the refit of the shops is not developing the new range of cosmetics.

STRUCTURE, CONTROL & ORGANISATION AIMS & OBJECTIVES STRUCTURE, CONTROL & ORGANISATION £ So what other business objectives might there be? Growth can be an important objective as it can lead to increased profits, as we shall see in the section about growth. GROWTH