Copyright © 2002 by Harcourt, Inc. All rights reserved. Topic 3 : Business Objectives Lecturer: Zhu Wenzhong

Copyright © 2002 by Harcourt, Inc. All rights reserved. Key learning goals: This topic will discuss the six major types of business objective and explain why businesses may consider them to be important. 1. State the definition and importance of business objectives. 2. Explain the six major types of business objectives. 3. State in what circumstances businesses may consider survival to be an important objective 4. Please list at least 5 examples of managerial objectives. 5. Tell why a business might pursue growth as an important objective. LEARNING GOALS

Copyright © 2002 by Harcourt, Inc. All rights reserved. Business objectives are the goals of business – what the business wants to achieve. All businesses have their own objectives. Different stakeholders or shareholders (people who have some financial interest in the business) may have different objectives in the business. For example, the owners of the business may consider ‘making profit’ to be an important objective. But employees may regard ‘job security, good working condition, and good reward’ as their important objective. Business Objectives -Definition

Copyright © 2002 by Harcourt, Inc. All rights reserved. It is of great importance for a business to have well-defined objectives. These objectives will help the business to be clear about what it wants to achieve or where it wants to go. With objectives, the performance of a business can be assessed according to a standard, that is to say, how effectively the business has achieved its objectives. Business Objectives -Importance

Copyright © 2002 by Harcourt, Inc. All rights reserved.  There are six major types of business objectives: 1. Survival, 2. Profit Maximization, 3. Growth, 4. Managerial Objectives, 5. Sales Revenue Maximization, 6. Image and Social responsibility. Business Objectives -Major Types

Copyright © 2002 by Harcourt, Inc. All rights reserved.  Objective of survival: Survival objective is essential for any business in that no survival means no today and no future.  Circumstances for a business to consider survival to be important can be seen in the following table: Business Objectives -Survival

Copyright © 2002 by Harcourt, Inc. All rights reserved. Table 3-2 Circumstances for a business to consider survival to be an important objective Business Objectives -Survival When Brief explanation 1) In the early stages of trading During such stages, businesses may face many problems because they may lack experience and resources, or they may meet with strong competition from existing companies. 2) When trading becomes difficult During such periods, a business may face falling demand for their products, bad debts, or low confidence for its future. 3) when there is danger of take-over In case of the threat of being taken over by another firm, survival may be the main objective. Otherwise, the business may be a business owned by some one else,

Copyright © 2002 by Harcourt, Inc. All rights reserved. Definition: Profit maximization means increasing profit as much as possible or producing a level of output which brings the most profit for the business. Usually, the main objective of a private sector business may be to maximize its profits. However, things may be different for a public sector business. The main objective of a public sector business may be to supply the best service in the past, although nowadays, they are offering services in a more and more ‘business like’ way. Business Objectives -Profit Maximization

Copyright © 2002 by Harcourt, Inc. All rights reserved. Balance between short term and long term profit maximization: A business may sometimes sacrifice short-term profit maximization for long-term profit maximization. Possible reasons why a business might sacrifice short-term profit maximization for long-term ones are, for example, lowering the price to build a market share and increase it when possible or operating a short term at loss to wait for the pick-up of sales in the future. Business Objectives -Profit Maximization

Copyright © 2002 by Harcourt, Inc. All rights reserved.  Definition: Growth objective may refer to the goal of a business to become larger, stronger or more competitive.  Many businesses regard growth as their main objectives. There are some reasons why businesses must choose growth as an important objective. Possible reasons are listed in the following table: Business Objectives -Objective of Growth

Copyright © 2002 by Harcourt, Inc. All rights reserved.  Possible reasons for a business to regard growth as an objective: 1. To survive, no growth may mean ‘final death’. 2. To introduce new products in order to meet customer changing needs. 3. To reduce risks of business: In fierce competition, if a business can not become strong enough, it is more likely to be eaten up by other stronger competitors. 4. To have low costs and more profits on a larger scale (economy of scale). 5. To make employees, managers, and owners all feel happy and secure… Business Objectives -Objective of Growth

Copyright © 2002 by Harcourt, Inc. All rights reserved.  Possible reasons for a business to regard growth as an objective: 1. To survive, no growth may mean ‘final death’. 2. To introduce new products in order to meet customer changing needs. 3. To reduce risks of business: In fierce competition, if a business can not become strong enough, it is more likely to be eaten up by other stronger competitors. 4. To have low costs and more profits on a larger scale (economy of scale). 5. To make employees, managers, and owners all feel happy and secure… Business Objectives -Objective of Growth

Copyright © 2002 by Harcourt, Inc. All rights reserved.  Question for your critical thinking: Why and how do you think the growth of a business may make its employees, managers and owners all feel happy and secure? Business Objectives -Objective of Growth

Copyright © 2002 by Harcourt, Inc. All rights reserved.  Definition: The managers’ own objectives in the business.  Importance: As we know, the owners of the business do not usually control the day to day running of the business. It is the management that control and run the company according to their own objectives and the owners’ strategic decisions.  Common examples of managerial objectives are seen in the following table: Business Objectives -Managerial Objectives

Copyright © 2002 by Harcourt, Inc. All rights reserved. Business Objectives -Managerial Objectives Table 3-4 Examples of managerial objectives Some common examples of managerial objectives:  Maximize their departmental budgets  Maximize number of employees under their control or in their charge  Maximize their personal benefits such as entertainment expenses or company cars  Maximize their leisure or free time  Maximize their personal salary  Delegate as much work as possible  Improve their social status or position  …

Copyright © 2002 by Harcourt, Inc. All rights reserved. Business Objectives -Managerial Objectives Examples of managerial objectives Questions for your critical thinking: 1) Why do managers need to work hard themselves ? 2) Please tell what “delegate work” means.

Copyright © 2002 by Harcourt, Inc. All rights reserved.  Reasons: 1. Sometimes, when managers and employees are paid according to their sales revenues rather than the created profit, sales revenue maximization may become the main objective of the business. 2. The business wants to enlarge the market share first and then benefits in the long run.  Shortcomings: This may be a shortcoming for a business. Profit maximization for a business should be more important than sales revenue maximization in whatever situations. Business Objectives -Sales Revenue Maximization

Copyright © 2002 by Harcourt, Inc. All rights reserved.  Social Responsibility definition: management philosophy that highlights the social and economic effects of managerial decisions. Or the management’s acceptance of the obligation to consider profit, consumer satisfaction, and societal well-being of equal value in evaluating the firm’s performance.  Image and social responsibility have become more and more important objectives of businesses. There are some reasons why businesses must consider image and social responsibility to be their objectives, which are illustrated in the following table: Business Objectives -Image and Social Responsibility

Copyright © 2002 by Harcourt, Inc. All rights reserved. Table 3-5 Possible reasons for a businesses to pursue image and social responsibility as its objectives Possible Reasons Brief Explanations 1) Government legislation Many laws have been passed to protect workers’ health and safety, reduce discrimination against disabled workers and protect the environment. 2) Competitive pressure Increasing competition has become a challenge for modern businesses. If customers think badly of a business, then the business is finished. The business’s market share will be taken over by other companies. 3) Benefits for the business Good image may mean more sales and more profit. A company can benefit a lot if it has a good relation with its suppliers. Reliable supply of raw materials is key to production. 4) Sustainable development Paying attention to image and social responsibility is key to long term development.

Copyright © 2002 by Harcourt, Inc. All rights reserved. Business Objectives -Four Types of Business’ Social Responsibility

Copyright © 2002 by Harcourt, Inc. All rights reserved.  Question for your critical thinking: Discuss and give some examples for each of the four business’ social responsibilities in the above diagram. Business Objectives -Image and Social Responsibility