Lecturer: Zhu Wenzhong

1. Topic 3 : Business Objectives Lecturer: Zhu Wenzhong

2. LEARNING GOALS • Key learning goals: This topic will discuss the six major types of business objective and explain why businesses may consider them to be important. • State the definition and importance of business objectives. • Explain the six major types of business objectives. • State in what circumstances businesses may consider survival to be an important objective • Please list at least 5 examples of managerial objectives. • Tell why a business might pursue growth as an important objective.

3. Business Objectives-Definition • 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.

4. Business Objectives-Importance • 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.

5. Business Objectives-Major Types • There are six major types of business objectives: • Survival, • Profit Maximization, • Growth, • Managerial Objectives, • Sales Revenue Maximization, • Image and Social responsibility.

6. Business Objectives-Survival • 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:

7. Business Objectives-Survival Table 3-2 Circumstances for a business to consider survival to be an important objective

8. Business Objectives-Profit Maximization • 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.

9. Business Objectives-Profit Maximization • 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.

10. Business Objectives-Objective of Growth • 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:

11. Business Objectives-Objective of Growth • Possible reasons for a business to regard growth as an objective: • To survive, no growth may mean ‘final death’. • To introduce new products in order to meet customer changing needs. • 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. • To have low costs and more profits on a larger scale (economy of scale). • To make employees, managers, and owners all feel happy and secure…

12. Business Objectives-Objective of Growth • Possible reasons for a business to regard growth as an objective: • To survive, no growth may mean ‘final death’. • To introduce new products in order to meet customer changing needs. • 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. • To have low costs and more profits on a larger scale (economy of scale). • To make employees, managers, and owners all feel happy and secure…

13. Business Objectives-Objective of Growth • 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?

14. Business Objectives-Managerial Objectives • 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:

15. Business Objectives-Managerial Objectives Table 3-4 Examples of managerial objectives

16. Business Objectives-Managerial Objectives Examples of managerial objectives

17. Business Objectives-Sales Revenue Maximization • Reasons: • 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. • 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.

18. Business Objectives-Image and Social Responsibility • 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:

19. Table 3-5 Possible reasons for a businesses to pursue image and social responsibility as its objectives

20. Business Objectives-Four Types of Business’ Social Responsibility

21. Business Objectives-Image and Social Responsibility • Question for your critical thinking: Discuss and give some examples for each of the four business’ social responsibilities in the above diagram.