A2 1 Business Studies — Business Objectives

Mission Statements

Definition

A mission statement is a description of the key objectives of a business.

Purpose of a Mission Statement

• Set out the purpose of the business
• Document the main aims of the business
• Motivate employees within the business
• Publicise in qualitative terms, the aspirations of the management of the business

Usefulness of Mission Statements

Advantages

• Can motivate the staff within the business
• It can be used to attract publicity for the business in a positive manner
• Enables the management team to prepare long term plans for the business
• Allows the management team to communicate to relevant stakeholders the goals of the business

Disadvantages

• Staff may not be motivated to read the mission statement and choose instead to focus on their own individual area within the business and let management take responsibility for all important decision.
• Negative publicity if the business fails to achieve the goals it sets for itself in its mission statement.

Example Question and Answer (June 2015)
1) Explain two benefits to Reachit Ltd of having a mission statement. [4]
Reachit Ltd's mission statement is "Striving to reach new heights in everything we do". A mission statement is a description of the key objectives of Reachit Ltd. A benefit to Reachit Ltd having a mission statement is that it can motivate Reachit Ltd's staff because they will want to achieve the goals set out by the mission statement. Another benefit of having a mission statement is that it communicates the goals of Reachit Ltd to the relevant stakeholders, such as shareholders and customers.
MARK SCHEME ANSWER:
The company mission statement is a clear reminder, throughout the factory, of what is expected from employees. The language used in the Reachit Ltd mission statement should motivate them to give their best. The mission statement is prominently displayed for the benefit of shareholders. The mission statement should also signal to customers about the high standards within Reachit Ltd and therefore help to increase sales (improve communications).

Business Objectives

Definition

A business objective is a goal that a business is seeking to achieve.

Survival — To ensure that a business continues to operate for the foreseeable future. During a difficult trading climate due to either a recession or increased competition, a business will aim to break even in the short term to ensure its survival. It will set long term objectives to return to profitability otherwise it will be difficult to develop the business without the necessary funds. It could also be difficult to attract investment or take out loans.

• A start-up in its early stages of trading will have survival as one of its business objectives.
• Existing businesses will have survival as a business objective when trading is difficult, as mentioned above.
• A takeover by another business could also be the only way to ensure survival.

Sometimes survival may be the only option available to a business because maybe no one will want to buy their business and if they stop trading altogether the owners could lose their capital investment.

Profit Maximisation — This means operating the business at a level where it achieves its maximum profit. Most businesses don’t achieve profit maximisation due to pressure from stakeholders, regulators etc … they aim for a satisfactory level of profit instead. To achieve profit maximisation a business may have to sacrifice other objectives, such as concern for the environment, social responsibility and employee welfare.

Growth — The most common business objective, usually considered by existing businesses. Growth can be measured by, increased revenues, increased sales quantities or increased market share. Growth will secure the future prospects of the business and minimise the chances of failure. However, to grow a business usually has to reinvest its profits which means the shareholders wont get as high of a dividend.

Social Responsibility — Social responsibility refers to the practices of a company or organisation. A company with strong levels of social responsibility will be an asset to the community where it is based. Social responsibility requires strong ethics and morals. Being socially responsible may mean that the business objective of profit maximisation is not achieved if the means used to achieve profit maximisation are not socially responsible.

Employee Welfare — This means paying employees good wages/salaries, having safe and comfortable working conditions, good training and development and good pensions. However, employee welfare can be costly and employees can receive training and then use this to apply for jobs with competitors.

Corporate Image — A good corporate image can generate interest from potential customers and also keep existing ones. Bad publicity can make customers decide to go to competitors because they won’t want to be associated with a business with a bad reputation.

Concern for the Environment — Some customers will only shop with businesses who take environmental issues into account and minimise their effect on the environment. This can be used as a competitive advantage. Some businesses use this as a way to save money, rather than having genuine concern for the environment.

Factors determining business objectives

Owners

• Small Business — The owner will have a lot of personal control over decisions taken in order to support the primary objective of making a profit.
• Large Business — The board of directors will consider a variety of issues in relation to the primary profit objective.

Stakeholder Power — Different stakeholders will have different objectives for the business which means the most powerful stakeholders will affect the decisions.

Shareholders — Motivated by profits and will be the most dominant group of stakeholders.

Size

• Small businesses will have different objectives to large businesses. Small businesses will be concerned with making a good profit or breaking even to ensure they survive.
• Large businesses will be concerned with increasing their market share/revenues and growing the business in the long term.

Pressure Groups — These can yield significant power and influence a particular course of action upon a business due to the negative publicity the business would receive if it didn’t do what the pressure group wanted.

Timescale — Long term objectives are likely to be much different from short term objectives. Survival and market share are short term and profitability and growth would be longer term.

Internal Pressure —Changes in personnel will affect the objectives of the business. A managing director with a background in marketing will cause the business to adopt marking-based objectives. Compared to a managing director with an accounting background who might decide that costs need to be reduced to improve profitability.

External Pressure — Changes in government legislation can force a business to change its objectives. Having to facilitate disabled customers due to new legislation will mean the business can’t achieve profit maximisation because of the investments it will need to make. But it could be good for its public relations.

Risk — The attitude toward risk adopted by the businesses management team will influence the decision making process. Businesses who gamble against huge odds are risk takers. An example of a risk is entering a new market where the demand for your product is uncertain, hoping entering the new market will increase revenues.

• Risk Avoiding — Some businesses feel that in order to survive, they must minimise the risks they take. They may feel that serving the needs of their existing customers is a safer option than entering new markets.

Culture — This refers to the ‘way things are done’ in a business, the behaviour of people within a business entity will have a huge effect on decision making. A business culture can be ‘people centred’ or ‘competition oriented’. People centred means focusing on the needs of staff and customers as a priority. Competition oriented means focusing on meeting profit or market share objectives first.

Market Share — The proportion of customers or sales that a business has in relation to the total number of customers or sales that exist in the overall market. A business should build its market share in the short term to survive and focus on maintaining growth in the long term.

2) Analyse two possible objectives that the employees of Reachit Ltd might have. [6]
One possible objectives employees of Reachit Ltd might have is job security. This is because Reachit Ltd, like many businesses relying on the construction industry, has struggled to survive and prevent job losses. This means that the most important objective to each employee of Reachit Ltd will be keeping their job in the uncertain times.
Another objective of employees of Reachit Ltd might be good career progression. This means that employees of Reachit Ltd who are ambitious will be able to progress up the ranks and reach their potential. For example, an employee progressing from physically manufacturing the ladders to becoming a supervisor. This means that since employees of Reachit will have achieved their own personal objectives, they should be more productive and motivated in their work.

Short and Long Term Objectives

Short Term Objectives — These are usually defined as objectives to be achieved within one year. These objectives are usually stated in “Operating Plans”. Short Term Objectives should be inline to the businesses long term objectives.

Long Term Objectives — These are objectives that will take longer than one year to achieve. Long term plans are stated in “Strategic Plans”. Long Term Objectives should be achieved through short term plans, however, changes in the operating environment can impact on this.

All objectives should be SMART.

Specific — Stated Precisely

Measurable — Capable of being measured to determine when they’re acheived

Achievable — Approved and understood by key stakeholders

Realistic — Capable of being achieved

Time related — Be achieved within a specific time frame

Conflict

Conflict is the contradiction of ideas or objectives which usually means an objective cannot be achieved or might be achievable at the expense of another objective.

Examples of conflict — Business expansion

Business expansion would be supported by managers, employees and the local community. It may not be supported by shareholders since it will mean reinvesting profits in the short term which could mean a reduced dividend for shareholders. Most shareholders would accept a smaller dividend in the short term if it meant the value of the business increased.

Cost saving by reducing jobs

Reducing the workforce to save money would be supported by owners and managers of a business, but these objectives will be in direct conflict with other stakeholders, namely, employees and the local community.