Common Business Objectives (HL IB Business Management)

Strategic Objective

Explanation

Profit Maximisation

• Most firms have the rational strategic objective of profit maximisation
• Profit = Total Revenue (TR) - Total Costs (TC)
• To maximise profits, firms can either increase their sales revenue or decrease their costs
  • Firms continuously analyse their costs to see if they can reduce them so that profit can be maximised

Growth

• Some firms have the strategic objective of growth
  
• Firms with a growth objective often focus on increasing their sales revenue or market share
  
• Firms will also maximise revenue in order to increase output and benefit from economies of scale
  
• A growing firm is less likely to fail

Ethics & Social Responsibility

• An increasing number of firms are launching with ethical or socially responsible objectives
  • These typically include a focus on climate action & addressing poverty or inequality
     
• They still require profit to survive, but will accept less than if they were profit maximising as long as they are meeting their social objective

Survival

• Challenging market conditions or difficult periods of change or crisis can require a focus on keeping the business going
  
  
• Survival is also a common strategic objective for new business start-ups and careful cash-flow management is likely to be at its core
  
  
• The recent pandemic required many businesses to adopt a short-term survival objective with many taking advantage of government support to enable them to continue trading and recover 

Protecting Shareholder Value

• A common objective for public limited companies where the value of shares and dividends payable to shareholders are important metrics
   
• Strategic objectives may seek to protect shareholder value above all else
  
  
• Having this objective will help to encourage new investors and satisfy existing shareholders

Market conditions

• Market conditions such as competition, demand, and changing consumer price sensitivity can have a significant impact on a business's aims and objectives

• Uber and Lyft were initially focused on capturing the largest share of the ride-hailing market (market share)
   
• As competition intensified, both companies shifted their focus to profitability, and their objectives changed accordingly (profit maximisation)

Technology

• A business may shift its focus from traditional brick-and-mortar retail to online retail as technology allows for a more cost-effective way to reach customers

• Amazon began as an online bookstore, but as technology advanced, it expanded into a wide range of retail categories such as electronics, clothing and groceries
    
• Their objective changed from increasing market share to market development

Performance

• If a business is not meeting its sales goals in on area, it may change its objectives to try an improve its financial performance
   
• In some cases this may involve retrenchment (moving out of existing markets)

• In 2018 Ford announced that it was shifting its focus away from producing passenger cars and focusing more on SUVs and trucks
   
• The move was driven by the company's poor financial performance and the new objectives were aimed at improving sales and profitability

Legislation

• A company may need to shift its focus to comply with new regulations or capitalise on new opportunities created by changes in legislation
  
  

• With the passage of the Affordable Care Act in the USA in 2014, healthcare providers had to adjust their aims and objectives to comply with new regulations and take advantage of new opportunities created by the law

Ethics & Social Change

• Over time attitudes towards social issues and what is considered to be right and wrong develop and may force a business to change its objectives

• It is almost unbelievable that until the 1950s tobacco companies marketing objectives included promoting health-giving effects of smoking and increasing sales to young people
  
  
• By 2023 British American Tobacco (BAT) had changed its sales objective 'To have 50 million consumers of our non-combustible products by 2030'

Internal reasons

• Factors such as changes in management or the company culture can also influence a business's aims and objectives
   
• Innovation or advances in processes might mean that more ambitious objectives may be set

• In 2014 Microsoft appointed Satya Nadella as the company's CEO
  • He shifted the company's focus from software to cloud services and the company's objectives changed accordingly