Mission Statements and Objectives (AQA A-Level Business): Revision Notes

Mission Statements and Objectives

What is a mission statement?

A mission statement is a formal written declaration that sets out the core purpose and focus of a business. Sometimes called a 'vision statement', it defines what an organisation is, why it exists, and its reason for being. This statement helps to bring focus and meaning to a business and acts as a guide when making critical decisions that may affect the direction of the business.

Mission statements should communicate the essence of what makes a business unique and what it aims to achieve. They are typically aspirational and designed to inspire both employees and external stakeholders.

Examples of mission statements from real businesses:

• The Dow Chemical Company: "To passionately create innovation for our stakeholders at the intersection of chemistry, biology and physics."

• NIKE, Inc: "Bring inspiration and innovation to every athlete in the world."

These examples show how mission statements can be concise yet powerful, clearly communicating the business's fundamental purpose and direction.

Understanding business objectives

An objective is a specific goal that helps a business achieve its mission. While the mission statement provides the overall direction, objectives break this down into concrete, measurable targets that the business can work towards.

It is important to recognise that objectives are complex and will vary according to circumstances and the type of organisation. A charity will have different objectives to a public limited company, and even different public limited companies will have different objectives depending on their circumstances and priorities.

Common business objectives

There are three key objectives that most businesses focus on:

• Survival: Ensuring the business continues to operate and remains viable, particularly important during difficult economic times or when first starting out

• Growth: Expanding the business, which could mean increasing market share, opening new locations, or entering new markets

• Profit: Generating a financial return for the owners or shareholders who have invested in the business

Over recent years, the global nature of business and intense competition in many markets has meant that two other objectives have become increasingly important:

• Customer service: Focusing on meeting and exceeding customer expectations, providing excellent support, and building strong customer relationships

• Corporate social responsibility (CSR): This refers to the commitment of businesses to behave ethically towards their workforce, the local community and society at large. In other words, companies take responsibility for their impact on society and the environment.

The hierarchy of objectives

When looking at business objectives, it is important to understand that each functional area of a business will set objectives that contribute to the business achieving its overall objectives. This creates a hierarchy showing how different levels of objectives work together.

This structure ensures that all parts of the business are working together towards common goals rather than pursuing conflicting priorities.

The relationship between mission and objectives

The mission statement of a business outlines the bigger picture and generally establishes the core values and principles that help guide the conduct and action of staff. Objectives, however, are goals that are set to achieve the overall mission of the business. They differ from the mission in that they are actionable and measurable.

Without the mission statement, the objectives have no direction or sense of purpose. However, without the objectives, the mission is unachievable because there are no concrete steps to work towards. Putting together the mission and objectives provides a balance that helps to shape a business's operation and service.

SMART objectives

In addition to being actionable and measurable, objectives should have the following SMART characteristics to be effective:

• Specific: Objectives must be clear, precise and well defined. Vague objectives are difficult to work towards and measure.

• Measurable: It must be possible to know when an objective has been completed. There should be clear criteria for success.

• Achievable: Objectives must be within the business's capabilities and have sufficient resources available. Setting impossible targets is demotivating.

• Realistic: An objective must be challenging but possible to achieve given the capabilities and resources available. It should stretch the business without being unattainable.

• Time based: There must be a deadline to work towards. Without a timeframe, there is no urgency and objectives can drift indefinitely.

The relative importance of different objectives is likely to vary over time depending on circumstances. In difficult economic times, survival is likely to be more important than profit or environmental targets. However, in a booming economy, profit, growth and social issues will take on a far more important role.

Why businesses set objectives

There are several important reasons why businesses establish clear objectives:

• Measurable performance: The fact that objectives are measurable and time based means that they can be used to evaluate performance. This allows managers to assess whether the business is on track and make adjustments if needed.

• Motivation: If objectives are realistic and achievable, they can provide motivation for those who are responsible for achieving them. However, objectives should not be too easily achievable as there should be an element of challenge to maintain engagement and drive improvement.

• Focus and planning: Objectives should be specific and, as a result, will give meaning to planning and ensure that a business remains focused on its mission. They prevent the business from drifting or pursuing activities that do not align with its core purpose.

The measurement and importance of profit

Profit is the reward that owners or shareholders of a business receive for taking the risk of investing in the business. Profit therefore provides an incentive for setting up in business. When measuring the level of profit achieved, it is first necessary to understand what is meant by revenue and the various costs involved.

Revenue

Revenue is the money received from sales. It is calculated by multiplying the units sold by the price of each unit. When considering revenue, be aware that other terms might be used such as turnover, sales turnover and sales revenue — they all mean the same thing. Revenue represents the total income a business receives before any costs are deducted.

Costs

There are different types of costs that a business incurs:

Variable costs are the costs that are directly related to output and, as a result, vary directly with output. Examples include direct labour (workers who are directly involved in the production process) and raw materials. As production increases, variable costs increase proportionally. If production stops, variable costs fall to zero.

Fixed costs, as the name suggests, are costs that are fixed and will not change in the short term. These costs will have to be paid whether or not any production takes place. Examples include rent, rates and director salaries. Fixed costs remain constant regardless of the level of output.

Total costs are the fixed costs and variable costs added together and represent the total costs of production in a given time period.

Calculating profit

Armed with figures for revenue and costs, it is possible to calculate profit for a business using the formula:

$\text{profit} = \text{total revenue} - \text{total cost}$

Understanding these calculations is essential for making informed business decisions about pricing, production levels, and cost management.