Why Businesses Exist (AQA A-Level Business): Revision Notes
Why Businesses Exist
The fundamental reasons for businesses existing
Organisations operate in many different forms and have varied reasons for existing. While generating profit (making more money than is spent) is a crucial motivation for many businesses, it is not the sole purpose. Businesses exist for several important reasons:
Providing goods and services
Many businesses exist to supply products or services that people need or want. This includes private companies selling consumer goods, but also encompasses public services that benefit society. Examples include the NHS (National Health Service), police forces, and fire services, which exist primarily to serve the public rather than to make profit.
Developing good ideas
Some businesses are created to turn innovative ideas into reality. This is known as enterprise – when someone takes the initiative to start a new business venture. Entrepreneurs may spot a gap in the market or develop a new product or service that solves a problem. These businesses exist because the founder believes their idea has value and potential.
Helping and supporting others
Not all organisations are designed to make profit. Charities and other not-for-profit organisations exist specifically to provide help and support to others. They raise funds through various methods (donations, fundraising events, grants) and use this money to improve people's lives, support causes, or address social issues. Examples include Cancer Research UK, Oxfam, and local food banks.
Exam tip: When answering questions about why businesses exist, remember that different types of organisations have different primary purposes. A charity's main aim differs significantly from that of a private limited company.
Mission statements
A mission statement is a formal declaration that outlines a business's core purpose and focus. Sometimes called a vision statement, it defines what an organisation is, why it exists, and what it aims to achieve. The mission statement communicates the business's fundamental reason for being and what makes it unique.
Purpose and importance
Mission statements serve several important functions:
- They bring focus and clarity to what the business does and why it matters
- They act as a guide for decision-making, helping managers and employees make choices that align with the organisation's purpose
- They communicate the business's values and direction to stakeholders (people with an interest in the business, such as employees, customers, and investors)
- They help differentiate the business from competitors
Real-world examples
Mission Statement Examples:
The Dow Chemical Company states: "To passionately create innovation for our stakeholders at the intersection of chemistry, biology and physics."
This mission statement clearly identifies what the company does (creates innovation using science) and who benefits (stakeholders).
NIKE, Inc declares: "Bring inspiration and innovation to every athlete in the world."
This statement emphasises the company's focus on athletic products and its ambitious scope (every athlete worldwide).
UK example: John Lewis Partnership's mission is "to be a successful business powered by its people and principles" – reflecting its unique employee-ownership structure.
Common business objectives
An objective is a specific goal that helps a business achieve its mission. Objectives are measurable targets that guide business activity and decision-making. It is important to recognise that objectives are quite complex and vary significantly depending on circumstances and the type of organisation.
A charity will have different objectives compared to a public limited company (PLC, a business whose shares are traded on the stock exchange). Even different PLCs may prioritise different objectives based on their situation and strategy.
Three core business objectives
Traditionally, businesses focus on three key objectives:
Survival
For many businesses, especially new ventures or those facing difficult trading conditions, simply staying in business is the primary goal. Survival means generating enough revenue to cover costs and avoid closure. This often takes priority during economic downturns, increased competition, or in the early stages of a business's life.
Growth
Once survival is secure, businesses typically aim to grow. Growth can mean increasing sales revenue, expanding into new markets, opening more locations, or increasing market share. Growth provides opportunities for higher profits, greater influence, and improved security for the business.
Profit
Making profit (revenue minus costs) is a fundamental objective for most private-sector businesses. Profit provides rewards for business owners and shareholders, funds for reinvestment, and resources to pursue other objectives. Higher profits can lead to business expansion, better facilities, and improved products or services.
Memory aid: Remember the three core objectives as SGP – Survival, Growth, Profit.
Modern business objectives
Over recent decades, the global nature of business and intense competition in many markets have made two additional objectives increasingly important:
Customer service
Providing excellent customer service means meeting and exceeding customer expectations at every interaction. In competitive markets, good customer service can differentiate a business from rivals and build customer loyalty. This objective recognises that satisfied customers are more likely to return and recommend the business to others.
Corporate social responsibility (CSR)
CSR refers to the commitment of businesses to behave ethically and responsibly towards their workforce, the local community, and society more broadly. This means companies take responsibility for their impact on society and the environment.
CSR activities might include:
- Ensuring fair treatment and good working conditions for employees
- Supporting local community projects
- Minimising environmental damage
- Operating ethically in all business dealings
- Contributing to charitable causes
UK example: Marks & Spencer's "Plan A" initiative commits to sustainable sourcing, reducing waste, and supporting communities – demonstrating how CSR has become a core business objective.
Exam tip: When evaluating business objectives, consider the type and size of organisation, its current circumstances, and the competitive environment. Different contexts make different objectives more or less important.
Remember!
Key Points to Remember:
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Businesses exist for multiple reasons – profit is important but not the only motivation. Organisations may exist to provide services, develop ideas, or help others.
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Mission statements define purpose – they articulate why a business exists and guide strategic decision-making, providing focus for stakeholders.
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Core objectives are survival, growth, and profit – these traditional goals remain fundamental to most businesses, though their relative importance varies.
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Modern priorities include customer service and CSR – increasing competition and social awareness have made these objectives crucial for long-term success.
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Objectives vary by organisation type – charities, public services, and private companies pursue different objectives based on their fundamental purpose and structure.