Business Objectives Revision Notes for Edexcel A-Level Business

Business objectives

Understanding aims and objectives

Business aims represent what a company wants to achieve in the long term. These tend to be broad and general statements, such as becoming the 'best' in the market or the 'market leader'.

Objectives are more specific. They are the goals or targets that must be met to achieve the overall aim. For example, if a business aims to grow, it might set annual sales targets as objectives to help achieve this growth.

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Think of aims as the destination and objectives as the roadmap to get there. While an aim might be to "become the market leader," the objectives would be the specific, measurable steps needed to reach that destination, such as "increase market share by 15% within 2 years" or "expand into three new regions by next quarter."

Why businesses need objectives

Setting clear objectives is crucial for business success. They serve three main purposes:

Employee motivation: Objectives give employees something concrete to work towards. For instance, sales staff might receive bonuses for reaching specific sales targets, which drives performance.
Owner motivation: Without objectives, business owners may lose direction and allow their business to 'drift', potentially leading to failure. Clear objectives help maintain focus and commitment.
Strategic direction: Objectives help owners decide where to take the business and what steps are needed. For example, if a business aims to grow by 10%, it might decide that launching products overseas is the best strategy to achieve this target.

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Without clear objectives, businesses risk drifting aimlessly. This lack of direction is one of the most common reasons new businesses fail within their first few years of operation.

SMART objectives

Effective objectives should be SMART. This framework ensures that objectives are clear, achievable and measurable:

Specific: The objective states clearly what is trying to be achieved
Measurable: It can be measured numerically
Agreed: Everyone involved has approved the objective
Realistic: The objective can be achieved given available resources
Time-specific: There is a stated deadline for achievement

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Worked Example: A SMART Objective

Objective statement: Increase turnover by 8% in the next 12 months.

SMART analysis:

Specific: ✓ Clearly states to increase turnover
Measurable: ✓ Can be measured numerically (8%)
Agreed: ✓ Presumably approved by stakeholders
Realistic: ✓ Achievable depending on available resources
Time-specific: ✓ Clear deadline of 12 months

This objective meets all SMART criteria, making it an effective business target.

Survival

All businesses consider survival important, but it sometimes becomes the primary objective. This typically happens in three situations:

New businesses: When a business first starts trading, it is vulnerable. People may not yet recognize the business exists, entrepreneurs often lack experience, and resources may be limited. Therefore, simply surviving the first 12 months might be the main target.

Increased competition: When new competitors enter the market with better or cheaper products, or more financial resources, established businesses may need to focus on survival at the expense of other objectives.

Difficult trading conditions: During economic downturns, many businesses struggle for survival.

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Case Study: British Airways During the Recession

During the 2008-2013 UK recession, British Airways (BA) faced severe challenges that made survival its primary objective.

The situation:

In 2009, BA's 40,000 staff were told the business was struggling
The company had lost £401 million the previous year
CEO Willie Walsh worked for nothing in July (foregoing £61,000)
Employees were asked to volunteer for unpaid leave or work without pay for up to a month
Walsh described it as the toughest trading environment ever, with no evidence of improvement

The outcome: BA successfully survived and returned to profit, making £631 million in 2013.

This demonstrates how even large, established businesses must sometimes shift their focus entirely to survival during extremely difficult trading conditions.

Profit maximisation

Profit maximisation means making as much profit as possible. This objective is more likely when businesses are owned by institutional shareholders, such as pension funds and investment funds. These owners need to maximise returns to meet their clients' needs. Many entrepreneurs are less likely to pursue profit maximisation, preferring profit satisficing (seeking satisfactory rather than maximum profits).

How businesses maximise profit:

Keep costs as low as possible
Raise prices as high as they can before damaging customer loyalty
Use skim pricing strategies (setting unnaturally high prices in luxury goods markets like jewellery and designer clothes, where wealthy customers are not price sensitive)

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Criticisms of profit maximisation:

Short-termism: By focusing aggressively on maximising short-term profits, businesses may overlook more lucrative long-term opportunities.
Stakeholder alienation: Higher profits often mean lower wages for employees and higher prices for customers, which can damage relationships with these important stakeholder groups.

These drawbacks explain why many successful entrepreneurs choose profit satisficing over absolute profit maximisation.

Sales maximisation

Sales maximisation involves selling as much as possible in a particular time period. Sales levels are an important performance indicator, and growing sales generally indicates business health. Most businesses can increase profits by selling more output.

Why businesses pursue sales maximisation:

To win larger market share, especially when trading first begins
When specialist sales staff are employed whose pay is linked to physical sales levels

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Important distinction: Physical sales vs sales revenue

There is a crucial difference between maximising physical sales levels and maximising sales revenue (the money generated by sales). It may be possible to sell more units by lowering price, but this might actually reduce sales revenue.

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Worked Example: Physical Sales vs Sales Revenue

Let's examine how a price reduction affects both physical sales and revenue:

Current situation:

Units sold: 6,000
Price per unit: £5
Revenue: $6{,}000 \times \text{£}5 = \text{£}30{,}000$

After price cut:

Units sold: 7,000
Price per unit: £4
Revenue: $7{,}000 \times \text{£}4 = \text{£}28{,}000$

Analysis:

Physical sales increased by 1,000 units
Sales revenue fell by £2,000

This demonstrates that maximising physical sales can sometimes negatively impact profit. The effect of price changes on revenue depends on price elasticity of demand.

Market share

Market share is the proportion of total market sales held by a business. Most businesses prefer a large market share, making this a common objective.

Benefits of increased market share:

Higher revenue: More sales generate more income
Raised profile: Greater visibility and recognition in the market
Market dominance: A bigger market share than rivals may allow price control
Lower costs: Higher output levels can reduce unit costs through economies of scale
Higher profit margins: Lower costs combined with stable or higher prices increase profitability

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Market share is typically expressed as a percentage. For example, if the total market sells 1 million units per year and a business sells 250,000 units, its market share is 25%. Tracking market share over time helps businesses understand whether they're gaining or losing ground relative to competitors.

Cost efficiency

Cost efficiency involves finding ways to reduce business costs. This objective might be pursued when trading conditions become difficult due to increased competition or economic downturns. However, some businesses continuously seek to cut costs to improve profit margins and gain competitive advantages.

Methods to cut costs:

Lay off staff to reduce labour costs
Find new suppliers to obtain cheaper resources
Increase usage of recycled materials
Develop new working practices that use fewer resources
Implement ways of saving energy

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Potential drawback of cost cutting:

Cost cutting can lead to reduced product quality or poorer customer service. For example, if a pub reduces bar staff to cut costs, customers might experience longer waiting times and choose to go elsewhere. Businesses must carefully balance cost efficiency with maintaining quality and service standards.

Employee welfare

Improving employee welfare has become increasingly recognized as an important objective. When employee welfare improves, workers become happier, better motivated, more productive, more cooperative, more flexible and less likely to leave.

Measures to improve employee welfare:

Improve the working environment by making it cleaner, less noisy and less crowded
Ensure staff receive proper breaks and have comfortable spaces to interact with colleagues
Equip staff with necessary tools and equipment (e.g., ergonomically designed chairs for call centre workers)
Maintain high standards of courtesy between all staff members
Encourage regular exercise through fitness sessions or staff gym facilities

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Additional benefits of prioritising employee welfare:

Reduced staff absenteeism through sickness
Enhanced business image
Compliance with health and safety legislation
Easier recruitment and retention of quality staff

These benefits demonstrate that investing in employee welfare is not just ethically sound, but also makes strong business sense.

Customer satisfaction

Meeting customer needs is essential for most businesses. Satisfied customers are more likely to return, and loyal customers are highly valuable. Some businesses aim to exceed customer expectations to win loyalty.

How businesses achieve customer satisfaction:

Train all customer-facing staff to communicate courteously, professionally and in a friendly manner 100% of the time
Provide platforms for customer feedback (e.g., online review systems)
Interact with customers using social media to encourage two-way information flow
Deal with customer complaints promptly and effectively to the customer's evident satisfaction
Monitor customer service regularly using methods such as mystery shoppers

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Requirements for effective customer service:

To truly satisfy customers, businesses must:

Know what customers want
Provide it consistently
Receive feedback on business performance

Without all three elements, customer satisfaction efforts are unlikely to succeed.

Social objectives

Businesses with social objectives demonstrate concern for the local area. The aim is to promote prosperity and develop strong relationships with the local community to co-exist harmoniously.

How businesses meet social objectives:

Keep noise levels down
Maintain sensible opening hours
Demonstrate environmental responsibility by minimising pollution
Provide employment for local people
Maintain open communication channels with the local community for raising and discussing issues
Make contributions to community life (e.g., visiting local schools, sponsoring local events, donating to local charities)

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Why social objectives matter:

It is not in a business's interests to upset the local community. Collectively, local populations can be formidable opponents if they lodge objections. Businesses have a duty to be considerate and respectful, especially when operating in residential areas. Good community relations can prevent costly disputes and enhance the business's reputation.

How objectives change over time

Business objectives are not static. They evolve as the business develops and circumstances change.

Typical progression:

Start-up phase: Main objective is survival (e.g., survive the first two years)
Early growth phase: Objective shifts to building market share
Established phase: Focus may move to profit maximisation

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Businesses often pursue multiple objectives simultaneously. For example, an established business might try to increase market share, cut costs and improve employee welfare all at the same time. The key is to ensure these objectives don't conflict with each other and that resources are allocated appropriately across all goals.

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Key Points to Remember:

Aims are long-term, general aspirations; objectives are specific, measurable targets that help achieve aims
SMART objectives (Specific, Measurable, Agreed, Realistic, Time-specific) are more effective than vague goals
Survival becomes the priority objective during start-up, increased competition, or economic downturns
Profit maximisation focuses on keeping costs low and prices high, but can be short-termist and alienate stakeholders
Businesses should focus on sales revenue rather than just physical sales levels, as selling more units at lower prices can reduce total revenue
Multiple objectives can be pursued simultaneously, and objectives typically change as businesses develop and mature

Business Objectives (Edexcel A-Level Business): Revision Notes