Cambridge IGCSE Business Studies 1.5 – Business objectives and stakeholder objectives

1.5.1 – Businesses can have several objectives – and the importance of these can change

Business objective - a target that a business works towards.

Why are objectives important for a business?

• They act as a motivator as they give managers and workers a target to move towards
• Helps with decision making (managers will know what is better for the business to reach its target)
• Can make the entire business work toward a goal
• Managers can see if the business has achieved its goals or not.

Objectives that businesses set

Businesses often set multiple objectives which can change over time

• Business survival – This is common for new businesses and businesses in bad economic times
• Profit – Businesses want to maximise profit.
• Growth – Businesses may want to grow for various reasons. Common reasons for business growth is to obtain a higher market share, increase jobs etc…
• Return to shareholders – incorporated businesses (Private and public limited companies) are owned by shareholders. There are 2 main ways to return to share holders 1.Businesses profits can be paid to shareholders as dividends and increasing share price will keep the shareholders happy so managers won’t be voted out.
• Market share – Businesses want to obtain a higher market share. The advantages of this is to make the business more well known. With a higher market share, the businesses may also be able to negotiate lower costs from suppliers (economies of scale)
• Providing a service to society – Social enterprises are privately owned businesses that focus on  1. providing a service to society such as providing jobs to disabled or homeless people or  2. Protecting the environment.

Business objectives are likely to change over time. For example, A new business has survived a few years so the managers decide to change the objective to maximising profit.

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1.5.2 – The role of stakeholder groups involved in business activity

Stakeholder – A person or group with a direct interest in the performance and activities of a business.

List of stakeholder groups

Internal stakeholders

• Owners – These are people who invested and set up the business. Objective = Profit so they make money from the business.

 

• Workers – Employees of the business.  Objective = Payment for their work, job promotion (increased salary), job security.

 

• Managers – Employees that control other workers. Objective = Higher salary, job security, Successful company means better status.

External 

• Consumers – Customers who buy goods and services from the business. Objective = Good products from business, reliable service and maintenance from the company.

 

• Government –  Responsible for the economy of the country, laws to protect customers and employees. Objective = Successful business means more jobs (less unemployment), Tax paid by the business and the business’ contribution to the country’s output.

 

• Community – Interested in how the business affects the local community, e,g, employment, environment. Objective = Jobs for people, environmentally friendly business, safe products for the customers.

 

• Bank – Lend money for the business to startup. Objective = Wants the business to have enough money to pay them back.

These stakeholder objectives may conflict for example, 

• Managers of a business want to build a factory in an area however the local community are against this as it may cause pollution and noise in the area.
• Owners want to use cheaper low-quality materials to lower product costs and increase profits however consumers are against this as the quality of the products they are buying will be lowered.

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1.5.3 – Demonstrate an awareness of the differences in the aims and objectives of private sector and public sector enterprises

Private sector business objectives

• Business survival
• Profit
• Growth
• Returns to shareholders
• Market share
• Service to society

Public sector business objectives

• Provide service to the public
• Increase living standards of the public e.g. health care, education
• Increase jobs to lower unemployment in the country