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AQA Business 3.1.1 Nature and Purpose of Business 1
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Nature and Purpose of Business 1
Mission and Objectives
Common Business Objectives
Why businesses exist
Learning Outcomes
Business objectives (corporate objectives) vary depending on the age, size and legal structure (e.g. plc) of the business.
- To explain why businesses exist
- To understand the relationship between mission and objectives
- To examine common business objectives
- To assess why businesses set objectives
Examples of business objectives:
Mission – An organisation’s aims or long-term intentions, its ultimate purpose (which can be referred to as its corporate aims)
Business Objectives – Goals that must be achieved in order to realise the mission/aims of an organisation, department or individual team. They are medium to long-term. They can be corporate or functional objectives.
Functional Objectives – Goals of each functional area (department) of a business (marketing, finance, operations, human resources). The objectives set by each department should help the organisation to achieve its corporate objectives, and ultimately its mission.
Corporate Objectives – Goals of the whole organisation (not just a department). They are set in order to co-ordinate the activities of different departments and to give the business a sense of direction. They are based on the mission/corporate aims.
How is this communicated?
External factors such as competitors, the economy and demand will affect a business’s ability to achieve its objectives.
Mission statement – a qualitative statement of an organisation’s aims that uses language intended to motivate employees (so staff know their purpose!) and convince customers, suppliers and those outside the firm of its sincerity and commitment.
Cash Flow
Growth
Survival
Cash flow is the amount of money flowing into and out of the business over a period of time.
Survival is important for small and new businesses, especially if they operate in highly competitive markets or if there is a recession.
Profit/Profit Maximisation
Growth may relate to increasing market share, sales turnover, the number of outlets and/or becoming a market leader.
How to achieve profit maximisation:
How can the departments (functional areas) help the business to survive?
Growth can be achieved by increasing the size of the (existing) business or by a takeover of/merger with another business.
How can departments help companies to grow?
Why businesses set objectives
Social and Ethical Objectives
SMART Objectives
Businesses with social/ethical objectives are not purely profit-focused. Objectives of charities are to help people.
‘Normal’ businesses also have social/ethical objectives (e.g. Fairtrade) to enhance their brand image and reputation.
Corporate Objectives and Functional Objectives need to be translated into SMART objectives to help employees clearly understand what they have to do.
- Businesses set objectives to co-ordinate business activity and give the business a sense of direction
- Objectives can be used to set targets for employees, this can be used to measure success or failure
- If targets are seen as achievable by employees they can help to motivate workers and create a team spirit towards reaching a common goal
Other business objectives:
Specific – about a particular product
Measurable – quantifiable (% or number)
Agreed – employees involved in setting targets
Realistic – achievable, not impossible!
Time bound – have an end date (to measure success)
Business objectives form the basis of decisions on strategy.
Strategy – the medium to long term plans through which an organisation intends to achieve its objectives.
Benefits of SMART:
- Measure success/identify problems
- Staff are clear about what they have to do
- Staff are motivated to achieve targets (as they are realistic), and because they are included in target setting
Preparation for VC Session
Reading – Chapter 1, Page 1-7
Preparation Task:
- Worksheet on being an entrepreneur starting up a new business.
- Make notes to answer these questions and bring them to the VC session. Be ready to discuss and explain your answers.
- Please ensure you bring your TEXTBOOK with you to the VC session.
To provide goods and services for their customers, therefore enabling the business to be successful and survive.
To achieve the objectives a business sets itself - profit, growth, survival, cash flow, social and ethical objectives.
Maintaining the number of trained staff to meet production needs now, and when the market picks up
Retaining profit to grow (finance dept)
Recruiting and training staff (HR dept)
Maintaining stock levels to have enough to meet demand, but not tie up money in stock which decreases efficiency
Developing a youth activity to help the local community will enhance a business’s reputation.
Meeting the needs of other stakeholders
Reducing costs (finance dept)
Improving staff productivity (HR dept)
Achieving minimum sales levels/sales revenue to cover costs and retain market share
Utilising capacity (operations dept)
Diversification
When a business moves into the production/sale of a different type of good/service. For example, Virgin started as a music business, it now has trains and planes! Diversification helps to spread risk (as they have more products), grow quickly and thus increase profits.
Increasing market share (marketing dept)
A business needs to have enough cash to pay its outgoings (e.g. bills)
Poor cash flow is the main reason why businesses fail. Businesses can be profitable and still fail due to poor cash flow (for example if they allow customers to pay on credit).
Increasing capacity (operations dept)
Market Standing
Being viewed as being the best at doing something in a the market. For example, being the most innovative, the best retailer or the leader in technology. This can help to improve their image and consequently achieve other corporate objectives.
Increasing sales (marketing dept)