3.1.3 Setting business aims and objectives

Worksheet

From AQA

• What are business aims and objectives

• Purpose of setting objectives

• Role of objectives in running a business

• Changing objectives

• Use of objectives in judging success

Lesson objectives

Students should be able to:1. understand the main aims and objectives for

businesses2. understand the role of objectives in running a

business 3. understand how and why the objectives set will

differ between businesses4. understand how and why the objectives set may

change as businesses evolve 5. understand the success of a business can be

measured in other ways than profit

Starter• Do you have any of these aims?

– To get a better phone for your birthday

– To pass your maths GCSE

– To get a part time job

– To become a YouTube sensation

– To get through the year without a detention

– To learn the guitar

WHAT ARE BUSINESS AIMS AND OBJECTIVES?

Survival

• In its first year of trading, a start-up business may aim to just survive

• When the business is more established the aims may change but if there is a recession or problems in the market then the business may keep this as one of their aims until sales improve

Survival as an objective

• The objective is to reach a sustainable level of sales that allows the business to reach its break-even point

• This may not mean much profit in the first instance, but when the business starts to grow it will able to comfortably raise prices to the best level

Cake Hole Tutbury – their objective in the first year was to survive. Novelty cakes priced at £50, they

are now £80

Profit Maximisation

• Profit is total revenue (revenue into a business) minus total costs (costs out of a business)

• A business will aim to maximise profit, they must do this therefore in only two ways:

– Increase revenue into the business

– Reduce costs out of the business

Growth

• As businesses trade and develop over time, the objectives may change and they owners may wish to grow the business

• This may mean the business will need;

– To sell more goods or services

– To produce more goods

– To provide more services

Growth domestic and international

• The business may wish to increase the number of shops or outlets that they have in the UK (this is the domestic or home market)

• The business may wish to expand into other countries, for example Europe (this is the international market)

Market share

• A business may aim to increase their market share. This is the percentage of sales held by a business in a market.

• They will have to take sales away from competitors to achieve this aim

• This could be done through;

– Heavy promotion and discounts

– To make the products look more appealing

Customer satisfaction

• Some businesses will need to set customer satisfaction objectives to meet a quality standard

• They will aim for;

– No returns

– No complaints

Social Objectives

• Social enterprises are businesses trading for social or environmental purposes

• Many commercial businesses would consider themselves to have social objectives, but social enterprises are distinctive because their social and/or environmental purpose is absolutely central to what they do

• Unlike a charity, they relay on trade not donations to make the money

Watch the video on Jamie

Oliver’s restaurant - 15

Ethical objectives

• Ethics is the principal of knowing right decisions from wrong ones in business

• Having ethical objectives is expensive and will cost the business money

Examples:

• Treatment of workers VIDEO

• Payment to suppliers VIDEO

• Attitude to recycling

• Attitude to use of sustainable raw materials

Shareholder value

• Shareholder value is; where shareholders, in a business, earn a return from their investment which is greater than their required rate of return

• This means the business may make decisions to buy or sell goods just to maximise the amount of money they can give back to their shareholders, possibly at the expense of ethics or the environment*

PURPOSE OF SETTING OBJECTIVES

Aims and objectives

• Aims are the strategic goals of a business; for example, to grow

• Objectives are more specific steps; for example, to increase sales by 5% over the next year

Purpose of setting objectives

(a) Setting business objectives gives specific

targets by which business performance can be

measured

(b) Setting objectives can be used to motivate

workers to be more productive

(c) Setting objectives clarifies business direction

and aids decision making

ROLE OF OBJECTIVES IN RUNNING A BUSINESS

Role of objectives

• Objectives can help to keep the owner and the employees all working towards common goals

• Objectives help the owner keep an eye on profitability, costs and profit margins

• Objectives should put customer service at the centre of the business, to make sure there is repeat custom in the future

• Objectives can help the owner to focus on the growth that they would like to achieve in the short term and the long term

• Objectives – when written down – can also allow the owners to see what works and what doesn’t

Google co-

founders Larry

Page and Sergey

Brin – their

original objective

was to call their

business

“backrub”

Why don’t all businesses have the same objectives?

A. Business size will have an impact on objectives

B. Level of competition faced will also change the objectives

C. Type of business; sole trader, partnership, ltd or plc

Different businesses have different objectives

Do you think these businesses have the

same objectives?

Different businesses have different objectives

Do you think these businesses have the

same objectives?

Different businesses have different objectives

Do you think these businesses have the

same objectives?

Not - for – profit objectives

• Social enterprises, e.g. Big Issue VIDEO

• These types of organisations might have these objectives:– Aim to tackle the effects of poverty

– Provide jobs and tackle unemployment

– Help children with a social need

– Tackle the issue of an aging population

– Help the homeless

– Education and training initiatives

CHANGING OBJECTIVES

Start-ups

• A business may start as a sole trader or partnership

• However some businesses may start as a limited company

• As a business grows and expands it may want to enjoy limited liability, so will have to change from a sole trader or partnership into a limited company (ltd) – this will have an impact on objectives

• As the business gets bigger it may want to raise finance by floating shares on the stock exchange, so will need to become a Plc – this too will have an impact on objectives

Start-up or established?Choose aims and objectives from this list and place

them where you think they should go

1. To increase awareness by customers of the business

2. To increase profits and meet returns on investment

3. To increase market share

4. To achieve market dominance

5. To grow the reputation of the business

6. To be an ethical trader

7. Survival

8. To be UK market leader

9. To increase customer satisfaction levels

10.To be innovative, introducing new products to the market

11.To reduce the costs of the company by 25% by 2018

12.To expand internationally

13.To increase shareholder value

• To increase awareness by

customers of the business

• To grow the reputation of the

business

• Survival

• To be an ethical trader

• To increase profits and meet returns

on investment

• To increase market share

• To achieve market dominance

• To be UK market leader

• To increase customer satisfaction

levels

• To be innovative, introducing new

products to the market

• To reduce the costs of the company by

25% by 2018

• To expand internationally

• To increase shareholder value

USE OF OBJECTIVES IN JUDGING SUCCESS

Objectives and success

• If a business knows what its objectives are – it will know what direction it is going in and what its core values are

• It will also know when it has been successful –when it has met its objectives– For example, to gain 5% market share is

measurable

– To become a Fairtrade organisation is also a measure of success if it was one of the business objectives

Sample questions

Sample question 1

Answer question 1

Revisionstation

Written by Sarah Hilton ©