0264 · 1.5.1Business objectives

Objectives and survival

0:00Imagine Sunrise Bakery has enough money for either a new oven or a large advertising campaign. Both could help the business, but the better choice depends on its aim. Keeping the shop open requires different priorities from preparing for expansion. By the end of this video, you will understand how business objectives guide decisions and help managers judge success. A business objective is an aim or target that a business works towards.

0:24It gives managers something to achieve when they make choices about money, equipment and employees. An objective might concern staying open, earning profit or becoming larger. Businesses can pursue several objectives at once, although one may receive greater attention. Think of an objective as a destination, while business decisions describe the route towards it. A bakery aiming to attract regular customers might improve service and product consistency. Those actions support its chosen destination.

0:52Clear objectives help managers decide which opportunities deserve attention when time and money are limited. Survival means continuing to operate as a business. For a newly opened Sunrise Bakery, this is especially important because regular customers are still being established. The owner must find enough demand and have money available for essential payments. Keeping spending manageable gives the bakery more time to build a reliable customer base. A recession is a period when the total output of the economy falls.

1:20Even an established business may then make survival its priority again. Customers may reduce spending, which puts pressure on sales. Sunrise Bakery might respond with a smaller product range to reduce waste. That decision supports survival because fewer unsold products consume its limited resources.

Profit, growth and market share

1:37Revenue is the income a business receives from selling goods or services, while profit is total revenue minus total costs. Once Sunrise Bakery has a dependable customer base, its owner may focus more closely on the amount remaining after costs. Profit is the main aim of most private sector businesses, which are owned and controlled by private individuals. Earning profit rewards owners for the money and effort they have committed.

2:01It also provides funds that the business can keep for future improvements. Sunrise Bakery might reduce wasted ingredients while maintaining the quality customers expect. If revenue stays unchanged and total costs fall, profit increases. Growth means increasing the size of the business. After becoming established and earning profit, Sunrise Bakery might aim to open another shop. Expansion could allow it to serve customers in another neighbourhood. This objective changes its priorities because managers now need premises, equipment and enough employees for a larger operation.

2:33These stages show how objectives can change as a business develops. Sunrise Bakery moves from prioritising survival towards profit and then growth as its circumstances improve. It can still pursue all three together. However, opening another shop creates additional costs now, so expansion can reduce the profit available in the short term. Market share is a business’s sales revenue as a percentage of the total sales revenue of the whole market.

2:59It shows how much of a particular market the business supplies. Kestrel Bikes might aim to increase its share of local bicycle sales. To achieve this objective, its sales must grow faster than the market overall. A business can increase sales while maintaining the same market share if the whole market grows at the same rate. Market share therefore measures its position relative to competitors. Kestrel Bikes might improve repair support to attract customers from other sellers.

3:26You will see the market share calculation in the video on understanding market changes. Objectives reflect the purpose of the organisation. A social enterprise also has social and environmental objectives, while a public sector organisation aims to provide a service. Across these organisations, managers still need a clear destination for their decisions. The particular destination depends on what the organisation exists to achieve.

How objectives guide businesses

3:50Clear objectives give direction by providing a target for decisions. Suppose Willow Hotel aims to increase bookings during quiet months. Managers can judge a proposed offer by whether it helps attract guests during that period. This keeps attention on actions that support the hotel’s chosen aim. Employees can feel more motivated when they understand what they are working towards. At Willow Hotel, reception employees can see how helpful responses support the bookings objective.

4:16An achievable target gives their efforts a clear purpose. Motivation is stronger when employees understand the objective and believe their contribution can make a difference. Objectives also allow managers to measure performance by comparing actual results with a target. Sunrise Bakery can check whether its profit reaches the amount planned for a particular month. Any shortfall gives the owner a reason to investigate sales and costs. The comparison provides evidence for deciding whether changes are needed.

4:44Limited resources must be directed towards the activities that best support the objective. For a farm seeking growth, buying additional equipment may take priority over improving its office furniture. Managers must choose where the available money will have the greatest effect. This is how objectives help determine resource allocation. Coordination means organising activities so different parts of a business work together. If an online shop aims to increase sales, advertising employees need to communicate with those responsible for preparing orders.

5:13Enough products and delivery capacity must support the campaign. A shared objective helps departments make compatible plans and reduces avoidable delays for customers.

Measuring objectives and exam answers

5:23Let us work through how a target helps Sunrise Bakery measure performance. Its objective is monthly profit of twelve hundred dollars. During that month, total revenue is six thousand dollars and total costs are fifty-one hundred dollars. Six thousand dollars minus fifty-one hundred dollars gives an actual profit of nine hundred dollars. We then compare the actual result with the target for the same month. Twelve hundred dollars minus nine hundred dollars gives a shortfall of three hundred dollars.

5:50The bakery earned profit, but its result fell below the objective. Managers can now investigate whether sales were lower than planned or costs were higher than expected. Keep the measures precise when interpreting information about objectives. Revenue records sales income, while profit measures what remains after total costs. Market share compares the business’s sales with the whole market, and growth concerns its size. A useful target also needs a clear time period so managers can compare results fairly.

6:19Both Paper One and Paper Two can ask you to explain why an objective matters to a particular business. Explain means set out purposes or reasons, say why and how, supported with relevant evidence. Consider Willow Hotel’s aim to increase bookings during quiet months. Build your answer by connecting one benefit to that situation. An objective gives Willow Hotel direction when deciding how to promote its rooms. Managers can focus advertising on attracting guests during quiet months.

6:46This directs the promotion budget towards the period when extra bookings are needed. As a result, more rooms are filled in quiet months and the hotel earns more revenue. Each sentence develops the reason through a detail from the business situation. A business objective is an aim or target that a business works towards. Survival means continuing to operate as a business, and growth means increasing the size of the firm.

7:10Profit is total revenue minus total costs, while market share is a business’s sales revenue as a percentage of the total sales revenue of the whole market. Together, clear objectives guide decisions, motivate employees, measure performance, direct resources and coordinate activities.