Chapter 1 -aims And Objectives And Factors Of Production 5d6l57

CHAPTER 1 – BUSINESS OBJECTIVES, RESOURCES AND ABILITY AIMS AND OBJECTIVES A corporate aim is where the business wants to go in the future, its goals. It is an intention of how the business seeks to develop in the long term e.g. to grow the business into Europe or have a global market share. A corporate aim can benefit a business as all the activities of the business will be carried out to achieve the aim. Business objectives are the short, medium and long term targets of a business that give a sense of direction to the Department managers and organisation as a whole. They are specific targets and have a specific time frame. Plans can then be made to achieve these targets. This can motivate the employees. Short term objective can be survival during in the first year of trading Medium term objective can be increase sales by 25% within 1 year. Long –term objective can be product diversification or have a global market share. Corporate Strategy is a detailed plan for achieving the corporate objective. The plan include details of not only what is to be done but also the financial, production and personnel resources required. The main objectives of are: Survival – a short term objective, probably for small business just starting out, or when a new firm enters the market or at a time of crisis. Many costs to be recovered such as loans, advertising, etc. During this stage the firm may break-even . Break-even is the point where Total cost = Total Revenue. Survival means offering goods and services at highly competitive prices that do not provide optimum profit as its initial objective is to reach a sustainable level of sales that guarantees breakeven. Once a firm has reached break-even, then it change its objective to profit maximisation. Breakeven is TOTAL COSTS = TOTAL REVENUE i.e. no loss or gain. Survival can also be an objective if the business is suffering from low sales during recession. Profitability – This essential if the business is to continue in the longer term. The level of profit is important to the shareholder who depend on the dividend as income. It must be sufficient for them to maintain the share in the business. Profit maximisation – try to make the most profit possible – most like to be the aim of the owners and shareholders. Profit Maximisation is important as this is the principal reason for the original formation of the company. Profit provides a source of revenue for future investment as well as dividends for the stakeholders, higher wages for employees and improved products for consumers. Once established, many firms pursue growth as their main objective. Business growth – Increasing in size, the business will find it easier to survive. For example by diversifying into different products and markets, a firm can take advantage of economies of scale thereby increasing the size and profits of the organisation. Business growth can protect the company from unwanted takeover bids and expansion of the business. Market penetrationis an important short-term objective when a firm enters a new market and wants to achieve a viable level of sales. For example, a firm may set a target of 15% of the market, to be able to earn enough profit to cover the cost of entry. Market shareis often a longer term objective. The larger the share of a market the more dominant a business can become, for example by setting price levels. This is linked to competitive advantagewhereby a firm attempts to achieve and maintain its position in the market.

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CHAPTER 1 – BUSINESS OBJECTIVES, RESOURCES AND ABILITY Satisficing – The business has different divisions and subsidiaries and each have a different goals; a minimum level of achievement is set for the organisation as a whole. This is said to “satisfice” instead of maximise i.e pursue an action satisfying the minimum requirement. Diversification – To reduce risk, a business may produce different products for different markets; therefore, if one product fails to achieve sales, the business has the other products to depend on. Diversification reduce dependence on 1 product, market or plant. Level of Service – All business aim to provide the best level or standard of service to compete with its competitors. This is especially important in the service industry such as Hospital, restaurant and etc. Technical excellence – To stay in business , the business has to create new products, new designs and application of new techniques of production which will contribute to growth, change and expansion in the business. Ttechnological advance may be seen as more important than sales or profit maximisation. The pursuit of excellence may bring the kind of reputation that build sales and profit in longer term, Rolls Royce car are a good example Alternative Aims and Objectives Not all businesses seek profit or growth. Some organisations have alternative objectives. Examples of other objectives: Social objectives – such as providing up to standard quality goods and avoidance of anti-social practices such as hoarding, overpricing & etc. and also provision of more employment to increase the standard of living of the society. Ethical and socially responsible objectives – organisations like the Body Shop have objectives which are based on their beliefs on how one should treat the environment and people who are less fortunate. Their policy is that they do not test products on animals and funds for the HIV and Aids group for the young and also Breast Cancer campaign. Public sector corporations are run to not only generate a profit but provide a service to the public. This service will need to meet the needs of the less well off in society or help improve the ability of the economy to function: e.g. cheap and accessible transport service. Public sector organisations that monitor or control private sector activities have objectives that are to ensure that the business they are monitoring comply with the laws laid down. Health care and education establishments – their objectives are to provide a service – most private schools for instance have charitable status. Their aim is the enhancement of their pupils through education. Charities and voluntary organisations – their aims and objectives improve the quality of life, health and wellbeing of those people who are in need. Changing Objectives A business may change its objectives over time due to the following reasons: A business may achieve an objective and will need to move onto another one (e.g. survival in the first year tsk-amended Oct-2012

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CHAPTER 1 – BUSINESS OBJECTIVES, RESOURCES AND ABILITY may lead to an objective of increasing profit in the second year). The competitive environment might change, with the launch of new products from competitors. Technology might change product designs, so sales and production targets might need to change.

INPUTS ( FACTORS OF PRODUCTION) Inputs are the 4 Factors of production needed to produce good or service. They are land, labour, capital and entrepreneurship or Management skills. Land – By Land we mean buildings and factories as well as the land they are built upon. Labour – Includes the skilled and unskilled workers in the workforce which also include the number and and the hours available for the work. Capital refer to all plant and machinery which help in the production of goods and services. Entrepreneurship / Management Skills – The ability to bring together all factors of production and make profit for the business. Example of successful entrepreneur are Bill Gates who founded Microsoft and Lakshmi Mittal whol built the multinational steel business. A stakeholder is anyone with an interest in the success of the business. The importance depends on their stake on the organization. Examples of stakeholder can be owners, workforce, customers, suppliers, creditors, competitors, the state and the community. (Important – interest of stakeholders and Influence of stakeholders Page 9 & 10 , 12 & 13 of manual) Difference between a Shareholder and a Stakeholder. Stakeholders are not always shareholders. Shareholders own part of the company through stockownership, while a stakeholders are interested in the success/performance of the company. Shareholders are interested on profitability whereas stakeholders are interested more on responsibility than profitability. Example : customer expects the company to give fair pricing and good quality product. Business Cycle – Recession, recovery, boom and then downturn to the next recession. The general level of activity in the economy is affected i.e spending levels, output levels, employments and profits. As economy slides into recession the same number of business will compete for a shrinking level of spending. Business will take action to protect sales and profits by a range of policies by cost cuts and laying off workers and reducing prices. Customers may benefit from the low price but at the same time their purchasing power is reduced by unemployment. Business failure rate will go up and problems for trade and financial creditors.

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CHAPTER 1 – BUSINESS OBJECTIVES, RESOURCES AND ABILITY As recovery leads to boom, most business will experience rising sales and improved profit margins, output levels rise and less unemployment. Consumers purchasing power will be more and the sales of business will improve. Business will start to borrow funds to invest or expand their business.

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