Objectives Understanding Business Higher Business Management Objectives are

Objectives Understanding Business Higher Business Management

Objectives are long term goals which businesses aim to achieve Objectives allow employees, customers and suppliers to know what the business is working towards

Business Objectives Profit Maximisation Survival (Break Even) Growth Social Responsibility Satisficing – settling for an easy option Managerial Objectives

Corporate Social Responsibility Being responsible in business is very important Businesses that are seen to be irresponsible tend to gain a bad reputation and can suffer from decreased sales as a result The Body Shop does not test on animals M&S sell a number of fair trade products Mc. Donalds place bins outside their restaurants Car manufacturing companies are now trying to reduce their fuel emissions

Profit Maximisation – what are the costs? Making the maximum amount of profit is a main aim for many organisations. There are only 2 ways to maximise profit: Increase sales/selling price Reduce costs

Survival Businesses exist to make a profit, but for some, simply surviving is more important.

Managerial Objectives § Large organisations § Many managers § Some managers may choose to pursue their own aims § This might be to increase their own salary or promotion opportunities § Improving their own status § Businesses can benefit if the manager increases sales/profit

Satisficing § To ‘satisfy’: to aim for a satisfactory result, rather than an exceptional one § To make enough profit to keep shareholders/owners happy § NHS good example – they will aim to stay within budget, not to make drastic cuts

Business Growth Why do businesses grow? To avoid being a takeover target To reduce the risk of business failure To become the market leader To increase profits To remove a competitor To be able to take advantage of economies of scale

Internal Organic Growth Open new branches Develop new products Advertise to increase sales Hire additional staff

Questions - 1 1. Why is it important for a Business to have objectives? 2. List 6 objectives a business may have. 3. How can Social Responsibility be in conflict with Profit Maximisation? 4. Why does a business want to grow?

Key Terms – Methods of Growth Merger Takeover De-Merger Horizontal integration Vertical integration Conglomerate integration (Diversification) Divestment Outsourcing Franchising

Merger This is when one firm combines with another

Merger

Takeover (Acquisition) This is when one firm takes control of another – usually a larger business taking over a smaller one.

Takeover

Vertical Integration Backward Vertical Integration occurs when a business takes over a supplier Guarantees stock Cheaper stock

Vertical Integration

Vertical Integration Forward Vertical Integration occurs when a business takes over a customer Control pricing Control distribution Disney made films/products (Secondary) then decided to sell them directly rather than through other stores (Tertiary)

Diversification – Conglomerate Integration This is when a business expands into markets different from its core activity 1986 9 0 20 200 4 Mackie’s and Taypack Joint Venture in 2009

Questions - 1 1. What is the difference between a Merger and a Takeover? 2. Growth includes Vertical Integration. What is the difference between Horizontal and Vertical Integration? 3. What is Diversification?

Your Task Try to find examples of the various types of Growth on your worksheet. Look at Proctor & Gamble’s website.

Divestment This is when a firm sells its business assets or subsidiary companies Focus on core activity Obtain funds Business may sell for more in ‘chunks’ Remove underperformance

Outsourcing g in r e t a C Outsourcing is when an organisation contracts another to do work for them g t n e m it u r c e ff R a t s w of ne Core ty i v i t c A ts n u o c Ac in n a e l C

Outsourcing ADVANTAGES Reduces cost of employing staff for non-core activities Saves cost of specialist equipment Specialist firm may produce goods at a lower cost Allows firm to concentrate on their core activity Specialist firm may have knowledge and skills to complete the job to a higher quality

Outsourcing DISADVANTAGES Confidentiality issues Firm may take a long time to complete the job May be very expensive The organisation will have reduced control May involve redundancies Communication problems may mean the job is not of a suitable standard

Questions – 2 1. What is Divestment? 2. What is meant by Outsourcing?

Key Terms Merger Take Over Horizontal integration Vertical integration Conglomerate integration (Diversification) Divestment Outsourcing Franchising 1 Download and read the Growth Key Terms document from Edmodo 2 Using the links, or your own, list as many examples of each key term as you can 3 Be prepared to discuss the key terms and examples with others

Private Sector The Private Sector aims: To maximise profits To expand the business Survive (break even) Improve quality of goods and services

Public Sector The Public Sector aims: To provide the highest quality of service to everyone in a country To make good use of taxpayers’ money when providing the services an area needs

Third Sector The Voluntary Sector aim: To provide support for worthy causes, like homelessness, medicine, disability etc To raise awareness of good causes To provide the best service possible

Explain why a Private Limited Company, like Bupa healthcare, want to ensure it is providing a quality service? (3 marks) Compare the objectives of a private sector organisation with those of a public sector organisation. (4 marks)

Explain why a Private Limited Company, like Bupa healthcare, want to ensure it is providing a quality service? (3 marks) The better the service, the higher (higherthe theprice. Bupacan charge. This may will leadto tomoreincomeand andtherefore profits). Increase profits can be invested (investedintothe thebusinessto to further improve their services. For example, purchasing newer equipment, employing more staff, paying for staff training. ). A better service means (greatercustomersatisfaction. This can improve the reputation of the company, which can lead to more customer loyalty. ). 3

Compare the objectives of a private sector organisation with those of a public sector organisation. (4 marks) Private sector organisations’ objectives will focus on profit maximisation whereas public sector will require to operate within a specific budget Private sector will focus on sales maximisation but public sector organisations will focus on provision of a specific product or service Private sector organisations will be responsive to shareholders’ opinions however public sector will have local or national government priorities and objectives Both will look to provide a quality service to ensure customers are satisfied 4

Type of Business Primary Objective Secondary Objective Private Limited Company Survival Profit Maximisation Public Limited Company Profit Maximisation Growth Franchise Profit Maximisation Growth Profit Maximisation Multinational Growth Government/Local Authority Service Provision Social Responsibility Public Corporations Service Provision Profit Maximisation Charity Survival Social Responsibility