Common Business Objectives (DP IB Business Management): Revision Note

Lisa Eades

Written by: Lisa Eades

Reviewed by: Steve Vorster

Updated on

An introduction to common business objectives

  • The most effective objectives are clearly stated and allow progress to be assessed

  • These types of objectives can be summarised using the acronym SMART

SMART objectives

  • Strategic, tactical and operational objectives should be

    • Specific - what exactly the business is measuring, such as the value of sales or sales volume

    • Measurable - a quantifiable success measure, such as a percentage increase

    • Agreed - the objective is shared with workers and perhaps mutually agreed

    • Realistic - whilst ambitious, it is capable of being achieved in normal circumstances

    • Time-bound - a date or time by which the objective should be achieved

  A SMART tactical objective

An example of a SMART tactical objective
An example of a SMART tactical objective
  • Once objectives have been determined, leaders develop strategies which plan how they are to be achieved

    • Strategies are medium- to long-term plans which should be monitored carefully and reviewed if necessary

  • Effective strategies take into account the businesses position in the market as well as external factors that may affect their chances of success

Common strategic business objectives

Common business objectives include growth, profit maximisation, shareholder value, ethics and social responsibility, and survival
Common strategic objectives include growth, profit maximisation, shareholder value, survival and social responsibility

Common strategic objectives in the private sector

Profit maximisation

  • Most firms have the rational strategic objective of profit maximisation

  • Profit is calculated as total revenue (TR) minus total costs (TC)

  • To maximise profits, firms can either increase their sales revenue or reduce their costs

  • Firms regularly analyse their costs to find ways to reduce them and improve overall profitability

Growth

  • Some firms have the strategic objective of growth

  • These firms often aim to increase their sales revenue or market share

  • By maximising revenue and increasing output, they can benefit from economies of scale

  • A growing firm is generally less likely to fail than one that remains static

Ethics and social responsibility

  • An increasing number of firms now launch with ethical or socially responsible objectives

  • These often focus on issues such as climate action, poverty reduction or tackling inequality

  • Although they still need to make a profit to survive, they may accept lower profits if it means achieving their social aims

Survival

  • In difficult markets or during times of crisis, survival becomes the main strategic objective

  • This is especially common for new start-ups, where managing cash flow carefully is essential

  • For example, many businesses shifted their focus to survival during the recent pandemic, often relying on government support to continue trading and begin recovery

Protecting shareholder value

  • This is a common objective for public limited companies, where share value and dividend payments are key concerns

  • Strategic decisions may prioritise maintaining or increasing shareholder value above other objectives

  • This focus can help attract new investors and maintain the confidence of existing shareholders

Changing objectives in a dynamic environment

  • Businesses operate in a dynamic (constantly changing) environment, which may cause them to pivot between different objectives

    • Business objectives are influenced by a range of internal and external factors

  • These changes are often necessary to ensure that the business remains competitive, profitable, and compliant with regulations

Factors that cause business objectives to evolve

Factor

Explanation

Example

Market conditions

  • Market conditions such as competition, demand, and changing consumer price sensitivity can have a significant impact on a business's aims and objectives

  • Uber and Lyft were initially focused on capturing the largest share of the ride-hailing market (market share)

  • As competition intensified, both companies shifted their focus to profitability, and their objectives changed accordingly (profit maximisation)

Technology

  • A business may shift its focus from traditional brick-and-mortar retail to online retail as technology allows for a more cost-effective way to reach customers

  • Amazon began as an online bookstore, but as technology advanced, it expanded into a wide range of retail categories such as electronics, clothing and groceries

  • Amazon's objective changed from increasing market share to market development

Performance

  • If a business is not meeting its sales goals in one area, it may change its objectives to try and improve its financial performance

  • In some cases, this may involve retrenchment (moving out of existing markets)

  • In 2018, Ford announced that it was shifting its focus away from producing passenger cars and focusing more on SUVs and trucks

  • The move was driven by the company's poor financial performance and the new objectives were aimed at improving sales and profitability

Legislation

  • A company may need to shift its focus to comply with new regulations or capitalise on new opportunities created by changes in legislation

  • With the passage of the Affordable Care Act in the USA in 2014, healthcare providers had to adjust their aims and objectives to comply with new regulations and take advantage of new opportunities created by the law

Ethics and social change

  • Over time attitudes towards social issues and what is considered to be right and wrong develop and may force a business to change its objectives

  • It is almost unbelievable that until the 1950s, tobacco companies' marketing objectives included promoting health-giving effects of smoking and increasing sales to young people

  • By 2023, British American Tobacco (BAT) had changed its sales objective 'To have 50 million consumers of our non-combustible products by 2030'

Internal reasons

  • Factors such as changes in management or the company culture can also influence a business's aims and objectives

  • Innovation or advances in processes might mean that more ambitious objectives may be set

  • In 2014, Microsoft appointed Satya Nadella as the company's CEO

    • He shifted the company's focus from software to cloud services and the company's objectives changed accordingly

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Lisa Eades

Author: Lisa Eades

Expertise: Business Content Creator

Lisa has taught A Level, GCSE, BTEC and IBDP Business for over 20 years and is a senior Examiner for Edexcel. Lisa has been a successful Head of Department in Kent and has offered private Business tuition to students across the UK. Lisa loves to create imaginative and accessible resources which engage learners and build their passion for the subject.

Steve Vorster

Reviewer: Steve Vorster

Expertise: Economics & Business Subject Lead

Steve has taught A Level, GCSE, IGCSE Business and Economics - as well as IBDP Economics and Business Management. He is an IBDP Examiner and IGCSE textbook author. His students regularly achieve 90-100% in their final exams. Steve has been the Assistant Head of Sixth Form for a school in Devon, and Head of Economics at the world's largest International school in Singapore. He loves to create resources which speed up student learning and are easily accessible by all.