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

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

• 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 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