business objectives resources and accountability

Business Objectives, Resources and Accountability

Definition of BusinessThe term 'business' is used to describe all the commercial activities undertaken by diverse organizations producing goods and services.

Classifications of businesses:By sector By level of activityBy sizeBy legal structure

Session 1

Business Objectives

Objectives are statements of specific outcomes that are to be achieved

All businesses have certain objectives.

Objectives give the business a clearly defined target.

Plans can then be made to achieve these targets. This can motivate the employees.

It also enables the business to measure the progress towards to its stated aims.

Targets may be different for different businesses.

Objectives can also be set at any level of an organisation (from the top (corporate) and through the layers underneath (functional and unit).

Corporate aims

A corporate aim is simply an intention of what a particular business is trying to achieve and how it seeks to develop in the long term.

It is intended as a shared vision that all stakeholders in an organisation will agree with and work together to achieve.

Corporate Objectives

Corporate objectives are those that relate to the business as a whole (Mission).

They are usually set by the top management of the business and they provide the focus for setting more detailed objectives for the main functional activities of the business.

Objectives can be set in financial and non financial terms:

Financial terms (easy to measure) Non Financial Terms (difficult to measure)

- Desired sales or profit levels

- Rates of growth

- Amount of cash generated

- Value of the business or dividends paid to shareholders

- An innovative player in the market

- A leading in the quality of customer service

The most effective objectives meet the following criteria: SMART

Specific: The objective should state exactly what is to be achieved. objectives are aimed at what the business does, e.g. a hotel might have an objective of filling 60% of its beds a night during October, an objective specific to that business.

Measurable: An objective should be capable of measurement – so that it is possible to determine whether (or how far) it has been achieved. The business can put a value to the objective, e.g. €10,000 in sales in the next half year of trading.

Achievable: The objective should be realistic given the circumstances in which it is set and the resources available to the business. Agreed by all those concerned in trying to achieve the objective.

Realistic/Relevant: Objectives should be relevant to the people responsible for achieving them – the objective should be challenging, but it should also be able to be achieved by the resources available.

Time specific/Time Bound: Objectives should be set with a time-frame in mind. These deadlines also need to be realistic they have a time limit of when the objective should be achieved, e.g. by the end of the year.

Changing Objectives

The aim of a business can change over time.

This can happen in response to:1. internal factors (such as business growth, or in response to external factors, such as an economic

recession) 2. the different phases of its life.

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

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.

LONG TERM OBJECTIVES SHORT TERM OBJECTIVES

Long-term objectives- the organisation is looking into the future, setting plans over a period of 1- 5 years

Short-term objectives- this is much closer in time. Tactical objectives may be daily, weekly or monthly. Anything relating to activities below one year is normally called short-term.

Some businesses set short term objectives and some set long term objectives that differ from each other.

Different objectives leads to different targets and changes.

Objectives, Growth and the Business Life Cycle

The main objectives that a business might have 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. For most businesses, it is the primary objective. This objective helps business to break even (Total Cost = Total Revenue).

Profit maximisation – try to make the most profit possible – most like to be the aim of the owners and shareholders.

Profit satisficing – try to make enough profit to keep the owners comfortable – probably the aim of smaller businesses whose owners do not want to work longer hours.

Sales growth – where the business tries to make as many sales as possible. This may be because the managers believe that the survival of the business depends on being large. Large businesses can also benefit from economies of scale.

Level of service - Good customer service helps businesses retain clients and generate repeat revenue. Keeping customers happy should be a primary objective of organization.

Sales maximisation - where the business tries to make as many sales as possible. This may be because the managers believe that the survival of the business depends on being large. Large businesses can also benefit from economies of scale.

Business growth - For many firms the main objective is to increase the level of sales or market share. Firms set this aim because they believe that the best way to achieve greater profits is to achieve greater sales. For example one of Volkswagen’s aims is to grow the business over the next ten years and overtake Toyota as the world’s largest car manufacturer.

Diversification

Technical Excellence

Satisficing

Market Penetration

Market Share

Alternate Business Objectives

Not all businesses seek profit or growth.

Some organisations have alternative objectives:

Ethical and socially responsible objectives

provide a service

Conflicting Objectives

A business may find that some of their objectives conflict with one and other:

Growth versus profit: for example, achieving higher sales in the short term (e.g. by cutting prices) will reduce short-term profit.

Short-term versus long-term: for example, a business may decide to accept lower cash flows in the short-term whilst it invests heavily in new products or plant and equipment.

Large investors in the Stock Exchange are often accused of looking too much at short-term objectives and company performance rather than investing in a business for the long-term.

STRATEGY TACTICS

Strategy - this is a long-term plan illustrating how the business will achieve its corporate objectives.

Strategic objectives are significant long-term goals.

They normally relate to key business objectives such as profitability, asset value and market share.

Tactics - these are the short-term activities carried out on a daily basis to implement the business strategy.

It should be possible to arrive at a set of checkpoints when performance can be measured against success criteria.

Corporate strategy

CORPORATE STRATEGY is the direction an organization takes with the objective of achieving business success in the long term.

Recent approaches have focused on the need for companies to adapt to and anticipate changes in the business environment, i.e. a flexible strategy.

The development of a corporate strategy involves establishing the purpose and scope of the organization's activities and the nature of the business it is in, taking the environment in which it operates, its position in the marketplace, and the competition it faces into consideration; most times analyzed through a SWOT analysis

BUSINESS RESOURCES – Factors of production

Businesses require resources to produce goods and services.

A factor of production is indispensable for production because without it no production is possible.

The resources can be regrouped into the following factors known as the factors of production:

Land (Reward : Rent) Labour (Reward : Wages) Capital (Reward : Interest) Entreprenuership or Management Skills (Reward : Profit)

Session 2

LAND

Land is all the natural resources on the planet available for production of goods and services.

It comprises of surface of land and also natural resources like such as metal ores, coal and oil.

Land is a significant part of production which facilitates in the production of goods and services in one way or the other.

However, land is a finite resource as it cannot be replaced easily.

Hence, over exploitation of such resources can cause an issue

It also include factory/office.

LABOUR

Labour is the human input (workers, managers etc) into the production process.

Each worker has different expertise and skills known as human capital.

Hence man power comprises of the services of a factory worker or any professional worker (doctor and engineer).

Thus, this form of resource is an essential aspect of production.

CAPITAL

Capital refers to man-made physical goods used to produce other goods and services. For instance, machines, factories and tools. Capital can also be referred as an investment in the production of goods and services (Real Capital).

Further, capital also includes financial capital and working capital. This is simply the amount of money the initiator of the business has invested in it. "Financial capital" often refers to his or her net worth tied up in the business (assets minus liabilities) but the phrase often includes money borrowed from others.

Financial capital - This form of capital can be used to operate and expand a business.

Working capital - his includes the stocks of finished and semi-finished goods that will be economically consumed in the near future or will be made into a finished consumer good in the near future. These are often called inventories. The phrase "working capital" has also been used to refer to liquid assets (money) needed for immediate expenses linked to the production process (to pay salaries, invoices, taxes, interests...) either way, the amount or nature of this type of capital usually changed during the production process.

To be able to survive a business should inject capital throughout its life.

Entrepreneurship or Management Skills

This element of resources relates to the entrepreneur and the input of the entrepreneur known as the management skills.

The entrepreneur provides the initial ideas. They risk their own resources in business ventures.

They are also responsible for the organisation of the other 3 factors of production.

Entrepreneur = Risk taker & Opportunity seeker

Real life Example : Sir Richard Branson, Lakshmi Mittal & Bill Gates.

Entrepreneurs in Mauritius

Mrs Rekkha Cowaloosur, the managing director of Arvani Excellence Ltd.

Mr. D. Sarjua, the owner of Conserverie Sarjua.

Other example: tantebazar (www.tantebazar.com)

http://www.tantebazar.com/

Relationship between organizational objectives and human resources.

There is a direct correlation between organisational objectives and Human resources management.

Effectiveness of human resources determine the survival of an organisation in the long run.

The right mix of labour (quantity & quality) is essential for a business to meet its corporate objectives.

Right people assist in meeting the company goals and objectives such as profitability.

Most profitable corporations point out their successes to proper management of their human resources (HR). Managing employees involves balancing between their goals and aspirations with those of the company. A company's goals and objectives are survival, making profits, gaining market share or gaining global recognition. By getting employees to make things happen in a productive way, HR ensures that the business prospers.

Suppliers and customers

Suppliers and customers can be an essential aid to businesses that do not have enough resources to carry out of production to achieve their targets.

Suppliers can be in the form of intermediaries, For example, raw material suppliers and real estate agents. (JIT)

Businesses have to build relationship with customers so that the former can inform the latter about the availability of goods and services and other related information.

Accountability

when a superior assigns some work to a subordinate, he is answerable to his superior for its success or failure.

In other words, accountability means answering the success or failure (performance) of one’s work before one’s superior.

Thus, subordinates have to report to superiors regarding various objectives set.

For instance, profits, sales volume and cost reductions. Superiors, i.e., the managers are accountable to owners and other stakeholders.

session3

Stakeholders

All business activity involves people who are involved in business activity in one way or another and are affected by it.

They are also referred to as the stakeholders as they have a direct interest in how the business is run.

Owners Workforce Consumers/customers Suppliers Creditors Competitors Government The community as a whole

Shareholder V/s Stakeholder

A shareholder owns part of a company through stock ownership, while a stakeholder is interested in the performance of a company for reasons other than just stock appreciation.

Owners/Shareholders

Owner/Shareholder is an internal stakeholder who owns the business. Hence, they will have most influence upon decisions.

Since large companies tend to have many and different shareholders, there might be conflicts (may want different things). Profits are likely to be important to this group of stakeholders. They share profit and losses equally.

Owners are therefore risk – takers.

The key interest for the owners of any business is going to be profit.

For shareholders, that is likely to be just as clearly focused on dividend payments, but they will also have an interest in overall business performance, especially as it could affect share prices.

Workforce

Employees are also form part of the INTERNAL stakeholders.

They work in the business and they have to follow the instructions given to them by the owners.

Some (e.g. managers) will make decisions whilst others will have little say in decisions.

Objectives are likely to involve improving working conditions and improving their pay.

They are likely to working to specific targets and will have an obvious interest in how successfully these have been achieved.

The outcomes will have effects on management job security and promotion prospects, as well as their remuneration packages.

In general, then, they will have an interest in the success of the business overall, but will be more particularly concerned with objectives closer to their division or section and level of authority and responsibility

Consumers/Customers

Important to every business.

Creating and maintaining good relations with this stakeholder group is very important.

Customers have an interest in the company doing well – it means that they can be sure that it will keep producing their favourite products.

Customers may well have an ambivalent attitude to profit, recognising that firms need to make profit, but also realising that large profits can result from customer exploitation. There may also be an interest in the continued existence of the business.

Suppliers

Suppliers is categorized as an EXTERNAL stakeholder.

They Provide the raw materials needed by the business. They can influence decisions.

Eg if they cannot meet delivery schedules.

They Will want the business to do well so they can supply more and Will also expect prompt payment.

services on credit terms. These creditors need to be assured that payments will be made. This extends to lenders as well, who will want guarantees about interest payments and the eventual repayment of the loan.

Creditors

Creditors, An EXTERNAL stakeholder, provide financial supports to businesses.

They Will not be involved in daily decisions but are likely to influence major decisions where money is required.

However, Will want to make sure the business can afford to pay money back. For example, banks.

other financial institutions that lend money to businesses.

They want the businesses to succeed so that the loans and interest charged are paid on time.

If a business does not repay its loan, the bank may sell the business’s assets to get its money back.

Government

The state/Govt is An EXTERNAL stakeholder.

They are Not directly involved in decisions - but can be a major influence on decisions, e.g. by introducing laws.

They will want a business to do well since this will create jobs and bring in more tax revenue.

However, there is also a longer term interest in relation to overall employment levels and the contribution to general prosperity, which the businesses in general and occasionally particular business organisations, could deliver.

Community as a whole

The community is An EXTERNAL stakeholder.

They are unlikely to have much influence upon business decisions unless people with the same views get together.

They Will usually want a business to do well since they will rely on jobs or money from the business.

Sometimes will protest e.g. pollution

In the local community, there will be interest in the overall business performance of organisations as it affects local employment and prosperity.

The success of many small local businesses is likely to be linked to the continued presence and success of big local businesses.

However, there may be other issues related to the quality of life, such as land use, pollution, traffic flows, etc. which affect the local community.

The term "community" can be taken to include all those with whom an organisation has a relationship that is not a direct business relationship. This will include local Competitors- benchmark to form our own strategies

STAKEHOLDER INTEREST

Owners/Shareholders Profit maximization/dividend payment

Workforce Pay

Consumers/Customers PriceGood product and service quality

Suppliers Lasting business relationship and fair treatment – future orders

Creditors Payment of loan and interest on time

Government Meet tax and social security obligationContribution to employment level

Community as a whole overall business performance of organisations as it affects local employment and prosperity

The Interests of Stakeholders

Conflicts of Interest

When stakeholders want different outcomes from a business activity and are unable to meet or accomplish their needs or wants, this is referred to as a conflict of interest

Different stakeholders have different have different needs and priorities.

Hence, it is important for businesses to balance the interest of its various stakeholders.

Conflict arises when the needs of some stakeholder groups compromises with the expectation of others.

For example, owners’ interest of maximizing profit may clash with workers’ interest of having an increased pay.

However, compromises exist in such situations where trade unions negotiate with management for a compromise.

Stakeholder Influence

Stakeholders directly and indirectly influence strategies and business activities in their own way.

Currently, social responsibility has been integrated into business management.

Customers, employees, communities and business partners are among key stakeholder groups that carry weight in company decisions and activities.

First of all, owners/Shareholders have a big impact on business activities since they invest in the business. As a result, their main aim is profit maximization.

Hence, the way they influence business strategies, it can be to the disadvantage of other stakeholders.

The workforce also tends to have an impact in a way or another. Employees usually join in trade unions to make their interest more prominent.

For instance, trade union may negotiate for a better working environment and a higher pay with the top management. Hence, if their demands are not met they might take actions which can lead to strikes. Thus, if a raise in pay is set by the management, it can affect both the owners (lower profit) and consumers (cost pass on to them thro higher price)

Additionally, Customers have taken over as a central influence for many companies. Although companies want to maximize profits, they have generally recognized that satisfied customers and long-term relationships are key to building sustainable success and profiting over time. Ultimately, companies have to satisfy their customer through higher quality and meeting changing customer demands (organic food).

The government also can affect businesses if it starts to cut on its subsidy and increase taxes. As a result of which businesses might raise its prices. Moreover, banks also influences the ways in which businesses are run as they want the loans repaid by a viable business.

Every stakeholder will seek to influence to fulfill their interest. Some stakeholders can successfully strengthen their interests while others cannot. Since some stakeholders are able to influence business activities to meet their interests, organizations have pondered and developed policies to ensure that businesses are run in an ethical manner.

consequently, ethical codes prevent stakeholders from exploiting their power and position by:- taking into account the interest of all the stakeholders when taking a decision- not misuing authority for personal gain- complying with ethical business practices

‘satisficing’ as a business strategy to recognise the needs of all stakeholders.

Satisficing The Cyert and March theory of decisions being a compromise between the different stakeholders has certain features in common with the idea of satisficing behaviour which is associated with Herbert Simon (http://en.wikipedia.org/wiki/Satisficing)

This strategy attempts to meet an acceptability threshold

http://en.wikipedia.org/wiki/Satisficing

Others:

influence business to take most profitable option, (regardless of the effect on society).

Others:

influence business to take most profitable option, (regardless of the effect on society).

How Stakeholder Objectives Affect the Behaviour and Decisions of the Firm Owners and Shareholders

May have their own agenda eg increased pay, power, status – make business decisions which

help achieve these goals, rather than the owner(s).

May have their own agenda eg increased pay, power, status – make business decisions which

help achieve these goals, rather than the owner(s).

Directors and Managers

How Stakeholder Objectives Affect the Behaviour and Decisions of the Firm

Higher expectations: demand better working conditions, better quality of working life, want to be consulted.

Higher expectations: demand better working conditions, better quality of working life, want to be consulted.

Employees


Forces business to look for ways of attracting and retaining staff, particularly if high competition for staff, eg by offering:

Forces business to look for ways of attracting and retaining staff, particularly if high competition for staff, eg by offering:

Employees


• attractive rewards packages• a chance to participate• flexible working arrangements

How Stakeholder Objectives Affect the Behaviour and Decisions of the Firm Employees

Generally more educated, experienced – higher expectations, different objectives to previous generations.

Generally more educated, experienced – higher expectations, different objectives to previous generations.

Customers / Consumers


Force firm to adopt a more customer orientated approach – led to ‘customer care’ departments / policies / charters, plus increased provision of ‘after sales’ services.

Force firm to adopt a more customer orientated approach – led to ‘customer care’ departments / policies / charters, plus increased provision of ‘after sales’ services.

How Stakeholder Objectives Affect the Behaviour and Decisions of the Firm Customers / Consumers

Want profit and / or organisational growth – timely payment important.

May offer discounts – influence a business to ensure payment is made on time.

Want profit and / or organisational growth – timely payment important.

May offer discounts – influence a business to ensure payment is made on time.

Suppliers


Government macro economic objectives include: Government macro economic objectives include:

Government

• Stable economic growth• Low inflation • Low unemployment• A healthy balance of payments.


General ways these objectives benefit business: General ways these objectives benefit business:

• Stable economic growth – greater income to spend on goods / services – greater sales, profits, better cashflow.

How Stakeholder Objectives Affect the Behaviour and Decisions of the Firm Government


Government

• Stable prices / low inflation – helps ensure workers don’t become concerned about wage levels and forceful about pay increases (above rate of inflation).



• Low unemployment – helps keep steady demand for a firm’s products as consumers have a regular income.


To achieve objectives government use: To achieve objectives government use:

• Monetary policy: the money supply, rates of interest, exchange rates, amount of credit available, to control the level of spending within the economy.


Monetary policy: Monetary policy:

Eg if inflation – the government will increase interest rates to

reduce demand.



• Fiscal policy: The use of government taxes to control level of consumer spending and business activity


Fiscal policy: Fiscal policy:

Eg if low demand (resulting in unemployment) – Govt will

lower taxes – people more money to spend.



• Exchange rate / trade policy: The price at which one country’s currency is converted into another.



Fixed – central bank buys when market pressures are forcing the value down, (and vice versa). Freely floating – central bank does not intervene.



• Supply side policies: Those designed to encourage the free working of markets, including labour, capital, land


Supply side policy:Supply side policy:Eg restricting union activities,

reducing unemployment benefit (labour);

Ending monopoly controls + restrictive practices (capital).


Policies used have a direct and indirect influence eg: Policies used have a direct and indirect influence eg: • increase in interest rates – may

make an investment too costly. • Changes in corporation tax or VAT –

impinge on profit, encourage business to reinvest.


Policies used have a direct and indirect influence eg: Policies used have a direct and indirect influence eg:

• Government grants and subsidies (supply side policies) – persuade a business to locate in one area over another.


Pressure Groups

May force a business to pursue an environmental objective to avoid negative publicity, and subsequent fall in sales.

May force a business to pursue an environmental objective to avoid negative publicity, and subsequent fall in sales.


Overall, the influence the various stakeholders have will depend upon: Overall, the influence the various stakeholders have will depend upon:

• the nature of the business’s activities. • its size, type of legal structure.



• the amount of capital invested and position held within the business (where applicable).

• government legislation.



• degree of media attention given to a particular stakeholder’s cause.


Businesses who recognise the influence stakeholders can have on their business, especially their image and reputation, and take into account their objectives when setting business objectives / deciding how to meet them, are likely to be the most successful.

Businesses who recognise the influence stakeholders can have on their business, especially their image and reputation, and take into account their objectives when setting business objectives / deciding how to meet them, are likely to be the most successful.


who is responsible for the success or failure of a company and how devolving responsibility can act as a motivator

Based on the pie chart, common reasons of business distress come from two forces, internal causes and external causes. Figure, shows some of the common reasons for business distress. The reasons are not ranked in accordance of severity, however to highlight some of the common threads the caused most distress situations.

During any stage of the business life cycle, potential failure is a threat that businesses normally face. A key is to recognize signs, the signals that the business may need to be restructured in order to turn around the situation. Each situation tends to be unique, but have common elements.

business objectives resources and accountability

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