Businesses and Stakeholders
Business objectives
What is a business objective (and what are its advantages)?
A business objective is an aim or target that a business works towards to help it run successfully. Establishing these objectives does not guarantee success, yet has several advantages:
- Business objectives help people in a business identify lucid targets to achieve.
- Decision making will be easier and less time consuming as there are set targets to base decisions on. i.e., decisions will be taken in order to achieve business objectives.
- Setting business objectives ensures clear communication amongst all interested parties.
- Managers can analyse progress made to achieve business objectives and make any required changes to reduce chances of business failure.
Commonly seen business objectives
- Business Survival: Survival in a competitive environment is the primary objective of newly established firms or start-ups. Firms would want to ensure that the revenue made is higher than the costs, so that all ‘factor rewards’ can be paid.
- Profit: Along with the objective of inheriting a revenue that is able to pay out all cost, a business also needs to make profit, the finance generated by the business to use for investments and the payment of return of the shareholders and owners.
- Growth: Businesses will aim for growth and expansion. This is usually measured by value of sales or output. Aiming for business growth can be very beneficial. A larger business can ensure greater job security and salaries for employees. The business can also benefit from higher market share and economies of scale.
- Market Share: Defined as the percentage of total market sales held by a business. Owners and shareholders often aim to increase the business’ market share which has several benefits such as a stronger brand image and higher influence in the market.
- Community Service: This is the common objectives of social enterprises, or a business organization that prioritizes a social objective along with business objectives. These enterprises aim to better the society by providing social, environmental and financial aid. They help those in need, the underprivileged, the unemployed, the economy and the government.
Changes in business objectives
Business objectives change overtime. As businesses grow, as the business environment changes and economic circumstances changes, owners and stakeholders often set new objectives that align with the business’s position.
Stakeholders
Who is a stakeholder?
A stakeholder is a person or group with a direct interest in the performance and activities of a business. There are two types of stakeholders, internal stakeholders and external stakeholders.
- Internal Stakeholders: Internal stakeholders are people whose interest in a company comes through a direct relationship, such as employment, ownership, or investment.
- External Stakeholders: External stakeholders are those who do not directly work with a company but are affected somehow by the actions and outcomes of the business.
Stakeholder Groups (and their roles and objectives)
| Stakeholder Group | Role | Business Objective |
| Owners/Shareholders (Internal) | Invest capital to establish and expand the business.Obtain share of profits if business is successful.Risk takers. | Obtaining high profit from the business activity.Business growth to increase value of investment. |
| Employees(Internal) | Employed by the business.Participate in trainings to work efficiently.Earn wages from the business in exchange for labour. | Regular payment for their work.Job Security.Motivating and Satisfying job. |
| Managers(Internal) | Work as Employees, but control the work of other workers.Take important decision in the business that could either lead to successful expansion and growth or make the business fail. | High Salaries.Job Security.Business Growth. |
| Customers(External) | The people who consume the products/services produced by a business.Lack of customers could lead to business failure.Choose to buy products/services that best suit their needs and preferences . | Safe, reliable and high quality products.Value for their purchase.Reliable post purchase services. |
| Government (External) | The national body responsible for the national economy.Passes laws to protect consumers and workers. | Business survival and success.Businesses to function within the law.Tax revenues gained from the business |
| Banks (External) | Provide finances for business operations. | Timely repayment of funds with interest. |
| Community (External) | General Population that lives in the presence of products/services made by a business.Takes up jobs provided by a business. | Accommodating jobs for the working population.Production of socially and economically desirable products/services.The preservation of the ecosystem during and after production. |
Objectives of public sector businesses
Businesses present in the public sector (government owned businesses) do not work towards the same objectives as private sector businesses. Stakeholders in this business have slightly varied business objectives. They are:
- Financial: Maximising profits is not the primary objective of a public sector business, but the business needs to meet certain set financial targets set by the government.
- Service: Businesses in the public Sector’s primary objective is to provide quality service to the public such as quality healthcare. Reliability and value are a few targets in this objective.
- Social: Public sector businesses also have certain social objectives such as reducing unemployment in the lower strata of the society where minimal employers are found.
Conflict in stakeholder objectives
Why is it often challenging to meet all stakeholder objectives?
Different stakeholder groups have different objectives set for a business. Often, these objectives are contradictory. For instance, while the owners would want to expand the business by creating more factories, but the community might interject by claiming the increase in pollution that would take place. Therefore, while making important decisions, managers often need to make certain compromises when weighing the significance of different objectives to a business. When the owners are keen to maximise profits, the customer’s objectives of value of purchase might be disregarded.
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