Business Objectives and Growth Strategies

Posted on Aug 19, 2024 in Economy

Benefits and Cons of Expansion

Benefits:

  • Benefit from economies of scale leading to lower average costs
  • Have more access to sources of finance
  • Can afford to diversify
  • Can afford to carry out research and development (R&D)
  • Have greater status and power
  • Can afford specialist managers
  • Reduce risk of takeover

Cons:

  • Become too big and difficult to control, leading to inefficiency
  • PLCs suffer from a divorce of ownership and control between shareholders and managers
  • Greater risks as more capital is invested
  • Need to develop various marketing strategies
  • Slow decision-making and poor communication due to a long chain of command may lead to inefficiency

Business Chapter 4 – Business Objectives

1. SMART

  • Specific – Focus on what the business does
  • Measurable – Should have a quantitative value
  • Achievable – Attainable and possible
  • Realistic and Relevant – Have the resources needed
  • Time-Specific – Should have a time limit

2. Importance of Goal Setting or Well-Defined Objectives

  • Clear goals give direction, which helps in the directing and planning of the business and to develop an appropriate strategy
  • Provides a clear guide for management and worker action
  • Can help to assess performance – how the business matches its targets
  • Give direction for Management by Objectives (MBO), help motivate staff, and give a sense of purpose
  • Identify problems and develop corrective actions

3. Hierarchy of Objectives

A) Corporate Aim

– Are long-term goals that a business aims to achieve. They are the starting point for the entire set of objectives but lack detail.

B) Mission Statement

– A statement of the business’s core aims, phrased in a way to motivate employees.

Included in: Published accounts, corporate plans, company letters and magazines, used in advertising slogans, part of staff training

  • Pros: Informs outside groups and stimulates the interest of external stakeholders, includes moral statements and how employees should behave, develops positive qualities, states the central purpose of the business, provides principles of business activity, reflects the beliefs and vision of the business, inspires and motivates employees, useful in PLCs to make overall aims clear to employees and have a sense of shared values.
  • Cons: Criticized for being too vague, not specific, might be a form of public relations, don’t tell managers what to do, and the problems or methods.

C) Corporate Objectives

– Specific details of business targets that help management develop an appropriate strategy.

D) Management by Objectives

– It is the method of coordinating and motivating staff by dividing the overall aim into specific targets. The process must be taken into discussion and agreement.

  • Divisional Objectives: Set by senior managers, broken down into departmental objectives.
  • Departmental Objectives: Divisional objectives broken down into this.
  • Individual Objectives: Objectives of each individual.

4. Benefits of Communicating Objectives

  • Employees and managers achieve more with a better understanding of business objectives
  • Employees see overall plans and understand individual objectives better
  • Creates shared employee responsibility and coordinates individual goals with others
  • Managers are more in touch with employees – assess performance, provide reinforcement and training

5. Corporate Business Objectives

Short-Run Objectives: Survival, increase market share, earn profits, cover costs, manage cash flow, work/life balance, gain market share, and retain staff.

Long-Run Objectives: Become market leader, profit maximization, become environmentally friendly.

  • Survival – The aim of many new businesses, especially to survive its first year, which is the most crucial year. Businesses may also change to survival in times of recession.
  • Profit Satisficing – Aims by smaller firms to earn satisfactory profits without sacrificing leisure time and to keep owners happy.
  • Growth – Once a business is established, it might aim for growth.

Benefits of Growth:

  • Less likely to be taken over
  • Higher profits, which means higher dividends and share price
  • Obtain higher market share
  • Benefit from different economies of scale
  • Firms want to grow to get greater status
  • Benefit stakeholders too

6. Problems and Difficulties of Growth

  • Cash flow problems and may need to borrow
  • Lower profit margins for reducing price
  • Could lead to diseconomies of scale – growing too much
  • Using retained profits, meaning lower dividends
  • Growth by diversification may lead to a loss of focus

7. Why a Business Cannot Grow and Why It Does Not Want To

  • The business may not have the option to grow
  • The business is family-owned and has no ambitions
  • The business does not have to grow to become more successful
  • Can grow through outsourcing or joint ventures
  • Can give customers personal satisfaction by personal interaction
  • Non-pecuniary benefits
  • Nature of the business
  • Shareholders might not want to grow