All businesses exist to provide goods and services that satisfy the customers needs. They set themselves objectives that state the way that they operate. These commonly are: -
- Making a profit (or surplus)
- Increasing sales or market share
- Providing services to the community
- Offering charitable or non-profit services, such as caring for the environment
- Developing staff skills
- Producing high-quality products or offering high-quality service
Having clear and focused business objectives gives the business a clear indication of which direction it is heading in. It can also help to judge how successful the business has been.
Objective 1: Making a profit (or surplus)
The first objective of any business is to make a profit. Without profit, a business cannot do all that it wants to achieve. Profit is defined as the difference between the total revenue of the business and the total cost of running it. If the business fails to make a profit, it can have a number of serious consequences. It cannot keep its shareholders happy, it cannot invest in better technology and therefore improve its products, customer confidence in the company drops, and staff morale also drops as they start to worry about their jobs and also worry about being paid. It also means that they cannot reward their employees for good work or give money to charities, as that is a good chance to improve their public relations opportunities. Making a profit is none more important than in the world of football. The richest clubs can afford to buy the best players and pay them huge sums of money, therefore increasing their chances of success. With all these players, the chances are that they will play an exciting style of football and the fans will keep coming to watch, thus increasing their profit.
Making a surplus is where a not-for-profit organisation will make money through charity shops but will then give it away to worthwhile causes.
Objective 2: Increasing sales or market share
Many businesses strive to be market leaders and will fight very hard to achieve it. They are all too aware of the importance of this as the company that does this is best placed to make large profits. A company which has a large market share can mass produce products and can buy products and materials at a discount from suppliers. The company can then spend more on advertising etc. Once the business has established itself as a market leader, it ploughs money into investment, product promotion and research and development to keep hold of that status. An American study found out that organisations with the largest market share were likely to be the most profitable. Market share can also lead to lower costs as if the total output produced increases over time, the cost of producing each unit will fall. The more you do something the more experience you get, and so next time it is likely to be better as you can iron out any faults. Subsequently, companies that have a high market share should have accumulated more experience, and therefore companies should try and get a high market share. The best indicator is the ratio of one company's market share to that of its nearest competitor.