At the beginning, the owner may be satisfied for the company merely to survive its early problems while building a reputation and a guaranteed market share (the percentage of all the sales within a market that are held by one brand or company). This is especially for big business. For example, Coca Cola needs to have a good reputation as it is known around the world. Large profits may be of secondary importance. Whereas a small corner shop, would not give as much importance to branding (establishing an identity for your product that distinguishes it from its competitors), advertising and a great reputation as it will be focusing more on prices with competitors and satisfactory levels of profits. Survival may involve offering goods and services at highly competitive prices that do not (at least initially) provide optimum profits. The initial objective might be to reach sustainable level of sales that guarantees break-even.
Many business pursue growth as their main objective, specially for medium or large sized business which are well established. One of the interviewees argued that “firms must grow in order to survive. Failure to grow might result in a loss of competitiveness, a decline in demand and eventual closure.” If a firm is able to grow and dominate the market, in the future it may be able to enjoy some monopoly power and raise its price. By growing, a firm can diversify and reduce the risk of business enterprise. It can sell to alternative markets and introduce new products. If one market or product fails it will have a range of others to fall back on. Firms can exploit economies of scale if they grow large enough. This will enable them to be more efficient and enjoy lower costs.
Owners of small firms may not want to expand their output to a point where their profits are maximised. This may be because
- it involves employing more workers, making more decisions and working longer hours
- they may want to keep their turnover below the VAT threshold, avoiding the need to charge their customers VAT and filling in VAT returns.
- they are happy with a satisfactory profit level and their current lifestyle
From the results of my questionnaire, I have found out that in recent years firms have started to appreciate how important their image is. Many have also seen the benefit of showing responsibility to the people involved in business activity and keeping a good relationship, such as with customers, employees and suppliers. Why has this happened?
- legislation has been passed which favours consumers
- there have been changed in social attitudes
- competitive pressure has forced business to take into account the needs of others.
- this gives businesses a source of competitive advantage which may allow to add value to their products. This in a long term leads to higher profits.
Companies with household names such as Heinz, Kellogg’s, Ford would not wish the general public to think badly of them. Some companies have made serious efforts in recent years to improve their image. British Telecom is one good example. They have replaced nearly all of the old red public telephone kiosks which were often criticised for being dirty and vandalised. They have changed their logo and also launched a series of television advertising campaigns designed to develop a more friendly image.
Some firms have benefited from good relations with suppliers of raw materials and components. One example is in manufacturing, where companies are adopting just-in-time manufacturing. This means that firms only produce when they have and order and stocks of raw materials and components are delivered to the factory only when they are needed. Reliable and efficient suppliers are needed by firms if they order stocks ‘at the last minute.’ Maintaining good relations with suppliers is likely to help this process. Examples of good relations might be prompt payment to suppliers or regular meetings to discuss each other’s needs.
Behavioural theories suggest that the group which dominates the business will determine the objectives. If the owners are in control they are likely to aim for profit. By carrying out both primary and secondary research, I have found out that there are other factors that influence the choice of objectives.
Firstly, the size and status of the firm. For example, many small businesses may be content with profit satisficing or survival. Larger companies may aim for growth and market domination. In addition, the age of the business. Businesses starting off may be content with survival. Later, when they are established, they may pursue other objectives. Also, the state of the economy may effect business objectives. During a recession many firms, both large and small, concentrate on survival. During normal trading conditions other objectives will be important. Finally, whether the business is in the public or private sector. Public sector businesses focus rather more on providing a service than profits.
