New start-up businesses will most likely have ‘survival’ as the main objective. But, as the company grows in size, corporate objectives will also change. After operating for several years and gaining a steady foothold in the industry, the owners will be chasing business growth to follow.
In the short-term, the business will wish to generate growth in sales and increase in market share. Then, as a result, it will maximize profits from the higher level of sales and lower average unit costs by using economies of scale in the long-term.
There are many environmental factors that can cause business objective to change at any time. Due to competitive changes in economic environment caused by new powerful competitors entering into the market, business objectives might change from profit maximization to survival.
Internal factors influencing business objectives
Internal factors come from within the business and are largely controllable by the management. They include:
Type and size of the business. Any change in legal structure of the business will cause objectives to change. In small unincorporated businesses where the sole traders and partners are both owners and managers, they tend to balance their paychecks with investing finance into the business. In larger incorporated companies where ownership is separated from managing the company, different stakeholders pursue different things. Shareholders want to be paid as much profit as possible in the form of dividends while managers want to receive higher salaries that will result in less profit available for sharing.
Private sector vs. public sector organizations. Private-sector businesses aim to maximize profits while public-sector organizations aim to provide quality services to the general public breaking even at the same time.
Age of the business. New companies want to break even and survive while old companies want to grow and increase market share.
Finance available. Companies with little available finance may struggle to survive when not being able to pay bills on time, while businesses rich in cash might be trying to achieve fast business growth by expanding their activities. In the end, a huge sum of money is needed, if the company wants to grow its size.
Risk profile. Owners and managers who have higher risk tolerance will show willingness to take risks by setting ambitious objectives such as new process innovations, expansion abroad or development of new products.
Crisis. Serious critical events such as market downturns or economic depression will force businesses to change the objective from growth to trying to survive in the short-term.
Corporate culture. Businesses with flexible and adaptable organizational cultures may change objectives very often. In the contrary, organizations which are reluctant to change and prefer to maintain status quo will want to forever continue doing the same things in the same way.
External factors influencing business objectives
External factors lie outside the business and are often beyond any control of the management. They include:
State of the economy. The state of the economy will most likely change organizational objectives from growth during boom times to survival during slumps.
Governmental policies. If governments set more stringent rules and regulations toward controlling pollution levels, many companies may turn themselves into being more socially responsible, whether willingly or forcefully. Also, because of higher compliance costs, some companies may not be able to maximize their profits anymore.
The power of pressure groups. The presence of pressure groups in the society may force a business to review its approach to ethics and include CSR when planning the business aim and objectives.
Innovation. New technologies can create many new business opportunities, products and even change the whole production methods allowing companies to boost sales and lower the cost of production. The use of E-commerce can also help the company to grow substantially – simply by selling its products to millions of customers around the world.
Managers need to adapt business objectives in order to meet changing requirements from both internal and external business environments.
