This article looks at how private business organizations decide on their business objectives. The most common business objectives for businesses in the private sector are concerned with:
1. Survival.
2. Growth.
6. Maximizing short-term sales revenue.
7. Maximizing shareholder value.
8. Corporate Social Responsibility (CSR).
Growth
The business grows when sales or value of output increases.
The company must grow in order to survive, and the growth of the business is usually considered a good thing. Business growth has many potential benefits for the business managers and owners. In general, it helps to increase the firm’s overall competitiveness, revenue and profits.
Large companies have more security, more opportunities and should be able to benefit from economies of scale. They will be less likely to be taken over by other firms, jobs are more secure which means more stability for employees and the company offers more jobs available in general.
Managers will be motivated by the desire to see the business achieve its full potential because they can gain higher salaries and better fringe benefits. They will also achieve higher status in the society and more decision-making power. Usually, salaries of directors and the CEO are linked to the success of the business – size of the business and how much profits it generates.
The lower-level employees are also interested in the business growth because it would mean better jobs in general and possibly a larger salary.
A business that decides to expand the size in order to increase output may benefit from economies of scale – reducing the average cost of producing each item.
To sum up, any business that does not attempt to grow may cease to be competitive in the long-term, and, eventually, may lose its appeal to investors who tend to want to increase their returns.
Examples of the growth objective
1. Increase total sales by 20% in the next 12 months.
2. Increase market share by 3% by the end of 2021.
3. Increase the number of retail locations to 35 by the end of 2021.
4. Increase the number of customers by 50% in next 24 months.
5. Increase the number of workers by 10% next year.
Limitations of the growth objective
The business objectives based on growth also have limitations:
Cash flow problems. When expansion is too rapid, it can lead to cash flow problems. Because the company must buy new fixed assets such as buildings or machinery, spend cash on developing new products, and pay wages and salaries to new workers.
Lower profit margins. Sales growth might be achieved at the expense of lower profit margins. It happens when the company borrows money from the bank to pay for expansion. In addition to paying back the borrowed amount, it must also pay interest on that loan which lowers Net Profit Before TAX. Hiring additional sales people and paying their wages will also reduce profit margins.
Diseconomies of scale. When too large, businesses can experience diseconomies of scale. This will be caused by hiring too many workers when there is not enough work for them, purchasing too much redundant raw materials or hiring too many managers.
Lower dividend. Using retained profits to finance business growth can lead to lower short-term returns to shareholders. Meaning, there will be less dividend paid to the owners from Net Profit After Interest and TAX.
Losing focus. Growth into new business areas and activities through diversification (developing new products to enter new markets) is risky because it draws the focus away from the firm’s core activities. As a result, the company may lose focus and direction for the whole organization.
