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Level 1 Business Studies 1.1 - AS90837 Demonstrate an understanding of internal factors of a small business Aims and Objectives Aims show what a business is trying to achieve in the long term. Aims and Objectives Objectives are used to highlight how those aims are going to be achieved. Objectives can be in the form of targets, for example: 1. selling more products or providing more services than a competitor; selling more products or providing more services than in the previous year; producing new goods or providing a new service; 2. 3. http://wikitextbook.co.uk/ Setting Objectives In most businesses, the owners decide on the objectives for the business. When a business first starts trading it has few loyal customers and no reputation. The most likely objective for a start up business is simply survival. As the business grows and begins to win market share, the aim may shift towards expansion and/or increasing profits. Some owners have a vague idea about their objectives. The best types of objective are SMART. Objectives – other examples Maximise profit Be the biggest in the market Provide the highest quality product possible Maximise sales and wealth creation Maintain market share or a reasonable income Expand the business Limit environmental damage Contribute to community groups / organisations SMART Objectives Sometimes a business will use SMART objectives. A SMART objective will have to comply with the following points: Specific - you should know when an objective has been reached by making it as definite as possible; Measurable - you should be able to measure whether the objective has been achieved; Attainable - the target must be possible to achieve; Relevant - it should form part of the business's overall aim; Time-related - the objective should be achieved in a specified time period. SMART Objectives (continued) An example of a SMART objective is 'to increase profits by 10% within the next 12 months'. SMART objectives allow the performance of a business to be assessed. Stakeholders While owners have a major say in deciding the aims of a business, other interest groups called stakeholders are usually considered. Stakeholders are any group of people interested in the activities of the business - they could be managers, staff or customers. When owners sacrifice some profit to pay staff an annual bonus, this is an example of stakeholder consideration. Qualitative Objectives Qualitative objectives cannot be easily measured because they refer to quality rather than quantity. The business may simply have to state how it is doing in achieving the objective rather than saying that 50% or all of it has been completed. Examples of qualitative objectives are on the next two slides: Qualitative Objectives (continued) 1. Customer satisfaction - it is very difficult to say whether or not a consumer is satisfied. Some businesses try to measure customer satisfaction by: - counting how many customers return in the future, - by sending out questionnaires or - they will monitor the number of complaints they receive. Once this has been done it is possible to set measurable objectives for the future, for example reducing the number of complaints by 10%. Qualitative Objectives (continued) 2. 3. Being socially aware - many businesses have an objective to become more socially or environmentally aware in their treatment of workers, suppliers or customers. It is very difficult to measure for example, whether the price you pay to workers in a developing country is a fair one. Developing a good reputation - many businesses want to build up a good reputation for supplying a particular good or service. Again there are difficulties in measuring what customers think of you. Conflicting Objectives Although the groups within a business may all agree with the aims of the business, they may disagree about how to achieve them. For example, a business who wishes to become more efficient; the managers may wish to set an objective of introducing more automisation, whereas the worker would want an objective of increasing training as automisation would lead to redundancies. Conflicting Objectives (continued) Another conflict may arise between owners and managers. The owners would want the business to make as much profit as possible, whereas the managers would want to enjoy many expensive perks (company cars and longer holidays for example) that would reduce the profit of the business. Why Business Objectives Change 1. 2. An economic recession can cause a business to change its objectives The aim of a business can change over time. This can happen in response to internal factors, such as business growth, or in response to external factors, such as an economic recession. Why Business Objectives Change (continued) 3. 4. A small start up business may aim to survive in the first year. Once successful, the business then sets itself the objective of increasing profits or growing in size. Alternatively, a profitable business that is hard hit by an economic recession may struggle to maintain the same level of output. Faced with declining sales, a business may change its objective from growth or making a profit, to simply surviving.