Business aims, objectives and organisation

Objectives“An objective is a goal that needs to be

achieved. Mission statements “Under both UK and EU law, a company must

state what it is in business to do - this is known as its overall aim and it can be embodied in a mission statement. This is often a simple and memorable sentence which explains what the organisation is in business to do and what it wants to achieve.

A mission statement can often be found in the front of a company’s annual report and it is, effectively, a summary of its day-to-day activities and long-term objectives, showing a sense of underlying purpose and direction. It is often argued that mission statements are best when they are simple and informal.

ObjectivesFor example:Ford Motor Company PLC “….is a

worldwide leader in automative products and services, as well as in newer industries such as aerospace and communications. Our mission is to improve continually and meet our customers’ needs, allowing us to prosper as a business and to provide a reasonable return for our shareholders.”

Cadbury Schweppes PLC “….is a major international company with a clear focus on its two core businesses – confectionery and beverages. Our quality brands are bought and enjoyed in more than 110 countries around the world….”

The Body Shop PLC “….to dedicate our business to the pursuit of social and environmental change….”

ObjectivesA good mission statement should be clearly defined,

realistic and achievable, and at the same time it should ensure that the employees’ attention is focussed towards the overall company aim.

Mission statements normally express the organisation’s objectives in qualitative terms, (as opposed to quantitative, that is, facts and figures) and many businesses include the following variables in their mission statement: their number one priority, their product definitions, their non-financial objectives and their overall values and beliefs.

Although many people view mission statements as a focus for employees and for other stakeholders, they are still viewed by their critics as nothing more than a publicity seeking exercise. 

Business objectivesIt is important to understand how

business objectives 'fit in' with business aims and strategies.-

An aim states what you want An objectives set out what you need to

have achieved to get what you want A strategy is a course of action which

enables you to meet your objectives.

Business objectivesIn order for objectives to be effective, they must:1. provide detail about what specifically needs to be

achieved (often in a quantitative form)

2. have a time limit by when they need to have been achieved

3. need to state the necessary resources that they require in order to be met.

Setting clearly defined and realistic objectives will enable many employees to understand exactly what their job entails and achieving clearly stated objectives might be linked to bonus payments - this can easily act as an incentive and motivator to employees.  

Primary and secondary objectives

A primary objective is an ultimate long-term goal of the business (e.g. survival, profit maximisation, diversification and growth). They are often referred to as strategic objectives. A secondary objective is a day-to-day objective, and it makes a direct contribution to meeting the primary objectives (e.g. increase sales by 5% each year, keep labour turnover at less than 4%). They are often referred to as Tactical objectives. 

Private sector- Objectives Private sector objectives will often differ considerably from

objectives set in the public sector.

Profit maximisation is often quoted as the over-riding objective for businesses in the private sector. This will involve trying to produce at the point where there is the maximum difference between the firm’s total revenue and its total cost - resulting in large dividend payments for the shareholders. However, it is far more likely that businesses will aim to profit satisfy rather than profit maximise (that is, they will aim to earn a satisfactory level of profits to keep shareholders content, and then use the remaining resources to pursue other objectives such as diversification and growth).

Another objective in the private sector, for a rapidly growing business, may well be to maximise sales (or sales revenue) and so increase their market share in order to gain a competitive advantage. Many businesses set objectives to improve their image and to appear more socially responsible and environmentally friendly – this is often achieved through strategies of recycling materials, sponsoring local events and strictly adhering to all employee legislation (e.g. pay levels, Health & Safety, discrimination, etc.).

Public sector objectives Public sector objectives have, traditionally, been centred around

providing a public service, rather than make a profit (e.g. when British Gas was a public corporation it had to provide gas supplies to all areas of the UK, many of which were isolated and very unprofitable for the organisation).

This regularly led to loss-making organisations being subsidised by the government, and complacency crept in with regards to customer service, quality levels and response times. However, in the UK in the 1980s and 1990s, a massive privatisation programme by the government was implemented and many large utilities such as British Gas, British Telecom and the Electricity Boards were sold to the private sector.

The remaining public sector organisations were told to run in a more cost-efficient manner and to improve the quality of their services to consumers. Performance targets were set for many Local Health Authorities, Local Education Authorities and council services in an attempt to make them more accountable, to reduce their costs and to improve the quality of their output.

Short term long termShort-term objectives will often differ from long-

term objectives, especially if the business is experiencing poor financial performance at present.

A short-term objective may be to consolidate, or even simply to survive the difficult trading conditions that it is experiencing.

Once this has been achieved and the business has stabilised its performance, then it may well look to achieve its long-term objective of diversification into new products and new markets, or growth through amalgamation.

StrategyA strategy is a way of achieving an objectiveDecision-making

Businesses of all sizes have to make many decisions each day - some are fairly simple and routine, whilst others are more complex and require significant management time and effort.

Some examples of decisions that all businesses need to make are: Where should we locate the business?- What goods should we produce?- What price should we charge?- What wages should we pay?- What should we do if a supplier fails to deliver on time?- Which job agency should we use to provide us with some temporary workers?- Which employee appraisal system should we use?

Decision-making is the basic task of all managers in all departments of the business, and both in the private and the public sectors. These decisions are, effectively, designed to influence the actions of other people.

A strategic decision is one which is very high-risk and is likely to influence the overall long-term policy and direction of the business. As such, it is likely to be dealt with by senior management (e.g. what new products to develop).

A tactical decision is a fairly routine, predictable, short-term decision, which is normally handled by middle management (e.g. what price to charge for products). Other decisions which are repetitive, day-to-day and fairly risk-free are handled by lower-level management, and are generally referred to as operational decisions (e.g. how long should tea-breaks be?).

Businesses have to make decisions in order to achieve their objectives.

StrategyThere are eight key stages involved in the traditional decision-making process: 1. Set objectives. The decision-making process cannot proceed without an achievable, realistic

and identifiable target to be met. 2. Gather data. Use market research to collect as much information as possible from inside and

outside the business, so to enable the decision-makers to have the necessary data with which to make an effective decision.

3. Analyse the data. Look at the different courses of action and decide which ones look the most achievable and realistic to meet the objective.

4. Make a decision. This stage is vital to the whole process. The decision-makers must ensure that they follow the correct course of action and do not reject a better alternative.

5. Communicate. This to the whole organisation. The relevant people, both inside and outside the organisation, need to be informed about the decision and how it may affect them.

6. Implement the decision. The course of action that has been decided upon is implemented, using the available resources of the business.

7. Look at the results. Obtain as much feedback as possible concerning the recently implemented decision, from as many sources as possible.

8. Evaluate the outcome. Did the decision work ? Was it the best course of action ? How can it be improved next time? What went wrong?

Businesses can rarely carry out their decision-making in a totally open and risk-free environment, and there are often many constraints which exist, that will limit the possible options available to a business. These constraints can be internal (such as the lack of available finance, or the lack of a multi-skilled workforce) and external (such as a rise in interest rates, a new competitor entering the market, or new legislation which restricts the activities of the business).There are many tools available to a business that will help it limit both the risk involved and the chance of failure, when making a vital decision (such as launching a new product, taking over a competitor, or breaking into foreign markets).

Contingency Planning and Crisis Management Not all the opportunities and events that a business faces will go to plan, and some may

prove detrimental to the continuity of the business (such as a huge downturn in demand for their products). Contingency planning means preparing for these unwanted and unlikely possibilities. A business may produce a contingency plan in case of:

1. a severe recession;2. an environmental disaster;3. a sudden strike by its workforce.

Contingency plans enable a business to be in a better position to manage a crisis, rather than to try and simply cope with it when it occurs.

Before contingency planning can take place, a business must consider many possible threats and crises that it may face, in order to be able to react to them swiftly and efficiently if they do ever occur. These potential scenarios are often computer-simulated, and they can predict to a high level of accuracy the likely effects of a crisis on the finances and resources of a business.

Crisis management is the response of an organisation to a crisis (e.g. a fire, terrorist activity, natural disaster). Many companies will have some sort of contingency plan to cater for such situations, but it is rare that the actual crisis will go according to plan. It is likely that the person in charge at the time of the crisis will manage the crisis in a very authoritarian fashion, as he needs to make quick and effective decisions without the time for discussion and consultation with others. Effective planning should reduce the impact of a crisis on a business, but nevertheless to overcome any crisis is likely to cost the business a significant amount of time and money.

Contingency Planning and Crisis Management Some crises will be long-lasting and will affect the whole economy (such as a

recession, or a natural disaster), some crises will affect all the businesses in a particular industry (such as the collapse in demand for UK ship building) and others crises will simply affect a single business (such as the Perrier Water contamination scandal, or a strike by a workforce).

Any crisis is likely to have implications for the finances of the business, the effectiveness of personnel and communications and the production patterns. The business must be seen to be acting swiftly when faced with a crisis, and it must try to ensure that the damage to the business (especially to its reputation and its image) is minimised by using which ever resources are at its disposal.

Successful public relations campaigns, adequate finance, strong leadership, rapid action and effective communication (both internal and external) are the key ingredients for a crisis to be solved effectively. Crises will always pose a number of unexpected and unforeseen problems and dilemmas for businesses. However, as long as the business is seen to be limiting the effects of the crisis upon its various stakeholder groups (especially its customers) then its reputation may well remain intact.

Legal Structure / Ownership A sole trader is a one-person business, commonly found in trades where only small

amounts of finance are required to set up and where there are very few advantages to the existence of larger organisations (e.g. hairdressing, newsagents, market traders).

Sole traders often employ waged employees, but they alone have to provide all the finance (often savings and bank loans) and bear all the risks of the business venture. In return, they have full control of the business and enjoy all the profits.

A sole trader faces unlimited liability for his/her debts and it is referred to as an unincorporated business – this means that there is no legal difference between the business and the owner.

Legal Structure / Ownership Partnership To overcome many of the problems of a sole trader, a partnership may be formed. A

partnership is an association of individuals and generally there will be between 2 and 20 partners.

Each partner is responsible for the debts of the partnership and therefore you would need to choose your partners carefully and draw up an agreement on the responsibilities and rights of each partner (known as a Deed of Partnership or The Articles of Partnership). The most common examples of a partnership are doctor’s surgeries, veterinarians, accountants, solicitors and dentists.

As stated earlier, most partners in a partnership face unlimited liability for their debts. The only exception is in a Limited Partnership. This is where a partnership may wish to raise additional finance, but does not wish to take on any new active partners.

To overcome this problem, the partnership may take on as many Sleeping (or Silent) Partners as they wish – these people will provide finance for the business to use, but will not have any input into how the business is run. In other words, they have purely put the money into the business as an investment. These Sleeping Partners face limited liability for the debts of the partnership. A partnership, just like a sole trader, is an unincorporated business.

Legal Structure / Ownership Private Limited Company This is a type of joint-stock company (that is, it is an incorporated business – where the business has a

separate legal identity from the owners). Often private limited companies are small, family run businesses which are owned by shareholders.

Each shareholder in a private limited company MUST be a part of the business and under no circumstances can any shares be sold to members of the general public. Each share entitles the owner to 1 vote at the company’s Annual General Meeting (A.G.M.) and also to a share of the company’s profit at the end of the financial year (a dividend).

Each shareholder has limited liability for the company’s debts and can, therefore, only lose the value of their investment in the company. A company is run by a Board of Directors (who are elected by the shareholders) and this is headed by a Chairman.

Before a company can be formed, a number of legal documents must be completed – most important are the Memorandum of association and the Articles of Association. These cover details such as :

- the objectives of the business - its headquarters and registered office - the amount of capital to be raised from the sale of shares - details concerning meetings within the business - the arrangements for auditing the accounts of the business. When these are completed, they are sent to the Registrar of Companies, who will then issue the

business with a Certificate of Incorporation which allows the business to trade as a Private Limited Company. The company’s name must finish with the word Limited and it must raise less than £50,000 of share capital.

It can be very difficult for a shareholder in a private limited company to sell their shares, since a buyer must be found within the framework of the company.

Legal Structure / Ownership Public Limited Company (P.L.C.) This is the other, much larger, type of joint-stock company and, just like a private limited company, a

PLC is an incorporated business, is run by the Board of Directors on behalf of the shareholders and has an A.G.M. at which shareholders vote on certain key issues relating to the company.

The main difference between a PLC and a private limited company is that a PLC can sell its shares on the Stock Exchange to members of the general public and can, therefore, raise significantly more finance than a private limited company.

If a private limited company wishes to become a PLC, then it must change its Memorandum and Articles of Association and re-submit them to the Registrar of Companies.

If the company is considered to have acted legally and for the best interests of its shareholders, then it will be issued with a new Certificate of Incorporation and also with a Certificate of Trading, which will allow it to sell its shares on the Stock Exchange. The price of the shares will then fluctuate according to investors’ perceptions of the PLC.

It is often the case with a PLC that the owners of the company (shareholders) will wish the PLC to make as much profit as possible, so that the shareholders will receive a very handsome dividend per share.

However, the Board of Directors and the management will often wish to devote some of the PLC' s resources to growth and diversification (such as the introduction of new products) and this will clash with the shareholders’ desire for maximum profits. This is known as the divorce of ownership and control.

The PLC has to publish its annual accounts (known as disclosure of accounts) and therefore is extremely vulnerable to investors’ and bankers’ perceptions about its progress and success. Following on from this, a PLC is also at risk from a takeover from an outside body, if they manage to accumulate over 50% of the shares in the PLC.

Legal Structure / Ownership Public Sector Organisations The public sector refers to all the businesses and organisations which are

accountable to central or local government. They are funded directly by the government and they tend to supply public services rather than produce products for a profit.

The public sector provides 3 types of good / service. - A public good is one which would not be provided by private sector businesses

because it would not be profitable to do so (such as the emergency services and the armed services).

- A merit good is one which the government feel that everyone should have, whether or not they could afford them in the private sector (such as education and healthcare).

- Essential services (such as street lighting, refuse collection, street cleaning, parks, libraries, swimming pools, etc.).

A public corporation is the term used to describe a nationalised industry which is providing a good or a service to the general public. Until the successive Conservative governments of Thatcher and Major (1979-1997), there were many public corporations in the UK providing a huge range of services to consumers. However, the Conservatives sold many of these public corporations to the private sector – this process is known as privatisation.

Central government pays for the public goods and merit goods through taxation (e.g. Income Tax), whereas local governments pay for the services they provide through Council Tax (formerly Community Charge and, before that, through Rates).

Legal Structure / Ownership Franchising Franchising has led to a rapid growth in the presence of many high-street stores in

the UK over the past 10 years (e.g. McDonalds, Tie Rack, Perfect Pizza, and The Body Shop). A business franchise involves the franchisor (the owner of the business) selling a business format to a franchisee (the purchaser of the business name) in return for a fixed sum of money and a percentage royalty on sales revenue.

The franchisee will be based locally and is likely to be making his initial business venture. He buys the business format, which has been tried and tested in other areas, and it is therefore a far less risky venture than setting up his own business.

The franchisee has a licence to trade under the franchisor’s name and also to use the logos, trademarks, etc. the licence that the franchisee buys is usually restricted to a specific geographical area and for a limited period of time.

This process of selling the rights to use a company’s name, logo, etc. can result in the parent company experiencing rapid expansion in a country, with little of the investment that would have been required had the company bought the outlets itself. The franchisee is provided with a ready-made product, financial and management help and advice, lower start-up costs than for a business of his own, and help with the store layout.

However, the royalty must be paid to the franchisor even if a loss is made and the franchisee can have strict restrictions placed on their actions and promotions within the store, not leaving the franchisee much room for initiative and flair.

Organisation charts Business structure

Every organisation made up of more than one person will need some form of organisational structure. An organisational chart shows the way in which the chain of command works within the organisation.

The way in which a company is organised can be illustrated for a packaging company. The company will be owned by shareholders that choose directors to look after their interests. The directors then appoint managers to run the business on a day-to-day basis:

The Managing Director: has the major responsibility for running of the company, including setting company targets and keeping an eye on all departments.

The Distribution Manager: Is responsible for controlling the movement of goods in and out of the warehouse, supervising drivers and overseeing the transport of goods to and from the firm.

The Production Manager: Is responsible for keeping a continuous supply of work flowing to all production staff and also for organising manpower to meet the customers' orders.

The Sales Manager: Is responsible for making contact with customers and obtaining orders from those contacts.

The Company Accountant: Controls all the financial dealings of the company and is responsible for producing management accounts and financial reports.

Organisation charts Organisational structure

Other organisations will have different structures. For example most organisations will have a marketing department responsible for market research and marketing planning. A customer services department will look after customer requirements. A human resources department will be responsible for recruitment and selection of new employees, employee motivation and a range of other people focused activities.

In addition there will be a number of cross-functional areas such as administration and Information Technology departments that service the functional areas of the company. These departments will provide back up support and training.

Organisations are structured in different ways:1. by function as described above 2. by regional area - a geographical structure e.g. with a marketing manager North, marketing manager South etc3. by product e.g. marketing manager crisps, marketing manager drinks, etc 4. into work teams, etc.

Reporting in organisations often takes place down the line. An employee might be accountable to a supervisor, who is accountable to a junior manager, who is then accountable to a senior manager - communication and instructions can then be passed down the line.

Definitions Authority – the right to make decisions and carry out tasks Span of control – the number of people a superior

is responsible for Chain of Command – the relationship between different levels of

authority in the business Hierarchy – shows the line management

in the business and who has specific responsibilities Delegation – authority to carry out actions

passed from superior to subordinate Empowerment – giving responsibilities to people

at all levels of the business to make decisions

Centralised / Decentralised? Traditionally, many businesses had highly centralised decision-making, with all they key decisions

being made by senior management, with little responsibility and authority being passed down the hierarchy.

The advantages of this method of management are: 1. The business has tight control over its operations. 2. people can specialise in the jobs to which they are best suited. However, the disadvantages include : 1. The business becomes rather inflexible and bureaucratic in its operations. 2. Decisions can take a long time to be made. 3. There is very little use made of employees further down the hierarchy.

An alternative management method is for decentralised decision-making to occur. This is where responsibility and authority are passed away from the top of the business to regional offices and departments.

The advantages of this method of management are: 1. The development of many employees by empowering them. 2. The business becoming faster and more efficient in its operations. 3) Higher levels of morale and motivation amongst the employees. However, the disadvantages include: 1. A loss of control / power at the top of the business. 2. Getting too many employees involved in decision-making may lead to mistakes being made.