Business and stakeholder objectives

What businesses are trying to achieve

A business objective is a target the business is aiming for. 0264 names four, and they are not interchangeable.

Survival comes first, and not only for new businesses. A business making a healthy profit on paper can still fail if it runs out of cash, which is why a firm in trouble will sell stock below cost to raise money. That looks irrational until you notice the objective has changed.

Market share is worth defining carefully, because it is the objective students most often describe loosely. It is this business's sales as a proportion of the sales of the whole market, so it can rise while sales fall, if the market as a whole is shrinking more slowly than the business is. The calculation itself belongs to 3.1, but the idea that it is a share of a moving total belongs here.

Objectives also change as a business changes. A start-up chases survival. Once established, it chases profit and growth. After growing too fast, it may go back to survival. When a question asks whether an objective is suitable, look at where the business is in that cycle rather than at what sounds ambitious.

Why having objectives matters

Objectives are not decoration, and a question asking about their importance wants four distinct answers.

• Direction. Everyone in the business knows what they are working towards, so decisions in different departments pull the same way.
• Motivation. A clear, achievable target gives employees and managers something to aim at and to be measured against.
• Measuring success. Without a target, there is nothing to compare the outcome with. "Sales rose" means something only against "we aimed to raise sales by 10 per cent".
• Persuading outsiders. Banks and investors lend against a plan with objectives in it, not against optimism.

Useful objectives are specific and have a deadline. "Increase market share" cannot be judged. "Increase market share from 12 per cent to 15 per cent within two years" can, and it tells the marketing department how much it has to achieve.

Stakeholders

A stakeholder is any person or group with an interest in the activities of a business. 0264 splits them into internal groups, who are part of the business, and external groups, who are outside it.

Two of these are easy to get wrong. Managers are not the same as owners in a company. Managers are employed to run a business that shareholders own, and their pay and job security depend on decisions that may not maximise the shareholders' dividend. And lenders are external, even though the bank may care intensely about the business, because they are not part of it.

How stakeholder objectives conflict

The conflicts are the part of this subtopic that carries analysis and evaluation marks, so learn them as pairs with a mechanism, not as a list of unhappy groups.

None of these conflicts has a fixed winner, and saying so is not evaluation. What earns the evaluation mark is deciding which stakeholder matters most to this business right now, and why. A business that has just been refused an overdraft has to satisfy its bank before anything else. A restaurant whose reputation is built on service cannot cut staff to please shareholders without losing the customers the shareholders depend on. A factory that employs half a small town cannot ignore the local community, because the same people are its workforce.

The other route to the evaluation mark is a compromise that names its own cost. Raising wages by 4 per cent instead of the 8 per cent asked for may keep employees working while protecting some margin, but it may also leave staff resentful and the dispute unresolved. Say the second half. A recommendation that pretends a conflict can be settled at no cost is the one the mark scheme calls unjustified.

Writing this topic for the marks

Stakeholder questions are the easiest place on Paper 1 to write a page and score two marks, because it is so tempting to list groups.

Naming a stakeholder is knowledge. Naming what that stakeholder wants from this business is application: not "employees want good pay" but "the 200 workers at the plant the business plans to close want their jobs kept".

Analysis is the next link in the chain. Closing the plant cuts wage costs, which raises profit, which is what the shareholders wanted, and it also removes the town's largest employer, which cuts local spending in the shops the business also supplies. Adding a fourth stakeholder instead of following the first one through earns another knowledge mark and no more.

Evaluation is a decision with a reason that does not repeat the analysis. "Employees are affected most because they lose their income" is analysis restated. "Employees are affected most because the business needs their skills to reopen if demand recovers, and skilled staff who leave will not come back" is a reason for the ranking, which is what the eighth mark is for.

Common mistakes

• Treating profit as the only objective. Survival, growth and market share are named alongside it.
• Saying a business that sells below cost has made a mistake. It may have switched to survival.
• Confusing market share with sales. Share is a proportion of the whole market, so it can move when sales do not.
• Calling customers or suppliers internal stakeholders. Only owners, managers and employees are internal.
• Treating managers and shareholders as one group with one set of objectives.
• Listing stakeholder groups without saying what each wants from this particular business.
• Giving a conflict as two groups being unhappy, without the mechanism that links them.
• Concluding that a business should keep all its stakeholders happy. That is the problem in the question, not an answer to it.
• Writing an objective with no number and no deadline when the question asks whether it is a useful objective.

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