Business objectives and stakeholder objectives | IGCSE Class 10 Business Studies Notes

This note covers business objectives, survival, profit, growth, market share, changing priorities, social enterprises, internal and external stakeholders, conflicts between their objectives, and differences between private sector and public sector enterprises.

What are business objectives, and why do businesses need them?

Definition: A business objective is a result that a business seeks to achieve through its activities. Objectives give its work a purpose and provide a basis for judging performance.

A business uses resources, such as people, equipment and money, to supply goods or services. Its objectives guide how it uses those resources. An objective describes the intended result; an action describes what the business does to pursue that result.

Stakeholders are individuals or groups with an interest in a business who can affect, or be affected by, its activities. Objectives matter to them because business decisions influence the benefits they receive and the difficulties they face.

What advantages do clear objectives provide?

Clear objectives give managers, the people responsible for organising and directing business activities, a common direction. They help connect individual work with the organisation's overall purpose. This matters when different people perform different tasks but contribute to the same result.

Objectives also support performance review, meaning comparison of what was achieved with what was intended. A business can examine its results and identify where improvement is needed. Simply being busy does not establish that the intended result has been achieved.

Why is one objective insufficient?

A business must balance several needs. Earning money matters, but so do meeting customers' requirements, treating workers fairly and maintaining support from society. Customers buy its goods or services; employees are people who work for it in return for pay. Multiple objectives recognise these different needs rather than treating one result as a complete measure of success.

Objectives therefore connect purpose, decisions and review. The business identifies what it wants to achieve, directs its activities towards that result, and examines what happened. This does not guarantee success, but it provides a clearer basis for managing the business.

How do survival and profit differ as business objectives?

Survival means continuing to operate. A business must earn enough revenue to cover its costs if it is to sustain its activities. Revenue is income earned from selling goods or services; costs are the expenses incurred in carrying out business activities.

Profit is the excess of revenue over costs. Survival focuses on continued existence, while a profit objective seeks a surplus, the amount remaining after costs have been covered. These objectives are related, but describing them as identical loses the distinction between continuing and earning a surplus.

Definition: Profit = total revenue minus total costs. Total revenue means all sales income for the period; total costs means all business costs for that same period. The equals sign means that both sides represent the same amount.

Why does profit matter?

Owners are the individuals or groups to whom a business belongs. Profit can provide them with income and funds for expansion, meaning an increase in the scale of business activity. It provides an incentive to continue operating and a reward for accepting business risk, the possibility of inadequate profit or loss arising from uncertainty.

Profit may also indicate how successfully a business is operating. However, the amount earned does not by itself show whether customers received appropriate quality or workers received fair treatment. Economic performance and responsibilities towards other people both need consideration.

What are the limitations of concentrating on profit alone?

Too much emphasis on profit to the exclusion of other objectives can be dangerous. Managers may neglect responsibilities towards customers, employees, investors and society. Investors commit money to a business expecting a financial return, or benefit from that investment. Affected groups may withdraw their cooperation or oppose the business, which might then lose business and become unable to earn profit.

This explains why earning profit and maintaining stakeholder support are connected. Fair treatment and reliable products have significance beyond an immediate sale. A business seeking continued success needs to consider how today's decisions affect the people on whom its activities depend.

Do not replace a profit objective with an automatic claim of profit maximisation. Profit maximisation means seeking the greatest possible profit. A business can aim to earn a reasonable profit while also giving weight to survival, growth or social objectives.

How do growth and market share describe different achievements?

Growth means an increase in the scale of a business. It can be measured through increased sales volume, employee numbers, the range of products or capital investment. Capital investment means funds committed to resources used by the business.

Sales volume is the quantity sold. A growth objective should make clear which aspect of size is being considered. More employees and more products are different indicators, so a statement that a business has grown needs an identified measure.

What does market share measure?

Market share is a business's sales as a proportion of total sales in a particular market. A market brings together buyers and sellers of a product or service. Market share therefore describes the business's sales relative to the sales of all businesses in that market.

Sales can be compared by quantity or by value, meaning the money received from sales. The business's sales and total market sales must use the same basis and period. Mixing quantities with money would not give a meaningful proportion.

Why should growth and market share be kept separate?

A business's sales may grow while its market share falls if total market sales grow faster. Conversely, its share may rise without an increase in its own sales if total market sales fall. The direction of its own sales is therefore insufficient evidence about its share.

Growth is not the same as profit, either. More sales can accompany greater costs. To judge profit, compare revenue with costs; to judge growth, identify the measure of business size; to judge market share, compare business sales with the whole market.

Why can the importance of business objectives change?

A business can have several objectives at the same time, while the importance attached to each changes. A priority is an objective given greater attention when decisions must be made. Changing a priority does not necessarily mean abandoning every other objective.

Business operates in an external environment, the conditions outside the organisation that influence it. These include economic and social conditions. Management must adapt the organisation and its goals to the needs of this environment rather than assume that earlier priorities remain suitable indefinitely.

How can conditions affect the balance of objectives?

Changes in customer preferences or increased competition may reduce demand. Demand means customers' willingness and ability to buy; competition means rivalry between businesses seeking customers. Reduced demand can put pressure on sales and profit, making continued operation a more pressing concern.

Shortages of raw materials, the inputs used to make products, may raise their prices. The business may then face higher production costs and reduced profit. A plan for growth must be considered alongside whether existing activities can still be sustained.

A new business may give particular attention to survival while establishing itself. A more secure business may give greater attention to growth. These are possible changes in emphasis, not a fixed sequence through which every business must pass.

How should a change of objective be explained?

1. Identify the change in circumstances, such as weaker demand or higher input costs.
2. Explain how it affects the business's ability to continue operating or develop.
3. Identify the objective that becomes more important in those circumstances.
4. Explain why that priority addresses the problem while recognising other objectives.

A clear explanation links a cause to a business consequence and then to a priority. Merely saying that objectives change provides no reason. Equally, a fall in sales does not prove that every possible growth activity must stop; the conclusion depends on the circumstances.

The same business can therefore retain survival, profit and growth as objectives while reviewing their relative importance. The practical issue is which result needs greatest attention at the time, given its resources and the conditions in which it operates.

What objectives do social enterprises pursue?

A social enterprise is a business that trades primarily to achieve a social or environmental purpose. Trading means selling goods or services. Its purpose concerns benefits to people or the environment, while its trading activity helps provide the means to pursue that purpose.

Social objectives concern benefits for society. These can include employment opportunities for disadvantaged groups and services that improve community wellbeing. Environmental objectives concern protecting natural surroundings and resources, including reducing the harm caused by business activities.

Why does a social enterprise still need financial objectives?

A social purpose does not remove the need to cover costs. The enterprise needs resources to keep providing its goods or services. Financial sustainability means having sufficient income and resources to continue its activities over time.

Social enterprises typically reinvest a substantial part of their surplus in their purpose. Reinvestment means putting money back into the enterprise or its activities. A surplus is income remaining after costs; here it helps sustain or extend the intended social benefit.

This means that financial and social objectives should be considered together. Continued trading supports continued activity, while the social purpose guides what the activity is intended to achieve. Financial results alone do not fully describe success when the central purpose is social benefit.

How is a social enterprise different from social responsibility?

Social responsibility is a business's obligation to make decisions and take actions that are desirable in terms of society's objectives and values. It applies more broadly than social enterprises. An ordinary profit-seeking business can also act responsibly towards workers, customers and the community.

Supplying good quality goods, maintaining healthy working conditions and attending to customer complaints are socially desirable practices. Their adoption does not, by itself, establish that a business exists primarily to fulfil a social purpose. The distinction concerns its central purpose.

Note: A social enterprise is not defined by government ownership. Social purpose and ownership answer different questions: why the business operates, and who owns or controls it.

When considering its objectives, identify the intended social benefit, the trading activity that supports it, and the need to continue operating. Avoid treating profit as either the whole purpose or something a social enterprise cannot earn.

Who are the internal stakeholders, and what do they want?

Internal stakeholders are groups within the business, including owners, managers and employees. Owners hold the business's ownership interest. Shareholders are owners of shares, which represent portions of ownership in a company. Employees are people who work for the business in return for pay.

What are the objectives of owners and managers?

Owners have committed resources to the business and have an interest in a fair return, meaning a financial benefit from their investment. They also want their investment protected. Information about performance and future plans helps them understand how the business is being managed.

Managers organise activities and help turn overall objectives into action. As employees, they can value pay, recognition and career development. Their responsibility for the business also requires attention to organisational results. Personal ambitions and business responsibilities are related but not necessarily identical.

What do employees seek?

Employees have financial needs, such as fair pay, and other needs, such as recognition and opportunities to develop. Meaningful work and suitable working conditions matter too. Job security means confidence that employment will continue, an interest linked to the business's survival.

These categories can overlap. An owner may also manage or work in the business. The same person can therefore consider a decision from more than one perspective. Explain the interest involved rather than assuming that a person has only one role.

Nor does membership of a group mean that every member wants exactly the same outcome. The central point is that personal objectives, the results individuals seek for themselves, must be considered alongside the organisation's objectives when coordinating work.

Who are the external stakeholders, and why do their objectives matter?

External stakeholders have an interest in the business without being part of its internal organisation. Main groups include customers, suppliers, lenders, government and the local community. Their interests differ because their relationships with the business differ.

What do customers, suppliers and lenders seek?

Customers buy the business's goods or services. They have an interest in appropriate quality and quantity, reasonable prices and reliable service. Accurate product information helps them make purchasing decisions. Misleading advertising can conflict with these interests.

Suppliers provide goods or services used by the business. They generally seek continued orders and payment as agreed. The business's survival can matter to them because a continuing customer can provide further trading opportunities.

Lenders provide money that must be repaid, including banks that make business loans. They seek repayment and agreed interest, the charge for borrowing money. Their interest in the business's ability to pay differs from an owner's interest in the returns from ownership.

What do government and the community seek?

Government has an interest in businesses obeying the law and paying taxes, the compulsory payments collected by public authorities. Employment and economic activity also matter. The local community consists of people living near or affected by the business's operations.

Business activity can provide employment while also affecting natural surroundings. The community's interests therefore cannot be reduced to a single benefit or cost. Pollution, the introduction of harmful substances into the environment, can create a conflict between business activity and people's wellbeing.

Stakeholder status does not require ownership. A customer, supplier or neighbour can be affected by decisions without owning shares. Identifying the relationship is the starting point for explaining the group's objectives and the consequences of a business decision.

How does the law protect the environmental interests of the community?

Government can give the community's interest in a protected environment the force of law. In India, the directive principles of state policy in the Constitution emphasise protection of the environment, and Parliament has enacted several environmental laws that businesses must obey.

Obeying such laws is one practical step a business can take against pollution. It also reduces the risk of legal liability, which could otherwise damage profit and public image. Compliance may add costs, so managers weigh these against the risks of ignoring the law.

How can stakeholder objectives conflict with each other?

A conflict of objectives occurs when pursuing one desired result makes another harder to achieve. Different stakeholders can favour different uses of the same resources. To explain a conflict, identify both groups, both objectives and the connection between them.

How can profit conflict with worker and customer interests?

Owners may seek higher profit while employees seek higher pay. If higher pay raises total costs without an offsetting change in revenue or other costs, profit falls. This creates a possible conflict over how much the business pays its workers.

Customers seek reasonable prices and appropriate quality. A business's attempt to earn immediate profit through poor quality goods or misleading advertising can work against these interests. The conflict concerns how profit is pursued, rather than proving that profit and customer satisfaction are necessarily incompatible.

Why do immediate and longer-term effects matter?

An action that raises immediate profit may reduce stakeholder support. Customers and workers may withdraw cooperation when their interests are neglected. The business might then lose activity and profit. A short-term gain therefore needs to be considered alongside possible longer-term consequences.

Pollution control illustrates the need for balance. It can protect the community and improve the business's reputation. An effective programme can also save operating costs where poor production methods create waste. It should not automatically be described as an expense with no business benefit.

Use conditional reasoning: explain what may happen and the conditions on which the outcome depends. Do not claim that higher wages, lower prices or environmental spending must always reduce profit. The overall result depends on their effects on both revenue and costs.

How can businesses respond to competing stakeholder objectives?

Businesses need to reconcile objectives, meaning bring different goals into a workable relationship. This does not mean that every stakeholder receives everything wanted. It means recognising the interests involved and considering how decisions affect the business and the people connected with it.

Where can stakeholder interests support each other?

Fair treatment can support cooperation. Suitable working conditions help a business gain workers' cooperation, while providing appropriate quality and service addresses customers' interests. Continued business activity can support returns to owners as well as employment.

Social interests and business interests can therefore be complementary, meaning that pursuing one can support the other. Responsible behaviour can improve the business's image. The possibility of conflict does not mean that stakeholder relationships must be a permanent struggle.

How can company law encourage social responsibility?

Corporate social responsibility (CSR) describes a company's responsibility for its impacts on society. In India, section 135 of the Companies Act, 2013 governs CSR, so a company's social objectives can also be a legal matter.

The CSR provisions apply to a company with annual turnover of ₹1,000 crore or more, net worth of ₹500 crore or more, or net profit of ₹5 crore or more. Turnover means sales income; net worth means the value of assets remaining after liabilities are deducted.

• The company must set up a CSR committee of board members, including at least one independent director, under rules applicable from the financial year 2014-15.
• The Act encourages spending of 2 per cent of average net profit of the previous three years on CSR activities.
• Schedule VII of the Act specifies indicative activities.
• Only CSR activities undertaken in India count, and activities meant exclusively for employees and their families do not qualify.

Such spending competes with other uses of funds, yet it can also improve public image and keep stakeholder support. Explain it conditionally, as a decision whose effect on profit depends on its costs and on the cooperation it helps the business retain.

How can a decision be assessed carefully?

1. Identify the business objective involved and the proposed action.
2. Identify the stakeholders affected and the results each group seeks.
3. Explain the possible benefits and disadvantages for those groups.
4. Compare immediate effects with effects on continued cooperation and operation.
5. Reach a reasoned conclusion based on the circumstances and acknowledge any unresolved conflict.

Communication, the exchange of information, helps stakeholders understand a business's position. Owners need accurate information about performance and future growth plans. Customers need honest product information. Attending to complaints also allows a business to respond to concerns about its goods or services.

However, information alone does not remove conflicting interests. Knowing why a decision has been made is different from benefiting from it. A fair assessment should distinguish understanding a decision from agreeing with it or receiving the desired outcome.

A useful conclusion explains why one objective deserves priority in the circumstances. It also recognises the interests that remain affected. Simply stating that the business should satisfy everyone avoids the actual difficulty of making choices when objectives compete.

Finally, responsibility concerns how a business acts as well as the result it achieves. A profitable outcome does not, by itself, justify poor quality, misleading information or unfair treatment. The way objectives are pursued affects continued stakeholder support.

How do private sector and public sector objectives differ?

The private sector consists of businesses owned by private individuals or groups. The public sector consists of organisations owned and controlled by government. This distinction concerns ownership and control, not simply the size of the organisation or who buys its services.

Which objectives can receive different emphasis?

Private sector businesses commonly give importance to returns for owners, alongside survival and growth. Public sector enterprises can place greater emphasis on services and economic or social development. Public welfare means the wellbeing of people across society.

Public enterprises may support the provision of infrastructure, the basic facilities and services needed for economic activity, or development in less developed areas. These objectives can require attention to wider benefits as well as the enterprise's own financial results.

How does company law define a government company?

One form of public sector enterprise in India is the government company. Under section 2(45) of the Companies Act, 2013, it is a company in which the central government, one or more state governments, or both together hold not less than 51 per cent of the paid up capital. A subsidiary of such a company is also included.

Paid up capital is the share capital that shareholders have actually paid to the company. The government controls management through its majority holding, yet private shareholders can also invest, and the company may raise funds from the capital market. It exists for business purposes and competes with private sector companies.

Why should the comparison avoid absolute claims?

Private ownership does not imply that a business ignores society. Social enterprises and socially responsible private businesses show why purpose needs separate examination. Equally, public ownership does not make resources unlimited or remove the need to manage costs and performance.

It is therefore misleading to say that public enterprises cannot earn profit, or that every private enterprise seeks the greatest possible profit regardless of other objectives. Both sectors can have several objectives; the differences concern ownership, purpose and the emphasis placed on particular results.

When comparing enterprises, start with who owns and controls them, then consider what they seek to achieve. Explain the relevant financial and social objectives together. A sound comparison recognises differences without assuming that all enterprises within a sector have identical priorities.

Glossary

• Business objective — A result that a business seeks to achieve through its activities and decisions.
• Stakeholder — An individual or group with an interest in a business that can affect, or be affected by, its activities.
• Survival — Continued business operation, requiring sufficient revenue to cover the costs of its activities.
• Revenue — Income earned by a business from selling its goods or services.
• Profit — The amount by which total revenue exceeds total costs during the same period.
• Growth — An increase in business scale, measured through indicators such as sales, employment or investment.
• Market share — A business's sales as a proportion of total sales in a particular market.
• Social enterprise — A trading business whose primary purpose is achieving social or environmental benefits.
• Social responsibility — A business's obligation to act in ways desirable in terms of society's objectives and values.
• Internal stakeholders — Groups within the business, including its owners, managers and employees.
• External stakeholders — Interested groups outside the internal organisation, including customers, suppliers, lenders, government and the community.
• Conflict of objectives — A situation in which pursuing one desired result makes another harder to achieve.
• Private sector — The part of the economy consisting of businesses owned by private individuals or groups.
• Public sector — The part of the economy consisting of organisations owned and controlled by government.

Common errors and misconceptions

• Misconception: Profit is all the money received from sales. Correct: Sales revenue is income before costs are deducted; profit is the excess of revenue over costs.
• Misconception: Growth in sales proves that market share has risen. Correct: Market share depends on business sales relative to total market sales, using a consistent basis.
• Misconception: All stakeholders own part of the business. Correct: Shareholders own shares; stakeholders also include people such as employees, customers and neighbours.
• Misconception: Business objectives cannot change. Correct: Their relative importance can change as the business and its operating conditions change.
• Misconception: A social enterprise cannot earn profit. Correct: Its primary purpose is social or environmental, but trading income and surplus can support that purpose.
• Misconception: Stakeholder objectives always conflict. Correct: Interests can also support each other, such as fair working conditions helping to gain employee cooperation.
• Misconception: Public enterprises have no financial objectives. Correct: They must consider financial performance alongside service, development or other public objectives.
• Misconception: Higher wages must reduce profit in every situation. Correct: That conclusion requires conditions: increased wage costs must not be offset by changes in revenue or other costs.

Exam-style questions with model answers

Q1. State two reasons why businesses need objectives. [2 marks]

1. Objectives give managers and employees a common direction for their activities.
2. Objectives provide a basis for comparing actual performance with intended results and identifying improvements.

Q2. Distinguish between survival and profit as business objectives. [2 marks]

1. Survival concerns continuing to operate, which requires sufficient revenue to cover the costs of business activity.
2. Profit concerns earning revenue greater than costs, leaving a surplus rather than merely covering expenditure.

Q3. Business growth can be measured through sales volume, employee numbers or capital investment. Market share compares business sales with total market sales. Explain two differences between growth and market share. [4 marks]

1. Growth concerns an increase in the business's own scale, whereas market share concerns its position relative to total market sales.
2. Consequently, employee numbers or capital investment can indicate growth without providing enough information to establish market share.
3. Growth in sales alone does not establish a rise in market share because the whole market may also be growing.
4. If total market sales grow faster than the business's sales on the same basis, the business grows but its share falls.

Q4. Employees seek fair wages. Owners seek profit. Assume that higher wages increase total costs, while revenue and all other costs remain unchanged. Explain the conflict between these objectives. [4 marks]

1. Employees benefit from higher wages because the payment they receive for their work increases.
2. Under the stated conditions, the wage increase raises the business's total costs without an increase in revenue.
3. Profit is revenue minus costs, so the higher costs reduce the amount of profit earned by the business.
4. This conflicts with the owners' profit objective because satisfying the employees' pay objective reduces the surplus available to owners.

Q5. Customers seek appropriate quality, reasonable prices and honest information. Owners seek profit. Explain why pursuing immediate profit through poor quality goods or misleading advertising may harm longer-term business objectives. [6 marks]

1. Poor quality conflicts with customers' objective of receiving goods that meet their needs and expectations.
2. Misleading advertising conflicts with their need for accurate information on which to base a purchasing decision.
3. Such practices may increase immediate profit, but that result does not establish that customers' interests have been met.
4. Customers affected by neglected responsibilities may withdraw their cooperation rather than continue supporting the business.
5. The business might consequently lose sales and become unable to earn the profit it seeks over time.
6. Maintaining quality and honest information therefore supports customer interests and can help protect the business's longer-term prospects.

Q6. A social enterprise trades primarily to achieve social or environmental benefits and reinvests a substantial part of its surplus in that purpose. Explain how financial and social objectives are connected. [6 marks]

1. The social or environmental purpose identifies the benefit that the enterprise exists primarily to achieve through its activities.
2. Trading supplies income by selling goods or services, giving the enterprise a financial means of pursuing its purpose.
3. It still incurs costs, so it needs enough income and resources to sustain the activity that produces the benefit.
4. Activities that deliver social benefits can increase costs, so the enterprise must balance the benefits it aims to provide with the income and resources available.
5. Reinvesting a substantial part of that surplus can help maintain or extend activities serving the social purpose.
6. Success therefore requires attention to continued financial operation and the intended benefit; profit alone does not describe the whole achievement.

Q7. Private sector enterprises are privately owned; public sector enterprises are government owned and controlled. Compare their objectives, recognising that both can have several objectives. [6 marks]

1. Private sector enterprises commonly give importance to financial returns for their owners, who have invested resources in the business.
2. They can also pursue survival and growth, so their objectives should not be reduced to immediate profit alone.
3. Public sector enterprises can place greater emphasis on services and wider economic or social development for the public.
4. Their performance therefore needs consideration of those public objectives alongside the financial results of the enterprise.
5. Private enterprises can also pursue social objectives or act responsibly towards workers, customers and the surrounding community.
6. Both sectors must consider resources and performance; the difference concerns ownership and the emphasis on objectives, rather than a complete separation of financial and social aims.

Q8. Identify two internal and two external stakeholder groups and state one objective of each. [4 marks]

1. Owners are internal stakeholders who seek a fair financial return on the resources they have invested in the business.
2. Employees are internal stakeholders who seek fair wages in return for the work they perform for the business.
3. Customers are external stakeholders who seek goods or services of appropriate quality at reasonable prices.
4. Government is an external stakeholder that expects the business to pay the taxes it owes regularly and honestly.

Key takeaways

• Business objectives give direction, connect activities and provide a basis for reviewing actual performance against intended results.
• Survival concerns continued operation, while profit is the surplus of revenue over costs during the same period.
• Growth describes increasing business scale; market share compares a business's sales with total sales in its market.
• Businesses can pursue several objectives together and change their relative importance as circumstances change.
• Social enterprises trade primarily for social or environmental purposes while needing financial resources to sustain their activities.
• Stakeholders include internal owners, managers and employees, together with external customers, suppliers, lenders, government and communities.
• Stakeholder objectives can conflict or support each other; explain both the effects and the conditions involved.
• Public and private sector enterprises differ in ownership and may give different emphasis to financial, service and social objectives.

Test yourself

Why is sales revenue different from profit?

Revenue is income from sales. Profit is what remains when total costs are deducted from that revenue.

Can sales grow while market share falls?

Yes. If total market sales grow faster than the business's sales on the same basis, its market share falls.

Why might survival become more important?

Weaker demand or higher costs may threaten continued operation, making the ability to cover costs a more pressing concern.

Does a social objective make a business publicly owned?

No. Social purpose concerns why it operates; public sector status concerns government ownership and control.

How does a shareholder differ from a stakeholder?

A shareholder owns shares in a company. Stakeholder is broader and includes other groups affected by business activity.

When does higher pay reduce profit?

It reduces profit when it raises total costs and there is no offsetting change in revenue or other costs.

How can worker and business interests support each other?

Suitable working conditions benefit workers and can help the business gain their cooperation in its activities.

Why is profit alone insufficient to judge a public enterprise?

Its objectives can include public services and development, so those achievements must be considered alongside financial performance.