Introduction to Business

QCF Level 4 Unit

Learning Outcome #1 Business Objectives, Resources
and Accountability
A. Business Objectives
A corporate aim is the long term intentions of what a particular
type of business is trying to achieve and how it seeks to develop
in the future. (Qualitative)
Corporate objectives are the stated, measurable targets that a
business must meet in order to achieve its longer term corporate
aims. Each business will adopt its own unique and individual
corporate objectives, many are common and may change
throughout the life of a business. (Quantitative)
The corporate strategy is a plan of action that provides clear
direction of a business and the way in which the various business
operations work to achieve the corporate objectives.
Qualitative relating to, measuring or measured by the quality
of something rather than its quantity.
Quantitative relating to, measuring or measured by the
quantity of something rather than its quality.
Objectives, Growth and the Business Life Cycle
Survival - is the first objective of a business, that is, to
reach a sustainable level of sales that allows the firm to
break-even. Break-even is the point at where Total Cost =
Total Revenue. Once a firm has reached a sustainable level
of sales it might change its objective to one of profit
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maximization. Survival might also be an objective if the

business is suffering from low sales during a recession.
Profitability - is the state or condition of yielding a financial
profit or gain. It is essential if enterprises are to continue
business in the longer term. Profit maximization is the
short run or long run process by which a firm determines the
price and output level that return greatest profit. In practice
firm are unlikely to try for it all the time; they will seek to
achieve some accounting measure like a level of return on
capital employed or income per share.
Market penetration - is an important short-term objective
when a firm enters a new market and wants to achieve a
viable level of sales for example, a firm may set a target of
15% of the market, to be able to earn enough profit to cover
the cost of entry.
Market share - is often a longer term objective. The larger
the share of the market the more dominant a business can
become for example, setting price levels. This is linked to
competitive advantage whereby a firm attempts to achieve
and maintain its position in the market.
Sales maximization - refers to plans and strategies
employed by a business to increase its sales or revenue to
the highest attainable level.
Business growth - by increasing in size, a business can find
it easier to survive for example, by diversifying into different
products and markets, a firm can take advantage of
economies of scale thereby increasing the size and the
profits of the organization.
Revenue maximization - can be the prime objective of
organizations like bus companies that are paid a subsidy. The
subsidy covers the cost of providing the service after
allowing for a certain number of ticket sales and any
additional revenue is bonus for the firm.
Diversification - to reduce the risk it faces, a business may
choose to produce different products in different markets.

Therefore, if one of the product fails to achieve its sales the

business has other sufficient products to ensure that the
business continues to trade and not go out of business.
Satisficing a decision-making strategy that aims for the
satisfactory or adequate result, rather than an optimal
solution. For larger organizations with several divisions or
subsidiaries it is important to pursue one single objective.
Because all the parts of the firm may have different goals, a
minimum level of achievement is set for the organization as
a whole. It is said to satisfice instead of maximize.
Level of service - is the objective of organizations in the
public sector and in not-for-profit areas. They may aim at the
highest possible level of service or at the best attainable
service at a given cost. Business firm also have a high
standard of service to customers as an objective.
Technical excellence - is an objective of research
organizations and engineering firms. The pursuit of
excellence may bring the kind of reputation that binds sales
and profits in the long term.
B. Business Resources
Resources can be categorized into three factors of production:
Land
Labour
Capital
Many economists have argued that there is a fourth factor
entrepreneurship.
Land
This is used in two sense:
The space occupied to carry out any production process for
example, the space for a factory or building.
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 The basic resources with land, air, sea which can be

extracted for productive use for example, metal ores, coal
and oil.
Land is invariably owned by someone and that person(s) will want
a price for its use in terms of rent or for its sale. The extraction
of materials from the land also incurs a cost.
Land is finite resource. Two important consequences to this are:
1. There is a limited amount of it and once it is used up it
cannot be replaced (or at least not easily).
2. Where land is scarce, there is great competition for access to
it and this drives the price up. This also applies to the
availability of raw materials extracted from land.
Labour
Labour is any physical or mental effort by humans used in the
production process. People demand a return on their labour a
reward in the form of money. Every economy has a workforce
the total amount of people available to work, for gain, to produce
goods and services. Characteristics of a workforce are:
Physical characteristics not just simply in terms of
overall numbers, but men and women, age range etc. which
are important in defining the types of jobs that may be done.
Skills of the workforce businesses need people with
particular abilities in order to carry out the work required.
Availability for work full time, part time or temporary. We
could consider the hours for which they are available, as well
as how many are already in work and, therefore, not
currently available (in the short term).
Geographical location where they are located (locally,
regionally, nationally and internationally).
Capital
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This can be placed into two categories:

Real capital consists of tools, equipment and human skills
employed in production. It can be either physical capital for
example, factory buildings, machines and equipment or
human capital the accumulated skill, knowledge and
experience without which physical capital cannot reach its
full potential.
Financial capital is the fund of money, in a modern society,
is usually needed to acquire and develop real capital.
A business needs to ensure that it has sufficient money flowing
into the business as revenue from selling goods and services to at
least match the expenditure required to pay for items for
example, wages.
C. Accountability
Accountability is the process by which a person is required to
report to others on (held to account for) the exercise of
responsibilities given to them those others.
A stakeholder is a person, group or organization that has
interest or concern in an organization and its undertakings. A
shareholder owns part of a company through stock ownership,
while a stakeholder is interested in the performance of a company
for reasons other than just stock appreciation. Shareholders are
stakeholders, but stakeholders are not always shareholders.
The Interest of Stakeholders
a) Owners the owners of a large business will be the
shareholders and some of these are likely to be institutional
investors from major investment organizations such as
pension and insurance funds, investment and unit trusts.
These institutional shareholders may very well have large
blocks of shares and have a more active and informed
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interest in the business than a typical private shareholder

might. The key interest of owners are profits and for
shareholders, that is likely to be just as clearly focused on
dividend payments. They will also have an interest on overall
business performance as this may affect share prices.
b) Workforce directors are a group of individuals elected by
the shareholders and are responsible for formulating overall
company objectives and strategies for the business. The
directors are accountable to shareholders for the
performance of he business.
Directors are supported by mangers who lead and control
the workers to achieve organizational goals. They will have
an interest in the overall success of the business, but will be
more particularly concerned with objectives closer to their
division or section and level of authority and responsibility.
They are likely to be working towards specific targets and
will have an interest in how successfully these have been
achieved.
Members of the general workforce and, possibly,
representatives in the form of trade unions are likely to
primarily interested in jobs and pay for example, job
security, job satisfaction, improving current pay levels etc. To
some extent the ability to do this will be linked to the overall
success of the business.
c) Customers are external to the business and their interests
reflects this. We would expect them to be concerned with
issues such as price, product, quality and customer service
levels. Customers may very well have an ambivalent attitude
towards profit, recognizing that firms need to make a profit,
but also realizing that large profits can result from customer
exploitation. They also may also have an interest in the
continuance of the business.
d) Suppliers interests are for long lasting business
relationships and fair treatment. The continued survival of
the business is important in correlation to future orders. The
interests of the supplier also include the ability of the
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business to meet its obligations. Most large businesses have

several suppliers and they may supply products and services
on credit terms. These creditors need to be assured that
payments will be made. Also lenders want guarantee of
interest payments and eventual repayment of the loan.
e) Creditors (financial institutions that lend money to
businesses) have a direct stake in the business. They want
the business to succeed so that loans and interest charged
are paid on time. If a business does not repay its loan, the
bank may seek to sell the businesses assets to get its
money back.
f) Competitors in many industries there is a growing
interest in what the competition is doing. The overall
business performance (evidenced by sales), profitability,
growth and innovation is important to competitors. It is
increasingly common for businesses to establish benchmarks
based on various performance indicators of companies,
especially companies within the same industry. This can be
used to help shape strategies and policies.
g) The state includes both the local government and the
central government. The states main interest is the ability of
the business to meet its tax and social security obligations.
In the short term, it is a question of the cash flow of the
business. However, in the longer term the interests are in
the overall employment levels and contribution to general
prosperity that the business can deliver.
h) The community the term community can be taken to
include all those with whom the organization has relationship
with that is not a direct business relationship. Hence, local
communities, pressure and interest groups of various kinds.
The local community will be interested in the overall
performance of organizations as this affects local
employment and prosperity. The success of small businesses
may be linked to the presence and success of big local
businesses. There are interests in the particular type of
business or the impact of its activities on the environment.
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There are many issues that may affect the quality of life of
the local community such as land use, pollution, traffic etc.
i) Pressure groups are non-profit and usually voluntary
organizations that tries to influence policy in the interest of a
particular case and to achieve a declared objective. Interest
groups try to defend a cause (maintain the status quo),
whereas pressure groups try to promote it (change the
status quo).
Conflicts of Interest
By recognizing the needs of different stakeholder groups,
incorporating the, into their own objectives and taking action to
meet them a business can reap rewards for example, attracting
new customers, recruiting and retaining high quality employees.
This can in turn increase the chances of the business achieving its
own prime objectives. However there are a range of stakeholders
that have many interests and their different views and
perspectives will all have an influence on the decisions made by
the business. It is highly unlikely that a business will be able to
satisfy all the needs of its stakeholders and so, conflicts can and
do occur arise.
Stakeholder Influence
Some stakeholders tend to take a more proactive approach by
trying to shape and influence policies and events in ways that
further their interests.
a) Owners amongst owners, perhaps the key shareholders
are large institutional investors such as pension funds and
insurance company life funds, investment and unit trusts.
These investors will invest very substantial funds and
professional funds mangers seeking the possible returns.
These fund managers will try to exercise their powerful
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influence on the board of directors to produce profits and

dividends in line with the funds expectations. These
influences can be very strong in shaping business
objectives and strategies towards the interests of
shareholders. The impact of these policies may be less
beneficial to other shareholders such as workers and
consumers.
b) Financial creditors the main interests of financial
creditors (particularly banks) are the payment of interest
charged and the eventual repayment of loans. Even if loans
are secured on company assets, these investors would
rather see loans repaid by a viable business rather than
having to recover their investments by selling of the
businesss assets. These investors may seek to influence
business policies to protect their interests.
c) Workforce operating through trade unions, the workforce
may decide to make their interests more prominent. Trade
unions may take several actions to promote the interests of
its member for improved pay and conditions and job
security. Action can include strike action, working to rule
and overtime bans. Establishing the interests of the
workforce as dominant at a particular time is likely to have
an effect on other stakeholders for example, a business
may concede to pay claim if it feels it can pass on the
higher cost to the customers.
d) Customers are less organized than workers and
managers and as a consequence their pressure tends to be
less focused on. They can exert their pressure through what
they choose to buy or not to buy. Where there is general
consumer movements, as in concerns about food quality
and growing demand for organic foods, changes in
consumer spending can have a significant impact on
company profits and can force businesses to change policy.
This can be seen in the increasing for particular levels of
quality in delivery of services or the standard of products.
Similar effects can occur from changes in consumer tastes
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and preferences and in concerns for the environment, and

can affect businesses in issues as diverse as packaging,
policy labelling and control of emissions.
e) Companies acting as customers themselves, expect their
suppliers to meet stringent quality standards and is
especially important when just-in-time production methods
are used. Firms are aware that customers judge them based
on the quantity of their products. If a component supplied
by another company fails, the customer blames the maker
not the supplier of the faulty component.
f) Public sector in the public sector, quality standards have
often been in incorporated into customer charters and
performance is examined to see if standards have been
met.
g) Consumers can also exert influence by bringing pressure to
bear on the state to enact legislation to further their
interests, such as the Trade Description Act or the Sales of
Goods Act. One group of stakeholders may seek to gain
influence through other stakeholders. This can also be seen
in the practices of some pressure groups acting on behalf of
the environment in seeking to influence both government
policy and shareholders.
h) The state can exercise influence through the tax and spend
system or through interest rate and exchange rate policy.
These policies have general effects for example, an
increase in interest rates will raise the cost of businesses in
general and will have an ongoing impact on a range of
stakeholder interests. In some cases the effects are more
specific in that they affect individual firms or industries for
example, tax policies on tobacco or oil product.
i) The influence of the government can also be seen in
relation to its own spending priorities. If the government
decides to switch from defense to health services, it will
affect a range of businesses in both industries. It may also
offer subsidies to support particular businesses that will
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further governments policies for example, regional

regeneration.
Ethics
The ethical code of conduct that seeks to prevent directors and
other senior managers from exploiting their positions would cover
the following areas:
The duty of manger to take into account of the interests of
all stakeholders in the organization, as well as the general
public and to make a profit.
The need to have regard to the safety of workers and users
of products.
Avoidance of bribery and corruption and of giving
excessively large gifts or generous contract terms, even in
countries where these practices are accepted.
The principle that mangers should not use their authority for
personal gain.
The need to respect confidentiality of customer and supplier
information.
Making every effort to comply with good business practices,
such as paying on time according to terms.
Satisficing
A decision-making strategy that aims for a satisfactory or
adequate result rather than the optimal solution. This is because
aiming for the optimal solution may resuscitate needless
expenditure of time, energy and resources.