Section 1 Business Organization and Environment
CORE
Business Organization and Environment
Tactical objectives are short-term goals that affect a section of the organization. They are specific goals that guide the daily functioning of certain departments or operations, e.g. to raise sales by $10 million within the next year or to keep staff turnover below 10%. Tactical objectives tend to refer to targets set for up to 12 months, such as: • Survival – New and unestablished businesses are likely to encounter a number of problems (see Unit 1.2) such as limited recognition from customers and/or intense competition from existing firms. Hence, survival becomes a key priority. Survival can also be important for more established organizations, e.g. an economic recession (see Unit 1.5) can quite easily threaten the survival of many businesses. Alternatively, if a business becomes a takeover target (see Unit 1.6), then its survival as it currently exists could easily become the key tactical objective. • Sales revenue maximisation – New businesses strive to maximise their sales revenue to establish themselves in the marketplace. Sales staff and agents, such as those selling insurance or real estate, favour this tactical objective as their earnings are linked to the level of sales. However, sales revenue is not profit (the surplus that remains after all costs are paid). In the long run, a firm with high sales but low or no profit will struggle to survive. Strategic objectives are the longer-term goals of a business. Some examples are outlined below (but note that these vary between businesses, based on their own circumstances and priorities): • Profit maximisation Traditionally, the main strategic objective of most private sector businesses is to maximise profits. Profit provides an incentive for entrepreneurs to take risks in setting up and running a business. For incorporated businesses (Unit 1.2), a proportion of the profits (known as dividends) is distributed to their shareholders. Without profit, owners and investors find it difficult to justify the existence of the business. • Growth The growth of a business is usually measured by an increase in sales revenues or by market share (the percentage of the industry’s sales made by the business). Growth is essential for business survival, especially with the exposure of businesses to mergers and takeovers (see Unit 1.6). The failure to grow may result in declining competitiveness.
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• Market standing This refers to the extent to which a business has presence in the industry. For example, Microsoft has high market standing as the market leader in the computer software industry. Walmart has high market standing for being the world’s largest retailer. Toyota gained higher market standing when it overtook General Motors as the world’s largest car producer in 2012. Apple has high market standing due to its innovative products and designs. The Body Shop has high market standing for being a socially responsible business. • Image and reputation Businesses may strive to enhance their image and reputation. A bad image, perhaps portrayed by the media, can turn customers against a firm’s products and services and tarnish the corporate image of the business. Increasingly, businesses strive to deliver improved levels of customer service, better facilities and superior after-sales care. Employees are more likely to be motivated and proud if the business has a positive corporate image. This helps to attract high-calibre staff during recruitment. Suppliers also prefer to do business with businesses that are reputable and reliable. In practice, businesses have a combination of the aforementioned strategic objectives. These objectives will also change from time to time, such as survival being a key objective if a firm is threatened by a takeover. The organizational culture and whether a business operates in the private or public sector are also factors that affect the aims and objectives it sets.
Exam tip ! Ensure that you understand the link between aims, objectives, strategies and tactics: • Aims state what an organization wants, e.g. to become the market leader of a product. • Objectives state what an organization needs to achieve in order to get what it wants, e.g. increased market share. • Strategies are the actions that facilitate an organization to meet its goals, e.g. expanding into new markets. • Tactics are short-term actions used to achieve an organization’s tactical objectives, e.g. survival.