- Private sector businesses usually aim for commercial success
- In order to achieve this, they commonly pursue a limited range of objectives
Common Objectives in the Private Sector
Objective
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Explanation
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Profit maximisation
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- Most firms have the rational strategic objective of profit maximisation
- Profit = Total Revenue (TR) - Total Costs (TC)
- To maximise profits, firms can either increase their sales revenue or decrease their costs
- Firms continuously analyse their costs to see if they can reduce them so that profit can be maximised
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Growth
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- Firms with a growth objective often focus on increasing their sales revenue or market share
- Firms will also maximise revenue in order to increase output and benefit from economies of scale
- A growing firm is less likely to fail
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Ethics & social responsibility
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- An increasing number of firms are launching with ethical or socially responsible objectives
- These typically include a focus on climate action & addressing poverty or inequality
- They still require profit to survive, but will accept less than if they were profit-maximising as long as they are meeting their social objective
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Survival
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- Challenging market conditions, difficult periods of change or crisis can require a focus on keeping the business going
- Survival is also a common strategic objective for new business start-ups and careful cash-flow management is likely to be at its core
- The recent pandemic required many businesses to adopt a short-term survival objective, with many taking advantage of government support to enable them to continue trading and recover
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Protecting shareholder value
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- A common objective for public limited companies where the value of shares and dividends payable to shareholders are important metrics
- Strategic objectives may seek to protect shareholder value above all else
- Having this objective will help to encourage new investors and satisfy existing shareholders
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