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Goals and Objectives of Business


    Why do people do business?


    Before we dive in, we need to consider one of the important dimensions of business, that is why do people do business? What motivates the owners/investors/promoters to take so much of risk and run their own businesses, rather than going for a secured job/employment? Is it the only maximization of profits that draws them, or is there something beyond? What might be the possible answers to such questions?

    Consider single ownership firms; it would be reasonable to accept that single owners would aim at maximum profits. But what about other forms of business? Do they also have the same objective?

     It has been seen that sole proprietorship forms had been replaced with partnership and joint stock structures, which implies that businesses no longer remained restricted in the hands of a “single owner.” In other words, the emergence of other firm structures led to the evolution of “managers,” and owners and managers became two distinct groups. 

    Thus, profit-making was conceived to be the sole objective of business for a very long time, until economists discovered alternate objectives of sales maximization, and after that, growth maximization. These objectives were further overtaken by a more advanced theory known as “satisficing”; managers aim to achieve multiple objectives simultaneously.

    Conventionally, it is assumed that profit maximization is the sole objective of business firms; we should not overlook the fact that in reality, the motives of managers may operate to serve alternative goals. Researches reveal that the objectives that business firms pursue are more than one. 

    There is no reason to believe that all businessmen pursue the same objective. - Baumol

    The great management thinker Peter Drucker said that a business exists ‘to create a customer,' by which he meant that its activities were best explained in terms of marketing activity. Other writers have suggested that survival is the main long-term aim. 

    Goals and Objectives of Business
    Goals and Objectives of Business


    Why profit maximization cannot be the only objective of a business?


    Profit maximization is usually assumed to be the goal of the firm. 
    However, this assumption presumes both that firm's owners are in control of the everyday management of it and that the owners want to achieve the highest profits. If these two premises are not met, then the logic behind the profit-maximizing firm's assumption is flawed. 

    Where the entrepreneur is in full managerial control of the firm, as in the case of a small owner-managed company or partnership, the profit maximization assumption would seem to be very reasonable, however, some companies have considerations that constrain their ability to maximize profits. 

    Under the conditions of the agency relationship between owners and managers, the goal of profit maximization might not fully explain management behavior, because managers have interests of their own.

    Managers will not necessarily make decisions that will maximize profits.

    • They may have no personal interests at stake in the size of profits earned, except in so far as they are accountable to shareholders for the profits they make. There may be a lack of competitive pressure in the market to be efficient, minimize costs, and maximize profits, for example, where there are few firms in the market.

    • It has been suggested that price and output decisions will be taken by managers with managerial objectives in mind. Rather than seeking to maximize profits, managers may choose to achieve a satisfactory profit for a firm; this is called satisficing. Similarly, if directors' remuneration schemes are based on criteria such as growth or corporate social responsibility, then they are unlikely to make the maximization of the profit their sole objective.

    The profit-maximizing assumption is not universally accepted. 

    Objectives of Business


    Some important objectives other than profit maximization are:

    1.  Managerial utility maximization   
    2. Firm's value maximization
    3.  Sales revenue maximization
    4.  Long run survival
    5.  Entry prevention and risk avoidance
    6.  Firm's growth maximization 
    7.  Satisfying
    8. Other non-profit objectives.

    However, in the ever-changing environment, businessmen have changed their goals that are somewhat advanced from theories of firm. 
    Investing in employees, delivering value to customers, dealing ethically with suppliers and supporting outside communities.......American business goals.- New Goals, CNBC

    Cyert and March suggested that a firm is an organizational combination of shareholders, managers, employees, and customers. Each group has different goals, so there is a need for political compromise in establishing the firm's goals. Each group must settle for less than it would ideally want to have. Shareholders must settle for less than maximum profits, managers for less than maximum utility, and so on. Despite the range of these theories, the ultimate goal of many managers is simply survival.

    Whatever be the form of ownership, one thing is definite, that every business has some objectives, that provides the framework for all the functions, strategies, and managerial decisions of that business. It determines both short-term and long-term perspectives of the firm.


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