Profit and profit maximisation
Profit is the difference between revenue and total costs. Some businesses seek the greatest possible profit; others accept a satisfactory level of profit so they can pursue other aims.
Cambridge International AS & A Level Business · 9609 · AS Level
1.4 Business Objectives
This topic explains why businesses set objectives, how objectives differ between private, public and social enterprises, and how mission, strategy, tactics, budgets, ethics and SMART targets guide business decisions.
Exam-focusedDecision-makingInstant-feedback questions
What you need to know
High-mark answers do more than list objectives. You should be able to explain why a particular objective is appropriate in a particular business context, how objectives may conflict or change, and how they influence strategy, budgets, employees and ethical decisions.
High-grade habit: when evaluating an objective, identify the business type, current circumstances and stakeholders. A start-up during difficult trading conditions may prioritise survival and cash flow, while a mature company may focus more on growth, shareholder returns or social responsibility.
Subtopics
These follow the textbook table of contents. Select a subtopic to jump directly to it.
1.4.1
Business objectives in the private sector and public sector
What is a business objective?
An objective is a measurable target that a business wants to achieve within a stated time. Objectives give direction and allow performance to be assessed. A useful objective makes clear what must be achieved, how much improvement is required and the timescale.
Corporate objectiveA target set for the business as a whole.
Example: “Increase annual profit by 20% within three years” is much clearer than “increase profit” because performance can be measured against a precise target and deadline.
The hierarchy of objectives
Corporate objectiveOverall business target
→
Departmental objectivesTargets for areas such as marketing, operations and HR
→
Individual objectivesSpecific employee targets
Objectives should support one another. If the corporate objective is to increase profit, marketing might aim to increase sales, operations might reduce unit costs and HR might improve labour productivity.
Private-sector objectives
Growth
Growth can increase market power, sales opportunities, business value and long-term returns, although rapid growth can also create financial and organisational pressure.
Survival
Survival is especially important for new firms, businesses facing intense competition, recession or a major crisis.
Cash flow
A business may target stronger cash flow so it can pay debts and operating expenses when they fall due. A profitable business can still fail if it runs out of cash.
Diversification
A business may expand into unrelated products or markets to reduce dependence on a narrow range of activities and spread risk.
Satisficing
Owners may aim for an acceptable level of profit rather than the maximum possible, allowing them to pursue aims such as independence, growth, work-life balance or entering new markets.
Market shareA business's sales as a percentage of total sales in the market.
Cash flowThe movement of cash into and out of a business over a period of time.
Context example: Starbucks is used in the textbook to illustrate a growth objective supported by opening outlets, developing products and using technology. The important exam point is the link between a stated objective and the decisions used to achieve it.
Public-sector objectives
Public-sector organisations are owned by government. Their objectives are not normally centred on maximising shareholder profit.
Provide a service
Government organisations may provide essential or socially desirable services even where serving some users is not profitable.
Financial objectives
They may be expected to cover operating costs, reduce losses or earn a surplus that can be reinvested in improving services.
Regional development
Public-sector activity can support employment, infrastructure and living standards in less-developed regions.
Exam comparison: do not state that public-sector organisations ignore money. They still need financial discipline, but service provision and wider social outcomes may be more important than maximum profit.
Objectives of social enterprises
Social enterprises trade as businesses but are established to create benefits for society or a community. Their objectives commonly combine financial sustainability with social and ethical aims.
Social objectives
Targets such as creating employment, improving local facilities, supporting disadvantaged groups or widening access to useful services.
Ethical objectives
Targets based on moral principles, such as fair treatment of suppliers, environmental protection and responsible production.
Example: The Good Hotel case in the textbook shows a social enterprise linking commercial activity with local sourcing, environmental choices and the reinvestment of profits into educational projects.
Why objectives matter
- Direction: they clarify what the business is trying to achieve.
- Co-ordination: departments and employees can align their decisions with the overall target.
- Motivation: clear, achievable targets give employees something to work towards.
- Control: actual performance can be compared with the target so managers can identify problems.
- Decision-making: objectives provide criteria for choosing between possible actions.
Corporate social responsibility (CSR)
Corporate social responsibility means a business accepts responsibilities to society beyond simply obeying the law. It may choose to improve working conditions, protect employment where possible, pay suppliers fairly, reduce environmental damage or invest in its local community.
Social responsibilityA philosophy in which a business considers the interests of wider groups in society as part of decision-making.
Evaluation: CSR may raise costs in the short run, but it can strengthen reputation, employee commitment, customer loyalty and long-term competitiveness. The effect depends on customer expectations, competitors, industry risk and whether stakeholders believe the actions are genuine.
CSR and the triple bottom line
The triple bottom line assesses business performance using three dimensions rather than profit alone.
Profit
Financial performance must be strong enough for the business to remain viable.
People
The business considers employees, suppliers, customers and communities affected by its decisions.
Planet
The business considers environmental effects and whether production can be sustained in the long term.
Mission statement, aims, objectives, strategy and tactics
MissionFundamental purpose
→
AimsBroad long-term goals
→
ObjectivesMeasurable targets
ObjectivesWhat must be achieved
→
StrategyLong-term plan
→
TacticsShort-term actions
Mission statementA statement setting out the overall purpose of a business.
AimA broad long-term goal that helps determine the objectives a business sets.
StrategyThe long-term plan for achieving an objective.
TacticsThe shorter-term actions used to implement the strategy.
Worked example: Mission: make sustainable travel widely accessible. Aim: become a leading regional transport provider. Objective: increase passenger numbers by 15% within two years. Strategy: expand into three neighbouring cities. Tactics: launch routes city by city, recruit drivers, run local promotions and introduce an app-based ticket offer.
1.4.2
Objectives and business decisions
The role of objectives in decision-making
Business decision-making is a continuous process. Objectives are important because managers need a clear standard against which a plan can be chosen and later judged.
1Set objectives
State realistic, achievable targets so success can later be judged.
2Gather information
Analyse the current situation, available options and relevant internal and external information.
3Select a suitable strategy
Choose the long-term course of action most likely to achieve the objective.
4Implement the strategy
Use suitable tactics, people, budgets and resources to put the plan into action.
5Review
Compare actual results with objectives and decide whether the strategy or objective should be changed.
Example: earning $100,000 profit cannot be judged as “good” or “bad” without knowing the target. If the objective was $80,000 it has been exceeded; if it was $300,000 performance is far below plan.
Why objectives change over time
Internal reasons
New owners or managers, changing financial performance, new capabilities, changes in workforce skills, or a revised attitude towards environmental and social issues.
External reasons
Economic changes, new competitors, technology, regulation, social expectations, market demand or unexpected crises can make existing targets inappropriate.
Exam link: a change in objectives is not automatically a sign of failure. Good management includes reviewing whether targets still fit the business environment.
Translating objectives into targets and budgets
Corporate objectives need to be converted into departmental and individual targets. Each area should know what it must do, who is responsible, when the work must be completed and what resources are available.
TargetA goal pursued by a business, such as a particular level of market share or sales growth.
BudgetA financial plan setting out expected revenues and/or expenditure for a future period.
Example: if the corporate objective is to increase market share, marketing might receive a larger promotional budget and a target for customer acquisition, while operations may need a capacity target to ensure the extra demand can be met.
Communicating objectives and the impact on employees
Employees are more likely to support objectives when they understand them, believe they are achievable and have been involved in discussing them. Clear objectives can motivate because they provide direction and a measurable challenge.
- Targets imposed without consultation may create resentment.
- Unrealistic objectives can demotivate because employees may believe success is impossible.
- Employees need adequate resources and budgets; responsibility without resources can make targets ineffective.
- Communication can be especially difficult in large multinational businesses operating across languages and time zones.
SMART objectives
Specific
Exactly what is being measured is clear.
Measurable
The target can be quantified or objectively assessed.
Agreed
The people responsible are involved and committed.
Realistic
The target is challenging but achievable with available resources.
Time-specific
A deadline or timescale is stated.
SMART example: “Increase online sales revenue by 12% within the next 12 months” is specific, measurable and time-specific. It becomes fully SMART when the target is agreed with those responsible and judged realistic given the market and budget.
How ethics influence objectives and activities
Business ethics concerns what is considered right or wrong in business behaviour. Ethical objectives can affect decisions about products, advertising, employees, suppliers, the environment and customers.
Objectives can also create ethical pressure. For example, very demanding sales targets may encourage employees to hide disadvantages, sell unsuitable products or focus on bonuses rather than customer welfare. Businesses can reduce this risk by making expected behaviour clear through codes of ethics or conduct, training and appropriate monitoring.
Ethical behaviourBehaviour considered morally correct, even where another action might generate more profit.
Context example: Texas Instruments is used in the textbook to illustrate how a large business can formalise ethical expectations through policies, communication and channels for employees or other stakeholders to raise concerns.
Evaluation: ethical behaviour may sometimes increase costs or restrict profitable opportunities, but it can protect reputation, reduce legal or regulatory risk and strengthen stakeholder trust. The overall effect depends on the industry, stakeholder expectations and how consistently the policy is applied.
1.4 revision checklist
Define objectives and explain the hierarchy of corporate, departmental and individual targets.
Explain profit maximisation, satisficing, growth, survival, cash-flow and diversification objectives.
Explain public-sector service, financial and regional development objectives.
Distinguish social objectives from ethical objectives.
Explain why objectives are important for direction, motivation, co-ordination and control.
Explain corporate social responsibility and the triple bottom line.
Distinguish mission, aims, objectives, strategy and tactics.
Explain the stages in business decision-making.
Explain why objectives can change over time.
Explain how objectives are translated into targets and budgets.
Assess how communicating objectives can affect employee motivation.
Apply the SMART framework to business objectives.
Explain how ethics can influence business objectives and decisions.
Evaluate objectives in the context of different businesses and stakeholders.
Questions open in a pop-up. Each answer is marked immediately, with an explanation so you know why it is correct or incorrect.