Business Objectives, Growth, and Economic Policies
Classified in Economy
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Business Objectives
- Business Survival
- Profit
- Returns to Shareholders
- Growth of the Business
- Market Share
- Service to the Community
Objectives of Public Sector Organizations
- Financial: Meet profit targets set by the government.
- Service: Provide service to the community and meet quality targets set by the government.
- Social: Create employment.
Stakeholder Groups
- Owners
- Government
- Community
- Customers
- Managers
- Banks
- Workers
Stages of Economic Activity
- Primary: Extraction of Earth's natural resources.
- Secondary: Manufacturing of primary resources.
- Tertiary: Providing a service.
Business Growth
Internal growth or external growth (takeover or a merger with another business):
- Horizontal Integration: When one firm merges with or takes over another one in the same industry at the same stage of production.
- Vertical Integration: When one firm merges with another one in the same industry but at a different stage of production.
- Conglomerate Integration: When one firm merges with or takes over a firm in a completely different industry.
Reasons for Business Failure
- Poor management
- Failure to plan for change
- Poor financial management
- Over-expansion
- Risks of new business start-ups
Liability
- Limited Liability: The liability of shareholders in a company is limited to the amount they invested.
- Unlimited Liability: The owners of a business can be held responsible for the debts of the business they own. Their liability is not limited to the investment they made in the business.
| Business Organization | Risk | Ownership | Limited Liability |
|---|---|---|---|
| Sole Trader | Carried by the sole owner | One person | No |
| Partnership | By all partners | Several partners | No |
| Private Limited Company | Shareholders up to their original investment | Shares cannot be sold to the public // shareholders | Yes |
| Public Limited Company | Shareholders | Shareholders, but shares can be sold to the public | Yes |
| Fiscal Policy (Taxes and Government Spending) | Monetary Policy (Central Bank and Interest Rate) | ||
|---|---|---|---|
| Expansionary | Contractionary | Expansionary | Contractionary |
| - Taxes | + Taxes | - Interest rate | + Interest rate |
| + Government spending | - Government spending | + Borrowing | - Borrowing |
| + Incomes | - Incomes | - Deposits | + Deposits |
| + Spending | - Spending | + Spending | - Spending |
| + Economic activity | - Economic activity | + Economic activity | - Economic activity |
Types of Costs
- Fixed Costs: Do not change according to output, e.g., rent.
- Variable Costs: Change depending on production proportionally.
- Total Costs: Fixed costs + Variable costs.
Sales = Cost + Revenue
Motivating Workers
- Taylor: Thought workers would be motivated if they were paid more; you got paid for your extra work (simplistic ideas).
- Maslow: Hierarchy of needs. He said you cannot motivate a person if they do not have the basic needs. He thought that money alone would not be the single route to increased productivity.
- Herzberg: The hygiene factors must be satisfied; if they are not satisfied, they can work as de-motivators. However, they are not motivators, so once they are accomplished, true motivators should be used (such as recognition, achievement, personal growth, development, promotion).
- McGregor:
- Theory X: Assumes that work is natural and is not dislikable.
- Theory Y: Managers look at their workers like people who dislike work and will try to avoid it.
Compensation and Salaries
- Commission: + Sales + Payment. It's their salary plus a commission.
- Profit Sharing: Employees receive a share of their profit in addition to their basic salary.
- Bonus: An extra that is paid to employees when they have worked well.
- Performance-Related Pay: Employees are paid for their effectiveness.
- Share Ownership: Employees are given some shares in the company.
Leadership Styles
- Autocratic
- Laissez-faire (let them do)
- Democratic
- Paternalistic