Common corporate objectives
1. Profit maximization
Profits are essential for rewarding investors in a business and for financing further growth and
expansion. Profits are also necessary to persuade business owners – or entrepreneurs – to take risks.
However there are serious limitations with this corporate objective:
- The focus on high short-term profits may encourage competitors to enter the market and
jeopardize the long-term survival of the business.
- Many businesses seek to maximize sales in order to secure the greatest possible market share,
rather than to maximize profits. The business would expect to make a target rate of profit from
- The owners of smaller businesses may be more concerned with ensuring that leisure time is
safeguarded. The issues of independence and retaining control may assume greater significance
than making higher profits.
- Most business analyst’s asses the performance of a business through return on capital
employed rather than through total profit figures.
- Other stakeholders rather than owners and shareholders will give priority to other issues. For
example security for the workforce or environmental issues for the local community.
- It is very difficult to assess whether the point of profit maximization has been reached, and
constant changes to prices or output to attempt to achieve it may well lead to negative if the
market is growing
2. Profit maximization
This basically means aiming to achieve enough profit to keep the owners happy but not aiming to work
flat out to earn as much as profit as possible. Just being satisfied with what you do?
Larger firms will be less likely to be merged or taken over and should be able to benefit from economies
of scale. Managers will be motivated by the desire of seeing the business achieve its full potential.
However business objectives based in growth do have limitations:
- Expansion which occurs to rapidly can lead to cash-flow problems
- Sales growth might be achieved at the expense of lower profit margins
- Larger businesses can experience diseconomies of scale
- Using profit to finance growth – retained profit – can lead to lower short-term returns to
- Growth into new business areas and activities can result in a loss of focus and direction for the
4. Increasing market share It is possible for an expanding business to suffer market share reductions if the market is growing at a
faster rate than the business itself. Benefits from having a high market share are:
- Retailers will be keen to stock and promote the best-selling brand.
- Profit margins offered to retailers may be lower than competing brands as the shops are so keen
to stock it – this leaves more profit for the producer
- Effective promotional campaigns are often based on “buy our product with confidence – it is the
This is usually the keen objective of most businesses. The high failure rate of new businesses means that
to survive for the first two years of trading is an important aim for entrepreneurs.
6. Corporate social responsibility
This concept applies to those businesses that consider the interests of society by taking responsibility for
the impact of their decision and activities on customers, employees, communities and the environment.
There are other reasons for these trends in business objectives – increasingly, consumers and other
stakeholders are reacting positively to businesses that act in green or socially responsible ways.
- Firms that promote organic and vegetarian foods.
- Retailers that emphasise the proportion of their products made from recycled materials.
- Businesses that refuse to stock goods that have been tested on animals, or foods based on
genetically modified ingredients
7. Maximising short-term sales revenue
This could benefit managers and staff when salaries and bonuses are dependent on sales revenue levels.
However, if increased sales are achieved by reducing prices, the actual profits of the business might fall
8. Maximising shareholder value
This could apply to public limited companies and direct management action towards taking decisions
that would increase the company share price and dividends paid to shareholders. These targets might
be achieved by pursuing the goal of profit maximization.
Important issues relating to corporate objectives
Some important issues relating to corporate objectives are:
- Must be based on the corporate aim and should clearly link in with it
- Should be achievable and measurable if they are to motivate employees. - Need to be communicated to employees and investors in the business. Unless staff are informed
of the objectives and their own targets that result from these, then the business is most unlikely
to be successful. Effective communication is vital
- Will form the framework of more specific departmental or strategic objectives