Discuss survival as an appropriate objective for an organisation. (15 marks)

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  • Created by: yhtammy
  • Created on: 23-11-16 20:26

Discuss survival as an appropriate objective for an organisation. (15 marks)

Advantages

  • It is important that management focus on keeping the business operating in the foreseeable future to protect shareholder’s investment
  • It is important that management focus on keeping the business operating in the foreseeable future
  • The recession has had a drastic effect on turnover. Production will be curtailed so tough decisions have to be made regarding employees, i.e. working hours/redundancy
  • Both operating and pre-tax profits are greatly reduced so management will have to justify their survival strategy to shareholders. Possible conflict regarding payment of dividends/some may sell their shares
  • Investment plans will have to be postponed indefinitely until recovery is established
  • Even with reduced profits the firm have to meet their loan repayments (fixed cost). If it was secured on the assets then the bank may pressurise them to sell the company to recover the money
  • Recession has impacted on sales revenue. If this continues then tough decisions have to be made regarding employees, i.e. working hours/redundancy
  • Further investment plans. These will have to be postponed indefinitely until the economy recovers. Management will have to justify their survival strategy to shareholders. Possible conflict regarding payment of dividends
  • Unites staff in common objective to ensure job security
  • Survival helps focus on efficiency and reducing costs so the business have a greater chance to survive
  • The recession is worldwide so it would be difficult to guarantee long term security elsewhere

Disadvantages

  • The recession is world-wide so it would be difficult to secure markets elsewhere
  • The main objective of many organisations is to make a profit and this should have precedence over survival such a strategy may hold an organisation back if they pursue cost
  • Possible conflict with shareholders
  • Rather than settle for survival in existing markets, management could concentrate all its efforts in markets abroad where they are already successful. They could consider an overseas investment in plant
  • The firm may miss out on new opportunities if they are not prepared to investigate further markets abroad

Evaluation

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