Corporate objectives, strategy and tactics

54.2 Corporate objectives for plcs

Maximising shareholder value 

Is increasingly presented by the board of directors of large companies as the modern equivalent of profit maximisation. Share prices reflect the present value of the dividends the company is expected to pay out in the future. As a result, this objective means taking actions that maximise the proce of the organisation's shares on the stock market.

Growth in the size of the firm

The managers of a business may choose to take decisions with the objective of making the organisation larger. The motivation behind this goal could be the natural desire to see the business achieve its full potential; it may also help to defend the firm from hostile takeover bids. Being number one in a marketplace is a version of the growth objective. 

Diversification in order to spread risk 

In other words, diversify to reduce dependence on one product or market.

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54.3 Internal influences on corporate objectives

Companies act in their own long-term interests, influenced primarily by the views and gals of those at the top, plus the practical constraints caused by limited financial and human resources. So the main internal influences are:

  • Ambitions of those leading the company
  • Financial influences
  • HR influences - In setting objectives and in making decisions, senior managers have to take into account the qualities and abilities of senior staff. 
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54.4 External influences on corporate objectives

No business can prevent disruption due to external influences, but the ability to change course quickly is a function of the degree of internal beurocracy - and the extent to which senior managers feel free to express themselves. 

Other external influences on corporate objectives and decision-making include:

  • Taste, fads and fashion: Sales of Tripicana fell 6.8% in 2014 - affected their ambitions and objectives for the future.
  • Changing legislation: Hoovers, toasters and hairdriers must be energy efficient affecting their decision making during 2015-16.
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54.5 Influences on corporate objectives

Any business has certain objectives that may become fundamental to the operation. For new businesses, and for any that are struggling in the marketplace, the key one is survival. If things are going reasonably well, so that survival is not in doubt, a business could aim to increase its growth rate or its profitability. If these are also going well, the directors may look beyond the immediate financial needs to the 'market standing' of the business. 

There is the possibility of a business organisation that has no commercial drivers, other than to generate the funds to achieve a social objective. Such an approach is rare, because many of the firms proclaiming their social or 'green' credentials are simply cashing in on a consumer concern. Even though non-profit motives are unusual, good answers show an understanding that different businesses have different objectives. 

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54.5 Influences on corporate objectives

Market standing 

For firms that already have a profitable, growing business and reasonable insulation from operational risks, the final step is to establish an image that helps to add value to the product range, and gives the consumer the confidence to assume the best of the company.

To have high markt standing, the public needs to believe that the business operates as a force for good, whether through its products, its employment practices or its positive approach to its social responsibilities. All these things can be managed, as long as the commitment and the resources are available. For instance, the voluntary use of social and environmental audits can be the basis for building a reputation for ethical trading. 

Short-termism

Whereas marketstanding is a long-term objective, some companies can only focus on the short term. This is usually because trading difficulties have made business reporters critical of the management, and are therefore scrutinising 6-monthly profit statement, line by line. Short-termism is bad for the business in the long-term.

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54.5 Influences on corporate objectives

Business ownership 

  • plc - shares available on the stock market 
  • family run business - no shares publically available
  • a private equity-owned business - ltd.

Private equity companies buy businesses either with the intention of 'asset *********' (selling off any assets of value, taking management fees for doing and then discarding the rest); or to rebuild the business in order to sell it. Either way, they are short-termist. The focus for plc's is also short-term. Only the family run businesses are likely to be consistent in thinking about the decades to come.

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54.6 Corporate strategy

The managers of a business should develop a medium to long-term plan about how to achieve the objectives they have established. This is the organisations corporate strategy.

It sets out the actions that will be taken in order to achieve the goals, and the implications for the firm's human, financial and production resources. They key to success when forming a strategy of this kind is relating the firm's strengths to the opportunities that exist in the marketplace.

The analysis can take place at each level of the business, allowing a series of strategies to be formed in order to achieve the goals already established. A hierarchy of strategies can be made for the whole organisation in a similar manner to the approach adopted when setting objectives.

  • Corporate strategy deals with the major issues such as what industry the business shouls compete in, in order to achieve corporate objectives. Long-term prospects must be good.
  • Business unit strategy should address the issue of how the organisation will compete in the industry selecting a positio in the marketplace to distinguish the firm from its rivals.
  • Functional strategy is developed in order to identify how best to chieve the objectives or targets set by the senior managers. 

If a strategy is to achieve the objectives set, it must match the firm's strengths to its competitive environment. 

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54.7 Distinction between strategy and tactics

Strategy can be regarded as the route map to get a business fro here to there over the medium to long term.

Tactics are responses to short-term opportunities or threats. Sometimes tactical opportunities may be irrelevant to or even a diversion from the route map. 

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54.7 Distinction between strategy and tactics

Strategy can be regarded as the route map to get a business fro here to there over the medium to long term.

Tactics are responses to short-term opportunities or threats. Sometimes tactical opportunities may be irrelevant to or even a diversion from the route map. 

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