1.3 Business objectives

Full video class on YouTube, summary and notes on Instagram, class extracts on TikTok, text below. Have fun!

This topic lays a solid foundation to understanding how businesses work: how decisions are made, who’s responsible for making things happen, how to distinguish between good and bad decisions. All the answers are in business objectives — one of the main concepts in business management.

Vision and mission are statements that a business makes in order to prioritise objectives and let stakeholders know what business “is about”. Vision statement is a declaration of business’s aspirations, i.e. a picture of success for the business. Usually, vision statement is set only once and does not change. Mission statement is a declaration of a business’s purpose, i.e. reason for being of a business. Mission can be changed, revised and updated.

I will provide two examples of vision and mission: one will be hypothetical and not related to business, just to make it easier to understand; the other one will be Google’s vision and mission. So, if you’re a very ambitious and hardworking student, your personal vision can be “be the best student in the world” and mission might be “to study hard”. Vision is something that is quite vague and hard to quantify, and yet a good thing to work towards. It’s a good aspiration to be the best student in the world, right? Mission “to study hard” is your purpose on the way to the vision, it is not something that can be achieved, it is something that you do, it’s the reason for your existence as the best student. I hope it helps to understand the major difference between vision and mission.

The realistic business example would be Google. Vision: “To provide access to the world’s information in one click”. Mission: “Organise the world's information and make it universally accessible and useful”. As you can see, reality is quite different from theory… More about that in the following paragraphs about pros and cons of vision and mission statements.

On the one hand, vision and mission serve as assessment criteria (just like in your IA) for the business and help to evaluate business decisions and objectives. For example, from the manager’s perspective, when he/she is uncertain about which decision to make, he/she could consider which decision is in line with vision and mission and go for this decision. At the same time, vision and mission help to motivate staff, because knowing why you work and having a meaningful work is one of the main motivators. It can also attract customers to the business, because customers like to buy from businesses that are doing something great, rather than simply sell products. Think about Nike and their ads: do they really sell shoes or do they sell values and lifestyle? And lastly, vision and mission quickly let all stakeholders (customers, employees, managers, investors, shareholders) know what the business is about.

On the other hand, both vision and mission are quite unclear and sound like “we support all good things and we don’t support all bad things”. Even though businesses are sometimes from completely different industries, their vision/mission often follow this “formula”. Sometimes, vision and mission are so vague and unclear on purpose, because the more vague they are, the more difficult it is to agree or disagree with them and the more flexible managers can be, because they have a lot of freedom in interpreting vision and mission. And lastly, very often these statements are written as a public relations (PR) trick to impress stakeholders and they are not really used to guide decisions .On top of that, in reality, many businesses do not distinguish between vision and mission and they only have one statement that is called either vision or mission.

So, overall, vision and mission are really useful statements that can guide business decision-making, but only if they are sincere and only if they are made mindfully, not just to “tick the box”.

For starters, we can’t just talk about objectives right away, because it is extremely important to understand the role objectives play and their place in business decision making. Actually, “common objectives” will be the last thing we’ll talk about in this part of class, so please be patient. For now, we’ll talk about GOST (it’s not a typo, there is no “H” in this acronym): goals, objectives, strategies and tactics.

So, you already know what vision and mission are. As you can see in the picture above, vision and mission are like a soup, where goals, objectives, strategies and tactics boil. Vision and mission underpin business and particularly decision-making at all levels. Then, inside this “soup” there are four other things (goals, objectives, strategies and tactics) that I suggest you remember in this order (GOST), because you can consider it a hierarchy. The picture below can let you understand it better.

Goals — what business wants to achieve in the long-term. Objectives — clearly defined short-term or medium-term tasks that a business sets in order to achieve goals. Strategies — medium-term or long-term plans, methods, approaches, schemes that are used to achieve goals and objectives. Tactics — short-term or medium-term actions that need to be taken in order to achieve objectives.

As you can see from the definitions above, one things flows from another, hence the hierarchy: objectives are set to achieve goals, strategies are used to achieve objectives and goals, tactics are used to achieve objectives.

To deepen our understanding of goals, objectives, strategies and tactics, let’s consider the example of a hypothetical video games developer company.

So, the first thing here is vision: “Being the world top one video games developer”. This is what drives company at all levels. This is what helps to determine everything (goals, objectives, strategies, tactics) and this is what guides all decisions. The next thing to consider is mission: “Creating video games that are interesting to everyone regardless of age, gender, background and opportunities “. This is the reason for company’s existence, this is the “why” of their actions. Similar to vision, it guides all the decisions at all levels. Then, there is a goal that is set by senior management: “Dominating the global video games market”. It is more specific, than vision, it is realistically achievable, it is long-term, and yet it is not as specific as the objective (that is set to achieve the goal): “By the end of this year reach 35% market share in each of the main markets: USA, China, Japan, post-USSR countries”. As you can see, objective is super specific and concrete, compared to goal. Later in this class we will learn a simple rule how to make a good objective (keep reading). Usually, there are several objectives that are set to achieve one goal. The next thing on the list is strategy: "Product development: providing video games that are available to and attractive for all target markets based on age, gender and income”. This is a plan on how to achieve the objective. Again, it does not have to be one objective and one strategy, there can be multiple of each. And finally, we have a tactic of “daily app updates by a team of developers based on the reviews collected by the marketing team”, which is a day-to-day routine plan on how to make objective happen.

So, by now, I hope, it is crystal clear where objectives belong to and what their role is. Objectives are the most specific of all things in GOST hierarchy, including vision and mission. Even though they are not on the top of the hierarchy, I would argue that they are the most important due to their concrete nature.

I’ve already mentioned earlier that goals are set by senior management and you might ask: “what are other types of management in an organisation?”. The brief answer to that question is in the picture below.

The top level of management is called strategic level. Decision-makers at this level are senior managers. They usually set the long-term goal and define corporate strategy, that determines the market in which the business operates (senior management). For example: “ten thousand students competitive one-million-RMB market of international high school education market in Beijing”. Describing a market is not an easy task, because it has a lot of characteristics (more about that in Unit 4), but once market is determined and clear, decisions and strategies are much easier to set.

The level of management in the middle of the hierarchy is called tactical level. Middle management is in charge of decision-making at that level and they usually determine generic strategy, that determines methods of achieving competitive edge. Competitive edge is "how our business is better than others", "why would people buy from us, not from our competitors". Middle managers are usually people who do most work in the company even though they do not get highest rewards. They are between two fires: they have a lot of subordinates on lower levels of the organisation and yet they are accountable to senior management.

The lowest level of the company is called operational level. This is a day-to-day level that is in charge of making goals, objectives, strategies and tactics happen on a daily basis. Junior management is in charge of decisions at that level and they determine operational strategy, that defines what company needs to do on day-to-day routine level and how to make generic and corporate strategies happen.

As you can see, there can be overall GOST for the entire organisation, and at each level they an have their own GOST, specific to they level only. Vision and mission, however, as well as overall GOST are the same for everyone at all levels.

So, remember these sequences:

• strategic level — senior management — corporate strategy,
• tactical level — middle management — generic strategy,
• operational level — junior management — operational strategy.

Now it’s time to warn you again that all the information above is from the perfect theoretical world where everyone follows the same rules and uses the same terminology which is, of course, not the case in reality. Very often, businesses do not distinguish between the three different strategies, very often “generic” and “corporate” are used synonymously, very often “business strategy” is what businesses call any of these three. And finally, strategies are not limited to these three. There are plenty of strategies that we will learn later in the course. A lot of them will come from the business tools. Be mindful of the theory and of the real-life interpretations of the theory and you’ll be the best decision-maker ever!

Now it’s finally time to talk about the common business objectives, which are actually the title of this part of class. I hope you understand that all this information above is essential for understanding the common business objectives. Without this info, common objectives are quite meaningless. So, common business objectives:

• Profit — the difference between revenues and costs (more in Unit 3).
• Growth — achieving an increase in one/some of the following: market share, total revenue, profit, capital employed, size of workforce, volume of output. Ultimately, growth results in higher profits (more in 1.5).
• Shareholder value refers to what shareholders get through company’s ability to increase market capitalisation (and thus share price) and/or dividends (through increasing the profits) (more in Unit 3).
• Ethical objectives refer to the tasks/targets that go beyond profit-making and are in line with moral behaviour, sustainability and CSR (more later in this class).

I love it how we had to go through about 1000 words before we could read one paragraph that tells us that more information is yet to come, haha. Believe me, we needed it. If you made sense of everything you read, you learnt a lot of important stuff about business and decision-making that you can go ahead and use right now. Thanks for your efforts, appreciate that!

As you already know from the previous class, there are three levels in an organisation: strategic, tactical and operational. There are objectives at each level. Strategic objectives apply to the entire organisation, and they determine tactical objectives and operational objectives. Have a look at the examples of all three types of objectives below.

Based on the second (the most important) part of the class, you should have no problem understanding the levels of management and levels of objectives, but our objective for this part of class goes beyond understanding. Our objective here is to learn to evaluate strategic and tactical objectives. So, let’s cut to the chase.

I am going to teach you two ways to evaluate strategic and tactical (and actually any other) objectives. The first way is called SMART, the second one is called SLAP. SMART objectives is a super cool super useful rule that can apply to any objective (not only business-related). This rule was designed by Peter Drucker, whose name you have to know and whose books you are highly encouraged to read if you are interested in Business Management. The SLAP rule is what personally I use to teach my students how to answer AO3 evaluation questions. I don’t really remember how I learnt about SLAP and who invented this rule, but all of my colleagues who teach IB Business Management know and love this rule. I wish I knew who to give credit to.

As you can see from the picture above, a SMART objective is the one that is specific, measurable, achievable, relevant (or realistic) and time-specific. My favourite elements are measurable and time-specific because they change objective dramatically from a vague unclear statement into a concrete target. For a video games developer company, objective “to be the best” is not SMART, but “by the end of this year reach 35% market share in each of the main markets” is SMART. I like this rule for its simplicity and significance.

With regards to SLAP, this rule applies to any IB Business Management AO3 question, not just to objectives. These four letters refer to four paragraphs that you should ideally have in your AO3 response:

1. "S" (stakeholder implications): in this paragraph you can consider implications to an internal stakeholder group and compare these implications to those of another external stakeholder group, or you can simply analyse costs and benefits to one stakeholder group. Make sure your analysis is balanced (on the one hand… on the other hand…). We’ll learn stakeholders in more detail later in 1.4, but all you need to know now is that stakeholders are people or groups of people who are interested in and affected by a certain business. Internal are within a business (shareholders, mangers, etc), external are outside of the business (local community, government, etc).
2. "L" (long-term and short-term implications): in this paragraph you compare and contrast the short-term and long-term effects of a certain advantage or disadvantage, or of costs and benefits, or of an implication. What makes your analysis balanced in this paragraph is the contact between short-term effects and long-term effects.
3. "A" (advantages and disadvantages): here you can choose any perspective and simply consider pros and cons of it.
4. "P" (priorities): in this paragraph you conclude the analysis in the paragraphs above by making a judgement against the priorities, that can be mission or vision or an assumption.

It’s okay of you feel confused now. This sort of thing is better to be explained face-to-face with step-by-step guidance, so your teacher should be of great help. One more thing I can do to help you better understand SLAP is provide an example.

Let’s say Jin is running a coffee shop in her neighbourhood and she set the following objective: “become the best coffee shop in the neighbourhood”. Our task is to evaluate this objective. We are going to use SMART and SLAP for evaluation.

Smart:

If we apply SMART rule to Jin’s objective we’ll see that objective is achievable and relevant/realistic, but not specific, measurable and time-bound.

Staleholder implications (S):

If she sets this objective, Jin (an internal stakeholder) will have to focus on developing a unique selling point to compete with big coffee chains. Community (external stakeholder) might benefit from the personal touch and customisation based on their needs, that large coffee chains aren’t able to offer.

Long-term and short-term implications (L):

In the short term, adopting this objective will result in investment that leads to negative net cash flow. In the long term, if the objective is reached, Jin’s coffee shop can enjoy local monopoly power (monopoly, but only within the neighbourhood).

Advantages and disadvantages (A):

Pro: organic growth, less risk. Con: “short-termism”, which means that the objective does not have long-term orientation.

Priorities (P):

Since Jin just wants to keep herself busy at daytime and make some cash to support her family, objective is appropriate but it needs to be made SMART in order to make it more attainable and quantifiable. It’ll be easier to measure success with a SMART objective.

Let’s summarise this part of class. You know the levels of management and you know the levels of objectives in an organisation. The IB wants you to to learn to evaluate only strategic and tactical objectives and now you know that you can evaluate them using SMART and SLAP. Well done!

Corporate social responsibility (CSR) is a commitment to benefiting (or at least not harming) the society and environment that is achieved through setting ethical objectives. CSR is not a legal obligation, it is a positive trend that businesses set. It means that if some businesses do not commit to CSR, they are not doing anything illegal, but it’s not cool. Nowadays nearly all businesses try to adhere to CSR principles: sometimes it’s superficial, sometimes it underpins the entire organisation, but it is really a big trend nowadays.

There is no agreement when CSR started. Actually, some businesses were socially responsible even centuries ago, but it was not called “CSR” back then. CSR as a business term emerged around 1960s. Originally, CSR was similar to occasional charity (businesses just donated some money for good causes every once in a while to look good), then it turned into generic strategy (CSR was a way of gaining competitive advantage: “all businesses are just earning money, but we really care about people”), and nowadays CSR evolved into a principle that underpins all levels of the business (whenever business decisions are made, they are analysed through the prism of CSR: “what is the benefit that this decision will bring to the community? Is there any harm that comes with this decision?”).

There are several reasons why businesses commit to CSR. As I mentioned earlier, sometimes it’s just to enhance the brand image (“greenwash” the company), sometimes it’s a business strategy (criterion for decisions), sometimes it’s pure altruism (just a desire to help people), especially when it comes to social enterprises and NPOs. Regardless of the reasons, even though some businesses only do it for commercial reasons, it is a positive trend that puts extra pressure on businesses and prevents them from careless decisions that might harm the environment and local communities. This CSR trend impacts supply chain and all stakeholders and pushes all of them to be responsible “corporate citizens”. Nowadays, especially in developed economies, CSR is not an exception. An exception is its absence.

With regards to evaluation of CSR, some of the advantages of it are improved brand image, increased customer loyalty, staff retention and an extra incentive to join the business for potential job seekers. On the other hand, CSR can be just PR (public relations) trick, it is subjective and impossible to measure and it can increase costs (compliance costs — costs of being ethical, that we talked about in 1.2).

Make sure you can define all of these:

1. Vision statement
2. Mission statement
3. Goal
4. Objective
5. Strategy
6. Tactic
7. GOST
8. Strategic level
9. Tactical level
10. Operational level
11. Senior management
12. Middle management
13. Junior management
14. Generic strategy
15. Corporate strategy
16. Operational strategy
17. Profit
18. Growth
19. Shareholder value
20. Ethical objectives
21. Strategic objectives
22. Tactical objectives
23. Operational objectives
24. SMART
25. Corporate social responsibility (CSR)