Internal Influences on Corporate Objectives and Decisions

Size: px

Start display at page:

Download "Internal Influences on Corporate Objectives and Decisions"

Rudolf Andrews
6 years ago
Views:

1 Internal Influences on Corporate Objectives and Decisions All businesses are subject to various internal influences considering the markets in which they operate. Such variables are specific to their configuration, size and age with different degrees of impact depending on the industry and other factors. In order to make sound decisions while setting objectives, business owners and managers are expected to make sure to consider every internal and external influences that could have implications on the way it is functioning. Therefore, it is crucial for companies to define clear objectives attainable only through decision making processes on a managerial level, and through implementation on the field. This course will be in two parts; the first present part will help you understand the variables defining internal influences on corporate objectives and decisions; the next course will be concerned with external influences for the same matters. Questions at the end will permit you to validate this knowledge. I. I. Internal influences on corporate objectives Corporate objectives should reflect the organisation's reason of being as it is one of the main components permitting to achieve organisational objectives. For this reason, corporate objectives are a major concern for managers that greatly impacts the company's strategy and model such as its business plan and operational plan.

1. Financial objectives and decisions Depending on the business model adopted, corporate objectives could require massive investments in capital to be started, during restructuring phases or when

2 1. Financial objectives and decisions Depending on the business model adopted, corporate objectives could require massive investments in capital to be started, during restructuring phases or when launching a new project/product. Financial objectives are a major internal influence on corporate objectives as they could set the scale of operations for companies with intensive capital needs - the size of the business itself as well is constraint by its capital needs. Financial business objectives are commonly categorised under four major categories:

3 Revenue growth is a vital objective for any kind of organisation. In fact, successful businesses are capable to maintain over long periods of time a high revenue growth rate, constantly attracting new investors. They attain these goals through major investments on sales and marketing tasks focus on earnings before expenses. Businesses measure their progress or regression in percentage terms instead of monetary values for practical reasons. Profit margins are objectives that are more subtle than revenue growth objective as they takes into account more components and measure the revenue left after all expenses have been subtracted. Also called net earnings, it could be used by the business in the following way: o o retained for re-investment in the company's current or new ventures also called retained earnings; distributed to investors through dividends or other monetary forms; Return on Investment a major indicator for investors and managers alike, also known as ROI, is a financial ratio concerned by capital expenditures. There are two main ways it is used in business: o o To measure the ROI on investments in real property and productive assets. If planned accordingly, it should permit to ensure that the capital invested in buildings and equipments is going to be amortised and for how long. To evaluate investments in securities such as stocks, bonds and other financial instruments. Similarly, it allows investors to decide if the investment is worth the costs just like for buildings and equipments. However, while there is no tangible productive asset, ROI is computed through the comparison of dividends, interests and gains in capital from the investment taking into account the investment costs and those deriving from missed alternative opportunities. Sustainability an organisation might be facing the threat of bankruptcy in its lifetime. Marketing techniques of retreating operations are aiming financial goals in order to

4 maintain current income and margin levels from being further deteriorated due to downward trends in the company's cycles. Business owners and managers might as well be facing a hostile environment in which they use these protectionists marketing techniques to guarantee the organisation's survival during hardships such as those following governmental restrictions, economic downturns and so on. 2. Human Resources objectives and decisions For most organisations, the most important asset for the conduct of its business is its workforce. The department of Human Resources is dedicated to issues related to employment and workforce regulations; it is also responsible for ensuring that procedures are followed accordingly by managers. The HR department might request assistance from outsiders to better respond to the company's needs e.g. for recruitment or termination procedures. It is principally concerned by these four areas of the business's operations: Training & Development the HR department is liable for the planning of the training and development of the organisation's employees. It is capable to assess the business's needs and can offer training sessions to improve the skills of its workforce. Recruitment HR managers are responsible for fulfilling the organisation's recruiting objectives. They look into candidates, select and submit the most qualified of them to managers of the company concerned with the position for recruiting. In order to attract candidates, HR managers can take measures promoting the organisation's working place through internet, seminars, visits to college campuses for freshly graduated students and so on. Employees of the HR department can operate interviews with candidates and can influence the decisions of other departments. Often, they also take care of training new employees to the ways of the organisation and they teach the specifications of the work i.e. values, policies and procedures. Employee Relations the HR department takes care of labour policies of the organisation in compliance with governmental laws governing the labour market. HR

5 staff members must ensure that the company's members follow regulations concerning issues related to labour e.g. fair and equal treatment of employees. They act as an intermediary between workers and employers and are inclined to promote fairness and harmony among them; HR staff members can provide assistance to employees while preserving the owners' interests. Benefits the HR department is also responsible for the management of benefit and programs assisting employees. It provides plans to support employees to be a their fullest potential e.g. corporate nutritionists, massages, support groups and so on. HR staff members are also capable of negotiating better deals with benefit providers on behalf of both employees and owners. 3. Marketing objectives and decisions Marketing objectives form a major building block for the conduct of almost any kind of business. Whether large or small in size, a business might want to make itself and its products and/or services known and recognised around them. The marketing department develops plans and strategies to promote the company and has mainly four objectives: Growing sales revenues an essential function of marketing is to permit sales to grow faster and more consistently. Marketing costs need to be managed carefully so that they do not create losses due to lower sales or failed campaigns; marketing managers need to pay close attention to the return on investment of the campaigns and promotions. They also need to as much concise as possible when planning to increase sales i.e. by targeting specific markets and consumers. Improving product awareness marketing managers could invest resources in promoting a specific product whether it is a new one or an existing one already on the market. Establishing authority in the industry for new entrants, it is sometimes very difficult to make themselves known in the industry. It takes considerable efforts, investments and

6 time to gain an advantageous position on markets and thus benefit from the inertia of past achievements. Branding in an environment constantly over flooded by information, it could be challenging to improve and sustain brand recognition. Branding efforts are made by the marketing department in order to propagate the company's symbolism in the mind of the public; classic examples include brands such as Nike, Apple and McDonald's. In fact, Nike for instance has a high value in people's mind, even though they provide a product that seems to be quite trivial i.e. shoes. As pointed by Steve Jobs (among others), they never talk about their product but focus on promoting and supporting the best athletes and this is what comes to mind of consumers when thinking about Nike. 4. Production objectives and decisions Production objectives are concerned with the organisation and the maximisation of efficiency for a precise segment of a business. Well designed objectives could permit to improve productivity and working conditions; concretely, it is focused on four main goals: Maintenance taking care of the machinery's maintenance permit to improve its efficiency, duration and safety. This objective requires the creation and implementation of schedules recording in details the tasks necessary to be performed. Safety objectives that contribute to efficiency improvements as they allow the decreasing of accidents and thus improves employees' productivity. Staff members in charge of safety need to create lists identifying areas and times where safety is critical. They also need to make sure employees are trained appropriately to work in safe conditions and put warning signs when necessary. Production output objectives regarding production are specific to each segment of the business; they are coordinated with sales estimates. Employees are required to maintain a manufacturing rate given by these goals and their work is judged in great part on this

7 aspect. Managers should regularly monitor these objectives so that they could rapidly remedy to the problem e.g. through training sessions. Production techniques efficiency is the most important criteria regarding production techniques; the higher its efficiency, the lower its costs to implement. Managers look into the different combinations and possibilities in order to find the one with the lower costs and higher efficiency. In conclusion, while corporate objectives and decision are made to help the organisation achieve its short-term and long-term goals, they both remain under the constant influence of five major internal factors: finance, HR, Production, Marketing and Firm size & type. The next course will be about external influences and their impact on corporate objectives.

8 Multiple Choice Questions 1. What are the five major internal influences? a. Finance, HR, Marketing, Production, Authority; b. Finance, HR, Marketing, Production, Firm size & type; c. Finance, HR, Industry, Production, Authority; d. a. & b. 2. How do corporations grow their revenue? a. By decreasing costs; b. By investing in sales & marketing; c. By improving machinery maintenance; d. b. & c. 3. What are the four major categories of financial objectives? a. Revenue growth, retained earnings, return on investment, sustainability; b. Revenue growth, profit margins, return on investment, amortisation; c. Revenue growth, profit margins, return on investment, sustainability; d. Revenue growth, profit margins, return on investment, amortisation & depreciation.

9 4. What are the two main ways to use ROI ratios? a. To evaluate the return on investment on real property and productive assets; b. To evaluate an equipment's productivity; c. To evaluate a financial security's worthiness; d. a. & c. 5. What are the four main goals of the HR department? a. Training & development, Turnover, Employee Relations, Benefits; b. Training & development, Recruitment, Employee Relations, Benefits; c. Training & development, Recruitment, Employee Compensations, Benefits; d. All true. 6. What are the major marketing objectives? a. Growing sales revenue, improving product awareness; b. Increase net earnings, increase advertising; c. Establishing authority, Branding; d. a. & c. 7. What are the benefit of Maintenance? a. Improved efficiency;

10 b. Improved safety; c. Improved durability; d. All true. 8. What is the difference between revenue growth and profit margin in the financial objectives? a. Revenue growth and profit margins are basically the same; b. Profit margin takes into account costs & expenses; c. Revenue growth take into account only gross revenue; d. b. & c. 9. What are the four goals of Production? a. Revenue growth, profit margins, return on investment, sustainability; b. Maintenance, safety, production quality, production techniques; c. Maintenance, safety, production output, production techniques; d. All true.

11 10. What is Branding? a. Marketing strategy aimed at defining names for new products; b. Marketing strategy using symbolism to create a picture of the company in the mind of consumers; c. Financial objective aimed at improving financing costs; d. a. & b. Answers 1: b; 2: b; 3: c; 4: d; 5: b; 6: d; 7: d; 8: d; 9: c; 10: b;

The Measurement and Importance of Profit

The Measurement and Importance of Profit The term profit comes from the Old French prufiter, porfiter, meaning to benefit. Throughout history, the notion of profit has always been a controversial subject.