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12.3. Corporate Objectives
Corporate objectives are the strategic statements of where the company wants to be. The objectives might be as follows:
- Financial: market share, sales, profit, return on investment, etc.
- Philosophical: perhaps a mission statement expressing the core values of the organisation.
- Qualitative: service levels, innovation, etc.
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Corporate objectives often involve trade-offs, since all firms have limited resources and can concentrate on only one area at a time. In some cases the tradeoffs involve diametrically opposed objectives. Weinberg3 proposes a set of eight trade-offs in setting objectives, as follows:
- Short-term profit v long-term growth.
- Profit margin v market positioning.
- Direct sales effort v market development.
- Penetrating existing markets v developing new ones.
- Profit v non-profit goals.
- Growth v stability.
- Change v stability.
- Low-risk v high-risk environments.
Setting the overall corporate objectives may indicate strategic sub-objectives. As a general rule, most firms want to grow. Growth increases the firm’s security in the market, it increases the power and influence of managers (not to mention their salaries), and it reduces costs. There are four main advantages to growth –
- Protection against competition – If the firm becomes the largest in the industry, competitors find it harder to enter the market. Growing firms are able to apply more resources to the market, and take away market share from their competitors thus reducing the competitors’ ability to compete effectively.
- Improved economics of scale – Greater size means greater efficiency in the purchase of raw materials, use of employee skills, and use of corporate resources. This eventually results in higher profit margins, and consequently a greater ability to survive if business worsens.
- Better control of distribution networks – Growing firms are attractive to distributors and suppliers because they will provide more business in the future. This gives the firm a negotiating advantage.
- More opportunities for career advancement – Managers and staff have better opportunities for promotion when working for a growing firm. This means greater motivation, which in turn means improved working practices.
Growth in growing markets is likely to happen in any case, even without any formal strategic attempts to encourage it: the key to success here lies in measuring whether the company is growing faster than the market, slower than the market, or at the same pace as the market. Often firms which couch their growth objectives in financial terms fail to notice that they are growing more slowly than the market, and are thus (in effect) losing ground to competitors. Couching growth targets in terms of market share will avoid this pitfall, although obviously a reliable measure of the overall size of the market needs to be available. Once managers have a clear picture of where the company is and where they wish it to be, it is possible to move on to planning the tactics.
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