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According to Osmond Vitez, "Business owners use a variety of management tools or technique to improve their company's business operation. Setting objectives is a specific management tool that creates a target for business owners to achieve." Setting a objective is a very first and important step for every companies because it provide a clear understanding of what is to be achieved. If a business is run without any objectives, the company will not be able to grow successfully. Setting a objective helps to create a direction for the company to keep focus on the way to achieve its success.
There are a lot of trends when setting up an objective for a company to follow. These objective-trends are mostly different and the most obvious difference between these objective-setting trends is the difference in term of focus on creating benefit for shareholders or stakeholders. In my opinion, a perfect objective is an objective that can create a balance between the benefit of shareholders and the value of stakeholders.
Outlining the issue
From previous studies, it can be clearly to clarify that there are a lot of parties that a company has responsibility for, they are shareholders, customers, suppliers, employees, society, â€¦When setting a objective, a company must need to put much consideration on the benefit of these parties. Generally, these parties are divided into two groups: shareholders and stakeholders. Shareholders represent for company-stock owners while stakeholders include a lot of parties such as employees, managers, customers, suppliers, bondholders, society â€¦ and even shareholders.
In term of aims and objectives, shareholders' objectives are mainly focus on the short term profit while objectives of stakeholders often lead to cost increasing and profit reducing. For instance, the employees always want to receive a higher amount of salary, the suppliers always to be paid more for their products, while the shareholders always want to achieve a higher rate of profit because it will increase the level of earning per share. From this point, it is obvious to identify the conflict between the desires of shareholders and stakeholders. Due to the different objectives of these parties, it also leads to different trends in term of choosing an overall objective for a company.
This study is a short discuss on different view points about company's objective to make a clear understanding not only about different ideas but also about the gain and loss for each objective decision.
Different view points
As discussed above, there are a lot of different objectives for each company. The possible objective of a company can be: market share leading, profit maximizing, shareholders wealth maximizing, survival, maintaining a happy and stable workforce. However in this study, we mainly focus on three most common objectives that represent for three most popular management trends. These three objectives are stakeholders oriented objective, shareholders oriented objective and the last objective is combination of two objectives above.
Shareholders value oriented
Shareholders value oriented objective is a very popular objective that focuses on increasing the value for shareholders. Shareholders value is represented by the market price of the company's stocks, it is also believed to be a reflection of the firm's investment, financing and even dividend policy.
At this point, we need to clarify that increasing shareholders value is not as the same as increasing the earning per shares. Following the objective of increasing the shareholders value does not mean to increase the earning per share only because the market price of share does not only effected by the present and future amount of earning per share but also the duration, the timing and the risk followed by these earnings.
To represent for this objective trend, Marks & Spencer and Spectris are very typical examples. Marks & Spencer objective is "to create value for shareholders by developing a trusted brand and delighting customers" while objective of Spectris is "our objective is to deliver shareholder value". Follow this objective, both Marks & Spencer and Spectris believe that the value of shareholders is the determinant that has the biggest effect on the success of the company. They believe that the company will only operate well if the shareholders feel satisfied with value of stock that they own.
Other Stakeholders benefit oriented
Together with the shareholders value oriented objective, the objective that focus on the value of other stakeholders is also a very popular objective. In contradictory to the shareholders value objective, the companies that follow that objective based on stakeholder value believe that the stakeholders will be the one who has the biggest effect in the success of the company. As mentioned above, the stakeholder can be customers, supplier, managers, government, society,... These parties are believed that they can affect the survival of the company.
In this objective trend, there are a lot of possible objective that is based on one specific type of stakeholders. The objective can be focus on the benefit of employees, customers or society â€¦
As one the biggest companies in the world that operate in the audit-tax-advisory service, KPMG believes that "people are our greatest asset and most important differentiator. Our success is dependent on the quality of our partner and staffs, and the way everyone at KPMG thinks and behaves". This is the objective and also the slogan that has been used by KPMG all over the world. It can be seen clearly from the statement that employees are the greatest concern of the company. Follow this objective, KPMG has tried their best to improve the workplace, create the most professional destination, build a lot of training sections to ensure that their staffs feel satisfied and consider the company as a perfect place to work, to devote. Then, they will bring and create much more profit for the company.
Another typical example is George Merck, "we try to never forget that medicine is for the people, it is not for the profit". George thinks that the customer is the most important factors that bear the biggest impact on the success of the company. The company will not be able to sell their product, their service if the customers don't want to buy. Bringing satisfaction to customers means creating benefit for the company.
Balancing between shareholders value and other stakeholder benefit
As a combination of two objective above, this objective aims to create a balance between the value of shareholders and the benefit of other stakeholders.
With the aim to become the world's leading company, ICI recognizes that the success of the company is dependent not only on its shareholders but also on its stakeholders, "we will enhance the wealth and wellbeing of our shareholders, our employees, our customers and the communities which we serve and in which we operate".
In the pharmaceutical industry, Johnson and Johnson is one of the companies that creates most value for its shareholders. To obtain this achievement, Robert Johnson - the chairman of the company believes that the value of shareholders will only increase if the benefits of other stakeholders are fulfilled. Robert Johnson said, "We believe our first responsibility is to the doctors, nurses and patients, to mother and father and all others who use our products and services. When we operate according to these principles, the stockholders should realize a fair return". Obviously seen in the statement of Robert, he believes that even the benefits of these two parties are in conflict, the only way to maximize the value of the company is making a combination between the value of stockholders and the benefit of other stockholders.
As can be seen from the discussion above, all these objectives have different advantage points. However they also have disadvantage points. With the shareholders oriented objective, it is great to find out that the value of shareholders has been appreciated because shareholders are the one who can directly affect the investment decision, the strategy which can determine the survival of a company. However, making a question here, "how can company increase their value of shareholders without experiences employees, without support from customers and even from government". It is obvious to identify the disadvantage of this objective here, which is the lack of attention on the role of other stakeholders. The company will not be able to develop if it doesn't know how to increase the sale, doesn't know how to make their employees devote all they can and even doesn't know how to increase the incentive and reduce the obstacle from the government policy.
With the same analysis as above, the companies with stakeholders-oriented objective also face a lot of obstacles. As mentioned on the second part, the benefit of stakeholders is in conflict with the benefit of shareholders. Increasing the benefit of stakeholders means creating a reduction in the benefit of shareholders. The problem here, "will the company be run in the right way if their shareholders don't feel safe". Because the shareholders can affect on the decision making of any strategies of the company, it can be said that the survival of the company is under control of their shareholders. On the other hand, the problem with this objective stays right in itself. Using the case of Boeing as an example, Boeing has found out the important role of their employees. Therefore, to increase the productivity of their employees, Boeing has used its stock as a reward to its employees. The problem happened when the employees hold too many stocks that they can keep control the activity of the company. Boeing has fallen down because the employees have sold their stocks, which made the price of Boeing's share decrease significantly. Obviously, a objective given out without a strong and good control over it, it may lead to an unexpected issue.
Creating a balance between the benefit of stakeholders and the value of shareholders is an assignment which is very difficult to achieve, however that seems to be the best way to make and keep the company developed. First of all, the company needs to create a coordination between the parties within the company, They are shareholders, managers, employees. As Dave Packard said, "It is necessary that people work together in union toward common objectives and avoid working at cross purpose at all levels if the ultimate inefficiency and achievement is to be obtained". The very first step that a company needs to make is to keep everyone in the company move and work toward a same reason. The employees must feel satisfied to work, the managers must feel satisfied to devote and the shareholders must feel satisfied with their staffs. This will create a firm foundation to move on and to achieve higher and higher achievement. The second thing that needs to be put into consideration is the parties outside the company. They are customers, suppliers, social, government, ...The company must ensure that they sell the products that customers are willing to buy; they must be sure that they have been received the best-quality input materials from their suppliers,â€¦Follow all the steps above, that is what Johnson and Johnson has been doing from their initial operation, and the effect has been shown out that Johnson and Johnson now is one the biggest company in the world.