Exam-style Questions: Business Objectives and Strategy

1.

a) Why is it important for a business to specify its objectives?

b) Explain, with examples, why differing stakeholder and organisational objectives might cause problems for managers.

(Marks available: 10)

Answer

Answer outline and marking scheme for question: 1

Give yourself marks for mentioning any of the points below:

a) Focus for all employees, measure by which to judge the performance of the business, informs strategic planning.

(5 marks)

b) Conflict, e.g. local community objective - clean environment, company objective - profit (cost cutting creates pollution).

Decision making: e.g. Shareholders may demand high dividends, but management seek to invest profits for long term.

(5 marks)

(Marks available: 10)

2.

Explain, with examples, what is meant by the stakeholders in a company.

Is it in the interests of all stakeholders that a company should try to maximise its profits?

(Marks available: 20)

Answer

Answer outline and marking scheme for question: 2

Stakeholders are those persons who hold a stake in the company; they include shareholders, banks, the local community, customers, employees, government - if the American definition of "anyone who may be affected by the actions of the corporation" is adopted, even competitors.

(max 12)

A candidate might wish to refine the question and write of "long term" profits and then argue, with Milton Friedman, that the objective of the company is to increase shareholder wealth.

Many will argue that the company has a duty to other stakeholders. Johnson and Johnson, for example, put the customer first, then the employees, and the shareholders last. Green issues may be mentioned.

(max 12)

Excellent A clear and concise explanation of the stakeholder concept and a well sustained argument for or against the maximising of profits.
Competent An informed account of the stakeholder concept and a reasoned argument for
or against maximising profits.
Adequate A knowledge of what is meant by stakeholders and some reasons for or against
maximising profits.
Weak A limited knowledge of what is meant by stakeholders and ill-connected
comments for or against maximising profits.

(Marks available: 20)