Corporate objective
| Corporate objective |
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A well set and realistic purpose established by a company that oftentimes affects its internal strategic choices. Most corporate objective goals used by a company will define the time frame predicted for their accomplishment and how the company's gain in doing so is to be evaluated(Keay A., 2007)
The proper corporate objective
The debates surrounding the proper corporate objective are distant from over. Academics and courts have continued disputed over the goals of the corporation and still, exist differing opinions. In the field of economics, the philosophy of shareholder profit maximization is believed as being so blatant that textbooks just state it, rather than fight for it. Variation from this objective is shaped as an agency problem emerging from the separation of possession and control, and failure to reach this goal is expected to be improved by corporate boards, shareholder view, shareholder exit, and the demand for corporate control. Administration and strategy scholars have, in current years, drifted toward one of two overlapping prospects that are at favor with the finance view. One perspective is that governance should be interpreted using a stakeholder lens. The different view is that rather than questioning whether stakeholders or shareholders matter, companies should balance various goals. In the areas of law and ethics, the intellectual conflict within the stakeholder and the shareholder, agreements, and identities, and public and private thoughts of the corporation have likewise been visible in various deliberations (Sundaram A., Inkpen A., 2007).
According to Sundaram A, Inkpen A, "shareholder value maximization should be the preferred corporate goal not because it is law, not because it may be, as some argue, the ethical thing to do, nor because it is expedient because it is based on an observable and measurable metric. Our argument is that it should be the goal because it is the best among all available alternatives, and thus the preferred goal for managers formulating and implementing strategy"(Freeman R., Wicks A., Parmar B., 2004).
The Primacy of Creating Value for Stakeholders
Sundaram A, Inkpen A suggest that there is a five-point argument for supremacy of creating value for stakeholders and it is as follows:
- The goal of maximizing shareholder value is prostakeholder
- Maximizing shareholder value creates the appropriate incentives for managers to assume entrepreneurial risks.
- Having more than one objective function will make governing difficult, if not impossible
- It is easier to make shareholders out of stakeholdersthan vice versa.
- In the event of a breach of contract
or trust, stakeholders, compared with shareholders, have protection (or can seek remedies) through contracts and the legal system (Freeman R., Wicks A. Parmar B., 2004)
Examples of Corporate objective
- Increase company profitability by 10% within the next 5 years
- Increase customer satisfaction by 5% in a year
- Increase market share by 15% in the next 3 years
- Reduce costs by 10% over the next 3 years
- Increase employee engagement by 15% within a year
- Increase efficiency by 10% within the next 6 months
- Reduce environmental impact by 30% over the next 5 years
- Increase innovation by 20% within the next 5 years
- Increase revenue by 25% within the next 3 years
Advantages of Corporate objective
A well set and realistic corporate objective can be beneficial for a company in a number of ways, such as:
- Providing a sense of direction and purpose to the organization, allowing for the implementation of more effective and coordinated strategies and the allocation of resources.
- Having a corporate objective can help to ensure that the entire organization is focused on the same goal and working towards the same end.
- It can help to set clear expectations and performance measurements that are easily monitored and evaluated.
- Having a corporate objective can help to foster communication and collaboration between departments, as each department can have a clear understanding of how their individual efforts contribute to the overall goal.
- It can also help to ensure that the organization’s efforts are in line with its mission and values, and that it remains focused on its core competencies.
Limitations of Corporate objective
An introduction to the list of limitations of corporate objectives is that each objective has its own set of drawbacks that can have an impact on a company's success. The list of limitations of corporate objectives are:
- Short-Term Focus: Corporate objectives are often focused on short-term goals, rather than on long-term goals. This can lead to a lack of sustained success and can hinder the company's ability to grow and develop.
- Lack of Flexibility: Corporate objectives are typically rigid and inflexible, and thus may not be able to adapt to changing circumstances. This can lead to a lack of innovation and can limit the company's ability to take advantage of opportunities.
- Unclear Priorities: Corporate objectives can be too vague and provide little direction in terms of what should be prioritized. This can lead to a lack of focus and can prevent the company from achieving success.
- Pressure to Perform: Corporate objectives can put undue pressure on employees to achieve results, which can lead to a lack of motivation and morale.
- Unrealistic Goals: Corporate objectives can be too ambitious and unrealistic, which can lead to disappointment when goals are not achieved. This can also have a negative impact on employee morale.
Introduction: Apart from corporate objectives, there are other approaches that a company may take to ensure its success. These include:
- Market focus and segmentation: Companies may focus on specific segments of the market to ensure higher returns and better customer loyalty. Companies may also segment their customer base in order to better target their offerings.
- Product differentiation: Companies may differentiate their products from those of their competitors by offering unique features or services. This can help to create customer loyalty and increase sales.
- Corporate culture: Companies may also focus on creating a strong corporate culture that values customer satisfaction, innovation, and employee engagement. This can help to create a competitive advantage and ensure long-term success.
- Customer experience: Companies may also focus on enhancing the customer experience by providing excellent customer service, creating engaging experiences, and leveraging technology to improve the customer experience.
Summary: Companies may use various approaches to ensure their success, such as market focus and segmentation, product differentiation, corporate culture, and customer experience. By focusing on these approaches, companies can create a competitive advantage and ensure long-term success.
References
- Freeman R., Wicks A., Parmar B., (2004), Stakeholder Theory and The Corporate Objective Revisited, Institute for Operations Research and the Management Sciences, Maryland, USA,
- Frino A., Hill A., Chen Z., (2015), Introduction to Corporate Finance, Pearson Higher Education AU, Australia
- Jensen M.C., (2000), Value maximization and the corporate objective function, Harvard Business School,
- Keay A., (2007), Tackling the Issue of the Corporate Objective: An Analysis of the United Kingdom’s Enlightened Shareholder Value Approach, "Sydney Law Review", 577
- Keay A., (2011), The Corporate Objective, Edward Elgard Publishing Limited, Cheltenham,
- Sundaram A., Inkpen A., (2004), The Corporate Objective Revisited, Institute for Operations Research and the Management Sciences, Maryland, USA,
- Walsh J., (2004), Introduction to the Corporate Objective Revisited Exchange, Institute for Operations Research and the Management Sciences, Maryland, USA,
- Yan M., (2017), Beyond Shareholder Wealth Maximisation: Towards a More Suitable Corporate Objective for Chinese Companies, Routledge.
Author: Gabriela Zabawa
