Why do businesses exist, and what goals do they set?
The reasons businesses exist and the aims, mission and objectives they set, including survival, profit, growth, market share and social objectives, the role of stakeholders and their conflicting interests, and corporate social responsibility.
A focused answer to the OCR A-Level Business theme on aims and objectives, covering why firms exist, the mission and the hierarchy of objectives from survival to social aims, the role and conflicting interests of stakeholders, and corporate social responsibility.
Reviewed by: AI editorial process; not yet individually human-reviewed
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What this theme is asking
OCR wants you to explain why businesses exist, the aims and objectives they set, how those objectives change, and how the competing interests of stakeholders shape decisions. This recurs in every component: a local start-up in Component 1, an established UK plc in Component 2, and a multinational in Component 3. The same theory, three contexts.
Why businesses exist
A business exists to add value: it combines inputs (labour, materials, capital) and sells the output for more than the inputs cost. Owners are motivated by profit, independence, a passion for the product or a desire to solve a problem. The purpose is captured in a mission statement, a short statement of what the firm is for, which shapes everything below it.
The range of objectives
OCR expects you to explain a spectrum of objectives:
- Survival. Remaining solvent and trading. The priority for a start-up or a firm in recession, because running out of cash ends the business whatever else is going well.
- Profit maximisation. The greatest positive gap between total revenue and total costs. Profit funds reinvestment and rewards owners.
- Growth. Increasing sales, output or the number of outlets, which spreads fixed costs and can build market power.
- Market share. The firm's slice of total industry sales. Higher share can bring brand dominance and pricing power.
- Cost efficiency. Minimising unit cost, which protects margins and supports a low-price position.
- Social and ethical objectives. Goals beyond commercial gain, such as cutting carbon, paying a living wage or supporting the community.
Why objectives change as a business develops
A new firm has limited finance, an unproven product and high failure risk, so survival is rational. As the model proves itself and funding arrives, the firm can spend on winning customers, so growth and share rise up the list. A mature, cash-generative firm such as a large supermarket then protects margins and may add social aims as it can afford them and as stakeholders demand them.
Stakeholders and conflicting interests
Stakeholder interests frequently conflict. Shareholders may want higher dividends, while employees want higher pay and customers want lower prices, and all three compete for the same revenue. A decision to automate a production line pleases shareholders (lower costs) but threatens employees (job losses) and may worry the local community. Managers must prioritise the most powerful or most affected stakeholders, accept trade-offs, and justify them.
Corporate social responsibility
CSR adds cost in the short run but can build brand value, customer loyalty and staff motivation in the long run. The judgement in the exam is usually whether the long-term benefits justify the short-term cost, and that depends on the firm's customers, its market and its finances.
Examples in context
Tesla ran years of low or negative profit while pursuing growth and market share in electric vehicles, accepting a survival-style cash burn to build scale before becoming consistently profitable. Greggs, a mature UK chain, focuses on cost efficiency and steady profit and has added social objectives such as a pledge to cut carbon. A new independent coffee shop must prioritise survival, watching cash flow daily, before it can think about share. The same firm-type spectrum the specification expects you to apply.
Try this
Q1. State two objectives a business might pursue other than profit maximisation. [2 marks]
- Cue. Survival, growth, market share, cost efficiency, employee welfare, customer satisfaction, or social and ethical aims.
Q2. Analyse why a start-up's main objective is likely to be survival rather than profit maximisation. [6 marks]
- Cue. Limited cash, untested product and high failure risk make staying solvent the priority, developed as a chain and set in context.
Exam-style practice questions
Practice questions written in the style of OCR exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.
OCR H431/01 20194 marksExplain one reason why a newly opened local cafe is likely to set survival as its main objective. (4)Show worked answer →
A Component 1 "Explain" question rewards one knowledge point developed into a clear chain, applied to the local context. Define survival as the objective of remaining solvent and continuing to trade. Then build the chain: a new cafe has limited cash reserves, high fixed costs (rent, equipment) and an untested customer base, so the immediate risk is running out of cash before revenue covers costs. Therefore management prioritises positive cash flow and staying open over maximising profit, which may take years. Markers reward the link from the firm's limited finance and uncertainty to the survival objective, anchored in the cafe context.
OCR H431/02 202216 marksEvaluate the view that a public limited company should always prioritise the interests of its shareholders above those of other stakeholders. (16)Show worked answer →
A 16-mark Component 2 evaluation, marked on a four-level grid with heavy AO3 and AO4. Build a two-sided argument. For shareholder primacy: shareholders own the company and bear the residual risk, directors have a legal duty to promote the company's success for members, and a rising share price and dividend keep the firm able to raise capital. Chain: prioritising shareholders maintains investor confidence, which lowers the cost of finance and funds growth. Against: under section 172 directors must have regard to employees, suppliers, customers, the community and the environment, and ignoring them risks reputational damage, strikes, regulation and lost customers that ultimately harm shareholder value too. Evaluation: it depends on the time horizon (short-term share price versus long-term value) and the power of each stakeholder group. A judged conclusion, for example that long-run shareholder value and stakeholder interests usually align so the "always" in the question is too strong, reaches the top band.
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Sources & how we know this
- OCR A-Level Business (H431) specification — OCR (2015)