THE CENTRAL OBJECTIVE 59
The central objective
At this point, it is advisable to take a break from writing so that you can question yourself
and perhaps those around you. You need to identify the central objective for the business.
This is the overriding force that drives you forwards.
Naïve commentators frequently suggest that maximising profit (a monetary surplus)
is the firm’s central objective. At the very least this should be restated as ‘maximising
profitability’ (the percentage return on capital employed), which is slightly different. City
commentators often seem obsessed with earnings per share (EPS, essentially net profit
per ordinary share – profit divided by the number of shares), but this can be a bit myopic.
Among other things it favours short-term (and sometimes high-risk) projects over longer-
term ventures. These ratios are discussed in Chapter 12. Stock prices are a good measure
of shareholder value in the longer term.
Frequently, though, profitability or shareholder value is not the central objective. A
number of common central objectives are listed in the box below. Note that the central
objectives of shareholders and managers frequently diverge.
Indeed, a major difficulty is that companies do not have objectives – people do. And
there can be many personal objectives all pulling in different directions. The chief exec-
utive, influential directors, individual general managers, a majority shareholder, or a
wealthy individual investor might all be pursuing differing aims.
2 Specify vision, mission, philosophy
3 Sketch corporate history
include summary financial data for the latest five years (full details
should be provided in an annex).
4 Describe the current business organisation
list directors, general management team, describe line and staff employees.
5 Outline the business infrastructure
list major premises, production facilities, business assets.
6 Describe your products and services
7 Identify your core competencies
60 CHAPTER 4 KNOW YOURSELF
Anyway, good luck in your search. I hope that you have, or can find, a single, mutually
agreed and rational central objective. Once you have identified it, keep it in mind as you
work through the following chapters of this book. It will provide focus for your analysis.
The subject of objectives is discussed in more detail in Chapter 6.
‘The only limits are, as always, those of vision.’
JAMES BROUGHTON
Ten common central objectives
1 Maximising shareholder value.
2 Maximising profitability (watch for managers with profit-related bonuses).
3 Maximising dividend pay-outs (there goes the working capital).
4 Maximising market share (common in Japan).
5 Maximising total assets.
6 Minimising excitement and risks – perhaps so that the chief executive has an
easy ride during his or her final few years in charge.
7 Positioning the company as a takeover target – so that the owner(s) can make a
quick capital gain.
8 Building an empire measured by the number of employees, the range of
international subsidiaries or some other ego-inflating statistic.
9 Prudence – financial companies often pursue stability and growth.
10 Maximising some altruistic vision – such as social welfare.
Maximising share prices is quite a good central objective. For a public
company – in theory at least – the share price reflects investors’ aggregate
perceptions of all of the factors that affect longer-term performance. If you
correctly manage the many things that affect longer-term performance, the market
will push your share price to a new peak. Share prices are more difficult yardsticks
for private companies, because they are not listed on public stock exchanges.
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