We assume that ‘businesses’ seek to increase the wealth of their owners. This is often summarized as the familiar assumption from economics that they seek to maximize profits.
Shareholder wealth maximization may be more relevant than simply profit.
However in practice it seems likely that other factors may force management to offset profitability goals against other objectives.
Purpose of the organization
A basic division of organizational purpose is:
- Profit seeking organizations: The primary goal of these is assumed to be to deliver economic value to their owners. Goals such as satisfying customers, building market share, cutting costs, and demonstrating corporate social responsibility are secondary goals which enable economic value to be delivered.
- Not-for-profit organizations (NFP): The primary goals of these vary enormously and include meeting members’ needs, contributing to social well-being, pressing for political and social change. Secondary goals will include the economic goal of not going bankrupt and, in some cases, generating a financial surplus to invest in research or give to the needy. Often the goals of NFP organizations will reflect the need to maximize the benefit derived from limited resources, e.g. funds. Their objectives may be more heavily influenced by external stakeholders such as the government.