Unit 1.1 — Nature and purpose of business
Learning outcomes (from the 9587 syllabus). This note is complete when every bullet below is covered.
Learning outcomes
- Primary purpose: to create value for the various stakeholders; importance of value; measurement of value (financial and non-financial)
- Stakeholders: customers, shareholders/owners, suppliers, employees, government agencies, public interest groups, local communities, trade associations, unions, the media; importance and influence on decision-making; conflict of interest and priorities
- Business objectives: survival, profit maximisation, profit satisficing, growth; importance at strategic and functional level; role in decision-making; establishing priority; change of objectives across time and stage of business
Running example used throughout this note: Sunrise Bakery, a small neighbourhood bakery in Bedok run by its owner, Mdm Tan.
Big picture
In plain English: a business exists to make something valuable for people — and to keep everyone involved reasonably happy while doing it. “Everyone involved” means the stakeholders; “keep them happy” means meeting objectives.
Analogy: a business is like cooking for a big family. You need ingredients from many suppliers, a recipe (objectives), and you must please different eaters (stakeholders) — some want it sweeter (shareholders), some cheaper (customers), some healthier (community). You cannot please everyone fully, so you make trade-offs.
Two ideas for the whole subject:
- The primary purpose is to create value — for stakeholders, not just profit for owners.
- Objectives guide decisions. Every decision a business makes is aimed at one or more of its objectives.
Core content
1. The primary purpose: creating value
A business exists to create value for its stakeholders — value is the benefit a stakeholder receives from the business.
- Financial value = measured in money: profit for owners, dividends for shareholders, wages for employees, taxes for the government, lower prices for customers.
- Non-financial value = not measured in money: job satisfaction, a good reputation, a cleaner environment, convenience, a sense of belonging.
Sunrise Bakery creates financial value — wages for its two assistants, profit for Mdm Tan, and affordable bread for residents — and non-financial value — a friendly place for elderly neighbours to gather every morning, which builds community spirit.
2. Stakeholders
Stakeholders are individuals or groups with an interest in the activities of a business.
The syllabus list: customers, shareholders/owners, suppliers, employees, government agencies, public interest groups, local communities, trade associations, unions, and the media.
Competitors are not stakeholders. You do not need to split stakeholders into “internal” and “external”.
- Importance and influence: stakeholders matter because the business needs them (customers to buy, employees to work, suppliers to deliver), and because powerful stakeholders can change business decisions.
Sunrise Bakery’s most influential stakeholders are its customers (if they stop buying, the shop closes) and its supplier of flour (if the supplier raises prices or stops delivering, Mdm Tan cannot bake). A public interest group (a “reduce sugar” campaign) has less power but still influences her to offer healthier bread.
- Conflict of interest: stakeholders want different things, so their interests clash. The business must balance them.
Conflict at Sunrise Bakery: customers want lower prices, but Mdm Tan (owner) wants higher prices for more profit. Employees want higher wages, but that reduces profit. The government wants full tax compliance, while Mdm Tan would prefer to keep more money. These conflicts force trade-offs.
3. Business objectives
Objectives are the targets a business sets and works towards. The four syllabus objectives are:
| Objective | Meaning |
|---|---|
| Survival | Staying in business — the priority for a new or struggling firm |
| Profit maximisation | Earning the highest possible profit |
| Profit satisficing | Earning “enough” profit to keep owners satisfied, while also pursuing other goals |
| Growth | Getting bigger — more outlets, sales, or market share |
- Strategic vs functional objectives: strategic objectives are the whole-business, long-term targets (e.g. “become the top bakery in Bedok”); functional objectives are the targets of each department or function (marketing, operations, HR, finance) that support the strategic one.
Sunrise Bakery’s strategic objective is to open a second outlet within two years. Its functional objectives support this: marketing must raise brand awareness locally; operations must keep baking quality consistent; finance must save enough capital for the new shop; HR must hire and train one more baker.
Role of objectives in decision-making: objectives act as a filter — a good decision is one that moves the business toward its objectives.
Priority of objectives: businesses cannot chase all objectives equally, so they set priorities. For example, a new firm prioritises survival over profit maximisation.
Objectives change over time and with the stage of the business:
When Sunrise Bakery first opened, Mdm Tan’s objective was survival — just cover the rent. Now that it is established, her objective is growth (a second outlet). If the economy turns bad, she may switch back to survival and cut back plans. Objectives are not fixed — they change with the business’s situation.
Analysis & evaluation points (AO3/AO4)
- Stakeholder conflicts are unavoidable — you cannot maximise everything at once. A business that pleases one group often disappoints another.
- Profit is not the only goal. Modern businesses chase non-financial value (reputation, sustainability) which may reduce short-term profit but protect long-term success.
- Satisficing vs maximising: satisficing is more realistic — owners accept “good enough” profit to avoid overworking or annoying stakeholders.
- Measuring value is hard. Non-financial value (happiness, reputation) is difficult to measure, so businesses may ignore it even when it matters.
- Objectives can conflict with each other. Growth may require sacrificing short-term profit (spending on new outlets).
- Context decides. The “right” objective depends on the stage of the business, the economy, and who the stakeholders are.
Language bank: however · on balance · it depends on · in the short run … whereas in the long run ·
Worked examples (PEEL)
PEEL = Point → Explain → Example → Link. Use this structure for every written answer.
Worked example 1 — “Explain” (6 marks)
Question: Explain why a business cannot always maximise profit.
- P (Point): A business cannot always maximise profit because stakeholders have conflicting interests.
- E (Explain): Maximising profit would mean raising prices and cutting costs, but this harms customers (higher prices) and employees (lower wages), who may then leave or complain.
- E (Example): If Sunrise Bakery raised its bread prices sharply to maximise profit, its price-sensitive elderly customers would switch to the supermarket, so sales and profit would actually fall.
- L (Link): Therefore, the business must balance stakeholder interests, which usually means accepting “satisficing” profit rather than the maximum.
Worked example 2 — “Evaluate” (10 marks)
Question: Evaluate whether profit maximisation should be the most important objective for a new business.
- P (Point): For a new business, survival is more important than profit maximisation.
- E (Explain): A new business has low cash reserves and no loyal customers yet, so it must first cover its costs and build a customer base; chasing maximum profit too early (e.g. high prices) can drive customers away and cause failure.
- E (Example): A new café that prices its coffee too high to maximise profit may lose customers to the cheaper established café next door and be forced to close.
- L (Link): This shows that the priority of objectives depends on the business’s stage — survival first, profit later.
- Evaluate (AO4): However, once the business is established, profit maximisation becomes more appropriate because it funds growth and rewards the owners for their risk. On balance, objectives should change with the business’s stage — survival for a new firm, profit and growth for an established one.
Application bank (Singapore quick reference)
| Idea | Singapore example |
|---|---|
| Social enterprise / non-profit value | NTUC FairPrice (co-op balancing profit with affordable essentials); hawker centres (affordable food) |
| Balancing stakeholders | DBS balances shareholders, customers, employees and regulators (MAS) |
| Growth objective | BreadTalk grew from one bakery (2000) to hundreds of outlets worldwide |
| Survival objective | Many F&B start-ups close within 2–3 years of opening |
| Non-financial value | SIA’s reputation for service; Gardens by the Bay creating community value |
Exam technique
- How it appears: data-response questions often give a business’s situation and ask you to identify its stakeholders/objectives or explain a conflict.
- Model skeleton for “identify stakeholders” questions: name the stakeholder → state their interest → state their influence on the decision.
- For “objectives” questions: always link the objective to the stage of the business and the economic situation (AO3), then judge which objective fits best (AO4).
- Common pitfalls: forgetting non-financial value; listing stakeholders without saying how they influence the business; treating objectives as fixed.
Self-test checklist
Essay practice: “Evaluate the view that the main purpose of a business is to make as much profit as possible.” (25 marks)