“Change is inevitable. Growth is optional.”
- John C. Maxwell (b. 1947), American leadership author

Growth can be pursued by internal and/or external methods. Internal growth (also known as organic growth) takes place when an organization expands without the help of an external partner firm. Instead, it uses its own resources to do so, such as using retained profits to invest in production facilities in new locations.

External growth (also known as inorganic growth) refers to the expansion and evolution of a business by using third party resources and organizations rather than relying on internal sources and activities. Read more about methods of external growth here.

Methods of measuring the growth of a business include:

• Sales revenue - the monetary value of the products that the business has sold, per time period).

• Sales volume - the number of products that the business sells, per time period).

• Profits - the financial surplus that remains after all costs of production have been deducted from a firm's sales revenue).

• Customers - the more customers that the business has, the larger it tends to be).

• Number of employees (size of the workforce) - the more people that are hired by the business, the larger it tends to be.

• Market share - this measures the firm's sales revenue as a proportion of the whole industry's sales revenue.

An increase in any of the above measures suggests that the business will have grown. It is common for managers to work out the percentage change in the variable being measured in order to determine the size or magnitude of growth. Take the example below which shows the growth in the number of DP Business Management candidates.

The IB DP Business Management course continues to grow each year. In 2005, there were just 3,622 students who took the Business Management course. By the end of 2022, a total of 32,773 candidates sat the exams for the subject. The chart above shows that the number of BM candidates has grown by 804.8% during the given time period (a highly impressive growth rate by any measure!)

• Percentage change = (New - Old) / Old × 100

• (32,773 - 3,622) / 3,622 = 8.048 = 804.8%

In 2020, there were 1,136 IB World Schools that offered the DP Business Management course. In 2021, this had increased to 1,367 schools. What is the percentage growth rate in the number of schools that offered the course?

The benefits of business growth include:

• It is necessary for a firm’s survival in a dynamic and competitive business environment.

• Larger firms benefit from cost-saving benefits known as economies of scale, enabling them to charge lower prices and therefore attract more customers.

• Employees are more likely to motivated working for larger and growing businesses as they have a greater degree of job security as well as increased remuneration.

• Larger businesses are more likely to be able to attracts investors and represent lower risk to financial lenders.

Ultimately, given the continual challenges and changes in the corporate world, growth is crucial to an organization's long-term success and survival.

Profit (or financial surplus) is the positive difference between a firm's sales revenue and its total costs of production, per time period. Profit as a business objective is important for two main reasons:

• It acts as a reward for the owners and investors of the business.

• It provides an internal source of finance to further develop the business.

Profit acts as an incentive for entrepreneurs to take risks and start up new businesses. It also provides incentives for them to remain in business and pursue growth in order to reap greater financial returns. Profit as an internal source of finance enable the business to grow further without the need to over rely on external sources of finance that incur interest and debt.

It is assumed that profit maximization is a top priority for traditional commercial (for-profit) businesses. For many businesses and their owners/shareholders, profit is the most important organizational objective. They strive to operate at the optimal size that enables them to sell their output where the difference between total revenue and total costs is maximised.

There could be liquidity issues for a business that does achieve profit in the long-term, which could possibly lead to bankruptcy and business closure.

Free market economists argue that above all else, businesses exist to protect the interests of their owners. For example, Milton Friedman's (1912 - 2006) Shareholder Value Theory, states that "The business of business is... business", that is, leave businesses to get on with what they do best - business. Beyond that, said Friedman, businesses should not concern themselves with corporate social responsibilities (CSR). It is not, according to this school of thought, for businesses to decide and take responsibility for the needs of society - so long as they operate within the law and the customs of the country(ies) in which they operate.

This view is supported by Jack Welch (former Chairman and CEO of GE - General Electric) who said: "Even in these uncertain times, every company should practise good corporate citizenship post op but they also need to face the reality that's you first have to make money before you can give it away."

Protecting shareholder value encompasses both short- and long-term objectives, including survival, profit, and growth in order to give owners a financial reward/return on their investments.

• Survival - This is the most basic of all business objectives as nothing else matters if the business cannot survive. Every business must earn enough revenue to keep it operating or else it will collapse. A business cannot protecting shareholder value if it cannot survive, perhaps due to a prolonged economic recession or fierce competition from larger companies.

• Profit - The profit motive provides a financial return for shareholders in the form of dividend payments. Most private sector, for-profit businesses have this as their main organizational objective in order to provide value for their owners.

• Growth - Enlarging the business can help to increase sales revenues, profits, and customer loyalty. These combined benefits of business growth help to generate improved shareholder value over time.

• Market share - Firms may aim to increase their market share (their sales revenue as a proportion of the entire market's sales revenue) in order to gain the benefits of being the market leader. These advantages include enhanced brand awareness, brand value, and brand loyalty, all of which help a company to protect the interests of their shareholders.

• Ethical objectives and corporate social responsibility - For a business to remain relevant, profitable, and competitive, it is not enough to only sell more goods and services. Changing social attitudes and expectations mean that businesses have to operate in a socially acceptable and responsible way, such as ensuring business activities do not cause damage to the planet or people. Doing so can also improve the corporate image of the company. Only then, can the business generate and protect shareholder value in the long term.

 ATL Activity 2 (Research skills) - Coronavirus and change

 Key concept - Change

For any organization of your choice, investigate how the coronavirus pandemic (COVID-19) caused changes to its organizational objectives (such as protecting shareholder value and ethical objectives) as well as its business operations.

Be prepared to present your findings to the rest of the class.

 Teacher only box

Encourage students to consider possible positive changes, rather than just the negative impacts or changes on the organization - some businesses have managed to thrive during/since the global pandemic.

If some students find this too challenging, suggest to them that they can refer to their IB World School as an example of an organization affected by the coronavirus pandemic.

Some examples that students could investigate include:

• A record high of over 44 million people registered as unemployed in the USA in June 2020.

• Oil giant BP announcing 10,000 job cuts following the global slump in demand for oil (as people were stuck at home due to lockdown laws in most parts of the world. This represented job losses for 15% of BP's global workforce.

• Rolls-Royce announced 9,000 job cuts around the world due to the global decline in air travel, hurting demand for its jet engines and maintenance services.

•  According to analysis from the New Economics Foundation (NEF), the coronavirus pandemic could cause up to 124,000 job losses in the UK aviation industry without direct government support.

• Frankie & Benny's (a bar and grill restaurant chain owned by the Wagamama group) closed 125 restaurants in the UK, causing 3,000 people to lose their jobs.

• Airbus cut 15,000 jobs, mainly in Germany and France due to the decline in demand for its aeroplanes as a result of the stagnant air travel industry. The European aircraft manufacturer had previously furloughed 3,200 workers due to a cash flow crisis. Read more about this story here, from the BBC. Commercial air travel did not resume until July 2020, and much later in other parts of the world.

• Data from the Australian Bureau of Statistics (ABS) showed that Australia went into a recession for the first time in almost 30 years. Retail sales in the country fell by US$5.38 billion between March to April 2020, causing unemployment across the economy in every sector. The coronavirus crisis was to blame.

"The one responsibility of business towards society is the maximisation of profits to shareholders within the legal framework and the ethical custom of the country." - Milton Friedman (1912 - 2006), American economist and 1976 Nobel Memorial Prize in Economic Sciences “Educating the mind without educating the heart is no education at all.” - Aristotle (384BC - 322BC), Greek philosopher

Ethics are, essentially, about what is deemed to be right and what is considered to be wrong, i.e. morality from society's point of view. They are based on the values of the organization, in accordance to society’s norms and beliefs. Read more about ethics as a key concept here.

Business ethics are the guiding principles that provide moral guidelines for the conduct of business activities. Ethical objectives are organizational goals based on moral guidelines in order to influence or determine business decision-making. Ethical decision-making considers more than just calculating costs, benefits and profits. This means such businesses act morally towards their various stakeholder groups, including employees, managers, customers, shareholders, suppliers, financiers, local community (including consideration for the natural environment), the government, and even competitors.

Examples of ethical objectives include:

• improving the overall wellbeing of workers

• honesty and fair treatment with regards to dealings with customers and suppliers

• adopting green (clean / renewable) technologies

• pursuing sustainable growth strategies

• observing and respecting intellectual property rights of others

• using socially responsible advertising, and corporate governance (such as financial integrity and transparency).

As part of its corporate social reasonability (CSR) strategy, businesses may establish an ethical code of practice - a formal documented policy setting out the way the business believes it should behave, including how to respond to situations that challenge its integrity or social responsibility or accusations/situations of unethical business practices.

Read more about developing an ethical code of practice by clicking the icon below.

Examples of unethical business practices include:

• the exploitation of stakeholders (such as low-paid workers, child labour, suppliers being paid late, and poor delivery of services to customers)

• misleading marketing gimmicks, including direct advertising aimed at young children

• exploitation of the natural environmental and ecosystems, and

• fraudulent business activities (such as financial deception).

There are both advantages and limitations of businesses pursuing ethical objectives.

 Advantages of ethical business objectives

Pursuing ethical objectives is an ongoing and long-term journey for businesses. However, there can be substantial advantages from doing so. These interrelated benefits include:

• Improved corporate image - Being known as an ethical business can help to enhance the corporate image and reputation of an organization. This can generate additional long-term gains for the business such as improved sales and consumer loyalty. By contrast, acting unethically (see ATL Activity 4 below) can certainly lead to negative publicity from the mass media, leading to serious damage to the organization’s reputation.

• Higher sales revenue -  Due to improvements in education and the growing use of social media platforms, customers tend to prefer to buy from businesses that act morally and have ethical goals. They do not tend to knowingly purchase products from businesses that cause significant harm to the natural environment or exploit child labour, for example. Hence, ethical businesses can gain from higher sales revenue in the long-term.

• Increased customer loyalty - Similarly, customers are more likely to be loyal to businesses that look after their customers, employees, suppliers, and local communities. For example, customers are likely to prefer to be loyal to cosmetics companies that do not test their products on animals but actively take actions to protect the natural environment.

• Reduced costs - Despite the costs of compliance, acting ethically can help a business to cut certain costs in the long-term. For example, acting in the best interest of the environment can help to reduce the costs of excessive packaging and waste.

• Higher staff morale - Employees feel better working for a business that does the "right" things, from society's point of view, beyond just obeying the laws of the country. Higher staff morale also helps to improve labour productivity and the level of employee motivation.

• Increased employee loyalty - Similarly, ethical business practices help to attract and retain highly motivated employees. In particular, highly qualified and skilled employees may not be willing to work for unethical businesses. Having a good corporate image and reputation for ethical business practices makes it significantly easier for organizations to attract, hire, and retain employees.

• Avoiding fines and penalties - Acting unethically can result in lawsuits (legal action taken against the businesses) and expensive fines as well as other penalties imposed by the courts.

• Ultimately, actively pursuing ethical business objectives can be beneficial for the organization's triple bottom line (people, planet, and profits).

 Limitations of ethical business objectives

Pursuing ethical business objectives also have their limitations and can be challenging and expensive to accomplish. These limitations include:

• Compliance costs - There are costs associated with implementing ethical behaviours and corporate social responsibility. These costs are potentially extremely high. For example, supermarkets have to spend more on purchasing organic fruits, vegetables, and meats rather than genetically modified produce. The costs of production are also higher for ensuring employees are paid fair wages rather that exploiting workers.

• Higher prices - High compliance costs can lead prices having to be raised in order to maintain profit margins. Furthermore, rival businesses might not implement ethical objectives and could have lower costs as a result. This can reduce the price competitiveness of the business as it pursues its ethical objectives and corporate social responsibilities.

• Lower profits - The compliance costs of acting ethically, such as the adoption of green technologies or the sourcing of fair trade raw materials, means higher production costs for the business and hence lower profitability. This would then lead to lower dividend payments made to shareholder or business owners.

• Subjectivity - The notion and concept of ethics is subjective. People and businesses in different parts of the world may have varying views about what is and what is not considered ethical behaviour (refer to BMT 11 - Hofstede's cultural dimension).

• Stakeholder conflict - Although customer might prefer to purchase from businesses with ethical objectives and employees might prefer to work for ethical business, the directors and owners of the business might not be so keen due to some of the disadvantages outlined above. Many for-profit organizations aim to profit maximize in order to meet the needs of their shareholders and financiers or investors. Shareholders may be reluctant to accept lower profits, at least in the short term. Hence, this can put pressure on managers to pursue other business objectives other ethical objectives and CSR practices.

Overall, there is an ethical dilemma for managers if higher compliance costs resulting from ethical business activities cannot be covered by higher prices which customers are willing and able to pay for. Decision makers will need to decide whether they can accept adopting ethical practices with the potential risk of lower profitability, at least in the short-term.

Case Study 2 - Theranos

Theranos was an American privately held company that claimed to have invented breakthrough health technologies that could detect diseases using only one drop of blood. The company was founded by 19-year old Elizabeth Holmes in 2003, raising more than $600 million from venture capitalists and private investors. In 2014, the company was valued at $9 billion.

By 2016, Theranos was forced to shut down after an investigation showed major flaws in the firm's technologies that generated widespread inaccurate results. In 2018, Elizabeth Holmes was charged with "massive fraud" by government authorities.

 Watch the feature-length documentary of the Theranos disaster story here.

Click the icon below for a list of questions to accompany the video.

 Questions

1. What was Elizabeth Holmes's goal in life from childhood?

2. At what age did Elizabeth Holmes drop out of Stanford University to start her own company?

3. How much did Elizabeth Holmes receive as a seed investment, from a neighbour?

4. By the end of the year, how much had Elizabeth Holmes acquired in funding?

5. In which year did Theranos develop its first prototype, Theranos 1.0?

6. Which other large company conducted Theranos tests on cancer patients?

7. How did Elizabeth Holmes approve the trialling of her products?

8. Who was Avie Tevanian?

9. What did a member of the sales team discover that the financial projections were based on?

10. How long did it take for all former employees of Apple to leave Theranos?

11. How much did Richard Fuisz sell his demonstration video company for?

12. How much had Safeway invested in accommodating shelf space for Theranos products by 2012?

13. What was the pay of the lawyer hired by Richard Fuisz?

14. Who was Angela Ha?

15. For how long did Theranos operate without a CFO (chief financial officer? 14:45

16. Who is Rupert Murdoch?

17. Which magazine released a front page cover featuring Elizabeth Holmes with the title "This CEO is out for blood"?

18. Following a visit from the FDA, how many tests did the Edison blood testing machine perform correctly, out of 250 tests?

19. How much did Walgreens sue Theranos for?

20. When was Theranos dissolved?

 Teacher only box

Answers

Timings included for reference only

1. What was Elizabeth Holmes's goal in life from childhood? 1:31

To become a billionaire

---

2. At what age did Elizabeth Holmes drop out of Stanford University to start her own company? 2:18

19

---

3. How much did Elizabeth Holmes receive as a seed investment, from a neighbour? 2:33

$1 million

---

4. By the end of the year, how much had Elizabeth Holmes acquired in funding? 3:15

$6 million

---

5. In which year did Theranos develop its first prototype, Theranos 1.0? 5:07

2006

---

6. Which other large company conducted Theranos tests on cancer patients? 5:51

Pfizer

---

7. How did Elizabeth Holmes approve the trialling of her products? 6:21

Lying to investors and clients about the product's effectiveness

---

8. Who was Avie Tevanian? 7:14

The former Senior Vice President of Software at Apple

---

9. What did a member of the sales team discover that the financial projections were based on? 8:37

Dishonest pilot tests

---

10. How long did it take for all former employees of Apple to leave Theranos? 9:09

A couple of years

---

11. How much did Dr. Richard Fuisz sell his demonstration video company for? 9:25

$50 million

---

12. How much had Safeway invested in accommodating shelf space for Theranos products by 2012? 12:10

$350 million

---

13. What was the pay of the lawyer hired by Richard Fuisz? 13:07

$1,000 an hour

---

14. Who was Angela Ha? 14:28

The Software Product Manager for Theranos

---

15. For how long did Theranos operate without a CFO (chief financial officer? 14:45

7 years

---

16. Who is Rupert Murdoch? 18:23

The owner of The Wall Street Journal (who invested $125 million in Theranos)

---

17. Which magazine released a front page cover featuring Elizabeth Holmes with the title "This CEO is out for blood"? 16:41

Fortune

---

18. Following a visit from the FDA, how many tests did the Edison blood testing machine perform correctly, out of 250 tests? 20:32

Only 12

---

19. How much did Walgreens sue Theranos for? 20:54

$140 million

---

20. When was Theranos dissolved? 22:46

September 2018

 ATL Activity 4 (Research skills) - Unethical business practices

Recommended time: 45 minutes

Is 'business ethics' an oxymoron? If the primary purpose of businesses is to generate profit for its owners, does this necessarily mean that they will operate in an ethical way. For example, businesses in many parts of the world sell counterfeit products (the illegal imitation of goods sold to customers), which is regarded as deceitful, dishonest and fraudulent.

Inquiry task Select one of the companies shown Find evidence of unethical business behaviour, such as: Walmart's unequal pay for women McDonald's sale of fast food and the association with health issues The market power of Starbucks over coffee growers in low-income countries KFC's food hygiene scandals Nike's employment policies Volkswagen's diesel emissions scandal BP's oil spillage. Find evidence of objectives / actions to support the company's ethical business behaviour Students should report their findings to the rest of the class.

An example, the VW diesel scandal, is outlined below for illustrative purposes:

The VW diesel scandal

One of the worst cases of unethical business behaviour in the corporate world and motor vehicle industry is the Volkswagen diesel scandal. The German car maker - Europe's largest - had installed emissions software on more than 500,000 diesel cars in the USA and around 10.5 million more cars worldwide that allowed VW vehicles to pass environmental standards regulated by the USA’s Environmental Protection Agency (EPA).

In test mode, the VW vehicles were fully compliant with all of the EPA’s emissions levels. However, when driving these vehicles normally, it was discovered that the emissions from VW cars were actually up to 40 times higher than the government’s limit. Official estimates vary, but the VW diesel scandal has been reported to the car manufacture in the region of $35 billion in fines, and a tarnished brand name.

 Teacher only box

Answers

(a)  Define the term ethical objectives.  [2 marks]

Ethical objectives can be defined as the moral principles and values that underpin human behaviour in an organization, country, or region. Morals are concerned with that society deems to be 'right' or 'wrong'. Hence, ethical objectives are the moral principles that guide business behaviour.

Award [1 mark] for a definition that shows some understanding of the term ethical objectives.

Award [2 marks] for a clear definition that shows good understanding of the term ethical objectives, similar to the example above.

---

(b) State two examples of ethical business objectives.  [2 marks]

Possible answers could include:

• Ecological (environmental), social (cultural), and economic sustainability

• The fair treatment of employees

• High standard of health and safety in the workplace

• Ethical accounting practices

• The fair treatment of suppliers

• Accept any other valid example

Award [1 mark] for each appropriate example given.

(b)  Explain two reasons why an organization might choose to set ethical business objectives.  [4 marks]

Possible reasons could include an explanation of:

• Improved corporate image

• Higher sales revenue

• Increased customer loyalty

• Reduced costs

• Higher staff morale

• Increased employee loyalty

• Avoiding fines and penalties

• Improved triple bottom line

• Accept any other valid reason that is clearly explained

Mark as a 2 + 2

For each reason, award [1 mark] for a valid reason and an additional [1 mark] for a clear explanation.

• Business ethics are the principles that provide moral guidelines for the conduct of business activities.

• Ethics are about what is deemed to be right and what is considered to be wrong, i.e. morality from society's point of view.

• An ethical code of practice is a formal documented policy that sets out the way a business believes it should behave, including how to respond to situations that challenge its integrity or social responsibilities.

• Ethical objectives are organizational goals based on moral guidelines in order to influence or determine business decision-making.

• Growth refers to an increase in the size of a business and its operations, using measures such as market share, sales revenue, or the number of customers.

• Objectives (or business objectives) are the clearly defined and measurable targets of a business, used to to achieve its overall organizational goals.

• Profit is the positive difference between a firm's sales revenue and its total costs of production, per time period

• Shareholder value is about safeguarding the interests of the owners of a limited liability company (one owned by shareholders either as a private or publicly traded company).

• SMART objectives are organizational targets that are specific, measurable, agreed, realistic, and time specific.

• Strategic objectives are long-term goals that the whole organization continually strives to achieve.

• Tactical objectives are short-term specific goals of a business with definitive timelines for specific functional areas of an organization.