Different Objectives and Policies of Firms: Survival

This section explores the fundamental objective of firms: survival. While profit maximization is often discussed, the underlying imperative for any business is to remain in operation. This drives many of the policies firms adopt.

The Primary Objective: Survival

At its core, a firm's primary objective is to survive. Without survival, the firm cannot pursue any other objectives, such as profit maximization, growth, or market share gains. This basic need shapes all other decisions.

Why Survival is the Primary Objective

• Avoidance of Failure: Failure means the cessation of all economic activity and the loss of investment.
• Stakeholder Obligations: Firms have obligations to various stakeholders (employees, suppliers, lenders, etc.). Failure can lead to job losses, broken contracts, and financial repercussions.
• Opportunity Cost: Failure represents a loss of all future potential profits and benefits.

Policies Driven by the Objective of Survival

To ensure survival, firms implement a range of policies. These policies often prioritize cost control, risk management, and adapting to changing market conditions.

Cost Control

Maintaining profitability is crucial for survival. Therefore, firms actively pursue cost control measures:

• Efficiency Improvements: Implementing technologies, streamlining processes, and improving productivity.
• Supply Chain Management: Negotiating favorable terms with suppliers and optimizing inventory levels.
• Cost Reduction Strategies: Exploring cheaper materials, outsourcing production, and reducing overheads.

Risk Management

Firms face various risks (economic, political, competitive). Policies to mitigate these risks are essential for survival:

• Diversification: Entering new markets or offering new products to reduce reliance on a single area.
• Insurance: Protecting against financial losses due to unforeseen events.
• Contingency Planning: Developing plans to address potential disruptions (e.g., economic downturns, natural disasters).

Adaptability and Innovation

The business environment is constantly changing. Firms must be able to adapt to survive:

• Research and Development (R&D): Investing in innovation to develop new products and processes.
• Market Research: Understanding customer needs and preferences to adjust offerings.
• Flexibility: Being able to quickly change production levels, product lines, or business models in response to market shifts.

Stakeholder Management

Maintaining positive relationships with stakeholders is vital for long-term survival:

• Employee Relations: Providing fair wages, benefits, and a positive work environment to retain skilled staff.
• Customer Service: Building customer loyalty through excellent service and product quality.
• Supplier Relationships: Maintaining strong relationships with suppliers to ensure a reliable supply of inputs.

The Interplay with Other Objectives

While survival is primary, it often interacts with other firm objectives:

Objective	How Survival Influences It
Profit Maximization	Survival is a prerequisite for profit maximization. Cost control and efficiency improvements directly support this.
Growth	Firms may pursue growth opportunities if they are confident in their ability to survive and manage the increased complexity.
Market Share	Gaining market share can enhance survival by increasing revenue and economies of scale.

In conclusion, the objective of survival is the fundamental driver of many firm policies. It necessitates a focus on cost control, risk management, adaptability, and stakeholder engagement. This primary objective often influences and interacts with other, potentially more ambitious, goals.