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Organizations and their objectives through legal form, size and economic activities. The lecture will provide students with an overview about the organizations and their objectives in business environment
Organizations and their Objectives Business Environment CATEGORIES OF ORGANISATION • Organisation – An arrangement of people, pursuing common goals, achieving results and standards of performance performance • Business involves people and resources to one of two things such as make (produce) items or goods to be sold and provide services to be sold • All organisations are affected by – the environment, government, individual Legal Form Sole Traders • Features – – – – – A one-man business - risks No separate legal entity Small capital base Owner is both entrepreneur and manager of business Examples as grocery shops, boutiques, barbers, etc • Advantages – No formal procedures to start – Commitment and motivation – Close and quick to respond – Independence and self-reliance • Disadvantages – Total personal liability – Succession and illnesses – Financial – Skill Partnership • Features – to max 20 owners or partners – No separate legal entity – A partnership agreement state the rules and avoiding possible future disputes among the partners – Examples; dentists, lawyers accountants, architects, etc • Advantages – More funds available & enhanced credit standing – Sharing of expertise, skills, experience, business contacts, etc amongst the different partners – Sharing of risks • Disadvantages – Unlimited liability – Limited life – Dilution of control - each partner is held responsible for the decisions of the other partners All acts by any partner are legally binding on all the partners Companies or Corporations • Distinct artificial ‘persons’ created in order to separate legal responsibility for the affairs of a business from the personal affairs of the individuals who own or operate it (Limited Liability) • Features – Separate legal entity – Creation by incorporation - by lodging the MOA (company’s constitution), the AOA (regulations for management of company) – Ownership by shares – Public limited companies (plc) & Private limited companies (‘Ltd’ or ‘Limited’) • Advantages – Limited liability of shareholders, ease of ownership transfer – perpetual life, wider source of capital – Specialised management expertise and skills • Disadvantages – – – – Higher cost and difficulty in running organisation More government regulations - comply with Companies’ Act Lack of secrecy – information to shareholders, investors, gov., competitors, Taxation Companies or Corporations • Private company • ownership is limited to between and 50 • shareholders cannot transfer their shares without consent of the company • shares are not sold to the public • Public company • a minimum of shareholders and no limit for maximum • shares are sold in public (sold on stock exchange) SIZE Size can be viewed in terms of: •Numbers employed •Volume of output, sales, revenue •Assets employed •Profits earned •Net worth in real terms Type of Businesses • Small businesses - a sole trader/partnership; sell locally; employ less 50; e.g computer trainers, solicitors and accountants Etc • Medium-sized businesses - employ between 50 and 250; operate local and/or national level; e.g manufacturers, clothing, furniture, etc • Large businesses – have many factories/offices and outlets in one or more cities/countries; manufacturers, retail food outlets, finance companies, etc • National businesses - have household names; recognisable logos; large in size (workforce 250 or more); branches/factories in major towns/cities • Multinational - sells worldwide and operate in more than one country Advantages of a large organisation: • Sufficient resources to command a significant market share • Wide variety of products, customer services, attractive career, develop high-quality personnel, for future top management positions • Can provide for greater division of work and specialisation • Likely continuity of goods or services, management philosophy, customer relations, not prone to sudden policy changes, etc Disadvantages of a large organisation: • Management hierarchy problem of communication; control, direction by management • Widely diversified range of products or services difficult to integrate common objective, ‘management philosophy’ and culture • Time in maintenance of organisation – administration, losing sight of setting objectives, planning • Tendency of ‘ingrown and inbred’ - political, ‘groupthink’, resistance to changes and developments • Junior management tasks (routine and boring) – poor career development, earnings, rewards, promotion information, etc ECONOMIC ACTIVITY Economic Activity Level of activity Primary sector – consists of industries that produce raw materials, such as crops and minerals Examples: oil extraction, wood felling, coal mining company Secondary sector – consists of industries that use the raw material produces by the primary sector, involved in manufacturing or construction, they manufacture the finished article or parts for further assembly and manufacture Examples: processing oil to produce petrol, chemicals, gas, etc., construct buildings, building roads, etc Tertiary sector – consists of distribution and service industries, involved in passing the goods from the producer to the consumer Examples: banking, tourism, hairdressing, teaching, office cleaning, tax advice and the media Economic Activity Some important terms in economics: Gross domestic product • a measure of economic activity in a country De-industrialisation • often used to describe the long-term decline in the importance of manufacturing industry and the secondary sector in general Trade surplus / deficit • an excess of exports over imports / when imports are greater than exports Exchange rate • the price of one currency in terms of another If LI can buy you $1.50 in US dollars, then the pound-dollar exchange rate is 1.50 Sunrise industries: • rising new industries, such as information technology and genetics Their importance is increasing worldwide Sunset industries: • gradually dying industries In the Western economies they include heavy industries such as steel and shipbuilding, whose prices have been undercut for many years by more efficient producers in Korea and other countries in the Pacific THE PUBLIC AND PRIVATE SECTORS • Private sector organisations • are usually set up for personal gain and are funded by shares issued, loans from banks, overdrafts etc They are not owned by the state or run by the state • Public sector organisations • are usually set up in the interests of the community and are funded wholly or partly by the Government from public funds and are answerable to a government department or the Treasury Private Sector Organisations that seek profit for their proprietors • Sole traders • Partnerships • Private companies (not quoted on the stock market) • Public companies (‘plcs’, mostly quoted on the stock market) Private Sector Organisations with objectives other than purely profit Co-operatives is the result of a voluntary linking together of consumers, producers or retailers into a trading organisation, which is then used to represent its constituent members in the marketplace •Features: Separate legal entity, Ownership by members Management by management committee - elected by the members Profits - divided among the members (dividends, bonus, etc.) or allocated to other funds constituted by the co-op •Types Wholesale or retail of goods Farming co-operatives Producer co-operatives •Advantages: Benefits in production - Bulk buying, cost, negotiation, etc Marketing - Joint advertising, promotional campaigns, patron, etc •Disadvantages: Size - In rural areas, too small in terms of membership, capital resources and business turnover, leading to many failures Inexperienced and incompetent management Keen competition from rival institutions Private Sector Organisations with objectives other than purely profit Voluntary Organisations Non-profit driven, non-statutory, autonomous and run by individuals who not get paid for running the organisation •Features: Non-profit making Dependent upon their members and supporters to survive Individuals who not make their living from their involvement •Type Charities Criteria to be a charity: a Must fit under one of the “four heads” of charity: relief of poverty, education, religion, other purposes (public works, recreational and leisure facilities, etc, b Public benefit THE PUBLIC SECTOR • Refers to all publicly funded or publicly owned bodies • Characteristics • they are government owned and controlled • they are engaged in commercial (business) activities • they have socio-political goals alongside their primary economic goals • Organisations are owned by state (central government and/or local government) • Some provided services paid for by taxation, others levy charges on users directly (usually with subsidy) • Examples: Civil service agencies, schools, armed forces, public libraries THE PUBLIC SECTOR • Normally engaged in some form of business related to utilities • (e.g water, gas, electricity, transportation, communications) • Advantages • Benefit consumers - main aim is not to earn profits but provide services (protected from monopolies or high prices) • Sense of responsibility to public • Large-scale enterprise (economies of scale) • Disadvantages • Lack initiatives • Bureaucracy and lack flexibility The public sector Reasons for the growth of the public sector and public spending • Industrialisation and urbanisation - pressures for increased government intervention • Population profile – Changes, ↑ old people, etc • Political parties - Competition for public support by promising better activities, services (health care, transport, etc.) • Pressures groups - to improve services • Welfare state - designed for society with people having paid employment, not with high levels of unemployment, as is now common ... goals, achieving results and standards of performance performance • Business involves people and resources to one of two things such as make (produce) items or goods to be sold and provide services... of Businesses • Small businesses - a sole trader/partnership; sell locally; employ less 50; e.g computer trainers, solicitors and accountants Etc • Medium-sized businesses - employ between 50 and. .. manager of business Examples as grocery shops, boutiques, barbers, etc • Advantages – No formal procedures to start – Commitment and motivation – Close and quick to respond – Independence and self-reliance