Business Environment 1_Organizations and their objectives

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 do

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

• Features

– 2 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 2 and 50

• shareholders cannot transfer their shares without

consent of the company

• shares are not sold to the public

• Public company

• a minimum of 7 shareholders and no limit for maximum

• shares are sold in public (sold on stock exchange)

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, ‘group-

think’, 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

1 Primary sector – consists of industries that produce raw

materials, such as crops and minerals

Examples: oil extraction, wood felling, coal mining company

2 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.

3 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

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

 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

 Dependent upon their members and supporters to survive

 Individuals who do not make their living from their involvement

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.