1A. Business Organizations

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Business organizations What is a Businessorganization?

An organization is a social arrangement for the

controlled performance ofcollective goals, which

controls its own performance and which has a

boundary separating it from its environment'.

(Buchanan and Huczynski)

E.g. Ford, Ernst and Young, Oxfam, A local Authority,

An Army, Save the children etc.

Social arrangements

Organizations have structure to enable people

to work together towards the common goals.

An individual working on his or her own does

not equate to an organisation (in this way, a

sole trader would not probably be considered

an organisation).

Controlled performance

Organizations have systems and procedures to

ensure that goals are achieved.

These could vary from ad-hoc informalreviews to complex weekly targets andperformance review.

Shareholders may have individual targets fortheir shares but will not have any sharedsystems or procedures to ensure that goals areachieved.


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Collective goals

Organizations are defined primarily by their

goals.

A school has the main goal of educating

pupils and will be organized differently from a

company where the main objective is to make

profits.

Shareholders may have very different goals

e.g. income Vs. capital growth.

Commercial: Profit seeking organizations

NFP: Not for Profit organizations like charities or

schools

Public sector: Government owned organizations or

departments

Non-government (NGO)

Co-operatives (mutual organization) : autonomous

association of persons united voluntarily to meet

their common economic, social, and cultural needs

and aspirations through a jointly-owned and

democratically controlled enterprise e.g. SouthernStates, Co-operative Wholesale Society

Features

Organizations are preoccupied with

performance, and meeting or improving theirstandards.

Organizations contain formal, documentedsystems and procedures which enable them to

control what they do.

They pursue a variety of objectives and goals.

Most engage in obtaining inputs, then processthem in to outputs

Why do organizations exist?

Achieve results collectively which individuals

cannot achieve alone.

Create synergy and increase productivity

Save time through effective and efficient

application of resources.

Share knowledge and expertise.

Facilitate specialization.


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How organizations differ

Ownership: Some organizations are owned byprivate owners or shareholders. These are

private sector organizations. Public sectororganizations' are owned by the government.

Control: Some organizations are controlled bythe owners themselves but many arecontrolled by people working on their behalf.Some are indirectly controlled by government-sponsored regulators.

Activity: What organizations actually do can

vary enormously. They could be manufacturing

organizations, for example, or they could be a

healthcare service.

Profit or non-profit orientation: Some

businesses exist to make a profit. Others, for

example the army, are not profit orientated.

Legal status: Organizations may be limited

companies or partnerships.

Size: The business may be a small family

business or a multinational corporation.

Sources of finance: Business can raise finance

by borrowing from banks or government

funding or issuing shares.

Technology: Businesses have varying degrees

of technology use. For example, computer

firms will have high use of technology but acorner shop will have very low use.

Business Objectives


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Organizational factors include activity,

Ownership, Stakeholders, Size, Financing

Objectives cover:

Profit (e.g. commercial businesses)

Health and welfare (e.g. hospitals, medical

centers)

Value for money (e.g. Government departments,

local authorities)

Membership benefits (e.g. clubs and associations)

Resource collection and distribution of (e.g.

charities)

Commercial:

Aim to continue in existence, maintain growth (or

at least not decline) and make a profit.

Not-for-profit:

Aim to satisfy particular needs of their members

or of society in general and usually consider

financial objectives as constraints under which

they have to operate.

Co-operative:

An autonomous association of persons united

voluntarily to meet common economic, social and

cultural needs and aspirations through a jointly

owned and democratically controlled enterprise.

(International Co-operative Alliance)

Public sector:

That part of the economy and the servicesprovided that is controlled by governmental

organizations.


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NGO

An independent voluntary association of

people acting together on a continuous basis,

for some common purpose, other than

achieving government office, making money

or illegal activities

Independent from the direct control of any

government

Not constituted as a political party

Non-profit-making;

Not a criminal group (in particular non-violent).

Objectives

Public sector corporations are run to not only

generate a profit but provide a service to the

public. This service will need to meet the needs

of the less well off in society or help improve the

ability of the economy to function: e.g. cheap and

accessible transport service.

Public sector organizations that monitor or

control private sector activities have objectives

that are to ensure that the business they are

monitoring comply with the laws laid down.

Health care and education establishments

their objectives are to provide a service most

private schools for instance have charitable

status. Their aim is the enhancement of their

pupils through education.

Charities and voluntary organizations their

aims and objectives are led by the beliefs they

stand for.

Public vs. Private sector

Organizations owned or run by the

government (local or national) or government

agencies are described as being in the public

sector. All other organizations are classified as

the private sector.


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Private Sector Public Sector

Ownership Private individuals Country or state

Control

Private owners or directors

and managers working on

their behalf

National government or

Local Authority

Capital Raised by private owners Comes from Treasury

Use of profits Distributed t o owners

Handed back to

government or Local

Authority

Aim To make profit To give a service

There are commonly three

types of business

organizations in private

sector

Sole trader

Partnership

Limited companies

ASole traderis

owned by one

individual.

Characteristics

Run by owner or appointed

manager

Needs only trading license

Has no legal personality

Owner contributes the

capital

Unlimited liability Owner takes all the profits

Auditing financial

statements is unnecessary

A partnershipis

owned by two or

more individuals.

Characteristics

There is a minimum of two

and a maximum of twenty

partners (while, in

professional enterprises, this

number is unlimited).

Managed by one or more

partners or an employedmanager

No legal personality.

Unlimited liability


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A L imited companyis

organized under state

or federal statutes as a

separate legal entity.

Private companies are

usually owned by a small

number of people (family

members), and

these shares are not easily

transferable. Shares of

public companies will be

traded on the

Stock Exchange.

Advantages

Can raise large amounts of capitalthrough bothshares and debentures.

Unlimited lifespan; shares are freely transferable.

Has legal personality; may trade under its own name.

Shareholders' liability is limited.

Generally managed by competent directors, elected bythe many shareholders.

People with small amounts of money may still invest.

Strict requirements of the Companies Act protectshareholders.

Losses spread over all shareholders.

Risk can be spread by investing in multiple publiccompanies.

Disadvantages

Directors not always able to manage companies aseffectively as sole traders and partners.

Formation expenses are high.

Tax burden is greater than in other forms of ownership.

Administrative costs are high.

Management separate from ownership.

Financial statements are available to competitors.

Procedure of establishment is complicated. The failure of a public company affects thousands.

Memorandum not easily altered.

Numerous legal formalities.

Vulnerable to take-overs

Arguments for state ownership

Natural monopoly. E.g. water

Essential for the community. E.g. street lights

Large amount of capital with no return for

long time. E.g. nuclear power station

Strategic industries e.g. national defense

Public welfare, protect jobs, protecting

transport in rural areas


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Arguments against state ownership

Political pressure may cause losses

Public accountability results in managers beingcautious and innovation is stifled

Restriction from the government in terms offunds

Scope of business could be limited by the Act

Subsidy may lead to inefficiency

Lack of competition will lead to inefficiency andlow quality services

Consumers have less choice

There are mainly 3 sectors in which businesses

operate. They are:

Primary

Secondary

Tertiary

Primary Sector

This involves the extraction of raw

materials from the earth. It includes

such things as farming (agriculture),

mining (coal, metals, precious

stones), quarrying (extracting gravel,stone, etc.), fishing and forestry.

Secondary Sector This involves turning raw materials into other products.

For example, fish might be sold whole after beingskinned and boned, it might be minced and made intofish fingers or fish cakes, it might be used to make catfood, processed to be put into tins and so on.

Consumer goods e.g. washing machines, DVDplayers. As the name implies, these are used byconsumers

Industrial / capital goods e.g. plant and machinery,complex information systems. Industrial and capitalgoods are used by businesses themselves during theproduction process.


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Tertiary Sector The tertiary (third) sector involves all the

services that are provided to businesses andconsumers.

The vast majority of people in the UK workin service industries so they can beextremely varied in nature.

A cleaner in an office block provides aservice. So does a taxi driver, asupermarket, a mobile phone serviceprovider, a lawyer, bank and refuse

collector.

Which one of the following does not

fall within the definition of an

organisation?

A. Service companies

B. Factories

C. Retail companies

D. Political parties

E. Shareholders in a quoted company

An organisation is a social arrangement which

pursues collective.........., which controls

its own performance and which has a boundary

separating it from its environment.

Which of the following words best completes

this sentence?

A. Profits

B. StakeholdersC. Goals

D. Tactics

Which of the following statements is

true?

A. Limited company status means that a companyis only allowed to trade up to a predeterminedturnover level in any one year.

B. For organizations that have limited companystatus, ownership and control are legallyseparate.

C. The benefit of being a sole trader is that youhave no personal liability for the debts of yourbusiness.

D. Partnerships offer the same benefits as limitedcompanies but are usually formed byprofessionals such as doctors and solicitors.


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An organisation owned or run by central orlocal government or government agencies

is part of the voluntary sector.

Is this statement true or false?

A. True

B. False

One of the claimed advantage of soletrader business is that:

A. The owner has independence

B. Owner has limited liability

C. Decisions and responsibilities can be shared

D. Shares can be sold to raise capital

Which of the following best applies to

a plc?

A. Its accounts can be kept private

B. Owned by the government and its in the

public sector

C. Owned by the shareholders who can sell

their shares in the stock market

D. Its quick and easy to set up with few legal

formalities

Which of the following is not a feature

of Private limited company?

A. Shares can be bought and sold in stock

exchange

B. Shares can be issued to raise capital

C. The business continues after death of

shareholders

D. All the owners of the business have limited

liabilities


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Which statement about co-operativebusiness is true?

A. They are owned by shareholders

B. Workers have no say in decision making

C. All co-operatives are only concerned with

retailing

D. Profits are shared equally amongst its

members

Which items best describe anorganization?

A. Working together, collective goals,

controlled performance

B. Team work, clear rules, collective goals

C. Synergy, clear roles, accepted leader

D. Defined hierarchy, clear objectives,

formal rules

Which of the following best described

public sector entities?

A. Traded on the stock market

B. Include charities and NGOs

C. Owned by the government

D. Have the objective of influencinggovernment policy

A cooperative (collective) would becharacterized as -----------, while Microsoftwould be a -------- company. Which words

correctly completes this sentence?

A. A non-profit organization; public

sector

B. A charity; profit drivenC. Meeting the needs of its

members; publicly traded

D. An NGO, listed


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Universities, hospitals, and charities are

typically examples of what type of

organization?

A. Public sector

B. Cooperatives

C. Not for profit

D. NGO

Which of the following will be an advantageof converting from a Pvt Ltd to a PLC?

A. The firm would gain limited liability

B. The owners would be able to maintain controlover the business

C. There may be some divorce between ownershipand control

D. The firm would gain access to equity markets

1A. Business Organizations

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