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Exam Context
This chapter lays the foundation for an understanding of what organisations are, what they do and how they do it. Section 2 (The business environment) represents a higher level of knowledge. You must be able to apply knowledge to exam questions. There are 3 questions on the pilot paper that specifically relate to chapter 1.
Business Context
Understanding the different goals of organisations, how it is not just about making a profit for a lot of organisations. Appreciate the various stakeholders of an organisation and how to manage their expectations.
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Overview
Categories of organisations
Definitions
Interests / Power
Stakeholders
Mendelows Matrix
Categorisation
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Overview 1
1.1
Organisations
Definition 'An organisation is a social arrangement which pursues collective goals, which controls its own performance and which has a boundary separating it from its environment'. Boundaries can be physical or social. Key categories:
1.2
Commercial Not for profit Public sector Charities Trade unions Local authorities Mutual associates
Class exercise
Pg 52-56
Lecture example 1
Required Identify a 'real-world' example of the above categories of organisation.
Solution
Write next to categories above
1.3
From the above Lecture Example you may be able to apply the following reasons for setting up an organisation: Overcome peoples individual limitations
Enable people to specialise Save time Accumulate and share knowledge and pool their expertise Enable synergy
1.4
Organisations owned or run by the government (local or national) or government agencies are described as being in the public sector. All other organisations are classified as the private sector.
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1: BUSINESS ORGANISATIONS AND THEIR STAKEHOLDERS 1.5 Key differences between profit and not for profit organisations:
Owner and other stakeholders (see chapter 3) Sources of funding (eg impact of sources of donations) Goals Primary goal of profit orientated business is maximising shareholder wealth while not for profit is the provision of goods / services) How they measure performance; profit focus vs value for money / efficiency. Use of technology eg. Apple Inc vs newsagency or social club.
Limited liability
1.6 What is seen as a key advantage of a limited liability company can be found in the title itself. That is to say that the shareholders liability is limited to the amount they have invested into that company. This is because limited liability companies (denoted by X Ltd or X plc in the UK) are set up so as to have a separate legal entity from their owners (shareholders). Other notable advantages of a Ltd / plc company are: More money available for investment from Shareholders Easier to raise capital from banks and other lenders Ownership and control are legally separated, investors need not run the company Great administrative burden and cost, especially for listed entities Lack of privacy to your results as anyone can download the financial statements to view
Private v public
1.7 Private companies are usually owned by a small number of people (family members), and these shares are not easily transferable usually denoted by Ltd after their name. Shares of public companies, plcs will usually be traded on a Stock Exchange. The directors of a public company are less likely to hold a significant shareholding in the company.
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Lecture example 2
Class exercise
Having already touched on the advantages and disadvantages of a limited company which is part of the private sector. Now we should consider the public sector. Required Identify the advantages and disadvantages of a public sector organisation such as the armed forces or the health service.
Solution
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2
2.1
S E C O N D A R Y
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2.2
I nternal:
Corporate management Employees
(b)
C onnected:
Shareholders Debt holders (eg bank) Intermediate (business) and final (consumer) customers Suppliers
Primary
(c)
E xternal:
Immediate community / Society at large Competitors Special interest groups Government Secondary
2.3
How interested they are in the companies strategy (may they want to resist it) How much power they have over the companies strategy (would they be able to resist it) Level of interest Low A eg Casual labour Action: MINIMAL EFFORT High B eg Core employees Action: KEEP INFORMED
Low
High
Power
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1: BUSINESS ORGANISATIONS AND THEIR STAKEHOLDERS (a) The matrix can be used to: (i) (ii) (b) Track the changing influences between different stakeholder groups over time. This can act as a trigger to change strategy as necessary; and Assess the likely impact that a strategy will have on different stakeholder groups.
Its aim is to assess: (i) (ii) Whether stakeholders' resistance is likely to inhibit the success of the strategy; and What policies or actions may ease the acceptance of the strategy.
2.4
An organisation can make strategic gains from effectively managing its stakeholder relationships and it needs to measure levels of satisfaction amongst its stakeholders. Measurement will not be easy but ideally a combination of qualitative and quantitative measures needs to be established.
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Chapter summary
Section 1 Topic What are organisations and why do they exist? Summary A wide range of organisational forms exist including both profit making (sole traders, partnerships and companies) and non-profit making such as charities and public sector organisations. They are formed to benefit from synergies of skills and/or resources to successfully achieve their primary goals. Knowintg the difference between a Ltd company and a plc company. How some organisations are categorised as public sector, iof government run, or private sector, all other entities. Stakeholders are those people or groups who have an interest in the activities of an organisation. They can be split between internal, connected and external stakeholders Mendelows Matrix is a tool used to categorise stakeholders based on Power and Interest, and thereby identifying strategies to deal with these stakeholders.
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Overview
Categories of organisations
Commercial Not for profit Public sector Charities Trade unions Local authorities Mutual associates
Definitions
Private Public Limited PLC
Interests / Power
Stakeholders
Mendelows Matrix
Categorisation
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