Chapter Outline: Understanding Organizations PDF

CHAPTER OUTLINE I. Understanding the concept of organisation A. What is an organisation? B. The multiple forms of organisations II. The “company” : diversity of concepts and situations A. Typology of companies according to their activity B. Typology of companies according to their size C. Typo...

CHAPTER OUTLINE I. Understanding the concept of organisation A. What is an organisation? B. The multiple forms of organisations II. The “company” : diversity of concepts and situations A. Typology of companies according to their activity B. Typology of companies according to their size C. Typology of companies according to age D. Typology of companies according to their legal status III. The purposes of a company A. The company as a production unit B. The company as a distribution unit C. The company as a social unit D. The company as a societal actor 24 I. UNDERSTAND THE CONCEPT OF ORGANIZATION B. The multiplicity of forms of organization The type of organization depends on the nature of the objectives pursued. We distinguish organizations with: Commercial (market) purpose and those with non-commercial (non-market) purposes. 25 I. UNDERSTAND THE CONCEPT OF ORGANIZATION B. The multiplicity of forms of organization 1. Organizations with commercial purposes Their goal is to produce marketable goods and services with a view, in almost all cases, to generating a profit : They include: o Private companies o But also public companies (whose capital is majority owned by the State or a public authority  SOE (state owned enterprise). 26 I. UNDERSTAND THE CONCEPT OF ORGANIZATION B. The multiplicity of forms of organization Today, some state-owned enterprises (SOEs) are among the largest and fastest expanding multinational companies. They increasingly compete with private firms for resources, ideas and consumers in both domestic and international markets. Ex. Renault and Air France compete with private companies. Looking at the 2000 largest companies in the world (Forbes Global 2000) research found that more than 10% of the world’s largest firms are state-owned (204 firms)(state own directly or indirectly more than 50% of shares) 27 I. UNDERSTAND THE CONCEPT OF ORGANIZATION B. The multiplicity of forms of organization 29 TOP COMPANIES IN FRANCE At the end of 2017, the State controlled 1,751 French companies, including 89 directly. 2018 (revenue) AXA The 767,400 employees working in these TOTAL BNP PARIBAS companies represent 3.1% of salaried CARREFOUR CREDIT AGRICOLE employment in France. EDF ENGIE PEUGEOT SOCIETE GENERALE RENAULT GROUP BPCE AUCHAN FINATIS (CASINO) CNP CHRISTIAN DIOR ORANGE VINCI SAINT GOBAIN SANOFI BOUYGUES SNCF L’OREAL AIR-FRANCE KLM VEOLIA SCHNEIDER NEXTER; 30 I. UNDERSTAND THE CONCEPT OF ORGANIZATION B. The multiplicity of forms of organization 2. Non-commercial (non-market) organizations These organizations provide services to their members or to the community, by providing their services: Free Or almost free of charge (at a price lower than the cost of production). 31 I. UNDERSTAND THE CONCEPT OF ORGANIZATION B. The multiplicity of forms of organization These include: Central public administrations (Ministries) Local public administrations (Prefectures, local authorities, town halls, regional councils, etc.) Social Security Administrations 32 I. UNDERSTAND THE CONCEPT OF ORGANIZATION B. The multiplicity of forms of organization It also concerns private administrations which includes: charitable, political, trade union, cultural or sporting associations. Their financial resources then come from: Contributions members Public subsidies and the sale of related goods or services. 33 I. UNDERSTAND THE CONCEPT OF ORGANIZATION B. The multiplicity of forms of organization Associations, foundations, mutual societies, social enterprises, fair trade organizations and cooperatives constitute what we call: The social and solidarity economy (SSE). They are private organizations that prioritize social objectives, solidarity, and sustainable development over profit maximization. 34 I. UNDERSTAND THE CONCEPT OF ORGANIZATION B. The multiplicity of forms of organization We must also integrate supranational organizations such as: The Organization of United Nations The International Monetary Fund (IMF) The World Bank The International Labor Office (ILO) The European Commission The World Trade Organization (WTO) 35 I. UNDERSTAND THE CONCEPT OF ORGANIZATION B. The multiplicity of forms of organization NOTE : there may be a mix of commercial & non-commercial activities ! Social enterprises aim to balance profit-making with social or environmental goals. Companies like Patagonia and Ben & Jerry’s integrate their social missions into their business models and operations. Non-profit organizations may run commercial activities to generate revenue for their operational needs. (gift shop in a museum) 36 I. UNDERSTAND THE CONCEPT OF ORGANIZATION B. The multiplicity of forms of organization Commercial Non-Commercial Organizations Organizations Private Apple Inc. Bill & Melinda Gates Foundation Carrefour Amnesty International Organizations Accor Hotels Médecins Sans Frontières Emmaüs Les Restos du Coeur Public EDF Hôpitaux de Paris La Poste Universities Organizations AirFrance-KLM (about 29%) National Library Engie (about 24%) Public Museums France Télévisions 38 GO BEYOND PROFIT Privately Owned Enterprises (POE) outperform SOEs if we look at profit POE profit > SOE profit SOE have problems - corruption, innefficiency… but is profit the only goal? Social outcomes Physical infrastructure Stability in times of crisis 41 I. UNDERSTAND THE CONCEPT OF ORGANIZATION Example of Eastern, Central and Southeastern Europe Governments mandate SOEs to pursue a diverse set of policy goals. 1 Correct market failures. One 2 example of market failure is a natural monopoly, (high fixed setup costs, decreasing average cost) Another example is when it is not possible to charge individuals for use of the good (for example, street lighting. IMF Fiscal Monitor April 2020: https://www.elibrary.imf.org/view/books/089/28929-9781513537511-en/ch03.xml 42 PUBLIC GOODS never stop daring PUBLIC GOODS When it can make sense A public good has two key characteristics that make it difficult for market producers to sell the good to individual consumers. Non-excludable means that it is costly or impossible for one user to exclude others from using a good. (I can’t stop you from using the good) Non-rivalrous means that when one person uses a good, it does not prevent others from using it (My consumption does not impact your consumption) Good/service Can I Exclude others from benefitting? Does my consumption decrease benefits for others? National Defense NO NO (public) It is impossible to exclude anyone from being protected by One person's protection does not diminish the protection the country's military. available to others. Pizza YES YES (private) A person can be prevented from eating food if they do not Once the food is consumed by one person, it is no longer pay for it. available for others to eat. Groundwater NO YES (common-pool resource) It is challenging to restrict access to underground water Water drawn by one user reduces the amount available for sources. others, leading to potential scarcity. Cable Television YES NO (Club goods) Only subscribers who pay for cable service can access the One person watching a particular channel does not prevent channels. others from watching the same channel simultaneously. 44 POSITIVE EXTERNALITIES OFTEN EXIST FOR PUBLIC GOODS What can we do ? When you « consume » education …who benefits? When you plant flowers in your garden … who benefits? When you stop smoking … who benefits ? EVERYONE BENEFITS BUT the individual consumer only looks at their benefit when deciding to consume more/less. Why would societies potentially underconsume these goods if bought and sold in the market ? 45 NATURAL MONOPOLY never stop daring SUMMARY Provide public goods (non excludable, non rivalrous) Increase consumption to increase benefit (education, positive externalities) Overcome market failures Natural monopolies Offer more than just profit (social impact) 48 PERFORMANCE Impact on GDP/Debt,etc. 50 NEED GOOD GOVERNANCE 51 RULE MAKER AND PLAYER AT SAME TIME 52 PUBLIC UNDERTAKINGS – CONFLICT OF INTERESTS State-owned enterprises in the global economy: Reason for concern? Favourable treatment (conflict of interest) REGULATOR direct subsidies RULE ENFORCER state-backed guarantees preferential regulatory treatment OWNER of ASSETS exemptions from antitrust or bankruptcy rules. OK Nationally ??….OK Internationally? If their effects extend beyond borders, they may undermine the benefits from international trade and investment, which are predicated on the basis of non- discrimination and respect for market principles. 53 SUMMARY Inefficiencies & Waste Unfair advantages / preferential treatment Impact on competition 54 I. UNDERSTAND THE CONCEPT OF ORGANIZATION C. A business as an organization IS A BUSINESS FIRM AN ORGANIZATION ? Reminder of the Definition: Organisations are social entities that are goal-directed that are designed as deliberately structured and coordinated activity systems, and that are linked to the external environment 55 I. UNDERSTAND THE CONCEPT OF ORGANIZATION C. A business as an organization Every business is an organization because it brings together people whose actions must be coordinated to achieve goals. The unique character of a business comes from the commercial nature of its activities: an enterprise is defined by its primary economic objective : to make profit. 57 I. UNDERSTAND THE CONCEPT OF ORGANIZATION C. A business as an organization The business or firm : o Is an economic agent that combines raw materials, equipment, financial means and human resources in order to produce goods and / or services o These products are intended to be sold in a market such that the selling price is higher than the costs incurred. What principal markets are companies involved in ? 58 I. UNDERSTAND THE CONCEPT OF ORGANIZATION C. A business as an organization Employment Payments Investment Goods and Services Exports Trade Balance Impact Product Markets Exchange rate impact Technology change and innovation Entrepreneurs Social Change Resource Markets Community Development Productive Resources Impact on GDP Push Economic Growth Factor Payments/Income The Circular Flow 59 I. UNDERSTAND THE CONCEPT OF ORGANIZATION C. A business as an organization The enterprise or firm is driven by a profit motive (maximization principle) which leads to o The activity of the enterprise involves a number of operations ranging from the search for financing to the marketing of its production. At each stage there are optimization problems that require making choices and implementing them. Example – profit maximization requires what? Quantity choices? Labor choices? Etc. o The company is an autonomous decision-making center. Choices are made based on the environment in which it operates and the partners with which it interacts. These choices also depend on the purposes of the business (economic, social and societal). Profit maximization + Purpose  Optimization and critical choices 60