Chapter 1_ The Business Organisation.pptx

ACCA BUSINESS & TECHNOLOGY (BT) PR E SE N T E D BY; ISA A C LE LG O B BM, C PA , A C C A , M SC Chapter 1: The Business Organisation Chapter learning objectives Define ‘Business Organisations’ and explain why they are formed Describe common features of business or...

ACCA BUSINESS & TECHNOLOGY (BT) PR E SE N T E D BY; ISA A C LE LG O B BM, C PA , A C C A , M SC Chapter 1: The Business Organisation Chapter learning objectives Define ‘Business Organisations’ and explain why they are formed Describe common features of business organisations Outline how business organisations differ List the industrial and commercial sectors in which business organisations operate Identify the different types of business organisation: commercial, not-for-profit, public sector, non­ governmental organisations, co­operatives.  1.1 What Is A Business Organisation? Defining an organisation is difficult as there are many types of organisations which are set up to meet a variety of needs, such as clubs, schools companies, charities and hospitals. What they all have in common is summarised in the definition produced by Buchanan and Huczynski. ‘Organisations are social arrangements for the controlled performance of collective goals.’ Note the three key aspects of this definition: Collective goals Social arrangements Controlled performance  Consider the 3 aspects of Buchanan & Huczynski’s Definition in more detail: (a) ‘Collective goals’ – organisations are defined by their goals. The main goal of a school is to educate pupils. It will therefore be organised differently to a company that aims to make profits. (b) ‘Social arrangements’ – someone working alone cannot be classed as an organisation. Organisations are structured to allow people to work together towards a common goal. Usually, the larger the organisation, the more formal its structures. (c) ‘Controlled performance’ – an organisation will have systems and procedures in place to ensure that group goals are achieved. For a company this could involve setting sales targets, or periodically assessing the performance of staff members.  Illustration 1 – Football team A football team can be described as an organisation because? It has a number of players who have come together to play a game. (a) Collective goals? (b) Social arrangements? (c) Controlled performance?  1.2 Why Do We Need Organisations? Organisations enable people to: Share skills and knowledge – this can enable people to perform tasks that they would be unable to achieve on their own. Knowledge can also be shared between all the people within the organisation. Specialise – individual workers can concentrate on a limited type of activity. This allows them to build up a greater level of skill and knowledge than they would have if they attempted to be good at everything. Pool resources – whether money or time. 2. Different Types Of Organisation 2.1 Commercial versus not-for-profit Commercial organisations Commercial (or profit seeking) organisations see their main objective as maximising the wealth of their owners. There are three common forms that a commercial company can take: Sole traders – the organisation is owned and run by one person. In this type of organisation the owner is not legally separate from the business itself. If a sole trader’s business is sued by a customer, the customer is actually suing the owner themselves. Partnerships – the organisation is owned and run by two or more individuals. Traditionally, partnerships (like sole traders) do not have a separate legal identity from their owners. However in recent years many countries have created alternative partnership structures (such as Limited Liability Partnerships (LLPs) in the UK) which mean that the business exists as a separate legal entity and the owners’ liability is limited to the amount they have invested into the partnership.  Limited Liability Companies – a company has a separate legal identity to its owners (who are known as shareholders). The owner’s liability is limited to the amount they have invested into the company. In the UK, there are two types of limited company: Private Limited Companies (with ‘Ltd’ after their name) – these tend to be smaller businesses, often owned by a few shareholders. Shares cannot be offered to the general public. Public Limited Companies (with ‘plc’ after their name) – these can be much larger businesses. Shares can be offered to the general public, meaning that there can be millions of different shareholders. This makes it easier for the company to raise finance, enabling further growth.  Not For Profit Organisations Not­-for-­profit organisations (NFPs or NPOs) do not see profitability as their main objective. Instead, they seek to satisfy the particular needs of their members or the sectors of society that they have been set up to benefit. NFPs include the following: Government departments and agencies (such as HM Revenue & Customs) Schools Hospitals Charities (such as the red cross, oxfam and doctors without borders) Clubs.  The Objectives Of Different Nfps Will Vary Significantly: Hospitals exist to treat patients. Councils may see their mission as caring for their communities. Government organisations usually exist to implement government policy. A charity may have ‘provision of relief to victims of disasters’ as its main objective. 2.2 Public versus private sector organisations Public sector organisations The public sector is the part of the economy that is concerned with providing basic government services and is controlled by government organisations. The organisations that make up the public sector vary from country to country, but generally include: Police Military Public transport Primary education Healthcare for the poor  Private Sector Organisations The private sector consists of organisations that are run by private individuals and groups rather than the government. The private sector will therefore normally include: Businesses Charities and Clubs. Within these will be both profit ­seeking and not-­for-­profit organisations.  Non-­governmental Organisations (NGOs) A non-­governmental organisation is one which does not have profit as its primary goal and is not directly linked to the national government. NGOs often promote political, social or environmental change within the countries they operate. NGOs include: The red cross Doctors without borders Greenpeace Amnesty international. 2.3 Co­operatives Co­operatives are organisations that are owned and democratically controlled by their members – the people who buy their goods or services. Each member usually gets a single vote on key decisions – unlike companies where shareholders get one vote for each share that they own. They are organised solely to meet the needs of the member­s, who usually share any profits.  Sectors In Which Organisations Operate A further difference between organisations is the market in which they operate. There are a large number of different sectors, which include: Agriculture – production, processing and packaging of foodstuffs. Mining – extraction and processing of minerals. Finance – this includes banks and other companies that profit through investments and the lending of money to others. Retailers – sale of goods produced by manufacturers to consumers. Service – production of intangible goods and services. Transportation – movement of goods between locations. 4. Summary In summary, there are a number of key differences between the various types of organisations. These include (but are not limited to): Ownership – private sector organisations are likely to be owned by individual owners or shareholders (depending on the type of organisation). Public sector organisations will be controlled by the government, while co­operatives will be owned by their members. Objectives – as mentioned, each organisation has very different goals. This can range from the provision of social services (for charities and public sector organisations) to the maximisation of owner wealth (for profit seeking organisations). Activities – the activities of an organisation will be designed to support its objectives. This means that organisational activities are as varied as the organisations themselves! Sources of funding – public sector organisations will tend to raise money from the central government. Private sector organisations, such as companies and co­operatives, will most likely have to raise funds from their owners. Charities are usually funded by donations. Size – organisations vary in size from large, multinational companies to sole traders consisting of only one person. Liability – the owners of sole traders or partnerships are liable for any losses their businesses make. Owners of companies enjoy limited liability.