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Business organisation (2)
1. Business organisationsBusiness organisations
AA businessbusiness (also called a(also called a companycompany,, enterpriseenterprise
oror firmfirm) is a) is a legally recognized organizationlegally recognized organization
designed todesigned to provide goods and/or servicesprovide goods and/or services toto
consumersconsumers..
Businesses are predominant in capitalistBusinesses are predominant in capitalist
economies, most being privatelyeconomies, most being privately ownedowned andand
formed toformed to earnearn profit that will increase theprofit that will increase the
wealthwealth of its owners and grow the businessof its owners and grow the business
itself.itself.
2. The owners and operators of a businessThe owners and operators of a business
have as one of their main objectiveshave as one of their main objectives thethe
receipt or generation of a financial returnreceipt or generation of a financial return
inin exchangeexchange for work and acceptance offor work and acceptance of
risk.risk.
Notable exceptions include cooperativeNotable exceptions include cooperative
enterprises and state-owned enterprises.enterprises and state-owned enterprises.
Businesses can also be formed not-for-profitBusinesses can also be formed not-for-profit
or be state-owned.or be state-owned.
3.
4. Basic forms of ownershipBasic forms of ownership
Although forms of business ownership varyAlthough forms of business ownership vary
by jurisdiction, there are several commonby jurisdiction, there are several common
forms:forms:
Sole proprietorshipSole proprietorship
PartnershipPartnership
CorporationCorporation
CooperativeCooperative
5. Sole proprietorshipSole proprietorship
AA sole proprietorshipsole proprietorship also known as aalso known as a sole tradersole trader, or, or
simplysimply proprietorshipproprietorship is a type of business entityis a type of business entity
which is owned and run bywhich is owned and run by one individualone individual and whereand where
there isthere is no legal distinctionno legal distinction between thebetween the ownerowner and theand the
businessbusiness..
All profits and all losses accrue to the owner (subject toAll profits and all losses accrue to the owner (subject to
taxation).taxation).
All assets of the business are owned by the proprietorAll assets of the business are owned by the proprietor
and all debts of the business are their debts and theyand all debts of the business are their debts and they
must pay them from their personal resources.must pay them from their personal resources.
6. This means that theThis means that the owner has unlimitedowner has unlimited
liability.liability. It is a "sole" proprietorship in theIt is a "sole" proprietorship in the
sense that the owner has no partnerssense that the owner has no partners
(partnership).(partnership).
A sole proprietorA sole proprietor maymay do business with ado business with a
trade name other than his or her legaltrade name other than his or her legal
name.name.
This also allows the proprietor to open aThis also allows the proprietor to open a
business account with banking institutions.business account with banking institutions.
7. PartnershipPartnership
AA partnershippartnership is a type of business entity inis a type of business entity in
whichwhich partnerspartners (owners) share with each other(owners) share with each other
the profits or losses of the business.the profits or losses of the business.
Partnerships are often favoured overPartnerships are often favoured over
corporations for taxation purposes, as thecorporations for taxation purposes, as the
partnership structure does not generally incur apartnership structure does not generally incur a
tax on profits before it is distributed to thetax on profits before it is distributed to the
partners (i.e. there is no dividend tax levied).partners (i.e. there is no dividend tax levied).
8. However, depending on the partnershipHowever, depending on the partnership
structure and the jurisdiction in which itstructure and the jurisdiction in which it
operates, owners of a partnership may beoperates, owners of a partnership may be
exposed to greater personal liability thanexposed to greater personal liability than
they would as a shareholder of athey would as a shareholder of a
corporation.corporation.
9. CorporationCorporation
AA corporationcorporation is ais a legal entity separatelegal entity separate from thefrom the
shareholders and employees.shareholders and employees.
In British tradition it is the term designating aIn British tradition it is the term designating a
body corporate, where it can be either abody corporate, where it can be either a
corporation sole (an office held by an individualcorporation sole (an office held by an individual
natural person, which is a legal entity separatenatural person, which is a legal entity separate
from that person) or a corporation aggregatefrom that person) or a corporation aggregate
(involving more persons).(involving more persons).
In American and, increasingly, internationalIn American and, increasingly, international
usage, the term denotes a body corporateusage, the term denotes a body corporate
formed to conduct business.formed to conduct business.
10. Corporations exist as a product ofCorporations exist as a product of corporate lawcorporate law,,
and their rules balance the interests of theand their rules balance the interests of the
management who operate the corporation;management who operate the corporation;
creditors who loan itcreditors who loan it goods, services or moneygoods, services or money;;
shareholders, typically in the secondary market,shareholders, typically in the secondary market,
who hold shares related to the originalwho hold shares related to the original
investment of capital; the employees whoinvestment of capital; the employees who
contribute their labour; and the clients theycontribute their labour; and the clients they
serve.serve.
People work together in corporations to producePeople work together in corporations to produce
value and generate income.value and generate income.
11. In modern times, corporations have becomeIn modern times, corporations have become
an increasingly dominant part of economican increasingly dominant part of economic
life.life.
People rely on corporations for employment,People rely on corporations for employment,
for their goods and services, for the valuefor their goods and services, for the value
of the pensions, for economic growth andof the pensions, for economic growth and
cultural development.cultural development.
12. The six largest businesses of the worldThe six largest businesses of the world
in 2005 by revenue in millions of dollarsin 2005 by revenue in millions of dollars
13. CooperativeCooperative
AA cooperativecooperative often referred to as aoften referred to as a co-opco-op oror
coopcoop) is defined by the) is defined by the International Co-International Co-
operative Alliance’s Statement on the Co-operative Alliance’s Statement on the Co-
operative Identityoperative Identity as an autonomousas an autonomous
association of persons united voluntarily toassociation of persons united voluntarily to
meet their commonmeet their common economic, social, andeconomic, social, and
cultural needscultural needs and aspirations through a jointly-and aspirations through a jointly-
owned and democratically-controlledowned and democratically-controlled
enterprise.enterprise.
14. It is a business organization owned and operatedIt is a business organization owned and operated
by a group of individuals for their mutual benefit.by a group of individuals for their mutual benefit.
A cooperative may also be defined as a businessA cooperative may also be defined as a business
owned and controlled equally by the people whoowned and controlled equally by the people who
use its services or who work at it.use its services or who work at it.
Cooperative enterprises are the focus of study inCooperative enterprises are the focus of study in
the field of cooperative economics.the field of cooperative economics.
16. Holding companyHolding company
AA holding companyholding company is a company or firm thatis a company or firm that
owns other companies' outstanding stock.owns other companies' outstanding stock.
It usually refers to a company which does notIt usually refers to a company which does not
produce goods or services itself, rather itsproduce goods or services itself, rather its onlyonly
purpose is owning shares of other companies.purpose is owning shares of other companies.
Holding companies allow the reduction of risk forHolding companies allow the reduction of risk for
the owners and can allow the ownership andthe owners and can allow the ownership and
control of a number of different companies.control of a number of different companies.
17. Economic democracyEconomic democracy
Economic democracyEconomic democracy is a socioeconomicis a socioeconomic
philosophy that suggests transfer of decision-philosophy that suggests transfer of decision-
making authority from a small minority ofmaking authority from a small minority of
corporate shareholders to the larger majority ofcorporate shareholders to the larger majority of
public stakeholders.public stakeholders.
While there is no single definition or approach, allWhile there is no single definition or approach, all
theories and real-world examples of economictheories and real-world examples of economic
democracy are based on a core set ofdemocracy are based on a core set of
fundamental assumptions.fundamental assumptions.
18. Proponents generally agree that modern economicProponents generally agree that modern economic
conditions tend to hinder or prevent society fromconditions tend to hinder or prevent society from
earning enough income to purchase its outputearning enough income to purchase its output
production.production.
Centralized corporate monopoly of commonCentralized corporate monopoly of common
resources typically forces conditions of artificialresources typically forces conditions of artificial
scarcity upon the greater majority, resulting inscarcity upon the greater majority, resulting in
socio-economic imbalances that restrict workerssocio-economic imbalances that restrict workers
from access to economicfrom access to economic opportunity andopportunity and
diminish consumer purchasing power.diminish consumer purchasing power.
19. FranchisingFranchising
FranchisingFranchising is the practice of using anotheris the practice of using another
person's business model.person's business model.
TheThe franchisorfranchisor grants the independent operatorgrants the independent operator
the right to distribute its products, techniques,the right to distribute its products, techniques,
and trademarks for a percentage of grossand trademarks for a percentage of gross
monthly sales and a royalty fee.monthly sales and a royalty fee.
20. Various tangibles and intangibles such asVarious tangibles and intangibles such as
national or international advertising,national or international advertising,
training, and other support services aretraining, and other support services are
commonlycommonly made available by themade available by the
franchisor.franchisor.
Agreements typically last from five to thirtyAgreements typically last from five to thirty
years, with premature cancellations oryears, with premature cancellations or
terminations of most contracts bearingterminations of most contracts bearing
serious consequences for franchisees.serious consequences for franchisees.
21. Franchising has been around for many centuriesFranchising has been around for many centuries
but did not come to prominence until the 1930sbut did not come to prominence until the 1930s
in the United States, when the establishment ofin the United States, when the establishment of
electricity, vehicles, and, in the 1950s, theelectricity, vehicles, and, in the 1950s, the
Interstate Highway system helped propelInterstate Highway system helped propel
modern franchising, most notably franchise-modern franchising, most notably franchise-
based food service establishments.based food service establishments.
According to the International FranchiseAccording to the International Franchise
Association approximately 4% of all businessesAssociation approximately 4% of all businesses
in the United States are franchises.in the United States are franchises.
22. Joint ventureJoint venture
AA joint venturejoint venture (often abbreviated(often abbreviated JVJV) is an entity) is an entity
formed between two or more parties to undertakeformed between two or more parties to undertake
economic activity together.economic activity together.
The parties agree to create a new entity by bothThe parties agree to create a new entity by both
contributing equity, and they then share in thecontributing equity, and they then share in the
revenues, expenses, and control of the enterprise.revenues, expenses, and control of the enterprise.
The venture can be for one specific project only, or aThe venture can be for one specific project only, or a
continuing business relationship such as the Fujicontinuing business relationship such as the Fuji
Xerox joint venture.Xerox joint venture.
23. This is in contrast to aThis is in contrast to a strategic alliancestrategic alliance, which, which
involves no equity stake by the participants,involves no equity stake by the participants,
and is a much less rigid arrangement.and is a much less rigid arrangement.
The phrase generally refers to theThe phrase generally refers to the purposepurpose of theof the
entity and not to aentity and not to a typetype of entity.of entity.
Therefore, a joint venture may be aTherefore, a joint venture may be a corporationcorporation,,
limited liability companylimited liability company,, partnershippartnership oror
other legal structure, depending on a number ofother legal structure, depending on a number of
considerations such as tax and civil liabilities.considerations such as tax and civil liabilities.
25. Internal reasonsInternal reasons
Build on company's strengthsBuild on company's strengths
Spreading costs and risksSpreading costs and risks
Improving access to financial resourcesImproving access to financial resources
Economies of scale and advantages of sizeEconomies of scale and advantages of size
Access to new technologies and customersAccess to new technologies and customers
Access to innovative managerial practicesAccess to innovative managerial practices
26. Competitive goalsCompetitive goals
Influencing structural evolution of theInfluencing structural evolution of the
industryindustry
Pre-empting competitionPre-empting competition
Defensive response to blurring industryDefensive response to blurring industry
boundariesboundaries
Creation of stronger competitive unitsCreation of stronger competitive units
Speed to marketSpeed to market
Improved agilityImproved agility
28. Reasons for dissolving a jointReasons for dissolving a joint
ventureventure
Aims of original venture metAims of original venture met
Aims of original venture not metAims of original venture not met
Either or both parties develop new goalsEither or both parties develop new goals
Either or both parties no longer agree with jointEither or both parties no longer agree with joint
venture aimsventure aims
Time agreed for joint venture has expiredTime agreed for joint venture has expired
Legal or financial issuesLegal or financial issues
Evolving market conditions mean that joint venture isEvolving market conditions mean that joint venture is
no longer appropriate or relevantno longer appropriate or relevant
29. organisation - how businessesorganisation - how businesses
organise themselvesorganise themselves
All businesses are organised intoAll businesses are organised into groups of peoplegroups of people..
This is so the employees can beThis is so the employees can be organisedorganised andand
controlledcontrolled to make sure the necessary work is oneto make sure the necessary work is one
efficiently.efficiently.
These groups haveThese groups have managersmanagers responsible for them.responsible for them.
There are different ways of organising the business intoThere are different ways of organising the business into
groups, and each way has its advantages andgroups, and each way has its advantages and
disadvantages.disadvantages.
30. There are additional benefits of organising peopleThere are additional benefits of organising people
into groups, such as making it clearer howinto groups, such as making it clearer how
communications should be organised.communications should be organised.
The development of team-spirit also usuallyThe development of team-spirit also usually
improves motivation and productivity.improves motivation and productivity.
32. Comments on this method ofComments on this method of
organisation:organisation:
1.1. Specialisation by function is more efficient. EmployeesSpecialisation by function is more efficient. Employees
get experienced in and competent at one particularget experienced in and competent at one particular
job.job.
2.2. Accountability is clear i.e. whose responsibility is it toAccountability is clear i.e. whose responsibility is it to
do what.do what.
3.3. Clarity is improved i.e. it is clear who does what.Clarity is improved i.e. it is clear who does what.
4.4. Communication is weakened by a lack ofCommunication is weakened by a lack of
communication across and between functions. HRMcommunication across and between functions. HRM
may be doing things Marketing need to know about.may be doing things Marketing need to know about.
33. 5.5. Inertia may set in where departments become over-Inertia may set in where departments become over-
focussed on their own agendas and lose sight of thefocussed on their own agendas and lose sight of the
overall business objectives. In extreme case theoverall business objectives. In extreme case the
team-spirit may degenerate into tribalism whereteam-spirit may degenerate into tribalism where
departments are ‘at war’ with each other and aredepartments are ‘at war’ with each other and are
more concerned with ‘winning’ this war thanmore concerned with ‘winning’ this war than
attending to the overall business objectives.attending to the overall business objectives.
6.6. This system can become overly bureaucratic whereThis system can become overly bureaucratic where
flexibility is lost because things have to be done ‘byflexibility is lost because things have to be done ‘by
the book’.the book’.
7.7. This system may not be suitable for largeThis system may not be suitable for large
businesses with many different markets and/orbusinesses with many different markets and/or
products.products.
35. Comments on this method ofComments on this method of
organisation:organisation:
1.1. This structure gives focus on individual products, which mayThis structure gives focus on individual products, which may
be especially appropriate if different products have differentbe especially appropriate if different products have different
problems and concerns. The issue of focus is importantproblems and concerns. The issue of focus is important
because it determines the priorities people will have, and thebecause it determines the priorities people will have, and the
way they think about those priorities.way they think about those priorities.
2.2. Each group can be run as a separate profit centre. This way,Each group can be run as a separate profit centre. This way,
healthy competition and rivalry can develop between ‘teams’healthy competition and rivalry can develop between ‘teams’
which can help motivation and productivity. It is also flexible inwhich can help motivation and productivity. It is also flexible in
that poorly performing groups can be closed down without toothat poorly performing groups can be closed down without too
much disruption to the rest of the organisation.much disruption to the rest of the organisation.
36. 3.3. Co-operation between teams will improve where it isCo-operation between teams will improve where it is
in the interests of both teams to do so.in the interests of both teams to do so.
4.4. There is a danger of duplication of resource use ifThere is a danger of duplication of resource use if
each team has a Marketing department, a Financeeach team has a Marketing department, a Finance
department and so on.department and so on.
5.5. Rivalry can get out of hand and become destructive.Rivalry can get out of hand and become destructive.
6.6. Individual teams can get out of overall managementIndividual teams can get out of overall management
control, especially if headed by a very ambitiouscontrol, especially if headed by a very ambitious
person.person.
38. Comments on this method ofComments on this method of
organisation:organisation:
1.1. Better response to and focus on local customer needs.Better response to and focus on local customer needs.
2.2. Better communication within the locally-based department.Better communication within the locally-based department.
3.3. Rivalry between departments.Rivalry between departments.
4.4. Duplication of resource use.Duplication of resource use.
5.5. Conflict and lack of co-operation between departments.Conflict and lack of co-operation between departments.
40. Comments on this method ofComments on this method of
organisation:organisation:
1.1. This method of organisation promotes focus onThis method of organisation promotes focus on
customers and their different individual needs. This iscustomers and their different individual needs. This is
a major advantage and helps a business to becomea major advantage and helps a business to become
market oriented as opposed to the previous productmarket oriented as opposed to the previous product
oriented structure.oriented structure.
2.2. Departments can be organised by market segmentDepartments can be organised by market segment
which adds to the focus on customer need.which adds to the focus on customer need.
3.3. It is sometimes difficult to define exactly which groupIt is sometimes difficult to define exactly which group
a particular customer belongs to.a particular customer belongs to.
41. 4.4. Some customer groups may be small and soSome customer groups may be small and so
individual departments may be inefficient.individual departments may be inefficient.
5.5. There will be duplication of resources.There will be duplication of resources.
6.6. Individual departments may escape fromIndividual departments may escape from
proper overall management control.proper overall management control.
43. Comments on this method ofComments on this method of
organisation:organisation:
1.1. This structure gives focus on productionThis structure gives focus on production
processes which may be appropriate where,processes which may be appropriate where,
as in the example of oil, the processes areas in the example of oil, the processes are
quite different with different problems andquite different with different problems and
needs.needs.
2.2. Otherwise, this is very similar to organisationOtherwise, this is very similar to organisation
by function.by function.
44. Conclusions on organisationalConclusions on organisational
structuresstructures
All these structures have strengths andAll these structures have strengths and
weaknesses which a business has to thinkweaknesses which a business has to think
about before choosing which one to use.about before choosing which one to use.
Changing that decision, and re-structuring, isChanging that decision, and re-structuring, is
very disruptive and very expensive, so it isvery disruptive and very expensive, so it is
better to get it right the first time.better to get it right the first time.
Communications and control are key issues.Communications and control are key issues.
45. The question of focus is also very important, becauseThe question of focus is also very important, because
the structure affects the way employees think aboutthe structure affects the way employees think about
themselves and their own personal objectives e.g. ‘Ithemselves and their own personal objectives e.g. ‘I
am an accountant’ or ‘I am a soap-team member’ or ‘Iam an accountant’ or ‘I am a soap-team member’ or ‘I
am a driller’.am a driller’.
It is natural for humans to identify with a group of peopleIt is natural for humans to identify with a group of people
(a ‘team’) and this can be turned to the business’(a ‘team’) and this can be turned to the business’
advantage by acting as a motivator and helping toadvantage by acting as a motivator and helping to
raise productivity.raise productivity.
46. But it is also an important limiting factor.But it is also an important limiting factor.
People become very defensive and territorialPeople become very defensive and territorial
about the interests of ‘their’ team and this canabout the interests of ‘their’ team and this can
get in the way of objective problem-solving.get in the way of objective problem-solving.
In the extreme, a business can disintegrate into aIn the extreme, a business can disintegrate into a
bunch of warring tribes where ‘revenge’ on ‘thatbunch of warring tribes where ‘revenge’ on ‘that
lot’ overrides the business’ objectives.lot’ overrides the business’ objectives.
