Business Organizations and Their Stakeholders

Purpose of Business Organizations

  • Organization Definition: A social arrangement pursuing collective goals, controlling performance, and having a boundary separating it from its environment.
  • Three Key Aspects:
    • Collective goals.
    • Social arrangements.
    • Controlled performance.

Three Key Aspects of Business Organizations

  • Collective Goals: Organizations are defined by their goals.
    • Examples:
      • Profit Maximization: Increasing the bottom line.
      • Market Expansion: Extending reach into new areas or demographics.
      • Innovation: Developing a groundbreaking product within a timeframe.
  • Social Arrangements: Structures that enable people to work together towards a common goal.
    • Examples:
      • Corporate Hierarchy: Arrangement of roles defining responsibilities.
      • Team Configurations: Cross-functional teams or project-based groups.
      • Networking Events: Opportunities to build professional relationships.
  • Controlled Performance: Systems and procedures to ensure group goals are achieved.
    • Examples:
      • Performance Reviews: Evaluations against objectives and KPIs.
      • Standard Operating Procedures (SOPs): Instructions for uniformity.
      • Compliance Training: Ensuring adherence to legal and ethical standards.

Common Characteristics of Organizations

  • Pursue a variety of objectives and goals.
  • Specialization of activities among different people.
  • Aim to achieve good performance and meet or improve standards.
  • Formal, documented systems and procedures for control.
  • Obtain inputs and process them into outputs.

Why Organizations Exist

  • Achieve results individuals cannot achieve alone.
  • Overcome individual limitations.
  • Enable specialization.
  • Save time.
  • Accumulate and share knowledge.
  • Enable synergy, increasing productivity.

How Organizations Differ

  • Ownership: Private vs. Public sector.
  • Control: Owners vs. Managers.
  • Activity: Manufacturing vs. Services.
  • Profit vs. Non-profit orientation.
  • Legal form: Limited company vs. Partnership.
  • Size: Small family business vs. SME vs. Multinational.
  • Sources of finance: Shares, banks, government funding.
  • Technology: Use and complexity of production.

Sectors in Which Organizations Operate

  • Industry and Activity:
    • Agriculture: Producing and processing food.
    • Manufacturing: Acquiring raw materials and turning them into products.
    • Extractive/Raw Materials: Extracting and refining raw materials.
    • Energy: Converting resources into energy.
    • Retailing/Distribution: Delivering goods to consumers.
    • Intellectual Production: Producing software, publishing, films, music.
    • Service Industries: Retailing, distribution, transport, banking, etc.

Types of Business Organizations

  • Commercial.
  • Not for profit.
  • Public sector.
  • Charities.
  • Trade unions.
  • Local authorities.
  • Non-governmental organizations (NGOs).
  • Co-operative societies and mutual associations.

Commercial Organizations

  • Objective: Maximizing wealth for owners.
    • Sole proprietorship – unlimited liability.
    • Partnership – no separate legal entity.
    • Limited Company:
      • Separate legal personality.
      • Ownership and control are separate.
      • Controlled on the basis of one share one vote
      • Private limited company (Ltd.) – owned by small number of shareholders
      • Public limited company (Plc.) - raise funds through the stock market – have large number of shareholders

Not For Profit Organizations (NFPs or NPOs)

  • Government departments, schools, hospitals, charities.
  • Public or private.
  • Rely on value for money indicators and efficiency.
  • Primary goal: Provision of goods and services

Public Sector

  • Organizations run by the government to provide services.
  • Funded through taxes (income tax, VAT, fuel duty).

Charities & NGOs

  • Voluntary charities and organizations with volunteer members.
  • Non-governmental organizations (NGOs): Independent from government.

Trade Unions

  • Organizations with worker or employee members.

Local Authorities

  • Responsible for public services and facilities in a particular area.

Co-operative Societies and Mutual Associations

  • Businesses formed to benefit members.

Stakeholders

  • Organizations, groups, or individuals with an interest in the organization.
  • Affected by its goals, operations, activities, or behavior.
  • Any group or individual who can affect or be affected by the achievement of an organization’s objectives

Stakeholders and Agency

  • Managers act as agents for the stakeholders.
  • Agency relationship: Separation between owners (shareholders) and managers (directors).

Main Stakeholder Groups

  • Primary Stakeholders: Contractual relationship with the organization (internal and connected).
  • Secondary Stakeholders: External stakeholders; no contractual relationship.
  • Boundary management: Management of relationships with stakeholders.
Primary Stakeholders
  • Shareholders (or partners or proprietor):
    • What is at stake? Money invested
    • What do they typically expect of the business?
      • A return on their investment so that their wealth increases:
      • Steady, growing profits paid out by the business
      • Growth in capital value of their share of the business
Secondary Stakeholders
  • Directors/managers, Employees and trade unions:
    • What is at stake? Livelihoods, careers and reputations
    • What do they typically expect of the business?
      • Fair and growing remuneration
      • Career progression
      • Safe working environment
      • Training, Pension
  • Customers:
    • What is at stake? Their custom
    • What do they typically expect of the business?
      • Products/services that are of good quality and value
      • Fair terms of trade
      • Continuity of supply
  • Suppliers and other business partners:
    • What is at stake? The items they supply
    • What do they typically expect of the business?
      • Fair terms of trade
      • Prompt payment
      • Continuity of custom
  • Lenders:
    • What is at stake? Money lent
    • What do they typically expect of the business?
      • A return on their investment:
      • Interest
      • Repayment of capital
  • Government and its agencies:
    • What is at stake? National infrastructure used by business. The welfare of employees
    • What do they typically expect of the business?
      • Tax revenue
      • Reasonable employment and other business practices
      • Steady or rising stream of tax revenue
  • The local community and the public at large:
    • What is at stake? National infrastructure used by business. The welfare of employees
    • What do they typically expect of the business?
      • Reasonable employment and other business practices
  • The natural environment:
    • What is at stake? The environment shared by all
    • What do they typically expect of the business?
      • Reasonable environmental and other business practices

Stakeholder Types (ICE)

  • Internal stakeholders.
  • Connected stakeholders.
  • External stakeholders.
Stakeholder Examples
  • Internal: Corporate management, Employees
  • Connected: Shareholders, Debt holders, Customers, Suppliers
  • External: Immediate community, Competitors, Special interest groups, Government
Coffee Shop Stakeholders
  • Internal: Owners, Employees, Management
  • Connected: Suppliers, Customers, Finance providers, Shareholders
  • External: Regulatory Authorities, Trade Unions, Environmental Pressure Groups, Competitors, Local Communities

Stakeholder Conflict

  • Conflict can arise between the wants of different stakeholder groups.
  • Compromise may be needed to keep all stakeholders happy
    • Shareholder – share price and dividends, through growing profits
    • Directors – bonuses/salaries
    • Employees – salary
    • Customers – prices
    • Suppliers – prices
    • Government – taxes and employment
Conflict Example: Supermarket
  • Customers want lower prices.
  • Employees want higher wages.
  • Farmers want higher prices for goods.
  • Shareholders want the opposite.

Mendelow's Matrix

  • Stakeholders mapped by:
    • Interest in the company’s strategy.
    • Power over the company’s strategy.
Matrix Use
  • Track the changing influences between stakeholder groups.
  • Assess the likely impact of a strategy on different stakeholder groups.
Matrix Aim
  • Assess:
    • Likelihood of stakeholder resistance inhibiting strategy success.
    • Policies or actions to ease strategy acceptance.
  • Choices for stakeholders who are not happy
    • Loyalty: do as they are told
    • Exit: eg sell their shares, get a job
    • Voice: try to change the system

Mendelow's Matrix Categories

  • Minimal Effort: Low power, low interest (e.g., local community).
  • Keep Informed: Low power, high interest (e.g., full-time employee).
  • Keep Satisfied: High power, low interest (e.g., the government).
  • Keep Close: High power, high interest (e.g., key players like the CEO).