ACCA Business and Technology - Business Organizations, Stakeholders, and External Environment

The Essence of Business Organizations

  • Collective Goals: Organizations unite to achieve common goals, such as profit, community service, or promoting causes.
  • Social Arrangements: People pool skills and resources for a shared objective.
  • Controlled Performance: Structured processes coordinate activities toward goal achievement.
  • Definition: "Organizations are social arrangements for the controlled performance of collective goals" - Buchanan and Huczynski.

Why Organizations Exist

  • Sharing skills and knowledge
  • Specialization
  • Pooling of resources

Why Organizations Thrive

  • Synergy: Collective effort exceeds individual efforts.
  • Shared Skills & Knowledge: Specialists collaborate for greater results.
  • Resource Pooling: Aggregating capital, equipment, and personnel for efficiency.

Types of Organizations

  • Commercial: Profit maximization and shareholder value.
  • Not-for-Profit: Serving societal needs in areas like education and healthcare.
  • Public Sector: Government-controlled entities providing essential services.
  • NGOs: Promoting social and environmental agendas, addressing global issues.
  • Co-operatives: Member-owned, emphasizing democratic principles and shared benefits.

Commercial Organizations: Profit Making and Wealth Maximization

  • Sole Traders: Owned and run by one person with unlimited liability.
  • Partnerships: Owned and run by two or more individuals with unlimited liability.
  • Limited Liability Partnerships (LLP): Separate legal entity with liability limited to the investment amount.
  • Limited Companies: Shares offered to the public.

Not-for-Profit Organizations

  • Not-for-Profit Organizations (NPOs): Satisfy needs of members or society (e.g., schools, charities).
  • Public Sector Organizations: Controlled by the government, providing basic services.
  • Private Sector Organizations: Run by private individuals with profit maximization or welfare objectives (NGOs).

Commercial Organizations: A Closer Look

  • Profit-Driven: Generate financial gains and maximize shareholder value.
  • Partnership: Two or more individuals collaborate, sharing profits and risks, with unlimited liability.
  • Limited Liability: Owners shielded from personal liability for business debts.
  • Public vs. Private: Public companies offer shares to the public; private companies restrict ownership.

Key Differences Between Various Types of Organizations

  • Ownership:
    • Government - Public Organization (e.g., IRCTC Railway)
    • Co-operatives - Owned by Members (e.g., Co-operative Building Societies)
    • Public/Private - Owned by Shareholders and/or private owners
  • Objectives:
    • Private Organizations - Profit Maximization
    • Public Organizations - Welfare of People
  • Activities: Vary as per their purpose and the type of Organisation
    • Hyundai - Manufactures & sells Automobiles with an intent to make profit
    • MHADA-Government Organisation with the objective of infrastructure development
  • Sources of Funding:
    • Charities - Voluntary Donations
    • Private Sector - Owners
    • Public Sector - Government
  • Size: Varies (Sole Trader or Large MNC)
  • Liability:
    • Company Owners have Limited Liability
    • Sole Traders/Partnerships have Unlimited Liability

Sectors of Operation

  • Agriculture: Primary sector, producing raw materials like crops and livestock.
  • Mining: Extraction of natural resources like coal, oil, and minerals.
  • Finance: Managing financial assets, providing banking, insurance, and investment services.
  • Retail: Selling goods and services directly to consumers.
  • Service: Providing intangible services like healthcare, education, transportation, and hospitality.
  • Transportation: Moving goods and people, including air, rail, road, and sea.

Key Differences Between Organizations

  • Ownership: Government, members, shareholders, or private individuals.
  • Objectives: Profit maximization to societal well-being.
  • Activities: Manufacturing to research.
  • Funding: Government grants, private investments, or member contributions.
  • Size: Small sole proprietorships to large multinational corporations.
  • Liability: Limited or unlimited liability for business debts.

Common Challenges

  • Motivating employees.
  • Macroeconomic concerns.
  • Strategic management.
  • Operational problems.

Stakeholders: The Heart of the Organization

  • Stakeholders: Individuals or groups with a vested interest.
  • Internal: Employees, managers, and directors.
  • Connected: Shareholders, customers, and suppliers.
  • External: Community, environmental groups, and government.
  • Stakeholders Based on Contractual Relationship:
    • Primary Stakeholders: Have a contractual relationship, like employees and shareholders.
    • Secondary Stakeholders: Do not have a contractual relationship, such as the community.

Needs and Expectations of Stakeholders

  • Employees: Fair compensation, safe working conditions, and job security.
  • Customers: High-quality products and services, value for money, and excellent customer service.
  • Community: Ethical business practices, environmental responsibility, and support for local initiatives.
  • Government: Compliance with regulations, tax payments, and job creation.

Stakeholder Needs and Expectations

  • Internal Stakeholders:
    • Employees: Salary, working conditions, job security.
    • Managers/Directors: Job status, fringe benefits, compensation.
    • Shareholders: Capital appreciation, healthy dividends.
  • External Stakeholders:
    • Customers: Value for money, product quality.
    • Suppliers: Timely payment.
    • Finance Providers: Higher collateral, timely payments.
    • Community: Ethical and environmentally friendly actions.
    • Environmental Groups: Environmentally friendly actions.
    • Government: Job creation, adherence to laws, tax payments.
    • Trade Unions: Say in decision-making.

Stakeholder Conflicts Examples

  • Employees vs. Managers: Higher wages vs. budget restrictions.
  • Customers vs. Shareholders: Lower prices vs. profit margins.
  • Community vs. Shareholders: Environmental impact vs. shrinking profits.
  • Managers vs. Shareholders: Organization growth vs. short-term profits.
  • Bankers vs. Shareholders: Lower leverage vs. higher leverage.
  • Addressing Conflicts: Organizations must prioritize stakeholders, but also try to satisfy as many as possible. Stakeholders can shift between categories based on events

Mendelow's Power-Interest Matrix

A matrix categorizing stakeholders based on their level of power and interest, used to determine the appropriate stakeholder management strategy.

  • High Power, Low Interest: Keep Satisfied
  • High Power, High Interest: Key Players
  • Low Power, Low Interest: Low Priority
  • Low Power, High Interest: Keep Informed

Managing Stakeholder Expectations

  • Relationship Building: Develop and maintain productive relationships; listen and engage effectively.
  • Communication Strategies: Communicate the right information.
  • Effective Management Elements:
    • Sensitivity, empathy, and cultural awareness.
    • Use of various communication mediums and technology.
    • Gaining commitment through consultation and influence.
    • Building effective ethical professional relationships.
    • Dealing calmly with conflicting priorities.

External Environment: PESTEL Factors

  • Political
  • Economic
  • Social/Demographic
  • Technological
  • Legal
  • Environmental

Political and Legal Factors

  • Political System: Institutions, organizations, and their relationships.
  • Government Policies: Affect organizations through legislation and direct policy.
  • Compliance: Organizations must comply with industry-relevant regulations.

Political and Legal Factors - Government Policy & Legislation

  • Government Policy: Affects organizations.
  • Compliance: Organizations must comply with industry-relevant regulations.
  • Government Policy & Direct Legislation: Failure to comply results in fines, closures, and negative publicity. Includes Employee Protection, Data Protection, Health & Safety, and Consumer Protection.
  • Employee Protection: Unfair treatment, Dismissal, redundancy, and notice periods. Redundancy rights.

Data Protection and Security

  • Data Protection: Data protection acts ensure information is used fairly, transparently, and securely. Data must be used for specified legal purposes, be accurate, and kept only as long as necessary.
  • Data Security: Ensuring data is safe from loss or corruption. Risks: Physical, human, operational, and corrupted data. Countermeasures: Offsite backups, security measures, training, and encryption.

Health and Safety

  • Health and Safety in Workplace: Employer must minimize hazards and implement safety protocols.
  • Health and Safety in Workplace: Employee towards Other Employees.

Breach of Health and Safety & Consumer Protection

  • Consumer Protection Law: Laws protect consumers from fraudulent sellers.
  • Consumer Rights
  • Simple Contracts: A contract is a legally enforceable agreement.

Effective Stakeholder Relationship Management

  • Develop and maintain productive relationships. Listen and engage effectively.
  • Communicate the right information. Elements of effective management: sensitivity, empathy, and cultural awareness.
  • Gaining commitment through consultation and influence. Building effective ethical professional relationships.

Introduction to Macroeconomics

  • Macroeconomics deals with large-scale factors at the national level.
  • Government policy is crucial for managing macroeconomic factors.

Objectives of Macroeconomic Policy of Government

  • Steady and rising economic growth.
  • Low and stable inflation.
  • Lower rates of unemployment.
  • Sustainable balance of payments.

Macroeconomic Factors - Key Factors Affecting Level of Business Activity

  • Aggregate Demand
  • The formula for Aggregate Demand is: AD=C+I+G+(X−M)AD = C + I + G + (X-M)
    • Where:
      • ADAD = Aggregate Demand
      • CC = Consumer Expenditure
      • II = Investment by firms
      • GG = Government spending
      • XX = Exports
      • MM = Imports
      • (X–M)(X – M) = Net Import / Export

Factors Affecting Business Activity Level

  • Aggregate Demand
  • Consumer Confidence
  • Availability of Capital
  • Government Policy & Taxes

Trade Cycles

  • Economies experience booms and busts.
  • Boom Phase: Rising output, employment, and incomes.
  • Bust Phase: Declining demand, output, and employment.
  • Recession: Decline in demand and output.
  • Recovery/Expansion: Investments rise, economic activity speeds up.
  • Boom and bust cycles impact individuals, households, and firms.

Boom-and-Bust Periods in The Economy - Impact on Individuals, Households, and Firms

  • Boom phase:
    Individuals and Households: low unemployment, rising house prices, high levels of confidence increasing consumer spending.
    Firms: Growth in profitability, Extra competition as new firms are established.
  • Bust phase:
    Individuals and Households: job losses, people losing their homes when unable to pay mortgages, fall in labour mobility due to negative equity, bankruptcy, low confidence.
    Firms: Corporate failures, Fall in profits, Excess capacity.

Fiscal Policy

  • Use of government spending and tax policies to influence economic conditions. Government used budget to determine its use of fiscal policy
    • Income and
    • Expenditure.
  • Types of budgets: Balanced, Deficit, and Surplus.
  • Budget Deficit: Expenditure is more than income (Expansionary).
  • Budget Surplus: Income is more than expenditure (Contractionary).

Types of Budgets

  • Balanced Budget
  • Budget Deficit
  • Budget Surplus

Monetary Policy

  • Management of money supply: Currency in circulation and deposited in banks and building societies
  • Changing interest rates
  • Expansionary policy: increase money supply.
  • Contractionary policy: decrease money supply.

Tools of Monetary Supply

  • Interest rates
  • Reserve requirements
  • Open market operations

Economic Theories

  • Classical Theory: Minimal government intervention.
  • Keynesian Theory: Government intervention to manipulate aggregate demand.
  • Monetarist Theory: Focus on supply-side economics and market equilibrium. Government’s role is to remove imperfections like
    • Inflation
    • Government Spending and taxation
    • Monopolies
    • Price fixing

Key Macroeconomic Issues

  • Inflation: Rise in prices of goods and services over time.
    • Types and causes: demand-pull, cost-push, imported, and monetary.
  • Unemployment: People willing to work cannot find a job.
    • Types: cyclical, frictional, structural, seasonal, and real wage.
  • Stagnation and Economic Growth.
    • Economic growth: Rise in output (GDP)

Measures to Promote Economic Growth

  • Government budget deficit: Injects money into the economy
  • Increase availability of Factors of production
  • Reduction in interest rates
  • Government grants and incentive

Balance of Payments

  • Records all financial transactions made between individuals, businesses and its government with foreign consumers and organizations
  • Three Parts of Balance of Payments
    • Current account
    • Capital account
    • Financial account

Trade Deficit vs. Trade Surplus

  • If Imports > Exports = Trade deficit on the current account (Net cash outflow from the economy)
  • Imports < Exports = Trade surplus on the current account (Net cash inflow to the economy)
  • Ways to reduce a trade deficit:
    • Reduce imports (tariffs, quotas, etc.) or increase exports (export subsidies, incentives, etc.)
    • Run a contractionary monetary policy
    • Reduce inflation
    • Devalue the domestic currency

Microeconomic Factors

  • Economic behavior at individual levels. How to allocate scarce resources at the individual, firm and consumer levels.
  • Demand & Elasticity of Demand
    • Individual demand and market demand.
    • Inverse relationship between price and quantity demanded.
      • Expansion and contraction of demand.
      • Substitution effect and income effects.

Factors Causing Shifts in Demand Curve (Other Than Price)

  • Income and Taxes
  • Consumer taste and Fashion
  • Prices of related goods (Substitutes and Complements)
  • Population and Demographics

Price Elasticity of Demand (PED)

  • Measures the responsiveness of quantity demanded to a change in price.
  • Formula is: PED=(% Change in Quantity Demanded)/(% Change in Price)PED = (\% \text{ Change in Quantity Demanded}) / (\% \text{ Change in Price}).
  • PED values and their meanings.

Factors Affecting Price Elasticity of Demand (PED)

  • Proportion of income spent
  • Availability of substitutes
  • Necessity or Luxury
  • Habits
  • Time

Cross Elasticity of Demand (XED)

  • Measures sensitivity of demand for one product to changes in price of another.
  • Formula is: XED=% Change in Quantity Demanded of Good A% Change in Price of Good BXED = \frac{\% \text{ Change in Quantity Demanded of Good A}}{\% \text{ Change in Price of Good B}}
  • Positive XED: Substitutes.
  • Negative XED: Complements.

Supply and Equilibrium

  • Supply curve: Shows units producers offer at different prices.
  • Upward sloping supply curve (direct relationship between price and quantity supplied).
  • Factors causing shifts in supply curve: Production costs, indirect taxes, and technology.

Equilibrium Price and Quantity

  • Price Mechanism: Market forces of both the demand and supply determine the ideal price and quantity
  • Equilibrium Price: Price at Which both buyers and sellers are both willing to buy and sell respectively i.e Where demand and supply curves intersect.

Market Disequilibrium

  • Excess supply or excess demand.
  • Minimum (floor) Price and maximum (ceilings) prices

The Economic Behavior of Cost

  • Law of diminishing returns: Costs are subject to the law of diminishing returns
  • Short-term cost behavior:
    • costs fluctuate based on added work or material.

Social and Demographic Factors

  • Demographic Trends: Growing populations, average age, and urbanization affect business decisions.
  • Factors impacting demographics:
    • Population size
    • Composition
    • Location
    • Wealth distribution
    • Education
    • Health

Impact of Social Changes

  • Changes in social structure, values, attitudes, and tastes affect organizations.
  • Eg;
    • Social structures: affect buying patterns.
    • Values: ethical and environmental concerns.
    • Attitudes: changing views towards corporate social responsibility and remote work.
    • Tastes: demand for luxury or fast fashion products.

Government Response to Demographic Change

  • Policies on population, housing, employment and health.

Technological Factors

  • Impact on Organization Structure
    • IT systems, improved communication, automation and their impact on organizational structure.
    • Downsizing, delayering, and outsourcing.
  • Downsizing: Reduction in workforce.
  • Delayering: Removing layers of management.
  • Outsourcing: Contracting out non-core activities.
  • Types of outsourcing. Advantages and disadvantages of outsourcing.
  • Impact on Business Processes
    • Transformation of business models and emergence of substitutes.
    • Changes in production, marketing and society.

Technological Factors on Organizational Structure

  • Impact on Organization Structure
    • IT systems: Cloud storage, dashboard, Monitoring
    • Improved flow of communication: E-mails, Video Conferencing
    • Automation : Robots
  • Downsizing: Reduction in workforce.
  • Delayering: Removing layers of management.
  • Outsourcing: Contracting out non-core activities.

Outsourcing

  • Outsourcing: Contracting out non-core activities.
    • Types of outsourcing:
      • Total
      • Ad hoc
      • Partial
      • Project Management
    • Advantages and disadvantages of outsourcing

Impact of Technological Change on Business

  • Impact of Technological change on Product
  • Transformation of the business model for industries
  • The emergence of substitutes
  • Impact of Technological change on Production Processes
  • Impact of Technological change on Marketing
  • Impact of Technological change on Society

Environmental Factors

  • Businesses impact and are impacted by the environment.
  • Pollution, loss of resources, and climate change effects.
  • Ways to Limit Environmental Damage
    • Revamping products, reducing packaging, recycling, energy efficiency, and efficient planning.

Benefits of Economic Sustainability on Range of Stakeholders

  • General Public: Lower CO2 emissions and less carbon foot print thereby more greenery
  • Shareholders: Improved efficiency and reduction in waste can improve profitability, in turn, higher returns for the investors
  • Customers: environmentally conscious customers will prefer the organizations' products to their competitors
  • Workers / Community as a whole: a better work environment with reduced waste and pollution

Competitive Advantage

  • Businesses must evaluate internal and external factors.
  • Steps to Achieve Competitive Advantage
    • Identification of the main competitive forces present in the relevant industry
    • The different measures a firm can take
    • What the competitive advantage comprises of

SWOT Analysis

  • Strengths
  • Weaknesses
  • Opportunities, and
  • Threats.

Porter’s Five Forces Model

  • Rivalry among existing competitors
  • Threat of new entrants
  • Threat of substitutes
  • Bargaining power of buyers
  • Bargaining power of suppliers.

Value Chain Analysis

  • Divides business activities into primary and support activities.
  • Aims to identify contribution towards value creation to the final product

Porter's Generic Strategies & Cost Leadership Strategy

  • Different ways through which, businesses can different themselves from the competition.