Business Organisations

Business Organisations

Learning Objective

• After completing this topic, you should be able to:

  • Identify how to organize a business.

  • Understand the purpose, types, common features, and main functions of organisations.

Introduction

• Commonality among diverse organisations (e.g., McDonald's, Apple Inc., the European Central Bank, and the United Nations):

  • They are all organisations formed by groups of people working together to achieve a common objective.

• Definition of Organisations:

  • Group of people brought together to achieve a common objective.

  • Turn a selected set of inputs into some sort of output.

  • Necessary for tasks that individuals cannot accomplish alone.

  • Example:

  • A baker hiring help when overwhelmed with demand.

  • A golfer needing an organisation to build a golf course for collective play.

• Efficiency Argument:

  • The output of a group working together exceeds the output of individuals working separately.

  • Organisations lower the cost of transactions and interactions among individuals.

• Relevance for Accountants:

  • Understanding modern evolving business organisations is crucial for modern accountants.

Common Features of Successful Organisations

• Organisations may be created for various reasons but share certain basic features enhancing efficiency and effectiveness:

  • Shared Purpose:

  • Need for alignment towards a common goal.

  • Requires a strategy that outlines the group's actions toward achieving goals.

  • Division of Labour:

  • Efficiency increases through workload specialization.

  • Too much specialization can hinder productivity, create silos, and prioritize departmental success over overall organizational success.

  • Clear Decision-Making Process:

  • Defining how decisions are made and authority levels is essential.

  • Effective delegation and authority structure are key challenges.

  • Ongoing Coordination:

  • Coordination across growing specialised groups is necessary.

  • Continuous communication is vital to allocate resources effectively and maintain alignment with strategy.

  • Defined Business Processes:

  • Well-defined processes support alignment with customer needs and facilitate inter-team handovers.

  • Essential for organisational independence from individual members.

  • Designed systems must accommodate new staff transitioning smoothly into roles.

  • Knowledge and Information Sharing:

  • Increasing complexity necessitates effective knowledge management and information sharing systems.

  • Enhancements through digital technologies and organized meetings and training.

  • People:

  • Organisations rely on motivated individuals.

  • Recruitment and development of talent to adapt to changes and achieve missions are crucial.

Operating Structures of Organisations

• Traditional Hierarchical Organisations:

  • Power and authority concentrated at the top of the organisation.

  • Structure resembles a steep pyramid.

  • Leadership responsibilities rest with top executives with few direct reports.

  • Advantages:

    • High on compliance; clear rules set by leadership followed by employees.

    • Effective in compliance-oriented environments (e.g., regulatory sectors).

  • Disadvantages:

    • Not conducive to creativity; may hinder employee engagement.

    • Can become outdated as workforce becomes more educated and desires autonomy.

• Flatter Organisations:

  • Attempt to minimize layers to improve decision making and collaboration.

  • Report from CGMA (2016) indicates that bureaucratic silos hinder decision-making.

  • Requirements for success:

    • Excellent technology for communication.

    • A strong organizational culture that promotes flexibility and engagement.

  • Example of Modern Flatter Structures:

    • Completely Flat Organisation:

      • Team-oriented, leaderless teams, decisions made collectively.

    • Flatarchies:

      • Combination of traditional hierarchy and flat organisations.

• Virtual Organisations:

  • Low overhead and asset-light structures.

  • Network-based, utilizing freelancers and external resources to deliver services or goods.

  • Lack of traditional offices allows efficiency.

    • Potential downsides:

      • Inefficiencies and conflicts may arise in network setups.

      • Non-face-to-face interaction could lead to misunderstandings.

• Global Organisations and Networks:

  • Globalisation Definition: Expansion of trade, ideas, and cultures.

  • Global markets create opportunities for multinational corporations (e.g., McDonald's, Coca-Cola) and small traders alike.

  • Positive Impacts:

    • Opportunity for cost efficiency and increased markets.

  • Negative Impacts:

    • Displacement of local suppliers and reduction in local job markets due to unrestricted competition.

Organisational Purpose and Legal Structures

• Classifications based on the organisation's purpose and legal ownership:

  • For-Profit Organisations:

  • Aim to exceed costs to generate profits.

  • Surpluses can be reinvested or distributed to owners.

  • Not-for-Profit Organisations (NFP):

  • Aim to achieve societal purposes instead of generating profits for shareholders.

    • Common types include charities, government bodies, and social groups.

  • Surpluses referred to as ‘surpluses’ rather than profits.

• Ownership Structures:

  • Individual ownership (sole proprietorship), partnerships, corporations, and cooperatives represent common ownership types:

    • Sole Proprietorship:

      • Owned by one individual with full liability for losses.

    • Partnership:

      • Owned by two or more, sharing profit and loss liabilities.

    • Corporations:

      • Legally entities with rights similar to individuals, involving limited liability for shareholders and a board of directors.

        • Types include public (shares traded publicly) and private (limited number of shareholders).

    • Cooperatives:

      • Member-owned and democratically governed for mutual benefit.

Other Forms of Organisation

• Franchising:

  • Allows individuals to use a brand and business model for a fee.

• Joint Ventures and Strategic Alliances:

  • Joint Ventures:

    • Combined ownership of an entity by two or more companies for shared goals.

  • Strategic Alliances:

    • Collaborative agreements without creating a new entity.

Common Business Organisational Structures

• Functional Structure:

  • Hierarchical organization by specialty (e.g., marketing, finance).

  • Potential downsides: Silos may develop, impeding broader organizational cooperation.

• Divisional Structure:

  • Common in large organizations with varied products/services or geographical segmentation.

  • Divisions operate autonomously; potential for inefficiency due to duplicative functions.

• Matrix Organisations:

  • Combine functional specialization with divisional autonomy, creating dual authority lines.

  • Typically large and reliant on coordination between functional and divisional leaders.

Business Processes and Projects

• Business Process:

  • Collection of structured activities producing outputs for customers (e.g., service delivery).

• Projects:

  • Temporary initiatives directed toward specific business goals.

Main Functions of a Business

• Typical business functions may include:

  • Product Management, R&D, Sourcing, Production/Service Delivery, Marketing, Sales, Customer Service, HR, IT, Legal, and Finance.

• Key Performance Indicators (KPIs):

  • Critical measures helping organizations assess if they meet objectives.

  • Role of finance professionals is to provide accessible KPIs.

Conclusion

• Overview of topics included:

  • Definition and understanding of business organisations, modern organisational structures, globalisation impacts, legal forms of local organizations, and the roles of various business functions within these structures.

• Emphasis on the dynamics of how organisations are structured for efficiency, the move towards flatter, more responsive management structures, and the relevance for accountants in the evolving business landscape.