Study Notes on Business Organisations

Chapter Learning Objectives

  • Upon completion of this chapter, you will be able to:
    • Define 'business organisations' and explain why they are formed.
    • Describe common features of business organisations.
    • Describe how business organisations differ.
    • List the sectors in which business organisations operate.
    • Identify the different types of business organisations and their main characteristics: commercial, not-for-profit, public sector, non-governmental organisations, cooperatives.

Organisations

What are they?

  • Defining an organisation is complex due to the variety of types set up to meet different needs, such as:
    • Clubs
    • Schools
    • Companies
    • Charities
    • Hospitals

Definition of Organisation

  • According to Buchanan and Huczynski:

"Organisations are social arrangements for the controlled performance of collective goals."

Key Aspects of the Definition
  • Collective Goals
    • The goals define the organisation (e.g., a school aims to educate, while a company aims to generate profit).
  • Social Arrangements
    • Organisations require a structure that enables people to work together towards a common goal; larger organisations typically have more formal structures.
  • Controlled Performance
    • Organisations implement systems and procedures to achieve their goals (e.g., sales targets, staff performance assessments).

Major Similarities Between Organisations

  • Most organisations share a fundamental activity of transforming inputs into outputs:
    • Example: A manufacturing company converts raw materials into finished products.
    • Example: An accountancy training firm transforms students and syllabuses into qualified accountants.

Example: Football Team

  • A football team is an organisation because:
    • It comprises players working towards a common objective (scoring goals).
    • The team maintains internal systems and controls through training and strategy development.
    • Each member plays a specific role (e.g., goalkeeper vs. forwards).
    • Team spirit and collaboration are essential for success.

Test Your Understanding

  • Identify which of the following can be considered an organisation based on the definition by Buchanan and Huczynski:
    • (i) A sole trader
    • (ii) A tennis club
    • (iii) A hospital
    • Answer: A (i), (ii), and (iii)

Why Do We Need Organisations?

  • Organisations enable people to:
    • Share Skills and Knowledge:
    • Enhances performance on tasks that individuals cannot achieve alone.
    • Specialise:
    • Workers can focus on specific tasks, increasing their skill and knowledge levels.
    • Pool Resources:
    • Collaborating allows for synergy, achieving more collectively than individuals alone.

Example: Daniel's Social Event Committee

  • Benefits of forming a committee include:
    • (i) Overcoming personal limitations by incorporating diverse skills.
    • (ii) Saving time through collaborative efforts.
    • (iii) Satisfying social needs.
    • Note: Option (iv) is incorrect as all committee members do not need expertise in every aspect.

Test Your Understanding

  • Which of the following are benefits of Daniel forming a committee?
    • Answer: A (i), (ii), and (iii) only

Different Types of Organisation

  • Organisations can be classified based on different goals into several categories:

1. Commercial versus Not-for-Profit

Commercial Organisations

  • Commercial organisations aim to maximise the wealth of their owners.
Common Forms:
  • Sole Traders:
    • Owned and run by one person. The owner and business are legally the same entity; personal liability applies.
  • Partnerships:
    • Owned by two or more individuals, traditionally sharing responsibility and liability; however, limited liability partnerships (LLPs) exist as separate legal entities.
  • Limited Liability Companies:
    • Separate legal identity from owners (shareholders); liability limited to the amount invested.
    • Private Limited Companies (Ltd):
      • Smaller businesses with shares not available to the public.
    • Public Limited Companies (plc):
      • Larger companies offering shares to the public, aiding in capital raising.

Not-for-Profit Organisations (NFPs)

  • NFPs do not prioritise profit; they serve specific societal needs.
Examples:
  • Government departments
  • Schools
  • Hospitals
  • Charities (e.g., Red Cross, Oxfam)

2. Public versus Private Sector Organisations

Public Sector Organisations

  • Concerned with government services, controlled by government bodies.
Examples:
  • Police
  • Military
  • Public Transport
  • Education
  • Healthcare for the poor

Private Sector Organisations

  • Run by private individuals/groups rather than the government, including both profit-seeking and not-for-profit entities.
Examples:
  • Businesses
  • Charities,
  • Clubs

Non-Governmental Organisations (NGOs)

  • NGOs focus on societal goals rather than profit and are independent from the government.
Examples:
  • The Red Cross
  • Doctors Without Borders
  • Greenpeace
  • Amnesty International

3. Co-operatives

  • Co-operatives are organisations owned and democratically controlled by their members; one vote per member for decisions.
  • Aim solely to meet members' needs, sharing any profits.

Example:

  • The Co-operative Group in the UK has over 5.5 million members and operates in various markets (banking, travel, groceries).

Test Your Understanding

  • Primary objectives of companies are likely to be:
    • (i) To maximise the wealth of shareholders
    • (iii) To make a profit
    • Answer: D (i) and (iii) only

Sectors in Which Organisations Operate

Major Sectors Include:

  • Agriculture: Production, processing, and packaging of food.
  • Mining: Extraction and processing of minerals.
  • Finance: Banks and investment companies.
  • Retailers: Selling goods produced by manufacturers to consumers.
  • Service: Production of intangible goods and services.
  • Transportation: Movement of goods.

Summary of Different Types of Organisations

Key Differences:
  • Ownership:
    • Private owned (individuals/shareholders), government-controlled public sector, member-owned co-operatives.
  • Objectives:
    • Vary widely from social service provision to profit maximisation.
  • Activities:
    • Varied based on objectives and organisational structure.
  • Sources of Funding:
    • Public sector funded by government, private sector by owners, charities primarily by donations.
  • Size:
    • Ranges from multinational corporations to small businesses.
  • Liability:
    • Sole traders and partnerships are personally liable, while companies confer limited liability.

Common Challenges:

  • Despite their differences, various organisations face similar issues, including employee motivation and strategic planning.