Business Organisation & Environment

Definition and Purpose of Business Organisation

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

  • Collective goals: Organisations are defined by their goals, which could be profit maximization for commercial entities or social impact for non-profits.

  • Social arrangements: People working together towards a common goal; this involves coordination, collaboration, and communication.

  • Controlled performance: Systems and procedures ensure goals are achieved, emphasizing efficiency and effectiveness.

• Organisations transform inputs into outputs. This transformation process involves converting resources (inputs) such as raw materials, labor, and capital into valuable products or services (outputs).

Features of an Organization

• Share skills and knowledge: Encouraging knowledge sharing and skill development among members enhances organizational capabilities.

• Specialize: Workers concentrate on specific activities, leading to increased efficiency and expertise. Specialization allows for a deeper understanding and mastery of specific tasks.

• Pool resources: Synergy achieved through the combined use of resources, allowing the organization to accomplish more than individual efforts could.

• Division of Work: Dividing tasks among individuals or groups to enhance efficiency and productivity.

• Composition of Interrelated Individuals: An organization consists of people whose roles and tasks are interconnected and interdependent.

• Coordination: Ensuring all activities are harmonized to achieve common goals, requiring effective communication and integration of efforts.

• Deliberate and Conscious Creation and Recreation: Organizations are intentionally designed and structured, and they evolve over time to meet changing needs and objectives.

• Achievement of Common Objectives: All members work towards shared goals, aligning individual efforts with the organization's mission and vision.

• Co-operative Relationship: Collaboration and teamwork are essential for achieving organizational success, fostering a supportive and inclusive environment.

• Well Defined Authority Responsibility Relationship: Clear lines of authority and responsibility ensure accountability and efficient decision-making.

• Group Behaviour: Understanding and managing group dynamics is crucial for effective teamwork and achieving organizational goals.

• Performance: Measuring and evaluating organizational performance to identify areas for improvement and ensure goals are met.

Different Types of Organisation

• Commercial vs. not-for-profit.

• Commercial organizations: Maximize wealth of owners.

  • Sole traders: Owned and run by one person; no legal separation, implying the owner is personally liable for business debts.

  • Partnerships: Owned and run by two or more individuals; may have separate legal entity (LLP). Partners share profits or losses as per their agreement.

  • Limited liability companies: Separate legal identity from owners (shareholders). This protects the personal assets of shareholders from business debts.

  • Private limited companies (Ltd): Smaller, shares not public. Shares are typically held by a small group of individuals or family members.

  • Public limited companies (plc): Larger, shares public. Shares are traded on the stock exchange, allowing anyone to invest.

• Not-for-profit organizations (NFPs or NPOs): Satisfy needs of members or society. These organizations reinvest any surplus revenue into achieving their mission rather than distributing profits to shareholders.

  • Examples: Hospitals, councils, government organizations, charities.

• Private sector organizations: Run by private individuals. These organizations operate independently of the government and aim to generate profit or provide services.

  • Examples: Businesses, charities, clubs.

• Public sector organizations: Provide basic government services. Funded by taxpayers, these organizations focus on delivering essential services to the public.

  • Examples: Police, military, public transport, education, healthcare.

• Non-governmental organizations (NGOs): Not for profit, not linked to government. Promote social change; they rely on donations and volunteers to carry out their missions.

  • Examples: Red Cross, Doctors Without Borders, Greenpeace.

• Co-operatives: Owned and controlled by members. Members democratically manage the organization for their mutual benefit and share any profits.

Stakeholders of an Organisation

• Stakeholder: Individual or group with an interest in the organization's actions. Stakeholders can be affected by or can affect the organization's activities.

• Categories: Internal, external, and connected.

• Internal stakeholders: Within the organization.

  • Employees: Pay, working conditions, job security. They are concerned with fair compensation, a safe and supportive work environment, and opportunities for advancement.

  • Managers/directors: Status, pay, bonus, job security. They focus on strategic decision-making, organizational performance, and their own career progression.

• Connected stakeholders: Invest or have dealings with the firm.

  • Shareholders: Income, growth, continuation of business. They seek a return on their investment through dividends and stock appreciation.

  • Customers: Value-for-money products and services. They expect high-quality products, excellent customer service, and competitive pricing.

  • Suppliers: Prompt payment. They rely on timely payments to maintain their own financial stability and continue providing necessary goods and services.

  • Finance providers/Bankers: Repayment ability, security of investment. They assess the organization's creditworthiness and ability to repay loans and other financial obligations.

• External stakeholders: No direct link but can influence the organization.

  • Community at large: Impacted by decisions. They are concerned about the organization's impact on local employment, the environment, and community well-being.

  • Environmental pressure groups: Environmental impact. They advocate for sustainable practices and hold organizations accountable for their environmental footprint.

  • Government: Economic success, compliance with legislation. They monitor the organization's compliance with laws and regulations, as well as its contribution to the overall economy.

  • Trade unions: Decision-making involvement. They represent the interests of workers and seek to negotiate fair labor practices and working conditions.

• Primary stakeholders: Contractual relationship (employees, directors, shareholders). These stakeholders have a direct and formal relationship with the organization.

• Secondary stakeholders: Interest but no contractual link (public). These stakeholders are indirectly affected by the organization's actions.

Effect of Environment on Organisation

• Political & legal factors

  • Political factors: Political systems, government policy. Government stability, trade regulations, and political ideologies can significantly impact business operations.

  • Global, national, local levels.

  • Legal factors: Legislation. Labor laws, environmental regulations, and consumer protection laws affect how businesses operate.

  • Supra-national, national and regional sources of legal authority.

• Governments affect organisations through legislation. Regulations influence costs, competitive advantages, and market access.

  • Compliance is mandatory. Organizations must adhere to laws and regulations to avoid penalties and maintain their legitimacy.

  • Areas include employee, data, health and safety, and consumer protection.

• Employee protection: Protects employees from unfair treatment. Laws safeguard against discrimination, harassment, and wrongful termination.

  • Dismissal: Termination of contract. The process and reasons for dismissal must comply with legal standards.

  • Constructive dismissal: Employee resigns due to employer breach. Occurs when an employer creates a hostile work environment, forcing an employee to resign.

  • Unfair dismissal: Dismissal for an 'unfair' reason. Termination without just cause, such as discrimination or retaliation.

  • Redundancy: Workforce reduction. Often due to business restructuring or downsizing.

  • Rights include consultation, notice, and pay. Employees are entitled to a fair process, adequate notice, and severance pay.

• Health and Safety: Maintain a safe workplace. Employers must provide a safe and healthy working environment to prevent accidents and injuries.

  • Employer and employee responsibilities. Shared responsibility for maintaining safety standards and reporting hazards.

• Consumer protection: Protect consumers from unethical businesses. Aims to ensure fair business practices and prevent misleading or harmful products and services.

  • Key principles: Legal title, satisfactory quality, accurate description, repair/replacement for faulty digital content. Consumers have the right to receive goods that are legally owned, of acceptable quality, and accurately described.

Microeconomics vs. Macroeconomics.

• Microeconomics: Studies individual consumers, firms, and industries. It analyzes supply and demand, pricing strategies, and market structures.

• Macroeconomics: Focuses on the economy as a whole. It examines factors like GDP, inflation, unemployment, and government policies.

  • Includes aggregate demand, national output, and supply of factors of production.

• Macroeconomic policy: Government intervention to improve economic performance. Governments use fiscal and monetary policies to stabilize the economy and promote growth.

  • Objectives: Economic growth, low inflation, high employment, sustainable balance of payments.

Level of Business Activity in the Economy

• Imp Points.

  • Consumer confidence: Optimism about the economy. High consumer confidence leads to increased spending and economic growth.

  • Capital: Availability of finance and interest rates. Access to capital and low interest rates encourage investment and expansion.

  • Government policy: Fiscal policies (spending and taxation). Government spending and tax policies can stimulate or slow down economic activity.

  • Exchange rate movements: Impact on exports and imports. Currency values affect the competitiveness of exports and the cost of imports.

  • Use of resources: Technology and efficiency. Efficient use of resources and technological innovation enhance productivity and economic output.

Inflation

• Inflation: Rise in prices of goods and services. It erodes the purchasing power of money.

• Reduces purchasing power. Consumers can buy less with the same amount of money.

• Problems:

  • Reduced consumer spending. Higher prices decrease consumer demand.

  • Higher pay rises. Employees demand higher wages to keep pace with rising costs.

  • Increased business costs. Businesses face higher expenses for raw materials and production.

  • Damaged consumer confidence. Uncertainty about future prices can lead to reduced spending.

  • Impact on fixed incomes. Individuals on fixed incomes struggle to maintain their living standards.

  • Attractiveness of imports. Goods from countries with lower inflation become more competitive.

• Effects on savers depends on the saving motive.

  • Transactions motive: save less. When inflation is high, individuals may prefer to spend rather than save.

  • Precautionary motive: save more. Uncertainty about the future may encourage individuals to save as a safety net.

Unemployment

• Unemployment: Willing and able to work but cannot find a job. It represents a waste of human capital and productive capacity.

• Problems:

  • Loss of government revenue. Fewer people working means less tax revenue.

  • Increased unemployment benefits. Government spending increases on social welfare programs.

  • Reduced consumer confidence. Job losses decrease consumer optimism and spending.

  • Reduction in individual income. Unemployed individuals and their families face financial hardship.

• Benefits for businesses:

  • Easy to find employees. A larger pool of available workers makes recruitment easier.

  • Lower wages. Increased competition for jobs can drive down wage rates.

Monetary Policy

• Monetary policy: Expansionary or contractionary. Central banks use monetary policy to manage inflation and stimulate economic growth.

  • Expansionary policy: Increases money supply. Aims to lower interest rates and encourage borrowing and investment.

  • Contractionary policy: Decreases money supply. Aims to raise interest rates and reduce inflation.

• Ways to influence money supply:

  • Interest rates: Impact borrowing and investment. Lower interest rates encourage borrowing and spending, while higher rates discourage them.

  • Open market operations: Buying and selling government bonds. Buying bonds injects money into the economy, while selling bonds withdraws it.

Fiscal Policy and Monetary Policy

• Fiscal policy: Government taxation and spending plans. Used to influence aggregate demand and stabilize the economy.

• Monetary policy: Management of the money supply. Used to control inflation and promote economic growth.

• Fiscal policy options:

  • Income: Taxes. Governments levy taxes on individuals and businesses to fund public services.

  • Expenditure: Government services. Public spending on healthcare, education, infrastructure, and defense.

  • Balanced budget: Income = Expenditure. Government revenue equals government spending.

  • Budget deficit: Spending > Income. Government spends more than it collects in revenue.

  • Expansionary strategy.

  • Budget surplus: Spending < Income. Government collects more revenue than it spends.

  • Contractionary policy.

Global Economic Environment

• Social & demographic factors: Population composition. These factors influence consumer behavior, labor markets, and social trends.

  • Factors include: Population size, growth, composition, location, wealth, education, health, social structure, values, attitudes, tastes.

• Social factors and Demographic Factors.

  • Socio-demographics: Characteristics of a population (age, gender, ethnicity, education, income, location). Understanding these characteristics is crucial for effective marketing and policy-making.

Technological Factors

• Technology: Advancement impacts businesses. Innovation can create new opportunities, improve efficiency, and disrupt existing markets.

  • Factors include: New technology, production strategies, information and communication technology, innovation, logistics, machine learning, e-commerce, robotics, automation, data management, customer expectations, research and development.

• Technological changes affect:

  • Organisational structures. Flatter, more agile structures may be needed to adapt to rapid technological changes.

  • Product developments. New technologies enable the creation of innovative products and services.

  • Production changes. Automation and robotics can transform manufacturing processes.

  • Marketing. Digital marketing and e-commerce are essential for reaching today's consumers.

• Downsizing: Reducing employees. Often a result of automation or restructuring.

• Delayering: Removing layers of management. Simplifies communication and decision-making processes.

• Outsourcing: Contracting out work to specialist providers. Allows companies to focus on their core competencies.

• Information Technology.

  • IT drives innovation. Enables new business models and processes.

  • Digitization: Converting non-digital information into digital data. Facilitates data analysis and automation.

  • Automation: Using technology to take on repetitive tasks. Increases efficiency and reduces costs.

Environmental and Sustainability Factors

• Environmental factors: External factors affecting a business. Ecological considerations, resource availability, and regulatory constraints.

  • Include cultural, economic, demographic, physical, technological, and political elements.

• Environmental Factors can be both internal as well external for the business.

• Important that businesses think about marketing strategies so and accurrate picture of the market can be presented.

• Climate change implications for business operations and supply chain. Extreme weather events, resource scarcity, and changing consumer preferences pose significant challenges.

  • Sustainability, resource efficiency, and stakeholder engagement are important. Companies must adopt sustainable practices, use resources efficiently, and engage with stakeholders to address environmental concerns.

Competitive Factors

• Competitive environment: Dynamic system where businesses compete.
  Businesses strive to gain market share and achieve a competitive advantage.

  Competitive Features are essentials in sustaining the companiy's competitive advantage.

• Factors influencing competitive environments:

  • Product features. Unique and innovative features can attract customers.

  • Number of sellers. A large number of competitors can intensify competition.

  • Barriers to entry. High barriers to entry can protect existing firms from new competition.

  • Access to information. Transparency and access to information can