Business Organization and Environment

By: Celina, Debbie, Fatima, Riketo, Katie

Nature of Business What is a business?● Any organization that uses resources to

produce a good or serviceWhat do businesses do?● Businesses identify needs of consumers then

purchase resources (or inputs) to produce outputs.

● Usually business aims to make money.

Nature of Business Activity● Varies from country to country and reflects needs and

resources of local environmentEx: McDonald’s in Japan is different from McDonald’s in India (lots of people in India don’t eat meat, which has to be taken into consideration)● Businesses also consider international perspective,

cultural diversity and need for international cooperation● Whatever the location, a business uses a combination of

inputs to make outputs (goods and services) it then creates and sells.

● Inputs/Factors of production: land, labour, capital, and enterprise or entrepreneurship

Factors of ProductionLand and Natural Resources:● Space businesses need to operate● Naturally-occurring goods like water,

air, soil, and minerals used in the creation of products

● Field for factories/energy for power

Factors of ProductionLabour:● Employees needed to run machines, sell, etc.Capital:● Plant/machinery/computer, and moneyEnterprise/Entrepreneurship:● People to invest/manage/innovate/take risks

Business Functions● Four main functional areas of business

(finance, marketing, HR management, and operations)

● All four areas interrelated ● Good team spirit and communication

between each function to have a good business

Business FunctionsFinance:● Part of organization that monitors movement

of funds into & out of the business, produces accounts and prepares forecasts for budgets

● Ensures that invoicing of customers happens and suppliers are paid

● Vital function in providing information for other departments and decision makers

Business FunctionsMarketing:● Covers market research and identifying what

customers want through to the designing and packaging of goods or services offered

● Looks at deciding the product’s price and type of promotion used

● Considers how product is to be distributed and sold. Ex: through catalogues, websites, shops, etc.

Business FunctionsHuman Resources (HR) management:● Covers recruitment, rewarding and

motivating, and training of staff throughout the organization

● Covers the releasing or redeployment of staff when necessary

Business FunctionsOperations Management:● Represents engine room of business--the

production of goods or the delivery of service● Those working in this area will be looking at

quality and stock control, methods of production, and productive efficiency

Sectors of IndustryPrimary Sector:● Covers business that is involved in extraction

of raw materials (ex: coal or gold) and also agriculture and fishing

● These industries are often closely monitored by governments due to scarce nature of materials and food sources and also the pollution effects of extraction methods

Sectors of IndustrySecondary Sector:● Includes industries that create a finished or

useable product● These industries generally generally take the

output of the primary sector then manufacture finished goods or components for other industries

Sectors of IndustryTertiary Sector:● Covers provision of services to businesses and

individual consumers● Includes the transportation and distribution of

goods, wholesale, and retail services, and adviser and consultancy-type businesses

Quaternary Sector:● Includes organizations providing information

services through ICT (information and communications technology)

Types of OrganizationThe public and private sectors of economy● Public sector - businesses that are owned by

individuals or groups of individualsEx: Sole trader, partnership, public limited company, private limited company● Private sector - business organizations that are

owned or controlled by a central or local government or public corporations

Ex: Restaurants, boutique

Types of Organization (cont.)Business Start-upsIdentifying a market opportunity - ● Market opportunity is the identification

of of new and unsatisfied customer needsWays of identifying market opportunity - ● Creative and innovative ● Identify a gap within the market

Types of Organization (cont.)Problems faced by business start-ups -● Poor location● Production problems● High costs of production● Cash flow problems● Marketing problems● Unestablished customer base● People management problems

Types of Organizations (cont.)Business StructuresSole trader - A self employed person who directs the affairs of the business, and is responsible for the risks and lossesPartnership - A type or business organization in which two or more individuals come together in agreement and share the profits and losses of the business

Private Limited Companies - A type of company

that can’t raise capital from the general public

Types of Organization (cont.)Public limited companies - A company that is able

to advertise and sell its shares to the general public

through stock exchange

Non-profit/Non-governmental organizations

(NGOs) - an establishment that is run in a

professional and business-like manner but without

profit being the major objective, organizations aim to

provide a service or to promote special causes.

Types of Organization (cont.)Charities - Organizations with very specialized aims. They exist to raise money for ‘good’ causes and draw attention to the needs of disadvantaged groups in society.Pressure Groups - Groups without the direct political power to achieve their aims, but whose aims lie within the sphere of politics. They attempt to influence local government, central government, businesses and the media. Their aims include having their views taken into account when any decisions are made.

Organizational ObjectivesImportance of objectives:Organizational aims and objectives give businesses:● A sense of direction, purpose and unity● A foundation for making decisions● Encouragement for long term planning● A basis for measuring performance of employees, management

and the business as whole

Organizational ObjectivesBusiness objective hierarchy

Vision StatementsMission Statements

Corporate ObjectivesDepartment Objectives

Team ObjectivesIndividual Objectives

Organizational ObjectivesMust be SMART: Specific, Measurable, Achievable, Relevant, Time-constrained

Mission Statement States the underlying purpose of an organization’s existence, and explains generally what the business is trying to achieve and its values.

Vision Statement Describes the ideal situation in the future, outlining the business’ distant aspirations.

Organizational ObjectivesStrategic Objectives - Long Term

Example: Profit maximization, image and reputation development

Tactical Objectives - Short TermExample: Survival, revenue maximization

Ethical Objectives -Help firms to decide what actions are right or wrong in certain

circumstances. Example: Treating employees fairly, recycling

Organization ObjectivesCorporate Social Responsibility

To build a culture of fulfilling social responsibilities to employees, customers, shareholders and other stakeholders.

Examples: Recycling, charity, discouraging drinking and driving, obeying labor laws, ethical trading

StakeholdersDefinition: People and organizations with an interest in a business .

Internal StakeholdersMembers of the business organization include employees, owners and management.

● Employees want high earnings, an interesting job and secure employment

● Shareholders (Stockholders and owners) want regular, secure and high returns and a say in the goals of the business.

● Managers want responsibility, high rewards and a lack of interference in their actions.

StakeholdersExternal stakeholders Includes suppliers, customers, special interest groups, and competitors● Suppliers want secure, regular and profitable orders● Customers want quality products at low prices and a good

service● Government wants to achieve a large number of goals including

growth in the economy and low inflation.● The local community wants thriving local businesses which do

not cause problems.

Stakeholder Conflicts

● Stakeholders all have varying objectives and it can be very difficult to reconcile competing needs and aspirations

● Business decisions and activities can have both positive and negative effect on stakeholders.

● Conflicts of interest occur when one side is negatively affected.

Methods of Conflict Resolution● Arbitration● Worker Participation● Profit Sharing Schemes● Share Ownership Schemes

External EnvironmentThe external environment can impact a business in a given situation, some business tools that may be used to help evaluate this are the PEST and STEEPLE/PESTLE analysis.

External Environment (cont.)The PEST analysis examines the impact of external environmental influences on a business.P - Political

Ex. Political stability, tax policy, employment lawsE - Economic

Ex. Interest rates, economic growth, exchange ratesS - Social/Cultural

Ex. Career attitudes, population growth rateT - Technological

Ex. Rate of technological change, automation

External Environment (cont.)S - Social/CulturalT - TechnologicalE - EconomicE - EnvironmentalP - Political L - LegalE - Ethical

Organizational Planning Tools

Growth and EvolutionHow a Business Grows: There are two ways a business can grow● External Growth

o More than one firm joined together ● Internal Growth

o A firm that expands by using personal resources

Firm: Organization which operates for-profit (exp. Goods and Services)

Growth and Evolution (cont’d)Pros Cons

Pros & Cons of Growing a Business

Globalization

SWOT analysis Strengths-● What does it do really well?Weaknesses-● What does the business do badly? Opportunities-● What do customers want the organization to

deliver? Threats-● What is the competition doing? ● Do competitors possess better capabilities?

A business plan● A business plan sets out how the organization

will meet its corporate objectives.

● It involves stepping back from day-to-day operations and asking where the business is heading and what its priorities should be.

Purpose of a business plan. ● Support the launch of a new organization or

business idea.● Support strategic planning. ● Identify resource needs.● Provide a focus for development.● Work as a measure of business success.