E 1 Chapter 1
E 1 Chapter 1
E 1 Chapter 1
Organisations
Organisations are formed when people are grouped together to pursue a goal.
business
Definitions
Organisation
A group of people, organised and managed in a way that aims to follow a corporate goal or
need.
business
Not every business is an organisation, e.g. one person working alone on all aspects would be a sole
trader.
business
Types of organisation
All business can be separated into private sector or public sector businesses.
May be run for profit or not for profit Generally not run for profit
Not-for-profit organisations are one type of private sector organisation. Sometimes they are known
as NGOs.
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Definition
NGO
A Non Governmental Organisation (NGO) is a private sector organisation which is not run
for profit, but focuses on other goals such as ethical standards, e.g. OXFAM.
Business
Profit-seeking organisations
Profit seeking organisations have the primary objective of maximising returns for the owners
(shareholders) and can be split into incorporated and unincorporated organisations.
business
Definition
Unincorporated organisation
When the business owners and the business itself hold the same legal identity.
business
The owners of an unincorporated business are held personally responsible for the debts i.e. they
have unlimited liability for any debts.
• Sole trader
• Partnership – A collection of owners working together who are jointly liable for debts
business
Definition
Incorporated organisation
When the business owners and the business have separate legal identities.
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The owners of an incorporated business are not held personally responsible for the debts of the
business i.e. they have limited liability for the business’s debts.
business
Shares can be issued to the public and traded on Shares cannot be issued to the public
the stock exchange
Owners risk losing control by selling stakes to Owners retain a high degree of control
the public of the business
Tend to be large companies who have issued Tend to be smaller companies, e.g.
shares to fund business ventures market town retailers
business
Co-operatives and mutual organisations are both owned and controlled by the members, rather
than shareholders.
• Co-operatives – The welfare of members, who may be customers or staff, is a key goal, e.g.
UK department store John Lewis
• Mutual organisations – Members are usually customers and they tend to focus on
financial products, e.g. mutual building societies such as the UK’s Nationwide
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Stakeholders
Business
Organisations don't operate in a vacuum. They affect others and others can affect them.
business
Definition
Stakeholders
Stakeholders are any parties that can affect or be affected by an organisation's strategy and
policies.
Business
business
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Classifying stakeholders:
Business
Stakeholder objectives
• This ensures a wide range of needs are considered in the objective-setting process, and
balanced objectives are produced
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Stakeholder needs
The different internal, connected and external stakeholders have different needs:
Internal
Directors Pay, bonus, overall performance, job security
Employees Pay, bonus, overall performance, job security
Connected
Shareholders Share price growth, dividend payments
Customers Prices, quality, delivery times, assured supply
Suppliers Assured custom, high prices
Financiers Interest payments, ability to pay back loans
External
Government Tax, law, wealth of nation
Pressure groups Environment or other ethical issues, pricing etc.
Local community Employment, nice place to live
Wider community Environment, local jobs etc.
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Stakeholder power
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The degree to which stakeholder needs are considered as part of the objective-setting process
depends on their level of stakeholder power.
Business
Definition
Stakeholder power
business
The needs of powerful stakeholders tend to be prioritised, e.g. customers who can buy in large
quantities will have more power over products and prices than customers who buy in small
quantities.
Business
business
Definition
Stakeholder mapping
The mapping of stakeholders onto a visual matrix to enable the organisation to determine
the nature of the relationship required.
business
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Mendelow’s Matrix
Mendelow's matrix identifies four levels of relationship that should be built with different
stakeholders based on:
• Power – The power to influence the organisation and affect its decision-making
Business
Business
• Minimal effort – Stakeholders have low interest in the business and low power. The
company will provide stakeholders with basic information to meet their needs, but do little
else, e.g.. a member of the local community with no interest in the business.
• Keep informed – Stakeholders have high interest but low power, e.g. a full-time employee.
The company should regularly communicate with these stakeholders, particularly in areas
they are interested in.
• Keep satisfied – Stakeholders have high power but low interest., e.g. tax authorities They
should be kept satisfied to avoid these stakeholders from exercising their power.
• Key players (keep close) – Stakeholders have a high interest and high power. Regular
communication should be maintained, and their goals and objectives included as part of
the strategy-setting process and business approach, e.g.the CEO of a business.
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Business
Stakeholder conflicts
Business
Stakeholders have different sets of needs and expectations, which may result in conflict. It is critical
to understand the needs of varying stakeholders to resolve conflicts wherever possible.
Cyert and March proposed four ways in which a company can look to resolve stakeholder conflict.
business
Exercise of power The conflict is resolved by a senior figure who exercises their
power to force through a decision.
Business
• Objectives and goals – Without the need for profit, goals and objectives may vary
depending on stakeholder influence
• Strategies – There may be a focus on efficiency and effectiveness of service and also
compliance with ethical standards
• Management style and practice – Volunteer environment may encourage open and
democratic style with few levels of hierarchy
business
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Change in organisations
Business
The rate in which change occurs in the world is accelerating as technology is becoming more
integrated into everyday life. As a result, organisations are having to adapt the way they do
business.
Business
Changing levels of Organisations are having to deal with rapid changes in the
competition levels of competition, e.g. new entrants to the market or rapid
disruption to industries.
Growing collaborative Refers to the growing popularity of sharing goods and service,
consumption which can disrupt their respective industries by creating new
business models, e.g. ride-sharing disrupting the taxi industry.
Changes to customer What the customer expects from a business and its products is
experiences changing, and businesses have to adapt to meet the
customers’ needs, e.g. faster customer service.
Less customer loyalty With greater access to information and a more competitive
market, customers tend to be less loyal to a particular brand
and more likely to research different products before
purchasing.
Business
As wider changes happen to the organisation, the finance function has to change too. This means
the roles of those working in the finance function are evolving.
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Definition
Finance function
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And finally...
Business
Stop!
What is an organisation?
What an NGO is
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About the four methods proposed by Cyert and March to resolve stakeholder
conflict
Got it?
If not, go back and re-read the study text before moving on.
Business
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