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Business organisations and their stakeholders

Syllabus Guide Detailed Outcomes


Having studied this chapter you will be able to: Differentiate between different classes of business, their strengths and weaknesses and ultimate goals Identify different stakeholders and how an organisation should go about satisfying their expectations of the organisation

Exam Context
This chapter lays the foundation for an understanding of what organisations are, what they do and how they do it. Section 2 (The business environment) represents a higher level of knowledge. You must be able to apply knowledge to exam questions. There are 3 questions on the pilot paper that specifically relate to chapter 1.

Business Context
Understanding the different goals of organisations, how it is not just about making a profit for a lot of organisations. Appreciate the various stakeholders of an organisation and how to manage their expectations.

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Overview

Business organisations and their stakeholders

Categories of organisations

Definitions

Interests / Power

Stakeholders

Mendelows Matrix

Categorisation

Johnson and Scholes

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Overview 1
1.1

Organisations
Definition 'An organisation is a social arrangement which pursues collective goals, which controls its own performance and which has a boundary separating it from its environment'. Boundaries can be physical or social. Key categories:

1.2

Commercial Not for profit Public sector Charities Trade unions Local authorities Mutual associates
Class exercise

Pg 52-56

Lecture example 1
Required Identify a 'real-world' example of the above categories of organisation.

Solution
Write next to categories above

1.3

From the above Lecture Example you may be able to apply the following reasons for setting up an organisation: Overcome peoples individual limitations

Enable people to specialise Save time Accumulate and share knowledge and pool their expertise Enable synergy

1.4

Organisations owned or run by the government (local or national) or government agencies are described as being in the public sector. All other organisations are classified as the private sector.

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1: BUSINESS ORGANISATIONS AND THEIR STAKEHOLDERS 1.5 Key differences between profit and not for profit organisations:

Owner and other stakeholders (see chapter 3) Sources of funding (eg impact of sources of donations) Goals Primary goal of profit orientated business is maximising shareholder wealth while not for profit is the provision of goods / services) How they measure performance; profit focus vs value for money / efficiency. Use of technology eg. Apple Inc vs newsagency or social club.

Limited liability
1.6 What is seen as a key advantage of a limited liability company can be found in the title itself. That is to say that the shareholders liability is limited to the amount they have invested into that company. This is because limited liability companies (denoted by X Ltd or X plc in the UK) are set up so as to have a separate legal entity from their owners (shareholders). Other notable advantages of a Ltd / plc company are: More money available for investment from Shareholders Easier to raise capital from banks and other lenders Ownership and control are legally separated, investors need not run the company Great administrative burden and cost, especially for listed entities Lack of privacy to your results as anyone can download the financial statements to view

Notable disadvantages would include

Private v public
1.7 Private companies are usually owned by a small number of people (family members), and these shares are not easily transferable usually denoted by Ltd after their name. Shares of public companies, plcs will usually be traded on a Stock Exchange. The directors of a public company are less likely to hold a significant shareholding in the company.

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Lecture example 2

Class exercise

Having already touched on the advantages and disadvantages of a limited company which is part of the private sector. Now we should consider the public sector. Required Identify the advantages and disadvantages of a public sector organisation such as the armed forces or the health service.

Solution

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2
2.1

Stakeholder goals and objectives


Definition Stakeholder: A person or group of persons who have a stake in the organisation. Stakeholders in a business What is at stake? Money invested What do they typically expect of the business? A return on their investment so that their wealth increases: steady, growing profits paid out by the business growth in capital value of their share of the business Livelihoods, careers and reputations Fair and growing remuneration Career progression Safe working environment Training, Pension Customers Their custom Products/services that are of good quality and value Fair terms of trade, Continuity of supply Fair terms of trade, Prompt payment Continuity of custom Money lent A return on their investment: interest repayment of capital Government and its agencies National infrastructure used by business The welfare of employees Tax revenue The local community and the public at large The natural environment National infrastructure used by business The welfare of employees The environment shared by all Reasonable environmental and other business practices Reasonable employment and other business practices Reasonable employment and other business practices Steady or rising stream of tax revenue

P Shareholders (or R partners or I proprietor) M A R Y Directors/managers Employees and trade unions

S E C O N D A R Y

Suppliers and other business partners Lenders

The items they supply

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2.2

Johnson and Scholes identified three types of stakeholder: I C E (a)

I nternal:
Corporate management Employees

(b)

C onnected:
Shareholders Debt holders (eg bank) Intermediate (business) and final (consumer) customers Suppliers

Primary

(c)

E xternal:
Immediate community / Society at large Competitors Special interest groups Government Secondary

2.3

Mendelows Matrix Stakeholders can be mapped on Medelows Matrix in terms of:


How interested they are in the companies strategy (may they want to resist it) How much power they have over the companies strategy (would they be able to resist it) Level of interest Low A eg Casual labour Action: MINIMAL EFFORT High B eg Core employees Action: KEEP INFORMED

Low

High

C eg Institutional shareholder Action: KEEP SATISFIED

D eg Main suppliers Action: KEY PLAYERS

Power

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1: BUSINESS ORGANISATIONS AND THEIR STAKEHOLDERS (a) The matrix can be used to: (i) (ii) (b) Track the changing influences between different stakeholder groups over time. This can act as a trigger to change strategy as necessary; and Assess the likely impact that a strategy will have on different stakeholder groups.

Its aim is to assess: (i) (ii) Whether stakeholders' resistance is likely to inhibit the success of the strategy; and What policies or actions may ease the acceptance of the strategy.

2.4

An organisation can make strategic gains from effectively managing its stakeholder relationships and it needs to measure levels of satisfaction amongst its stakeholders. Measurement will not be easy but ideally a combination of qualitative and quantitative measures needs to be established.

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Chapter summary
Section 1 Topic What are organisations and why do they exist? Summary A wide range of organisational forms exist including both profit making (sole traders, partnerships and companies) and non-profit making such as charities and public sector organisations. They are formed to benefit from synergies of skills and/or resources to successfully achieve their primary goals. Knowintg the difference between a Ltd company and a plc company. How some organisations are categorised as public sector, iof government run, or private sector, all other entities. Stakeholders are those people or groups who have an interest in the activities of an organisation. They can be split between internal, connected and external stakeholders Mendelows Matrix is a tool used to categorise stakeholders based on Power and Interest, and thereby identifying strategies to deal with these stakeholders.

Understanding the different types and categories of organisations Identification of stakeholders

Categorisation of the stakeholders

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Overview

Business and organisation structure

Categories of organisations
Commercial Not for profit Public sector Charities Trade unions Local authorities Mutual associates

Definitions
Private Public Limited PLC

Interests / Power

Stakeholders

Mendelows Matrix

Categorisation

Level of interest Low High Power High Low A C B D

Johnson and Scholes

ICE Internal Connected External

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