INTRODUCTION TO TYPES OF ORGANISATION

1.

OVERVIEW
A generally acceptable definition of an organisation is :
Definition - A group of individuals acting together to achieve a common aim.
The aim might be commercial (to make a profit) or non-commercial.
All undertakings are affected by the environment and by the government of the day. They react
and interact to each other and to professional bodies such as those of accountants and solicitors.
Undertakings exist in the exact opposite to a vacuum; everything in the environment, both
nationally and internationally, has the potential to affect them in one way or another.
Thus the nature and type of organisation will be constantly changing and developing in reaction to
environmental changes; a business that starts as a sole trader may develop into a partnership, then
a limited company, then become part of a group of companies, then be taken into state ownership
and the, following a change of government, be privatized and return to the status of a company.

2.

COMMERCIAL ORGANISATIONS
A commercial organisation is one that operates with the intention of making a profit for its owner.
A commercial organisation could be a sole trader, a partnership, a private or public company, part
of a group of companies, or a co-operative.
A Sole Trader
Perhaps the simplest of all organisations is the sole trader. One person in business on their own,
with ownership in the hands of a single individual, who will dominate the control of the
organisation.
Such businesses are usually small, although large ones with some managerial delegation do exist.
The sole trader earns the profit or covers the losses of his venture. Examples of sole traders are
local shops (newsagents etc), plumbers, garages and also small scale manufacturing.
A sole trader is personally liable for the debts of his business and since the business does not have
a separate legal persona, any contract is a personal one with the individual not with the business.
A Partnership
Two or more persons carrying on a business together is a partnership. It is one stage beyond the
sole trader and often arises from the need to combine different skills. Each partner contributes an
agreed amount of capital and there is an agreed method of sharing profits, salaries and interest.
Like a sole trader, the partners exert considerable influence over the business and are fully liable
to outside parties in the event of financial failure. Like the sole trader, they could be
manufacturing activities, services such as installation and dry cleaning or, of course, professional
services such as accountants and solicitors.
The development of a trader into a partnership is usually caused by the need to introduce more
capital or to introduce a necessary skill, e.g. a garage proprietor may introduce a marketing
partner.

Companies

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Beyond the partnership comes the company which may have limited liability and be either public
or private, be limited by guarantee like a university or professional institute, or, rarely, a company
may be unlimited, which does not give its members the protection of limited liability.
Limited companies vary enormously in size, from corner shops that are private limited companies,
to vast, multinational conglomerations. The Companies Act which contains the legislation
applying to companies distinguishes between:
a)

Public limited companies which are traded on an official stock market. (Such companies
must include the letters ltd in their names).

b)

Private limited companies (which must include (Pty) Ltd in their title) whose shares are
only transferable by direct contact and purchase from the shareholders (e.g. members of a
family).

c)

Public Limited companies tend to be owned by a wide range of investors, whereas a

private limited company, with no natural trading place for its shares, tends to be owned
by a small number of shareholders.
Naturally the benefits of limited liability encourage companies to register as limited.
This protection attracts investors, secure in the knowledge that they will not be called
upon to provide further capital to meet company debts. Limited liability can only exist
where the company is a separate legal entity and it is these two fundamentals that
distinguish companies from other forms of organisations.

Note that South African law recognizes an alternative form of entity, called a close corporation.
It is intended that CCs eventually fall away, as the most current legislation calls for recognition
only of public companies, and closely held companies.
Groups of Companies
It is quite common for several companies to be owned, or controlled, by another company, and
retain their separate legal status, rather than become a single company. The advantages of doing
this include:a)

Tax advantages losses made by one group company may be set off against profits in
another with obvious gains in terms of cashflow.

b)

Prestige investors, creditors and customers may be impressed by the size or diversity of
a group, and manages may feel more important.

c)

Avoidance of multinational problems if the group companies operate in very different

legal, social or cultural environments it may be very difficult to run them as a single
company.

d)

Companies can be acquired and disposed of easily.

There are also disadvantages:

e)

Extra management an additional tier of management is necessary to oversee the

functioning of the group and to produce group information.

f)

Duplication with many separate companies there is bound to be duplication of

functions, and of information. For example each company must publish separate annual
accounts.

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Co-Operatives
Historically these have developed from the first co-operative retail store, which was
established as a socialist ideal in 1844 by the Rochdale Pioneers. Profits are distributed
to members in the form of dividends related to the amount spent by each member. There
are also producer-co-operatives in which the investors are themselves employed and
share profits.

2.

ORGANISATIONAL ORIENTATIONS
2.1

MANAGERIAL ORIENTATION
Many companies have passed through the various orientations, described below whilst
others have chosen to stay with a particular orientation because this suits their current
circumstances. The various orientations can be grouped as follows:a)

Production orientation concentrates on production and the product. This is

basically a belief that the product would sell itself provided it could be
supplied at low prices and/or with high quality standards.

b)

Sales orientation here the organisation is geared to achieving maximum sales

and volume is pursued. The claim is that goods are sold not bought and these
organisations focus on selling techniques rather than the needs of the consumer.
Aggressive selling can be successfully employed today providing the company
is not too worried about repeat business it is adopted by some insurance and
home improvement companies as well as by those anxious for quick profits on
products with short life cycles.

c)

Marketing orientation first recognized and hence introduced to business

management science by Almericam marketer Theodore Levitt, this aims to
create a satisfied customer by establishing what consumer needs and wants are
and adjusting production accordingly. Moreover, marketing is not considered to
be the preserve of functional specialists but the concern of all employees being
close to the customer is one of the cultural values identified by Peters and
Waterman as being held by excellent companies. Although the consumer is
regarded as the most influential stakeholder the importance of generating profits
is not ignored.
Marketing orientations are sought by many companies, particularly retailers
such as Marks and Spencer plc.

d)

Societal marketing the work of Ralph Nader and such organisations as

Friends of the Earth has led to legislation relating to the social costs of various
activities. Matters covered include pollution, the quality of life and the
conservation of irreplaceable resources. Some companies are concerned with
long-run consumer and public welfare and have positioned the company and
its products in this area. An example would be Body Shop.

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2.2

OPERATIVE AND INFORMATION SUB-SYSTEMS

As was seen earlier, Handy views organisations as being composed of adaptive,
operative, maintenance and information systems. Adaptive systems are linked to
strategic decisions and general management, whilst maintenance systems have structural
implications which have been considered together with the structural features of
operative and information systems.
Operative systems control the resources (e.g. money, equipment, buildings) which are
converted into goods/services to meet the stakeholders satisfaction.
Superimposed on the operational subsystems are information subsystems what
Charles Handy refers to as the nerves of the organisation which can be viewed as
converting data inputs into information.
As with all systems analysis, it must be remembered that if the organisation is to survive
in the long term output values must overall be equal to or greater than input values.
CONCLUSION There is considerable interrelation between the various operational
and information sub-systems and it is incorrect to think of the four major functional areas
operations management, marketing, personnel and accounting as distinct areas of
activity. Indeed, there are many variations amongst organisations as to how the
functional processes are grouped.

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