Chapter 1 Business organisations and their stakeholders

Qiang JiangSchool of Business

Sichuan University, Chinajiang.qiang@outlook.com

Topic list

• Purpose of business organisation• Types of business organisation• Stakeholder goals and objectives

1 Purpose of business organisation

• A social arrangement which purses collective goals, which controls its own performance and which has a boundary separating it from its environment• Preoccupied with performance, meeting or improving

their standards • contain formal, documented systems and procedures• People specialise in one activity• Variety of objectives and goals• Obtain inputs, process them into outputs

1 Purpose of business organisation

• Why do organisations exist– Overcome people’s individual limitations– Enable people to specialise in some actives– Save time– Accumulate and share knowledge– Synergy: by bring together two individuals their

combined output will exceed their output if they continued working separately

1 Purpose of business organisation

How organisations differ– Ownership– Control– Activity– Profit or non-profit orientation– Legal status– Size– Sources of finance– Technology

2 Types of business organisation

Profit vs non-profit orientation

goal Profit orientated Non-Profit orientated

Primary goal Maximise profit Provision of goods/services

secondary goal

Output of goods/services

Minimise cost of primary goal

2 Types of business organisation

• Private vs public sector – Private sector: organisations not owned or run by

central or local government, or government agencies.

– Public sector: organisation owned or run by central or local government or government agencies.

2 Types of business organisation

• Legal status– Sole traderships– Partnerships– Limited company

2 Types of business organisation

• A limited company has a separate legal personality from its owners .the shareholders cannot normally be sued for the debts of the business unless they have given some personal guarantee. their risk is generally restricted to the amount that they have invested in the company when buying the shares .

2 Types of business organisation

• Characteristics of limited company– Shareholders are the owners– Directors are appointed by shareholders to run

the company executive directors Non-executive directors

– Operational management career managers

Types of limited companyX limited(private) X PLC(pulic)

Number of shareholders

Small number Wider proportion of the investing public

Transferability of share

Transferable with the consent of the shareholder

Trade on stock exchang

Diretors as shareholders

Hold a portion of shares

Source of capital founder/promotor

Business associates

Venture capitalists

the public

Institutional investors

2 Types of business organisation

Advantages of limited companies

More moneyReduces riskSeparate legal personalityOwnership is separate from controlNo restrictions on sizeFlexibility: capital and enterprise

brought together

Disadvantages of limited companies

Legal compliance costsShareholder have little power, only

sell share

2 Types of business organisationCharacteristics public sector

Ownership and management government

objectives variety

accountability To parliament

funding Raising taxes, making charges, borrowing

Demand for service limitless

resource Limited

2 Types of business organisation

Advantages of the public sector

Fairnessproviding Public goodsPublic interestEconomies of scaleCheaper financeefficiency

Disadvantages of the public sector

AccountabilityInterferencecost

2 Types of business organisation

• Non-governmental organisations– Independent voluntary association of people– For some common purpose

2 Types of business organisation

• Co-operative societies and mutual associations– Open membership– Democratic control (one member, one vote）– Distribution of the surplus in proportion to

purchase– Promotion of education

3 Stakeholder goals and objectives

• Stakeholders are those individuals or groups that, potentially, have an interest in what the organisation does.– Internal stakeholders– Connected stakeholders– External stakeholders

3 Stakeholder goals and objectives

• Internal stakeholders: employees and management– Organisation’s continuation and growth– Individual interests can be harnessed to the goals

of the organisation

3 Stakeholder goals and objectives

• Connected stakeholders– Shareholders (corporate strategy)– Bankers (cash flows)– Suppliers (purchase strategy)– Customers (product market strategy)

3 Stakeholder goals and objectives

• External stakeholders– Government– Interest/pressure groups– Professional bodies

3 Stakeholder goals and objectives

• Another approach– The primary stakeholder:

• internal and connected stakeholders

– The secondary stakeholders: • external stakeholder

3 Stakeholder goals and objectives

• Stakeholder conflict– May force resignations and divestments of

business– Companies may make profit at the expense of the

long term benefit of the companies.

3 Stakeholder goals and objectives

• Stakeholder mapping: power and interest– Menndelow suggests that stakeholders may be

positioned on a matrix whose axes are power held and likelihood of showing an interest in the organisation’s activities.

3 Stakeholder goals and objectives

• Strategic value of stakeholders– Correlation between employee and customer

loyalty– Continuity and stability in relationship with

employees, customers and suppliers• Responsibilities towards customers• Responsibilities towards suppliers

Q1.3 Which of the following statements is trueQ1.8 ADB is a business which is owned by its

workers. The workers share the profits and they each have a vote on how the business is run.A public sectorB private sectorC Not-for-profitDco-operative