THE BUSINESS ORGANISATION, ITS

STAKEHOLDERS AND THE EXTERNAL

ENVIRONMENT

Chapter:1
 Business Organisation
 A bz org is a social arrangement which
pursues collective goals, which controls it
own performance & which has a boundary
separating it from its environment
 Common characteristics of org-

 they are preoccupied with performance &

meeting or improving stds.

 formal sys & procedures to enable what they do

 People- to do different things/ specialize in one

job

 Variety of goals & objectives

 Input-Process-Output
 Why org exists?

 To overcome individual limitations

 Enable people to specialise in what they
do best.
 Save time
 Accumulate & share knowledge
 Synergy- the combined effect of two
individuals exceeds if they worked
separately i.e. 2+2=5 effect.
How org differ?
a. ownership- privately owned/ shareholders
b. Control- owners, managers, Govt
regulators etc
c. Activity- Manufacturing, Service,
distribution, retailing, Extracting etc
d. Profit/ non profit organisation
e. Legal status- sole proprietorship,
partnership, Limited company etc
f. Size, technology
g. Sources of Finance
Different types of organisations

 i) Commercial
 ii) Not-for-profit
 iii) Private Sector
 iv) Public Sector
 v) Non-governmental organisations
 vi) Cooperatives &
 Vii) Mutual associations
 1. COMMERCIAL ORG.
 Are the profit oriented companies. That
is their PRIMARY goal is maximisation
of profit for its owners.

 INPUTS of material, labour & finance

and OUTPUT of goods & service are
secondary goals.

 They
are normally private sector
companies.
 2. NOT FOR PROFIT ORG.
 Primary goal of such organisation is
provision of goods/service and not
profit making.
 Secondary goals are to input material,
labour & finance and to minimise costs
of primary goals
 3. PRIVATE SECTOR
 Private sector is organisations, not owned
or run by central or local government or
government agencies.

 Legal status- setting up of business can be

a single owner, or partners or a limited
company
 Limited Company-
has a separate legal personality from its
owners(shareholders). Ie The ownership
and control are legally separate.
 The shareholders cannot be sued for the
debts of the company unless they have given
special guarantee.
 Their risk is limited to the amount invested
in company, while purchasing shares. This is
called as limited liability.
3 main parts of a limited company.

1. Shareholders-owners- They provide capital

and receive return. limited rights over the day
to-day running of the company.
2. Directors- appointed by shareholders to run
the company. In UK directors controls mgt &
staff and are accountable to shareholders.
There are executive( who participate in
running of business) and non executive
directors( who provides guidance & advices)
3. Operational Mgt- consisting of managers
who operate the business and accountable to
directors.
 Types of Limited Companies

1. Private Ltd- (X limited)

2. Public Ltd – (X Plc)
Differences Private Ltd Public Ltd
No of
Small Wider- public
Shareholders

Transferability Easily transferable

Rare
of Shares through stock exchanges

Directors as Hold large

Less likely to hold shares
shareholders number of shares

By founder/
business
Source of associate or
Raised from public
Finance employees/
venture
capitalists
 Advantages of Limited Companies

 More money available for investment

 Reduces the risk of investors - limited
liability
 Separate legal personality- a company
can own property, make contracts etc
 Ownership is legally separate from
control
 No restrictions on size
Disadvantages of Limited Companies

 Legal compliance costs. Financial

statements need to be audited and
published to shareholders.
 Shareholders have little practical
power
 Question ?
A …………company has a separate legal
personality from its owners.
Which word correctly completes this
sentence?
A. Private
B. Limited
C. Public

ANS- B Limited
 4. PUBLIC SECTOR

Are organizations owned or run by

central or local govt or govt agencies.
Examples-
 The Armed Forces,
 Govt departments,
 Schools & universities etc
 Characteristics-
 Accountability to Parliament
 Funding- 3 ways- Raising taxes, Making
charges, Borrowing
 Demand for service- is practically
limitless
 Limited resources- demands are huge
and cant be always met.
 Advantages
 Fairness
 Filling the gaps left by private sector, eg,
street lighting
 Public interest
 Economies of scale-by spreading cost
through centralisation
 Cheaper finance, taxes and govt borrowings
are cheaper than commercial rates
 Efficiency- UK have lower admin costs and
serves more population than the private
sector
 Disadvantages-
 Accountability- inefficiency may be
ignored
 Interference- political interference and
pressure may adversely affect the
decisions
 Cost- there can be conflict between
economy of operation and adequate
service. Public demand a perfect service,
but not ready to bear the cost
5. NON GOVERNMENTL ORG.
 NGO is an independent voluntary
association of people acting together for
some common purpose than achieving
govt office or making money
 NGO may not be directly linked to govt,
are involved in activities aimed at
promoting social, political or
environmental change
 Eg- The Farming & Wildlife Advisory
Service in UK
 Features

 Staffing by volunteers as well as full time

employees
 Finance from grants or contracts
 Skills in advertising and media relations
 Planning and budgeting expertise
 6. CO-OPERATIVE SOCIETIES
 Are business owned by their workers or
customers who share the profits.

Features-
Open membership
Democratic control(one member 1 vote)
Distribution of surplus in relation to
purchase
Promotion of Education
7. MUTUAL ASSOCIATIONS

 Similar to co-operatives, but owned and

controlled ONLY by their members.
 Eg some financial institutions like Abbey
National, Credit Unions etc
 Stake holders
Stakeholders are those individuals/ groups
that have an interest in what the
organization does or affected by the
operations & objectives of the org.
 Question ?
………………… Comprise all those
individuals or group who have a legitimate
interest in an organization's activities

Which word or phrase could complete this

sentence?
A. Key players
B. Shareholders
C. Stakeholders

Ans- C stakeholders
 Types of Stakeholders

Internal • Employees & Mgt

• Shareholders, Customers,
Connected Suppliers, Financers,
Competitors

External • Community, Government &

Pressure groups
 Internal Stakeholders
Internal Interests Response Risks

•Pursuit of own
interest
•Job Careers
•Industrial
Managers & •Money
Action
employees •Promotion
•Refusal to
•Benefits
relocate
•Satisfaction
•Resignation
 Connected Stakeholders
Connected Interests Response Risk

•Increase in shareholder
•Sell shares
Shareholders wealth
•Boot out mgt
•Risk

•Security of loan •Denial of credit

Bankers •Adherence to loan •Higher interest rates
agreements •Receivership

•Profitable sales •Refusal of credit

Suppliers •Payment for goods •Court action
•Long-term relationship •Wind down relationships

•Goods as promised •Buy elsewhere

Customers
•Future benefits •sue
 External Stakeholders
External Interest Response Risk

•Jobs •Tax increase

Govt •Training •Regulation
•Tax •Legal action

Publicity
•Pollution
Interest/pressure Direct action
•Rights
groups Sabotage
•Other
Pressure on govt

Imposition of ethical
Professional bodies Member’s ethics
stds
 Another approach

According to the contractual relationship

with the organization-

1. Primary stake holders-internal &

connected
2. Secondary stake holders-external
 Stakeholder conflict
 Conflict between stakeholders often
exists. For example management could
want to reduce staff salaries to reduce
costs and increase their own bonuses.
 Managers must take the potential for
such conflict into account when setting
policies and be prepared to deal with it
if it arises in a form that affects
organization.
 Stake holder mapping
Mendelow suggests that stake
holders can be positioned in a
matrix according to the power held
& interest in the activities of
organization.
These factors helps in defining the
relationship the org should seek
from its stakeholders
Stakeholder Mapping

A B

C D
 Key players are found in D. High power,
high interest. Strategies must be acceptable
to them. They may even participate in
decision making. Eg. Major Supplier
 Segment C- they must be treated with care,
kept satisfied. They are capable of moving to
D. Eg- large institutional share holders
 Segment B have less ability influence strategy.
But their views can influence more powerful
stake holders. So they need to be kept
informed.
 Minimal effort part is A.
Question ?
According to Medlow's matrix,
stakeholders in Segment C (low interest,
high power) should be kept informed.

True/ false ?

False – because they should be kept

satisfied
 Question ?
Which one of the following are examples
of internal stakeholders?

A. Shareholders
B. Employees
C. Suppliers
D. Financiers

Ans- B Employees
 Measuring Stakeholder satisfaction
 Its difficult to measure the stakeholder
satisfaction as their expectations are
qualitative than quantitative.
 Eg of possible measures-
Stakeholder Group Measure

Employees Staff turnover, pay& benefits related to market rate, job

vacancies

Government Pollution measures, promptness of filling annual returns,

accident rate, energy efficiency

Distributors Share of joint promotions paid for, rate of running out of

inventory etc
Thank you! 