Enterprise

LEARNING OUTCOMES
On completion of this study unit you should be able to:
 Discuss the roles of the finance function in organisations;
 Explain how the finance function enables the creation and preservation of value;
 Discuss and explain how the finance function shapes the creation and preservation of value;
 Discuss and explain how the finance function narrates the creation and preservation of value
THE CONTEXTS ORGANISATIONS OPERATE IN

Type of organisation
Business sector
Mission, vision, & objective
Business environment
BUSINESS SECTORS AND TYPES

What is an organisation?
 social arrangement
 collective goals
 controls its own performance
 has a boundary separating it from its
environment.
Boundaries can be physical or social.
 BUSINESS SECTORS ANDTYPES
Private Sector
Owned and operated by private individuals or institutions.

Two main types

• Those seeking profit for their owners, and
• Those that have other objectives. (NPO) The owner & the
enterprise are considered
as one thing

Types of Private Sector Organisations

Sole traders or partnerships & This is a separate legal
• Profit-seeking organisations person,
Companies

• Not-for-profit organisations Charities, societies, and

associations, not focusing on
profit, but on surplus
• Mutual organisations Commercial operations owned by customers.
Building societies, mutual insurance, stokvels,
mutual banks Operate in more than one
country: Adidas, Airbnb,
• Multinational corporations Toyota, etc
 BUSINESS SECTORS ANDTYPES
Public Sector. Objective: make good use of public
Usually state-owned money and deliver goods and
services to the public

Two main groups

Those that provide public services

 hospitals,
• schools,
• the police and the armed forces, and
• state-owned industries/entities

State-owned industries:
• Government Employee Pension Fund
• Transnet
• South African Airways (SAA)
 BUSINESS SECTORS ANDTYPES
Non-Governmental organisations :
 Private organisations that operate in the public sector by providing services to the community or protecting the
environment

Main features
• Generating a profit is not a primary goal
• Not directly linked to the government

The World Bank defines these as 'private organisations that operate in the public sector and pursue activities to relieve
suffering,
 promote the interests of the poor,
 protect the environment,
 provide basic social services, or
 undertake community development.’
 Many of the largest NGOs are charities such as Oxfam and the Red Cross.
Activity: private or Public?
Company/Activity Sector and type

North-West University

Eskom

South African Institute of Chartered Accountants

Main Consideration: is it
PricewaterhouseCoopers controlled by the
state/government or by
Gift of the givers Foundation private individual/institution

Famous Brands Management Co. (Pty) Ltd

Airports Company South Africa

Mediclinic How about the publicly

listed company?
The Coca-Cola Company
 EFFECT OF ORGANISATIONTYPE ON
FINANCE FUNCTION
Owners and Stakeholders – chapter 2
• They have different goals and objectives
The Finance functions in
different types of organisations
Funding Sources
are affected by different factors. • Donations, capital, profit

Overall Organisational Goal

• Profit-orientated or not for profit

Organisational Performance Management

• How is performance measured -?

Use of Technology
• What type of technologies are used
 ORGANISATIONALVISION, MISSION AND OBJECTIVES
Definition of a VISION:
The organisation's view of where it sees
itself going in the long-term.
A organisation’s vision must align
with mission and objectives
Definition of a MISSION Statement:
In essence, it describes an organisation's basic purpose and what it is
trying to achieve.
Characteristics of mission statements
Likely to have the following:
1. State the purpose of the organisation
2. State the business areas in which the organisation intends to operate
3. Provide a general statement of the organisation's culture
4. Act as a guide to develop the direction of the organisation's strategy and its
goals/objectives
 EXAMPLES OF VISION & MISSION
STATEMENTS
OUR MISSION
To inspire and nurture the human spirit – one person, one cup and one neighbourhood at
a time.

Our vision is to craft the brands and choice of drinks that people love, to
refresh them in body & spirit.And done in ways that create a more sustainable
business and better shared future that makes a difference in people’s lives,
communities and our planet.

Our mission is to organize the world’s information and make

it universally accessible and useful.
Activity: is this a vision or mission statement

Cradles to Crayons: Provides

children from birth through age 12,
Alzheimer's Association: A LinkedIn: Create economic living in homeless or low-income
world without Alzheimer's opportunity for every member situations, with the essential items
disease of the global workforce they need to thrive – at home, at
school, and at play.
Vision Vision Mission

Disney: To be one of the

world's leading producers and
providers of entertainment and TED: Spread ideas.
information.
Vision Mission
Activity: is this a vision or mission statement

Dunkin': To be always the desired

Sweetgreen: To inspire healthier
communities by connecting people
to real food.
Vision
Warby Parker: To offer designer
place for great coffee beverages
eyewear at a revolutionary price,
and delicious complementary
while leading the way for socially
doughnuts & bakery products to
conscious businesses.
enjoy with family and friends.
Vision Mission

Microsoft: We strive to create local

TED: Spread ideas. opportunity, growth, and impact in
every country around the world

Mission Vision
 ORGANISATIONALVISION, MISSION AND OBJECTIVES

Business Objectives
Why should an organization have objectives?
In order to implement strategy and manage performance, an organisation needs specific objectives and targets.

In sharp contrast to the general nature of mission statements, objectives should be

 Specific
 Measurable
 Achievable
 Relevant
 Time-related
An example of SMART objectives for a company:

Objective: Increase revenue SMART Criteria:

from online sales by 20% in the

next fiscal year • Specific: The objective is specific in that it focuses
on increasing revenue from online sales.
• Measurable: The objective is measurable in that it
sets a specific target of a 20% increase in revenue.
• Achievable: The objective is achievable in that it is
realistic and within the company's control to improve
its online sales strategies to achieve a 20% increase
in revenue.
• Relevant: The objective is relevant in that increasing
revenue from online sales is aligned with the
company's overall goal of growing its business and
improving profitability.
• Time-bound: The objective is time-bound in that it
sets a specific timeframe of the next fiscal year for
achieving the 20% increase in revenue.
FUNCTIONS & LEVELS OF OBJECTIVES

Objectives have the following functions: Objectives at organisational levels:

1. Planning: objectives define what the plan is
about. Organisational Level Description

2. Responsibility: objectives define the Strategic/Corporat To set the overall long-term

responsibilities of managers and departments. e Objectives objectives for the business as a
whole
3. Integration: objectives should support one
another and be consistent; this integrates the Tactical Objectives To plan and control the
efforts of different departments. functions within the
organisation
4. Motivation: the first step in motivation is knowing
Operational To act as day-to-day
what is to be done. Objectives must be created for
Objectives performance targets to ensure
all areas of performance.
that the organisation’s
5. Evaluation: performance is assessed against operations are carried out
objectives and control exercised. efficiently or effectively
 THE DIGITALWORLD & BUSINESS
ENVIRONMENT

The digital world means…

The business environment means…
The increasing levels of digital technology
Everything that surrounds an organisation,
in our lives.
physically or socially
 Data and information collection
 Storage and communication about
Levels of business environment
organisations and individuals through:
 Macro environments and;
 computers
 Micro environments
 smart phones
 new digital technologies
 THE MACRO ENVIRONMENT

The MACRO environment covers all the factors that can influence the organisation indirectly, and generally,
the organisation has no control over these factors AND
The PESTEL model is used to analyse these factors.
An example of a PESTEL analysis for a hypothetical company

Political: Technological:

• Changes in government policies could affect the company's operations • Technological advancements could present new opportunities for the
and profitability. company to innovate and improve its products or services.
• Changes in trade agreements or tariffs could impact the company's • Changes in technology could also disrupt the industry or create new
ability to import or export goods. competition.
Economic: Environmental:

• Fluctuations in exchange rates could affect the company's profitability • Changes in environmental regulations could affect the company's
if it imports or exports goods. operations and production processes.
• Changes in interest rates could affect the company's borrowing costs • Climate change could also impact the company's supply chain and
and investment decisions. sourcing of raw materials.
Social: Legal:

• Changes in consumer preferences could impact the demand for the • Changes in labour laws or regulations could affect the company's
company's products or services. employment practices and costs.
• Changes in societal values or norms could affect the company's • Changes in intellectual property laws could impact the company's
reputation and brand image. ability to protect its products and services from competitors.
 PESTEL
Analysis of…
CLASS EXAMPLE - PESTEL

Political Economic Social Technological Environmental Legal

• Coca-Cola have to • Coca-Cola • Coca-Cola has • Coca-Cola has a • Coca Cola is • Coca Cola retains
adhere to the distributes their always tried to find innovation driven affected by water all rights related to
regulations of the products all over interesting social culture. accessibility.Water their business,
FDA the world,in many campaigns to • They have online is necessary for including past and
• Coca-Cola must different countries. connect with their games that soft drink future products
meet the All of these customers. customers can play, development.But developed with a
regulations given countries have • For example in featuring their should something patented process.
by governments,so different customs, 2014 Coca-Cola actual product happen,like
that they can have cultures,tastes and had the range. climate change,the
their products in desires and Coca- #shareacoke • Coca-Cola makes company may be
stores. Cola has tried to campaign,with use of social under fire.
• Coca-Cola have to develop their different names on networking • Coca Cola has to
adhere to products in a way it.This was very technology. adhere to
accounting,taxes, as to successful for environmental laws
accommodate • The company uses
internal Coca-Cola. machinery to help as they
marketing's and these customs. manufacture their
with the
labor laws. • Coca-Cola has also production of products.If
Changes in these tried to develop products for anything is amiss,it
laws can affect new low calorie better and higher can affect how
Coca-Cola. drink products. quantities. they distribute
products.
 THE MICRO ENVIRONMENT
The micro-environment includes
those areas which have a direct Potential
impact on the organisation such entrants
as:
 Ability to acquire raw materials Threat of
new entrants
 Competitors
 Customers and
Industry competitors
 Suppliers. Bargaining Bargaining
Suppliers Rivalry among Customers
power of power of
Porter’s Five forces model suppliers existing firms customers

This model can be used to analyse

Threat of substitute
the micro-environment factors that
directly and specifically impact the products or services
organisation.

Substitutes
CREATIONAND PRESERVATION OFVALUE BYTHE FINANCE FUNCTION
 THE CONCEPT OF VALUE
Value depends on the type of
organization
Profit-making organisation
 Increasing shareholder wealth
Not for profit organisation
EFFECTIVENESS
 Achievement of goals and objectives
 Benefit to members and or society
ECONOMY, EFFICIENCY & EFFECTIVENESS
CONCEPT DESCRIPTION
ECONOMY The concept of performing an activity for the
minimum at cost, e.g. a process that costs £100
to produce a unit of output is more economic than
one which costs £200 to produce the same output
EFFECIENCY The concept of performing an activity by
consuming the minimum resources of input,
e.g. a process that uses 1 labour hour to produce a
unit of output is more efficient than one which uses
2 labour hours to produce the same output
The concept of achieving the maximum
output given the resources of input, e.g. a
process that generates 10 units of output is more
effective than one which generates 5 units of output
for the same input of resources
 THE ROLE OF ACCOUNTANTS INTHE DIGITALWORLD

THE FINANCE FUNCTION

Basic finance activities
VALUE MATRIX
Assembling information

Preserve value   Create value  collecting, cleaning and connecting data into assembled information
(such as financial and management accounts and returns)
Analysis for insights
Communicatio

Analyzing financial and non-financial information to draw out

n and use of


information

Stewardship Value enabling

patterns and relevant insights
Advising to influence


 Communicating the above insights and contributing to an

objective, responsible perspective which will influence decision
making
Sourcing and

Data
Value analysis
analysis of

integrity Applying for impact

 Guiding actions to help organisations to achieve the
info

required impact

 VALUE ACTIVITIES OF THE FINANCE FUNCTION
Planning and
forecasting
Planning takes and
organization's strategic
objectives, goals and critical
success factors and turns
them into a detailed
roadmap to get it form
where it is to where it
wants to be.
Forecasts are used to
estimate, or predict, certain
factors, so that they can be
used to drive the budget.
Resource allocation
An organizations resources
include everything that it
can use to meet its
objectives.These include
obvious resources such as
financial capital, but also
human resources and
technological resources as
well.
Performance
Management Financial reporting
and control
This enables stakeholders
Performance
to assess the value-adding
management involves the
abilities of the organization.
monitoring of
organizational
performance over time.
Control involves
taking corrective
action and making
the most of
performances which
exceed expectations.