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MANAGEMENT IN AND BEYOND CORPORATIONS (INCORPORATED ORGANISATIONS (Created…
MANAGEMENT IN AND BEYOND CORPORATIONS
NON-INCORPORATED ORGANISATIONS
TYPES
PARTNERSHIP
ADVANTAGES
More people means more capital can be raised
Higher capacity than a sole proprietorship
Wider breadth of skills and abilities
Tasks can be divided between individuals
Less labour intensive
Allows for specialisation
Less formal: not required to submit accounts (outside of tax)
Total claim to profits, split between partners
Losses are shared equally, less burden on individual
DISADVANTAGES
Unlimited liability
Must pay all business' losses from each partner's personal assets
Can be complex to figure out how to pay losses
Need to set up a legal partnership agreement
Slower decisions, must be consultated
Loss of individual independence
A single partner leaving could dissolve the entire organisation
A business relationship established between 2 or more persons
Examples
Accounting/legal firms
General practicioners
Architects
Consultants
Usually set up by signing a legally-binding partnership agreement
Makes all partners equal (unless agreed to elevate one to senior partner)
Makes all profits equally divided between partners (unless otherwise agreed)
In case of liability, means a partner cannot back out and must contribute to making up the loss
SOLE PROPRIETOR
ADVANTAGES
Low cost to set up
Total claim over profits
Owner is own boss
Exclusive decision making authority, can be done quickly
Total autonomy, working as they see fit
Complete independence
No need for formal documentation (except tax)
DISADVANTAGES
All tasks must be done by owner
High workload
Labour intensive
Skills/abilities of business limited to those of the owner
Unlimited liability
Liable for all of the business' losses from personal assets
A single person carrying out some form of business
Examples
Tradespeople (electricians, plasterers, etc.)
Farmers
Small independent retailers (newsagents, fish n chip shops)
Recognised in law as people, not a business entity
Exist to make profit for the individuals forming them
INCORPORATED ORGANISATIONS
PUBLIC COMPANIES
Shares can be bought by anyone
Freely bought/sold through the stock exchange
Floatiation
When a private company changes to a public company
Shares are 'floated' onto the stock exchange
Often a consequence of growth
PRIVATE COMPANIES
Most common form of company
Shares held by private individuals
Shareholders often also work for the company
Generally not available to the public
Must approach existing shareholders directly
Can sometimes need approval from other shareholders as well
MANAGEMENT STRUCTURE
Shareholders
Board of directors
Chairperson
Chief Executive Officer (CEO)
Company Secretary
Most senior administrative operator
Not a director but privy to board business
Executive and Non-Executive directors
Mid-Management and Employees
Executives: Full time, oversight of a specific part of the company (eg. marketing or financial functions, a specific hotel in a chain, etc)
Non-Executives (NEDs): Not full time, but expected to provide a strong, independent and objective element to board discussions
Responsible for actually managing the business
Aims to act in a way to achieve maximum return on shareholder funds
Approves all major investments/decisions made by company
Most senior employee
Presidential rather than operational
Communicates with shareholders
Makes sure company operates primarily in shareholder interest
Directors vs. Managers
Manager is responsible to their immediate superior, director is responsible to their superior and the board of directors/shareholders
Manager contract is permanent, directors are re-elected based on performance
A manager is only responsible for the area of work under their direct command, directors are collectively responsible for the whole organisation
Created formally and recognised as their own legal entity
Law sees the organisation as its own person
Limited liability
How it works
The value of the business is divided into shares
Individuals buy a number of shares and become shareholders
Agents of the company in exchange look after the shareholder's interests
Usually to return on the investment monetarily
The shareholder investment is used to start and grow organisation assets
What it does
In case of losses, protects the personal assets of the employees (Mostly the directors)
Losses limited to organisation assets
The juristic personality is the company, not the employees behind it
By charter, statute or registration
ADVANTAGES
Owners benefit from limited liability
No matter the actions of the company agents/the size of the losses made, their personal assets are safe
The shareholder's liability/risk is limited to the value of their shares
More capital available for business
Having multiple shareholders investments
Businesses can make new shares to raise extra finances
DISADVANTAGES
More formal, set-up is more cumbersome
Many legal constraints/procedures must be observed
These are expensive and high commitment
Investors do not have complete claim over profits
Investors have little say in how the company is run
Investors may be reluctant to lend money, as they know that the debts could potentially never be repaid
Exist to make profit for the shareholders
NON-FOR-PROFITS
TYPES
CHARITIES
Exist to provide a product/service to a target group, not to gain profits
Exempt from tax
Assumed that charity surpluses are to be re-used by the charity for its goals rather than to benefit the owners
Staff
Volunteers who work for free
Staff who work for below the market rate
Likely because they believe in the charity's goal
Staff who are paid at market rates (normally only essential, core staff)
Aim to keep costs low
Should have a significant surplus
GOVERNMENT ORGANISATIONS
Funded by taxpayer revenue
Therefore assumed they exist for the taxpayers benefit
Supply goods/services that cannot be supplied by the private sector
Public goods
Things needed by everyone regardless of the individuals specific needs
Defence, police, public transport infrastructure
Merit goods
Provided by the state to be taken advantage of as and when the population has need of them
Only used in certain situations
Health services
when ill
Social security/unemployment benefits
when unemployed
Education
when young/studying
Exists for achieving maximum value for money and reducing costs
Each branch of the government (ministry/department/local) has a strict budget to meet each financial year
Profit is not the primary motive
Require profit to run, but only because it is necessary to enable them to pursue other, more important objectives
Profit and losses are instead surpluses and deficits
Similarities with For-Profits
Require revenue to carry out their operations
Incur expenditure in the execution of their operations
Need people to perform the many and varied duties involved
Produce a product or service of some description, with an output that its customers/beneficiaries value
Have consumers of the organisational output (eg. customers/clients/individuals) that they aim to provide the product or service for
Must be managed to achieve organisational objectives
Require revenue
Incur expenses
Consist of people
Produce a product, service, or combination of both
Strive to satisfy consumers
Must be managed
EXTERNAL ENVIRONMENT
TWO PARTS
GENERAL ENVIRONMENT
Broad external conditions that may affect the organisation
Don't affect to the extent of the specific, but still important
Conditions
Economic
Interest rates, inflation, etc
Political/Legal
Federal, state and local government legislation and policies
Sociocultural
The changing expectations of society
Flexible work hours, family leave, etc
Demographic
Trends in the physical characteristics of a population
Technological
Rapid changes in modern technology
Global
As global boarders become increasingly meaningless, so too do the boundaries of businesses
SPECIFIC ENVIRONMENT
External forces that have a direct impact on a managers' decisions and actions
Directly relevant to the organisations goals
Customers
The ones who absorb the org's output
Org's exist to meet their needs
Suppliers
Firms that provide materials, equipment
Providers of financial/ labour inputs
Competitors
Exist for all orgs, even monopolies
Influence how managers respond to keep their org superior
Public pressure groups
Social interest groups trying to influence the org's actions
Change as social/political movements do
An organisation is an open system that interacts with and depends upon its specific environment, while at the same time it has to be aware of its potential influences on the external environment
ENVIRONMENTAL UNCERTAINTY
DEGREE OF CHANGE
Dynamic environment
The components in an organisations environment change frequently
Unpredictable change
Stable environment
Minimal change in the environment
Predictable change
DEGREE OF COMPLEXITY
The number of components in an organisation's environment
The extent of the organisations knowledge about those components
The degree of change and complexity in an organisation's environment
The forces outside an organisation that can affect its performance
SOCIAL RESPONSIBILITY
CLASSICAL VIEW
Conventional, traditional
Focuses on managers and owners
Management's only social responsibility is to maximise profits
To operate the business in the best interest of the shareholders for maximum financial return
Managers acting for social good will add cost to doing business
This results in the customers getting higher prices and shareholders getting less profit
Focuses on short term goals and immediate profit
SOCIOECONOMIC VIEW
Management's social responsibility goes beyond making profits
It includes protecting and improving society/s welfare
Organisations are not independent entities responsible only to shareholders
Focuses on long-term financial rewards
Societies have rules and regulations about how businesses should be transacted and how organisations should be managed
It is socially responsible when managers have protected and improved society's welfare
TYPES OF SOCIAL RELATIONSHIPS
Social obligation
The obligation of a business is to meet its economic and legal responibilities
Outside of that, their only responsibility is to its shareholders
Social responsiveness
The capacity of a firm to adapt to changing societal conditions (when it changes in response to a popular social need)
Managers are guided by social norms
Do the right thing because it satisfies the popular social need
Still motivated by economics over ethics
Social responsibility
A business' intention, beyond that required by law or economics, to pursue long-term goals that are good for society
Does what it can to help society because it is the right thing to do
STAKEHOLDERS
Anyone in the organisations environment that both affects and is affected by the organisations decisions, actions and policies
Anyone who has a stake in/are significantly influenced by the organisations business and success
Why is managing stakeholder relationships important?
It can lead to other organisational outcomes
Improved predictability of environmental changes
More successful innovations
Greater trust and flexibility among stakeholders
Overall improvement in organisational performance and flexibility
It is the 'right' thing to do
An organisation depends on these groups as sources of inputs (resources) and outlets for outputs (consumers of goods and services)
Managers should therefore consider their interest when they make the decisions that will affect them
Shareholder vs Stakeholder debate
Should an organisation focus on shareholders alone, or focus on a broader range of stakeholders (including the shareholders)
How to manage stakeholder relationships
Identify who the organisations stakeholders are
Determine what particular interest or concerns these stakeholders might have
Determine how critical each stakeholder is to the organisations decisions and actions
Determine what specific approach should be used to manage the stakeholder relationship
TYPES OF ORGANISATIONAL STAKEHOLDERS
Employees
Customers
Social and political action groups
Competitors
Trade and industry associations
Governments
Media
Suppliers
Communities
Shareholders
Unions
LEGAL ENTITY
A juristic personality: any party the law recognises as a single entity (a person)
Can make contracts, do business transactions, own property, employ people, be sued/sue