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Business Organisations and their Stakeholders

Business Organisations and their Stakeholders. Chapter 1. Organisation. Definition A social arrangement which pursues collective goals , which controls its own performance and which has a boundary separating it from its environment. Environment. Organisation. Organisation.

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Business Organisations and their Stakeholders

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  1. Business Organisations and their Stakeholders Chapter 1

  2. Organisation • Definition • A social arrangement which pursues collective goals, which controls its own performance and which has a boundary separating it from its environment. Environment Organisation

  3. Organisation

  4. Characteristics of Organisations • Performance • Measure performance to meet specific standards • Systems and Procedures • Formal, documented systems and procedures allow organizations to control the performance • Specialise • Group of people. • Different people do different things • Objectives and goals • Common goals • Variety of goals • Inputs, Process, Output • Inputs (eg. Materials) and process them into outputs (eg. Products that people could buy)

  5. Why do organisations exist? • Organisations enable people to be more productive • Overcome individual limitations • People can specialise in what they do best • Saves time • People work together • Two different tasks can be done at the same time • Accumulate and share knowledge • Shared expertise • Synergy • Combined output of a number of individuals working together will exceed that of the same individuals working separately • 2+2 = 5

  6. How do organisations differ

  7. What the organisation does • Industry and Activity

  8. What the organisation does • Industry and Activity

  9. What the organisation does • Industry and Activity

  10. Types of Business Organisations Primary Goal: Maximize Profit Primary Goal: Provision of goods/services

  11. Profit vs. non-profit orientation Non profit Profit OWNERS PUBLIC / BENEFICIARIES Primary Goal MAXIMIZE profit (Dividend) PROVISION of Goods / Services PROFIT OUTPUT (Goods / Services) Revenue from Goods / Services Secondary Goal OUTPUT of Goods / Services MINIMIZE cost of Primary Goal INPUTS ( Materials, Labour, Finance) INPUTS ( Materials, Labour, Finance) COSTS REVENUE (TAXATION)

  12. Types of Business Organisations

  13. The Private Sector • Business Organisations -> Profit is the driving factor • There are different types of businesses in the private sector • Sole Traders • Partnership • Limited company • Co-operatives

  14. Limited Company • Limited liability • Owners are the shareholders who have bought a part (share) of the company • The company has a separate legal personality from its owners • Can be a businesses of any size The legal protection available to the shareholders of the company under which the financial liability of each shareholder for the company's debts and obligations is limited to the amount invested in the company

  15. Limited Company • SHAREHOLDERS • Owners • Limited rights over day to day running of the company • Ownership and Control of a limited company are legally separate Run company on behalf of EMPLOY ACCOUNTABLE TO • DIRECTORS • Appointed by shareholders • Executive Directors • Non-Executive Directors ACCOUNTABLE TO EMPLOY • OPERATIONAL MANAGERS • Recruited to operated the business

  16. Types of Limited Companies Limited Companies Private Limited Company (Ltd) Public Limited Company (Plc)

  17. Advantages and Disadvantages of Limited Companies

  18. The Public Sector Organisations owned or run by central or local government or government agencies • The objectives of public sector companies vary depending on the type of activity it is involved in

  19. Key Characteristics of the Public Sector • Accountability • Usually to the Parliament • Funding • Raising taxes • Making charges (eg. For prescriptions) • Borrowing • Demand for Service • Demand is unlimited • Limited Resources • Cannot always meet demand. Government expenditure constraints (government budget) means resources are limited

  20. Advantages and Disadvantages of Public Sector

  21. Non-governmental organisations (NGO) • Not part of government AND not for profit • Primary aim is not commercial • Diverse range of activities promoting social, political or environmental change An independent voluntary association of people acting together for some common purpose (other than achieving government office or making money)

  22. Non-governmental organisations (NGO) • Just like Commercial organisations, NGO’s require a lot organisation structure to undertake its various day to day tasks like • Staffing by volunteers and full time employees • Finance from grants and contracts • Skills in advertising and media relations • Some kind of national “headquarters” • Planning and budgeting expertise

  23. Co-operatives • Co-op • Businesses owned by the workers or customers (people who use its services) • The members of a Co-op share profits within them • Common features • Open membership • Democratic control – one member, one vote regardless of number of shares • Distribution of the surplus in proportion to purchases • Promotion of Education • In a co-operative one shareholder cannot dominate

  24. Mutual Associations • Similar to Co-op • Owned by members rather than outside investors • Example: Credit Unions

  25. Questions • Which of the following defines an organisation? • A - A social arrangement which pursues collective goals, which controls its own performance and which has a boundary separating it from its environment • B A social arrangement which exists to make a profit, controls its own performance and which operates within certain boundaries

  26. Questions • A private sector organisation is one owned or run by: • A) Central government • B) Local government • C) Government agencies • D) None of the above

  27. Question • Businesses owned by their workers or customers who share profits are called • A Limited Companies • B Private limited companies • C Co-operatives • D Partnerships

  28. Stakeholders • In an organisation: • Managers are not free to do as they please. • Managers have to consider different groups of stakeholders before setting objectives • Manager s are agents for the stakeholders Individuals or groups that, potentially, have an interest in what the organisation does

  29. Types of Stakeholders Inside the organisation with contractual relationship Primary Stakeholders Outside the organisation but connected by way of a contract of some sort Entirely outside the organisation with no contractual relationship Secondary Stakeholders

  30. Internal Stakeholders • Employees and Management • Internal stakeholders are intimately connectedto the organisation, hence their objectives are likely to have a strong influence on how it is run

  31. Connected Stakeholders

  32. External Stakeholders • External stakeholders have very diverse objectives

  33. Stakeholder Conflict • Because different stakeholders have different interests and some of these interests clash, conflicts between stakeholders arise. Source: http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/Stakeholder%20analysis.aspx

  34. Stakeholder mapping: Power and Interest • Mendelow matrix can be used to classify stakeholders according to their power and interest. • It helps understand the influence each stakeholder has over the organisation’sobjectives • Ithelps define the type of relationship the organisation should seek with its stakeholders. Level of Interest LOW HIGH LOW A Minimal Effort B Keep informed Power C Keep Satisfied D Key Players HIGH

  35. Mendelow Framework Level of Interest Stakeholder’s willingness (How much they care) HIGH LOW LOW LOW POWER – LOW INTEREST LOW POWER – HIGH INTEREST • Minimal Effort • Can be ignored • Keep informed • Low influence • May move downwards by making coalitions • Ex. Community representatives and charities Power Stakeholder’s ability to influence objectives (What they can do) HIGH POWER – HIGH INTEREST HIGH POWER – LOW INTEREST • Key players • Stakeholders with highest influence • Ex. Major customers • Most important • Keep Satisfied • Capable of being key players • Ex. Institutional shareholders HIGH

  36. Why map stakeholders? • By mapping stakeholders, we are in effect evaluating the significance of each stakeholder to the organisation. • Corporate governance • Reposition • Identify blockers and facilitators • Each group in the Mendelow framework has 3 choices: • Loyalty : do as told • Exit: sell shares or quit job • Voice: Stay and change the system. Influence the organisation

  37. The Strategic Value of Stakeholders • Managing stakeholder relationships can help firms make strategic gains. • Correlation between employee and customer loyalty (reduced staff turnover -> repeat business) • Continuity and Stability in relationships with employees -> helps respond to change -> necessary for sustanability of business

  38. Measuring Stakeholder Satisfaction • How can an organisation know whether they have been successful in satisfying their stakeholders? • Many stakeholder expectations relate to qualitative matters so difficult to measure

  39. Questions • Which one of the following are examples of internal stakeholders? • A) Shareholders • B) Employees • C) Suppliers • D) Financiers • According to Mendelow’s matrix, stakeholders in segment C (Low Interest, high power) should be kept informed. Is this true or false?

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