Essay on Business And Business Environment
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1.0 Introduction
An organisation is commonly referred to as a group of people who are gathered together in pursuit of common goals and objectives. Some business organisations are also having a mission that goes beyond the achievement of financial results. The main function of the organisation is to transform the input into an output that has value for its potential customers. For this purpose, the organisation should choose a certain formal structure, which allows all involved parts to coordinate their activities and achieve these goals. Furthermore, the organisation should comply with all the legal aspects of a particular region or country.
2.0 Type, size and scope of business organisations
There are different types of organisations that depend on their size scope or industry sector.
An organisation with less than 250 employees is considered as a small or medium-sized (Ward and Rhodes, 2014), where above this number is considered as a large organisation.
There are different forms of organisations depending on their legal formation. The decision for the appropriate form is taken based on factors such as size, ownership, industry and the rise of financial resource. (Palmer & Hartley, 2009).
2.1 Type by ownership and legal structure
Sole trader –Here the founder and owner of the company is the only responsible person for the future of the business. This includes decision making and planning, securing a financial and material resource for the starting of the business, opening a bank account on his own name (rather than a company name) and being responsible for all the liabilities of the business (OpenLearn, 2018) From the other side, the owner of the business is entitled to have the full profit of the business. Despite the fact that the business is represented by one person there is a possibility to employ other people to the business. Usually, this type is used by small business owners who operate independently. For example consultants, travel agents, small grocery shops, ice cream truck and many more. Advantage of this form is that here the owner is the only person, so he/she can drive take all decisions and make future plans rather than discussing and trying to convince others. The disadvantage could be the growing limitations and inability to attract investments (Palmer & Hartley, 2009).
Partnership – is a flexible form of partnering up between two or more individuals (up to twenty) where the rights and responsibilities amongst the parts are clearly stated by legal agreement. It can have many dimensions depending on the situation. There is not a limitation of the participation or financial involvement as long as that is pre-agreed by a legal document. In regards to the profit, there is income tax paid by the partnership, however, the profit or losses are divided between the partners based on the agreement. In some cases where agreement is missing the decision is based on the local laws. Also, there is a possibility of joining an existing partnership at any time so new members can be added without any restrictions as long as they meet the basic requirements. There are many big international companies which partnering up on such a base. An interesting example is the international transportation company UBER and the music streaming application Spotify. They provide a service for all UBER users where the client can create their own playlist to listen while the ride in on.
Limited Company – There are two forms of limited companies.
Private Limited Company – Is a company with limited responsibility where the owners are called shareholders because they hold shares that illustrate their actual possession within the company (OpenLearn, 2018). There is a number of 50 available shares which limit the number of potential owners up to 50. Percentages are calculated by the shares each shareholder hold. The shares also cannot be traded on the stock market as the case with the public company. There is a border between the owners and the company itself, as the liabilities belong entirely to the business rather than the owners. The profit can be taken on the form of dividends once the income tax is calculated and paid to the government.
When the company has no more financial resources to continue its activity the owners can declare bankrupt. In such case all liabilities or other commitments belong to the company, therefore there is no legal responsibility to the owners of the company. Opening a Limited company is the most preferred way of starting a small or medium-sized businesses, but also some of the big companies with high turnovers are staying with private status. Virgin Atlantic is an example of a company that remains private, although it is big enough to go public.
Public Limited Company – PLC differ from private companies by giving a possibility to the general public to acquire a piece of the company. This trade can be done in the stock exchange market (OpenLearn, 2018). By law, public companies must be highly transparent and reveal all financial figures to the public, so anyone interested could have detailed information about the financial situation of the company. A private company must present at least fifty thousand pounds in the form of share capital in order to qualify for going public. Examples of a public company in the United Kingdom is the fashion giant Burberry.
Non-profit organisations
Charity (a non-profit organisation) – The organisational purpose is an endeavour that aims to help society solely, rather than make a profit by its output. For such a purpose is being used the form of charity. The charity could raise funds for different philanthropic ideas such as helping the community, buying essentials for living for homeless people, helping disabled children, bettering the environment, educate groups of people, organising events and many more. Also, a charity may encourage the public to voluntary help for something useful as clearing a public park or residential area. All collected funds must be used for the stated in the beginning initiative and that is why the money is tax-free. Examples of charity foundation in the United Kingdom are Red Cross and Oxfam foundation. Many successful people use their status and positions to influence such good practices through charity organisations.
Public organisation: This an organisation that is government owned and whose main purpose is to serve the citizens on behalf of the government, however, it is not aimed at making profits. An Examples of such organisations is National Health Services (NHS), which provides free health services to the UK citizens. The funding of the NHS comes from the general taxation and contributions from national insurance.
Industry sector
The organisations also may differ in aspect of the industry sector they are in. They can be: Primary – here the organisation is a concern with the acquiring of raw materials such as oil, fish and precious metals.
Secondary – where the output has been produced from the input of the raw material such as raw wood being used for chairs and tables or wool being used for clothes.
Tertiary – in this sector the possibilities are unlimited as there are so many ideas that can be turned into a business venture. The function of this sector is to support the production and distribution process. Advertising and recruitment agencies, Insurance companies, shops, logistics firms, IT support and many more are examples of this sector.
We can use the sport clothing brand Nike as an example to illustrate how an organisation fit to some of the discussed categories.
Nike is definitely a large organisation with more than 250 employees (22,658 direct employees) across the world, it is registered as a private company, and however it has participation in collaborations on partnership base. Also, Nike is actively involved in many non-profit projects, aiming to improve the standards of human rights, the environment and the working conditions. It is also one of the founders of the “Global Alliance for Workers and Communities, whose purpose is to influence better working conditions and to train young workers in the developing countries. (Locke, 2006). It falls to secondary sector, by producing clothes from raw materials.
3.0 Interrelationship of the functions within the organisation and how they link to the organisational structure
3.1 Interrelationship among functions
There are various functions within organisations, which are in line with the mission and vision of an organisation. In addition, in most organisations, the different functions are interconnected as opposed to being completely independent. The various functions include HR management, accounting and finance, marketing, and operations. The number and types of functions are also dependent on the size, objectives and industry sector in which an organisation is based on.
For example organisations in primary and secondary industry will have the production function, but the pure tertiary organisation will not have a production department but will have a strong marketing and customer relations department. In a typical manufacturing organisation, the main function is production, but other departments such as procurement, marketing, R&D, HR, and accounting and finance come in handy for the organisation to achieve its primary goal selling the product and making profits while minimising the costs. Even though in some cases organisation functions are organised in the line with a specialism, cross-functional situations are common. For example, when processing company such Unilever wants to develop a new product line, there will be collaboration among different functional units including production, sales & marketing, and accounting and finance for successful launch and performance in the market.
3.2 Organisational structures
The number of functions and their relevance in an organisation influence its organisational structure. In addition, the organisational structure is also influenced by the size of an organisation. On the other side, the organisational structure determines the interrelations among different functions. An organisational structure is a system showing the organisation’s hierarchy or line of authority. It includes identification of various jobs, their roles and responsibilities, and their reporting authority within a company (Tran and Tian, 2013). If an organisational does not have a good structure it can consequently suffers from role confusion, poor coordination among different functions, slow decision-making process, and limited sharing of ideas (Tran and Tian, 2013). Among the many organisational structures, the most common include matrix, divisional, flat, and functional structure with each having advantages and disadvantages.
The functional organisational structure involves dividing an organisation according to different roles or tasks with each department having a manager or director who is answerable to a higher level executive (Point Park, 2018). The different roles may include marketing, IT and public relations. Members within each functional department have specialised skills relating to their functions. Most small and medium-sized and some large businesses have functional structures. However, most large companies utilise a combination of two or more types of organisational structures.
Concerning divisional structure, it is where an organisation has different autonomous groups (Point Park, 2018). Divisional structure is suitable for big companies that deal with multiple distinct activities. Each of these divisions runs its operations independently but they report directly to the chief executive officer. In the same line, for large companies operating in different regions they can have geographical divisions, for example, an organisation can have Europe, Asia, and North America, divisions.
The other type of organisational structure is matrix structure. It is a combination of the functional and divisional structure. Employees in this type of structure report to different bosses as it involves several managers in the functional and divisional lines (Point Park, 2018). Many multinational and global companies use matrix structure. For example, Unilever has a matrix organisational structure where divisions dealing with production interconnect with geographic and functional groups. Specifically, the company has three broad divisions: Home Care products, Foods & Refreshments, and Beauty & Personal Care, each having a president (Unilever, 2019). The company has geographical divisions such as Europe and North America and Global (Unilever, 2019). Functionally, Unilever has departments such as marketing, HR, and finance & accounting. Therefore, local managers report to two or three authorities, the functional leader, for example, the corporate HR director and geographical leader, for example, the Europe Operations head, and the products director, for example, Home Care president. The flipside of the Matrix structure is that it can lead to power struggles among managers, can bring confusion among lower level members regarding where to report due to multiple bosses (Davis and Lawrence, n.d). Furthermore, high overheads can be incurred because of dual command chain and can also make managers become preoccupied by internal interaction and giving little focus on the market (Davis and Lawrence, n.d). The, matrix structure remains suitable for large and complex organisations with diverse operations.
The flat structure is where management levels are minimal or there are no management layers. There is minimal supervision of employees in an organisation utilising this type of structure, so they can contribute to major decision-making processes directly without going through different departmental managers. The main problem of this structure is that it can create confusion among employees regarding where to report. Also, it does not promote specialisation, which can make the organisation appear more general. The flat structure is practicable in the small organisations but not big organisations that have a wide scope and a large number of employees. For example, it will be suitable for a small company such as Deliveroo or a less complex company like Uber but not for multifunctional and large companies such as Unilever.
Figure 1: example of Unilever matrix organisational structure
4.0 Conclusion
Organisations consist of groups of individuals who are geared towards shared goals and objectives. Not all organisations aimed at making profits as there are non-profits but for business organisations profit is the key objective. It has been demonstrated that there are different business organisation according to ownership and legal structure with each having its positive and flipside. In addition, these organisations are either in primary, secondary or tertiary industry sectors. Furthermore, it has been demonstrated that different functions in an organisation are interconnected but this is dependent on the organisational structure. Among the identified structures flat and functional structures are more feasible for small and medium organisations while divisional and matrix structures are feasible in large companies. In conclusion, when deciding on the business to start, one should assess the types of organisations, the industry sector he or she wants to venture in and the suitable organisational structure.
References
Davis, S.M and Lawrence, R.R (n.d). Problems of Matrix Organizations. Harvard Business
Review. Retrieved from https://hbr.org/1978/05/problems-of-matrix-organizations
OpenLearn (2018). Different types of business. [online] OpenLearn. Available at:
Palmer, A and Hartley, B (2009). The business environment (6th edition). McGrew-Hill Higher
Education, London.
Point Park (2018). 4 Types of Organizational Structures | Point Park Online. [online] Point
Park University Online. Available at: https://online.pointpark.edu/business/types-of-organizational-structures/
Locke. R (2006). The promise and Perils of Globalization: The Case of Nike.
Tran, Q. and Tian, Y (2013). Organizational Structure: Influencing Factors and Impact on a
Firm. American Journal of Industrial and Business Management, 03(02), pp.229-236.
Unilever (2019). UNILEVER ANNUAL REPORTAND ACCOUNTS 2018. [online]
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