UNIT1 Business & The Business Environment
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UNIT1 Business & The Business Environment
Business organisation
People work in organisations in order to achieve collective goals, which would have been achieved by working solely. In the business world, an organisation is any entity is comprised of diverse people with a common goal, which is aligned with the business objectives. Core to any organisation is the management structure, which defines the connections between the organisation activities and different organisational members. Roles and responsibilities, as well as delegating authorities, are determined by the organisational structure. Moreover, organisation are subject to internal and external environment dynamics meaning that they can influence their environment and be influenced by the environment.
2.0 LO1: P1. Types, sizes and scope of organisations
2.1.1 Types of organisations by legal structure
Sole trader
Sole trader or sole proprietorship is the type of business organisation that is owned and run by one individual (Skripak, Cortes, and Walz, 2016). The advantage of this type of organisation is that it is easy to start as it does not require extensive documentation and does not need long procedures to make a decision. However, the owner is legally tied with business as he or she is personally legally liable for any business engagement and his personal assets can be taken in the event the business fails to meet serious transactional agreements or when it is being wound up.
Examples of this type are consultants and freelancers
Partnership
Partnership form of organisation is composed of more than one individuals who manage the business and share the profits. The advantages of a partnership are that the risks are shared and good decisions are made due to the sharing of ideas and consultation. However, it involves a lot of paperwork to start while the decision-making process can take a long time because of the consultations involved (Skripak et al., 2016). In addition, the owners are not legally separated from the business and thus they can be directly sued whenever the organisation engages in activities that are against the law or unethical. Furthermore, the partners’ personal assets can be taken in case the organisation fails to honour debts. However, there are limited liability partnerships where partners are not held personally liable for the organisation’s debts while at the same time other partners cannot be held liable for another partner’s misconduct (Matheson, 2002). Nowadays many fashion brands are using this form in their collaborations for certain products. Example of this is Nike & Off-White for their sneakers lines.
Private company
A private company is an organisation that is owned by a relatively small number of shareholders but it cannot sell its shares publicly. The advantage of private companies is that they have larger capital pool compared to partnerships and they can be of limited liability meaning that owners’ assets cannot be taken up when it is being wound up (Skripak et al., 2016). However, the private company relies on members’ contributions and bank loans to raise capital as it cannot raise money through the sale of shares to the public. An example of a private limited company is Brakes Bros limited that supplies foods in wholesale in the catering sector.
Public Limited company
On the other, a public limited company (PLC) is an organisation that is publicly traded but it follows strict regulations (Skripak et al., 2016). The advantages of a PLC is that it can raise huge capital through the sale of shares to the public and there is a wider spread of risk due to extensive shareholders base. On the other side, PLCs are subject to more scrutiny for transparency purposes, require huge initial financial commitment and prone to take-overs due to free transferability of shares. An example of a public limited company is Marks & Spencer.
Non-profit organisations
Regarding organisation objectives, for-profit organisations are those that the main aim is to grow profit margins. The profits are used for business growth and remuneration of members and employees. On the other hand, the non-profit and organisations are not aimed at making profits but they get income to sustain their operations and thus are tax exempt (Skripak et al., 2016). Non-profits have voluntary members but they can earn a salary from other independent entities but not from the organisation’s fundraising efforts. An example of a non-profit organisation is 4thechildren, which focuses on children’s welfare, safety, and human rights (4thechildren, 2019).
Public organisations
These are government entities with the sole aim of providing services to the citizens at a free cost or at a subsidised price. Their goal is not earn profit margins and they are funded by the government through taxes or licence fees. Her Majesty’s Revenues and Customs (HMRC) is an example of public sector organisation, which role is tax collection.
2.1.2 Type of organisations by Industry sector
Organisations are also categorized according to the general characteristic of an industry. In this categorization, organisations can either be primary, secondary or tertiary.
Primary sector organisations are involved in the production and extraction of raw products. For example agriculture, mining, and fishing.
Secondary sector deals with the conversion of raw materials into finished products or in other words, it is mainly focused on manufacturing. For example food processing, steel manufacturing, and automobile production and assembly. Some examples of secondary sector companies include Rolls Royce for car manufacturing and Nestle for food processing.
Tertiary industry deals with services. For example banking, transportation, and insurance. Some examples of tertiary organizations include John Good Shipping, which provides shipping logistics and British Airways for air transportation.
There are organisations that are involved in all three sectors. For example, Shell is involved in the extraction of oil, the refinery of oil to produce different products such are gasoline and lubricants, and it is involved in car servicing activities. Similarly, chain store retailers such as M&S are involved in secondary and tertiary activities, for example, M&S is involved in the production of clothes and a range of ready-to-eat food products while at the same time sells a wide range of consumer products (Marks and Spencer Group plc, 2018).
2.2 P2: Size and scope of organisations
In this section Brakes Bros Limited, Marks and Spencer, and 4thechildren organisation are discussed regarding their size and scope.
According to size business organisations can be either small, medium, or large organisations. The small and medium enterprises (SMEs) have less than 250 employees while large enterprises have more than 250 workers. Specifically, small enterprises have less than fifty employees while medium-sized have above 49 but below 250 employees (OECD, 2019). Regarding scope, market share is considered. Market share is determined by the sales of an organisation in relation to the total sales in the specific sector. Micro, small and medium-sized enterprises have a turnover not exceeding 50 million euros or a balance sheet of fewer than 43 million euros (europa.eu, 2016).
Marks and Spencer is an example of large organisation as it has over 250 employees (specifically over 3000) and an annual turnover of over exceeding 50 million sterling pounds.
The private company, Brakes Bros limited is also a large organisation as it has over 250 employees (specifically over 5000) (Crunchbase.com, 2019). However, in terms of revenue, Brakes Bros can be considered as a medium sized enterprise as it has an annual revenue of about $10 million (Crunchbase.com., 2019), which is below 50 euros.
Scope refers to the activities that an organisation operates and the industry in which it is positioned.
For Mark and Spencer, it scope is retail as it is involved in business to customer sale of wide range of services. However, it is provides services such as banking and insurance and it is produces its own clothing line, meaning that its scope also include production. M&S serves both domestic (UK) and international market.
Brakes Bros Limited scope includes distribution of food products and related products in the catering industry in Britain. It is thus a service sector organisation. Brakes only serves within the UK (Crunchbase.com, 2019).
4thechildren scope includes providing education opportunities for the needy children. Therefore, it can be categorised as a service sector organisation. However, it does not aim at making profits. Although most of its activities are within the UK it has started offering support to children in other regions such as Gambia and Syria (4thechildren, 2019).
3.0 LO2: Interrelationship of various functions within an organisation and their link to organisational structure.
3.1 Interrelationship of various functions
Organizations comprise of different functions which are interrelated and connected to the organisation structure. An organisation can have functions such as marketing, finance, research and development, and human resource and operations. An example of interrelation between function is where the Marks and Spencer (M&S) HR function to recruit it must consult with the finance department for the recruitment funds and consideration of new workers’ payments; at the same time it should work with other departments that require new employees, for example, the market and sales department in order to know the number and qualities of the workers that they need.
Moreover, different organisational structures are more suitable for some organisations than others. For instance, flat structures are more suitable for SMEs as they do not need a complex hierarchical or bureaucratic system that would make decision making process complex. However, there are cases where large organisations use a flat structure in order to give employees more autonomy to deal with clients and accountable for their actions and to make top leadership approachable to ease the decision-making process. For example, Marks and Spencer (M&S) applied a flat organisation structure in 2016 when the new CEO was appointed (Reuters, 2016). The aim was to restructure the complex structure that involved a lot of authorities (managers, directors) and thus making decisions regarding market environment ineffective. Thus some middle managers were eliminated and some functions were merged into one department, for example, customer, marketing and M&S.com were put under one director while marketing & international department got scrapped, and the international department had to report directly to the CEO (Marks and Spencer Group plc, 2017). The organisational structure should be in line with the company’s objectives and aligning all functional units towards achieving those aims. The current objectives of M&S include improving quality of customer service and innovation while cutting unnecessary costs. In so doing, the M&S the HRM function is playing a role in managing changing among the colleagues as the company is undoing radical changes to improve its performance. The finance function is working to find ways to cut operational costs. The IT function is tasked in creating and enhancing the company’s online presence, while the marketing function establishes the changing customers’ tastes and preferences, and then segments the market according to market needs. It also devices the brand and products promotional mix that would resonate well with all customer segments.
Figure 2: An example of structure that M&S is applying
There are different types of organisations, which are categorized according to ownership, objectives, size and scope. Each type of organisation has its own pros and con, which need to be considered before making the decision to start a business. It has been shown that the main objective of for-profit organisations is to grow profit margins and increase market share while nonprofit are neither aimed at making profits nor increasing market share and thus they are tax exempt. Moreover, it has been demonstrated that different functions in an organisation interrelate with each other and the organisational structure influences those interrelations as well as the responsibilities and accountability of the organisational members. Using the example of M&S it has been shown that the organisational structure of a large enterprise can be reorganized to meet the objectives of a company. In short words, an individual or a group considering to venture in a business organisation or to start a business should first do a careful analysis of the different types of business organisations and a review of the existing businesses in order to make a feasible decision.
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