ACCA F1 Study NotesAn organisation is a social arrangement which pursues collective goals, which controls its own performance and which has a boundary separating it from its environment. Organisations are social – they consist of people. We have to get on with people – boss, colleagues, customers. Collective goals – assumption that people in organisations are aiming for the same end result – it is the function of management to ensure this. a) Organisations are preoccupied with performance, and meeting or improving their standards b) Organisatons contain formal, documented systems and procedures which enable them to control what they do. c) Different people do different things, or specialise in one activity. d) They pursue a variety of objectives and goals e) Most organisations obtain inputs (e.g. materials), and process them into outputs (e.g. for others to buy). Why Do Organsations Exist Organisations can achieve results which individuals cannot achieve by themselves. a) Organisations overcome peoples individual limitations, whether physical or intellectual. b) Organisations enable people to specialise in what they do best. c) Organisations save time, because people can work together or do two aspects of a different task at the same time d) Organisations accumulate and share knowledge e) Organsations enable synergy: by bringing together their combined output will exceed their output if they continued working separately. In brief organisations enable people to be more productive. System Theory – Environment is the context in which the organisation exists. All organisations can be divided into subsystems – different departments. Closed systems – have no interaction with the environment – largely theoretical. Open systems – interface with the environment. Types of Organisations • • • • Commercial – sole traders, partnerships, limited liability, partnerships, limited companies. Not for profit. Do not operate a P&L, rather an income and expenditure, though income must exceed expenditure for the organisation to survive. Public sector Non-governmental organisations, e.g. Greenpeace. • Co-operatives. Owned by the people who work in the organisations – usually for profit. Private vs. Public Sector Private sector: organisations not owned or run by central or local government, or government agencies. Public sector: Organisations owned or run by central or local government or government agencies. Legal Status Someone setting up a business can choose to go into business alone, take on one or more partners who also share in the profits of the business or they can set up a limited liability company. Limited Company A limited company has a separate legal personality from its owners (shareholders). The shareholders cannot normally be sued for the debts of the business unless they have given some personal guarantee. Their risk is generally restricted to the amount that they have invested in the company when buying the shares. This is called limited liability. The ownership and control of a limited company are legally separate even though they may be vested in the same individual(s). a) Shareholders are the owners but have limited rights, as shareholders, over the day to day running of the company. They provide capital and receive a return. Shareholders could be large institutional investors (such as insurance companies and pension funds), private individuals, or employees. b) Directors are appointed by shareholders to run the company. In the UK, the board of directors controls management and staff, and is accountable to the shareholder, but it has responsibilities towards both groups – owners and employees alike a. Executive directors participate in the daily operations of the organisation b. Non-executive directors are invited to join in an advisory capacity, usually to bring their particular skills or experience to the discussions of the board to exercise some overall guidance. c) Operational management usually consists of career managers who are recruited to operate the business, and are accountable to the board. Types of Limited Company In the UK, limited companies come in two types: private limited companies (e.g. X Limited) and public limited companies (e.g. X plc). They differ as follows: a) The number of shareholders. Most private companies are owned by only a small number of shareholders. Public companies generally are owned by a wider proportion of the investing public. b) Transferability of shares. Shares in public companies can be offered to the general public. In practice this means they can be traded on the stock exchange. Shares in private companies, on the other hand, are rarely transferable without the consent of the shareholders, c) Directors as shareholders. The directors of a private limited company are more likely to hold a substantial portion of the company’s shares than the directors of a public company. d) Source of Capital a. A private company’s share capital will normally be provided from three sources i. The founder or promoter ii. Business associates of the founder or employer iii.Venture capitalists b. A public company’s share capital, in addition can be raised from the public directly, or through institutional investors, using recognised markets. Many companies start in a small way, often as a family businesses which operate as private companies, then grow to the point where they become public companies and can invite investors to subscribe for shares Advantages and disadvantages of limited companies Advantages • • • • • • More money available for investment Reduces risk for investors thanks to limited liability Separate legal personality. A company can own property, make contracts etc. Ownership is legally separate from control. Investors need not get involved in operation. No restrictions on size. Some companies have millions of shareholders Flexibility. Capital and enterprise can be brought together. Disadvantages • • Legal compliance costs. Because of limited liability , the financial statements of most limited companies have to be audited , and then published for shareholders Shareholders have little practical power, other than to sell their shares to a new group of managers, although they can vote to sack the directors. Page 54 Organisational structures • • Entrepreneurial. Boss + workers Functional. Separate departments according to function Smallest • • Levels – – – Expertise in each dept Divisional. Splitting a company up due to commodity/ geography Rationale is to achieve specialisation Matrix. View as a large collection of simultaneous projects. Largest Strategic Tactical Operational Centralisation/ Decentralisation • Levels at where power lies. Advantages of Decentralisation • • • • • BUT • Poorer co-ordination Work-load/ time Speed Expertise Motivation Training and assessment Recent Trends • • • Downsizing De-layering Outsourcing Information What is information? Data with meaning! Accurate • • • • • • • • Accurate Complete Cost beneficial User targeted Relevant Authoritative Timely Easy to use Role of Information Technology • • • • Recent developments in IT have had a massive impact on the way we work. New communication channels Office automation Home working Types of System • • • • Transaction processing system Management information system Decision support system Executive information system Information Technology • • • • • • Stand Alone LANs WANs Internet Intranet Extranet Levels – types of information Strategic -Highly summarised Mainly forward looking Planning Ad hoc External & Internal Operational Very detailed Historical Recording transactions Routine Internal Chapter Roundup – A non-governmental organisation (NGO) is an independent voluntary association of people acting together for some common purpose (other than achieving government office or making money). – – – – – – – – – – – – Mintzberg believes that all organisations can be analysed into five components, according to how they relate to the work of the organisation, and how they prefer to co-ordinate. Organisations can be departmentalised on functional basis (with separate departments for production, marketing, finance etc), a geographical basis (be region or country), a product basis (e.g. worldwide divisions for product X, Y etc), a brand basis, or a matrix basis (e.g. someone selling product X in country A would report to both a product X manager and a country A manager). Organisation structures often feature a variety of these types as hybrid structures. In a divisional structure some activities are decentralised to business units or regions. The strategic apex exerts a pull to centralise, leading to the simple structure. ‘span of control’ or ‘span of management’ refers to the number of subordinates responsible to a superior. Recent trends have been towards delayering organisations of levels of management . in other words, tall organisations (with many management levels, and narrow spans of control) are turning into flat organisations (with fewer management levels, wider spans of control) as a result of technological changes and the granting of more decision-making power to front line employees. There are many levels of strategy in an organisation. ○ Corporate: the general direction of the whole organisation ○ Business: how the organisation or its SBU tackle particular markets ○ Operational/ functional: specific strategies for different parts of the business. Research may be pure, applied or development. It may be intended to improve products or processes. R&D should support the organisation’s strategy and be closely co-ordinated with marketing. Purchasing makes a major contribution to cost and quality management in any business and in retail is a vital element of strategy. The purchasing mix is: ○ Quantity ○ Quality ○ Price ○ Delivery The production function pans, organises, directs and controls the necessary activities to provide products and services, creating outputs which have addd value over the value of inputs. Services are intangible, cannot be stored, are inherently variable in quality and nature and their purchase results in no transfer of property. The people and processes involved in providing them are therefore of paramount importance. He marketing function manages an organisation’s relationship with its customers – Human Resource Management (HRM) is concerned with the most effective use of human resources. It deals with organisation, staffing levels, motivation, employee relations and employee services. – HRM planning should be based on the organisations strategic planning processes, with relation to analysis of the labour market, forecasting of the external supply and internal demand for labour, job analysis and plan implementation. – A centralised organisation is one in which authority is concentrated in one place. – Centralisation offers greater control and co-ordination; decentralisation offers greater flexibility. – Within an organisation, committees can consist entirely of executives or may be instruments for joint consultation between employers and employees. They are a key part of organisational communication processes. Information Technology and Systems: Chapter Roundup Information takes many forms and has many uses within the organisation. Organisations require different types of information system to provide different levels of information in a range of functional areas. Supporting the distinction between strategic, tactical and operational decision making. Organisations require information for a range of purposes – – – – – Planning Controlling Recording transactions Performance management Decision making Good information has a number of specific qualities: the mnemonic ACCURATE is a useful way of remembering them. The ease of which data flows from one system to another depends on the extent of integration between systems. Many organisations are now utilising the internet as a means of gathering and disseminating information, and conducting transactions. Data and information come from sources both inside and outside an organisation. An organisation’s information systems should be designed so as to obtain – or capture – all the relevant data and information required. The term database system is used to describe a wide range of systems that utilise a central pool of data. Information is a valuable resource and a key tool in the quest for a competitive advantage. Security controls, integrity controls and contingency controls are used to protect data and information. Influences on Organisation Culture: Chapter Round Up Culture is the collective programming of the mind which distinguishes the members of one category of people from another (Hofstede). It may be identified as ways of behaving and ways of understanding that are shared by a group of people. Elements of culture include: – Observable behaviour – Underlying values and beliefs which give meaning to the observable elements – Hidden assumptions, which unconsciously shape values and eliefs Organisation culture is ‘the way we do things round here’ Cultural values can be used to guide organisational processes without the need for tight control. They are used to motivate employees, by emphasising the heroic dimension of the task. Culture can also be used to drive change, although – since values are difficult to change, it can also be a powerful force for preserving the status quo. Harrison classified four types of culture, to which Handy gave the names of greek deities. Power culture (Zues) is shaped by one individual – Role culture (Apollo) is a bureaucratic culture shaped by rationality, rules and procedure. – Task culture (Athena) is shaped by focus on outputs and results – Existential or person culture (Dionysus) is shaped by the interest of individuals. –