1. The different purposes of organisations

PGPMA TERM 1
ORGANISATION AND MANAGEMENT
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ORGANISATION AND MANAGEMENT
ORGANISATION AND MANAGEMENT
THE DIFFERENT PURPOSES OF THE
DIFFERENT PURPOSES OF
ORGANISATIONS
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Organisation
‘Organization’ is derived from the Greek
word ‘organon’ meaning tool
• Organisations comprise two or more
people
p
p ((social entity)
y) engaged
g g
in a
systematic and co‐ordinated effort
(specialisation and co‐ordination),
persistentlyy over a p
p
period of time
(permanence), in pursuit of goals
which convert resources into goods
and/or services which are needed by
consumers (goals).
• Collective Goals
• Social Arrangements
• Controlled Performance
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Importance of organisations
Satisfy social needs
Enable members to share skills and knowledge
Promote specialization
Save time
Pool knowledge
Centers of power
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How organisations differ
Factor
Example
Ownership
Public Vs Private
Profit/Non Profit
Business Activity, NHS
Legal Status
Limited Company, Partnership
Size
Sole Trader, MNC
Sources of Finance
Share Issue, Borrowing from Banks
Technology
High use, Low use
Activity
Financial Institution Manufacturing
Financial Institution, Manufacturing
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Classifying organizations by profit orientation
Profit Seeking organizations – Primary objective is to maximize wealth (continue in existence, maintain growth, make profit)
Peter Drucker:
Market standing
k
di
Innovation
Productivity
Physical and financial resources
Profitability
Manager performance and development
Worker performance and attitude
Worker performance and attitude
Public responsibility
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Classifying organizations by profit orientation
Public/Beneficiaries
NFPs:
NFP
(govt depts, schools, hospitals charities clubs)
hospitals, charities, clubs)
Provision of
goods/services
Output
(goods/services)
Minimize primary goal
cost
Cost
Inputs
Revenue (taxation)
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Private sector
Meaning: Organizations not owned or run by central or local
govt, or govt agencies
Limited
i i d Companies:
i
Ownership, control legally separate
Perpetual succession
Limited liability
Directors appointed by shareholders to run the company
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Private sector
Limited Companies –
Limited
Companies types:
1. Private Limited Company 2 Public Limited Company
2.
Public Limited Company
Number of shareholders
Transferability of shares
y
Directors as shareholders
Source of capital
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Advantages‐ more money, reduces risk separate legal entity
risk, separate legal entity, ownership, no restrictions on size, flexibility
Disadvantages‐ Legal compliance costs, shareholders have little h h ld h
li l
practical power
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Private sector
Co‐operatives: An autonomous association of persons united
voluntarily to meet their common economic, social and
cultural needs and aspirations through a jointly owned and
democratically controlled enterprise.
enterprise
p
Retail Store Network,, John Lewis Partnership
p
Ex: Co‐operative
Open Membership
Democratic Control (1 member, 1 vote)
Distribution of surplus in proportion to purchase
Promotion of education
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Public
sector
Public sector
The public sector is that part of the economy that is
concerned with providing basic government services and is
thus controlled by government organizations.
Features:
Accountability to the Parliament
Funds obtained through raising taxes, making charges,
borrowing
Demand for services
Limited Resources
NHS Hospitals,
H it l Armed
A
d forces,
f
G
Government
t Departments,
D
t
t
Public roads, Public transport
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Mission Statements
Mission Statements
• Often summarises the firms reason for existing
• The starting point for recognising the future direction of the firm and therefore the required
direction of the firm and therefore the required strategic developments.
• Should be:
– Simple, Easily Remembered, Impactful
– Positive, visionary & motivating
• Should outline
Should outline
– Firm’s role
– What it wishes to achieve
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Four Elements in the: Mission Statement [1]
Statement [1]
• Adapted from the Ashridge School (1991)
• 1)Purpose
) p
– Why the firm exists and what it exists to do. • What would happen if the firm did not exist?
• 2)Strategy
– How the firm will achieve its aspirations. •
•
•
•
What is it offering?
To whom? Why should people buy it? What are its competitive advantages?
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Four Elements in the: Mission Statement [2]
Statement [2]
• 3)Values
– What the firm believes in
• Why the world will better if the firm succeeds?
• 4)Behaviour standards
– Th
The routines, procedures and policies the firm adopt to fulfil its ti
d
d li i th fi
d t t f lfil it
values
• What is the firm willing to do/not do in order to succeed?
• How low will it go?
H l
ill it ?
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Some Mission Statements
Disneyland Paris: To turn the dreams of the young and young at heart into reality
•
TUI Nordic: Most satisfied customers
TUI
Nordic: Most satisfied customers and best best
profitabilty in the business •
Hilton International: To always exceed customer expectations by delivering quality service through exceptional teamwork" exceptional teamwork
McDonald's Corporation: Quality food products; efficient, friendly service; and restaurants renowned for the
friendly service; and restaurants renowned for the cleanliness and value they provide
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Organisational Objectives [1]
g
j
[ ]
• ‘Is an organisation a single period profit maximiser?’
Johnson & Scholes
• ‘An organisation's objectives tend to emerge as the wishes of the most dominant coalition.’
ih
f th
td i
t
liti ’
based on R M Cyert
based
on R M Cyert & J G March
& J G March'ss 'Behavioral
Behavioral Theory Theory
of the Firm' (1996)
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Organisational Objectives [2]
g
j
[ ]
• Generally ‘SMART’:
–
–
–
–
–
SSpecific
ifi
Measurable
Achievable
Realistic
Timely
• Consistent with the Mission and Aim. Consistent with the Mission and Aim
• One direction, avoid dissonance!!!
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Objectives ‐ Examples
Objectives A larger market share
A
l
k h
Quicker design‐to‐market times than rivals
Higher product quality than rivals
Higher product quality than rivals
Lower costs relative to key competitors
Broader / more attractive product line than rivals
A stronger reputation with customers than rivals
Superior customer service
Recognition as a leader in technology and/or product
Recognition as a leader in technology and/or product innovation
• Wider geographic coverage than rivals
•
•
•
•
•
•
•
•
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Objectives ‐
j
Financial
•
•
•
•
•
•
•
•
•
Increased growth in revenues / earnings/ dividends per share
Wider profit margins
Attractive ROI
Strong credit ratings
Positive cash flows
R
Recognition as a blue chip company
iti
bl
hi
Stable earnings during periods of recession
A more diversified revenue base
A rising stock price
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Some Statements of Objectives
Some Statements of Objectives
McDonalds: To achieve 100% total customer satisfaction everyday y y
in every restaurant, for every customer To provide our shareholders with superior returns by achieving double‐digit annual earnings per share growth, increasing g
g p
g
,
g
dividends consistent with earnings growth, repurchasing shares when the opportunity is right, pursuing profitable international beer expansions, and generating quality earnings and cash flow returns returns
To become the most competitive enterprise in the world by being No.1 or No.2 in market share in every business the company is in
30% of the company’s sales must come from products fewer than 4 years old
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Creating value for stakeholders
g
Control and co‐ordination
Efficient production
Facilitating innovation
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Questions to be done from Kaplan E1 Study Text (Chapter 1)
Study Text (Chapter 1)
1. Test Your Understanding 2
1
T Y
U d
di 2
2. Test Your Understanding 5
3 Case Style Question
3.
Case Style Question
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