CHAPTER 1: Introduction to business Flashcards
Why do organisations exist?
Overcome individual limitations
Let people specialize
Save time
Accumulate and share knowledge
Pool expertise
Enable synergy
Organization
A social arrangement for the controlled performance of collective goals, which has a boundary separating it from its environment
How do organisations differ?
Ownership: Public vs Private – Private sector, Public sector
Control
Activity (what they do)
Profit or Non-profit orientation
Size
Legal status
Sources of finance
Technology
Differences in what organisations do
Agriculture: Producing and processing food
Manufacturing: Acquiring raw materials and, by the application of labour and technology, turning them into a product (eg, a car)
Extractive/raw materials:
Extracting and refining raw materials (eg, mining)
Energy: Converting one resource (eg, coal) into another (eg, electricity)
Retailing/distribution: Delivering goods to the end consumer
Intellectual production: Producing intellectual property (eg, software, publishing, films, music)
Technology: Digitalising products (eg, e-books) and processes (eg, selling insurance online)
Service industries: Providing intangible services such as banking, accountancy and advertising, including public services such as education and healthcare
Profit-oriented organisations
are generally referred to as ‘businesses’.
Not-for-profit organisations
do not primarily aim to maximize profit or the wealth of their owners, but instead are focused on
providing goods and services to their beneficiaries at minimized cost
Definition of a business
An organization that is oriented towards making a profit for its owners so as to maximize their wealth and that can be regarded as an entity separate from its owners
Stakeholder
literally a person or group of persons who has a stake in the organization. They have an interest to protect in respect of what the organization does and how it performs
Primary of Stakeholder
Owners (Shareholders)
Secondary of Stakeholder
Directors / managers
Employees and trade unions
Customers, Suppliers, Lenders
Gov and its agencies
The local community and the public
The natural environment
Natural capital
is therefore everything that the planet provides humans and business organisations to use in order to live
sustainability (sự bền vững) concerns the use of both of the following:
How far a business can operate in a sustainable way,
and how it should interact with individuals and governments in doing so
Tangible resources such as natural capital (such as raw materials) and energy
Intangible resources such as human/intellectual capital, and relationships with stakeholders
Corporate responsibility
concerns the organisation’s ideas and values on how to use resources, such as natural capital, promoting the positive impacts of their use and reducing the impact of any negative impacts.
UN Global Goals for Sustainable Development
The overall aims of the Goals are to end poverty, fight inequality and stop climate change.
The key sustainability Goals for businesses include:
Decent work and economic growth
Industry, innovation and infrastructure
Responsible consumption and production
The hierarchy of objectives
1 primary objective and a series of secondary (subordinate) objectives should combine to ensure the achievement of the primary objective
Primary objective:
profit maximization so as to increase shareholder wealth
Profit:
make sure cost of inputs is less than the output
Shareholder wealth can only be maximized if profit is earned at an acceptable
level of risk
Profit can not be pursued at any cost (laws, regulations, social responsibility)
Secondary objectives:
market position, product development, technology, employees and management
Is wealth maximization always the primary objective?
Managers do not ecessarily make decisions that will maximize shareholder wealth:
No personal interest
Lack competitive pressure
Profit satisficing:
operate at profit and risk levels which are acceptable to shareholders, and which provide enough profits for future growth
Revenue maximization:
to maintain or increase its market share, ensure
survival, and discourage competition
Multiple objectives:
market standing, innovation, productivity, physical and financial resources, profitability, manager performance and development, worker performance and development, corporate
responsibility
Planning and control system:
Decide what they want to do to achieve primary objective
Decide how and when to do it and who is to do it (plans and standards)
Check that they achieve what they want (measure, monitor and compare)
Take control action to correct any deviation
Mission:
The business’s basic function in society expressed in terms
of how it satisfies its various stakeholders
Elements of Mission
Purpose: Why does organization exist and for whose benefit?
Strategy: What is the operational logic of organization?
Policies and standards of
behavior: What do our people do and how do they behave?
Values: What does the organization believe to be important –core principles
Vision:
future state of the industry or buz which determines what its mission should be
Goals:
a desired end result
There are 2 types of goal
• Non-operational aims (qualitative goals)
• Operational objectives (qualitative goals)
Objectives should be SMART:
Specific Measurable Achievable Relevant Time-bound
Purpose:
Objectives are needed in every area where performance and results
directly and vitally affect the survival and prosperity of the buz. Objectives should
enable management to: implement the mission, publicize the direction of
organization, appraise whether decisions are valid, assess and control actual performance
Plans and standards:
Plan – State what should be done to achieve the operational objectives
Standards and targets – specify a desired level of performance
• Physical standards
• Cost standards
• Quality standards
How are plans set?
The strategic planning process sets the overall mission, goals, plans
and standards that the buz will try to achieve
