Chapter 1 - organisations and stakeholders

Question 1

what is the public sector

Answer 1

normally non-profit, parts of economy that provide central or local government services

Question 2

what is the private sector

Answer 2

normally profit, not controlled by government

Question 3

what is value for money

Answer 3

Economy = purchase of inputs of appropriate quality at minimum cost
Efficiency = maximising output from given inputs, or minimising inputs for given output
Effectiveness = achieving an organisations objective

Question 4

examples of private non for profit organisations

Answer 4

• Charities
• Professional bodies eg CIMA
• Mutual organisations eg trade unions
• Co-operatives (who prioritise good value over price)

Question 5

what is a quango

Answer 5

quasi autonomous non governmental organisation

Question 6

primary/secondary objective public sector organisations

Answer 6

primary likely to be effectiveness (non financial)
economy/efficiency will be financial

Question 7

what is an organisation

Answer 7

an organisation is a social arrangement for the controlled performance of collective goals

Question 8

what is unincorporated

Answer 8

law doesn’t recognise difference between business and owners

Question 9

what is incorporated

Answer 9

business legally separated to its owner

Question 10

what is the difference between private/public limited company

Answer 10

private = shares privately
public = shares on stock market

Question 11

what are the types of stakeholders

Answer 11

internal = eg management or employees
connected = eg shareholders, customers, suppliers, financers
external = eg community, government, pressure groups
(ICE)

Question 12

what is mendelow’s matrix

Answer 12

classifies stakeholders based on level of power and level of interest

Question 13

difference in importance from profit and not for profit organisations

Answer 13

profit = owners have higher power
not for profit = others have higher power

Question 14

what is the principal agent problem

Answer 14

occurs when managers are managing an organisation to meet their own needs instead of the owners or providers of finance

Question 15

what is profit satisficing

Answer 15

managers will work just hard enough to achieve minimum level of profit that shareholders are happy with

Question 16

what is sales maximisation

Answer 16

managers believe running a large company brings better benefits and more prestige, not consistent with profit maximisation

Question 17

how is the principal agent problem in the public sector

Answer 17

• public workers may use gov money to pay for high salaries or lavish offices
• administration of a charity may focus activities on a part of the charities work that they are interested in

Question 18

what is corporate governance

Answer 18

systems by which companies are directed and controlled

Question 19

how can principal agent problem be resolved

Answer 19

addressed by monitoring the actions of management (corp governance) or by use of incentive schemes

Question 20

examples of incentive schemes

Answer 20

1. performance related pay = either against profit or performance measure. if based on profit can encourage short term thinking which can damage long term shareholder wealth
2. share options = options to buy shares in future at todays share price to encourage management to increase share prices but in a recession this may not be a strong incentive.

Question 21

examples of economy/efficiency/effectiveness

Answer 21

ECONOMY = Any measure of cost, eg average cost
EFFECTIVENESS = The rate of post-surgery readmissions relates to the quality of outputs and are therefore measures
of effectiveness (achieving the organisation’s objectives)
EFFICIENCY = The number of patients treated per month (output)

Question 22

what is the main determinant of shareholder wealth

Answer 22

share price movements