Chapter 1 - organisations and stakeholders Flashcards
what is the public sector
normally non-profit, parts of economy that provide central or local government services
what is the private sector
normally profit, not controlled by government
what is value for money
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
examples of private non for profit organisations
- Charities
- Professional bodies eg CIMA
- Mutual organisations eg trade unions
- Co-operatives (who prioritise good value over price)
what is a quango
quasi autonomous non governmental organisation
primary/secondary objective public sector organisations
primary likely to be effectiveness (non financial)
economy/efficiency will be financial
what is an organisation
an organisation is a social arrangement for the controlled performance of collective goals
what is unincorporated
law doesn’t recognise difference between business and owners
what is incorporated
business legally separated to its owner
what is the difference between private/public limited company
private = shares privately
public = shares on stock market
what are the types of stakeholders
internal = eg management or employees
connected = eg shareholders, customers, suppliers, financers
external = eg community, government, pressure groups
(ICE)
what is mendelow’s matrix
classifies stakeholders based on level of power and level of interest
difference in importance from profit and not for profit organisations
profit = owners have higher power
not for profit = others have higher power
what is the principal agent problem
occurs when managers are managing an organisation to meet their own needs instead of the owners or providers of finance
what is profit satisficing
managers will work just hard enough to achieve minimum level of profit that shareholders are happy with
what is sales maximisation
managers believe running a large company brings better benefits and more prestige, not consistent with profit maximisation
how is the principal agent problem in the public sector
- 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
what is corporate governance
systems by which companies are directed and controlled
how can principal agent problem be resolved
addressed by monitoring the actions of management (corp governance) or by use of incentive schemes
examples of incentive schemes
- 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
- 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.
examples of economy/efficiency/effectiveness
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)
what is the main determinant of shareholder wealth
share price movements
