Chapter 3 & 4 and Weeks 3: Structure & Governance Flashcards
What are the three forms of Business Ownership?
- Sole Proprietorship
- Partnership
- Corporation
Define a Sole Proprietorship and explain its benefits and disadvantages
Own by one person - may have many employees
Benefits:
(+) Controls day-to-day business operations
(+) least expensive
(+) the owner can operate without interference
(+&-) entailed all profits and loses
Disadvantages:
(-) Holds the burden of all legal and financial responsibilities
(-) Responsible for business debts and liabilities
(-) Hard to survive during tough economic times
(-) Not enough financial support
(-) Once the owner dies, the business dies as well
(-) liquidating (selling) assets are slow
- Ex. of Sole Proprietorship: Local retail stores, repair outlets, service businesses, auto mechanic garage
What are the two types of Partnership, and explain their benefits and disadvantages
General partnership: Both partners provide their financial, managerial, and technical capabilities
(+) Individual risk is reduced
(+) Attaining funds may be easier
(+) less expensive and easier than sole
(-) unlimited liability for the partner’s debts and obligations
(-) each partner is held financially accountable for the other partner’s debts and decisions
(-) tax and continuity - partners are taxed as individuals because partnerships are not recognized as legal entities
(-) liquidating (selling) assets are slow
Limited Partnership: One (or more) owners will severe as general partners who manage the business and have the same unlimited liability as sole proprietors
(-) limited partners who are not involved with business affairs are liable for the amount they invested into the business
(+) easy to form, start-up fees are low
(+) Limited partnerships can attract investors that would not want a general partnership
- Greater capital
(+) only the owner can control the business
(-) survival of a limited partnership depends on the owners and their willingness to continue the business
(-) income generated is taxed as personal income (higher tax rate)
Define a Corporation, and explain how it’s owned and how it’s publicy held and privately held
- Independent legal entity
- Owned by shareholders/investors who purchase stock
- Corporation issues shares which define the ownership structure and voting rights
- Shares of public corporations are sold to individuals or companies who have the capital to purchase them
○ Corporations are defined as publicly held or publicly traded - A private corporation or closely held corporation: shares owned by only a few individuals, the public cannot purchase a share
Define the four key beneifts of the Corporate Form
- Limited Liability
- Owners are not held personally responsible for the debts or losses in the business
- - Permanence
- Corporation does not cease operation once the owner/shareholders retires or dies - Transferability of Ownership
- Ownership of a corporation can be transferred through the buying and selling of the company’s shares - Access to Capital
- Investors can easily turn their money into cash by selling shares onto market
Disavantages of the Corporate Form
- Costly - costly than sole and partnership
-
Worker-owned Co-operatives - are owned and controlled by their employees
○ Retail Co-operatives: members are also the customers whose purchase of a share in the co-op is a perquisite to shopping in the co-op
○ Credit Unions: members invest in a share in the organization as a perquisite for their participation
○ Housing Co-operatives: organizations tend to arise in areas where residents costs are high
What are the two different traits of Worker Co-operatives
- Members are the Owners
- own the business as a group and therefore share the profit - The businesses’s decision making is democratic
- that is, each member has one vote and, therefore can equally influence the management of business
Define stakeholder
an individual or group that has one or more different kinds of stake in a business
- Affected by actions and decisions of the business, direct stake in the success of the business
Define Corporate Goverance
the system of rules, practices, and processes by which a company is directed and controlled
What is a challenge of Coporate Goverance in a corporation? What is the Principle-Agent problem?
The seperation of ownership from control
See image:
Precorporate period: (together) Owners (ownership) and Managers (control)
Corporate period: Shareholders (owners) and Management (control)
- managers have the true power now
- owners are not really owners in a big corporation with a million shares
Principle Agent Problem: growth of attained by management has resulted flaws in corporate governance
- Problems arise because the interests are different between the principles (owners) and the agents (management)
What are the Four Major Groups involved in Corporate Governance
- Shareholders (owners)
- Board of directors
○ Oversee the management of the business - Managers
○ Run the company and manage it on a daily basis - Employees
○ Perform operational work
- Board of directors
What is “Good” Governance? Hint: 5 things
- Organizations can engage in co-operative relationships with suppliers, distributors and competitors
- Aim is to improve efficiency and flexibility to meet customer needs
- Accountability
-
Fairness
○ Consideration is given to stakeholders, each treated equitably -
Transparency
○ Management does not hide information from stakeholders - Reliable Leadership
-
Stakeholder engagement
○ Management is aware of stakeholder’s expectations
What are the 3 categories of Organizations?
Hint: Learned in ADMS 1010
- Public/governmental - provides goods and services not necessarily generating profit
- Private/non-governmental - includes voluntary, offers good and services not necessarily generating profit
- Private - produce goods and services with the intent to make profit for the benefit of their owners
What is an organization? Hint: 4 things
- Social
○ Entities maintained by people- Interact with the environment
○ Obtains inputs from the environment (raw materials, people, technology, etc.) goes into the organization to become outputs (goods and services) - Goal-orientated
- Structure-based
○ To ensure work is allocated and coordinated
- Interact with the environment
Define a system
System: independent elements working together to achieve a goal(s)
- Interdependence of the elements creates an entity that is sum of its parts
Define an open and closed system?
Open Systems
* Emphasizes the importance of the interaction with the environment
○ Organizations are dependant on environment for their survival
Closed Systems
* Organization’s survival is not dependent on the external environment
What is the Anatomy of an Organization? Organizational structure has been defined as a deliberately planned ___ or pattern of ____ that exist among individuals in various roles or positions
Organizational structure has been defined as a deliberately planned network or pattern of relationships that exist among individuals in various roles or positions
What makes up the Mechanistic structure?
Specialization: Functional
Administration Levels: Tall
Decision-making: Centralized
Departmentation: Functional
Formalization (rules): Formal
What makes up the Organic structure?
Specialization: Social
Administration Levels: Flat
Decision-making: Decentralized
Departmentation: Divisional
Formalization (rules): Informal
What consitutes an organizations structure… (mechanistic and organic) What is Work Specialization?
○ Functional
- Division of jobs into simple, repetitive tasks
○ Social
- To the specialization of the individuals rather than the jobs
- Employment of professionals who skills cannot be easily routinized
Ex. Engineers, nurses, etc.
What consitutes an organizations structure… (mechanistic and organic) What is Decision-Making Source?
- Decision-making can rest at the top of management or can be concentrated at the bottom (depending on kind of corporation)
○ Centralized
- This organization requires longer timeframes for decisions to be made
- Ex. Head office in another country trying to pass decisions
○ Decentralized
- More decision-making power spread out within the organization - faster
What consitutes an organizations structure… (mechanistic and organic) What is Levels of Administration?
- How many levels of those charge do we have?
○ Tall
- As companies grew, more levels of administration were added
- (-) Information transmitted from the top takes long to reach the bottom
○ Flat
- One level of management
- (+) employee self-management
What consitutes an organizations structure… (mechanistic and organic) What is Formalization?
- To the degree to which rules, regulations, procedures and the like govern how work is performed
○ Formal
- Jobs within organization are standardized
- High level of formalization means high standardized work - clear rules regarding how the work should be performed - rule-directed
○ Informal
- Less standardization
- Due to adaption to rapidly changing external environment
What consitutes an organizations structure… (mechanistic and organic) What is Departmentation?
- the dividing or grouping of major functions or work activities into separate units
Functional departmentation: Employees who have similar skills will be grouped together in one department (ex. HR)
Divisional departmentation: grouping employees based on the products/services produced by an organization (Ex. tech department)
Customer departmentation: departmentalize its activities based on its consumers
Geographic departmentation: grouping of work activities and resources in a way that serves customers in different geographical areas
Define an Mechanistic bureaucracies
maintain jobs that are narrow in scope; decision-making is centralized at the top of the organizational hierarchy, work conducted within highly formalized rules and procedures
Define an Organic bureaucracies
have jobs that are enriched with more variety of tasks, team approach, control decision-making is decentralized throughout the organization
Define Contingency theory and who is it a lesson for?
no best way to organize a corporation, to lead a company, or to make decisions
Lesson for managers
What are the 4 sources influencing structure?
- Strategy
- Organizational Size
- Technology
- Environment
○ Dynamic environment
- Contains much uncertainty and undergoes much change
○ Static environment
- No new competitors, no new technologies, no government regulatory changes, etc.
Define a Virtual organization
- Attempts to maximize its fluidity, flatness and degree of integration with the environment
- an alliance of separate individuals, business units or companies, all with different core competencies, working together to bring a project to market faster
What are the 3 key feature of an virtual organization?
Outsourcing
* Hiring external companies to conduct work in certain functions of the company
Networking
* Organizations can engage in co-operative relationships with suppliers, distributors and competitors
* Aim is to improve efficiency and flexibility to meet customer needs
Shedding Non-Core Functions
* Outsourcing but is a central feature of the virtual organization
What are the benefits of being virtual?
** 1. The cost savings are significant
2. The virtual organization is a great alternative for entrepreneurs
3. Going virtual can be a fast way to develop and market new products for a mature company
4. Fast and flexible are adjectives to describe the virtual organization**
What are the risks and challenges of being Virtual?
** 1. The biggest sacrifice probably is the notion of control
2. Lack of employee loyalty
3. Potential to sacrifice competitive learning opportunities **
