Introduction to business Flashcards
What is an organisation?
An organisation is a ‘social arrangement, which pursues collective goals, controls its own performance and has a boundary separating it from its environment’. It is not for profit and its primary objective is to maximise benefits to beneficiaries
What are the main elements of the definition of an organisation?
Social arrangement: individuals gathered together for a purpose
Collective goals: working towards the organisation’s objectives
Controlled performance: performance is measured and relevant action is taken
Boundary:
- the organisation is distinct from its environment
- these boundaries may be physical (ie., buildings, fences) or social (rules, code of conduct, ethics, principles)
What is a business?
A business is an organisation that is orientated towards making a profit for its owners
What is a mission?
A mission can be defined as “the business’s basic function in society”, expressed in terms of how it satisfies its stakeholders. The business’s mission decides which direction it takes and is dictated by the primary objective.
What is a mission statement? What should it contain?
A mission statement is the written communication of the mission to internal and external stakeholders.
A successful mission statement should contain:
- Purpose: Why does the organisation exist and what does it aim to achieve for its stakeholders?
- Strategy: What resources, competencies or generic strategy give the company a competitive advantage?
- Policies/Standards: What standards and behavioural patterns are adopted within the organisation?
- Values: What beliefs do the managers and employees share?
What is the difference between the mission and the goals?
The mission is the overall plan. Each goal supporting it is a smaller objective that enables the business to work toward its mission.
What are the qualitative goals?
There are two types of goals. One is the non-operational, qualitative aim. For example, one of a business’s qualitative aims might be to improve the morale of its staff by better attending to their health and safety.
A non-operational aim has greater flexibility. A business may discover that an operational objective is not working (e.g requiring staff to undertake training on how to lift properly lessens, rather than improves, productivity) but the qualitative aim of improving morale will remain.
What are the quantitative goals?
The other kind of goal is the quantitative objective, or operational objective. (This goal can be quantified, or measured.) For example, a quantitative goal would be to ensure that 50% of the workforce have received manual handling skills training within six months.
Operational objectives should be what?
SMART
Specific - e.g. “we will provide manual handling training…”.
Measurable - e.g. “to all appropriate employees”.
Achievable - e.g. “training will be delivered in our training centre”.
Relevant - e.g. “it is part of our mission to provide a good place to work, and this training contributes to that objective”.
Time-bound - e.g. “all appropriate employees will receive this training within six months”.
How can you break down objectives? Give some examples.
Objectives can be broken down into Primary and Secondary Objectives
Primary Objectives:
- Maximise shareholder wealth for profit orientated organisations
- Maximise the benefit to the target stakeholder for NFP organisations
Secondary objectives: usually in support of the primary objective
- Improvement to market standing
- Innovation
- Productivity
- Staff development
- Corporate responsibility
What other objectives may a profit orientated organisation choose?
- Profit satisficing:
Briefly, satisficing is seeking to produce a profit that will keep shareholders satisfied and provide sufficient income for investment, at an acceptable level of risk, but not maximise the profits and wealth that could be generated.
Think of profit satisficing as choosing what perhaps isn’t the optimal solution, but perhaps the quickest/cheapest/easiest solution for a satisfactory, if not optimal, result.
- Revenue Maximisation:
Economist William Baumol put forward a theory that a business may wish to maximise revenue as opposed to profit or wealth. It may do this to maintain or increase its market share, as a survival strategy or as a means of addressing competition.
Revenue ploughed back into the business should enable it to succeed and to grow. The personal motivation of the business’s managers may be to benefit from the prestige (not to mention the potential financial incentives) of running a larger company.
-Multiple Objectives:
Those outlined by Peter Drucker
-Constraints Theory: Herbert Simon, the political scientist who came up with the idea of satisficing, also suggested that some business decisions are not taken with the idea of wealth maximisation at all.
Think of web company Google’s start-up manifesto: ‘Don’t be evil’. A business with such a creed may turn down a lucrative contract with an organisation that it believed to be politically dubious.
This is not to say that the organisation is not interested in making a profit, but that profit is not the number one constraint for the business.
What are the ‘multiple objectives’ outlined by Peter Drucker?
He suggested that these objectives are as follows:
- Market standing: market share, customer satisfaction, size of product range and distribution resources
- Innovation
- Productivity: meeting targets within set timescales
- Physical and financial resources: efficient use of limited resources (such as people, space, materials, plant and equipment or finance)
- Profitability
- Manager performance and development: enabling managers to meet their goals and for succession planning
- Worker performance and attitude: ensuring productivity and low staff turnover, motivation, development of skills, etc
- Social responsibility: community and environmental impacts, employment protection, business ethics.
What are plans and standards?
Plans state what should be done to achieve the operational objectives
Standard and targets specify the desired level of performance
The standards a business chooses to set can be…
- Physical standards: e.g., kilograms of material used per product
- Cost standards: e.g., cost per kilogram purchased
- Quality standards: e.g., targets for a maximum number of faults per batch
What is a stakeholder?
A stakeholder is a ‘person or group of persons who has a stake in the organisation’. Stakeholders are virtually everybody who has anything to do with the business. This means that they have an interest to protect in respect of what the organisation does and how it performs
