Business Organization and
Environment
By: Celina, Debbie, Fatima, Riketo, Katie
Nature of Business
What is a business?
● Any organization that uses resources to produce a
good or service
What do businesses do?
● Businesses identify needs of consumers then purchase
resources (or inputs) to produce outputs.
● Usually business aims to make money.
Nature of Business Activity
● Varies from country to country and reflects needs and resources of
local environment
Ex: McDonald’s in Japan is different from McDonald’s in India (lots of
people in India don’t eat meat, which has to be taken into
consideration)
● Businesses also consider international perspective, cultural
diversity and need for international cooperation
● Whatever the location, a business uses a combination of inputs to
make outputs (goods and services) it then creates and sells.
● Inputs/Factors of production: land, labour, capital, and enterprise
or entrepreneurship
Factors of Production
Land and Natural Resources:
● Space businesses need to operate
● Naturally-occurring goods like water, air,
soil, and minerals used in the creation of
products
● Field for factories/energy for power
Factors of Production
Labour:
● Employees needed to run machines, sell, etc.
Capital:
● Plant/machinery/computer, and money
Enterprise/Entrepreneurship:
● People to invest/manage/innovate/take risks
Business Functions
● Four main functional areas of business
(finance, marketing, HR management, and
operations)
● All four areas interrelated
● Good team spirit and communication
between each function to have a good
business
Business Functions
Finance:
● Part of organization that monitors movement of funds
into & out of the business, produces accounts and
prepares forecasts for budgets
● Ensures that invoicing of customers happens and
suppliers are paid
● Vital function in providing information for other
departments and decision makers
Business Functions
Marketing:
● Covers market research and identifying what
customers want through to the designing and
packaging of goods or services offered
● Looks at deciding the product’s price and type of
promotion used
● Considers how product is to be distributed and sold.
Ex: through catalogues, websites, shops, etc.
Business Functions
Human Resources (HR) management:
● Covers recruitment, rewarding and motivating, and
training of staff throughout the organization
● Covers the releasing or redeployment of staff when
necessary
Business Functions
Operations Management:
● Represents engine room of business--the production
of goods or the delivery of service
● Those working in this area will be looking at quality
and stock control, methods of production, and
productive efficiency
Sectors of Industry
Primary Sector:
● Covers business that is involved in extraction of raw
materials (ex: coal or gold) and also agriculture and
fishing
● These industries are often closely monitored by
governments due to scarce nature of materials and
food sources and also the pollution effects of
extraction methods
Sectors of Industry
Secondary Sector:
● Includes industries that create a finished or useable
product
● These industries generally generally take the output of
the primary sector then manufacture finished goods
or components for other industries
Sectors of Industry
Tertiary Sector:
● Covers provision of services to businesses and individual
consumers
● Includes the transportation and distribution of goods,
wholesale, and retail services, and adviser and consultancytype businesses
Quaternary Sector:
● Includes organizations providing information services
through ICT (information and communications technology)
Types of Organization
The public and private sectors of economy
● Public sector - businesses that are owned by
individuals or groups of individuals
Ex: Sole trader, partnership, public limited company,
private limited company
● Private sector - business organizations that are owned
or controlled by a central or local government or public
corporations
Ex: Restaurants, boutique
Types of Organization (cont.)
Business Start-ups
Identifying a market opportunity ● Market opportunity is the identification of of
new and unsatisfied customer needs
Ways of identifying market opportunity ● Creative and innovative
● Identify a gap within the market
Types of Organization (cont.)
Problems faced by business start-ups ● Poor location
● Production problems
● High costs of production
● Cash flow problems
● Marketing problems
● Unestablished customer base
● People management problems
Types of Organizations (cont.)
Business Structures
Sole trader - A self employed person who directs the affairs
of the business, and is responsible for the risks and losses
Partnership - A type or business organization in which two
or more individuals come together in agreement and share the
profits and losses of the business
Private Limited Companies - A type of company that can’t
raise capital from the general public
Types of Organization (cont.)
Public limited companies - A company that is able to
advertise and sell its shares to the general public through
stock exchange
Non-profit/Non-governmental organizations (NGOs)
- an establishment that is run in a professional and businesslike manner but without profit being the major objective,
organizations aim to provide a service or to promote special
causes.
Types of Organization (cont.)
Charities - Organizations with very specialized aims.
They exist to raise money for ‘good’ causes and draw
attention to the needs of disadvantaged groups in society.
Pressure Groups - Groups without the direct political
power to achieve their aims, but whose aims lie within
the sphere of politics. They attempt to influence local
government, central government, businesses and the
media. Their aims include having their views taken into
account when any decisions are made.
Organizational Objectives
Importance of objectives:
Organizational aims and objectives give businesses:
● A sense of direction, purpose and unity
● A foundation for making decisions
● Encouragement for long term planning
● A basis for measuring performance of employees, management and the
business as whole
Organizational Objectives
Business objective hierarchy
Vision Statements
Mission Statements
Corporate Objectives
Department Objectives
Team Objectives
Individual Objectives
Organizational Objectives
Must be SMART: Specific, Measurable, Achievable, Relevant, Time-constrained
Mission Statement
States the underlying purpose of an organization’s existence, and explains
generally what the business is trying to achieve and its values.
Vision Statement
Describes the ideal situation in the future, outlining the business’ distant
aspirations.
Organizational Objectives
Strategic Objectives - Long Term
Example: Profit maximization, image and reputation development
Tactical Objectives - Short Term
Example: Survival, revenue maximization
Ethical Objectives Help firms to decide what actions are right or wrong in certain
circumstances. Example: Treating employees fairly, recycling
Organization Objectives
Corporate Social Responsibility
To build a culture of fulfilling social responsibilities to employees,
customers, shareholders and other stakeholders.
Examples: Recycling, charity, discouraging drinking and driving, obeying labor
laws, ethical trading
Stakeholders
Definition: People and organizations with an interest in a business .
Internal Stakeholders
Members of the business organization include employees, owners and
management.
●
Employees want high earnings, an interesting job and secure employment
●
Shareholders (Stockholders and owners) want regular, secure and high
returns and a say in the goals of the business.
●
Managers want responsibility, high rewards and a lack of interference in
their actions.
Stakeholders
External stakeholders
Includes suppliers, customers, special interest groups, and competitors
● Suppliers want secure, regular and profitable orders
● Customers want quality products at low prices and a good service
● Government wants to achieve a large number of goals including growth in
the economy and low inflation.
● The local community wants thriving local businesses which do not cause
problems.
Stakeholder Conflicts
● Stakeholders all have varying objectives and it can be
very difficult to reconcile competing needs and
aspirations
● Business decisions and activities can have both
positive and negative effect on stakeholders.
● Conflicts of interest occur when one side is negatively
affected.
Methods of Conflict Resolution
●
●
●
●
Arbitration
Worker Participation
Profit Sharing Schemes
Share Ownership Schemes
External Environment
The external environment can impact a
business in a given situation, some business
tools that may be used to help evaluate this are
the PEST and STEEPLE/PESTLE analysis.
External Environment (cont.)
The PEST analysis examines the impact of external environmental influences
on a business.
P - Political
Ex. Political stability, tax policy, employment laws
E - Economic
Ex. Interest rates, economic growth, exchange rates
S - Social/Cultural
Ex. Career attitudes, population growth rate
T - Technological
Ex. Rate of technological change, automation
External Environment (cont.)
S - Social/Cultural
T - Technological
E - Economic
E - Environmental
P - Political
L - Legal
E - Ethical
Organizational Planning Tools
Growth and Evolution
How a Business Grows: There are two ways a
business can grow
● External Growth
o
More than one firm joined together
● Internal Growth
A firm that expands by using personal resources
Firm: Organization which operates
for-profit (exp. Goods and Services)
o
Growth and Evolution (cont’d)
Pros & Cons of Growing a Business
Pros
Cons
Globalization
SWOT analysis
Strengths● What does it do really well?
Weaknesses● What does the business do badly?
Opportunities● What do customers want the organization to deliver?
Threats● What is the competition doing?
● Do competitors possess better capabilities?
A business plan
● A business plan sets out how the organization will meet
its corporate objectives.
● It involves stepping back from day-to-day operations
and asking where the business is heading and what its
priorities should be.
Purpose of a business plan.
● Support the launch of a new organization or business
idea.
● Support strategic planning.
● Identify resource needs.
● Provide a focus for development.
● Work as a measure of business success.