Business Organization

BusinessOrganization

Unit

0.0Introduction

Thereare millions of business organizations around the world each set tofulfil a set of specific objectives and goals. For most of them, theyare formed to generate profits for shareholders, create employment orserve a social cause especially for non-profit making organizations.To be effective in generating profits, these businesses must becapable of moving their product offering from production to theconsumer in what is referred as marketing. To do this and alsoachieve other objectives, the business must be organized andstructured in a certain manner bound by some factors such asavailable resources and the economy. Therefore, there are two sets offactors that influence how a business is organized, those that it cancontrol and those that it cannot. This means that a business’sorganization is not a random occurrence but rather a carefullyplanned and executed action operating in dynamic environment. Thispaper thus addresses how the internal and external business factorscome to play in organization of businesses to meet their objectives.

LO1Understand the organizational purposes of business

1.1Identify the purposes of different type of organization

Theorganizational purpose of a business is what the organization existto accomplish in a given environment in a given market with anidentifiable need. This results to different types of organizationwith different purposes. Most common types are:

  1. Family business- Owned and operated by family usually geared towards profit making

  2. Public company- Jointly owned by a group of people called shareholders and may sometimes comprise the government and are geared to provides essential services and generate profits for shareholders (e.g. Barclays Bank)

  3. Charitable organizations- geared towards philanthropy and intended to serve the public good and do not generate profits. Service and products offered are usually free (e.g. Redcross)

  4. Not for profit – offer essential services at a price or free without generating profits (e.g. International Community of Women Living with HIV/AIDS)

  5. Government organizations-owned and operated by government usually to provide essential services or even oversee or regulate an industry and also generate income for the government (e.g. Her Majesty`s Revenue and Customs -HMRC).

  6. Trust – formed after the death of a person to offer continuity to their businesses and investments (Medina 2006).

Anothercategorization of business organizations though not based on purposebut rather ownership only identifies various categories such as: soleproprietorship, professional partnership, corporation, generalpartnership, family limited partnership, limited liability Companyetc (Pride,Hughes &amp Kapoor, 2013).

1.2Describe the extent to which an organization meets the objectives ofdifferent stakeholders

Theorganization and ownership of any business determines who itsstakeholders are. Stakeholders are defined as people of groups ofpeople who are directly and indirectly affected by existence,management decisions, and operations of a business (Perrini &ampTencati, 2006). For most organizations, stakeholders includegovernment, management board, employees, volunteers, customers,consumers, sponsors/advertisers, external consultants, suppliers,owners/shareholder/investors, communities and distributors amongothers (White,2008, p. 92Perrini&amp Tencati 2006).The needs of these groups of stakeholders are unique and should allbe met. Therefore, organizations are forced to lump or categorize theneeds into groups and consider their utmost needs and meet them inorder of relevance. However, it is practically impossible to meet allstakeholder needs due to industry, social, environment and economicfactors. This means seek fulfil to stakeholder needs that optimizethe performance of the business. For successful and sustainableorganizations, the key is to balance and optimizebusiness/shareholder and stakeholder needs (Perrini&amp Tencati 2006).

1.3Explain the responsibilities of an organization and strategiesemployed to meet them

Businesseshave a responsibility towards their stakeholders which they must.Again, they are morally and sometimes legally bound to meet theseneeds. This is because business operations, decisions and strategiesare likely to affect the shared natural environment, health,employment, dividends, profits, safety and work conditions amongothers. The law has clear conditions on meeting certain needs towardsstakeholders such as financial reporting, environmental conservation,minimum wage requirements taxation and annual general meetings etc.(Median, 2006)

Businesseshave employed unique means to meet these stakeholder needs. Key amongthem are organizational newsletters which inform stakeholders oflatest news and developments in management and decision making,annual and quarterly financial reports which is a legal requirementare required for publicly traded companies (Macdonald, 2008). Themost effective and most obvious manner that firms use to meet outtheir responsibilities is through corporate social responsibilityprograms. These programs are enacted by businesses in their hostcommunities as a way of giving back to the community (Maak, 2007).Firms do not expect to gain financially from such activities. Theactivities vary widely including sports and events sponsorship,environment conservation, philanthropic donations among others. Forinstance, British Airways sponsors several cultural events in the UKsuch as the Taste of London to celebrate British cuisine and theLondon 2012 Olympic and Paralympics Games.

LO2Understand the nature of the national environment in which businessesoperate

2.1Explain how economic systems attempt to allocate resourceseffectively

Economicsystems control the ownership, distribution and flow of resourceswithin a community. This directly implies that economic systemsaffect individuals and business organization. In modern times, thesecommunities are recognized as nations and governments have theprerogatives to set economic systems. There are four main economicsystems in the world namely: traditional, command, market and mixed.

  1. The traditional economic system is a system whereby production of goods and services is loosely tied to customs and land where everyone has a designated role. In such systems there is no medium of exchange or profit making activities as all resources are communally owned. They exist a long time ago and in small communities especially in uncivilized communities such as some tribes in the Amazon (Dransfield, 2013).

  2. The command economic system is characterized by centralized control. All resources are owned and controlled by the central government which decides on distribution mechanisms. Good examples are the strict socialist economic system. This system has been criticized for failing to fuel innovation and entrepreneurship as government assumes to play such roles which it can hardly manage the very low levels.

  3. Market economy is an economic system where only market forces are allowed to determine the flow and distribution of resources. It is also referred to as a pure capitalist economy. The government is assumed to play no role including resource distribution. Currently, no such system exits in the world (Dransfield, 2013).

  4. Mixed economy is the most common economic system. This system allows a combination of government and market forced to influence the distribution of resources. As such, governments collect taxes from people and businesses and provide essential services to the people such as road networks. Regulation of currency flow through fiscal and monetary policies and government oversight authorities are some of the key was that governments enforce control. Ability to own property, start a business or consumer goods and services are the highlights of the market forces at work (Dransfield, 2013).

2.2Assess the impact of fiscal and monetary policy on businessorganizations and their activities

Fiscalpolicy is defined as the use of various measures by the government tocontrol the economy through controlling government expenditure andtaxation. There are two types of fiscal policies expansionary andcontractionary. Expansionary fiscal policies are geared towardsexpanding the economy by increasing the amount of money incirculation usually through lower taxes an increased governmentspending. Contractionary fiscal policies on the other hand reducecurrency flow in the economy through lean government spending andhigher taxes. Both of these measures affect interest rates, andinflation rates and businesses ability to access funding. Again,these factors affect economic performance which aspects employmentlevels, consumer spending power, prices of commodities and foreignexchange rates which all affect businesses (Dransfield, 2013).

Monetarypolicies are government control of the economy through influencingmoney supply and interest rates. Money supply is influenced throughthe minimum reserve requirements for banks set by the Central Bankand through influencing inflation and interest rates. Same as fiscalpolicy, there are contractionary and expansionary monetary policies.Expansionary policies increase money supply and lower interest whilecontractionary policies do the opposite. Common monetary tools usedinclude monetary base, reserve requirement, discount window lending,currency board etc. This policy affects businesses and individuals’access to loans and funding, prices, consumer purchasing power amongothers. This policies and tools directly influence businessperformance (Dransfield, 2013).

2.3Evaluate the impact of competition policy and other regulatorymechanisms on the activities of a selected organization

Competitionpolicy is an industry regulation tool employed by governments,economic blocs and regional governments to prevent anticompetitivebehaviour among players. By governments developing a competitionpolicy, they aim at creating an even playing field for all players.For European Union has a strong competition policy to ensure fairnessby players in various industries. In 2008, software Giant MicrosoftCorporation fined €899 million for engaging in anticompetitivebehaviour which involved withholding vital information that wouldenable competitors to develop Windows compatible software (Mock,2013). In 2013, the firm was again handed another fine of €561million (ibid) for failing to offer Windows user “browser choice”option as required. This meant that the policy offered smaller andupcoming firms a fair chance to compete with Microsoft whichdominates the industry.

Theeffects not only mean reduced market share and profits from increasedcompetition but also modification of products to suit set standardswhich throws the firm into complex change processes (Daft &ampMarcic, 2008). As a result of the required changes in Windows,Microsoft faces costs in fines and product modification and alsoexposes itself to intense competition. The fines were imposed despitethe fact that Microsoft is American but has operations in the EU.Other mechanisms employed include laws regulating mergers andacquisitions, labour laws, immigration policies etc . Labour laws setworking days and minimum wages which businesses should pay toemployees and immigration polices affect their internationaloperations if they have to move employees across borders.

LO3Understand the behaviour of organization in their market environment

3.1Explain how market structures determine the pricing and outputdecisions of businesses

Organizationalbehaviour in the market is largely influenced by existing marketstructure. There are four main market structures with differenteffects on pricing and output levels of businesses as shown below.

  1. Perfect competition:- characterized by many buyers and seller with price determined by market forces only. To remain competitive, firms have to produce more and price products according to existing price range depending on business strategy (Landau, 2013).

  2. Oligopoly- this is a market with several large sellers whose huge resources and large market share enable them to influence the prices. They usually gang up to form cartels to defeat small players. Where such markets exist, small players and new entrants have a very small chance of surviving of gaining significant market share. Players are bound by cartel agreement on pricing and production levels e.g. OPEC countries agree on oil production levels to influence oil price (Landau, 2013).

  3. Monopoly This market involves a single seller with considerable control over supply and prices. Buyers are just mere price takers and they have to buy whatever is offered. In UK a monopoly exists if one player controls over 25% of the market (Ruddick, 2014). Such players such as Tesco can influence prices based on their large market share usually setting low prices to drive weak competitors out of business.

  4. Monopsony: This market exists where a single buyer with considerable control over demand and prices. For instance large employers in small communities dictate wages in that particular market. Such players can lower demand further to drive prices lower without fear of losing suppliers (Forgang &amp Einolf, 2007).

3.2Illustrate the way in which market forces shape organizationalresponse using a range of examples

Marketforces are best represented by the law of demand and supply. This lawdictates that the higher the demand the higher price and vice versa.This means that players can seek to influence demand and ultimatelyprice by changing supply patterns. By reducing supply, for instanceof milk, demand in the market will shoot up as the same number ofbuyers are forced to fight to the little in the market. This forcesprices to go up. Increased prices force demand to fall down until anew equilibrium of the new level of supply and the new price isattained (Dransfield, 2013).

Inthe same way, if supply outstrips demand, prices fall. Lower priceswill increase demand up to a certain point where further increase insupply is restricted by resources or suppliers cut production toavoid losses. This will create a shortage that will drive prices upto an equilibrium price level comfortable to suppliers and buyers.Therefore for stability in the market, supply should always equaldemand (Daft &amp Marcic 2008).

3.3Judge how the businesses and cultural environments shape thebehaviour of a selected organization

Allbusinesses must respond to the external environment exemplified bylocal culture among others (Fatehi, 2008). For instance, BarclaysBank which has operations all over the world has had to make changesto fit into local cultures in countries where it operates in. A goodexample is the case of the home country UK. The firm has made it apoint to align itself with the local culture of football but has aglobal thinking and presence (Firoz, Magrabbi &amp Kim, 2002). WhileAmerica as a country may readily identify with American football orbasketball, the UK as a country identifies best with football. Thisway, the firm sponsors the Premier League and has even acquirednaming rights for the top tier league. In Arab countries or countrieswith a significant Muslim population, Barclays has introduced Islamicbanking to go along with cultural and religious regulations ofIslamic banking. In countries such as Qatar and the UAE, Barclaysoperates under a different business model that adheres to the Islamicculture and religion. The same thing applies to other global brandssuch as McDonalds which have to adhere to the Islamic culture in Arabcountries (Mead &amp Andrews, 2009). Therefore, culture influencesbusiness decisions, business models and even marketing approaches.For most international businesses, failure is attributable to pooradaptation to cultural issues (Sun, 2008).)

LO4Be able to assess the significance of the global factors that shapenational business activities

4.1Discuss the significance of international trade to UK businessorganization

Severalglobal factors affect business operations worldwide. In the UK, theglobal issues such as climate change, global economic fluctuations,terrorism and globalization influence business operations besideslocal factors (Christopher, 2012). However, firms still feel the needto engage in international trade. It offers businesses newopportunities for growth as they enter new markets through variousways global trade also allows firms in the UK such as Barclays toexpand their market reach and share hence increased revenue streamsand profits. For other firms such as Land Rover, international tradeallows them to exploit comparative advantages offered by othercountries (Landau,2013).This is a core reason why Land Rover has set up a manufacturing plantin China to capitalize on cheap labour raw materials in the country.

4.2Analyze the impact of global factors on UK business organizations

Inthis age of globalization, firms have to respond to local businessenvironment needs and also the international ones. The global treatof terrorism of terrorism forced UK insurance companies to abandonterrorism insurance cover for commercial properties since 1993triggered by the Baltic Exchange bomb in 1992. The only availableterrorism cover exists as terrorism compensation fund named Pool Rewhich is also set to be reviewed after the recent Charlie Hebdokillings in Paris (Gray &amp Stacey, 2015). Increased threat ofpiracy in the high seas especially along the coast of Somali hasforced some insurance companies catering to freight companiesoperating n the region to hike their fees. Consequently, freightcharges also increase. Another interesting issue that affects UKcompanies in political instability in world regions. For instance,the political turmoil in Iraq and Afghanistan affected global oilprices.

4.3Evaluate the impact of policies of the European Union on UK Businessorganizations

Asa member of the EU, the UK is affected by policies enacted by thebody. For one, EU policies have allowed an influx of immigrants fromeastern European countries with membership to the EU. This hasresulted to access of cheaper labour from immigrants for firms in theUK which has reduced labour costs. Again, the EU has opened upcountries for UK firms to explore new market of EU member states. Onthe other hand, the opening up the EU has exposed UK firms to intenseand larger competition from other firms in EU member states. Forthese firms to benefit from these changes, they must adapt to the newmarket environment otherwise they will perish (Guay, 2014)

5.0Conclusion

Fromthe above discussion, it is clear that businesses operations aresubject to many factors some within the business’ control andothers beyond control. It is always important that businesses respondin the most appropriate manner to changes and development in themarket. Further as they plan to change themselves, focus must remainto the set goals and objective. Businesses that respond best to thesechanges are the ones that remain successful over time. Those thatfail to respond to changes or initiate change within themselveseither fail to meet their objectives or become insolvent. Therefore,a business can only succeed if it is acutely aware of its environmentand respond to environmental changes accordingly.

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