2.1 Ownership & Internal Organization

2.1.1 Relationship between objectives, growth and business organisation
Discuss the appropriateness of a given form of organisation in enabling a business to achieve its objectives

• Recommend suitable forms of business organisation to the owners and management in a given situation

2.1.2 Types of business organisation (sole trader, partnerships, limited companies, franchise, joint venture)
The business world can be divided and categorized into two categories or sectors which are as follows;

§  The Private Sector

o  Private individuals and firms that are owned by private individuals

o  Firms in the private sector include:

§  Sole Traders

§  Private Limited Companies

§  Partnerships

§  Public Limited Companies

§  The Public Sector

o  Made up of central government, local government, and businesses that are owned by government. In the last twenty years the number of government-owned firms in the UK has shrunk massively. Now, very few examples remain: for instance, the Royal Mail

 Sole Trader 

A sole trading company is owned and headed by one individual only. The person and his business is "one" legally. One has to maintain a careful record if he is self-employed. You must be able to define personal transactions from business for proper tax computation. Such a person is legally liable for all the losses in the organization. If the business falters, his personal assets are liable to be liquidated. On the bright side, he has complete control over his business and does not have to share his profits with anybody.

 Partnerships 

A partnership is a business run by two or more people together. A written agreement  is necessary stating the terms and conditions of conducting the business without harming the interest of either party. Profits are shared either equally or as per the terms given in the written legal agreement. If profits are to be shared, so are the liabilities too. With the Limited Liability Partnerships Act, partners can profit from limited liability and reap tax advantages

 Limited Company 

A Limited Company is legally a separate entity. The directors and the shareholders have limited liability in the business. When such a company is created, it has an Authorized shareholding which defines the limit of the shareholder liability. This is the most viable options if the capital is being invested into the business by anyone who does not wish to be involved in running it.

 Franchise 

A franchise is an agreement that allows one business to trade under the name of another business to sell the other company’s product of services. The business granting the franchise is called the franchiser and the business taking out the franchise is called the franchisee. This is a form of business wherein it bypasses the risks of starting up a business in exchange for large upfront costs. Franchises allow entrepreneurs the opportunity to start a business or sell products under a name already known to consumers. In addition, the franchisor may offer business education, advertising support and legal help. Franchise operators may be required to pay royalty fees in addition to start-up costs. Franchise agreements often include restrictions on product sales, pricing, location and business methods. The franchisee is in full control of the business however the franchiser still has some authorization with the business with matters such as product design and brand name.

 Joint Ventures 

A joint venture is an enterprise undertaken by two or more business organizations polling resources in which they may either be under private or public sector. The business may involve parties in more than one country. A venture is an agreement for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets. There are other types of companies such as JV limited by guarantee, joint ventures limited by guarantee with partners holding shares.

2.1.3 Growth of multinational companies
 Multinational Company 

Multinational Companies – is a business wherein it has operations in more than one country. It isn’t sufficient for a company to expert ad sell its products abroad for it to be multinational. A multination company must have productions, sales or other facilities in more than one country.

Multinational Companies are created when a business decides to develop internationally under a certain based of aims and objectives such as the followings:

·      Increasing of sales

·     Profit Maximization

·     Attraction of new staff

·      Improvement in customer service

·     Cutting of costs

·      Increase of efficiency

·  Global market impact

Multinational Companies, overtime, is proving itself to be a prominent form of business organization due to the followings:

·     Improvements in technology, transport and communications

·  Governments & Trade

·     Limited Natural Resources

·      Improving Standard of Livings

 The advantages of a multinational business to host countries are: 

·     Transfer of technology, capital and entrepreneurship.

·  They increase the investment level and thus the income and employment in the host country.

·  Greater availability of products for local consumers.

·  Greater access to high quality managerial talent which tends to be scarce in host countries.

·      Increase in exports and decrease in imports, thereby improving the balance of payment of host countries.

·      Help in equalizing of cost of factors of production around the world.

·     They provide an efficient means of integrating economics.

Advantages to home countries

·     Acquisition of raw material from abroad,which is cheaper in cost.

·     Technology and management expertise accquired from competing in global markets.

·     Export of components and finished goods for assembly or distribution in foreign markets.

·      Inflow of income from overseas profits,royalities and management contracts.

·      Jobs and career opportunities at home and abroad in connection with overseas opportunities.

 Disadvantages include: 

·      Trade restrictions imposed at the government-level

·      Taxes or tariffs imposed on imports from other countries

·      Limited quantities (quotas) of imports

·     Effective management of a globally dispersed organization

·     Slowdown in the growth of employment in home countries.

·     Destroy competition and acquire monopoly.

·      Technology designed for mnc's is for worldwide profit maximization not for the social welfare or development of economy.

·      They could cause fast depletion of some of the non-renewable natural resources in the host country.

·  In order to allay the fears of host countries they need to:

o  provide employment

o  train managers

o  provide products and services that raise the standard of living

o  introduce and develop new technical and managerial skills

o  increase productivity

2.1.4 Control and responsibility
Draw, interpret and explain simple organisational charts

• Understanding of the roles, responsibilities and inter-relationship of people within organisations

• Understand the concepts of span of control, hierarchy, chain of command and delegation

Comment on the central features of organisational structure

• Show analytical awareness of the features of a given chart

• Appreciate that organisational charts change as a business expands

2.1.5 Limited and unlimited liability
 Entrepreneurship 

An entrepreneur is a person who holds a vision, spirit, intellegence and an art of making an enterprise run successfully. But what is the role of an entrepreneur from the social aspect. He as a part of society also has to play an important role in bringing in new ideas, methods and objects for the welfare of the society.

Irrespective of the basics of satisfying his personal goals and ambitions, he should also understand his responsibilities towards community.

Considering this aspect of a service towards society, can help the entrepreneurs in generating more contacts in their society as well as get new business leads and ventures. For gaining this they should participate in local forums and community meets. They should give some of their time to some social awareness programs.

However, the functions of an entrepreneur are as follows;

1. Planning of the project: He is the organizer to conceive the idea of launching the project and to program the structure of business.

2. Management: The entrepreneur is also responsible for the management of business. He tries to have a least cost combination of factors of production.

3. To Face Risks: He faces uncertainly and bears risks in his business uncertainly comprising those risks against which it is not possible to insure. He also faces the risk of other producers may enter the market.

4. Distribution of Rewards: He is responsible of distributing the rewards to all factors of production. He pays the reward in the shape of rent, wage, and interest and bears the risk of profit or loss himself.

5. Sale of Products: An entrepreneur is also responsible of marketing, advertising. He wants to maximize his profits by selling his product in the market.

6. Scale of Production: He decided the scale of business in according with the provision of capital. Then, he takes the decision of what where and how to produce goods.

7. Joint stock Organization: In a partnership, the entrepreneurial functions are divided between the partners. But in public limited company, the board of directors takes this responsibility with nationalized enterprise; the entrepreneurial decisions are left to the government or a body to which government has delegated its powers.

Risk – Maybe categorized to any unfavorable occurrences happening in a business, in short it denotes the chances of loss.

Ownership – Is basically the way a business is organized such as proprietorship, partnership, ltd, plc and so on..

Limited Liability – is when the owners of a business have liability for the affairs of the business restricted to the amount originally put into the business

2.1.6 Internal organisation (organisation structure, hierarchy, span of control)
 Internal Organization 

 Key departments: 

 Centralized organizations: have all decisions made at the top levels of the hierarchy 
 * 1) Finance – job is to determine wages + salaries, do cash flow forecasting and invoicing & accounts
 * 2) Marketing – job is to do: market research, R&D, product planning, packaging, pricing, sales promotion, advertising and distribution of products (last 4 points are basically the 4P’s)
 * 3) Production – job is to organize the producing of goods/services. Also to do R&D
 * 4) Human resources – job is to do recruitment & training, making conditions and terms of service for employees, contracts, disciplinary & grievance procedures & dismissal
 * Often, different departments will have conflicting objectives – for example: marketing dept wants a big promotional launch for a new product but finance dept say “no, we don’t have the budget”, production dept says “we cant produce enough if sales are too strong in the start”, HR says “current staff are not trained on this new product”
 * Organizational structure is the formal and systematic way in which the management is organized
 * Tall organizations have many layers of management. Flat ones have only a few
 * Delayering is the removal of the middle management layers
 * The span of control describes the number of subordinates reporting to a superior
 * Narrow span of control has a smaller number of subordinates, implying closer supervision
 * Wide span of control implies more empowerment
 * Any supervisor is responsible for his/her subordinates and any subordinate is accountable to his/her supervisor
 * Authority can be delegated to lower levels down the chain of command
 * However, responsibility can never be delegated, it always resides with the supervisor

2.1.7 Internal and external communication  Communication 
 * It implies tighter levels of control over functions
 * Decisions are also consistent
 * However, there is little delegation of authority and empowerment meaning there are often low levels of morale amongst employees

 Factors affecting method: 
 * Communication is the exchange of information between one group or person with another
 * What is the communication process? 1. Sender defines the message, 2. Chooses a medium (how the receiver gets the message), 3. Receiver interprets the message, 4. Receiver responds (optional)
 * What are the classifications of communication? 1. Oral (verbal)(face to face, formal meetings, interviews, lectures or speeches), 2. Written (letters, memorandum, notices & reports), 3. Visual, 4. Non – verbal (e.g. body language)
 * Things to consider when choosing a medium: formal or informal? Internal or external?
 * Electronic communication includes stuff like facsimile, email, teleconferencing, Public Address System (PAS) & internet

''' How do you know if communication has been successful or not? '''
 * 1) Cost
 * 2) Size of business
 * 3) Types/sizes of departments involved
 * 4) Times/speed
 * 5) Accuracy
 * 6) Security
 * 7) Access to receiver
 * 8) Reaction of receiver (stuff like does he/she have appropriate technology)
 * 9) Location of sender & receiver (e.g. china’s firewall may block certain things)
 * 10) Need for a record
 * 11) Ease of use
 * 12) Skills/training of users

''' What are the barriers to effective communication? '''
 * Right message right person(s) right time right interpretation


 * 1) Wrong channel/medium usage
 * 2) Poor timing
 * 3) Technical jargon
 * 4) Incomplete information & selective reporting
 * 5) Too much information may be released unintendely
 * 6) Tall hierarchical structures
 * 7) Time zones/geographical
 * 8) Cultures, languages & accents
 * 9) Access & attitudes towards technology
 * 10) Poor body language
 * 11) Physiological (e.g. hearing/seeing difficulties)

2.1.8 Internal communication (effective communication and its attainment)
Information and Communication Technology

Positive impacts:

> Faster, cheaper and convenient

Negative impacts:

> Not always the right channel; too much information can be given out and extracted too easily; reliability; set up costs can be high; resistance to change