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ABE LEVEL 4 – ENTERPRISING ORGANIZATIONSWEEK: 1ELEMENT: 1 – THE BASIC PRINCIPLES OF BUSINESSSESSION TITLE: THE ORGANIZATIONWHAT IS AN ORGANIZATION? An ‘organisation’ is a group of individuals working together to achieve one or more objectives. Although organisations have been defined differently by different theorists, virtually all definitions refer to five common features: they are composed of individuals and groups of individuals;they are oriented towards achieving collective goals;they consist of different functions;the functions need to be coordinated;they exist independently of individual members who may come and go.Mintzberg’s five components of Organization. Mintzberg (1979) suggested that all organisations consist of five components, as shown below. left8826500Figure 1: Mintzberg’s five parts of the organizationEnd of Figure-95251042670Efficiency refers to the relationship between inputs and outputs. An activity or process is efficient, if it produces a given output with the minimum of inputs necessary. Effectiveness refers to the extent to which goals/objectives are actually achieved.020000Efficiency refers to the relationship between inputs and outputs. An activity or process is efficient, if it produces a given output with the minimum of inputs necessary. Effectiveness refers to the extent to which goals/objectives are actually achieved.Middle managers (the Middle line) will be responsible for translating the necessarily broad and general strategic plans into detailed action plans, specifying managerial responsibilities for particular tasks and how resources are to be allocated. These middle managers will also be responsible for monitoring activities and taking action to ensure that resources are being used efficiently and effectively to achieve organisational objectives. Why do Organizations exist? Organisations exist because groups of people working together can achieve more than the sum of the achievements which the individuals in the organisation could produce when working separately. ORGANIZATIONS’ AIMS AND OBJECTIVES Aims are what the business wants to achieve, e.g. make a profit, be the best, attract new customers, etc.Objectives are the targets that businesses set themselves to help them to achieve their aims.Aims are important to businesses because having some targets and goals gives them a purpose and helps to focus what they do. Organizations are divided into three major sectors: private, public and not-for-profit/voluntary. The sectors have different aims as they do different things. Private sector Public sector Not-for-profit or Voluntary TYPES OF ORGANIZATIONS Public Sector OrganizationsThe public sector consists of governments and all publically controlled or publicly funded agencies, enterprises and other entities that deliver public programs, goods or services. However, in some countries public organizations benefit from some private sector funding. Main Aim – To provide a public service (run for the benefit of the broader society). For example the aim of the Ministry of Agriculture will be to support producers of agricultural and marine produce. Examples: Healthcare, Education, Civil Service, Public Services such as military and the police, and state owned enterprises such as postal services or broadcasting. Private Sector Organizations The private sector is the part of the economy that is run by individuals and companies that are not state controlled. It encompasses all for-profit businesses that are not owned and operated by the government. Main Aim – To make a profit. They vary in size, from small individually owned businesses to multinational organizations that operate in a number of countries producing goods and service to make a profit. In most free economies, the private sector makes up a big portion of the economy, as opposed to nations that have more state control over their economies, which have a larger public sector. For example, the United States has a strong private sector because it has a free economy, while China, where the state controls many of its corporations, has a larger public sector.Not-for-profit or Voluntary Sector Organizations The ‘voluntary sector’ refers to organisations whose primary purpose is to create social impact rather than profit. It is often called the third sector, civil society or the not-for-profit sector.Main Aim – Provide a product or service that may generate revenue but are unable to make a profit as a private sector organization would do. They focuses on particular issues that need problem solving, such as climate change or unaffordable housing, or a specific group in society who require support and representation. The voluntary sector is independent from local and national government and distinct from the private sector. Charities are the largest single category within the voluntary sector. Others include community benefit societies and co-operatives, not-for-profit community businesses or community interest companies (CICs), credit unions and small informal community groups.GOODS & SERVICES . GoodsGoods are tangible in nature i.e. they can be seen and touched.There is a time gap between production and consumption of goods as they are produced first and consumed later.Services Services are non-tangible in nature i.e. they can neither be seen nor be touched.There is no time gap between the production and consumption of services. That is why they are produced and consumed simultaneously.Classification of Goods and Services Different types of enterprises produce different types of goods and services. It is not possible to study them individually; therefore to understand them properly they are classified in a number of broad groups. This classification can be done in many ways: Free goods and economic goodsFree goods are free gifts of nature. They are available in abundance i.e. in unlimited quantity and the supply is much more than the demand. In short we can define free goods as goods which posses utility but which are not scarce.Economic goods are those goods (manmade or free gifts of nature) whose demand is more than supply. They command a price and they can be bought in the market.Free services and economics services Free services are those, which cannot be bought in the market and which are rendered due to love, affection etc. For example services of parents for their children. All those services, which can be bought in the market, are economic services such as services of doctors, engineers etc. The rest of the classification of goods and services deal only with economic goods and services.Consumer goods and Producer goods This classification is based on the purpose for which a particular good is used. Consumer goods are those goods, which satisfy the want of consumer directly. They are goods, which are used for consumption. For example bread, fruits, milk, clothes etc.Producer goods are those goods, which satisfy the want of consumers indirectly. As they help in producing other goods, they are known as producer goods. For example machinery, tools, raw materials, seeds, manure and tractor etc are all example of producer goods.Consumer’s services and producer’s services Here too the basis of classification is the same as that of goods. When the consumers or the households directly use services, they are known as consumer services. For example services of a tailor stitching your shirt or services of a doctor giving you the treatment or services of a plumber repairing your leaking tap, etc.Producer services on the other hand are used to produce other goods and services, which are in turn demanded by the consumers. In other words producer services satisfy the human wants indirectly. For example a tailor stitches a shirt for a readymade garment shop, an electrician repairs fault in the electric supply in a production unit or even a truck transporting raw material to a factory.Private goods and public goods Goods can be classified on the basis of their ownership. All goods that are privately owned and are exclusively enjoyed by individuals are called private goods. For example all the goods owned by you are private goods. This includes your watch, pen, scooter, books, table, chair, bed, clothes etc. If you own a factory then its building, machinery; tools etc are your private goods.Public goods are those goods, which are owned and enjoyed by the society as a whole.For example roads, bridges, park, town hall etc. are all collectively owned. They are available to all people in a society without any discrimination, i.e. no one is denied from the consumption of public goods. Both government and private entrepreneurs may produces public goods.Merit and demerit goods Merit goods are things that are 'good' for you, like public goods they can be provided privately. The problem is that if they are provided solely by the private sector then they tend to be under-consumed, so, again, the government has to step in. Merit goods are 'good' for you. Demerit goods are thought to be 'bad' for you. Examples are alcohol, cigarettes and various drugs. Market failure can occur if these goods are over-consumed. Again, the government must step in to stop this over-consumption. In the case of alcohol and cigarettes, the government imposes quite heavy taxes and duties. This means that their price rises significantly in the hope that this will deter people from consumption. THE DIFFERENT ECONOMIC SYSTEMSFree Market Economies: Private ownership of all economic resources Resources are allocated towards making those products that consumers wish to buy Firms obtain information about the products that consumers most and least want to buy through price levels and price changes. If more consumers want to buy a product then the price on the free market is likely to rise. Firms in the industry will want to produce more because…Firms operate to make a profit. The role of the Government in these economies is very restricted. Defense forcesInternal police and justice systems Controlling the money supply to prevent serious inflation Possible taking measures to limit extreme monopoly power of unions or businesses There are very few pure free market systems in the world today but they are economies that are pretty close to the model than others, for example the USA and Taiwan. Planned Economies There is state ownership and/or control of most of the economic resources. Central state planning devices what should be produced, the production methods to be used and how output should be distributed amongst the population. Consumers have little influence over what is produced, and the use of prices to indicate consumer preferences for goods is unimportant. Planned economies are most closely associated with the communist political systems. The number of such economies in Eastern Europe was greatly reduced with the ending of communist controls in the early 1990s. The best examples of countries that adopt central planning to allocate resources to production and the completed products to the population are Cuba and North Korea. Mixed Economies Many products and services are provided only by private businesses not the state, for example cars, computers and mobile phones. Most essential services (often referred to as public goods), such as police, fire service, defense, street lighting, social services and prisons are only provided by the state. Many important goods and services, which can benefit society as well as the consumer (often called merit goods), are provided by both the state and the private sector, for example schools, health services and broadcasting. In order to finance state-operated services, the population pays taxes to the government.The government places limits on the nature of business activity by, taking measures to control pollution from factories and by restricting monopoly powers of some firms. Table 1: Different economic system – advantages and disadvantages check listType of economic system and main features Possible advantages Possible disadvantages Free market system Private propertyProfit motive Price system Profit motive should make firms operate efficiently. Competition should help to keep prices low and lead to release of new products. Consumers have choices. Work is encouraged as taxes are very low, and there will be no state support for non-workers. Monopolies might be created as business owners see the gains to be made from reducing competition. No state support for the elderly, unemployed, etc. No government control over pollution. Income differences, which are likely to be substantial, not reduced by taxes. Planned system State ownership/control of economic resources Very little private sector business activity Central planning prevents duplication and wasteful competition, for example in the supply of bus services. Production decisions are based on the state’s assessment of people’s needs – not consumer spending patterns. Allows for long term planning – private firms often interested in short term profits. No consumer choice. No competition to improve product design and keep costs and prices low. Workers may be poorly motivated – no gains from working harder or showing enterprise to make a business successful. Very slow and bureaucratic decision making. Mixed economies Private sector business activity encouraged State controls resources in supply of certain goods and services Taxes used to collect revenue to pay for state goods and services State provides the essential services for all in society – whether rich or poor. Private sector still encouraged to be successful and allowed to earn profits from enterprise. Competition allows the advantages seen in a free market economy. Consumer choice exists and work incentives too. Inefficient business behavior is controlled or outlawed, for example dangerous products or polluting factories. Takes may be heavy to pay for state goods and services – this could reduce incentives to work hard or make profits. State organizations can be less efficient than private sector alternatives. Excessive controls over business activity can add to costs and discourage enterprise. ................
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