Business Environment

BUSINESS ENVIRONMENT

UNIT ASSESSOR M. JAMSHED KHAN

HIGHER NATIONAL DIPLOMA(HND) IN BUSINESS

WHAT IS AN ORGANIZATION ?

ORGANIZATION An organization is a deliberate arrangement of people to accomplish a pre-specified purpose. This purpose can be of a political, social, religious, educational, sports, business etc., nature.

ORGANIZATION All organizations have three common characteristics. 1) 2) 3)

Purpose People Structure

ORGANIZATION 1) Purpose Every organization has a distinct purpose. This purpose is typically expressed in terms of a goal or a set of goals that organizations hope to accomplish.

ORGANIZATION 2) People Every organization has people working in it. A person working alone is not an organization.

ORGANIZATION 3) Structure All organizations develop some deliberate structure so that their members can do their work. This structure may be open and flexible or more traditional with clearly defined rules, regulations and job descriptions.

ORGANIZATION Six key elements of Organizational Design      

Work specialization Departmentalization Chain of command Span of control Centralization & Decentralization Formalization

ORGANIZATION Two things must be remembered in relation to the working of an organization. 1) 2)

Efficiency Effectiveness

ORGANIZATIONS Following are the different types of Organizations.    

Public sector organization Private organization Voluntary organization Charitable organization

ECONOMY SECTORS Three Sectors of the Industry

1)Primary sector 2)Secondary sector 3)Tertiary sector

ECONOMY SECTORS Primary sector is the sector that produces raw material such as crops and minerals. Examples of primary sector are the agriculture sector, fishing, live stock etc

ECONOMY SECTORS Secondary sector is the sector that uses the raw materials produced by the primary sector. In case of Pakistan, a good example will be the textile industry or the leather jacket industry.

ECONOMY SECTORS Tertiary sector consists of distribution and service industries. Services include activities such as banking, tourism, hairdressing, office cleaning, tax advice and the media.

Aims of Organizations The main aims/ objectives of organizations are listed as follows. 1) Profit maximization 2) Market share 3) ROCE 4) Sales

Aims of Organizations 5) Level of services 6) Growth 7) Customer/User perception

Aims of Organizations 

Profit Maximization

Accounting Profit / Business Profit  Economic Profit  Normal Profit 

Aims of Organizations In order to maximize profit the firms have to incur costs today in order to generate returns in the future. A firm has to make investments (e.g. in physical capital, human capital etc.)

Aims of Organizations 

Market Share MS is the percentage or the proportion of the total available market or market segment that is being serviced by the company.

Aims of Organizations It is the company sale’s revenue divided by the total sales revenue available in the market. It is the company’s unit sales volume divided by the total volume of units sold in the market

Aims of Organizations Requires a lot of research to find out the exact market share of a company and increasing market share is one of the most important objectives of the company.

Aims of Organizations ROCE It is an abbreviation for return on capital employed. ROCE= pretax operating profit capital employed 

=

operating revenue – operating expenses total assets – current liabilities

Aims of Organizations 

Sales A firm also strives to increase its sales. Sales can be thought of both in a monetary and in a physical context. For increasing sales different types of sales promotion measures are under taken. To find out the feasibility of these measures regression analysis is often used.

Aims of Organizations 

Growth An increase in the size of the firm is called growth. Companies strive for growth in order to avail the “Economies of scale”.

Aims of Organizations Two methods are used to achieve growth 1) 2)

Organic Growth Growth through mergers and takeovers

Aims of Organizations Mergers and takeovers can be further categorized according to the fact that what firms are coming together. Are they exactly in the same line of business, are they in related business but different stages of production, or are they altogether in different lines of business.

Aims of Organizations 

Horizontal Integration When two firms in the same business merge there is horizontal integration. For example if All England chocolate plc merges with British Chocolate plc, it will be a horizontal integration. Horizontal integration can often result in monopolies.

Aims of Organizations 

Vertical Integration When two firms operating at different stages in production merge, it is called vertical integration. For example the stages in the production of petrol for cars are as Oil extraction, shipping, refining, distribution and retail sales. If different firms operating in any stage merge it would be vertical integration.

Aims of Organizations 

Conglomerate Integration When two companies in different businesses merge, it is called conglomerate integration. Nowadays most firms are focusing on core businesses.

Aims of Organizations 

Economies of scale Economies of scale are those cost saving advantages that firm get due to large scale production 1) Internal Economies 2) External Economies

Aims of Organizations 

Internal Economies The advantages resulting from the expansion in the size of firm itself are called internal economies.

Aims of Organizations Internal Economies are classified under five heads. 1) Technical 2) Managerial 3) Commercial 4) Financial 5) Risk bearing

Aims of Organizations 

DisEconomies of scale The disadvantages resulting form the expansion in the size of a firm is called diseconomies of scale.

Aims of Organizations There are generally two types of internal diseconomies of scale. 1) 2)

Management Diseconomies Labour Diseconomies

Aims of Organizations 

External Economies of scale The advantages resulting from an expansion in the size of the whole industry are called external economies of scale.

Aims of Organizations External economies of scale are of three types. 1) 2) 3)

Economies of Concentration Economies of Information Economies of Disintegration

Aims of Organizations 

External diseconomies of scale The disadvantages resulting from an expansion in the size of the industry are called external diseconomies of scale.

Aims of Organizations External diseconomies of scale are of the following types. 1) 2)

3)

Diseconomies of Pollution Diseconomies of Overused Infrastructure Diseconomies of high Factor Price

Aims of Organizations Level of Service An organization might also appear successful because it achieves a high level of service and this might be set as an objective. 

Every organization aims at providing its customers the best possible level of service.

Aims of Organizations 

Customer/User Perception

Customer perception is the key consideration in meeting customer’s requirements. It is very important to efficiently understand customer expectation and make sincere efforts to exceed their expectation.

Aims of Organizations A positive user perception will, beyond any doubt, increase the demand of a product of the firm in question. All firms try to positively influence the perception of the user about its products and services.