Karezza Powerpoint Management.pptx

CHAPTER III THE ORGANIZATION AND ITS ENVIRONMENT

Learning Objectives: a.

b.

c. d.

To understand the three options – sole proprietorship, partnership and corporation under which an entrepreneur could organize and their impact to his/her business. To appreciate the importance of organization analysis and design in determining the appropriate hierarchical structure of the company. To be aware of the stages of development of organizations. To know the government- required steps in starting a business.

First option is to remain as single proprietor. In this form, Mr. Chua as a single person holds the entire operation as his personal property, managing it on a day-today basis. Most businesses are of this type. Based from the text, Steps in Starting up a business, sole proprietorships are attractive to small investors because they are relatively easy to start up. Also, the owner is entitled to all the profits that the sole proprietorship collect and it can also be risky because there is no separation between the owner and the business.

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Advantages: Formation: less complicated in preparation of the documents and cheaper compared to starting a formal corporation. The proprietorship can be named after the owner, or a fictitious name can be used to enhance the business. Tax benefits: no requirement to file a separate business report. One will list the business information and figures within his/her individual tax return. The business will be taxed at the rates applied to personal income, not corporate taxes.

3. Decision making: Business decision remains the responsibility of the owner. The owner can also fully transfer the sole proprietorship at any time as he/she deems necessary. Disadvantages: 1. Liability: The business owner will be held directly responsible for any losses, debts, or violations coming from the business . For example, if the business must pay any debts, these will be satisfied from the owner’s own personal funds. The owner could be used for any unlawful acts committed by him/her or the employees.

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2. Taxes: While there are many tax benefits to sole proprietorships, a main drawback is that the owner must pay self-employment taxes. 3. Lack of “continuity”: The business may discontinue if the owner becomes deceased or incapacitated. Since the business and the owner are treated as one and the same, upon the owner’s death, the business maybe liquidated and becomes part of the owner’s personal estate, to be distributed to beneficiaries. However, this can result in heavy tax consequences on beneficiaries due to inheritance taxes and estate taxes.

4. Difficulty in raising capital: Generating the capital or the initial funds is usually provided by the owner. Sole proprietorships do not issue stocks or other money generating investments unlike corporations. 

Second option: Partnership A partnership is a single business with two or more people sharing its ownership. Each partner contributes to all aspects of the business, including money, property, labor or skill. In return, each partner shares in the profits and losses of the business.

Since partnership is a type of business that requires more than one person in the decision-making process, it's important that potential business partners discuss a wide variety of issue up front and develop legal partnership agreement. This agreement should document how future business decisions will be made such as how the business partners will divide profits ,resolve differences in the decision-making, change of ownership (bring in new partners or buy out current partners),and how to dissolve the partnership.

Advantages: 1. Easy and Inexpensive 2. Shared financial Commitment 3. Complementary Skills 4. Partnership Incentives for Employees 

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Disadvantages: Joint and Individual Liability Disagreements Among Partners Shared Profits

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Third option: Corporation Often times, business owners opt to form corporations to protect themselves against financial and legal liabilities. A corporation is a type of business that keeps the dealings, assets and bank accounts separate from his/her personal assets.

Advantages: 1. Separate legal personality 2. Ease of raising funds 

3. Continuity 4. Ease of transfer of ownership 5. Credibility Disadvantage: 1. More time and money spent in organizing 2. More paperwork 3. Higher tax 4. More costly 

Nature and Role of the firm A. Human Resource Management B. Marketing Management C. Operations Management D. Financial Management E. Material and Procurement Management F. Office Management G. Information and Communication Technology Management 

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Types of Organization Structure There are different types of organizational set-up or structure. These set-up or structure are designed to accomplish different goals. The structure of an organization in the movement toward accomplishing these goals. Organization, large and small in scale, can achieve higher sales and other profits by properly matching their needs with the structure they use to operate.

Advantages: 1. Trends to simplify and clarify authority 2. Promotes responsibility and accountability relationships 3. Promotes fast decision-making 4. Precise and simple to understand 

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Disadvantage: Neglects specialist in planning Overloads tasks on key personnel It becomes more ineffective as the organization becomes bigger. Managers become experts in too many fields or area. Tendency to become overly dependent on the few key people who are performing numerous jobs.

A line function, as discussed, is a position that has a direct chain of command that is responsible for the achievement of an organization’s goals.  A staff function, on the other hand, is intended to provide expertise, advice, and support for the line positions. An example of staff functions are HR, Quality Assurance, and Corporate Planning. There are, however, several variations of organizational structures. The three common types: functional, divisional, and matrix structure. 

Functional It is a set up wherein each department of the organization is grouped according to its function or purpose. For example, there may be a marketing department, a sales department and a production department. The functional structure works very well for a small businesses in which each department can support itself by relying on the talent and knowledge of its workers. 

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Divisional Divisional structure is another type of organization structure. This is typically used in larger companies or organization with several branches or outlets that operate in a wide geographic area or that have separate smaller organizations within the umbrella group to cover different types of products or market areas.

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Matrix Structure A matrix structure is a hybrid of two structures namely, divisional and functional structure. Typically used in large multinational companies, the matrix structure allows for the benefits of functional and divisional structures to exist in one organization. However, this can creates power struggles because most areas of the company will have a dual management- a functional manager and product or divisional manager working at the same level and covering some of the same managerial territory.

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Informal Organizational Structure Before we leave this topic on organizational structure, one must bear in mind that there are two broader organizational structure identified as : the formal and then informal organization.

The formal organization, as discussed and illustrated earlier, are usually represented with organizational charts and with position descriptions.

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The informal organization is a set of evolving relationships and patterns of human interaction within an organization that actually do exist but are not officially prescribed. Along side with this informal organization are the informal leaders who sometimes exert influence to organizational behavior.

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Organizational Design Principles Now that we have given you the different types of organization charts, showing the advantages of each, let’s take a look at some organization design principles.

Organizational design is the process of aligning an organization’s structure based on its vision and mission. It is a careful study at the complex relationship between tasks, workflows, responsibilities and authorities, and making sure these all support the objectives of the organizational strategy and mandate. Beyond solid and broken lines, shifting lines and boxes in an organization chart, one has to consider the company’s fundamental building blocks, namely: 

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Recognize how people in the company make decisions Determine how people adopt new behaviors Create how people are rewarded based on performance Agree on what are the commitments Manage information and utilize effectively Sense of responsibility is allocated and connected with one another.

Organization Analysis and Design (OAD) Organization analysis and design includes careful examination of detail staffing levels and hierarchy, spans of control, and repetitions of roles in the context of the businesses strategy. This implies that all work is not created equal-there are some tasks that are more strategically important to a company than others. It is important to understand that even if a company creates an elegant and celebrate organization design but fails to recruit the right composition of talent and skill; it would be meaningless. An organization is a dynamic and constantly changing force; hence, organization structure should be flexible and ready to adapt and respond to new and emerging needs and to the requirements of the present as well as to the future conditions and demands of business. 

According to the “ The Organization of the future”, a book by the Drucker Foundation of New York, claims that, “ Redesigns have poor track record. Many of the companies that restructure will restructure again a few years later. Some of these repeated redesigns are the result of external change; the first restructuring loses its relevance and power”. Organization Analysis and Design (OAD) is undertaken in the context of changing situations and conditions. Each study is done with specific objectives such as:

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To develop a structure by which the objectives and policies of the company can best be realized and the supporting plans implemented; To develop a structure that is responsive to environmental conditions (competitions, regulations, and technology); To develop a structure that clearly delineates duties, responsibilities, and working relationships of people.

We study organization structure for the main reason that it is innate to an organization as skeleton is to the human body. If the structure is weak, disjointed , and poorly developed, then no amount of planning will change the “ qualitative and quantitative”. All the planning for development will be in vain, for the plans will remain just as they are-mere plans. In a “Professional Practice Manual on Organization Studies”. Authored by Zorilla, he defined the scope, approach and methodology involved in the conduct of an OAD.

Nature and Scope of Organization Analysis and Design (OAD) Organization analysis generally involves the design of an organization structure including the delineation of the levels of authority and responsibility and the definition of the functions and interrelationships of organizational units and/or positions. Organization structure is usually graphically presented in a basic organization chart, a functional chart, and a detailed position chart . The recommended organization is based on sound concepts and principles relevant to the unit under study. 

In order to design a structure that is highly adaptive and flexible to the demands of a dynamic organization, the design must consider a number of factors:  Internal company factors such as corporate objectives, philosophy, strategy, policies, and procedures;  Leadership style, individual goals and objectives of top management; and  External factors such as developments in the industry, government policies, and laws regulating company operations, foreign markets, and relationships with other entities.

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Stages of Development of Organizations Organizations, like human beings, pass through several stages of development. A human being’s life cycle comprises of four stages of development: childhood, adolescence, maturity, and old age. Similarly, an organization passes through several stages. Even the best managed companies pass through stages of organizational development, including period of chaos. Chaos in this context is absolutely necessary for the growth and survival of a company. Otherwise, the alternative could be stagnation.

Author Renee O’Farrel identifies stages:  Chaos  Stability  High Performance Stage III: High Performance (Outstanding, Sustainable Results)  Clear statement of mission that creates a sense of esprit de corp  Well-defined values which result in distinctive culture. Respect for people that is deeply ingrained is part of the culture.

Good communication  High and active involvement and empowerment of people. Design ( work flow, structure, system) supports mission and values. Stage II: Stability ( Back to the basic)  Clarity of goals and direction  Consistency in priorities  Well-defined policies and responsibilities ( technical and personnel)  Agreement on roles and responsibilities  Basic management processes rewarded and practiced (goal-setting, performance reviews,etc.) 

Stage I : ( Fire-Fighting Mentality)  Crisis/Short-term focus  Lack of clear direction and goals  Shifting priorities  Unclear policies and procedures  “Us”vs. “them” attitude  Blame and lack of ownership  Alienated workforce

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Summary Every business organization goes through the stage of chaos. In the case of Mr. Chua’s grocery business , it’s natural if it goes through a stage of chaos in its initial stage. The trick is to provide an environment out of chaos that favors stability. But given his patience and dogged determination, his business will go up to the second stage of stability and ultimately, high performance. There is no simple formula. Real organizational development requires commitment and hard work. Also, initiatives to eliminate waste, improve quality, provide better customer service, people empowerment, continued improvement, can lead to a foundation of organizational stability and eventually high performance.

Starting a Business This chapter will not be complete without giving the reader the basic process of starting a business. Almost all big businesses start small. SM, the shopping mall giant began with a small shoe in Carriedo Street, Quiapo, Manila . About 99.58 percent of the business in the Philippines that contributes 32% of the country’s Gross Domestic Product ( GDP) and accounts for 61 percent of the local workforce belong to the Micro, Small, Medium-size Enterprises (MSMEs).

In case the flow chart is not readable to some, we are repeating hereunder in clearer form the steps to be taken by anyone who wants to start a business. Step 1  For single proprietorship, register with the Department of Trade and Industry (DTI) for business name  For Partnership or Corporation, register with the Securities and Exchange Commission (SEC) for Certificate of Partnership or Corporation  For cooperatives, register with the Cooperative Development Authority (CDA)

Step 2  Apply for business permit and license from the city/municipality where the business is to be located. Get sector specific clearances. For example  Travel Agency- Department of Tourism  Food and Cosmetics- Food and Drug Administration (FDA)  Pawnshop- Bangko Sentral ng Pilipinas (BSP)  Learning Centers- Department of Education ( DepEd)  Woos crafts/furnitureDepartment of Environment and Natural Resources (DENR)

Step 3  Register with the Bureau of Internal Revenue (BIR) District Office where the business is to be located for Authority to Print Invoice and Book of Journal . Step 4  Other registration requirements Register your business with the following offices for compliance to good employer –employee relationships, incentives and benefits, and social, community, and environmental responsibilities

Social Security System (SSS)  Department of Labor and Employment (DOLE)  PhilHealth  Pag-ibig  Department of Environment and Natural Resources (DENR) Step 5 Start the business The BMBE Law exempts MSMEs from income tax for income arising from operations of the enterprise. The local Government Units (LGUs) are also encouraged either to reduce the amount of local taxes, fees, and charges for MSMEs or exempt them from these taxes, fees, and charges. 

Furthermore, MSMEs are exempted from the coverage of the Minimum Wage Law although their employees are covered by the Social Security Law and the health care benefits of PhilHealth. Government financial institutions such as, Land Bank of the Philippines (LBP),Development Bank of the Philippines (DBP), the Small Business Guarantee and Finance Corporation (SBGFC),and the People’s Credit and Finance Corporation (PCFC) shall set up a special credit window that will service the financing needs of MSMEs registered under the law.

GROUP II ALBOFERA, QUEEN KAREZZA

JERICA VAZ TAMPOY

Cedeño, Willy Jane

Magulinay, Lovely Rose

Pael ,Archelo

Thank you for listening!!! 