Unit 1. BUSINESS ORGANIZATION

 

    Text 1.  What is a business organization?

During the life every person is more or less connected with various organizations; there is no organization without people, there no people which are not connected with an organization. Here we will speak about a business organization (a commercial enterprise), exercising the function of managing production, distribution and sale of goods and services for the buyers’ benefit and sellers’ profit. If a group of people wants to form of an organization, they should consider the following conditions: a) presence of at least two persons; b) presence of at least one general goal; c) presence of a team of members who have intention to work together in order to achieve this general goal.

Any organization is a system and its main characteristics include: a) interrelationship between the organization and environment; b) labor division (horizontal and vertical); c) management.

In fact, an organization is the unity, which operates successfully, if it is managed efficiently.

The components of the success of any organizations are: efficiency, economy and productivity.

To succeed, any organization must change for the better all the time, and it is the task of its management to lead their organizations to the win. Actually, to succeed, a firm must be managed successfully. The essential elements of any organization are as follows: a) organizational structure; b) people; c) objectives; d) technology.

Organization is known to be the framework of responsibilities, authority and duties through which all the resources of an enterprise are brought together and coordinated for the achievement of management objectives.

The well-known model of an organization is like a tree, where the crown of the tree is the embodiment of business units, the trunk represents core products and the roots constitute core competence.

The typical organization can be described in terms of;

Hierarchy (an organization is headed by; he/she reports to/ is under / is accountable to/ is assisted by/ is supported by);

Functions/responsibilities (he/she is responsible for/ is in charge of/ takes care of);

Titles: Executive Board (Am) – Board of Directors (Br);

President (Am)  -  Chairman (Br);

Chief Executive Officer (Am) – Senior Vice-President (Am) – Managing Director (Br);

Vice-President of Finance (Am) – Finance Director (Br)

Sales Director (Am) – Sales Manager (Br).

Affiliates (it is a parent company; it is a subsidiary);

Structure (functional; line and staff; project and matrix structures, etc)

To operate effectively, people must know their duties, responsibilities and their authority, and that is the main reason why a company needs its structure.  There are companies with a simple organization structure – with a single manager, ad there are companies with a team of managers with a wide manager’s span of control, which becomes richer with company’s growth.

The span of control (span of responsibility) refers to the number of subordinates who can be effectively supervised directly by one manager, supervisor or other person in authority.  The wider is the span of control the better is the managerial activity, and the more superior’s time is saved. It is the fact that the span of management is the narrowest at the top and the widest at the bottom. For example, Managing Director may have accountable to him just three of four departmental executives whereas a foreman may be responsible for the supervision of fifteen or more workers).

Every organization has its own life cycle, which includes the following stages: Formation, Growth, Maturity and Decline. Like a human, a business organization goes in its activity through its birth, growth, maturity and dying down. 

TEXT 2. Forms, types and styles of business organizations.

It is the well-known fact that business can be privately owned in three forms, the widely practiced are as follows: sole proprietorship, partnership and corporation. Additionally, there are different ‘hybrids’ like franchise, limited partnership, joint venture and cooperative.

Basic kinds, forms, styles and structures of business organizations:

- Organization by forms of business: sole proprietorship; partnership; corporation

- Kinds of business organization: joint stock companies; holdings; limited partnership; franchises; joint ventures; cooperatives.

- Basic structures of business organization: line structure; functional structure; line and staff organization structure; departmentalization by product, territory or customer; matrix organization structure.

- Styles of business organization: bureaucratic; contingency; just-in-time (JIT)

Any business organization exists only as long as it satisfies customers’ needs, either present or able to be created, and at a price attractive to the market. The actual practice does not lead to the most efficient form of a business organization, so proprietorships, partnerships and corporations have their advantages and disadvantages. They have structure, through which the activities of personnel at all levels can be utilized in an orderly and controlled manner to the benefit of the enterprise as a whole.

 Sole proprietorships are the most numerous form of business organization. No charter and permit are needed and there are no particular legal requirements for organizing or conducting a sole proprietorship. When started, many sole proprietorships are conducted out of the owner’s home, garage, or van and inventory may be limited and may often be purchased on credit.

Advantages: 1) easy to start; 2)flexible; 3) is owned by one person, which has a total control; 4) profits belong to the owner.

Disadvantages:  1) limited resources;2) difficulties in raising capital, hiring professionals and in management; personal responsibility and financial liability are unlimited; 4)  instability, great risk of loosing capital.

Partnership: In a partnership, two or more people share ownership of a single business. Like in proprietorships, the law does not distinguish between the business and its owners. The partners should have a legal agreement that sets forth how decisions will be made, profits will be shared, disputes will be resolved, how future partners can be bought out, pr what steps will be taken to dissolve the partnership when needed.

Advantages: 1) capabilities are expanded because of more than one owner; 2) ability to share capital, experience, pressure and work; 3) financial liability is limited; 4) the ability to raise funds may be increased; 5) prospective employees may be attracted to the business if given the incentive to become a partner.

Disadvantages: 1) difficulties in supporting of uniformity in management; 2) distinction in duties and profits are not easy to define (conflicts); 3) difficulties in getting loans from the banks; 4) partners are jointly and individually liable for the actions of the other partners; 5) profits must be shared with others; 6) partnerships may have a limited life; it may end upon the withdrawal or death of a partner.

Types of Partnership:

1. General partnership. Partners divide responsibility for management and liability, as well as the shares of profit or loss according to their internal agreement. Equal shares are assumed unless there is a written agreement that states differently.

2. Limited Partnership. ‘Limited’ means that most of the partners have limited liability (to the extent of their investment) as well as limited management decisions, which generally encourages investors for short term projects, or for investing in capital assets. This form of ownership is not often used for operating retail or service businesses. Forming a limited partnership is more complex and formal than that of a general partnership.

3. Joint venture. Joint Venture acts like a general partnership, but it is formed for a limited period of time or a single project. If the partners in a joint venture repeat the activity, they will be recognized as a continuing partnership and distribute accumulated partnership assets upon dissolution of the entity.

4. Corporation. A corporation is chartered by state in which it has headquarters. It is considered by law to be a unique entity, separate and apart from those who own it. A corporation can be taxed; it can be sued; it can enter into contractual agreements. The owners of a corporation are its shareholders. The shareholders elect a board of directors to oversee the major policies and decisions. The corporation has a life of its own and does not dissolve when ownership changes.

Advantages: 1) limited financial liability; 2) ability to sell shares; 3) easy to borrow from bank; 4) delegation of authority; 5) succession; 6) synergy and high salaries. 7) corporations can raise additional funds through the sale of stock

Disadvantages: 1) not easy to organize and ‘untwist’; 2) “double taxation” (corporate tax); 3) strict legal regulation; 4)  corporations are monitored by federal, state and some local agencies, and may have more paperwork to comply with regulations

It is obvious that corporation is the dominant form of a large-scaled business organization it terms of a present market. The number of organizations has been growing constantly, and there is no reason why growth should not continue indefinitely. In the context of an organization the responsibility, authority and duty can be considered as the basic obligations.

Responsibility must be defined as an obligation to make sure that authority is used in the proper way and that duties are properly carried out as well. In this sense, a chief executive takes full and ultimate responsibility for the effective operating of the organization.

Authority must be stated as a power to assign duties to subordinates and to ensure their carrying out. And definitely, the delegation of authority is an important part of any job.

Duty. This is the obligation to obey the orders and instructions. In most organizations the number of orders and instructions grows with great rapidity to meet changing requirements and circumstances.

When organization is small it will be centralized: that is it will consist of one unit, and responsibility and authority for all activities will remain with a chief executive. With growth and development the unit should be split into parts with a level of authority (decentralization), or the larger the unit may be planned (centralization).  Some business organizations are highly centralized with power concentrated in their head offices.

    Text 3. Organization structure

It is necessary to mention that the business of any organization is to establish an organization structure.

In business, the organization structure means the relationship between positions and people, who hold these positions; it shows who reports to whom.

The organization structure is often too broadened; it is difficult to understand the subordination. While growing up, there is a tendency to increase the number of levels of management, to ensure the effective supervision in the organization. However, in recent years many organizations have adopted ‘flatter’ organization structure reducing the number of management levels.

The organization structure is always of multiple levels. Generally, a company is made up of three groups of people: shareholders; management; workforce.

In any case, it is useful for top managers to answer the key questions from time to time:

- Is our organization structure clear and understandable?

- Does it correspond to our business strategy?

- Is our subordination clear and if so, to what level?

- Are the sphere and span of control rational enough?

- Do our managers’ responsibility levels correspond to their power and competence? 

The simplest and the oldest form of organization, line organization, represent a clear line of responsibility and authority of each level and above and below each level, it works only for small firms.

The next form is a functional organization with various departments: finance, marketing, production, etc. It is common for rather small firms, as well.

The best-known form is the mixed one: the line-functional form. The major advantage of a line-functional structure is that it is simple with different chain of command and easy to control; the functional specialists are not involved in routine running of an organization, this is the responsibility of line management. The most known disadvantage constitute its unclear lines of authority: many superiors over the workers and difficulties in speedy decision-making. Moreover, the staff functional officers may try to seize the whole power. This form works for large companies.

Some large-scaled companies use departmentalization by territory, product or customer.

For example, the product lines organization structure is effective in terms of a changing market. It is focused on the efficient decision making inside and outside the organization.

Today the main types of structure used by most organizations are the project and matrix ones. The project structure is temporally organized for a concrete problem solving. The matrix structure does not have a traditional hierarchy. The authorities move vertically from top to bottom, and there is more freedom for the staff to innovate and carry out competitive objectives. (Схема). The matrix structure organizes the business into project groups lead by project leaders, and ensures sufficient and strategic adaptability.

As for the styles, it is usual to consider three main styles of organization: 

Bureaucratic organization is the concept where formal procedures are strongly prescribed.

Contingency organization is aimed at ‘the law of situation’, its structure is fluid and strongly influenced by the environment; its response to change is opposite to the first organizational style.

Just-in-Time organization (JIT) requires staff to take a high responsibility for their work; it is focused on tight relation with suppliers, on the high standard of a product quality and on the interaction between supply and demand. This style includes a process, through which products are delivered to customers; they are precisely timed to meet demand. There are many points of interaction between all these links.

Organization as the management object

An organization and its personnel constitute the main objects of management. There are two basic models of organization as management objects:

Organization as the close system:

Organization as the mechanic structure       Organization as the   working team

Operational management                                              Personnel management 

                       

Organization as the open system

Organization as the complex hierarchy Organization as the public organization

Strategic management                          Employees’ involvement in activities

 

It is worth summing up: any organization is a corporate enterprise that has a legal identity; it operates as one single unit, and all members take part in its activities and management; additionally any organization should be established on the basis of the expected work-load. It is interesting to note that, according to Philip Kotler, there are three types of organizations:

- organizations, which make things happen;

- organizations, which watch things happen;

- organizations, which wonder things happen.

Text 4.  Board of directors and CEO

A company’s board of directors helps management to develop business plans, economic policy objectives, and business strategy. A board of directors often selects the chief executive of the business, supports him, reviews his performance, and may dismiss him.

Through regular meetings, the board helps ensure effective organizational planning and sees that company resources are managed effectively. The board of directors also sees that the company meets regulatory requirements that apply to that business. The board of directors also must assess overall performance of the corporation.

Directors monitor a company’s financial performance and the success of its products, services and strategy.   Directors are expected to follow developments that can affect business. They must set aside any potential conflict between their personal or individual business interests to support the well-being of the business which they serve.

The most effective board of directors will be a group of professionals who bring a breadth of skills, experience and diversity to a company. As a company grows and changes, the governing board also will change to meet changing needs and circumstances.

Major duties of Board of Directors are:

1. Select and appoint a chief executive; to review and evaluate his/her performance; to offer administrative guidance and determine whether to retain or dismiss him

2.  Govern the organization by broad policies and objectives.

3. Acquire sufficient resources for the organization’s operation

4. Account to the public for the products and services of the organization and expenditures of its funds.

Major responsibilities of Board of Directors:

1. Determine the Organization’s Mission and Goal.

2. Select  the Executive

3. Support the Executive and review his/her performance

4. Ensure effective organizational planning

5. Ensure adequate resources

6. Manage resources effectively

7. Determine and  monitor the organization’s products and services.

8. Enhance the organization’s public image

9. Assess organization’s performance.

Typical Major functions of Chief Executive Officer of a Corporation 

There is no standardized list of the major functions and responsibilities carried out by position of chief executive officer. The following list is one perspective and includes the major functions typically addressed by job description of chief executive officer:

1. Board administration and support. Chief executive officer (CEO) supports operations and administration of Board by advising and informing Board members, interfacing between Board and staff, and supporting Board’s evaluation of chief executive.

2. Program, Product and Service Delivery. CEO oversees design, marketing, promotion, delivery and quality of programs, products and services.

3. Financial, Tax, Risk and Facilities Management. CEO recommends yearly budget for Board approval and prudently manages organization’s resource within those budget guidelines according to current laws and regulations.

4. Human Resource Management. CEO effectively manages the human resources of the organization according to authorizes personnel policies and procedures that fully conform to current laws and regulations.