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Business and Business Environment

Business and Business Environment Introduction

Business is the organised efforts and activities of individuals to produce and sell goods and services for profit. Business commence with a business concept – based on market research and ability to deliver customer value. Business environment is the sum total of all external and internal factors that influence a business. This constitute suppliers, customers, competitors, employees, media, government, economic conditions, investors & multiple other institutions.

Read the article on ‘Why Good Companies Go Bad’ by Donald Sull (1999) – HBR Identify examples of companies whom have successfully responded to the business environment and companies whom have failed to respond.

Unit introduction

• 4 learning outcomes
• 15 lecture sessions
• 2 assignments – LO 1 & 2 (1st Assignment) LO 3 & 4 (2nd Assignment)
• Submission deadlines : 2nd January 2020 (1st Assignment) & 24th February 2020 (2nd

Assignment) – These dates may vary and would be indicated in assignment brief

• 4 mandatory reviews for the assignments – 2 reviews per assignment
• Assessment criterion

Learning Outcomes

• LO 1 – Explain the different types, size and scope of organisations
• LO 2 – Demonstrate the interrelationship of various functions within an organization and how

they link to organizational structure

• LO 3 – Use contemporary examples to demonstrate both the positive and negative

influence/impact the macro environment has on business operations

• LO 4 – Determine the internal strengths and weaknesses of specific businesses and explain

their interrelationship with external macro factors

Unit 01 – Different Types, Size and Scope of Organisations

Lesson 01 : Introduction to different types of organisations

Organisation

• An organisation is a social arrangement for controlled performance of collective goals.

Identify which of the following is considered as an organisation? 1. Ceylon Biscuits Limited 2. Department of Motor Traffic 3. Unilever PLC 4. Local foot ball team 5. School 6. UNICEF

Vision & Mission

Vision: The desired future state of the organisation. Mission: Overriding direction & purpose of the organisation.

Illustration: Examples of mission American Express – famous for their great customer service. They believe that customers will never love a company until the employees love it first. Their mission reads: ‘At American Express we have a mission to be the world’s most respected service brand. To do this, we have established a culture that supports our team members, so they can provide exceptional service to our company.’ IKEA – their mission could have been a promise for beautiful, affordable furniture., Instead IKEA dream big with their mission: ‘To create a better everyday life for the many people. Our business ideas support this by offering a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them.’ Nike – view each customer as an athlete. Their mission is: ‘To bring inspiration and innovation to every athlete in the world. If you have a body, you are an athlete. Illustration: Examples of vision ‘To be the most respected and successful car company in America’ (Toyota) ‘To be the company that best understands and satisfies the product, service and self-fulfilment needs of woman globally’. (Avon) ‘The BA Way’- service that matters for people who value how they fly

(British Airways)

Objectives

S

• Specific - a clear statement , which is easy to understand on the

expected outcome

M

• Measurable - ability to assess the results achieved against the plan

A

• Achievable - within the capabilities of people and resources employed

R

• Realistic - practical and sensible assessment of capabilities

T

• Time related - completion date and interim milestone dates where appropriate

Pick your brain!

List two objectives for an organisation such as BMS

Apply your learning:

Identify from the below examples which are the appropriate objectives and justify. 1) To achieve a market share of 2% by 2021. 2) To achieve a profit increase of 3% by luxury furniture segment by end of 2020. 3) To retain customers 4) To improve market share by 50% by end of year 2019

Classification of objectives

Economic objectives 1. Profitability 2. Creation of customers 3. Continuous and regular innovations 4. Efficient and effective use of resources Social objectives 1. Production and supply of quality goods and services 2. Adoption of fair trade practices 3. Contribution to the general welfare of the society Human objectives 1. Economic well-being of the employees 2. Social and physiological satisfaction of employees 3. Development of human resources National objectives 1. Creation of employment 2. Promotion of social justice 3. Production according to national priority 4. Contribute to revenue of the country 5. Self sufficiency and export promotion Global objectives 1. Raise general standards of living 2. Reduce disparities among nations 3. Make available globally competitive goods and services

Different Types of Organisations

Organisational classifications Classification based

• n objective

For profit

• rganisations

Not for profit

• rganisations

Classification based

• n sector

Public sector

• rganisations

Private sector

• rganisations

Classification based

• n legal structure

Incorporated

• rganisations

Public limited companies Private limited companies Non-incorporated

• rganisations

Sole trader Partnership Classification based

• n size

Micro Small Medium Large

• 01. Classification Based on Objectives

For profit organisations

• Maximise the wealth of the owners
• Most organisations are for profit organisations
• Economy of a country is driven by these
• rganisations

Not for profit organisations

• To provide a service to the general public
• These will have objectives such as..

1. Hospitals to treat patients 2. Councils may see their mission as caring for patients 3. Government agencies exist to implement government policies 4. Charities to provide societal welfare

Based on primary purpose of existence Research: List down minimum 5 NFP’s and write down their purposes

• 02. Classification based on sector

Public sector

• Companies or businesses wherein government is the owner
• f the business by a way of majority shareholding in the

business

• These businesses are owned, operated, controlled and

managed by the government

• These entities are driven by the purpose of providing the

basic public services to common public at reasonable cost.

• Profitability is not a prime motive
• Main industry focus: water, electricity, education, oil & gas

mining, defence, banking & insurance, healthcare etc.

Private sector

• These are companies managed, operated, controlled and
• wned by private individuals
• Prime objective is to generate profit by operating within the

rules and compliances of respective country

• Main industry focus: All most in all industries

Discussion: List down 5 public sector companies in different industries in Sri Lanka and identify the product/services offered by them

• 03. Classification based on size

Micro business 1. A business which operates in a very small scale 2. Fewer than five employees including the owner E.g. – Catering, childcare, event planning, computer services, accountancy Small business 1. Capital investment in plant and machinery does not exceed LKR 4.00 million 2. Regular number of employees does not exceed 50 persons Medium scale business 1. 50-99 employees Large business 1. More than 100 employees

SME sector – Sri Lanka

• SME sector (small & medium scale) form the

backbone of the Sri Lankan economy – found in almost all sectors in the economy.

• SME sector accounts to 52% of the GDP and 45% of

the total employment.

CHALLENGES

• Access to finance: trade finance – limits the

development and opportunities for trade.

• High interest rates for loans
• Inability to provide collaterals
• Inability to provide credit history
• Creating barriers for e-commerce
• Logistics of shipping a good or delivering a

service

• ICT security and data protection
• Payments
• Weak business environment
• Cash flow issues
• High taxation
• Inconsistent government policies

Group discussion: fill in the table

Size Objectives Market share Profit share Growth Sustainability Examples from Sri Lanka Micro business Small business Medium business Large business

• 04. Classification based on legal structure

The concept of legal person Legal person is referred to as a juristic personality whom is eligible to: 1. Make contracts 2. Carry out business transactions 3. Own property 4. Employ people 5. Sue and be sued for the breach of contract Limited Liability Limited liability is a type of legal structure for an organisation where a corporate loss will not exceed the amount invested in a

• company. In other words, investors’ and owners’ private assets are

not at risk if the company fails.

Classification based

• n legal structure

Incorporated

• rganisations

Public limited companies Private limited companies Non-incorporated

• rganisations

Sole trader Partnership

• 04. Classification based on legal structure

Characteristics Sole Proprietor Partnership Structure An individual doing his own business Two or more people doing business together Incorporation Not required Voluntary Governing act No specific statue Sri Lankan Partnership Act 1890 Minimum members Only one Only two Liability Born by proprietor only Shared by the partners Duration Uncertain Depends on the desire and capacity of partners Management Inefficient management due to limited supply of skills Collective skill of partners lead to efficient management Finance Scope of raising capital is limited Scope of raising capital is comparatively high Freedom of decisions Owner can make all the decisions regarding the

• peration of the enterprise without having to seek the

approval of others Infighting and differing opinions may prevent the business from moving forward and could jeopardize its existence if the partners cannot resolve their differences

Mini case study

D.L. & G De Saram is a small firm of solicitors based in Colombo. There are four partners in the business and each one specialises in a specific area of law.

• Partner A is an expert in property law and deals with property ownership disputes
• Partner B deals with tax and corporate matters for business clients
• Partner C deals with wills
• Partner D is responsible for administration and also deals with criminal cases

a. Use the above case study as an example to explain the meaning of partnership b. Identify and explain one of the main advantages of partnership

• 04. Classification based on legal structure

Characteristics Private Limited Company Public Limited Company Ownership Shares are traded amongst family members and close friends Shares are traded in a stock exchange, hence, general public has access to the shares Minimum members 2 7 Maximum members 200 Unlimited Suffix Private Limited Limited

Research: List down minimum 5 PLC’s and PVT’s in Sri Lanka

Stakeholders

Definition Any group or individual who can affect or (be) affected by the achievement

• f an organisation’s objectives.

Internal vs. external stakeholders

• Internal stakeholders are people whose interest in a company comes

through a direct relationship, such as employment, ownership or investment.

• External stakeholders are those people who do not directly work

with a company but are affected in some way by the actions and

• utcomes of said business. Suppliers, creditors and public groups are all

considered external stakeholders

Research: Identify stakeholders of BMS and list their interests

Corporate Social Responsibility (CSR)

Definition

Corporate social responsibility is management’s obligation to make choices and take actions that will contribute to the welfare and interests of society, not just the organisation.

Discretionary Responsibility Contribute to the community; be a good corporate citizen Ethical Responsibility: Be

• ethical. Do what is right. Avoid

harm. Legal Responsibility: Obey the law Economic Responsibility: Be profitable

Pick your brain!

1. List five benefits of CSR practices for an organisation 2. Identify initiatives BMS can adopt to be a good corporate citizen

Corporate Social Responsibility (CSR)

Research: Identify CSR practices adopted by companies in Sri Lanka Class Project – HND Batch 07 Brainstorm ideas and identify a list of CSR initiatives which your class can undertake. Recommend one initiative based on its financial and non-financial feasibility Produce an initial budget for the suggested project Identify sources of collecting funds GO ahead with the project Report on each individual’s contribution