Topic 2 Types of Organisations Higher Business Management 1
Learning Intentions / Success Criteria Learning Intentions Types of organisations Success Criteria Learners should be aware of the structure of each and be able to describe the similarities and differences between structures in the private, public and third sectors. Private limited companies Public limited companies Franchises Multinational organisations Public sector organisations Third sector organisations 2
Types of Organisations Private - Limited companies (Private and Public) - Franchises - Multinationals Public - National government organisations and agencies Third - Non-profit making organisations, e.g. charities - Social enterprises 3
Private Sector 4
Public Limited Companies (Ltd) Ownership Control Individuals, family or friends. Individuals or group of individuals (partners). Main finance Shares sold privately to investors whom the business knows, such as family, friends or employees. Main aims Maximise profit and growth. 5
Advantages/Disadvantages of Private Limited Companies (Ltd) Advantages Owners (shareholders) have limited liability (owner s personal possessions are not at risk). Ownership is not lost to outsiders. Businesses provide a close and tight-knit, friendly feel with a high level of customer service. Expertise and business acumen are gained from an experienced board of directors. Disadvantages Profits have to be split with may shareholders by issuing dividends. A complicated legal process is required to set up the company. Limited source of finance as shares are not sold publicly. Must abide by the Companies Act. Must produce annual accounts, which can be viewed by competitors and investors. 6
Public Limited Companies (PLC) Ownership Control Shareholders Board of directors Main finance Selling shares to the public through the stock market. Main aims Dominate the market / increase market share / increase market value (the total value of all their shares). 7
Advantages/Disadvantages of Public Limited Companies (PLC) Advantages Shareholders have limited liability. Large amounts of finance can be raised through the public sales of shares. It is easy to borrow finance due to the PLC s size and reputation, so less risks for banks. PLCs can easily dominate the market. Disadvantages Dividends are shared with many shareholders. Control of the business cab be lost as anyone can buy shares on the stock market. Annual accounts have to be published. Setting up a PLC is costly and complicated. 8
Franchise Ownership Shareholders and the owner of each individual branch is known as a franchisee. Control Franchiser Main finance Selling shares to the public through the stock market and franchisees. Main aims To grow / increase market share / increase market value. 9
Advantages/Disadvantages of Franchisers Advantages for the franchiser A low risk form of growth as the franchisee invests the majority of the capital. Receives a percentage of all franchisee s profits each year (known as royalties). Disadvantages for the franchiser The reputation of the whole franchise can be tarnished by one franchisee. Only a share of profits is received rather than all profits as it would be if they owned each branch. 10
Advantages/Disadvantages of Franchisees Advantages for the franchisee The franchise is a well-known business with an existing customer base. Industry knowledge and training is providing by the franchiser. The franchisee benefits from national advertisements carried out by the franchiser. Disadvantages for the franchisee There is very little autonomy over decisions as the franchiser decides on products, store layout, uniforms, etc. Royalties have to be paid each year. There are high initial start-up fees. 11
Multinational Ownership Control Main finance Main aims Shareholders or Franchisees Board of directors/franchisers Selling shares to the public through the stock market or franchisees. Dominate the market / increase market share / increase market value (the total value of all their shares). 12
Advantages/Disadvantages of Multinationals Advantages Wages and raw material costs are lower in host countries. Business can avoid legislation in the home country. Grants can be issued by governments to locate in their country. Business can avoid quotas retraction on amount of imports/exports) and tariffs (taxes on imports/exports) issued by their own governments. Disadvantages Language barriers can slow down communication. Cultural differences can affect production, e.g. siestas in Spain. Exchange rates can affect purchasing and paying expenses in different countries. Time differences can hinder communication between head office and branches around the world. 13
Public Sector 14
Public Sector Ownership Control Main finance Main aims Government Policies for different organisations are controlled by elected politicians. Individual departments are controlled by employed citizens, called civil servants. Taxes Provide quality service. 15
Advantages/Disadvantages of the Public Sector Advantages Provides some of its services to all consumers. As a public sector organisation, it faces little competition. Provides services that could be unprofitable if provided by firms in the private sector. Provides by firms in the private sector. Provides employment for many people. Provides goods and services for those members of the community who cannot afford them. Disadvantages Often considered to be bureaucratic. As there is no profit motive, there is often a lack of innovation. A change of government is likely to mean changes in priorities and so changes in funding and spending. Can often crowd out private firms. 16
Third Sector 17
Third Sector Ownership Control Directors or Management committee Board of trustees/directors who are usually unpaid. Main finance Grants/donations through TV appeals and general public, street collections or by selling unwanted items in a charity shop. Main aims Help to relieve poverty / provide funding for medical research / help to protect the vulnerable. 18
Advantages/Disadvantages of the Third Sector Advantages Social enterprises provide an opportunity for local people to gain employment. Social enterprises bring about a positive change to people and communities they are not just driven by profit. Charities raise awareness of (and raise funds to support) a particular cause. Voluntary organisations provide opportunities for example, clubs and sporting activities in local areas. Disadvantages Social enterprises have to compete in the commercial market and so face the same challenges and risks common to all businesses. Charities and voluntary organisations usually depend heavily on unpaid volunteers or workers. Those with a paid role in the third sector usually earn less than they would if they worked in the private or public sector. Charities and voluntary organisations depend heavily on the generosity of the community for finance for example, donations and fund raising. 19