Business environment lecture 1 Rahat Kazmi

Course: BTEC HNC
Business/Similar/New Managers
Module : Business Environment
Lecture 1 – Introduction
Prepared by: Rahat Kazmi
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Business Environment
Part A
• Organisations and their objectives
• Responsibilities of organisations
• Consumer protection
• People in the workplace
Part B
• Resource issues and economic systems
• Market demand
• Market supply and price
• Production and costs
• Market types and market forces
Part C
• International trade and the European dimension

Part A: Business Environment -
Organisations and their objectives
Today’s lecture on:-
1. The size and types of organisations
2. The nature of the public and private sectors
3. The nature of the primary, secondary and
tertiary sectors
4. Business missions and objectives
5. Stakeholder expectations

The size and types of organisations
• What is an organisation? Keywords please...

A Business Organisation
• Exists to provide goods and services usually at a profit
• Profit may not be the sole aim of the business
organisation
• U.K. – private sector, grown in recent years due to state
owner=d companies becoming privatised
• Business organisations can range in size, from the one
man business to plc’s employing large numbers of staff
• ‘A social arrangement for the controlled performance
of collective goals’(Buchanan & Hucynski, 2003)

The size and types of organisations
• “An organisation is an arrangement of people
pursuing common goals, achieving results and
standards of performance.”(BPP, 2010, P.g. 4)
• A social unit of people that is structured and
managed to meet a need or to pursue
collective goals. All organizations have
a management structure that
determines relationships between the
different activities and the members, and
subdivides and assigns roles, responsibilities,
and authority to carry out different tasks.
Organizations are open systems--they affect and are
affected by their environment.

Products and services
• A business is created to PROVIDE either or
both of the following...
• PRODUCTS – could be manufactured and
produced by the company. Could be
purchased from manufacturers and sold to the
end user. Give an example...
• SERVICES – provides services that are sold to
the end user or could act as a third party
middleman to sell services. Examples?

Characteristics of a business
• Ownership - public or private
• Control – by the owners; by those working on behalf of
the owners; indirectly by government sponsors
• Activity – what they do
• Profit and non-profit orientation
• Legal status – Ltd / Sole trader/ Plc / partnerships
• Size – staff, branches, sales, customers etc.
• Sources of finance – loans, funding, share issues etc.
• Technology – usage levels

Characteristics of a business
What affects business and how they operate?
Keywords please...

The organisation
news
weather
Stock market
Political forces
Demographic and
cultural forces
International forces
Customers
DistributorsGovernment
Unions
Suppliers
competitors
Environmental
forces
Economic
forces
Technological
forces
The business
environment

Legal forms of business
organisations
• Limited companies
• Sole traders
• Partnerships
• Cooperatives

Class Activity

Limited companies
• Must be incorporated when formed
• Treated as a separate entity
• Capable of owning property, employing
people, making contracts, suing or being sued
• Continuity of succession
• If the company / corporation fails, its
members are only liable for a limited amount
of the company’s debt limited to the nominal
value of its shares ( Parliament, 1850’s)

Limited Companies
• Companies Act, 1985, amended
• Intended to minimise risk… To who?

Limited Companies – Public &
Private
• Two types of limited company:-
1. Public Limited Companies
2. Private Limited Companies

Public Limited Companies
• Memorandum of Association AND Articles of
Association must be filed before it can be
Incorporated
• Must state that it shares are available to be
purchased by the public
• Must have at least 2 members and one
director
• Must obtain a certificate of trading from the
registrar of companies

Private Limited Companies
• Memorandum of Association AND Articles of
Association must be filed before it can be
Incorporated
• May not offer its shares to the public
• May even restrict the transfer of shares internally
• Name of the company must end with the words
‘Limited’ or Ltd’
• Must have at least 2 members and one director
• Can begin trading straight away after registered
under the Companies Act

Disadvantages of Limited
Liability
• Liability is limited – difficult for smaller
companies to get funding or borrow
• Banks may be unable to recover funds
borrowed if business fails
• Legal procedures are extensive when setting
up a company
• Procedures for publishing various financial
accounts of the Company are extensive

Company Directors
• Act as agents to the Company
• Appointed by shareholders and members to
achieve company goals
• Duty to act honestly
• Duty to act in the best interest of the Company
• Duty to avoid possible conflicts of interest
• Should not make a personal profit from the
Directorship other than the salary and fees

Size of the business
Can mean..
• Number of employees
• Volume of output
• Volume of sales
• Assets
• Profits earned
• net worth
• SMEs
• National and multi-national

Sole Traders
• Simplest form of business – one person in the
business, alone.
• Set up requirements and minimal
• OWNER FULLY LIABLE FOR ANY DEBTS AS THE
OWNER IS THE BUSINESS
• All profits are liable to income tax rather than
Corporation Tax
• No formal accounts are published

Sole Trader - Advantages
1. Formalities for starting up are minimal
2. Complete autonomy to run the business as
the individual wishes
3. Profits belong to the trader
4. Various business expenses are allowable
against income tax
5. No public disclosure of accounts

Sole Trader - Disadvantages
• Trader is SOLELY responsible for debts of the
business
• The trader as the owners and manager of the
business is responsible for all aspects of the
business ( marketing, product development,
sales, finance, etc.)

Partnerships
• A partnership exists when more than 2 but less
than 20 people agree to carry out a business
together
• Partnership Act, 1890
• Legalities are minimal
• Advised to have a formal partnership set up by a
Solicitor
• Members of a partnership are the owners of all
property and are liable for its contracts

Partnerships
• Fully responsible for meeting the debts of the
company
• Partners not automatically entitles to a salary
• Partners are entitled to their proper share of
the profits
• Many agree salaried partnerships
• Some partnership convert to limited liability
companies due to perceived benefits

Partnerships – Advantages
• Few formalities when setting up partnerships
• Sharing of knowledge and experience
• Sharing of the management of the business
• No obligations to publish accounts
• Sharing of profits of the business

Partnership - Disadvantages
• Sharing of loss of the company
• Each partner liable for the debts of the
partnership even if it is caused by the other
partners
• Risk that partners may not be able to work
together personally
• Death will automatically dissolve a partnership
• Bankruptcy will automatically dissolve the
partnership

Cooperative Enterprises
• Small groups of people who want to set up a
business along explicitly democratic lines and
with the benefit of limited liability
• Featured in British business for over 100 years
• Profits of the business given back to the
customer / consumer in dividends based on
the amount of purchases over a period of time
• Individuals can benefit not only a investors,
but also as employees e.g. John Lewis

Cooperative Enterprises
• Encouraged by U.K. government and by the
Cooperative Development Agency established
in 1978
• LEGISLATION – Industrial & Provident Societies
Act, 1965
• The act stated that instead of Memorandums
and Articles of Association, cooperatives shall
have a set of rules approved by the Registrar
of Friendly Societies

Industrial & Provident Societies
Act (1965) – Rules and Principles
• Each member must have equal control on the
‘one person, one vote’ principle
• Members must benefit primarily from their
participation in the business
• Interest on loans or share capital is to be limited
• Surplus / profit is to be shared between members
n proportion to their contributions to the
cooperative
• Surplus / profit can be retained by the company
• Membership must be open to all who qualify

Industrial & Provident Societies Act,
(1965) – Rules and Principles
• The principle of limited liability applied to all
members of the cooperative
• The cooperative must be registered
• To be registered, the cooperative must have a
minimum of 7 members
• Name some cooperatives…

Cooperatives - Advantages
• The opportunity for genuine pooling of the
capital between a group of people
• Encourages active collaboration between all
• Enables decisions to be made democratically
• Provides rewards on an equitable basis
• If registered, provides limited liability

Cooperatives - Disadvantages
• Less likelihood of a level of profitability and
growth
• Relationships can deteriorate, especially when
some are seen to be making smaller
contributions
• Democratic decision making can take a lot of
time before action is taken
• Members not truly dedicated can cause
problems

Large organisations
Advantages? Explain...
• Resources
• Greater division of work (Fayol / Taylor)
• Career prospects
• Experts
• Economies of scale
• Continuity of goods and services

Large organisations
Disadvantages? Explain...
• Hierarchy
• Diversified
• Lots of maintenance needed
• Coordination problems
• Policy control issues
• Tasks not motivating

Internal economies of scale
1. Specialization of labour (Taylor)
2. Division of labour
3. Specialized machinery
4. Dimensional economies – volume output v
size of equipment needed to process the
output
5. Buying economies
6. Stock holdings

Advantages of a small business
a) Competitive
b) Risk takers
c) Better internal relationships
d) Specialists
e) Local markets
f) Expert consultants
g) Suppliers / sub-contractors to larger firms
h) Large scale production / servicing not required

Why the economy has changed
recently
• De-industrialisation
• Trade deficit – imports greater that exports
• Shift in output between sectors – north sea oil
and gas
• Agriculture in the UK is small – mad cow disease/
foot and mouth
• Decline in the secondary sector, rise in the
tertiary sector caused decline
• Demands shift from goods to services
• Decline in manufacturing

Consequences of change
• Rising exchange rate – expensive to export, importing is
cheaper
• Failed businesses
• Diminished manufacturing industry
• World market conditions
• Ethical trading issues
• Overseas competition
• Technological process
• Sunrise industries – technical companies
• Reduction of Sunset industries – steelworkers, shipbuilding
etc.
• Unemployment / reduced consumer spending powers

• ‘describes the organizations basic function in
society, in terms of the products and services it
produces for its citizens’. {Mintzberg}.
• mission statements: what are they? (formal
statements of an organisation’s mission).
• it should be brief, flexible to accommodate
change and distinctive.
2.0} MISSION.

Øpurpose.
Østrategy.
Øpolicies and standards of behaviour.
Øvalues.
Elements of a mission.

• Mission(Re-cap):- “describes the
organisation’s basic function in society, in term
of the products and services it produces for its
clients”. {Mintzberg}.
• Elements of mission:-
• Purpose:- Why does the company exist? Is it
to do with shareholders? Other stakeholders?
Higher goals?
Mission

q corporate governance.
q stakeholders.
q business ethics.
q cultural context.
Influences to mission
statements.

ØBeing used merely for PR
ØUsed to make sense of something that has
already been done by an organization
ØIgnoring mission in pursuit of organization’s
activities.
ØToo much of ‘buzz words’ e.g. ‘To be the
greatest-------’
What might go wrong with a
mission?

Class Activity 2

• Values:- 1} The ‘cultural glue that enables the
organisation to function as a unity’. 2}Values can
include principles of business.
• - commitment to suppliers and staff.
• - Social policy e.g. on non-discrimination or ecology.
• - Commitment to customers.
• 3} Loyalty and commitment, to employees.
• 4} Guidance for behaviour;- a sense of common
purpose
Values

- Discuss the difference between a vision
and a mission. Give an example for each from
an organization(s) of your choice.
Examples of effective Vision statements include:
Alzheimer's Association: "Our Vision is a world without Alzheimer's disease.“
Microsoft: "Empower people through great software anytime, anyplace, and on any device.“
A Mission statement:
Defines the present state or purpose of an organization;
Answers three questions about why an organization exists -
WHAT it does; WHO it does it for; and HOW it does what it does.
Examples of effective Mission statements include:
Nissan: "Nissan provides unique and innovative automotive products and services that deliver
superior, measurable values to all stakeholders in alliance with Renault."
Activity

§ mission :- a good one should normally be
about here and now, vision often isn’t.
§ vision:- usually vague hence may fail to inspire
and motivate staff.
§ once a vision has been achieved, what
happens next? It may cease to have any value
unless re-invented.
Discuss the difference between
vision and mission; guide.

vprofitability
vgrowth
vcash flow
vr.o.c.e.
vrisk
vquality
vadded value
vrevenue
corporate objectives

• Mintzberg (1997) has defined goals as being ‘the
intentions behind decisions or actions, the states of
mind that drive individuals or collectives of individuals
called organizations to do what they do’
• Goals can either be operational or non-operational
Example of operational goal: an organization selling IPad
4 may have a goal ‘to increase market share in West
London by 3%’(operational goal expressed as an
objective and therefore measurable).
Example of non-operational goal: a religious
organization may have a goal to ‘help people know the
truth’ (non-quantifiable)
What is a goal?

• An obvious objective on your current
career path is to achieve your BTEC First.
Precise, measurable targets will help you do
this. You will have to concentrate on doing your
best as you achieve one unit at a time. You
should set these goals using SMART objectives.
• Specific – you need a clear statement about
what you will do. Usually, it is quantified, which
means it has a number in it. For
• example: ‘Complete BE Assignment in 8 weeks.’
SMART Objectives:

SMART Objectives:

• Bpp Learning Media (2010) Business Essentials; Supporting HND/HNC
and Foundation Degrees, Business Environment,2nd edition, Chap. 1, pp.4-41
• Bpp Learning media (2010) CIM Professional Certificate in Marketing Study Text;
Assessing The Marketing Environment 2nd edition, The Context of Organizations,
Chap. 1, pp. 2-20
• Buchannan and Huczynski,A. (2003) Organization Behaviour; An Introductory text,
4th Edition,Chap.1, pp.10-45
• Gilligan, C. and Wilson, R.M.S (2009) Strategic Marketing Planning 2nd edition;
where do we want to be? Strategic direction and strategy formulation. Chap. 8,
pp.297-336
• Hamel, G. and Prahalad, C.K. (1994) Competing for the Future: Breakthrough
Strategies for Seizing Control of Your Industry and Creating the Markets of
Tomorrow. Boston, MA: Harvard Business School Press
• Johnson, G. and Scholes,K.A. (2002) Exploring Corporate Strategy, 2nd edition
pp.239
• Mintzberg, H. (1987) Crafting Strategy, Harvard Business Review,65(4),pp.66-75
• Mintzberg, H. (1994) The Rise and Fall of Strategic Planning. Hemel Hempstead:
Prentice-Hall International
References

Next Lecture
• Know how to identify internal, connected and
external organization
• stakeholders.
• Be able to identify and map different and often
conflicting
• Stakeholder interests and influence to the
organization.
• Be able to explain stake holder power-influence
matrix
• Be able to discuss responsibilities of organisations

Business environment lecture 1 Rahat Kazmi

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