Part A Environment

Part A Environment

CH 1 Organisations and stakeholders

CH 2 Business environment
CH 3 The micro-economic environment
CH 4 The macro-economic environment
Chapter 1
Organisation and its stakeholders
Organisations and its
stakeholders
1. The nature of organisation
1.1 Definition

An organisation is a social arrangement which pursues collective goals,

which controls its own performance and has a boundary separating it
from its environment.

• Social arrangement 社会安排

• Collective goals 共同目标
• Controls 控制
• Boundary 边界
1.2 Benefits

a) Overcome individual's limitations

b) Enable people to specialise
c) Save time since people can do different tasks at the same time
d) Share knowledge and experience

★ Synergy total output of people working

together will exceed the total
协同作用 output of people working separately.
Simply speaking, it means 1+1>2.
1.3 Classifying organisations by profit orientation
1.3.1 Profit-seeking organisations (Commercial)

Some organisations define their main objectives as

maximising the wealth of their owners. Such organisations
are often referred to as “profit seeking”.
1.3 Classifying organisations by profit orientation
1.3.2 Not-for-profit organisations

Other organisations do not regard profitability as their main objective and

they are called not-for-profit organisations (“NFPs or NPOs”). Instead,
their objectives are usually referred as value for money.

• Museums

• Public schools and hospitals

• Charities

• Environmental groups
Extension - Value for Money (3E)

Economy: purchase of inputs of appropriate quality at a minimum cost

Efficiency: use of these inputs to maximise output
Effectiveness: achievement of good results
Example Question 1

Which of following organisation would focus more on performance

and profit indicators than on value for money indicators?
A. Local public sectors
B. A private school
C. A public accountant college
D. Environment protection organisations
1.4 Classifying organisations by ownership
1.4.1 Public sector
It is concerned with providing basic government services and is
thus owned by government.

• Police/Military
• Public transport
• Primary education
1.4 Classifying organisations by ownership
• Accountability - be answerable to 向上负责
In the UK, the public sector are accountable to their citizens and
are answerable for their actions to the parliament.

• Source of funds
The main sources of public sector’s funds come from taxes with
the rest sometimes from public borrowing.

• Demand of services
Public sector organisations are established to provide public goods
and services and there are infinite demand for that.

• Resource constraint
The scarcity of resources owned by the government leading to a
significant scale of the public demand for goods and services
cannot be fulfilled.
 1.4 Classifying organisations by ownership
1.4.2 Private sector organisations
It is the organisation that is not owned by government.

★ A non-governmental organisation (NGO) is an organisation with

social or political aim that is not controlled by any governments.

• Not commercial
• Fund (finance from government grants) 政府拨款
• Have both full-time employees and volunteers
1.4 Classifying organisations by ownership
1.4.2 Private sector organisations

Mutual organisation: Co-operative and mutual association

It is a specific type of non-profit organisation, owned by its

members (workers or customers) to meet their needs, not to
generate a return on investment. They are usually governed on the
basis of ‘one member, one vote ’ and distribute the surplus in
proportion to purchases of their members.

1. No external investors
2. Democratic control
Example Question 2
Which of the following is the feature of a co-operative business?

A. Distribution of surplus profits in proportion to purchases

B. Staffing by volunteers as well as full time employees

C. Finance from grants or contracts

Example Question 3

For cooperatives, which of the following statements are its features?

(1) Its main objective is to maximise profit
(2) It is owned and controlled by outside investors
A. Both 1 and 2
B. 2 only
C. 1 only
D. Neither 1 nor 2
1.5 Classifying organisation by legal status
1.5.1 Sole trader
One individual runs and owns the entire business
1.5.2 Partnership
Two or more partners who share the profits as well as risks of the business.

Risk and reward

Unlimited
1.5 Classifying organisation by legal status
1.5.3 Limited liability companies

Risk and reward

Limited

Separate legal personality

1.5 Classifying organisation by legal status
1.5.3 Limited companies 有限（责任）公司

In a limited liability company, owners' liability is limited to the

capital they originally invested. If such a company becomes
insolvent, the owners' personal assets remain protected.
1.5 Classifying organisation by legal status
1.5.3 Limited liability companies

Limited companies contain two types:

• Private limited companies
• Public limited companies

Public companies: publicly listed companies / listed companies 上市公司

1.5 Classifying organisation by legal status
1.5.3 Private limited V.S. public limited company

• Number of shareholders
• Transferability of shares
• Ownership and control
Directors in private limited companies normally own large numbers
of shares, while the directors in public limited companies hold small
amount of or even no shares.
• Access of finance
A public limited company，such as a listed company, can invite the
general public to subscribe for shares of the company. As opposed, a
private company has no right to do that.
1.5 Classifying organisation by legal status
2. Stakeholders
2 Stakeholders
• Stakeholders are those individuals or groups that potentially
have an interest in what the organisation does.

• It is important that an organisation understands the needs of the

different stakeholders.
2.1 Typical types of stakeholders
2.2 Another approach

Primary stakeholders:

These stakeholders have a contractual relationship with the

organisation

Internal • Managers&employees

Connected • Shareholders, financiers, suppliers, customer

External • Government,the community, pressure group

Secondary stakeholders:

These stakeholders do not have a contractual relationship

with the organisation
Example Question 4

Which of the following are not considered as connected stakeholders?

A. Loan provider
B. Executive director
C. Shareholders
D. Customer
Example Question 5
Rani runs an environmental pressure group against the ABC Co which
is not very environmental friendly, such as non-classify of the industrial
wastes. Her family member Alice is an executive director in the ABC
Co.
Are Rani and Alice internal, connected or external stakeholders for
the ABC Co.?
2.3 Stakeholder conflicts
A common problem with numerous stakeholders is their
different self-interests may not all be aligned. In fact, their
needs/expectations may conflict.

Stakeholders Conflict

Customers Product price/quality/service levels versus

versus profits/dividends
shareholders
General public Effect on the environment versus
versus profit/dividends
shareholders
Shareholders Shareholders prefer long-term return while
versus managers usually seek short-term profits and
managers bonus
2.4 Mendelow matrix/Stakeholder mapping
Example Question 6
SilverEnergy is a listed corporation in clear energy industry and has built
nuclear stations worldwide for years. It is one of the very few corporations
worldwide that has mature technology in constructing nuclear stations.
The founder and key owner of SilverEnergy --- Mr. Silver, who has a
significant influence over the decision-making of the company, has retired
for many years and delegate all the operational and management work to
the board of directors.
Example Question 6

Nosdia is a country located in North Pole. Due to technology shortage,

local government cannot build their own nuclear station and is now
cooperating with SilverEnergy for the construction: with the local
government contributes capital and Sliver contributes technology.
Local government in country Nosdia is actively advancing the process of
construction as the new nuclear station will reduce the whole country’s
electricity cost as well as provide more job opportunities.
Example Question 6
The proposal of construction has angered local animal protection group,
many of whom noted that the hot air/water polluted by the station will
increase local temperature and ice will melt. A local animal called seal lives
in iceberg and will be homeless and die finally. Together with local residents,
the anti of the proposal has been shown in global news for days and attract
the attention of WWF.
Example Question 6
(1) For each of the following, identify whether they are internal,
connected or external stakeholders?
• Mr. Silver
• Local government of Nosdia
• The board of directors
• Seal
• Animal protection group

(2) According to Mendelow matrix, which category are these

stakeholders? Which Strategy should we use?
• The local government
• Mr. silver
• Animal protection group
Thank You
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