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1.2 Types of Organization

Material gleaned from the Stimpson and Smith Cambridge BM 2015 text, the OUP 2014 BM Course Companion, and Alex Smith's Business Management for the IB Diploma Exam Preparation Guide. Cambridge University Press, 2017.

Deborah Kelly

on 17 August 2018

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Transcript of 1.2 Types of Organization

1.2 Types of Organization
1.2 Types of Organization
Private and Public sectors
Why Businesses start-up and problems
Types of for profit business organizations - sole trader, partnership, private limited company, public limited company
Non profit and non-governmental organizations
HL public private partnerships

Public and private sector organizations
Private sector
- businesses owned and controlled by individuals or groups of individuals

Public sector - organizations accountable to and controlled by central or local government (the state). Often provide essential goods and services for people.

- the sale of a public sector organization to the private sector.
Entrepreneurship - the Early Days of Amazing Amazon.com
A fantastic 20 minute speech & Q&A by Jeff Bezos, the founder of Amazon.com. Lots of great insights into the early entrepreneurial journey of Bezos and Amazon, including an admission that his parents gambled a large proportion of their life savings into his high-risk start-up.
Profit-based organizations
The main types of profit-based private sector businesses are:

Sole trader
Private Limited Company (Ltd.)
Public Limited Company (plc)
What is the most appropriate form of ownership for a firm?
The objectives of the firm in terms of growth, profit, vision and mission.
The degree to which the owner wished to remain control.
The degree to which the business wishes to be transparent about its financial position.
The extent to which the firm wishes to compete in international or global markets.
The speed and degree of flexibility in decision-making required by the owners.
Look at 1.2 Dulip's business is a success
The role of the entrepreneur
is someone who takes the financial risk of starting and managing a new venture. People who set up their own new business show skills of entrepreneurship. They have:
an idea for a new business
invested some of their own savings and capital
accepted the responsibility of managing the business
accepted the possible risks of failure.

Successful Entrepreneurs are: innovative, committed and self-motivated, multi-skilled, have leadership skills, believe in oneself (vision), and risk takers.
Spanx founder Sara
Blakely's Success Story
Problems faced by start-ups.
Success with a new business can never be guaranteed. Most new businesses fail during their first year of operation. The first few months are riskiest of all.

The most common problems are:
competition (have to offer better customer service)
building a customer base (need customers)
lack of record keeping
lack of working capital ($ needed to run day-to-day business affairs)
poor management skills
changes in business environment (new competitors, legal changes, changes in economy (more or less $ for consumers)
HL Public-private partnership (PPP)
Public-private partnership (PPP) - involvement of the private sector, in the form of management expertise and/or financial investment, in public sector projects aimed at benefiting the public.

There are three main types of PPP:
Government funded
- these are privately managed. In this type of venture the gov't provides all or part of the funding but the organization is managed by a private business that uses private sector methods and techniques to control it as efficiently as possible.
Private sector funded
- these are government managed. This venture often involves large sums of capital investment from private sector. The are then managed and controlled by a government dept which pays rent or a leasing charge to the private sector business that constructed the project. This is known as a
Private Finance Initiative (PFI)
- investment by private sector organizations in public sector projects.
Government directed but with private sector finance and management
- this type of PPP encourages both private sector funding and some private sector management control of public projects.
Potential Costs and Benefits of PPP's:
Private sector is profit oriented. Could impact job security associated with gov't jobs.
Criticized as earning private sector large profits from rent charges which comes out of taxpayers pocket.
Private sector may lack experience needed to operate large public sector projects
Many schools, roads, prisons have been financed by PPP/PFI schemes. These would not be possible without private investment.
Private sector aim to make profit therefore operate services as efficiently as possible. Costs to public lower.
By using private sector finance the gov't can claim taxes will be less.
Do: Public-Private Case Study - Waste.
It depends on ....
Look at PPT on forms of business organization. :)

Definitions, Small Case studies in textbook and Google practice test question.
Public private partnerships can benefit from the dynamics, finance and efficiency of the private sector along with the benefits of public sector funding and support.
Examples of such projects are:
London's Olympic Stadium
Sydney Harbour Tunnel
New York's Central Park
World Health Organization (WHO)
Hong Kong Disneyland
HL Relationships between organizations in the private and public sectors.
Traditionally, the public sector provides services to the general public rather than selling products for profit. Gov't have three options in the provision of essential services.
Supply the services themselves (eg legal system and emergency services)
let private firms bid to provide services (eg garbage collection, street cleaning and transportation)
Form a public-private sector partnership to supply these services
Who should do what?
Private goods
- should be provided by the private sector. These goods are excludable - ie those that cannot afford to pay can go without. (cars, smartphones, cinemas, hair salons)
Public goods
- are products that are enjoyed by the general public but are unlikely to be provided without government intervention. (national defense, public roads, lighhouses and street lighting). They are funded by gov't to benefit people.
Merit goods
- These yield higher social benefits (education, public libraries, health care). these are provided by both public and private.
Public goods -
3 Characteristics:
non-rivalry - available to all
non-excludability - people cannot be excluded even if they do not pay.
non-rejectable - public goods are for everyone.
Public-Private Initiative = Side Stix.
Article + Dragon's Den
Non-profit and non-governmental organizations (NGOs)
Not all organizations in the world aim to make profits. Non-profit organizations include charities and pressure groups.

For charities profit is not an objective but they still need $ to put into achieving their charitable objectives. Apart from raising money to support and promote their work, many charities aim to inform the public and persuade the public and government to support their causes.

Well known charities include: Oxfam, Red Cross and Red Crescent and Medecins Sans Frontiers.

Non-governmental organizations:
The key feature is that they are separate from government. They are often charities too and many are involved in development, health and humanitarian issues. Their objectives are not profit based but are focused on social or humanitarian objectives.
Pressure Groups
Pressure groups are non-profit making organizations that aim to change the behavior and decisions of either organizations or governments.

They want changes to be made in three main areas:
governments to change their policies and to pass laws supporting the aims of the group
businesses to change policies so that for example less damage is caused to the environment
consumers to change their purchasing habits.

Pressure groups try to achieve these goals by:
publicity through media coverage
influencing consumer behavior
lobbying government

Well known pressure groups are: Greenpeace, Fairtrade Foundation, WWF and Amnesty International.

Social Enterprise
A social enterprise is a proper business that makes its money in socially responsible ways and uses most of any surplus to benefit society. It is not a charity though and they can keep some of the profit for themselves. Most social enterprises have these features:
they directly produce goods or provide services
they have social aims and ethical ways of achieving them
they need to make a surplus or profit to survive as they do not rely on donations as charities do.
Objectives of social enterprises (three main aims):
Economic - to make a profit to reinvest back into the business
Social - to provide jobs or support for local community
Environmental - to protect the environment and to manage the business in an environmentally sustainable way.
This is often referred to as
the triple bottom line
. This means profit is not the sole objective of these businesses.
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