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Chapter 1: The business

organization, its stakeholders
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What you will learn?

 Define business organization and explain
why they are formed

 Purpose of business organization

 Types of business organization

 Stakeholder goals and objectives

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Define business organization and

explain why they are formed
Definition

Organization are social arrangements for the controlled

performance of collective goals

Why do we need organization

Enable people to perform tasks that
Shared skill
they would be unable to achieve on
and knowledge
their own.

Individual could not good at everything.

Specialise This allows them to build a greater level
of skill and knowledge

Pool resources Whether money or time

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Types of business organization

The main objective of profit seeking

Profit vs not organization is to maximize the wealth
for profit of their owner. Not for profit ones seek
for others

Public vs Public sector is concerned with

private providing basic government services

A non-governmental organization is
Non- one which does not have profit as its
governmental primary goal and is not directly linked
to the government

Co-operatives are organizations that

Co-operative
are owned and democratically
societies
controlled by their members
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Types of business organization

Exam focus point
Which of the following organizations is most likely to be
classified as part of the public sector?

A. A charity B. A social club

D. A public limited
C. A school company
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Types of business entity

Exam focus point

C. A school

Explaination: public sector organization will be controlled by the

central government. This is unlikely to be a charity, a company and
a social club which are typical examples of the private sector.
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Sector in which organizations operate

Production, processing and packaging of

Agriculture
foodstuff

Mining Extraction and processing of minerals

This includes banks and other companies

Finance that profit through investments and the
lending of money to others
Sales of goods produced by manufacturers
Retailers
to consumers
Production of intangible goods and
Services
services

Transportation Movements of goods between locations

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Stakeholders’ goals and objective

Definition

Stakeholders are those individuals or groups that,

potentially, have an interest in what the organization does.

Primary Stakeholders Secondary Stakeholders

Or
Internal Connected External

Managers Shareholders Society

Employees Customers Government

Suppliers

Creditors
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Stakeholders’ goals and objective

Stakeholder conflicts

An organization can have many different stakeholders, all

with different needs. Inevitably, these needs of some
stakeholders will come into conflict with the needs of others
Customers vs
Managers vs employees
shareholders
General public vs
shareholders
If an organization is having difficulty deciding who the
dominant stakeholder is in a conflict, they can use the
following matrix.

Medalow’s matrix

 Segment D: key players

 Segment C: kept satisfied
 Segment B: kept informed
 Segment A: minimal effort
should be expended
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Types of business organization

Exam focus point

Which of the following statements is/are correct?

(i) Internal stakeholders have little influence over the way an
organisation is run.
(ii) The needs and expectations of managers and employees
will always tend to be the same as they are both internal
stakeholders.

A. (i) only B. (ii) only

C. Neither D. Both
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Types of business entity

Exam focus point

C. Neither

Explaination: Neither are correct. Internal stakeholders have a

huge amount of influence over the running of an organisation.

In addition, just because they are in the same category of

stakeholder does not mean that managers and employees have
the same goals.
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Types of business organization

Exam focus point
GreenEnv is an independent environmental charity set up
to lobby the government for improved environmental
regulation on business. What type of organisation is
GreenEnv most likely to be classed as?

A. Public sector B. Co-operative

C. Non-governmental D. Commercial
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Types of business entity

Exam focus point

C. Non-governmental

Explaination: GreenEnv is not commercial as it does not have a

profitmaking objective. It is not obviously controlled by the central
government, meaning that it is not in the public sector. It also
clearly does not meet the definition of a co-operative, which is an
organization that is controlled by the people who buy Its goods.