Prestige Accounting Bookshop & Accountancy College

FIA Part-Time Training

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Evening Course
Paper FAB Accountant in Business
Syllabus Heading A
Sessions 1-5
The Business Organisation, Its
Stakeholders and the External
Environment
The Business Organisation and Stakeholders
Defining Organisations
Organisations are a social arrangement of individuals
in pursuit of common, collective goals, controlling its
own performance and having a boundary of
separation from its environment.

Organisations are a group of individuals working
together to achieve a common purpose, through the
effective and efficient use of its resources.

Organisations will provide goods and services to its
customers, as a means to achieving its profit or non-
profit objectives.


Defining Organisations

To achieve its objectives organisations will focus on:
Performance;

Clearly articulated and documented systems and procedures;

Specialisation of staff and the actual organisation;

Pursuit of a range of objectives to ensure greater success;

Management and procurement of available resources

Organisations are able to achieve a greater deal more than
individuals acting on their own possibly can

Defining Organisations
Organisations are able to achieve much more than
individuals can when acting on their own:

Individual limitations are overcome;

Specialisation and expertise is easily obtainable and
accessible;

Time being saved through collective effort;

Greater access to a knowledge base

Greater synergies and productivity achievable


Classifying Organisations
Several types of organisations are in existence today,
and while they may be categorised in varying ways,
the following are some common factors/criteria to be
considered in determining their classification and
eventual structure.
Type of ownership
Type of Control
Activity to be engaged in
Profit orientation
Legal status
Size
Type of finance to be used
technology


Types of Organisations
Commercial
Commercial organisations are entities set up with a
clear profit oriented objective. Their main purpose
is the maximisation of profits for their owners.

The provision of goods and services, though the
primary means of achieving this profit objective
tends to be the secondary goal and consideration
for commercial organisations

Commercial organisations will tend to be private
sector organisations.
Types of Organisations
Non-profit / Not-for-profit
These organisations do not have any orientation
towards profit generation. Their primary focus is
the provision of goods and services to its
customers.

Any resulting profits achieved from the provision
of these goods and services is purely coincidental
and definitely unintentional.

Public sector or governmental organisations will
usually have such an operational outlook
Types of Organisations
Private Sector
Private sector organisations refer to those not
owned or operated by government or any of its
agencies. Private sector entities will also usually
tend be commercial, with a clear profit objective.

Private sector organisations are usually limited
companies, and may have private ownership
(shares typically owned by small group usually family) or
public ownership (listed on stock exchange, shares held
and owned by public)
Types of Organisations
Public Sector
Public sector organisations are those owned and run
by government or agencies under its control, or
through their funding, and characterised by:
Limited resources
Limited funding
Public accountability
Unlimited demand.

Public sector organisations are typically non profit
and seek to ensure required goods and services are
provided to its citizens, especially for services not
viable for the private sector
Types of Organisations
Non-governmental (NGOs)
NGOs are independent voluntary associations of
people who act together to achieve some common
purpose, without any links to government.

Their primary aim is not commercial or profit
oriented in any way, but their activities cover a wide
range of activity that seeks to promote social, political
and environmental change.

Based on their structure, they require significant fund
raising and creation and mobilisation of required
resources.
Types of Organisations
Cooperatives
Cooperatives are businesses owned by its workers or
customers, who share its profits - (agricultural
cooperatives). They usually possess the following
characteristics:

Open membership;
Democratic control;
Proportional distribution of surpluses according to
purchases or inputs;
Promotion of education
Types of Organisations
Mutual associations
These associations are also owned by their members
or subscribers. Typically, this type of organisational
arrangement is utilised by financial service, insurance
and building society entities.
Internal Stakeholders
Groups

Employees



Management
Objectives

Job security
Salary
Job enrichment and
advancement
Benefits
Job satisfaction
Connected Stakeholders
Groups
Shareholders


Bankers/Lenders


Suppliers


Customers
Objectives
Investment return
Risk

Loan security
Adherence to terms by
org.

Biz relationship
Ability to supply & payt.

Acquire goods and
services
External Stakeholders
Groups
Government


Interest groups


Professional bodies


Objectives
Provision of jobs
Taxes and income

Social responsibility
rights

Ethics and responsibility

Stakeholder Power
It is worthwhile to consider what power each of
these groups possesses and what level of
influence, when we consider their respective
objectives and potential interest in the organisation.

Mendelow writes that a matrix can be used to
compare and assess the power and level of
interest shown by stakeholders this will define the
relationship.

Referred to as stakeholder mapping, it is used to
assess the significance of stakeholder groups.
Stakeholder Power contd
Stakeholder significance will have implications in
the following areas:
Corporate governance policy employed
Blockers and facilitators of change or action
Any need to reposition stakeholders

Stakeholders demonstrate their power through:
Loyalty
Exit
Voice

Stakeholder Power contd
Organisations must seek to manage stakeholder
power and influence through established systems
and structures:

Locating power
Conduits of information
Limit choices
Embody culture
Determine successful strategy implentation


The Environment
Each organisation exists and must interact with its
external environment.

Organisations are deemed to have a boundary
separating it from the external environment,
however, the interaction allows it to access
required resources and to provide its goods and
services to stakeholders within the external
environment.

The degree of interaction indicates either a open or
closed system. Most organisations exhibit a semi-
closed system.
Organisations & the Environment
Organisations do not exist in a vacuum or closed
environment, rather in a very open and dynamic
environment, though boundaries will exist
between the organisation and the environment for
obvious reasons.

The environment can be analysed on the following
ways:
Global or local environment: laws, statutes and
regulations of each location;
Macro environment: indirect impacts social, legal,
economic, political and technological;
Micro environment: direct impacts affecting the
organisations abilities & competitiveness.
Organisations & the Environment
The environment changes constantly and therefore
its effects and influences on the organisation. These
changes are driven by:
Globalisation;
Technological and scientific advances;
Strategic alliances, mergers and acquisitions;
Customer values;
Increased public scrutiny;
Liberalisation and deregulation;
Changes in business practices outsourcing, downsizing
The social and business partnership

Political & Legal Factors
The political environment will tend to affect the
organisation generally through government
policies and legislation as follows:

Existence of a basic legal framework;
Government policy and position on issues of direct
importance to the organisation;
Government conduct of its economic policy and
initiatives
Political & Legal Factors
- Political -
Political impact
Capacity expansion
Demand
Divestment and
rationalisation
Emerging industries
Entry barriers
Competition

Effect
Encourage biz expansion
Govt as major customer
Sale and closure of
businesses in economy
Promotion by govt
Protection for local biz
Regulation, lifting
barriers, infrastructure
development
Political & Legal Factors
- Political -
While government has immense impacts on
businesses in the areas that we have discussed on
the previous slides, businesses are also often able
to influence government policies positively:

Lobbying ministries and members of government;
Providing non-executive directorships to politicians;
Attempt to influence public opinion to put pressure on
government.


Political & Legal Factors
- Political -
Local and international political changes in terms
of the elective process and in terms of policy
changes complicate the influences placed on the
operations of organisations in terms the political
environment.

Political risk is also a major factor as it is always
possible that political factors will undermine or
invalidate the strategy or plan chosen.

Political change and risks directly affect
international trade relations and activity, and
entities have been set up to address these issues.


Political & Legal Factors
- Political -
The European Union: operates the European single
market, that allows for the free movement of goods
and services, labour and promotes free competition,
by addressing:

Physical barriers
Technical standards
Discrimination
Telecommunication deregulation
Transport Rationalisation
Free movement of capital
Recognition of professional qualifications
Consumer protection
Single currency
Cross border provision of financial services


Political & Legal Factors
- Political -
World Trade Organisation: set for the promotion of
free trade and resolution of trade disputes between
countries or trading partners.

WTO regulations seek to ensure that all countries
engaging in international trade, remove all unfair
and protectionists measures in jurisdictions:

Quotas
Import bans and embargos
Restrictions on foreign ownership and investment
Tariffs

Political & Legal Factors
- Legal -
Legal element
Legal framework
contact, tort, agency
Criminal law
Company law
Employment and labour
law
Health and safety acts
Data protection acts
Environmental laws
Tax laws
Effect
Affect business dealings

Theft, insider dealings etc.
Incorporations, mergers
etc
Wages, dismissals,
maternity, equal rights
Safety requirements, stds.
Use of staff & public info
Pollution control etc
Corporation, VAT, NI etc
Political & Legal Factors
- Legal -
Employment laws: several pieces of legislation
exist to ensure that the employments rights and
privilege of employees are protected. The
legislation will cover:

Rules on Retirement;
Rules on Resignation;
Rules on Dismissal;
Wrongful and unfair dismissal issues;
Disciplinary procedures;
Redundancy;
Equal opportunity and rights issues;

Political & Legal Factors
- Legal -
Health & Safety laws: laws to ensure that
mechanism and facilities are in place in
organisations catering the best practices in health
and safety matters, ensuring a safe operating
environment for all staff, and minimisation risks.

Responsibility for health and safety issues are
divided into employer and employee duties.

Clear policies must be in place to address handling
off accidents and a general approach/policy on
health and safety.

Political & Legal Factors
- Legal -
Employer duties:
Safe work practices and environment;
Training and mechanisms to encourage safety practices;
Safety risk assessments;
Introduction of controls;
Recruit competent advisors

Employee duties:
Due care and attention;
Avoid unnecessary interference in safety issues &
equipment;
Communicate issues
Pay attention to use of equipment

Political & Legal Factors
- Legal -
The company a clearly articulated policy on the
handling of health and safety that may arise. The
policy should state the following:

Principles on health and safety adopted;
Details of safety procedures;
Compliance with the law;
Instructions on use of equipment;
Training requirements
Political & Legal Factors
- Legal -
Data Protection Laws: protects individuals on whom
data is held by companies in the normal course of
business, ensuring privacy and that no misuse or
abuse of the information occurs.

The Data Protection Act in the UK, serves this
purpose.

The Act has the following aims:
To protect individual privacy in respect of personal data
held in any form;
To harmonise data protection laws allowing a free flow of
authorised personal data.

Social & Demographic Factors
The impact of the social environment on an
organisation includes:

Social influences in respect of health, discrimination, the
environment, class, education etc.

Demographic influences how the make up of society in
terms of gender, age, family life affect the operations of
organisations;

Cultural influences the effect of societal values, attitudes,
behaviours and tastes on the organisational what are the
cultural norms.
Social Influences
Social influences on the organisation may be
summarised as follows:

View of society on the involvement of women in business;
Distribution of income and wealth;
Class structure perceived or actual; status of individuals;
Education attainment and access;
Health issues
Environmental issues
Equal opportunities

Demographic Influences
Demographic influences on the organisation may be
summarised as follows:

Gender balance in society;
Age distribution in society;
Family life cycle;
Geographical location of populations;
Household and family structure;
Social structure and wealth



Cultural Influences
Cultural influences on the organisation may be
summarised as follows, and they have an effect on
demand for services:

Health and diet;
Women in organisations;
Buying patterns;
Environmentalism;




Technological Factors
Recent advances in technology have significantly
altered the way in which business is done.
Computerised systems are being widely used in
most aspects of business today, in an effort to
increase efficiency, achieve greater economies of
scale and therefore increase profitability.

Technology has primarily been evident through
the use of information technology systems that are
being used to manage points of sale, finance
departments, production areas etc.
Technological Factors
The use of IT in the organisation as illustrated
before will have the following effects on the
organisation and the way the operates:

Routine processing can be handled on a more efficient
basis;
New and improved communication methods;
Information becomes viewed as a valuable resource;
Digital record gathering, processing and storage;
New and improved skills and approaches to business
Impacts of technological
change
Downsizing
Reduction in overall staff size in the organisation through
use of technology, less people required per function.
Delayering
Removal of layers of middle management primarily due to
business automation and improved MIS systems more
power and authority to lower level staff
Outsourcing
Contracting out of specified operations of the organisation,
especially where the vendor possesses expertise and
specialty skills in the area.

Types of outsourcing
Ad-hoc

Project management

Partial

Total
Advantages & Disadvantages
Advantages
Provides a fixed price and removes costs uncertainty
Economies of scale achieved
Access to superior skills, knowledge and expertise
flexibility

Disadvantages
Competitive advantage may be lost
Contractual terms and obligations may be onerous
May have to release confidential info to vendor
Environmental Factors

Competitive Factors
Businesses are able to compete based on their
strengths, weaknesses, opportunities and threats;
A SWOT analysis must be conducted.

Strengths
Weaknesses
Opportunities
Threats
Porters Competitive Forces
Porter has identified five forces existing in the
competitive environment of an economy as
follows:

Threat of new entrants
Threat of substitute products
Bargaining power of customers
Bargaining power of suppliers
Competitor rivalry
Competitive Forces
Porter further identified a value chain system to be
considered to reducing the effects of the
competitive forces and gaining competitive
advantage.

The value chain has the following primary
activities:

Inbound logistics
Operating activities
Outbound logistics
Marketing and sales
After sales support
Competitive Forces

The value chain has the following support
activities:

Procurement
Information technology
Human resource development
Firm infrastructure
Macro Economic Factors
Macro economics refer to the study of the effects
economic decisions, creating objectives primarily
on the part of government to influence economic
growth, inflation, unemployment and other
economic issues.

Economic policies will be developed with the
following objectives:
Achievement of economic growth;
Control over price inflation;
Achievement of full employment;
Achievement of balance between imports and exports
Macro Economic Policy
Macroeconomic policy is the combination of
monetary and fiscal policies used to attain the
objectives of government for the economy as a whole,
by influencing aggregate demand.

Fiscal policy: is the policy of government on taxation,
public borrowing and public spending, to be used to
influence demand in the economy;

Monetary policy: is the policy of government on the
supply of money, control of the monetary system,
interest rates, exchange rates and the availability of
credit.
Fiscal Policy
Fiscal policy will use the following elements to
influence the economy:
Government expenditure to provide goods and services in
the economy, and to pay its wage bill. Several services in the
economy on these funds are spent will then create demand
that will stimulate revenues for government;

Government revenues the expenditures must be financed,
through revenue earning income will usually come from
taxation revenues and charges for certain services;

Government borrowing where the expenditures exceed
income, borrowing will become necessary. The source of the
borrowing will affect the effectiveness of the fiscal policy.

Fiscal Policy
By adjusting or fiddling with the elements of fiscal
policy outlined, government may significantly alter
the course of demand in the economy.

Demand may be influenced as follows:
Increase spending thereby creating services for which
demand will arise, provided taxation is at least maintained; to
ensure increase in demand the extra spending will need to be
financed by borrowing rather than increased taxation.

Reduce taxation, therefore placing additional disposal income
in the hands of consumers, therefore demand increases as
they seek to spend the excess funds or savings. Cuts in
taxation revenues will result in extra borrowing.

Fiscal Policy
Depending on the policy chosen to stimulate demand
through spending and taxation, and the associated
borrowing, government will operate on a surplus or
deficit.

Taxation is the primary method of earning revenues
and the following are features of a tax regime.
Fiscal Policy Taxation -

Taxes in the economy have the following functions:

Raising revenues for the government;
Control consumer expenditure and practices;
To place social costs on some commodities;
Redistribution of income and wealth;
Protectionist measure against competition;
Stabilise government income

Fiscal Policy Taxation -
A good tax regime should have the following
qualities:
Flexibility
Efficiency
No distortion on economic activity or behaviour.

Consider:
Regressive tax: take a higher proportion of poor peoples
salaries;
Proportional tax: equal proportions of tax on income at all
levels;
Progressive tax: higher proportion of tax as income
increases.
Direct tax: paid directly to revenue department;
Indirect tax: collected through businesses or intermediaries;
Monetary Policy
Monetary policy objectives are aimed at:

Money supply control: manipulating the supply of notes and
coins in the economy, will increase availability of credit and
access to funds, thereby boosting consumer spending and
ultimately demand for goods and services.

Interest rate control: interest is the cost of using funds and the
return on liquid investments. Increase in interest rates will
make borrowing more expensive and dampen consumer
demand. As interest rates increase greater investment is
derivevd in the economy liquidity preferences of consumers
and the elasticity of demand must be considered to determine
the true effects of interest rates.
Monetary Policy

Exchange rate control: where a countrys exchange rates fall, its
exports will become cheaper and more competitive in foreign
markets. Imports will become more expensive, and demand for
those items will be reduced, and inflation tends to be increase.
Exchange rate increases will have the opposite effect.
The Business Cycle
The business cycle seeks to explain the changes in
economic growth and national income in the
economy.
Recession: consumer demand falls, economic activity
slows, business failures occur and employment declines.

Depression: full decline, no stimulus

Recovery: confidence returns, production, employment
and demand beccome stimulated and rise

Boom: full employment and production is achieved,
revenues rise, profits rise, demand outstrips supply
Inflation
Inflation refers to the increase in prices of goods
and services over time.

It has the effect of redistributing wealth in the
economy; affects balance of payments through
pricing of imports and exports.

Inflation creates uncertainty in the economy, and
places risks on current and new investment.

Inflation is measured by price indices, the most
common being the Retail Price Index.
Inflation
Inflation may be caused by the following factors:

Demand pull factors continuous excess demand over
supply, therefore prices increase, creating accelerated
inflation;
Cost push factors results from an increase in production
costs of goods and services, regardless of demand and
supply and as a result the price of the good or service
increases as well;
Import cost factors costs of imports increase due to forces
beyond demand and supply;
Expectations trends in inflation, fuel future expectations
of inflationary effects and therefore companies continue to
adjust prices to suit;
Excessive money supply growth fuels demand and
where supply is short, prices are driven upwards
Unemployment
Unemployment in the economy can be measured
and used as an indication of the business cycle and
rate of economic growth or decline.

Unemployment leads to:
Loss of output
Loss of human capital
Increased social costs
Increased welfare payments
Increasing inequalities in income distribution
Unemployment
Unemployment may be caused by any of
following:

Excess of labour supply over demand;
Difficulty in matching labour to employment
opportunities
Seasonal unemployment;
Structural unemployment;
Introduction of new technologies;
Cyclical unemployment patterns