UNIT 1.

INTRODUCTION TO PRINCIPLES OF BUSINESS ADMINISTRATION

WHAT IS AN ORGANIZATION?
When you think of an organization, many definitions are possible, but most of these include
the characteristics of people, goals and structures.

An ‘organization’ is a group of individuals working together to achieve one or more

objectives. An organisation is a co-operative social system involving the co-ordinated
effort of two or more people pursing a shared purpose.
Although different theorists have defined organizations differently, virtually all definitions
refer to five common features:

1. Organizations are composed of individuals and groups of individuals

2. They are oriented towards achieving collective goals

3. They consist of different functions

4. The functions need to be coordinated

5. They exist independently of individual members who may come and go.

INPUT-OUTPUT MODEL

Organizations are ultimately involved in the same basic activity, namely, the
transformation of inputs (resources) into outputs (goods or services). In essence, all
organizations acquire resources such as labor, premises, technology, finance, and materials
and then transform or process these resources into the goods or services required by their
customers. While the type, amount and combination of resources will vary according to the
needs of each organization and may also vary over time, the simple process described
above is common to all types of business organization and provides a useful starting-point
for investigating business activity and the environment in which it takes place.

ORGANIZATIONAL OBJECTIVES

Whether you know it or not, everyone has objectives. Like individuals Organizations too
have objectives. Organizational objectives are short-term and medium-term goals that an
organization seeks to accomplish. Businesses that have specific objectives are usually more
successful than those that don't; because a business with objectives knows what it is trying
to achieve. An organization's objectives will play a large part in developing organizational
polices and determining the allocation of organizational resources. Achievement of
objectives helps an organization reach its overall strategic goals. Successful organizations
need objectives that are ambitious, achievable and clear. If objectives are ambitious and
clear, but unachievable, the organization is set up to fail. If they are achievable and clear,
but unambitious, the organization is likely to be an average performer. An effective way to
set objectives is to follow the well-known acronym SMART. A SMART objective is;

 Specific,
 Measurable,
 Achievable,
 Realistic and
 Time scaled
 Specific: Goals should be specific. Goals should be simplistically written and
clearly defined. i.e. what you are going to do. Specific in the; What, Why, and
How.
 Measurable: Goals should be measurable so that you have tangible evidence that
you have accomplished what you are working towards. Establish concrete criteria
for measuring progress toward the attainment of each goal you set.
  Achievable: Goals should be achievable; they should stretch you slightly so you
feel challenged, but defined well enough so that you can achieve them. You must
possess the appropriate knowledge, skills. And abilities needed to achieve the goal.

 Realistic/relevant: Objectives should be relevant to the people responsible for

achieving them. It should be relevant to the strategic plan.

 Time-bound: Goals should be linked to a timeframe that creates a practical sense

of urgency, or results in tension.

VISION, MISSION AND STRATEGY

Firms are usually accountable to a broad range of stakeholders, including shareholders,
who can make it either more difficult or easier to execute a company’s strategy and realize
its mission and vision.

 Vision
This is the general sense of direction to a business organisation. The vision gives the
general purpose of existence of a business organisation.
 Mission
The mission describes the organisation’s basic function in society, in terms of the products
and services it produces for its clients. It is the guiding idea behind the organisation’s
activities.
 Objectives
Objectives are normally measurable and quantified statements of what an organisation
intends to achieve.
 Strategy
This refers to management action plan for achieving the chosen objectives. It specifies how
the organisation will be operated and run, and what entrepreneurial competitive and
functional areas approaches and action will be taken to put the organisation into the devised
position.

Mission and vision are important because they provide a vehicle for communicating an
organization’s purpose and values to all key stakeholders. Mission and vision both relate
to an organization’s purpose and are typically communicated in some written form.
Mission and vision are statements from the organization that answer questions such as:
who we are, what do we value, and where we’re going.

A mission statement communicates the organization’s reason for being, and how it aims
to serve its key stakeholders. A Mission statement aims to provide stakeholders with
clarity about the overall purpose and the organization’s reason for existence. (Give an
example).

A vision statement, in contrast, is a future-oriented declaration of the organization’s

purpose and aspirations. In many ways, you can say that the mission statement lays out the
organization’s “purpose for being,” and the vision statement then says, “based on that
purpose, this is what we want to become.”

With a mission and vision, you can then craft a strategy for achieving the mission and
vision. A strategy is a plan of plan action designed to achieve its objectives.

The strategy should flow directly from the vision, since the strategy is intended to achieve
the vision and thus satisfy the organization’s mission. Strategy is how the firms aim to
realize their missions and visions. Objectives are indicators of how well the strategy is
working.

ORGANIZATIONAL STAKEHOLDERS

A stakeholder is a group or individual who has an interest in what the organization does,
or an expectation of the organization. There are two main groups of organizational
stakeholders:

 Internal stakeholders(Inside stakeholders)

 External stakeholder(Outside stakeholders)

Internal Stakeholders

Internal Stakeholders are people who are closest to an organization and have the strongest
or most direct claim on organizational resources:
Shareholders: Shareholders are the owners of the organization. The shareholders’
contribution to the organization is to invest money in it by buying the organization’s shares
or stock. The shareholders’ inducement to invest is the prospective money they can earn
on their investment in the form of dividends and increases in the price of the stock they
have purchased

Managerial Employees: Managers are the employees who are responsible for
coordinating organizational resources and ensuring that an organization’s goals are
successfully met. Senior managers are responsible for investing shareholder money in
various resources in order to maximize the future value of goods and services. Managers
are, in effect, the agents or employees of shareholders and are appointed indirectly by
shareholders through an organization’s governance structure, such as a board of directors,
to manage the organization’s business. Managers’ contributions are the skills they use to
direct the organization’s response to pressures from within and outside the organization.

For example, a manager’s skills at opening up global markets, identifying new product
markets, or solving transaction-cost and technological problems can greatly facilitate the
achievement of the organization’s goals. Various types of rewards induce managers to
perform their activities well: monetary compensation (in the form of salaries, bonuses, and
stock options) and the psychological satisfaction they may get from accomplishing their
work, from controlling the corporation, through exercising power, or even when taking
risks with other people’s money.

Non-managerial: An organization’s workforce consists of non-managerial employees.

These members of the workforce have responsibilities and duties (usually outlined in a job
description) that they are responsible for performing. An employee’s contribution to the
organization is the performance of his or her duties and responsibilities. An employee’s
motivation to perform well relates to the rewards and punishments that the organization
uses to influence job performance. Like managerial employees, other employees who do
not feel that the inducements meet or exceed their contributions are likely to withdraw their
support for the organization by reducing their contributions or the level of their
performance, or by leaving the organization. Employees are concerned with improving
their standard of living. They want to achieve higher wages and better working conditions
such as longer holidays and shorter working hours. Employees are also concerned with
health and safety and want to work in an environment that protects them from harm.

External Stakeholders

External stakeholders are individuals or groups outside an organisation who are affected or
can affect the operations of an organisation. Some of the external stakeholders include:

Customer: Customers are usually an organization’s largest outside stakeholder group.

Customers are induced to select a product or service (and thus an organization) from
potentially many alternative products or services. They usually do this through an
estimation of what they are getting relative to what they have to pay. The money they pay
for the product or service represents their contribution to the organization and reflects the
value they feel they receive from the organization. As long as the organization produces a
product or service whose price is equal to or less than the value customers feel they are
getting, they will continue to buy the product or service and sup-port the organization.5If
customers refuse to pay the price the organization is asking, they usually will withdraw
their support, and the organization loses a vital stakeholder .Customers wants value for
money. Any product or service must satisfy the needs of the customer at a reasonable price.
A customer will also expect good service both during the purchase stage and the after sales
stage. A customer wants value for money.

Suppliers: Suppliers, another important outside stakeholder group, contribute to the

organization by providing reliable raw materials, component parts, or other services that
allow the organization to reduce uncertainty in its technical or production operations, thus
allowing for cost efficiencies. Suppliers therefore can have a direct effect on the
organization’s efficiency and an indirect effect on its ability to attract customers. It’s
important that companies develop a good and long term relationship with the suppliers
based on trust. (They must be paid in good time). Suppliers attempt to make a profit by
trying to get as many orders from a business as possible. In order to do this, Suppliers must
satisfy the business regarding the quality of its products and the reliability of its deliveries
and service. An organization that has high-quality inputs can make high-quality products
or deliver high-quality services and attract more customers. In turn, as demand for its
products or services increases, the organization demands greater quantities of high-quality
 inputs or services from its suppliers

The government: As business operates within, and contributes to, our society,
governments have several claims on an organization. While Government wants companies
to compete in a fair manner and obey the rules of free competition, it also wants companies
to obey agreed-upon rules and laws concerning the payment and treatment of employees,
workers’ health and workplace safety, non-discriminatory hiring practices, and other social
and economic issues. Besides the purely legal aspects of business operations, governments
often receive a mandate from the voting public concerning particular issues reflecting
broader social concerns. The subsequent involvement of governments and their treatment
of these issues may involve or affect business organizations and business conduct in
various ways.

Government is a stakeholder in business because profitable firms pay taxes on their profits.
This is one of the main sources of government revenue. The government is also concerned
that the firm provides employment in the area and conducts its business in an
environmentally friendly manner and also follows the labor laws. The government will
ensure that there is no pollution, no exploitation of the workers and also that the products
meet the required standards.

The local community: Local communities also have a stake in the performance of
organizations because employment, housing, and the general economic well-being of a
community are strongly affected by the success or failure of local business.

CONFLICT OF INTEREST

Given their different interests in the business, it is inevitable that conflicts arise between
stakeholders.

 Management & Suppliers

. A situation where conflict could arise is between management and suppliers. One task of
management is to ensure that costs are kept to a minimum. In the past this has often resulted
in a policy of negotiating with several suppliers to force down the prices of raw materials
and components through competitive tendering.
. This has led to conflict, as the suppliers are themselves attempting to make a profit and so
might respond by reducing the quality or reliability of their products in an attempt to restore
profit margins. The modern view is to engage in long-term ‘partnerships’ with single
suppliers who will offer discounts in return for guaranteed custom.

 Shareholders & Employees

One situation where conflict might arise is between employees attempting to obtain a wage
rise and shareholders wanting a growth in profits.

Employees concerned with obtaining higher wages and better working conditions would
increase the running costs of a business. A shareholder, on the other hand, would want to
the organization to have low costs as they have invested funds in the business in order to
generate profits.

At first glance these objectives appear to be incompatible, as better pay would reduce the
profit available for shareholders if there were no associated increase in productivity. The
key to reconciling the objectives is to link the increase in rewards to improvements in
output so that both parties benefit.

Review Questions

1. What is an organization?
2. Define Objectives, Vision ,mission and strategy
3. Explain the input-Output transformation model
4. Who are stake holders?
5. What is the difference between internal and external stakeholders