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Unit 1. BUSINESS ORGANIZATION

Text 1. What is a business organization?

During the life every person is more or less connected with various organizations; there is no organization without people, there no people which are not connected with an organization. Here we will speak about a business organization (a commercial enterprise), exercising the function of managing production, distribution and sale of goods and services for the buyers’ benefit and sellers’ profit. If a group of people wants to form of an organization, they should consider the following conditions: a) presence of at least two persons; b) presence of at least one general goal; c) presence of a team of members who have intention to work together in order to achieve this general goal.

Any organization is a system and its main characteristics include: a) interrelationship between the organization and environment; b) labor division (horizontal and vertical); c) management.

In fact, an organization is the unity, which operates successfully, if it is managed efficiently.

The components of the success of any organizations are: efficiency, economy and productivity.

To succeed, any organization must change for the better all the time, and it is the task of its management to lead their organizations to the win. Actually, to succeed, a firm must be managed successfully. The essential elements of any organization are as follows: a) organizational structure; b) people; c) objectives; d) technology.

Organization is known to be the framework of responsibilities, authority and duties through which all the resources of an enterprise are brought together and coordinated for the achievement of management objectives.

The well-known model of an organization is like a tree, where the crown of the tree is the embodiment of business units, the trunk represents core products and the roots constitute core competence.

The typical organization can be described in terms of;

Hierarchy (an organization is headed by; he/she reports to/ is under / is accountable to/ is assisted by/ is supported by);

Functions/responsibilities (he/she is responsible for/ is in charge of/ takes care of);

Titles: Executive Board (Am) – Board of Directors (Br);

President (Am) - Chairman (Br);

Chief Executive Officer (Am) – Senior Vice-President (Am) – Managing Director (Br);

Vice-President of Finance (Am) – Finance Director (Br)

Sales Director (Am) – Sales Manager (Br).

Affiliates (it is a parent company; it is a subsidiary);

Structure (functional; line and staff; project and matrix structures, etc)

To operate effectively, people must know their duties, responsibilities and their authority, and that is the main reason why a company needs its structure. There are companies with a simple organization structure – with a single manager, ad there are companies with a team of managers with a wide manager’s span of control, which becomes richer with company’s growth.

The span of control (span of responsibility) refers to the number of subordinates who can be effectively supervised directly by one manager, supervisor or other person in authority. The wider is the span of control the better is the managerial activity, and the more superior’s time is saved. It is the fact that the span of management is the narrowest at the top and the widest at the bottom. For example, Managing Director may have accountable to him just three of four departmental executives whereas a foreman may be responsible for the supervision of fifteen or more workers).

Every organization has its own life cycle, which includes the following stages: Formation, Growth, Maturity and Decline. Like a human, a business organization goes in its activity through its birth, growth, maturity and dying down.

Text 2. Forms, types and styles of business organizations.

It is the well-known fact that business can be privately owned in three forms, the widely practiced are as follows: sole proprietorship, partnership and corporation. Additionally, there are different ‘hybrids’ like franchise, limited partnership, joint venture and cooperative.

Basic kinds, forms, styles and structures of business organizations:

- Organization by forms of business: sole proprietorship; partnership; corporation

- Kinds of business organization: joint stock companies; holdings; limited partnership; franchises; joint ventures; cooperatives.

- Basic structures of business organization: line structure; functional structure; line and staff organization structure; departmentalization by product, territory or customer; matrix organization structure.

- Styles of business organization: bureaucratic; contingency; just-in-time (JIT)

Any business organization exists only as long as it satisfies customers’ needs, either present or able to be created, and at a price attractive to the market. The actual practice does not lead to the most efficient form of a business organization, so proprietorships, partnerships and corporations have their advantages and disadvantages. They have structure, through which the activities of personnel at all levels can be utilized in an orderly and controlled manner to the benefit of the enterprise as a whole.

Sole proprietorships are the most numerous form of business organization. No charter and permit are needed and there are no particular legal requirements for organizing or conducting a sole proprietorship. When started, many sole proprietorships are conducted out of the owner’s home, garage, or van and inventory may be limited and may often be purchased on credit.

Advantages: 1) easy to start; 2)flexible; 3) is owned by one person, which has a total control; 4) profits belong to the owner.

Disadvantages: 1) limited resources;2) difficulties in raising capital, hiring professionals and in management; personal responsibility and financial liability are unlimited; 4) instability, great risk of loosing capital.

Partnership: In a partnership, two or more people share ownership of a single business. Like in proprietorships, the law does not distinguish between the business and its owners. The partners should have a legal agreement that sets forth how decisions will be made, profits will be shared, disputes will be resolved, how future partners can be bought out, pr what steps will be taken to dissolve the partnership when needed.

Advantages: 1) capabilities are expanded because of more than one owner; 2) ability to share capital, experience, pressure and work; 3) financial liability is limited; 4) the ability to raise funds may be increased; 5) prospective employees may be attracted to the business if given the incentive to become a partner.

Disadvantages: 1) difficulties in supporting of uniformity in management; 2) distinction in duties and profits are not easy to define (conflicts); 3) difficulties in getting loans from the banks; 4) partners are jointly and individually liable for the actions of the other partners; 5) profits must be shared with others; 6) partnerships may have a limited life; it may end upon the withdrawal or death of a partner.