Business Organization C H A P T E R 5 Business Organization 5-1 Business in the U.S. Economy 5-2 Forms of Business Ownership 5-3 Organizational Structure for Business

5-1 Business in U.S. Economy Goals Describe the changing status of U.S. employment Discuss the role of business in the U.S. economy Describe 3 major types of businesses

The Changing U.S. Job Market The first decade of the 21st Century has seen periods of growth and decline in overall employment Careers shifting from traditionally important jobs in manufacturing and agriculture to service jobs Periods of job decline due to recessions

Employment Data From 2003 – 2008 total employment grew by 6% In 2008, 138 million people held non-farm jobs In 2009 resulted in a loss of more than 775,000 jobs In 2011 the first wave of Baby Boomers started to retire Currently white non-hispanic make up 68% of the labor force.

Pressures on Employees Economic stress has led to downsizing of the number of people employed by many companies. Businesses required employees to take on new tasks and work extra hours Economic stress also resulted in the increased use of contingent worker. One who has no explicit or implicit contract for long- term employment. They can not find permanent employment They like the flexibility it offers

Checkpoint #1 List several groups that will increase as a percentage of the total U.S. workforce in the next decade. Younger workers (16–24 years of age) Asian-, Hispanic-, African-American groups Women

Business and the Economy In 2009, all businesses worldwide produced more than $70 trillion of goods and services. U.S. businesses were responsible for 20% of that production 25 million full and part time businesses produce those goods and services

Size of U.S. Businesses Most U.S. businesses are quite small 19.5 million businesses, have no employees other than the owner

Roles of Business Business plays several key roles in the U.S. Economy: To make and distribute products and services needed by consumers, government, and other businesses Provide employment for millions of people Businesses pay taxes to federal, state, and local governments

Impact on a Community When a new business opens, it pays wages to its workers It also buys goods and services from other businesses in the area. The money spent may result in the need for more employees in the community When a large business opens in an area, other businesses will often locate there to support.

Business Activities Although there are many types and sizes of businesses, all firms perform 6 basic activities: Generating Ideas A business begins with a new idea Continue to improve and develop ideas in order to remain successful Raising Capital Businesses need financial resources to operate

Business Activities Employing and Training Personnel Businesses need human resources Businesses have procedures for recruiting, hiring, and training employees. Buying Goods and Services Businesses use many of the purchases for their own operations Marketing Goods and Services

Business Activities Marketing Goods and Services Marketing refers to the activities directed at providing the goods and services wanted by business’s customers Maintaining Business Records Owners and mangers need records to keep track performance and make decisions

Checkpoint #2 What are the basic activities completed by all businesses? Generating ideas Raising capital Employing and training personnel Buying goods and services Marketing goods and services Maintaining business records

Types of Businesses Producers Create products and services used by individuals and other businesses. A business that takes resources from nature for direct consumption or for the use in developing other products is an extractor Farmers cultivate land and use other natural resources to grow crops and raise livestock for consumption Manufacturers get supplies from other producers and convert them into products

Types of Businesses Intermediaries Service Businesses Businesses involved in selling the goods and services of producers to consumers and other businesses. Retailors and wholesalers Service Businesses Carries out activities that are consumed by its customers Dentists, physicians, lawyers

Checkpoint #3 How does a manufacturer differ from an extractor? An extractor takes natural resources, such as oil or timber, for direct consumption or for use in developing other products. A manufacturer takes resources supplied by others and converts them into useable products.

5-2 Forms of Business Ownership Goals Understand the 3 major forms of business ownership Determine when each form of business ownership is most appropriate Recognize other specialized business ownership forms

Business Ownership Proprietorship – A business owned and run by just one person. There a very few legal requirements regarding the business ownership or capital needs that must be met. Sole control over all business decisions Owner receives all profits Responsible for all debts

Business Ownership Partnership – A business owned and controlled by two or more people who have entered into an agreement The owners are both responsible for key business decisions and functions. Partners share both investments and profits based on the terms of the partnership agreement Each partner is liable for all debts of the business

Business Ownership Corporation – a separate legal entity formed by documents filed with a state. Owned by one or more shareholders and managed by a board of directors. Meet more legal requirements Not all owners have direct involvement in decision-making about business functions Corporations protect the liability of stockholders to only the amount of money they have invested

Business Ownership

Checkpoint #4 What are the differences between the three main forms of business ownership? Business forms differ in the ways in which decision-making and investments are made and to whom liabilities are distributed.

Choosing a form of Business Ownership Choosing a Proprietorship Most businesses begin as a proprietorship Just have to begin buying and selling as a business Account for income and expenses and pay taxes on the profits of the business Provides a tax advantage for the owner All income is taxed as part of your personal income

Choosing a form of Business Ownership Choosing a Partnership Partnership Agreement – a written agreement among all owners Identifies the business name, the investments, and other contributions of each partner. Two or more people can contribute to the investment needed to start the business as well as the expertise required to run a business. There is no protection for the personal assets of any partner

Choosing a form of Business Ownership Choosing a Corporation Most popular form of ownership for large businesses Subjected to many more laws and more difficult to form than other forms of ownership Articles of Incorporation – a written legal document that defines ownership and operating procedures and conditions for the business Corporate bylaws – operating procedures for the corporation Board of Directors – people who will make major policy and financial decisions for the business

Checkpoint #5 Which form of business ownership is the most complex and difficult to form? The corporation is more complex to begin than other business forms. Forming a corporation requires much more bureaucracy, is more subject to government regulations, requires the organization of a board, and must have clearly defined bylaws.

Other Forms of Ownership Specialized Partnerships and Corporations Limited Liability Partnership identifies some investors who cannot lose more than the amount of their investment, but they are not allowed to participate in the day to day management of the business. Joint Venture is a unique business organized by two or more other business to operate for a limited time and for a specific project. S Corporation offers the limited liability of a corporation Limited Liability Companies provide liability protection for owners

Other Forms of Ownership Nonprofit Organization is a group of people who join to do some activity that benefits the public Cooperatives and Franchises Cooperative is owned by members, serves their needs, and is managed in their interest. Franchise - is a written contract granting permission to operate a business to sell products and services in a set way. Franchiser Franchisee

Checkpoint #6 What are the other specialized forms of business ownership? Limited liability partnership Joint venture S corporation Limited liability company (LLC) Nonprofit corporation

5-3 Organizational Structure for Businesses Goals Understand important principles in designing an effective organization Compare alternative organizational structures for businesses

Designing an Effective Business Organization Setting Direction Mission Statement – a short, specific written statement of the reason a business exists and what it wants to achieve. “To inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.” Goal – a precise statement of results the business expects to achieve. Used to define what needs to be accomplished and to determine if the business is successful.

Designing an Effective Business Organization Finally, the business sets policies and procedures for the organization. Policies – guidelines used in making consistent decisions Procedures – descriptions of the way work is to be done Provides guidance and direction to people working in the organization

Designing an Effective Business Organization Principles of Effective Organization Responsibility, Authority, and Accountability The obligation to complete specific work The right to make decisions about how responsibilities should be accomplished Taking responsibility for the results achieved Unity of Command There is a clear reporting relationship for all staff of a business

Designing an Effective Business Organization Principles of Effective Organization Span of Control The Number of employees who are assigned to a particular work task and manager. A balance of supervision and freedom to do their for employees

Checkpoint #7 What is the difference between a mission statement and a goal? A mission statement states the purpose of existence for a business and what it hopes to achieve. A goal is a more specific statement of what a business expects to achieve and may be used to measure a business’ success.

Types of Organization Structure Organization Chart – a diagram that shows the structure of an organization, classifications of works and jobs, and the relationships among those classifications.

Types of Organization Structure

Types of Organization Structure Functional Organization Structure Work is arranged within main business functions such as production, operations, marketing, and human resource. Matrix Organizational Structure Work is structured around specific projects, products, or customer groups.

Checkpoint #8 What problems can result from the use of a functional organizational structure? Employees in a functional organizational structure may tend to lose sight of overall corporate goals. Workers tend to be limited to specific duties and may not see their relationship to the organization as a whole. This can result in lack of interest and motivation over time.