ACCA F1 Study Notes

An organisation is a social arrangement which pursues collective goals, which controls its
own performance and which has a boundary separating it from its environment.

Organisations are social – they consist of people. We have to get on with people – boss,
colleagues, customers.

Collective goals – assumption that people in organisations are aiming for the same end
result – it is the function of management to ensure this.

a) Organisations are preoccupied with performance, and meeting or improving their

standards
b) Organisatons contain formal, documented systems and procedures which enable
them to control what they do.
c) Different people do different things, or specialise in one activity.
d) They pursue a variety of objectives and goals
e) Most organisations obtain inputs (e.g. materials), and process them into outputs (e.g.
for others to buy).

Why Do Organsations Exist

Organisations can achieve results which individuals cannot achieve by themselves.

a) Organisations overcome peoples individual limitations, whether physical or

intellectual.
b) Organisations enable people to specialise in what they do best.
c) Organisations save time, because people can work together or do two aspects of a
different task at the same time
d) Organisations accumulate and share knowledge
e) Organsations enable synergy: by bringing together their combined output will exceed
their output if they continued working separately.

In brief organisations enable people to be more productive.

System Theory – Environment is the context in which the organisation exists. All
organisations can be divided into subsystems – different departments.

Closed systems – have no interaction with the environment – largely theoretical.

Open systems – interface with the environment.

Types of Organisations

• Commercial – sole traders, partnerships, limited liability, partnerships, limited

companies.
• Not for profit. Do not operate a P&L, rather an income and expenditure, though
income must exceed expenditure for the organisation to survive.
• Public sector
• Non-governmental organisations, e.g. Greenpeace.
 • Co-operatives. Owned by the people who work in the organisations – usually for
profit.

Private vs. Public Sector

Private sector: organisations not owned or run by central or local government, or

government agencies.

Public sector: Organisations owned or run by central or local government or government

agencies.

Legal Status

Someone setting up a business can choose to go into business alone, take on one or more
partners who also share in the profits of the business or they can set up a limited liability
company.

Limited Company

A limited company has a separate legal personality from its owners (shareholders). The
shareholders cannot normally be sued for the debts of the business unless they have given
some personal guarantee. Their risk is generally restricted to the amount that they have
invested in the company when buying the shares. This is called limited liability.

The ownership and control of a limited company are legally separate even though they may
be vested in the same individual(s).

a) Shareholders are the owners but have limited rights, as shareholders, over the day to
day running of the company. They provide capital and receive a return. Shareholders
could be large institutional investors (such as insurance companies and pension
funds), private individuals, or employees.
b) Directors are appointed by shareholders to run the company. In the UK, the board of
directors controls management and staff, and is accountable to the shareholder, but
it has responsibilities towards both groups – owners and employees alike
a. Executive directors participate in the daily operations of the organisation
b. Non-executive directors are invited to join in an advisory capacity, usually to
bring their particular skills or experience to the discussions of the board to
exercise some overall guidance.
c) Operational management usually consists of career managers who are recruited to
operate the business, and are accountable to the board.

Types of Limited Company

In the UK, limited companies come in two types: private limited companies (e.g. X Limited)
and public limited companies (e.g. X plc). They differ as follows:
 a) The number of shareholders. Most private companies are owned by only a small
number of shareholders. Public companies generally are owned by a wider
proportion of the investing public.
b) Transferability of shares. Shares in public companies can be offered to the general
public. In practice this means they can be traded on the stock exchange. Shares in
private companies, on the other hand, are rarely transferable without the consent of
the shareholders,
c) Directors as shareholders. The directors of a private limited company are more likely
to hold a substantial portion of the company’s shares than the directors of a public
company.
d) Source of Capital
a. A private company’s share capital will normally be provided from three
sources
i. The founder or promoter
ii. Business associates of the founder or employer
iii.Venture capitalists
b. A public company’s share capital, in addition can be raised from the public
directly, or through institutional investors, using recognised markets.

Many companies start in a small way, often as a family businesses which operate as private
companies, then grow to the point where they become public companies and can invite
investors to subscribe for shares

Advantages and disadvantages of limited companies

Advantages

• More money available for investment

• Reduces risk for investors thanks to limited liability
• Separate legal personality. A company can own property, make contracts etc.
• Ownership is legally separate from control. Investors need not get involved in
operation.
• No restrictions on size. Some companies have millions of shareholders
• Flexibility. Capital and enterprise can be brought together.

Disadvantages

• Legal compliance costs. Because of limited liability , the financial statements of most
limited companies have to be audited , and then published for shareholders
• Shareholders have little practical power, other than to sell their shares to a new
group of managers, although they can vote to sack the directors.

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Organisational structures

• Entrepreneurial. Boss + workers Smallest

• Functional. Separate departments according to function
 Expertise in each dept
• Divisional. Splitting a company up due to commodity/ geography
Rationale is to achieve specialisation
• Matrix. View as a large collection of simultaneous projects. Largest

Levels

– Strategic
– Tactical
– Operational

Centralisation/ Decentralisation

• Levels at where power lies.

Advantages of Decentralisation

• Work-load/ time
• Speed
• Expertise
• Motivation
• Training and assessment

BUT

• Poorer co-ordination

Recent Trends

• Downsizing
• De-layering
• Outsourcing

Information

What is information?

Data with meaning!

Accurate

• Accurate
• Complete
• Cost beneficial
• User targeted
• Relevant
• Authoritative
• Timely
• Easy to use

Role of Information Technology

 • Recent developments in IT have had a massive impact on the way we work.
• New communication channels
• Office automation
• Home working

Types of System

• Transaction processing system

• Management information system
• Decision support system
• Executive information system

Information Technology

• Stand Alone
• LANs
• WANs
• Internet
• Intranet
• Extranet

Levels – types of information

Strategic -Highly summarised

Mainly forward looking

Planning

Ad hoc

External & Internal

Operational Very detailed

Historical

Recording transactions

Routine

Internal

Chapter Roundup

– A non-governmental organisation (NGO) is an independent voluntary

association of people acting together for some common purpose (other than
achieving government office or making money).
– Mintzberg believes that all organisations can be analysed into five
components, according to how they relate to the work of the organisation, and
how they prefer to co-ordinate.
– Organisations can be departmentalised on functional basis (with separate
departments for production, marketing, finance etc), a geographical basis (be
region or country), a product basis (e.g. worldwide divisions for product X, Y
etc), a brand basis, or a matrix basis (e.g. someone selling product X in
country A would report to both a product X manager and a country A
manager). Organisation structures often feature a variety of these types as
hybrid structures.
– In a divisional structure some activities are decentralised to business units or
regions.
– The strategic apex exerts a pull to centralise, leading to the simple structure.
– ‘span of control’ or ‘span of management’ refers to the number of
subordinates responsible to a superior.
– Recent trends have been towards delayering organisations of levels of
management . in other words, tall organisations (with many management
levels, and narrow spans of control) are turning into flat organisations (with
fewer management levels, wider spans of control) as a result of technological
changes and the granting of more decision-making power to front line
employees.
– There are many levels of strategy in an organisation.
○ Corporate: the general direction of the whole organisation
○ Business: how the organisation or its SBU tackle particular markets
○ Operational/ functional: specific strategies for different parts of the
business.
– Research may be pure, applied or development. It may be intended to
improve products or processes. R&D should support the organisation’s
strategy and be closely co-ordinated with marketing.
– Purchasing makes a major contribution to cost and quality management in
any business and in retail is a vital element of strategy. The purchasing mix is:
○ Quantity
○ Quality
○ Price
○ Delivery
– The production function pans, organises, directs and controls the necessary
activities to provide products and services, creating outputs which have addd
value over the value of inputs.
– Services are intangible, cannot be stored, are inherently variable in quality
and nature and their purchase results in no transfer of property. The people
and processes involved in providing them are therefore of paramount
importance.
– He marketing function manages an organisation’s relationship with its
customers
 – Human Resource Management (HRM) is concerned with the most effective
use of human resources. It deals with organisation, staffing levels, motivation,
employee relations and employee services.
– HRM planning should be based on the organisations strategic planning
processes, with relation to analysis of the labour market, forecasting of the
external supply and internal demand for labour, job analysis and plan
implementation.
– A centralised organisation is one in which authority is concentrated in one
place.
– Centralisation offers greater control and co-ordination; decentralisation offers
greater flexibility.
– Within an organisation, committees can consist entirely of executives or may
be instruments for joint consultation between employers and employees. They
are a key part of organisational communication processes.

Information Technology and Systems: Chapter Roundup

Information takes many forms and has many uses within the organisation.
Organisations require different types of information system to provide different levels
of information in a range of functional areas. Supporting the distinction between
strategic, tactical and operational decision making.

Organisations require information for a range of purposes

– Planning
– Controlling
– Recording transactions
– Performance management
– Decision making

Good information has a number of specific qualities: the mnemonic ACCURATE is a

useful way of remembering them.

The ease of which data flows from one system to another depends on the extent of
integration between systems.

Many organisations are now utilising the internet as a means of gathering and
disseminating information, and conducting transactions.

Data and information come from sources both inside and outside an organisation. An
organisation’s information systems should be designed so as to obtain – or capture –
all the relevant data and information required.

The term database system is used to describe a wide range of systems that utilise a
central pool of data.
Information is a valuable resource and a key tool in the quest for a competitive
advantage. Security controls, integrity controls and contingency controls are used to
protect data and information.

Influences on Organisation Culture: Chapter Round Up

Culture is the collective programming of the mind which distinguishes the members
of one category of people from another (Hofstede). It may be identified as ways of
behaving and ways of understanding that are shared by a group of people.

Elements of culture include:

– Observable behaviour
– Underlying values and beliefs which give meaning to the observable elements
– Hidden assumptions, which unconsciously shape values and eliefs

Organisation culture is ‘the way we do things round here’

Cultural values can be used to guide organisational processes without the need for
tight control. They are used to motivate employees, by emphasising the heroic
dimension of the task. Culture can also be used to drive change, although – since
values are difficult to change, it can also be a powerful force for preserving the status
quo.

Harrison classified four types of culture, to which Handy gave the names of greek
deities.

– Power culture (Zues) is shaped by one individual

– Role culture (Apollo) is a bureaucratic culture shaped by rationality, rules and
procedure.
– Task culture (Athena) is shaped by focus on outputs and results
– Existential or person culture (Dionysus) is shaped by the interest of
individuals.