Classification of Organizations - Lecture 01

For most of our lives we are members of one organization or another - college sports team, a musical group, religious organization, a branch of armed forces or a business. Some organizations, like the army and large corporations, are structured very formally. Others, like a neighborhood basketball team, are more casually structured. But all organization, formal or informal are put together and kept together by a group of people who see that there are benefits available from working together towards some goal. So a basic element of any organization is a goal or purpose (the purpose that an organization strives to achieve; or organization often have more than one goal; goals are fundamental elements of an organization)

Objectives of Organizations

• Provision of a service
• Profit maximization
• Growth (expansion of market share)
• Support other organizations
• At times of hardship - Survival

Classifications of organizations

1. By ownership
2. By scale
3. By objectives
4. By sector
5. Other classifications

Organizations - Classified by Ownership

• Sole trader (1 owner)
• Partnership (2-20 partners)
• Limited liability company
• Private limited company (Pvt)
• Public limited company (PlC)

Sole Trader
A sole trader business is a private business which is set up and managed by a single individual. He/she makes the entire investment, enjoys the benefit of all returns and takes all risks relating to the business activities'

Example: Mark starts a hardware shop by his own

Partnership
A partnership business is one which is set up and operated by 2-20 partners. Usually coming from different specializations, they pool their strengths towards the development of the combined entity. The advantage of attracting a relatively larger amount of capital exists however it too is constrained by the unlimited liability of owners.

Example: Fred and David starts a software development company

Limited Liability Company
This is where several individuals invest and create a separate legal entity which functions without the assistance of it's owners. A board of directors is appointed by the shareholders to carry out the business activities on their behalf. The main benefits being that it's easy to raise a larger amount of capital as well as the benefit of limited liability.

Example: McFloyed Technologies (Pvt) Ltd

Organizations - Classified by Scale

• Multinational Companies (MNCs)
• Holding Companies

Multinational Companies
A multinational company is considered to be a large scale company which operates in both a local country and several foreign countries with at least a single production plant being in operation in a foreign country.

Holding companies
These are companies that usually avoid conducting ordinary business activities. Instead they hold on to controlling interest of other companies (both private and/or public) and investments. They obtain returns from these investments which they in turn distribute among their own shareholders.

Organizations Classified by Objectives

• Provision of a service (Government Sector)
• Profit maximization
• Expansion of market share
• Survival

Provision of a Service
Most government sector organizations (till recent times) placed more emphasis on providing required services for the benefit of the general public with less emphasis being placed on making profits. Sports clubs are yet another form of organization which focus on the provision of a service.

Profit Maximization
Most private sector companies attempt to maximize sales revenue while at the same time reducing costs and focusing on more effective and efficient operations. Thus generating greater profits which may either be re-utilized or returned to investors in the form of dividends.

Example: Most private sector organizations.

Expansion of Market Share (Growth)
Certain private and public sector companies maybe willing to forego current excess returns and instead reinvest these in improvement measures in order to gain more market share and thus potential increased returns in future.

Survival
This becomes the main objective of most firms at times of hardship such as recession, downturn of individual business, etc. They realize that they would not be able to make profits but instead focus on covering operational costs in an attempt to survive (avoid closure) until market conditions improve.

Organizations Classified by Sector

• Public sector (managed by the government)
• Private sector (owned and managed by individuals and other private companies)

Public Sector
The public sector refers to organizations that are owned by the state and run by the government or appointed management teams. The main objective of such organizations is to provide a service which is either desired or needed by the general community.

Private Sector
The private sector refers to business organizations that are owned and managed by either individuals or other private sector organizations. Their main objective is usually to maximize shareholder wealth and thus provide high returns to it's investors.