Introduction to Business© Thomson South-Western

ChapterChapterChapterChapter

Business Organization

5-15-1 Business in the U.S. Economy

5-25-2 Forms of Business Ownership

5-35-3 Organizational Structure for Businesses

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Introduction to Business© Thomson South-Western

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LESSON 5-1LESSON 5-1

Business in the U.S. Economy

Goals Describe the changing status of U.S.

employment. Discuss the role of business in the U.S.

economy. Describe three major types of

businesses.

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Key Terms

contingent worker producer intermediary service business

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THE CHANGING U.S. JOB MARKET Employment data

2002-144 million people held jobs 2012-165 million people will hold jobs Baby boomers- large number of people born between 1946 and 1964 Minorities and women employment has significantly grown and will

continue to grow more than the white male workers. Current Employment Data

Pressures on employees Contingent worker-one who has no explicit or implicit contract for long term

employment. 5% = 6 million workers.

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>> C H E C K P O I N T

List several groups that will increase as a percentage of the total U.S. workforce in the next decade.

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BUSINESS AND THE ECONOMY Size of businesses

Most US businesses are small Nearly 18 million have no employees other than owner 5 million employ 20 or less

Roles of business Provide employment for millions of people Wages and profits compensate workers and owners Taxes paid are used by the government to provide services such as clean water,

hospitals, schools, and police and fire protection. Most important role is to make and distribute products and services needed by

consumers, government, and other businesses. Impact on a community

Employees spend money on community businesses Money spent may result in the need for more employees therefore increasing jobs. Successful businesses contribute more jobs, more income, and a thriving economy in

the communities where they operate.

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NUMBER OF EMPLOYEES IN U.S. BUSINESSES

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BUSINESS ACTIVITIES*All businesses perform 6 basic activities

Generating ideas Raising capital Employing and training personnel Buying goods and services Marketing goods and services Maintaining business records

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>> C H E C K P O I N T

What are the six basic activities completed by all businesses?

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TYPES OF BUSINESSES Producers-create the products and services.

Extractors-takes resources from nature for direct consumption Farmers-cultivate land and use other natural resources to grow crops and

livestock for consumption. Manufacturers-get supplies from other producers and convert them into

products. (Jeans) Intermediaries-businesses involved in selling the goods and services of

producers to consumers and other businesses. Retailers and wholesalers –Examples Sams Club;BJ’s; Best Buy;7-11

Wholesalers/outlets are cheaper because they cut out the middle man!

Service businesses- Carries out activities that are consumed by its customers. Offers something that is intangible. Over 60% of all US Employment is now in service producing businesses.

Dual Income Families- no time

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>> C H E C K P O I N T

How does a manufacturer differ from an extractor?

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LESSON 5-2LESSON 5-2

Forms of Business OwnershipGoals Understand the three major forms of

business ownership. Determine when each form of business

ownership is most appropriate. Recognize other specialized business

ownership forms.

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Key Terms

proprietorship partnership corporation partnership agreement articles of incorporation franchise

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BUSINESS OWNERSHIP

Proprietorship-owned and operated by 1 person. All profits, all decisions Responsible for all debts (personally)

Partnership-owned and operated by 2 or more people. All profits and decisions shared All are responsible for debts of business.

Corporation- separate legal entity formed by documents (charter) filed with state. Owned by shareholders and managed by board of directors. Difficult to form (must meet legal requirements, and very costly) Only responsible for the amount of invested by stockholders.

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FORMS OF OWNERSHIP

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>> C H E C K P O I N T

What are the differences between the three main forms of business ownership?

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CHOOSING A FORM OF BUSINESS OWNERSHIP Choosing a proprietorship

Very easy to start No government permits or licenses (mostly) Tax advantage because they tax your business as personal income Business expenses reduce personal income Unlimited Liability (Personal responsibility)

Choosing a partnership Similar to proprietorship Must sign partnership agreement 2 or more people invest in company and share all decisions Unlimited Liability (Personal responsibility)

Choosing a corporation Treated as individuals by the state. Must file articles of incorporation (charter) with state. Limited liability (Not personally responsible) Decision making is shared Double taxation (Taxed on business and shareholders on their dividends)

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>> C H E C K P O I N T

Which form of business ownership is the most complex and difficult to form?

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Specialized partnerships and corporations LLC’s – Limited Liability Corporations Joint Venture- a strategic alliance where two or more parties, usually

businesses, form a partnership to share markets, intellectual property, assets, knowledge, and, of course, profits.

S corporation- a corporation that makes a valid election to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code.

In general, S corporations do not pay any federal income taxes. Instead, the corporation's income or losses are divided among and passed through to its shareholders. The shareholders must then report the income or loss on their own individual income tax returns.

Non profit organizations (Churches, YMCA) Cooperatives and franchises

Cooperative-a business organization owned and operated by a group of individuals for their mutual benefit (Credit unions)

Franchise-the right or license granted by a company to an individual or group to market its products or services in a specific territory. (McDonalds;Eagles) Franchiser and franchisee

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>> C H E C K P O I N T

What are the other specialized forms of business ownership?

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LESSON 5-3LESSON 5-3

Organizational Structure for Businesses

Goals Understand important principles in

designing an effective organization. Compare alternative organizational

structures for businesses.

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Key Terms

mission statement goal policies procedures organization chart

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DESIGNING AN EFFECTIVE BUSINESS ORGANIZATION

Setting direction Direction comes from mission statement (short, specific written statement of the

reason a business exists and what it wants to achieve). EX: “To provide economy-and quality-minded travelers with a premier, moderate-priced lodging

facility which is consistently perceived as clean, comfortable, well-maintained and attractive, staffed by friendly, attentive, and efficient people”

After mission statement, the business sets goals (precise statement of results the business expects to achieve).

Goals are used to define what needs to be accomplished and to determine if the business is successful. EX: “to produce the top-rated brand for quality and customer satisfaction”

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. Effective policies and procedures provide guidance and direction to people working in the

organization

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Principles of Effective Organization

Responsibility, Authority, and Accountability Responsibility is the obligation to complete specific work. Authority is the right to make decisions about how responsibilities should

be accomplished. Accountability is taking responsibility for the results achieved. In an effective organization, all managers and employees have a set of

responsibilities as a part of their jobs. With every job assignment, they know they have the authority to make the

decisions and obtain resources needed to complete the assignment. They know they will be recognized and rewarded if they are successful

AND/OR be held accountable if the work is not completed well.

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Principles of Effective Organization

Unity of Command There is a clear reporting relationship for all staff of a business. If there is confusion in assignments and unclear relationships among

people who are working together, it will be hard for people to know what to do or where to go for help. For each work assignment, people need to know who is the leader and how decisions will be made.

Span Of Control The number of employees who are assigned a particular work task and

manager. Organizations need to make sure that workers have a balance of

supervision and freedom to do their work. The span of control for well trained, experienced, and motivated employees

can be much greater than for new and inexperienced employees who are not enthused about their work.

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>> C H E C K P O I N T

What is the difference between a mission statement and a goal?

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TYPES OF ORGANIZATIONAL STRUCTURESThere needs to be an agreement on what work each person will do and if

one person has authority over the work of others.Organization chart is a diagram that shows the structure of an

organization, classifications of work and jobs, and the relationships among those

classifications.

Functional organization structure In this type of organizational structure, work is arranged within main business

functions such as production, operations, marketing, and human resources. All of the people with jobs related to one of the functions will work together. They report to managers who are responsible for that function. Advantage- people work with others who have same work skills. Disadvantage- people become focused on their specific function than on the success

of the whole business. Matrix organizational structure

Work is structured around specific projects, products, or customer groups. People with varied backgrounds are assigned together because their expertise is

required for the project or to serve the customer. Advantage-interesting and motivating for employees; focused on task; work with

many different people. Disadvantage- it can be confusing and inefficient without effective leadership and

communication.

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BUSINESS ORGANIZATION CHART

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>> C H E C K P O I N T

What problems can result from the use of a functional organizational structure?