APPLIED BUSINESS STUDIES ABS 2 – Business Organisations Regional Economics and Management, Vyat. GU
Content • • • What is an organisation? Public organisations Private organisations Vertical integration Case: Classifying organisations and knowing how to work with them (1/2)
What defines an organisation? An organisation is an association of 1 to many people. What changes fundamentally between all organisation types is: • Their mission • To whom they are dutiable è That will dictate how they use their available resources Resources = Money, Time, Human resources: Financing? Standard workflow = Plan Budget, Plan investments, Initiate, Control, Validate è From where is the funding? Where is the decision taken? Common organisation structures: • Geographical (Region, country, location) • Project (Profit center, cost center) • Function (Finance, Production, HR, Research & Development, Marketing…)
Public Organisations Government / Public administration • Example: Ministry of interior (Ministerstvo vnutriniy del) • Mission: They have a public service obligation and the organization is structured to support this mission: to protect citizens (fire, robbery, terrorist acts, casualties and natural phenomenon) • Dutiable to: citizens • Ministry, Central office, Regional offices (prefectures->cities), Police stations • Funding: taxes – Budget (proposal) / early October (finance law, ministry of Finance) – Budget (approved) / mid November, end November (finance law, ministry of Finance, voted by parliament) – Budget envelope (investment decided=liability planned + orders placed=liability created - unspent budget - payments)
Public Organisations National companies • Missions: national security, defend and promote France’s interests abroad, deliver service of first necessity to customers • Dutiable to: governments, customers • Most common sectors: either strategic or naturally monopolistic sectors, for example, energy, space, aeronautics, network operators (railways, telecommunications), press… • Funding: self-financing, government subsidies, subventions • How resources are employed? to ensure national security, equity towards customer (equity in tariffs, in access to service, etc. ) • Some examples: the price of telephone (minute), electricity (KWh), train (km), letter at the post office (stamp).
Private Organisations Non commercial • Cannot distribute benefits (can make benefits, solely for reinvesting in the organisation) • Capital cannot be sold (can be donated if the non-commercial organisation is disbanded) Examples: • Associations (General interest, Public utility) • Institutes (research, education) Missions: written in the « charter » of the organisation Dutiable to: members of association, charity, etc. Funding: self-financing, memberships, gov. subsidies, donators
Private Organisations Commercial organisations = Businesses Missions: profitability for the owners Examples of ownership: • Privately owned: individual enterprise, family business, partnership • Publicly traded: stock/shares traded on a stock exchange or OTC Dutiable to: owners • Sustain growth, dividends, profits • Maximize the perceived value for the shareholders: ROI (ST/LT) versus level of risk Funding: investors (owners), self-financing (profits)
Private Organisations Where is the decision taken? Type of resource Example allocation Where is the decision taken? Visa / approval Funding of the company General assembly (shareholders), board of directors Chairman, chairman of the board, President, CEO Capital increase Distributing revenues Allocating budget Per geography, per Board of directors, to « business function/department, Operational units » per project… Management, Financial direction General manager, COO Spending budget Launching a project, (1 to n levels) Deciding an investment, Recruiting Head of business unit, Financial direction when spending « in excess of » Head of business unit (1 to n levels)
How does a business structure adapts to sustain growth? (-) Increased market share • • How? marketing efforts Impact on organisation (-) : investing on delivery capabilities, recruiting (=) Increased margins • • How? cost killing, decreasing CAPEX and OPEX Impact on organisation (=) : reorganisations (good or bad…) (++) Increased range of products and services, new segment • • How? Develop or acquire new product/service (internal/external growth) Impact on organisation (++) : vertical integration, diversification (++) Increased territory, geographical coverage • • How? Open or acquire new offices, business locations, … Impact on organisation (++) : coordination with regional/international sites
Vertical integration What is vertical integration? • Companies are involved at all stages of the value chain (value creation), Benefits of vertical integration • to maximize profits (margins of third parties) • to decrease dependencies and risk (shortage/discontinuation of supply, prices • volatility) to minimize costs (reducing wastes, using by-products of production, mutualising support functions). Specific problems caused by vertical integration in terms of organisation • One company versus multiple companies, the role of the “Holding” • Internal cession and transfer prices • Fraud (losses of a branch artificially reported to another activity): accrued complexity for compliance with laws and auditors requirements
Vertical integration Exercise: Vertical integration in the oil industry From Production to Distribution: • Upstream • Midstream and trading • Downstream
Case – Classifying organisations and knowing to work with them The different stakeholders in the oil industry (production and development) What is their mission? To whom are they dutiable? How are they integrated vertically and extended geographically? How do these actors structure their businesses? • • Governments (departments of energy, ministries of petroleum, . . . ) NOC = national oil companies (Sonatrach) Former NOCs that go privatized (for instance, in emerging countries) IOC = international oil companies (Exxon, Shell, BP, TOTAL) Independent oil producers (Conoco, Marathon) Oilfield services companies (Schlumberger, SBM) Others: niche players, new comers (PUMA), energy giants (GDF SUEZ). . . (networks will be studied in the next lecture).
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