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Structural factors
Organisation and management of industry
This unit of work addresses aspects of the following syllabus outcomes:
A student:
H1.1 investigates industry through the study of businesses in one focus area.
H7.1 evaluates the impact of the focus area industry on the social and physical environment.
Extract from Stage 6 Industrial Technology Syllabus,.© Board of Studies NSW 1999.
Introduction
Business affects the life of everybody on a daily basis. Business takes inputs and combines them in the process of the production of goods or services. Through this process the business adds value to the inputs, transforming them into an output of goods or services.
People buy these goods or services to satisfy their wants and needs. By selling these, businesses strive to make a profit. The management of the business is responsible for finding the most efficient way of producing goods or services.
To a large extent the type of business structure depends on the good being produced. A relatively small business may produce mufflers. A large business structure is required to manufacture a car.
Businesses can be government or privately owned. The majority of businesses in Australia are privately owned.
Private businesses
The main types of private businesses are as follows:
Sole trader
Sole traders own and manage their own business. They have a simple organisation with low costs. The owners of the business have unlimited liability which means that if the business is unable to pay debts, the owner is liable to the extent that they can become bankrupt. Anyone can start up a sole trader enterprise, but some need to be licensed to trade, such as plumbers, builders and electricians.
Sole traders take all the risks and make all the decisions. They have limited capital for expansion and finance is difficult to obtain due to the small and often risky nature of the business. Management expertise is usually limited to the abilities of the owner, although they can use outside consultants or specialists.
Partnerships
Partnerships are a group of people who form a collective business organization to operate the business in common. The usual size of a partnership is from 2 to 20 people. Many firms are husband and wife or father and son partnerships.
A partnership is an effective way to reduce tax as each partner is taxed separately. Each partner is equally liable and responsible for the running of the partnership and for the debts incurred.
There are a number of advantages of partnerships:
- Expense. Partnerships are the cheapest form of collective business organization to establish.
- Capital. It is easier to borrow funds for a partnership rather than a sole trader due to a larger capital base.
- Simplicity. Businesses are easy to establish, with or without a partnership agreement.
- Workload. Here are more people to share load of management.
- Taxation. Business partners are taxed as individuals.
- Reduced liabilities. Losses incurred by the business can be used to offset liability on income earned from outside the business.
Companies
A company is a special type of business organisation that allows potentially thousands of people to become owners of the enterprise.
When a company is formed, it is said to be incorporated. Companies are established under the Corporation Act (July 1998). This Act is controlled by the Australian Securities and Investments Commission (ASIC). All companies must have a constitution, which is a set of rules that are lodged with ASIC, providing information about all aspects of the company, such as the rights of each shareholder. The rules are critical to the effective running of the company.
With limited liability companies’ the liability of the shareholders to pay for the company’s debts is limited by their investment in the company.
Each company has a top management team called a board of directors. Each director generally is in charge of a separate department within the company. The directors make the decisions that run the company.
A company can be public or private. A public company is open for anyone to buy its shares. A private company restricts ownership, number of shares and transfer of shares.
Advantages of companies are:
- limited liability
- more capital available for large undertakings
- strict legal requirements to safeguard shareholders interests
- funds are attracted from people wanting capital gain
- company can afford to employ specialists
- franked dividends provide some shareholders with a tax credit.
Disadvantages of companies are:
- division between ownership and management
- shareholders rarely participate in decision making.
Structure of industry
1. Hierarchical organisation structure based on division of labour
A hierarchical organisation is the traditional form of organising an industry. Within a hierarchical structure there is a clearly defined chain of command. The structure of the industry is likened to a pyramid, where most power is at the top of the pyramid and the least power at the bottom. This structure is illustrated in figure1. Traditionally there are three levels of management in a large industry, but smaller industries are likely to have only two or even one. In a very small industry the owner -manager may be the only decision maker.
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Senior management is concerned with broad strategic planning. Middle management is concerned with forming and implementing tactical and operational plans with quantifiable objectives. Frontline managers are supervisors who implement operational and tactical plans. Employee communication with senior management often not practical or even possible. Performance is judged against budgets, benchmarks and peers. |
most power  least power |
Figure 1. Heirarchical structure
2. Flat organisation structure and teams
The organisation structure favoured by most industries today is basically still a pyramid, but with fewer levels of management. A flatter management structure is preferred where some of the middle management has been eliminated to allow streamlined communications between workers and top management. The flatter structure allows the formation of informal work groups or teams. This allows the employees to become multiskilled and have a greater say in the operation of the industry. Figure 2 illustrates a flatter organisational structure.
Figure 2. Flat organisation structure
Each of the four departments shown in figure 2 has a manager who is responsible to the CEO. Each department manager is responsible for the contribution to the strategic plan that their department makes. They are also responsible for the progress of the work teams. In this model the lowest level of management, the supervisors, has been eliminated, with supervisors and workers being merged together at the one level. These workers operate in teams, where they have greater responsibility but also greater accountability.
Complete the following flow chart to show the typical structure of an engineering firm. Use the headings and add the employees from the list to the correct departments.
Employees:
Engineers, draughtsperson, team leader, packers, accountant,
carrier, economist, metallurgist, scientist, bookkeepers, retailer, storeperson,
auditor, apprentices, works engineer, warehouse manager, clerical assistants,
advertising manager, tradesman, labours, semi-skilled workers, sales manager,
sales representative.
Briefly describe the role of each person from the following list within an engineering firm.
Hint: use a search engine on the Internet to search for resource information on a given role, for example - engineer.
Engineers, draughtsperson, team leader, packers, accountant, carrier, economist, metallurgist, scientist, bookkeepers, retailer, storeperson, auditor, apprentices, works engineer, warehouse manager, clerical assistants, advertising manager, tradesman, labours, semi-skilled workers, sales manager, sales representative.
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