PRINCIPLES OF BUSINESS ADMINISTRATION
CONTENTS
1. BUSINESS ORGANISATIONS-------------------------------------- 1
2. FUNCTIONS OF MANAGERS-------------------------------------- 13
3. THEORIES OF MANAGEMENT------------------------------------ 18
4. MOTIVATION--------------------------------------------------------- 27
5. ORGANISATION STRUCTURE AND DESIGN------------------ 34
6. THE ORGANISATION IN THE MODERN ENVIRONMENT-- 43
7. FUNCTIONAL DEPARTMENTS AND THEIR ROLES--------- 49
8. THE HUMAN RESOURCE MANAGEMENT FUNCTION----- 51
9. STYLES OF LEADERDHIP AND MANAGEMENT------------- 65
10. ORGANISATIONAL CHANGE------------------------------------- 75
, CHAPTER 1
BUSINESS ORGANISATIONS
At the end of this Module the student shall be able to:
Understand the various types of business organisations that can be established.
Appreciate the advantages and disadvantages of each type of business
Introduction
A business activity is any legal activity that may be owned by one person as a sole
proprietor or can be owned jointly by two or more people thereby creating a
partnership. The main aim of many business operations is to make a profit either in
the short or long term. A business activity is not only trading activities like the
popular Kantemba business that have spread along many high ways in cities and
towns. A business may be in the form of manufacturing something for sale, buying
and selling for profit, providing services etc. Some examples of businesses include
banking, insurance, retail trade, producing beer, providing educational services,
Shoprite Chain Stores, Game stores, Internet services, tourist lodge or hotel, transport
services etc.
Element 1.1 Types of Business Enterprises
A business may be owned by one person as a sole proprietor or can be owned jointly
with another person or partner as a partnership. Another way in which a business
could be owned is through the establishment of a limited liability company. A limited
liability company can be privately or publicly owned. Another form of business
organization could be through a cooperative society. The government may on behalf
of the entire citizenry own businesses.
i) Sole Trader
a) Definition
This is a business owned by only one person who provides all the capital needed
to set up and manage the organization and takes profit as his/her reward. The
owner uses his/her labour assisted sometimes by one or two workers and/ or
family members. This is normally a small business in size though it is not always
small.
This type of business may involve retail trade, builders, hairdressing, radio and TV
repairs, farming, fishing, consultancies, bar, restaurant, hotels, travel agencies, law
firm, home finders, estate agencies, etc. All such business activities are owned and
managed by the sole proprietor.
,The sources of finance for the sole proprietor may be through selling of Personal
assets such as land, buildings, cattle or shares held in a company. Other sources could
be through borrowing from a friend, family member or the bank.
Features of the Sole Proprietor
The main features of Sole Proprietorship are as follows:
i. It is a business owned by only one person who provides all the capital
needed to set up and manage it and takes all the profit as his reward.
ii. It is the simplest and most common type of business enterprise.
iii. The owner uses his/her labour, assisted perhaps by one or two workers or
family members.
iv. The business tends to be small in size although it is not always so.
v. This type of business enterprise is not confined to the retail trade.
b) Advantages of a Sole Trader
When you own and manage the business as a sole proprietor there are
several advantages, and these include the following:
i) The business is easy to set up, control and manage.
ii) It requires a small amount of capital to set up; as a result many people
are able to run this type of business.
iii) The owner makes independent and quick decisions on how the
business is to be run.
iv) The owner has personal contact with his/her workers as well as
customers and is likely to be familiar with all the aspects of the
business.
v) The owner tries to provide his/her customers with personalised service.
This is one of the main reasons for the continued survival of the sole
proprietors.
vi) The owner takes all the profits made by the business and this gives
him/her encouragement to work hard.
vii) Business affairs are kept private except when completing tax returns.
The law provides that the sole proprietor shall pay tax.
viii) The owner will be familiar with all aspects of the business with timely
solutions to problems if any.
ix) The sole proprietor is elf-employed and gets a sense of satisfaction for
working for him/herself.
c) Disadvantages of a Sole Trader
There are a number of disadvantages of running a sole proprietorship and the
common ones include the following:
i) The personal assets are at risk because the business has unlimited
liability. In an event that the sole trader borrows money from any
institution or individual, he/she must pay back the whole of it
otherwise her/his personal assets would be attached and auctioned to
raise the money to repay the debt.
2
, ii) The business cannot do without the owner. The business may close
down when the owner dies, as the owner is everything to the business.
There is no sharing of workload.
iii) It is more difficult for the sole trader to borrow money than in other
forms of business, making expansion difficult. The sole trader may not
borrow money, as the sole trader does not provide financial collateral
as security.
iv) The size of the business is rather too small. Thus, it is unable to benefit
from the economies of scale making it more expensive to run than
larger organizations. There may not be any division of labour.
v) The sole proprietor is self-employed. This means he/she does not have
such benefits as state social security or retirement benefits, which are
enjoyed by those employed by other companies or government
departments.
vi) Shortage of capital prevents the sole proprietor from providing modern
equipment, for example the use of computerized stock control. He/she
cannot afford to provide services such as credit, delivery, and other
amenities to his/her customers thereby making such businesses
unattractive to customers.
vii) The risks of failure are as high as there is severe competition from
especially large-scale businesses.
viii) Division of labour may be difficult to organize because of the small
size the business, thus there is little sharing of workload and therefore
always overloaded. This affects his/her efficiency and productivity.
ii) Partnerships
a) Definition
Partnerships may be established for purposes of pooling of skills,
experiences, knowledge, contacts, finances, assets or a combination of
any two or more factors. At individual levels, people may realize that
they did not have adequate skills, knowledge or finance to run a
business on their own, but as a team, they could achieve more.
Between two and twenty people can come together and form a partnership
by drawing up a legal document called partnership deed. This document
gives details of the way the firm will be organized and managed.
The details in the partnership deed include the following:
i. The objectives of a partnership,
ii. The financial contribution of each partner,
iii. The sharing of profits and losses,
iv. The rights and obligations of each partner,
v. The amount of money to be paid as salary to each partner,
vi. The name of the partnership and
vii. The treatment of capital invested.
3
CONTENTS
1. BUSINESS ORGANISATIONS-------------------------------------- 1
2. FUNCTIONS OF MANAGERS-------------------------------------- 13
3. THEORIES OF MANAGEMENT------------------------------------ 18
4. MOTIVATION--------------------------------------------------------- 27
5. ORGANISATION STRUCTURE AND DESIGN------------------ 34
6. THE ORGANISATION IN THE MODERN ENVIRONMENT-- 43
7. FUNCTIONAL DEPARTMENTS AND THEIR ROLES--------- 49
8. THE HUMAN RESOURCE MANAGEMENT FUNCTION----- 51
9. STYLES OF LEADERDHIP AND MANAGEMENT------------- 65
10. ORGANISATIONAL CHANGE------------------------------------- 75
, CHAPTER 1
BUSINESS ORGANISATIONS
At the end of this Module the student shall be able to:
Understand the various types of business organisations that can be established.
Appreciate the advantages and disadvantages of each type of business
Introduction
A business activity is any legal activity that may be owned by one person as a sole
proprietor or can be owned jointly by two or more people thereby creating a
partnership. The main aim of many business operations is to make a profit either in
the short or long term. A business activity is not only trading activities like the
popular Kantemba business that have spread along many high ways in cities and
towns. A business may be in the form of manufacturing something for sale, buying
and selling for profit, providing services etc. Some examples of businesses include
banking, insurance, retail trade, producing beer, providing educational services,
Shoprite Chain Stores, Game stores, Internet services, tourist lodge or hotel, transport
services etc.
Element 1.1 Types of Business Enterprises
A business may be owned by one person as a sole proprietor or can be owned jointly
with another person or partner as a partnership. Another way in which a business
could be owned is through the establishment of a limited liability company. A limited
liability company can be privately or publicly owned. Another form of business
organization could be through a cooperative society. The government may on behalf
of the entire citizenry own businesses.
i) Sole Trader
a) Definition
This is a business owned by only one person who provides all the capital needed
to set up and manage the organization and takes profit as his/her reward. The
owner uses his/her labour assisted sometimes by one or two workers and/ or
family members. This is normally a small business in size though it is not always
small.
This type of business may involve retail trade, builders, hairdressing, radio and TV
repairs, farming, fishing, consultancies, bar, restaurant, hotels, travel agencies, law
firm, home finders, estate agencies, etc. All such business activities are owned and
managed by the sole proprietor.
,The sources of finance for the sole proprietor may be through selling of Personal
assets such as land, buildings, cattle or shares held in a company. Other sources could
be through borrowing from a friend, family member or the bank.
Features of the Sole Proprietor
The main features of Sole Proprietorship are as follows:
i. It is a business owned by only one person who provides all the capital
needed to set up and manage it and takes all the profit as his reward.
ii. It is the simplest and most common type of business enterprise.
iii. The owner uses his/her labour, assisted perhaps by one or two workers or
family members.
iv. The business tends to be small in size although it is not always so.
v. This type of business enterprise is not confined to the retail trade.
b) Advantages of a Sole Trader
When you own and manage the business as a sole proprietor there are
several advantages, and these include the following:
i) The business is easy to set up, control and manage.
ii) It requires a small amount of capital to set up; as a result many people
are able to run this type of business.
iii) The owner makes independent and quick decisions on how the
business is to be run.
iv) The owner has personal contact with his/her workers as well as
customers and is likely to be familiar with all the aspects of the
business.
v) The owner tries to provide his/her customers with personalised service.
This is one of the main reasons for the continued survival of the sole
proprietors.
vi) The owner takes all the profits made by the business and this gives
him/her encouragement to work hard.
vii) Business affairs are kept private except when completing tax returns.
The law provides that the sole proprietor shall pay tax.
viii) The owner will be familiar with all aspects of the business with timely
solutions to problems if any.
ix) The sole proprietor is elf-employed and gets a sense of satisfaction for
working for him/herself.
c) Disadvantages of a Sole Trader
There are a number of disadvantages of running a sole proprietorship and the
common ones include the following:
i) The personal assets are at risk because the business has unlimited
liability. In an event that the sole trader borrows money from any
institution or individual, he/she must pay back the whole of it
otherwise her/his personal assets would be attached and auctioned to
raise the money to repay the debt.
2
, ii) The business cannot do without the owner. The business may close
down when the owner dies, as the owner is everything to the business.
There is no sharing of workload.
iii) It is more difficult for the sole trader to borrow money than in other
forms of business, making expansion difficult. The sole trader may not
borrow money, as the sole trader does not provide financial collateral
as security.
iv) The size of the business is rather too small. Thus, it is unable to benefit
from the economies of scale making it more expensive to run than
larger organizations. There may not be any division of labour.
v) The sole proprietor is self-employed. This means he/she does not have
such benefits as state social security or retirement benefits, which are
enjoyed by those employed by other companies or government
departments.
vi) Shortage of capital prevents the sole proprietor from providing modern
equipment, for example the use of computerized stock control. He/she
cannot afford to provide services such as credit, delivery, and other
amenities to his/her customers thereby making such businesses
unattractive to customers.
vii) The risks of failure are as high as there is severe competition from
especially large-scale businesses.
viii) Division of labour may be difficult to organize because of the small
size the business, thus there is little sharing of workload and therefore
always overloaded. This affects his/her efficiency and productivity.
ii) Partnerships
a) Definition
Partnerships may be established for purposes of pooling of skills,
experiences, knowledge, contacts, finances, assets or a combination of
any two or more factors. At individual levels, people may realize that
they did not have adequate skills, knowledge or finance to run a
business on their own, but as a team, they could achieve more.
Between two and twenty people can come together and form a partnership
by drawing up a legal document called partnership deed. This document
gives details of the way the firm will be organized and managed.
The details in the partnership deed include the following:
i. The objectives of a partnership,
ii. The financial contribution of each partner,
iii. The sharing of profits and losses,
iv. The rights and obligations of each partner,
v. The amount of money to be paid as salary to each partner,
vi. The name of the partnership and
vii. The treatment of capital invested.
3
