Compare the ownership, control, finance and objectives of business entities in IB Business Management SL, from sole traders and partnerships to companies and non-profit organizations.
Creative Software Systems (CSS)
Creative Software Systems (CSS), a private limited company, designs custom software packages for public sector organizations. Ebru Aga is the sole shareholder, though she is considering an employee share ownership scheme.
For years, CSS managed its employees closely, setting individual targets for performance and requiring regular progress reports. Following Adams's equity theory, CSS tied financial rewards to frequently measured performance outcomes. Though managers clearly explained to individual employees how additional financial rewards were linked to specific contributions they made, many employees still felt the system was unfair.
After reading Daniel Pink's theory of motivation, Ebru reconsidered her management style and CSS's system of financial rewards. She liked when Pink reported that a major American company allowed employees to work 20 % of their time on projects of their choice. Ebru implemented the following three changes:
- Change 1: Adopting a project-based organizational structure for CSS projects.
- Change 2: Eliminating performance-related pay (PRP).
- Change 3: Allowing employees to spend 20 % of their time on any project they wish, either one of CSS's or their own "dream project".
Employees' reactions were mixed. Some employees were thrilled. They had many ideas of their own that they wanted to explore. Other employees, however, did not like the change. In the 20 % of their time given to any project they wished, they chose to work on projects given to them by CSS. They felt it was unfair. Although they were advancing important projects of the company, they would no longer get performance-related pay (PRP), while others spent their time on projects that might not contribute to CSS's profitability.
Define the term public sector.
Tijeras (TJ)
Tijeras (TJ), a private limited company, manufactures surgical scissors. It has four shareholders and operates one factory in Peru. TJ sells in Central American and South American markets. Its sales have grown for the last 10 years, which has led to both economies of scale and diseconomies of scale.
The chief operating officer (COO) analysed the situation. He discovered that:
- current work areas are overcrowded
- workers are specializing more than in previous years
- maintenance costs are increasing
- the firm now buys raw materials in bulk.
The market for surgical equipment, including scissors, in the United States (US) is large and highly competitive. Recently, some hospitals in the US purchased TJ's scissors.
Table 3: Selected financial information for TJ on 31 May 2021 and 2022 and for the years ending 31 May 2021 and 2022
The COO determined that TJ needed more manufacturing capacity and put forward two options:
- Option 1: Keep the current factory in Peru and build a second one in Mexico, closer to the North American market. TJ's bank has agreed to provide a long-term loan to finance the new factory.
- Option 2: Build a new factory that is large enough for all of TJ's manufacturing-capacity needs and sell the old factory for . This new factory cannot be financed solely with external borrowing.
Table 4: Forecasted costs of Option 1 and Option 2
State two features of a private limited company.
Red Squirrel Apple Juice (RS)
Red Squirrel Apple Juice ( RS) is a cooperative of apple farmers. RS was named after the red squirrel, whose population is declining because of growing numbers of grey squirrels. Originally from North America, grey squirrels are aggressive and take over red squirrels' habitats. RS's founders thought that the red squirrel would be a good symbol to reverse the declining popularity of traditional apple juice due to consumer preference for high-sugar American-style beverages. With the symbol, RS aimed to appeal
to environmentally aware and health-conscious consumers.
Originally, RS only sold apple juice in bulk to beverage companies. These companies bottle the juice and sell it under their own labels. RS requires these companies to place RS's logo of a red squirrel on their labels. Although RS only sells to a small number of beverage companies, its logo is on juice bottles in stores across the country.
Awareness of the RS brand grew. The cooperative's managers recently opened another channel of distribution: direct sales of bottled juice to consumers at the cooperative's processing plant. RS charges lower prices than stores. The new channel of distribution required capital expenditure for bottling equipment and additional revenue expenditure. RS experienced increased labour and promotion costs, which some farmers complained about.
In recent decades, RS's home country has experienced rising anti-immigrant sentiment. Some politically motivated organizations have begun to use images of red squirrels to symbolize this sentiment, so some beverage companies no longer want to use RS's logo on their labels.
Some of RS's stakeholders are concerned.
State two features of a cooperative.
It is now mid-2019. Production of solar power systems has been going for over a year. Sales have exceeded forecasts and reached 5000 systems for the year. All profits have been reinvested into developing a portable biomass source of electricity* (PBS) as an alternative to solar power systems. The PBS technology is now fully developed and tested. Su has data to help her decide whether to go into production. The new production facility will cost $1 million.
AS produces solar power systems for Afghanistan, where many areas lack reliable electricity after years of war. The project has risks from political instability, infrastructure, distribution to remote customers and changing external conditions. AS needs careful marketing planning, human-resource planning, contingency planning and preparation for uncertainty. The proposed Doorway Foundation joint venture would give DF majority ownership and senior managers, require AS to increase production and restructure, and could help bring electricity and IT to schools; it could also reduce Su’s control and make the Afghanistan project take second place.
It is now mid-2019. Production of solar power systems has been going for over a year. Sales have exceeded forecasts and reached 5000 systems for the year. All profits have been reinvested into developing a portable biomass source of electricity* (PBS) as an alternative to solar power systems.
The PBS technology is now fully developed and tested. Su has data to help her decide whether to go into production. The new production facility will cost million.
The costs and the price of the product once production has begun are estimated in Table 3.
Table 3: Estimated cost and price data for PBS
In a separate development, Doorway Foundation (DF), a multibillion-dollar charity established by the owners of one of the world's largest IT businesses, has approached Su. The foundation has a major IT initiative to bring IT to schools in Afghanistan, Myanmar and Bangladesh. By forming a joint venture, DF could use AS's expertise and local knowledge to help solve some of the electricity supply and IT problems in Afghanistan. DF would have majority ownership in the joint venture, provide most of the senior managers, and is likely to expect changes in the way AS operates. AS would have to significantly increase the production of solar power systems and would have to restructure. Some managers may lose influence over decisions. Su is worried that her Afghanistan project (AS) would take second place. However, she sees this as a huge opportunity to make a real change in young people's lives.
* portable biomass source of electricity: a means of generating electricity using the heat obtained from burning plant material and/or animal waste
Define two characteristics of a charity.