Business organization and environment
Business organization and environment is the framing unit of the course. It asks why businesses exist, how they are owned and structured, why they grow, and how external forces constrain them. The exam rewards precise terminology applied to the case, plus evaluation that weighs a decision against named stakeholders.
Core rules
- Sectors: primary (extraction), secondary (manufacturing), tertiary (services); HL adds quaternary (knowledge-based).
- Objectives hierarchy: vision → mission → aims → SMART objectives → strategy → tactics. Objectives must be measurable; aims need not be.
- Legal structure: sole traders and ordinary partnerships carry unlimited liability; private (Ltd) and public limited companies (plc) carry limited liability. A plc is still private sector - it simply sells shares to the public.
- Growth: organic (internal) versus external - merger, acquisition, joint venture, strategic alliance. Ansoff's matrix ranks risk: market penetration (lowest), product development, market development, diversification (highest).
- STEEPLE: social, technological, economic, environmental, political, legal, ethical - external factors only.
Worked example: economies of scale
A manufacturer has fixed costs of $120,000 and variable cost of $6 per unit. At 10,000 units: total cost = 120,000 + 60,000 = $180,000, so unit cost = $18. At 20,000 units: total cost = 120,000 + 120,000 = $240,000, so unit cost = $12. The same fixed cost is spread over twice the output, cutting unit cost by a third; purchasing, marketing and technical economies reinforce this. Beyond capacity, diseconomies (coordination, morale, communication) can push unit cost back up, so growth is not automatically efficiency.
Traps that cost marks
- Treating "public limited company" as public-sector ownership.
- Confusing mission (why we exist) with objectives (measurable targets).
- Assuming growth raises profit, ignoring integration costs, culture clash and diseconomies.
- Placing competitors inside STEEPLE; competitive analysis is a separate layer.