1.3 Classifying organisations by profit orientation
Organisations can be classified in many different ways, including the following:
Profit seeking organisations
Some organisations, such as companies and partnerships, see their main objective as maximising the wealth of their owners. Such organisations are often referred to as ‘profit-seeking’.
The objective of wealth maximisation is usually expanded into three primary objectives:
§ to continue in existence (survival)
§ to maintain growth and development
§ to make a profit
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Peter Drucker has suggested that profit-seeking organisations typically have objectives relating to the following:
§ market standing
§ innovation
§ productivity
§ physical and financial resources
§ profitability
§ manager performance and development
§ worker performance and attitude
§ public responsibility
Not-for-profit organisations
Other organisations do not see profitability as their main objective. Such not-for-profit organisations (‘NFPs or NPOs’) are unlikely to have financial objectives as primary.
Instead they are seeking to satisfy particular needs of their members or the sectors of society that they have been set up to benefit.
Illustration 2 – The nature of organisations
NFPs include the following:
§ government departments and agencies(e.g. HM Revenue and Customs)
§ schools
§ hospitals
§ charities (e.g. Oxfam, Red Cross, Red Crescent, Caritas) and
§ clubs.
The objectives of NFPs can vary tremendously:
§ hospital could be said to exist to treat patients.
§ Councils often state their ‘mission’ as caring for their communities.
§ A charity may have as its main objective ‘to provide relief to victims of disasters and help people prevent, prepare for, and respond to emergencies.’
§ Government organisations usually exist to implement government policy.
One specific category of NFPs is a mutual organisation. Mutual organisations are voluntary not-for-profit associations formed for the purpose of raising funds by subscriptions of members, out of which common services can be provided to those members.
Mutual organisations include
§ Some building societies
§ Trade unions and
§ Some working-men’s clubs.
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Many NPOs view financial matters as constraints under which they have to operate, rather than objectives.
For example,
§ Hospitals seek to offer the best possible care to as many patients as possible, subject to budgetary restrictions imposed upon them.
§ Councils organise services such as refuse collection, while trying to achieve value for money with residents’ council tax.
§ Charities may try to alleviate suffering subject to funds raised
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