Organisation Types

You can divide organisations into two main types:

COMMERCIAL ORGANISATIONS - whose main aim is to make a profit

SERVICE ORGANISATIONS - whose main aim is to provide a service

Commercial organisations, as their name suggests, indulge in commerce. At the end of the day, their success is mainly judged by profitability. Put simply, their income must be bigger than their expenses. If they do not make a profit, they do not survive. Two main ways of increasing profit is to conduct more business and to reduce costs through greater efficiency. Commercial organisations include BHP, Microsoft and your local milk bar.

Service organisations ("Not for profit") are not intended to generate profits. Often, if a profit is made, it is re-invested to improve the quality of their service. Of course a service organisation does not want to waste money, but it would be quite happy if it barely broke even at the end of the financial year because profit is not its reason for being. Its success is judged by the quality of the service it provides. Service organisations include churches, public hospitals, state schools, the Red Cross, community groups, your local fishing club, governments.

Of course commercial organisations are rarely (one hopes) driven purely by the profit motive. They contribute to the community and to charity. Of course such seemingly profitless acts do help the organisation: goodwill improves, the public views them more favourably, and of course it is rare for an organisation to contribute anonymously: it is a way of getting publicity. Do you think McDonalds would have their "Happy Day" if their name didn't get prominent exposure in the ads?

Equally, the services offered by service organisations are rarely completely free to their clients. Even public transport companies charge for tickets. For a service organisation to work, they must have funds to provide their services and these funds must come from somewhere. Some income comes from contributions (to charities, for example) and other income comes from fees (e.g. fishing club membership dues). The funds are used to cover expenses so they can continue providing their service, not to make money for the sake of making money.

Organisational goals

Organisational decisions