BUSINESS NOTES & KEY TERMS
Chapters: 1-9
Chapter 1: Business activity
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Needs are things we can't live without.
wants are simply our desires that we can live without.
Businesses produce goods and services to satisfy needs and wants.
Although we have unlimited wants, there are not enough resources for everyone.
The Real Cause of the Economic Problem:
● The real cause of the shortage of goods and services in any country is the few factors
of production.
● Factors of production are the inputs needed for the creation of a good or service.
→ factors of production
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Land: All natural resources used to make a product or service.
Labour: The effort of workers required to make a product or service.
Capital: Finance, machinery and equipment required to make a product or service.
Enterprise: Skill and risk-taking ability of the entrepreneur.
Limited Resources: the need to make choices
● An opportunity cost is the next best alternative given up by choosing another
alternative.
● Example: Trip or Car. If you choose the Car then the trip will be an opportunity cost.
Specialisation and Division of Labor
● Because there are limited resources, we need to use them in the most efficient way
possible.
● Therefore, we now use production methods that are as fast as possible and as efficient
(costs less, earns more) as possible. The main production method that we are using
nowadays is known as specialisation / division of labour.
● "Specialisation occurs when the business and people concentrate on what they are
best at.“
● “Division of labour is when the production process is split into different tasks and
each worker performs one of these tasks. It is also a form of specialisation.”
Advantages
● Specialised workers are trained in one task ---increases efficiency and output.
● Less time is wasted in moving from one workbench to another.
● Quicker and cheaper to train workers as few skills are required to be taught.
Disadvantages
● Boredom from doing the same job lowers efficiency.
● No flexibility because workers can only do one job and cannot perform another task
if required.
● If one worker is absent and no-one can replace him, the production process stops.
Why is business activity needed ?
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Provides goods and services from limited resources to satisfy unlimited wants.
Scarcity results from limited resources and unlimited wants.
Choice is necessary for scarce resources. This leads to opportunity costs.
Specialisation is required to make the most out of resources.
What is added value?
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Added Value is the difference between the selling price of the product and cost of the
bought materials and components.
→ Why is adding value important?
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Adding value to a product or service helps companies attract more customers, which
can boost revenue and profits. Value-added is effectively the difference between a
product's price to consumers and the cost of producing it.
→ How to calculate added value?
- Selling price - cost of materials/components = added value
How can value be added?
- Value added is achieved by working on materials and/or components to make them into
much more expensive finished goods.
● E.g. 1 – Leather companies could make jackets, wallets, shoes, bags etc to add value
rather than just selling the leather.
● E.g. 2 – A chocolate manufacturer could use a more appealing/expensive wrapping
and charge a higher price.
● E.g. 3. – A housing developer may opt for very nice upscale gardens to push up the
price of the housing estate
Chapter 2: Classifications of business
→ Primary Sector:
● The primary sector of the economy extracts or harvests products from the earth.
● Activities associated with the primary sector include agriculture mining, forestry,
farming, grazing, hunting and gathering, fishing, and quarrying.
→ Secondary Sector:
● The secondary sector of the economy manufactures goods for customers
● Activities associated with the secondary sector include metal working, automobile
production, textile production, chemical and engineering industries, energy utilities,
engineering, breweries and bottlers, construction, and shipbuilding.
→ Tertiary Sector:
● The tertiary sector of the economy is the service industry. This sector provides
services to the general population and to businesses.
● Activities associated with this sector include retail and wholesale, transportation and
distribution, entertainment restaurants, clerical services, media, tourism, insurance,
banking, healthcare, and law.
Which sector is the most important in your country?
● Every county is unique. Therefore the term ‘important’ is relative to the needs of each
individual country.
● The three sectors of industry are compared by:
- The number of workers employed in each sector
- The value of output of the goods and services
Deindustrialization:
● It occurs when there is a decline in the importance of the secondary, manufacturing,
sector in a country. This process is called de-industrialization.
deindustrialisation In Developed Countries:
● Manufacturing started long ago
● Secondary and tertiary sectors are employed more
● Level of output in the primary sector is lower.
● In very wealthy countries, it is common that they export manufactured goods from
abroad.
● Most of the workers will be employed in the tertiary sector for services.
Private and Public Sectors of Industry:
● All countries suffer from the problem of scarce resources. To solve this problem, they
use one of three economic systems:
1. Free Market Economy
2. Command or Planned Economy
3. Mixed Economy
What is a free market economy?
→ A free market economy is one without government intervention or regulation. In a purely
free market, buyers and sellers arrive at prices based only on supply and demand.
Features:
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All resources are owned privately
No government control over land, capital and labour
Businesses produce to make a profit
Goods in high demand: Are more profitable and so are produced more.
Goods in low demand: Are less profitable and so are produced less.
Prices of goods are therefore influenced by the demand and supply of those goods.
There is no country with a completely free market system. In all countries,
governments are involved in important economic decisions, to a greater or lesser
degree.
● The USA is the closest example to a free market economy
What is a Command or Planned economy?
→ A command economy is one in which a centralised government controls the means of
production and determines output levels. Command economies stand in contrast to
free-market economies, those in which the law of supply and demand determines output and
prices.
features:
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Centralised economic planning.
Lack of private property.
Emphasis on social welfare.
The government controls prices.
Limited consumer choice.
No competition.
What is a Mixed Economy?
→ A mixed economic system is a system that combines aspects of both capitalism and
socialism. A mixed economic system protects private property and allows a level of
economic freedom in the use of capital, but also allows for governments to interfere in
economic activities in order to achieve social aims.
Features:
● Combines some features of both a free market economy and a command economy.
● Nearly every country in the world has a mixed economy with both a private sector
and a public sector.
● These countries have a mix of government spending and free-market systems based
on the share of government spending as a percentage of gross domestic product.
II. Private Sector
III. Public Sector
Comprised of businesses not owned by Made up of government or state owned and
the government.
controlled businesses and organisations
The businesses will decide about what The government makes decisions about what to
to produce, how it should be produced produce and how much to charge consumers.
and what price should be charged for it.
Most businesses aim to run for profit.
Some goods and services are provided free of
charge to the consumer such as health and
education services.
The money comes from taxes.
Service to the community is the main objective.
Privatisation:
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Privatisation is when governments have sold off businesses they previously owned
to new owners in the private sector.
Privatisation – Arguments For
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The new private owners are now aiming for profit. This increases efficiency.
Competition may now be encouraged if the business is sold off to a variety of
private owners. This helps to increase efficiency and so will keep prices low.
Governments are often short of money.
New owners will invest additional capital to improve the services.
Important business decisions will now be made for reasons of business
efficiency not by government popularity.
Sales of the public sector businesses raise money for the government for other
services.
Privatisation – Arguments Against
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As the new owners are interested mainly in profits, some services making losses may
be closed. These might be disturbing to members of the community.
Workers' jobs could be lost as the new owners attempt to increase efficiency in order
to raise profits.
The business might be sold off to one owner who would still be able to run it as a
monopoly. This could lead to higher prices for the customers.
Only a few people the new owners will benefit from owning the business, whereas
public services allow the entire community to benefit.
Chapter 3: Enterprise, business growth and size
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Entrepreneur is a person who organises, operates and takes the risk for a new business
venture.
Risk bearing, Resourcer, hard working, vision & foresight, imagination & initiative,
sound judgement, drive & persistence, Creative Thinking, Innovative & Organising.
Business Plan
- A business plan is a document containing the business objectives and important
details about the operations, finance and owners of the new business.
» What products or services do I intend to provide and which consumers am I ‘aiming at’?
» What will be my main costs and will enough products be sold to pay for them?
» Where will the firm be located?
» What machinery and how many people will be required in the business?
→ Every business plan might be different, but generally business plans contain similar
headings. The contents of a business plan will usually include the following:
● Description of the business
● Products and services
● The market
● Business location and how products will reach customers
● Organisation structure and management
● Financial information
● Business strategy
Why does the government support business start ups..
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Reduces Unemployment
Increase competition
Increase output
Benefit to society
Can expand and grow – all businesses were small once!
Capital employed: is the total value of capital used in the business
Number of people employed, value of output, value of capital employed, value of sales
1. Number of people employed
This method is easy to calculate and compare with other businesses.
● Limitations: Some firms use production methods which employ very few people but
produce high output levels. This is true for automated factories which use the latest
computer-controlled equipment.
● These firms are called capital-intensive firms – they use a great deal of capital
(high-cost) equipment to produce their output.
● Therefore, a company with high output levels could employ fewer people than a
business which produced less output.
● Calculating the value of output is a common way of comparing business size in the
same industry – especially in manufacturing industries.
2. Value of output
Calculating the value of output is a common way of comparing business size in the same
industry – especially in manufacturing industries.
● Limitations: A high level of output does not mean that a business is large when using
the other methods of measurement.
● A firm employing few people might produce several very expensive computers each
year. This might give higher output figures than a firm selling cheaper products but
employing more workers.
● The value of output in any time period might not be the same as the value of sales if
some goods are not sold.
3. Value of sales
This is often used when comparing the size of retailing businesses – especially retailers selling similar
products (for example, food supermarkets).
Limitations: It could be misleading to use this measure when comparing the size of businesses that
sell very different products (for example, a market stall selling sweets and a retailer of luxury
handbags or perfumes).
4. Value of capital employed
This means the total value of capital invested into the business.
Limitations: This has a similar problem to that of the ‘number of people employed’ measure.
A company employing many workers may use labour-intensive methods of production. These
give low output levels and use little capital equipment.
Business expansion:
Why do owners want their business to grow?
● The possibility of higher profits for the owners.
● More status and prestige for the owners and managers – higher salaries are often paid
to managers who control the bigger firms.
● Lower average costs –Economies of scale.
● Larger share of its market- the proportion of total market sales it makes is greater.
This gives a business more influence when dealing with suppliers and distributors and
customers are often attracted to the “big names” in an industry.
Internal growth and its impact
● Internal growth occurs when a business expands its existing operations. For
example by expanding the product range, or number of business units and
location.
● Internal growth builds on the business’ own capabilities and resources. For most
businesses, this is the only expansion method used.
● Internal growth involves strategies such as:
● Developing new product ranges
● Launching existing products directly into new international markets (e.g. exporting)
● Opening new business locations – either in the domestic market or overseas
● Investing in additional production capacity or new technology to allow increased
output and sales volumes
● Some examples of businesses that have implemented successful Internal growth
strategies are illustrated in the charts below for Dominos UK, Apple and Costa
Coffee.
External growth and its impact
● External growth is when a business takes over or merges with another business.
It is often called integration, as one business is integrated into another one.
● By external growth, involving a takeover or a merger with another business.
● A takeover or acquisition is when one business buys out the owners of another
business, which then becomes part of the ‘predator’ business (the business which has
taken it over).
● A merger is when the owners of two businesses agree to join their businesses together
to make one business.
● This form of growth can lead to rapid expansion, which might be vital in a
competitive and expanding market. However, it often leads to management problems.
These are caused by the need for different management systems to deal with bigger
organisations. There can also be conflict between the two teams of managers and
conflicts of culture and business ethics.
● These different forms of external growth – horizontal integration, forward vertical
integration, backward vertical integration and conglomerate integration.
INTEGRATION:
● Horizontal integration is when one business merges with or takes over another one in
the same industry at the same stage of production.
● Vertical integration is when one business merges with or takes over another one in the
same industry but at a different stage of production.
● Vertical integration can be forward or backward.
● Conglomerate integration is when one business merges with or takes over a business
in a completely different industry. This is also known as diversification.
Benefits of integration
● Horizontal integration
● Reduced competition.
● Increased market share.
● Expanded customer base.
● Revenue growth.
● Improved efficiencies.
● Greater product and service differentiation.
● Access to new markets.
● Increased market power.
● A horizontal merger is a merger or business consolidation that occurs between firms
that operate in the same industry. Competition tends to be higher among companies
operating in the same space, meaning synergies and potential gains in market share
are much greater for merging firms.
● A vertical merger is a merger between entities operating at different levels of the
production or supply chain, that is, as suppliers or customers of one another. An
example is the merger of a firm to another whose inputs include the goods produced
by the former.
● Backward integration is the type of vertical integration in which companies acquire
or merge with a supplier in their value chain for raw materials or services used to
produce their final product or services.
● Forward integration is a form of vertical integration in which a company moves
further in the direction of controlling the distribution of its products or services.
Benefits of integration
Forward vertical integration
For example, a car manufacturer takes over a car retailing business.
» The merger gives an assured outlet for its product.
» The profit margin made by the retailer is absorbed by the expanded business.
» The retailer could be prevented from selling competing models of car.
» Information about consumer needs and preferences can now be obtained directly by the
manufacturer.
Backward vertical integration
For example, a car manufacturer takes over a business supplying car body panels.
» The merger gives an assured supply of important components.
» The profit margin of the supplier is absorbed by the expanded business.
» The supplier could be prevented from supplying other manufacturers.
» Costs of components and supplies for the manufacturer could be controlled.
A conglomerate merger
involves entities that are related either horizontally or vertically. This merger may be between
suppliers of goods that are complements of one another or goods that exhibit economies of
scale when purchased together.
- merger between firms that are involved in totally unrelated business activities. These
mergers typically occur between firms within different industries or firms located in
different geographical locations.
Conglomerate integration
The business now has activities in more than one industry. This means that the business has
diversified its activities and this will spread the risks taken by the business. For example,
suppose that a newspaper business took over a social networking company. If sales of
newspapers fell due to changing consumer demand, sales from advertising on social network
sites could be rising at the same time due to increased interest in this form of communication.
There might be a transfer of ideas between the different sections of the business even though
they operate in different industries. For example, an insurance company buying an
advertising agency could benefit from better promotion of its insurance activities as a result
of the agency’s new ideas.
Chapter 4: Types of business organisations
What is a Business Organization?
● A business organization is an entity aimed at carrying on commercial enterprise by
combining scarce factors of production to produce goods or services to satisfy
people’s needs and wants.
● Every business has:
● A formal structure (direction & control)
● Aim to achieve objectives
● Use of resources
I. UNLIMITED LIABILITIES COMPANIES:
1. Sole Trader
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Owned by one person, assumes risk and raises capital.
The owner is the sole proprietor.
Most common form of business organization.
Owner must register with and send annual accounts to the Government Tax Office.
Usually adopted by small businesses or start-ups.
E.g.: IKEA (Ingvar Kamprad)
Advantages
1.
2.
3.
4.
5.
6.
Few legal regulations
Independence in decision making
Freedom of operations
Close relation with customers
Does not share profits
Do not have share information to anyone
else apart from the Tax Office
Disadvantages
1.
2.
3.
4.
5.
No one to discuss business matters with.
Unlimited liability
Difficult to expand
No benefit from economies of scale.
Unincorporated, hence the business legally
does not exist if the owner dies.
6. No one to take control in case if the owner is
ill.
2. Partnership
● Form of business in which two or more people agree to jointly own a business.
● Partnership owned by 2-20 people (companies act 1956)
● A written agreement is formulated between the partners called the partnership
agreement (deed of partnership).
● The partnership agreement contains the capital invested and sharing of profits.
● E.g.: Deloitte and Touche.
Advantages
Disadvantages
1. Easy to set up
2. More capital invested
3. Partners are motivated since losses are
shared
4. Responsibilities are shared
1. Unlimited liability
2. Disagreement among partners
3. Unincorporated, if one partner dies, the
partnership ends
4. Most partnerships limit partners to 20 hence
limiting growth.
II. LIMITED LIABILITIES COMPANIES:
1. Private limited (pvt. ltd):
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Separate legal unit from its owners.
Company accounts are separate from accounts of owners.
Companies jointly owned by shareholders.
Shareholders appoint directors to run the business.
Private limited can be owned by 2-50 people (Companies Act 2013)
Shares sold privately to friends and family
Cannot sell shares to public or accept deposits from them
Incorporated with 2 minimum Directors
Must have Articles of Association (AOA) and Memorandum of Association (MOA).
AOA
MOA
1. Contains rules under which company is
1. Contains important details about the
to be managed
2. Rules for shareholder meetings, directors
and their responsibility, voting rights of
shareholders
company
2. Company name, address, what the business
does, number of shares to be sold
Advantages
1.
2.
3.
4.
More capital
Owners can keep control
Limited Liability
Incorporated
Disadvantages
1.
2.
3.
4.
Many legal formalities
Shares difficult to transfer
Less secrecy of accounts
Cannot offer shares to public
2. Public limited (plc. ltd):
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Public limited can be formed with minimum 7 members
Shares can be sold to the public
Minimum 3 Directors and maximum 12 Directors
Must have AOA and MOA
Shareholders elect Board of Directors (BOD) in the Annual General Meeting (AGM)
BOD directs company’s affairs while meeting the needs of the shareholders
Advantages
Disadvantages
1. Highest capital can be raised
2. No restriction on buying, selling,
transferring shares
3. Limited Liability
4. Incorporated
5. The high status of public limited companies
find it easier to attract suppliers.
1. Many legal formalities
2. More regulation and control over public
limited companies.
3. Selling shares to public is expensive
4. Original owners may lose control over it
when it goes public.
III. RISK, OWNERSHIP, LIABILITY & INCORPORATION
● Business risk: is a future possibility that may prevent you from achieving a goal.
Eg: competitive risk, operational risk.
● Ownership is the state or fact of exclusive rights and control over something,
Eg: an object, land, real estate, intellectual property.
● Liabilities are debts that companies take on as they conduct business.
Unlimited Liability
1. The owners are responsible for any
debt.
2. May lose personal possessions to pay
business debt
Limited Liability
1. Owners are only responsible for debt equal to
the value of their ownership.
2. Lose only the amount invested in business
1. Unincorporated Vs Incorporated:
● Unincorporated: No legal separation between the owners and the business.
● Incorporated: Separate legal identity for firm and the business.
2. Franchises:
● A franchise is a business based upon the use of the brand names, promotional logos
and trading methods of an existing successful business.
● Franchising is a form of contractual agreement in which a franchisee (a retailer) enters
into an agreement with a franchisor (a producer) to sell the goods and services for a
specified fee or commission.
● Franchising agreement may last from 5-20 years
● Franchisor may provide support for:
1. Advertising
2. Employee Training
3. Legal Advice
4. Financial Advice
To the franchisor:
Advantages
1. Franchisees buy licences from
franchisors to use the brand name.
2. Rapid Expansion
3. Management of outlets is the
responsibility of the franchisee
4. All products to be sold are
obtained from them.
Disadvantages
1. Poor management of one
franchised outlet could lead to a
bad reputation of the whole
business.
2. Franchisees keeps profits from the
outlet.
To the franchisee:
Advantages
1. Chances of business failure are
reduced since a well known
product is sold.
2. Lower operating cost, since
franchisor pays for advertising,
providing supplies and training
for employees.
3. Rapid Expansion with minimal
risk
Disadvantages
1. Less independence
2. Maybe unable to make decisions
that would suit the local area.
3. Licence fee has to be paid to the
franchisor.
3. Joint Ventures (JV)
● A business arrangement in which two or more businesses agree to pool their resources
for the purpose of accomplishing a new specific task.
● A JV agreement is formed
● Made to expand the business in a foreign market
● E.g.: Microsoft Amalga and General Electric
Advantages
1.
2.
3.
4.
Access to new market
Innovation
Low cost of production
Risks are shared
Disadvantages
1.
2.
3.
4.
Culture Clash
Cannot exit if there’s a contract
No equal involvement
Imbalance of resources
4. Public Corporations
● Wholly owned by the central or state government.
● Government ministers appoint a Board Of Directors, who will be given the
responsibility of managing the business.
● The government sets the objectives and Directors are expected to run the corporation
according to these objectives.
Advantages
1. Government ownership of essential services
like water supply and electricity generation
helps in their provision to the public.
2. Exploitation of consumers as compared to
if these services were given by monopolies
is minimal.
3. Government can support an important
business that is at a declining stage.
Disadvantages
1. No private shareholders to insist on profits
and efficiency.
2. Government subsidies can make the
businesses inefficient if they think that the
government will always help them in a loss.
3. Government can use these businesses for
political reasons.
Chapter 5: Business objectives and stakeholder objectives
Business Objectives – its benefit
● An objective is an aim or a target to work towards.
● They help to make a business successful – although just setting an objective does not
“guarantee success.”
The benefits of setting objectives are:
● They give workers and managers a clear target to work towards and this helps
motivate people.
● Taking decisions will be focused on :”Will it help achieve our objectives?”
● Clear and measurable objectives help unite the whole business towards the same goal.
● Business managers can compare how the business has performed with their objectives
– to see if they have been successful or not.
- So setting objectives is very important for all businesses – small or large, newly formed or
well established.
Different business objective
Objectives are often different for different businesses.
The most common objectives for businesses in the private sector are to achieve :
● Business survival
● Profit
● Returns to shareholders
● Growth of the business
● Market share
● Service to the community
Business Survival
● When a business has recently been set up, or when the economy is moving into
recession, the objectives of the business will be more concerned with survival than
anything else.
● New competitors can also make a business feel less secure. The managers of a
business threatened in this way could decide to lower prices in order to survive, even
though this would lower profit on each item sold.
Profits
When a business is owned by private individuals rather than government it is usually the case
that the business is operated with the aim of making a profit.
Profits are needed to :
● Pay a return to the owners of the business for the capital invested and the risk taken
● Provide finance for further investment in business
Without any profit at all, the owners are likely to close the business.
It is often said that the owners of a business will aim for a satisfactory level of profits which
will avoid them having to work too many hours or pay too much in tax to the government.
Returns to shareholders
Shareholders own limited companies. The managers of companies will often set the
objectives of “increasing returns of shareholders”. This is to discourage shareholders from
selling their shares and help managers keep their jobs.
Returns to shareholders are increased in two ways:
● Increasing profit and the share of profit paid to shareholders as dividend
● Increasing share price – managers can try to achieve this not just by making profits
but by putting plans in place that give the business a good chance of growth and
higher profits in the future.
Growth
The owners and managers of a business may aim for growth in the size of the businessusually measured by value of sales or output- in order to :
● Make jobs more secure if the business is larger.
● Increase the salaries and status of managers as the business expands
● Open up new possibilities and help to spread the risks of the business by moving into
new products and new markets
● Obtain cost advantages, called economies of scale, from business expansion.
● Growth will be achieved only if the business customers are satisfied with the products
or services being provided. For reason it might be important to put meeting customers
needs as a very high priority
Market share
if the total value of sales in a market is $100 million in one year and company A sold $20
million then company A’s market share is 20 percent.
Increase market share gives a business:
● Good publicity, as it could claim that it is becoming the most popular
● Increased influence over suppliers, as they will be very keen to sell to a business that
is becoming relatively larger than others in the industry
● Increased influence over customers.
The objectives of social enterprise
Social enterprises are operated by private individuals – they are in the private sector, but they
do not just have profit as an objective.
The people operating the social enterprise often set three objectives for their business:
● Social – To provide jobs and support for disadvantaged groups in the society, such as
disabled or homeless
● Environmental – Main objective is to protect the environment
● Financial – To make profit to invest back into the social enterprise to expand the
social work that it performs.
Why could business objectives change?
It's most unusual for a business to have the same objectives forever.
Few examples:
● A business set up recently has survived for three years and the owner now aims to
work towards higher profit
● A business has achieved higher markets share and now has the objective of earning
higher return to shareholders
Stakeholders group
Stakeholder
group
Main features
Most likely objectives for
the stakeholder group
Owners
(Internal)
• They put capital in to set up and
expand the business.
• They will take a share of the profits if
the business succeeds.
• If the business does not attract
enough customers, they may lose the
money they invested.
• They are risk takers.
• share of the profits so that
they gain a rate of return on
the money put into the
business
• growth of the business so
that the value of their
investment increases
Workers
(Internal)
• They are employed by the business.
• They have to follow the instructions
of managers and may need training to
do their work effectively.
• They may be employed on full- or
part-time contracts and on a
temporary or permanent basis.
• If there is not enough work for all
workers, some may be made
redundant (retrenchment) and told to
leave the business.
• regular payment for their
work
• contract of employment
• job security – workers do
not want to look for new
jobs frequently
• job that gives satisfaction
and provides motivation
Managers
(Internal)
• They are also employees of the
business and control the work of
other workers.
• They take important decisions.
• Their successful decisions could
lead to the business expanding.
• If they make poor decisions, the
business could fail.
• high salaries because of
the important work they do
• job security – this depends
on how successful they are
• growth of the business so
that managers can control a
bigger and better known
business. This gives them
more status and power.
Stakeholder
group
Main features
Most likely objectives for
the stakeholder group
Customers
(External)
• They are important to every
business. They buy the goods that
the business produces or the
services that the business provides.
• Without enough customers, a
business will make losses and will
eventually fail.
• The most successful businesses
often find out what consumers want
before making goods or providing
services – this is called market
research.
• safe and reliable products
• value for money
• well-designed products of
good quality
• reliability of service and
maintenance
Government
(External)
• It is responsible for the economy of
the country.
• It passes laws to protect workers
and consumers.
• wants businesses to
succeed in its country.
(Successful businesses will
employ workers, pay taxes
and increase the country’s
output)
• expects all firms to stay
within the law – laws affect
business activity
Banks
(External)
• They provide finance for the
business’s operations.
• expect the business to be
able to pay interest and
repay capital lent – business
must remain liquid
The whole
community
(External)
• The community is greatly affected
by business activity.
For example, dangerous products
might harm the population. Factories
can produce pollution that damages
rivers, the sea and air quality.
• Businesses also create jobs and
allow workers to raise their living
standards. Many products are
beneficial to the community, such as
medicines or public transport.
• jobs for the working
population
• production that does not
damage the environment
• safe products that are
socially responsible
Objectives of public sector businesses
Likely objectives for public sector business and organisation:
● Financial : Meet profit targets set by the government- sometimes the profit is
reinvested back in the business and on other occasions it is handed over to the
government as the owner of the organisation.
● Service: Provide a service to the public and meet quality targets set by the
government. For example, health services and education services will be expected to
achieve targets laid down for them, and state- owned train and postal services will
have reliability and punctuality targets.
● Social : Protect or create employment in certain areas- especially poor regions with
few other business employers.
Conflict of stakeholders objective
In the previous section we assumed that businesses could set
one objective and aim for that. However, life is not that
simple and most businesses are trying to satisfy the
objectives of more than one group.
In nutshell
● Managers therefore have to compromise when they come to decide on the best
objectives for the business they are running.
● They would be unwise to ignore the real worries or aims of other groups with an
interest in the operation of the business.
● Managers will also have to be prepared to change the objectives over time.
Growth could be the best option during a period of expansion in the economy, but survival by
cost cutting might be better if the economy is in recession.
Chapter 6: Motivation
What is motivation:
● Derived from the word ‘motive’ which means needs, desires, wants or drives within
individuals.
● Process of stimulating people to action to accomplish goals.
● Motivation is the reason why employees want to work effectively for the business.
Reasons for Motivation to work
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Development Opportunities (Security)
Career Visioning (Job Satisfaction)
Feeling Valued (Esteem Needs)
Right workload (Money)
Debate (Social Needs)
Sound leadership
Benefits of a well-motivated workforce:
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High output per worker
Willingness to accept change
Two way communication with management
Low labour turnover
Low rates of absenteeism
Low rates of strike action
4 Reasons Good Employees Lose Their Motivation
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Values Mismatch: I don’t care enough to do this.
Lack of Self-Efficacy: I don’t think I’m able to do this.
Disruptive Emotions: I’m too upset to do this.
Attribution Errors: I don’t know what went wrong with this.
F.W Taylor
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Started as a labourer in America in the 1880’s.
Became a chief engineer.
Conducted experiments at the steel company into labour productivity.
Based on his assumption that all individuals are motivated by personal gain.
Broke down jobs into simple processes and observed workers in relation to their
productivity.
● Higher productivity was rewarded with more money.
● Taylor saw employees rather like machines.
Criticisms
● His ideas were too simplistic
● You can pay an employee more money, but if they are unfulfilled by their work, there
will be no increase in their effectiveness.
● A practical problem arises if you cannot easily measure an employee’s output.
Limitations of Theory
1. Satisfaction of several needs at a time.
2. The need for priority order cannot in all cases be generalised as it depends on cultural
values & personality of the individual. For eg: What is a higher need for an Indian
worker may be a lower need for an American worker.
3. Movement in the need hierarchy is not always upward. For eg: In some people the
need for self-esteem & creativity is more potent than love. They may like to lose their
job (security) rather than their respect.
4. The same need may cause different types of behaviour. For eg: Money may satisfy
physiological, safety & social needs.
5. The hierarchy of human needs is not always fixed & the sequence in which needs
arise may differ from one person to another.For eg: In creative people like singers,
painters, their self-actualisation needs are more dominant than lower level needs.
6. The needs of the same individual may change overtime. For eg: A manager cannot
keep up with a continuously revolving set of needs of a particular individual or group.
Motivation:
Financial rewards
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Wage
Salary
Bonus
Commission
Profit sharing.
Methods of motivation:
Financial rewards:
1.
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Wages:
Payment for work, usually paid weekly.
Paid to manual workers (such as warehouse/ factory workers)
Workers working longer than normal hours can get paid for the overtime.
Weekly calculations can be time consuming.
Time rate and piece rate can be used for the calculation of wages.
2.
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Salary:
Payment for work, usually paid monthly.
Paid to office staff or the management.
It is calculated as the amount of money per year for the job performed by the worker.
Employees have the money in the bank for a longer term as compared to wage
payments.
● No payment for extra time worked.
● Workers may prefer to be paid weekly.
3.
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Bonuses:
Additional amount of payment above basic pay as a reward for good work.
Motivates workers
This can be paid to an individual or all employees
They can become “expected” by the employees every year.
4.
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Commission:
Additional payments made to the sales staff in relation to their number of sales.
Similar to the piece rate system of paying wages.
Can be stressful for the sales staff.
High level of internal competition
5.
●
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Profit sharing:
A system whereby a proportion of the company’s profits is paid out to its employees.
Usually used in service sector businesses.
Low profits and loss situations in a business will limit the profits shared.
Usually calculated on the basis of an additional percentage of their salary so higher
paid workers receive higher pay.
Non-Financial rewards:
1. Job satisfaction:
● Enjoyment derived from feeling that you have done a good job.
● Organisations should make sure that employees are satisfied with their job.
● Some of the motivation theories identify aspects of a job that should be recognized
and fulfilled for an employee to be satisfied.
2. Job rotation:
● Involves workers swapping around and doing each specific task for only a limited
time and then changing around again.
● Increases variety in the work itself.
● Easier for managers to move workers around the factory if an employee is on
leave/sick.
3. Job enrichment:
● Involves looking at jobs and adding tasks that require more skill and/or responsibility.
● Additional training may be required.
● Managers should design jobs in such a way that it fulfils higher human needs making
the workers more committed to their jobs.
4. Autonomous work groups/Team-working:
● Involves using groups of workers being given responsibility for a particular process,
product or development.
● Workers become more involved and take responsibility for the process.
● A feeling of control over the tasks raises satisfaction as workers feel more involved in
the decision making process.
5. Training:
● It is a process of improving a worker’s skills.
● Workers feel a sense of achievement if they can successfully gain and apply new
skills.
● These workers could also be given more challenging tasks.
● Workers may also feel motivated since management recognized their work and
potential to learn and selected them for training.
6. Opportunities for promotion:
● It is the advancement of an employee in an organisation, for e.g.: to a higher job/
managerial level.
● The business benefits from promoting workers internally to higher level positions
since these employees already “know how business operates”.
● The workers also feel motivated since they receive a higher status and more
challenging work to perform.
FRINGE BENEFITS
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1.
2.
3.
4.
5.
6.
7.
8.
9.
●
Businesses can give employee benefits like:
Company vehicle
Discounts on business products
Health care paid for
Children’s education fees paid
Free accommodation
Share options
Generous expense discounts
Pension paid by the business
Free trips abroad/holidays
These vary according to the seniority of the job.
RecapWhat is Motivation?
- Motivation is the reason why employees want to work hard and work effectively for
the business.
Reasons for Motivation to work?
- Benefits of a well motivated workforce
FW Taylor
- Money is the most important factor.
Herzberg’s Two factor Theory
- Motivational needs or Hygiene factors
Maslow’s hierarchy of needs
- physiological needs, safety/security needs, social needs, esteem needs,
self-actualisation.
Methods of motivation
- Financial & Non- financial rewards
Chapter 7: Organisation and management
Organisational Structure
Organisational structure refers to the levels of management and division of responsibilities
within a business. They can be represented on organisational charts.
The most important features are as follows:
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It is a hierarchy.
This means that there are different levels in the organisation.
Each level has a different degree of authority.
It is organised into departments.
Each department has a particular job and function.
As there are different levels of management, there is a chain of command.
Organisational Chart
An organisational chart, also called organogram, is a diagram that shows the structure of an
organisation and the relationships and relative ranks of its parts and positions/jobs.
It refers to a diagram that outlines the internal management structure.
Chain of Command & Span of Control
● Business A has a tall structure and a long chain of command.
● Business B has a wide structure and short chain of command.
● As a result of differences between these two structures , the span of control (the
number of subordinates directly working under a manager) is wider in Business B
than it is in Business A.
● In Business A the number is 2 while Business B has 5. Therefore it is an important
link between the span of control and the chain of command.
● The ‘longer’ the chain of command , the ‘taller’ will be the organisational structure
and the ‘narrower’ the span of control.
● When the chain of command is short, the organisation will have a ‘wider’ span of
control.
- The span of control is the number of subordinates working directly under a manager
in the organisational structure.
- The chain of command is the structure of an organisation that allows instructions to
be passed on from senior managers to lower levels of management.
Advantages of a Short Chain of Command
● Communication is quicker and more accurate.
● Top managers are less remote from lower employees, so employees will be more
motivated and top managers can always stay in touch with the employees.
● Span of control will be wider. This means that each manager is responsible for more
subordinates:
● If superiors have more people to manage, it will encourage managers to delegate
more.
● There will be less direct control on each worker and they will feel more trusted.
- Line managers have direct responsibility over people below them in the hierarchy of
an organisation.
-
Staff managers are specialists who provide support, information and assistance to
line managers.
The Role Of Management
five primary roles:
1. Planning:
● Setting aims and targets for the organisations/department to achieve.
● It will give the department and it’s employees a clear sense of purpose and direction.
● Managers should also plan for resources required to achieve these targets – the
number of people required, the finance needed etc.
2. Organizing
● A manager cannot do everything so the tasks must be delegated to others in the
organisation.
● These people must have the resources to be able to do these tasks successfully.
● Thus it is the manager's responsibility to organise people and resources effectively.
● An effective manager will organise people and resources very carefully indeed.
3. Coordinating
● Managers should ensure that each department is coordinating with one another to
achieve the organisation’s aims.
● This will involve effective communication between departments and managers for
decision making.
● For example, the sales department will need to tell the operations department how
much they should produce in order to reach the target sales level.
● They need to come together regularly and make decisions that will help achieve each
department’s aims as well as the organisation’s.
4. Commanding:
● Managers need to guide, lead and supervise their employees in the tasks they perform.
● The task of management is more concerned with guiding, leading and supervising
people than just telling them what to do-although this may be important too.
● Managers have to make sure that all supervisors and workers are keeping to targets
and deadlines.
5. Controlling
● Managers must try to assess and evaluate the performance of each of their employees.
● If some employees fail to achieve their target, the manager must see why it has
occurred and what he can do to correct it- maybe some training will be required or
better equipment.
● Without clear and effective management, a business is going to lack: a sense of
control and direction ,coordination between departments, leading to wastage of effect
,organisation of resources and leading to low output and sales.
Delegation
-
Delegation means giving a subordinate the authority to perform particular tasks.
Advantages of delegation for manager:
● Managers cannot do anything by themselves so by delegation they are helped by the
subordinates.
● Managers are less likely to make mistakes if some of the tasks are being performed
by their subordinates.
● Managers can see how well the subordinates have done in performing the tasks
delegated to them.
Advantages of delegation for the subordinates:
● The work becomes more interesting and rewarding.
● The employee feels more important and believes that trust is being put on them
to do a task well.
● Delegation helps to train workers and they can then make progress in the
organisation.
● It gives them career opportunities
Why might a manager not delegate ?
● Trust issue: Managers could be worried that the subordinates might fail.
● Manager could want to control everything himself.
● Insecure manager: There’s a risk that the subordinates might do a better job than the
manager and so the manager is worried that he/she might be replaced!
Why is it important to have good managers ?
● To motivate employees
● To give guidance and advice to employees they manage
● To inspire employees they manage to achieve more than they thought possible
● To keep costs under control
● To increase profitability of the business
● Leadership
● A simple definition is that leadership is the art of motivating a group of people to act
toward achieving a common goal. In a business setting, this can mean directing
workers and colleagues with a strategy to meet the company's needs.
● The leader is the inspiration for and director of the action. They are the person in the
group that possesses the combination of personality and leadership skills to make
others want to follow their direction.
Autocratic Leadership
● Autocratic style is where the managers expects to be in charge of the business and
have their orders followed.
● They do all the decision-making, not involving employees at all.
● Provide clear expectations for what needs to be done, when it should be done, and
how it should
● Communication is thus, mainly one way- from top to bottom.
● This is standard in police and armed forces organisations.
Democratic leadership
● Democratic style is where managers involve employees in the decision-making.
● Communication is two-way from top to bottom as well as bottom to top.
● Information about future plans is openly communicated and discussed with employees
and a final decision is made by the manager.
Laissez Faire Leadership
● Laissez-faire (French phrase for ‘leave to do') style makes the broad objectives of the
business known to employees and leaves them to do their own decision-making and
organise tasks.
● Communication is rather difficult since a clear direction is not given.
● The manager has a very limited role to play.
Trade union
● A trade union is a group of workers who have joined together to ensure their
interests are protected.
● They negotiate with the employer (firm) for better conditions and treatment and can
threaten to take industrial action if their requests are denied.
● Industrial action can include an overtime ban (refusing to work overtime), going slow
(working at the slowest speed as is required by the employment contract), strike
(refusing to work at all and protesting instead) etc.
● Trade unions can also seek to put forward their views to the media and influence
government decisions relating to employment.
Benefits to workers of joining a Trade Union
● Strength in number- a sense of belonging and unity
● Improved conditions of employment, for example, better pay, holidays, hours of
work etc
● Improved working conditions, foe example, health and safety
● Improved benefits for workers who are not working, because they’re sick, retired or
made redundant (dismissed not because of any fault of their own)
● Financial support if a member thinks he/she has been unfairly dismissed or treated
● Benefits that have been negotiated for union members such as discounts on firm’s
products, provision of health services.
Disadvantages to workers of joining a Trade Union
● Costs money to be member- a membership fee will be required
● May be asked to take industrial action even if they don’t agree with the union- they
may not get paid during a strike, for example.
Chapter 8: Recruitment, selection and training of employees
Work of the human resource department:
-
Recruitment and selection
Training programmes
Wages and salaries
Industrial actions
Health and safety
Redundancy and dismissal
● Recruitment is the process of identifying that the business needs to employ someone
up to the point at which applications have arrived at the business.
● Employee selection is the process of evaluating candidates for a specific job and
selecting an individual for employment based on the needs of the organisation.
Recruitment and selectionBusinesses recruit and select when:
● An employee leaves their job and needs to be replaced
● It is a new business starting up and needs employees
● It is a successful business and wants to expand by employing more people.
The recruitment process:
1. Job Analysis:
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●
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First stage
Identifies and records the responsibilities and tasks relating to do a job
Easier for an existing job
Once the job (duties and responsibilities) has been analysed, the next stage is job
description.
2. Job descriptions:
● Outlines the responsibilities and duties to be carried out by someone employed to do a
specific job
● Given to the applicant in order for them to understand what the job entails
● Allows a job specification to be drawn up
● Job description can be used to check the effectiveness of the employed worker.
● Job Description also contains the:
1. Conditions of employment
2. Training that will be offered
3. Opportunities for promotion
3. Job specification:
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1.
2.
3.
4.
Given to the applicant in order for them to understand what the job entails
This is the list of desirable and essential requirements for the job.
These requirements usually include:
Level of educational requirements
Amount and type of experience
Special skills, knowledge or particular aptitude
Personal characteristics such as personality
Internal recruitment:
● When a vacancy is filled by someone who is an existing employee of the business.
● Adverts for internal recruitment can be given on the company noticeboard, company
newspaper (e-newspaper)
Businesses can recruit internally by:
1. Transfers: shifting an employee from one job to another without any shift in
responsibilities
2. Promotion: Shifting an employee to a higher position carrying higher status,
responsibilities and pay
3. Re-employment of ex-employees: Employees can be invited to fill vacancies in the
concern
External recruitment
When a vacancy is filled by someone who is not an existing employee of the business and
will be new to the business.
● Local newspapers: for jobs that do not require a high level of skills. E.g.:
Clerical/Manual positions
● National newspapers: usually for sr. positions where there maybe few locals with
right experience and skills
● Government job centres: Places where job vacancies can be advertised, details given
to interested people, usually for semi skilled and unskilled jobs
● Recruitment agencies: Specialists in recruiting employees. Advertise usually on their
website and then take interviews for various jobs.
● Online recruitment sites: offer the ability to create online job adverts for vacancies,
searched by job seekers through their networks. E.g.: LinkedIn
● Specialist magazines: For specialist technical employees such as scientists
Job Advertisement for external recruitment
Business has to think about these before drawing up the advert:
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What should be included in the advert
Where should the advertisement be placed
How much will the advertising cost and is it within the budget.
When a person is interested in a job, they should apply for it by sending in a
curriculum vitae (CV) or resume, this will detail the person’s qualifications,
experience, qualities and skills.The business will use these to see which candidates
match the job specification. It will also include statements of why the candidate wants
the job and why he/she feels they would be suitable for the job.
Selection
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1.
2.
3.
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Shortlisted applicants invited for the interview give a name and address of a referee.
Interviews are the most common methods of selection.
Main purpose of an interview:
Applicants ability to do a job
Any personal characteristics that are of advantage or disadvantage
General character and personality of the applicant
These interviews can be one on one two to one or in a panel.
methods:
Selection:
Applicants who are shortlisted will be
interviewed by the H.R. manager. They will
also call up the referee provided by the applicant
(a referee could be the previous employer or
colleagues who can give a confidential opinion
about the applicant’s reliability, honesty and
suitability for the job). Interviews will allow the
manager to assess:
● the applicant’s ability to do the job
● personal qualities of the applicant
● character and personality of applicant
In addition to interviews, firms can conduct certain tests to select the best candidate, this
could include:
● skills tests (ability to do the job)
● aptitude tests (candidate’s potential to gain additional skills)
● personality tests (what kind of a personality the candidate has- will it be suitable for
the job?)
● group situation tests (how they manage and work in teams) etc.
When a successful candidate has been selected, the others must be sent a letter of rejection.
The contract of employment: a legal agreement between the employer and the employee
listing the rights and responsibilities of workers. It will include:
●
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●
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●
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the name of employer and employee
job title
date when employment will begin
hours to work
rate of pay and other benefits
when payment is made
holiday entitlement
the amount of notice to be given to terminate the employment that the employer or
employee must give to end the employment etc.
Part Time Vs. Full Time Employees
● Employment contracts can be part-time or full-time. Part-time employment is often
considered to be between 1 and 30-35 hours a week whereas full-time employment
will usually work 35 hours or more a week.
Advantages to employer of part-time employment (disadvantages of full-time
employment to employer):
● more flexible hours of work
● easier to ask employees just to work at busy times
● easier to extend business opening/operating hours by working evenings or at
weekends
● works lesser hours so employee is willing to accept lower pay
● less expensive than employing and paying full-time workers.
Disadvantages to employer of part-time employment (advantages of full-time
employment to employers):
●
●
●
●
less likely to be trained because the workers see the job as temporary
takes longer to recruit two part-time workers than one full-time worker
can be less committed to the business/ more likely to leave and go get another job
less likely to be promoted because they will not have gained the skills and experience
as full-time employees
● more difficult to communicate with part-time workers when they are not in work- all
work at different times.
Training:
Importance of training:
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1.
2.
3.
4.
5.
6.
●
1.
2.
3.
To the Business:
Introduce a new process/equipment
Improve efficiency of workforce
Provide training for the unskilled
Decrease supervision
Improve opportunity for promotion
Decrease chances of accidents
To the Employees:
Increase skills
Increase knowledge
Improve employees’ attitudes
1. Induction training - introduction given to a new employee, explaining the business’s
activities, customs and procedures and introducing them to their fellow workers.
● Carried out when an employee is new to the job
● Introduction to the organisation and its people and culture.
Advantages:
1. Helps new employee to settle into the new job
2. Maybe a legal requirement
3. Workers less likely to make mistakes
Disadvantages:
1. Time consuming
2. Wages are paid, no actual work is done
3. Delays the start of the employee commencing their job.
2. On the job training - occurs by watching amore experienced worker doing the job.
Advantages:
1. Individual tuition is given, no need to travel
2. Ensures some production from worker while in training
3. Usually costs less than off the job training
4. Training tailored to specific needs of the business
Disadvantages:
1. Trainer will not be as productive as usual
2. Trainers habits may be passed on to the trainee
3. May not lead to training qualifications recognized outside of business.
3. Off the job training: Involves being trained away from the workplace, usually by
specialist trainers.
Advantages:
1. Broad range of skills can be taught
2. Courses held after work will make sure that the employee still carries out their normal
duties
3. Business only needs to pay for course and not lose on daily output.
4. Uses trainers that have up to date information about business practises
Disadvantages:
1. High costs
2. Wages maybe paid but no work is done
3. Additional qualifications may make it easier for the employee to switch
Workforce planning:
Establishing the workforce needed by the business for the foreseeable future in terms of the
number and skills of employees required.
Why reducing the size of the workforce might be necessary:
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●
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●
●
1.
Introduction to automation
Falling demand for goods and services
Factory/shop/office closure
Relocating factory abroad
Business has merged/taken over and some jobs are in a surplus.
Number of employees can be reduced by:
Dismissal: employment ended against will of employee, usually for not working in
accordance to the contract
2. Redundancy: When an employee is no longer needed so loses their job, not due to
any aspect of work being satisfactory
Legal controls over employment issues
In many countries, governments have passed laws that affect the relationship between
employers and employees.
1.
2.
3.
4.
5.
Employment contracts
Unfair Dismissal
Discrimination
Health and Safety
Legal Minimum wage
1. Contract of employment:
-Legal agreement between an employer and employee, listing the rights and responsibilities
of workers
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1.
2.
3.
4.
5.
6.
7.
8.
Sets the terms of the relationship between the employee and the employer.
Includes:
Name of the employer and employee
Job Title
Date when employment is to begin
Hours to be worked
Rate of pay and any other benefits
When payment will be made
Holiday Entitlement
Notice period
Impact of employment contracts on employers and employees:
1. Both know what is expected of them
2. Provides some security of employment to the employee
3. If the employee does not meet conditions of contract, legal dismissal is allowed
4. If employer fails to meet conditions of contract, employee can seek legally binding
compensation
2. Unfair Dismissal
Impact of unfair dismissal on employers and employees:
1. Employer must keep very accurate records of a worker’s performance
2. Employees have security of employment
3. Allows employees to take their employer to an industrial tribunal if they feel they
have been treated unfairly
4. Makes a business less likely to treat employees unfairly
Industrial Tribunal:
Type of law court (or in some countries, or a legal meeting) that makes judgements on
disagreements between companies and their employees, for e.g.: workers’ complaints of
unfair dismissal or discrimination at work.
3. Protection against Discrimination
Discrimination at work: When an employer makes decisions that are based on unfair
reasons
● Impact of protection against discrimination on employers and employees
1. Employees treated equally
2.
3.
4.
5.
Equal pay for equal work
Employees with disability treated the same way as others
Careful when wording advertisements
Businesses recruit on basis of merit
4. Health and Safety measures:
Health and safety: Factories Act (1948) has been passed in India to ensure health and safety
of workers
Ethical decision: Decision taken by a manager or a company because of the moral code
observed by the firm.
●
1.
2.
3.
4.
5.
Health and safety at work
Protect workers from dangerous machinery
Provide safety equipment and clothing
Maintain Reasonable workplace temperatures
Provide hygienic conditions and washing facilities
Do not insist on excessively long shifts and provide breaks in the work time table.
● Impact of health and safety on employers and employees
1. Cost to employer of meeting the health and safety regulations, for e.g.: better fire
fighting equipment
2. Time needs to be found to train workers in health and safety measures
3. Workers feel safer and more motivated to work
4. Reduces the accident rate and the cost of compensation for workers injured at work.
5. Legal minimum wage:
Minimum wage:
The minimum amount of remuneration that an employer is required to pay wage earners for
the work performed
●
1.
2.
3.
4.
Impact of legal minimum wage on employers and employees
Prevent employers from exploiting unskilled workers
Encourage employers to train them to make sure that they are productive
Encourage more people to seek work
Low paid workers will earn more and have higher living standards.
Chapter 9: Internal and external communication
What Is Communication ?
● Communication is when a message is transferred from one person to another and is
understood by the latter.
● We communicate everyday (by talking, by chatting, by texting, etc.) but we need to
learn how to communicate effectively.
● Effective communication is defined as , "The information or message being sent is
received, understood and acted upon in the way intended.“
● In business, ineffective communication or communication failure could result in
serious problems.
Internal Communication
● Internal communication is between two members of the same organisations.
● Example: communication between departments, notices and circulars to
workers, signboards and labels inside factories and offices etc.
External communication
● External communication is between the organisation and other organisations or
individuals.
● Example: orders of goods to suppliers, advertising of products, sending customers
messages about delivery, offers etc.
Process of Communication:
Effective communication involves four features:
● The transmitter/sender who sends the message. He has to choose the next two features
carefully for effective communication.
● The medium of communication. It is the method of communication, e.g. noticeboard,
letter, etc.
● The receiver who receives the message.
● Feedback means that the receiver has received the message and responds to it. This
confirms that the message has been understood and acted upon if necessary.
Process of communication:
Distinguish between Internal & External Communication:
One Way Communication
● One-way communication involves a message which does not require feedback.
● One-way communication flows from a sender to a receiver, but nothing goes back in
return.
● The sender can use one-way communication to inform, entertain, persuade or
command the audience.
● Example: signs saying ‘no smoking’ or an instruction saying ‘deliver these goods to a
customer.
Two Way Communication
● Two-way communication is when the receiver gives a response to the message
received.
● Example: a letter from one manager to another about an important matter that needs to
be discussed.
● A two-way communication ensures that the person receiving the message understands
it and has acted on it.
● It also makes the receiver feel more a part of the process- could be a way of
motivating employees.
Formal Communication
● Formal communication refers to interchange of information officially.
● The flow of communication is controlled and is a deliberate effort.
● Formal communication is when messages are sent through established channels using
professional language. Eg: reports, emails, memos, official meetings.
Informal Communication
● Informal communication is when information is sent and received casually with the
use of everyday language. Eg: staff briefings. Informal communication might be
communication between friends and co-workers.
● There is no set structure and the information transferred is not recognised by the
business.
● This channel of communication could be used by the manager to try out new ideas,
before publicly announcing it to the rest of a company.
● However, informal communication can result in gossip and rumour, and managers
have no way to remove these informal links from people.
● Managers can sometimes use the ‘grapevine’ to test out the reactions to new ideas (for
example, a new shift system at a factory) before officially deciding whether or not to
make it official.
Distinguish between Formal & Informal Communication
Methods of Communication
Information can be transmitted in several ways:
● Verbal: Involves the sender speaking to the receiver.
● Written: The message is written to the receiver.
● Visual: Using charts, videos, images or diagrams to communicate a message.
There is no best method of communication, so the appropriate medium of communication
must be selected depending on the situation.
First the sender also has to analyse the advantages and disadvantages of each type of
communication.
1. Verbal Communication
● Verbal communication is the use of sounds and words to express yourself, especially
in contrast to using gestures or mannerisms (non-verbal communication).
● An example of verbal communication is saying “No” when someone asks you to do
something you don't want to do.
Advantages:
● Information is transferred quickly. This is an efficient way to communicate in
meetings to lots of people.
● There is opportunity for immediate feedback which results in two-way
communication.
● The message might be enforced by seeing the speaker. Here the body language and
facial expression could make the message easily understood.
Disadvantages:
● In meetings, we do not know if everybody is listening or has understood the message.
● It can take longer for verbal feedback to occur than written feedback.
● Verbal communication is inappropriate for storing accurate and permanent
information if a message is. (e.g. warning to a worker)
● Verbal methods (eg: telephone conversation, face-to-face conversation, video
conferencing, meetings)
2. Written Communication
● Written Communication' means the sending of messages, orders or instructions in
writing through letters, circulars, manuals, reports, telegrams, office memos, bulletins,
etc. It is a formal method of communication
Advantages:
● There is hard evidence of the message which can be referred to and help solve
disputes in the future over the content of the message.
● It is needed when detailed information is transferred: it could be easily
misunderstood. Some countries the law states that businesses need to put safety
notices up because people could forget them.
● The written message can be copied and sent to many people.
● Electronic communication is a quick and cheap way to get to many people.
Disadvantages:
● Direct feedback is not always possible, unless electronic communication is used.
However, this could result in too many emails sent (information overload). Direct
feedback via other means of written communication is hard.
● It is not as easy to check whether the message has been understood or acted upon.
● The language used might be difficult to understand. The message might be too long
and disinterest the reader.
● There is no opportunity for body language to be used to enforce the message.
[Forms Of Written Communication]:
● Letters: Used for both external and internal communication. Follows a set structure.
● Memos: Used only for internal communication.
● Reports: Detailed documents about any problem. They are done by specialists who
send them to managers to analyse before meetings. Notices: Pinned to noticeboards
that offer information to everyone. However, there is no certainty on whether they are
read or not.
● Faxes: Written messages sent to other offices via telephone lines.
● E-mails: Messages sent between people with the same computing facilities. The
message is printed if a hard copy is needed.
● Intranet: A network inside a business which lets all employees with a computer
message each other.
● Internet: The global network for messaging anyone. (e.g. customers, suppliers)
3. Visual Communication
● Visual communication is the practice of graphically representing information to
efficiently, effectively create meaning..
Advantages:
● Present information in an appealing and attractive way that encourages people to look
at it.
● They can be used to make a written message clearer by adding a picture or a chart to
illustrate the point being made.
Disadvantages:
● No feedback is possible. People need to check via verbal or written communication to
check that they have understood the message.
● Charts and graphs might be difficult for some people to understand. The message
might be misunderstood if the receiver does not know how to interpret a technical
diagram.
[Forms Of Visual Communication]:
● Films, videos, and PowerPoint displays: often to help train new staff or inform sales
people about new products.
● Posters: can be used to explain a simple but important message. (e.g. propaganda
poster)
● Charts and diagrams: Can be used in letters or reports to simplify and classify
complicated data.
● Computer technology could help in the design of these charts or diagrams. A printed
copy might be needed for hard data to add to reports and documents.
Key Terms:
Chapter 11. Need: is a good or service essential for living.
2. Want: is a good or service which people would like to have but isn't essential for
living, wants are unlimited.
3. The economic problem: unlimited wants exceeding limited resources to produce
the goods and services to satisfy those wants, this leads to scarcity.
4. Factors of production: are those services needed to produce goods or services.
There are 4 factors of production and they are limited in supply.
5. Scarcity: is the lack of sufficient products to fulfil the total wants of the population.
The demand for a good or service is greater than the availability of the good or
service.
6. Opportunity cost: is the next best alternative given up by choosing another item.
7. Specialistion: occurs when people and business concentrate on what they are best at.
8. Division of labour: the separation of tasks in a production process, with each task
performed by a worker. It is a form of specialisation.
9. Businesses: combine factors of production to make products (goods or services)
which satisfy people's wants.
10. Added value: is the difference between the selling price of a product and the cost of
raw materials and components.
Chapter 21. Primary sector: the primary sector of industry extracts and uses the natural
resources of earth to produce raw materials used by other businesses.
2. secondary sector: the secondary sector of industry manufactures goods using the
raw materials provided by the primary sector.
3. Tertiary sector: the tertiary sector of industry provides services to consumers and
the other sectors of industry.
4. De-industrialisation: occurs when there is a decline in the importance of the
secondary, manufacturing sector of industry in a country.
5. Mixed economy: has both a private sector and a public sector.
6. Capital: is the money invested into the business by the owners.
Chapter 31. Entrepreneur: is a person who organises, operates and takes the risk for a new
business venture.
2. Business plan: is a document containing the business objectives and important
details about the operations, finance and owners of the new business.
3. Capital employed: is the total value of capital used in the business.
4. Internal growth: occurs when a business expands its existing operations.
5. External growth: is when a business takes over or merges with another business. It
is often called integration as one business is integrated into another one.
6. A takeover or acquisition: is when one business buys out the owners of another
business, which then becomes part of the predator' business (the business which has
taken it over)
7. A merger: is when the owners of two businesses agree to join their businesses
together to make one business.
8. Horizontal integration: is when one business merges with or takes over another
one in the same industry at the same stage of production.
9. Vertical integration: is when one business merges with or takes over another one in
the same industry but at a different stage of production. Vertical integration can be
forward or backward.
10. Conglomerate integration: is when one business merges with or takes over a
business in a completely different industry. This is also known as diversification.
Chapter 41. Sole trader: is a business owned by one person.
2. Limited liability: means that the liability of shareholders in a company is limited to
only the amount they invested.
3. Unlimited liability: means that the owners of a business can be held responsible for
the debts of the business they own. Their liability is not limited to the investment they
made in the business.
4. Partnership: is a form of business in which two or more people agree to jointly own
a business.
5. A partnership agreement: is the written and legal agreement between business
partners. It is not essential for partners to have such an agreement but it is always
recommended.
6. An unincorporated business is one that does not have a separate legal identity.
Sole traders and partnerships are unincorporated businesses.
7. Incorporated businesses: are companies that have separate legal status from their
owners.
8. Shareholders: are the owners of a limited company. They buy shares which
represent part-ownership of the company.
9. Private limited companies: are businesses owned by shareholders but they cannot
sell shares to the public.
10. Public limited companies: are businesses owned by shareholders but they can sell
shares to the public and their shares are tradable on the Stock Exchange.
11. An Annual General Meeting: is a legal requirement for all companies.
Shareholders may attend and vote on who they want to be on the Board of Directors
for the coming year.
12. Dividends: are payments made to shareholders from the profits (after tax) of a
company. They are the return to shareholders for investing in the company.
13. A franchise: is a business based upon the use of the brand names, promotional logos
and trading methods of an existing successful business. The franchisee buys the
licence to operate this business from the franchisor.
14. A joint venture: is where two or more businesses start a new project together,
sharing capital, risks and profits
15. A public corporation: is a business in the public sector that is owned and
controlled by the state (government).
Chapter 51. Business objectives: are the aims or targets that a business works towards
2. Profit: is the total income of a business (revenue) less total costs.
3. Market share: is the percentage of total market sales held by one brand or business.
4. A social enterprise: has social objectives as well as an aim to make a profit to
reinvest back into the business.
5. A stakeholder: is any person or group with a direct interest in the performance and
activities of a business.
Chapter 6: Motivating Employees1. Motivation: is the reason why employees want to work hard and work effectively for
the business.
2. Wage is a payment for work, usually paid weekly.
3. Time rate is the amount paid to an employee for one hour of work.
4. Piece rate is the amount paid for each unit of output.
5. Salary is the payment for work, usually paid monthly.
6. Bonus is an additional amount of payment above basic pay as a reward for good
Work.
7. Commission is payment relating to the number of sales made.
8. Profit sharing is a system where a proportion of the company’s profits is paid out to
the employees.
9. Job Satisfaction is the employment derived from feeling that you have done a good
Job.
10. Job Rotation involves workers swapping around and doing each specific task for a
limited time and then changing around again.
11. Job Enrichment involves looking at jobs and adding tasks that requires more skills
and responsibility.
12. Team Working involves using groups of working and allocating specific tasks and
responsibilities to them.
13. Training is the process of improving a worker’s skills.
14. Promotion is the advancement of an employee in an organisation. For eg - to a
higher job/managerial level.
Chapter 7: Organisation and Management1. Organisational structure refers to the levels of management and division of
responsibilities within an organisation.
2. Organisational chart refers to a diagram that outlines the internal management
Structure.
3. Hierarchy refers to the levels of management in any organisation, from the highest
to the lowest.
4. Level of Hierarchy refers to managers/supervisors/other employees who are given
a similar level of responsibility in an organisation.
5. Chain of command is a structure in an organisation which allows instructions to be
passed down from senior management to lower management.
6. Span of control is the number of subordinates working directly under a manager.
7. Directors are senior managers who lead a department or division of a business.
8. Line managers have direct responsibility for people below them in the hierarchy of
an organisation.
9. Supervisors are junior directors who have direct control over the employees below
them in an organisational structure.
10. Staff managers are specialists who provide support, information and assistance to
line managers.
11. Delegation means giving a subordinate the authority to perform particular tasks.
12. Leadership styles are the different approaches to dealing with people and making
decisions when in a position of authority - autocratic, democratic, laissez-faire.
13. Autocratic leadership is where the managers expect to be in charge of the
business and have their orders followed.
14. Democratic leadership gets other employees involved in the decision making
Process.
15. Laissez-faire leadership makes the broad objectives of the business known to the
employees, but then they are left to make their own decisions and organise their own
work.
16. Trade union is a group of employees who have joined together to ensure their
interests are protected.
17. Closed shop is when all employees must be a member of the same trade union.
Chapter 8: Recruitment, selection and training:
1. Recruitment: is the process of identifying that the business needs to employ someone
up to the point at which applications have arrived at the business.
2. Employee selection: is the process of evaluating candidates for a specific job and
selecting an individual for employment based on the needs of the organisation.
3. job analysis: identifies and records the responsibilities and tasks relating to a job.
4. job description: outlines the responsibilities and duties to be carried out by someone
employed to do a specific job.
5. job specification: is a document which outlines the requirements, qualifications,
expertise, physical characteristics, etc., for a specified job.
6. Internal recruitment: is when a vacancy is filled by someone who is an existing
employee of the business.
7. External recruitment: is when a vacancy is filled by someone who is not an existing
employee and will be new to the business.
8. Part-time employment: is often considered to be between 1 and 30–35 hours a
week.
9. Full-time: employees will usually work 35 hours or more a week.
10. Induction training: is an introduction given to a new employee, explaining the
business’s activities, customs and procedures and introducing them to their fellow
workers.
11. On-the-job training: occurs by watching a more experienced worker doing the job.
12. Off-the-job training: involves being trained away from the workplace, usually by
specialist trainers.
13. Workforce planning: is establishing the workforce needed by the business for the
foreseeable future in terms of the number and skills of employees required.
14. Dismissal: is when employment is ended against the will of the employee, usually
for not working in accordance with the employment contract.
15. Redundancy: is when an employee is no longer needed and so loses their job. It is
not due to any aspect of their work being unsatisfactory.
16. contract of employment: is a legal agreement between an employer and employee,
listing the rights and responsibilities of workers.
17. industrial tribunal: is a type of law court (or in some countries, a legal meeting) that
makes judgments on disagreements between companies and their employees, for
example, workers’ complaints of unfair dismissal or discrimination at work.
18. ethical decision: is a decision taken by a manager or a company because of the moral
code observed by the firm.
Chapter 9: Internal and external communication:
1. Communication: is the transferring of a message from the sender to the receiver,
who understands the message.
2. A message: is the information or instructions being passed by the sender to the
receiver.
3. Internal communication: is between members of the same organisation.
4. External communication: is between the organisation and other organisations or
individuals.
5. The transmitter or sender: of the message is the person starting off the process by
sending the message.
6. The medium of communication: is the method used to send a message, for example,
a letter is a method of written communication and a meeting is a method of verbal
communication.
7. The receiver: is the person who receives the message.
8. Feedback: is the reply from the receiver which shows whether the message has
arrived, been understood and, if necessary, acted upon.
9. One-way communication: involves a message which does not call for or require a
response.
10. Two-way communication: is when the receiver gives a response to the message and
there is a discussion about it.
11. Formal communication: is when messages are sent through established channels
using professional language.
12. Informal communication: is when information is sent and received casually using
everyday language.
13. Communication barriers: are factors that stop effective communication of
messages.