F1 - (BT) - NOTES
Business and Technology
(Association of Chartered Certified Accountants)
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1
THE BUSINESS ORGANISATION
Organisations are social arrangements for the controlled performance of collective goals
Organisations are structured to allow people to work towards a common goal.
Systems and procedures are in place to ensure goal is achieved. Turn inputs into outputs.
Organizations enable people to –
• Share skills & knowledge
• Specialise – each can concentrate on one field, better than attempting to be good at everything.
• Pool resources (money, time)
• This all creates SYNERGY, organisations achieve more than the individuals can alone.
COMMERCIAL
• PROFIT SEEKING
• Seek to MAXIMISE WEALTH OF OWNERS
NOT FOR PROFIT (NFP/NPO)
• Do not see profitability as main objective
• Seek to satisfy needs of members/members of public
• Govt/schools/hospitals/charities/clubs
SOLE TRADERS
• Run by ONE person
• NOT legally separate from the business
• Liable for losses businesses make
A
B
O
L
G
B
L
X
O
PARTNERSHIPS
• Owned and run by TWO OR MORE individuals
• Traditionally do not have legal entity separate from business
• Liable for losses (limited liability partnerships ARE)
A
C
C
LIMITED LIABILITY COMPANIES
A
PRIVATE LIMITED COMPANIES (LTD)
• Separate legal identity to its owners (known as stakeholders)
• Smaller businesses, owned by a few shareholders
• Shares cannot be offered to general public
PUBLIC LIMITED COMPANIES (PLC)
• Separate legal identity to its owners (shareholders)
• Larger businesses
• Shares can be offered to the general public
PUBLIC VS PRIVATE
Public sector – provides government services, controlled by government
Police/Military/Public transport/Healthcare/Education
Private sector – run by private individuals/groups not in government
Business/charities/clubs. Can be both profit/non-profit seeking
NGO – An organisation that does not have profit as its main goal
NOT linked to government, promotes political/social/environmental change
Co-Operatives - Democratically controlled by members. Meet needs of member owners who share
profits.
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2
BUSINESS ORGANISATION & STRUCTURE
ENTREPRENEURIAL
Small businesses, early stages of development.
Entrepreneur has specialist knowledge of product/service
Advantages
• Fast decision making – 1 person makes decisions
• Responsive to market – can recognise and act quick
• Goal congruence – lack of long or complex chain of command.
Disadvantages
• Only suited to small companies
• No career path
• Dependant on capabilities of owner
• Cannot cope with diversification/growth
X
O
DIVISIONAL/PRODUCT STRUCTURE
Split into divisions run as profit centres with own revenue, expenditure & capital investments.
Referred to as strategic business unit
A
B
O
B
L
Advantages
• Enables growth – can ‘bolt on’ another division
• Clear responsibility for products/divisions – can increase profitability at div level.
• Easily adaptable
• Management free to conc. On strategy
Disadvantages
• Potential loss of control – managers could be happy with central HR dictating
• Lack of goal congruence
• Allocation of central costs can be a problem
A
C
C
L
G
A
MATRIX STRUCTURE
Combination of functional & divisional. Dual reporting to different managers
Advantages
• Combines benefits of functional and divisional
• Flexibility
• Customer orientation
• Encourages teamwork
Disadvantages
• Dual command/conflict
• Dilution of authority
• Time consuming meetings
BOUNDARYLESS
• Hollow – core/non-core activities. Non-core is outsourced (e.g payroll)
• Virtual – Network of contactors with few functions in house. 3rd party couriers, website
developers etc.
• Modular – manufacturing companies divided by modules and/or components. E.g mobile
phone companies outsourcing manufacture of chips, electronics etc.
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HENRY MINTZBERG
Henry Mintzberg – argued organisations have 5 key ‘building blocks’
STRATEGIC APEX – Senior levels of management
MIDDLE LINE – Middle management
OPERATING CORE – Workers involved in producing core product
TECHNOSTRUCTURE – technical input, not part of core
SUPPORT STAFF – Administrative support/indirect services
B
L
A
B
O
SIMPLE STRUCTURE – STRATEGIC APEX DOMINATES
• Entrepreneurial structure
• Few top managers with lots of control
• Reliance on few managers means it can struggle to handle growth
A
C
C
L
G
MACHINE BEAURACRACY – TECHNOSTRUCTURE DOMINATES
• Large, established organisations
• Work formalised large number of rules/procedures, plans/budgets
• Jobs/roles clearly defined
• Tend to be large manufacturing organisations and government agencies
A
PROFESSIONAL BEAURACRACY – OPERATING CORE DOMINATES
• Rely on highly skilled staff. Can be difficult for mid management to control.
• Medical, legal services
• Each individual staff member as significant independence/power
DIVISIONALISED – MIDDLE LINE DOMINATES
• Matches divisional structure
• Heads of divisions have lots of control over day to day management
ADHOCRACY – SUPPORT STAFF DOMINATES
• Focus on innovation
• Fast moving, dynamic industries
• Decisions decentralised – teams of experts
MISSIONARY – IDEOLOGY - Mission/beliefs dominate
X
O
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SCALAR CHAIN - The line of authority which can be traced up/down the CHAIN OF COMMAND
SPAN OF CONTROL -The NUMBER of people the manager is directly responsible for
TALL ORGANISATIONS – More bureaucratic, longer to make decisions, lots of managers need to get
involved in big decisions.
WIDE ORGANISATIONS – Repetitive simple work, more skilled/motivated workers & managers (less
supervision). Located locally.
OFFSHORING – Relocating functions abroad to reduce costs.
X
O
B
L
A
B
SHARED SERVICES APPROACH – Instead of a service being found in several different parts of the
organisation, it is centralised. E.g, distinct IT departments formed to offer IT services to entire
organisation. Run like a separate business charging the rest of the organisation for use of the service
(improved quality/consistency of service)
O
L
G
CENTRALISED = Upper levels of organisation retain the authority in making decisions
A
C
C
DECENTRALISED - Authority to make decisions is passed down to lower levels
Advantages – senior management free to focus/local decisions and expertise/small chain of
command = quick responses.
Disadvantages – Loss of control management/lack of goal congruence, poor decisions/duplication of
roles.
A
LEVELS OF STRATEGY – THE ANTHONY TRIANGLE
STRATEGIC
PLANNING
Strategic Planning – Senior
management, long term decisions.
TACTICAL
PLANNING
Tactical Planning – Middle
management, plans for specific
divisions.
OPERATIONAL
PLANNING
Operational – Junior management,
day to day/practical.
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TYPES OF DEPARTMENTS –
RESEARCH AND DEVELOPMENT
• Improve products/develop new products
• Concerned with customer needs, new ideas, testing
PURCHASING
• Acquiring goods for business
• Concerned with price/quality/stock levels
PRODUCTION
• Raw materials -> Finished goods.
• Concerned with quality/costs/waste/stock
DIRECT SERVICE PROVISION
• Service to clients
• Concerned with quality and scheduling
MARKETING
• Identifying customer needs
• Market research
• Product design
• Pricing
• Distribution/promotion
• Concerned with customer needs/quality/promotional & pricing strategy.
B
L
A
B
O
L
G
X
O
ADMINISTRATION
• Admin support
• Concerned with efficiency/information processing
A
C
C
FINANCE
• Bookkeeping
• Financial reporting
• Budgeting
• Raising of Capital
• Concerned with accurate record keeping, monthly management, annual finance reporting.
A
MARKETING & ‘MARKETING MIX’
MARKETING = IDENTIFYING, ANTICIPATING, SUPPLYING CUSTOMER NEEDS
•
•
•
•
Market research
Product Design/Development
Distribution
Profitability
MARKETING ORIENTATION = Philosophy, meeting the customers’ needs better than the competitor
will lead to success.
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PRODUCT ORIENTATION = Idea success is achieved by producing the best quality product.
Focus is on research and development. Can lead to overpowered products with features customers
don’t want.
MARKETING MIX – ‘PPPP’
PRODUCT – Features, design, durability, packaging, warranty.
PLACE – Distribution channels, transport. Stock/warehouses.
PROMOTION – Advertising, sales promotion techniques.
PRICE – Price levels, discounts, allowances, credit.
In an effective marketing programme, all 4 elements are successfully ‘mixed’
CORE PRODUCT – What is the customer buying? problem solving service e.g car = transport
ACTUAL PRODUCT – The medium for receiving core product benefits e.g car = body, engine
AUGMENTED PRODUCT – Measures taken to help the customer put the actual product to sustained
use. E.g car = warranty/dealers discount service.
PRICING ISSUES
B
L
‘CCCC’
A
B
O
COST - High enough to make a profit?
CUSTOMERS – what will they pay?
COMPETITION – higher/lower?
CORPORATE OBJECTIVCES – What % of the market share owned etc
PRICING TACTICS
A
C
C
L
G
X
O
COST PLUS PRICING – Cost per unit calculated and mark up added.
PENETRATION PRICING – low price to gain the market share
PERCIEVED QUALITY PRICING
PRICE DISCRIMINATION – different markets e.g off peak/peak for rail fares
PRICE SKIMMING – High price on release, then dropped.
LOSS LEADERS
CAPTIVE PRODUCT PRICING – When necessary to buy 2 products, 1st cheap, second expensive.
A
AIDA = Encouraging customers to buy by moving along the sequence –
AWARENESS -> INTEREST -> DESIRE -> ACTION
Advertising/Bogof/Sponsoring. Placement DIRECT = No middleman
INDIRECT = Mix of retailers, wholesalers, distributors
STRATEGIC ANALYSIS – Analysis of brand strength, competition, market research
STRATEGIC CHOICE – What to sell, strategy
STRATEGY IMPLEMENTATION – Budget, targets.
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3
ORGANISATIONAL CULTURE IN BUSINESS
CORPORATE CULTURE = The collection of values and norms shared by people and groups in an
organisation. ‘The way we do things around here’ – Charles Handy.
CULTURE = Sum of beliefs, attitudes, norms and customs
SCHEIN
FIRST LEADERS – create the company culture. Employees must support the original culture, can be
difficult to change. There are 3 levels to this culture:
1. ARTEFACTS – Things that can be seen (e.g dress style)
2. ESPOUSED VALUES – Strategies, goals, slogans
3. BASIC ASSUMPTIONS & VALUES – Unseen, at unconscious level.
HANDY – 4 TYPES
X
O
1. POWER CULTURE – ONE major source of power and influence. E.g entrepreneur with absolute
control over subordinates.
2. ROLE CULTURE – People describe e their job by their duties. Effective in stable environments
where work rarely changes.
3. TASK CULTURE – Emphasis on achieving the task at hand. Staff need to be flexible. Project teams
exist for specific tasks. Defined by results.
4. PERSON CULTURE – Small organisations. Exists to satisfy requirements of individual, e.g barrister
in chambers
L
G
A
B
O
HOFSTEDE – NATIONAL DIFFERENCES
B
L
INDIVIDUALISM VS COLLECTIVISM – Anglo Saxon cultures more individualistic. In highly individualistic
societies staff expect to be assessed on their own achievements and performance. Societies with low
degree of individualism prefer to be assessed on a group basis, via group goals.
A
C
C
UNCERTAINTY AVOIDANCE – High UA cultures will not like to act outside their normal job descriptions
and roles. Low UA cultures are prepares to take more risks and go beyond their comfort zone.
A
POWER DISTANCE (PD) INDEX – High PD cultures expect to answer to powerful managers, no democratic
input. Low PD cultures expect to be involved in decision making process.
MASCULINE VS FEMININE – Masc = Job titles, status, pay. Fem = work life balance, relationships
LONG TERM VS SHORT TERM – Long term orientation societies focus on future rewards, focus on saving,
persistence. Short term oc focus on past and present concerns, e.g respect for tradition, social obligation
and ‘saving face’.
INDULGENCE VS RESTRAINT – Indulgent societies allow relatively free gratification of basic natural
human drives. Restrained societies suppress grat. And regulate by strict social norms.
INFORMAL VS FORMAL
INFORMAL = Common networks, interests, friendships between members of staff. Good communication
and motivation, but – opposition to change can be intensified, can lead to ‘grapevine effect’. If the formal
structure conflicts with the informal structure, the organisation become inefficient at meeting objectives.
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DATA & INFORMATION
DATA consists of numbers, letters, symbols, raw facts, transactions that have been recorded but not yet
processed.
QUALITIATIVE DATA – Data which is capable of being measured numerically, e.g labour hours required tp
produce one unit of output
QUALITATIVE DATA – Data that is not capable of being measured numerically, e.g grade of labour used to
produce one unit of output
DISCRETE data can only take specific fixed vale e.g no of cars through car wash per day will be 32 not 32.3
CONTINUOUS DATA can take on any numerical value e.g throughput of cars per day =4.375 (35 cars/8hrs)
INFORMATION
is data that has been processed in such a way that it has meaning to the person that receives it. Management
requires information to:
• Provide records, current & historical
• Analyse what is happening in the business
• Provide the basis for decision-making long term/short term
• Monitor the performance of business with plans and forecasts
Information is useful to third parties:
• Shareholders or owners, who will want to know how their investment is performing
• Customers and suppliers – want to know how stable the business is before partnering
• Employees – performance of business has impact on job security and pay
• Government agencies – tax authorities
A
C
C
A
Accurate –
Complete –
Cost –
Understandable –
Relevant –
Adaptable –
Timely –
Easy to use –
B
L
A
B
O
L
G
To be good, information must be ACCURATE
X
O
information accurate for intended purpose – reliable
the more complete, the more reliable
the info should not cost more to obtain than benefit derived from it
user friendly more readily acted upon
the information provided should concentrate on essentials
info tailored to needs of intended recipients
info out of date is waste of time
clearly presented
TPS REPORT - Record all daily transactions of the organisation and summarises them so they can be reported
on routine basis. Eg –
• Recording sales transactions
• Recording details of purchases/production/shipping of goods (manufacturing)
• Finance and accounting systems
MIS - Converts data from TPS into information for tactical managers. Info designed to help monitor
performance, maintain co-ordination and provide background info on operations
DSS - Computer system that helps decision makers deal with semi or unstructured decision where high
uncertainty. Draws on internal and external info.
EIS - Provide strategic managers with flexible access to information from the entire business
ES – Specialist (expert) knowledge – law/taxation/banking/medicine
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SPREADSHEETS
ADVANTAGES
• Relatively easy to use
• Require little training to get started
• Most data managers are familiar
with them
DISADVANTAGES
• Data must be re-copied over and over to maintain it
in separate data files
• They are unable to efficiently identify data errors
• Lack of detailed sorting & querying abilities
• Can be sharing violations among users wishing to
view or change data at the same time
• Often restricted to a finite no. of records and can
require a large no. of hard drive space for data
storage
DATABASES
ADVANTAGES
• Ease of reporting and sharing data
• Require little or no duplication
between tables
• Changes made to data do not
corrupt programming (e.g at cell
level)
• Better security, restrict users from
accessing privileged info, from
changing coded into in the
programming.
A
C
C
ACCOUNTANCY PACKAGES
A
B
L
A
B
O
L
G
ADVANTAGES
• Rapid recording of transactions
when compared to a manual
system
• Lower likelihood of mistakes
• Rapid production of reports and
financial statements
X
O
DISADVANTAGES
• Requires user to learn a new system
• Requires greater investment in training and
software
• Initial time and cost of migrating all data into
database is significant
DISADVANTAGES
• Usually requires training before use
• Packages can be expensive to purchase and install
• May be unnecessary for a small business with low
numbers of transactions.
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STAKEHOLDERS
STAKEHOLDERS = Individuals/groups who have interest in what an organisation does.
Affects or is affected by the organisation’s actions.
THREE TYPES – INTERNAL, CONNECTED, EXTERNAL
INTERNAL
1. Employees – concerned with pay, working conditions, job security.
2. Managers & Directors – concerned with status, pay, bonuses
CONNECTED
1. Shareholders – concerned w/ steady low of income, capital growth.
2. Customers – concerned w/ products and services
3. Suppliers – concerned w/ prompt payment
4. Finance providers – concerned w/ companies financial security
EXTERNAL
1. Community at large – e.g airport being built
2. Environmental/pressure groups – wildlife
3. Government – governments set laws on what to do
4. Trade Unions – strikes
A
B
B
L
O
L
A different way of categorizing shareholders is PRIMARY & SECONDARY
G
PRIMARY = Contractual relationships, employers/directors/shareholders
SECONDARY = Parties that have interest in the org but no contractual link e.g public.
A
C
C
A
MENDELOWS POWER-INTEREST MATRIX
power
interest
LOW
LOW
Minimal Effort
HIGH
Keep Informed
HIGH
Keep satisfied
Key Players
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O
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EXTERNAL ANALYSIS – ‘PEST’ FACTORS
P – Political/legal
E – Economic
S – Social
T – Technological
P
POLITICAL
A political system is a set of institutions, political organisations, interest groups (lobbies). Sources of legal
authority can be –
SUPRA NATIONAL – UN resolutions, international court of justice, EU parliament, etc
NATIONAL – Acts of parliament, courts, case law
REGIONAL – Federal govts (eg. USA). Local councils.
X
O
Governments can affect an organisation through GOVERNMENT POLICY & DIRECT LEGISLATION
B
L
GOVERNMENT POLICY –
• Healthcare policy - has implications for drugs & equipment manufacturers
• Environmental policy – targets on gas emissions can affect manufacturing.
• Farming – e.g subsidies for farmers
• Education – employment
A
B
O
DIRECT LEGISLATION – Organisations must comply to:
• Employee protection – dismissal/unfair dismissal redundancy etc
• Data Protection – UK data protection act ’98. Date security (physical/human)
• Health & Safety – workplace hazards, Employees duties/responsibilities.
• Consumer Protection – sales of goods act
A
C
C
Direct legislation – more detail:
L
G
A
EMPLOYEE PROTECTION –
• Dismissal = termination of contract
• Constructive dismissal = employer breachers terms of contract. E.g reduces wages w/o
agreement. Bullying/harassment.
• Fair dismissal = lacked capabilities to do job. Misconduct (dishonesty, theft). Redundancy.
• Unfair dismissal = Pregnancy. Joining a trade union. Discrimination by race/gender/sex etc.
• Redundancy – employee has right to consultation, notice period etc.
DATA PROTECTION
• DATA PROTECTION ACT 1998 –
• Personal data should be obtained and processed fairly and lawfully.
• Personal data should be adequate, relevant and not excessive
• Data kept should be accurate
• Data shouldn’t be kept for longer than is necessary
• Data should be kept in accordance with rights of the data subjects
• Data user is responsible for the security, protection against unauthorised access, alteration,
destruction. Should not be transferred to another country.
DATA SECURITY – Physical risks (fire flood) vs human risks (hacking, virus, fraud/theft)
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HEALTH & SAFETY
• The law puts responsibility on BOTH THE EMPLOYEE AND EMPLOYER
• The EMPLOYER has duty to – prevent risk to health, check the correct equipment is being used,
inform staff of hazards. Provide a safe working environment.
• EMPLOYEE has duty to – co-operate with employer take up h&s training. Report risks and don’t
put others at risk.
CONSUMER PROTECTION
• Protects consumers from unethical business.
• Sellers must have legal title to or ownership of the item they sell
• Goods must be of satisfactory quality and fit for purpose
• Goods must correspond to description
• Supply of Goods and Services act 1982 – services should be carried out with skill and care,
completed withing a reasonable timeframe, completed at a reasonable price.
E
ECONOMIC
X
O
ECONOMICS = Study of (a) how society allocates scarce resources (b) wealth creation.
MICROECONOMICS = Individual consumers, firms, industries
MACROECONOMICS = Aggregate behaviour, sum of individual economic decisions i.e workings of the
economy as a whole.
A
B
B
L
INDIVIDUAL DEMAND – How much of a good/service someone intends to buy a different price.
DEMAND is HIGH when price is low
DEMAND is LOW when price is high
O
L
EXTENSION/CONTRACTION OF DEMAND CURVE
G
EXTENSION – Demand RISES when price falls
CONTRACTION – Demand FALLS as price RISES
A
C
C
A
This happens for two reasons:
1. SUBSTITUTION EFFECT – A fall in price of one good leads to consumers to switch demand to a
lower price good as an alternative.
2. INCOME EFFECT – When price of a good falls it affects the purchasing power of the consumer, i.e
they can buy more.
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SHIFT IN THE DEMAND CURVE
B
L
X
O
A
B
O
Conditions that affect demand of goods:
1. INCOME – Wage increases, or lower taxes raise disposable income. This increases demand for
luxury goods. Rise in income leads to richer consumers substituting inferior goods with better
quality ones.
2. TASTES – Concerns about health increase demand for brown bread, decrease white etc.
3. PRICES OF OTHER GOODS – if goods are in joint demand, one will affect the other. E.g cars and
tyres.
4. POPULATION – increase in population = a larger market.
5. POPULATION DISTRIBUTION – E.g More old people will mean increase demand for wheelchairs
etc. High birth rates = increased demand for nappes etc.
A
C
C
A
L
G
PRICE ELASTICITY OF DEMAND
The RESPONSIVENESS of demand to CHANGES in price.
PRICE ELASTICITY = % CHANGE IN THE QUANTITY DEMANDED
% CHAGE IN PRICE
If price elasticity is less than one (<1) = INELASTIC (E.g tea, salt)
If price elasticity is more than one (>1) = ELASTIC (E.g cameras, air travel)
PED can be calculated by examining total revenue –
• If total revenue INCREASES following a PRICE CUT, demand is price ELASTIC.
• If total revenue INCREASES following a PRICE RISE, demand is PRICE INELASTIC.
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Factors that influence price elasticity of demand:
• Proportion of income spent on goods – When a product makes up a small proportion of a
consumers income spent, a small price change doesn’t have an impact. E.g matches, shoe polish.
Demand is INELASTIC
• Substitutes – Demand for unique products inelastic. Demand for product with lots of substitutes
is elastic.
• Habit – E.g drugs newspapers – inelastic
• Time – Ignorance of possible alternatives = inelastic.
CROSS ELASTICITY OF DEMAND – XED
The sensitivity of demand of one good to changes in price of another.
XED = % Change in Q Demanded of good A
% Change in price of good B
Elasticity is determined by the value being positive or negative (e.g 0.25, 1.5)
The XED of substitutes is POSITIVE
The XED of compliments is NEGATIVE
X
O
B
L
SUPPLY CURVES
A
B
O
How many units producers would be willing to offer sale at different prices, over a given period of time.
What a firm will provide to the market at certain prices.
A
C
C
L
G
A
UPWARDS SHIFT IN SUPPLY – Means the cost of supply has increased. Results from higher production
costs, or taxes
DOWNWARD SHIFT IN SUPPLY – Cost of production has fallen. i.e more is being supplied at the same
price. Lower production costs are a result of – more technological innovation. More efficient system of
production, lower input prices (raw materials). Abolition of a tax.
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EQUILIBRIUM
Where the plans of both sellers and buyers are realised/satisfied.
MINIMUM PRICE/MAXIMUM PRICE
A
C
C
B
L
A
B
O
Price acts as a signal to sellers on what to produce.
Price rises will act as a stimulus to extra supply.
L
G
X
O
Where government sets prices above or below the equilibrium price.
Minimum price – subsidies to producers, minimum wage
If govt sets the minimum price above equilibrium (price floor) there will be a surplus of supply.
Minimum wage = surplus of supply = unemployment
A
Maximum price – Leads to a shortage of supply.
Can lead to black markets
Misallocation of resources
Will reduce output as they are less profitable.
PERFECT MARKETS
Exists when –
• Large number of customers, suppliers, where no one has the power to dominate
• Products are identical (homogenous)
• Perfect information – prices, goods
• No barriers to entry
In reality, most markets are imperfect.
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MONOPOLY
• One company controls all/nearly all market with no competitors
• One major supplier
• No close substitutes available
• Supplier free to set prices due to no competition
• High barriers to entry
MONOPOLISTIC COMPETITION
• Many different competitors, each with differentiated product, tries to attract same customers
(e.g restaurants)
• No major barriers to entry
• Each business decided its price
• Large competition = more advertising
OLIGOPOLIES
• Market controlled by small no. of organisations (2-6)
• Difficult for new firms to enter
• Significant influence over prices
X
O
B
L
MACROECONOMICS
Aggregate demand for goods and services/Output of goods and services/Supply of production/Money
spent in purchasing national product = ‘national expenditure’
A
B
O
MACROECONOMIC POLICY
L
G
Most governments have some form of intervention. Policy objectives are typically –
• Economic growth
• Low Inflation
• High Employment
• Sustainable balance of payments (international trade)
A
C
C
AGGREGATE DEMAND
A
Total demand for a country’s output –
AD=C+I+G+X-M
Higher aggregate demand leads to firms
Increasing output -> hiring more -> growth in aggregate demand
Higher business confidence, increased investment
Reduced by unemployment, inflation
Capital = Availability of finance
GOVERNMENT POLICY - Governments can increase/decrease aggregate demand by adjusting fiscal
policies – government spending/taxation. E.g increased tax rates harm consumer confidence, leading to
fall in aggregate demand.
EXCHANGE RATE MOVEMENTS – Strengthening currency will make a country exports more expensive,
imports cheaper. This reduces aggregate demand in the economy.
RESOURCES – New tech & more efficient working practices improve productivity output.
Higher levels of education improve efficiency and effectiveness of the workforce.
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TRADE CYCLES –
X
O
RECESSION - Starts when demand falls. Firms respond by reducing their output, causing decline in
purchase of raw materials, unemployment as workers are laid off.
Lower demand feeds through into household’s incomes causing these to fall too, resulting in further
reduction in demand. Economy moves to a SLUMP, low business confidence and little investment.
Economic activity picks up, extra investment will push up incomes, persuading consumers to spend more,
inducing more investment. Economy expands and pushes into a boom
ECONOMIC GROWTH
A
B
O
B
L
L
G
Benefits – More goods demanded, more jobs -> more employment -> higher standard of living.
Problems – gap between rich/poor may widen
Growth may be in de-merit goods, e.g drugs
Growth may be at expense of environment
Increased demand for imports worsens aggregate demand
If demand rises faster than production capacity goods will become scarce. Leads to rise in prices, inflation
A
C
C
A
INFLATION
Rise in price of goods within economy. Reduces purchasing power of money each £buys fewer goods
Governments want low inflation because as prices consumers buy fewer goods, reduces growth,
Under inflation, employees will push for higher pay rises to match price rises.
Price of raw materials rising means reductions in investment and production.
Consumer confidence may be damaged due to uncertainty of goods and services.
People on fixed incomes worse off.
High inflation in one country makes cheaper imported goods attractive, adversely affecting aggregate
demand.
TRANSACTIONS MOTIVE – Those that save to spend later. These people will save less in order to avoid
the purchasing power of their savings being eroded
PRECAUTIONARY MOTIVE – Will save more as they will be uncertain how much money they may need in
the future due to rapid price rises.
STAGFLATION – Inflation rises rapidly while economic growth slows
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BALANCE OF PAYMENTS
All records of financial transactions made between individuals, businesses and its government –
CURRENT ACCOUNT – Import and Export of goods and services
CAPITAL ACCOUNT – Net change in ownership of foreign assets, such as loans between governments and
other countries.
FINANCIAL ACCOUNT – Cash flows
TRADE DEFECIT – When a country’s imports exceed exports
TRADE SURPLUS – When exports exceed imports
POLICY OPTIONS
FISCAL POLICY – Government’s taxation and spending plans
MONETARY POLICY – Management of the money supply (currency in circulation) & interest rates
X
O
When it comes to fiscal policy, governments must plan each year for –
1. INCOME - Money government raises from taxes
2. EXPENDITURE - Total amount government needs to spend to provide services for population
Most governments prefer to run a BALANCED BUDGET. Sometimes a different approach is required:
A
B
O
B
L
BUDGET DEFECIT –
• Occurs when government spending is higher than government income.
• To fund government needs to borrow money (PSNCR – public sector net cash requirement)
• When running a budget deficit government is injecting more money into the economy than it is
taking out – this boosts aggregate demand and reduces unemployment
• Running a budget deficit is known as a EXPANSIONARY strategy
• Used when a ‘deflation gap’ exists.
A
C
C
L
G
BUDGET SURPLUS –
• Taking money out of the economy, reducing aggregate demand
• Government spending is lower than government income
• Known as a CONTRACTIONARY policy
• Used when inflationary gap exists in the economy (when aggregate demand is higher than the
country can supply)
A
MONETARY POLICY
EXPANSIONARY policy increases money supply in economy increasing investment and employment.
CONTRACTIONARY policy decreases the total money supply helping reduce demand and ease inflation.
To increase/decrease money supply, governments can RAISE INTEREST RATES – Increases cost of borrowing, so reduces investment helping reduce the level of
aggregate demand in economy
RESERVE REQUIREMENTS – Reduces the amount of money banks have available to lend, limiting the
money supply.
Done by increasing the reserve requirement (amount of deposits banks keep as cash)
Pushes interest rates up.
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Monetary and fiscal policies are ‘levers’ government can use to affect the economy. When used depends
on theory CLASSICAL THEORY
• Suggests government does nothing. The economy naturally moves to an equilibrium point with
full employment.
• E.g. recession – pricing of products falls, leads to reduction in selling price of products. Increasing
demand for them -> leads to economic growth.
• Undermined by the great depression.
KEYNSIAN VEW (DEMAND SIDE)
• Governments need to manipulate the level of aggregate demand via intervention to meet
equilibrium.
• Governments should borrow money and inject it into the economy (budget deficit) when growth
needs to be stimulated.
• Governments to increase taxes & run a budget surplus to slow economy if moving too fast
X
O
MONETARIST (SUPPLY SIDE)
• Return to classical view – equilibrium point where supply meets demand
• Economy does not find this because it is hindered by market imperfections
• Role of government is to remove imperfections, Inflation/govt spending and taxation/price
fixing/minimum wage legislation/regulation of markets/abuses of monopoly power
• Solutions known as ‘supply side’ economics focus on improving the supply of factors of
production (easier for business to access labour, raw materials etc)
L
G
POLICY OBJECTIVES UNDER EACH SCHOOL –
A
C
C
A
B
O
B
L
GROWTH - Running budget deficit/increasing availability of production factors/cutting interest
rates/grants to boost investment
A
UNEMPLOYMENT
High levels cause –
• Governments suffering a loss of income from tax and VAT
• Increased taxes on other workers reducing their spending power
• Businesses can benefit from high level of unemployment – easier to find candidates (larger pool).
Tackling unemployment depends on type –
• cyclical occurs in ‘bust’ period of trade cycle, when aggregate demand in economy is too low to
create employment opportunities. Keynesians would boost aggregate demand by running trade
off. Monetarists would remove market imperfections.
• Frictional unemployment – short term as people move between jobs – not normally a problem
• Structural – or technological unemployment occurs where there is a structural change in the
economy. Change in skills required/location of jobs. Keynesian policies have little impact here,
monetarist policies more effective – e.g. retraining schemes tax breaks for redeveloping old
industrial sites, business loans.
• Real wage unemployment – Industries that are highly unionised. Union negotiations keep wages
artificially high by threat of strikes. Means the number of people employed in industry is
reduced. Monetarist would seek to reduce union powers and abolish minimum age agreements.
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INFLATION
•
•
•
•
•
Demand-pull - occurs when demand for goods and services grows faster than ability of economy
to supply. Keynesians would reduce aggregate demand through higher taxes, cuts in spending,
higher inflation rates.
Cost-push - Underlying cost of factors of product rise – goods more expensive to make, forcing
manufacturers to raise their prices.
Imported inflation – countries with significant levels of imports. If national currency weakens, the
cost of imports rises, leading to domestic inflation
Monetary Inflation – Increasing the money supply increases purchasing power of economy,
boosting demand for goods and services. If this expansion occurs faster than the expansion in
the supply of goods, inflation can arise. Monetarists would argue rates reduce growth in money
supply.
Expectations Effect – Occurs when businesses predict an increase in price of goods and services
due to inflation. To protect themselves in the future, wages and prices are increased early. Leads
to an inflationary spiral – i.e. inflation occurs because it is expected to.
X
O
BALANCE OF PAYMENTS
B
L
If the country has a deficit on its balance of payments, there is a net outflow of funds from the countrythis is not sustainable.
•
•
S
Expenditure-reducing strategies – Government deliberately shrinks domestic economy to reduce
demand for imports. Via – contractionary monetary policy running a budget surplus.
Expenditure-switching – Govt. encourages consumers to buy domestically produced products
rather than imports. Controls are placed on imports, subsidies, lowering of exchange rates.
SOCIAL/ENVIRONMENTAL
A
C
C
A
A
B
G
O
L
DEMOGRAPHICS – Composition of the population
POPULATION COMPOSITION – Age of population
POPULATION LOCATION – In cities or countryside?
WEALTH – Higher disposable income = increase in demand of goods and services
EDUCATION – An educated workforce drives economic growth.
HEALTH – Overweight population puts demand on healthcare
SOCIAL TRENDS
SOCIAL STRUCTURE – Social class. Same socio-economic/education status. Organisations can improve
their marketing by targeting a specific group.
VALUES – Accepted behaviours/norms that bond a social group together. Environmental/ethical issues.
9-5 workdays etc.
ATTITUDES – Like/dislike for something ‘compensation culture’ – recycling
TASTES – Personal preferences. E.g clothing/fashion
GOVERNMENT POLICY
POPULATION – Governments with low birth rates can introduce tax advantages/incentives to encourage
women to have more children. 1 child policy for rapidly rising populations (China)
Pensions crisis – more people over 65 taxes received from smaller proportion of workers. Government
response – raise retirement age.
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HOUSING – Increased demand for homes = government housing developments
EMPLOYMENT – Tax credits/childcare vouchers to help single parents return to work
HEALTH – Bans on tobacco advertising, from raised concerns.
ENVIRONMENTAL FACTORS
BUSINESS EFFECTS ON THE ENVIRONMENT –
• Pollution
• Wastage of resources
• Destruction of national habitats
• Loss of plants/animal species
ENVIRONMENTAL EFFECTS UPON BUSINESS –
• Changing climate – can affect agriculture
• Lack of resources – Increases costs, reducing overall profit
• Loss of sales – If a business has a poor environmental track record
• Legislation – Polluting companies may trigger legislation by governments. Additional regulations
may reduce profits.
HOW BUSINESSES CAN LIMIT DAMAGE –
• Redesign products to use fewer raw materials
• Reduction in packaging
• Recycling
• Improve energy efficiency
• Careful production planning
T
TECHNOLOGICAL FACTORS
A
C
C
A
G
B
L
A
B
O
L
X
O
Administration automated by IT systems
Production roles replaced by robots
Improved communications – email – flexible working.
DOWNSIZING – Reducing the no. of employees
DELAYERING – Removing layers of management
OUTSOURCING – Contracting out work previously done in house
IMPACT OF TECHNOLOGICAL CHANGE ON PRODUCTS/MANUFACTURING/MARKETING –
•
•
•
•
•
New tech can lead to emergence of substitutes. E.g cinema went into decline after video
IT systems can be used for more efficient scheduling and monitoring of production = lower
inventory levels, higher quality, elimination of bottlenecks and lower costs.
Pricing – retailers monitor competitors’ prices to ensure they are not undercharging. Price watch
schemes are IT based – run on software etc.
Promotion of websites
Distribution – Internet = wider pool/range of customers.
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COMPETITIVE FACTORS – PORTERS 5 FORCES, SWOT
9
PORTERS 5 FORCES
Looks at a firms competitive environment by analysing 5 key areas – these determine overall profit
potential.
1.
2.
3.
4.
5.
COMPETITIVE RIVALRY
THREAT OF ENTRY
THREAT OF SUBSTITUTE PRODUCTS
BARGAINING POWER OF CUSTOMERS
BARGAINING POWER OF SUPPLIERS
COMPETITITVE RIVALRY
• Highly competitive rivalry puts pressure on firms to cut prices to retain customers.
• Competition is dependent on (a) No. and strength of rivals (b) rate of growth
• If buyers can switch easily between suppliers
B
L
X
O
THREAT OF ENTRY
• New entrants into market bring extra capacity and intensify competition.
• Threat from new entrants will depend upon the strength of the barriers to entry.
• Barriers to entry are:
1. Economies of Scale – unit costs decline as volume increases; new entrants will be unable to
start on a comparable cost basis.
2. Product differentiation – established firms have good brand image/customer loyalty. Cost of
overcoming this is hard.
3. Capital requirements i.e industry requires a heavy initial investment (e.g steel)
4. Switching costs
5. Access to distribution channels can be restricted
6. Cost advantages independent of scale, e.g patents special knowledge, favourable access to
suppliers, government subsidies.
A
C
C
A
B
O
L
G
A
THREAT OF SUBSTITUTE PRODUCTS
• Substitutes limit the potential returns by placing a ceiling on the price which firms in the industry
can profitably charge.
• Better price-performance alternatives will encourage customers to switch.
BARGAINING POWER OF CUSTOMERS
Powerful customers can force price cuts and/or quality improvements.
BARGAINING POWER OF SUPPLIERS
• The power of suppliers to charge higher prices are influenced by –
1. Degree to which switching costs apply and substitutes are available.
2. The presence of one or two dominant suppliers controlling prices.
3. Extent to which products differed have a uniqueness of brand technical performance or
design not available elsewhere.
STRATEGIES TO ACHIEVE COMPETITIVE ADVANTAGE –
1. COST LEADERSHIP – Making a product of similar quality to rivals at a lower cost.
2. DIFFERENTATION – Persuading customers their product is superior
3. FOCUS – Aiming at one segment of the market (E.g SAGA health over 50s)
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PORTERS VALUE CHAIN
How org’s activities contribute towards its competitive advantage. 5 primary activities, 4 support activities
PURCHASING – Costs, i.e cheaper materials, bulk discounts
QUALITY - e.g sourcing higher quality materials, employing expert buyers
PRODUCTION – Mass production lines, standardisation, employing below minimum wage
MARKETING – Cost advantage, word of mouth promotion, quality market research
SERVICE – Cost advantage outsourcing, quality advantage – skilled staff
SWOT ANALYSIS
A
B
O
A
A
C
C
B
L
L
G
X
O
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10 PERSONAL ETHICS
ETHICS - Moral principles that determine right and wrong
BUSINESS ETHICS – application of ethical values to business behaviour
When determining right from wrong no. of factors must be considered –
The consequences/motivation/principles/values
CONSEQUENTIALIST VS PLURALIST
CONSEQUENTIALIST –
• Right/wrong dependant on the consequences or outcomes. OK if outcome is right. E.g. poor
stealing food to feed starving family.
• Egoist or utilitarian approaches to determining whether the outcome is right/wrong
• Egoism = outcome favourable to individual
• Utilitarianism – outcome favourable to greatest no. of people.
X
O
B
L
PLURALIST
• Need to cater to the needs of all stakeholders without compromising the interests of one
group.
A
B
RELATIVIST VS ABSOLUTIST
O
L
RELATIVISM –
• No universal moral code.
• What is considered ‘ethical’ depends on the circumstances.
• Different cultures/people have different views on right and wrong.
• Can sometimes be used as an excuse for unethical activities (e.g. UK company giving bribes
abroad where practice is commonplace)
A
C
C
A
G
ABSOLUTISM –
• Certain actions are inherently right or wrong regardless of context
• Main strength – gives framework of rules that are easily to follow.
• Deontological ethics (Kant) – individual should look ac action considered and decide if it is
inherently wrong regardless of the consequences.
Good business ethics are good for both the organisation and the individual.
Organisation – Driver of profitability/suggests well run business/investors reassured/attracts good
candidates/motivates employees
Individual – Consumers choose to purchase ethical items.
PROFESSIONS
•
•
•
•
Require the mastery of specialised skills
Governed by a professional organisation
Compliance with an ethical code
Process of certification
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IFAC/ACCA CODE OF ETHICS
IFAC = INTERNATIONAL FEDERATION OF ACCOUNTANTS (ACCA’s code is of ethics is the same)
X
O
CONFIDENTIALITY – Information obtained must not be disclosed to 3rd parties
OBJECTIVITY – Accountants must ensure business/professional judgement is not compromised
because of bias or a conflict of interest.
INTEGRITY – Fair dealing & truthfulness. Accountants must not produce falsified/misleading work.
PROFESSIONAL COMPETENCE & DUE CARE – Required to have necessary knowledge, follow all
applicable technical and professional standards.
PROFESSIONAL BEHAVIOR – Must comply with all laws and regulations.
B
L
A
B
O
L
G
CODE OF ETHICS – Set of internal policies set by org employees must follow. Some see as an attempt
by companies to escape legal liability when an employee is caught doing something wrong.
A
C
C
ETHICAL THREATS
SELF INTEREST THREAT - Financial/other interest influences an accountant’s judgement, e.g
overstating a company’s profits will lead to a higher end of year bonus.
SELF REVIEW THREAT – When an accountant must re-evaluate their judgement on a business
decision, it would be difficult to remain objective.
ADVOCACY – accountant promotes a position to point where their objectivity is compromised.
FAMILIARITY THREAT – Sympathetic to the interests of others. E.g accepting gifts from clients.
INTIMIDATION THREAT – Accountant deterred from acting objectively by actual/perceived threats.
A
SAFEGUARDING AGAINST ETHICAL THREATS
‘HOTTER’
HONESTY – Employees must always be honest, even when detrimental to organisation
OPENESS – Org should freely provide info to stakeholders, make it easier for them to invest
TRANSPARENCY – Ord should make it easier for stakeholders to review activities. Audits/reports.
TRUST – Employees must be trustworthy in dealings w/others (e.g not overcharging customers)
EMPOWERMENT – Giving employees the ability to make their own decisions.
RESPECT – Stakeholders should be treated with dignity w/regards to age/gender/ethnicity etc.
If an accountant uncovers unethical/illegal conduct they must (1) Consult whoever is responsible for
governance of ethics in the company (2) Take legal advice from a professional body (ACCA) if it
persists (3) Report to the authorities if the problem cannot be resolved.
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11 CORPORATE GOVERNANCE & SOCIAL RESPONSIBILITY
SEPERATION OF OWNERSHIP OF CONTROL – People who own the company (shareholders) are not
the same as the people that run the company (directors). Benefits:
• Specialist managers with expertise can run the business better.
• External capital from investors means management does not need to personally contribute
AGENCY PROBLEM – Occurs when directors run business in their own interest
CORPORATE GOVERNANCE – The set of policies/processes by which a company is directed,
administered and controlled. Best practices in corporate governance are:
• Membership of board of directors
• How directors renumeration is decided and disclosed
• Role of internal/external audit
• How the public as a stakeholder has a right to know when the company is being governed
X
O
NEDS – Nonexecutive directors. Not involved in the running of the company, no management
responsibilities. Have a say in strategy & attend local meetings. Evaluate risk, ensure financial
information is accurate, levels of remuneration for executives is correct.
A
B
B
L
Neds must be as independent as possible, i.e:
• NOT been an employee in the last FIVE YEARS
• NOT have material interest in the company for last THREE YEARS
• NOT participate in the company’s share options/pension schemes
• NOT have close ties with company directors/senior employees
• NOT have served for more than NINE YEARS with the same company.
A
C
C
A
G
O
L
REMUNERATION COMMITTEES – Committee of NEDS responsible for deciding pay for exec directors
AUDIT COMMITTEE – independent NEDS responsible for monitoring and receiving the company’s
internal financial controls and integrity of financial statements. They interface between the board of
directors and auditors. Duties include:
• Reviewing accounting policies/statements to ensure they are appropriate & balanced
• Reviewing internal controls & risk management
• Internal audit work/work agenda
• Making recommendations to the board
• Liaising with external auditors
NOMINATION COMMITTEE – Ensures the composition of the board is balanced. Monitors the
process for appointment of directors to the board. Must consider:
• Skills required
• Mix of executive and non-executive directors.
• Need for continuity in board
• Need to attract directors from a diverse background to improve strategy
PUBLIC OVERSIGHT – As a stakeholder, the public has a right to know how a company is being
governed. This is shown through annual reports and financial statements which disclose actions of
audit & remuneration committees + composition of the board. In addition, most companies are
required to submit their annual financial statements to a regulatory body (Companies House)
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COMITTEES
• Can be permanent or long term
• Have authority
• Follow well established procedures
• Provide a way of making difficult decisions involving multiple departments
Purpose:
• Brainstorm new ideas for the organisation
• Make or implement decisions
• Oversee function or procedure
• Gather info on a particular issue
Types:
• EXECUTIVE – Meets frequently to manage affairs of org. e.g board of directors.
• AD HOC – Temporary, to complete a particular task
• STANDING – Formed for particular purpose, permanent basis
• SUB-COMMITTEE – Subordinate committee, appointed by parent comm to resolve p. issue
X
O
Advantages of Committees –
• Brings together people with necessary skills/knowledge
• Slow decision making down, avoids hasty rushed decisions.
• Results/Decisions/Policies more easily accepted by org. as its from a mix of dept’s
• More people involved = increased motivation
Disadvantages of Committees –
• Slow decision making = missed opportunities
• Collective responsibility for performance can reduce motivation
• Members can seek to further objectives of own dept = conflict
• Workers attending part time can slow things down, also not be fully committed
A
C
C
L
G
A
B
O
B
L
CORPORATE SOCIAL RESPONSIBILITY (CSR)
• Companies should be sensitive to needs of all stakeholders (not just shareholders_
• Obligation to maximise positive impact upon stakeholders
• Linked to sustainable development i.e use resources do not compromise future gen’s
• Must understand stakeholders and what they expect
• Drawbacks of CSR:
1. Increased cost of sourcing materials from ethical sources
2. Turning away business considered unethical
3. Management time can be taken up by CSR planning & implementation
• Positives of CSR:
1. Good CSR can attract customers by enhancing reputation
2. Ethical approach to business will help attract/retrain quality employees
3. Avoiding pollution saves money – Govts now fining/taxing
4. Being environmentally friendly can save money – energy efficiency lowers utility bills
A
STAKEHOLDER NEEDS ANALYSIS
• Undertaking research to determine who stakeholders are and what their needs are.
• Identifying their needs can be done by questionnaires focus groups, interviews with reps.
• Some obligations arise from law others arise voluntarily due to company commitment 2 CSR
BENEFITS OF CORP GOVERNANCE – Business success/Investor confidence/minimisation of waste/
Following corporate governance guidelines is required by many stock exchanges to obtain a listing
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12 LAW & REGULATION GOVERNING ACCOUNTING
COMPANIES HOUSE
• Companies are required to submit their financial statements them
• They must also submit register of shareholders & register of directors
Register of Directors – Shows directors and who they have previously worked for. If previously a director of an
insolvent company, a shareholder may wish to reconsider.
Register of Shareholders – People can see % of shares held by each. Can determine which have influence.
Register of Charges – Enables lenders. & Suppliers to establish which assets are subject to change and can be
sold to pay other creditors if company fails.
Need for financial statements –
Audit Firm
Competitor
Supplier
Job Applicant
Journalist
Analyst
Background info on client
Assess market share and profitability
Likelihood of payment/credit
Job longevity
Write article/research
Make recommendations on purchases to investors/clients
X
O
B
L
A
B
Organisations must retain their accounting records and info for a minimum of 7 YEARS
The CA2006 (Companies Act 2006)
Ensures statements are easy to access & are prepared in an understandable way. Statements must be TRUE
AND FAIR, i.e they must:
1. Follow all accounting standards
2. Contain info of sufficient quantity to satisfy users
3. Follow generally accepted practice
4. Not contain material misstatement (Considerable errors large enough to alter view)
A
C
C
O
L
G
COMPLIANCE FAILIURE
• Failure to keep proper accounting records/prepare regular financial statements that give true & fair is
a criminal offence
• Production is the responsibility of directors, who can be fined for failing to comply
• If listed, failure to comply can lead to removal from the stock exchange
• If tax records are inaccurate, tax auth’s can investigate and prosecute for tax evasion
• Poor acc records that are not true & fair can damage a company’s reputation making it harder to raise
finance
• Failure to keep adequate records could mean company has insufficient information in
receivables/payables, can lead to failure to collect money owed by customers, creating cash flow
problems.
A
INTERNATIONAL FINANCIAL REPORTING STANDARDS FOUNDATION (IFRS) sets high quality, understandable, enforceable, globally accepted financial reporting standards:
• Promotes the use & application of these standards
• Takes account of reporting needs of emerging economies
• Brings about convergence of the national and international financial reporting standards
The IFRS foundation is the supervisory body of the IASB
IASB is the standard setting body. They are responsible for the development and publication of the
international financial reporting standards. Adopted by 100 countries.
IFRS Interpretations Committee – reviews widespread accounting issues
IFRS Advisory Council – Advises IASB on agenda/decisions/priorities in their work & gives advice
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13 ACCOUNTING & FINANCE FUNCTIONS IN BUSINESS
ACCOUNTING = Systematic reporting and analysis of financial transactions within a business
A
C
C
A
FINANCIAL ACCOUNTING
G
B
L
A
B
O
L
X
O
Concerned with the production of annual financial statements
Statements are entered into BOOKS OF PRIME ENTRY:
PURCHASES DAY BOOK
SALES DAY BOOK
CASH BOOK
PETTY CASH BOOK
JOURNAL
Records purchases, listing invoices from suppliers
Record sales made by a business; list issued inv
Records receipts into and payments out of bank account
Record sundry cash payments
Record of non-routine accounting adjustments made by senior staff
Day books are totalled and entered LEDGER ACCOUNTS
By year end balances are calculated on each ledger & these are used to create financial statements
MAIN FINANCIAL STATEMENTS –
1.
2.
3.
STATEMENT OF PROFIT OR LOSS (SOPL) – or income statement, details income cost incurred, is there
profit? (Income exceeds cost) or loss (cost exceeds income)
STATEMENT OF FINANCIAL POSITION (SOFP) – shows:
• Assets (business resources – vehicles, buildings, cash)
• Liabilities (money owed to 3rd parties banks, businesses)
• Capital (stake owners of business, have in org ‘shareholders equity’)
STATEMENT OF CASH FLOW – records payments, shows if company is solvent (has sufficient cash)
TRANSACTIONS
DAY BOOKS
LEDGER ACCOUNT
FINANCIAL STATEMENTS
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GROUPS THAT HAVE INTEREST IN FINANCIAL PERFORMANCE/STATEMENTS –
OWNERS
MANAGERS
BANKS
EMPLOYEES
SUPPLIERS/CUSTOMERS
GOVERNMENT
How profitable, how well run
Financial situation for business planning
Can they afford loans etc
Financial position will have effect on wages
Financial stability – will they pay on time for goods?
Check business is obeying relevant laws on reporting and taxation
INTEGRATED REPORTING Financial statements combined with risks/ethics/social responsibility/sustainable development
• Links past present and future performance
• Considers regulatory impacts on performance
• Provides an analysis of factors that could impact in the future
TYPES OF CAPITAL MANUFACTURED
INTELLECTUAL
HUMAN
SOCIAL
NATURAL
Material goods (tools, vehicles, buildings)
Employee knowledge, business training, prop info
Peoples skills
Families, communities, business
Stock/flow of energy and material in environment
•
•
B
L
A
B
O
MANAGEMENT ACCOUNTING
X
O
Assists management in discharging duties to plan, control of operations of business
Measuring, analysing, interpreting, communicating information to management. 3 types:
1. Cost schedules
2. Budgets
3. Variance Reports
A
C
C
L
G
COST SCHEDULES
(or COST CARD)
• Lists expenses involved in manufacturing units of a product
• Helps a business with – Pricing decisions/Break even analysis/key factor analysis/investment appraisal
A
BUDGETS
(Estimates. Most businesses will not achieve targets so will prepare a variance report)
• Shows planned revenues and costs for business in coming period. Based on cost schedules. Uses:
1. CO-ORDINATION – Ensures managers are working together
2. RESPONSIBILITY – Authorises managers to make expenditure
3. UTILISATION – Helps managers get the best out of business
4. MOTIVATION – Budget influences the behaviour of managers
5. PLANNING – Identify opps/threats risks
6. EVALUATION – Used for management appraisal
7. TELLING - Communication
VARIANCE REPORT – Compares budget to actual results once variance is identified, control measures can be
established.
•
•
•
•
Management accounting is important in formulating, implementing and controlling business policy
Assess methods to grow revenue and profits
Accountants are needed to help establish objectives then evaluate possible strategies to identify the
most financially attractive
Once strategy is selected, business must carefully monitor and control it to ensure its being
implemented properly and performing as desired.
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TREASURER
Treasury management is the CORPORATE handling of all financial matters.
The generation of external and internal funds for business
Management of currencies and cash flows
Strategies/policies/procedures of corporate finance
MANAGEMENT OF WORKING CAPITAL
Working capital = capital available for conducting day to day operations of an organisation
INVENTORY
TRADE RECIEVABLES
X
X
CASH
X
TOTAL CURRENT ASSETS
LESS – TRADE PAYABLES
X
(X)
WORKING CAPITAL
BALANCE
X
Total billed to customers – goods delivered but not yet paid
(invoices)
X
O
Money owed to suppliers etc
A
B
O
B
L
Treasury and finance function are responsible for deciding on appropriate level of investment in
working capital.
EVALUATING AND OBTAINING FINANCE
L
G
Debt – Bank loans, overdrafts, venture capitalists. Advantages of raising cash through debt finance:
• Interest payments allowable against tax
• Raising debt finance does not change the ownership of the organisation
• Debt tends to be cheaper to service than equity
A
C
C
Equity
• Involves selling a stake in the business in order to raise cash. E.g selling shares to either new
or existing shareholders.
• Advantage – bank requires security on the company’s assets before offering loan.
A
DETERMINGIN BUSINESS TAX LIABILITIES
Tax Avoidance
• Legal use of the rules of the tax regime to one’s own advantage to reduce the amount f tax
paid.
Tax Evasion
• Use of illegal means to reduce one’s tax liability by deliberately misrepresenting the true
state of affairs to the tax authority.
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FINANCIAL SYSTEMS & PROCEDURES
System - a group of independent but interrelated elements comprising a unified whole
Policy - a guiding principal
Procedure – (1) A series of acts (2) A sequence of steps
ADVANTAGES OF FORMAL SYSTEMS –
• Transactions are recorded, can be adopted by all & referred to when in doubt.
• Staff can be trained quickly
• Auditors can follow more easily
• Transactions that didn’t follow procedure can be identified quickly
THE PURCHASING SYSTEM
REQUISITION
ORDERING
GOODS RECIEVED
INVOICE RECIEVED
INVOICE RECORDED
PAYMENT MADE
Staff decide what to buy and get it authorised
Purchase department placed order w/supplier. Quotes for price. Authorised
Goods inspected on delivery & receipt recorded
Price checked
Recorded in accounting system
Cheque produced, authorised (details match invoice)
THE SALES SYSTEM
ORDER RECEIVED
ORDER PROCESSED
GOODS DESPATCHED
INVOICING
RECORDED IN ACCS
PAYMENT RECIEVED
HOURS WORKED REC
OVERTIME REC
PAY RATES OBTAINED
PAY CALCULATED
NET PAY 2 EMPLOYEE
PAYMENT MADE
THE CASH SYSTEM
B
L
A
B
Received by fax/posed by fax post etc, recorded
Check customer has valid credit acc. Check inventory, order & del date confirmed
Goods delivered; despatch note signed by customer if OK
Invoice sent to customer
Coded & entered in accounting system
Cheque/Bacs. Controls in place to ensure staff can’t missap. Cred control cont. if late
A
C
C
A
THE PAYROLL SYSTEM
X
O
O
L
G
Clock cards/timecards etc. authorised
Timesheet authorised
Per hour/month. Recorded. Authorised by manager
Deductions made – tax/social security etc
Recorded in accounting system
Cheque produced, authorised (details match invoice)
(PAYMENTS IN & FROM THE BANK ACCOUNT)
RECEIPTS
•
•
•
Cheques received, Recorded in cashbook
Controls in place to ensure cannot be misappropriated. Listing & manager auth.
BACS/CHAPS transactions entered in the cashbook
PAYMENTS
•
•
•
Companies pay monthly
Cheque requisition – form approved
Cheques for large companies authorised/signed by 2 managers
PAYMENTS
•
•
•
•
Companies physical cash on hand for stamps/biscuits/tea/taxis etc
Cheque made out to cash
Staff claim against cash, complete vouchers & provide receipt to prove amount
Further cheques made out to replenish
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INVENTORY SYSTEM
LINK TO PURCHASING SYSTEM
MUST BE VALUED AT YEAR END
MUST BE VALUED AT YEAR END
MUST BE VALUED AT YEAR END
LINK TO SALES SYSTEM
1.
2.
3.
4.
5.
Purchase of raw materials
Raw materials
Work in progress
Finished goods
Inventory Sold
Goods are required for production
Production manager completes a materials requisition form to obtain goods
Goods then made into ‘work in progress’ – ‘partially completed’ – ‘finished goods’
When goods are sold, a record must be made of the quantity removed from inventory
At year end all inventory is counted and valued so statement of financial position can be
produced.
THE PURPOSE OF ORGANISATIONAL CONTROL
SAFEGUARD ASSETS
EFFICIENCY
PREVENT FRAUD
PREVENT ERRORS
X
O
If assets stolen/damaged, company must spend cash to replace them.
Inefficient business practices are a waste of money
Fraud = loss of valuable resources
Errors = loss in efficiency, time spent correcting. Loss of assets (failure to
invoice correct amount, paying for goods not received).
B
L
A
B
O
AUTOMATED SYSTEMS
Software specially written – bespoke for large companies
Standardised – off the shelf one size fits all package, often for smaller companies
L
G
Features –
1. Allows data to be analysed more easily, in a less time-consuming manner.
2. Uniform processing of transactions.
3. Lack of segregation of functions – one person (IT) has a lot of power as they can access all data.
4. Potential for increased management supervision – can monitor, reports for unusual transactions
5. Potential for data to be corrupted
A
C
C
A
ADVANTAGES
Quicker
Fewer Errors
More security – passwords, checks etc
Easier to sort/analyse data
DISADVANTAGES
Capital cost – min no of terminals for enrolment
Training costs
Systems could crash
MANUAL SYSTEMS
ADVANTAGES
Low capital cost
Fewer Errors
More security – passwords, checks etc
Easier to sort/analyse data
DISADVANTAGES
Capital cost – min no of terminals for enrolment
Training costs
Systems could crash
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15
ACCOUNTING & OTHER BUSINESS FUNCTIONS
PURCHASING (PROCUREMENT)
• Establishing credit – Accounts department works with the buying department to liase with
suppliers to obtain a credit account and agreed credit limit.
• Prices – Accounts advises on max price to pay for goods to maintain margins
• Payment – payments may be approved by buying dept. but they are made by accounts.
• Data Capture – Order details obtained by buying dept. passed on to accounts
• Inventory – Purchasing department consults inventory section of accounts department
• Budgeting – Accounts consult buying depts on likely costs in preparing budgets
PRODUCTION
• Cost measurement, allocation, absorption – Production measures quantities and time used.
Management accountant gives a monetary value to them. Costs are then allocated and
absorbed to calculate production costs.
• Budgeting – Production decides how many units to be produced. Cost of producing
determining by accounting and interpreted into budgets.
• Cost v Quality – Product and discuss which better quality materials and features justify the
extra cost
• Inventory – Product will liaise with inventory section to ensure sufficient raw materials for
production.
X
O
A
B
B
L
MARKETING
• Budgeting – Accounts discuss likely sales volume of products for sales budget
• Advertising – Accounts help marketing develop a budget, monitor whether cost effective
• Pricing – Accounts need to be consulted on unit prices to ensure costs are covered
• Market Share – Accounts provide information on sales volume for each product, helps
determine the market share.
A
C
C
A
O
L
G
SERVICE PROVISION – DEFINED BY FOUR MAIN FEATURES
1. INTANGIBILITY – Not a permanent/tangible product to keep
2. INSEPERABILITY – Services are created by the organisation at the same time they are
consumed by the customer
3. PERISHABILITY – Services cannot be stored for later
4. VARIABILITY – Each service is unique cannot be repeated same way
Service departments need input from accounts for –
CHARGE OUT RATES – Higher than salary, includes overheads
ESTIMATING COSTS – Amount of overhead to include
PROBLEMS MEASURING BENEFITS – Charge outs may not be profitable/Benefits not easy to
measure e.g., happier customers may be more willing to return but this can be difficult to measure.
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16
AUDIT & FINANCIAL CONTROL
INTERNAL CONROL - Process that provides reasonable assurance of achievement of:
1. Reliability of financial planning
2. Effectiveness and efficient of operations
3. Compliance with laws and regulations
INTERNAL CHECK
1. Ensures no single task is executed from start to finish by only one person
2. Reduces likelihood of errors and fraud
Controls/checks –
• Prevent/minimise risk
• Ensure orderly/efficient conduct of business
• Ensure safeguarding of assets
• Prevent/detect fraud and error
• Ensure accuracy/completeness of accounting records
• Ensure timely preparation of reliable financial information.
X
O
B
L
Examples – Missing invoices – debts not collected, cash flow affected, overstating of profit.
A
B
CONTROL ENVIRONMENT - Overall attitude of management regarding internal controls and their
importance. Integrity/ethical values/ training. Tone of the organisation. Discipline
O
L
RISK ASSESMENT PROCESS – Process for identifying and responding to business risk. Business risk is
split between (1) internal (2) external.
A
C
C
A
G
INFORMATION SYSTEM - Procedures and records established to process the transactions that the
entity carries out, and maintain accountability for the related assets, liabilities and equity balances.
Must be able to –
• Identify and record all valid transactions
• Describe transactions in detail for reporting
• Measure the transactions
• Determine the correct accounting period
• Present transactions in financial statements
CONTROL ACTIVITIES
A
AUTHORISATION
C
C
A
M
COMPARISON
COMPUTER CONTROLS
ARITHMETRICAL CONTROLS
MAINTAINING A TRIAL BALANCE &
CONTROL ACCOUNTS
ACCOUNTING RECONCILITATIONS
PHYSICAL CONTROLS
SEGREGATION OF DUTIES
A
P
S
Staff obtaining approval from managers for various transactions.
Expense forsms/purchases/cash transfers
Looking at analysis/reports from past performance
General & Application controls
Checking for minor errors/frauds not otherwise detected
Can identify errors
Identifies errors
E.g inventory tracing system
Segregation of duties (1) Auth (2) Recording (3) maintaining custody
of assets. Prevents Fraud
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MONITORING OF CONTROLS – Assesses the quality of internal performance. Involves assessing the
design and operation of controls. Management must decide whether adequate, cost/benefit etc. 3 types:
1. PREVENTIVE CONTROLS – Most powerful e.g training, segregation of duties
2. DETECTIVE CONTROLS – Designed to pick up errors not prevented. Exception reports (reveal
controls bypassed) Reconciliations, supervision, internal checks.
3. CORRECTIVE CONTROLS – Address problems that have occurred.
USE OF IT INTERNAL CONTROLS
1. FINANCIAL CONTROLS - Involves IT being used as a check for financial data in an organisation,
passwords, authorisation etc.
2. OPERATIONAL CONTROLS – IT used as a control on day-to-day activities, e.g automated systems
to check units.
Protection of IT Systems and Software – Reviews the reliability of data and operating of systems
1. PHYSICAL CONTROLS – Security personal, door locks, card entry etc/Safeguards against damage,
waterproofing etc.
2. HARDWARE/SOFTWARE CONTROLS – Designed to ensure new it system is installed correctly
and tested.
3. LOGICAL ACCESS – Prevents unauthorised access, e.g. passwords
4. DISASTER RECOVERY – Backup data, hard drives, cloud etc
5. OUTPUT CONTROLS - Ensures outputs complete & secure
6. TECH SUPPORT – Ensures staff are competent & don’t make mistakes
A
C
C
MANAGEMENT RESPONSIBILITY
•
•
B
L
A
B
O
Application Controls
1. Completeness – Has all data been input
2. Authorisation – Is the person inputting data authorised to do so
3. Identification – Can the person inputting it be identified
4. Validity – Is the information input valid
5. Forensic Checks – Is the data mathematically accurate
L
G
X
O
Managers are legally responsible for establishing proper internal control arrangements.
This requirement is set out in the UK CORPORATE GOVERNANCE CODE C2
The board is responsible for determining the extent of risks. They should consider:
1. Changes in the nature of risk
2. Scope of managements monitoring of risk
3. Incidence of significant control failings
A
INTERNAL/EXTERNAL AUDITING
INTERNAL – Independent, established by management to evaluate the organisations risk management
and systems of control (not legal required)
EXTERNAL – Independent examination of evidence from which financial statements are derived. Gives
readers of those statements confidence as to truth and fairness (legally required(
•
•
External auditors must be independent of their clients so they can be trusted, they are approved
by shareholders and report to them.
Internal auditors are appointed by directors and can be employers so its harder to maintain
independence
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AUDIT PURPOSE – legal requirement to produce true/fair financial statements (external)
Need assurance of financial matters (internal)
PURPOSE OF INTERNAL AUDIT –
• Part of organisations control of a business. Ensures efficient running.
• Helps set corporate objectives
• Monitor’s performance of objectives
• Part of good corporate governance
• Enables management to perform risk assessment, understand strengths/weakness of the control
system
• Should annually review need for one and review scope of work
• Should be done by qualified experienced staff. Tasks –
1. Review internal controls/financial reports
2. Review risk management systems
3. Fraud assignments
4. Operational review
X
O
Limitations of Internal Audit
• Unavoidable independence problem. Difficult to give objective opinion when employed by
management.
• May be unwilling to disclose fraud for fear of repercussions
• Limitations can be reduced by audit committee to set agenda and check.
A
B
O
B
L
PURPOSE OF EXTERNAL AUDIT –
• Purpose is for the external auditor to report whether financial statements give a true and fair
view in accordance with an identified financial reporting network (auditing practices board
definition)
• When employees know of an internal audit, it encourages them to document work correctly
• External auditors can suggest improvements to system and tighten controls
A
C
C
L
G
Advantages –
• Disputes between management easily settled. E.g partnership with complicated profit-sharing
benefits from independent examination
• Applications to 3rd parties for finance may be enhanced by audited accounts
• Audit – in-depth examination of business. Auditor can give more constructive advice for
improving efficiency of the business.
Disadvantages
• Audit fee
• Takes up time of staff, work can be disrupted.
A
Internal controls interest the external auditor as reliance on internal controls will reduce the amount of
substantive testing of transactions (accuracy).
• The external auditor can place reliance on these controls. If auditors are satisfied the internal
control system is functioning correctly there is reduced risk of error in accounting records.
• External auditor needs to test the accounting system, its adequacy, and whether proper records
have been kept.
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17
FRAUD
‘The intentional act involving the use of deception to obtain an unjust or illegal advantage’
‘Theft by deception’
ERROR – Unintentional mistakes. E.g. invoice entered twice by accident
IRREGULARITY – Something contrary to a particular rule or standard. E.g. a petty cash system designed to limit
to less than £50, but allows a receipt of £70
MISSTATEMENT – Something stated wrongly. Can arise due to fraud/irregularity/error. E.g. balance sheet
shows building at 1million cost, but cost is actually 1.3million
PREREQUISITES –
• DISHONESTY – Lack of integrity. An honest employee unlikely to commit fraud
• OPPORTUNITY – Created due to weak internal controls
• MOTIVATION – Individual must feel rewards outweigh cost of being caught
INDICATORS OF FRAUD • Management dominated by one person – easy to circumvent controls
• Complex corporate structure – harder to trace transactions
• Poor staff morale
• Personnel that do not take holidays (unwilling to pass on duties, can be caught)
• Lavish lifestyle of employees
• Inadequate segregation of duties
• Lack of monitoring control systems
• Unusual transactions
• Payments for services disproportionate to effort
G
B
L
A
B
O
L
X
O
The better the system of internal control, the less likely it is fraud will be attempted and succeed.
Audit committees review internal control and implements improvements. They should also ensure there are
arrangements where employees feel confident reporting or ‘whistleblowing’.
A
C
C
A
EXAMPLES OF FRAUD
MANAGEMENT
• Financial statement fraud – ‘Window dressing’ and ‘cooking the books’
• Misappropriation of assets
• False insurance claims
• Using company’s assets for personal use
EMPLOYEES
• Sales ledger, teaming and lading, stealing cash
• Purchase ledger fraud
• Skimming schemes
• Payroll Fraud
THIRD PARTIES
• False billing fraud
• Bank account fraud
• Advance fee fraud
• Ponzi schemes
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FRAUDULENT FINANCIAL REPORTING – Cooking the books/window dressing = misrepresentation of
information to improve the appearance of the company’s financial statements. Involves intentional mistakes
(including omissions) in financial statements to deceive the user:
• Fictitious entries in accounting records
• Inappropriately adjusting assumptions or judgements used to estimate account balances
• Concealing facts that could affect amounts recorded in statements
• Altering records
• Entering transactions at year end that are then reversed in the new year – improves appearance of
company’s financial statements (window dressing)
• Off balance sheet accounting - deliberate exclusion of certain assets and liabilities from published
balance sheet, meaning shareholders are misled about company’s obligations e.g. short term lease
not shown on balance sheet
MISSAPROPRIATION OF ASSETS
• Stealing physical assets (e.g. IT equipment) then adjusting accounts to show as written off
• False insurance claims for stolen goods
X
O
SALES LEDGER FRAUD
• Stealing receipts from debtors and writing off as bad debt
• Pocketing the proceeds of cash sales and never entering system
• ‘Teeming & lading’ – initial receipts are pocketed by the fraudster, subsequent payments are
allocated to older invoices, looks like client is paying but is further behind.
Prevention requires rotating duties within the accounts department, sending regular statements to
debtors, internal audit/org control.
A
B
O
B
L
PURCHASE LEDGER FRAUD
• Dummy invoice with fraudsters bank details entered
• Fraudster colludes with 3rd party to inflate value on invoice, they then pocket the difference
L
G
SKIMMING SCHEMES
• Fraudsters divert small amounts from a large no. of transactions, believing no one will bother to
investigate. Aggregate can be huge amount. (E.g the movie ‘office space’)
A
C
C
PAYROLL FRAUD – entering false bank account details so wrong person is paid
FALSE BILLING – Bogus invoice sent by 3rd party
BANK ACCOUNT FRAUD – Stealing account details of company and setting up a standing order./dd. Prevented
by setting up bank as ‘deposit only’
ADVANCE FEE FRAUD – Company invited to pay modest fee (e.g transaction fee) up front in the promise of
being paid a larger amount later – e.g Nigeria 911 scams
PONZI SCHEME – The offer of paying abnormally hight returns to early investors. This is paid from subsequent
investors, not underlying genuine business.
A
MONEY LAUNDERING
The exchange of dirty money and assets criminally obtained for ‘clean’ money and assets that have no link to
criminal activity
PLAVEMENT
LAYERING
INTEGRATION
Putting illegal money into a legitimate business
Transfer of that money conceal the source
Now appears legitimate
Legislation recognises the following offences –
1. Laundering
2. Failure to report
3. Tipping off
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Controls and procedures required by law to prevent/detect Money laundering –
• Identifying large/unusual transactions
• Scrutinising of unusual patterns
• Ensuring all customers can be identified
• Creating role of Money laundering reporting officer – responsible for the oversight of the
organisation, that employees can report to.
• Customer due diligence – organisation acts to ensure its customers are who they claim to be. E.g. ID
Cards/certificates when first starting business, or large transactions when a customer’s circumstances
change.
• MLRO reports to the relevant crime authorities, SOCA – Serious organised crime agency
IMPLICATIONS OF FRAUD
• Loss of shareholder confidence
• Loss of assets
• Financial difficulties
• Collapse of the company
• Fines by tax authorities
A
C
C
A
B
O
B
L
L
G
A
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O
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18 LEADERSHIP, MANAGEMENT & SUPERVISION
LEADERSHIP
•
•
Interpersonal influence directed toward the achievement of goals.
Concerned with SETTING GOALS and INSPIRING people to achieve them.
MANAGEMENT
•
•
•
•
•
The co-ordination of business resources in order to achieve key objectives with
maximum efficiency (on time and to appropriate standards).
The given authority to ensure staff follow instructions.
A manager is not necessarily a ‘leader’ and vice versa.
A leader is able to INFLUENCE people to achieve goals WITHOUT relying on their
authority.
Leaders INNOVATE/INSPIRE TRUST/MOTIVATE/LOOK TO THE FUTURE.
A
B
O
SUPERVISOR
•
•
•
•
Lowest level of management, interface between management and the work force.
Undertake technical/operational work.
Provide advice and support to team.
Summarise information and report back to senior management.
A
C
C
AUTHORITY
•
•
B
L
X
O
L
G
A
The relationship between participants in an organisation
FAYOL ‘The RIGHT to give orders and exact obedience’
RESPONSIBILITY
•
•
•
The liability of a person to be called to account for his/her actions.
The OBLIGATION to fulfil a given task.
Responsibility CANNOT be delegated. A manager is accountable for their actions.
POWER
•
•
Power is what ensured an employee complies with a manager’s request.
Power is the ABILITY to do something (whereas authority is the RIGHT to do
something).
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FRENCH & RAVEN – the five types of power
1.
2.
3.
4.
REWARD – Person is rewarded for carrying out orders, e.g pay rise.
COERCIVE – Person is punished for not carrying out actions, e.g pay cut.
EXPERT – Those giving orders have special expertise.
LEGITIMATE – Derived from official position within an organisation.
It is possible for employees with no authority to have power and vice versa.
Authority without Responsibility – Someone who has the authority to make decisions
but is not held accountable.
Responsibility without Authority – Someone who doesn’t have the authority/power
required to complete a specific task assigned to them.
CLASSICAL THEORIES OF MANAGEMENT - FAYOL & TAYLOR
B
L
FAYOL
A
B
O
The fIve functions of management (POCC):
1.
2.
3.
4.
Planning
Organising
Commanding
Controlling
Setting objectives
Dividing work into tasks/Appointing people/Resources
Delegating authority/Give instructions
Setting targets/managing performance
A
C
C
TAYLOR
X
O
L
G
By analysing work in a SCIENTIFIC manner, it is possible to find one best way to perform a
task.
A
The only motivation for an employee is REMUNERATION. Therefore, it is essential work is as
productive as possible. More production = more profit = ability to award higher salaries.
Taylor’s scientific management consisted of 4 key principles:
1. Tasks should be analysed in detail to determine the most EFFICIENT method to use.
2. Only the most SUITABLE people should be chosen, trained and developed for each
job (scientific management).
3. Managers make ALL the decisions, provide detailed instructions that ensure work is
carried out in the most efficient way as possible.
4. Clear DIVIDE between managers and workers. Close co-op to maximise efficiency.
Disadvantages
• There is not always a ‘best’ way of doing a job.
• Employees have valuable insights.
• Employees are not always motivated by financial rewards.
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MODERN THEORIES OF MANAGEMENT – DRUCKER/MINTZBERG
DRUCKER
5 Basic Functions –
1. Set Objectives
2. Organise
3. Motivate & Communicate
4. Establish Yardsticks
5. Develop People
Goals/objectives/who to perform
Analyse activities/divide into manageable jobs
Team making
Create measurements/interpret performance
Including themselves
MINTZBERG
10 Skills of a Manager –
X
O
FIGUREHEAD
Sybolic. Social/inspirational duties. Receiving visitors, making
presentations.
LEADER
Relationship w/subordinates allocating
tasks/hiring/training/motivating staff. E.g building teamwork.
A
B
O
B
L
Develop network ofcontacts outside chain of command – for
info/benefits E.g lunches w/ suppliers or customers.
MONITOR
Collects/sorts info used to build up understanding of organisation &
develop a basis for decision making. E.g reading reports.
DISSEMINATOR Spread information widely. E.g passing privileged info to
subordinates.
SPOKESPERSON Transmit information to external groups by acting in PR capacity.
Lobby for the organisation, inform the public about performance,
plans, policies. E.g sales representations to customers.
ENTREPRENEUR Continually looks for opportunities for improvement. E.g launching
new ide/procedure/product.
DISTURBANCE
Responds to pressures over which depts have no control. E.g strikes.
HANDLER
LIASON
A
C
C
L
G
A
RESOURCE
ALLOCATOR
Chooses from competing demands for money equipment personnel
and management time. E.g approving expenditure on a project.
NEGOTIATOR
Must take charge in negotiations, acts as figurehead, spokesperson
and resource allocator. E.g drawing up contracts with suppliers.
LEADERSHIP STYLES – TRAIT THEORIES
Natural attributes – cheerful personality, fairness etc. Leaders are born not made.
Largely discredited.
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LEADERSHIP STYLES – STYLE THEORIES
BLAKE & MOUTEN
9
'country club'
management
(1.9)
8
Team management
(9.9)
7
6
Concern
For
People
X
O
5
‘Middle of the Road’
Management
(5.5)
4
3
2
Impoverished
(1.1)
1
0
A
C
C
0
A
1
2
L
G
A
B
O
3
B
L
4
5
6
Task management
(9.1)
7
8
9
Concern for
Production
The management grid assumes leadership style can be categorised on two dimensions.
Team management (the best according to the grid) may not be appropriate in every
situation. E.g concern for task may be more important than concern for people & vice
versa.
ASHRIDGE MANAGEMENT COLLEGE (4 MAIN STYLES OF MANAGEMENT)
1. TELLS – Autocratic - makes all the decisions and issues instructions to be obeyed
without question.
2. SELLS – Persuasive - manager still makes the decisions but motivates the team to
accept them.
3. CONSULTS – Participative - Confers with the team, takes views into account but
retains final say.
4. JOINS – Democratic - Leader & team make decision together on basis of
consensus.
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Different styles are required under different circumstances. E.g ‘tells’ when quick decisions
need to be made. Tells may also be better for unmotivated lacking in skill/interest to
participate in the decision-making process.
CONTINGENCY THEORIES
ADAIR
No correct style or approach, the leader needs to balance:
1. TASK NEEDS – objectives/planning/allocation of responsibilities/performance
2. GROUP NEEDS – communication/motivation/discipline/team building
3. INDIVIDUAL NEEDS – coaching/counselling/developing/motivating
FIEDLER
A
C
C
B
L
A
B
O
PSYCHOLOGICALLY DISTANT MANAGERS (PDMs)
• Keep distance with subordinates via formalising roles.
• Withdrawn in interpersonal relationships
• Prefer formal communication
• Task orientated
L
G
X
O
PSYCHOLOGICALLY CLOSE MANAGERS (PCMs)
• Do not seek to formalise roles.
• Prefer informal contacts
• People orientated.
A
Different approach required dependant on situation.
Favourable situation = tasks clearly defined/strong relationship with the group/leader has
power to reward and punish members.
PDM approach works best when the situation is FAVOURABLE or UNFAVOURABLE to the
manager. It works in a FAVOURABLE situation, because there is no need to spend time
developing relationships as they are already strong. It works in an UNFAVOURABLE situation
because the leader needs a task orientated approach & has no time to build positive
relationships with the team.
PCM approach works best only when things are moderately favourable, in between the two
extremes. Here the manager has the time to build favourable relations.
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HEIFETZ
Leadership to motivate/mobilise to make change.
Leaders don’t necessarily have all the answers.
Leaders must emerge – ‘dispersed leadership’
BENNIS
Two types of leaders:
TRANSACTIONAL LEADERS
See relationships in forms of trades, give followers the rewards they want in exchange for
service loyalty and compliance.
X
O
TRANSFORMATIONAL LEADERS
B
L
See role as inspiring/motivating others to work at levels beyond mere compliance. These
are said to be able to change team/organisational culture & move in new direction.
A
B
O
Four generic skills:
1. MANAGEMENT OF ATTENTION - Leaders must create compelling cause/vision and
focus on the attention of those they lead.
2. MANAGEMENT OF MEANING – Leaders must be able to communicate a
cause/vision effectively to a group.
3. MANAGEMENT OF TRUST – A good leader must be consistent & honest in
interactions.
4. MANAGEMENT OF SELF – Leaders should always be aware of their own
strengths/weakness
A
C
C
L
G
A
KOTTER
MANAGING CHANGE:
PARTICIPATION/INVOLVEMENT
Involve employees, have
their input in decision
making process
EDUCATION/COMMUNICATION Keep employees informed.
Presentations etc
FACILITAION/SUPPORT
Training/Counselling
MANIPULATION/COOPERATION
NEGOTIATION/AGREEMENT
Information disseminated is
selected/distorted only to
emphasise the benefits.
Several parties bargain with
each other.
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Employees more likely to
support change
Results in acceptance of
change.
Empower people, lessens
fear/anxiety over change.
Sidesteps potential
resistance.
Leads to
compromise/agreement.
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RECRUITMENT
CONSEQUENCES OF POOR RECRUITMENT:
• High staff turnover
• High cost of advertising
• Management time
• Expense of dismissal
• Negative effects of high turnover bad for morale
• Reduced business opportunities
• Reduce quality of company’s product = customer dissatisfaction
Recruitment = Attracting candidates
Selection = Choosing the most suitable
JOB DESCRIPTION –
• Basis for advertising role
• Used to select for right candidate
• Basis for writing contract of employment
• Way of setting targets once hired
A
B
O
ALEX RODGERS – SCIPDAG
L
G
B
L
S special circumstances - skills/abilities
C circumstance – special demands (hours, travel)
I interests – active social life aids in successful relations at work
P physical makeup – personal appearance/health
D disposition – remain calm under pressure
A attainments – specific qualifications
G general intelligence – IQ
A
C
C
A
Internal hiring
• Promotion of existing staff
• Transfer (inter departmental)
• Closing job position and sharing out its duties amongst existing staff
• Motivates existing employees
• Already know staff
• Saves time & effort
• No induction necessary
X
O
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External Hiring
• Obtain specialist skills
• Inject ‘new blood’
• Disadvantages – can cost more, can create dissatisfaction amongst existing
employees not given chance to apply.
External Consultants
• Costly
• Inappropriate if role is extremely specialist/complex as the consultant is unlikely to
have the specific knowledge to identify the right candidate.
• Can be time consuming.
Advertising
• Advertising must be concise, comprehensive, accurate
• Attractive to as many people as possible
• Be positive and honest
• Information on how to apply
National Press
Good coverage
Expensive
Local Newspaper
Attracts locals
Cheap
May not attract
sufficiently qualified
A
C
C
B
L
Internet
Good as long as
people are online
A
B
O
L
G
Application Forms
• Eliminate unsatisfactory applicants
• Save interview time
• Form initial personal records
X
O
Radio/TV
Excessive
A
Selection Interviews
• Find best person for job
• Ensure candidate understands job
• Makes candidate feel they have been treated fairly
INTERVIEWS
ADVANTAGES
Places candidate at ease
Interactive, flexible questioning
Non-verbal communication
Assess appearance – dressed appropriately
Evaluate rapport
DISADVANTAGES
Too brief to get to know people
Artificial situation
Halo effect
Qualitative factors – honesty, integrity hard
to assess
Prejudice/stereotyping
Lack of preperation
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SELECTION TESTING
PROFICIENCY ATTAINMENT – Examine applicants’ competences, skills, abilities required
PSYCHOMETRIC – General test, psychological, personality
ASSESSMENT CENTRES
• Candidates observed and evaluated
• High degree of acceptability/user confidence
• Avoids single assessment bias
limitations of testing –
• No direct relationship between ability to ace the test and ability to do the job.
• Subject to coaching
• Subjective
EQUAL OPPORTUNITIES POLICY:
1. Government initiated
2. Legally driven
3. Quantitative
4. Problem focused
5. Targeted
6. Reactive
•
•
•
•
B
L
A
B
O
L
G
X
O
While organisations must follow relevant legislation, they must also create their own.
Organisations must involve members of minority groups in senior management and
creation of policies.
Must communicate policy to all members of staff
Create an action plan on how to implement & monitor whether policies being applied are
working.
A
C
C
A
DIVERSITY:
1. Voluntary
2. Productivity driven
3. Qualitative
4. Opportunity focused
5. Inclusive
6. Proactive
•
•
•
•
•
•
•
•
•
Diversity = valuing all individuals for their differences and variety
Embracing people from different genders, races, sexual orientations
Appreciating the differences in employee attitudes, working habits, personalities
Advantages – Broader range of skills= increased competitive advantage
Maximisation of an organisations HR potential
Increased creativity and innovation
Better customer relations and service to diverse customers
Ability to recruit best talent from entire labour pool
Improved working relations in an atmosphere of inclusion
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LEADERSHIP, MANAGEMENT & SUPERVISION
A good manager needs to be aware of the following:
MOTIVATION – The desire to perform tasks and put in effort.
PERCEPTION – The selection, organisation and interpretation of information received.
ATTITUDES – Feelings/behaviour.
PERSONALITY – The combination of emotions, attitude, behaviour of an individual.
ROLE THEORY - Behaviour of individuals depends on other people’s expectations of them in
a given situation.
ROLE BEHAVIOUR - Certain types of behaviour can be associated with a particular role.
ROLE SET – People who respond to an individual in a particular role.
ROLE SIGNS – visible indications e.g dress style, uniform.
B
L
ROLE AMBIGUITY – When one is unsure of role to play e.g new starters.
ROLE CONFLICT – Clash between different roles.
ROLE INCOMPATIBILITY – When outside expectations differ from your own.
A
B
O
X
O
GROUP – A collection of individuals with the following characteristics:
1. IDENTITY – Defined boundaries, clear who is in or out.
2. LOYALTY – Group members accept each other and follow certain standards.
3. PURPOSE/LEADERSHIP – Individuals chosen to lead & achieve goals.
A
C
C
L
G
INFORMAL GROUPS - Voluntary to join, meet social need. E.g employees lunch together.
A
FORMAL GROUPS - Groups created to carry our specific tasks/solve problems. Membership
is determined by organisation.
GROUP BEHAVIOUR
• ASSERTIVE – direct/honest/professional.
• AGGRESSIVE – violates another person’s rights, leads t conflict.
• PASSIVE – giving in to others.
BENEFITS OF GROUPS
• MIX - of skills/abilities, improves the number of creative ideas and the appreciation
of different points of view. Good for problem solving.
• SYNERGY – pooling of ideas/energy = greater efficiency.
• FLEXIBILITY – team can be configured easily, tasks shared.
• CONTROL – individual performance can be reviewed.
• MOTIVATION – if social needs are met.
• IMPROVED COMMUNICATION
• COMPETITION – Encourages hard work/meeting targets.
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WEAKNESSES OF GROUPS
• DECISION MAKING CAN BE SLOW – Tendency to produce solutions that are
compromises and not necessarily the best for the situation.
• PRESSURE TO CONFORM – People simply agree to fit in.
• LACK OF INDIVIDUAL RESPONSIILITY – Therefore more risky decisions.
• TOO MUCH SOCIAL INTERACTIONS = Conflict.
TEAM = A formal group, with a shared common goal, enjoy working together, team spirit.
BELBIN
9 ROLES THEORY:
1.
2.
3.
4.
5.
6.
7.
8.
9.
LEADER – pulls group together to concentrate on common goal
SHAPER – promotes activity
PLANT - Ideas person
MONITOR-EVALUATOR – Critiques ideas.
RESOURCE-INVESTIGATOR – looks for alternative solutions, from external contacts.
IMPLEMENTER – administrator/organiser, turns ideas into solutions
TEAM WORKER – concerned with interpersonal relationships.
COMPLETER – progress chaser.
SPECIALIST – Provides knowledge/expertise.
TUCKMAN
B
L
A
B
O
L
G
X
O
FORMING – team comes together
STORMING – roles are decided following disagreement
NORMING – agreement and co-operation.
PERFORMING – all issues resolved, operating at full potential.
A
C
C
A
DORMING – group operates on ‘auto pilot’ – group think
ADJOURNING – objective complete, group to be disbanded.
TEAM EFFECTIVENESS (PETERS & WATERS)
•
•
•
•
•
Teams should be small. Larger groups are slower and harder to manage.
Should have a limited duration, exist only to achieve particular task.
Membership should be voluntary
Communication should be informal/unstructured.
Should be action orientated.
TEAM BUILDING EXCERCISES:
• Develop members & their ability to work together.
• Improve communication through use of problem-solving exercises.
• Builds trust. Social interaction reduces conflict.
TEAM EFFECTIVENESS – measured by achieved objectives/member satisfaction/efficiency.
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MOTIVATING GROUPS/INDIVIDUALS
MOTIVATION – how hard someone is willing to work
SATISFACTION – whether an individual is content with their job and not looking for another.
CONTENT THEORIES – What are the things that motivate people? Assumes all people react
the same way.
PROCESS THEORIES – How are people motivated? Concerned w/ goals and processes that
motivate people.
MASLOW
X
O
HEIRACHY OF NEEDS:
SELF FULFILMENT
B
L
A
B
•creative task demands
•oppportunities/achievement
•challenging job
O
L
EGO
A
C
C
A
G
•merit pay increase
•status/job title
•respect
SOCIAL
•Compativle work group
•friendship at work
SAFETY/SECURITY
•job security
•fringe benefits
BASIC/PSYCHOLOGICAL
•Basic salary
•safe working conditions
WEAKNESSES OF MASLOWS HEIRACHY:
• Individuals have different needs, may not necessarily see them in the same order.
• Individuals may seek to satisfy several needs at the same time.
• Not all needs can be satisfied through work.
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HERZBERG
TWO FACTOR THEORY (HYGEINE/MOTIVATORS)
HYGEINE:
• Seek to prevent workers becoming dissatisfied
• Policies/procedures that focus on staff treatment
• Appropriate levels of pay and working conditions
• Suitable levels of supervision
• Teamwork/interpersonal relationships
• Pleasant working environment
The absence of hygiene factors will reduce satisfaction and lead to employees looking for
work elsewhere – hygiene factors alone do not ensure good motivation.
MOTIVATORS:
• Sense of achievement.
• Recognition of good work by management
• Increased levels of responsibility.
• Career progression/status increases.
X
O
B
L
A
B
O
Motivators are largely non-financial; they are more than often psychological –
value/satisfaction gained from the job.
L
G
Further boosts to motivation can be achieved via 3 types of job design:
A
C
C
1. JOB ENRICHMENT (vertical) Give more responsibilities/challenges.
2. JOB ENLAREMENT (horizontal) widen job, larger workload. Little motivational benefit.
3. JOB ROTATION – rotating jobs between staff = less boredom/improved satisfaction.
A
MACGREGOR
A managers style is dictated by their assumptions about their staff:
THEORY X
• Employees dislike work and being given responsibility.
• Have to be coerced, threatened or forced to do work adequately.
• Manager must be authoritarian/repressive with tight controls.
THEORY Y
• Employees enjoy work and being given responsibility.
• Can exercise self-control and discipline.
• Managers are more participative/democratic in approach.
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VROOM
Expectancy theory:
FORCE = VALENCEY x EXPECTANCY
Force = strength of a person’s motivation
Valence = strength of a person’s motivation
Expectancy = probability of success
REWARDS/INCENTIVES
•
•
INTRINSIC – Feelings of satisfaction from doing a job well. Being interested in your
job.
EXTRINSIC – External from your job, dependant on decisions of others. Pay, working
conditions, benefits.
REWARD SYSTEMS
A
C
C
B
L
A
B
O
Must be fair and consistent for all employees.
Sufficient to attract & retain staff
Maintain levels of employee performance
Reward with progression/promotion
Comply with legislation
Control salary costs
L
G
X
O
3 TYPES OF INCENTIVE SCHEMES
A
1. PERFORMANCE RELATED PAY (PRP)
• PIECEWORK – Pace of work/amount of effort.
• MANAGEMENT BY OBJECTIVES – Rewards on top of basic salary for
objectives met.
• POINTS SYSTEM – range of rewards based on scale of improvements made.
• COMISSION – paid on performance, proportion of total sales made.
2. BONUS SCHEMES – One off, awarded to teams/groups that meet certain targets.
3. PROFIT SHARING – Payments are made in light of profitability of the company.
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LEARNING & TRAINING
FORMAL = Classroom based, highly structured.
INFORMAL = Deliberate but not highly structured. Self-directed.
INCIDENTAL = By product of another activity.
BENEFITS – Increased competence, understanding, self-esteem and morale. Increased productivity.
A flexible workforce.
KOLB
4 STAGES OF LEARNING:
1. CONCRETE EXPERIENCE – e.g you start to use a new computer system.
2. REFLECTIVE OBSERVATION – Having failed to master, you spend time identifying your
problems/weaknesses.
3. ABSTRACT CONCEPTUALISATION – Having identified the problems, you consult the
instruction manual.
4. ACTIVE EXPERIMENTATION – After consulting instructions, you go back to the system and
try to implement what you learned/do the task you couldn’t do before.
A
B
O
LEARNING STYLES:
B
L
X
O
1. DIVERGENT – Feeling/watching. People who prefer to watch before attempting themselves,
reflecting before they try.
2. ASSIMILATIVE – Watching/thinking. Prefer good, clear explanations in manuals rather than
practical examples.
3. CONVERGENT – Thinking/doing. Enjoy applying ideas/testing them out in practice.
4. ACCOMODATIVE – Doing/feeling. Gets frustrated with reading lots of manuals/rules.
Preference for hands-on approach.
A
C
C
L
G
A
HONEY & MUMFORD
Built on Kolb’s work with 4 alternatives. People learn more effectively if they are aware of their
learning style:
1. ACTIVISTS
• Open minded, enthusiastic, open to challenges. Enjoys learning through games,
competitive teamwork, tasks and roleplay.
• What will happen if I implement here and now?
• Must have hands on training. Easily bored and have a dislike of theory.
2. REFLECTORS
• Prefer to sit back & ponder. Cautious, investigative (can be perceived as indecisive.
• Why is this important?
• Need to work at own pace, not rushed. Slow, cautious, non participative.
3. THEORISTS
• Adapt and integrate information step by step. Uncomfortable with anything flippant.
Likes to explore interrelationship between ideas and principles.
• What is it all about?
• Require learning to be programmed/structured allowing time for analysis.
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4. PRAGMATISTS
• Keen to try out ideas in practice. Prefers learning activities as close as possible to
direct work experience.
• How can this be applied in the real world?
• Need to see the link between training and practical implementation.
EDUCATION
• (General/basic/introduction)
• Activities that aim at developing the knowledge, skills, moral values and understanding
required in all aspects of life rather than a limited field of activity.
TRAINING
• (Improvement on job performance)
• Planned, systematic modification of behaviour through learning events, programmes and
instruction.
• Enables individuals to achieve the level of knowledge, skills and competence to carry our
work effectively.
X
O
B
L
DEVELOPMENT
• (Helps growth, improves attitude)
• Growth or realisation of a person’s ability and potential through conscious or unconscious
learning, education and experience.
TRAINING AND DEVELOPMENT
A
B
O
L
G
Benefits for the individual – Improved skills/increased confidence/job satisfaction.
Benefits for the organisation – Increased motivation/higher productivity/fewer mistakes.
A
C
C
IDENTIFYING TRAINING NEEDS
•
•
•
•
A
TRAINING NEEDS ANALYSIS (TNA) – Involves identifying skills/knowledge/experience
required for particular role & comparing to the current job holder. A ‘learning gap’ can then
be filled with training.
PERFORMANCE APPRAISAL – Review of past performance to identify training needs.
OBSERVATION – Poor productivity/mistakes.
ORGANISATIONAL – Training linked to overall business strategy.
MEASURING TRAINING SUCCESS
•
•
•
•
•
REACTIONS – Of staff being trained. Can be assessed with questionnaires.
LEARNING – Can be measured by attainment tests
JOB BEHAVIOUR – Observing job competency, speed of career development.
ORGANISATION – Have the goals/targets been achieved.
ULTIMATE VALUE – Greater profitability/growth of the business.
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REVIEW/APPRAISAL OF PERFORMANCE
PERFORMANCE ASSESSMENT = Regular, systematic review of performance and assessment
of potential, with the aim of producing action programmes to develop work and individuals.
Involves measuring the quantitive (e.g units produced) & qualitative (attitude, interactions).
PROCESS
1. SET TARGETS – Areas for improvement, targets that link to overall business goals,
training targets.
2. MONITOR – Performance, provide feedback and support.
3. REVIEW – Investigate success.
4. ACTION PLAN – Agree on new targets.
IDENTIFY CRITEREA FOR
ASSESSMENT
X
O
B
L
A
B
PRODUCTION OF
APPRAISAL REPORT
PURPOSE
APPRAISAL INTERVIEW
Individual:
1. BASIS FOR RENUMERATION
2. RECOGNITION OF GOOD WORK
3. EMPLYEES CAN VOICE CONCERNS
4. IDENTIFY WHAT IS EXPECTED OF EMPLOYEES
5. IDENTIFY TRAINING/DEVELOPMENT NEEDS
6. DETERMINE PROMOTION
A
C
C
O
L
G
Organisation:
1. FIND BEST CANDIDATE FOR PROMOTION
2. HIRING CORRECT PEOPLE
3. IDENTIFY DIFFICULTIES OF THE JOB
4. IMPROVE COMMUNICATION
5. FORM HR PLANS
A
STYLES:
TELL & SELL – Appraiser as salesperson, one-way, convinces employee appraisal is fair.
TELL & LISTEN – Listens to problems, expectations, changes evaluation in light of evidence.
JOINT PROBLEM SOLVING – Uses social skills to encourage self assessment & recognise own
problems. Appraiser acts as Coach & counsellor.
CONFRONTATION – Differing views r.e performance. Feedback is subjective, manager
biased. Disagreement over prospects
JUDGEMENT – One sided, appraiser is judge, jury & counsellor. Appraisal imposed.
CHAT – Lack of will, unproductive, no outcomes.
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BEAURACRACY – ‘Box ticking exercise’
ANNUAL EVENT – ceremonial
THE 4 F’S – BEST PRACTICE
FIRM - must be willing to discuss the negative
FACTUAL – subjective aspects to be avoided.
FAIR – all employees to be treated the same.
FREQUENT – on a regular basis.
LOCKETT
RELEVANCE – Does the system have a useful purpose and is it relevant to needs of
organisation?
FAIRNESS – is there reasonable objectivity/standardisation of criteria?
SERIOUS INTENT – Is management committed to the system or has it simply been thrust on
them by HR department?
CO-OPERATION – Is the appraisal participative, problem-solving activity with the subject
given time/encouragement to prepare for it?
EFFICIENCY – Is it costly and difficult to administer? Too time consuming?
STAFF TURNOVER
A
B
O
B
L
L
G
X
O
DISCHARGE – As a result of an employee’s unsuitability, disciplinary action or redundancy.
UNAVOIDABLE – Because of marriage, moving to a new house, illness or death.
AVOIDABLE – Due to pay, working conditions, relationships with work colleagues.
A
C
C
A
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PERSONAL EFFECTIVENESS AT WORK
TIME MANAGEMENT – Failure of good time management = low productivity, time wasted,
missed deadlines, poor quality.
TECHNIQUES:
PLANNING - What to accomplish each day. Review schedules check for
problems/rescheduling.
ACTIVITY - What proportion of time is important, what can be delegated/avoided.
COSTING YOUR TIME - When you ‘save’ an hour, it can be used elsewhere.
LISTS – Upcoming tasks for the week.
PRIORITISE – Assess tasks based on:
1. Importance (stakeholder, consequences)
2. Urgency (whether deadline is near)
IMPORTANCE
Tasks can be delegated
for now. Will become
urgent as deadline
approached.
A
C
C
A
A
B
Need to be dealt with
immediately and &
devote plenty of time.
O
L
G
Tasks can be delegated to
others/cancelled.
B
L
X
O
Can be delegated. Low
importance to you.
URGENCY
BARRIERS TO EFFECTIVE TIME MANAGEMENT
• Established jobs with routine have fewer barriers.
• Jobs involving lots of contact with others are prone to interruption.
• Location of colleagues/customers can lead to wasted time travelling.
INTERNAL: Discipline/procrastination/lack of motivation
EXTERNAL: Workload issued/available resources
ROLE OF IT: Email/video conferences/Intranet/automation/home working
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COMPETENCY FRAMEWORK: An attempt to identify all the competencies required by
anyone taking on a particular role within the organisation:
•
•
•
•
•
•
Communication skills
People management
Team skills
Customer service skills
Results orientation
Problem solving
BENEFITS: Minimise errors & mistakes/Improve cust. service/Increased emp. motivation.
COACHING, MENTORING, COUNSELLING
MENTORING – Help/guidance/advice/support to facilitate learning & development.
A mentor is a skilled senior member of staff, usually:
• Offers practical advice & support
• Can give technical guidance
• Helps with development and skills
• Role model
X
O
B
L
A
B
O
COACHING – Improves performance of someone already competent
•
•
•
L
G
Usually 1 to 1, ongoing.
Involves gently encouraging people to improve/develop.
Carried out by senior with experience & expertise.
A
C
C
COUNSELLING – Helping an individual identify/deal with problems. Explore
thoughts/behaviour/feelings to understand their difficulties.
•
•
•
•
•
A
Observant
Sensitive
Empathetic
Impartial
Discreet
PERSONAL DEVELOPMENT PLAN
•
•
•
A clear developmental action plan for an individual incorporating a wide set of
developmental opportunities including formal training.
Training is immediately practical and connected to job performance.
Development has no immediate practical application, but it enables a person to deal
with wider problems.
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STEPS OF DEVELOPMENT PLAN:
1. Analysis of current position = Individual with manager carries out SWOT analysis –
strengths/opportunities/threats.
STRENGTHS:
•
•
•
•
What advantages do you have?
What do you do well?
What resources do you have?
What others see as your strengths.
WEAKNESSES:
•
•
•
What could you improve?
What do you do badly?
What should you avoid?
•
Interesting trends you are aware of
A
B
O
THREATS:
•
•
•
•
L
G
X
O
B
L
OPPORTUNITIES:
Obstacles you face
Are the job specs changing?
Is changing tech threatening your position?
Could your weaknesses threaten your position?
A
C
C
2. Set Goals – Tasks person does not do well are examined and reasons established. A
personal set of objectives to overcome weakness. Goals should have the
characteristics of SMART objectives:
S
M
A
R
T
A
specific
measurable
achievable
relevant
timely
3. Draw up action plan – with continuous monitoring and feedback. Feedback provides
recognition of good work done and provides incentives to improve performance
levels. Recognition, praise, encouragement create confidence/competence & more
motivation.
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CONFLICT
Personal divergence of interests between individuals.
VERTICAL (Juniors vs Seniors) causes –
• Lack of communication
• Disagreements over renumeration/working conditions
• Workload
• Personal Clashes
HORIZONTAL (Same level) causes –
• Personality clashes
• Role ambiguity (peoples jobs overlap)
• Lack of available resources
AVOIDING CONFLICT –
• Can be done via good communication
• Clear rules & procedures
• Avoiding ‘blame’ culture
• Ensuring fair allocation of resources.
•
•
•
•
B
L
A
B
O
CONFLICT MANAGEMENT STRATEGIES –
L
G
X
O
DENIAL – May work for minor conflicts (ignore)
SUPPRESS – Threaten with punishment (short term)
REDUCTION/NEGOTIATION – Compromise between parties
RESOLUTION – Seek root cause and solve. Time consuming and complex but has best
long-lasting solutions.
A
C
C
A
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COMMUNICATING IN BUSINESS
FORMAL:
VERTICAL – From superior to subordinate or vice versa.
HORIZONTAL – Communication between people at similar level.
DIAGONAL – Interdepartmental communication between people of different ranks.
INFLOW – of information into the business e.g. market research.
OUTFLOW – of information out of the business to public, e.g. advertising/marketing/press.
INFORMAL:
X
O
GRAPEVINE – Rumour = message transmitted, not official information. Gossip = idle talk, can
be malicious and damage relationships.
B
L
EFFECTIVE COMMUNICATION IS:
•
•
•
•
•
•
TIMELY
ACCURATE & COMPLETE
RELEVANT
DIRECTTED TO THE CORRECT PEOPLE
UNDERSTANDABLE
COST EFFECTIVE
A
C
C
A
A
B
O
L
G
EFFECTIVE COMMUNICATION ENSURES:
•
•
•
•
•
•
RULES/PROCEDURES ARE PROPERLY UNDERSTOOD
INDIVIDUALS KNOW WHATS EXPECTED
BETTER CO-ORDINATION
EASIER FOR MANAGEMENT TO PLAN
SWAPPING IDEAS, INNOVATION
INCREASED TRUST
SENDER (ENCODER)
Initiates, puts into words/images
MESSAGE
Info sender wants to transmit
CHANNEL
Means of communication
RECIEVER (DECODER)
Person for which info
Is intended
BARRIERS TO EFFECTIVE COMMUNICATION:
Anything that stops information from (a) getting to its recipient (b) being understood (c)
being acted on.
STATUS – Juniors reluctant to pass information upwards for fear of criticism.
LANGUAGE – Technical/professional jargon.
CONFLICT – Between individuals, departments.
OVERLOAD – Too much information at once is overwhelming
NOISE DISTANCE – Better if people are nearby.
Environmental (machinery, music)
PERSONAL DIFFERENCE – Age, education.
Organisational (poor manuals etc)
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Lack of downward communication is likely to result in –
• Poor awareness of corporate objectives at lower level.
• Poor understanding of instructions and responsibilities.
• Poor morale of junior managers.
Lack of upward communication is likely to result in –
• Early warnings of problems missed.
• Subordinate participation is limited.
• Need for change is not appreciated, management isolated.
• Introduction of change is difficult.
Lack of lateral communication is likely to result in –
• Divisions/conflict between management teams.
• Lack of co-ordination.
• Rivalry between departments.
LEAVITT
COMMUNICATION PATTERNS:
B
L
High satisfaction
for central
figure, low for
everyone else.
(CHAIN & Y)
A
C
C
A
B
O
L
G
A
Best for
reaching a
decision on
complex
problems.
X
O
Fastest to
reach a
conclusion,
ideal for
problem
solving
Highest level
satisfaction,
but slowest
for problem
solving.
CENTRALISED NETWORDS: Chain, wheel, Y - Members go through a central person to
communicate, unequal access to information.
DECENTRALISED: Circle, all channel. Information flows freely between members without
having to go through one central figure.
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