BUSINESS AND THE ENVIRONMENT  It is a fact that these resources are limited

in supply e.g. a business manager has to

Business make use of the resources availed to
him/her by the owners. It means a
 A business is an organisation or business with $20 000 as its capital
economic unit were goods and services cannot afford to acquire equipment
are costing $120 000 with its available
#exchanged for one another or for money resources
 Business organisations require resources  The basic economic problem of scarcity
for them to be able to achieve their aims is partially addressed by choosing the
 All businesses are formed for a reason; best alternative amongst the competing
the reason why they are formed is termed uses
the aim. In other words aims are that  Management must choose an option
what the business organisation seeks to which maximises the long term benefits
achieve to the business under the constrained
circumstances
The need for business activity
Levels of business activity
The role played by the business organisations in
the society and the economy at large can be Business activities can be classified into three
classified as follows categories as follows:
 Business activities contribute positively Primary
to the living standards of the society by
providing goods and services required to  Primary business activities take out
satisfy consumers needs and wants goods which are already provided by
 Business activities facilitate the efficient nature e.g. agriculture, mining and
utilisation of economic resources e.g. fishing
land & labour. These are utilised for the  Usually output from primary business
partial benefit of the society at large e.g. activities requires further processing
the use of the Victoria falls for tourism before it can be distributed to the
purposes has increased the economic finished goods market e.g. maize meal is
activities in the town, thus improving the a product of maize after it has been
living standards further processed by grain millers
 Business activities facilitate the
specialisation of economic efforts, Secondary
whereby economic players specialise in
the production of goods and services  These business activities include
which they have an comparative manufacturing and the construction
advantage over others and then trade industry
their produce with others e.g. semi arid  Manufactures use output from the
regions in Zimbabwe produce sorghum primary business activities and other
and trade it. The business activities businesses in the secondary level as raw
enable people in semi arid regions to buy materials, e.g. a manufacturer of powder
maize thus making them better off milk uses milk from the primary sector
together with artificial sugars obtained
The problem of scarcity of resources from other manufacturers operating at
secondary level
 Businesses require economic resources  Manufacturing business activities add
for them to be able to produce goods and value to the products obtained from the
services primary level
Tertiary  Mixed economies like Zimbabwe have
to major categories in which businesses
 These provide services to consumers and can be classified into. These are private
other businesses e.g. banks, hotels, sector and the public sector
retailing, telecommunications and
insurance, e.t.c. Public sector
 Firms in the tertiary level of production
provide supplementary services to all  This sector of the economy is made up of
economic players e.g. transport organisations owned and operated by the
companies national government and local
 facilitate the movement of goods and government bodies i.e. councils and
services that making business easier to municipalities
conduct  Examples include public hospitals (e.g.
Harare & Parirenyatwa hospital),
Inter relationship between levels of business municipal clinics & hospitals (e.g.
activity Wilkins hospital & Glen Norah satellite
clinic), parastatals (e.g. G.M.B.; N.R.Z.;
 The three levels of business activity Z.M.D.C.; Z.I.N.A.R.A.; Z.I.M.R.A;
highly depend on each other for them to N.S.S.A; e.t.c.
prosper  The public sector exists primarily to
 The output from the primary sector create better and affordable service to the
provides raw materials to the businesses citizens
operating at the secondary level, this  They usually embark on business
provides the secondary producers with activities considered unprofitable by
inputs to use in the production process private entrepreneurs e.g. providing
 Secondary producers act as a ready public goods like public toilets and
market for goods produced by primary constructing street lights
producers e.g. Dairiboard Zimbabwe ltd  They also engage in activities considered
purchases raw milk of acceptable quality to be strategic for social and economic
from farmers for processing stability e.g. security services (e.g.
 The tertiary level provides support Army,
services to all sectors e.g. banks provide Police & Prisons) including the manufacture
loan capital and financial advice to all of ammunition (e.g. Z.D.I). The R.B.Z. is
businesses in the economy regardless of owned by the state for economic strategic
the level they operate at reasons
 To sum up, there is massive inter  Businesses are funded by the
dependence of the three levels as it has Government in part or in full
been established that inter dependence is
both vertical [depending on businesses Private sector
which operate at a level other than that
which your own business operate e.g.  It refers to the segment of the economy
farmer & grain miller] and horizontal that is owned and run by private
[depending on the activities of a business entrepreneurs
operating at the same level e.g. grain  It is comprised by organisations that
miller and packaging plastic operate in pursuit of profit, therefore it
manufacturer only provides goods and services to
people who can afford them
 The private investors fund their business
SECTORS OF THE ECONOMY activities by issuing capital instruments
(e.g. Shares and debentures) and from
borrowings e.g. loans
  Examples of private sector businesses Merits
are
companies (e.g. Econet Zimbabwe,  It is relatively easy to start a sole trader
Barclays bank and Nyaradzo business because no legal formalities are
life required to form a sole trader business
Assurance)  The sole trader has full control of the
business activities and is not accountable
(answerable) to anyone. This makes
LEGAL STRUCTURE OF BUSINESS
decision making faster than in other
ORGANISATIONS
business structures. [However, the
After deciding on business activities to engage in it is quality of decisions is questionable coz
important for the entrepreneur to decide on the legal of lack of consultation]
structure that the business is going to take because  The sole trader enjoys all the profits
each structure has its own pros & cons. This requires generated by the business [however, the
the entrepreneur to choose the best trade off between return on investment for sole traders is
the risks and benefits of being associated with such a generally low]
structure. The maximum risk that an investor is willing  Flexible in its operations e.g. operating
to accept is termed risk appetite. The legal structure of hours and credit policy. [However,
any organisation defines ownership, control and flexibility needs to be balanced with
distribution of earnings. consistency]
 The various legal structures include sole  The small size of the entity enables the
traders, partnerships, cooperatives and owner to establish good relations with
limited companies. staff, customers and the society at large.
This assists in marketing the business as the
Sole trader society develops a positive attitude towards
the business activities.
 These business organisations are owned
by one individual who provides the Demerits
permanent finance (equity capital) of the
business and in turn enjoys all the  The risk of unlimited liability exposes
profits. the owners’ private property to the risk
 The entrepreneur participates in the day of being attached for the liabilities of the
to day management of the business i.e. business. This partially explains why
there is no divorce (separation) of sole traders are generally risk averse
ownership and control (low risk appetite)
 The law does not recognise the sole  High risk of succumbing to competition
trader business as a separate entity i.e. from larger firms who enjoy economies
the owner and the business are treated as of scale and are managed by professional
a unit therefore a business cannot borrow who can take increased portions of
or sue (take legal action) in its own name calculated risk (risk varies directly with
 Sole trader businesses have unlimited return/profit)
liability i.e. the investor can be held  The quality of decisions made depends
personally liable for the debts of the mainly on the sole traders’ ability to
business and the business assets can be make quality decisions. The fact that
attached for the liabilities of the owner consultation lacks in sole trader
 Sole trader businesses are usually small businesses may compromise the quality
in size partially because the owners of decisions made. The owner may end
prefer them to remain like that so as to up making decisions he/she is not good
maintain control, since the risk of at making and this may cost the business
personal liability is always prevalent in future e.g. taxation decisions can be
 viewed by authorities as attempts to  Partnership businesses enjoy better
evade paying taxes quality decisions as partners can
 The business cannot be separated from specialise in areas they are better skilled
its owner that means the business lacks to manage (e.g. finance, marketing,
continuity in the event of the death of the HRM) and the partners can consult with
owner each other thus improving the quality
 The business lacks separate legal status (compared to sole trader businesses)
i.e. it is difficult to conduct business on  Partnerships are able to raise more
behalf of the owner if need arises e.g. capital as compared to sole trader
illness or inability businesses. This partially explains why
 Sole trader businesses are usually partnerships generally have a higher
undercapitalised because one individual return on capital compared to Sole
is expected to fund the business traders (Synergy)
operations  There are fewer formalities involved in
the
Partnership

 These are business owned by between formation of a partnership businesses

two to twenty individuals with the (compared to companies)
exception of professional partnerships  Business risk is spread amongst partners
(e.g. lawyers and accountants) who can e.g. in the event that the business makes
some losses the loss is shared by all
exceed twenty
partners. This increases the risk appetite
 Individual investors in a partnership
of the partnership business in general
business are called partners
 The partners provide equity capital to the Demerits
partnership and in return share the profits
generated by the business. They usually  The partners face unlimited liability to
share the duties involved in the the extent that the business can be held
management of the liable for the debts of one partner. This
partnership is because the business is not viewed as
(specialisation) a separate entity by the law
 They are formed as a solution to  The business lacks continuity i.e. in the
overcoming the challenges faced by sole event of death, retirement or incapacity
traders e.g. to raise more capital & of one partner the partnership is
improve quality of decisions made dissolved.
through consultation & specialisation This adversely affects the consistency of
 The partners generally have unlimited business operations
liability  All partners are bound by the decisions
 The partners conduct of the business is made by one partner, this is risky on
governed by the partnership deed though behalf of the partners as there is potential
it is not a legal requirement to suffer losses due to decisions made by
 The deed states issues to do with the others
capital contributions by each partner,  Potential for conflicts as the partners are
voting rights of partners, the distribution bound to have different opinions on
of profits & losses, the duties of each issues to do with the running of the
partner in management, who is business. However, conflict (functional)
authorised to contract on behalf of the is important ingredient in the making of
business quality business decisions

Merits
  The partners are expected to consult each relationship [this gives rise to the agency
other before decisions are made and this problem]
delays the decision making process  It is important to separate ownership and
 Partners lack independence when control because companies are bigger
compared to Sole traders since a partner organisations compared to partnerships
is not expected to single handedly make and sole traders all shareholders cannot
business decisions participate in the day to day management
of the business coz it may cause
Limited liability companies confusion
 Because a company exists separately
 Companies are owned by from its owners it can survive beyond its
private individuals who are called owners’ life time. The company is said
shareholders to have perpetual existence (can exist
 The equity capital of a company (e.g. forever)
$100 000) is divided into smaller units  The shareholders votes are on pro rata
(e.g. 100 000 units of $1 each) called basis implying that the more shares one
shares has the more voting rights one has (One
 Company shareholders enjoy limited share one vote)
liability i.e. the liability of shareholders
is limited to the amount of capital they TYPES OF COMPANIES
have injected into the company.
Therefore beyond that no personal Companies can be classified into two categories
liability is i.e. private limited and public limited companies
suffered for the debts of the company. This
Private limited companies
transfers the risk from shareholders to
creditors These companies have the following
 Companies are required to put the letters characteristics over and above the ones
Ltd or include the word limited as a mentioned above
warning to stakeholders who intend to do
business with the company that the
liability of the shareholders is limited Restrictions in the transfer of shares

Legal personality  The sale or transfer of shares must first

be offered to existing shareholders and if
 Companies have separate legal offered to outsiders it must be authorised
personality which is different from its by existing shareholders. This move is
owners i.e. a company has a separate meant to protect the company from
name, it can sue and be sued in its own hostile takeovers. This also helps the
name, it can acquire its own assets and it existing shareholders to retain control of
can conclude contracts on its behalf the business activities
 The control of companies is divorced  The shares for private limited companies
from ownership, this implies that cannot be traded on the stock exchange
shareholders market. This adversely affects the
do not participate in the day to day liquidity of investments in private
management of the company limited companies as it is more difficult
 Shareholders appoint directors who are to sell off stock from private companies
entrusted with the day to day than that from public limited companies.
management of the company  The number of shareholders for private
 The relationship between directors and limited companies is limited i.e. it cannot
shareholders is an agent to principal exceed 50.
  They are not permitted to issue shares to • The shares from public limited
the members of the general public, this is companies are more liquid than those
a drawback in the raising of capital. from private companies’ i.e. there are no
However, the costs and formalities of restrictions governing the transfer of
issuing capital instruments are fewer second hand shares e.g. they can be sold
 These companies are required to send at the stock exchange market
copies of their financial statements to the
registrar of companies Demerits

Merits of Private limited Companies • The share prices are dependent on the
market forces which makes them highly
• Restrictions in the transfer of shares enable volatile. This is usually beyond the
the existing owners (founding members) to control of management. This worries
retain control of the business managers because the share prices are
used as a signal of the companies’
Demerits of Private limited companies value/performance, but management has
no direct control over the shares’ market
• The company is not permitted to issue shares price
to the members of the public this makes it a • The availability of shares on the stock
challenge for companies to raise additional exchange market exposes the company
capital and for existing shareholders to to the risk of hostile takeover since
transfer their shares existing shareholders have no control
• Less privacy as the companies are required to over who buys the shares on the stock
send copies of financial statements to the exchange
registrar of companies. These are available • The publication of financial statements
for inspection by the members of the public provides information which can be used
against the company by external
Public limited companies
stakeholders e.g. competitors and
 These companies are permitted to sell shares individuals and corporate taking legal
to the members of the general public action against the company
 There are no restrictions on the transfer of • The actions of the directors are greatly
shares between shareholders i.e. the shares influenced by short term objectives of
are tradable on the Zimbabwe Stock major shareholders. This is partly
Exchange e.g. Econet Zimbabwe Ltd & Old explained by the fact that companies are
mutual Ltd autonomous democracies therefore
 The issue of shares to members of the public major shareholders have a bigger say on
is governed by strict regulations the appointment of directors therefore
the short term interests of major
 They are required to publish their audited
shareholders prevail over those of
financial statements (in newspapers) this
minority
gives potential investors information about
the profitability, liquidity and the financial shareholders
position of the business they are about to
Advantages of limited liability companies
commit their resources to.
1. Shareholders enjoy limited liability, this
Merits
increases the risk appetite of limited
liability companies thus improving their
• Public limited companies are in a better
profits
position to raise additional capital than
any other business organisation because 2. Separation of ownership and control
they can issue shares to the members of enables the business activities to be run
the general public by professionals as opposed to the
 owners who might lack the capacity and transporting bulky quantities
skill 2. Enables members to work together in
3. Companies have perpetual existence i.e. finding solutions to common problems
they outlive their owners. No need to e.g. housing cooperatives seek to address
dissolve a company in the event of death the problem of accommodation
of a shareholder 3. The equal distribution of profits
4. Companies are able to raise more capital motivates members as the principle of
than partnerships and sole traders equity is upheld
4. The members enjoy limited liability
Disadvantages of limited liability companies
Demerits of Cooperative business organisation
1. There are legal formalities that are involved
in the formation of a company. These 1. Cooperatives usually face problems in
consume time and resources raising capital as each member is
2. Owners (shareholders) delegate the expected to contribute. On the other
management of the company to Directors, hand the equal distribution of profits
this poses a challenge as conflict of interests does not motivate members to contribute
can emerge as the interests of directors are more than others.
not congruent to the interests of the 2. The decision making process is
shareholders. This is termed the agency consultative and this may be time
problem. consuming. The situation is worsened if
the number of members increases
Cooperatives 3. The quality of the decisions is not
guaranteed as the majority is not always
Cooperatives are jointly owned enterprises engaging
right. The voting process may make
in business activities for the mutual benefit of its
wrong decisions. It is common that
members. These business organisations are owned and
members are influenced to follow the
run by a number of individuals termed members.
ideas of charismatic members of the
Cooperatives have the following features:
organisation.
• All members contribute to the running of the
business by sharing the workload,
responsibilities and all members participate State owned enterprises
in the decision making process
• The decision making process involves voting • State owned enterprises are businesses
and each member carries one vote which are funded by the government
• Larger cooperatives can employ professional from public funds. These are the
managers to run the cooperative activities on business organisations which constitute
behalf of the members the public sector of the economy.
• Profits are distributed equally amongst the • Make reference to notes on the public
members sector
• Most cooperatives are initially formed to
serve the interest of the members as opposed Merits of state owned enterprises
to making profits e.g. agricultural
cooperatives serve the interests of the 1. They provide socially desired goods and
farmers services which are considered to be
unprofitable by private sector players
Merits of Cooperative business organisations e.g. public and merit goods
2. Lack of profit motive enables the goods
1. Benefits of buying in bulk are enjoyed and services provided by state owned
e.g. quantity discounts and benefits of enterprises to be affordable e.g. N.R.Z.
 charges are more than 50% cheaper than Privatisation is the transfer of assets from the public
road transport charges, ZIMPOST V sector to the private sector.
SWIFT, ZBH V DSTV, etc. This
improves the living standards as the Arguments for privatisation
more citizens can afford the services.
1. Revenue raising
3. They are in a better position to raise
capital as they are funded from public The sell of Government assets to private
funds, e.g. G.M.B. management receive investors brings in revenue to the state.
funding from the finance ministry This revenue can be used to fund other
government operations
Demerits of state owned enterprises
2. Cut on government expenditure
1. Public institutions are criticised mainly
because they are said to be inefficient in their Losses making state owned enterprises
operations. The lack of the profit motive are a burden to the state as they require
makes the assessment of the performance of constant fresh funding from the state.
these institutions a challenge. Management This puts unnecessary burden to the
has no incentive to cut operational costs e.g. taxpayers who fund the government.
some public institutions which were making Therefore the disposal of non
losses made headlines of paying very high performing state assets will go a long
remuneration to management. way in bringing down the government
2. The funding of public institutions from expenditure.
public funds puts pressure on the fiscus. This
directly causes an increase in government 3. Efficiency argument
resources which may prompt an increase in The profit motive improves efficiency as
taxes e.g. the Zimbabwean government private firms try to control costs in an
recently took over the debts of the R.B.Z. this effort to maximise profits. The profit
has put an additional constrain on the motive has a positive impact on the
national budget. quality of service provided by the
3. Most parastatals are monopolies i.e. they do business organisations.
not face any competition, this scenario 4. The failure by the state owned
partially explains why the quality of their enterprises can be attributable to
service is poor. Competition improves government interference for political
efficiency e.g. the introduction of new reasons. Private firms are not held back
private radio stations. by political pressures e.g. Z.D.I. has
4. Poor corporate governance ethics are been included on the sanctions list by
prevalent in most state owned enterprises some European nations, this adversely
with allegations of corruption and affects the operations of the state owned
incompetence by senior management making enterprises
news headlines e.g. some senior managers 5. Transferring financial risk which
from Air Zimbabwe have been convicted on taxpayers would suffer in the event of
corruption related charges. losses to private individuals

PRIVATISATION Arguments against privatisation

In light of the above captioned drawbacks of state

owned enterprises, arguments have been brought 1. Assets can only be sold once
forward to transfer ownership and control of these
institutions from the government to private The disposal of national resources to
individuals. This process is termed privatisation. raise revenue is a ill advised move as the
revenue is only for a short term benefit.
 The government cannot raise any future It can be observed in the economy that some business
revenue from the disposal of the same organisations are bigger than others e.g. Mohamed
assets since the income is once off as Mussa Wholesalers and a local tuck shop. This shows
opposed to revenue from dividends that business organisations vary in size. There is no
objective way to measure the size of a business
2. Most state enterprises are natural organisation but the following factors are considered
monopolies and their privatisation in assessing the size of the firm.
translates to private monopolies which
have the greater potential to exploit the 1. Number of employees:
consumers.
3. Privatisation is very difficult to reverse This method assumes that the more employees the
in the event that it proves to be self organisation employs the bigger the business is said to
defeating. This implies that the be e.g. if OK supermarket employs more employees
consumers more staff than Spar supermarket, it means OK
face a risk of living permanently with the new supermarket is bigger than Spar supermarket. The
privatised business. application of this method is limited by the fact that
4. The profit motive motivates private some businesses are capital intensive while others are
business players to combine the factors capital intensive; it is biased in favour of labour
or production in a manner that minimises intensive organisations
costs. The technological improvements
2. Capital employed:
are making capital cheaper and more
efficient than labour thus motivating Capital employed is the total value of long term
entrepreneurs to substitute labour for capital invested in a business organisation. It
capital were applicable. This contributes includes the funds provided by the owners of the
to the levels of unemployment in the business (equity capital) and long term
society. borrowings e.g. loans and debentures. The more
5. State owned businesses are protected by the capital that is invested in a business the bigger
the law from competition, although the organisations’ size. Businesses with greater
competition is said to improve efficiency capital employed have more assets to its name
in firms operations. Some levels of because the capital employed is used to finance
competition are wasteful as some the acquisition of assets. This implies that it is
resources are channelled to fund the justifiable to use the level of capital invested to
competition could have been used in assess the size of an entity. This method is
other productive ventures. Above all it is however biased against labour intensive
the consumer who bears the final burden organisations.
through paying the price.
3. Market share:
To sum up, the arguments for and against privatisation
vary their weight from one business organisation to the This estimates the proportion of the total market
other depending on the nature of the business serviced by a business organisation. It can be
activities. It is unrealistic to privatise some estimated by the formula
organisations e.g. security services like army and
police, however commercial enterprises like transport Total business sales
activities can be privatised successfully with minimal ℎ = × 100
adverse consequences. Total industry sales

The greater the market shares the bigger the size

SIZE & GROWTH OF FIRMS of the firm. This method is fair on both capital and
labour intensive businesses; however this method
ASSESSING THE SIZE OF A FIRM is difficult to apply in instances where the market
size is small and in instances where the business
 produces a number of products for distribution in personnel, developing new products and
different markets. venturing into new markets

EXTERNAL GROWTH
4. Market capitalisation
 It is the growth of a business organisation by
This is the market value of all the shares issued acquiring other entities, as opposed to
by the firms. It is computed by the formula expanding existing sales or products e.g.
mergers and acquisitions.
 External growth is also referred to as
= ℎ integration as it involves the joining of two
× ℎ or more firms, it takes different forms of
integration which are horizontal, lateral,
The higher the market capitalisation value the vertical and merger
bigger the size of a firm. This method is effective
in comparing firms of different orientations but it HORIZONTAL INTEGRATION
can only be applied to public limited companies
This involves the merging of firms operating in the
whose capital instruments are tradable in
same industry and at the same stage of production, e.g.
competitive markets
if Dorking Dairies ltd merges with Dairiboard
To sum up, there is no any objective way that is Zimbabwe Ltd.
acceptable in all scenarios but the methods
Merits
applied are subjective in nature thus the methods
discussed above should be treated as compliments
 The business enjoys reduced competition as
not substitutes. The more the methods used in
one competitor is eliminated, this benefits
assessing the firms’ the more reliable the results
shareholders as there is greater potential for
will be.
better profits. It is important to note that
some excessive levels of competition are
BUSINESS GROWTH
disadvantageous to most stakeholders.
The growth objective is one of the most common  The new entity is definitely bigger this places
business objectives that most entrepreneurs pursue. it in a better position to benefit economies of
Many big businesses started small and grew with time. scale, these can be passed on to consumers
The ability of a business to grow is dependent mainly through lower prices.
on the ability of management to adopt the correct  The new entity benefits from the synergy rule
strategy which enables the business to grow and to as the combined entity is more likely to make
sustain it. Businesses can grow either internally or higher returns on investments than the
externally. previous institutions

INTERNAL/ ORGANIC GROWTH Demerits

 It is growth within the organisation financed  The reduction of competition on the market
by internal resources makes a contribution towards the
 It involves expansion by means of opening exploitation of consumers. Such integrations
new branches e.g. Chicken slice has been if not well regulated may result in
opening new outlets countrywide or monopolies which are not good for the
introducing new product lines e.g. delta consumers.
beverages added Super Chibuku and Shumba  The sovereignty of consumers is
Mahewu to its product portfolio in 2014 compromised on the market as they will have
 It is focussed on improving efficiency in the to choose from the restricted products e.g. if
business operations by hiring quality Bakers Inn and Lobels bakeries merge one
 brand will become extinct thus reducing  It is the integration with a business in the
variety on the market. same industry but a supplier of the existing
business e.g. a steel manufacturer acquiring a
iron ore mine

 Mergers usually result in job losses and MERITS

demotions as organisations seek to avoid
duplication of tasks e.g. before the merger 1) Gives the business control over quality and
each business had its general manager but the delivery times of the suppliers, this allows
combined entity requires only one general the business cut on stockholding costs as
manager minimal lead times apply. Lead time is the
time that lapses between the placing of an
VERTICAL INTEGRATION order and its delivery.
2) The business has a guaranteed supply of
This involves the integration of businesses products even in times where the products
operating in the same industry but at different are in short supply.
levels of activity. Vertical integration can be 3) The business may now have control of
either forward or backward. supplies of materials to competitors’ e.g if
Dairiboard Zimbabwe acquires a form which
FORWARD VERTICAL INTEGRATION
supplies raw milk to Dorking Dairies .This
It involves the integration with a business in the implies that the supply of materials for
same industry but a customer of the existing Dorking Dairies is now partly controlled by
business e.g. a beef farmer acquires butchery. Dairiboard Zimbabwe.

Merits Demerits

 The business has direct control over the 1) The business may lack expertise to
distribution and marketing of its products manage the supplier business effectively
 The outlet can exclusively market the firm’s e.g. a successful grain miller does not
product by excluding competitor’s products. translate to a successful farmer .The
This eliminates competition and enables the technicalities involved in the
firm to store and handle the firm’s product in administration .
the optimal way recommended by the 2) The supplying business may become less
producer. competitive because it has a guaranteed
 Consumers perceive products to be more market for its produce. It can end up
affordable than those of competitors’. becoming complacent due to lack of
competition.
Demerits 3) It becomes difficult to manage the two
entities separately as problems usually
 The business may lack expertise to exist in setting prices for the supplying
competitively run the new entity because entity. This is mainly attributable to the
being a successful manufacturer does not fact that all profits enjoyed by the
guarantee that one will succeed as a retailer. supplying entity are costs to the
 Lack of competition as a competitor products customer entity.
are withdrawn from the acquired outlet 4) Control over supplies to competitors
adversely impacts on consumer sovereignty may reduce competition thus
i.e. consumers have limited options to choose adversely impacting on consumer
from. sovereignty.

BACKWARD VERTICAL INTERGRATION CONGLOMERATE INTERGRATION

  This is integration with a business in a 4) Business growth requires substantial capital
different industry e.g. beverage injection to fund the increased levels of activity.
manufacturing company acquiring a Funds are required to acquire additional
gold mine e.g. Econet Wireless acquire equipment and to provide working capital.
TN bank. Expanding too rapid with inadequate working
capital results in overtrading .This requires
Merits adequate planning of sources of funds to fund the
expansion .However, relying on borrowings to
1. Diversification from the original
find expansion adversely impacts on the gearing
business spreads the risk of business
rate and increases long term financial
failure. A diversified business portfolio
commitments of the business.
has less risk compared to relying on one
5) Existing management may not be in possession of
business line.
skills and experience to manage a bigger entity.
2. Allows business to embark on better
The organisational structure may no longer be
rewarding markets this allows business
effective in the new organisation. This requires
to re-strategise thus gives businesses an
new management systems and training
opportunity to abandon non performing
programmes for current management to enable
portfolios in the long run.
them to cope with pressures of new structure.
3. Stability of returns to shareholders as
6) The bigger structure of the business brings with it
risk is spread across more than one
some risks of loses due to fraud and errors. This
industry. Stability of returns improves
is partially attributed to the fact that the existing
job security which in turn motivates the
controls become obsolete as the business grows
workforce.
.This therefore requires management to be
Demerits proactive in their approach to the handing of
internal controls.
1) Management may lack expertise and
SIGNIFICANCE OF SMALL BUSINESS
experience or running the acquired
Small businesses are entities which qualify to be
sector.
classified as such by any measure of business
EFFECTS OF BUSINESS GROWTH size.

Growth has a number of effects to various ADVANTAGES OF SMALL BUSINESS

stakeholders and the effects can be classified into
1) Their small size enables them to quickly
positive and negative
respond to the dynamic operating
1) Bigger firms enjoy economies of scale thus their
environment. Easily adapting to changes
operating costs are less than those of smaller
in the environment is beneficial to most
entities. This can be translated to higher profits
stakeholders e.g. customers enjoy
and
quality services and goods.
competitive prices
2) Small firms are flexible in their
2) In forward vertical integration, the supplying operations therefore they are in a better
entity cuts on selling and distribution expenditure position to offer personalised services to
as their produce has a ready market therefore need their customers. This is mainly
to incur advertising expenses. attributable to the short structure of the
3) All forms of external growth result in the small business hierarchy as opposed to
formation of a bigger entity. This enables the new lager firms. Large firms rely strictly on
entity to enjoy the benefits of synergy. Synergy protocols which have to be adhered to.
implies that a whole is greater the sum of its 3) Employees in small firms are more likely
individual components (2+2=5). It is generally to be motivated as small firms usually
assured that the new entity will be more employ fewer employees who usually
successful than the former separate entities. have good interpersonal relationships.
 According to Maslow’s hierarchy of decisions are implemented when they
needs good social relations on the are still relevant.
workplace motivate employees and this
positively impacts on productivity. DISADVANTAGES OF SMALL FIRMS
4) Small firms play a significant role in the
1) Small firms have higher operational costs as
distribution of goods and services. They
opposed to large firms ,this is mainly
service niche markets which are small
attributable to the fact that small firms are not
markets deemed unprofitable by large
big enough to enjoy economies of scale
businesses. For instance most growth
2) Small firms may lack human and material
point business centres are characterised
resources to enable them to compete at par
by small business organisations. These
small with larger firms. Larger firms enjoy
economies of scale so they are better
positioned to win in the event of excessive
entities enable people living in smaller price wars. In other words small firm’s
markets to have access to goods and existence is continuously threatened by
services this uplifts their living standards competition from larger business.
5) Small firms offer support services to 3) Small businesses find it difficult to raise
large firms by distributing products. It is adequate capital as compared to large firms
not practical for organisations like who have numerous options at their
Nestle Zimbabwe to operate outlets in disposal. Capital is an important ingredient
rural areas but their products are for business growth therefore this partially
distributed there by small firms. explains why small businesses find it difficult
6) Small firms provide employment to a to expand. Small firms struggle to raise
significant proportion of population. adequate capital to invest in research and
This generally improves the living developmental projects therefore they
standards of the nation as the national usually dominate in flooded industries which
income is positively affected by their are less profitable.
contribution, small firms usually have 4) Small firms lack exposure and authority in
limited capital at their disposal therefore the market. Many clients prefer to conduct
they tend to use more of labour than businesses with big established entities as
capital. compared to small businesses as they are
7) Small businesses provide competition to considered to be risky. Therefore,
large firms, this leads to efficiencies in competition for market share is skewed in
the market. It can appear as if small firms favour of large entities .This results in
do not pose significant threat to big smaller firms embarking in price
firms, however, the collective market competition, which is self defeating as they
share of small firms can be significant in ask for lower prices while their costs
industry e.g. the motor spares are comparatively higher than those
distribution industry and security larger firms.
industry. 5) Small firms may have capital constraints to
8) They require low start up capital the extent of being unable to hire
therefore the business can be funded professional managers .This adversely
from personal savings and personal affects the productivity of small firms as
savings poorly trained staff may be costly to the
9) They are usually easier to manage as business in the long run as the costs
opposed to large firms which require associated with errors and poor decisions will
complex structures therefore; decisions accumulate.
in small firms can be made and 6) Employees of small businesses have limited
implemented faster. This ensures that opportunities for advancements and
prospects for promotion .This may adversely
 affect the morale of the employees in smaller such businesses had already been established
businesses. in other nations, therefore local firms had to
7) Small firms especially sole traders and draw some lessons from established firms
partnerships may lack proper corporate from other nations.
governance practices. This applies to  International trading links positively impact
scenarios where relatives of supervisors can on the standard of living of the citizens. This
claim authority to the business even though is partially explained by the fact that most
they are not part of the organisation e.g. international business organisations are big
Utakataka express musical band was enough to enjoy scale economies. This
inherited by the son of the former band leader implies that their cost of production is less
.This adversely impacts on the morale of the therefore they can offer cheaper products to
employees. the market or provide competition to the
local firms.
 International trading links permit nations to
Nature and scope of international and specialise in production of goods which they
multinational business have a comparative advantage when
compared to other nations i.e. goods which it
 Multinational businesses are businesses that can produce cheaply compared to other
have their headquarters in one country and nations e.g. Zimbabwe has the duty to
operating factories, branches and assembly specialise in the production of agricultural
plants in other countries. produce in the SADC region.

 These companies do not only export finished Demerits of international trading links
products, they actually manufacture products
 Competition from foreign businesses can
or provide services.
drive local producers out of business if left
 Examples of multinational business
unchecked. International businesses are large
organisations in Zimbabwe are AON (Pvt)
enough to enjoy economies of scale and the
Limited, Circle Cement Ltd, Costain African
local firms may find it difficult to withstand
Ltd, Hunyani Paper and Packaging (1997)
competition e.g. DEVEN, AVM
(Pvt) Ltd, Nestle Zimbabwe (Pvt) Ltd,
AFRICA and MAZDA WILLOWVALE
Olivine Industries (Pvt) Ltd, Standard
motor industries are performing badly after
Chartered Bank and Zimbabwe Bata Shoe
the influx of cheap second hand vehicles
Company Ltd.
from Japan.
Importance of international trading links  Switching from locally produced goods to
imports is not a sustainable move as it
 The growth of local business may imply adversely impacts on the unemployment
intense competition on the domestic market levels and the revenue collected by the
.This prompts management to look beyond government from employee taxes as local
physical boarders for markets. businesses are forced to lay off excess labour
 International trading links enables businesses requirements as demand for their products
to acquire technologies and equipment for decline.
use in production processes. Importance of multinational businesses
Such equipment go a long way in improving
efficiency levels in 1) Multinational businesses enjoy
organisations economies of scale and their lower
 International links enables local businesses production costs can be passed on to
to learn from established businesses in other consumers in form of reduced prices,
nations e.g. before Zimbabwean businesses this uplifts the societal living standards.
embarked on mobile telephone businesses, 2) Multinational businesses are adequately
funded therefore they are better
 positioned to operate efficiently as they economy. Foreign currency inflows also occur
can acquire modern technologies aimed when the business is being established.
at improving both efficiency and 3) The state also seeks to maintain minimal levels of
effectiveness of business operations. unemployment in the economy. The multinational
3) They provide employment to locals as businesses assist the state in this regard by
they produce in their host nation e.g. employing a significant proportion of the
Uniliver used to employ more than 10 population to the benefit of the state.
000 employees in 1996. 4) The establishment of multinational businesses
4) Multinational businesses help to creates business to other local businesses who
increase the gross domestic product of offer support services to multinational business
host nations i.e. output produced within organisations. This effect is termed the multiplier
the national borders. GDP is an effect because its long reaching e.g. the
important measure of the nation’s living establishment of a multinational mining business
standards. can increase demand for bread as the new
5) The government earns revenue in the employees will demand more bread. This will
form of taxes as it levies corporate tax to generally uplift the living standards.
the multinational businesses. 5) The government’s tax revenue base is broadened
6) Multinational businesses offer products as the multinational business pay taxes to the state
with a consistent quality as their also the employees of the entity and those who
operations are standardised for example offers it support services are taxed directly.
Uniliver, Pepsi and Coca Cola products 6) The national human resources base will improve
produced in Zimbabwe are of the same in terms of quality as local nationals acquire skills
quality to those produced in Zambia or required to be productive in these large
South Africa. institutions.
7) When multinationals are to establish 7) The G.D.P. of the economy will improve by
businesses in Zimbabwe, they bring in establishing more businesses locally.
foreign currency to the nation. This is an 8) The state is forced to intervene in the markets to
injection into the economy, however in ensure that competition in the market is as fair as
the long run they will withdraw profits possible. If competition is left unregulated
and return them back to their country. multinational businesses can grow into
8) Most multinational entities in Zimbabwe monopolies which have potential to exploit
are managed by locals this provides consumers. This prompts government to
opportunities to locals to gain experience introduce policies skewed against multinational
and skills involved in managing large firms.
entities. 9) The profits made by multinational businesses can
be sent back to their host nations. This is of major
Relationship between multinationals and the state concern to the state as this represents a withdrawal
of funds from the economy. The government
There is a mutual dependence between
usually responds by taxing dividends declared by
Multinational entity and the state this has
these businesses to non residents.
been discussed below.
10) Multinational entities are partly to blame for the
1) The government has the objective of encouraging cultural changes in most developing countries like
investment in the economy therefore Zimbabwe. This worries the government as the
multinational businesses provide idea about cultural erosion and westernisation of
culture adversely impacts on social patterns of
the required foreign direct investment, which
life.
goes a long way in improving the living standards
of nationals. 11) Multinational businesses can be partly blamed for
the unsustainable use of natural resources because
2) Multinational firms are usually big that they can
they are aware of the fact that they can relocate to
export some of their output. Such exports bring in
other nations in the event that the resources are
the much needed foreign currency to the
 depleted e.g. in November 2015 the minister of  Large firms contribute more to the
natural resources took action against some government revenue in form of corporate tax
multinational mining entities accused of and individual income tax contributions by
practicing alluvial mining while purporting to be its employees, therefore the state is aware of
de-silting rivers. the probable income loss if the large firms
12) Some multinational businesses may violate local fail. This prompts the state to intervene with
laws especially pertaining to labour and control of measures meant to assist large firms
environmental pollution. Media reports have whenever their existence is threatened.
highlighted that some foreign entities are  Large firms are in a better position to
violating local labour laws taking advantage of increase their scale of production (output) so
high levels of unemployment currently being the state may intervene to assist large firms
experienced in Zimbabwe. Multinational firms such that they can export any excess. This
purport to rely more on international laws as improves balance of payments position and
opposed to local legislation. also earns the nation some foreign currency.
 Multiplier
 Strategic ZFC

State intervention to assist /constrain businesses Reasons for assisting small businesses
of different sizes
 Small businesses contribute to the
employment levels in an economy therefore
 In mixed economic systems the government may intervene to assist small
like firms so as to maintain employment levels.
Zimbabwe the state plays the role of a  The government may intervene to assist
regulator in the business activities taking small firms so as to protect them from intense
place in the economy. competition from large firms and encourage
 The government intervenes in the business them to grow. Small firms may find it
activities in the effort to achieve its difficult to withstand completion from large
macroeconomic objectives which include firms therefore the state at times intervenes
reduction of unemployment, achieve to assist.
economic growth (G.D.P), improve the  The state seeks to achieve economic growth
balance of payments position, to improve partly by ensuring that economic activities
government income and to promote or are distributed equally throughout the
discourage the consumption of particular country. For instance in Zimbabwe most
goods. economic activities take place in urban set
ups, therefore the government assist small
State intervention to assist businesses businesses operating in neglected areas e.g.
growth points.
The government can implement
measures which are to assist businesses Why state intervenes to constrain large firms
of different sizes .These are discussed
below.  Competition is important in any
Reasons for assisting large firms economy as it motivates firms to operate
efficiently. The state can intervene to
 Large firms employ a bigger number of restrain further growth of large entities
citizens in an economy. Therefore if large as they are viewed as a move to eliminate
firms are facing problems the state may competition. Large firms’ posse
intervene with measures to save these significant influence on the market that
institutions so as to avoid job losses which they can influence market decisions
may bring adverse social and economic single handedly. Therefore growth of
consequences. businesses if not well monitored can
 result in the exploitation of consumers supervising small firms can be
and suppliers alike. exorbitant e.g. ZIMRA & NSSA incur
 The state may intervene to constrain costs sending inspectors to asses returns
large firms as a way of promoting by small firms.
smaller firms. Smaller firms are not in a
position to compete fairly with large Methods of government to assist firms
businesses therefore the government
 The state can intervene by providing funds to
intervenes with policies that support
the businesses facing financial challenges.
small firms. This constrains large
The funds can be provided as grants or loans
businesses.
depending on the agreement. For instance,
 The government may seek to improve
the Reserve bank of Zimbabwe is a lender of
distribution of national income .this
last resort to financial institutions e.g. banks
prompts the state to take action which
and building societies.
constrains large firms e.g. the Ministry
 Taxes. The state seeks to promote local
of Youth Indigenisation and
industries from foreign competition.
employment creation has introduced the
Therefore the state intervenes by imposing
community share ownership trusts
import restrictions such as taxes on imports
prompting local mines to pay dividends
so as to reduce their competitiveness on the
to the communities they operate in such
local market. This eliminates the price
moves.
advantage that imports may have on locally
Why state intervenes to constrain small firms produced products.
 The state may impose embargoes (ban) the
 Small firms’ especially sole traders have importation or production of particular
a reputation of operating in without products. Such bans as imposed by
proper accounting records. Most small Zimbabwe on the importation of Genetically
firms do not meet their tax obligations to Modified Organisms (GMO) protect some
the state. firms from competition.  Export processing
zones
This prompts the government to The Zimbabwean government has created
intervene so as to constrain the activities EPZs which are dedicated business areas
of small firms. where investors are allowed to import
 Small firms contribute to the inefficient plant, equipment, machinery, raw materials
use of the available economic resources. and equipment free of duty for the
Small firms are not in a position to enjoy manufacture of export goods.
economies of scale therefore more  The state can assist firms by offering them
resources are used up by small firms. subsidies. Subsidies are grants by the state to
This may motivate the state to intervene assist a business to cover its operating
by constraining small firms. expenses. They have an effect of reducing the
 Small firms are usually so many that it production costs thus translating to lower
becomes difficult to regulate them prices or increased output. This applies
.Some small business organisations are mainly to merit goods such as health and
not in a position to employ qualified and education e.g., the state has been paying
experienced professionals to manage the salaries to teachers working in trust schools.
business. This implies that the state has
METHODS TO CONSTRAIN FIRM
to put in place systems to monitor the
activities of these businesses because the 1) Taxes
quality of management involved has These are levies charged to business
higher risk of making errors and may be organisations by the state. Taxes are the
of questionable integrity .The costs of major source of government revenue.
 However the state taxes business businesses which are quick to adapt to
organisations differently e.g. multinational environmental changes usually do well and most
entities pay higher tax rates than local businesses fail partially because they have failed
businesses. to adapt to the ever changing environment. The
2) Tax holidays impact of globalisation has accelerated the rate of
The state can exempt some businesses change in the environment especially in the area
form remitting taxes for particular of technology.
periods. The disadvantages of
competitors of such business as HIERARCHY OF BUSINESS OBJECTIVES
businesses on tax holidays enjoy cost
1. CORPORATE AIM
advantages over its competitors
3) Legislation These are long term goals that a business seeks to
The state uses legislation to constrain fulfil. The core business activities of the business are
the activities of some businesses. The expressed in the aims. They are the starting point of all
state can appoint a regulatory board to the business planning activities and they continue to
monitor the activities of firms in a guide the planning and evaluation process. Aims are
particular industry e.g. R.B.Z. monitors formulated by senior management e.g. directors and
financial institutions. Therefore the state subject to the approval of shareholders. Examples of
has set up the competition and pricing corporate aims are maximising returns to ordinary
commission board which i.e. mandated shareholders, being a market leader or to venture in
amongst other things to ensure that fair international markets. Such aims will guide all the
competition exists in markets. This organisational activities i.e. all business activities
implies that some business majors can should be aligned to the aim.
be blocked by the state. This constrains
business activities in efforts to control 2. MISSION
inflation levels and living standards.
4) Price controls The mission of a business is what the business seeks
The state can impose price control on to achieve by its existence. It is stated as a statement,
products produced by private a mission statement is a brief statement of the
businesses. Maximum price controls as business’s core aims which are phrased in a manner
those imposed by the state in 2008 that motivates internal stakeholders to work toward
adversely affect business activities as achieving them and stimulate interest by external
the prices may be insufficient to cover stakeholders to do business with the entity. The
operating costs .On the other hand mission is derived directly from the organisational
minimum prices such as minimum vision i.e. the vision stipulates what the business aims
wages increase the costs of businesses to achieve and the mission briefly outlines the means
thus making their products less of achieving them. Example of a mission statement for
competitive. a transport business is to provide safe and reliable
transport services across the nation. Such a mission
statement gives insight on the core activities of the
BUSINESS STRATEGY business i.e. the business prioritises safety and
reliability and it seeks to spread its services all over the
Business organisations do not operate in an nation.
isolated environment therefore management has
to assess the impact of the external environmental 3. CORPORATE OBJECTIVES
factors to the business activities. Management has
to analyse the environmental pressures so as to The business objectives are those specific ends which
come up with an effective business strategy which the business seeks to achieve in a particular period.
can enable the business to achieve its objectives These objectives may vary from one business entity to
in an efficient way. Research has concluded that the other. Objectives are directly deduced from the
organisation’s mission and vision. These objectives
can also be particular to a department, team or any challenges which most businesses may
identifiable unit of the organisation. Some of the most succumb to and close shop e.g. the hyper
common business objectives are discussed below inflation period in Zimbabwe resulted in
1. Profit maximisation. Maximising the failure of most local businesses. In
profitability is the most traditional difficult times the business may pursue
objective which most if not all modern an objective to enable it to keep its head
day businesses pursue. Although this above the water until the environment
objective is still a major motivator on stabilises. This may involve the business
business activities, modern businesses seeking only to break even i.e. to
have shifted emphasis on the generate income that covers its
sustainability of the maximum profits. operational costs.
This is primarily as a result of the fact 5. Market share. Some business
that some huge profits can be attained organisations may seek to increase their
using methods which cannot be market share. This objective has the
sustained in future periods e.g. cutting benefit of maximising long term profits
costs by disposing liquid waste in water of the entity and also helps to ensure that
bodies may maximise short term profits future profits are sustainable and stable.
before prompting authorities to take Entities pursuing this strategy usually
action against the firm. However, it can invest heavily in marketing activities
be argued that modern businesses still such as product development,
pursue this objective in an indirect penetrative pricing strategies, branding,
manner as all other objectives can be advertising and adopting extensive
traced back to this objective. distribution channels. These investments
2. Targeted return on capital employed. do not necessarily short term benefits to
Not all entities seek to generate the business.
maximum possible profits, some 6. Improving and Maintaining Goodwill.
organisations seek to achieve a specified Some businesses strive to maintain their
return on capital employed i.e. a image and goodwill in the market. These
particular level of profitability e.g. enterprises want the masses to view them
generate a return on capital employed of favourably. For this purpose, enterprises
33%. Such objective is more specific and need to comply with moral, ethical and
measurable than seeking to maximise legal standards, and let these
profits. compliances be known to relevant
3. Growth. Growth can be internal or stakeholders. Such strategies are
external as discussed in earlier common with businesses which have
discussions. Growth enables businesses received negative publicity of late and
to enjoy scale economies, raise more those operating in heavily regulated
capital and hire qualified personnel who industries
can implement the corporate strategy
Conflict of business objectives
effectively and in an efficient manner.
The growth objective usually sees firms Business objectives can conflict with each other and
seeking to improve any of the variables common cases are:
used to measure the size of a business
entity e.g. market value of shares, market 1. Short term V long term: What
share, capital invested, e.t.c. is good in the short term can
4. Survival. This is a short term business have negative effects in the
objective usually adopted when the long run e.g. cutting on
operating environment is turbulent. In advertising expenditure may
times were the external environment is increase short term profits but
unstable businesses face operational may result if declining sales
and profits in future
 2. Growth V Profit: Strategies should be challenging but attainable under
employed to increase market conditions of reasonable efficiency.
share may adversely impact on 4. Realistic: the set target should be possible given
profitability e.g. price cuts, the market conditions and the staff and financial
social responsibility programs, resources available. Unrealistic objectives
improved product quality or adversely impact on the morale of the staff
intensive advertising campaign members as argued by the expectancy theory of
3. Risk V Return: although motivation implying that staff members are
businesses take calculated risk, reasonable beings so they will not waste their
risk increases as returns effort trying to attain an objective which they feel
increase. Managers seek to cannot be achieved under the present
minimise risk and maximise circumstances.
returns 5. Time specific: the target must have time limits
e.g. 1 year to avoid vagueness. His is important
To sum up, business organisations have a variety of
for the purposes of evaluating the performance of
objectives which they may pursue at any given time
the entity over time.
but most modern day entities seem to be prioritising
achieving long term sustainable profits as opposed to
maximising short term profits. An example of a SMART objective is 'to increase
profits by 10% within the next 12 months'.
CHARACTERISTICS OF GOOD BUSINESS
SMART objectives allow the performance of a
OBJECTIVES
business to be assessed.
Businesses need objectives to enable them to DEPARTMENTAL OBJECTIVES
operate in a particular predetermined direction.
These objectives give the organisations a source These are objectives set for a specific department
of direction and are essential to ensure that each within an organisation e.g. production, marketing or
member of the organisation is working towards finance department depending on the organisational
the attainment of the organisational of objectives structure. These objectives are set at departmental
i.e. unit of purpose. They also provide a level and are supposed to be consistent with the overall
benchmark from which to assess the performance business objectives e.g. if the overall business
of the business over time. For business objective is to increase market share the marketing
objectivities to serve the intended purpose they department may have a strategy to increase
have to be Specific, Measurable, Attainable, promotional activities so as to gain market share. They
Realistic and Time specific [SMART] are set by middle management and are of medium term
in nature.
1. Specific: They must be precise and concise
implying that a good objective should be brief and INDIVIDUAL TARGETS
straight to the point. It must clearly state what has
to be achieved, e.g. increased profits. These are objectives set for each member of the
2. Measurable: The objective be capable of being organisation, these objectives are set at lower levels of
measured objectively, this implies the desired the hierarchy e.g. by supervisors and forepersons.
outcome should be quantifiable implying it They are of short term in nature e.g. for a secretary, to
should be expressed in a number value such that type and email minutes of a meeting before lunch.
can be measured, e.g. increase profits by 10%.
3. Agreed: The business objectives have a direct
impact on the motivational levels of the staff STRATEGY
members responsible for attaining those
objectives. It is therefore important to engage all Now that a business has spelt out what it seeks to
members of the organisation in a democratic way achieve (objectives), management has to formulate an
when setting these objectives. Good objectives overall long term plan which specifies the means to be
applied in achieving the set objectives (strategy). In
the formulation of a business strategy management has licences for all firms operating in Marange.
to consider the different environmental factors which Management should also appreciate that the
may bring constrains in the business’s aspirations to business’s conduct can also affect government
achieve the set objectives. Managers must have the policies e.g. the withdrawal of mining licences for
ability to scan the external environment for firms operating in Marange was partly
opportunities and threats so as to consider them in the attributable to most firms not complying with the
formulation, implementation and evaluation of government requirements. Managers are
strategy. The major environmental areas which therefore supposed to be pro active in monitoring
managers need to consider are political, economic, actual and proposed changes in the legal
social and technological factors (PEST). However environment so as to formulate an effective
factors like legal, physical, environmental and ethical strategy. Variables considered under the legal
are necessary when formulating strategy as the bring environment include tax law, employment law,
opportunities and threats to the business activities indigenisation laws, property rights,
environmental law and other laws specific to a
Political environment
particular sector e.g. banking regulations by the
The political factors affecting business have to be R.B.Z.
given a lot of weight when formulating strategy.
Government policy can affect business operations Economic environment
because all firms must adhere to the requirements of The economic environment consists of external
the law which is crafted by politians. The political factors in a business' market and the broader
environment can impact business organizations in economy that can influence a business. These can
many ways. It could add a risk factor and lead to a be divided into the microeconomic environment,
major loss for example wars or political unrest. It also which affects business decision making such as
covers factors like the foreign policy e.g. issues of individual actions of firms and consumers, and
hostile and friendly nations, these have an impact on the macroeconomic environment, which affects
the firms operations for instance Zimbabwean firms an entire economy and all of its participants.
may find it difficult to secure markets in western Many economic factors act as external constraints
nations because of the poor relations existing at the on your business, which means that managers
moment. However, political environment can provide have little, if any, control over them.
opportunities to the business in times were the political Macroeconomic influences are broad economic
ideology my favour one sector over others e.g. the factors that either directly or indirectly affect the
Zimbabwean government is working hard to revive entire economy and all of its participants,
the agricultural sector so any business which operates including the business. These factors include
in this sector is likely to receive the government interest rates, taxes, inflation, currency exchange
support. Other factors considered under the political rates, consumer real disposable income, savings
environment include consistency in government rates, consumer confidence levels,
policies, corruption levels, bureaucracy and the level unemployment rate, economic growth and
of security. income distribution patens. On the other hand,
Legal environment microeconomic factors influence how a business
makes decisions. Microeconomic factors
Managers must manage the business within the influencing a business include market size,
confines of the law and any acts which go against demand, supply, competitors, suppliers and the
the law can be costly to the business in the long distribution chain.
term. Management must be able to assess how
upcoming legislation will impact on their
business activities e.g. proposed environmental Social environment
management laws. Management should The social aspect focuses on the forces within the
understand that the legal factors have the power society which include family, friends, colleagues,
to single handedly change business results e.g. in neighbours and the media. These factors can affect our
2016 the ministry of mines withdrew the mining attitudes, opinions and interests of citizens so, they can
impact sales of product and revenues earned. This is structured around moral values. Therefore,
issue analyzes the demographic and cultural aspects of when conducting its operations, a business has
the company's market. These factors help businesses certain responsibilities which are to provide the
examine consumer needs and determine what pushes society with quality goods and services that will
them to make purchases. Among the items that should improve the people’s living standards. For it to
be examined are population growth rates, age survive, a business needs to retain its current
distribution, attitudes toward work, job market trends, customers. Some unethical practices by firms
religious and ethical beliefs, lifestyle changes, include underweight packaging of products which
educational and environmental issues, buying habits, are then highly priced and poor waste
education level, emphasis on safety, sex distribution, management resulting in pollution. However,
social classes, family size and structure, population such negative trends can affect the business in the
growth rate, immigration and emigration rates, age long run especially in this era of consumer
distribution and life expectancy rates, attitudes toward activism and that information is now travelling at
imported products and services, attitudes toward work, increased speeds than before. In attempts to boost
career, leisure and retirement and health sales, some businessmen adapt promotional
consciousness. The sociological factors are important methods that mislead customers as the message
such that the business products are acceptable by the conveyed may not give the exact details of the
society e.g. distributing products with a logo showing product, such unethical activities may motivate
a pig to Muslim communities is not a good idea the authorities to intervene and impose controls to
because of their religious beliefs. the industry.

Physical factors
Technological environment
The physical environment refers to the tangible,
Management has to take into consideration technology
or material, objects and conditions that surround
issues that affect how an organisation designs,
a business. These objects can be manmade or
produces, distributes and delivers its product or
natural and such objects directly affect the
service to the marketplace. Among the specific items
business operations as they have a direct impact
that need to be considered are technological
on the firms’ operational costs. Natural factors
advancements, government spending on technological
include the climate in the region e.g. Zimbabwean
research, the life cycle of current technology, the role
agricultural regions, soil texture i.e. suitable for
of the Internet and the impact of potential information
agricultural or mining activities or not, proximity
technology changes. In addition, companies should
to natural water bodies e.g. rivers. Such factors
consider how generational shifts and their related
affect the operational costs e.g. the closer the
technological expectations are likely to affect those
business is to the relevant features the higher the
who will use their product and how it is delivered.
rentals but the lower are other operational costs,
Technological improvements enable business
therefore management has to make a choice
organisations to improve productivity by using
which strikes a balance between these two costs.
sophisticated machinery and to enhance the
Manmade physical factors include the transport
distribution channels e.g. online sales and advertising.
network such as the quality of the road and rail
Management should take advantage of these
system and the availability of an airport. Such
technological improvements at the same time
physical factors can bring constrains and benefits
recognising the drawbacks of such benefits e.g.
to the business organisation e.g. a taxi operating
hacking and the increased risk of information
at an international airport may have access to
manipulation and fraud.
more customers but the driver is exposed to high
Ethical factors levels of noise pollution.

Ethics refer to a socially prescribed or acceptable MANAGEMENT BY OBJECTIVES

code of conduct. Ethical issues are a set of moral
The term was first outlined by management Peter
values that need to be addressed while carrying
Drucker in 1954. It is a management model that aims
out business. Businesses operate in a society that
to improve performance of an organisation by clearly • It also allows management to prepare for
defining objectives that are agreed to by both contingencies that may hinder the plan.
management and employees. According to the theory, These are usually outlined in the
having a say in goal setting and action plans should planning stages and it also assist on the
ensure better participation and commitment among mobilisation and allocation of economic
employees, as well as alignment of objectives across resources.
the organisation. This management technique works • Goals are measurable so that they can be
well with democratic management practices were assessed and adjusted easily. MBO
consultation of all members to be affected by the provides management with a reliable
objectives is made to minimise resistance and sub basis from which to evaluate the
optimal behaviour from members. Sub optimal performance of the organization as a
behaviour occurs when part of the organisation staff whole and its units.
work towards achieving objectives which are not • It can be a basis to implement a
aligned to the overall business objectives. For example performance related remuneration
the finance department can withhold funds for system which can be of mutual benefit to
marketing projects in an effort to cut operating both the business and the workers. Such
expenditure, this move can benefit the finance a system can improve efficiency, save
department only but can be detrimental to the whole resources, and increase organizational
organisation. MBO enables every unit of the morale if well
organisation to align their goals to the overall
objectives and enable each member of the organisation managed.
to appreciate his or her role in the organisation.
Disadvantages
Advantages
• MBO puts much weight on democratic
• It is a very effective planning method processes of goal setting, such
because it involves those individuals democratic processes are usually time
involved in the implementation of the consuming therefore the planning
plan therefore the objectives and the processes may take longer than
strategy to be employed is more likely to necessary which may be counter
be effective productive
• MBO has positive motivational impact • Application of MBO takes concerted
on the employees as they are more likely effort. A cannot rely upon a thoughtless,
to feel recognised when required to mechanical approach, as it can be noted
contribute to the decision making that some tasks are so simple that setting
process. This can go a long way in goals makes little sense and becomes
enhancing productivity as employees more of silly.
may develop a sense of ownership thus • MBO relies on other factors of
working hard to achieve the set management conduct for instance it
objectives works well when staff is highly
• It provides a means to identify and plan motivated staff
for achievement of goals, objectives give and the staff is literate and preferably skilled.
any business organisation a sense of • There is often a focus on mere goal
direction because, If you don't know setting rather than developing a plan that
what your goals are, you will not be able can be implemented.
to achieve them. Thus objectives are a • The organization often fails to take into
central point to the planning process. account environmental factors that
Therefore MBO permits proactive and a hinder goal achievement, such as lack of
disciplined approach to goal resources or management support.
achievement.
 Organizations may also fail to monitor for management deals with unforeseen
changes, which may require modification of circumstances that enable an entity to succeed or
goals or even make them irrelevant. fail
• There is the issue of plain human neglect
- failing to follow through on the goal. External factors, business failure to adapt
This may hinder the effectiveness of
The external environment offers opportunities to
MBO
business organisations but at the same time can
To sum up, MBO is a very essential tool for managers posse threats to their existence. For instance,
which can be applied in practice. However, it is import restrictions by the Zimbabwean
essential for management to assess the characteristics government may offer opportunities for growth to
of the workforce in line with McGregors’ motivational local businesses but may threaten the activities of
theories such that management can assess its businesses which wholly or partially rely on
applicability under the circumstances. It is also imports. Therefore, the success or failure of local
important for management to note that MBO can be business depends on their ability to quickly adapt
applied to functions within the organisation and still to changes in the environment. Businesses need
yield intended results. to be adaptive to the environment for them to
survive because an effective strategy today can be
CAUSES OF SUCCESS AND FAILURE OF ineffective tomorrow.
BUSINESSES IN ZIMBABWE
Speculation
Planning
Speculation on trends to be followed by factors in
Successful entities plan their activities in advance, the external environment can directly determine
they scan the external environment so as to foresee the the fate on business activities. For instance, the
probable changes and how they can impact on speculated technological improvements may
business activities. Such firms always have fall back adversely impact on the demand of particular
plans in the event that the initial plan fails. Successful products e.g. a cellular phone distributer may face
businesses are prudent in their planning activities i.e. reduced sales as consumers anticipate better
they are honest in assessing the business’ strengths, products. However, speculation can work to the
weaknesses, opportunities and threats. advantage of businesses e.g. the demand for
maize has increased as consumers anticipate
On the other hand poor planning has single handedly
future shortages
caused the failure of most businesses in Zimbabwe.
Such entities apply autocratic approaches to the Foreign competition
planning process whereby no consultation and
stakeholder involvement in the planning process. Poor The availability of foreign produced goods on the
planning is evidenced by the setting of unrealistic market has adversely impacted on the
targets e.g. forecasting significant growth during an performance of most local businesses. Most
economic depression, such plans lack an objective Zimbabwean businesses have succumbed to
environmental analysis. Under estimation of foreign competition because the foreign products
competitor is also another example of poor planning are cheaper than locally produced products thus
which requires research for it to be overcame their market share has been shrinking to
Implementation of strategy unsustainable levels. On the other hand, foreign
competition contributes to the success of local
Most business plans usually fail at the businesses as it improves their efficiency levels
implementation stage, therefore businesses which such as the use sophisticated machinery e.g.
are able to convert the plan to action are bound to Parirenyatwa group of hospitals acquired a
be successful. The successful implementation of dialysis machine partially because a good number
plan depends mainly on the availability of of Zimbabweans were leaving the country to seek
resources to enable the effective implementation the dialysis services in South Africa.
of strategy. It also the manner in which
High operating costs religiously follow a sound corporate governance
and ethics code succeed in their operations. This
The Zimbabwe National Chamber of Commerce has been one of the major reason blamed for the
(ZNCC) has been quoted to be complaining that the failure of most local state owned enterprises e.g.
operational costs in Zimbabwe are higher than in other cases of management fraud, unaudited business
neighbouring nations. The rewards for factors of activities and irregularities in the determination of
production e.g. wages, interest rates and rentals are not management remuneration.
directly dependent on productivity. Such matters have
significantly caused the failure of most Zimbabwean Funding
businesses e.g. labour in Zimbabwe has been
traditionally remunerated on time rate basis which The turbulent economic environment in
means workers are paid for the time the time they Zimbabwe has been partly blamed for the failure
spend at the work place not for their contribution to the by locals to save as a result of high unemployment
attainment of organisational goals. Such scenarios levels. Investment is a function of savings in the
leave room for sub optimal behaviour by employees. economy because citizens need to save before
they invest. This partly contributed to the high
Government policies interest rates being charged by local banks. These
factors imply that some local businesses fail in the
The policies by the state have gone a long way in light of increased cost of capital which may result
assisting local businesses to succeed, for instance in local businesses employing less capital than
policies restricting imports protect local businesses required for them to implement the business
from the adverse effects of foreign competition. strategy with efficiency.
However, some laws by the state have partially
contributed to the failure of some businesses e.g the OTHER REASONS FOR BUSINESS FAILURE
labour laws made it exorbitant to retrench excess
labour requirements. This made firms to retain Studies have concluded that, the ultimate
unwanted labour thus unnecessarily increasing the reason why businesses fail is leadership
overheads. as evidenced by poor financial planning,
poor marketing, poor management and
Protectionism poor business planning. These factors
are true, but we also have to consider the
The state through the ministries of small to medium
tough environment in which companies
enterprises and ministry of Industry and commerce
operate.
impose regulations to protect businesses within their
jurisdiction. Such protection enables such firms to be
Growth: While growth is desirable,
successful as the law cushions these businesses from
overexpansion is a serious error. Wanting to be
pressures in the environment. However, the state has
the first to market with a new product, taking on
no intention to protect such businesses forever. It has
added overhead, or trying to prove to anxious
been established that businesses enjoying such
investors that you’re growing can all spur you to
protection may develop dependency syndrome,
overextend your business financially. Set realistic
whereby they can hardly survive in the absence of such
goals and expand only as needs dictate. Such
protective policies. The removal of protective laws
unsustainable growth is termed overtrading i.e.
may contribute to the failure of these firms
expanding too fast with inadequate capital base.
Management/ corporate governance
The success or failure of any business is Poor accounting system: Look at businesses that
dependent on the quality of management it has. fail and you’ll find that many of them took on too
Successful entities have been able to hire much debt. Learn to pay strict attention to your
managers of integrity. Firms which hire qualified finances, and keep careful records of all money
professional managers are better positioned to coming in and going out. Such scenario exposes
succeed than those which do not. It is also the business to increased risk of fraud and
important to note that businesses which have and
 information required for decision making is either A stakeholder is anybody who can affect or is
not available or carries material misstatements affected by an organisation, strategy or business
activities. Stakeholders can be internal e.g.
Overspending: Many new entrepreneurs burn owners and employees or external e.g. customers,
through their start-up capital before their cash flow is suppliers, community, government bodies. Some
positive. This often happens because of definitions suggest that stakeholders are those
misconceptions about how business operates. For who have the power to impact an organisation or
example excessive drawings and expenditure on non project in some way.
essential items e.g. luxurious vehicles for
management, this also includes poor investment Owners
appraisal techniques.
They are the most important stakeholders. They
Poor choice of location: Some entities locate at decide what happens to the business. They're the
different places for the wrong reasons e.g. a cheap ones who enjoy a profit if the business is
lease can tempt management into choosing the wrong successful because they are the ones who provide
location. Businesses need to also consider other capital to the business. Whilst Management have
factors like competition and accessibility. the primary responsibility to look after the
owners' interests, and secure them an adequate
Return On their Investments, the Owners of a
Poor execution: Poor customer service and overall
business have ultimate control over what the firm
employee incompetence will quickly sink your
does, and how it should be managed. According
business. Make sure your employees place a premium
to Adam
on customer service. Businesses must develop systems
and processes for how tasks should be accomplished, Smith's classical economic view, a business exists
solely for the benefit of its owners, with profit
and create internal controls to monitor them.
maximization as its single objective. Whilst this
may be true in small, to medium sized businesses,
Failure to change with the time: The ability to
due to the nature of control it is unlikely to be the
recognize opportunities and be flexible enough to
case in larger businesses. In large public limited
adapt is crucial to surviving and thriving. Learn how
companies, for example, few shareholders will
to wear multiple hats, respond nimbly, and develop
either work for the organization, or be in a strong
new areas of expertise.
position to influence its activities, through their
level of share holding.
Cutting on wrong areas: Instead of doing what would
increase the income, they start cutting out things that
actually make the income. It makes more sense to Customers
downsize management perks than to cut down on
Consumers depend on business to supply them
inputs that create revenue.
with the goods and services they require and for
the safety, value and honest marketing of said
Corruption, theft and dishonesty: Millions of
goods or services. Consumers are free to choose
dollars are lost yearly as management and staff take
therefore they have power to influence the
what doesn’t belong to them. Such losses have been
business decisions. This implies that the business
blamed for the failure of most businesses.
needs to design products to the requirements of
the market for it to succeed.
Pricing: Many Zimbabwean products are priced
higher than imported goods. This allows SA imports
Suppliers
room in their market.
These are individuals and corporate organisations
which provide the business with it requirements
STAKEHOLDERS e.g. raw materials. In providing goods and
services to a business, suppliers hope to generate
 income and profit. The need to supply their CORPORATE CULTURE AND STRATEGY
products and services to a business makes them Corporate culture
dependent on the continued success of the firm. Culture is the set of beliefs that drive employee
behaviours. It can be described as the way
The Community/ Society business is conducted within an organisation.
Society in general and the local community more These can be things everybody in the company
directly, depend on businesses to provide knows and shares, as well as unspoken rules. The
employment, and investment. They also require range of acceptable employee behaviours is based
businesses to behave with a social responsibility, on these underlying beliefs. Sometimes these
towards protecting the environment. The society behaviours align well with the business strategy.
provides business with labour and potential customers. For example, some organizations have a strategic
Firms are now far more aware of the need to maintain focus on innovation: They want employees to
a positive public image. As this may well effect their think creatively and share new ideas. If the culture
businesses position in the market. Firms therefore is aligned with innovation, employees are
increasingly consider whether the decisions they make rewarded when their new ideas hit the jackpot,
are socially acceptable. Society as a whole protects its and they aren't penalized for constructive failures.
own interests formally, via laws and regulations, It is important to ensure that the business strategy
designed to ensure that businesses behave ethically is aligned to the organisational culture for the
and responsibly. This includes matters to do with business to attain its objectives. A strategy which
pollution levels. conflicts with the corporate culture is more likely
to face resistance from the organisational
Government members.
The government manages the economy within which
the business operates. The role of Government is to Organisational behaviour
regulate business activities to protect consumers.
Government agencies ensure product standards as well It is the analysis of an organisation’s structure,
as that various legislations are adhered to ensure the functions, and the behaviour of its people.
protection of consumers’ rights. The government Behavioural study encompasses both groups as
receives taxes from businesses when the business well as individuals. It encompasses the study of
makes a profit, therefore the state promotes the people, individually and in groups at the
business activities. The Government also benefits workplace. Individual and group behaviour is a
from business activities because the entities create function of many factors, which extend to other
employment for locals and improve the nation’s Gross interdisciplinary fields such as economics,
Domestic Product. The government also seeks to political science and human resource
maximise social welfare by controlling the levels of management. The scope of organisational
negative externalities e.g. pollution. behaviour is therefore extensive. An organization
needs to manage all these aspects so that it can
CONFLICT OF STAKEHOLDER OBJECTIVES sustain itself in a competitive market.
Each stakeholder group has different expectations Theoretically, it is difficult to separate
from the business as mentioned above and the management from organisational behaviour. It
common conflicts are highlighted below. can be said that one supplements the other. Some
1. Management & employees: conflicts arise on organisational behaviour issues have their roots in
working conditions, remuneration, management processes.
performance appraisals, quality of work Organisational behaviour studies therefore draw
2. Customers & shareholders: shareholders from management theories to understand aspects
expect higher dividends and consumers such as organisational structure, behaviour of
expect low prices and superior quality people in an organisation, and the issues
products which can adversely impact on concerning external and internal fit.
shareholder returns
 Successful management of organisational decisions are made in line with the vision and
behaviour largely depends on the management mission of the organisation. Decisions which
practices that prevail in an organization. are best for a firm in the private sector cannot
Understanding organisational behaviour, be applied in public institutions because
therefore, requires a clear understanding of the these organisations have different objectives.
basics of management. 4. Brainstorm and analyse different choices:
To sum up, the manner in which an Democratic processes assist the decision
organisation behaves is a direct result of the making process by meeting with various
corporate culture prevailing in the stakeholders who are to be affected by the
organisation. The corporate culture is greatly decision. This involves getting suggestions
influenced by the management styles being and discussing them. This stage gives the
applied by management. Therefore managers manager an insight on the perceived source
must apply the best management techniques of the problem and the probable reaction by
which enable the business to achieve its each class of stakeholders if a particular
intended objectives in an efficient manner. decision is made. This stage helps to motivate
the employees and to minimise resistance.
5. Evaluate different alternatives: The available
options must be evaluated by the decision
The decision making process
maker, this involves assessing the overall
costs and benefits which come with each
Managers have the duty to make decisions which have option. This is done in line with the
to ensure the smooth running of the business. It is also principles outlined at stage 3.
expected from managers to balance between the short 6. Select the best alternative: The best option
and long term objectives of the business. The under the circumstances is selected for
following steps are generally followed in making implementation
quality decisions 7. Implement the decision: The decision is
implemented into action.
1. Identification of the problem: It involves
establishing the reason why the decision has
to be made. Decisions are made in order to
either solve an existing problem or to avoid a
problem. The identification of the correct
problem is very important because decisions
made basing on the wrong problem are
unlikely to serve the intended purpose.
2. Information gathering: Decision makers
must gather as much information as possible
about the problem as possible. Information
should establish the real source of the
problem to avoid dealing with the signs and
symptoms leaving the source. For instance
increased wastage of materials may be as a
result of poor motivation as opposed to the
acquisition of sub standard materials.
3. Principles for judging alternatives: Decisions
are made basing on a specific context, i.e.
Managing Human Resources most complex resource to manage because it is
a challenge to
A business organisation requires resources such
as capital, land and labour to enable them to Need for organisational structure
achieve their objectives. Labour is arguably the
An organisation is a group of people who work 4. The identity of the superior to
together to achieve a common goal. In order to which each member in the
work efficiently the group must find the best organisation reports to e.g. the
way to organise the work that needs to be done finance director reports directly to
in order to achieve its goals. This form of the C.E.O.
organisation is that which distinguishes an
organisation from a crowd e.g. football Approaches to organisational structures
supporters.
Functional organisation
Organisational structure
The organisations’ reporting relationships are
• It is a system used to define a hierarchy grouped based on speciality e.g. there may be
within an organisation. It identifies different departments for marketing and
each job, its function and where it finance
reports to within the organisation
Merits
• It can be described as an internal,
formal framework of a business that • Staff is managed by a person with
shows the way in which management is experience in the same speciality. This
organised and linked together and how person can adequately understand and
authority is passed down the review their work e.g. the an accountant
organisation. was once a bookkeeper
• This can be illustrated by the diagram • Staff members have the opportunity to
below, which is also known as an move up within their functional areas
organisational chart. (promotion), this can motivate the staff
and go a long way in reducing the labour
turnover. Labour turnover is the
number of employees leaving the
organisation
• Staff members work with others in their
field. This makes it easier to share
knowledge
• The organisation enjoys the benefits of
The chart provides the specialisation
following information
Demerits
1. Who has overall responsibility for
decision making i.e. the C.E.O. • Risk of sub optimal decisions by
2. The formal relationship different functions i.e. a function may make
between positions within the decisions which are best to the
organisations e.g. the marketing department but not best to the entire
and finance director report to the organisation e.g. the finance
C.E.O department may purchase cheaper
3. It clearly shows the chain of materials to save funds but this material
command i.e. the way in which may adversely impact on productivity.
authority and accountability can • Communication between departments
be passed down the chain of is difficult to manage since the
command e.g. the finance director departments are not
can assign tasks directly to the accountable to each other
finance manager but the
marketing director cannot Matrix organisation structure
It is a management structure in which suitable in instances where complex
organisational members report to more than challenges are anticipated
one superior. It has its origins in the field of 2. Meet the business needs: the structure
project management. For instance, a project should be in line with the business’
accountant reports to the project manager and organisational objectives. An ideal
the finance manager. structure should assist the organisation
to attain its objectives, therefore the
Merits structure must be designed with the
organisations’ mission in mind. For
• Encourages democratic leadership instance, a business whose mission is to
style, whereby team members can make provide affordable products to a
contributions before decisions are particular segment of the market needs
made. to have a separate production and
• Flexibility, specialists from different marketing departments. However, such
areas can work together sharing a business may combine the finance and
information. This improves the quality administration departments
of decisions thus improving 3. Permit growth and development: the
productivity structure must continue to be of
• Permits efficient information relevance even if the business grows.
interchange, for instance, teams Some structures are only effective for
comprising members from different small organisations e.g. most small
functions are less likely to make sub organisations do not have stand alone
optimal decisions Human resources departments
• Promotes team work amongst
employees which is an important factor To sum up, the structure of the organisation
required in any organisation must serve the intended purpose i.e. each unit
• The organisation can fully benefit from must make a meaningful contribution towards
the services of experts and enables the the attainment of organisational goals. The
organisation to cut on some labour benefits of running each unit must outweigh the
costs cost, therefore the performance of each unit
• Motivates staff members it can bring a must be evaluated periodically.
sense of empowerment as the team can
discuss problems from different areas
of speciality Formal organisation

Demerits A formal organisation refers to the structure

of well defined jobs, each bearing a
• Ambiguity, reporting to more than one definite measure of authority,
superior can make it confusing in terms responsibility and accountability.
of which superior to brief first. This Therefore a formal organisation is
defies the concept of unit of command created through the coordination of
• There is a chance that managers can efforts of various individuals. Every
give conflicting instructions to the member within the organisation is
subordinate, this is a potential source of responsible for the performance of
organisational conflict specified task assigned to him on the
basis of authority responsibility
Characteristics of a good structure relationship.
1. Flexibility: the structure of the
organisation must be able to easily Power
adjust to the changes in the operating
environment, e.g. a matrix structure is
 Power is the ability to exert influence e.g. Close supervision is more likely to
managers can give orders to their negatively affect the staff morale and
subordinates motivation
Types of power Works well with less qualified staff
Legitimate power: a person on a higher members who require close
position has control over a person in a supervision
lower position in an organisation It is also suitable in cases where the
Charismatic power: having an exemplary managers are not experienced
character adored by other Enables fast communication between
organisational members. This entails superiors and subordinates
being a very good communicator who
convince others of his/ her ideas Wide span of control
Expert power: It is based on the perception It results in a short structure i.e. few levels
that one possesses superior skill or from the highest position to the lowest
knowledge e.g. people on training obey position
orders from experienced personnel The level of supervision is not very tight as
Reward power: a person motivates others the superior has a sizable number to
by offering rewards such as monitor
promotions, pay rises and other Works well with highly motivated staff who
awards. can work with minimal
Coercive power: a person uses force and supervision
threats. It is unlikely to win respect It enables the organisation cut on
and loyalty from subordinates. supervision cost making it competitive
Therefore, it must be used as the last It yields maximum benefits when the staff is
resort. trained i.e. they do not need strict
supervision
Chain of command This works well with decentralisation as it
This is the route through which authority is reduces pressure on the superior
passed down the organisation.
Typically, the highest position i.e. the Authority
C.E.O. in the organisation has the Authority is the legitimate right to exercise
ultimate authority. This authority is power
then passed down from superior to Various individuals can influence the
subordinate actions of other members within an
organisation, such power has to be
Span of control sanctioned by the organisational
It refers to the number of subordinates structure for it to be classified as
who report directly to a single authority e.g. the vertical relationship
superior. The span of control can be between position
wide implying that more subordinates Authority flows down the chain
are accountable to one superior or of command
narrow i.e. few subordinates reporting
to a superior. Accountability
Narrow span of control It is the answerability for the performance
It results in close control of subordinates of the assigned task
and a tall structure Members of the organisation are
It is more costly to the organisation due to accountable for the tasks assigned them
increased overheads (supervision Subordinates are answerable to their
costs) superiors
 It is the responsibility of the superior to The small scale enables the owner to
ensure that those accountable to them execute these tasks in a fairly efficient
execute their duties in an efficient manner.
manner As the business increases the pressure will
For example, the directors of a company are pile on the owner hence need to
accountable to the shareholders. increase the number of employees. The
increased number of staff becomes
Responsibility more complex to monitor for the owner,
It is the responsibility of managers to ensure hence need to apply the concepts of
that everyone is on task doing specialisation. This may result in the
the right thing owner identifying strategic functions
Responsibility has to be directly connected within the organisation and delegate
to accountability implying that that task to some individuals’ e.g.
managers are responsible for ensuring marketing, finance, human resources,
that those accountable to them make operations or administration. These
positive contribution towards the individuals will monitor the
attainment of organisational goals performance of others and report to the
Authority and responsibility are also closely owner. This reduces pressure on the
related because if a person is granted owner who can concentrate on strategic
responsibility without sufficient issues.
authority, that person cannot The business can grow further by opening
accomplish the task efficiently e.g. branches in other geographical
subordinates must obey orders from locations. Such develop
their superiors. ‘#?:>ments require a manager for each
On the other hand if excess authority is branch and a central office to which all
delegated such authority is likely to be branches report to. There is need to
misused in one way or the other. clarify how the head office staff and the
staff in different branches are to relate
to each other. This requires a formal
Growth and the organisational structure
organisational structure.
The size of an entity directly influences the
It can therefore be concluded that the size of
manner in which it is structured. As the
an organisation directly affects the
organisation grows in size the existing
organisational structure. This is
structure can become unsustainable,
explained by the fact that the structure
for instance a small sole trader business
of the organisation should be
in which the owner participates in the
sustainable in terms of striking a
day to day management of the entity
balance between costs and benefits,
may have few employees who report
directly to the owner. On the other
hand, as the business grows more layers Line and staff organisation
and functions are added on for the ease Line relationship
of coordination of the organisational Line managers are those that have authority
efforts and to benefit more from over others in a hierarchical structure
specialisation. This is explained below e.g. a school head has authority over the
At the launch of the sole trader works alone teachers.
with him/her directly monitoring all Line managers are responsible for the
the employees performance. The owner performance of their subordinates,
is responsible for marketing the therefore a subordinate to superior
products, collecting payments, relationship exists.
determining the credit policy, hiring Staff relationship
and the supervision of the staff, e.t.c.
 Staff managers do not have line authority Centralisation
over others, but they are specialists who Centralisation refers to the degree to which
provide expert advice to senior line authority is distributed within an
managers e.g. economists and financial organisation. A centralised structure
analysts has the decision making authority
Staff managers rely on expert power as retained higher up the chain of
opposed to other sources of power command.
They are important because their advice Centralisation is systematic and consistent
enables management to make informed reservation of authority at central
decisions. However, they do points within the organisation, e.g. the
not make decisions they only play a marketing manager making or
supporting role approving all marketing decisions
This implies that, decision making authority
Conflict between staff and line is concentrated at top of an
managers organisations’ hierarchy i.e.
Line managers may feel staff personnel are subordinates are not authorised to
not accountable for their actions as they unilateral decisions
do not have direct responsibility to the This is common in state owned enterprises
core functions of the and other bureaucratic organisations,
organisation where strict adherence to the laid
Ideas brought by staff personnel may lack down procedures is emphasised
applicability because they may lack
detailed knowledge of the operational Merits
activities Consistent decisions are made within the
Staff personnel may bring advice organisation as they are made at the
inconsistent with the organisational central point. This goes a long way in
culture which is a source of conflict. avoiding conflicts and the making of
This emanates from the different suboptimal decisions. Consistency is
backgrounds which the personnel came necessary in shaping the organisation
from. culture.
Conflict can arise in times where functional Senior managers are experienced decision
authority can be granted to staff makers therefore they are better
managers to ensure that their positioned to make better quality
recommendations are implemented. decisions.
The line manager may feel threatened Centralised decisions reduce coordination
by the move. problems as the unifying force
Staff managers and line managers may not integrates all operations, thus it
agree on who has to get credit for a becomes easy to coordinate the
particular organisations activities
To sum up, the best way of avoiding line and The organisation does not have to employ
staff conflict lies in all members of the highly skilled subordinates as they are
organisation acknowledging their not required to make major decisions
mutual dependency and clearly
defining the duties of each individual Demerits
within an organisation. In order to Due to the fact that decisions are made at
minimise dysfunctional conflicts the the top of the hierarchy, this might
morale within the organisation must be result in delays in the decision making
generally high i.e. members must be and communication.
highly motivated
 It increases the burden on the top speeds up communication within the
management, this may reduce the time organisation.
devoted to strategic issues Customers enjoy better quality services as
It doesn’t afford lower level managers an their queries can be solved in a short
opportunity to develop their decision space of time.
making skills, this adversely affects
their morale. This also has a negative Demerits
impact on the continuity of the Challenges may arise in coordination the
organisation as lower level managers efforts by different functions because
are not authorised to make decisions each function is given the autonomy to
Lower levels of motivation as staff cannot make relevant decisions. This may lead
satisfy higher level needs e.g. to inconsistencies in the decisions
achievement made.
The success of the whole organisation is The quality of decisions can be adversely
dependent on the competence of top affected as lower level managers may
management, this can pose significant lack the required skill and experience
risk to the entity since an error by one Decentralisation increases the operational
individual can cost the costs of the organisation because each
whole function has to have trained personnel
organisation dearly to make relevant decisions.
Senior managers can abuse decision making Decentralisation cannot work if the
authority staff members do not possess the
relevant decision making skills
Decentralisation May result in duplication of tasks
Decision making authority is spread out to Increases risk of cost overruns i.e. spending
include more managers in more than budgeted funds. This is
the hierarchy, as well as attributable to the fact that it becomes
individual business units or trading difficult to achieve tight financial control To
locations sum up, the decision to centralise or
decentralise decision making authority is
Merits very important in the success of any entity.
Decision making is faster since However, it has to be noted that senior
as decisions can be made at the source. management remains responsible for the
Decisions made can be more relevant to the performance of the organisation. Therefore,
situation as they are made by the the organisation must be structured in such
individual closer to the situation a way that enables it to benefit from both
Motivates the employees as the higher level decentralisation and centralisation while
needs e.g. independence, participation minimising drawbacks. Junior managers
and status can be satisfied by making can be granted authority to make tactical
decisions and routine decisions while strategic
Reduces workload for top management decisions are made at the top of the
executives hierarchy.
It gives opportunity for subordinates to
exercise judgement. This enables them Delegation
to develop managerial skills which will It is the passing of authority down the
be useful in the long term in cases organisational hierarchy. Delegation
where promotions are necessary therefore occurs when someone with
It facilitates a wider span of control and authority confers upon another person
fewer levels of organisation. This the power to perform a particular task.
It involves managers delegating
 authority to subordinates. However, the ready for more senior positions in
ultimate responsibility of the task being future.
implemented remains with the Assists in the continuity of the organisation
delegator. For instance, the financial i.e. business can hardly be interrupted
accountant may delegate to the by the short term absence of the
bookkeeper the task of preparing the manager and a subordinate can take
income statement, however, the over in the absence of the manager.
accountant remains responsible for An opportunity for innovation as the
ensuring that the task has been subordinate can discover more efficient
completed, i.e. the Accountant remains ways of executing the task at hand
accountable to the finance manager for Demerits
the contents of the income statement Some duties are non delegable i.e. the duties
cannot be delegated legally. Therefore
Effective delegation the manager exposes him/ herself to
The following factors are critical in ensuring risk by delegation
that delegation yields the Delegation requires skill on the part of both
intended results delegator and the subordinate for
Authority; the manager should not only it to be successful
delegate the task but must delegate It can only succeed if the employee morale
authority this enables the person is high. Demotivated employees
performing the delegated task to generally dislike work therefore they
execute it effectively. For instance, if a shun and avoid responsibility
school head delegates a task to a teacher Subordinates may be unwilling to perform
other teachers have to obey the delegated task but can be shy to
the instructions from the teacher as if it communicate the task to the superior
is the school head executing it. Subordinate may not put much effort in
Communication; there must be two way executing the delegated task as they are
communication between the two aware that the ultimate responsibility
parties involved. This ensures that the remains with the delegator
subordinate understands clearly what There is potential for abuse of delegated
has to be done and the reasons for doing authority
it. This clears misconceptions and the The subordinate may lack relevant skill to
subordinate can be motivated execute the delegated task effectively
The task must be well defined and time and efficiently
specific Reasons why managers are reluctant
The subordinate must possess the relevant to delegate
skills to execute the task effectively
The manager cannot delegate responsibility
Merits i.e. the manage remains accountable
Motivates subordinates by creating trust, for the performance of the task to
this goes a long way in enhancing his/her superiors
productivity The nature of the task i.e. if a task is critical
Senior managers are left with adequate time or strategic the manager can prefer to
to deal with important issues as perform it in person for the fear of
they delegate other tasks errors and to maintain confidentiality
Tasks can be completed in time as the e.g. the Accountant manager can prefer
manager can delegate tasks to those to run the payroll for senior managers
who have less pressure in person to maintain privacy
It can be viewed as a form of on the job Fear that the subordinate cannot perform
training, this grooms subordinates to be the task with perfection
 Some managers may be afraid of 7. REMUNERATION: Many variables, such
competition from subordinate for as cost of living, supply of qualified
his/her post in the event that the personnel, general business conditions, and
subordinate performs the task better success of the business, should be
than them considered in determining a worker’s rate of
pay.
8. CENTRALIZATION: Fayol defined
centralization as lowering the importance of
Fayol’s 14 principles the subordinate role. Decentralization is
increasing their importance. The degree to
Henry Fayol brought forward fourteen which centralization or decentralization
management principles of what he deemed to should be adopted depends on the specific
be necessary for any organisation to operate organization in which the manager is
efficiently and effectively. The presence of these working.
features is what distinguishes an organisation 9. SCALAR CHAIN: Managers in
from the crowd. hierarchies are part of a chain like authority
scale. Each manager, from the first line
Management Principles developed by Henri
supervisor to the president/ C.E.O., possess
Fayol:
certain amounts of authority. The President
(C.E.O.) possesses the most authority; the
1. DIVISION OF WORK: Work should be
divided among individuals and groups to first line supervisor the least. Lower level
managers should always keep upper level
ensure that effort and attention are focused
managers informed of their work activities.
on special portions of the task. Fayol
The existence of a scalar chain and
presented work specialization as the best
adherence to it are necessary if the
way to use the human resources of the
organization is to be successful.
organization.
2. AUTHORITY: The concepts of Authority 10. ORDER: For the sake of efficiency and
and responsibility are closely related. coordination, all materials and people
Authority was defined by Fayol as the right related to a specific kind of work should be
to give orders and the power to exact treated as equally as possible.
obedience. Responsibility involves being
accountable, and is therefore naturally 11. EQUITY: All employees should be treated
associated with authority. Whoever as equally as possible.
assumes authority also assumes 12. STABILITY OF TENURE
responsibility. OF
3. DISCIPLINE: A successful organization PERSONNEL: Retaining productive
requires the common effort of workers. employees should always be a high priority
Penalties should be applied judiciously to of management. Recruitment and Selection
encourage this common effort. Costs, as well as increased product-reject
4. UNITY OF COMMAND: Workers should rates are usually associated with hiring new
receive orders from only one manager. workers.
5. UNITY OF DIRECTION: The entire 13. INITIATIVE: Management should take
organization should be moving towards a steps to encourage worker initiative, which
common objective in a common direction. is defined as new or additional work activity
6. SUBORDINATION OF INDIVIDUAL undertaken through self direction.
INTERESTS TO THE GENERAL 14. ESPIRIT DE CORPS: Management
INTERESTS: The interests of one person should encourage harmony and general
should not take priority over the interests of good feelings among employees.
the organization as a whole.
NB***. Although it is less likely that you will be Informal organisation can be used by top
asked to state or explain these principles in the managers to get accurate feedback on
exam, making reference to them in discussing employee opinions on various policies
management issues is a demonstration of and plans.
mastery. The informal organisations can be
strategically used by management to
assist in achieving the objectives of the
Informal organisation formal organisation. They can be used
Informal organisation refers to the in the following ways
relationship between people in an The knowledge of informal groups can be
organisation based on personal used to gather support of employees
attitudes, likes and dislikes. These and to improve their performance. For
relations are not developed according instance, convincing leaders of an
to procedures and regulations laid informal group about a policy change
down in formal organisations e.g. a will go a long way in minimising
manager can make friends with a employee resistance
subordinate. Through grapevine important information
Formal organisational structure assigns can be transmitted quickly. The grape
people to various positions, while vine can also be used to test the
working at those job positions the employee reaction to a particular action
individuals interact with each other and by management, if the resistance is
develop some social and friendly groups severe management can distance itself
within the organisation from the
This network of social and friendly groups communication
in the organisation forms another Cooperating with informal groups enables
structure termed the informal managers to skilfully take advantage of
structure. both formal and informal organisations
The purpose of informal groups is to get e.g. managers can build teams of people
psychological satisfaction belonging to the same informal groups.
The existence of informal structure depends Demerits
on the existence of a formal structure It usually spreads rumours which can be
because individuals cannot interact in misleading to employees
the absence of the formal organisation The structure does not follow a systematic
Features working order, therefore it does not
It is created automatically without intended form a structure for smooth working of
efforts of managers. They do not pursue the organisation
a specific objective It may bring negative results to the formal
It is formed for social and psychological organisation in cases where the
satisfaction of the employees informal group is not in agreement with
The source of information can be difficult the management policies. It forms a
to ascertain as any person can basis for resistance.
communicate with anyone within the
organisation
Membership is voluntary
Merits
It does not follow the scalar chain so there
can be faster spread of information
Informal communication fulfils social needs
of the employees thus motivating them
and enhancing
productivity
 MOTIVATION AND LEADERSHIP been satisfied can a person seek to
satisfy a higher need.
Motivation 1. Physiological/ biological needs These needs
are necessary to sustain life e.g water, shelter
Motivation is defined as, those factors that
and food. If such needs are not satisfied then
affect human behaviour. Humans do not just
one’s motivation will arise from the quest to
take action but they take action for a particular
satisfy these needs. The theory suggests that the
reason which is therefore termed motivation.
absence of higher needs is not felt when such
Managers have to understand the needs of the
needs are not satisfied. Such needs can be
subordinates as they greatly influence their
provided at the workplace situation by financial
behaviour at the work place. It is assumed that
rewards which enable the person to satisfy these
employees work for the purpose of satisfying a
needs. 2. Safety/ security needs Once
number of needs which are discussed below
physiological needs are met, ones effort shifts to
Maslow’s hierarchy of needs security needs. The person seeks to be free from
physical and emotional harm. These needs can
• Motivation is driven by unsatisfied be satisfied by offering job security, medical
needs therefore managers must insurance, working in a safe environment
understand the needs of the individual (protective clothing) and savings.
employee 3. Social needs
• Abraham Maslow a psychologist in When physiological and safety needs are
1943 brought forward the following satisfied social needs become important.
hierarchy of needs which humans seek Social needs are the first higher order needs
to satisfy and they relate to the interaction with other
• The needs are in ascending order i.e. people e.g. superiors, colleagues and other
humans seek to satisfy the needs on the stakeholders. These include the need for
bottom of the pyramid first friends, need for belonging and need to be
loved. These needs can be satisfied by social
gatherings, informal relationships,
refreshing and
other sporting activities
4. Esteem needs After the satisfaction of
the three bottom needs a person seeks to achieve
internal and external esteem needs. Internal
esteem needs are those related to self esteem
such as self respect and achievement. External
esteem needs are those that include social
status, reputation and recognition. These needs
can be satisfied by involving employees in
decision making, decentralisation, recognising
hardworking staff members e.g. employee
awards. 5. Self actualisation It is the quest of
reaching one’s full potential as a person. This
need can never be fully satisfied because as one
grows psychologically there are always new
• Maslow argued that human actions are opportunities to continue to grow. According to
directed towards goal attainment Maslow very few individuals reach this level,
(satisfying specific needs) however, self actualised people tend to have
• Maslow’s hierarchy of needs states that needs such as truth, justice, wisdom and
we must satisfy each need in turn meaning. Such needs are satisfied by people
starting with the physiological needs, conducting researches and further studies e.g.
only when the lower order need has
professorship. Such needs are difficult to satisfy help a person become a more valuable employee
at the work place. and provide a chance for advancement on the
job.

REASONS PEOPLE WORK Feeling Important

There are many reasons why people work. One All people like to feel they are needed. This gives
person may work for one reason and another them a purpose to life. Work by one person
person for another. If one were to ask someone provides a service or product for another
why he/she works, his/her first answer might person. For instance, a teacher feels to be
be, "to earn money." While this may be true for making an important role in educating
many people, there are some rich people who members of the society. If people take pride in
also work very hard and they surely do not need their work, they may find it a very enjoyable part
the money. They must work for other reasons. of their lives.
Although people work for many reasons some
of the more important reasons are as follows: Achievement
Most people want to achieve something during
Earning Money their lifetime. Working provides a way for them
People need to work to make a living. to get the things they want out of life. It is
Therefore, it is necessary to earn money to buy important for workers to set some goals for their
the things that are needed and wanted. Some of future work. Workers should know what they
the things that are bought are necessary for life want to achieve and then set out to achieve it e.g.
and others add happiness and enjoyment to life. an accounting student may have a dream to
It should be remembered that the amount of become a chartered accountant.
money a person earns from an employer will
depend on what the worker has to offer the Recognition
employer. All people like to receive credit for what they do.
Receiving credit and recognition for doing good
work makes anyone feel good. It also makes
Security people try to work harder and do better. Next to
It is only natural that people are somewhat the need to earn a living, perhaps the reason
worried about the future. Most people are most people work is to receive some form of
concerned about how long they will be able to recognition.
keep their jobs or what might happen to them
and their families if they were unable to work. Social Values
This means people work to generate savings The work that a person does is valuable to
that could be used when the worker is out for society. The work a doctor does benefit not only
any reason. The reason people buy insurance of the doctor, but also the people who are treated.
all kinds is that they are concerned about the Some people even work without pay for the
future. Work that is done today may provide benefit of others e.g. volunteers with
money that can be used in the future. Therefore, humanitarian organisations like Red Cross and
some people work to provide this security. Red Crescent.

Gaining Experience Keeping Busy

Sometimes people work at a job so that they can Without work, some people would find it
gain some experience and get a better job. difficult to find enough to do. Work provides an
A person might start out as a dishwasher in a outlet for their energy. There are times when
restaurant. A good worker will gain experience older workers would prefer not to retire. Their
on the job and might move up to a cook’s helper jobs give them a chance to keep busy.
in the kitchen. Work is necessary so he/she can
gain experience on the job. This experience may
 time e.g. without a contract the
It is easy to see that finding a job and doing that employee has to live with the risk of
job to the best on one’s ability is an important losing the job without notice or the
part of life. People work for many different variation of employment terms by the
reasons, from wanting money to helping others. employer.
It is very important for a manager to understand Employer can make insurance
the probable reasons why each member of the contributions on behalf of the
organisation is working, these reasons can be employees e.g. pension and medical
used to ensure that the worker is motivated. aid. The employee is guaranteed
income in the event of a job loss or
retirement. This makes the employee
MOTIVATION THEORIES
feel secure
A number of theories have been put forward by • Management can use coercive power
psychologists to explain the behaviour of sparingly as it adversely impacts on the
employees at the workplace. These are safety of the employees, frequent
discussed below. threats to employees can demotivate
the workers.
Maslow’s hierarchy of needs
Social needs
Maslow identified 5 levels of needs which we
have discussed previously. The theory can be • Working in teams can help to motivate
practically applied in worker motivation as the employees, this is in line with
follows. Fayol’s fourteen principles
• Establishing good communication
Application of the theory channels go a long way in motivating
the workers
Physiological needs
• Forming of sporting clubs e.g. soccer
clubs. This enables employees to satisfy
• These needs can be satisfied by
their social needs e.g. Chicken inn FC.
employment income, therefore
• Non discriminatory practices by
managers must offer sufficient
management go a long way in
remuneration to pay for food,
motivating the employees. In
accommodation and supply their
organisations where discrimination is
families with the necessities of life.
rife those individuals being
• According to Maslow,
discriminated may lack confidence and
employees
become less productive

cannot be motivated if the income they Esteem needs

get from employment does not give
them access to the necessities of life. • Managers must show appreciation for
outstanding performance, this can be
Safety needs done by having annual awards to
hardworking employees e.g. employee
• Workers need to feel safe at the work of the year awards
place, this can be done by providing • Managers can delegate some tasks to
protective clothing, this protects the their subordinates
employee from work related injuries • The nature of the job design must be
especially for blue coaler jobs. challenging, management can set
• Contracts of employment provides job challenging objectives
security to the employee as he/she is • Encourage employee participation
guaranteed employment under through democratic decision making
stipulated conditions for a period of processes.

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 • Offer training to employees who • Company Policies and administrative
require it. policies - The company policies should
not be too rigid. They should be fair and
Self actualisation clear. It should include flexible working
• The employee can be given challenging hours, dress code, breaks, vacation, etc.
tasks and the autonomy to solve those Fringe benefits - The employees should
problems be offered health care plans, benefits
• Encourage creativity of the worker in for the family members, employee help
those situations programmes, etc.
• Self actualised workers inspire others • Physical working conditions - The
e.g. the company’s managing director working conditions should be safe,
can inspire other employees clean and hygienic. The work
equipments should be updated and
well-maintained.
HERZBERG’S TWO FACTOR THEORY • Interpersonal relations - The
relationship of the employees with his
Herzberg identified two set of factors relevant in peers, superiors and subordinates
the motivation of employees. He classified these should be appropriate and acceptable.
factors into hygienic factors and motivating There should be no conflict or
factors. humiliation element present.
Hygienic factors • Job Security - The organization must
provide job security to the employees.
• These factors demotivate the employee
Motivational factors
if they are not present but their
presence does not motivate the worker According to Herzberg, the hygiene factors
to work harder. cannot be regarded as motivators. The
• Examples of these factors are salary, motivational factors yield positive satisfaction.
over-supervision by managers and These factors are inherent to work. These
working conditions factors motivate the employees for a superior
• Managers have to ensure that the performance. These factors are called satisfiers.
hygienic factors have been provided so These are factors involved in performing the
as to get rid of dissatisfaction. However, job. Employees find these factors intrinsically
the provision of such factors do not rewarding. Motivational factors include:
mean that the worker is satisfied
• Herzberg argued that the absence of • Recognition - The employees should be
dissatisfaction does not mean that the praised and recognized for their
workers are satisfied, this is because the accomplishments by the managers.
two are caused by two distinct factors.
• Sense of achievement - The employees
Therefore the two cannot be treated as
must have a sense of achievement. This
opposites.
depends on the job. There must be a
• Hygienic factors are synonymous with fruit of some sort in the job.
the lower level needs on the Maslow’s
• Growth and promotional opportunities
Hierarchy of needs
- There must be growth and
They can be provided in the following ways advancement opportunities in an
organization to motivate the employees
• Pay/ salary: The pay structure should to perform well e.g. opportunities for
be appropriate and reasonable. It must promotion
be fair and competitive to those in the • Responsibility - The employees must
same industry in the same domain hold themselves responsible for the
work. The managers should give them

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 ownership of the work. They should • Therefore managers should break down
minimize control but retain production into a series of small tasks
accountability. • Workers should then be given
• Meaningfulness of the work - The work appropriate training and tools so they
itself should be meaningful, interesting can work as efficiently as possible on
and challenging for the employee to one set task.
perform and to get motivated. This is Workers are then paid according to the
done through job enrichment and job number of items they produce in a set
rotation. period of time- piece-rate pay.
• As a result workers are encouraged to
Limitations of Two-Factor Theory work hard and maximise their
productivity.
1. Herzberg assumed a correlation
between satisfaction and productivity. Application of scientific management in
But the research conducted by motivation
Herzberg stressed upon satisfaction
and ignored productivity. Taylor's approach has close links with the
2. No comprehensive measure of concept of an autocratic management
satisfaction was used. An employee style(managers take all the decisions and simply
may find his job acceptable despite the give orders to those below them) and
fact that he may hate/object part of his McGregor's Theory X approach to workers
job. (workers are viewed as lazy and avoid
responsibility). This has the following
Application of the Theory consequences
PThe theory implies that the managers must
stress upon guaranteeing the adequacy of the • Performing the same task repetitively
hygiene factors to avoid employee will end up becoming monotonous and
dissatisfaction. Also, the managers must make boring, this can demotivate the worker
sure that the work is stimulating and rewarding and adversely impact on productivity
so that the employees are motivated to work and • It is improper to assume that workers
perform harder and better. This theory are motivated solely by financial
emphasize upon job-enrichment so as to rewards as it can be observed in reality
motivate the employees. The job must utilize the that people work for other reasons
employee’s skills and competencies to the which are not financial.
maximum. Focusing on the motivational factors • The piece rate system is difficult to
can improve work-quality. apply in some businesses especially in
the service sector
TAYLOR’S SCIENTIFIC MANAGEMENT • Strict supervision of employees can
adversely impact on employee
Taylor put forward the idea that workers are confidence and morale
motivated mainly by pay and did not consider • Taylor identified the importance of why
non financial methods of motivation. He viewed workers must receive adequate
a worker as an economic man who is motivated training. This is very important in
solely by monetary rewards. He made the improving productivity and worker
following arguments: motivation.

• Workers do not naturally enjoy work

and so need close supervision and MAYO’S HUMAN RELATIONS THEORY
control

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Elton Mayo believed that workers are not just
concerned with money but could be better
motivated by having their social needs met
whilst at work (something that Taylor ignored).
He introduced the Human Relation School of
thought, which focused on managers taking
more of an interest in the workers, treating
them as people who have worthwhile opinions
and realising that workers enjoy

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ADVANCED LEVEL BUSINESS STUDIES
interacting together. Mayo made the concluded quality as workers are motivated to achieve
that workers are best motivated by: speed of output not quality of output. From the
employees point of view there is no guarantee of
• Better communication between income and incomes are often very low, no
managers and workers matter how fast they work.
• Greater manager involvement in
Fringe Benefits: Other forms of financial
employees working lives
motivation include company cars, pension
• Working in groups or teams.
schemes, sickness benefits, subsidised meals
and travel, and staff discounts. These are often
In practice therefore businesses should
grouped together under the heading fringe
reorganise production to encourage greater use
benefits. Some of these fringe benefits can be
of team working and introduce personnel
regarded as essential in encouraging the right
departments to encourage tgreater manager
applicants for certain types of vacancies. For
involvement in looking after employees'
example a company car is a necessity in
interests. His theory most closely fits in with a
financial service firms for anyone involved in
democratic style of management.
sales, and senior management in many
companies would expect both an upmarket car
and private health care.
MOTIVATION IN PRACTICE
Bonus schemes: There are a wide variety of
When examining methods of motivation that bonus schemes available, each designed to be
can be applied in the workplace, we sub-divide suitable for different employees doing different
them into financial and non-financial methods. jobs. These schemes include:
Financial methods directly involve monetary
rewards e.g. bonuses, pay rises, pensions etc. • Sales bonus. This is normally paid if a
Non-financial methods, though perhaps sales target has been reached. For sales
indirectly bringing monetary rewards, are people this may make up a significant
targeted at providing psychological benefits for part of their salary.
workers. It must be remembered that both • Performance bonus. This can be
financial and non-financial methods have costs paid to an individual or on a group or
to the employer, either through direct costs such factory wide basis, and is often paid for
as extra pay, or indirectly through the provision reaching targets of output and quality.
of training or management time spent. This method of payment is an
important part of Human Resource
Management.
Financial methods of motivation
• Christmas bonus. Often called a 13th
Herzberg emphasised the importance of month's salary, paid for loyalty to the
hygienic factors, he once said ‘if you pay business.
peanuts, you get monkeys’. This shows the • Profit share. Some businesses will
importance of financial methods of motivation pay a percentage of profits to
discussed below. employees. The amount that they
receive will normally depend on salary
Piece rate pay: The most basic method of and length of service, so rewarding
payment is a piece rate. When a piece rate is those that had been with the company
paid workers are paid for each item they longest, more.
produce or for each task completed. This does
have advantages in that workers will work as Profit related pay. Profit related pay links
fast as they can to maximise their income, and part of an employees’ income to the profits of a
payment is only made when work is completed. company. Those who receive profit related pay
But there are disadvantages for both employer will earn less if the company profits decline and
and employee. For the employer there must be more when the entity is profitable. This method
a great deal of supervision and checking of
ADVANCED LEVEL BUSINESS STUDIES
is sustainable to the firm as employees are paid time spent training the worker to complete
in accordance to profitability. these extra tasks. Effective job enrichment
Employees are motivated to work hard to depends upon workers having interesting tasks
improve the entity’s profits thus achieving goal to complete. Job design is a key part of
congruency. Herzberg's ideas.

Commission: Employers pay employees a Job Enlargement: Job enlargement means

sales commission to incentivize the employees increasing the number of tasks completed by a
to produce more sales and to reward and worker. So a secretary previously employed to
recognize people who perform most answer calls might now have duties, which
productively. The sales commission has proven include, filling, letter writing etc. This adds
to be an effective way to compensate sales interest to the job, and involves the employee in
people and to promote more sales of the a more complete role within the business.
product or the service. The employee is paid a
Communication: Communication is a key
specific portion of his or her sales e.g. 3% of
part of motivation, and effective use of methods
sales revenue generated by the employee.
of communication is a complex management
Employee stock option: It is a stock option issue.
granted to specified employees of a company. It
offers the options holder the right to buy a Empowerment: This means giving workers
certain amount of company shares at a the power to control their own jobs, make
predetermined price for a specific period of decisions, and implement their own ideas. It is
time. This motivates the employees to work for often used effectively in decentralised
the benefit of the organisation since they are to organisations and democratic leadership styles.
become owners of the entity.
Quality Circles: These are groups of workers
that meet on a regular basis to discuss problems
in the manufacturing or service provision
Non-financial methods of motivation
process and offer solutions. They may involve
The use of non-financial motivation methods is groups of workers from the same department,
an attempt by employers, to apply ideas behind or come from a variety of disciplines. They may
the theories of Mayo, Maslow and Hertzberg. include designers, buyers, and production
Examination of these theories has shown us that workers.
motivation to achieve quality of output is best
Training: The provision of a formal training
achieved through satisfaction of higher needs
scheme is important. As Herzberg stated,
(Maslow), awareness of the role of groups in the
without training, workers will not be able to
workplace (Mayo), and the need to provide
fulfil their potential. Training can be on-thejob,
Motivators (Herzberg). The non-financial
learning by doing, or off the job, such as
methods of motivation outlined below can be
studying at a college. Taylor also emphasised
linked to one of more of these theories.
the importance of training in an effort to
Job Enrichment: This means giving workers improve productivity.
more control over the tasks that they complete.
Growth opportunities: Employees will
Allowing workers to complete tasks that have a
always perform at their best when the
meaning, and are complete in themselves. For
environment is conducive to growth. The
example a worker who has a job fitting the tube
potential for growth is a huge motivational
to a TV, may have his job enriched by testing
difference maker. Employees can be motivated
that the tube works, and being able to make
by opportunities for promotions, professional
adjustments so that the required level of quality
advancement by getting more experience and
is achieved. The ability to do this range of tasks
personal growth.
means that the worker becomes more
committed to achieving quality. The cost
associated with this method, are of course, the Status: it is a socially defined position or rank
to groups or group members by others. It is
ADVANCED LEVEL BUSINESS STUDIES
evident that the society has different classes. • Resistance to change
Status is an important factor in understanding
human behaviour because it is a significant On the other hand, the following signs show that
motivator. For instance, when one has been the workforce is demotivated
promoted his/her status would improve thus
• Reduced productivity
boosting morale and productivity.
• Accidents at workplace
• Increased wastage of materials
• Poor quality work
• Dysfunctional conflicts
Positive effects of motivation
• Workers avoid responsibility
The following features show that the staff • High rates of absenteeism
members are motivated • High labour turnover i.e. increased
number of employees leaving their jobs
• Increased productivity • Actual or threats for industrial action
• Reduced accidents • Less or no punctuality
• Reduced wastage of materials • Work delays i.e. missing deadlines or
• Minimum errors targets
• Reduced conflicts
• Workers seek responsibility
LEADERSHIP  Self motivated i.e. seeks to satisfy higher
level needs on Maslow’s hierarchy.
• It is the art of influencing people to Motivated by non financial incentives
perform task related activities
 Commitment to the growth and
willingly.
development of those he/she leads
• Willingness is a key aspect in defining  In possession good communication skills
leadership, because leaders do rely
 Ability to motivate his/her followers
mainly on charismatic power to
 Integrity
motivate their followers to work
 Vision/strategy
towards attaining a specific goal.
 Persuasion
• A good manager must possess good
 Adaptability
leadership qualities because a good
 Teamwork
leader is a great motivator.
 Coaching and Development
• Leadership involves:  Decision-making, ability to make quality
 establishing a clear vision decisions
 sharing that vision with others so  Planning skills
that they will follow
willingly
 providing the information, kn Leadership styles
owledge and methods to ‘Leadership style’ is the general attitude and
realize that vision behaviour of a leader, particularly in relation to
 coordinating and his or her colleagues and team members.
balancing the conflicting
interests of members and
stakeholders There are a number of
styles of leadership:
Qualities of a good leader
1. Autocratic
 Respect for every member of the
organisation e.g. employees at all
levels. This is often referred to as an authoritarian
 Honest and trustworthy leadership style, and it basically means that the
people at the top of an organisation make all the
ADVANCED LEVEL BUSINESS STUDIES
decisions and delegate very little  The style strongly motivates the leaders
responsibility down to their subordinates. It who dictate the pace within the
can cause much resentment and frustration organisation. It gives status to the leader
amongst the workforce and it is not very and enables the leader to satisfy higher
common in today's business world. Its order needs on Maslows’
features are summarised below hierarchy of needs
 Effective chain of command is crucial for
• Autocratic leaders hold onto as much the success of any organisation as
power and decision-making as highlighted by Fayol. This style is mostly
possible effective in organisation where chain of
command is crucial such as military, air
• Communication is top-down &
force like organization.
oneway i.e. no opportunity for
feedback to the leader
• Formal systems of command & Demerits
control are strictly adhered to
• Minimal consultation as the manager  This style is widely criticised for its
single handedly makes the decisions negative motivational consequences as it
• Use of rewards & penalties to shape does not involve subordinates in the
human behaviour (motivation tool) decision making process thus failing to
recognise their importance in the
• Very little delegation
decision making process
• Most likely to be
 Autocratic leaders take full responsibility
used when subordinates are
for the execution of the tasks at hand. This
unskilled, not trusted and their ideas
puts pressure on the manager as he/she is
are not valued
reluctant to delegate. Such a scenario may
have adverse consequences to the
Merits
organisation and the manager in his
personal capacity e.g. work related stress.
 An autocratic style of leadership can  May be the major reason for resistance to
be effective in work environments change in cases where subordinates are
where decisions need to be made unhappy with the decisions made
quickly. The sole responsibility rests  One way communication is
with the leader, and he/she makes counterproductive as it cannot be
the decision without the need to ascertained in time if the intentions of the
consult others. This saves precious leader are properly understood.
time which happens to be a non
renewable
2. Democratic.
resource
 The leader keeps a close watch on the
activities of the workers. This can This involves managers and leaders taking into
result in increased productivity and account the views of the workforce before making
speed, as workers who fall behind are decisions and implementing them.
quickly identified and corrective This can lead to increased levels of morale and
measures are taken. Quality may motivation amongst the workforce, but it can also
improve, as the employees' work is result in far more time being taken to achieve the
monitored constantly. Time wasting results since many people are involved in discussing
and the need to waste resources are the decision. This type of leadership has the following
also reduced. characteristics:
 This style is very effective when
dealing with inexperienced or • Focus of power is more with the group as a
demotivated staff. It is greatly aligned whole than individual members
to McGregor Theory X • Leadership functions are shared within the
group as opposed to the leader executing
ADVANCED LEVEL BUSINESS STUDIES
them in person. This implies the presence resistance to change as the
of delegation. employees would have been
• Employees have greater involvement in involved in the process of change.
decision-making, all employees affected Workers also develop a greater
by a decision are consulted before the it is sense of self - esteem, due to
made importance given to their ideas and
• Two way communication is an important their contributions.
feature with democratic leadership, the
manager gets feedback from the  Increased productivity as
subordinates motivation minimises
• Emphasis on delegation and consultation counterproductive behaviours such
although the leader still makes the final as labour absenteeism, material
decision, this positively affects the quality wastage, work accidents, missing
of the decisions made as he/she is in a of targets and reduces the labour
better position to make informed turnover rates.
decisions
• Perhaps the most popular leadership  It is an effective in finding
style because of the positive emotional solutions for complex problems
connotations of acting democratically, it which are non routine by their
satisfies higher level needs on Maslow’s nature.
hierarchy of needs. It can be viewed as a
non financial motivational tool  The quality of decision is improved
• A potential trade-off between speed of through consultation as managers
decision-making and better motivation can make informed decisions.
and morale. Consultations are time Consultation enables managers to
consuming even though they motivate assess the probable impact of a
there is need for the manager to strike a decision to the various
sustainable balance between time spent stakeholders before it is made.
and the benefits.
• Likely to be most effective when used  The leadership style induces
with skilled, free-thinking and confidence, cooperation, and
experienced subordinates. loyalty among workers. This
• It can only be effective as a motivational minimises dysfunctional conflicts
tool only in cases where the lower level thus going a
needs according to Maslow or hygienic long way in ensuring unit of direction,
factors according to Herzberg are 3.
satisfied
which was highlighted in Fayols’ 14
principles
Merits
 Exchange of ideas among Demerits
subordinates and leader
improves job satisfaction and
 This approach is very time
morale of the subordinates.
consuming and too many view-
The employees will develop a
points and ideas may take the-
positive attitude towards their
solid decision more difficult and
jobs as they feel their
may be a source of frustration to
contributions are needed for
impatient management.
the success of the organisation
 The democratic leadership
requires some favourable
 Human values get their due conditions in that the labour must
recognition which motivates be literate, informed and
the subordinates and reduces
ADVANCED LEVEL BUSINESS STUDIES
organised. This is not always leadership can result in high levels of enthusiasm for
possible. the task in-hand, but it can at times rely too much on
the skills of the workforce.
 This approach assumes that all
• The term Laissez-faire means to “leave alone”,
workers are genuinely
implying employees are given absolute
interested in organisation and
autonomy with minimal interference from
that their individuals are goals
management
successfully fused with the
organisational goals. This • Leader has little input into day-to-day
assumption may not always be decision-making
valid. • Managers / employees have freedom to do
what they think is best under the
 There must be a total trust on circumstances.
the part of management as well • Often criticised for resulting in poor role
as employees. Some employees definition for managers as the subordinates
may consider this approach are fully empowered to make decisions which
simply an attempt to is a traditional role of managers.
manipulate them. Accordingly • Effective when staff are ready and willing to
the employees must be fully take on responsibility, they are motivated,
receptive to this approach to and can be trusted to do their jobs
make it meaningful.
 Some group members may feel Merits
alienated, if their ideas are not
accepted for action. This may Laissez-faire leadership styles tend to work best
create a feeling of frustration near the top of organizational hierarchies, where
and ill-will. executives build teams of experts such as directors
and give them wide latitude to run their
 Some managers maybe
departments. Teams focused on research and
uncomfortable with this
development, conceptual or creative projects
approach because they may
require autonomy. A positive laissezfaire
fear erosion of their power
leadership style has the following merits
base and their control over
labour.
• Allows experts to function productively and
 This approach relies heavily on challenges them to take personal
incentives and motivation of responsibility for their achievements and
recognition, appreciation, failures
status and prestige. The labour • Motivates people to perform optimally and
may be more interested in gives them latitude to make correct decisions
financial incentives instead of that might not be supported in a more
prestige. structured environment.
When employees are encouraged employees to • Reinforces successful performance and leads
give their opinions on company issues, they to a higher retention of experts who thrive in
provide a variety of solutions to choose from. creative environments that support
Participative leadership empowers employees to autonomous decision-making
use their creativity to develop more productive • Reduces supervision costs as minimal
work processes and make the company more supervision is applied
efficient (innovation). • Reduced workload for the leader Demerits

Laissez-faire. When laissez-faire leadership is used

inappropriately in organizations, projects or
This is where employees are set objectives, and settings, it can create more problems than it
then they have to decide how best to achieve them resolves. If groups or team members lack
using the available resources. This method of sufficient skills, experience or motivation to
ADVANCED LEVEL BUSINESS STUDIES
complete projects, the organization suffers in must be controlled and threatened for
the following ways: them to work hard enough
- Individuals, who lack ambition, dislike
• The style may make it difficult for senior responsibility and prefer to be led.
management to coordinate the various - Individuals desire security above
efforts everything
• Results in a lack of accountability for
organizations, groups or teams and The management implications for Theory X
failure to achieve goals workers were that, to achieve organisational
• Leads to ineffective time management by objectives, a business would need to impose a
teams, resulting in ambiguous objectives management system of coercion, control and
and missed deadlines punishment. This is in line with the autocratic
leadership style.
Summary
Theory Y workers were characterised by
As a generalisation, in most business sectors there McGregor as:
has been a gradual shift away from autocratic
leadership. Possible reasons for this include: - Consider effort at work as just like rest or
play
• Changes in society’s values - Ordinary people who do not dislike work.
• Better educated workforce Depending on the working conditions,
• Focus on need for soft HR skills work could be considered a source of
satisfaction or punishment
• Changing workplace organisation
- Individuals seek responsibility if they are
• Greater workplace legislation
motivated
• Pressure for greater
employee involvement
The management implications for Theory X
workers are that, to achieve organisational
A manager has to be flexible in his/her approach
objectives, rewards of varying kinds are likely to
to leadership i.e. must be able to chose the most
be the most popular motivator. The challenge for
appropriate style under the circumstances e.g. use
management with Theory Y workers is to create a
autocratic leadership in times of emergency and
working environment where workers can show
use democratic style where changes are
and develop their creativity. This environment
imminent.
can be created by using a democratic leadership
style which enables subordinates to satisfy higher
level needs on Maslow’s’ hierarchy of needs.
McGregor Theory X and Y
Difference between leadership
McGregor developed two theories of human and management
behaviour at work: Theory and X and Theory Y. Managing and leading are two different ways of
He did not imply that workers would be one type
organizing people. Leadership is setting a new
or the other. Rather, he saw the two theories as
direction or vision for a group that they follow i.e.,
two extremes - with a whole spectrum of possible
a leader is the spearhead for that new direction.
behaviours in between. These theories are very
On the other hand, management controls or
useful in determining the leadership style to be
directs people/resources in a group according to
applied y the manager.
principles or values that have already been
established. The manager uses a formal, rational
Theory X workers could be described as method whilst the leader uses passion and stirs
follows: emotions through charisma
- Individuals dislike work and avoid it The following differences can be noted which
where possible. Therefore, people distinguish leadership from management
ADVANCED LEVEL BUSINESS STUDIES
- Leaders rely on influence through - The manager does things right; the leader
charismatic power while managers have does the right thing
authority. Therefore, leaders have
followers who follow willingly while
managers have subordinates To sum up, leadership and management must go hand
in hand. They are not the same thing. But they are
- Management involves controlling necessarily linked, and complementary. Any effort to
organisational activities to achieve a goal separate the two is likely to cause more problems than
while leadership refers to the individuals’ it solves. In light of these differences, leadership is
ability to influence, motivate and enable more complex then management. It is important for a
others to contribute towards the manager to posses good leadership qualities as
attainment of organisational goals motivation appears to be the key factor that
distinguishes leaders from managers. It is therefore
- Leaders are innovative by nature while important to consider the key leadership positions
managers try to maintain status quo. within an organisation.
Managers thrive to conform to the pre set
standards while leaders create change. Leadership roles in business
Leaders actually challenge the status quo
seeking room for improvement. In other - Various people play leadership roles in the
words managers maintain while leaders organisation. Some of the roles are formal e.g.
develop. managers, directors and supervisors
- There are some individuals who lead informal
- Leaders are people oriented implying that organisations these are informal leaders.
they base their conduct mainly on the - Informal leadership is the ability of a person
motivation of their followers. On the to influence the behaviour of others by other
other hand managers are task oriented, means other than formal authority conferred
implying that they are mainly concerned by the organisation through its rules and
by the accomplishment of the task at procedures.
hand regardless of the methodology - Informal leaders influence the organisational
activities because the informal organisations
- Leaders have followers (voluntary) while are important in the activities of the
managers have subordinates (chain of organisation.
command). Leaders instil trust between - Informal leaders are key in the execution of
them and their followers organisational strategy as they play a key role
in influencing their colleagues in matters to
- Leaders are concerned about leading do with organisational activities
people i.e. they do not distinguish
- Informal leaders do not posses any formal
themselves much from their followers.
authority and they emerge due to their
This motivates their followers. Managers
personal traits.
are primarily concerned by managing
- These informal leaders are more likely to be
work.
nominated to represent fellow workers on
different platforms
- Leaders have a high appetite for risk,
therefore they create change. On the
other hand managers react to change
because they are generally risk averse.
- The manager focuses on systems and
structure; the leader focuses on people.

MANAGEMENT through people and other organizational

resources.
Management is the process of reaching
organizational goals by working with and
ADVANCED LEVEL BUSINESS STUDIES
Management has the departments, which, in turn, contributes to the
following 3 characteristics: success of divisions, which ultimately contributes
to the success of the organization.
1. It is a process or series of continuing and
related activities. LEADING:
2. It involves and concentrates on reaching
organizational goals. Leading is also referred to as motivating,
influencing or directing. leading can be defined as
3. It reaches these goals by working with
guiding the activities of organization members in
and through people and other
the direction that helps the organization move
organizational resources.
towards the fulfilment of the goals.

The purpose of influencing is to increase

MANAGEMENT FUNCTIONS: productivity. Human-oriented work situations
usually generate higher levels of production over
The 5 basic management functions that make the long term than do task oriented work
up the management process are described in situations because people find the latter type
the following sections: distasteful.

1. PLANNING CONTROLLING:
2. ORGANIZING
3. LEADING Controlling is the following roles played by the
4. CONTROLLING manager:
5. COORDINATING
1. Gather information that
measures performance
PLANNING: 2. Compare present performance to pre
established performance norms.
Planning involves choosing tasks that must be 3. Determine the next action plan and
performed to attain organizational goals, modifications for meeting the desired
outlining how the tasks must be performed, performance parameters.
and indicating when they should be
Controlling is an ongoing process.
performed.
COORDINATING:
Planning activity focuses on attaining goals.
Managers outline exactly what organizations The coordinating function of leadership controls
should do to be successful. Planning is all the organizing, planning and staffing activities
concerned with the success of the of the company and ensures all activities function
organization in the short term as well as in the together for the good of the organization.
long term. Coordinating typically takes place in meetings
and other planning sessions with the department
ORGANIZING: heads of the company to ensure all departments
are on the same page in terms of objectives and
Organizing can be thought of as assigning the goals. Coordinating involves communication,
tasks developed in the planning stages, to supervision and direction by management.
various individuals or groups within the
organization. Organizing is NEGOTIATION
to create a mechanism to put Managers also play the role of entering into
plans into action. discussions on behalf of the organisation.
People within the organization are given work Management represent the organisations’
assignments that contribute to the company’s interests and act as agents for the
goals. Tasks are organized so that the output of organisation.
each individual contributes to the success of
ADVANCED LEVEL BUSINESS STUDIES
MANAGEMENT THEORIES • Promotes consistency thus making
organisation activities more predictable.
Max Weber bureaucratic Ensures continuity as business activities are
management theory handled in a predetermined way. This also
goes a long way in avoiding and detecting
The Max Weber theory of management,
fraud and errors.
sometimes called bureaucratic management
theory, is built on principles outlined by Disadvantages
Frederick Taylor in his scientific Subsequent analysis of the theory have
management theory. Like Taylor, Weber identified many disadvantages:
advocated a system based on standardized
procedures and a clear chain of command. • Tendency for organisations to
Weber stressed efficiency, as did Taylor, but become procedure dominated
also warned of the danger of emphasizing rather than goal dominated.
technology at the expense of emotion.
• Tendency for heavily formalised
One primary difference between Max Weber organisational roles to suppress initiative and
and management, and other theories of flexibility of the job holders.
management, is that while Weber outlined
the principles of an ideal bureaucracy, he • Rigid behaviour by senior managers can lead
also pointed out the dangers a true to standardised services that do not meet the
bureaucracy could face. needs of the client.

Key elements of the Max Weber management • Rigid procedures and rules are demotivating
theory include: for the subordinates that work in the
organizations.
• Clearly defined job roles
• Slow decision making due to bottle necks
• A hierarchy of authority
inherent to the system
• Standardized procedures
• Meticulous record-keeping Other management theories already covered
• Hiring employees only if they meet the
specific qualifications for a job - Scientific management – Taylor

Advantages - Hierarchy of needs – Maslow

• Appointment, promotion and authority were - Two factor theory – Herzberg

dependent on technical competence and
- Theory X and Y - McGregor -
reinforced by written rules and procedures of
promoting those most able to manage rather Human relations model – Mayo
than those favoured to manage.
- Principles of management –
• The adoption of bureaucratic type of Fayol
management systems allow organisations to
grow into large complex organised systems
that are focused towards formalised explicit
goals.

Human Resource Management It is a proactive approach to

• Human resources management is management as opposed to reacting to defined as a system of
activities and the environmental changes strategies that focus on successfully It assess the
compatibility of the HR managing employees at all levels of an strategy with the overall business
organisation to achieve organisational strategy e.g. if the overall strategy is to goals. gain market
share by improving
ADVANCED LEVEL BUSINESS STUDIES
• Employees are the human resources of product quality, the HR strategy can an organisation and its
most valuable be aligned towards hiring qualified asset staff to take part in the production
process.
Purpose and functions of HRM It helps to ensure that the business complies with the laws of the

land An organisation cannot build a good team of It helps the organisation to achieve its working
professionals without good Human goals with efficiency since the HR plan Resources. The key functions
of the Human is aligned to the overall business
Resources Management (HRM) team include strategy. This minimises sub optimal human resource
planning, recruiting people, behaviour.
training them, performance appraisals,
Recruitment motivating
employees as well as workplace
communication, workplace safety, and much Recruitment is a process of finding more. The beneficial
effects of these functions and attracting capable applicants for are discussed here:
employment.
• The process begins when new recruits
Planning future manpower requirements are sought and ends when their
applications are submitted as a way to
• HR planning is a process that signal their interest in the job. identifies
current and future HR needs
of an organisation required for it to The process is initiated when the need achieve its goals.
for a new employee is identified within
the organisation HR
planning serves as a link between the HR management and the overall After a
vacancy has been identified, a business strategy. job description and a
person
specification have to be prepared
• The HR department is therefore responsible for ensuring that the A job specification/
description is organisations’ human resources are a detailed statement of the employees able
to execute the business strategy duties, responsibilities and specifies with efficiency. the
workers position on the
organisational chart. For example, a
Serves to ensure that staffing is sufficient, qualified and competent teacher’s job description can be
to teach Maths in all form 1 classes, enough to achieve the organisational ensure that pupils are
disciplined, give objectives. pupils 4 written exercises a week,
• HR planning is vital for maintaining a timely mark pupils work, e.t.c. The job
a competitive advantage and reducing specification also has to state the employee turnover in
an organisation nature of the employment contract i.e.
• Planning is also important in finding permanent or temporary, conditions of
sustainable ways to get rid of less service and applicable remuneration.
productive workforce e.g. ageing
• A person specification gives a workforce
detailed account of the minimum
Merits of HR planning skills, qualifications and experience
• Assists in resource mobilisation to which must be possessed by the enable the organisation to
attain its candidate for him/her to be able to objectives perform the duties specified in the job
specification. For instance, a teaching o post may require • When the job
someone with a minimum of a diploma in education and at description and the o
least two years working experience in a similar position person specification are
out then an
ADVANCED LEVEL BUSINESS STUDIES
advertisement for the vacancy is made. vacancies are filled internally It
The advert invites all the interested o fills one vacancy by creating a
candidates who possess the minimal requirements new one, this can have a ripple
to apply for the vacancy. effect which can be costly to the
o The organisation seeks to fill External recruitment the vacancy from within its o
The business looks to fill the existing workforce vacancy from any suitable
applicant outside the
Merits
organisation
o The selection team may
Merits
possess better knowledge of
the applicants, this enables o It brings new ideas into the them to select the best
organisation. This is essential candidate for the job for the success of the o It motivates
internal staff to organisation work harder as they are o It results in a higher number
awarded the opportunity for of applicants, implying a promotion bigger pool from
which to o Applicants are familiar with select the best candidate. The the organisation’s
internal higher the number of
faster individuals from a pool of job
processes therefore reduced applicants the greater is the
need for induction training The chances of getting the best
method is cost efficient as the candidate for the job.
vacancies can o The applicants possess a wider
o be communicated range of experience
using internal communication Demerits o The process is longer
methods e.g. notice boards or
when compared to
email. These are
cheaper internal recruitment
methods of o The process is more expensive
communication due to advertising
o It reduces the rate of labour o The selection process may not
turnover as newly employed staff be effective enough to get the
members are already familiar right candidate for the job
with the organisation’s Selection
operations therefore less
Selection is the process of picking up
chances that
they can quit their job
o The vacancies can be filled
Demerits
• Recruitment can be internal or organisation Unsuccessful
external o candidates can be demotivated
Internal recruitment The selection process is highly
o Internal recruitment occurs o when a vacancy is subjected to corrupt activities
advertised to the current organisation and favouritism.
staff
It limits the number of potential applicants, which may result in the
job being offered to a less deserving candidate
No new ideas are introduced into the organisation as
ADVANCED LEVEL BUSINESS STUDIES
applicants with requisite qualifications to fill the jobs within o Bad habits are
the organisation more likely to
• Selection can be described as a process of differentiating be passed on to
applicants in order to identify and hire those with a higher the trainees as
likelihood of success on the job they can learn
• The selection process involves screening, interviews, by observing
selection tests, background checks, physical examination. others
• The selection process ends when a job offer is made o Errors by
• The selection process is aimed at ensuring that the right trainees can
candidates are hired for the job, therefore matters to do with disrupt
the character of the candidate are of importance. This brings production
the need for background checks and interviews which
can
Training
be
• Training is a process of equipping the employees within an costly to the
organisation with the skills required for them to perform organisation
their jobs efficiently. o The
• Training increases the productivity of the workforce as it effectiveness of
reduces losses caused by errors and lack of skill the training
• There are different ways in which staff members can be programme is
trained and these are on the job training and off the job highly
training. dependent on
On the job training o On the job training involves the the skills
employee learning by actually possessed by
performing the actual task the trainer and
the time availed
o The training technique is hands on as employees are
for training.
trained using the same equipment which they will
o Some training
use in the actual work
programs do
o It is highly effective when developing expertise
not provide
distinctive to the employee’s job. For example the
trainee
specific type of machinery used in the organisation
s with
o The employees receive training in the same
tangible
environment which they operate in their day to day
evidence that
activities.
they have
o Job rotation is an example on
been
the job training
trained
(certificates)
Merits of on the job training o The method is cost effective as the
training takes place at the work place. The business saves on Off the job training o This
costs of sending employees to the training venue and costs of refers to training that takes
lost production due to the trainee’s absence attending place away from the work
place e.g. universities and
training
colleges
o Employees are productive during training i.e. they
Merits
make a contribution to the organisation’s output
o Training is
during training
carried out by
o The training is practical in nature, employees
specialists
undergoing training are exposed to the real working
o Trainees
environment. Therefore training is more
acquire a wide
effective
range of skills
Demerits o The work environment may not be conducive for training
which may not
purposes
be possessed by
ADVANCED LEVEL BUSINESS STUDIES
other members in the organisation, this adds variety • The main objective of
in the organisation job evaluation is to
o Training takes place in a conducive environment determine which jobs
because the training institution has to posses the are more important that
proper training facilities others, this information
Demerits o The method is more costly to the organisation is used to determine the
because of training fees and the worker has to e absent remuneration system
from work during training • Factors such as the
o The skills acquired are usually general and they qualifications required
usually require modifications to be applied in a for the position and the
specific duties performed by the
organisation position holder in the
o The workers who have undergone training using the job evaluation process
organisation’s resources can leave the organisation • Job evaluation must be
for its competitors. conducted for each
o The training can be theoretical vacancy as it will
in nature contribute in the job
design
Induction
Remuneration
• It is the training that is given to employees when they first
join the organisation • The role of the HR
• The objective of induction training is to ensure that the department in
employee becomes fully productive in the shortest possible determining the level of
period of time salary and benefits for
• Induction serves to minimise or eliminate costly mistakes by the position is a key
new employees by familiarising them with their factor in attracting and
responsibilities and duties retaining productive
• The length of the induction period varies depending on the workforce
complexity and the position of the job within the • The rewards offered to
organisation an employee must be
• Poorly planned induction training has negative motivational competitive and
effects and can be a cause of high labour turnover amongst sufficient to cover the
new staff members. workers’ basic needs for
• The training programme must include the introduction to the worker to be
new colleagues, learning of the duties of the job, seeing the motivated (Maslow &
layout of the premises and learning about the organisation’s Herzberg)
internal processes • Henry Fayol in his 14
principles of
management
Advisory role highlighted the
• The HR department plays an important role of advising importance of a fair
other organisation functions on labour issues remuneration system to
• This implies that the HR department give advice to line an organisation
managers on issues to do with handling conflicts, • The term remuneration
absenteeism and punctuality of employee includes other non
• The department can give advice on the legal implication of salary benefits such as
decisions suggested by other functional areas e.g. fringe benefits
retrenchment of employees • There are a number of
remuneration systems
Job evaluation
but for a system to save
• It is a systematic process of assessing the relative the intended purpose it
importance of the job within the organisation has to be transparent,
fair and must be able to
ADVANCED LEVEL BUSINESS STUDIES
reward exceptional employees for hard work validity and thereby the
• For a remuneration system to be successful it has to be strengths and
aligned to the present goals e.g. profit related pay in a profit weaknesses of selection
maximising firm procedure. Future
changes in selection
methods can be made in
Performance Appraisal this regard.
5. Communication: For
Performance appraisal is the systematic evaluation of the
an organization,
performance of employees and to understand the abilities of a
effective
person for further growth and development.
communication
Objectives of Performance Appraisal between employees and
employers is very
1. Performance Appraisal can be done with following important. Through
objectives in mind: performance appraisal,
2. To maintain records in order to determine compensation communication can be
packages, wage structure, salaries raises, etc. two way as subordinates
3. To identify the strengths and weaknesses of employees to get feedback on their
place right men on right job. performance and ways
4. To maintain and assess the potential present in a person for to improve.
further growth and development. 6. Motivation:
5. To provide a feedback to employees Performance appraisal
serves as a motivation
regarding their performance and related status. tool. Through
6. To review and retain the promotional and other training evaluating performance
programmes. of employees, a person’s
efficiency can be
Advantages of Performance Appraisal determined if the targets
are achieved. This very
It is said that performance appraisal is an investment for the well motivates a person
company which can be justified by following advantages: for better job and helps
him to improve
1. Promotion: Performance Appraisal helps the supervisors his
to chalk out the promotion programmes for efficient
employees. In this regards, inefficient workers can be Employment contract
dismissed or demoted in case.
• An employment contract
2. Compensation: Performance Appraisal helps in chalking
is a legally binding
out compensation packages for employees.
agreement between
Merit rating is possible through performance appraisal.
employer and employee.
Performance Appraisal tries to give worth to a performance.
Every employee has a
Compensation packages which includes bonus, high salary
contract with an employer.
rates, extra benefits, allowances and pre-requisites are
dependent on performance appraisal. The criteria should be
merit rather than seniority. • A written contract gives
3. Employees Development: Performance more protection to both
appraisal helps the supervisors to frame training policies parties and encourages
and programmes. It helps to analyse strengths and parties to clarify the key
weaknesses of employees so that new jobs can be designed duties and responsibilities of
for efficient employees. It also helps in framing future a job.
development programmes.
4. Selection Validation: Performance Appraisal helps the • Both parties have basic
supervisors to understand the validity and importance of the rights and obligations in
selection procedure. The supervisors come to know the the contract.
ADVANCED LEVEL BUSINESS STUDIES
• The employer has the duty to provide work, safe working not acting as a court of law, is
conditions and remuneration to the employee. empowered to take a decision
• The employee has the duty to obey lawful and reasonable which disposes of the dispute.
commands, use care and skill in executing tasks assigned and to
act in good faith. Specialised labour
• An employer is supposed to write a contract to the employee and adjudication
the letter is supposed to have the following particulars:
Specialised labour adjudication
• Name and address of the employer
is a procedure whereby ordinary
• The period of time for which the employee is engaged
courts on special labour courts
• The terms of probation (if any). settle finally any disputes over
• The terms of an employment code. rights and obligations.
• Information of the employees remuneration, its manner
of calculation and the intervals at which it will be paid. To sum up, it is preferable that
• Information on benefits receivable in the event of the first methods of conflict
sickness or pregnancy. resolution be applied first and
• Hours of work. the later matter methods be
• Information of any bonus or incentive production applied after the first methods
scheme. have failed to resolve the
• Information of vacation leave or vacation pay conflict. This serves time and
• Information of any other benefits. resources.
It can contain any other information that pertains to the
relationship between the two parties
The employment contract is a legal document that serves avoid Discipline
conflicts between the employer and employee. It also acts as a way
to resolve such conflicts. It can contain any other information that. Discipline is the regulation of
human activities to produce a
controlled performance. The real
LABOUR DISPUTE SETTLEMENT purpose of discipline is to
encourage employees to confirm
Grievances and conflicts are an inevitable part of the employment to established standards of job
relationship. The objective of public policy is to manage conflict and performance and to behave
promote sound labour relations by creating a system for the effective sensibly and safely at work.
prevention and settlement of labour disputes. Labour Discipline is essential to all
administrations typically establish labour dispute procedures in organized group action as
national legislation. A key objective of effective systems is to ensure highlighted by Henry Fayol in
that wherever possible, the parties to the dispute resolve it through his 14 principles of management.
a consensus-based process such as conciliation and mediation, It can be described as the
before reverting to arbitration and/or adjudication through a labour acceptable behaviour to be
court. followed by an employee in and
outside the organization. In
Conciliation and mediation general sense, following the
direction of upper level
Conciliation and mediation are procedures whereby a third party supervisor or manager, making
provides assistance to the parties in the course of negotiations, or effort for the organizational goal
when negotiations have reached an impasse, with a view to helping attainment and playing the
them to reach an agreement. While in many countries these terms positive role in making healthy,
are interchangeable, in some countries a distinction is made between competitive and dedicated
them according to the degree of initiative taken by the third party. i8 environment in the organization
Arbitration is considered as maintaining the
discipline. Discipline reflects the
Arbitration is a procedure whereby a third party (whether an
inside and outside
individual arbitrator, a board of arbitrators or an arbitration court),
organizational behaviour of an
employee
ADVANCED LEVEL BUSINESS STUDIES
Discipline promotes self-control, dedication, and orderly conduct. Redundancy is a situation where
In relation to employees in Zimbabwe, discipline is generally used in the position of employment of an
a restricted sense to mean punishment. Consequently, the written employee is or will become
procedures used to punish employees for job deficiencies are called surplus to the requirements of
disciplinary procedures. the Employer's business.

The disciplinary procedures are applied in cases were discipline has Generally redundancies within
not been maintained and such instances include an organisation occur when the
business is facing operational
- Excessive tardiness challenges or the company is
- Failure to notify of an absence looking to restructure the
- Insubordination organisation. In these
- Rude or abusive language in the workplace circumstances the employee
- Failure to follow “Departmental Rules or Policies “, i.e., not may find that their position is
wearing safety equipment. surplus to the companies needs.
Therefore, the employer will
- Dishonesty
announce to the employee or
- Theft
employees affected that their
contracts are going to be
Employee welfare terminated as their positions will
no longer exist.
- Welfare includes anything that is done for the comfort and
improvement of employees and is provided over and above the Redundancies have to be for
wages. Welfare helps in keeping the morale and motivation of genuine commercial reasons and
the employees high so as to retain the employees for longer not for any other underlining
duration. reasons such as capability or
- The welfare measures need not be in monetary terms only but in performance issues.
kind. Employee welfare includes monitoring of working
conditions, creation of industrial harmony through Redundancies can be forced or
infrastructure for health, industrial relations and insurance voluntary – in the case of
against disease, accident and unemployment for the workers voluntary redundancies there
and their families. are usually incentives offered to
- Labour welfare entails all those activities of employer which are outgoing employees, such as
directed towards providing the employees with certain facilities extended garden leave or more
and services in addition to wages or salaries. valuable severance packages.
Labour welfare has the following objectives: Voluntary redundancies are
designed to prevent the
- To provide better life and health to the workers employer having to choose who
- To make the workers happy and satisfied to terminate.

- To relieve workers from industrial fatigue and to improve

Redundancies are typically
intellectual, cultural and material conditions of living of the
preceded by consultations,
workers.
which are collaborative efforts
The welfare of employees is improved by offering fringe benefits to between employers, employees
the employees such as housing schemes and medical cover, and also and other stakeholders into ways
creating a safe working environment. In turn the organisation enjoys the business can save the role
increased productivity, good labour relations and reduced conflicts, from redundancy through new
low rates of labour turnover, low absenteeism and reduced opportunities or restructuring.
accidents. Employers may legally be
required to consult for a certain
period of time although this
Redundancy
often depends on how many
ADVANCED LEVEL BUSINESS STUDIES
employees are at risk of redundancy. HRM encourages the people
working in an organisation, to
work according to their potential
to analyse strengths and weaknesses of employees so that new jobs and gives them suggestions that
can be designed for efficient employees. It also can help them to bring about
improvement in it. The team
Dismissal communicates with the staff
individually from time to time
Dismissal refers to the act of involuntary termination the and provides all the necessary
employment of an employee by the employer in an organisation. It information regarding their
is sometimes also referred to as firing or sacking. performances and also defines
their respective roles. This is
Dismissal is due to an employee’s behaviour. Employers tend to beneficial as it enables them to
categorise negative behaviour into misconduct and gross form an outline of their
misconduct. Gross misconduct typically forms the basis for anticipated goals in much
dismissal, and can include things like turning up to work under the clearer terms and thereby, helps
influence of drugs, violence against a colleague or client, hijacking them execute the goals with best
client relationships or stealing sensitive corporate materials. possible efforts. Performance
appraisals, when taken on a
LABOUR RELATIONS MANAGEMENT
regular basis, motivate the
Labour legislation employees.

The government passes different laws which affect the relationship Maintaining Work
between employees and their employers. Some of the laws are there Atmosphere
to ensure that the Government achieves its Macroeconomic
objectives e.g. achieve a fair income distribution by passing a This is a vital aspect of HRM
minimum wage because the performance of an
individual in an organisation is
There are several pieces of legislation which have to be complied largely driven by the work
with by the employers and employees. Failure to comply causes legal atmosphere or work culture that
consequences for the parties. These are discussed below prevails at the workplace. A good
• Minimum wage: this is the lowest wage which an employer working condition is one of the
is legally allowed to pay. This protects employees from benefits that the employees can
exploitation and serves to uplift the living standards for the expect from an efficient human
society resource team. A safe, clean and
• Unfair dismissal: These laws protect employees from being healthy environment can bring
dismissed from work without a proper reason. out the best in an employee. A
• Discrimination: these laws prohibit employers to give friendly atmosphere gives the
preferential treatment to any employee based on race, sex, staff members job satisfaction as
religion, e.t.c. well.
• Working hours: the government
passes laws to protect employees from working Managing Disputes
unsustainably long hours as this causes health problems
• Retrenchment: there are laws put in place to ensure that In an organisation, there are
employers do not abuse the laws and dismiss workers under several issues on which disputes
the cover of retrenchment may arise between the
• Health and safety laws: these laws set minimal standards for employees and the employers.
ensuring that workers work in an environment free from You can say conflicts are almost
danger and which does not negatively affect the health of the inevitable. In such a scenario, it
employees and third parties e.g. consumers. is the human resource
department which acts as a
Performance Appraisals consultant and mediator to sort
out those issues in an effective
ADVANCED LEVEL BUSINESS STUDIES
manner. They first hear the grievances of the employees. Then they • In the event of an
come up with suitable solutions to sort them out. In other words, unsuccessful bargaining
they take timely action and prevent things from going out of hands. process unions can call
for industrial action.
Any organisation, without a proper setup for HRM is bound to suffer
from serious problems while managing its regular activities. For this Need for negotiation
reason, today, companies must put a lot of effort and energy into
setting up a strong and effective HRM. Negotiations between employers
and employees are necessary for
Collective bargaining a number of reasons. Such
reasons include
Collective bargaining consists of negotiations between an employer
and a group of employees so as to determine the conditions of • Negotiations are in line
employment. with modern leadership
styles. Negotiations are
• The result of collective bargaining procedures is a collective democratic than
agreement. authoritarian
• Employees are often represented in bargaining by a union • Negotiations motivate
or other labour organization. staff
• Collective bargaining is a key means through which • Both negotiating parties
employers and their organizations and trade unions can are important for the
establish fair wages and working conditions. success of a business,
• It also provides the basis for sound labour relations. Typical therefore their
issues on the bargaining agenda include wages, working cooperation is vital for
time, training, occupational health and safety and equal the success of tha
treatment. business
• The objective of these negotiations is to arrive at a collective • Negotiations between
agreement that regulates terms and conditions of employers and
employment. employees serve to
• Collective agreements may also address the rights and minimise the risk of
responsibilities of the parties thus ensuring harmonious and industrial action which
productive industries and workplaces. is counterproductive
• Enhancing the inclusiveness of collective bargaining and and has negative effects
collective agreements is a key means for reducing inequality to both parties
and extending labour protection.

Merits Work study & Job

evaluation
• It offers workers an opportunity to voice their concerns • Work study is the
• Its’ a process which helps to increase wages and productivity systematic examination
• It’s a functional way of resolving conflicts as it seeks to avoid of the methods of
industrial action carrying on activities so
• The process is transparent as to improve the
effective use of
Demerits of Collective bargaining resources and to set up
standards of
performance for
• The position taken by the union may differ from what its
activities being carried
members want
out.
• It can be a financial burden to the employers when a union
successfully bargains for higher wages • Work study aims at
examining the way an
• It benefits only workers belonging to a union
activity is being carried
ADVANCED LEVEL BUSINESS STUDIES
out, simplifying and modifying the method of operation to • although useful for jobs
reduce unnecessary work or the wasteful use of resources where tasks and duties
• It is also necessary for setting standards in terms of time can be completed in a
required to perform a particular activity short period of time,
• Work study goes a long way in enhancing productivity in these tests have less
organisations ability to predict
performance on jobs
Merits where tasks may take
days or weeks to
• Enhances productivity complete
• Minimises wastage of materials • less able to measure
• Efficient utilisation of space aptitudes of an
• Minimises poor workmanship applicant thus
• Assists in job redesign restricting the test to
measuring ability to
Demerits
perform the work
sample and not more
• The process consumes time and resources
difficult tasks that may
• Recommendations only work when the employees are be encountered on the
willing to accept change job

Health and safety

WORK SAMPLING
• The health and safety of
• It attempts to observe how workers perform a tasks by a employees in the
process of taking a sample from work performed by one workplace is a major
employee for evaluation purposes concern for employers
• Work sampling does not require attention and employees alike.
to each detailed action throughout • Detailed employment
an entire work cycle. laws and legislation
Instead, a manager can determine the content and pace of a have been created
typical workday through statistical sampling of certain covering this area.
actions rather than through continuous observation and • These laws seek to
timing of all actions. Work sampling is particularly useful for protect the workers
routine and repetitive jobs. from injury and
discomfort while at
Merits work
• Organisations are
• high content validity since work samples are a sample of the required by the law to
actual work performed on the job have a written safety
• low adverse impact as production is not interrupted by the policy which must be
process communicated to all
• difficult for applicants to fake job proficiency which helps to employees.
increase the relationship between score on the test and • Employees must comply
performance on the job with these procedures
• Work sample tests use equipment that is the same or and arrangements for
substantially similar to the actual equipment used in the health and safety.
actual production process • Employers must carry
• Work sampling gives an unbiased result since workmen are out a risk assessment
not under close observation. and then take health and
safety measures in line
with this assessment.
Disadvantages
ADVANCED LEVEL BUSINESS STUDIES
• Competent individuals must be given responsibility for The major differences between
health and safety arrangements. Emergency procedures training and development are
must be set out. Employees must be trained and provided that training is short term in
with clear information about risks and the steps to take in nature and is concerned about
dealing with them. developing a specific skill while
development is long term in
Ways to achieve health and safety at work nature and is aimed at enabling
1. A comprehensive health and safety policy an employee to be able to
2. Training of all stall to minimise accidents develop holistically.
3. Motivating workforce
4. Hiring skilled staff Conclusion
5. Having all equipment functioning efficiently
6. Avoid working long hours After the recruitment and
7. Providing protective equipment selection, the induction of the
8. Using equipment of an acceptable quality new employees is done in which
9. Offering medical and first aid facilities at work place they get introduced to the new
10. Proper lighting and ventilation of business premises working conditions, after that
they go for training in which they
get to learn many things which
HR role in health and safety
are the necessary requirements
• It is the duty of the Human resources department to ensure
of the job. Whatever they learn
that employees work in a safe environment
from the training is verified by
• Poor management of matters pertaining to employees’
making a follow-up, in which it is
health and safety will result in increased accidents which are
examined that whether the
costly to the business
training program is helpful or
• The organisation is held liable for all work related accidents
not.
and this puts the name of the organisation into disrepute,
this adversely affects the business’s ability to hire competent
staff After they become the actual
employees of the organization,
• The ultimate consequence of poor labour turnover is an
they get many opportunities for
increased rate of turnover, this will adversely affect the
their development, like if the
competiveness of the business because the highly skilled
manager teaches the new
workers are the ones that leave first
employees something related
• It is the duty of the HR department to ensure that the health
their work, so the new
and safety policy is adhered to within an organisation and
employees get a chance to share
providing the resources listed above and handling any other
their experiences or if he gets a
issues pertaining to Health
specific task in which he has to
and safety that may arise
compete himself then also he
gets a chance to know his
potential and so there are the
instances when the employee
Difference between Training & Development gets an opportunity to develop
himself mentally or physically
There are two principal functions of the Human Resource for his unseen future.
Management i.e. Training and Development. Both the activities aim Development is all about
at improving the performance and productivity of the employees. building the personality and
attitude of the employee for
Training is a program organized by the organization to develop facing future challenges. So they
knowledge and skills in the employees as per the requirement of the both are vital for an employee,
job. whether new or existing.

Development is an organized activity in which the manpower of

the organization learn and grow; it is a self-assessment act.
ADVANCED LEVEL BUSINESS STUDIES

JOB DESIGN METHODS performs different jobs but, more or less, jobs of
the same nature.
Job rotation, Enlargement and
Enrichment The advantages of job rotation are—it relieves
the employee from the boredom and monotony
Job design logically follows job analysis. Job of doing a single task. The organisation also
analysis provides job related data as well as the stands to benefit as the worker become
skill and knowledge expected of the incumbent competent in several jobs rather than only one.
to discharge the job. Job design involves Periodic job changing can also improve inter-
organizing tasks, duties and responsibilities department cooperation.
into a unit of work to achieve certain objectives.
The limitations are—the basic nature of the job
Job design is the process of deciding on the remains unchanged. Also frequent shifting of
contents of a job in terms of its duties and employees may cause interruption in the work
responsibilities, on the methods to be used in routine of the organisation.
carrying out the job in terms of techniques,
systems and procedures, and on the Job Enlargement:
relationships that should exist between the job
holders and his supervisors, subordinates and It is the process of increasing the scope of a job
colleagues. by adding more tasks to it. The related tasks are
combined. Job enlargement involves expanding
The main objectives of job design are to the number of tasks or duties assigned to a given
integrate the needs of the individuals and the job. Job enlargement therefore, naturally is
requirements of the organisation. Needs of the opposite to work simplification. Adding more
employees include job satisfaction in terms of tasks/ duties to a job does not mean that new
interest, challenge and achievement? skill and abilities are needed to perform it.
Organisational requirements are high There is only a horizontal expansion.
productivity, technical efficiency and quality of
work. Job enlargement reduces monotony and
boredom. It helps to increase interest in work
Job Rotation: and efficiency. But there is no time increase of
the job. Enlarged jobs require longer training
It is one of the methods of job design which is period as there are more task to be learned.
an answer to the problem of boredom. Job
rotation implies the shifting of an employee Job Enrichment:
from one job to another without any change in
the job. With job rotation, a given employee It involves designing a job in such a way that it
provides the workers greater autonomy for
ADVANCED LEVEL BUSINESS STUDIES
planning and controlling one’s own
performance. It seeks to improve tasks,
efficiency and human satisfaction by building
into people’s jobs, greater scope for personal
achievement and recognition, more challenging
and responsible work and more opportunity for
individual advancement.

The advantages here are that, Job enrichment

benefits employees and organisation in terms of
increased motivation, performance, job
satisfaction, job involvement and reduced
absentees.

Further an enriched job shall meet certain

psychological needs of job holders
(achievement needs) etc. Job enrichment is
motivating and satisfying as it adds status to
one’s job. Empowerment, a by-product of job
enrichment, gives the employees a sense of
ownership and control over their job.

The limitations are, if the employee is lazy or

does not give due attention to the job, job
enrichment will not have the desired outcomes.
The cost of design and implementation
increases. Further job enrichment by itself does
not motivate. This must be preceded by the
provision of other variables which contribute to
the quality of work life.

MANAGEMENT The 5 basic management functions that make

up the management process are described in
Management is the process of reaching the following sections:
organizational goals by working with and
through people and other organizational 6. PLANNING
resources. 7. ORGANIZING
8. LEADING
Management has the
following 3 characteristics: 9. CONTROLLING
10. COORDINATING
4. It is a process or series of continuing and
related activities.
PLANNING:
5. It involves and concentrates on reaching
organizational goals. Planning involves choosing tasks that must be
6. It reaches these goals by working with performed to attain organizational goals,
and through people and other outlining how the tasks must be performed,
organizational resources. and indicating when they should be
performed.

MANAGEMENT FUNCTIONS: Planning activity focuses on attaining goals.

Managers outline exactly what organizations
ADVANCED LEVEL BUSINESS STUDIES
should do to be successful. Planning is The coordinating function of leadership controls
concerned with the success of the all the organizing, planning and staffing activities
organization in the short term as well as in the of the company and ensures all activities function
long term. together for the good of the organization.
Coordinating typically takes place in meetings
ORGANIZING: and other planning sessions with the department
heads of the company to ensure all departments
Organizing can be thought of as assigning the are on the same page in terms of objectives and
tasks developed in the planning stages, to goals. Coordinating involves communication,
various individuals or groups within the supervision and direction by management.
organization. Organizing is
to create a mechanism to put NEGOTIATION
plans into action. Managers also play the role of entering into
People within the organization are given work discussions on behalf of the organisation.
assignments that contribute to the company’s Management represent the organisations’
goals. Tasks are organized so that the output of interests and act as agents for the
each individual contributes to the success of organisation.
departments, which, in turn, contributes to the
MANAGEMENT THEORIES
success of divisions, which ultimately contributes
to the success of the organization. Max Weber bureaucratic
management theory
LEADING:
The Max Weber theory of management,
Leading is also referred to as motivating, sometimes called bureaucratic management
influencing or directing. leading can be defined as theory, is built on principles outlined by
guiding the activities of organization members in Frederick Taylor in his scientific
the direction that helps the organization move management theory. Like Taylor, Weber
towards the fulfilment of the goals. advocated a system based on standardized
procedures and a clear chain of command.
The purpose of influencing is to increase Weber stressed efficiency, as did Taylor, but
productivity. Human-oriented work situations also warned of the danger of emphasizing
usually generate higher levels of production over technology at the expense of emotion.
the long term than do task oriented work
situations because people find the latter type One primary difference between Max Weber
distasteful. and management, and other theories of
management, is that while Weber outlined
CONTROLLING: the principles of an ideal bureaucracy, he
also pointed out the dangers a true
Controlling is the following roles played by the bureaucracy could face.
manager:
Key elements of the Max Weber management
4. Gather information that theory include:
measures performance
5. Compare present performance to pre • Clearly defined job roles
established performance norms. • A hierarchy of authority
6. Determine the next action plan and • Standardized procedures
modifications for meeting the desired • Meticulous record-keeping
performance parameters. • Hiring employees only if they meet the
Controlling is an ongoing process. specific qualifications for a job

COORDINATING: Advantages
ADVANCED LEVEL BUSINESS STUDIES
• Appointment, promotion and authority were
dependent on technical competence and
reinforced by written rules and procedures of Motivation and leadership
promoting those most able to manage rather
than those favoured to manage. Motivation

• The adoption of bureaucratic type of Motivation is those factors that affect human
management systems allow organisations to behaviour. Humans do not just take action but they
grow into large complex organised systems take action for a particular reason which is therefore
that are focused towards formalised explicit termed motivation. Managers have to understand
goals. the needs of the subordinates as they greatly
influence their behaviour at the work place. It is
• Promotes consistency thus making assumed that employees work for the purpose of
organisation activities more predictable. satisfying a number of needs which are
Ensures continuity as business activities are discussed below
handled in a predetermined way. This also Maslow’s hierarchy of needs
goes a long way in avoiding and detecting
fraud and errors. • Motivation is driven by unsatisfied
needs therefore managers must
Disadvantages understand the needs of the individual
Subsequent analysis of the theory have employee
identified many disadvantages: • Abraham Maslow a psychologist in 1943
brought forward the following hierarchy
• Tendency for organisations to
of needs which humans seek to satisfy
become procedure dominated
• The needs are in ascending order i.e.
rather than goal dominated.
humans seek to satisfy the needs on the
• Tendency for heavily formalised bottom of the pyramid first
organisational roles to suppress initiative and
flexibility of the job holders.

• Rigid behaviour by senior managers can lead

to standardised services that do not meet the
needs of the client.

• Rigid procedures and rules are demotivating

for the subordinates that work in the
organizations.

• Slow decision making due to bottle necks

inherent to the system

Other management theories already covered

- Scientific management – Taylor

- Hierarchy of needs – Maslow

• Maslow argued that human actions are
- Two factor theory – Herzberg directed towards goal attainment
(satisfying specific needs)
- Theory X and Y - McGregor - • Maslow’s hierarchy of needs states that
we must satisfy each need in turn starting
Human relations model – Mayo

- Principles of management – with the physiological needs, only when

Fayol the lower order need has been satisfied
ADVANCED LEVEL BUSINESS STUDIES
can a person seek to satisfy a higher people tend to have needs such as truth,
need. justice, wisdom and meaning. Such needs
6. Physiological/ biological needs These are satisfied by people conducting
needs are necessary to sustain life e.g researches and further studies e.g.
water, shelter and food. If such needs professorship. Such needs are difficult to
are not satisfied then one’s motivation satisfy at the work place.
will arise from the quest to satisfy these
needs. The theory suggests that the
absence of higher needs is not felt when REASONS PEOPLE WORK
such needs are not satisfied. Such needs There are many reasons why people work. One person
can be provided at the workplace may work for one reason and another person for
situation by financial rewards which another. If one were to ask someone why he/she
enable the person to satisfy these needs. works, his/her first answer might be, "to earn money."
7. Safety/ security needs Once While this may be true for many people, there are
physiological needs are met, ones effort some rich people who also work very hard and they
shifts to security needs. The person surely do not need the money. They must work for
seeks to be free from physical and other reasons. Although people work for many reasons
emotional harm. These needs can be some of the more important reasons are as follows:
satisfied by offering job security,
medical insurance, working in a safe Earning Money
environment (protective clothing) and People need to work to make a living. Therefore,
savings. it is necessary to earn money to buy the things that
8. Social needs are needed and wanted. Some of the things that
When physiological and safety needs are are bought are necessary for life and others add
satisfied social needs become important. Social happiness and enjoyment to life. It should be
needs are the first higher order needs and they remembered that the amount of money a person
relate to the interaction with other people e.g. earns from an employer will depend on what the
superiors, colleagues and other stakeholders. worker has to offer the employer.
These include the need for friends, need for
belonging and need to be loved. These needs can
Security
be satisfied by social gatherings, informal
It is only natural that people are somewhat
relationships, refreshing and other sporting
worried about the future. Most people are
activities 9. Esteem needs
concerned about how long they will be able to
After the satisfaction of the three bottom
keep their jobs or what might happen to them and
needs a person seeks to achieve internal and
their families if they were unable to work. This
external esteem needs. Internal esteem needs
means people work to generate savings that could
are those related to self esteem such as self
be used when the worker is out for any reason.
respect and achievement. External esteem
The reason people buy insurance of all kinds is
needs are those that include social status,
that they are concerned about the future. Work
reputation and recognition. These needs can
that is done today may provide money that can be
be satisfied by involving employees in
used in the future. Therefore, some people work
decision making, decentralisation,
to provide this security.
recognising hardworking staff members e.g.
employee awards.
Gaining Experience
10. Self actualisation
Sometimes people work at a job so that they can
It is the quest of reaching one’s full potential
gain some experience and get a better job. A
as a person. This need can never be fully
person might start out as a dishwasher in a
satisfied because as one grows
restaurant. A good worker will gain experience on
psychologically there are always new
the job and might move up to a cook’s helper in
opportunities to continue to grow.
the kitchen. Work is necessary so he/she can gain
According to Maslow very few individuals
experience on the job. This experience may help
reach this level, however, self actualised
ADVANCED LEVEL BUSINESS STUDIES
a person become a more valuable employee and member of the organisation is working, these reasons
provide a chance for can be used to ensure that the worker is motivated.
advancement on the job.
MOTIVATION THEORIES
Feeling Important
All people like to feel they are needed. This gives A number of theories have been put forward by
them a purpose to life. Work by one person psychologists to explain the behaviour of employees
provides a service or product for another person. at the workplace. These are discussed below.
For instance, a teacher feels to be making an
important role in educating members of the Maslow’s hierarchy of needs
society. If people take pride in their work, they
Maslow identified 5 levels of needs which we have
may find it a very enjoyable part of their lives.
discussed previously. The theory can be practically
applied in worker motivation as follows.
Achievement
Most people want to achieve something during Application of the theory
their lifetime. Working provides a way for them
to get the things they want out of life. It is Physiological needs
important for workers to set some goals for their
future work.
Workers should know what they want to achieve and
then set out to achieve it e.g. an accounting student
may have a dream to become a chartered accountant.

Recognition
All people like to receive credit for what they do.
Receiving credit and recognition for doing good work
makes anyone feel good. It also makes people try to
work harder and do better. Next to the need to earn a
living, perhaps the reason most people work is to
receive some form of recognition.

Social Values
The work that a person does is valuable to society. The
work a doctor does benefit not only the doctor, but also
the people who are treated. Some people even work
without pay for the benefit of others e.g. volunteers
with humanitarian organisations like Red Cross and
Red Crescent.

Keeping Busy
Without work, some people would find it difficult to
find enough to do. Work provides an outlet for their
energy. There are times when older workers would
prefer not to retire. Their jobs give them a chance to
keep busy.

It is easy to see that finding a job and doing that job to

the best on one’s ability is an important part of life.
People work for many different reasons, from wanting
money to helping others. It is very important for a
manager to understand the probable reasons why each
ADVANCED LEVEL BUSINES STUDIES
These needs can be satisfied by being discriminated may lack confidence
employment income, therefore managers and become less productive
must offer sufficient remuneration to pay Esteem needs
for food, accommodation and supply their
families with the necessities of life. • Managers must show appreciation for
• According to Maslow, employees cannot outstanding performance, this can be done
be motivated if the income they get from by having annual awards to hardworking
employment does not give them access to employees e.g. employee of the year
the necessities of life. awards
• Managers can delegate some tasks to their
Safety needs subordinates
• The nature of the job design must be
• Workers need to feel safe at the work place,
challenging, management can set
this can be done by providing protective
challenging objectives
clothing, this protects the employee from
• Encourage employee participation through
work related injuries especially for blue
democratic decision making processes.
coaler jobs.
• Offer training to employees who require it.
• Contracts of employment provides job
security to the employee as he/she is Self actualisation
guaranteed employment under stipulated
conditions for a period of time e.g. without • The employee can be given challenging
a contract the employee has to live with the tasks and the autonomy to solve those
risk of losing the job without notice or the problems
variation of employment terms by the • Encourage creativity of the worker in those
employer. situations
• Employer can make • Self actualised workers inspire others e.g.
insurance the company’s managing director can
contributions on behalf of the employees inspire other employees
e.g. pension and medical aid. The
employee is guaranteed income in the
event of a job loss or retirement. This Herzberg’s two factor theory
makes the employee feel secure
• Management can use coercive power Herzberg identified two set of factors relevant in the
sparingly as it adversely impacts on the motivation of employees. He classified these factors
safety of the employees, frequent threats to into hygienic factors and motivating factors.
employees can demotivate the workers.
Hygienic factors
Social needs
• These factors demotivate the employee if
• Working in teams can help to motivate the they are not present but their presence does
employees, this is in line with Fayol’s not motivate the worker to work harder.
fourteen principles • Examples of these factors are salary,
• Establishing good communication oversupervision by managers and working
channels go a long way in motivating the conditions
workers • Managers have to ensure that the hygienic
• Forming of sporting clubs e.g. soccer factors have been provided so as to get rid
clubs. This enables employees to satisfy of dissatisfaction. However, the provision
their social needs e.g. Chicken inn FC. of such factors do not mean that the worker
• Non discriminatory practices by is satisfied
management go a long way in motivating • Herzberg argued that the absence of
the employees. In organisations where dissatisfaction does not mean that the
discrimination is rife those individuals workers are satisfied, this is because the
ADVANCED LEVEL BUSINES STUDIES
two are caused by two distinct factors. depends on the job. There must be a fruit
Therefore the two cannot be treated as of some sort in the job.
opposites. • Growth and promotional opportunities -
Hygienic factors are synonymous with the There must be growth and advancement
lower level needs on the Maslow’s opportunities in an organization to
Hierarchy of needs motivate the employees to perform well
e.g. opportunities for promotion
They can be provided in the following ways • Responsibility - The employees must hold
themselves responsible for the work. The
• Pay/ salary: The pay structure should be managers should give them ownership of
appropriate and reasonable. It must be fair the work. They should minimize control
and competitive to those in the same but retain accountability.
industry in the same domain • Meaningfulness of the work - The work
• Company Policies and administrative itself should be meaningful, interesting and
policies - The company policies should not challenging for the employee to perform
be too rigid. They should be fair and clear. and to get motivated. This is done through
It should include flexible working hours, job enrichment and job rotation.
dress code, breaks, vacation, etc.
• Fringe benefits - The employees should be Limitations of Two-Factor Theory
offered health care plans, benefits for the
family members, employee help
3. Herzberg assumed a correlation between
programmes, etc.
satisfaction and productivity. But the
• Physical working conditions - The working
research conducted by Herzberg stressed
conditions should be safe, clean and
upon satisfaction and ignored productivity.
hygienic. The work equipments should be
4. No comprehensive measure of satisfaction
updated and well-maintained.
was used. An employee may find his job
• Interpersonal relations - The relationship
acceptable despite the fact that he may
of the employees with his peers, superiors
hate/object part of his job.
and subordinates should be appropriate and
acceptable. There should be no conflict or
Application of the Theory
humiliation element present.
The theory implies that the managers must stress
• Job Security - The organization must
upon guaranteeing the adequacy of the hygiene
provide job security to the employees.
factors to avoid employee dissatisfaction. Also, the
Motivational factors managers must make sure that the work is
stimulating and rewarding so that the employees are
According to Herzberg, the hygiene factors cannot motivated to work and perform harder and better.
This theory emphasize upon job-enrichment so as to
be regarded as motivators. The motivational factors motivate the employees. The job must utilize the
yield positive satisfaction. These factors are inherent employee’s skills and competencies to the
to work. These factors motivate the employees for a maximum. Focusing on the motivational factors can
superior performance. These factors are called improve work-quality.
satisfiers. These are factors involved in performing
the job. Employees find these factors intrinsically Taylor’s scientific management
rewarding. Motivational factors include:
Taylor put forward the idea that workers are
• Recognition - The employees should be motivated mainly by pay and did not consider non
praised and recognized for their financial methods of motivation. He viewed a
accomplishments by the managers. worker as an economic man who is motivated solely
• Sense of achievement - The employees by monetary rewards. He made the following
must have a sense of achievement. This arguments:
ADVANCED LEVEL BUSINES STUDIES
• Workers do not naturally enjoy work and workers, treating them as people who have
so need close supervision and control worthwhile opinions and realising that workers
• Therefore managers should break down enjoy interacting together. Mayo made the
production into a series of small tasks concluded that workers are best motivated by:
Workers should then be given appropriate Better communication between managers
training and tools so they can work as and workers
efficiently as possible on one set task. Greater manager involvement in
• Workers are then paid according to the employees working lives
number of items they produce in a set
Working in groups or teams.
period of time- piece-rate pay.
• As a result workers are encouraged to work
In practice therefore businesses should re-organise
hard and maximise their productivity.
production to encourage greater use of team working
and introduce personnel departments to encourage
Application of scientific management in motivation
greater manager involvement in looking after
employees' interests. His theory most closely fits in
Taylor's approach has close links with the concept with a democratic style of management.
of an autocratic management style(managers take all
the decisions and simply give orders to those below
them) and McGregor's Theory X approach to
workers (workers are viewed as lazy and avoid MOTIVATION IN PRACTICE
responsibility). This has the following consequences
When examining methods of motivation that can be
applied in the workplace, we sub-divide them into
• Performing the same task repetitively will financial and non-financial methods. Financial
end up becoming monotonous and boring, methods directly involve monetary rewards e.g.
this can demotivate the worker and bonuses, pay rises, pensions etc. Non-financial
adversely impact on productivity methods, though perhaps indirectly bringing
• It is improper to assume that workers are monetary rewards, are targeted at providing
motivated solely by financial rewards as it psychological benefits for workers. It must be
can be observed in reality that people work remembered that both financial and non-financial
for other reasons which are not financial. methods have costs to the employer, either through
• The piece rate system is difficult to apply direct costs such as extra pay, or indirectly through
in some businesses especially in the service the provision of training or management time spent.
sector Financial methods of motivation
• Strict supervision of employees can
adversely impact on employee confidence Herzberg emphasised the importance of hygienic
and morale factors, he once said ‘if you pay peanuts, you get
• Taylor identified the importance of why monkeys’. This shows the importance of financial
workers must receive adequate training. methods of motivation discussed below.
This is very important in improving
productivity and worker motivation. Piece rate pay: The most basic method of payment
is a piece rate. When a piece rate is paid workers are
paid for each item they produce or for each task
completed. This does have advantages in that
Mayo’s Human relations theory workers will work as fast as they can to maximise
their income, and payment is only made when work
Elton Mayo believed that workers are not just is completed. But there are disadvantages for both
concerned with money but could be better motivated employer and employee. For the employer there
by having their social needs met whilst at work must be a great deal of supervision and checking of
(something that Taylor ignored). He introduced the quality as workers are motivated to achieve speed of
Human Relation School of thought, which focused output not quality of output. From the employees
on managers taking more of an interest in the point of view there is no guarantee of income and
ADVANCED LEVEL BUSINES STUDIES
incomes are often very low, no matter how fast they
work.

Fringe Benefits: Other forms of financial

motivation include company cars, pension schemes,
sickness benefits, subsidised meals and
travel, and staff discounts. These are often grouped Employee stock option: It is a stock option granted
together under the heading fringe benefits. Some of to specified employees of a company. It offers the
these fringe benefits can be regarded as essential in options holder the right to buy a certain amount of
encouraging the right applicants for certain types of company shares at a predetermined price for a
vacancies. For example a company car is a necessity specific period of time. This motivates the
in financial service firms for anyone involved in employees to work for the benefit of the
sales, and senior management in many companies organisation since they are to become owners of the
would expect both an upmarket car and private entity.
health care.

Bonus schemes: There are a wide variety of bonus Non-financial methods of motivation
schemes available, each designed to be suitable for
different employees doing different jobs. These The use of non-financial motivation methods is an
schemes include: attempt by employers, to apply ideas behind the
theories of Mayo, Maslow and Hertzberg.
• Sales bonus. This is normally paid if a Examination of these theories has shown us that
sales target has been reached. For sales motivation to achieve quality of output is best
people this may make up a significant part achieved through satisfaction of higher needs
of their salary. (Maslow), awareness of the role of groups in the
• Performance bonus. This can be paid to workplace (Mayo), and the need to provide
an individual or on a group or factory wide Motivators (Herzberg). The non-financial methods
basis, and is often paid for reaching targets of motivation outlined below can be linked to one of
of output and quality. This method of more of these theories.
payment is an important part of Human
Resource Management. Job Enrichment: This means giving workers more
• Christmas bonus. Often called a 13 th control over the tasks that they complete. Allowing
month's salary, paid for loyalty to the workers to complete tasks that have a meaning, and
business. are complete in themselves. For example a worker
• Profit share. Some businesses will pay a who has a job fitting the tube to a TV, may have his
percentage of profits to employees. The job enriched by testing that the tube works, and
amount that they receive will normally being able to make adjustments so that the required
depend on salary and length of service, so level of quality is achieved. The ability to do this
rewarding those that had been with the range of tasks means that the worker becomes more
company longest, more. committed to achieving quality. The cost associated
with this method, are of course, the time spent
Profit related pay. Profit related pay links part of training the worker to complete these extra tasks.
an employees’ income to the profits of a company. Effective job enrichment depends upon workers
Those who receive profit related pay will earn less having interesting tasks to complete. Job design is a
if the company profits decline and more when the key part of Herzberg's ideas.
entity is profitable. This method is sustainable to the
firm as employees are paid in accordance to Job Enlargement: Job enlargement means
profitability. Employees are motivated to work hard increasing the number of tasks completed by a
to improve the entity’s profits thus achieving goal worker. So a secretary previously employed to
congruency. answer calls might now have duties, which include,
filling, letter writing etc. This adds interest to the
Commission: Employers pay employees a sales job, and involves the employee in a more complete
commission to incentivize the employees to produce role within the business.
more sales and to reward and recognize people who
perform most productively. The sales commission Communication: Communication is a key part of
has proven to be an effective way to compensate motivation, and effective use of methods of
sales people and to promote more sales of the communication is a complex management issue.
product or the service. The employee is paid a Empowerment: This means giving workers the
specific portion of his or her sales e.g. 3% of sales power to control their own jobs, make decisions, and
revenue generated by the employee. implement their own ideas. It is often used
effectively in decentralised organisations and • Increased wastage of materials
democratic leadership styles. • Poor quality work
• Dysfunctional conflicts
Quality Circles: These are groups of workers that • Workers avoid responsibility
meet on a regular basis to discuss problems in the • High rates of absenteeism
manufacturing or service provision process and • High labour turnover i.e. increased number
offer solutions. They may involve groups of workers of employees leaving their jobs
from the same department, or come from a variety
• Actual or threats for industrial action
of disciplines. They may include designers, buyers,
• Less or no punctuality
and production workers.
• Work delays i.e. missing deadlines or
Training: The provision of a formal training targets
scheme is important. As Herzberg stated, without
training, workers will not be able to fulfil their
potential. Training can be on-the-job, learning by LEADERSHIP
doing, or off the job, such as studying at a college.
• It is the art of influencing people to
Taylor also emphasised the importance of training
perform task related activities
in an effort to improve productivity.
willingly.
Growth opportunities: Employees will always • Willingness is a key aspect in defining
perform at their best when the environment is leadership, because leaders do rely
conducive to growth. The potential for growth is a mainly on charismatic power to
huge motivational difference maker. Employees motivate their followers to work
can be motivated by opportunities for promotions, towards attaining a specific goal.
professional advancement by getting more • A good manager must possess good
experience and personal growth. leadership qualities because a good
leader is a great motivator.
Status: it is a socially defined position or rank to • Leadership involves:
groups or group members by others. It is evident that  establishing a clear vision
the society has different classes. Status is an  sharing that vision with others so
important factor in understanding human behaviour that they will follow
because it is a significant motivator. For instance, willingly
when one has been promoted his/her status would  providing the information, kn
improve thus boosting morale and productivity. owledge and methods to
realize that vision
 coordinating and
balancing the conflicting
interests of members and
Positive effects of motivation
stakeholders
The following features show that the staff members
Qualities of a good leader
are motivated
 Respect for every member of the
• Increased productivity organisation e.g. employees at all
• Reduced accidents levels.
• Reduced wastage of materials  Honest and trustworthy
• Minimum errors  Self motivated i.e. seeks to satisfy
• Reduced conflicts higher level needs on Maslow’s
• Workers seek responsibility hierarchy. Motivated by non
• Resistance to change financial incentives
 Commitment to the growth and
On the other hand, the following signs show that the
development of those he/she leads
workforce is demotivated
 In possession good
• Reduced productivity
communication skills
• Accidents at workplace
  Ability to motivate his/her followers  An autocratic style of leadership can
 Integrity be effective in work environments  Vision/strategy where decisions need to be made
 Persuasion quickly. The sole responsibility rests  Adaptability with the leader, and he/she
makes the  Teamwork decision without the need to consult
 Coaching and Development others. This saves precious time which
 Decision-making, ability to make happens to be a non renewable quality decisions
resource
 Planning skills  The leader keeps a close watch on the

activities of the workers. This can

Leadership styles result in increased productivity and
speed, as workers who fall behind are
‘Leadership style’ is the general attitude and quickly identified and corrective
behaviour of a leader, particularly in relation measures are taken. Quality may
to his or her colleagues and team members.
improve, as the employees' work is
monitored constantly. Time wasting There are a number of styles of
and the need to waste resources are leadership: also reduced.
 This style is very effective when
4. Autocratic dealing with inexperienced or
demotivated staff. It is greatly aligned

This is often referred to as an authoritarian to McGregor Theory X leadership style, and it basically
means that  The style strongly motivates the the people at the top of an organisation make leaders who
dictate the pace within the all the decisions and delegate very little organisation. It gives status to the

responsibility down to their subordinates. It leader and enables the leader to satisfy can cause much
resentment and frustration higher order needs on Maslows’ amongst the workforce and it is not very
hierarchy of needs
common in today's business world. Its features  Effective chain of command is crucial are summarised
below for the success of any organisation as highlighted by Fayol. This style is mostly effective in
organisation where
• Autocratic leaders hold onto as much chain of command is crucial such as power and decision-
making as military, air force like organization. possible
• Communication is top-down & one- Demerits way i.e. no opportunity for feedback to the leader
 This style is widely criticised for its
• Formal systems of command & control negative motivational consequences as are strictly
adhered to it does not involve subordinates in the
• Minimal consultation as the manager decision making process thus failing to single handedly
makes the decisions recognise their importance in the
• Use of rewards & penalties to shape decision making process human behaviour (motivation
tool)  Autocratic leaders take full Very little delegation responsibility for the execution of the
• Most likely to be used when tasks at hand. This puts pressure on
subordinates are unskilled, not trusted the manager as he/she is reluctant to and their
ideas are not valued delegate. Such a scenario may have adverse consequences
to the
Merits organisation and the manager in his
personal capacity e.g. work related
stress.
  May be the major reason for resistance a sustainable balance between time to change in cases
where subordinates spent and the benefits.
are unhappy with the decisions made Likely to be most effective when used
 One way communication is with skilled, free-thinking and counterproductive as it cannot be
experienced subordinates.
ascertained in time if the intentions of It can only be effective as a the leader are properly
understood. motivational tool only in cases where the lower level needs according to
5. Democratic. Maslow or hygienic factors according
to Herzberg are satisfied
This involves managers and leaders taking into account the
views of the workforce before Merits making decisions and
implementing them.
This can lead to increased levels of morale and  Exchange of ideas among subordinates motivation
amongst the workforce, but it can and leader improves job satisfaction also result in far more time being
taken to and morale of the subordinates. The achieve the results since many people are employees will
develop a positive involved in discussing the decision. This type attitude towards their jobs as they feel
of leadership has the following characteristics: their contributions are needed for the success of the
organisation
• Focus of power is more with the group
as a whole than individual members  Human values get their due recognition which motivates
the Leadership functions are shared within the group as opposed to the subordinates and reduces
resistance to leader executing them in person. This change as the employees would have implies the
presence of delegation. been involved in the process of change. Workers also develop a
• Employees have greater involvement greater sense of self - esteem, due to in decision-making,
all employees importance given to their ideas and affected by a decision are consulted their
contributions. before the it is made
• Two way communication is an
 Increased productivity as motivation
important feature with democratic minimises counterproductive leadership, the
manager gets feedback
behaviours such as labour
from the subordinates absenteeism, material wastage, work
• Emphasis on delegation and accidents, missing of targets and
consultation although the leader still reduces the labour turnover rates.
makes the final decision, this positively affects the
quality of the
decisions made as he/she is in a better  It is an effective in finding solutions position to make

informed decisions for complex problems which are non

routine by their nature.
Perhaps the most popular leadership style because of the positive emotional
connotations of acting democratically,  The quality of decision is improved it satisfies higher
level needs on through consultation as managers can Maslow’s hierarchy of needs. It can be
make informed decisions. viewed as a non financial motivational Consultation enables
managers to tool assess the probable impact of a
decision to the various stakeholders
A potential trade-off between speed of before it is made. decision-making
and better motivation and morale. Consultations are time
consuming even though they motivate  The leadership style induces there is need for the
manager to strike confidence, cooperation, and loyalty
among workers. This minimises
dysfunctional conflicts thus going a
 long way in ensuring unit of direction, processes and make the company more
which was highlighted in Fayols’ 14 efficient (innovation).
principles
6. Laissez-faire.
Demerits
This is where employees are set objectives, and
 This approach is very time consuming then they have to decide how best to achieve
and too many view-points and ideas them using the available resources. This
may take the- solid decision more method of leadership can result in high levels of
difficult and may be a source of enthusiasm for the task in-hand, but it can at
frustration to impatient management. times rely too much on the skills of the
 The democratic leadership requires workforce.
some favourable conditions in that the
labour must be literate, informed and • The term Laissez-faire means to “leave
organised. This is not always possible. alone”, implying employees are given
absolute autonomy with minimal
 This approach assumes that all workers
interference from management
are genuinely interested in organisation
and that their individuals are goals • Leader has little input into day-to-day
successfully fused with the decision-making
organisational goals. This assumption • Managers / employees have freedom to do
may not always be valid. what they think is best under the
circumstances.
 There must be a total trust on the part • Often criticised for resulting in poor role
of management as well as employees. definition for managers as the subordinates
Some employees may consider this are fully empowered to make decisions
approach simply an attempt to which is a traditional role of managers.
manipulate them. Accordingly the • Effective when staff are ready and willing to
employees must be fully receptive to take on responsibility, they are motivated,
this approach to make it meaningful. and can be trusted to do their jobs
 Some group members may feel
alienated, if their ideas are not accepted Merits
for action. This may create a feeling of
frustration and ill-will. Laissez-faire leadership styles tend to work best
near the top of organizational hierarchies,
 Some managers maybe uncomfortable
where executives build teams of experts such as
with this approach because they may
directors and give them wide latitude to run
fear erosion of their power base and
their departments. Teams focused on research
their control over labour.
and development, conceptual or creative
 This approach relies heavily on projects require autonomy. A positive
incentives and motivation of laissezfaire leadership style has the following
recognition, appreciation, status and merits
prestige. The labour may be more
interested in financial incentives • Allows experts to function productively and
instead of prestige. challenges them to take personal
 When employees are encouraged responsibility for their achievements and
employees to give their opinions on failures
company issues, they provide a variety • Motivates people to perform optimally and
of solutions to choose from. gives them latitude to make correct
Participative leadership empowers decisions that might not be supported in
employees to use their creativity to a more structured
develop more productive work environment.
• Reinforces successful performance and
leads to a higher retention of experts who
 thrive in creative environments that theories as two extremes - with a whole spectrum of
support autonomous decision-making possible behaviours in between. These theories are
• Reduces supervision costs as minimal very useful in determining the leadership style to be
supervision is applied applied y the manager.
• Reduced workload for the leader
Theory X workers could be described as
Demerits follows:

When laissez-faire leadership is used - Individuals dislike work and avoid it where
inappropriately in organizations, projects or possible. Therefore, people must be
settings, it can create more problems than it controlled and threatened for them to work
resolves. If groups or team members lack hard enough
sufficient skills, experience or motivation to - Individuals, who lack ambition, dislike
complete projects, the organization suffers in responsibility and prefer to be led.
the following ways: - Individuals desire security above
everything
• The style may make it difficult for
senior management to coordinate the The management implications for Theory X workers
various efforts were that, to achieve organisational objectives, a
• Results in a lack of accountability for business would need to impose a management
organizations, groups or teams and system of coercion, control and punishment. This is
failure to achieve goals in line with the autocratic leadership style.
• Leads to ineffective time management
by teams, resulting in ambiguous Theory Y workers were characterised by
objectives and missed deadlines McGregor as:

Summary - Consider effort at work as just like rest or

play
As a generalisation, in most business sectors - Ordinary people who do not dislike work.
there has been a gradual shift away from Depending on the working conditions, work
autocratic leadership. Possible reasons for this could be considered a source of satisfaction
include: or punishment
- Individuals seek responsibility if they are
• Changes in society’s values motivated
• Better educated workforce
• Focus on need for soft HR skills The management implications for Theory X workers
• Changing workplace organisation are that, to achieve organisational objectives,
• Greater workplace legislation rewards of varying kinds are likely to be the most
• Pressure for greater popular motivator. The challenge for management
employee involvement with Theory Y workers is to create a working
environment where workers can show and develop
their creativity. This environment can be created by
A manager has to be flexible in his/her approach
using a democratic leadership style which enables
to leadership i.e. must be able to chose the most
subordinates to satisfy higher level needs on
appropriate style under the circumstances e.g.
Maslow’s’ hierarchy of needs.
use autocratic leadership in times of emergency
and use democratic style where changes are
imminent. Difference between leadership
McGregor Theory X and Y and management
Managing and leading are two different ways of
McGregor developed two theories of human organizing people. Leadership is setting a new
behaviour at work: Theory and X and Theory Y. direction or vision for a group that they follow i.e., a
He did not imply that workers would be one leader is the spearhead for that new direction. On
type or the other. Rather, he saw the two the other hand, management controls or directs
people/resources in a group according to other hand managers react to change
principles or values that have already been because they are generally risk averse.
established. The manager uses a formal,
rational method whilst the leader uses passion - The manager focuses on systems and
and stirs emotions through charisma The structure; the leader focuses on people.
following differences can be noted which
distinguish leadership from management - The manager does things right; the leader
- Leaders rely on influence through does the right thing
charismatic power while managers
have authority. Therefore, leaders have
followers who follow willingly while To sum up, leadership and management must go
managers have subordinates hand in hand. They are not the same thing. But they
are necessarily linked, and complementary. Any
- Management involves controlling effort to separate the two is likely to cause more
organisational activities to achieve a problems than it solves. In light of these differences,
goal while leadership refers to the leadership is more complex then management. It is
individuals’ ability to influence, important for a manager to posses good leadership
motivate and enable others to qualities as motivation appears to be the key factor
contribute towards the attainment of that distinguishes leaders from managers. It is
organisational goals therefore important to consider the key leadership
positions within an organisation.
- Leaders are innovative by nature while
managers try to maintain status quo. Leadership roles in business
Managers thrive to conform to the pre
set standards while leaders create - Various people play leadership roles in the
change. Leaders actually challenge the organisation. Some of the roles are formal
status quo seeking room for e.g. managers, directors and supervisors
improvement. In other words managers - There are some individuals who lead
maintain while leaders develop. informal organisations these are informal
leaders.
- Leaders are people oriented implying - Informal leadership is the ability of a
that they base their conduct mainly on person to influence the behaviour of others
the motivation of their followers. On by other means other than formal authority
the other hand managers are task conferred by the organisation through its
oriented, implying that they are mainly rules and procedures.
concerned by the accomplishment of - Informal leaders influence the
the task at hand regardless of the organisational activities because the
methodology informal organisations are important in the
activities of the organisation.
- Leaders have followers (voluntary) - Informal leaders are key in the execution of
while managers have subordinates organisational strategy as they play a key
(chain of command). Leaders instil role in influencing their colleagues in
trust between them and their followers matters to do with
organisational activities
- Leaders are concerned about leading - Informal leaders do not posses any formal
people i.e. they do not distinguish authority and they emerge due to their
themselves much from their followers. personal traits.
This motivates their followers.
- These informal leaders are more likely to be
Managers are primarily concerned by
nominated to represent fellow workers on
managing work.
different platforms

- Leaders have a high appetite for risk,

therefore they create change. On the
Business communication 4. Preparing People to Accept
Change: The proper and effective
Communication is the act or process of using communication is an important tool in the
words, sounds, signs, or behaviours to express hands of management of any organisation to
or exchange information or to express your bring about overall change in the
ideas, thoughts, feelings, etc., to someone else organisational policies, procedures and work
style and make the staff to accept and respond
There are two parties involved in the
positively.
communication process

- Sender: the one who initiates the 5. Developing Good Human

communication process by conveying a Relations: Managers and workers and other
message to the other person staff exchange their ideas, thoughts and
- Receiver: the one who receives the perceptions with each other through
message and must take action on the communication (meetings). This helps them to
message understand each other better. They realize the
difficulties faced by their colleagues at the
Purpose of communication workplace. This leads to promotion of good
human relations in the organisation as
Management can be described as the art of recommended by Mayo’s Human relations
getting the things done through others. The model.
people working in the organisation should
therefore be informed how to do the work 6. Ideas of Subordinates
assigned to them in the best possible manner. Encouraged: The communication facilitates
This makes communication essential for the inviting and encouraging the ideas from
success of any organisation. The purpose of the subordinates on certain occasions on any task
communication can be summed up into the (democratic leadership). This will develop
following: creative thinking and innovation. Honouring
subordinates’ ideas will further motivate them
1. Flow of Information: for hard work and a sense of belonging to the
The relevant information must flow organisation will be developed.
continuously from top to bottom and vice
versa. The staff at all levels must be kept THE COMMUNICATION PROCESS
informed about the organisational objectives
and other developments taking place in the The purpose of communicating is to ensure the
organisation. desired response from the receiver of the
message. For this to be achieved a number of
2. Coordination: factors have to be considered. If the right
It is through communication the efforts of all message does not get to the right person, in the
the staff working in the organisation can be right format, then this could affect the overall
coordinated for the accomplishment of the efficiency of the business. This could actually
organisational goals. The coordination of all harm the business.
personnel’s and their efforts is the essence of
management which can be attained through There are a number of parts to any
effective communication. communication. For instance, sending a message
involves:
3. Learning Management Skills: The
communication facilitates flow of information,
• the sender - the person writing the text
ideas, beliefs, perception, advice, opinion,
• the receiver - the person to whom the
orders and instructions etc. both ways which
message is addressed
enable the managers and other supervisory
• the content of the message - for
staff to learn managerial skills through
example, news, information, an
experience of others.
invitation
 • the format of the message - in this It includes traditional pen and paper letters
example text, image, diagram, graph, and documents, typed electronic documents,
e.t.c. e-mails, text chats, SMS and anything else
• the communication channel through conveyed through written symbols such as
which the message is sent - in this case language. This type of communication is
a mobile phone network indispensable for formal business
• the medium - how the message will be communications and issuing legal
sent, in this case it is in writing. instructions. Communication forms that
predominantly use written communication
It is vital that each part of the message is include handbooks, brochures, contracts,
correctly chosen and in place. If not, the memos, press releases, formal business
message may not be received or understood. proposals, and the like. The effectiveness of
written communication depends on the
The communication process can be illustrated writing style, grammar, vocabulary, and clarity
by the following diagram. Advantages of written communication

 One of the biggest advantages of written

communication is the fact that it allows for
permanent records, which is something
other means of communication such as oral
communication do not have.
 Written communication strengthens and
clarifies a verbal message.
 Because it allows for permanent records, it is
good for making references.
 Written communication can be very useful
The diagram depicts the sender originating a as a defence during legal issues since there is
message destined to the receiver. The receiver normally physical evidence in the form of a
gives feedback to acknowledge the receipt of hardcopy which can be easily stored or kept
the message. Feedback is critical to the hidden somewhere.
communication process as it ensures that the  Written communication is more reliable
message has reached the intended destination than oral communication. A written and
and is understood by the receiver. signed document carries more weight and
validity than spoken words.
 Written communication is more precise than
COMMUNICATION METHODS other means of communication.
 Written communication, because of its form
Types of Communication can be stored for analysis to be made in order
for one to get a better understanding of the
Communication involves the imparting or message it contains.
interchanging thoughts, opinions, or  It can be easily disseminated to recipients
information among people by speech, writing, that are in different locations.
or signs. People communicate in different ways
discussed below. Disadvantages of written
communication

VERBAL  Unlike other forms of communication,

Verbal communication entails the use of words written communication can take a
in delivering the intended message. The two considerable amount of time to produce.
major forms of verbal communication include  Written communication is sometimes
written and oral communication. limited to people who have sight. Blind
people or the visually impaired, for instance
Written communication cannot receive certain types of written
 communication. For example, a blind man • Oral communication is cheap because its
cannot receive information from a poster or natural
notice. • There is no element of rigidity in oral
 Written communications are also not communication. There is flexibility for
flexible. It is a very rigid means of allowing changes in the decisions
communication. previously taken.
 With written communication feedback is not • The feedback is spontaneous in case of
immediate. Feedback is a very important oral communication. Thus, decisions
thing in every organization, which is why a can be made quickly without any delay.
delay in receiving feedback can result in • Oral communication is not only time
certain unfavourable issues such as slowing saving, but it also saves upon money and
down the decision making process. efforts.
 Poor writing skills can hamper the • Oral communication is best in case of
effectiveness of the written communication. problem resolution. The conflicts,
If the writer cannot write effectively then disputes and many issues/differences
there is a high likelihood that a lot of people can be put to an end by talking them
are going to misunderstand the message over.
being sent. This can be a very negative thing • Oral communication is an essential for
for any organization and can come with a teamwork and group energy.
great deal of severe ramifications. • Oral communication motivates the
 Written communication is time consuming employees as it promotes satisfies the
and can be very expensive to produce and to social needs thus encouraging morale
disseminate. among organizational employees.
 Some illiterates or people who cannot read • Oral communication is compatible with
and write very well will have it pretty difficult most communication methods e.g.
getting and understanding the information visual communication
or message contained within a written • Oral communication can be best used to
means of communication. transfer private and confidential
information/matter.
Oral Communication
The other form of verbal communication is the Disadvantages/Limitations of Oral
spoken word, either face-to-face or through Communication
phone, video conferencing or any other
medium. Various forms of informal • Relying only on oral communication
communications such as the grapevine and may not be sufficient as business
formal communications such as lectures, communication is formal and very
conferences are forms of oral communication. organized because records are required
Oral communication finds use in discussions for audit and control purposes
and causal and informal conversations. The • Oral communication is less authentic
effectiveness of an oral conversation depends than written communication as they are
on the clarity of speech, voice modulation, informal and not as organized as written
pitch, volume, speed, and even non-verbal communication.
communications such as body language and • Oral communication is time-saving as
visual cues. far as daily interactions are concerned,
Verbal communication makes the process of but in case of meetings, long speeches
conveying thoughts easier and faster, and it consume lot of time and are
remains the most successful form of unproductive at times.
communication.
• Oral communications are not easy to
Advantages of Oral Communication
maintain and thus they are unsteady.
There is high level of understanding and
• There may be misunderstandings as the
transparency in oral communication as it is
information is not complete and may
interpersonal.
lack essentials.
 • It requires attentiveness and great communication is not alone sufficient for
receptivity on part of the exchanging information. For example the red
receivers/audience. sign to indicate ‘danger’.
• Oral messages do not have any legal
validity unless they are taped or written Advantages of visual communication
and made a permanent record. This is a Visual presentation is beneficial for many
major drawback of oral communication. reasons. Some of them are as follows:

1. Effective for illiterate receiver: If the

receivers are illiterate, the visual
Nonverbal Communication
communication will be more effective to
Nonverbal communication entails exchange information. They can easily
communicating by sending and receiving understand the information that is
wordless messages. These messages usually presented visually.
reinforce verbal communication, but they can 2. Helps in oral communication: Visual
also convey thoughts and feelings on their own. techniques can be used with oral
It includes body language such as body communication. Oral communication
movements, facial expressions, touch, physical becomes more meaningful if graphs,
appearance, graphs and pictures pictures and diagrams are used with it.
Advantages of non verbal communication 3. Easy explanation: Everyone can explain
the meaning of it very easily. Easy
- Communication can take place even if
explanation has made the visual techniques
the receiver cannot hear
more popular.
- Individuals can communicate in
4. Simple presentation: Complex
places where talking audibly is
information, data and figures can be easily
prohibited
presented very simply on graphs, pictures
- It compliments verbal communication
and diagrams.
- It is brief 5. Prevents wastage of time: Visual
- Reliable in case of non voluntary cues techniques help to prevent the wastage of
Disadvantages of non verbal communication time. Written and oral communication takes
much time to exchange information.
- Its interpretation is not consistent in
But number of receivers can be
different cultures. Different people
communicated at a time through visual
perceive the same gestures from
methods.
different perspectives depending on
6. Helps in quick decision: Visual
cultural values
communication helps to take quick decision.
- No permanent record of
So management prefers visual techniques to
the communication
communicate with others.
- It cannot work with visually impaired
7. Popular: Visual communication is very
audience
much popular because people do not like
Visual communication much speech and long explanation rather
The communication which is done through than a chart of a diagram.
sight is called visual communication. Such 8. Others: Artful presentation, Ads impact to
as facial expression, gesture, eye contact, the information, quicker understanding.
signals, map, chart, poster etc. it also includes
graphic design, illustration and animation, Disadvantages of visual
books, print, magazines, screen-based media, communication:
interactive web design, short film, design for There are some limitations of visual
advertising, promotion, corporate identity and communication as follows:
packaging design etc.
1. Costly: The visual methods of
Visual presentation of information and data is communication are more costly than those
having an increasing impact on our practical life. of other methods. To draw maps, charts,
In spite of having impact on our life, visual
 diagram is costly. That is why only large 6. Difficult to understand: Difficult to
organization can use this technique. understand and requires a lot of repetitions
2. Complex presentation: Sometimes visual in visual communication. Since it uses
presentation of information becomes gestures, facial expressions, eye contact,
complex. The receivers cannot understand touch etc. for communicating with others
the meaning of the presentation. which may not be understandable for some
3. Incomplete method: This technique is people.
considered as an incomplete method. Visual 7. Problem for general audience: General
presentation is not sufficient to people may not prefer to communicate
communicate effectively and clearly but also through visual communication with others.
it can be successfully used with oral It cannot be used everywhere because a
communication. degree of skill is required from the audience.
4. Wastage of time: Sometimes visual 8. Others: Ambiguity, situational problem,
techniques take much time to communicate. delays in taking decision.
5. Making a visual presentation requires more
time and effort as it involves selecting ,
compiling and presenting a large amount of
information in a visually pleasing manner
BARRIERS TO COMMUNICATION misunderstands the communication, it
becomes meaningless.
Effective communication occurs whenever the
intentions of the sender are understood by the (iii) Faulty Translation: A manager
receiver. Effective communication is dependent receives information from his superiors and
on the communication skills of both the sender subordinates and translates it for all the
and the receiver and the medium of employees according to their level of
communication used for it to be effective. A understanding. Hence, the information has to
barrier to communication is anything that be moulded according to the understanding or
makes communication ineffective. environment of the receiver. If there is a little
carelessness in this process, the faulty
For the convenience of study the different translation can be a barrier in the
barriers can be divided into four parts: communication.

SEMANTIC BARRIERS (iv) Unclarified Assumptions: It has

There is always a possibility of been observed that sometimes a sender takes it
misunderstanding the feelings of the sender of for granted that the receiver knows some basic
the message or getting a wrong meaning of it. things and, therefore, it is enough to tell him
The words, signs, and figures used in the about the major subject matter.
communication are explained by the receiver in
the light of his experience which creates (v) Technical Jargon: Technical jargon
doubtful situations. This happens because the is not so simple as to be understood by
information is not sent in simple language. everybody. Hence, technical language can be a
barrier in communication e.g. communication
The chief language-related barriers are as between industrial engineers, production
under: development manager, quality controller, etc.
(i) Badly Expressed Message: This
barrier is created because of the wrong choice
(vi)Body Language and Gesture
of words, in civil words, the wrong sequence of
Decoding: When the communication is passed
sentences and frequent repetitions.
on with the help of body language and gestures,
its misunderstanding hinders the proper
understanding of the message. For example,
(ii) Symbols or Words with Different moving one’s neck to reply to a question does not
Meanings: A symbol or a word can have indicate properly whether the meaning is ‘Yes’ or
different meanings. If the receiver ‘No’.
 organisational hindrances in the way of
PSYCHOLOGICAL/ EMOTIONAL communication are the following:
BARRIERS
The importance of communication depends on (i) Organisational Policies:
the mental condition of both the parties. A Organisational policies determine the
mentally disturbed party can be a hindrance in relationship among all the persons
communication. Following are the emotional working in the enterprise. For example,
barriers in the way of communication: it can be the
policy of the
(i) Premature Evaluation: organisation that communication will
Sometimes the receiver of information tries to be in the written form. In such a
dig out meaning without much thinking at the situation anything that could be
time of receiving or even before receiving conveyed in a few words shall have to
information, which can be wrong. This type of be communicated in the
evaluation is a hindrance in the exchange of written form.
information and the enthusiasm of the sender Consequently, work gets delayed.
gets dampened. (ii) Rules and Regulations:
Organisational rules become barriers
(ii) Lack of Attention: in communication by determining the
When the receiver is preoccupied with some subject-matter, medium, etc. of
important work he/she does not listen to the communication. Troubled by the
message attentively. For example, an employee definite rules, the senders do not send
is talking to his boss when the latter is busy in some of the messages.
some important conversation. In such a (iii) Status: Under organising
situation the boss may not pay any attention to all the employees are
what subordinate is saying. Thus, there arises divided into many categories on the
psychological hurdle in the communication. basis of their level. This formal division
acts as a barrier in communication
(iii) Loss by Transmission and Poor especially when the communication
Retention: When a message is received moves from the bottom to the top.
by a person after it has passed through (iv) Complexity in
many people, generally it loses some of its Organisational
truth. This is called loss by transmission. Structure: The greater number of managerial
This happens normally in case of oral levels in an organisation makes it more
communication. Poor retention of complex. It results in delay in communication
information means that with every next and information gets changed before it
transfer of information the actual form or reaches the receiver. In other words, negative
truth of the information changes. things or criticism are concealed. Thus, the
more the number of managerial
(iv) Distrust: For successful communication levels in the organisation,
the transmitter and the receiver must trust the more ineffective the
each other. If there is a lack of trust communication becomes.
between them, the receiver will always (v) Organisational Facilities:
derive an opposite meaning from the Organisational facilities mean
message. Because of this, making available
communication will become sufficient stationery,
meaningless. telephone, translator, etc.
When these facilities are sufficient in
ORGANISATIONAL BARRIERS an organisation, the communication
Organisational structure greatly affects the will be timely, clear and in accordance
capability of the employees as far as the with necessity. In the absence of these
communication is concerned. Some major
 facilities communication becomes statements from top executives are examples of
meaningless. one-way communication.
On the other hand, two-way communication
occurs when the receiver provides feedback to
PHYSICAL BARRIERS the sender. Making suggestion to a
subordinate, face-to-face conversation, phone
calls etc. are examples of two-way
Physical distractions are the physical things that
communication.
get in the way of communication. Examples of
such things include geographical distance, an Two-way communication
uncomfortable meeting place, background
In two-way communication when the receiver
noise, poor lighting, uncomfortable sitting,
gets the message, they send back a response,
unhygienic room, or an environment that is too
acknowledging the message was received.
hot or cold can affect people's morale and
concentration, which in turn interfere with Two-way communication is essential in the
effective communication. business world. Messages are transmitted
between employers, employees, customers, and
SOCIAL BARRIERS other stakeholders, and feedback is required to
Social factors shape the character of individuals be certain that the message was received and
within that society. They become a barrier to understood.
communication as they influence how Merits
individuals perceive a specific phenomenon.
- Feedback helps to ensure
Social factors such as age, religion, gender,
that communication has been
socioeconomic status, and marital status may
effective.
act as a barrier to communication in certain
- Managers at different levels within the
situations.
organisation give advice, inform and
instruct on different issues. Proper
CULTURAL BARRIERS understanding of these messages and
Culture shapes the way we think and behave. It further clarification is possible in the
can be seen as both shaping and being shaped by presence of two-way communication.
our established patterns of communication. - Managers and subordinates can
Cultural barrier to communication often arises exchange information about their
when individuals in one social group have respective problems through two-way
developed different norms, values, or communication. Problems faced by
behaviours to individuals associated with subordinates can be reached to
another group. Cultural difference leads to management through feedback.
difference in interest, knowledge, value, and
- Two way communication enables
tradition. Therefore, people of different cultures
subordinates to make suggestions to
will experience these culture factors as a barrier
managers. This improves motivation
to communicate with each other.
levels and the quality of decisions
made.
LINES OF COMMUNICATION - Democratic management involves
managers getting the views of their
There are two types of Business Communication
subordinates before making decisions.
system named as One-way communication and
Obtaining such views is only possible
Two-way communication. Though both the
through two way communication
communication system transfers message or
- If information which is sent to the
information, there are certain differences
desired receiver contains any
between them. When a message flows from
vagueness or confusion, it is difficult to
sender to receiver only, it is called one-way
understand the actual meaning of the
communication. Here the sender communicates
message. To solve this problem,
without expecting any feedback from the
two way communication is the effective
receiver. Radio or television programs or policy
one.
Demerits Communication without upper level and the
lower level employee is very much essential for
- Two way communication is time
organization. Some advantages of vertical
consuming
communication system are as follows:
- It can be frustrating when the receiver
abuses the opportunity of giving
Merits
feedback to ask silly questions.
One way communication - Conveying message to
In one way communication, information is subordinate: Through upward
transferred in one direction only, from the direction of vertical communication
sender to the receiver. There isn't any system, the upper level management
opportunity for the receiver to give feedback to covey their suggestions, complains and
the sender. recommendations to the subordinates.
- Good labour relations: There is
One-way communication is frequently used
systematic flow of information under
when the sender wants to give factual
his communication system, so a good
information or when they want to persuade or
relation can be developed between
manipulate their audience and gain their
superior and subordinates.
cooperation. Examples of one way
 Maintains organizational discipline:
communication include presentations, posters,
There is a chain of command in vertical
notice boards, adverts, e.t.c.
communication system. So, a sense of
discipline may be developed among the
employees.
Advantages
- Explaining policies and plan:
- Time saving as there is no need for Through vertical communication
feedback system, upper level management can
- Ideal for routine tasks and in times of send the policies and procedures to the
emergency subordinates.
Disadvantages - Effective decision making:
Superiors needed various information
- Lack of feedback can make
to make decisions making in the
communication ineffective
organisation. Vertical
- Adverse impact on employee morale as communications enable superiors
their input in decision making is not to collect information form
required
subordinates.
- It can be demotivating to subordinates
- Help in decentralizations: Duties
- Can be a source of resistance to change
and responsibilities can be delegated
among departments thorough vertical
VERTICAL & HORIZONTAL communication.
COMMUNICATION - Avoid by-passing: Under this
Horizontal communication occurs between communication system superior and
people holding the same hierarchical position. subordinates exchange message
Both written and oral methods are used to make directly. So there is no chance to
horizontal communication effective. While bypassing.
vertical communication occurs between people - Maintains chain of command:
holding different hierarchical positions e.g. proper chain of commands is easily
manager and subordinates. maintains through vertical
communication system.
Vertical communication - Assigning jobs and evaluating
performance: Vertical
Without communicating with superior and communication facilitates job
subordinate, no organization runs a single day. assignment and job evaluation of the
employees.
 - Increase efficiency: Necessary different departments which helps to
instructions are sent to subordinates boost up co-ordination (social needs).
and they perform their duties and - Increase Productivity: Horizontal
responsibilities accordingly that is help communication minimizes the
to increase efficiency for both superior problems of understanding among
and subordinate. various departments as a result,
Disadvantages productivity increased.
- Better implementation of
In spite of having many advantages vertical decision: Decisions are made by top
communication, there are some management but they are executed by
disadvantages which are given below: the lower level employees. When lower
level employees allowed
- Delay process: in large communicating each other through
organisations, it is time consuming for horizontal communication, it helps to
information to move from the top to realize the policy and ensures better
the bottom (bureaucracy). implementation of decision.
- Loss or Distortion of - Motivation: Horizontal
information: Information may be communication not only increases the
fabricated by the employees to level of coordination but also facilitates
maintain lengthy channel. So, through the task of motivation by satisfying
his communication information may social needs.
lose its originality. - Teamwork: In any organization for
- Slowness system: Vertical some specific purposes teamwork is
communication is the slowest essential. Horizontal communication is
communication method because it a prerequisite for successful teamwork.
requires passing through the various (Fayol)
levels of an organization. For this, it - Job Satisfaction: Another major
may become ineffective. advantage of horizontal
- Negligence of superiors: In this communication is, it increases job
communication superiors can neglect satisfaction of the employees.
to send message to their subordinates.
Disadvantages
Horizontal communication - Lack of control: Sometimes too
Advantages of horizontal much horizontal communication
communication: creates problem for the management
and controlling may become difficult as
The communication which is occurring among the horizontal communication
same level people on the organisational chart increases.
within the same department or across - Time consuming: Communication
departments is called horizontal in addition to vertical instruction may
communication. The following advantages of delay the implementation of decision.
horizontal communication exist: - Lack of discipline: As strict rules are
not followed organizational discipline
- Better Understanding: Horizontal also can be hampered in horizontal
communication ensures better communication. Fayol emphasised the
understanding, accordingly employees importance of discipline in his 14
of different division able to perform principles.
their job more efficiently.
- Coordination: Direct
communication by breaking the FORMAL AND INFORMAL
vertical channel strengthens the COMMUNICATION
bondage between employees of
Formal communication
The communication follows a hierarchical chain about their demands, problem and the way
of command which is established by the to develop the implementation system of the
organization itself. In general, this type of work. As a result it creates an opportunity to
communication is used exclusively in the send the recommendation to management.
workplace, and the employees are bound to 7. Flexibility: Informal communication is
follow it while performing their duties e.g. more flexible than formal communication
requests, commands, orders, reports etc. because it is free from all type of formalities.
8. Rapid communication: It transmits very
Informal communication/ Grapevine fast. Especially miss-information or rumour
spread rapidly to others in the organization.
The communication which does not follow any 9. Improve interpersonal relationship:
pre-defined channel for the transmission of Cooperation and coordination in informal
information is known as informal communication leads to improve
communication. This type of communication interpersonal relationship which is very
moves freely in all directions, and thus, it is very much essential to carry out the business
quick and rapid. In any organization, this type activity smoothly (social needs).
of communication is very natural as people
interact with each other about their professional Disadvantages of grapevine or
life, personal life, and other matter e.g. sharing informal communication
of feelings, casual discussion, gossips, etc.
1. Distort meaning: Sometimes the
meaning and the subject matter of the
Merits
information is distorted in this system.
2. Spread rumour: In this system, the miss-
1. Interpret: The information is given by the information or rumour spread rapidly. The
top level management under the formal original information may be transformed to
system. It is easy for the employees to take wrong information.
the explanation by informal system. So this 3. Misunderstanding: Under this system,
system plays a vital role to complete the generally, the employees do not obey the
work properly. formal system. So it creates the opportunity
2. Present grievance: Under the informal to develop misunderstanding.
system the employees disclose their needs, 4. Maintaining secrecy is impossible: In
sentiment and their emotions to others informal communication system maximum
authority without feeling any hesitation. communication is made by open discussion.
3. Alternate system: The management So it is impossible to maintain the secrecy of
sometimes is not able to obtain all the information.
information by formal system. Informal 5. Difficulty in controlling: Under informal
system covers the gap. communication system no established rules
4. Improved relationship: Any problem or policy is obeyed. So it is very much
between the workers and the management difficult to control the information.
can be solved by informal system. So it 6. Non-cooperation: Informal
makes good relationships among the communication system sometimes develops
employees and the management. the adversary culture among the employees.
5. Increase efficiency: Under the informal So they are not to be cooperative with each
system, the employees discuss their other and their efficiency may be reduced.
problem openly and they can solve it. For This is common in cases where motivation
this, the work is done properly and it levels are low (resistance to change).
develops the efficiency of the employee.
6. Providing recommendation: In this
system the employees inform their superior
Marketing management Market definition

Marketing management is the process of identifying The term market refers to the group of consumers or
consumer needs and satisfying them at a profit. The organisations that is interested in the product, has the
needs include both current and future needs.
resources to purchase the product and is permitted satisfy the needs of the customers, therefore
by law and other regulations to acquire the product. the two functions have to work hand in hand
in achieving this. The marketing
This definition is different from the common department will provide consumer
misconception of defining a market as a physical feedback to the production department.
place. This definition is too 2. Finance: the finance department is
shallow as technological improvements responsible for handling the financial
have made it possible for trade to take place in the matters of the organisation. The major
absence of physical contact between buyers and source of revenue in any organisation is
sellers. sales revenue. For the finance department to
perform its duties effectively it has to rely
Role of marketing mainly on the marketing function. They
have to work together in matters to do with
Marketing managers are responsible for most of the
pricing decisions and credit policy issues
activities necessary to create the customers the
e.g. cash discounts, credit periods,
organization wants. Marketing activities include:
e.t.c.
3. Human resources: the HR function has the
• Identifying customer needs
duty to hire and retain competent staff
• Designing goods and services that meet
within the organisation. Individuals value
those needs
security therefore they prefer competitive
• Communication information about those
organisations. The marketing function is
goods and services to prospective buyers
responsible for ensuring that the
• Making the goods and services available at
organisation’s products are competitive in
times and places that meet customers’
the market. This implies that the HR
functions become easier if the marketing
needs function is operating efficiently.
• Pricing goods and services to reflect costs,
competition and customers’ ability to buy To sum up, the marketing function is central to the
• Providing for the necessary service and success of every organisation. It plays a critical role
follow-up to ensure customer satisfaction of staff advisory role to other organisational
after the purchase functions. This explains why most successful
entities in the history of business are market oriented.
Marketing and other functions

Profitability is the ultimate purpose of marketing, it ANALYSING THE MARKET

is there to help organizations achieve their
objectives. In the case, the major objective of private The goal of market analysis is to determine the
firms is profit. Private firms should aim to achieve attractiveness of a market and to understand its
profits as a consequence of creating superior evolving opportunities and threats as they relate to
customer value, by satisfying customer needs better strength and weaknesses of the firm. The dimensions
than competitors. This shows that the marketing of a market analysis are as follows:
function is critical for the success of any • Market size (current and future)
organisation. The relationship between marketing • Location
and other organisational functions is discussed • Segments
below; • Competitors

1. Production: the production function is

Market size
responsible for manufacturing products to
be consumed by customers. The production • The size of the market can be estimated by
department must produce goods and the local sales of all firms in the market.
services that satisfy the needs of the • The market size can be expressed in sales
customers for the organisation to be value, i.e. the total amount spent by
successful. It is the duty of the marketing consumers in buying the products
department to ensure that the firms products
 • Is can also e expressed in sales volume i.e. influence competitor behaviour to your
the physical quantity of goods which are advantage.
produced and sold • The main idea is to analyse competitor’s
• The calculation can also include potential angle to the market in order to find a
customers weaknesses that the business will be able to
• The bigger the market the more competitors use in positioning its own product.
the business is likely to have. Therefore, for • This also includes trying to predict the
a big market there is need to make sure competitor’s reactions to the entity’s
products and services stand out. Otherwise, actions. This will go a long way in avoiding
the customers can easily switch to a rival self destructive marketing strategies such as
product. price wars.

Target Market (segment)

Market segmentation
• The target market is the type of customers
which the business target within the market. • Market segmentation is the process of
For example a jewellery dealer can either be identifying distinct groups and or sub
a generalist or decide to focus on the high groups of customers in the market, who
end or the lower end of the market. have distinct needs, characteristics,
• This section is relevant when the market has preferences and behaviours, and require
clear segments with different drivers of separate product and service offerings and
demand. In the example of jewels, value for corresponding marketing mixes.
money would be one of the drivers of the • Market segmentation can be defined as the
lower end market whereas exclusivity and process of dividing a market into distinct
prestige would drive the high end. subsets of consumers with common needs
or characteristics and selecting one or more
Location
segments to target with a distinct marketing
• Choosing location for any physical business
mix.
should be a careful consideration that takes
• Markets can be segmented on the basis of
into account many aspects of the target
o geographical location e.g. Harare
market.
& Bulawayo markets o
• In addition, businesses must consider the
demographic trends, e.g. age, religion
area availability of other alternative
and sex
products (competitors) direct and indirect.
• A good location, with little competition, but o Psychographic – Lifestyle –
ready access to consumers who make up a Attitudes about self, family, and
good portion of the business' target society.
demographics can represent ample
opportunity for effective marketing Benefits of Segmenting and Targeting Markets
designed to generate maximum results. 1. The marketer can examine the needs of
• The business must be located in a position each segment and determine to what extent
that offers it greatest merits with minimal the current offering satisfies these needs.
costs. However, it can be necessary to This ensures that all customers are satisfied
locate closer to competitors so as to enjoy thus creating a competitive advantage for
external economies of scale. the business.

2. Efficient allocation of resources as

Competitor
marketing efforts is directed towards a
specific segment. This enables the
• The main goals of a competitor analysis are
organisation to gain a competitive edge in
to understand who your competitors are,
all market segments
what strategies they are using and have
planned, how competitors might react to
your company’s actions, and how to 3. It facilitates the setting up of realistic sales
targets
 4. Enables management to identify profitable under threat if it depends solely on the niche
segments which require special attention market
• Lack of economies of scale due to restricted
Demerits of segmentation output levels

1. Segmentation increases costs. When a firm Mass marketing

attempts to serve several market segments,
there is a variation of products. Cost of Mass marketing involves selling the same products
production rises due to shorter production to the whole market with no attempt to target
runs and product variations. separate groups (one size fits all)

2. Larger inventory has to be maintained by Merits

both the manufacturer and the distributors.
This arises from the fact that each product • The business can enjoy economies of scale
is produced for a specific segment which in production, and marketing
means high levels of stock must be • Reduced risk as the business does not
maintained. This increases stock holding depend mainly on a single segment of the
costs. market
• Mass marketing results in competition
Niche v Mass Marketing which in turn improves efficiency of the
business operations. This improves the
Niche marketing living standards of the citizens
• It is effective strategy in markets were
Niche marketing involves identifying and servicing customer needs are general e.g. developing
of one segment of a larger market. This segment can nations were the consumer incomes are
be one that has not been identified and filled by generally lower
competitors and is a very small section of the market
Demerits
Merits
• The assumption that consumer needs are
• Less capital invested in the business as similar is not accurate and the business may
business has to produce a limited output for lose some of its customers
the niche market Marketing Orientation
• There is reduced competition in niche Businesses can develop new products based on
markets either a marketing orientated approach or a product
• Reduced business risk as the marketing orientated approach.
activities are focused on a very small • A marketing orientated approach means a
segment of the market business reacts to what customers want.
• Niche marketing creates brand loyalty as The decisions taken are based around
the needs of the consumers are satisfied information about customers’ needs and
wants, rather than what the business thinks
Demerits is right for the customer. Most successful
businesses take a market-orientated
• Limited competition in niche markets may approach.
disadvantage consumers thus negatively • A product orientated approach means the
affecting the living standards business develops products based on what
• Niche marketing cannot be sustainable in it is good at making or doing, rather than
future as niche markets may fail to provide what a customer wants. This approach is
adequate business in future as the business usually criticised because it often leads to
grows unsuccessful products.
• Large firms can enter these niche markets • Most markets are moving towards a more
and the survival of the business comes market-orientated approach because
customers have become more
 knowledgeable and require more variety e.g. information about competitors is hardly
and better quality. obtainable through primary research
• To compete, businesses need to be more • The information can be obtained quickly as
sensitive to their customers needs otherwise the long processes involving data gathering
they will lose sales to their competitors. are avoided
• The nature of the market can be identified
Market research including details about market size and
Marketing research means finding out about the market growth
product and its marketplace. It is an important part • Basic information like
of identifying and anticipating customers’ needs. population
Once the product has been bought, marketing structure and others can be obtained, this
research can be used to see if the customer was information provides a foundation for
satisfied. primary research and may make primary
A business might carry out marketing research to: research easier to conduct
• Find data and information that help a • Data from various sources can be compared
business understand what customers want this improves the quality of decisions
now or in the future. Demerits
• Find out whether current products are • Data could be outdated as the different
satisfying customers. sources don’t conduct researches on a
• Test new products by asking potential regular basis
customers to try out the product. • The data obtained may not suit the
• Assess the results of its promotional objectives of the business as it may have
strategy e.g. test the effectiveness of an been conducted for a different purpose so
advertising campaign. its presentation may not be that helpful.
• Understand the activities and strategies of However, the researcher must select
competitors. sources which are relevant to the
The two main kinds of marketing research are phenomenon under review
Primary (field) research and Secondary (desk) • The methods used by different
research. organisations in their primary data
collection could have been inaccurate
SECONDARY RESEARCH • Secondary information is at times not
• It involves the analysis of information available e.g. in instances were new product
which already exists in some form has been developed
• This information was originally collected
for a different purpose PRIMARY/ FIELD RESEARCH
• The sources of primary data can be internal • Primary research involves getting original
(within the organisation) or external data directly about the product and market.
sources which are outside the organisation Primary research data is data that did not
• Examples of internal data sources are exist before.
internal reports, sales trends, inventory • It is designed to answer specific questions
movement records and consumer and of interest to the business for example, what
customer records do customers think of a new version of a
• External sources of secondary data include popular product?
newspapers, Gvt publications, internet, • To collect primary data a business must
economic surveys and libraries carry out field research, i.e. the researchers
Advantages go to the customers to get the relevant data
• Secondary research materials are usually Advantages
cheaper to obtain as costs as the • Information obtained is up to date.
organisation did not have to bear costs of • Specific to the purpose i.e. asks the
conducting the research questions the business wants answers to.
• It is used to acquire information that is • Collects data which no other business will
difficult to acquire using primary research have access to (the results are confidential).
 • In the case of online surveys and telephone Advantages
interviews, the data can be obtained quite
quickly • Questionnaires are cheap and the researcher
does not incur high travel accommodation
Disadvantages expenses. They can be distributed by post.
• Questionnaires are a relatively quick way of
• Can be difficult to collect and/or take a
receiving a response. They can be distributed
at the same time
long time to collect. • They avoid interview bias. Personal questions
• Is more costly to collect. are often more willingly answered as respondent
• May provide misleading results if the is not face-to-face with the interviewer.
sample is not large enough or chosen with
care Disadvantages
• The results depend on the quality of the
research procedures an instruments, e.g. the • As questions need to be simple and straight
questionnaire questions might not worded forward, the richness of information that
properly. sometimes is collected with other methods is
lost.
• The respondents have to be literate
QUANTITATIVE V QUALITATIVE
• Impossible to receive a spontaneous answer as
RESEARCH
respondents may discuss question with others
Quantitative research
before completing the questionnaire. As all
• Quantitative research is all about questions are seen before they are answered, the
quantifying relationships between answers cannot always be treated as
variables. You measure variables on a independent.
sample of subjects. You express the • Respondents gestures and facial expressions
relationship between variable using effect could not be observed as these are essential
statistics, such as correlations, relative communication signs that can effectively be
frequencies, or differences between means. used to evaluate responses.
Qualitative research • One cannot be sure that the named respondent
• Qualitative research adopts an interpretive has completed the questionnaire. For instance, a
approach to data, studies `things' within busy manager may ask a personal assistant to
their context and considers the subjective complete it on his behalf.
meanings that people bring to their
b. Personal interviews
situation. It seeks to establish the reasons
behind the relationship between variable Interviews are used to collect data from a small
e.g. why consumers prefer our brand group of subjects on a broad range of topics. The
researcher can use structured interviews. Structured
Methods of gathering data interviews use the same questions in the same order
for each respondent with multiple choice answers.
a. Questionnaires Unstructured interview questions can differ per
respondent and can depend on answers given on
A questionnaire is a technique of data collection in previous questions. Interviews can be conducted
which each person is asked to respond to a written face to face or over the telephone
set of questions in a predetermined order. A
questionnaire can be regarded as a series of
questions; each providing a number of alternative Advantages
answers from which the respondents can choose.
Questionnaires are useful, as a method of gathering • The real benefit of an interview is that there is
data which is descriptive of current events, instant feedback thus any misunderstandings are
conditions or attributes of a population at a particular cleared immediately.
point in time. • During the interview the researcher can rephrase
the questions if something unexpected happen.
• The interviewer can encourage the respondents part of the population, which has the same
to answer as fully as possible and check as characteristics of the population
appropriate, that the question is correctly
understood. Sampling technique

There are basically three methods of sampling under

• Response rates are usually higher than for the
random sampling.
other methods of questionnaire administration.
• Materials that need to be shown to respondents Simple random sampling
can be properly presented.
Simple random sampling is a method, which ensures
Disadvantages that each element of the population has an equal
chance of being selected to become part of the
(a) They are time consuming, taking into
sample.
consideration the length of the interview, the
time taken travelling to and from interview and Advantages
notes revision.
(b) Interviews are subject to bias as some • Eliminates the risk of sampling bias
interviewees may tend to please the interviewer
and as a result may not tell the truth. • Accurate data is obtained
(c) Relatively costly in monetary terms and also
time consuming. • Information is easily accessible

Consumer panels • Works better with a little sample

Disadvantages
These are groups of consumers in specific sectors
recruited by the researching organisation to be used • Data is limited to a small sample
as respondents to answer specific
• High cost when a large sample is covered
research questions. The usually comprises
of specialists who participate in different research • Relatively difficult to explain the
projects. techniques
Advantages Stratified sampling

• Low cost of collecting data and the research In a stratified sample the sampling frame is divided
can be completed in a shorter period into non-overlapping groups or strata, e.g.
• Effective in collecting qualitative data geographical areas, age-groups, gender. A sample is
• Reliable data is collected as knowledgeable taken from each stratum, and when this sample is a
consumers are included in the panels simple random sample it is referred to as stratified
random sampling.
Disadvantages
Advantages
• Selection of the panel could be biased
• Divisible into relevant strata
• The opinions of the panel may not be
representative of the whole population
• Data obtained is accurate
• Difficult to collect quantitative data
• Easily accessible

• Low costs associated with the sampling process

Sampling
Disadvantage
This is the process of selecting a proper subset of
elements from the full population so that the subset the strata may not be representative of the
is used to make inference to the whole population. A population structure
sample is a group of subjects from whom the
researcher collected information. A sample is small
Quota sampling • The demand for a product is inversely
It involves stratifying the population into mutually related to its own price i.e. other things
exclusive sub groups in the same manner as defined being equal, more of a commodity is
in stratified sampling method. This method involves demanded at a lower price
the respondents being selected in proportions which • The relationship between the demand for a
are representative of the population structure e.g. if product and its own price is illustrated in the
the population has 55% females the sample collected diagram below
will have the same component

Merits
• The sample is more representative of the
population
• It is easier to use as there is no need for a
sample frame
• Stratification allows researchers to compare
data collected from different
strata
Demerits
• Risk of sampling bias as respondents can be
selected based on ease of access and costs,
this may make the sample less
The diagram shows that at a higher price the
representative
quantity demanded is low, the quantity demanded
• It must be possible to divide the population increases as the price falls. The resultant curve is
into different strata, i.e. each subject must called a demand curve. The curve shows the
belong to only one strata quantities which consumers are willing to buy at a
• In cases were more strata are identified, it given price.
can result in a larger population size which
can lead to higher costs

Sample size Factors affecting demand

For any sample design, deciding upon the
appropriate sample size is very important as it affect The demand for a product is dependent on a number
of factors which include
the findings of the research. A good sample must be
representative of the population. There is a risk
i. Price of the product: it is the most
inherent to sampling that the sample may fail to be
important determinant of demand. It can
representative of the population. This risk is termed
be observed that, other factors being
sampling risk. A bigger sample is desirable than a
constant, rational consumers buy more of
smaller sample as it improves the confidence level of
a product at lower prices and vice versa.
the findings. Therefore, if a higher degree of
ii. Price of related products. Related
confidence is required, a larger sample is required.
products can be classified into substitutes
However, the bigger the sample the higher the
and complimentary goods. Substitutes
research costs and the longer it takes to conclude the
are goods which can be used in place of
research.
the other e.g. beef and chicken. An
increase in the price of beef can cause
increased demand for chicken.
ELASTICITY OF DEMAND Compliments are jointly consumed goods
Demand e.g. bricks and cement. Reduced demand
for bricks will adversely affect demand
• Demand refers to the willingness and for cement, therefore increasing the price
ability of a consumer to pay a price for a fo
specific good or service iii. r bricks cars can reduce demand for
cement.
 iv. Income: when consumer income Price elasticity of demand [PED]
increases, their purchasing power
increase, this causes demand for normal Price elasticity of demand is a measure of the
goods to increase. A fall in income causes responsiveness of the quantity demanded of a
a decrease in demand for the product particular good and a change in its own price. Price
v. Future expectations: speculative elasticity of demand is a term in economics often
tendencies e.g. an anticipated price rice used when discussing price sensitivity. The formula
will prompt consumers to demand more for calculating price elasticity of demand is:
as a measure to cushion themselves from
the anticipated price increase e.g. in a bad %
agricultural season consumers may
anticipate an increase in the price for %
maize so they can demand more maize
vi. Consumer tastes and preferences:
• The PED coefficient is always negative
changing tastes and preferences can have
because of the inverse
a significant impact on demand. This is to
relationship between price and
do with fashion and is mainly affected by
quantity demanded.
persuasive advertising, e.g. most modern
• When interpreting the coefficient, the
ladies prefer tight fitting clothes as
negative sign is ignored and if the value is
compare to prior generations
greater than 1 demand is said to be elastic
vii. Weather: it affect seasonal products e.g.
while a value less than 1 shows that
jerseys in winter, ice creams in summer
demand is inelastic
viii. Number of consumers in the market: the
more the number of consumers in the
Elastic demand
market the higher the demand for the
product. For instance, a shop located near • Demand is elastic whenever a change in
a university would make increased sales price will trigger a more than proportionate
volumes when the university is open as change in quantity demand
compared. This is partially attributable to • This means a small change in price will
the fact that during the vacation fewer cause a greater change in quantity
consumers are in the market. demanded as shown in the diagram below

Elasticity of demand

Demand elasticity, in economics, refers to how

sensitive the demand for a good is to changes in other
economic variables which affect demand. Demand
elasticity is important because it helps firms model
the potential change in demand due to changes in
price of the good, the effect of changes in prices of
other goods and changes in consumer incomes. A
firm grasp of demand elasticity helps to guide firms
toward more optimal competitive behaviour. We are
going to discuss 3 types of elasticities which are

 Price elasticity of demand The diagram shows a 25% price cut from $1 to
 Income elasticity of demand $0.75. This resulted in an increase in quantity
 Cross elasticity of demand demanded of in a 200% from 3units to 9 units.
Therefore, the PED coefficient is [200/-25] -8, this
shows that demand is more sensitive to price
changes (elastic)
 • The concept of elasticity is used to enable
management to assess the effect of
adjusting the price to the total revenue of
the business
• Total revenue is obtained by multiplying
the number of units sold with the selling
price. Diagrammatically, it is represented
by the rectangular shape under the demand
curve below the price and to the left of the
quantity demanded.
• This implies, the greater the total revenue
the better for the business, because revenue
contributes positively to profits
• When demand is elastic reducing the price The diagram shows a relatively inelastic demand
will result in an increase in total revenue as curve were a 100% price increase has resulted in a
25% decline in quantity demanded. This gives us a
the firm foregoes a smaller proportion of
PED coefficient of [-25%/100%] 0.25.
income to get a higher amount
• When deciding on the appropriate • When demand is inelastic increasing the
marketing mix, the marketing manager has price will increase the total revenue because
to consider the PED customers will continue to demand the
• However, the concept of elasticity is more product despite price increase
relevant to firms pursuing the revenue • It is advisable for the business to increase
maximising objective as economic theory the price whenever it faces an inelastic
highlights that profits are not maximised demand curve
when total revenue is at its maximum
INCOME ELASTICITY OF DEMAND
Inelastic demand
This measures the sensitivity of quantity demand to
• Demand is inelastic when a price change changes in the levels of consumer disposable income.
will result in a less than proportionate It is given by the formula
(smaller) change in quantity demanded
%
• Demand is less sensitive to price changes,
therefore customers continue to demand the
%
product despite a price increase, in the same
The formula gives us the income elasticity of
sense a price fall does not motivate
demand (I.E.D) coefficient.
consumers to buy much more.
• When demand is inelastic, reducing the
Interpretation
price results in a fall in total revenue while
increasing the price increases the total The coefficient can either be negative or positive.
revenue The direction sign shows the relationship between
• This is illustrated in the diagram below quantity demanded and income i.e. weather quantity
demanded varies directly (+) or inversely (-) with
income. The results are used to classify goods into
normal and inferior goods.

Normal goods (+ Y.E.D. Coefficient)

 Normal goods are goods whose quantity

demanded increases as consumers’
disposable incomes increase, if other
factors are held constant.
 Examples of normal goods are motor cars
and luxurious products which consumers
 consume as their disposable income two products. The coefficient is used to classify the
increases. On the other hand consumers will relationship between products into substitutes or
demand less of the normal good as their compliments
disposable incomes decline.
Substitutes [Positive coefficient]
Inferior goods [- IED]
 Substitutes goods are goods which can be
• Inferior goods have a negative I.E.D. used in place of the other e.g. margarine can
coefficient, this means quantity demanded be used in place of butter so butter and
varies inversely with changes in income. margarine are substitutes.
• This means, other things being equal,  The C.E.D. coefficient is positive for all
quantity demanded for inferior goods falls substitute goods because an increase in the
as the disposable incomes of consumers’ price of a substitute will influence
increases and the reverse is true. consumers to substitute the more expensive
• Examples of inferior goods include soya product with the cheaper one. This causes
mince and second band clothes (baled the quantity demanded of the other product
clothes) because as consumer incomes to increase in response to an increase in the
increase they tend to substitute soya mince price of the other product.
with meat products, in the same sense
second hand clothes became popular in Complements [Negative coefficient]
Zimbabwe in times were the real incomes
 Compliments are goods which are jointly
of consumers started declining.
consumed i.e. a single good cannot satisfy
Application of the concept of IED the consumer on its own e.g. motor vehicle
and fuel, one cannot travel with either of the
Marketing managers should have an understanding two therefore having fuel or motor vehicle
of the concept of Y.E.D. for them to classify their alone won’t make the situation any better.
product as either a normal or inferior good. This  If the C.E.D. coefficient is negative for
knowledge is necessary for management to make supplementary goods, it shows that an
sales forecasts e.g. a producer of inferior goods has inverse relationship exists between the
to forecast increased demand in times of recession quantity demanded of one product and the
while a producer of normal goods has to anticipate price of the other.
increased demand in times of economic growth. The  An increase in the
income elasticity of demand concept is very demand of a
important in resource allocation i.e. in times of compliment, ceteris paribus, causes a
recession more resources should be allocated decline in the quantity demanded of that
towards the production of inferior goods on the other product e.g. an increase in the price for
hand in booming times more resources must be liquid petroleum gas results in a decline in
allocated towards the production of normal goods. its quantity demanded of gas tanks.

CROSS ELASTICITY OF DEMAND Application of CED concept

It measures the degree of responsiveness of the The marketing manager must preserve the market
quantity demanded of one good to changes in the share by adjusting the price in line with changes in
price of another good. The cross elasticity of demand the prices of other related products.
coefficient is computed using the formula
Substitutes
%
• The business tends to benefit if a competitor
% raises the price of its product, therefore
management hat to take no action if the
Interpretation of the CED coefficient price of a substitute increases, this will
result in increased demand for the
When other factors remain constant the C.E.D. business’s products
coefficient is used to define the relationship between
 • The business can respond by considering and growth stage of the PLC while it
increasing the scale of production if the becomes less sensitive in the growth and
competitor firm hikes its price decline stage
• On the other hand, a decline in the price of
a substitute has negative effects on the
FORECASTING
demand of the firms product.
Forecasting is the use of historic data to determine
• Management can consider responding by
the direction of future trends. Businesses use
cutting its price if a substitute good had its
forecasts to allocate resources e.g. budgets are based
price cut
on projected demand.
Complimentary goods
Need for forecasting
• Management has to consider by reducing Businesses need to forecast for them to enjoy the
the price of a complimentary good in the following advantages associated with proper
event that the price of the other compliment planning. The main reason for forecasting is to
has increased enable businesses to make quality decisions in the
• This serves to compensate the consumer for face of an uncertain future. The benefits of
the price rise as the consumer considers the forecasting are outlined below
total cost of purchasing the product as
opposed to the individual costs of the 1. Inventory and product management:
individual components sales forecasting allows the business to
• If the price of compliments has declined the efficiently manage inventory levels to avoid
firm can anticipate increased demand, and stock outs and minimise stock holding
plan for it. It can also consider increasing it costs. Having an idea about the expected
price sales volume ensures that the business has
sufficient inventory levels to meet
Promotional spending elasticity of demand forecasted demand,
2. Customer information: sales forecasting
It measures the responsiveness of quantity
allows management to establish trends for
demanded to a change in promotional expenditure.
individual customers based on demand
It is given by the formula
patterns. This will help in the formulation
%
of a marketing strategy which appeals to the
different classes of customers.
%
3. Formulating Plans: Forecasting provides
Interpretation a logical basis for preparing plans. It plays
a major role in managerial planning and
supplies the necessary information. The
• If the coefficient if greater than 1, it shows
future assessment of various factors is
that demand is more responsive to changes
essential for preparing plans. In fact,
in promotional expenditure e.g.
planning without forecasting is
advertising
impossibility. Henry Fayol has rightly
• Whenever a change in advertising
observed that the entire plan of an
expenditure triggers a more than
enterprise is made up of a series of plans
proportionate change in quantity demand. It
called forecasts
is advisable to increase investment in
4. Long term planning: valid sales forecasts
advertising expenditure because it yields a
give the business a framework for setting
greater increase in market share
realistic goals for its sales teams. Realistic
• However, if demand is less sensitive to
forecasts enable managers to apply a
promotional expenditure it is advisable for
proactive approach in managing the affairs
the business to cut on promotional
of the business in matters related to the
expenditure as the cost of doing so
recruitment and training of employees
outweighs the benefits
based on forecasted demand. Forecasts
• Demand is more sensitive to changes in
gives management time to arrange the
promotional expenditure in the introduction
 financing needed for financing. Hence, based on the sales of January through March,
Management can plan new facilities for you predict that sales in April will be $128,333.
production and storage when and where Once April’s actual sales come in, you would then
they will do the most good. compute the forecast for May, this time using
February through April. One has to be consistent
To sum up, forecasting is a necessity to every with on number of periods used in computing the
business organisation. The success or failure of any moving average.
organisation depends mainly on its ability to make
realistic forecasts Moving averages smooth out the effect of seasonal
fluctuations in making forecasts which make them
FORECASTING METHODS more reliable. However, the number of periods used
Forecasting methods can be divided into qualitative in moving average forecasts is arbitrary, one may use
and quantitative. The approach used is dependent on only two-periods, or five or six periods – whatever is
the nature of information available for forecasting desired to generate the forecasts.
purposes.
Advantages of quantitative forecasting:
Quantitative forecasting • Numerical information is easier to interpret
Quantitative forecasting involves the use of and easy to analyse for example graphs can
numerical facts and historical data to predict be made.
upcoming events. Quantitative forecasting can be • Data can be objectively interpreted and bias
applied when two conditions are satisfied: is often not an issue.
i. numerical information about the past is
Disadvantages of quantitative forecasting:
available;
May lack detail.
ii. it is reasonable to assume that some
aspects of the past patterns will continue • Correlations do not show cause and effect,
into the future. so may be hard to determine this.
Time series and forecasting • Extrapolation may be reductionist – just
A time series is a collection of data over a period of
because there has been a 5% increase in
time on a regular basis e.g. weekly, monthly or
sales over the last few years, doesn’t mean
annually.
this will continue. External factors may
Moving Averages: forecasting Method affect such forecasts.

Moving averages try to estimate the next period’s

value by averaging the value of the last couple of Qualitative forecasting
periods immediately prior. For example a business
has been operational for three months, January • Qualitative forecasting is an estimation
through March, and wants to forecast April’s sales. methodology that uses expert judgment,
If sales for the last three months look like this: rather than numerical analysis. This type of
forecasting relies upon the knowledge of
Month Sales ($000) highly experienced employees and
consultants to provide insights into future
January 129
outcomes.
February 134 • Qualitative forecasting is most useful in
situations where it is suspected that future
March 122
results will depart markedly from results in
The simplest approach would be to take the average prior periods, and which therefore cannot
of January through March and use that to estimate be predicted by quantitative means.
April’s sales: • For example external factors such as
government policy review may break a
(129 + 134 + 122)/3 = $128.333 trend which has existed over time
• Qualitative forecasting is effective in
instances were historical data is not
 available e.g. in cases where the product is those it won’t fund in order to achieve the business
still new. objectives.
• This approach to forecasting can be used to
compliment quantitative forecasting e.g. Product development
management can modify historically To achieve their objectives, businesses need to
derived trends in line with expert opinion develop new products. Product development refers
Limitations of qualitative forecasting to the processes involved in bringing a new product
• The method is subjective, therefore it is to the market. However, before a business can launch
prone to bias
a new product, it needs to go through several stages
• Experts may tend to greater emphasis to
before it appears in the market place. The main
recent historical events in extrapolating
future trends stages are:

• Marketing research – find out what

MARKETING STRATEGY [MIX]
The marketing mix deals with the way in which a customers want, who they are, and where
business uses price, product, distribution and the gaps are in the marketplace
promotion to market and sell its product. The • Product development and testing – make
marketing mix is often referred to as the “Four P’s” prototypes; experiment by allowing a
- since the most important elements of marketing are sample of potential customers to trial the
concerned with: product before it is launched
• Distribution of product to outlets – the
i. Product - the product (or service) that the
product cannot be sold unless it is in a
customer obtains.
position for customers to buy it – books will
ii. Price - how much the customer pays for
need to be in the bookshops and hammers
the product.
in the hardware stores
iii. Place – how the product is distributed to
the customer. • Promotional launch to inform customers
iv. Promotion - how the customer is found features of new product, the customers
and persuaded to buy the product. need to know that the product is ready,
It is known as a “mix” because each ingredient available and that it might be the sort of
thing they want to buy
affects the other and the mix must overall be suitable
to the target customer. At the first two stages (marketing research and
product development/testing) some products are
For instance:
rejected because the findings of research shows that
• High quality materials used in a product can
it will not be successful. Product testing might show
mean that a higher price is obtainable.
that customers react badly to the product.
• An advertising campaign carried in one
area of the country requires distribution of
the product to be in place in advance of the The new product launch needs all the elements of the
campaign to ensure there are no mix to be in place to be successful.
disappointed customers.
Sources of new product ideas
• Promotion is needed to emphasise the new
features of a product. The marketing mix is New products are the lifeblood of every business. If
the way in which the marketing strategy is any business doesn’t develop new product
put into action - in other words, the actions continuously it faces challenges in gaining a
arising from the marketing plan. competitive edge. For developing new products
there have some stages and generating ideas is the
first step of new product development process. It is
PRODUCT important to have a great idea first and then the
business can start the new product development
Product Portfolio planning
process. For getting great ideas there have 6 great
It is a business process by which organisations sources. Basically the sources can be divided into
determine the set of innovation and new product two types- one is internal sources and another one is
development investments the business will fund and
external sources. All the sources are discussed which thing it is missing or which thing they
below: are missing, this enables management to
decide on features which need to be included
Internal Sources: in the new product. Therefore, competitors
are not your enemy, they are your source of
1. R & D (Research and Development): It is strength.
the formal department of any organization to
generate new ideas. R&D department 6. Others: Other idea sources includes outside
research according to the company’s future Consultancies, Design Firms and Online
plan and then come up with the new ideas Communities, Trade Magazines, Shows and
which complete its journey with the Seminars, Government agencies, Advertising
commercialization of the idea (product). agencies, Marketing research firms,
Universities, Commercial laboratories,
2. Employees: Companies can use the ideas of Inventories and so on.
their employees. This is done through
meetings and other democratic management
practices. All level of employees from Importance of research and development
executive to top management can be the great
source of ideas. A business which decides to invest in R & D will
enjoy the following advantages
External Sources:
• Competitive Advantage. Those with
Some important external sources for idea generation constant R&D investments are at a higher
is discussing below. chance in succeeding in the global market.
And to attain the best professional
advantage, R&D investments demand to
3. Customers: Most probably customers are
come hand in hand with relevant
the most important sources to get new product
investments, like market development as
development ideas. Customer knows best
well as brand new business processes.
what they need and what they are looking for.
It is the most important thing to deliver • Tax Credits. The government supports
satisfaction by providing exactly what your firms investing in R&D by offering tax
customers want. For instances, when you incentives e.g. preferential tax rates
know that your customer need a specific • Growth in Sales. There is a positive
product or a special feature on any particular relationship between the amount of effort
product then it will be easier to make that put into research and development, and the
exactly what your customer need and then way a company performs. Corporations that
customers get satisfied. This creates customer use R&D investment as the main driver for
loyalty. progress are inclined to achieve better
outcomes for investors.
4. Distributors and Suppliers: Distributors • Innovation. Emerging with fresh ideas can
works very closely with the market and they work as a tool for an entire period of new
know consumer problems and their need. products and services that transform the
Distributors can give the ideas for new economic system, improving its power and
product possibilities. Suppliers can also help vitality. Innovation does not happen
with the information of the market like new without Research and Development. R&D
concept, technique or materials which can be can easily lead to highly valued
used for developing new products. technologies, strategies and designs for the
business that could be the origin of potential
value when considering sustaining a
5. Competitors: Competitors are another
competitive advantage.
important source. One can analyze their
competitors and can find many things which
Types of markets
can be used for idea generation. Researching
• Consumer markets include those
competitors can give the business an idea that
individuals and households who buy
 consumer goods and services for their own
personal use. They are not interested in
reselling the product or setting themselves
up as a manufacturer.
• The industrial market consists of
organizations and the people who work for
them, those who buy products or services
for use in their own businesses or to make
other products.

There is substantial evidence that industrial markets

function differently than do consumer markets and
that the buying process in particular is different.
It should be noted that the predictive capabilities of
the product lifecycle are dependent upon several
factors, both controllable and uncontrollable, and
The Product Lifecycle
that no two companies may follow the same exact
A business has to be good at both developing new
pattern or produce the same results. For example,
products and managing them in the face of changing
differences in the competitive situation during each
tastes, technologies, and competition. Evidence
of these stages may dictate different marketing
suggests that every product goes through a lifecycle
approaches. Some argue that the competitive
with predictable sales and profits, as illustrated in the
situation is the single most important factor
diagram below. As such, the manager must find new
influencing the duration of height of a product
products to replace those that are in the declining
lifecycle curve.
stage of the product lifecycle and learn how to
manage products optimally as they move from one
Product positioning
stage to the next. The four stages of the PLC and
• Product positioning is the process
their components can be defined as follows:
marketers use to determine how to best
1. Introduction: the period during which a
communicate their products' attributes to
new product is introduced. Initial
their target customers based on customer
distribution is obtained and promotion is
needs, competitive pressures, available
obtained.
communication channels and carefully
2. Growth: the period during which the
crafted key messages.
product is accepted by consumers and the
• It can also be defined as how the product is
trade. Initial distribution is expanded,
designed to be perceived in the market
promotion is increased, repeat orders from
place by the target market against those of
initial buyers are obtained, and word-
the main competitors i.e. it is basically
ofmouth advertising leads to more and
how consumers understand the product
more new users.
offering and how it differs from those
3. Maturity: the period during which
offered by competitors
competition becomes serious. Towards the
• For example, in the motor industry brands
end of this period, competitors' products cut
like BMW, VW, Mercedes Benz and have
deeply into the company's market position.
been positioned as luxurious brands.
4. Decline: the product becomes obsolete and
• Successful positioning enables the business
its competitive disadvantage result in
to gain a competitive edge
decline in sales and, eventually, deletion.

Target market
• A target market is the set of customers
sharing common needs, wants &
expectations that a business tries to sell to.
• Selecting the target market is one part of the
marketing strategy process, and should
 normally follow an analysis of the available level while spending no more than is
market segment necessary to make that happen.
• It seeks to bring forward the relationship
Marketing audit between cost, efficiency, and the value of
the function.
• A marketing audit is a comprehensive, • Value analysis objectives are:
systematic, independent, and periodic  Keep the product’s
examination of a company’s or business uniqueness,
unit’s marketing environment, objectives,  Keep perceived value
strategies, and activities, with a view to high,  Keep production costs
determining problem areas and down.
opportunities and recommending a plan of
action to improve the company’s marketing Value analysis’ approach focuses on new options for
performance. optimized solutions, new
• A marketing audit is often used by a concepts and functions. These
company reviewing its business strategy. aspects are always considered in terms of how they
A marketing audit can inform management fit into manufacturing costs’ ratio to
with an invaluable customer and market perceived product value, since
insight, vital to help them set realistic manufacturers strive to keep the price points of their
business objectives. products as fair as possible. Ultimately, models need
to be categorized according to where they fit in a
product range, which makes it easier to market each
Internal factors individual model.

It is an analysis of internal factors and their impact

on the effectiveness of the overall marketing
strategy. It looks at factors such as the availability of The Boston matrix
suitable personnel resources, financial resources,
machinery, availability of time to implement the A portfolio of products can be analysed using the
strategy and quality of materials used in the Boston Group Consulting Matrix. This categorises
production process. It seeks to assess how each the products into one of four different areas, based
factor is contributing to the attainment of marketing on:
objectives by applying the SWOT analysis.
• Market share – does the product being
The external marketing environment sold have a low or high market share?
• The external marketing audit helps the • Market growth – are the numbers of
organisation to have an image about the potential customers in the market growing
market size, market structure, consumers, or not
suppliers, distributors, competitors,
economic, political situation. How the Boston Matrix is Constructed
• For marketing plan to be market oriented,
the business needs to know better both our The Boston Matrix makes a series of key
competitors and its customers. assumptions:
• It seeks to examine whether the company is • Market share can be gained by investment
pursuing its best opportunities with respect in marketing
to markets, products, and channels. • Market share gains will always generate
cash surpluses
• Cash surpluses will be generated when the
VALUE ANALYSIS product is in the maturity stage of the life
cycle
• It seeks to examine all facets of a product to • The best opportunity to build a dominant
identify the relevance of each function, then market position is during the growth phase
determine how it can perform at the highest
How does the Boston Matrix work? • A useful tool for analysing product
portfolio decisions
The four categories can be described as follows: • But it is only a snapshot of the current
position
• Stars are high growth products competing • Has little or no predictive value
in markets where they are strong compared • Does not take account of environmental
with the competition. Often Stars need factors
heavy investment to sustain growth. • There are flaws which flow from the
Eventually growth will slow and, assuming assumptions on which the matrix is based
they keep their market share, Stars will
become Cash Cows However, the model can be criticised in several
ways:
• Cash cows are low-growth products with
a high market share. These are mature, • Market growth is an inadequate measure of
successful products with relatively little a market's attractiveness
need for investment. They need to be • Market share is an adequate measure of a
managed for continued profit - so that they products ability to generate cash
continue to generate the strong cash flows • The focus on market share and market
that the company needs for its Stars growth ignores issues such as developing a
• Question marks are products with low sustainable competitive advantages
market share operating in high growth • The product life cycle varies
markets. This suggests that they have
potential, but may need substantial
investment to grow market share at the
expense of larger competitors. Management
have to think hard about “Question Marks"
- which ones should they invest in? Which
ones should they allow to fail or shrink?
• The term “dogs" refers to products that
have a low market share in unattractive,
low-growth markets. Dogs may generate
enough cash to break-even, but they are
rarely, if ever, worth investing in. Dogs are
usually sold or closed.
Ansoff matrix

Ideally a business would prefer products in all The Ansoff Growth matrix is another marketing
categories (apart from Dogs!) to give it a balanced planning tool that helps a business determine its
portfolio of products. product and market growth strategy.

Ansoff’s product/market growth matrix suggests

that a business’ attempts to grow depend on whether
it markets new or existing products in new or
The main values of using the Boston Matrix include:
existing markets. The output from the Ansoff
product/market matrix is a series of suggested
growth strategies which set the direction for the • Different pricing policies to attract different
business strategy. These are described below: customers or create new market segments

Market penetration Market development is a more risky strategy than

market penetration because of the targeting of new
Market penetration is the name given to a growth markets.
strategy where the business focuses on selling
existing products into existing markets. Product development

Market penetration seeks to achieve four main Product development is the name given to a growth
objectives: strategy where a business aims to introduce new
products into existing markets. This strategy may
• Maintain or increase the market share of require the development of new competencies and
current products – this can be achieved by a requires the business to develop modified products
combination of competitive pricing which can appeal to existing markets.
strategies, advertising, sales promotion and
perhaps more resources dedicated to A strategy of product development is particularly
personal selling suitable for a business where the product needs to be
• Secure dominance of growth markets differentiated in order to remain competitive. A
• Restructure a mature market by driving out successful product development strategy places the
competitors; this would require a much marketing emphasis on:
more aggressive promotional campaign,
supported by a pricing strategy designed to • Research & development and innovation
make the market unattractive for • Detailed insights into customer needs (and
competitors how they change)
• Increase usage by existing customers – for • Being first to market
example by introducing loyalty schemes
Diversification
A market penetration marketing strategy is very
much about “business as usual”. The business is Diversification is the name given to the growth
focusing on markets and products it knows well. It is strategy where a business markets new products in
likely to have good information on competitors and new markets.
on customer needs. It is unlikely, therefore, that this
strategy will require much investment in new market This is an inherently more risk strategy because the
research. business is moving into markets in which it has little
or no experience.
Market development
For a business to adopt a diversification strategy,
Market development is the name given to a growth
therefore, it must have a clear idea about what it
strategy where the business seeks to sell its existing
expects to gain from the strategy and an honest
products into new markets.
assessment of the risks. However, for the right
balance between risk and reward, a marketing
There are many possible ways of approaching this strategy of diversification can be highly rewarding.
strategy, including:

• New geographical markets; for example

exporting the product to a new country PRICE
• New product dimensions or packaging: for • Price is the amount charged for a product or
example service.
• It is the second most important element in
• New distribution channels (e.g. moving
the marketing mix.
from selling via retail to selling using
• Fixing the price of the product requires the
ecommerce and mail order)
consideration of many factors like demand
 for a product, cost involved, consumer’s determined accordingly. For example, if the
ability to pay, prices charged by objective is to maximise sales or have a bigger
competitors for similar products, market share, a low price will be fixed. Recently one
government restrictions etc. brand of washing powder slashed its prices to half, to
• In fact, pricing is a very crucial decision grab a bigger share of the market. (e) Government
area as it has its effect on demand for the Regulation: Prices of some essential products are
product and also on the profitability of the regulated by the government under the Essential
firm. Commodities Act. For example, prior to
liberalisation of the economy, cement and steel
PRICING AND FACTORSAFFECTING prices were decided by the government. Hence, it is
PRICING DECISIONS essential that the existing statutory limits, if any, are
As stated earlier price is the consideration in terms also kept in view while determining the prices of
of money paid by consumers for the bundle of products by the producers.
benefits he/she derives by using the product/ service.
In simple terms, it is the exchange value of goods PRICING STRATEGIES
and services in terms of money. Pricing
(determination of price to be charged) is another 1. Competitor-based pricing
important element of marketing mix and it plays a
crucial role in the success of a product in the market. With competition pricing a firm will base what they
If the price fixed is high, it is likely to have an charge on what other firms are charging. This is
adverse effect on the sales volume. If, on the other used when there is lots of choice but not much
hand, it is too low, it will adversely affect the product differentiation, like petrol. The competitor
profitability. Hence, it has to be fixed after taking prices are set as a benchmark and management can
various aspects into consideration. The factors set the price above or below the benchmark
usually taken into account while determining the depending on the business objectives and the given
price of a product can be broadly described as circumstances
follows: (a) Cost: No business can survive unless it
covers its cost of production and distribution. In Advantages
large number of products, the retail prices are
determined by adding a reasonable profit margin to
• An advantage of using competitive pricing
the cost. Higher the cost, higher is likely to be the
is that selling prices should be line with
price, lower the cost lower the price. (b) Demand:
rivals, so price should not be a competitive
Demand also affects the price in a big way. When
disadvantage.
there is limited supply of a product and the demand
is high, people buy even if high prices are charged • It avoids price wars which can have
by the producer. But how high the price would be is negative effects to all the firms in the
dependent upon prospective buyers’ capacity and market
willingness to pay and their preference for the
product. In this context, price elasticity, i.e.
responsiveness of demand to changes in price should
also be kept in view. Business Studies 109 Notes
MODULE-5 Marketing (c) Competition: The price
charged by the competitor for similar product is an
important determinant of price. A
marketer would not like to charge a price higher than
the competitor for fear of losing customers. Also, he
may avoid charging a price lower than the
competitor. Because it may result in price war which
we have recently seen in the case of soft drinks,
washing powder, mobile phone etc. (d) Marketing
Objectives: A firm may have different marketing
objectives such as maximisation of profit,
maximisation of sales, bigger market share, survival
in the market and so on. The prices have to be
 • The strategy is easier to administer Advantages
• The product is always competitively priced
High prices can give a product a good
Disadvantages image, and give customers the impression
that it is very high quality.
• The main problem is that the business Will give firms high profits while the price is
needs some other way to attract customers. high, helping to pay back research and
It has to use non-price methods to compete development costs.
– e.g. providing distinct customer service
or better availability. Disadvantages
• The business cannot have any significant
influence on the price of its product. • Competitors may bring out a lower-priced
product, taking away your market.
Penetration pricing • Some sales may be lost because customers
With penetration pricing a firm charges a very low are not willing to pay the higher price.
price for a product in order to attract lots of • Can put some potential customers off
customers. While this low price is used, firms will because of the high price.
usually make little or no profit. Once the product
has gained customer loyalty the producer will start Price discrimination
charging higher prices to increase their profit. This
pricing strategy is often done when introducing a Price discrimination happens when a firm charges a
new product in a market, often when existing different price to different groups of consumers for
products have brand loyalty, in order to grab a large an identical good or service, for reasons not
market share quickly. associated with costs of supply. There are 3 types of
Advantages price discrimination
• Will attract customers to the product and 1. 1st degree price discrimination were each
make them want to try it. customer is charged the highest price
• Good for increasing market share quickly. he/she is willing to pay. This strategy
Disadvantages mainly applies to informal traders e.g. flea
• Does not help pay back research and markets
development costs. 2. 2rd degree price discrimination involves
• Revenue is lost while the product is selling charging different prices based on the
at a lower price. quantities purchased e.g. bulky buying
• Not good for products with short product discounts
life cycles (e.g. fashion clothing). 3. 3nd degree, which involves charging
different prices to different markets in line
Skimming pricing with the sensitivity of demand to price
changes e.g. in some areas pupils in school
Skimming is the opposite of penetration pricing. uniforms pay half the normal fare
Firms charge a high price to begin with for an Advantages
exclusive product. This helps to make the product
desirable to consumers with large incomes. When • It increases the firms revenue which in turn
increases profits
the product has become established the firm will
lower the price to help it become a mass market • Some consumers will benefit from low
prices e.g. students
product. This pricing strategy is often done with
products based on new technology that are only just Disadvantages
appearing the market.
• This strategy is not fair to the consumers
• The strategy only applies in limited
scenarios e.g. when the market cannot be
clearly segmented the strategy becomes
inapplicable
 mail. Also in case of perishable products and certain
technical household products, door-to-door sale is
Distribution channels (Place) an easier way of convincing consumer to make a
purchase.
Marketing has to ensure the availability of his goods
to the consumers at convenient points for their One stage channel of distribution
purchase. This can be done directly or, through a
chain of middlemen like distributors, wholesalers In this case, there is one middleman i.e., the retailer.
and retailers. The path or route adopted by the The manufacturers sell their goods to retailers who
business for the purpose is known as channel of in turn sell it to the consumers. This type of
distribution. A channel of distribution thus, refers to distribution channel is preferred by manufacturers of
the pathway used by the manufacturer for transfer of consumer durables like refrigerator, air conditioner,
the ownership of goods and its physical transfer to washing machine, etc. where individual purchase
the consumers and the user/buyers. It includes both involves large amount. It is also used for distribution
the producer and the end user and also the of perishable products.
middlemen/agents engaged in the process of transfer
Two stage channel of distribution
of title of goods. Primarily a channel of distribution
performs the following functions: This is the most commonly used channel of
distribution for the sale of consumer goods. In this
• It helps in establishing a regular contact
case, there are two middlemen used, namely,
with the customers and provides them the
wholesaler and retailer. This is applicable to
necessary information relating to the
products where markets are spread over a large area,
goods.
value of individual purchase is small and the
• It provides the facility for inspection of
frequency of purchase is high.
goods by the consumers at convenient
points to make their choice. FACTORS AFFECTING THE CHOICE OF
• It facilitates the transfer of ownership as DISTRIBUTION CHANNEL
well as the delivery of goods.
• It helps in financing by giving credit Choice of an appropriate distribution channel is very
facility. important as the pricing as well as promotion
• It assists the provision of after sales strategy are dependent upon the distribution channel
services, if necessary. selected. Not only that, the route which the product
• It assumes all risks connected with the follows in its journey from the manufacturer to the
carrying out the distribution function. consumer also involves certain costs. This in turn,
affects not only the price of the product but also the
TYPES OF CHANNELS OF DISTRIBUTION profits. Choice of inappropriate channels of
The producers usually use services of one or distribution may result in lesser profits for the
more middlemen to supply their goods to the manufacturer and higher price from the consumer.
consumers. But sometimes, they do have direct Hence, the manufacturer has to be careful while
contact with the customers with no middlemen finalising the channel of distribution to be used. He
in between them. This is true more for industrial should pay attention to the following factors while
goods where the customers are highly making his choice.
knowledgeable and their individual purchases
are large. The various channels used for • Nature of Market: There are many
distribution of consumer goods can be aspects of market which determine the
described as follows: choice of channel of distribution. Say for
example, where the number of buyers is
Zero stage channel of distribution: limited, they are concentrated at few
locations and their individual purchases are
Marketing Zero stage distribution channel exists large as is the case with industrial buyers,
where there is direct sale of goods by the producer direct sale may be the most preferred
to the consumer. This direct contact with the choice. But in case where number of
consumer can be made through door-to door buyers is large with small individual
salesmen, own retail outlets or even through direct
 purchase and they are scattered, then need appropriateness of the present channel to
may arise for use of middlemen. identify its strengths and weaknesses in
• Nature of Product: Nature of the product light of environmental changes. This
considerably affects the choice of channel enables the business to change its
of distribution. In case the product is of distribution strategy to best meet its
technical nature involving a good amount marketing objectives
of pre-sale and after sale services, the sale
is generally done through retailers without PROMOTION
involving the wholesalers. But in most of
Promotion refers to the process of informing and
the consumer goods having small value,
persuading the consumers to buy certain product. By
bought frequently in small quantities, a
using this process, the marketers convey persuasive
long channel involving agents, wholesalers
message and information to its potential customers.
and retailers is used as the goods need to be
The main objective of promotion is to seek buyers’
stored at convenient locations. Items like
attention towards the product with a view to:
toiletries, groceries, etc. fall in this
category. As against this in case of items
• arouse the buyer’s interest in the product
like industrial machinery, having large
• inform the buyer about its availability
value and involving specialised technical
• inform customers as to how is it different
service and long negotiation period, direct
from others.
sale is preferred.
• Financial status of the business: A firm It is thus a persuasive communication and also
having enough financial resources can serves as a reminder. A firm uses different tools for
afford to its own a distribution force and its promotional activities which are as follows:
retail outlet, both. But most business firms
prefer not to create their own distribution • Advertising
channel and concentrate on manufacturing. • Publicity
The firms who wish to control the • Personal selling
distribution network prefer a shorter • Sales promotion
channel.
• Middlemen Consideration: If right kind These are also termed as four elements of a
of middlemen having the necessary promotion mix.
experience, contacts, financial strength and
integrity are available, their use is Advertising
preferred as they can ensure success of
Advertising is the most commonly used tool for
newly introduced products. Cost factors
informing the present and prospective consumers
also have to be kept in view as all
about the product, its quality, features, availability,
middlemen add their own margin of profit
etc. It is a paid form of non-personal communication
to the price of the products. But from
through different media about a product, idea, a
experience it is learnt that where the
service or an organisation by an identified sponsor.
volume of sales are adequate, the use of
It can be done through print media like newspaper,
middlemen is often found economical and
magazines, billboards, electronic media like radio,
less cumbersome as against direct sale
television, etc. It is a very flexible and
• Competitors’ distribution channel: the
comparatively low cost tool of promotion.
business needs to maintain a competitive
advantage over its competitors. Therefore, Publicity
the distribution channel adopted by the
competitors will have an impact on the This is a non-paid process of generating wide range
market share of the organisation. The of communication to contribute a favourable attitude
business must therefore select a channel towards the product and the organisation. You may
that is either similar or more efficient to have seen articles in newspapers about an
that applied by its competitors. organisation, its products and policies. The other
The present distribution channel: the tools of publicity are press conference, publication
firm has to regularly consider the and news in the electronic media etc. It is published
or broadcasted without charging any money from Advantages
the firm. Marketers often spend a lot of time and • Inspires customer loyalty leading to repeat
effort in getting news items placed in the media for sales and word-of mouth recommendation.
creation of a favourable image of the company and • The brand owner can usually charge higher
its products. prices, especially if the brand is the market
leader.
Personal selling
• Retailers prefer to stock top selling brands.
It is a direct presentation of the product to the With limited shelf space it is more likely
consumers or prospective buyers. It refers to the use the top brands will be on the shelf than less
of salespersons to persuade the buyers to act well-known brands.
favourably and buy the product. It is most effective • It differentiates the product from that
promotional tool in case of industrial goods. offered by the competitor.
• Reduced promotional costs when
Sales promotion launching new products

This refers to short-term and temporary incentives Disadvantage

to purchase or induce trials of new goods. The tools • In the event of negative public city the
include contests, games, gifts, trade shows, whole product portfolio carrying the brand
discounts, etc. Sales promotional activities are often name can be put into disrepute
carried out at retail levels. • It is difficult for businesses to maintain a
constant brand identity because of changes
Packaging in consumer tastes and preferences
• Branding involves costs to the business.
Packaging is the wrapping material around a
However, the costs of branding are
consumer item that serves to contain, identify,
justifiable after considering the benefits.
describe, protect, display, promote and otherwise
make the product marketable and keep it clean.
Packaging plays an important role in marketing i.e. To sum up, candidates are expected to gain an
understanding of marketing in an integrated context
• Protecting the product from damage while within the organisation and the wider environment.
in transit or on the shelf The ability to consider the marketing mix of
• The packaging also serves to attract the businesses in given situations and given budgets and
consumers to evaluate these in the light of business objectives
• provides information to consumers e.g. the will also be required.
ingredients and directions for use
This requires you to be familiar with the applicable
• it differentiates the product from that
mix to different situations and different products at
offered by competitors
different levels on the PLC
• enables consumers to make informed
decisions e.g. nutritional information and
possible side effects of consuming the PRODUCTION
product can
Stages of production
Packaging comes at a cost, therefore it is important
Production within an economy can be divided into
to ensure that the costs of packaging do not outweigh
the benefits. Packaging cost has the effect of putting three main stages: primary, secondary and tertiary.
upward pressure on prices or to reduce profits which
contrasts with the business objectives. Primary Production
Branding
• Also known as the extractive industries
A brand is a product with unique character, for • Primary production involves the extraction
instance in design or image. It is consistent and well of raw materials (e.g. farming, forestry,
recognised. Common brands in Zimbabwe are Pro fishing, and mining).
brands, Heinz and Crystal.
 • There is little value added in primary • Adding value = the difference between the
production. The aim is usually to produce price of the finished product/service and
the highest quantity at lowest cost to a the cost of the inputs involved in making it
satisfactory standard. • For example a television set comes off the
production line with a value (price) that is
Secondary Production more than the cost of the sum of the parts.
Value has been added during the
• Also known as manufacturing industries
production process.
• Secondary production involves
• Businesses can add value by:
transforming raw materials into goods.
 Building a brand – a reputation for
• There are two main kinds of goods
quality, value etc that customers are
consumer goods and industrial goods.
prepared to pay for. Nike trainers sell
• In the secondary production sector, value is
for much more than Hi-tec, even
“added” to the raw material inputs e.g.
though the production costs per pair
foodstuffs are transformed into ready
are probably pretty similar
meals for sale in supermarkets; metals,
 Delivering excellent service – high
fabrics, and plastics are transformed into
quality, attentive personal service can
motor vehicles.
make the difference between
achieving a high price or a medium
Tertiary Production one
 Product features and benefits – for
• Also known as the service industries
example, additional functionality in
• Tertiary production is associated with the
different versions of software can
provision of services (an intangible
enable a software seller to charge
product).
higher prices; different models of
• There are many tertiary production
motor vehicles are designed to
markets which include hotels, education,
achieve the same effect.
Accountants, tourism and banks
 Offering convenience – customers will
often pay a little more for a product
that they can have straightaway, or
Production process
which saves them time.

• The way that businesses create products

and services is known as the production
process. Productivity
• There are three main parts to the • It measures the relationship between
production process which are the inputs, inputs into the production process and the
process and output. resultant outputs.
A firm must purchase all the necessary • The most commonly used measure is
inputs and then transform them into the labour productivity, which is measured by
product (outputs) that it wishes to sell. output per worker. For example, assume a
sofa manufacturer makes 100 sofas a
Adding Value month and employs 25 workers. The labour
• The production process adds value to the productivity is 4 sofas per person per
inputs month.
• Added value is equivalent to the increase in • There are several other measures of
value that a business creates by productivity which include output per hour
undertaking the production process. / day / week or output per machine
Efficiency A firm has to make the following considerations
before it decides on which products it has to
• Efficiency is a measure of how well the produce in a specified period (product portfolio
production or transformation process is planning)
performing. • Market research findings provide
• Efficiency in production is generally information about customer needs and the
assessed by reduction in wastage e.g. production department must produce a
reduced number of scraped items product that satisfies those customer
needs
Ways to improve productivity and efficiency The
• Available resources: economic resources
generation and application of technological and
are always limited in supply therefore the
organisational knowledge (innovation) are the main
business has to produced within its means,
drivers of firm-level productivity growth. These
e.g. a business may shelve a plan to
determinants are broader than technology in an
develop a new product due to
engineering sense. The choice of production
unavailability of funds.
technology and how production is organised, which
• Opportunity cost: management has to
are management decisions, play a crucial role in
choose an option that best suits the
productivity performance. Firms can improve their
organisational objectives e.g. an option
productive efficiency in the following ways:
that maximises profits. This implies
• Improvements in technical efficiency —
opportunities to produce other products
increases in output can be achieved, at a
have to be sacrificed, these are called
given level of input, from more efficient use
opportunity cost.
of the existing technologies.
• Technological progress and organisational
change — as firms adopt
Costs of production
technologies or organisational structures
• These refer to the amount of economic
that are new to the firm, or develop and
resources in monetary terms consumed in
apply new technologies, they can expand
the manufacturing a good or provision of a
output by more than any additional inputs
service.
that might be required.
• Examples of costs of production are labour,
• Economies of scale — as the size of the firm
raw materials, consumable manufacturing
expands, its unit cost of production can fall
supplies and general overheads
as it becomes financially advantageous to
Classification of costs
adopt existing technologies.
• Training the workforce gives them skills
necessary for them to execute their
assigned tasks efficiently
• Improved motivation ensures unit of
direction and workers seek responsibility,
this improves efficiency and motivation
• Use of better quality raw materials can
reduce the amount of time wasted on
rejected or defective products. A business
should ensure they find the supplier who
can supply the best quality resources, but
at a competitive price and also with reliable
delivery.

What shall be produced?

Costs can be classified by their behaviour or by Marginal cost
function • The word marginal means additional or
extra
Economist view (Variable & Fixed) • The marginal cost of producing a product is
This classification of costs is based on how costs the cost of producing that additional unit of
behave as the activity level of an organisation output
changes. Cost behaviour refers to how costs • This cost is represented by the variable cost
behave to a change in the level of activity. per unit as no additional fixed costs are
Variable costs: incurred in the production of an additional
• These costs are directly proportional to unit
the level of activity.
• If the number of units produced doubles, PRODUCER’S VIEW OF COSTS
then variable production costs will double Producers classify costs into direct costs and
also. An example would be the cost of indirect costs
material used to produce units. Direct Cost
• On a graph, variable costs would look like: • A direct cost is a cost that can be clearly
associated with specific activities or
products.
• There are very few direct costs, since there
is usually not a clear association between a
cost and an activity or product.
• Examples of direct costs include direct
materials, productive labour and
commissions

Indirect costs
• Costs that cannot be directly associated
Fixed costs: with specific activities or products are
called indirect costs.
• These costs are constant over a wide • Examples of these costs are rent expense
range of activity and machinery maintenance

• An example would be the factory rent. It

does no matter how many units are made, Factors influencing the location of a business
the rent is fixed.
There are a number of factors that management has
• On a graph, fixed costs would appear as:
to consider when deciding on the location of the
n
business. These factors include

• Proximity to the market, a business has to

locate closer to the market in order to cut
on delivery costs. This factor becomes
more relevant if the business id dealing
with perishable products.
• Proximity to raw materials source,
businesses especially those dealing with
bulky inputs prefer to locate closer ti
material sources to cut costs e.g. Hullets
sugar is located in triangle where sugar
cane is grown.
 • Infrastructure such as good task by a qualified worker in order to
communication, road or railway network establish a standard time
bring businesses closer to the location as • To increase productivity by ensuring the
they positively contribute to the efficiency best possible use of human, machine and
of organisational operations material resources
• Government can offer incentives for firms • Improve operational efficiency
to locate in some areas e.g. tax holidays on
firms located at growth points. Firms have Advantages of work study
to consider such incentives when deciding • Increased productivity and operational
on location efficiency
• Availability of labour, firms prefer to locate • Motivate employees as it brings in better
in areas where there is adequate supply of job satisfaction and improves the working
skilled labour. conditions
• Costs such as rentals, power and water • Reduced manufacturing costs
have to be considered. Businesses prefer to • Improved work flow
locate in areas where costs are relatively • Provides a standard of performance to
lower measure labour efficiency
• Availability of a reliable water and water
supply has to be considered when
deciding on the location of a firm VALUE ANALYSIS AND THE PRODUCTION PROCESS
The production process is a continuous process
Relocation of businesses which follows the following main stages
Relocation occurs whenever the business decides to i. Research, the business seeks to find out
leave its present location for another. In this case consumer needs and establish whether or
there are push factors which are those factors not the current product offered by the
making the present location unfavourable e.g. business is satisfying these needs.
declining market, depleted raw material, high ii. Product design, the business uses the
rentals and poor infrastructure. The business research findings to design a product that
relocates to areas where favourable conditions serves as a solution to the customer needs
outlined above exist
ORGANISING PRODUCTION Value analysis
Value analysis is a process of systematic review that
Work study is applied to existing product designs in order to
compare the function of the product required by a
It is a process concerned with the analysis of the
customer to meet their requirements at the lowest
work methods and the equipment used in
cost consistent with the specified performance and
performing a job, the design of an optimum work
reliability needed. It involves analysing all the
method and the standardisation of proposed work
features on the product to see if the value they are
methods. The main purpose of work study is to
adding is commensurate to the increase in costs. All
determine the most effective method of
features on the product come at a cost, therefore
accomplishing the necessary operation. Work study
value analysis seeks to remove those features that
is concerned about searching for better method to
are not adding value to the product, while adding
perform a task. If management utilises this tool it
new features that add more to value than they do
results in improved productivity The following are
to costs.
objectives of a work study program
Value analysis when incorporated in all the
• To analyse the present method of
production processes will yield the following
performing a task in order to develop a
benefits
better way of performing the task
• It provides better value to a product, thus
• To measure the work content of the job by
creating customer loyalty
measuring the time required to perform a
 • It improves the business’s competitive out production activities in comparison to
position. the amount of capital required.
• Improves efficiency as the business tries to • Examples of labour intensive industries
cut unnecessary cost include agriculture, restaurants, hotel
industry, and other industries that require
much manpower to produce goods and
Labour Intensive vs Capital Intensive services.
Capital intensive and labour intensive refer to types • Labour intensive industries depend mostly
of production methods used in the production of on the workers and employees of their
goods and services. Whether an industry or firm is firms, and require higher investment and
capital or labour intensive depends on the ratio of time to train and coach workers to produce
capital to labour required in the production of goods and services according to specified
goods and services. standards.
• Labour intensive production also requires
What is Capital Intensive? more time to complete one unit of
• Capital intensive refers to the production production as production, generally,
that requires higher capital investment occurs on a small scale.
such as financial resources, sophisticated
machinery, more automated machines, Capital Intensive vs Labour Intensive
the latest equipment, etc. Capital intensive production requires more
• Capital intensive industries pose higher machinery, equipment and sophisticated
barriers to entry as they require more technological production systems in the production
investment in equipment and machinery to process. Capital intensive production requires a
produce goods and services. higher level of investment and larger amount of
• An industry, firm, or business is considered funds and financial resources. A capital intensive
to be capital intensive taking into production process is mostly automated and able to
consideration the amount of capital that is generate a large output of goods and services. Since
required in comparison to the amount of capital intensive production relies largely on
labour required. machinery and equipment, such industries require
long term investment, with a high cost involved in
• Examples of capital intensive industries
maintaining and depreciating equipment. In such a
include the telecommunications industry
capital intensive production process, it could be
and the airline industry.
very costly to increase output levels as this would
Merits require higher investment in such machinery and
equipment.
• Acts as a barrier to potential entrants, thus Labour intensive is where most of the production is
protecting the business competition carried by employees. It means that the levels of
• The use of machinery improves efficiency output would be at a much smaller scale than a
in operations capital intensive industry. The costs involved in a
• Machinery has lower day to day operating labour intensive production unit would be the costs
costs than labour of training and educating employees. However in
• Machinery is more consistent in its comparison to capital intensive, in labour intensive
operations than labour production, increasing the volume of output is
easier as it does not require a large investment.
Demerits Instead, hiring more workers, asking workers to
work extra hours and hiring temporary staff can
• Machinery is expensive to acquire
increase production in the short term.
• Higher risk of obsolesce of equipment
What is Labour Intensive?
• Labour intensive refers to the production
that requires a higher labour input to carry
Production methods and it enables economies of scale if the
batch is large enough.
Production is about creating goods and services. • It is usually employed in industries where
Managers have to decide on the most efficient way demand is for batches of identical products
of organising production for their particular e.g. raspberry & cream soda.
product. There are three main types of production • It also allows each individual batch to be
to choose from which are Job, batch and flow specifically matched to the demand, and
production the design and composition of batches can
easily be altered e.g. from chicken flavour
Job production to chutney.
Disadvantages
• In Job production items are made • The drawbacks are that batch production
individually and each item is finished tends to have high levels of work-
before the next one is started. inprogress stocks at each stage of the
• It involves the production of a single, production process.
unique, product designed according to • The work may well be boring and
customer specifications i.e. goods are demotivating for workers since it is
produced to order. repetitive in nature.
• The method is usually labour intensive as • If batches are small, then unit costs are
the products are not standardised. I usually likely to remain high.
require highly skilled labour.
• There is often a need to clean and adjust
• It is applicable mainly in construction machinery after each batch has passed
projects, handmade crafts like furniture through.
and art works.

Flow production
Advantages
• This method is used when individual
• Unique, high quality products products move from stage to stage of the
are produced production process as soon as they are
• Workers are often motivated as they take ready, without having to wait for any
pride in their work other products.
• Flow production systems are capable of
Disadvantages producing large quantities of output in a
• The high labour costs relatively short time and so it suits
• Difficult for the business to achieve industries where demand for a product is
economies of scale high and consistent.
• It also suits the production of large
Batch production numbers of a standardised item that only
• Batch production makes products in requires minimal alterations.
separate groups and the products in each • This is often why it is often referred to as
batch go through the whole process mass production.
together. • Flow production usually takes place on a
• The production process involves a number production line - hence the use of the term
of distinct stages and the defining feature production line.
of batch production is that every unit in
the batch must go through an individual Advantages
production stage before the batch as a • Labour costs tend to be relatively low,
whole moves on to the next stage. because much of the process is
• Batch production allows firms to use mechanised and there is little physical
division of labour in the production process handling of products.
 • The constant output should make the • Small improvements are less likely to
planning of inputs relatively simple and this require major capital investment than
can lead to the minimisation of input stocks major process changes
through the use of just-in-time (JIT) stock • The ideas come from the talents of the
control existing workforce, as opposed to using
• Quality tends to be consistent and high and R&D, consultants or equipment – any of
it is easy to check the quality of products at which could be very expensive
various points throughout the process. • All employees should continually be
seeking ways to improve their own
Disadvantage performance
• The high initial set-up cost. By definition, • It helps encourage workers to take
capital intensive, high technology ownership for their work, and can help
production lines are going to cost a great reinforce team working, thereby improving
deal of money. worker motivation
• The work involved tends to be boring,
demotivating and repetitive. As Kaizen is characterised by many, small
• The production is affected by a breakdown improvements over time, it contrasts with the
at any point in the production line. major leaps seen in industry when radical new
technology or production methods have been
Kaizen – Continuous improvement introduced. Over the years, the sheer volume of
• Kaizen (or ‘continuous improvement’) is an Kaizen improvements can lead to major advances
approach of constantly introducing small for a firm, but managers cannot afford to overlook
incremental changes in a business in order the need for radical change from time to time.
to improve quality and/or efficiency.
To sum up, for Kaizen to be effective there has to be
• This approach assumes that employees are
a culture of trust between staff and managers,
the best people to identify room for
supported by a democratic structure and a Theory
improvement, since they see the processes
in action all the time. A firm that uses this Y view of employees. Good two-way
communications and a de-layered organisation
approach therefore has to have a culture
that encourages and rewards employees would also support this approach. Nevertheless,
for their contribution to the process. some workers might see the demands as an extra
burden rather than an opportunity and it can take
• Kaizen can operate at the level of an
time to embed Kaizen successfully into an
individual, or through Kaizen Groups or
organisation’s culture.
Quality Circles which are groups specifically
brought together to identify potential
improvements.
• This approach would also be compatible Capacity utilisation
with Team working, as improvements
Capacity utilisation measures the extent to which a
could form an important part of the team’s
business is using its production potential.
aims.

Capacity utilisation can be defined as - the

The key features of Kaizen include:
percentage of total capacity that is actually being
Improvements are based on many, small changes
achieved in a given period
rather than the radical changes that might arise
Capacity utilisation which is traditionally expressed
from Research and Development
as a percentage) is calculated using this formula:
• As the ideas come from the workers
themselves, they are less likely to be
radically different, and therefore easier to
× 100
implement
Capacity utilisation is an important concept The main disadvantage of high capacity utilisation is
because: that the business may fail to meet any unexpected
increase in demand.
• It is often used as a measure of productive
efficiency
• Average production costs tend to fall as PRODUCT COSTING
output rises, so higher capacity utilisation Cost information is used for a number of purposes
can reduce unit costs, making a business which include
more competitive 1. Determination of selling price: business
• So firms usually aim to produce as close to organisations aim at earning profit. Total
full capacity (100% utilisation) as possible cost of production constitutes the basis on
which selling price is fixed by adding a
It is important to remember that increasing capacity margin of profit. Although, other factors
often results in higher fixed costs. A business should are taken into consideration before fixing
aim to make the most productive use it can of its price such as market conditions, the area of
existing capacity. distribution, volume of sales, etc. But cost
plays the dominating role in price fixation.
The investment in production capacity is often
2. Calculation of profit: profit is the difference
significant. Think about how much it costs to set up
between income earned and the cost of
a factory; the production line with all its machinery
earning that income. The cost information
and technology.
is therefore in the calculation of profit
made by the business in a given period.
Ways to increase capacity utilisation
3. Resource allocation: cost information is
used as a basis to allocate resources
1. Subcontracting or Outsourcing The business
efficiently. Management uses techniques
takes orders and produce for other businesses.
such as budgeting, to determine the
Subcontracting will increase capacity utilisation
quantities that can be efficiently produced
as the business is now producing not just for
given the available resources. In the event
itself but for other businesses as well 2.
of shortages resources can be allocated
Reduce capacity
towards the production of low cost high
But take care that the low utilisation is not
sales value products
temporary – big mistake to cut capacity
4. Rewarding factors of production: factors of
and then later on have to increase again
production such as labour and capital need
3. Increase demand
to be rewarded for their contribution to
Adjust the marketing mix to stimulate
the production process. The reward
demand, this increased demand must be
increases the cost to the business
satisfied by increased capacity utilisation
therefore the cost information has to be
Benefits of high capacity utilisation considered when considering any bonus
• High utilisation means fixed costs are schemes to ensure such programmes do
spread over greater output. Since fixed not negatively affect profitability.
costs do not change as output changes, 5. To provide a basis for operating policy: Cost
fixed costs per unit are lower with higher data to a great extent helps in formulating
utilisation the policies of a business and in decision-
• This means a firm can make higher profits making. As every alternative decision
per unit, or lower price to gain an increase involve investment of capital outlay, costs
in demand play an important role in decision making.
Therefore availability of cost data is a must
• Particularly important when fixed costs are
high (capital intensive) for all levels of management. Some of the
decisions which are based on cost include
make or buy decision, manufacturing by
 mechanisation or automation and whether • The total of the direct costs incurred in the
to close or continue operation in spite of production of a product is called the prime
losses. cost of production
6. Controlling cost: Cost information helps in • Other costs incurred in supporting the
attaining aim of controlling cost by using production process such as repairs to
various techniques such as Budgetary machinery, indirect wages and rentals are
Control, Standard costing, and inventory called factory overheads
control. Each item of cost e.g. material and • The prime cost of production can be
labour is budgeted at the beginning of the determined with ease as the costs can be
period and actual expenses incurred are traced to the specific cost unit (product).
compared with the budget. This increases • Overheads need to be included into the
the efficiency of the enterprise. cost of the product in order to determine
the total cost, this process is called
absorption of overheads
Product costing
Marginal costing
Product costing is a process concerned with • Marginal cost is the cost of producing one
ascertaining the amount of economic resources extra unit of output
consumed in the production of a good or provision • To help with short-term decision-making,
of a service. Management needs accurate cost costs are classified by their behaviour as
information as it is an important input in the either variable costs or fixed costs.
decision making process. Cost information is used • Such a classification of costs is used in
for pricing decision to ensure that price covers the marginal costing to work out how much it
relevant costs. The cost information is also relevant costs to produce each extra unit of output.
for control purposes i.e. to try to minimise costs to • Marginal cost is often – but not always –
ensure profitability. There are two main costing the total of the variable costs of producing
techniques used in ascertaining of product costs a unit of output.
which are absorption costing and marginal costing. • marginal costing is not concerned with
fixed period costs (such as the rent of a
Marginal and absorption costing systems These factory); instead it is concerned with
two costing systems are often used in cost variable product costs – direct materials,
accounting, but for different purposes: direct labour, direct expenses, and variable
• marginal costing – helps with short-term production overheads – which increase as
decision-making output increases.
• absorption costing – is used to calculate • For most decision-making, the marginal
inventory valuations and profit cost of a unit of output is, therefore, the
calculations in financial statements variable cost of producing one more unit.
The use of each system is dependent on the • Knowing the marginal cost of a unit of
information needs of the business or organisation. output enables the managers of a business
These costing systems use the same costs, but they to focus on the contribution provided by
are treated differently according to their behaviour. each unit. The contribution is the sales
revenue after marginal/variable product
Absorption/ Total costing costs have been paid.
• The contribution is obtained by the
• This costing technique includes into the
formula: selling price less variable cost =
product cost all the costs involved in the
contribution
manufacture of a product.
• Contribution can be calculated on a per
• This technique classifies cost into direct
unit basis, or for a batch of output (eg 1,000
costs and indirect costs in line with the
units), or for a whole business.
producers classification of costs
 • It follows that the difference between the • with the marginal cost
sales revenue and the variable costs of the of output identified, the managers
units sold in a period is the total can focus on the contribution provided by
contribution that the sales of all the units the output
in the period make towards the fixed • the effect on costs of changes in sales
period costs of the business. revenue can be calculated
• Once these are covered, the remainder of • it helps with short-term decision-making in
the contribution is profit. the forms of
• Thus a business can work out its profit, – break-even analysis
using a marginal costing statement, for any – margin of safety
given period from the total contribution – target profit
and fixed costs figures: total contribution – contribution sales ratio
less total fixed costs = profit – limiting factors
– ‘special order’ pricing
Example, marginal costing
The Wyvern Bike Company makes 100 bikes each Marginal and absorption costing compared
week and its costs are as follows: Direct materials Marginal costing tells the managers of a business or
£4,000; Direct labour £5,000; Production overheads organisation the cost of producing one extra unit of
£5,000 An investigation into the behaviour of costs output. However, that one of the objectives of the
has revealed the following information: costing system is to ensure that all the costs of a
• direct materials are variable costs business or organisation are recovered by being
• direct labour is a variable cost charged to production. This is achieved by means of
• of the production overheads, £2,000 is a overhead absorption.
fixed cost, and the remainder is a variable
cost Marginal costing
The selling price of each bike is £200. • Marginal costing recognises that fixed
period costs vary with time rather than
As an accounts assistant at the Wyvern Bike activity, and identifies the variable
Company, you are asked to: production cost of one extra unit. For
a. calculate the marginal cost of producing example, the rent of a factory relates to a
each bike certain time period, e.g. one month, and
b. show the expected contribution per bike remains unchanged whether 100 units of
c. prepare a marginal costing statement to output are made or whether 500 units are
show clearly the total contribution and the made (always assuming that the capacity of
total profit each week the factory is at least 500 units); by
contrast, the production of one extra unit
Advantages of marginal costing A marginal costing will incur an increase in variable costs, ie
statement is of benefit to the managers of a direct materials, direct labour, direct
business because: expenses (if any), and variable overheads –
• contribution, i.e. selling price less variable this increase is the marginal cost.
cost, is clearly identified
Absorption costing
• This technique absorbs all production We can observe that sales revenue costs into each unit of
output. Therefore, also varies directly with the sales the more units that are produced, the volume. This
is illustrated in the cheaper will be the cost per unit – diagram below because the overheads are spread
over a greater number of units.
• Absorption costing is an acceptable method of valuing inventories by
accounting standards
Break even analysis

• Marginal costing classifies costs into

variable costs and fixed costs

• Fixed costs are constant at all levels of output, this can be illustrated by the
diagram below If this information is plotted on a
single graph, the graph looks as
follows

• Variable costs are those costs which vary directly with the
level of output, i.e. the costs increase with output as
illustrated below

• The diagram shows the relationship

between the costs and revenues of a business at
different levels of activity
• It can be noted that initially the total costs are above the total
revenue,
implying that the business is making losses
obtained by summing up the total
• The total cost of production is The gap between the TC and the TR
narrows i.e. the losses decline as the variable costs and total fixed costs at level of activity increases
each level of activity. This is The point where the TR = TC is called illustrated in the diagram below the
break-even point because the business will be breaking away from
making losses to making profits
• The break-even point can be

identified by way of sales value or

in units.
• There is a direct relationship
between profitability and the level of output.
Therefore, the further the
business operates away from the • The difference between the selling price
break-even output the better and the variable cost is called contribution
• The margin of safety measures the extent per unit
to which a firm’s output can be reduced • This contribution must first accumulate to
before the firm can start incurring losses, it cover fixed costs before profits can be
is the difference between the level of realised
activity and the break even output • At the break-even point, the firm neither
makes a profit nor a loss i.e. FC = Total
Mathematical calculations contribution. In other words FC =
 contribution per unit × BEO ii. Work in progress: incomplete products
• Making BEO the subject of the formula still in the process of being made
iii. Stocks of finished products: finished
goods of acceptable quality waiting to be
sold to customers.

The aim of stock control is to minimise the cost of

• The break even in sales value can therefore holding these stocks whilst ensuring that there are
be obtained by the formula BEO enough materials for production to continue and be
× Selling Price able to meet customer demand.

Targeted profit • The stock control department will have to

work closely with the purchasing and
• Businesses may seek to attain a specified marketing departments to decide on a
amount of profit sustainable stock levels
• It is therefore necessary for management • The marketing department should be able
to calculate the number of units required to provide sales forecasts and so allow
to be sold in order for the business to stock control managers to judge the type,
achieve the profit level quantity and timing of stocks needed.
• In order to determine the units required to • As it is difficult to ensure that a business
achieve the targeted profit, we use the has exactly the correct amount of stock at
formula any one time, the majority of firms will hold
+ buffer stock. This is the “safe” amount of
stock that needs to be held to cover
unforeseen rises in demand or problems of
reordering supplies.
Accepting special orders
Stock management
• Marginal costing can be used in deciding • Good stock management by a firm will
whether the business must accept an order lower costs, improve efficiency and ensure
below the normal selling price production can meet fluctuations in
• A customer may offer to buy extra units of customer demand.
output in return for a trade discount • It will give the firm a competitive
• The business can only accept the offer if advantage as more efficient production can
the price offered covers the fixed costs i.e. feed through to lower prices and also
there is positive contribution customers should always be satisfied as
• If contribution is negative accepting such products will be available on demand.
an offer negatively impacts on profitability. • However, poor stock control can lead to
problems associated with overstocking or
stock-outs.
• If a business holds too much buffer stock
(stock held in reserve) or overestimates the
Stock management level of demand for its products, then it will
There are three types of stock that a business can overstock. Overstocking increase costs for
hold: businesses as holding stocks are an
i. Stocks of raw materials: inputs brought expense for firms for several reasons.
from suppliers waiting to be used in the i. Increases warehouse space needed
production process. ii. Higher insurance costs needed
 iii. Higher security costs needed to Disadvantages of JIT
prevent theft • Needs suppliers and employees to be
iv. Stocks may be damaged, become reliable
obsolete • May find it difficult to meet sudden
v. Money spent buying the stocks could increase in demand
have been better spent elsewhere
Economies of scale
The opposite of an overstock is a stock-out. This
• Economies of scale are the cost
occurs when a business runs out of stocks. This can advantages that a business can exploit by
have severe consequences for the business:
expanding their scale of production.
i. Loss of production (with workers still
• The effect of economies of scale is to
having to be paid but no products being reduce the average (unit) costs of
produced)
production
ii. Potential loss of sales or missed orders.
• There are different types of economies of
This can harm the reputation of the scale
business.
Internal economies of scale
In these circumstances a business may choose to Internal economies of scale arise from the growth of
increase the amount of stock they hold in reserve the business itself. Examples include:
(buffer stock). There are advantages and
disadvantages of increasing the stock level. Technical economies of scale:
Advantages Large-scale businesses can afford to invest in
• Can meet sudden changes in demand expensive and specialist capital machinery. For
• Less chance of loss of production time example, a supermarket chain such as TM or OK
because of stock outs can invest in technology that improves stock
• Can take advantage of bulk buying control. It might not, however, be viable or cost-
economies of scale
efficient for a small corner shop to buy this
technology.
Disadvantages
• Costs of storage – rent and insurance Specialisation of the workforce: Larger businesses
• Money tied up in stocks not being used split complex production processes into separate
elsewhere in the business tasks to boost productivity. By specialising in certain
• Large stocks subject to deterioration and tasks or processes, the workforce is able to produce
theft more output in the same time.
Marketing economies of scale: A large firm can
Just in time stock control spread its advertising and marketing budget over a
• JIT means that stock arrives on the large output and it can purchase its inputs in bulk at
production line just as it is needed. negotiated discounted prices if it has sufficient
• This minimises the amount of stock that negotiation power in the market. For, instance, the
has to be stored thus reducing storage major food retailers have buying power when
costs. purchasing supplies from farmers and other
suppliers.
Advantages of JIT
• Reduces costs of holding stock e.g. Managerial economies of scale: This is a form of
warehousing rent division of labour. Large-scale manufacturers
• No money tied up in stock, can be use employ specialists to supervise production systems,
better elsewhere manage marketing systems and oversee human
resources.
Financial economies of scale: Larger firms are objective is to eliminate all forms of waste in the
usually rated by the financial markets to be more production process and so produce more by using
'credit worthy' and have access to credit facilities, fewer inputs. There are several forms of waste that
with favourable rates of borrowing. In contrast, lean production aims to eliminate.
smaller firms often face higher rates of interest on • Waste from materials
overdrafts and loans. • Waste of worker’s time and effort
• Waste of floor space
External economies of scale • Waste from defective products By reducing
this waste the costs of firms will decrease
External economies of scale occur within an and they will become more efficient and
industry. Therefore, they benefit every firm in the competitive. The idea is to make the
particular industry. Examples of external economies product right first time (not spend time
of scale include: checking and rechecking).

• Development of research and There are several popular management techniques

development facilities in local universities that have been developed to help achieve “lean
that several businesses in an area can production”. The three most popular are:
benefit from i. Cell production
• Spending by a local authority on improving ii. Kaizen (continuous improvement)
the transport network for a local town or iii. Just-in-time (“JIT”) manufacturing.
city
• Relocation of component suppliers and Lean production methods
other support businesses close to the main Cell production
centre of manufacturing are also an In traditional production, products were
external cost saving manufactured in separate areas (each with a
responsibility for a different part of the
Lean production manufacturing process) and many workers would
There is much evidence to suggest that the work on their own, as on a production line. In cell
traditional mass production methods, can create production, workers are organised into multiskilled
problems, which leads to inefficiency. The main teams. Each team is responsible for a particular part
problems are: of the production process including quality control
• Employee boredom and low morale: and health and safety. Each cell is made up of
particularly where employees undertake several teams who deliver finished items on to the
repetitive jobs next cell in the production process.
• Equipment failure: breakdowns of Cell production can lead to
equipment that can cause hold-ups efficiency improvements due to increased
elsewhere in the production process motivation (team spirit and added responsibility
• Equipment obsolescence: where a given to cells) and workers sharing their skills and
machine quickly becomes outdated, expertise.
although there is little incentive to replace
it if the machine had cost a lot of money
As a result of these problems, businesses have Quality control and assurance
increasingly looked to see if they can make their • A quality product needs to be ‘fit for
production more efficient by becoming more purpose’. This means the product must
“flexible” and “lean”. meet or exceed the customer
requirements.
Lean production is an approach which originated in • It should be noted that a good quality
Japan during the 1950’s and 1960’s and has recently product does not therefore have to be an
been increasing in popularity among firms. Its main
 expensive product; it merely has to fulfil its significant marketing advantages. For example, a
purpose within the eyes of the customer. business will benefit from more repeat purchases
• It is important to remember that it is the and a longer life cycle for its product. It may also be
customer who sets the “quality standards” able to charge a premium (higher) price and so
in terms of their overall expectations of boost revenue.
quality. There are several ways that a
customer may define quality: 2. Costs
o Reliability o A poor quality product does not only harm
Fit for reputation and therefore sales but also increases
costs to businesses. There are many costs of poor
purpose o
quality, including:
Design o
• Cost of reworking or remaking the product
Safety o
• Costs of replacements or refunds
Long-lasting
• Wasted materials
• In some cases, government act to
• Costs of employing more staff to detect
encourage minimum standards for certain
and solve quality problems
products. For example, the Standards
These extra costs will decrease the competitiveness
Association of Zimbabwe (SAZ).
of a business, as it may have to raise prices to cover
• The SAZ a certification mark that offers
them.
proof that a product or service complies
with the relevant publicly available Ways to Manage Quality
specification. It symbolises quality and
safety. 1. Quality Control
The objective of quality control is to ensure each
Importance of Quality finished product meets the standard set out by the
Quality is important for two main reasons: business for a quality product. The traditional
reputation and costs. method by which a firm tries to achieve this quality
standard is by having a separate Quality Control
1. Reputation department whose inspectors check the finished
For virtually all purchasing decisions, customers items and reject defective or substandard products.
choose which product to buy based on price and/or This method therefore detects quality problems at
quality, and occasionally on other factors such as the end of the production process before they reach
the delivery time. The reputation of a business the final customer. The Quality Control department
therefore depends on these factors and it is often would then try and change an aspect of the
quality which can have the longest lasting production process and procedure, in order to solve
impression. Customers often complain about the quality problems that seem to occur most often.
poor quality of the products and services they buy. This approach hopefully stops defective products
Conversely, a positive recommendation by a getting to the market place and harming a firm’s
customer (for example by recommending a product
reputation but evidence shows that it has limited
or service to a friend) helps to develop a positive
success at reducing the number of sub standard
reputation for quality. There are many situations in
products being produced and therefore wasting a
which quality can prove to be less than expected:
firm’s resources.
for example:
• Poor service at a restaurant 2. Inspection
• A bus that runs late or is cancelled
• Clothing that unexpectedly shrinks in the This method involves inspecting the inputs into the
wash production to ensure that they are of acceptable
A good quality product can therefore provide a quality, this avoids the use of defective materials
competitive edge over rivals and can lead to which can negatively affect the quality of goods and
services produced. The process is also carried out on • Lower costs – Decrease waste as fewer
the machinery to ensure that it is operating defective products and no need for
efficiently. separate Quality Control inspectors

Testing Disadvantages
• Initial introduction costs- training workers
This method involves testing the output produced
and disrupting current production whilst
to establish if it confines to acceptable quality
being implemented
standards. The major weakness of this approach is
• Benefits may not be seen for several years
that it is reactive as it seeks to identify poor quality
• Workers may be resistant to change – may
products as opposed to avoiding their production.
feel less secure in jobs
Some tests are destructive to the product i.e. a
product used for testing can no longer be sold to
To sum up, the success of TQM will depend upon
earn income.
the attitudes of workers throughout the business
3. Total Quality Management and how readily they accept the changes to their
An alternative and increasingly popular method of traditional working practices. This implies that the
ensuring quality is known as Total Quality level of worker motivation is critical for the success
of TQM

Management (TQM). TQM is best described as

being an “attitude” in a business where everyone in
CRITICAL PATH ANALYSIS
the business is committed to achieving quality – not
just the people in the Quality Control or production
Many larger businesses get involved in projects that
departments. It means that quality is being checked
are complex and involve significant investment and
at every stage of the production process, as all
risk. As the complexity and risk increases it becomes
employees are trained to check their own work
even more necessary to identify the relationships
(self-checking).
between the activities involved and to work out the
Two of the main aims of TQM are “zero defects”
most efficient way of completing the project.
and “total customer satisfaction”. “Zero defects”
refers to the aim of producing goods and services The essential technique for using CPA is to construct
with no faults or problems. To achieve this requires: a model of the project that includes the following
• Strong teamwork
• Open sharing of information about what • A list of all activities required to complete
quality problems are arising and how they the project
are caused • The time (duration) that each activity will
• Investment in improving and refining take to completion
production processes There are various • The dependencies between the activities
advantages and disadvantages of
introducing TQM: Using this information, CPA calculates:
Advantages
• Improves reputation- faults and problems • The longest path of planned activities to
the end of the project
are spotted and sorted quicker (zero
• The earliest and latest that each activity
defects)
can start and finish without making the
• Higher employee morale– workers
project longer
motivated by extra responsibility, team
work and involvement in decisions of This process determines which activities are
TQM "critical" (i.e., on the longest path) and which have
"total float" (i.e. can be delayed without making the Dummy activities
project longer).
These are not actual activities because they don’t
In project management, a critical path is: The consume time or resources. Instead they show the
sequence of project activities which add up to the logical dependency between other activities.
longest overall duration Instead they are imaginary activities designed to
show logical dependency between projects so as to
The critical path determines the shortest time avoid violating the rules of network construction.
possible to complete the project. This rule prohibits different activities to share the
same head and tail. The dummy activity is shown by
Any delay of an activity on the critical path directly a dotted line on the network diagram.
impacts the planned project completion date (i.e.
there is no float on the critical path). Evaluating CPA

Conventions in drawing the network The main advantages and disadvantages of a

business using CPA can be summarised as follows:
 There is only entry (starting) point into a
network and one exit (finishing) point Advantages of CPA
 Networks are drawn from left to right but
not necessarily to scale • Most importantly – helps reduce the risk
 Every activity shall be shown by a line and costs of complex projects
 Events which are transitions between • Encourages careful assessment of the
activities are shown by circles requirements of each activity in a project
 Every activity must have a preceding event • Help spot which activities have some slack
(head) and a succeeding event ("float") and could therefore transfer some
(tail). resources = better allocation of resources
 An activity cannot start until its tail has • A decision-making tool and a planning tool
been reached – all in one
 Activities must not share the same tail • Provides managers with a useful overview
event and the same head event with any of a complex project
other event • Links well with other aspects of business
planning, including cash flow forecasting
The main components of a network analysis are and budgeting
summarised below Disadvantages of CPA

• Reliability of CPA largely based on accurate

estimates and assumptions made
• CPA does not guarantee the success of a
project – that still needs to be managed
properly
• Resources may not actually be as flexible as
management hope when they come to
address the network float
• Too many activities may the network
diagram too complicated. Activities might
themselves have to be broken down into
mini-projects