SYNERGY

PROFESSIONALS

ACCA Paper F1
Accountant in Business

Lecture Notes
DETAILED SYLLABUS GUIDE

SECTION A: THE BUSINESS ORGANISATION, ITS STAKEHOLDERS AND THE EXTERNAL

ENVIRONMENT

SECTION B: BUSINESS ORGANIZATIONAL STRUCTUR, FUNCTIONS AND GOVERNANCE

SECTION C: ACCOUNTING AND REPORTING SYSTEMS, CONTROLS AND COMPLIANCE

SECTION D: LEADING AND MANAGING INDIVIDUALS AND TEAMS

SECTION E: PERSONAL EFFECTIVENESS AND COMMUNICATION

SECTION F: PROFESSIONAL ETHICS IN ACCOUNTING AND BUSINESS

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SECTION A: THE BUSINESS ORGANISATION, ITS STAKEHOLDERS AND THE
EXTERNAL ENVIRONMENT

 THE PURPOSE AND TYPES OF BUSINESS ORGANISATION

 STAKEHOLDERS IN BUSINESS ORGANISATIONS
 POLITICAL AND LEGAL FACTORS AFFECTING BUSINESS
 MACRO ECONOMIC FACTORS
 MICRO ECONOMIC FACTORS
 SOCIAL AND DEMOGRAPHIC FACTORS
 TECHNOLOGICAL FACTORS
 ENVIRONMENTAL FACTORS
 COMPETITIVE FACTORS

THE PURPOSE AND TYPES OF BUSINESS ORGANISATION

An organization is a social arrangement which pursues collective goals, which

controls its own performance and which has a boundary separating it from its
environment.

Major elements of the definition:

 Social arrangement

 Collective goals

 Control performance

 Boundary

REASONS FOR ORGANISATION EXISTENCE

 It overcomes people's individual limitations, whether physical or intellectual.

 It enables people to specialize in what they do best.
 Time saving
 Accumulate and share knowledge.
 Enabled opportunity for synergy

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FACTORS THAT DIFFERENTIATES ORGANISATIONS:

Ownership: (public vs. private)

Control: employees, government, shareholders, et.c.
Activity (i.e. what they do such as trading, manufacturing, mining e.t.c)
Profit or non-profit making
Legal status: limited company, partnership, cooperative societies e.t.c
Size: small, medium, multinational
Sources of finance: debt finance, equity finance or both.
Technology usage: simple, sophisticated, none.

TYPES OF ORGANISATION

 Profit (commercial): have owners whose primary goal is to maximize

profit(dividend) while their secondary goal is to provide either goods or
services or both from which they generate revenue and also to obtain
input at low cost( private or public listed company)

 Not for profit: They have the public or beneficiaries as stakeholders, their
primary goal is to provide goods & services and also to (secondary)
minimize cost of providing the goods and services such as charities

 Public sector: They are organizations owned or run by central, local or

governmental agencies .e.g universities, primary schools, armed forces,
hospitals, government department.

 Non-governmental organization (NGO): is an independent voluntary

association of people acting together for some common purpose. These
organisations are into various activities aimed at promoting social, political
or environmental change. Also has the following features volunteers to
work, finance by grant, kanu heart foundation, save cancer patients,
poverty alleviation, fight aids.

 Cooperatives societies: are businesses owned by their workers or

customers, who share the profits.

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STAKEHOLDERS IN BUSINESS ORGANISATIONS

STAKEHOLDERS GOALS & OBJECTIVES

These are individuals or group of people that have legitimate interest in the business
and activities of the organization. Moreover, different individuals have different
interest in the organization.

There are three broad types of stakeholder in an organization. They are:-.

 Internal stakeholders (employees, management): who are interested in the

continuation (going concern), growth, and survival of the organization. The
interest and objectives of these are; job security, career move, promotion,
benefit, satisfaction.
 Connected stakeholders (shareholders, customers, suppliers, financiers): they
have interest in the performance of the organization to satisfy their financial ,
non financial needs but are not employees of the organization.

These include
1. Shareholders with interest on return on investment, increase in wealth
2. Financial institutions : interested in the repayment of loan
3. Suppliers: interest is the payment for goods and services, long term
relationship, profitable sales.
4. Customer: interest in goods and services to satisfy their needs, value adding
products/ services.
 External stakeholders (the community, government, pressure groups, pressure
group, professional bodies, local authority, community at large. Moreover,
another classification of stakeholders would be based on those that have a
contractual relationship with the company or not.

Primary Stakeholders:-They are those that have contractual relationship with the
company such as:-internal and connected Stakeholders.

Secondary Stakeholders. - These are those that do not have contractual

relationship with the company and they are External Stakeholders

There are always possibilities of conflict among stakeholders since there interest
varies from each other.
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MENDELOW suggested a matrix which can be useful to the company by prioritizing
their interest based on “Level of interest” and Power/Influence of Stakeholders

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 LEVEL OF INTEREST

LOW HIGH

A B
POWER
C D

COLUMN A:-{Low power, Low interest} spend minimal effort on them or ignore them
such as an ordinary investor.

COLUMN B :-{ Low power, High Interest} always keep them informed such as
Community representatives and charities

COLUMN C: - {Low Interest, High Power} always keep them satisfied such as Large
institutional shareholders

COLUMN D: - (High Interest, High power} they are key players which must be fully
involved and carried along of the management strategies such as a major
customers, highest investors/shareholders.

THE BUSINESS AND EXTERNAL ENVIRONMENT

The business environment is simple /complex, dynamic / stable. The business

environment has experienced turbulence due to the changes in these factors listed
below: PEST

 Political and legal factors

 Macro economics factors
 Social and demographic factors
 Technological factors
 Competitive factors

POLITICAL AND LEGAL FACTORS AFFECTING BUSINESS

Political factors:

1. Impact of political systems and government policy on organizations

2. Legal factors
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 3. Employee protection laws: retirement, redundancy, dismissal e.t.c and
implication on org & managers
4. Data protection & security laws
5. Health and safety laws.

Political and legal factors

The impact of the political system and government policy on the organization
could be explained under the following areas:

 Form of government: military, democracy system, unitary system(centralization)

or confederal system
 Stability of government
 Political ideology
 Strength of opposition parties
 Government support on organizational plans
 Government attitude to foreign firms
 Foreign policies
 Regulating monopolies
 Policy on taxation, tariffs & duties

These areas mentioned can affect:

 Demand
 Competition
 Entry into industries

Organisation can influence government policies by:

1. Lobbying
2. Offering law makers the positions of non-executive directorship
3. Using public relations to influence the opinion of the public so as to put
pressure on the legislative proposals to act in their favour.

Legal factors: refers to laws, legislation and government regulations that governs
the activities in a country, state, or region including global laws which includes:

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 Contract law, tort, agency
 Criminal law
 Company law
 Employment law
 Health and safety
 Data protection & security
 Consumer laws
 Environmental law
 Tax laws

EMPLOYEE PROTECTION LAW AND ITS IMPLICATION FOR THE ORGANISATION AND
MANAGEMENT

Employee protection law provides security or rather protection for employee in

terms of their relationship with their employers and covers the following areas:

 Retirement
 Dismissal: which can be wrongful( a method of dismissal that breaches contract
of employment),unfair dismissal( dismissal without good reason)
 Resignation: termination of contract by employee willingly or forced.
 Redundancy: this can be due to cessation of trade or the services of the
employee are not needed due to some reasons. Employees made redundant
are entitled to compensation, but will not be compensated if they have been
offered alternative employment, are of pensionable age, or are made
redundant because of misconduct.
 Disciplinary procedure:
 Equal opportunities: refers to discrimination that occurs in employment.

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Implication of employment protection for managers and organization

 Image/goodwill/reputation of the organization will be affected

 Legal claims by ill-treated employees
 Labour turnover

DATA PROTECTION AND SECURITY

Data protection and security provides the right to an individual which gives them
the ability to control the use of their personal information whether financial, health
or lifestyle. The data protection law prevents unauthorized disclosure of information.

The driving force of the data protection and security was due to the growing loss of
confidence in the organization maintaining confidentiality in terms of information
held on individuals which can be either inaccurate or misleading and could be
possibly disclosed to unauthorized parties.

The UK Act on data protection & security 1998 relates to information held on
manual and computerized platform. It requires accuracy of personal data,
relevance, update, time- bound, processed with due right from data subject and
non transferability to other areas.

HEALTH AND SAFETY POLICY

This is a legal requirement that ensures that measures are put in place by the
organisation to protect workers from the risk they are exposed to during the course
of their work.

The health and safety at work Act 1975 promotes and protects health and safety in
the workplace by stating responsibilities and duties of both the employer and
employee in reducing the risk of accidents, disease and reputational risk.

Employer’s responsibilities:

 Ensure safety measures in the work environment

 Communicating safety measures to all
 Continuous risk assessment
 Ensures efficient and effective control to reduce risk
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  Identify employees at risk
 Maintenance of equipment and machines

Employee responsibilities:

 Ensure adherence to safety measures

 Report any evidence of risk
 Must not operate machines without due authorization and skill.

Macroeconomic is a branch of economics that studies the overall aspect of a

national economy such as output, income, unemployment, inflation or price level
and interrelationship among different economic sectors.

It refers to the government policy aimed at aggregate economy, usually to

promote the macro goals of full employment, stability and growth. The objectives of
economic policies are:

1. To achieve economic growth and national income growth per head in real
terms.
2. To control price inflation
3. To achieve full employment that is unemployment levels are low and
voluntary.
4. To achieve a balance between exports and imports( balance of payment
control)

Factors that determine the level of business activity in an economy:

 Income
 Expenditure on goods and services
 Output( products and services)
 Productive resources
 Business cycle

The level of variation in business activity affects the individuals, households and
businesses. The business cycle also affects the economy. The phases of business
refers to:

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 Recession: demand for output and jobs falls, unemployment rises, business
failure, production falls, general price level will begin to fall,
 Depression: in the absence of stimulus to aggregate demand a full fall in
demand, employment & price level, value of currency (devalued)
 Recovery: gradual improvement in output, employment, income, demand,
price level remains constant.
 Boom: economy prosperity, full utilization of resourses, demand outweigh supply
as firms operate in full capacity.

Impact of economic issues on individuals, households and businesses.

There are varying economic issues which include:

 Inflation
 Unemployment
 Stagnation
 International payments disequilibrium

INFLATION

This is the persistent rise in the prices of goods and services in an economy. Causes
of inflation are as follows:

 Demand pull inflation: demand outweighs supply

 Cost push inflation: increase in the cost of factors of production
 Import cost push inflation: riser in the cost of importation.
 Speculative inflation
 Excessive supply of money.

The impact of inflation includes:

 Saving and savers: inflation causes money to lose its value and savers lose
confidence in money and the real value of saving
 Increased in higher wage demand as people try to maintain their real living
standards. Business then increases prices to maintain profits and higher prices
then put further pressure on wages. This process is known as wage – price spiral.
 Abnormal redistribution of income: inflation leads to uneven distribution of
income and wealth thus affecting individuals, household and businesses.
 It favours borrowers at the expense of savers as inflation erodes the real value
of existing debts and the rate of interest on loans may not cover the rate of
inflation.

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 Business planning and investment are disrupted by inflation, budgeting
becomes difficult because of the uncertainty created by rising prices and costs;
this may reduce planned capital investment spending.
 Competitiveness and unemployment: inflation causes higher unemployment in
the medium term and where one country experiences higher inflation rate
than the other it leads to loss of international competitiveness because higher
inflation results in expensive exports and cheap imports, so the balance of trade
will be affected and so will the exchange rate ( balance of payment).

UNEMPLOYMENT

This refers to a situation whereby the number of employed workforce is lesser than
the total number of existing work force (people that have the ability, qualification
to work) in an economy.

Causes of unemployment:

 Frictional: unemployment that is temporal occurs when there is difficulty in

matching workers quickly with jobs not because there are no jobs but finding
employers or may be due to the time of changing job.
 Seasonal unemployment: familiar with industries such as tourism, farming,
building as the seasons of the year affects the employment needs in these
industries/ sectors
 Structural unemployment: long term because of changes in the industry e.g
restructuring.
 Technological: unemployment occurs due to innovation, new technologies
such as automation of business processes eliminating the need for human
involvement, delayering, disintermediation.

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 Cyclical: occurs when an economy is going through the phases of business
cycle i.e high unemployment in recession and depression and lower in boom
and recovery.
 Real Wage: it is where the Demand for Labour(Manpower) is more than the
Available Supply of Labour (Manpower).

Impact of unemployment on individuals, households and business:

 Negative multiplier effect: as the unemployed experience decline in their living

standards this leads to decline in the spending power, a rise in debt problems,
fall in purchase of goods and services, businesses will be forced to drop prices
reducing profitability.
 Loss of creativity, skills and competences
 Social cost: unemployment is linked to social deprivation. There is a relationship
between crime and social dislocation including lower life expectancy,
worsening health issues.
 Fiscal cost: government losses out because of fall in tax revenue and higher
spending on welfare payment for families with people out of work leading to
increased budget deficit.

Possible policies that the government can adopt to reduce unemployment:

1. Encouraging labour mobility via financial assistance, relocation expenses and

free flow of information on vacancy.
2. Offering assistance to employers in key locations
3. Encourage training in different job skills such learning schemes/ seminars on
being employer of labour in the agricultural industry for instance fish farming
e.t.c
4. Strengthen domestic firms by offering aids or protection from foreign
investment.

Types of economic policy that may be implemented by government and supra-

national bodies to maximize economic welfare.

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 1. Policies over organizations decision such as law on health and safety,
employment, consumer right, tax , competition, monopolies
2. Government spending on health, social services, education, transport,
defense, grants to industries, subsidies affects wages, resources, capital
equipment e.t.tc.
3. Encouraging labour mobility by offering individuals financial assistance
with relocation expenses.
4. Reduction in taxes as it affects company profits, consumers purchasing
power, investment is affected as FDI will be attracted to the economy.
5. Industry policy referring to protection of free trade, entry barriers, capital
requirement, regulation(company law), grants
6. Environmental policies
7. Foreign policy: trade promotion, export credits, GATT obligations EU, G8,
G20 countries activities/policies, EEC( European economic community)
eliminated quotas & tariff free trade area for industrial products among its
members,
OPEC (organization of petroleum exporting countries)

The impact of fiscal and monetary policy measures on the individual, the
household and businesses

Fiscal policy

This refers to government policy on taxation, public borrowing and public spending.
Government would have to plan on how to spend, how to raise the income
(revenue) and how to structure taxation.

However the budget is used to plan the fiscal policy which is done once in a year.
The government can use the fiscal policy to influence demand in the economy

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either stimulate or reduce it. To increase demand government can increase it
spending.

The component of the budget used by government to implement its fiscal policies
are:

 Expenditures/spending: to provide public services, assistance/ grants

 Revenue: sources of income to the government are from taxation, income from
public services.
 Borrowing: to meet up with required expenditures and projects through Public
sector net cash requirement(PSNCR)

The individual, household and business are affected by the fiscal policy as the
government attempts to influence demand in the economy and can be achieved
through the following:

1. Increased expenditure and reduced taxes( stimulates demand)

2. Reduced expenditures and increased taxes ( reduces demand)
3. Increased expenditures and increases taxes ( stabilizes demand)
4. Reduced expenditure and use the savings to reduce taxes ( stimulates
demand)

The budget can either be in deficit (occurs when government expenditure exceeds
its income, so that it must borrow to make up the difference) OR surplus (occurs
when government exceeds its expenditure and there is no debt or debt
repayment.

Thus the impact of fiscal policy on the business, households, and individual:

 Can affect foreign direct investment, where there are social amenities,
infrastures, lower taxes foreign investors will want to invest in that economy
 Business cycle can be controlled especially during recession
 Employment level

FUNCTION / PURPOSE OF TAXATION

 To raise revenue for the government

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 To protect infant industries from foreign competitors
 To redistribute income and wealth among citizens
 To discourage certain activities
 To cover the social cost of products
 For stabilizing effects on the economy.

Types of taxation

 Direct tax is levied on income and profits of an individual, includes income tax,
corporation tax, capital gains, inheritance tax.
 Indirect tax is levied on goods and services consumed which could be charged
as a fixed percentage of price of goods (Ad valorem tax) or fixed sum per unit
sold (Specific tax).

There is a relationship between the tax level and income levels used to describe the
system of taxation as follows:

1. Progressive: the higher the income the higher the tax

2. Regressive: the lower the income the higher the tax, government takes flat
rate from all income earners.
3. Proportional: same tax for all income level

MONETARY POLICY

This is the regulation of a country’s money supply by the central bank of a country
or region. Monetary policy tools are used to help control the economy, primary
tools used by central bank are:

 Changes to interest rate

 Changes to the amount of money in circulation
 Changes in the reserves requirement for banks

Impact of monetary policy on business, individuals, households

 Control on inflation: the goal of monetary policy is to control inflation or the

value of currency through changes in monetary policy. When inflation rises the
central bank raises interest rate, high inflation makes the cost of goods higher so

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 central bank wants to inflation low to keep the prices of goods and services
stable relative to the value of the currency.
 Interest rates: the central bank raises or lowers the interest rate, loans money to
other banks as a tool to impact the economy; these actions have a trickledown
effect on the interest rates charged on loans, credit cards and any other
financial vehicle that is tied to interest rate.
 Business Cycle: monetary policy attempts to minimize the speed and severity of
these expansions and contraction, the goal is to keep the economy on a slow
but steady growth pattern to prevent recessions during periods of contraction
 Spending: Monetary policy impacts the amount of money spent in an
economy, when central bank decreases interest rates, more money is spent in
an economy, this increase spending leads to improved health for the economy
and when interest rates are increased spending declines which could curtail
inflation.
 Employment levels relate to the health of an economy, when inflation is low
and an economy is stable employment levels are higher than when inflation is
high. Changes in monetary policy that maintains the economic stability and
minimizes inflation, tend to keep unemployment low.

SOCIAL AND DEMOGRAPHIC FACTORS

THE MEDIUM AND LONG TERM EFFECT OF SOCIAL & DEMOGRAPHIC TRENDS ON
BUSINESS OUTCOMES AND THE ECONOMY

Social and demographic trend which affects the business strategies and the
performance of an economy covers the following areas:

 Population : can be explained under the following

i. Age structure
ii. Sex structure
iii. Family lifecycle
iv. Family size
v. Income
vi. Occupation
vii. Religion
viii. Race
ix. Nationality
x. Location(rural/ urban)

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 Social structures & class: affects consumer behavior also in terms of following
i. Power
ii. Income
iii. Educational attainment
iv. Status
v. Life style
 Taste and fashion: perception on product perceived benefit, desire on product
expected satisfaction level.

THE IMPACT OF CHANGES IN SOCIAL STRUCTURE, VALUES,ATTITUDE AND TASTES ON

ORGANISATIONS

 Innovative product development

 Enhanced service delivery
 Decline in market share

MEASURES GOVERNMENT CAN ADOPT IN RESPONSE TO CHANGES TO THE SOCIAL &

DEMOGRAPHIC TREND

i. Improved public utilities

ii. Increase the minimum wage
iii. Invest in new technology/ scientific research
iv. Changes in taxation policy
v. Changes in government policies

TECHNOLOGICAL FACTORS

Effect of technological change on the organization structure and strategy:

Technological change is happening at an increasing pace leading to cost

reduction, requiring organizations and their employees to respond quickly via
changes in products, manufacturing methods, business process, organization
structure and ways of workings, nature of supervision & performance assessment.
This has encouraged a move towards flexible job in flexible organizations.

A change in technology that has affected organization structure and strategy

includes:

 Computer networking such as distance travelling executives, overseas attitude

 Telecommuters such as working from home

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 Automation such as eliminating manual activities, digital information and
record keeping e.g ATM OR cash dispensers
 New method of communication and providing customer services
 Virtual organization:
i. Downsizing: refers to a term used to describe sacking, dismissing or
otherwise making redundant a substantial proportion of an organizations
workforce. Automation is usually used to replace workforce.
ii. Delayering: Is the reduction of the number of management levels from
bottom to top by reducing management levels e.g middle line jobs and
increase the span of control thus making organization flatter, fashionable
and economical via the adoption of automation, empowerment. The
continuous technological change have spurred organization to re-
evaluate the value that middle managers activities add to the company’s
product and services thus leading to increased self management at
operating level.
iii. Outsourcing: is simply obtaining work previously done by employees inside
the
organization from sources outside the organization causing organizations
to become flatter. This occurs in an attempt for organizations to focus on
strategically critical activities and value adding activities.

Types of outsourcing:

 Total
 Partial
 Ad-hoc
 Project Management

Advantage of outsourcing:

 Cost reduction
 Focus of management on areas to achieve competitive advantage
 Better concentration on value adding activities
 Specialist skills are available to the organization

Disadvantages:

 May not be cost effective

 Loss of control
 Loss of confidential information to competitors
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 Loss of competitive advantage

IMPACT OF IT AND IS DEVELOPMENT ON BUSINESS PROCESS

 Simplifications of process
 Removal of non value adding activities
 Removal of duplications
 Removal of intermediaries

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COMPETITIVE FACTORS

Factors that influence the level of competitiveness in an industry or sector can be

well explained by Porters five (5) forces and they include:

 Threat to entry: this refers to the barriers to new entrants into an industry which is
dependent on the strength of the threat and the response of the existing
competitors
 Suppliers bargaining power: this depends on the number of suppliers, their
dominance, how high is the cost of switching suppliers for customers, existence
of substitute, and income of customers, possibility of integrating forward.
 Buyers bargaining power: dependent on switching cost, customer’s income,
availability of information on market situation, existence of differentiation,
possibility of integrating backwards.
 Threat of substitute: availability of substitute goods
 Competitive rivalry: refers to the intensity of the competition in an industry
which is dependent on the market growth, if competitors differentiate their
product, level of intensity of sales promotion, advert, after sales.

Activities of an organization that affects its competitiveness

This area can be well explained by porter’s value chain analysis and porter’s
generic strategies. The competitiveness of an organization arises out of the way in
which the organization organizes and performs activities to add value which will
result in its competitive advantage over competitors.

The value chain describes activities in the organization that adds value and also
shows linkages between these activities within and outside the organization which
can be a source of competitive advantage.

Elements of the value chain

 Primary activities: these are the basic functions/activities in an organization

i. Inbound logistics: receiving, handling, storing( warehousing, transport,
inventory)

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 ii. Operations: processing: input to output activities such as production,
assembly, quality assurance.
iii. Outbound logistics: storage and distribution output to
customers/consumers
iv. Marketing & sales: activities to persuade create awareness of a
product or service such as advertising, promotion, market research.
v. Aftersales services: installation, repairing, maintenance, technical
assistance.

 Support activities: these are the secondary activities that aid the primary
activities
i. Procurement: acquisition of resource input
ii. Human resource management: recruiting, training, rewarding,
performance assessment e.t.c
iii. Technology development: in terms of process design, product design
and resources utilization.
iv. Firm infrastructure: activities relating to general administration,
accounting, & finance, legal & regulatory affairs, safety and security
and other overhead function.
VALUE NETWORK
These are various activities carried out by the supplier value chain, organization’s
value chain, distributor’s-retailer’s value chain down to customer’s value chains.
They usually include both tangible and intangible products.

MICRO ECONOMIC FACTORS

This is the branch of economics that studies the concept of demand and supply for
goods and services in an economy.

Supply and demand is perhaps one of the most fundamental concepts of

economics and it is the backbone of a market economy.
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Demand refers to how much (quantity) of a product or service is desired by buyers.
The quantity demanded is the amount of a product people are willing to buy at a
certain price; the relationship between price and quantity demanded is known as
the demand relationship.

Supply represents how much the market can offer. The quantity supplied refers to
the amount of a certain good producers are willing to supply when receiving a
certain price. The correlation between price and how much of a good or service is
supplied to the market is known as the supply relationship. Price, therefore, is a
reflection of supply and demand.

The concepts of demand and supply for goods and services

The Law of Demand

The law of demand states that, if all other factors remain constant, the higher the
price, the lower the quantity demanded. The amount of a good that buyers
purchase at a higher price is less because as the price of a good goes up, so does
the opportunity cost of buying that good. As a result, people will naturally avoid
buying a product that will force them to forgo the consumption of something else
they value more. The chart below shows that the curve is a downward slope.

A, B and C are points on the demand curve. Each point on the curve reflects a
direct correlation between quantity demanded (Q) and price (P). So, at point A,
the quantity demanded will be Q1 and the price will be P1, and so on. The demand
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relationship curve illustrates the negative relationship between price and quantity
demanded. The higher the price of a good the lower the quantity demanded (A),
and the lower the price, the more the good will be in demand (C). a fall in the
income of consumers will lead to the fall in demand of a normal good.

B. The Law of Supply

Like the law of demand, the law of supply demonstrates the quantities that will be
sold at a certain price. But unlike the law of demand, the supply relationship shows
an upward slope. This means that the higher the price, the higher the quantity
supplied. Producers supply more at a higher price because selling a higher quantity
at a higher price increases revenue.

A, B and C are points on the supply curve. Each point on the curve reflects a direct/
positive correlation/ relationship between quantity supplied (Q) and price (P). At
point B, the quantity supplied will be Q2 and the price will be P2, and so on.

C. Supply and Demand Relationship

Imagine that a special edition CD of your favorite band is released for $20. Because
the record company's previous analysis showed that consumers will not demand
CDs at a price higher than $20, only ten CDs were released because the
opportunity cost is too high for suppliers to produce more. If, however, the ten CDs
are demanded by 20 people, the price will subsequently rise because, according
to the demand relationship, as demand increases, so does the price. Consequently,
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the rise in price should prompt more CDs to be supplied as the supply relationship
shows that the higher the price, the higher the quantity supplied.

If, however, there are 30 CDs produced and demand is still at 20, the price will not
be pushed up because the supply more than accommodates demand. In fact
after the 20 consumers have been satisfied with their CD purchases, the price of the
leftover CDs may drop as CD producers attempt to sell the remaining ten CDs. The
lower price will then make the CD more available to people who had previously
decided that the opportunity cost of buying the CD at $20 was too high.

D. Equilibrium
When supply and demand are equal (i.e. when the supply function and demand
function intersect) the economy is said to be at equilibrium. At this point, the
allocation of goods is at its most efficient because the amount of goods being
supplied is exactly the same as the amount of goods being demanded. Thus,
everyone (individuals, firms, or countries) is satisfied with the current economic
condition. At the given price, suppliers are selling all the goods that they have
produced and consumers are getting all the goods that they are demanding.

Equilibrium occurs at the intersection of the demand and supply curve, which
indicates no allocative inefficiency. At this point, the price of the goods will be P*
and the quantity will be Q*. These figures are referred to as equilibrium price and
quantity.

In the real market place equilibrium can only ever be reached in theory, so the
26
prices of goods and services are constantly changing in relation to fluctuations in
demand and supply.

E. Disequilibrium
Disequilibrium occurs whenever the price or quantity is not equal to P* or Q*. i.e
equilibrium price and quantity
1. Excess Supply
If the price is set high above the equilibrium point, excess/ surplus supply will be
created within the economy and there will be allocative inefficiency.

Q2 is greater than Q1, too much is being produced and too little is being
consumed. The suppliers are trying to produce more goods, which they hope to
sell to increase profits, but those consuming the goods will find the product less
attractive and purchase less because the price is too high.
2. Excess Demand
Excess demand is created when price is set below the equilibrium price. Because
the price is so low, too many consumers want the good while producers are not
making enough of it.

27
In this situation, at price P1, the quantity of goods demanded by consumers at this
price is Q2. Conversely, the quantity of goods that producers are willing to produce
at this price is Q1. Thus, there are too few goods being produced to satisfy the
wants (demand) of the consumers. However, as consumers have to compete with
one other to buy the good at this price, the demand will push the price up, making
suppliers want to supply more and bringing the price closer to its equilibrium.
F. Shifts vs. Movement
For economics, the “movements” and “shifts” in relation to the supply and demand
curves represent very different market phenomena:
1. Movements
A movement refers to a change along a curve. On the demand curve, a
movement denotes a change in both price and quantity demanded from one
point to another on the curve. The movement implies that the demand relationship
remains consistent. Therefore, a movement along the demand curve will occur
when the price of the good changes and the quantity demanded changes in
accordance to the original demand relationship. In other words, a movement
occurs when a change in the quantity demanded is caused only by a proportional
change in price, and vice versa.

28
Like a movement along the demand curve, a movement along the supply curve
means that the supply relationship remains consistent. Therefore, a movement
along the supply curve will occur when the price of the good changes and the
quantity supplied changes in accordance to the original supply relationship. In
other words, a movement occurs when a change in quantity supplied is caused
only by a change in price, and vice versa.

2. Shifts
A shift in a demand or supply curve occurs when quantity demanded or supplied
changes even though price remains the same. Shifts in the demand curve imply
that the original demand relationship has changed, meaning that quantity
demand is affected by factors other than price. There could be either an
inward/leftward or outward or rightward shift in demand relationship which could
occur if, for instance, the product suddenly becomes the only type of product
available for consumption, reduction in taxation, fall in the price of substitute
goods, fall in consumers income.

29
Conversely, a shift in the supply curve implies that the original supply curve has
changed, meaning that the quantity supplied is affected by a factor other than
price. A shift in the supply curve would occur if, for instance, a natural disaster
caused a mass shortage of resources and manufacturers would be forced to
supply less of the product for the same price or a fall in production costs of good.

Elasticity of demand and the impact of substitute and complementary goods.

The degree to which a demand or supply curve reacts/responds to a change in

price is the curve's elasticity.

It is the degree of responsiveness of demand /supply to changes is price. Elasticity

varies among products because some products may be more essential to the
consumer. Products that are necessities are more insensitive to price changes
because consumers would continue buying these products despite price increases.
Conversely, a price increase of a good or service that is considered less of a
30
necessity will deter more consumers because the opportunity cost of buying the
product will become too high.

A good or service is considered to be highly elastic if a slight change in price leads

to a sharp change in the quantity demanded or supplied. Usually these kinds of
products are readily available in the market and a person may not necessarily
need them in his or her daily life.

An inelastic good or service is one in which changes in price witness only

modest/slight changes in the quantity demanded or supplied, if any at all. These
goods tend to be things that are more of a necessity to the consumer in his or her
daily life.

To determine the price elasticity of the supply or demand curves, we can use this
simple equation:

Elasticity = (% change in quantity / % change in

price)

How to interpreted price elasticity of demand

Price elasticity of demand is used to see how sensitive the demand for a good is to
a price change. The higher the price elasticity, the more sensitive consumers are to
price changes. A very high price elasticity suggests that when the price of a good
goes up, consumers will buy a great deal less of it and when the price of that good
goes down, consumers will buy a great deal more. A very low price elasticity implies
just the opposite, that changes in price have little influence on demand.

 If PEoD > 1 then Demand is Price Elastic (Demand is sensitive to price

changes)
 If PEoD = 1 then Demand is Unit Elastic

31
  If PEoD < 1 then Demand is Price Inelastic (Demand is not sensitive to price
changes)

The demand curve is a negative slope, and if there is a large decrease in the
quantity demanded with a small increase in price, the demand curve looks flatter,
or more horizontal. This flatter curve means that the good or service in question is
elastic.

EXAMPLE

If current price of beer is $20 but was previously $25 and at the current price the
quantity demanded is 50units while at the old price the quantity demanded was
40. Calculate the price elasticity of demand.

Elasticity= new quantity – quantity

Old quantity

New price – old price

Old price

Elasticity = 50 – 40
40

20 – 25
25
Price elasticity of demand = 1.25

Implies that the quantity of beer demand is sensitive to the changes in its price, in
this case it is elastic because it is greater than 1, so change in price will lead to less
demand for beer.

32
Meanwhile, inelastic demand is represented with a much more upright curve as
quantity changes little with a large movement in price.

ELASICITY OF SUPPLY

The Price Elasticity of Supply measures the rate of response of quantity demand due
to a price change.

If you've already read The Price Elasticity of Demand and understand it, you may
want to just skim this section, as the calculations are similar. (Your course may use
the more complicated Arc Price Elasticity of Supply formula. If so you'll need to see
the article on Arc Elasticity) We calculate the Price Elasticity of Supply by the
formula:

PEoS = (% Change in Quantity Supplied)/(% Change in Price)

How Do We Interpret the Price Elasticity of Supply?

The price elasticity of supply is used to see how sensitive the supply of a good is to a
price change. The higher the price elasticity, the more sensitive producers and
sellers are to price changes. A very high price elasticity suggests that when the
price of a good goes up, sellers will supply less of the good and when the price of

33
that good goes down, sellers will supply more. A very low price elasticity implies just
the opposite, that changes in price have little influence on supply.

To determine the elasticity of the good supplied answers to questions "Is the good
price elastic or inelastic” must be answered using the following rule of thumb:

 If PEoS > 1 then Supply is Price Elastic (Supply is sensitive to price changes)
 If PEoS = 1 then Supply is Unit Elastic
 If PEoS < 1 then Supply is Price Inelastic (Supply is not sensitive to price
changes)

If price elasticity of supply is say 3.6, so our good is price elastic and thus supply is
very sensitive to price changes.
If a change in price results in a big change in the amount supplied, the supply
curve appears flatter and is considered elastic. Elasticity in this case would be
greater than or equal to one.

On the other hand, if a big change in price only results in a minor change in the
quantity supplied, the supply curve is steeper and its elasticity would be less than
one.

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A. Factors Affecting Demand Elasticity
There are three main factors that influence a demand's price elasticity:
1. The availability of substitutes - This is probably the most important factor
influencing the elasticity of a good or service. In general, the more substitutes, the
more elastic the demand will be. For example, if the price of a cup of coffee went
up by $0.25, consumers could replace their morning caffeine with a cup of tea. This
means that coffee is an elastic good because a raise in price will cause a large
decrease in demand as consumers start buying more tea instead of coffee.

However, if the price of caffeine were to go up as a whole, we would probably see

little change in the consumption of coffee or tea because there are few substitutes
for caffeine. Most people are not willing to give up their morning cup of caffeine no
matter what the price. We would say, therefore, that caffeine is an inelastic
product because of its lack of substitutes. Thus, while a product within an industry is
elastic due to the availability of substitutes, the industry itself tends to be inelastic.
Usually, unique goods such as diamonds are inelastic because they have few if any
substitutes.

2. Amount of income available to spend on the good - This factor affecting

demand elasticity refers to the total a person can spend on a particular good or
service. Thus, if the price of a can of Coke goes up from $0.50 to $1 and income
stays the same, the income that is available to spend on coke, which is $2, is now
enough for only two rather than four cans of Coke. In other words, the consumer is
35
forced to reduce his or her demand of Coke. Thus if there is an increase in price
and no change in the amount of income available to spend on the good, there will
be an elastic reaction in demand; demand will be sensitive to a change in price if
there is no change in income. For inferior goods the demand for such goods will fall
as households income rises.

3. Time - If the price of say cigarettes goes up $2 per pack, a smoker with very few
available substitutes will most likely continue buying his or her daily cigarettes. This
means that tobacco is inelastic because the change in price will not have a
significant influence on the quantity demanded. However, if that smoker finds that
he or she cannot afford to spend the extra $2 per day and begins to kick the habit
over a period of time, the price elasticity of cigarettes for that consumer becomes
elastic in the long run.

INCOME ELASTICITY
The Income Elasticity of Demand measures the rate of response of quantity
demanded due to a rise (or lowering) in a consumer’s income. The formula for the
Income Elasticity of Demand (IEoD) is given by:

IEoD = (% Change in Quantity Demanded)/(% Change in Income)

How Do We Interpret the Income Elasticity of Demand?

Income elasticity of demand is used to see how sensitive the demand for a good is
to an income change. The higher the income elasticity, the more sensitive demand
for a good is to income changes. A very high income elasticity suggests that when
a consumer's income goes up, consumers will buy a great deal more of that good.
A very low price elasticity implies just the opposite, that changes in a consumer's
income has little influence on demand.

Income elasticity is dependent on the nature of the good, "Is the good a luxury
good, a normal good, or an inferior? To answer that uses the following rule of
thumb:

 If IEoD > 1 then the good is a Luxury Good and Income Elastic
36
  If IEoD < 1 and IEOD > 0 then the good is a Normal Good and Income
Inelastic
 If IEoD < 0 then the good is an Inferior Good and Negative Income Inelastic

If income elasticity of demand of a particular good is say 0.8 so our good is income
inelastic and a normal good and thus demand is not very sensitive to income
changes.

CROSS ELASTICITY OF DEMAND

Cross-Price Elasticity of Demand measures the rate of response of quantity

demanded of one good, due to a price change of another good. If two goods are
substitutes, we should expect to see consumers purchase more of one good when
the price of its substitute increases. Similarly if the two goods are complements, we
should see a price rise in one good cause the demand for both goods to fall. The
common formula for the Cross-Price Elasticity of Demand (CPEoD) is given by:

Cross Price Elasticity of Demand = (% Change in Quantity Demand for Good X)

(% Change in Price for Good Y)

How Do We Interpret the Cross-Price Elasticity of Demand?

The cross-price elasticity of demand is used to see how sensitive the demand for a
good is to a price change of another good. A high positive cross-price elasticity tells
us that if the price of one good goes up, the demand for the other good goes up
as well. A negative tells us just the opposite, that an increase in the price of one
good causes a drop in the demand for the other good. A small value (either
negative or positive) tells us that there is little or no relationship between the two
goods.

The cross price elasticity is dependent on if the goods "the two goods are
complements or substitutes?" you use the following rule of thumb:

37
  If CPEoD > 0 then the two goods are substitutes
 If CPEoD =0 then the two goods are independent (no relationship between
the two goods
 If CPEoD < 0 then the two goods are complements

If we calculated the cross-price elasticity of demand to be 2.4005, so our two goods

are substitutes as it is greater than 0.

Types of market

In some industries, there are no substitutes and there is no competition. In a market

that has only one or few suppliers of a good or service, the producer(s) can control
price, meaning that a consumer does not have choice, cannot maximize his or her
total utility and has had very little influence over the price of goods.

1. A monopoly is a market structure in which there is only one producer/seller for a

product. In other words, the single business is the industry some factors are
responsible for it which include:

 Entry into such a market is restricted due to high costs or other impediments,
which may be economic, social or political.
 A government can create a monopoly over an industry that it wants to
control, such as electricity.
 Another reason for the barriers against entry into a monopolistic
industry is that oftentimes, one entity has the exclusive rights to a natural
resource. For example, in Saudi Arabia the government has sole control over
the oil industry.
 A monopoly may also form when a company has a copyright or patent that
prevents others from entering the market. Pfizer, for instance, had a
patent on Viagra.

38
1. In an oligopoly market, there are only a few firms/sellers that make up an
industry. This selected group of firms have control over the price and, like a
monopoly, an oligopoly has high barriers to entry. The products that the
oligopolistic firms produce are often nearly identical and, therefore, the
companies, which are competing for market share, are interdependent as a
result of market forces. Assume, for example, that an economy needs only
100cars. Company X produces 50 cars and its competitor, Company Y,
produces the other 50. The prices of the two brands will be interdependent
and, therefore, similar. So, if Company X starts selling the cars at a lower price,
it will get a greater market share, thereby forcing Company Y to lower its
prices as well.

2. Perfect competition is characterized by many buyers and sellers, many

products that are similar in nature and, as a result, many substitutes. Perfect
competition means there are few, if any, barriers to entry for new companies,
and prices are determined by supply and demand. Thus, producers in a
perfectly competitive market are subject to the prices determined by the
market and do not have any leverage. For example, in a perfectly
competitive market, should a single firm decide to increase its selling price of
a good, the consumers can just turn to the nearest competitor for a better
price, causing any firm that increases its prices to lose market share and
profits.

3. Imperfect competition is described as a market without any attribute of

perfection. Practically, all most all market are not perfect but the level of
imperfection differs from each other.
4. Monopolistic competition is characterized with numerous producers of goods
with an attempt to distinguish their goods from others with different products
differentiation strategies. In these market customers tend to identify each
producer with some unique features. There are few barriers to entry/exit in
monopolistic competition compare to Oligopolistic competition.

39
Economic behavior of costs in the short and long term

Cost behavior is the sensitivity of costs to changes in production or sales volume/

activity level. The range of output or sales over which cost behavior patterns remain
unchanged is called the relevant range. The relationship between revenues, costs,
and production or sales volumes can be an important element in understanding
the activity in a business. These relationships are typically referred to as cost volume
profit [CVP] relationships.

Fixed costs: Fixed costs are constant in total over the relevant range. Fixed costs per
unit often cause difficulties for students because of the inverse relationship between
fixed costs and increases in production. As production increases, total fixed costs
stay the same within the relevant range, but since we are dividing a constant
numerator [total fixed costs] by a progressively larger denominator [total
production or sales], the resulting costs per unit become smaller and smaller. Fixed
costs include things like rent, insurance premiums, salaries, depreciation and
property taxes.

Variable costs: Variable costs vary in total with volume/ activity level, but are
constant per unit within the relevant range. Total variable costs for a given situation
are equal to the number of units multiplied by the variable cost per unit. Variable
costs include things like labor and materials. Some overhead [indirect costs] such as
indirect labor, supplies and some utilities are also variable. Note that the graph of a
variable cost is a straight line with positive slope, beginning at the origin, the slope
of the variable cost line is the variable cost per unit.

Mixed costs: A mixed costs contains both fixed and variable elements. There are a
variety of procedures that can be employed to separate the fixed and variable
components. The easiest is to use two points on the total cost line to derive the
slope and intercept. This is rough and ready and may yield inaccurate results.
Regression analysis is a more accurate procedure which also has the benefit of
providing measures of goodness of fit; these tell us how well the derived equation
fits the observed data. The Y-intercept of a mixed cost line is the total fixed costs.

40
The slope is the variable cost per unit, and any point on the line represents the total
cost at the indicated volume.

SECTION B: BUSINESS ORGANISATION STRUCTURE, FUNCTIONS AND

GOVERNANCE

 THE FORMAL AND INFORMAL BUSINESS ORGANIZATION

 BUSINESS ORGANISATIONAL CULTURE AND DESIGN
 ORGANISATIONAL CULTURE IN BUSINESS
 COMMITTEES IN BUSINESS ORGANISATIONS
 GOVERNANCE AND SOCIAL RESPONSIBILTY IN BUSINESS

THE FORMAL AND INFORMAL OBUSINESS ORGANISATION

Informal organization is a kind of organisation that evolves from a network of
relationships that exist within an organization. The relationships arise due to common
interest or friendships. Thus within a formal organisation, an informal organisation will
be present and all organisation have some mix of the two.

Reasons for the informal organisation

41
  Individuals’ goals may differ from the organisation – workers with the same
goals gravitate together
 Personal relationships may arise between individuals
 A group of individuals may share common interest, e.g. football and so form
an informal group
 Certain members of the organisation may be natural leaders and so lead a
group, even though they have no formal managerial place
 Workers find new ways of doing things which save them time

ADVANTAGES AND DISADVANTAGES OF INFORMAL ORGANISATION

Advantages
 Better motivation
 Better communication
Disadvantages
 Inefficient Organisation
 Opposition to change can
be intensified
 The ‘grapevine effect’

The impact of the informal organisation on the business

 The informal organisation can either enhance or hold back the business. Thus
managers need to be aware of the informal structure and ensure that they:
 Adapt the formal structure to complement the informal one
 Maintain a looser formal structure so that informal structure can thrive
 Take account of informal structure in decision making

BUSINESS ORGANISATION STRUCTURE AND DESIGN

Geographical departmentation: Where the organisation is structured according to

geographic area, it’s based on the reality that adequate control is maintained at
the Head office while other activities are affected in other locations.

Advantages Disadvantages
 Enables geographic growth  Potential loss of control

42
  Clear responsibility for areas  Lack of goal congruence
 Training of general managers  Duplication
 Top management free to  Specialists may feel isolated
concentrate on strategic matters  Allocation of central costs can be a
problem

Functional departmentation: It involves grouping together people who do similar

tasks or activities such as finance, marketing, procurement e.t.c.
Advantages Disadvantages
 Economies of scale  Empire building
 Standardization  Slow decision making
 Specialists more comfortable  Conflicts between functions
 Career opportunities  Cannot cope with diversification

Hybrid Structures: It involves a mix of departmentation types and also ensure

specialized attention is given to key/unique functions/departments.
Advantages Disadvantages
 Enables growth  Potential loss of control
 Clear responsibility for  Lack of goal congruence
product/divisions  Duplication
 Training of general managers  Specialists may feel isolated
 Easily adapted for further  Allocation of central costs can be a
diversification problem
 Top management free to
concentrate on strategic matters

Matrix structure: This usually combines a job-based group with a project-based

structure, so employees from various departments form a group to achieve a
specific target. It involve cross functional boundaries.

Advantages Disadvantages

43
  Advantages of both  Dual command and
functional and divisional conflict
structures  Dilution of functional
 Flexibility authority
 Customer orientation  Time-consuming meetings
 Encourage teamwork and  Higher admin costs
the exchange of opinions
and expertise

ENTREPRENEURIAL: This type of structure is built around the owner manager and is
typical of small companies in the early stages of their development. Example is
owner/managed business.
Advantages Disadvantages
 Fast decision making  Lack of career structure
 More response to market  Dependent on the capabilities
 Goal congruence of the manager/owner
 Good control  Cannot cope with
 Close bond to workforce diversification/growth

Customer departmentation: This is a type of structure created based on types of

customer, or identified target market segment.
Product/brand departmentation: This is another type of department structured on
the basis of product/brand lines. It facilitates specialization, responsibility and
enhances coordination and control.
THE SHAMROCK ORGANISATION: It is also known as the flexible firm. It consist of
professional core, self employed professionals, contingent work force and
consumers to support the core work force.

DIVISIONALISATION: This is the division of a business into autonomous regions or

product businesses, each with its own revenues, expenditures and capital asset
purchase programmes, and therefore each with its own profit and loss responsibility.

44
VIRTUAL ORGANISATION: This is the kind of organization without any need of
physical presence or appearance of all parties concerned such as different
individuals, teams, stakeholders etc. The structure is based on the reliance of the
internet which saves cost such as rent, travelling etc.

HOLLOW ORGANISATION: This is the separation of core and non-core competence

by the management of the company. All non-core areas are outsourced to
external vendor in other to allow full concentration of the management on the
critical/core areas.

MODULAR ORGANISATION: This is an environment where different activities of the

organization is outsourced to different reliable suppliers and the output of such are
been coordinated by few members of the organization.

BOUNDARYLESS ORGANISATION: This is an organization where is no hindrance to the

relationship among all stakeholders to the organization (suppliers, customers,
society etc) known as external boundary and also no barrier to relationship among
different functions, units, teams & individuals known as internal boundary.
Moreover, this can be successful with the use of virtual, modular, hollow
organizations.

BASIC CONCEPT OF ORGANISATION STRUCTURES

 Separation of ownership from management
 Safeguards/controls should be put in place in order to ensure that managers
are managing the business in the best interest of owners
 Scalar chain: this is defined as the line of authority which can be traced up or
down the chain of command, and thus relates to the number of
management levels within an organisation
 Span of control: a manager’s span of control is the number of people for
whom he or she is directly responsible
A tall structure has many managerial levels (hierarchies) and a ‘narrow’ span of
control
A flat structure has few managerial levels and a ‘wide’ span of control

45
Factors influencing the span of control
 Nature of the work: the more repetitive the work, the wider the span of
control
 Type of personnel: the better the managers and personnel are, the wider the
span of control
 Location of personnel: the more widely spread the personnel the narrower
the span of control
 Managerial style
 Level of organizational support for routine tasks
 The dangerous nature of the work

CENTRALISATION AND DECENTRALISATION

Another method of analyzing structures is by reference to the level at which
decisions are made;
 In a Centralized structure, the upper levels of an organization’s hierarchy
retain the authority to make decision
 In a decentralization structure, the authority to make decisions is passed
down to units and people at lower levels

Factors that will affect the amount of decentralization are:

 Management style
 Ability of management/employees
 Location spread
 Size of the organization/scale of activities

THE ADVANTAGES AND DISADVANTAGES OF DECENTRALIZATION ARE:

Advantages Disadvantages
 Senior management free to  Loss of control by senior
concentrate on strategy management
 Better local decisions due to local  Dysfunctional decisions due to a

46
 expertise lack of goal congruence
 Better motivation due to  Poor decisions made by
increased training and career inexperienced managers
path  Training costs
 Quicker responses /flexibility, due  Duplication of roles within the
to smaller chain of command organization
 Extra costs in obtaining information

CHARACTERISTICS OF STRATEGIC, TACTICAL AND OPERATIONAL LEVELS IN THE

ORGANISATION

 Strategic level of management: at this level decision is made by senior / top

management, in terms of direction/strategy, policies for the overall organization.
Usually long term focus, internal and external focus.
 Tactical level: decisions at this stage is made by middle level managers to ensure
that corporate goals set at the strategic level are achieved, strategies are
implemented, ensures allocation of resources and improvement of business
processes, budgetary process. Usually medium term focus or implication
 Operational level: decisions are made by supervision and operational staffs who
perform routine activities to implement tactical plans. Decisions made at this level
have short term focus or implication and managers are concerned with the day-to-
day activities of the organization that ensures the strategic goals are achieved.

ROLES AND FUNCTION OF THE MAIN DEPARTMENTS IN AN ORGANISATION

1. Research and development: supports the organization strategy, it can be

related to a new product, product development or improvement and
market research (competition, suppliers, and customers).

Process research relates to improving the way products are made or services
rendered in terms of processes, productivity, planning and quality issues.

47
 Research and development also enables the identification of the feasibility of
a product, service or project (commercial, technical, financial, operational
and social feasibility).

2. Purchasing department: refers to the acquisition of material resources and

services for the organization. It is of strategic importance to the organization
as it is linked to the following:
 Cost: reduction of cost, suppliers prices and their proximity to the organization
 Quality: input affects output
 Strategy: for instance in a retailing company purchasing is the key

Functions:

Inputs for production and administrative purpose:

i. Cost control leading to value for money and quality

ii. Liaise with research and development
iii. Suppliers management
iv. Access to information on availability, quality, prices
v. Inventory management

Purchasing mix includes delivery, quality, quantity and price

3. Production department: production refers to the creation or manufacture of

products and services. Production refers to the process of converting input
into output.
Functions:
i. Production and control
ii. Quality management
iii. Maintenance
iv. Environmental management
v. Customer satisfaction
4. Service operation or provision: service is an activity that has no physical
substance which is provided to individuals but does not result to ownership
(restaurant, finance services, education). Characteristics of services:
 Intangibility
 Simultaneity

48
  No ownership is passed
 Perishability
 Heterogeneous

Service operations are carried out by departments such as customer service

department, after sales services, maintenance department and their functions are
as follows:

 Reliability of organizations product/service is enhance

 Improves responsiveness to customers
 Communication with customers is enhanced
 Builds company’s image
 Courtesy to customers
 Enhances better understanding of customers needs
5. Marketing department: is the department which identifies, anticipates and
ensures customers satisfaction. Functions include:
 Involved in research and analysis( demographic distribution, customers needs-
taste-perception)
 Management of brand
 Implements marketing programmes
 Marketing plans
 Managing marketing teams
 Measuring effectiveness
6. Administration department: this department is involved in functions that do
not fall under the afore-mentioned departments, usually miscellaneous
activities. Functions can be summarized:
Ensures proper management of organization activities such as management of
company vehicles, purchase and usage of stationeries, confectionaries,
lightings/power, office space/rentals and other overhead. Sometimes selling
and distribution activities can be part of the departments function.
7. Finance department functions includes the following:
 Raising funds( source of finance)
 Recording of transactions( accounting)
 Providing information to managers to enable them make decisions.
49
 Reporting to stakeholders (financial statement, management accounting)
 Treasury function
 Tax function
 Payroll

50
OFFSHORING AND SHARED SERVICE APPROACH

Offshoring is when an organization sub-contracts her internal activities to vendors in

oversea countries either to maximize cheaper labour cost or penetrate the some
oversee markets. Meanwhile, it might expose the organization to some barriers such
as language difference, loss of customer and so on.

Shared Service Approach is when an identified single service centre is created to

provide quality service to several units across the organization within an
acceptable service level agreement the same way an external vendor would do.

It provide various benefits such as efficient use of resources, cost saving and
protection of confidentiality of information. Meanwhile, its drawback include lack of
job diversity and could be more generic rather than be tailored to some specific
functions

ORGANIZATIONAL CULTURE IN BUSINESS

Culture is 'the collective programming of the mind which distinguishes the members
of one category of people from another' (Hofstede).

It may be identified as ways of behaving, and ways of understanding, that are

shared by a group of people.

The collection of traditions, values, policies, beliefs and attitudes that constitute a
pervasive context for everything we do and think in an organization’ (Mullins)

• “A pattern of beliefs and expectations shared by the organization’s members,

and which produce norms which powerfully shape the behaviour of individuals and
groups in the organization’’ (Schwartz & Davies)

• Generally it is said to be ‘The way we do things around here’

FACTORS THAT SHAPE CULTURES OF THE ORGANISATIONAL

The following factors have a great influence on the organizational culture:

A nation, region or ethnic group

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 Women versus men ('gender culture')
A social class (e.g 'working class culture')
A profession or occupation
An organization
ELEMENTS OF CULTURE

The key elements or aspects of an organizational culture are:

(i) Customs: A set of norms, unwritten rules which are acceptable behaviour.
(ii) Symbols or symbolic actions: it includes signs of success and status,
corporate logos, i.d badges e.t.c
(iii) Shared values and beliefs: These are attitudes of the company towards:
quality, customer, mistakes, risk and also include slogans, mottos e.t.c
(iv) Artefacts: This refers to physical attributes of a culture such as buildings,
decoration, trophies, and dress rules, style of relationship and types of
personnel employed.
(v) Rituals: these are the periodic ceremonies, celebrations and formal
repeated behaviour.
Schein argues that the first leaders of a company create the culture of an
organization and. once the culture exists; the attributes for later leaders are
determined by the culture. In order to try and define culture, Schein described
three levels:

Artefacts: refers to physical attributes of a culture


Espoused values: refers to goals, missions, symbols of an organization

Basic assumptions and shared values: refers to unseen values or that exist

in an unconscious level.
Charles Handy/Harrison has suggested that organizations in general terms, be
described in terms of the relationship between their structure and culture.

These types of culture include:

The Power/Club Culture (ZEUS):

 Culture: - Where an organization is been controlled or influenced by the

owner, founder or a key central figure.
 Structure: - An individual has a direct power over other members of the
company and it usually fits into small organizations.
 The Role Culture (APOLLO):
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  Culture: - Authority and power can only be exercised through individual
positions and functions
 Structure: - It is based on a classical, rational and bureaucratic
organization which has a stable, formalized and slow-changing
environment which has too much rules, procedures and protocols.

 The Task Culture(ATHENA):

 Culture: - it focuses on solving problems, project completion, experts and
professionalism is highly recognized.
 Structure: - it operates a horizontal, flexible and team based structures.
 The Person or Existentialist Culture (DIONYSUS):
 Culture:- The purpose of establishing the company is to satisfy and
enhance and the interest of the individuals that form the company
 Structure: - The directors, managers is responsible for the facilitation and
administration of the company.
MANIFESTATIONS OF CULTURE IN AN ORGANISATION

Attitudes to quality
Attitudes to risk
Attitudes to the customer
Attitudes to technology
Management style
Freedom for subordinates to show initiative
How formal the organization structure is
Office layout
Symbols, legends, corporate myths
The type of people employed
Communication: are senior managers approachable?
CULTURES & MANAGERIAL ACTIVITIES

The matching of Charles Handy Cultural types with Robert Anthony management
hierarchy:

 Power Culture = Strategic management (for direction setting)

 Task Culture = Tactical management (for mobilization of resources)

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  Role Culture = Operational management (for routine and daily activities)

THE HOFSTEDE MODEL

The Hofstede model describes four main dimensions of difference between national
cultures, which impact on all aspects of management and organizational
behaviour such as:

Motivation
Team working
Leadership style
Conflict management
HR policies.
Different countries have different ways of doing business, and different cultural
values and assumptions which influence business and management styles.
The four main dimensions of difference between national cultures include:

Power Distance These describe the situation where unequal distribution of power is
accepted which could be either high or low.

 High PD cultures:- where there is too much of centralization, a top-down

chain of command and closer supervision. Subordinates have little
expectation of influencing decision
 Low PD cultures;- where there are more decentralization, flatter
organizational structures and encourages employee involvement in
decision making.

Uncertainty Avoidance:- These describe the situation where employee prefers an

environment that has security, order and control compared to the one with
ambiguity, uncertainty and change.

 High UA cultures:- Where there employee has respect for control, written
rules, regulations, specialist and standardization. It’s linked to a task structure
where work ethics is considered strong.

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  Low UA cultures;-There is less task structure and written rules with more
tolerance of risk, dissent, conflict and deviation from norms. It encourages
employee’s flexibility and creativity.

Individualism/Collectivism:- These is the extent to which people believes in the “I”

or “WE” identity or achievement.

 High individualism/high collectivism:- These is where the company is

seen as an individual, individual initiative and personal achievement is
highly prized and respected than team.
 Low individualism/high collectivism;-Where the company is seen to
embrace team work, as a family and put a great emphasis on
employee interest.

Masculinity/Feminity: - the extent to which social gender roles is distinct.

 High masculinity/Low feminity:-These exist where gender roles are highly

discriminated with opportunity only confined to the Men to partake in
competition, decision making while the Women are meant to focus on
relationship, tenderness.
 Low masculinity/High feminity: - These reduce the gender roles and
discrimination where both Men and Women are allowed to behave and
participate in organization activities without any discrimination.

COMMITTEES IN BUSINESS ORGANISATION

They are key part of organizational communicational processes, which may consist
entirely of executives or may be instruments for joint consultation between
employers and employees.

Types of committees:

Executive committee: board of directors usually appointed by the

shareholders
Standing committee: deals with routine issues( permanent committee)
Adhoc committee: formed for a task such as fact finding and are
dissolved after the task is completed.

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 Sub-committee: a subsection of a committee to relieve the main
committee
Joint committee: is a combination of two or more committees.
Management committee: consist of some executive members at some
levels.

Purpose of these committees:

Contributes to strategy and new ideas

Means of communicating the views of other parties and for decision
making.
Pools of expertise
Coordination of activities
Representation of interest group

Advantages:

Pooled power and authority allows for fast decision making

Delegation of power and authority to sub-committee
Delay tactics to gain time to solve a problem

Disadvantages:

Cost implication
Undue time wastage as management time is spent on committee
meetings than on the job
Possible incompetence of members in handling central issues
May cause delay in taking decisions during emergency or crisis situation.

ROLE OF CHAIRMAN AND SECRETARY

Chairman

Set agenda for meetings

Leadership of the organization, committee.
Represents the shareholders interest and oversees the directors duties and
the activities of committees they head

Characteristics of a chairman:

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 Impartial
Vast knowledge covering different areas
Use of judgments & discretion
Punctuality
Good communication skills.

Secretary

 Fixing meeting date, location, time

 Keeping minutes
Implementing and communicating decisions.

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CORPORATE GOVERNANCE & SOCIAL RESPONSIBILITY IN BUSINESS

Good corporate governance involves risk management and internal control,

accountability to stakeholders and other shareholders and conducting business in
an ethical and effective way. (Corporate governance is the system by which
organizations are directed and controlled)

PRINCIPLES OF GOVERNANCE

The report on corporate governance is based around the principles of integrity,

accountability, Independence and good management.

Moreover, there are different views associated with the ownership and
management of organization such as:

(A.) Stewardship theory- views the management of an organization as the stewards

of its assets, charged with their employment and deployment in ways consistent
with the overall strategy of the organization and member/owners have the right to
dismiss their stewards if they are dissatisfied.

(B.) Agency theory- views the management of an organization as an agent,

looking after the performance of the company only where its goals are co-incident
with their own.

(C.) Stakeholder theory - that management has a duty of care, not just to the
owners of the company in terms of maximizing shareholder value, but also to the
wider community of interest, or stakeholders.

ELEMENTS INVOLVED IN CORPORATE GOVERNANCE

 To promote integrity
 Aiding effective management through satisfying strategic objectives
 To minimize risk ( legal, finance, reputation)
 To maintain the independence among the E.D’s, NED’s, internal and external
auditors.
 To fulfill responsibilities to all stakeholders in order minimize potential conflicts of
interest

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 To establish clear accountability at senior levels within an organization
 To provide accurate and timely financial report to stakeholders about the true
and balanced picture of the organization
 To encourage more proactive involvement of stakeholders in management
through voting or other mechanisms.

THE DRIVING FORCES OF GOVERNANCE DEVELOPMENT

 An increasing number of high profile corporate scandals

 The differential treatment of domestic and foreign investors
 Increasing internationalization and globalization. (More of investment outside
home countries.
 Issues concerning financial reporting were raised by many investors and were
the focus of much debate and litigation.
 Cultural significance which affects the characteristics of individual countries may
have a significant influence
Case Study

FEATURES OF POOR CORPORATE GOVERNANCE

 Lack of involvement of board such as failure to carry out proper oversight is due
to a lack of information being provided
 Domination by a single individual: acting as CEO/MD and Chairman of the
board.
 Lack of independent scrutiny: by either or both the internal and external
auditors.
 Lack of adequate control function: weak internal audit unit and lack of
technical knowledge
 Lack of supervision: these could result to incompetence, negligence or
fraudulent activity from employees
 Emphasis on short-term profitability: getting results can lead to the concealment
of problems or errors, or manipulation of accounts to achieve desired results.
 Lack of contact with shareholders
 Misleading accounts and information
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 RISKS AND PROBLEMS OF A POOR CORPORATE GOVERNANCE

Clearly the ultimate risk is of the organization making such large losses that
bankruptcy becomes inevitable. The organization may also be closed down as a
result of serious regulatory breaches, for example misapplying investors' monies.

REPORTS ON CORPORATE GOVERNANCE

Country Report Aspect Code

United Cadbury Corporate governance Combined code 1998

kingdom issues
Hampel (every company listed on
the London Stock
Greenbury
Exchange are required
Remuneration of
to comply)
directors
Others
Turnbull

Smith
Risk and internal control
Higgs
Role of audit committee
Unity
Role of non- executive
director

Embracing the social,

environmental and
economic activities

USA Improving accuracy and Sarbanes-Oxley Act 2002

reliability of corporate
Established the PCAOB-
disclosure
to protect stakeholders
Placing accountability
for senior management

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ROLE OF THE BOARD

(A.) Scope of role: To define the purpose of the company and the values by
which the company will perform its daily existence and to identify the
stakeholders relevant to the business of the company. The board must then
develop a strategy combining all these factors and ensure management
implements that strategy such as:
 Investments, capital projects, bank borrowing facilities, loans
 Merger and acquisition
 Monitoring the chief executive officer
 Overseeing strategy
 Monitoring risks and control systems
 Monitoring the human capital aspects of the company in regard to
succession, morale, training, remuneration etc.
 Ensuring that there is effective communication of its strategic plans, both
internally and externally.
(B.) Attributes of directors: There should be a mix of expertise and a balance
between ED’s and also in terms of relevant expertise in industry, company,
functional area and governance.

 Training of directors: for both new and old to achieve knowledge and skills
required
 Nomination committee: need for continuity and ensure balance of the board
 Recommendation and oversee appointment to the board.

(C.)Possession of necessary information- directors need to satisfy themselves that

they have appropriate information of sufficient quality to make sound judgments.

These include both qualitative and quantitative financial and non-financial

information.

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(D.) Performance of board-There should be a periodic appraisal of the:

 Board
 Chairman
 CEO .All must be linked to remuneration process.
(E.) Increased accountability and responsibility: A failure resulting to legal action
and dismissal because the corporate governance standards have raised public
expectations of directors' conduct, and widened the range of stakeholders taking
an interest in a company's governance.

(F.) Division of responsibilities: It is most simply achieved by separating the roles of

Chair and chief executive which should be held by two different people.

This division has not been made mandatory in the UK. The Cadbury report
recommended that if the posts were held by the same individual, there should be a
strong independent element on the board with a recognized senior member.

NON-EXECUTIVE DIRECTORS (Higgs report)

Non-executive director is a director that has no executive (managerial)

responsibilities.

ROLE OF NON-EXECUTIVE DIRECTORS

A. Strategy role: They contribute, challenge and champion the direction of

the organization strategy
B. Performance role: They scrutinize the performance of management in
meeting goals and objectives, and monitor the reporting of performance.
C. Risk role: They ensure there is a sound financial controls, accurate records
and a robust risk management system are put in place
D. People role (Directors and managers): They are responsible for
determining appropriate levels of remuneration, appointment and
removal of senior managers.
ADVANTAGES OF NON-EXECUTIVE DIRECTORS

 External experience and knowledge which executive directors do not

possess.
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 Wider perspective than executive directors who may be more involved in
detailed operations. FORWARD
 Act as a comfort factor for third parties such as investors or suppliers.
 Provide strong, independent element on the board(running board effectively
and confidant for chairman and other directors)
 Enhance the independence of both internal and external auditors.
 High Sheriff' (if necessary taking steps to remove the Chair or chief executive).

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 PROBLEMS WITH NON-EXECUTIVE DIRECTORS

 Lack of independence
 They may lack required expertise and skills
 Lack of quality time to the organization business
 Difficulties in imposing their views upon the board.
NUMBER OF NON–EXECUTIVE DIRECTORS

Cadbury report:

'The board should include non-executive directors of sufficient character and

number for their views to carry significant weight.'

New York Stock Exchange rules now require listed companies to have a majority of
non-executive directors.

INDEPENDENCE OF NON-EXECUTIVE DIRECTORS

Those suggested by the corporate governance reports include:

1. They should have no business, financial or other connection with the company
2. They should not take part in share option schemes and their service should not
be pensionable.
3. There should be a specified appointments term and reappointment should not
be automatic.
REMUNERATION (Green bury committee)

Directors' remuneration should be set by a remuneration committee consisting of

independent non executive directors.

The following principles are good summary of what remuneration policy should
involve:

 Any form of bonus should be related to measurable performance or

enhanced shareholder value
 Directors' remuneration should be set by independent members of the board
 There should be full transparency of directors' remuneration including pension
rights in the annual accounts
RISK AND INTERNAL CONTROL (Turnbull committee)

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 The following are the recommended policies set for organizations risk management
and internal control systems: Guidelines (1999)

 Have a defined process for the effectiveness of internal control

 Review regular reports on internal control
 Consider key risks and how they have been managed
 Check the adequacy of action taken to remedy weaknesses and incidents
 Consider the adequacy of monitoring
 Conduct an annual assessment of risks and the effectiveness of internal
control
 Make a statement on this process in the annual report

INTERNAL CONTROL AND AUDIT COMMITTEES (Smith Report))

The main duties of the audit committee include:

 Review of financial statements and systems

 Liaison with external auditors
 Review of internal audit
 Review of internal control
 Review of risk management
 Investigations
BENEFIT OF AN AUDIT COMMITTEE

 Create a climate of discipline and control to prevent fraud

 Improve the quality of financial reporting
 They help NED to offer independent judgment
 Assist finance director
 Strengthen the position of the external auditor
 Serve as conflict resolution
 Increase public confidence in the credibility and objectivity of financial
statements.
REPORTING ON CORPORATE GOVERNANCE

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The London Stock Exchange requires the following general disclosures that Annual
reports must convey a fair and balanced view of the organization stating whether
the organization has complied with governance regulations and codes such as:

 Narrative statement on how principles have been applied

 Statement on compliance throughout the accounting period
In addition further statements may be required depending on the jurisdiction on the
board and it includes the following such as:

 Whether the organization complied with governance rules and regulations

 Going concern status of the organization
 Relationship with stakeholders
 Information about the board
 An operating and financial review (OFR)
 Sustainability reporting
 Relationship with auditors
 Remuneration, audit and nomination committees
 Effectiveness of internal controls including risk management
CORPORATE SOCIAL RESPONSIBILITIES

These are a set of actions which the organization is not obliged to take, but
taken for the well-being of stakeholders and the provision of specific benefits to
the public in general which include:

 Charitable donations
 creation or preservation of employment,
 Spending on environmental improvement or maintenance

Moreover, social responsibilities and ethical behaviour is not the same thing
because the company exists solely to enhance shareholders wealth but that
doesn’t mean that the company should be insensitive to the needs of other
stakeholders.

STRATEGIES FOR CORPORATE SOCIAL RESPONSIBILITIES

Proactive strategy: A strategy which a business follows where it is prepared to take

full responsibility for its actions for example: when a company discovers a fault in its
product and recalls the product without being forced to, before any injury or
damage is caused.

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Reactive strategy: This involves allowing a situation to continue unresolved until the
public, government or consumer groups find out about it.

Defence strategy: This involves minimizing or attempting to avoid additional

obligations arising from a particular problem.

Accommodation strategy: This approach involves taking responsibility for actions

(when encouraged), probably when one of the following happens:

 Encouragement from special interest groups

 Perception that a failure to act will result in government intervention

SECTION C: ACCOUNTING AND REPORTING SYSTEMS, CONTROLS AND

COMPLIANCE

 THE RELATIONSHIP BETWEEN ACCOUNTING AND OTHER BUSINESS FUNCTIONS

 ACCOUNTING AND FINANCE FUNCTIONS WITHIN BUSINESS ORGANISATIONS
 PRINCIPLES OF LAW AND REGULATIONS GOVERNING ACCOUNTING AND
AUDITING
 THE SOURCES AND PURPOSE OF INTERNAL AND EXTERNAL FINANCIAL
INFORMATION PROVIDED BY BUSINESS
 FINANCIAL SYSTEMS, PROCEDURES AND RELATED IT APPLICATIONS
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  INTERNAL CONTROLS, AUTHORISATION, SECURITY OF DATA AND COMPLIANCE
WITHIN BUSINESS
 FRAUD AND FRAUDULENT BEHAVIOUR AND THEIR PREVENTION IN BUSINESS
INCLUDING MONEY LAUNDERING

Users of financial/ accounting information

 Managers
 Shareholders
 Trade union
 Employees
 Regulatory authority
 Public
 Financial analyst
 Providers of fund

Features of good accounting information

 Relevance
 Comprehensible/ understandability
 Reliable
 Complete
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 Objective
 Timely
 Comparable

Account department and their function

Finance director

Treasurer financial controller management accountant

Cashier financial accountant cost

accountant

Non-current assets inventory reporting

& valuation

Receivables material costing

Debt collection labour costing
Credit control job costing
Payroll variance analysis
Sales tax

Taxation

Laws and regulation governing accounting

 Company law
 Accounting concepts and individual judgments
 Accounting standards : IAS/ IFRS
 EU: Also influences the company accounts
 International influences: IASB
 GAAP: Generally accepted accounting principles

The main financial systems used with an organization.

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Purchases and sales invoicing:

Purchases and sales system are critical systems in the organization and controls
must be in place including authorization procedures.

The control process for purchases and payables

Ordering, authorization and pricing of supplies.

Goods receipts and invoices:

 Utilization of purchases
 Authorization of invoices
 Proper recording
 Authorization of payment/ liabilities

Accounting records:

 segregation of duties
 record purchases/ returns promptly
 compare invoices to with account payable
 check authorization of payment

The control process for sales / receivables

Ordering/ credit:

 credit rating assessment

 authorization of credit terms

Dispatch and invoicing:

 invoices compared to order

 authorization of discounts
 Assess goods delivered
 Signing of delivery notes.

Accounting and recording:

 Record receivables/ returns promptly

 Compare invoices to account receivables
 Identify doubtful debt
 Compare cash received with invoices.

PAYROLL SYSTEMS

Control over payroll cover:

 Documentation and authorization of staff changes

 Calculation of wages and salaries
 Payment of wages and salaries
 Authorization of deduction
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Input for payroll system is as follows:

 Time sheet / clock cards showing overtime

 Bonus

Processing of the payroll system involves calculating employees gross pay and
calculating deductions and additions to salaries.

Output from a payroll system:

 Payslips
 Payroll analysis( allowance, deductions such as tax, pension)
 Payment schedule sent to the bank
 Authorization to make payment
 Credit transfer forms

Control procedures for payroll system:

 Segregation of duties between the human resources and payroll function

 Update of personnel records
 Authorization for overtime, deductions, advance pay, pay cheques
 Verification of identity
 Verify account numbers on payment schedule

CREDIT CONTROL

Involves putting procedures in place to ensure the credit worthiness of a client.

The controls include:

 Credit assessment via analysis of financial statement of a period of years

 Enquiry from credit bureau
 Shorten credit days given to client
 Providing discount opportunities for earlier payment to motivate clients to pay
 Interest requirement for late payment of credit.
 Agreement for equity contribution e.g 30% before credit given for 70%

CASH/ WORKING CAPITAL

Control for cash receipts:

 Bank promptly
 Record receipt properly
 Segregation of duty between persons receiving cash and those banking the
cash and recording of cash
 Compare invoices to amount received

Cash payment:

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 Authorization of payment
 Payment to only specified dealers
 Compare payment advice to invoices issued
 Bank reconciliation.

Inventory control:

 Inventory management
 Shorten debtors days
 Store more of fast moving stock and less of slow moving inventory.

The use of computers and IT software application

A. Database systems: is a pool of data which can be used by a number of

applications accessible to all departments in the organization. Such as
having a database of customers.
Objectives:
 It should be shared
 Preservation of data integrity
 Should provide for the operational requirement of all its users
 Flexibility and ability to evolve
B. Spread sheet application: is an electronic piece of paper divided into rows
and columns with an inbuilt pencil, eraser and calculator. Provides easy way
of performing numerical calculations. The spreadsheet can be used for
financial accounting and cost accounting. A spreadsheet software
application may perform the following business task:
 The presentation of numerical data in the form of graphs and charts
 The application of logical tests to data
 The application of what if scenarios.

MANUAL AND AUTOMATED FINANCIAL SYSTEM

Manual systems are traditional form of maintaining a business account and records
which typically includes cashbook, sales and purchases day book and petty cash
sheet.

Benefits of a manual system:

 It allows enough space to store data on paper.

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  No training cost is needed unlike computerized system that requires training
before using it to store and process data
 There are no indirect cost associated with manual system such as electricity bills
 Correction of errors is very easy
 Corruption of data is less
 Duplicate copies of data are eliminated.

Limitation:

 Productivity is lower especially in routine activities such as processing a

transaction
 Processing information is lower and more difficult due to large volume of data
 Risk of errors
 Difficult to make alterations or updating record
 Poor output quality e.g illegibility of hand written records
 Paper work is usually bulky to handle and store.
Benefits of Computerized systems:
 Easier to store more information and processes and retrieve information
 Updates and alterations are made easy with just accessing the file in question
 Reports can be generated automatically to provide useful information
 For accounting purpose making one entry in one ledger allows automatic
update to the other ledger( double entry)
 Financial calculations can be done more quickly and accurately
 Financial information can be presented to other business departments in variety
of forms

Limitations:

 Requires back up in case the hard disk becomes faulty or lost

 Data corruption is possible
 Possibility of unauthorized persons to hack the system and obtain confidential
information
 Usually expensive to set up a computerized system
 Requires continuous training for users to be able to use and understand the
software.

INTERNAL CONTROL, AUTHOTIZATION AN COMPLIANCE WITHIN BUSINESS

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Internal control systems should help organizations counter risks, maintain the quality
of reporting and comply with laws and regulations. They provide reasonable
assurance that the organizations will fulfill their objectives.

An internal control is any action taken by management to enhance the likelihood

that established objectives and goals will be achieved.

The UK's Turnbull report comments that internal control consists of 'the policies,
processes, tasks, behaviors and other aspects of a company

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FUNCTIONS OF INTERNAL CONTROL SYSTEM

 Facilitate its effective and efficient operation.

 It enhance the safeguarding of assets.
 Help ensure the quality of internal and external reporting.
 Help ensure compliance with applicable laws and regulations
LIMITATION OF INTERNAL CONTROL

 Poorly-judged decisions
 Human error
 Deliberate circumvention of controls
 Management override of controls
 Unforeseeable circumstances
 Cost outweighing benefit of control
CONTROL FRAMEWORK

These include control environment & control procedures.

The control environment is the overall attitude, awareness and actions of directors
and management regarding internal controls and their importance in the entity.

The following factors are reflected in the control environment.

 The philosophy and operating style of the directors and management.

 Organizational structure.
 Integrity, ethical values and competence of directors and staff.
 Risk strategies.
 Culture, code of conduct, human resource policies & reward systems.
 Senior management competence & integrity.
 Clear definition of authority, responsibility & accountability.
 Communication to employees what is expected of them and scope of their
freedom.

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CONTROL PROCEDURES

They are internal checks on the day-to-day activities of the company.

CLASSIFICATION OF CONTROL PROCEDURES

 Administrative and accounting control.

 Discretionary and non-discretionary control.
 Voluntary and mandated control.
 Manual and automated control.
 General and application control.
 Financial and non-financial control.
TYPES OF CONTOL PROCEDURES (SPAMSOAP)

S- Segregation of duties.

P- Physical.

A-Authorization and approval

M-Management

S- Supervision

O- Organization.

A-Arithmetical and accounting

P- Personnel.

Characteristics of a good internal control system

 A clearly defined organization structure

 Adequate internal checks
 Acknowledgement of work done.
 Protective devices for physical security.
 Formal documents should acknowledge the transfer of responsibility for
goods.
 A clearly defined system for authorizing transactions within specified spending
limits.
 There should be authorization, custody and re-ordering procedures.

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  Personnel should have the capabilities and qualifications necessary to carry
out their responsibilities properly.
 An internal audit verification

Internal Audit

An independent appraisal activity established within an organization as a service to

it. It is a control which functions by examining and evaluating the adequacy and
effectiveness of other controls.

Objectives of internal audit

(a) Review of the accounting and internal control systems.

(b) Examination of financial and operating information.

(c) Review of the economy, efficiency and effectiveness of operations.

(d) Review of compliance with laws, regulations and other external requirements

(e) Review of the safeguarding of assets.

(f) Review of the implementation of corporate objectives.

(g)Identification of significant business and financial risks, monitoring the

organization’s overall risk management policy.

(h) Special investigations.

TYPES OF AUDIT

 Operational audit
 Systems audit
 Transactions audit
 Social audit
 Management investigations

External audit

External audit is a periodic examination of the books of account and records of an

entity carried out by and independent third party (the auditor), to ensure that they

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have been properly maintained, are accurate and comply with established
concepts, principles, accounting standards, legal requirements and give a true and
fair view of the financial state of the entity.

Differences between internal and external audit:

 Reason
 Reporting to
 Relating to
 Relationship with the company

RELIANCE ON INTERNAL AUDIT DEPARTMENT

 Organizational status
 Scope of function
 Technical competence
 Due professional care

IT systems security and safety

Security, in information management terms, means the protection of data from

accidental or deliberate threats which might cause unauthorized modification,
disclosure or destruction of data, and the protection of the information system from
the degradation or non-availability of services.

Security refers to technical issues related to the computer system, psychological

and behavioral factors in the organization and its employees, and protection
against the unpredictable occurrences of the natural world.

Security can be subdivided into a number of aspects.

 Prevention: This might mean to stop an unauthorized access into the system.
 Detection: This might be to discover an unauthorized access into the system.
 Deterrence: This is a measure of disciplinary procedure.
 Recovery procedures: This is to ensure that all lost information are retrieved.
 Correction procedures; these ensure the vulnerability is dealt with.
 Threat avoidance: This might mean changing the design of the system.
TYPES OF THREATS

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  Physical threats
 Fire threats
 Water threats
 Weather threats
 Lightning threats
 Terrorist activity
 Accidental damage
 Physical access.

Building controls into an information system

It is possible to build controls into a computerized information system. A balance

must be struck between the degree of control and the requirement for a user
friendly system.

Classification of controls

 Security controls
 Integrity controls
 Contingency controls
Security controls:

Security can be defined as 'The protection of data from accidental or deliberate

threats which might cause unauthorized modification, disclosure or destruction of
data, and the protection of the information system from the degradation or non-
availability of services'.

Integrity controls:

These include data integrity and system integrity which are both classified as back-
up control.

Data integrity: A data will maintain its integrity if its complete and not corrupted.

Systems integrity: Ensure the accuracy, completeness and validity of input, process
and output through data verification and data validation.

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Contingency controls:

A contingency is an unscheduled interruption of computing services that requires

measures outside the day-to-day routine operating procedures.

The preparation of a contingency plan (also known as a disaster recovery plan) is

one of the stages in the development of an organization-wide security policy. A
contingency plan is necessary in case of a major disaster, or if some of the security
measures discussed elsewhere fail.

System breakdowns can occur in a variety of circumstances, for example:

(a) Fire destroying data files and equipment.

(b) Flooding.

(c) A computer virus completely destroying a data or program file.

(d) A technical fault in the equipment.

(e) Accidental destruction of telecommunications links (e.g. builders severing a

cable).

(f) Terrorist attack.

(g) System failure caused by software bugs which were not discovered at the
design stage.

(h) Internal sabotage (e.g. logic bombs built into the software).

Disaster recovery plan

Any disaster recovery plan must provide for:

(a) Standby procedures so that some operations can be performed while normal
services are disrupted.

(b) Recovery procedures once the cause of the breakdown has been discovered
or corrected.

(c) Personnel management policies to ensure that (a) and (b) above are
implemented properly.

FRAUD AND FRAUDULENT BEHAVIOUR AND THEIR PREVENTION IN BUSINESS

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Fraud can be defined as an intentional act by one or more individuals among
management, those charged with governance, employees or third parties,
involving the use of deception to obtain an illegal or unjust advantage. Category
Comment

There are two main categories of fraud:

 Removal of funds or assets from a business.

 Intentional misrepresentation of the financial position of the business.
Removal of funds or assets from a business.

 Theft of cash
 Theft of inventory
 Teeming and lading
 Fictitious customers
 Collusion with customers
 Bogus supply of goods or services
 Paying for goods not received
 Meeting budgets/target performance measures
 Manipulation of bank reconciliations and cash books
 Misuse of pension funds or other assets
 Disposal of assets to employees
Intentional misrepresentation of the financial position of the business

These may be used by Staff to either understate or over-state profit.

 Over-valuation of inventory
 Irrecoverable debt policy may not be enforce
 Manipulation of year end events-cut off
 Understating expenses
 Manipulation of depreciation figures

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 Potential for fraud

There are three broad pre-requisites or 'pre-conditions' that must exist in order to
make fraud a possibility: dishonesty, motivation and opportunity.

These are useful to know, because if one or more of them can be eliminated, the
risk of fraud is reduced!

Dishonesty

Honesty is a subjective quality, which is interpreted variously according to different

ethical, cultural and legal norms. However, we may define dishonesty as an
individual's pre-disposition or tendency to act in ways which contravene accepted
ethical, social, organizational and legal norms for fair and honest dealing.

Motivation

(a) The potential rewards of an action.

(b) The potential sanctions or negative consequences of an action.

Opportunity

 Allows fraudulent activity to go undetected.

 Makes the risk of detection acceptable, given the rewards available.

An individual will have a high incentive to commit fraud if (s)he is predisposed to

dishonesty and the rewards for the particular fraud are high and there is an
opportunity to commit fraudulent action with little chance of detection or with
insignificant sanctions if caught.

STRATEGIES FOR CONTROLLING FRAUD

(a) Don't employ people with pre-dispositions to dishonesty

(b) Reduce motivations for fraud.

(c) Reduce opportunities for fraud.

Assessing the risk of fraud

Signs of high fraud risk include indications includes the following:

 Lack of integrity
 Excessive pressures
 Poor control systems
 Unusual transactions
 Lack of audit evidence
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Factors that give rise to a high potential fraud risk:

External factor:

 Technological developments
 New legislation or regulations
 Economic or political changes
 Increased competition
 Changing customer needs
Internal factors

The general and specific risks in the firm itself may include:

 Changed operating environment

 Rapid growth
 New personnel
 New technology
 New or upgraded management information systems
 New products
 New overseas operations
 Corporate restructuring
FRAUD INDICATORS

(a) Secretive behaviour

A High Court judge once described secrecy as 'the badge of fraud'. If an individual
starts behaving in a more secretive way than is generally considered normal, then
there may because for concern.

(b) Expensive lifestyles

A well-known indicator of fraud is a life-style beyond an individual's earnings.

(c) Long hours or untaken holidays

Workaholics and staff who do not take their full holiday entitlement may be trying to
prevent a temporary replacement from uncovering a fraud.

(d) Autocratic management style

In some organizations a sole manager or director has exclusive control over a

significant part of the business.

(e) Lack of segregation of duties

Employees occasionally have more than one area of responsibility, particularly in

small businesses where staff numbers are low. This can make it easy for the
employee to conduct and conceal fraudulent actions.

(f) Low staff morale

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One motive for fraud is resentment towards the firm. Staff may start defrauding the
firm because they feel that they are not rewarded sufficiently for their work or
because they were passed over for a promotion that they believed they deserved.

Potential for computer fraud

Problems particularly associated with computers.

(a) Computer hackers.

The possibility of unknown persons trying to hack into the systems increases the
potential for fraud against which the firm must protect it.

(b) Lack of training within the management team.

Many people have an inherent lack of understanding of how computer systems

work.

(c) Lack of risk awareness

(d) Need for ease of access and flexible systems

Implementing strict controls can sometimes suppress these features.

IMPLICATION OF FRAUD FOR THE ORGANIZATION

This depends on the type of fraud being carried on.

Removal of funds or assets from a business

 Immediate financial implications: Profits are lower than they should be.
 Long term effects on company performance: The reduction in working
capital makes it more difficult for the company to operate effectively.

Intentional misrepresentation of the financial position of the business

This will make the financial statements not to give a true and fair view of the
financial situation of the business. They include:

 Incorrect decision
 Negative publicity
 Reduction of return
 Stakeholders misled
 Loan finance restricted.
 Shortfall in working capital
 Fall in share price
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  Legal consequence

Systems for detecting and preventing fraud

In order to prevent fraud, managers must be aware of the risks and signs of fraud.
Prevention of fraud must be an integral part of corporate strategy.

Management can implement certain general controls that are designed to prevent
fraud.

(a) Emphasizing ethics can decrease the chances of fraud. Several businesses have
formal codes of ethics which employees are required to sign covering areas such
as gifts from customers. Management can also ensure that they set 'a good
example'.

(b) Personnel controls are a very important means of preventing fraud. Thorough
interviewing and recruitment procedures including obtaining references can be an
effective screening for dishonest employees. Appraisal and grievance systems can
prevent staff demotivation.

(c) Training and raising awareness can be important. Fraud awareness education
should therefore be an integral part of the training programme, particularly for
managers and staff in high risk areas.

Prevention of fraud in specific business areas

Controls will also be needed in specific areas of the business where a high risk of
fraud has been identified:

(a) Segregation of duties is a key control in fraud prevention.

(b) Appropriate documentation should be required for all transactions.

(c) Limitation controls such as limiting access to the computer network by means of
passwords.

(d) Certain actions should be prohibited such as leaving a computer terminal

without logging off.

(e) Internal audit work should concentrate on these areas.

Internal controls

Controls must be developed in a structured manner, taking account of the whole

spectrum of risk and focusing on the key risks identified in each area of the business.

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 (f) Authorization policies: It requires written authorization by a senior member of
staff is a good preventative tool. It increases accountability and also makes it
harder to conceal a fraudulent transaction.

(g)Appropriate Documentation: Separate documents should be used to record

sales order, dispatch, delivery and invoice details.

Standard procedures: This should be defined clearly for normal business operations
and should be known to all staff.

(h)Recruitment policies: Through checking the information and references provided

by applicants may reduce the risk of appointing dishonest staff.

(I)Computer security such as password, firewalls, encryption etc.

Responsibility for detecting and preventing fraud

 Manager and staff responsibilities:

Managers and staff should be aware of their responsibilities to help in detecting
fraud. Fraud detection is also helped by having information readily available and
allowing whistle blowing.

If fraud is to be detected, it is important that everyone involved in detection should

be aware of their responsibilities.

(a) Operational managers should be alert for signs of petty fraud, as well as
checking the work staff have done and also being aware of what staff are doing.

(b) Finance staff should be alert for unusual items or trends in accounting data, also
incomplete financial information.

(c) Personnel staff should be alert for signs of discontent or low morale, and also
should (if possible) be aware of close personal relationships between staff who work
together.

(d) Internal audit staff has responsibility for ensuring systems and controls are
thoroughly reviewed. One off exercises such as surprise visits may be undertaken
alongside annual audit work.

(e) External audit staff are required to assess the risk that fraud may have a
material impact on a company's accounts when planning their audit work. They
are required to report all instances of fraud found to management, unless they
suspect management of being involved in the fraud. The external auditors should
also report to management any material weaknesses in the accounting and
internal control systems.

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(f) Non-executive directors should act on signs of dishonesty by senior executive
management. The audit committee should review the organization’s performance
in fraud prevention and report any suspicious matters to the board.

(g)Fraud officer

Many large organizations have appointed a fraud officer, who is responsible for
initiating and overseeing fraud investigations, implementing the fraud response
plan, and for any follow-up actions. The fraud officer should be able to talk to staff
confidentially and be able to provide advice without consulting senior
management.

Availability of information

It is of course important that information should be available to enable

management to identify signs of actual fraud or of an environment where fraud
may occur.

(a) Cost and management accounting systems should provide promptly

information with sufficient detail to enable management to identify parts of the
business whose performance is out of line with expectations. Actual results should
be compared with budgeted results and explanations sought for significant
variances.

(b) Personnel procedures such as staff meetings, appraisals and exit interviews may
indicate low morale or staffs who are under undue pressure.

(c) Lines of reporting should be clear. Staff should know to whom they should report
any suspicions of fraud.

Whistle blowing:

The likelihood of fraud detection may have been increased by recent legislation in
a number of countries that provides employment protection rights to
'whistleblowers', employees who reveal fraud or malpractice in a workplace. The
legislation covers disclosure of certain 'relevant failures', including committal of a
criminal offence, failure to comply with legislation, endangering health and safety
or damaging the environment.

Some employers are introducing a formal concerns procedure, which sets out how
potential whistleblowers should communicate their concerns.

 The responsibility of directors:

In a limited company, or plc, it is the responsibility of the directors to prevent and
detect fraud. They should:

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(a) Ensure that the activities of the entity are conducted honestly and that its assets
are safeguarded.

(b) Establish arrangements to deter fraudulent or other dishonest conduct and to

detect any that occurs.

(c)Provision of reliable financial information used internally or for financial reporting.

 The role of the auditor:

(a)Express an opinion as to true and fair view

(b)Design procedure as to have a reasonable expectation of detecting fraud.

(c)Arrange for reporting to an appropriate authority (if serious enough).

(d)Qualify audit report (if necessary).

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 MONEY LAUNDERING

‘Money laundering is the process by which criminals attempt to conceal the true
origin and ownership of the proceeds of their criminal activity, allowing them to
maintain control over the proceeds and, ultimately, providing a legitimate cover for
their sources of income.

An inter-governmental body, the Financial Action Task Force on Money Laundering

(FATF) was established to set standards and develop policies to combat money
laundering and terrorist financing.

In the UK, the basic requirements are for accountants to keep records of clients'
identity and to report suspicions of money laundering to the Serious Organised
Crime Agency (SOCA).

METHODS FOR DETECTING AND PREVENTING MONEY LAUNDRY

 Appoint an MLRO and implement internal reporting procedures

 Train individuals to ensure that they are aware of the relevant legislation,
know how to recognise and deal with potential money laundering, how to
report suspicions to the MLRO, and how to identify clients
 Establish internal procedures appropriate to forestall and prevent money
laundering, and make relevant individuals aware of the procedures
 Verify the identity of new clients and maintain evidence of identification –
Know Your Customer (KYC)
 Maintain records of client identification, and any transactions undertaken for
or with the client
 Report suspicions of money laundering to SOCA
Money Laundering Risk Indications

Secrecy over transactions


Excessive use of wire transfers withdrawals not characteristic of the account

type
 Large currency or bearer instruments
 Repeated deposits or withdrawals just below the monitoring threshold on the
same day
MONEY LAUNDERING OFFENCES

 Failure by an individual in the regulated

 Transaction s routed through several jurisdictions
 High value deposits or
 sector to inform SOCA or the MLRO as soon as practicable of knowledge or
suspicion of money laundering.
 Failure by the MLRO to pass on a report to SOCA as soon as possible.
 Tipping off: when the MLRO or any individual discloses something that might
prejudice any investigations.

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 Falsifying, concealing, destroying or disposing of documents relevant to the
investigation.
 MLROs also commit an offence if they consent to a transaction which they know
or suspect is money laundering, where consent has not been received from
SOCA.

MONEY LAUNDERING PROCESS

 PLACEMENT: it is a way whereby an individual diposed the proceed acquired

from an illegitimate business/activities into a more legitimate activities so as to
avoid suspicion or detection of money laundering offences.

 LAYERING: it is the movement of money from one source to another known as

business to business for the purpose of concealing the true origin of such money.

 INTEGRATION: These is the extension of Layering, whereby the money

illegitimately obtained has the appearance of legitimacy and provides the
beneficiary the required freedom to maintain absolute control.

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SECTION D: LEADING AND MANAGING INDIVIDUALS AND TEAMS

 LEADING, MANAGEMENT AND SUPERVISION

 RECRUITMENT AND SELECTION OF EMPLOYEES

 INDIVIDUAL AND GROUP BEHAVIOUR IN BUSINESS ORGANISATIONS

 TEAM FORMATION, DEVELOPMENT AND MANAGEMENT

 MOTIVATING INDIVIDUALS AND GROUPS

 LEARNING AND TRAINING AT WORK

 REVIEW AND APPRAISAL OF INDIVIDUALS PERFORMANCE

LEADERSHIP, MANAGEMENT AND SUPERVISION

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Management may be defined, most simply, as 'getting things done through other
people' (Stewart).

This definition suggests the need for management.

 Objectives have to be set for the organization.

 Somebody has to monitor progress and results to ensure that objectives are
met.
 Somebody has to communicate and sustain corporate values, ethics and
operating principles.
 Somebody has to look after the interests of the organization’s owners and
other.
Management authority and responsibility

Authority: is the scope and amount of discretion given to a person to make

decisions by virtue of his position held within the organization. Authority is the right to
do something.

3 ways to acquire authority:

 Charismatic authority arises from the personality of the leader and his or her
ability to inspire devotion through sanctity, heroism e.t.c
 Traditional authority rests on established belief in the importance of
immemorial tradition and the status it confers.
 Rational-legal authority raises from the working of accepted normative rules,
such as are found in organizations and democratic governments.
Responsibility: is the liability of a person to be called for his or her actions and results
and is therefore an obligation to do something.
Delegation: is the giving to a subordinate the discretion to make decisions within a
certain, defined sphere of influence.
Accountability: Managers are accountable to their superiors for their actions and
are obliged to report to their superiors how well they have exercised the authority
delegated to them.
Power: It’s the ability to do something which is different from authority.
TYPES OF POWER
 Physical/ Coercive power: is the power of superior force based on fear of
punishment such as in prison service and the armed forces.
 Resource power is the control over resources which are valued by the
individual or group to be influenced and how they are scarce. Such as
informational and Reward power.
 Position/legitimate power: is the power which is associated with a particular
job in an organization. It is more or less the same as authority.
 Expert power: is the power which is based on expertise, although it only works
if others acknowledge that expertise such as professionals in like analyst,
programmer’s e.t.c.
 Referent power/Personal power: These lies in the personal qualities of the
individual and how he is capable of influencing the behaviour of others.
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  Negative power is the use of disruptive attitudes and behaviour to stop things
from happening either caused by low morale, latent conflict or frustration at
work.
THE MANAGERS ROLE IN ORGANISING WORK

The key roles in work planning, resource allocation and project management.

Work planning: is the establishment of work methods and practices to ensure that
predetermined objectives are efficiently met at all levels such as:

 Task sequencing or prioritization

 Scheduling or timetabling tasks,
 Establishing checks and controls to ensure that
 Contingency plans
 Co-coordinating the efforts of individuals
Resource Allocation: The manager has the duty to ensure that all resources are fully
deployed in achieving the organization objectives. They include:

 Human resources
 Material resources
 Financial resources
 Information
These can be called the 4M’S: MATERIAL, MANPOWER, MACHINE and MONEY

PRIORITISING: These is done when the organization resources are limited depending
if it’s of high priority or not. These could be a routine or non-routine priority.

Projects and Project Management

A project is 'an undertaking that has a beginning and an end and is carried out to
meet established goals within cost, schedule and quality objectives' (Haynes,
Project Management).

Examples include:

 The relocation of offices,

 Introduction of a new information system
 Launch of a new product
 Factory construction
 Bridge building
Project management:

The job of project management is to foresee as many contingencies as possible

and to plan, organize, coordinate and control activities. The following are the role
of a project manager: Outline project planning

 Detailed planning
 Teambuilding
 Communication

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  Co-coordinating project activities
 Monitoring and control
 Problem-resolution
 Quality control
WRITERS ON MANAGEMENT

There are some basic approaches to organization management which include:

 Classical theories of management

 Human relation theories of management

Classical theories of management

Classical approaches to organisation include scientific management,

administrative theory and the bureaucratic model. The essence of the classical
approach is that there exists a single, best approach to management, and
research was aimed at identifying this.

Scientific management (FEDERICK TAYLOR)

The concept invented is to ensure that all knowledge which had hitherto
been kept in the heads of workmen should be gathered and recorded by
management. Every single subject becomes the question for scientific
investigation, reduction to law.
The emphases include:
 Jobs should be broken down into single specialized operations
 Workers should be trained and given monetary incentives to accept new
methods and norms
 Work study techniques should be used to determine efficient methods and
standard times
 The scientific selection and progressive development of workers
 The application of techniques to plan, measure and control work for
maximum productivity.

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 Administrative theorists (HENRI FAYOL)
The administrative theorists were concerned with the efficiency of
administrative processes through system co-ordination and endeavoured to
establish certain principles of good management. ‘The father of modern
management’, who put forward and popularised the concept of the’
universality of management principles'

5 FUNCTIONS OF MANAGEMENT
 PLANNING: it’s the selection of objectives and putting appropriate
policies and strategies to achieve them.
 ORGANISING: it’s simply the grouping of task into jobs and functions,
and allocating adequate authority to perform those tasks.
 COMMANDING: It’s when managers or supervisors issue instructions to
their subordinate to perform allocated task.
 CONTROLLING: its monitoring, measuring, obtaining feedback and
correcting deviation from plan.
 CO-ORDINATING: These are the integration of different objectives and
work flows, harmonising different interest within the organisation.

Max Weber bureaucratic model

Weber was more concerned with the basic issue of how organisations are
structured.
HUMAN RELATIONS APPROACH TO ORGANISATION
Elton Mayo: Human relations
Mayo’s most important contribution was to identify the basis of work
satisfaction as non-economic and to connect it more with the interest taken
in the worker’s performance than with the financial reward. This was
demonstrated in the Hawthorne Experiments where production increased in
the presence of the experimenters and fell after they had left. Therefore, the
basis of work satisfaction was non-economic and connected more with the
interest taken in the worker’s performance than with the financial reward.
The major focus was on:
 Workers attitude and group relationship
 Dynamics of work group
 Motivation at work by different needs such as psychological needs,
including social or 'belonging' needs.
Peter Drucker
The prime function of a business manager is “economic performance”

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Drucker believes that management is the job of organising resources to achieve
the satisfactory performance of an enterprise.
He defines his view of management under three broad headings:
 Managing business
 Managing works and workers
 Managing managers
Drucker argued that the manager of a business has one basic function- economic
performance. Hence the job of management within the basic function of
economic performance is managing a business, managing managers & managing
workers and work.
Drucker grouped the work of the manager into five categories:
 Setting objectives for the organisation
 Organising the work
 Motivating
 The job of measurement
 Developing people
HENRY MINTZBERG: MANAGERIAL ROLES
This model identifies the skills the manager need in other to achieve greater
effectiveness and they could be categorized into 3 namely:
Interpersonal, Informational and Decisional.

Interpersonal role Information role Decisional role

 Leadership  Monitor  resource allocation
 Figurehead  disseminator  negotiator
 Liaison  spokesperson  disturbance handler
 entrepreneur
INTERPERSONAL ROLE
 Leadership: By motivating, commanding, inspiring and developing
subordinates.
 Figurehead: It’s a ceremonial role, an individual representing his organization.
 Liaison: By maintaining contacts outside the vertical chain, within and outside
the company.
INFORMATIONAL ROLE
 Monitor: It’s scanning for information from both internal and external networks.
 Disseminator: An individual who shares information to the users through networks.
 Spokesperson: Someone providing information via networks with those who
needs it.

DECISIONAL ROLE

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 Resource allocation: Mobilising and allocating scarce resources to
individuals/teams
 Negotiator: Integrating different interest in the organisation through bargaining
processes.
 Disturbance Handler: Responding to pressure, conflicts and problems that affect
the job and staff performance.
 Entrepreneur: A project initiator, resource mobilizations and achieving all
opportunities.
Moreover, Mintzberg view challenged the classical views which say a lot about the
managers and they include the following facts that:

 Managers are not always able to be reflective, systematic planners.

 Managerial work is disjointed and discontinuous.
 Managers do have routine duties to perform, especially of a ceremonial
nature
 Managers prefer verbal and informal information to the formal output of
management information systems.
 Management cannot be reduced to a science or a profession
 Managerial processes cannot be analyzed scientifically or codified into an
examinable body
Fayol’s 14 principles (DAD SEE U USSR CIO)

Under Taylor‘s philosophy, management was a science rather than an individualist

approach based on rule of thumb.
D-Division of labour
A-Authority
D-Discipline
S-Subordination of individual interest to general
E-espirit de corp
E-equity
U-unity of direction
U-unity of command
S-stability of personnel
S-scalar chain
R-remuneration
C-centralisation
I-initiative
O-order
DIFFERENCES BETWEEN CLASSICAL AND MODERN THEORIES OF MANAGEMENT

The classical view

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 The classical school included writers such as Taylor, Fayol and Weber. They
concluded that a set of rules or conditions, if met, would satisfy the
organisation’s needs.
These rules, however, omitted to study the motivational needs of the
employee. Man was regarded as a tool.
The modern view
The more modern human relations approach includes the behavioural sciences
and regarded the understanding of the human element as a priority. Contingency
theory takes the view of ‘different horses for different courses’.

Management and supervision

Supervision is the interface between the operational core (non-managerial

workers) and management.

Features of Supervision

 A front-line manager: involves in planning, organizing, commanding, co-

coordinating and controlling, problem solving and decision making.
 Doer of own operational/technical task or works.
 Interface: between managerial and non-managerial staff
 Gatekeeper: they monitor day-to-day frequent and detailed information
 Other duties and responsibilities: it include settlement of grievances,
maintaining discipline, allocation of resources supervising others e.t.c.
LEADERSHIP

These can be defined as follows:

'The activity of influencing people to strive willingly for group objectives' (Terry)

'Interpersonal influence exercised in a situation and directed, through the

communication process, toward the attainment of a specialized goal or goals'
(Tannenbaum et al)

MANAGEMENT AND LEADERSHIP COMPARED

MANAGEMENT LEADERSHIP

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 Can be exercised over Can be exercised over
task, time, projects and people
resources

Is based on authority Is based on

power/influence

Depends in Depends on
legitimacy(from above) followership(from below)

Its an organizational Its an interpersonal

process process

Secures Secures commitment/

compliance/standard extra performance
level of performance
It involves influencing,
It involves structure, persuading enthusing
analysis,and its communicating visions
predictable

LEADERSHIP QUALITIES and STYLES

THE NATURE AND IMPORTANCE OF LEADERSHIP

Buchanan and Huczynski define a leader as ‘someone who exercises
influence over other people’. Another definition is: Leadership is an
interpersonal influence directed toward the achievement of a goal or goals.
Three important parts of this definition are the terms interpersonal, influence,
and goal:
 Interpersonal – means between persons
 Influence – is the power to affect others
 Goal – is the end one strives to attain.

LEADERSHIP AND MANAGEMENT

Leadership, as part of management, emphasises interpersonal relationships
and the encouragement of latent human capabilities.
Successful leadership depends not only on the knowledge, skills and
personality of the leader, but also on the task to be achieved, the skills and
motivation of the team.
A leader can be a manager, but a manager is not necessarily a leader.
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 Management is the process of setting and achieving the goals of the
organisation through the functions of management: planning, organising,
directing (or leading), and controlling.
The key point in differentiating between leadership and management is the
idea that employees willingly follow leaders because they want to, not
because they have to.

THE SKILLS OF A LEADER

To inspire confidence and trust, leaders must have many skills. These include:
intelligence, confidence, decisiveness, strategic thinking, time management,
personal organisation, self-development, interpersonal skills entrepreneurial
ability and communication ability.
The basic aim of leaders is to succeed in completing the task set with the help
of their group. An effective leader will need to inspire confidence and trust so
that there is maximum co-operation from the group.
CLASSICAL THEORIES
In the management texts, leadership has been defined in terms of traits,
behaviour, contingency, power and occupation of administrative position.
Hence the variety of theories of leadership, which can be classified as:
Trait (or quality) based
Style based
Contingency based

(A.)Trait theories
These are of the assumptions that leaders are born not made and also with some
qualities which are common to great men such as:

n,Objecti
-ional stability, Co-operation e.t.c

Trait theory has been more or less discredited.

 The premise that certain traits (or qualities) are absolutely necessary for
effective leadership has never been substantiated.

 The lists of traits proposed for leaders have been vast, varied and
contradictory.

 Trait theories ignore the complexities of the leadership situation, and not
everybody with leadership 'traits' turns out to be a good leader.

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 (B.) Style (behavioural) theories
This approach concentrates on what a leader does – their behaviour or style.
Based on the view that leadership is an interpersonal process whereby different
leaders behaviors influence people in different ways. More or less effective patterns
of behaviour (or 'styles') can therefore be adopted

Robert Blake and Jane Mouton observed two dimensional model of leadership
based on:
Concern for production (the task): manager’s attitude towards procedures,
processes, work efficient and volume of output
Concern for people: includes personal commitment, sustaining the esteem and
trust of the group and maintaining interpersonal relationships.
The managerial grid:
1.1- IMPROVERISHED MGT
1.9- COUNTRY CLUB MGT
9.1- TASK MGT
9.9- TEAM MGT
5.5- MIDDLE OF THE ROAD (DAMPENED PENDULUM)
Ashridge Management College suggested four distinct management styles as a
development of the continuum idea. These are: ‘Tells’, ‘Sells’, ‘Consults’ and
‘Joins’.
 Tells – the autocratic dictator.
 Sells – the persuader.
 Consults – partial involvement.
 Joins – the democrat.
Douglas McGregor proposed an authoritarian–democratic approach to
management style. His Theory X manager – the authoritarian – is tough and
supports tight controls with punishment/reward systems. The contrasting style is that
of the Theory Y manager – the democrat – who is benevolent, participative and a
believer of self-controls.

(C.) Contingency-based theories

Simply put, contingency theory sees effective leadership as depending on a number
of variable or contingent factors. There is no one right way to lead that will fit all
situations, rather it is necessary to lead in a manner that is appropriate to a particular
situation.

Fiedler studied the relationship between style of leadership and the effectiveness of
the work group and identified two types of leader:
 The psychologically distant managers: They are formal, reserved, task
focused.

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  The psychologically close managers: They are informal, and
relationship focused leaders.
They both focus on leader/group relationship, task structures and power of leaders.
The situation is favourable when leaders are liked and trusted, with a high power.

John Adair's model (also called 'action-centred’ or 'functional') is part of the

contingency school of thought, because it sees the leadership process in a context
made up of three interrelated variables: task needs the individual needs of group
members and the needs of the group as a whole. To achieve these needs the
following roles must be fulfil:
 TASK ROLES: evaluating issues, decision making, evaluating, opinion
seeking e.t.c
 INDIVIDUAL ROLES: goal setting, feedback ,recognition, counselling,
training e.t.c
 GROUP ROLES: encouraging, peace keeping, clarifying, standard
setting e.tc

Warren Bennis: (the distinction between management and leadership)

He put forward some specific differences between the role of the manager
and the role of the leader.
(a) The manager administers and maintains, by focusing on systems and
controls and the short term. (Does the right thing)
(b) The leader innovates, focuses on people and inspires trust, and holds a
long-term view. (Does things right)

RECRUITMENT AND SELECTION OF EMPLOYEES

Recruitment and selection are two core activities in the field of Human Resource
Management (HRM) and they are to identify the best person for a job and ensure
fair treatment for all potential applicants. Together, they are broadly aimed at
ensuring that the organisation has the human resources (labour and skills) it needs,
when it needs them, in order to fulfill its objectives

Recruitment
Recruitment is the part of the process concerned with finding applicants.

Effective recruitment practices ensure that a firm has enough people with the right
skills. Recruitment is about obtaining candidates and advertising the vacancy in the
labour market. The overall aim of the recruitment and selection in an organization is
to obtain the quantity and quality of employees required to fulfill the objectives of
the organization. Recruitment is a positive activity by management and requires:

 Going into the labour market (external and internal)

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  Advertising vacancies (Communicating opportunities and information)
 Generating interests
Stages of recruitment process
Defining requirements: this is the preparation of job description, job specifications
and person specifications

Attracting applicants: this is the evaluation and the use of various methods for
reaching appropriate sources of labour (both within and outside the organisation)

Selecting: choosing the appropriate candidates for the job, or the appropriate job
for the candidate

The process of selection involves choosing the best candidate (it is about deciding
which of the applicants the right candidate is) for jobs. It is largely a ‘negative’
process as it involves rejecting/eliminating unsuitable candidates.

THE IMPORTANCE OF RECRUITMENT AND SELECTION

The founding belief of the human resources management (HRM) approach is that
employees represent a scarce and crucial resource which must be obtained,
retained, developed and mobilized for organizational success.

Recruitment (and training)

Once candidates have been attracted to apply, there is need to be a systematic
process to separate out those who are most suitable for the job

Selection tools
Interviews are the most popular, though not necessarily the most effective in their
ability to predict future job performance. Back-up methods include tests and group
assessment

SYSTEMATIC APPROACH TO RECRUITMENT AND SELECTION PROCESSES

Once candidates have been attracted to apply, there is need for a systematic
process to separate out those who are most suitable for the job.

Stage1: plan future manpower base on the growth of the organization (is the
organization growing slowly, rapidly or will there be a future requirement for new
skills within the business) organizations need to think ahead to ensure that they
don’t miss out on future business opportunities because of insufficient manpower
and skills

Stage2: conduct a job analysis

This includes the following:
 Job description: this highlights tasks and duties that will be carried out

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  Job specification: this includes skills and knowledge

 Person specification: this details the personal attributes necessary for the job;
it will set out a number of elements which would enable the inquirer to
prepare different candidates and select the most appropriate.

Person’s specification will have the following characteristics according to Alec

Rodgers (1951):

 Background: personal background

 Achievements (Attainments): that is qualification, career achievements and
experience
 Disposition: that is disposition of candidates including how he/she views
responsibilities, calm. Independent, etc
 Physical attributes or make-up: strength, appearance, health, etc.
 Interest of candidates: e.g. mechanical, people-related
 General intelligence: e.g. being a good organizer (average, above average)
 Special aptitudes or abilities: e.g. ability to speak a second language,
manual & mental sharpness, etc.

Pattern of personality which may be used to create a person’s specification

There are five-point patters and they are:
 Impact on others (Personality)
 Acquired knowledge and skills (Qualification)
 Innate ability (adjustment balance)
 Motivation
 Personal skills
Differences between job description and job specification

A Job description sets out the purpose of the job, where the job fits in the
organization structure, the context of the job, the accountabilities of the job and
the main tasks the holder carries out. E.g. a secretary job description might includes
keeping diaries, taking minutes in meetings, arranging accommodation for business
trips, etc. whereas a job specification describes the skills or competences required
for a job, e.g. a secretary job specification will includes skills like tying, shorthand,
knowledge of words processing, etc.

Stage3: take each vacancy as they arose and evaluate potential labour sources:
the aim is to decide where the best sources (internal or external) are.

Stage4: advertise the vacancies:

Internal advert may include the use of bulletin board, e-mail or intranet while
external sources may includes recruitment agencies, publications such as news
papers.

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Stage5: use a variety of methods to choose between applicants. Selection tools
include:

 Application forms
 CVs
 Interviews
 Selection tests
*** A combination of the selection tools can be used to gain a broader
understanding of each candidate

Advantages and disadvantages of each method of selection

SELECTION EXAMPLES ADVANTAGES DISADVANTAGES

TOOL
Application o Applicant o Cheapest and o Space could restrict
form data form quickest method of applicant’s response
selection if the forms are not
o Enables simple well designed
comparison
between applicants o Could make lying
easy for candidates
because there is time
to supply answers

CVs o An Applicant o More flexible o More difficult to

CV. o Gives employers compare
insight into the
candidates’ o Often provide
personality volumes of
unnecessary info

Interviews o Individual o Alert candidates o It could be subjective

(one-to-one) o Makes the telling of since it is based on
o interview convincing lies human judgement
panels difficult
o selection o Enables interviewers o Compilation of results
boards to probe further to may be difficult since
misunderstanding it is impossible to write
regarding down all the
applicants responses of the
o It can enable the interviewees
applicants to learn o Interviews may fail if
more of the the interviewers lack
business since it is unnecessary skills such
always a two-way as ability to listen,
process control direction,
o It is the most flexible timing, evaluate
form of selection
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 method information and
probe when
appropriate

o Cannot predict job

performance of
interviewees since
interview may be too
brief

o Contagious bias

Selection o Intelligence, o Measures a variety o There is not always a

tests e.g. IQ. test & of characteristics, direct relationship
aptitude such as applicants between ability in the
o Proficiency skill in dealing with test and ability in the
tests such as other people, job
skills like ambition and
shorthand, motivation or o Highly subjective
typing, etc. emotional stability o Tests may be bias as it
o Personality o If used properly, it may favour a group
test, e.g. could be used a against another
psychometric predictor of job
o Medical test performance o It is difficult to design
o intelligence tests
which give a fair
chance to people
from different cultures
and social groups
and which test the
kind of intelligence
that organisation
want from its
employees

Reference o Job o Provide further o May allow prejudice

checking references factual information
o Character about the
references candidates
Work o Portfolios o Practical and may o May be decorated to
sampling o Trial periods or predict future job give misleading
exercises performance impression

Group o Assessment o They give the o May hide individual’s

selection centres organisation’s weaknesses
methods selectors a longer
opportunity to study
the candidates
o They reveal more
than application
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 forms, interviews
and test
o They reveal more
about how the
candidate’s
personality and skills
will affect the work
team and his or her
own performance
in the job

Stage6: having selected the best candidates for the job, all applicants should be
notified of the results. Appointment contracts should be prepared and induction
programme should be organized.
Note:

 Others methods include Cognitive tests, Bio-data (biography analysis) and

Graphology (handwriting analysis)
 It is most unlikely that one method of selection will be used.
 Employers should act ethically and consider legislation on equal
opportunities. Decisions on considering candidates suitability should be made
ignoring sex, age, race, marital status, religion and disability.
 Employers should remember that equal opportunities legislation also apply to
training, promotion, dismissal, and disciplinary procedures

The Roles of Those Involved In Recruitment And Selection Processes

The recruitment process involves personnel specialists and line managers,

sometimes with the help of recruitment consultants. The people involved in
recruitment and selection vary from organization to organization and they can be:

Senior managers: are responsible for human resource planning at the strategic
level. They identify staff in need in relation to the objectives of the organization.

The human resources department: HR personnel have the centralized authority for
recruitment, creating policies, ensuring compliance and administer procedures on
recruitment and selection. The role of human resources function in recruitment and
selection may include:

 Assessing needs for human resources

 Maintaining records of people employed
 Keeping in touch with trends in the labour market
 Advertising for new employees
 Ensuring organization complies with equal opportunities and other legislation
 Designing application forms
 Liaising with recruitment consultants

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  Preliminary interviews and selection testing
Line managers: they are responsible for defining vacancies, liaise with human
resources department, and partake in interviews as well as selection. They also
advise on skills requirement and attributes required and may have a final say in the
selection decision.

Recruitment consultants: specialized recruitment consultants or agencies may be

contracted to perform some recruitment tasks on behalf of the organisation,
including:

 Analyzing, or being informed of, the requirements

 Helping to draw up, or offering advice on, job description, person
specifications and other requirement and selection aids
 Designing job advertisements
 Screening applications
 Short-list candidates for interviews
 Advising on, or conducting, first-round interviews
 Offering a list of suitable candidates with notes and recommendations

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FACTORS INFLUENCING OUTSOURCING DECISION

The decision of whether or not to use consultants will depend on a number of

factors:

 Cost
 The level of expertise, specialist knowledge and contacts of the consultant
 The level of recruitment expertise within the organisation
 Whether there is need for impartiality
 Whether the use of outside agent will be supported or rejected by in-house
staff
 Whether the organisation culture supports in-house staff in making HR
decision
 Time
 Supply of labour

EVALUATNG RECRUITMENT AND SELECTION PRACTICE

The effectiveness and cost-effectiveness of recruitment and selection should be

systematically evaluated, using a variety of measures. Various ways of reviewing
are outlined below:

Review Comment

Performance indicators Each stage of the process should be checked against

time and standards

Cost-effectiveness Cost of advertisement and number of responses

Monitoring work force Staff turnover, absenteeism, and other problems relating
to recruitment process

Attitude survey Getting feedbacks from recruits as to what they thought

of the process

Actual individual job Variance analysis of performance should be done to

performance compare expectations with actual

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Improving recruitment and selection procedures

 Improvement of policies and guidelines for selectors

 Establishment of systematic procedures for all stages of the process
 Improved education and training of selectors
 Auditing of job advertising content and media
 Widening the organization’s repertoire of selection techniques
 The Possible use of external recruitment and selection agencies and
consultants

DIVERSITY AND EQUAL OPORTUNITY

EQUAL OPPORTUNITIES

Equal opportunities is an approach to the management of people at work based

on equal access and fair treatment, irrespective of gender, race, ethnicity, age,
disability, sexual orientation or religious belief.

WHY IS EQUAL OPPORTUNITY AN ISSUE FOR EMPLOYERS?

Reasons argued for adopting non- or anti-discrimination measures include the

following.

 Common decency and fairness, in line with business ethics.

 Good HR practice, to attract and retain the best people for the job,
regardless of race or gender.
 Compliance with relevant legislation and Codes of Practice
 Widening the recruitment pool in times of skill shortages.
 Other potential benefits to the business through its image as a good
employer

EQUAL OPPORTUNITIES AND DISCRIMINATION

There are seven main statutes in the UK relating to equal opportunities and
discrimination. They are
 The Equal Pay Act 1970
 The Rehabilitation of Offenders Act 1974
 The Sex Discrimination Act 1986
 The Race Relations Act 1996
 The Disability Discrimination Act 1995
 The Race Relations Amendment Act 2000
 The Employment Act 2002

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EQUAL PAY ACT 1970

The Act states that ‘where a woman is employed on like work with a man in the
same employment, if any term of the woman’s contract is less favorable to the
woman than a term of similar kind in the contract under which that man is
employed, that term of the woman’s contract will be treated as so modified as not
to be less favorable’. The Act covers all conditions and terms of employment, not
just pay. It aims to ensure that where men and women are employed in like work or
work of an equivalent nature, they will receive the same terms and conditions of
employment.

The Sex Discrimination Act 1986

The Equal Pay Act 1970 is concerned with equality of pay and related matters. The
Sex Discrimination Act covers equality in other areas. These areas cover:
 selection
 opportunities for training
 promotion
 the provision of benefits and facilities
 Dismissal.
This Act renders it unlawful to make any form of discrimination in employment affairs
because of marital status or sex. This applies especially to the selection process as it
offers protection to both sexes against unfair treatment on appointment.
The Act recognises three forms of discrimination:
 Direct discrimination occurs when one interested group is treated less favourably
than another (except for exempted cases
 Indirect discrimination occurs when a policy or practice is fair in form, but
discriminatory in operation:
 Victimization occurs when a person is penalized for giving information or taking
action in pursuit of a claim of discrimination

THE RACE RELATIONS ACT 1996

Discrimination in the Race Relations Act 1996 is expressed in terms of ‘racial

grounds’ and ‘racial groups’. These expressions are defined in Section 3 of the Act
as relating to colour, race, nationality or other ethnic or national origins. The term
ethnic has been held to be much wider than race. The Race Relations Act uses a
broadly similar approach to that of the Sex Discrimination Act and uses the same
categorisations of direct and indirect discrimination and victimisation.

THE DISABILITY DISCRIMINATION ACT 1995

This contains the following:

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 A disabled person is defined as a person who has a physical or mental
impairment that has a substantial and long-term (more than 12 months) adverse
effect on his ability to carry out normal day to day activities. Severe
disfigurement is included, as are progressive conditions such as HIV even though
the current effect may not be substantial.
 The effect includes mobility, manual dexterity, physical co-ordination, and lack
of ability to lift or speak, hear, see, remember, concentrate, learn or understand
or to perceive the risk of physical danger.
 The Act makes it unlawful for an employer (of more than 20 employees) to
discriminate against a disabled person/employee in terms of employment,
development opportunities and dismissal

SEXUAL ORIENTATION AND RELIGIOUS BELIEFS

The Employment Equality Regulations 2003 outlawed discrimination and harassment

on grounds of sexual orientation and religious belief

AGE DISCRIMINATION

Employment Equality (Age) Regulations 2006 implement EU directives. They will

prohibit unjustified age discrimination in employment and vocational training;
support later retirement and retirement planning; and remove upper age limits for
unfair dismissal and redundancy rights.

FORMULATING AN EFFECTIVE EQUAL OPPORTUNITIES POLICY

Some organizations make minimal efforts to avoid discrimination, paying lip-service

to the idea only to the extent of claiming 'We are an Equal Opportunities Employer'
on advertising literature. To turn such a claim into reality, the following are needed.

 Support from the top management in policy formulation

 A working party drawn from stake holders
 Monitoring
 Positive action

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RECRUITMENT AND SELECTION

For the purpose of discrimination avoidance the following guidelines should be

borne in mind when carrying out recruitment and selection.

1. Advertising- Any wording that suggests preference for a particular group should
be avoided
2. Recruitment agencies. Instructions to an agency should not suggest any
preference.
3. Application forms. These should include no questions which are not work-related
4. Interviews
5. Selection tests. These must be wholly relevant, and should not favour any
particular group.
6. Records. Reasons for rejection, and interview notes, should be carefully
recorded.

THE UNDERLYING PROBLEMS OF DISCRIMINATION.

Measures such as the following may be used as positive action initiatives.

 Putting equal opportunities higher on the agenda by appointing Equal

Opportunities Managers
 Flexible hours or part-time work, term-time or annual hours contract FOR
 Fast-tracking school-leavers, as well as graduates, and posting managerial
vacancies internally,
 Training for women-returnees or women in management to help women to
manage their career potential.
 Awareness training for managers, to encourage them to think about equal
opportunity policy.
 Counseling and disciplinary policies to raise awareness and eradicate sexual,
racial and religious harassment.
 Positive action to encourage job and training applications from minority groups.

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DIVERSITY

Diversity in employment, as a concept, goes further than equal opportunities.

The ways in which people meaningfully differ in the work place include not only
race and ethnicity, age and gender, but personality, preferred working style,
individual needs and goals and so on.

MANAGING DIVERSITY

A 'managing diversity' orientation implies the need to be proactive in managing the

needs of a diverse workforce in areas (beyond the requirements of equal
opportunity and discrimination regulations) such as:

 Tolerance of individual differences

 Communicating effectively with (and motivating) ethnically diverse work forces
 Managing workers with increasingly diverse family structures and responsibilities
 Managing the adjustments to be made by an increasingly aged work force
 Managing increasingly diverse career aspirations/patterns, flexible working etc
 Dealing with differences in literacy, numeracy and qualifications in an
international work force
 Managing co-operative working in ethnically diverse teams.

DIVERSITY POLICY

Ingham (2003) suggests the following key steps in implementing a diversity policy
taking into account all the equal opportunity requirements.

Step 1 Analyze your business environment

Step 2 Define diversity and its business benefits

Step 3 Introduce diversity policy into corporate strategy

Step 4 Embed diversity into core HR processes and system

Step 5 Ensure leaders implement policy

Step 6 Involve staff at all levels

Step 7 Communicate, communicate, and communicate

Step 8 Understand your company's needs

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Step 9 Evaluate

INDIVIDUALS AND GROUP BEHAVIOURS IN BUSINESS

Every manager must have a good understanding of the behaviours, attitude of
their subordinate and how to control, motivate, and develop their performance.
Moreover, it’s also essential to consider the importance of teams in the
organizations and how the teams can be formed developed and managed so as
to help achieve the organization goals and objectives.

PERSONALITY: These is the total pattern of characteristics ways of thinking, feeling

and behaving that constitute an individual’s distinctive method of relating to the
environment.

It’s also used to identify, describe and explain the differences between people and
psychologists.

TWO WAYS TO DESCRIBE PERSONALITY:

(1.) Personality traits: are relatively stable, enduring qualities of an individual's

personality which cause a tendency to behave in particular ways. Trait theories
of personality account for individual differences by identifying the particular
combination and strength of traits possessed by individuals.

(2.) Personality types: are distinct clusters of personality characteristics, which

reflect the psychological preferences of the individual such as EXTRAVERT and
INTRAVERT.

COMPATIBILITY ISSUES FOR MANAGER ON PERSONALITY

 There are may be a clash in different personality.

 Different personality type may have different need from work

 Different work may require different personality types

 Different personality types may suit particular structures, systems and

cultures of work in an organization.

PERCEPTION: It is the psychological process by which stimuli are selected and

organized into patterns which are meaningful to the individual.

FACTORS THAT LEADS TO MISUNDERSTANDING OF INDIVIDUAL PERCEPTION

 Common clashes about perception among some people such as

management/staff, un-intended racial/ sexual harassment.

 Conflict arising because different people see things from different point of
view.
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  People confusing the map for the territory

ATTITUDE: These are a mental state exerting a directive or dynamic influence upon
the individual’s response to all objects and situations with which it’s related.

MANAGERIAL ISSUES OVER INDIVIDUAL ATTITUDE

 Positive or negative attitudes to work.

 Attitudes to work-related issues may affect co-operation, motivation,

commitment.

 Attitudes brought to work by individuals such as race, beliefs, e.t.c

ROLES: These are the parts people act out in different contexts, according to the
tasks and relationships required by those contexts.

ROLE SET: The people who relate to a person in a particular role.

MANAGERIAL ISSUES OVER INDIVIDUAL ROLE

 The need to make individuals roles clear in order to avoid ambiguity and
stress.

 The need to avoid conflicting demands such as role conflict or role

incompatibility.

 The need for individual to behave appropriately for their role set giving
appropriate role signs.

GROUPS AND TEAMS (FORMATION, DEVELOPMENT & MANAGEMENT)

A group is any collection of people who see themselves as a group. Moreover, they
see themselves having the following features:

 A sense of identity

 Purpose and leadership

 Loyalty and conformity to group norms

A Team is a group formally organized for the purpose of performing a task.

Examples include:

 Multi-disciplinary teams: for sharing of the skills and competence

 Multi-skilled teams: for working in flexible ways

 Brainstorming teams: for generating various ideas

 Management or Quality teams: for problem solving and decision

making

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TEAM ISSUES

 Team identity

 Team solidarity

 Shared objectives

ADVANTAGES OF TEAMWORKING

 It encourages satisfactory participation

 It leads to interpersonal relations among members

 It encourages efficient sharing or distribution of resources

 It facilitates flexibility and speed it

 It gathers skill, knowledge and experience

DISADVANTAGES OF TEAMWORKING

 They take slower decisions compared to individuals

 They implement riskier/dangerous decisions than individuals

 Group maintenance distracts from task

 Their norms and policies restrict flairs and output.

 Not suitable for all jobs in the organisation

TEAM MEMBERS ROLE

BELBIN identifies NINE roles of the team members and suggest they must be
balanced and possibly be evenly distributed for an effective team. They include:

 CORDINATOR: He presides over team activities; ensure disciplines and good

at working with others.

 SHAPER: He leads people unto action, domineering, extrovert, passionate

about the job.

 PLANT: He provides the team with numerous ideas and proposals. He is

creative and intelligent but an introvert.

 MONITOR-EVALUATOR: He dissects, criticizes ideas, spots problems but he’s

intelligent and analytical.

 RESOURCE-INVESTIGATOR: He has adequate access to resources and

contacts, an extrovert networker but not an originator.
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  IMPLEMENTER: They translate different ideas into practice and plans, though
they are not a leader but support other members. (diplomatic and
empathetic individuals).

 TEAM –WORKER: He holds the team together and gives adequate support to
his members. A diplomat and empathetic individual.

 COMPLETER-FINISHER: He ensures the team members achieves deadlines,

follow-up plans and accomplishes task.

 FUNCTIONAL SPECIALIST:

STAGES OF TEAM DEVELOPMENT (by TUCKMAN)

o FORMING: This is when the group members are coming together, individuals
getting use to each other and trying to know the aims and norms of the
group.

o STORMING: They forms aims, roles, policies and procedures and begins to
encounters conflicts in some issues.

o NORMING: They begin to settle down, reaching agreements on work sharing

pattern, roles and norms. The commencement of group decision making.

o PERFORMING: They are ready to implement their tasks and no attention to

formation issues but focus is placed on productivity and result.

Addition to TUCKMAN’S MODEL:-

DORMING: They are a long standing group but suddenly begin to get complacent
and lose focus on their tasks.

OBJECTIVES (INDICATORS) OF EFFECTIVE TEAM WORKING

 To ensure an efficient and effective team functioning such as consensus

among members, adequate cooperation and balancing roles of all team
members.

(DISCIPLINE, GRIEVANCE, MOTIVATION OF MEMBERS)

 By fulfilling the team roles such as commitment to goals, objectives,

corporate values e.t.c

(INVESTIGATION, IDEAS GENEARTION)

 To ensure an effective job performance through task accomplishment,

enforcing standards e.t.c

(CUSTOMER SATISFACTION, STANDARDS & TARGETS SETTING)

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  Ensuring team members satisfaction with performance, process and
relationships.

(COMMUNICATION, RATE OF ABSENTEEISM, TURNOVER)

 Effective and efficient task by ensuring a study work flow, solving

organization problems, creation of new ideas and innovation.

(PRODUCTIVITY, OUTPUT, WORK-FLOW)

BUILDING BLOCKS AND BLOCKAGES

Woodcock adopts a practical approach to team building. He argues that to build
an effective team you must first identify the blockages to team building then
decide on the building blocks to be used.

Blockages Building blocks

o Lack of adequate team members Sufficient /adequate team

members

o Unclear Objectives Clearer Objectives

o Unsatisfied team members Motivated/satisfied team

members

o Low innovation/creativity Acceptance of new ideas,

knowledge

o Lack of internal control Constant feedback strong control

system

o Bad interpersonal relationships Cooperation and good

relationship

o Lack of experiences leaders/managers Best fit leadership style

o Restricted communication pattern Open network and

communication

o Ineffective work methods Standard procedures, policies &

systems

MOTIVATING INDIVIDUALS AND GROUPS

Motivation is 'a decision-making process through which the individual chooses
desired outcomes and sets in motion the behaviour appropriate to acquiring them'.
(Huczynski and Buchanan).

Motivation is the social process by which the behaviour of an individual is

influenced by rewards, incentives and sanctions applied by others.
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People have certain innate needs and goals, through which they expect their
needs to be satisfied both these drive behaviour

Basic assumptions of motivation

 People behave in such a way as to satisfy their needs and fulfill their goals

 An organization is in a position to offer some of the satisfactions people might

seek:

 An organization therefore influence people to behave in ways it desires

 If people's needs are being met, and goals being fulfilled, at work, they are
more likely to have a positive attitude to work and the organization.

Theories of motivation

A. Content theories ask the question: 'What are the things that motivate
people?'

They assume that human beings have a set of needs or desired outcomes. It
suggest that the best way to motivate employee is to find out what his/her needs
are and offer him/her rewards that will satisfy those needs

They include:

Maslow's hierarchy of needs, David McClelland and Hertzberg’s two-factor theory.

B. Process theories ask the question: 'How can people be motivated?'

They explore the process through which outcomes become desirable and are
pursued by individuals.

Moreover it assumes that people are able to select their goals and choose the
paths towards them, by a conscious or unconscious process of calculation. They
include:

Expectancy theory and Handy’s motivation calculus.

F=VXE

Force of individual Prefrence

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CONTENT THEORIES OF MOTIVATION

Maslow's hierarchy of needs

Abraham Maslow described five innate human needs, and put forward certain
propositions about the motivating power of each need they all include:

 Physiological needs

 Safety needs

 Love/social needs

 Esteem needs

 Self-Actualization needs

An individual's need can be arranged in a 'hierarchy of relative pre-potency. Each

level of need is dominant until satisfied; only then does the next level of need
become a motivating factor. A need which has been satisfied no longer motivates
an individual's behaviour.

The need for self-actualization can rarely be satisfied and he also described the
following

 Freedom of enquiry and expression

 Knowledge and understanding needs

LIMITATION OF MASLOW THEORY

 Altruistic behaviour: Where people sacrifice their needs for others.

 Deferred Gratification: Where individual ignore the present suffering because

of future promise.

 Variation in behaviours & needs: A need may cause different behaviours in

different people, which make it difficult to explain different individual
concerning their needs.

 Empirical verification: This is hard to be determining by the hierarchy

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  Cultural values: It’s only suitable in limited countries and regions (U.K,
USA. Etc)

DAVID MCCLELLAND

This writer also suggested the types of needs which motivate an individual into
action or outcome:

 The need for Power

 The need for Achievement

 The need for Affiliation

All these three needs have relationship with that of Abram Maslow hierarchy of
needs.

TWO FACTOR THEORY by Fredrick Hertzberg

The theory is based on two needs such as

(A.) Need to avoid unpleasantness: This is satisfied through hygiene factors, it has to
do with the environment and conditions of work such as:

Company policy and administration, Interpersonal relations, Salary, Working

conditions, quality of supervision, Job security e.t.c.

Moreover if inadequate, hygiene factors cause dissatisfaction with work (which is

why they are also called 'dissatisfiers').

(B.) Need for personal growth: This is satisfied by motivator factors. It actively creates
job satisfaction (they are also called 'satisfiers') and are effective in motivating an
individual to superior performance and effort. These factors are connected to the
work itself such as:

Status (although this may be a hygiene factor too), Challenging work,

Advancement, Recognition, Growth in the job, responsibility

A lack of motivator factors will encourage employees to concentrate on the

hygiene factors. The only ways to offer job satisfaction are factors in the job itself.

Hertzberg suggested 3 types of job design which would offer job satisfaction
through enhanced motivator factors such as:

 Job enlargement, Job rotation, Job enrichment

CRITICISM OF HERZBERG THEORY:

 An inadequately small sample size

 A limited cultural context (Western professionals)

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  The impact of job satisfaction is difficult to measure.

Adams’ equity theory

Adams argues that inequities exist whenever people feel that the rewards
obtained for their efforts are unequal to those received by others. Inequities
can be negative or positive. Adams proposes that negative or positive
inequities are motivational forces.

PROCESS THEORIES OF MOTIVATION

They help managers to understand the dynamics of employees' decisions about

what rewards are worth going for.

Victor Vroom's expectancy theory

Expectancy theory basically states that the strength of an individual's motivation to

do something will depend on the extent to which he expects the results of his efforts
to contribute to his personal needs or goals.

Victor Vroom stated a formula by which human motivation could be assessed and
measured. He suggested that the strength of an individual's motivation is the
product of two factors.

E X V=F

F =Force or strength of the individual's motivation to behave in a particular way.

V = Valence: the strength of the individual preference for a given outcome/reward.

(Value placed on the outcome either positive or negative).

E =Expectancy: the strength of the individual’s expectation that behaving in a

certain way will result in a given outcome.

CHOOSING AN APPROACH

The way managers attempt to motivate individuals and their team members, kind
of rewards they offer them will depend to an extent on the manager’s assumptions
about his workers and their orientations.

Douglas McGregor: Theory X and Theory Y

THEORY X: People dislike work and responsibility, therefore workers must be

coerced, controlled and directed in order to make them perform adequately.

MGR: supervise closely, apply detailed rules and controls, and use 'carrot and stick'
motivators.

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THEORY Y: The assumption is that the expenditure of effort by workers in work is
natural and not inherently disliked. Moreover, workers are capable of discharging
responsibilities and self-direction being motivated by their desire for
growth/achievement.

MGR: consultative, facilitating leader, using positive feedback, challenge and

responsibility as motivators.

Both are intended to be extreme sets of assumptions – not actual types of people.

REWARDS AND INCENTIVES

A reward is a token (monetary or otherwise) given to an individual or team in

recognition of some contribution or success.

An incentive is the offer or promise of a reward for contribution or success, designed

to motivate the individual or team to behave in such a way as to earn it. (In other
words, the 'carrot' dangled in front of the donkey!)

Different individuals have different goals, and get different things out of their
working life: in other words, they have different orientations to work. Why might a
person work, or be motivated to work well?

INTRINSIC AND EXTRINSIC FACTORS

The rewards offered to the individual at work may be of two basic types namely:

(a) Extrinsic rewards: They are separate from (or external to) the job itself, and
dependent on the decisions of others (that is, also external to the control of the
workers themselves).Its known as HYGIENE FACTORS.

(b) Intrinsic rewards: They are those which arise from the performance of the work
itself. They are therefore psychological rather than material and relate to the
concept of job satisfaction. It’s known as MOTIVATOR FACTORS

SIX CRITERIA FOR A REWARD SYSTEM

 Encourage people to fill job vacancies and not leave

 Predictability of employees' behaviour

 Willingness to accept change and flexibility

 Foster and encourage innovative behaviour

 Reflect the nature of jobs

 Motivate: that is, increase commitment and effort

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The job itself can be used as a motivator. A well-designed job should provide 5 core
dimensions. According to Hertzberg considered the basis of all motivator factors
leads to job satisfaction:

JOB OPTIMISATION

 The variety of Skill

 Task significance/importance

 Autonomy or discretion

 Feedback on performance

 Task identity/ meaning

Additionally, Hertzberg identified that the micro- designed jobs propounded by

Frederick Taylor are merely repetitive unimportant, meaningless, programmed and
devoid adequate feedback. A suggestion of 3 ways in redesigning jobs for
employee’s job satisfaction is identified namely:

JOB ENLARGEMENT:

This is a horizontal extension of the job by increasing the number of operations or

tasks, whereby reducing the cycle of repetition and adding variety.

JOB ROTATION:

This is the transferring of workers sequentially or cyclically from one job to another so
as to allow task variety. It can also be used as training and/or development.

JOB ENRICHMENT:

This is a vertical extension of the job by adding responsibility, breadth, challenge,

removing control and giving feedbacks. It is known as job empowerment on the
level of individual job design.

The following factors are potential motivators (sources of job satisfaction in

employee job enrichment:

PARTICIPATION/INVOLVEMENT: Employee must be allowed to partake in some

decision making .The following are the features of adequate participation:
CERTAINTY, CONSISTENCY, CLARITY, CAPACITY & COMMITMENT (5C’s).

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There are 2 major types of participation namely: DISTANT and IMMEDIATE
PARTICIPATION.

FEEDBACK: The feedback generated should be constructive performance

feedback. This is important in job satisfaction and motivation

2 Types of feedback: Development and Motivational feedbacks.

The feedback that we get comes in different forms:
intrinsic feedback
extrinsic feedback
concurrent feedback
Delayed feedback
PAY AS A MOTIVATOR

Pay is an important motivator because of the following reasons:

 People needs money to survive

 People have an instrumental believe/attitude towards work, whereby the

money determines their actions.

 People use money to satisfy or achieve many needs.

 People use pay to measure their worth

Moreover, pay is also a limited motivator because of the following reasons:

 Money does not offer job satisfaction to all individuals.

 Money cannot be equitable distributed and sufficient for people.

 Money by itself cannot provide higher needs, that is, money is not everything
people want.

FACTORS THAT DETERMINE PAY LEVEL/STRUCTURES

 Negotiation/collective agreement: These could be done by union

members of the company, productivity agreement,.

 Market rate: A predetermined/standard rate in the labour market.

 Individual performance: This is subject to individual’s performance at work.

 Equity (perceived fairness): This must match the level of work, and the
capacity of the individual to do it.

 Job evaluation: This is a systematic process of analyzing the job content so

as to determine the value of the job and not job holders.

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 There are several methods such as non analytical, analytical, and ranking,
classification point rating e.t.c.

Payment by result: this directly related to output produced or time taken.

PERFORMANCE RELATED PAY

Performance related pay: is a form of incentive system, awarding extra pay for
extra output or performance.

This is related to results achieved either in achievement of objective, defined

standards of task e.t.c. for individual they could be ‘piecework’ payment, while for
management it could be ‘management by objectives’.

BENEFITS OF PERFORMANCE RELATED PAY (PRP)

 Improves focus on the business's performance objectives

 Improves commitment and capability

 Greater supervisory responsibility

 Complements other HR initiatives

 It recognizes achievement when other means are not available

 Encourages two-way communication

PROBLEMS OF PERFORMANCE RELATED PAY (PRP

 Encouraging short-term focus and target-hitting (rather than improvements)

 Divisive/against team working (if awards are individual)

 Subjectivity of awards for less measurable criteria (eg 'teamwork')

 Difficulties gaining union acceptance (if perceived to erode basic pay)

REWARDING TEAMS

There are various forms of group rewards that can be used as an incentive to co-
operative performance and mutual accountability. They are Group bonus Scheme
and Profit sharing Schemes but must have the following features:

 The sum should be significant.

 Clear and timely link between effort or performance and reward

 Reasonable/ realistic targets

 Management commitment

 Adequate employee discussion

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LEARNING AND TRAINING AT WORK
The main purpose of training and development is to raise competence and
therefore performance standards.

Training is the planned and systematic modification of behavior through learning

events, programmes and instructions which enable individuals to achieve the level
of knowledge, skill and competence to carry out their work effectively. It is
concerned with providing employees with the skills they need to carry out their jobs
on a day-to-day basis. It tends to focus on formal learning and required skills as
identified by the employee’s manager.

Development is ‘the growth or realization of a person’s ability and potential through

the provision of learning and educational experiences’. It considers the individual. It
is more concerned with providing individual with skills that the individual need in the
future rather than focusing on current needs. This tends to require an informal
approach and is based on helping the individual to develop oneself rather than the
organisation. Development is more associated with line managers, potential
managers and lower level staff.

Education is the knowledge acquired gradually through a process of learning and

instructions

The Overall purpose of development:

 Ensures that the firm meets its current and future performance objectives by…
 Continuous improvement of the performance of individuals and teams,
and…
 Maximizing people’s potential for growth and promotion
Training and development strategy

 Identify the skills and competences needed by the business plan and HR plan
 Draw up development strategy to show how training and development
activities will assist in meeting the targets of the corporate plan
 Implement the training and development strategy

Importance of training and development

TO THE ORGANISATION:
 The program provides the skills necessary in the present and the future
 It forms the key part of HR planning
 It creates flexible environment where people can carry out a task, this can
especially be valuable if an employee is on leave
 It increase productivity and quality of work

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  It serves to motivate (because it shows that the employer is interested in the
employees) staff to work harder
 Fewer accidents, and better health and safety
 Minimize the cost of obtaining the skills the organisation needs
 Recruitment and succession planning
 Change management
 Retention
 Less need for detailed supervision; reduced supervisory cost

TO THE EMPLOYEES:
 Training and development shows that employees are valued members of the
staff, providing them with a sense of belonging, they think why would my
employers invest time and money on me if they do not think I was worth it.
 It provides security for the continued employment of business
 Learning new skills makes employees more marketable, it helps find a new
role if they leave the organisation
 Training courses provide social interaction which can be enjoyable

WAYS OF DEVELOPING STAFF AND PROVIDING TRAINING

Training requirements are highlighted by a number of things, such as:
 Mistakes being made
 Feedbacks through the appraisal process
 Future business strategies

ELEMENTS INVOLVED IN STAFF DEVELOPMENT

 Managers need to select appropriate staff (line managers and/or potential

managers)for development
 Appraise each individual development needs by:
o Discussing with the staff and highlighting development issues
o Giving responsibility to individual and encouraging staff development
o Considering the HR part to ensure that future requirements are addressed
 Select appropriate techniques for development, this may include:
o Formal training process
o On-the-job learning
o Coaching
o Mentoring
o Learning groups
o Demonstrations
o Project work
o Temporary promotion

Formal coaching may be beneficial as training tends to be away from work,

thereby avoiding distraction, and have access to teachers who are expert on the
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subject. However, coaching may be generic, thereby being difficult to transfer to
work or put into practical use; valuable elements might be omitted and
unnecessary details might be included.
Objectives (with SMART characteristics) should be set with employees for their future
development.
Note that training and development are keys to the success of any organisation but
not the answer to every problem; incorrect job design, lack of resources, personal
characteristics (e.g. intelligence), low morale caused by bad management, and
poor working conditions are other factors to consider. Development and training
are actions taken to provide the required skills.
A systematic approach to training
Step1 Identify and define the organization’s training need
Step2 Define the learning required
Step3 Define training objectives
Step4 Plan training programmes
Step5 Implement the training programme
Step6 Monitor, review and evaluate training
Step7 go back to step2 if more training is needed

MEASURING THE SUCCESS OF TRAINING AND DEVELOPMENT

Training should be evaluated in terms of cost and benefits to be sure whether
desired results have been achieved. The following can be used to achieve this:
 Get feedbacks from trainees
 Observe and monitor changes in behavior of trainees
 Recognize that people have different learning style

THE LEARNING PROCESS

There are different schools of thought as to how people learn.
Approaches to learning theory
a) Behaviourist psychology: concentrate on the relationship between stimuli
(input through senses) and responses to those stimuli. This means that
individual can modify responses in the future according to whether the results
of past behavior was good or bad
b) The cognitive approach: argues that the human mind takes sensory
information and imposes organizations and meaning on it. It involves
interpreting and rationalizing to make rational decisions, maintain successful
behaviours and modify unsuccessful behaviours in the future.
Lessons from learning theory
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Learning theory offers certain useful propositions for the design of effective training
programmes and the role of HR department in developing such programs. Some of
the propositions are listed below:
 The individual should be motivated to learn: highlight advantages of such
training
 There should be clear objectives and standards to give each task some
meaning
 There should be timely, relevant feedback on performance and progress with
a view to adjusting the behavior of trainees
 There should be judicious use of positive and negative reinforcement
 Active participation should be encouraged to enhance motivation,
concentration and recollection

Learning styles: Honey and Mumford

Different people have different learning style and preferences and these differ
according to individual psychological preferences as shown below:
Theorists seek to understand basic principles or underlying concepts and prefer to
take into lecturer logical approach. They are happy learning through books and
like to ask theoretical questions in the classroom. They prefer learning to be:
o Programmed and structured
o Designed to allow time for analysis
o Provided by teachers who share their preference for concept and analysis

Reflectors prefer to absorb or consider phenomena; they tend to sit and listen in the
classroom but at their own pace and like to work through notes again; they just
watch and learn and tend to be fairly slow, non-participatory (unless to ask
questions) and cautious.
Activists learn best and prefer the following:
o Deal with problems publicly and get involved
o Attempt to exercise some questions (practical) in the classroom and learn
from experience, they do not like theories
o They tend to learn on the job and the office
o Are flexible and optimistic, but tend to rush at something without due
preparation

Pragmatics will:
o Study a problem and learn only if there is a direct link to real practical
problems
o They prefer to be given real life examples on issues to highlight their
relevance

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 o Are good at learning new techniques through on-the-job training
o Aim to implement action plans and/or do the task better
o May discard good ideas which only required some development

Each learning style requires a different appropriate training program to

accommodate preferences

The learning cycle: Kolb

This is another useful model and it is base on the fact that people can learn from
everyday work experience. The model states that experience learning involve
learning by doing and the cycle starts from having experience, then to reflecting
on the experience, then drawing conclusion from the experience (formulation of
abstract concepts and generalisations)and planning the next step
(applying/testing the implication of concepts in new situations).
Learning by doing approach involves:

Act----------Analyse action----------- Suggest principles ----------Apply principles---

--- act... (etc.)

Tools to encourage training and development

1. Real life experiences
2. Practical exercises
3. Queries
4. Computer-based learning
5. Interactions with trainers
6. ACCA study kits

Organisational learning
This is an organisation that facilitates the acquisition & sharing of knowledge; the
learning of all its members, in order to continuously and strategically transform itself
in response to a rapidly changing and uncertain environment.

The key dimensions of a learning organisation

 The generation and transfer of knowledge
 A tolerance for risk and failure as learning opportunities
 A systematic, on-going, collective and scientific approach to problem-solving

Strengths of learning organisation

Learning organisations are good at certain key processes, including:
 Experimentation: they search for and test new knowledge, innovation is
encouraged, with a tolerance for risk
 Learning from past experiences: they seek and provide feedback on
performance and processes; they review their successes and failures;
mistakes and failures are regarded as learning opportunities

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  Learning from others: they do this by looking ‘outside the box’ of the
immediate environment so as to learn from others mistakes
 Transferring knowledge quickly and efficiently throughout the organisation.
Education, training and networking opportunities are constantly available

Training methods

(A.) Off-the-job education and training

Off-the-job education and training minimizes risk but does not always support
transfer of learning to the job. It is formal training conducted outside the context of
the job itself in special training rooms and off-site facilities. Off-the-job education
and training may be in form of courses (day release, distance learning, evening
classes, correspondence courses, revision courses, block release, sandwich or
sponsored full-time courses); computer-based learning; e-learning; techniques

(B.) On-the-job training

On-the- job training maximizes transfer of learning by incorporating it into ‘real’
work. Methods include:
 Demonstration/instruction
 Job rotation
 Temporary promotion
 Assistant to positions
 Action learning
 Committees
 Project work

(C.) Induction training

Induction is the process whereby a person is formally introduced and integrated
into an organisation or system. Purposes of induction include:
 To help new recruits to find their bearings
 To begin to socialize new recruits into the culture and norms of the
team/organisation
 To support recruits in beginning performance
 To identify on-going training and development needs
 To avoid initial problems at the ‘induction crisis’ stage of the employment
lifecycle, when frustration, disorientation and development may otherwise
cause new recruits to leave the organisation prematurely

The process of induction

1. Pinpoint the areas that the recruit will have to learn about in order to start the
job
2. Introduce the recruit to the work premises and facilities
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 3. Brief the HR manager on relevant policies and procedures: condition of
employment, sickness and holiday absences, health and safety, etc.
4. Introduce the recruit to key people in the office
5. Introduce work procedures: that is the nature of the job, and the goal of
each task; hours of work; structure of the department
6. Plan and implement appropriate training program for whatever technical
and practical knowledge required
7. Monitor initial progress, as demonstrated by performance, as reported by the
recruit’s mentor, and as perceived by the recruit him/herself
Responsibility for training and development
Increasingly, responsibility for training and development is being devolved to the
individual learner, in collaboration with line managers and training providers:

The trainee
Employees should seek to develop their own skills and improve their own careers,
rather than wait for the organisation to impose training upon them.

The human resources department

The human resources department is centrally concerned with developing people
and so hs the following responsibility:
o Satisfy the need of individual
o Manage the progression of individuals through the organisation

Line managers
Line managers bear some of the responsibility for training and development within
the organisation by:
o Identifying development and training needs of the department and section
o Assessing current competences of the individual within the department
o Identify opportunities for learning and development on the job
o Providing coaching and feedbacks
o Organizing training programmes where required

The training manager

The training manager is a member of staff appointed to arrange and sometime run
training. His responsibilities include:
o Scheduling training progremmes
o Liaising with HR and operating departments
o Discerning existing and future skills shortages
o Developing tailored training programmes
o Giving feedbacks to the trainee, department and the HR department
o Measuring the effectiveness of training programmes (Evaluation)

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REVIEW AND APPRAISAL OF INDIVIDUAL PERFORMANCE
Performance management aims to get better results for the organisation
(managing performance within an agreed framework of goals, standard and
competence requirements) via the measurement and education of individual
performance. It is a process to establish a shared understanding about what is to
be achieved, and an approach to managing and developing people in order to
achieve it.

Process of performance management

This is a systematic approach to performance management and includes the
following steps:
1. Identify the requirements and competences from the business plan

2. Draw up a performance agreement, defining the expectations of the

individual or team, covering standards of performance, performance
indicators d skills and competences people need

3. Draw up a performance and development plan with the individual, this will
cover the following:

a. The areas of performance the individual feels in need of development

b. What the individual and manager agree is needed to enhance
performance
c. Development and training initiatives
4. Manage performance continually throughout the year, and

a. High performance should be reinforced with praise, recognition and

increasing responsibility. Low performance results in coaching and
counseling
b. Work plan should be updated as necessary
c. Deal with performance problems, by identifying what they are and
reasons and take control action and provide feedback
5. Performance review: at a defined period each year, success against plan is
reviewed, but the whole point is to assess what is going to happen in the
future

In order for learning and motivation to be effective, it is essential that people know
exactly what their objectives are; this enables them to do the following:

 Plan and direct their effort towards the objectives

 Monitor their performance against objectives and adjust (learn) if required
 Experience the reward of achievement once the objectives have been
reached
 Feel that their tasks have meaning and purpose, which is an important
element in job satisfaction
 Experience the motivation of a challenge

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  Avoid the motivation of de-motivation of impossible or inadequately
rewarded tasks
Principles for devising performance measures
 They should be job related
 Controllable
 Objective and observable
 Data must be available

Performance Appraisal

Performance appraisal (competence assessment) is one of the formal ways of

identifying training needs and development potential. Appraisal is part of a
broader of goal setting, performance monitoring, feedback giving, and
performance adjustment.
Importance/Aims of Reward review: is to improve efficiency of the organisation by
ensuring that the individual within it are performing to the best of their ability and
developing their potential for improvement and to determine the extent to which
an employee deserves a bonus or pay raise.

There are a number of argument for and against linking performance to pay raise;
some say that it makes sense that staff should be paid what they deserve as it may
motivates them to achieve objectives and become more efficient; on the other
hand, it may be demotivating if employees has achieved objectives but the
business or organisation has insufficient resources to reward or pay the bonus. Also
reward review always focuses on month, rather than the entire year, this make the
process subjective and that may mean that staff are not actually rewarded
according to their performance.

Components of appraisal

Reward review: measure the extent to which an employees is deserving of

performance-related bonuses or pay increase

Performance review: is about planning and following up on training and

development programme

Potential review: is an aid to planning career development and succession, by

attempting to predict the level and type of work the individual will be capable of in
the future by HR planning and career progression

Specific Objectives of Appraisal

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  To establish what the individual has to do in a job
 measure achievement of objectives
 To establish and communicate future objectives
 Identify potential candidates for promotion
 Identify areas of improvement
 To identify training and development needs
 To identify high fliers and under-achievers
 To identify areas of improvements for individual and business as a whole
 To provide feedbacks

Reasons for formal appraisal

Formal appraisal systems support objective, positive, relevant, consistent feedback

from managers. Formal appraisal systems are required for the following benefits:

 Managers and supervisors may obtain random impressions of subordinates’

performance (perhaps from their more noticeable successes and failures),
but rarely from a coherent, complete and objective picture
 They may have a fair idea of their subordinates’ shortcomings but may not
have devoted time of and attention to the matter improvement and
development
 Judgements are easy to make, but less easy to justify in detail, in writing, or to
the subject’s face
 Different assessor may be applying a different set of criteria, and varying
standards of objectivity and judgement
 Unless stimulated to do so, managers rarely give their subordinates adequate
feedback on their performance
Benefits of Appraisal to Individual and Organisation

To Benefits

Individual Objectives are establish in relation to the whole orgnisagtion

Key results and timescales are established

Compares past performance and future activities against

standards

Basis for performance related pay

Organisation Suitable promotion candidates are identified

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 Areas of improvement can be seen

Communication is improved

Basis for medium to long term HR planning

The process of Performance Appraisal

Steps required for successful Performance Appraisal/Appraisal techniques

Step1: Assessor needs to identify criteria for assessment, e.g. on what basis will an
individual’s performance be measured?

There are five basic criteria/techniques and they are:

1. Overall assessment taking in narrative form

2. Guided assessment based on specific assessment elements
3. Grading which provides a range of measures, e.g. unsatisfactory
through satisfactory; good to very good and excellent
4. Behavioural incident methods concentrates on employee behavior
and is normally used by assessors to measure failure in critical job
behavior
5. Result-oriented schemes that is normally set on SMART objectives and
reviews performance against specific targets and standards of
performance agreed in advance by manager and subordinate
together. Significant advantages of this technique are:
 The subordinate is more involved in appraisal because he/she is
able to evaluate his/her progress in achieving jointly-agreed
targets
 The manager is relieved of a critic’s role and becomes a coach
 Clear and known targets help modify behavior

Step2: Both the assessor and employee will complete a form, independently
which will then be compared at interviews and final assessment review by
the manager. The assessor then compares the employees earning action
plan and monitors them to ensure success

This stage will help the employees to achieve their objectives, thereby
benefiting themselves and the organisation.

It is important that Performance Appraisal be carried out away from the office and
in a neutral environment; this has two advantages, namely:
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Distractions (e.g. the telephone ringing, knocking of the office door, etc.) would be
avoided, thereby allowing both parties to give their full attention

A neutral environment will reduce anxiety and defensiveness of employee being

appraised

Overview of the appraisal process

There are three basic requirements of a formal appraisal system:

I. The formulation of desired traits and standards against which individuals can
be consistently and objectively assessed
II. Recording assessment: managers should be encouraged to use a standard
framework
III. Getting the appraiser and appraise together, so that both can contribute to
the assessment and plans for improvement and/or development
Changes in the Appraisal process

Performance Appraisal is no longer about the managers telling the employees

whether he is good or bad, but rather it should be a two-way process.

Effectiveness and cost effectiveness of the appraisal process should be

systematically evaluated; this could be done by raising the following questions:

1. Why is the system relevant?

2. Is the system fair?
3. Is the system taken seriously?
4. Is there co-operations from appraises and appraisers?
5. Is the system efficient in terms of time and money?
It may be useful to ask how appraises and appraisers feel about the system and
check if there has been enhancement of performance using factors like: staff
turnover and disciplinary problem. This will give the employees the opportunity to
carry out self appraisal

Self-appraisal

This occurs when individuals carry out their own self-evaluation as a major input into
the appraisal process.

Advantages of self-appraisal
 It saves manager time
 It offers increased responsibility which may improve motivation

 This reconciles the goals of the individual and the organisation

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  It makes the scheme more flexible in terms of timing and relevance of the
appraisal

Disadvantages of self-appraisal
 People are not often the best judges of their own performance
 People may deliberately over/under estimate their performance, in order to
gain approval or reward – or to conform to group norms

The appraisal interview

This is an important stage in the process and it can be used to encourage
collaborative problem solving and improvement planning. A problem-solving style is
preferable to a ‘tell and sell’ or `tell and listen’ style (Maier)
The process of interview may be as follows:

Prepare: plan time, environment, venue, documentation, report, etc and review
employee’s history.

Interview: select appropriate interview’s style (directional, persuasiveness,

collaborative, etc); encourage employee to talk; be fair

Agree: summarize to check understanding; gain employee’s commitment; agree

plan of action.

Report: complete appraisal report.

Follow-up: take action as agreed; monitor progress; keep employee informed.

Forms/Types of Appraisal: New techniques

Upward appraisal: This form allows employees to do a self appraisal of their

experience
Customer appraisal: This is allowing feedback from internal and external customers
360 degree appraisal: This provides for a mixture (self, management, customers,
colleagues appraisal) of appraisal process
Peer appraisal: This provides an opportunity for members of the organization to
appraise their colleagues and obtain feedback from Staff.
Problems of Performance Appraisal/barriers to effective appraisal
 The process could be time-consuming
 Appraisal is confrontation
 Appraisal is a chat
 Appraisal is judgment
 Bureaucratic
 Assessors may display bias
 Assessors may lack necessary interview skills
 Subordinates may be defensive
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  Appraisal action plans may not be followed up (unfinished business)

SECTION E: PERSONAL EFFECTIVENESS AND COMMUNICATION

 PERSONAL EFFECTIVENESS TECHNNIQUES

 CONSEQUENCES OF INEFFECTIVENESS AT WORK

 COMPETENCE FRAMEWORKS AND PERSONAL DEVELOPMENT

 SOURCES OF CONFLICT AND TECHNIQUES FOR CONFLICT RESOLUTION AND

REFERRAL

 COMMUNICATING IN BUSINESS

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COMMUNICATION: Is the interchange of information, ideas, facts and emotions by
two or more persons. It establishes relationships and makes organizing possible.
Communication can take place without a word, e.g. gesture can express oneself
and pass communication as in when someone curl up, frown, glare, raise eyebrow,
etc. A pat on the back and other body language, e.g. friendly gaze, posture,
facial expressions, etc. could also be use to communicate.

Communication within an organisation

In the organisation, communication may take the form of:

 Giving or receiving information and instructions

 Exchanging ideas
 Announcing plans and strategies
 Laying down rules or procedures
 Comparing actual results against a plan
 Manuals, organizational charts and job descriptions

Elements/Stages of Communication Process

Sender (information, ideas, actions): initiates the communication process by

encoding (i.e. put the messages in words or images). The sender encodes the
message

Message: the information that the sender wants to transmit

Channel/Medium (phone, postal system, internet or gesture): is the means of

communication or the method over which message is transmitted e.g. you need to
have the internet (medium) to send an electronic mail

Receiver (understanding the message): the receiver decodes or interprets the

messages and thus a receiver is the person or group for whom the communication
effort is intended, he is the recipient of the message.

Feedback: ensures that mutual understanding has taken place in a communication

and make the communication a two-way process. It indicates to sender that the
message has been successfully received, understood and interpreted

Noise/interference: anything that interferes with the communication and make it

difficult to understand. Noise can come from different sources like machineries,
poor telephone connections, etc.
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Communication Process

There are different steps in communication process: this could be demonstrated by

a call to the customer care center to ask a question…

The following would be the steps involved:

1. The Customer Care Officer (CSO) heard the query or request and think about
it and the wide range of data relevant to the information requested
2. The CSO mentally decides on the actual content or wording of verbal
message to be given i.e. what to say and how it should be said
3. The message is then transmitted by speech or perhaps also by gesture
4. Properly supporting the verbal message by some written information, e.g. by
telling the sender what to do (in verbal or written form)
5. The sender receives the message (feedback) by listening or perhaps looking
6. The sender decodes the message. The language, pronunciation, and words
used may be difficult to understand
7. Decoding will lead to a complete understanding of the reply or the reply may
not be understood
8. The understanding of the reply may lead to some action been taken which
will lead to a satisfied end or there might be partial understanding which will
lead to asking further questions

How to Make Effective Communication

There are various steps to this:

 Selecting the appropriate channel: choice of medium to use may depend

on factors such as urgency, permanency, complexity, security and cost
 Adopting feedback: the two-way nature of communication is ensured, this
enables receivers to seek clarity and sender seeks acknowledgement, e.g.
chatting on the yahoo messenger
 Using more than one communication network: example is using informal
communication network like friendship to reinforce the message sent
 Restricting the number of communication links in the chain, thereby
encouraging recipients by allowing messages to be conveyed more directly,
e.g. telephone calls
 Ensuring clarity: sensitivity to the needs of the recipient of the message
(relating to experience, awareness, intelligence, perception, etc.) reinforces
the intention to produce a clear message

Feedbacks: This can be either negative or positive.

Negative feedback is a sign that the message was not having its desired effect i.e.

 No action taken
 Wrong action being taken
 Silence or blank look
 Request for clarification
 Incorrect reading back of the message
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Positive feedback is a sign that the message was received and understood i.e.

 Action taken as requested

 Accurate reading back of message
 Smile, nod, affirmative statements, e.g. yes I got that

Communication in the Workplace

In most jobs, the majority of your time at work involves dealing with other people.
Whether you are working alongside peers, reporting to a line manager, delegating
to juniors, collaborating with non-finance colleagues, or liaising with the employees
of clients or suppliers, how you interact with them is vital to your personal
effectiveness.

The effectiveness of an organisation depends to a large extent on the effectiveness

of communication by its managers and employees.

Information can be exchanged in two ways, namely:

Formally: formal communications help to provide management structure, so that

individuals know what is expected of them and how they have actually performed.
Examples are: organisational plans, procedures, policies, performance reports, and
official planning documents, etc.

Informally: informal communications are a feature of co-operation between

individuals. Information is communicated informally by means of face-to-face
conversations, telephone conservations, e-mails and text messages.

Formal Communication Flows

Work-flow is an important factor that shapes the formal pathway or channel for the
sending and receiving of communications.

Communication through formal cannel could be:

 Vertical: downwards, from superior to subordinate or upwards from

subordinate to superior.
 Downward communication provides a basis for giving specific job instructions,
policy decisions, guidance and resolution of queries. Too much emphasis on
downward communication can create problems. People may become
reluctant to come forward with suggestions and problems and may be
averse to taking on new responsibilities. There is also a risk of management
getting out of touch with their subordinates.
 Upward communication provides management with feedback from
employees on results achieved and problems encountered.
 Horizontal or lateral: is a communication between two people at similar level
in the organisation’s management hierarchy either in the same work or peer
group or different work group.

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Reasons for lateral communication

 Task co-ordination, e.g. discussing departmental performance

 Problem solving, e.g. handling budget cut
 Information sharing, e.g. explaining new information or study
 Conflict resolution, e.g. duplication of activities

*** Communication between the department s depends on this form of contact

(lateral), e.g. line and staff positions rely heavily on advice passing laterally.
Managers also communicate with sources outside the organisation, e.g.
suppliers and customers.

Diagonal: interdepartmental communication by people of different ranks

Information also flows into and out of the organisation. Inflow could be in form of
receiving information necessary to identify and respond appropriately to
environmental change, threat, opportunity or challenge. E.g. research, surveillance.
Outflow could refer to activities that involve the transmission of messages into the
environment with the aim of informing and systematically influencing people. E.g.
advertising, marketing and public relations

Informal Communication Channels: Organisations may rely on informal

communication for the transmission of information when the formal system is slow
and bureaucratic, or where senior managers are autocratic and do not believe in
sharing information with subordinates, its characteristics include:

 Can move in any direction

 Skips authority levels
 Is as likely to satisfy social needs as it is to facilitate task accomplishments
Informal Communication may be inaccurate and management have no control
over it, that is why an effective organisation should have an efficient formal
Communication system and ensure that accurate information is passed to
everyone in good time. However it should be noted that Informal Communication
will always exist

Examples of informal communication include the following:

1. Grapevine/Bush Telegraph: A grapevine is the network of social relations that

arises spontaneously as people associate with one another. Grapevine could
be used deliberately by management to give out information that it would
not wish to transmit formally.
2. Rumour: this is a message transmitted over the grapevine and is not based
on official information which may be true, false or have elements of both.
3. Gossip: is idle talk is often of little consequence, but could be harmful if
malicious and about particular people. It is often communicated by the
grapevine like rumour, However it can be a morale booster, a socializing
force and beneficial to the individual as a means of sharing employment

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 worries.
Ineffective communication

Ineffective communication includes poor, or inadequate control, as well as faulty

co-ordination, examples are:

1. Lack of downward communication resulting in:

 Poor awareness of corporate objectives

 Poor understanding of working instructions & responsibilities
 Junior staff not being consulted about changes which affect them
2. Lack of upward communication resulting in:

 Not receiving early warning of troubled areas

 Benefit of creative ability in subordinates is lost
 Participation of subordinates is limited
 Need for changes not appreciated
 Control becomes difficult
 Introduction to change is difficult
3. Lack of lateral communication resulting in:

 Divisions in management teams

 Lack of co-ordination
 Rivalry between sections and departments
 Lack of advice and involvement by staff specialists
Characteristics of Ineffective/wrong Communication

1. Information is omitted or distorted by the sender

2. Information is misunderstood due to the use of inappropriate jargon or lack of
clarity
3. Information is presented using an inappropriate medium, e.g. using e-mail
instead of a proper report
4. Information arrives too late or is incomplete
Importance of good communication to employees and managers

 Instructions and guidelines are properly understood

 Individuals know what they are expected to do
 Better co-ordination between people and groups in the organisation
 Managers are able to plan and control operations more effectively
 Individual are more willing to work together in teams or groups
 Forming, swapping and testing of ideas is encouraged
 Secrecy, misunderstanding and mistrust are eliminated, open communication
increases trust
 Interpersonal relations can be developed and maintained between
subordinates, supervisors, peers, customers and suppliers
 Arguments and conflicts in the workplace are reduced
Attributes of effective communication:

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Those who need the information should receive it in a comprehensible form, in the
right format, on time and in a state where it can be acted on. This means effective
communication must be:

 Timely
 Accurate, complete and to the point
 Directed to the right people
 Understandable

Barriers to effective communication

A barrier to communication is anything that stops information from:

 Getting to its intended recipient(s)

 Being understood by the recipients
 Being acted on in the way intended

Barriers to communication may be due to:

 The personal background of the individual communicating

 Language differences or the use of technical or professional jargon
 Differences in education levels
 Noise, which may result in a confused message
 Conflicts within the organisation and between individuals
 Overload of information
 Distance between communicators
 Simple misunderstanding as to content or context
 Distortion of information by the receiver

Overcoming barriers to communication

 Avoid communication overload

 Ensure the right information gets to the right person at the right time
 Agree and confirm priorities and deadlines for receipt of information
 Keep communication simple and clear
 Develop empathy with listeners
 Confirm, by repeating back, what has been said
 Confirm that the information you have been given has been understood
 Avoid inconsistent verbal/non verbal communication

Ultimately, successful communication depends on continuous feedback and

monitoring of existing communication systems. Information received from
monitoring should be evaluated and findings acted on swiftly. If difficulties are
identified these need to be corrected before further damage can occur.

Communication Patterns

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Communication patterns/communication networks are systems of communication
lines linking various senders and receivers. Communication Patterns can either be in
centralized or decentralized form.

The flow of information is regulated by several factors, namely:

 The proximity of workers to one another

 The rules governing who communicates with whom
 The status hierarchy
 Other elements such as job assignments and duties

Types of communication networks

1. Wheel
2. Circle
3. All-channel
4. Chain
5. ‘Y’

The circle: each member of the group can only communicate with only two
others in the group
A B

E C

The chain: each member of the group can communicate with each other
except for those at the extremes of the group.
A B C D E

The Y : the member at the center had more control of the communication
network.
D E

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 The wheel: similar to the Y pattern:

A B

E D

Chain, Wheel and ‘Y’ are centralized networks, group member have to go through
a person located in the central position in the network in order to communicate
with others. This leads to unequal access to information in the group.

In decentralized networks (Circle and All-channels), information can flow freely

between members without having to go through a central person.

The wheel is always the quickest way to reach a conclusion and the circle the
slowest

For complex problems, the all-channel is the most likely process to reach the best
decision

Level of satisfaction for individuals is lowest in the circle, fairly high in all-channel,
mixed in the wheel, with the central figures usually expressing greater satisfaction,
and the rest feeling isolated.

Under time pressure the all-channels system either restructures, to become a wheel
or disintegrates

IMPROVING PERSONAL EFFECTIVENESS AT WORK

Improving your personal effectiveness makes you better at managing your job and
your life outside of work.

The practical experience requirements to become an ACCA member include three

Essentials performance objectives relating to personal effectiveness – your ability to
manage yourself, communicate with others, and use information and
communications technology

Personal Development Plans (PDPs)

A PDP is a clear developmental action plan for an individual that incorporate a

wide set of developmental opportunities including formal training. Development is
more general than training, is more forward-looking and orientated towards the
individual, and is concern with enabling the individual to fill his or her potential.

Training Development
Immediately practical No Immediate practical application
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Connected to job performance Over time it enables a person to deal
with wider problems

Self development is defined as ‘personal development, with the person taking

primary responsibility for his or her own learning and for choosing the means to
achieve this’ (Pedler, Bougoyne & Boydell)

PURPOSE OF PERSONAL DEVELOPMENT PLANS

The purpose of PDPs is to ensure ‘growth’ during the person’s career. Elements of
career-growth cycle are challenging job goals which will lead to more effort being
exerted and resulting in good performance. Good performance will prompt positive
feedback which in turn will lead to psychological success which will increase the
person’s self esteem and thus involvement in the work.

The purpose of the plan will be aimed at:

 Improved performance in the current job or an existing job

 Improve skills and competences

 Acquiring transferable skills and competences for general ‘employability’ or

change of direction

 Developing skills (manual. Intellectual, mental perceptual or social) for future

career moves within and outside the organisation

 Developing specialist expertise or pursuing personal growth towards the

fulfillment of one’s personal interest and potential

Preparing a personal development plan: systematic approach

A systematic approach to planning your own development will include the

following steps:

Stage1 Analyse the current position with a view of selecting an area for
development: individual with their manager should carry out a personal
SWOT (strengths, weaknesses, opportunities, threats) analysis. The goals
might be based on your need to improve performance in your current
job and/or on your career. This can be assessed using the table2
below:

Tasks the person likes and does Tasks the person likes and does not
well do well
Tasks the person dislikes but does Tasks the person dislikes and does
well not do well

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Stage2 Set a SMART (specific, measurable, agreed, realistic and time-bounded)
learning objectives, covering:

 Performance in the existing job

 Future changes in the current role

 Moving elsewhere in the organisation

 Developing special expertise

Stage3 Draw up action plan to achieve the objectives: this should be based on
addressing the identified weaknesses and trying to move more of the
tasks of the current role into the ‘do well’ side of the matrix on the left-
hand side (see table2)

When drawing up and implementing an action plan, some degree of

control (control processes give people structure, define methods and
indicates how performance will be measured) is necessary to monitor
the extent to which the programme is achieving the goals and stated
objectives. Determining how you move will include:

Research relevant learning resources and opportunities

Evaluate relevant learning resources and opportunities for suitability,

attainability and cost-effectiveness

Stage 4 Formulate a comprehensive and specific action plan, including:

 The SMART objective

 Learning approaches you will use, specific action
 A monitoring and review plan
Stage 5 Secure agreements to your action plan (if required to mobilize
organisational support or resources)
Stage 6 Implement your action plan

The importance of continuous monitoring and feedback

Once the goal and personal ambitions have been defined and the person has
begun the development plan, the monitoring must begin.

Control processes give people timely, relevant feedback on their performance,

feedback will usually be provided by the manager or supervisor and should be
concurrent. Feedback should be clear and frequent.

Purpose of feedback

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  Feedback can have a motivating effect by providing recognition of work
done which in turn provides the incentive to sustain and improve
performance levels

 Recognition, praise and encouragement create feelings of confidence,

competence, development and progress that enhance the motivation to
learn

Time management

Time management is the process of allocating time to tasks in the most effective
manner.

Time is a scare resources and managers’ time must be used to the best effect. To
be worth his or her pay, an employee needs to add more value than he or she
costs per hour.

 Urgency and importance must be recognized and distinguished

 Tasks must be prioritized and scheduled

Effective time management Involves attention to the following principles:

 Goal or target setting: goals should be SMART:

o Specific
o Measurable
o Attainable
o Realistic
o Time-bounded
 Action planning: this involves making written action plans that set out how
you intend to achieve your goals
 Priotising: this involves setting your priorities from your plan by deciding which
tasks are most important
 Focus: work on one thing at a time until it is finished, where possible
 Urgency: do it now, do not put off large, difficult or unpleasant tasks simply
because they are large, difficult or unpleasant
 Organisation: apart from working to plans, checklists and schedules, your
work might improve by the following:
a. An ABCD method of in-tray management. Resolve to take one of the
following:

Act on the item immediately

Bin it, if you are sure it is worthless, irrelevant and unnecessary
Create a definite plan for coming back to the item: get it on your schedule,
timetable or ‘to do list’
Delegate it to someone else to handle
b. Organize your work in batches of jobs requiring the same activities, files,
equipment and so on

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 c. Take advantage of your natural work pattern, develop regular hours or
days for certain tasks, like dealing with correspondence first or filing at the
end of the day

Time management tasks

1. Identifying objectives and the key tasks which are most relevant to achieving
them
2. Prioritizing and scheduling: assessing the key tasks for relative importance and
amount of time required
3. Planning and control: schedule should be regularly checked for disruption by
the unexpected

Improving time management

 Plan each day

 Produce a longer-term plan
 Do not be available to everyone at all time
 Stay in control of the telephone

Prioritization

This involves ordering tasks in order of preference, based on:

 The relative consequences of timely or untimely performance

 Importance

A job is important compared to other tasks, if it satisfies at least one of three

conditions:

o It adds value to the organisation’s output

o It comes from a source deserving high priority, such a customer or senior
manager
o The potential consequences of failure are long-term, difficult to reverse, far
reaching and costly
 Dependency of other people tasks
 Urgency
 Defined deadlines, timescales and commitments

Classification of jobs: urgent vs. important

 Tasks both urgent and important should be dealt with now, and given a fair
amount of time
 Tasks not urgent but still important will become urgent as the deadline looms
closer. Some of the tasks can be delegated
 Tasks urgent but not important should be delegated, or designed out of job.
The tasks might be urgent to someone else, but not to you
 Tasks neither urgent nor important should be delegated or binned

Improving personal effectively considering the present and the future

Problems common to managers that must be overcome

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 1. Procrastinating
2. Delegating inefficiently
3. Mismanaging the paper work
4. Holding unnecessary meetings
5. Failing to set priorities

Work planning: means planning how, when and by whom work should be done, in
order that objectives can be met. Work planning includes the following steps:

 Establishing priorities
 Loading, allocation of tasks
 Sequencing of tasks
 Scheduling: time estimate for a task and working to meet the time

At individual level, work planning may involves the following:

 Scheduling routine tasks so that they can be completed at pre-determined

times
 Handling high priority tasks and deadlines
 Adapting to changes and unexpected demands
 Setting standards against which performance will be measured
 Co-ordinating your own plans and efforts with those of others

Work planning consists of a number of basic steps:

 Allocating work to people and machines (loading)

 Determining the order in which activities are performed (prioritising/activity
scheduling/ task sequencing)
 Determining exactly when each activity will be performed (timetabling or
time scheduling)
 Establishing checks and controls to ensure that deadlines are being met and
that routine tasks are still achieving their objectives

The role of information technology

The significant development of communication technology can have an impact

on the way people do their work. Some of these developments are:

a. Modems and digital transmission: new technologies require transmission

systems capable of delivering substantial quantities of data at great speed
b. Mobile communication: networks for portable telephone communication
known as cellular or mobile phones. Digital network have been developed to
better support data transmission with advantages in speed of transmission
and data protection
c. Voice messaging systems: answers and routes telephone calls
d. Computer bulletin boards: a computer bulletin board consists of a central
mailbox or area on a computer server where people can deposit messages
for everyone to see, and in turn read what other people have left on the
system.

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 Bulletin boards can be appropriate for a team of individuals at different
locations to compare notes. It becomes a way of keeping track of progress
on a project between routine team meetings.

e. Videoconferencing: this is the use of computer and communication

technology to conduct meetings
f. Electronic Data Interchange (EDI): is a form of computer-to-computer data
interchange

Deciding on communication tool

The channel of communication will impact on the effectiveness of the

communication process. The characteristics of the message will determine the type
of communication tool to use. Some of them are:

 Conversation
 Meeting
 Presentation
 Telephone
 Facsimile
 Memorandum
 Letter
 Report
 Electronic mail
 Video-conference
The effects of office automation on business

1. Routine processing: the processing of data can be done in bigger volumes,

at greater speed and with greater accuracy.
2. The paperless office
3. Management information: automation has change the nature and quality of
management information in the following way:
o More access to more information
o Information is likely to be more accurate, reliable and up-to-date
o Planning activities more thorough, models could now be used
o Information for control should be more readily available
o Decision making can be helped by computer support systems
4. Organization structure might change
5. Better Customer service
6. Home working or remote working made possible

Coaching, mentoring and counseling

coaching is an approach whereby a trainee is put under the guidance of an
experienced employee who shows the trainee how to perform tasks. Steps in
coaching include:

 Establishing learning targets

 Plan a systematic learning and development programme

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  Identify opportunities for broadening the trainee’s knowledge and
experience
 Take into account the strengths and limitation of the trainee
 Exchange feedback

Mentoring is a long-term relationship in which a more experienced person as a

teacher, counselor, role model, supporter and encourager, fosters an individual‘s
personal and career development

Career functions include:

 Sponsoring within the organization and providing exposure at higher levels

 Coaching and influencing progress through appointments
 Protection
 Drawing up personal development plan
 Advice with administrative problems people face in their new jobs
 Help in tackling projects, by pointing people in the right direction
 Psychological functions include:
 Creating a sense of acceptance and belonging
 Counseling and friendship
 Providing a role model

Counseling: is an interpersonal interview, the aim of which is to facilitate another

person in identifying and working through a problem. It is a purposeful relationship in
which one person helps another to help himself

Situations where need for counseling may arise:

 During appraisal, to solve work or performance problems

 In grievance or disciplinary situations
 Following change, such as promotion or relocation
 On redundancy or dismissal
 As a result of domestic or personal difficulties
 In cases of sexual, racial or religious harassment or bullying at work

Benefits of counseling

Effective counseling can:

 Prevent underperformance
 Demonstrate an organisation’s commitment to and concern for its
employees
 Gives employees confidence and encouragement necessary to take
responsibility for self and career development
 Provides an opportunity to reassess organizational policy and practices
 Support the organization in complying with its obligations

The counseling process

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Step 1 Reviewing the current scenario: helping people to identify explore or clarify
their problem situation by listening to their story and questioning/probing to
help them see things more clearly

Step2 Developing a preferred scenario: helping people to identify what they want
in terms of goals and objectives by encouraging them to envisage their
desired outcome

Step3 Determining how to get there: helping people to develop action strategies for
accomplishing goals, for getting what they want by encouraging them to explore
options and available resources as well as selecting the best option and plan their
next steps.

SECTION F: PROFESSIONAL ETHICS IN ACCOUNTING AND BUSINESS

 FUNDAHMENTAL PRINCIPLES OF ETHICAL BEHAVIOUR

 THE ROLE OF REGULATORY AND PROFESSIONAL BODIES IN PROMOTING
ETHICAL AND PROFESSIONAL STANDARDS IN THE ACCOUNTANCY PROFESSION
 CORPORATE CODES OF ETHICS
 ETHICAL CONFLICTS AND DILEMMAS

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ETHICAL CONSIDERATIONS

Ethics can be defined as a set of moral principles to guide behaviours. Moreover,

the behaviour in our society is required by the law, rules and regulations and ethics.

A framework of rules can be classified into four different levels such as:

 Acting illegally/unethical
 Being lawful
 Meeting regulatory obligations
 Behaving ethically
Ethical behaviour is seen as the highest level of behaviour that society expects
because behaviour goes further than just meeting legal and non-legal obligations.

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MANAGEMENT ACCOUNTABILITY

All directors and managers of an organization are having collective responsibility for
the conduct and running of the organization activities. They have FIDUCIARY
RESPONSIBILITY (duty of faithful service).

The organization has different objectives to achieve but these depend on the
company appropriate relationships with all the group of stakeholders who have
interest in what the company does. They include:

 The primary economic objectives: - Profit Maximization

 The Non-economic, social objectives: - Diversity & equal opportunities e.t.c
 Other responsibilities: - Donations, environmental protection e.t.c
 Boundaries:-Health and safety legislation, employment act e.t.c

ETHICAL ENVIRONMENT

There are four basic ethical principles that guide behaviors of individual and
organization within every society, and they are:-

Ethics based on consequences (utilitarianism by Jeremy Bentham):-its means

choosing the action that is likely to result in the greatest good for the greatest
number of people by reference to their outcomes or consequences.

Ethics based on duty (deontology by Immanuel Kant):- is based upon the idea that
behaviour should be governed by absolute moral rules that apply in all
circumstances.

Rights and virtues: - These refer to the inherent rights that all individuals have, which
must not be abused such fundamental human rights such as freedom, expression
e.t.c

While Virtue ethics refers to the inherent virtue of individuals such as objectivity,
charity, firmness, fairness, loyalty e.t.c.

Social attitudes:-These are also important because it affects and translates into
business objectives. There company should not overlook a work/life balance, green
concerns, and minority’s protection and so on.

The following stakeholders has several interest that affect the company which they
should not overlook, they include:

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Employees: - job security and satisfaction, good work condition, minimum wages
e.t.c

Society:-Charity projects, pollution control, good product quality, sustainability e.t.c

Suppliers:-timely payment, prompt and regular order, good price e.t.c

Customers:-Safety, good price, quality product e.t.c

ETHICAL PROBLEMS FACING MANAGERS.

This can be classified into 2 different ways namely:

Internally problems: in terms of production and product of the organization

Externally problems: in terms of payments made to government or municipal

officials who have power to help or hinder the payers' operations (Extortion, Bribery,
Grease money, Gifts.

ADVERSE EFFECT ON THE ORGANIZATION CORPORATE SOCIAL OBJECTIVES.

 Additional costs such as those of environmental monitoring

 Reduced revenues as a result of refusing to supply certain customers
 Diversion of employee effort away from profitable activities
 Diversion of funds into social projects

ETHICS IN ORGANIZATIONS

Ethics in organizations relates to social responsibility and business practice. People

that work for organizations bring-in their own values to work with them.
Organizations contain a variety of ethical systems namely:

Personal ethics: - it is derived from individual’s upbringing, religious or non-religious

beliefs, political opinions, personality and so on.

Professional ethics: - it can be derived from the network of the professional

associations. (E.g. ACCA's code of ethics, medical ethics)

Organization cultures: - these depends on what is obtainable in each individual

organization (e.g. 'customer first').

Organization systems:- These has to do with the structures in place within an

organization such as mission statement, organogram e.t.c.

TWO APPROACHES TO MANAGING ETHICS

 Compliance-based approach
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A compliance-based approach is primarily designed to ensure that the company
acts within the letter of the law, and that violations are prevented, detected and
punished.

 Integrity-based approach
An integrity-based approach combines a concern for the law with an emphasis on
managerial responsibility for ethical behaviour.

ACCOUNTANTS AND ETHICS. (COPIC)

Fundamental principles of the ACCA Code of Ethics and Conduct

Members are required to comply with the following fundamental principles.

• Integrity:-being honest, truthful, probity and straight forward in all business

dealings.
• Objectivity:-not being bias ,prejudice, avoiding conflict of interest, avoiding
undue influence from client or employer
• Professional competence and due care:-diligence, technical skill, current
development
• Confidentiality:-By not disclosing confidential information to 3rd party without
appropriate authorization.
• Professional behaviour:-complying with all laws & regulations, protect image
and interest of the professional body and members.

PERSONAL QUALITIES EXPECTED OF AN ACCOUNTANT (3RCT)

• Reliability;-to ensure that an accountant official work meeting professional

standard

• Responsibility:-accepting the ownership of work and ensuring it meets

professional s standard

• Respect:-by building a constructive relationships and recognizing the values and

rights of others

• Courtesy:-it’s a reflection of you personality and the profession

• Timeliness:-ensuring official work is produced at the appropriate time frame

PROFESSIONAL QUALITIES EXPECTED OF AN ACCOUNTANT (ASIS)

Accountability: - All professionals should not transfer blame to others but to be

accountable for their own judgments and decisions.

Skepticism:- All professional should question information given to him and not to
accept any information given to without appropriate investigation and enquiry.
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Independence:- An accountant should not only be independent but must be seen
to be.

These must be ‘independent of mind’; conduct enabling you to complete your work
free from bias or prejudice.

Moreover, independence in appearance’ is not encouraged because it could

cause a reasonable observer to question one’s objectivity.

Social responsibility: - All accountants have a public duty as well as a duty to their
employer or clients by providing specific benefits to the society as a whole such as
audit work, accountancy work, and investment decision and so on.

THREAT TO AUDITOR’S INDEPENDENCE

SELF-INTEREST THREAT: They are financial or other interests causing auditors to be

reluctant to take actions that would be adverse to the interest of the audit firm or
any individual in a position to influence the conduct or outcome of the audit
engagement.

Examples:

 Incentive compensation arrangement

 Undue dependence on fees
 Close business relationship
 Loans and advances
 Contingent fees
 Low balling e.t.c

SELF-REVIEW THREAT: It’s where the result of a non-audit service provided by anyone
in the firm are reflected in the amounts included or disclosed in the financial
statement.

Example: data being reviewed by the same person responsible for preparing it.

 Preparing accounting records and accounts

 Taxation services
 Internal audit services
 Legal services
 Corporate finance
 Valuation services e.t.c

ADVOCACY THREAT: It arises where the audit firm undertakes work that involves
acting as an advocate for a client and supporting a position taken by
management in an adversial context.
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Examples:

 Having to adopt a position closely aligned to that of management.

 Where the audit firm promotes an opinion which may compromise future
objectivity.
 Acting as advocate on behalf of an assurance client in litigation or dispute
with 3rd parties.

FAMILIARITY THREAT: These are where the auditors are predispose to accept or are
insufficiently questioning of the client’s point of view or being too sympathetic to
client’s interest.

Examples:

 A former partner of the firm being a director or officer of the Client.

 Long association with audit client
 Close business/personal relationship with client

INTIMIDATION THREAT: This is when the auditors conduct is influenced by fear or

threat.

Examples:

 Threat of dismissal or replacement

 Pressure to reduce inappropriately the extent of work performed so as to
reduce the audit fees.
 Physical intimidation
 Actual or perceived threats.

THE MAJOR AREAS AUDITORS FACE THREAT & SAFEGUARDS

1. Financial interests in clients:

 Shareholdings(beneficial or non-beneficial)
 Trading with client
 Loans to or from client (overdue fees can also be equivalent to loans.)
These threats can create a conflict of interests and will definitely affect both the
audit work and audit opinion negatively.

Available safeguards includes:

 The removal of any Staff with such financial interest

 Discussing with those charge with corporate governance requirement.
 Possibility of disposing the interest by the firm or individual
 Mandatory disclosure requirement.

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2. Family/personal relationships: The following category creates a risk of threat.

 The spouse
 Minor children
 Brothers and sisters and their spouses
 Adult children and their spouses
 Relatives to whom regular financial assistance is given
 Ex-employees within 2years
 Key audit partners accepting key management positions with a client
 Long –standing relationship with the client as auditor for many years.

These relationships create a conflict of interest in that undue reliance may be

placed on the relative’s representation without independently obtaining evidence
to support those representations.

Available safeguards include:

 The key audit partner must not accept management positions with audit
clients within 2years of leaving.
 Engagement partners and key audit personnel should be rotated at least
every 5years.
 Where close family members hold positions in an audit client company where
they prepare, or are in a position to influence the preparation of, the
financial statements, and the auditor should not accept appointment.
 Ensuring the removal of such individual from the engagement team.

3. Actual/threaten litigation: litigation with a client, between clients and conflict of

interest between clients. These situations can create a conflict of interests and
adversely affect auditor’s objectivity and independence and a danger of
breaching confidentiality of information.

These can create a self interest or intimidation threat.

Available safeguards include:

 The establishment of Chinese walls

 Involving an independent reviewer
 Removal of individual concern
 Possibility of withdrawal or refusing nomination as audit assurance provider

4. Undue dependence on an audit client: Generally, where total fees from one
client are greater than 15% of the total practice income, or for public interest clients
such as listed companies 10% there is a presumed threat to auditor independence.

Available safeguards include:

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  Demonstrating that the excess fees are one-off and non-recurrent.
 Merging with another audit firm so that the total fees of the combined firms
are higher.
 Declining to perform other services in order to reduce the total fees.
 Acquiring more clients
 Discussing with those charge with corporate governance requirement
 Seek professional advice

5. Gifts and hospitality: The offer by a client of goods and services at hugely
discounted prices or free of charge or providing undue hospitality could prejudice
or be seen to be prejudicing the auditor’s objectivity and independence. These
may create a self –interest or familiarity threat.

Available safeguards include:

 Rejection of such gifts unless it’s clearly insignificant in value and quantity.
 An outright refusal of such gifts and hospitality.

6. The provision of non-assurance services: These can create a self review threat
because such work may directly impact on the financial statements and the
auditor could later be reviewing his or her own work.

Moreover, only in an emergency cases that an auditor can perform an accounting

work for clients.

Available safeguards include:

 For public interest clients, no book keeping or accountancy work is permitted.

 Auditors should avoid being involved in management functions and making
executive decisions.
 Where specialist valuations are performed for a client, no audit work should
be undertaken.
 Auditors should not undertake non-audit services where it is intended to
place reliance on that work in. for example reducing substantive procedures.

7. Contingent fees: The assurance firm should desist from the acceptance of
contingent fees based on the engagement outcome that concerns the audit
assignment.

8. OTHER THREATS: These include the followings:

 Loans and guarantees

 Pricing
 Close business relationship with client
 Second and other opinion
 Long association of senior personnel with assurance clients.
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