Business - Unit 2

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Motivation Theory - Maslow


According to Maslow, human needs consist of 5 types whch form his heirachy of needs, starting from the most basic needs, they are as follows :

  • Physiological - good wage and salary structure, good working conditions.
  • Safety - security at work (a safe job), pension arrangements, safe working environment.
  • Social - opportunities for teamworking, social events.
  • Esteem - providing positive feedback where possible and chances for promotions.
  • Self-actualisation - providing challenging new tasks and roles within the organisation.
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Motivation Theory - Herzberg

Herzberg divided the factors motivating people at work into two groups :

  • 1) Hygiene factors - salary, security, supervision, working conditions, company policy. Improvements to the  these may remove the disatisfaction, but they will not increase satisfaction and motivation.
  • 2) Motivators - recognition, responsibilty, work itself, achievement, advancement. Improvements in these areas will lead to increases in motivation.
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Motivation Theory - Mayo

Mayo's research led him to discoverthe following conclusions :

  • Employees are motivated by more than money and working conditions.
  • Work is a group activity and employees should be seen as a member of a group.
  • Recognition, belonging and security are more important in influencing motivation than working conditions.
  • Informal groups exert an importnat influence over employees' attitides.
  • Supervisors need to pay attention to individuals' social needs and the influence of informal groups.
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Motivation Theory - Taylor

Taylor regarded the worker as an 'economic animal responding directly to finacial incentives.'

  • He invented work study and founded the scientific approach to management, which aimed at maximising efficiency through specialisation.
  • His methods meant that jobs became boring and repetetive.
  • He believed that workers are motivated by money and try to avoid work, so they need close supervisions.
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Why is motivation important?

Poor morale in an organisation can lead to:

  • high levels of absenteeism
  • high levels of labour turnover
  • higher costs for the business due to the above factors
  • poor image, which could cause problems in recruiting and retaining employees
  • lower productivity
  • loss of competetive advantage.

A number of different methods have been tried and tested to improve morale and motivation based on the various motivation theories, including improving job design, empowerment, teamworking and financial incentiventives.

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Improving Job Design

The two main forms are Job Enrichment and Job Enlargement.

Job enrichment:

This is a means of giving employees greater responsibility and offering them challenges that allow them to utilise their skills fully. The advantages of job enrichment are:

  • it develops workers' skills and presents them with challenges.
  • it allows workers' to make greater contributions to the decision-making process.
  • It enhances workers' promotional prospects.
  • It motivates workers by ensuring that their abiliteies and potential are explloited and that individuals gain a high degree of self-control over the selling of goals and the identification of how to achieve those goals.

The disadvanatages are:

  • Some workers feel that it places additional pressure on them that they do not want.
  • It couls be seen simply as a way to delegate responsibility down through the heirachy.
  • Not all jobs lend themselves to enrichment.
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Improving Job Design

Job Enlargement - this involves increasing the scope of a job, either by job enrichment or by job rotation, where a  worker takes a variety of roles, usually at the same level of responsibility.


  • It motivates workers through giving them greater recognition, improving their promotion prospects  and increasing the feelings of achievement arising from the job itself.
  • It can relieve boredom at work.
  • If a person is absent, others can cover the job without difficulty.
  • Workers may become more motivated becuse of their wider range of skills and flexibility.


  • A firm can demoralise its workforce by giving them excessive workloads
  • Retraining costs will increase and there may be a fall in output because there is less specialisation.
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This can be achieved through informal systems or through formal structures, such as autonomous work groups, giving employees autonomy and decision making powere.

The aim is to increase motivation while also improving flexibility and quality, thus adding value to the organisation.

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When accompanied by other techniques usch as job rotation, enrichment and some degree of decision making, teamworking can enhance motivation and/ or relieve the boredom of a monotonous job. This ties in with Mayo's principles and Maslow's social needs.

 It is proven through research that when employees feel 'included' as part of a team and part of a work family, they will be more productive and more efficient.

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Finance Incentives

These range from piece rates to profit sharing and share-ownership schemes. Links can be made with Taylor's view of 'rational economic man'. Maslow's physiological needs and Herzberg's hygiene factors.

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Using Budgets

A budget is an agreed plan establishing in numerical or financial terms the policy to be pursues and the anticipates outcomes of the policy. Budgets are usually stated in terms of financial targets, relating to money allocated to support the organisation of a particular function, but they also include targets for revenue and output or sales volume.

The key types of budgets are:

  • income budget - this shows the agreed, planned, income of a business, (or a division of a business) over a period of time. It my also be descibed as a revenue budget or sales budget.
  • Expenditure budget - This shows the agreed, planned expenditure of a business (or division of a business) over a period of time.
  • Profit budget - this shows the agreed, planned profit of a business ( or division of a business) over a period of time.
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Benefits of Budgets


  • To establish priorities by indicating the level of importnace attatched to a particular policy or division.
  • To provide direction and co-ordination by ensuring that spending is geared towards the firm's aims.
  • To assign responsibility by identifying the person who is directly responsible for any success or failures.
  • To motivate staff by giving them greater responsibility and recognition when they meet targets.
  • To improve efficiency by investigating reasons for failure and success.
  • To encourage forward planning by studying possible outcomes.
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Drawbacks of using budgets

  • Incorrect allocations -  abudget that is too generous may encourage inefficiency. A budget that is insufficient will demotivate staff and hinder progress through a lack of money.
  • External factors - chnages outside the budget holders' control may affect their ability to stick to the plan.
  • Poor communication - budgets must be agreed between people who understand the area in question and also other factors that may influence on the budgets.
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Budgetary control

Budgetary control is the establishment of the budget and the continuous comparison of actual and budgeted results in order to ascertain variances from the plan and to provide a basis for revision of the objective or strategy.

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Variance Analysis

A variance represents the difference between the planned standard and the actual and the actual performance. If the variance reveals a poorer performance than planned, it is known as an adverse or unfavourable variance, e.g. higher costs or lower sales revenue. If the variance shows a better performance than planned, it is known as unfavourable variance, e.g. lower costs or higher sales revenue.

Identification of the cause of a variance can allow a company to:

  • identify responsibility
  • take appropriate action

For an adverse variance, providing the factor that caused it is under the firm's controle, alternative methods can be investigated. Favourable variances can be used to identify efficient methids that can be adopted more widely in the company.

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Changes in variance?

Variances in costs can be caused by changes in:

  • Material costs (cheaper or dearer)
  • Efficiency changes
  • Morale and efficiency of staff
  • Wages
  • Quality of material
  • Storage and wastage of materials.
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Cash-flow problems

The main causes of cash-flow problems are:

  • over-investment in fixed assets, leaving no money to pay bills.
  • overtrading - producing too many goods and running out of cash.
  • credit sales - increasing sales and thus expenses, but with no cash recieved until a later date.
  • stockpiling - tying up assets in stock
  • seasonal factors - low sales revenue or high costs during part of the year.
  • changing tastes - products do not sell.
  • management errors - poor market research or budgetary control, leading to cash shortages.
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Methods of improving cash flow ( Bank Overdraft)

The benefits of an overdraft are:

  • It is easy to organise
  • It is very flexible
  • It is often cheaper than a loan, because interest paid only on the amount overdrawn and for the time when the overdraft is used.

The drawbacks of an overdraft are:

  • interest rates are flexible, making it difficult to budget accurately.
  • the rate of interest charged on an overdraft is usually significantly higher that that charged on a short-term bank loan, so it is more expensive.
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Methods of improving cash flow (Short term loan/ba

The benefits of a loan/ bank loan are:

  • Bank loans are usually made at a fixed rate of interest, making it sim chple to budget the loan repayments.
  • The rate of interest charged on a bank loan is usually less than that charged on an overdraft, so it can be a cheaper solution to a cash-flow problem.
  • A bank loan may be set up for a significant period of time to suit the needs of the business.

The drawbacks of a loan/bank loan are:

  • Interest is paid on the whole of the sum borrowed, if the business can repay the loan earlier, a loan penalty charge may be imposed.
  • The business will need to provide the bank with security (collateral) in order to secure the loan.
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Methods of improving cash flow (Factoring - debt)

Factoring is when a compnay (usually a bank) buys the right to collect the money from the creedit sales of an organisation.

The benefits of factoring are:

  • The firm gains improved cash flow in the short-term.
  • Administration costs are lower because the factoring company chases any bad debts.
  • There are reduced risks of bad debts.

The drawbacks of factoring are:

  • The main problem is the cost to the business, which will lose between 5% and 10% of its revenue.
  • The factoring company will charge more for factoring than it would for a loan.
  • Cutomers may prefer to deal directly with the business that sold them the product.
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Methods of improving cash flow (Sale of assets)

This process can improve cash flow by converting an asset, such as property or machinery into cash which can then be used to ease the cash flow problem by repaying a debt or building up a bank balance.

The benefits are:

  • The sale of fixed assets can raise a considerable sum of money, particularly in the case of a large asset such as a building.
  • Sometimes the asset may no longer be needed and is just adding to costs unnecessarily.

The drawbacks are:

  • Assets such as buildings and machinery may be difficult to sell quickly.
  • Fixed assets enable a firm to produce the goods and services that create its profit.

Sales of assets is most likely to be used as a means of overcoming cash-flow problems when a business is seeking to get rid of an unfrofitable part of the business that may actually be causing the prooblems in the first place.

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Methods of improving cash flow ( sales and leaseba

assets that are owned by the firm are sold to raise cash and the rented back so that the company can still use them for an agreed period of time.

The benefits are:

  • This will overcome the cash-flow problem by providing an immediate inflow of cash, usually of quite a significant level.
  • Ownership of fixed assets can lead to a number of costs, such as maintenance. For leased assets, the company leasing them does not have to pay these costs.
  • Owning an assets can distract a business from its core activity.

The drawbacks are:

  • The rent paid is likely to exceed the sum recieved, eventually.
  • The firm now owns fewer assets that can be used as security against future loans.
  • The business may eventually lose the use of the asset when the lease ends.
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Methods of improving cash flow (Integration opport

A firm can improve its cash flow in the following ways:

  • Diversifying its product portfolio to create a range that sells throughout the year.
  • Anticipating change better through improved decision making procedures, planning, monitoring and control, and more thorough market research and intelligence.
  • Setting aside a contigency fund to allow for unexpected payments or cope with lost income.
  • Controlling stock carefully to reduce the costs incurred in holding too much.
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Improving organisational structures

Functional management

Traditionally businesses are structured according to business functions such as marketing and production.

Jobs are grouped together and organised into departments, section or functions, e.g. Marketing, Finance, Production. This form of mangemtn can lead to:

  • clearly defined channels of communication and heirachy.
  • clearly defined roles
  • decision making being more centralised.

In order to build more flexibility into the structure of the organisation, matrix management is often introduced.

Organisational heirachies and structurees are useful to define accountability and to clarify roles, but they discourage flexibility and can become quickly outdated. Spans of control and heirachies are closely linked - the wider the span of control, the fewer levels of heirachy.

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Levels of heirachy

Levels of heirachy meands the number of levels of management within an organisation. A company that has many levels of heirachy will have a tall organisational structure, whereas one with fewer levels of heirachy will have a flatter organisational structure.

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Many levels in the hierachy ( tall structure)

The pros and cons of this kind of structure are :

  • greater opportunities for specialism
  • greater opportunities for promotion
  • can create communication problems between the top and the bottom of the organisation when there are many layers through which communication has to pass
  • organisational culture may be more bureaucratic
  • may be less opportunity for delegation
  • administration costs may be higher
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Few levels in the hierachy (flat structure)

A flatter structure has the characteristics listed below:

  • fewer opportunities for specialisation
  • fewer opportunitues for promotion
  • communication between top and bottom of the heirachy is easier as there are fewer levels to pass through
  • may be greater opportunities for delegation
  • administration costs may be lower. 
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Span of control

Wide span:

  • Greater opportuntities for delegation
  • Supervision and control will be looser
  • Distance between top and bottom of the organisation will be smaller
  • Reduced contact and communication between manager and reportees
  • If accompanied by delayering, this can lead to lower costs but also reduced opportunities for promotion.

Narrow span:

  • Less opportunities for delegation
  • Supervision and control are tighter.
  • Distance between the top and bottom of the organisation is greater
  • There is greater contact between mangers and reportees
  • Possibly greater opportunities for promotion exist.
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What does the span of control depend on?

The span of control depends on:

  • the expertise of the manager and his/her ability to control a large number of people and deegate tasks effectively.
  • the motivation of employees and their ability to work on their own with little supervision.
  • the complexity of the task - complex tasks may require a narrow span and closer supervision depending on the skill level of the workforce.
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Centralised VS Decentralised structures

Centralisation involves authority and responsibility for decision making being in the hands of senior managers. Decentrlisation means that this responsibility is given to individual units, departments, branches, or lower level managers

 Centralised decision making may result in:

  • greater control over decsion made.
  • more consistency
  • more efficient use of specialist skills of employees and managers

Decentralised decision making may result in/;

  • increased motivtation due to the empowerment of lower-level managers
  • the development of skills in lower-level managers
  • quicker decision making- but it will be difficult for these lower level managers to have an overview and be aware of the wider impact of their decisions.
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Roles summaries

  • The managing director assumes overall leadership of the company. He or she delegates reesponsibility for functional areas such as production and finance to managers who are employees of the business
  • The manager has, as the title suggests, responsibility for a functional area of the business, such as marketing.He or she will be responsible for the team leaders.
  • The team leader coordinates the work of a particular part of the functional area/ department. For exmple, in marketing there may be team leades responsible for the marketing of individual products or activities such as merchandising and market research.
  • In large departments, with many members on a team, there may be need to be supervisors. These are the line managerrs who lialise with  team leaders in order to guide the operatives.
  • The operatives are the main body of employees in a department. For example, in a production department they would need to make the products.
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Tasks are handed down by a manager to a subordinate. The subordinate is given the authority to make decisions but the manager remains accountable. The process can be a way of motivating and empowering employees For delegation to be effective the employer must:

  • think carefully about getting the right person to do the job.
  • ensure he or she is adequately trained
  • ensure that the interesting tasks, as well as more boring ones, are delegated
  • provide support mechanisms.
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Recruitment and selection process

The process in which an organisation fulfils its need to find new employees, it needs the organisation to addres the following questions:

  • What is the job that needs to be filled? ( job description)
  • Are there any alternatives available? (increased overtime, temporary agency staff, new technology.)
  • Does the organisation deal witht the recruitment process or does it use an agency or consultant?
  • What does the job entail?
  • What type of person is needed to fill the vacancy?
  • How can the organisation attract sufficient numbers of suitable applicants apply? (media)
  • How do applicants apply for the job? ( application form, CV)
  • How can the organisation decide if the applicants are suitable? ( interview)
  • What are the legal implications?
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Developing effective operations: Quality

Quality: those features of a product or service that allow it to satisfy (or delight) customers.

Measures of quality include:

  • Appearance
  • Functions ( added extras)
  • Reliability
  • After-sales service
  • Image and brand
  • Exclusivity
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Quality Systems

Quality system: the approach used by an organisation in order to achieve quality. Most quality systems can be classified under two heading; quality control and quality assurance.


  • Impact on slaes volume - if a product or service meets the needs of the customers, then demand for the product will increase.
  • Creating a unique selling point (USP) - businesses can use the level of quality of their products or services as a unique selling point in order to increase demand.
  • Impact on selling price - having a unique selling point created by quality allows a business to charge a higher price.
  • Pricing flexibility - a reputation for quality gives a firm the ability to be more flexible in its pricing in order to target different market segments.
  • Cost reductions - a quality system can reduce costs by improving production methods and reducing waste and the number of faulty products.
  • The firms reputation - a good quality system can prevent problems and help a business to avoid any damage to its reputation.
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Quality Systems

Issues involved in introducing and managing a quality system:

  • Costs - quality procedures require a great dealof administrative expense to set up
  • Training - the training needed may be costly and extensive
  • Disruption to production - in the short run the training programme provided can be quite distruptive to existing production methods.
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The main method of quality assurance : Total Quality Management occurs where there is a culture of quality throughout the organisation. It is based on the philosophy of 'right' first time'. If the individual making the product ensures quality, then there is no need for inspection.

Quality standards: ISO 9001 is a national/international quality standard. To achieve it, firms must show that they have squality systems that cover the quality of their working methods, services and processes as well as the quality of their products. The focus is on prevention of defects, ensuring that adequate support systems are in place and good teamworking exists. Benefits are:

  • Marketing advantages from the acknowledgement of higher quality standards.
  • Assurance to customers that products meet certain standards.
  • Greater employee motivation from the sense of responsibility and recognition
  • Financial benefits in the long term, from the elimination of waste and the improved reputation of the firm.
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Customer Service

Customer service is concerned when ensuring that the needs of every single customer are met. Customer expectations can be met by:

  • Ensuring the organisation is selling what the customer wants. Tjis can be monitored by undertaking market research.
  • Ensuring that the product or service sold is of high quality.
  • Ensuring that staff are friendly, helpful, and knowledgeable about the product/ service being offered.
  • Ensuring that staff are efficient in dealing with customers.
  • Ensuring that genuine customer complaints are dealt with efficiently and courteously.

Monitoring and improving customer service:

  • Setting up systems for customer feedback, customer surveys and suggestion boxes to assess customer satisfaction.
  • Ensuring improvements aree made in the lights of comments and information reecieved as part of the monitoring process.
  • Training employes to ensure product/ service knowledge and customer service skills.
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Choosing effective suppliers

  • Price of raw materials
  • Quality of raw materials
  • Trade credit terms
  • Reliability of supplier
  • Length of lead times
  • Flexibility of supplier
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Using technology in operations

Types of technology:

  • Robotics - are used in many production situations, e.g. in the production of the Mini, the body-building process is highly automated with the use of robots.
  • Automated stock control - enables accurate records to be kept of stock levels of raw materials and finished goods. Automatic reordering can take place as part of this process, ensuing greater efficiency.
  • Communications - methods can involve any or all of intranet, internetm emial, teleconferencing. These speed up communication processes and enable communication with different sectors or organisations to be more efficient.
  • Design technology - involves using computer aided design, which enables designs of new products to be produced and modified on screen in three dimensional format.
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