F1 F1 All notes All notes

Or!"n#s"t#ons "re def#ned "s$

soc!"l "rr"n#ements for the controlled perform"nce of collect!ve #o"ls (Buch!n!n !nd Hucz"ns#$)
There !re d$fferent t"pes of or%!n$s!t$ons, !ll of wh$ch, whether the" !re prof$t or non-prof$t must concentr!te on coord$n!t$n%
the 3 po$nts&
These are:
1% Soc#"l Arr"n!ement
2% Collect#ve Go"ls
3% Control of Perform"nce
Types of organisation
Account!nts !re emplo"ed b" d$fferent t"pes of or%!n$s!t$on& Or%!n$s!t$ons c!n be d$v$ded $nto two m!$n t"pes'
1% Bus!ness or#"n!s"t!ons
Bus#ness or!"n#s"t#ons en!"!e #n commerc#"l "nd #ndustr#"l "ct#v#t#es, w#th the purpose of m"&#n! " prof#t%
2% Not-for-prof!t or#"n!s"t!ons
Not-for-prof#t or!"n#s"t#ons do not see& to m"&e " prof#t, the' ex#st to prov#de " benef#t to the publ#c, such "s !ood !overnment
or &e' serv#ces such "s he"lth, educ"t#on, " pol#ce%
The' c"n be d#v#ded #nto two m"#n t'pes$
The Bus!ness Or#"n!s"t!on, !ts St"$eholders "nd the
Extern"l Env
Purpose !nd T"pes of Bus#ness Or$!n#s!t#ons
Def!ne bus!ness Or#"n!s"t!on
The' c"n be d#v#ded #nto two m"#n t'pes$
Publ!c s"ctor org#n!s#t!ons$ these "re !overnment dep"rtments or or!"n#s"t#ons th"t "re funded b' the !overnment
Non-gov"rnm"nt org#n!s#t!ons$ these "re not-for-prof#t or!"n#s"t#ons th"t "re p"rtl' or wholl' funded from non-!overnment
sources%
Ex"mples "re ch"r#t#es, clubs "nd soc#et#es%
The common fe"tures of " bus#ness or!"n#s"t#on$
1% m"de up b' " !roup of people who wor& to!ether for the "ch#evement of set !o"ls d#fferent people do d#fferent th#n!s or
spec#"l#se #n one "ct#v#t'
2% h"ve bus#ness str"te!#es to "ch#eve !o"ls/ob(ect#ves
3% h"ve " v#s#on "nd " m#ss#on
4% h"ve " culture wh#ch #s formed b' the or!"n#s"t#on"l v"lues
5% h"ve structures (such "s dep"rtment, te"ms "nd d#v#s#ons) "nd " sound s'stem #%e% s'stems "nd procedures
6% h"ve #nputs wh#ch "re processed "nd prov#de "n output
7% h"ve customers bes#des other st"&eholders
HOW BUSINESS ORGANISATIONS DIFFER$
1% S!ze of the or#"n!s"t!on (number of emplo'ees)
2% Number of or#"n!s"t!on"l levels (t"ll or fl"t or!"n#s"t#on)
Fe"tures of Bus!ness Or#"n!s"t!ons
D!fferent Bus!ness Or#"n!s"t!on
3% Sp"n of control (th#s refers to number of people d#rectl' under the respons#b#l#t' of one m"n"!er)
4% Centr"l!s"t!on versus decentr"l!z"t!on (th#s refers to the extent to wh#ch dec#s#on m"&#n! power #s dele!"ted down the
or!"n#s"t#on"l h#er"rch')
5% Cr!ter!" for dep"rtment"t!on (m#!ht #nclude ex"mples such "s !eo!r"ph', b' product, b' funct#on etc)
6% Prof!t or non-prof!t m"$!n#
7% Ownersh!p some or!"n#s"t#ons "re owned b' pr#v"te owners or sh"reholders% These "re pr#v"te sector or!"n#s"t#ons% Publ#c
sector or!"n#s"t#ons "re owned b' the !overnment%
8% Technolo#% for ex"mple, computer f#rms w#ll h"ve h#!h use of technolo!' but " corner shop h"s ver' low use%
DIFFERENT BUSINESS ORGANISATIONS
Commerc#"l or!"n#s"t#ons
A ver" $mport!nt d$fference w$th$n the structure of or%!n$s!t$ons $s the d$fference between prof$t or$ent!ted (Commerc$!l) !nd
non-prof$t or$ent!ted or%!n$s!t$ons&
There $s !lso ! d$st$nct$on between the$r pr!m"r% !nd second"r% %o!ls&
The second!r" %o!ls ex$st to support the pr$m!r" %o!l&
The pr$m!r" %o!l of ! prof$t m!#$n% comp!n" $s to m!x$m$se sh!reholders we!lth&
Bus$ness or%!n$s!t$ons come $n !ll d$fferent sh!pes !nd s$zes $nclud$n% sole tr!ders, p!rtnersh$ps !nd LTD&
Limited companies
A L$m$ted comp!n" h!s ! sep!r!te le%!l person!l$t" from $ts owners (sh!reholders)&
The sh!reholders c!nnot norm!ll" be sued for the debts of the bus$ness unless the" h!ve %$ven some person!l %u!r!ntee&
The$r r$s# $s %ener!ll" restr$cted to the !mount th!t the" h!ve $nvested $n the comp!n" when bu"$n% the sh!res (l$m$ted l$!b$l$t")&
The ownersh$p !nd control of ! l$m$ted comp!n" !re le%!ll" sep!r!te&
T%pes of Bus!ness Or#"n!s"t!on
Sh!reholders !re the owners but h!ve l$m$ted r$%hts over the d!" to d!" runn$n% of the comp!n"&
The" prov$de c!p$t!l !nd rece$ve ! return&
Sh!reholders could be l!r%e $nst$tut$on!l $nvestors (such !s $nsur!nce comp!n$es !nd pens$on funds), pr$v!te $nd$v$du!ls, or
emplo"ees&
D$rectors !re !ppo$nted b" sh!reholders to run the comp!n"&
Execut!ve d!rectors p!rt$c$p!te $n the d!$l" oper!t$ons of the or%!n$s!t$on !nd
Non-execut!ve d!rectors !re $ndependent !nd !re not $nvolved $n the d!" to d!" runn$n% of the bus$ness& The" !re $nv$ted
to (o$n $n !n !dv$sor" c!p!c$t" to exerc$se over!ll %u$d!nce&
Co-operatives
Co-oper!t$ves !re or%!n$s!t$ons $n wh$ch there !re members, !nd !ll members'
1% "re "ct#vel' #nvolved #n #ts "ct#v#t#es, "nd
2% sh"re #n the benef#ts th"t the co-oper"t#ve prov#des%
There are different types of co-operative.
1% In " wor&ers co-oper"t#ve, " number of #nd#v#du"ls co-oper"te to c"rr' out rel"ted "ct#v#t#es, such "s oper"t#n! " f"rm or " f"ctor'%
The' wor& for the co-oper"t#ve "nd the' sh"re the benef#ts th"t the co-oper"t#ve prov#des%
2% A number of #nd#v#du"ls m#!ht form " co-oper"t#ve for the purch"se "nd use of expens#ve equ#pment%
E"ch member of the co-oper"t#ve #s ent#tled to some use of the "ssets%
For ex"mple, " number of sm"ll f"rmers m#!ht form " co-oper"t#ve to purch"se "nd use expens#ve "!r#cultur"l equ#pment%
3% In " ret"#l co-oper"t#ve soc#et', the members bu' !oods "nd serv#ces from the ret"#l outlets of the co-oper"t#ve soc#et', "nd e"ch
'e"r the' rece#ve " sh"re of the prof#ts th"t the soc#et' h"s m"de%
Mutual Associations
A mutu!l !ssoc$!t$on or or%!n$s!t$on $s owned b" the member/cl$ents th!t such or%!n$s!t$on ex$sts for&
Gener!ll" mutu!l or%!n$s!t$ons de!l w$th $nt!n%$ble products such !s f$n!nc$!l serv$ces, ex!mple, ACCA
Not-for-prof#t or!"n#s"t#ons
A non-prof$t or%!n$s!t$on (NFP) wor#s w$th ! pr$me $ntent$on (pr$m!r" %o!l) of prov$d$n% ! #ood or " serv!ce to d$fferent sectors
of soc$et" for wh$ch the" !re set up to prov$de ! benef$t&
For ex!mple, ! school $s set up to prov$de educ!t$on&
Ch!r$t$es, such !s, the Red Cross $s set up to prov$de ! med$c!l serv$ce&
Public Sector
Publ$c Sector or%!n$s!t$ons !re owned or run b" the %overnment& The" !re funded b" !nd !ccount!ble to the %overnment&
A m!(or ch!llen%e th!t !n" %overnment f!ces $s th!t of b!l!nc$n% the$r l$m$ted resources w$th ! hu%e dem!nd for publ$c serv$ces&
Ex"mples of " publ!c sector or#"n!s"t!on "re&
1% Hosp#t"ls
2% Armed Forces
3% Centr"ll' funded "!enc#es
4% Most schools & Un#vers#t#es
5% Government Dep"rtments
Non-governmental organisations (NGO's)
A non-%overnment!l or%!n$s!t$on $s !n $ndependent volunt!r" !ssoc$!t$on of people !ct$n% to%ether for some common
purposes&
These or%!n$s!t$ons often support such th$n%s !s' conserv!t$on $ssues, env$ronment!l ch!n%e etc&
Industr!"l & Commerc!"l Sectors
SECTORS IN WHICH BUSINESS ORGANISATIONS OPERATE
Industr$!l sector $ncludes comp!n$es th!t m!nuf!cture p!rts !s well !s those th!t !ssemble them $nto f$n$shed products&
A number of spec$f$c $ndustr$es f!ll under the $ndustr$!l umbrell!, $nclud$n% !utomot$ve, !eron!ut$cs (!$rcr!ft bu$ld$n%), text$les,
ph!rm!ceut$cs, b$oen%$neer$n% !nd met!l c!st$n%&
Food ref$ner$es !nd p!c#!%ers %ener!ll" f!ll under the $ndustr$!l c!te%or" bec!use of the t"pes of f!c$l$t$es necess!r" for
product$on&
Commercial private sector industries are additionally subdivided in two ways
1% Ret"!lers
= commerc#"l #ndustr#es who sell !oods to the !ener"l publ#c%
Th#s #ncludes tr"d#t#on"l outlets such "s !rocer' stores, spec#"lt' shops, dep"rtment stores "nd dru! stores, but "lso #ncludes onl#ne
outlets such "s onl#ne cloth#n! stores or onl#ne boo& sellers%
2% Wholes"lers
Some commerc#"l pr#v"te sector #ndustr#es bu' from m"nuf"cturers "nd sell to ret"#lers%
Not "ll commerc#"l #ndustr#es #nvolve wholes"lers%
In some c"ses, the ret"#ler c"n bu' d#rectl' from the m"nuf"cturer%
Industr#es th"t commonl' use wholes"lers #nclude m"nuf"ctured off#ce suppl#es "nd home !oods%
In summary, the main industries in which organisations operate are:
1% "!r#culture
2% m"nuf"ctur#n!
3% extr"ct#ve r"w m"ter#"ls
4% ener!'
5% ret"#l#n!/d#str#but#on
6% #ntellectu"l product#on
7% serv#ce #ndustr#es
A!enc'
A%enc" $s def$ned $n rel!t$on to ! pr$nc$p!l& Wh!t)* Well !ll th$s me!ns $s !n owner (pr$nc$p!l) lets somebod" run her bus$ness
(m!n!%er)&
The !%ent $s do$n% th$s (ob on beh!lf of someone else&
Footb!llers, f$lm st!rs etc !ll h!ve !%ents& The" wor# on beh!lf of the st!r& The st!r hopes th!t the !%ent $s wor#$n% $n the$r best
$nterest !nd not (ust for the$r own comm$ss$on+
Pr!nc!p"ls "nd A#ents
A pr$nc$p!l !ppo$nts !n !%ent to !ct on h$s or her beh!lf&
In the c!se of corpor!te %overn!nce, the pr$nc$p!l $s ! sh!reholder !nd the !%ents !re the d$rectors&
The d$rectors !re !ccount!ble to the pr$nc$p!ls
Agency Costs
A cost to the sh!reholder throu%h h!v$n% to mon$tor the d$rectors
Over !nd !bove norm!l !n!l"s$s costs
A result of compr$sed trust $n d$rectors
St!%eholders #n Bus#ness Or$!n#s!t#ons
A#enc% Rel"t!onsh!p
DEFINE STA)EHOLDERS
A st!#eholder $s ! %roup or $nd$v$du!l who h!s !n $nterest $n wh!t the or%!n$s!t$on does, or !n expect!t$on of the or%!n$s!t$on&
It $s $mport!nt th!t !n or%!n$s!t$on underst!nds the needs of the d$fferent st!#eholders&
Stakeholders may be categorized as follows:
Intern!l st!#eholders
Extern!l st!#eholders
Connected st!#eholders
The d$!%r!m below l$sts some of the most $mport!nt st!#eholders of !n or%!n$s!t$on&
St"$eholders
STA)EHOLDERS
Internal Stakeholders
Intern!l st!#eholders !re $nt$m!tel" !ssoc$!ted to the or%!n$s!t$on !nd the$r ob(ect$ves !re l$#el" to h!ve ! stron% $nfluence on
how $t $s run&
The m"!n two ex"mples of !ntern"l st"$eholders "re&
Emplo"ees
M!n!%ement
Intern"l, Connected "nd extern"l St"$eholders
The$r $nterests to defend !re (obs / c!reers, mone", promot$on prospects !nd benef$ts&
Connected Stakeholders
Connected st!#eholders c!n be v$ewed !s h!v$n% ! contr!ctu!l rel!t$onsh$p w$th the or%!n$s!t$on&
The ob(ect$ve of s!t$sf"$n% the sh!reholders needs to be fulf$lled, however, customers !nd f$n!nce ob(ect$ves must be met $f the
comp!n" $s to succeed&
Some ex"mples of connected st"$eholders m"% !nclude&
Sh"reholders $nterested $n sh!reholders we!lth me!sured b" prof$t!b$l$t"
Customers $nterested $n the comp!n"s products
Suppl!ers $nterested $n bu$ld$n% lon% term rel!t$onsh$p, on t$me p!"ment of %oods !nd prof$t!ble s!les
F!n"nce prov!ders - l$#e b!n#s $nterested $n lo!n secur$t"
External Stakeholders
Extern!l st!#eholders h!ve qu$te d$verse ob(ect$ves !nd h!ve v!r"$n% !b$l$t" to ensure th!t the or%!n$s!t$on meets $ts
ob(ect$ves&
Some ex"mples of extern"l st"$eholders m"% !nclude&
Commun$t" !t l!r%e
Env$ronment!l pressure %roups pollut$on etc&
Government $nterested $n t!x !nd emplo"ment opportun$t$es
Tr!de un$ons $nterested $n protect$n% the$r members&
STA)EHOLDERS GROUPS
The needs/expect!t$ons of the d$fferent st!#eholders m!" confl$ct&
Some of the t%p!c"l confl!cts "re shown below&
st"$eholders confl!ct
emplo"ees versus m!n!%ers (obs/w!%es versus bonus (cost eff$c$enc")
customers versus sh!reholders product qu!l$t" / serv$ce levels versus prof$t/d$v$dend
%ener!l publ$c versus sh!reholders effect on the env$ronment versus prof$t/d$v$dend
m!n!%ers versus sh!reholders veh$cle for expos$n% m!n!%er$!l s#$lls vs d$v$dend
stre!m !nd $ncre!se $n the v!lue of sh!res&
Underst"nd#n! the Influence of e"ch St"&eholder (MENDELOW)
How d!fferent St"$eholder #roups !nter"ct
The Mendelow Fr"mewor$
Th$s fr!mewor# $s used to !ttempt to underst!nd the $nfluence th!t e!ch st!#eholder h!s over !n or%!n$s!t$ons str!te%"&
The $de! $s to est!bl$sh wh$ch st!#eholders h!ve the most $nfluence b" est$m!t$n% e!ch st!#eholders $nd$v$du!l power over !nd
$nterest $n the or%!n$s!t$ons !ff!$rs&
The st!#eholders w$th the h$%hest comb$n!t$on of power !nd $nterest !re l$#el" to be those w$th the most !ctu!l $nfluence over
ob(ect$ves&
The Mendelow Framework
Power
Is the st!#eholders !b$l$t" to $nfluence ob(ect$ves
Interest
$s how much the st!#eholders c!re
Influence
= Power x Interest
However $t $s ver" h!rd to effect$vel" me!sur$n% e!ch st!#eholders power !nd $nterest&
The m!p $s not st!t$c, ch!n%$n% events c!n me!n th!t st!#eholders c!n move !round the m!p
Mendelow Framework - explanation
1% A) Low power, low Interest - M!n!m"l effort
These c"n be l"r!el' #!nored, "lthou!h th#s does not t"&e #nto "ccount "n' mor"l or eth#c"l cons#der"t#ons%
It #s s#mpl' the st"nce to t"&e #f str"te!#c pos#t#on#n! #s the most #mport"nt ob(ect#ve
2% B) Low power, h!#h !nterest - 'eep !nformed
C"n #ncre"se the#r over"ll #nfluence b' form#n! co"l#t#ons w#th other st"&eholders #n order to exert " !re"ter pressure "nd thereb'
m"&e themselves more powerful%
The m"n"!ement str"te!' for de"l#n! w#th these st"&eholders #s to &eep #nformed
3% C) H!#h power, low !nterest - 'eep s"t!sf!ed
All these st"&eholders need to do to become #nfluent#"l #s to re-"w"&en the#r #nterest%
Th#s w#ll move them "cross to the r#!ht "nd #nto the h#!h #nfluence sector, "nd so the m"n"!ement str"te!' for these st"&eholders
#s to &eep s"t#sf#ed%
4% D) H!#h power, h!#h !nterest - 'e% pl"%ers
Those w#th the h#!hest #nfluence%
The quest#on here #s how m"n' compet#n! st"&eholders res#de #n th"t qu"dr"nt of the m"p%
If there #s onl' one (e! m"n"!ement) then there #s unl#&el' to be "n' confl#ct #n " !#ven dec#s#on-m"&#n! s#tu"t#on%
If there "re sever"l "nd the' d#s"!ree on the w"' forw"rd, there "re l#&el' to be d#ff#cult#es #n dec#s#on m"&#n! "nd str"te!#c
d#rect#on
d#rect#on
Extern"l An"l's#s
Pol#t#c!l & Le$!l f!ctors
Pol!t!c"l s%stem "nd Government Pol!c%
PEST analysis
The m!$n components th!t !n or%!n$s!t$on should stud" $n order to c!rr" out !n extern"l "n"l%s!s (PEST "n"l%s!s) !re'
1% Pol#t#c"l env#ronment/ Le!"l env#ronment
2% Econom#c"l env#ronment/ Demo!r"ph#cs
3% Soc#"l env#ronment / Env#ronment"l env#ronment
4% Technolo!#c"l env#ronment
Political Environment
Or%!n$s!t$on!l dec$s$ons !re stron%l" !ffected b" developments $n the pol!t!c"l env!ronment&
The pol$t$c!l env$ronment h!s $ts own s"stem or fr!mewor#& It re%ul!tes soc$et" therefore $t re%ul!tes the s"stem&
A pol!t!c"l env!ronment w!ll h"ve the follow!n# ch"n#es "ffect!n# " bus!ness&
Pol$c$es !nd L!ws (for ex!mple l!ws re%!rd$n% hous$n%, educ!t$on, defense, he!lthc!re, ener%" !nd env$ronment)
T!x!t$on
Loc!l Counc$ls
Author$t$es
Over!ll conduct of $ts econom$c pol$c"
Legal Environment
L!ws come from ! number of sources& Common l!w, p!rl$!ment!r" !nd %overnment re%ul!t$ons !re der$ved from $t&
The le#"l env!ronment "ffects "ll comp"n!es, for ex"mple&
f"ctors ex"mples
%ener!l le%!l fr!mewor# b!s$c w!"s of do$n% bus$ness, ne%l$%ence
cr$m$n!l l!w theft, $ns$der de!l$n%, br$ber", decept$on
comp!n" l!w d$rectors & the$r dut$es, report$n% requ$rements
emplo"ment l!w d$sm$ss!l, m$n$mum w!%e, equ!l opportun$t$es
he!lth & s!fet" l!w f$re prec!ut$ons, s!fet" procedures
d!t! protect$on use of $nform!t$on !bout emplo"ees/customers
m!r#et$n% & s!les l!ws to protect consumers
env$ronment pollut$on control, w!ste d$spos!l
t!x l!w corpor!t$on t!x, $ncome t!x, s!les t!x
SUPRA-NATIONAL AND REGIONAL GOVERNMENTS
Sources of legal authority include the following:
1% SUPRA- NATIONAL
Un$ted N!t$ons resolut$ons (c!n be e$ther subst!nt$ve or procedur!l)
Intern!t$on!l Court of Just$ce
Other $ntern!t$on!l !%reements th!t !ppl" to s$%n!tor$es (e&%& The World Tr!de Or%!n$s!t$on sets rules on tr!de between
member st!tes)
Europe!n P!rl$!ment
Europe!n Courts
Sources of Le#"l "uthor!t%Europe!n Courts
2% NATIONAL
N!t$on!l Governments throu%h Acts of P!rl$!ment
Sen$or Courts (e&%& House of Lords $n U-, The Supreme Court $n the USA)
Other m!(or courts throu%h the pr$nc$ples of c!se l!w !nd the sett$n% of precedents
3% REGIONAL
Re%$on!l/Feder!l Government (e&%& Welsh !ssembl" $n the U-, St!te Government $n the USA)
Loc!l counc$ls c!n $ssue b"-l!ws $n m!n" countr$es (! l!w th!t $s less $mport!nt th!n ! %ener!l l!w or const$tut$on!l prov$s$on)
Emplo'ment Le!#sl"t#on
Retirement
In the U-, m!n" emplo"ees !re t!#$n% e!rl" ret$rement perh!ps !s ! result of corpor!te downs$z$n% but m!n" people st$ll
se!rch for wor# !t !n older !%e !nd there !re pressure %roups see#$n% to b!n !%e$sm&
Resignation
People res$%n for m!n" re!sons, person!l !nd occup!t$on!l& Emplo"ees who !re p!rt$cul!rl" v!lu!ble should be encour!%ed
to st!"&
P!rt$cul!r problems the emplo"ee h!s been exper$enc$n% (ex!mple s!l!r") m!" be solv!ble, thou%h not !lw!"s $n the short
term&
In !n" c!se, !n ex$t $nterv$ew, when the le!ver expl!$ns the dec$s$on to %o, $s ! v!lu!ble source of $nform!t$on&
Dismissal
The st!tutor" m$n$mum per$od of not$ce to be %$ven $s determ$ned b" the emplo"ees len%th of cont$nuous serv$ce $n the
emplo"ers serv$ce&
Wron#ful d!sm!ss"l $s d$sm$ss!l th!t bre!ches the contr!ct of emplo"ment&
Unf"!r d!sm!ss"l $s d$sm$ss!l w$thout ! %ood re!son for wh$ch the le%!l concept protects the emplo"ee&
L"w protect!ons for emplo%ee
There are 3 forms of dismissal:
1% b' emplo'er,
2% b' the emplo'ee,
3% f#xed contr"ct w#thout renew"l%
PRINCIPLES
Why is privacy an important issue?
There h!s been ! %row$n% concern th!t the ever-$ncre!s$n% !mount of $nform!t$on !bout $nd$v$du!ls held b" or%!n$s!t$ons could
be m$sused&
The fe!r w!s th!t b" the ex$stence of computer$sed d!t! !bout !n $nd$v$du!l, whether correct or $ncorrect, could be tr!nsferred
to un!uthor$sed th$rd p!rt$es !t h$%h speed !nd l$ttle cost&
In the U', the current le#!sl"t!on cover!n# th"t "re" !s the DATA PROTECTION ACT 1998

The Act h"s two m"!n "!ms&
1% to protect #nd#v#du"l pr#v"c' ("nd not th"t of or!"n#z"t#ons)
2% to h"rmon#se d"te protect#on le!#sl"t#on
The Principles of the Data Protection Act 1998
Schedule 1 of the "ct cont"!ns the d"t" protect!on pr!nc!ples(
1% Person"l d"t" sh"ll be processed f"#rl' "nd l"wfull' "nd, #n p"rt#cul"r, sh"ll not be processed unless$
") At le"st one of the cond#t#ons #n Schedule 2 #s met
D"t" protect!on "nd secur!t%
") At le"st one of the cond#t#ons #n Schedule 2 #s met
b) In the c"se of sens#t#ve person"l d"t", "t le"st one of the cond#t#ons #n Schedule 3 #s "lso met
2% Person"l d"t" sh"ll be obt"#ned onl' for one or more spec#f#ed "nd l"wful purpose, "nd sh"ll not be further processed #n "n'
m"nner #ncomp"t#ble w#th th"t purpose or those purposes%
3% Person"l d"t" sh"ll be "dequ"te, relev"nt "nd not excess#ve #n rel"t#on to the purpose(s) for wh#ch the' "re processed%
4% Person"l d"t" sh"ll be "ccur"te "nd, where necess"r', &ept up to d"te%
5% Person"l d"t" processed for "n' purpose or purposes sh"ll not be &ept for lon!er th"n #s necess"r' for th"t purpose or those
purposes%
6% Person"l d"t" sh"ll be processed #n "ccord"nce w#th the r#!hts of d"t" sub(ects under th#s "ct%
7% Appropr#"te techn#c"l "nd or!"n#s"t#on"l me"sures sh"ll be t"&en "!"#nst un"uthor#sed or unl"wful process#n! of person"l d"t" "nd
"!"#nst "cc#dent"l loss or destruct#on of, or d"m"!e to, person"l d"t"%
8% Person"l d"t" sh"ll not be tr"nsferred to " countr' or terr#tor' outs#de the Europe"n Econom#c Are" unless th"t countr' or terr#tor'
ensures "n "dequ"te level of protect#on for the r#!hts "nd freedoms of d"t" sub(ects #n rel"t#on to the process#n! of person"l d"t"%
There are several possible risks to data at the place of work. These include:
1% Hum"n error
2% Techn#c"l error
3% C"t"stroph#c error
4% M"l#c#ous d"m"!e
5% D#shonest'
LAW PROMOTION AND PROTECTION
The importance of maintaining health and safety at work
There "re three !mport"nt elements to he"lth "nd s"fet% "t wor$&
1% An emplo'er h"s le!"l obl#!"t#ons under U) & EU l"w
He"lth "nd S"fet% !n wor$pl"ce
2% The "cc#dents "nd #llness cost the emplo'er mone'
3% The comp"n's #m"!e #n the m"r&etpl"ce "nd soc#et' m"' suffer
Employers Duties
All wor# pr!ct$ces must be s!fe&
The wor# env$ronment must be s!fe !nd he!lth"&
All pl!nt !nd equ$pment must be m!$nt!$ned to the necess!r" st!nd!rd&
Inform!t$on, $nstruct$on, tr!$n$n% !nd superv$s$on should encour!%e s!fe wor#$n% pr!ct$ces&
Emplo"ers must prov$de tr!$n$n% !nd $nform!t$on to !ll st!ff&
The s!fet" pol$c" should be cle!rl" commun$c!ted to !ll st!ff&
Emplo"ers must c!rr" out ! r$s# !ssessment, %ener!ll" $n wr$t$n%, of !ll wor# h!z!rds&
Assessments should be cont$nuous&
The" must !ssess the r$s#s to !n"one else !ffected b" the$r wor# !ct$v$t$es&
The" must sh!re h!z!rd !nd r$s# $nform!t$on w$th other emplo"ers, $nclud$n% those on !d(o$n$n% prem$ses, other s$te
occup$ers !nd !ll subcontr!ctors com$n% onto the prem$se&
The" must $ntroduce controls to reduce r$s#s&
The" should rev$se s!fet" pol$c$es $n the l$%ht of the !bove, or $n$t$!te s!fet" pol$c$es $f none were $n pl!ce prev$ousl"&
The" must $dent$f" emplo"ees who !re espec$!ll" !t r$s#&
The" must emplo" competent s!fet" !nd he!lth !dv$sers&
Compl!"nce w!th L"ws
DATA PROTECTION, SECURITY AND HEALTH & SAFETY
People should be !ble to be conf$dent th!t the" w$ll not be exposed to excess$ve r$s# when the" !re !t wor#&
Th$s me!ns th!t r$s# !nd d!n%er must be !ct$vel" m!n!%ed&
Th$s $s the m!$n re!son wh" secur$t" h!s become so $mport!nt $n tod!"'s world&
D!t! $s protected b" secured $nform!t$on technolo%" !p!rt from be$n% secured b" l!w&
The employee also has responsibilities when it comes to health and safety at work.
To t!#e re!son!ble c!re of the$r own he!lth !nd s!fet"&
To t!#e re!son!ble c!re not to put other people - fellow emplo"ees !nd members of the publ$c - !t r$s# b" wh!t the" do or
don't do $n the course of the$r wor#&
To co-oper!te w$th the emplo"er, m!#$n% sure the" %et proper tr!$n$n% !nd underst!nd !nd follow the comp!n"'s he!lth
!nd s!fet" pol$c$es&
Not to $nterfere w$th or m$suse !n"th$n% th!t $s been prov$ded for the$r he!lth, s!fet" or welf!re&
To report !n" $n(ur$es, str!$ns or $llnesses "ou suffer !s ! result of do$n% the$r (ob&
To tell the emplo"er $f someth$n% h!ppens th!t m$%ht !ffect the$r !b$l$t" to wor#&
SALE OF GOODS AND SIMPLE CONTRACT
Pr!nc!ples of consumer protect!on
Consumer protect!on l"ws !re des$%ned to ensure f!$r tr!de compet$t$on !nd the free flow of truthful $nform!t$on $n the
m!r#etpl!ce&
The l!ws !re des$%ned to prevent bus$nesses th!t en%!%e $n fr!ud or spec$f$ed unf!$r pr!ct$ces from %!$n$n% !n !dv!nt!%e over
compet$tors !nd m!" prov$de !dd$t$on!l protect$on for the we!# !nd those un!ble to t!#e c!re of themselves&
Consumer Protect$on l!ws !re ! form of %overnment re%ul!t$on wh$ch !$m to protect the r$%hts of consumers&
Unfair Contract Terms
Unf"!r Contr"ct Terms Act 1977 $s !n !ct of P!rl$!ment of the Un$ted -$n%dom wh$ch re%ul!tes contr!cts b" restr$ct$n% the
oper!t$on !nd le%!l$t" of some contr!ct terms&
The" !re $ntended to prov$de bro!d protect$on for consumers, !nd bus$ness pr!ct$ces wh$ch !re l$#el" to d$stort consumers'
dec$s$ons re%!rd$n% the$r purch!ses %ener!ll" f!ll w$th$n th$s !ct&
Cert!$n #$nds of unf!$r term c!n h!ve th!t d$stort$n% effect, for $nst!nce throu%h m$sle!d$n% consumers !bout the$r r$%hts&
Under contr!ct l!w, the mone" "ou %$ve $n exch!n%e for the %oods $s referred to !s the cons!der"t!on&
For ! contr!ct to t!#e pl!ce there must be !%reement between the p!rt$es&
Th$s requ$res !n offer m!de b" one p!rt" !nd "ccept"nce b" the other p!rt"&
An $mport!nt po$nt !bout contr!cts $s th!t the" do not h!ve to be wr$tten& The" do not even h!ve to be spo#en&
A customer p$c#$n% up someth$n% $n ! superm!r#et !nd w!l#$n% to the chec#out $s m!#$n% !n offer to the shop, !nd th!t
offer $s !mpl!ed b" h$s beh!v$our&
When one p!rt" to ! contr!ct f!$ls to c!rr" out h$s p!rt of the !%reement, the other p!rt" c!n t!#e le%!l !ct$on !%!$nst h$m
for bre"ch of contr"ct&
So $f ! bus$ness h!s ! customer who $s f!$l$n% to p!", the" c!n t!#e h$m to court&
When one p!rt" m!#es ! m$srepresent!t$on to the other, the contr"ct !s vo!d&
The Sale of Goods Act 1979
$s !n !ct of the P!rl$!ment of the Un$ted -$n%dom wh$ch re%ul!tes En%l$sh contr!ct l!w !nd U- commerc$!l l!w $n respect of
%oods th!t !re sold !nd bou%ht& The S!le of Goods Act performs sever!l funct$ons&
The Act l!"s down ! sm!ll number of compulsor" le%!l rules, but these restr$ct$ons !re m$n$m!l' the bul# of the Act $s concerned
w$th !n !rr!" of presumpt$ons !nd $mpl$ed terms, wh$ch !$m to reflect the commerc$!l expect!t$ons $n the most commonl"
!%reed s!les contr!cts&!%reed s!les contr!cts&
In the !bsence of contr!r" !%reement these terms w$ll %overn ! contr!ct w$th$n the Act's rem$t& The Act !ppl$es to contr!cts
where ownersh$p of %oods $s tr!nsferred or !%reed to be tr!nsferred for ! monet!r"&
Im!%$ne "ou !re !bout to enter $nto ! contr!ct for the purch!se of some %oods&
Wh!t m$%ht "ou be concerned !bout)
You m!" w!nt the %oods del$vered for ! p!rt$cul!r occ!s$on or d"te
Are the %oods stolen, $&e& does the seller h"ve " r!#ht to sell the #oods)
You would expect the %oods to be the s!me t"pe !nd qu"l!t% "s the descr!pt!on or !n" s!mple
The %oods should be re"son"ble qu"l!t% "nd su!t"ble for the!r purpose
DEFINITION
Macro-economic policy / macroeconomics
$s concerned w$th the tot!l (!%%re%!te) scen!r$o of econom$c $ssues th!t determ$ne ! person's econom$c well-be$n% !s well !s th!t
of one's f!m$l" !nd ever"one s/he #nows&
These $ssues $nvolve the over"ll econom!c perform"nce of the n!t$on, r!ther th!n th!t of p!rt$cul!r $nd$v$du!ls&
1% Do c#t#zens f#nd #t e"s' or d#ff#cult to f#nd (obs* (Unemplo%ment r"te)
2% On "ver"!e "re pr#ces r#s#n! r"p#dl', slowl', or not "t "ll* (Concept of !nfl"t!on)
3% How much tot"l #ncome #s the n"t#on produc#n!, "nd how r"p#dl' #s tot"l #ncome !row#n! 'e"r "fter 'e"r* (Product!v!t%)
4% Is !nterest r"te ch"r!ed to borrow mone' h#!h or low*
5% Is the Government spend#n! more th"n #t collects #n t"x revenue* (Government bud#et)
6% Is the n"t#on "s " whole "ccumul"t#n! "ssets #n other countr#es or #s #t becom#n! more #ndebted to them* (Fore!#n tr"de def!c!t)
M!cro-Econom#c F!ctors
M"cro-econom!c pol!c%
6% Is the n"t#on "s " whole "ccumul"t#n! "ssets #n other countr#es or #s #t becom#n! more #ndebted to them* (Fore!#n tr"de def!c!t)
E!ch of the !bove quest$ons $nvolve ! centr!l m!croeconom$c concept th!t !ffect the f!ctors of product$on l!nd, l!bour, c!p$t!l
!nd entrepreneursh$p&
The b!s$c t!s# of m!croeconom$cs $s to stud" the beh!v$our of the pol$c" ob(ect$ves, n!mel" econom$c %rowth, $nfl!t$on,
unemplo"ment !nd b!l!nce of p!"ments !nd wh" e!ch m!tter to $nd$v$du!ls !nd wh!t the %overnment c!n do ($f !n"th$n%) to
$mprove m!croeconom$c perform!nce&
The study of economics can be divided into two:
M"croeconom!cs
cons$ders !%%re%!te beh!v$our, !nd the stud" of the sum of $nd$v$du!l econom$c dec$s$ons&
M!croeconom!cs
$s the stud" of the econom$c beh!v$our of $nd$v$du!l consumers, f$rms !nd $ndustr$es&
The econom' #s r"rel' #n " st"ble st"te bec"use of the v"r#ous ch"n!#n!
f"ctors wh#ch #nfluence #t
An $nterest$n% f!ctor $s the mult$pl$er&
A mult$pl$er $s b!s$c!ll" ! f!ctor of proport$on!l$t" th!t me!sures how much !n X v!r$!ble ch!n%es $n response to ! ch!n%e $n
some Y v!r$!ble&
Bus!ness Act!v!t% !n the Econom%
Determinants of the level of Business Activity
1% Confidence
When consumers "re conf#dent, the' tend to dem"nd more wh#lst h#!her bus#ness conf#dence results #n h#!her #nvestment%
Conf#dence #s !ener"ll' put "t " thre"t when there #s pol#t#c"l #nst"b#l#t', d#s"sters, unemplo'ment "nd h#!h #nfl"t#on%
2% Aggregate Demand
AD = C + I + G + X M
AD A%%re%!te Dem!nd
C Consumer Spend$n%
I Investment b" f$rms
G Government Spend$n%
X Dem!nd for exports
M Imports
Balance of Payments
Under the current method of present!t$on of the U- b!l!nce of p!"ments st!t$st$cs, current "ccount tr!ns!ct$ons !re sub-
d$v$ded $nto four p!rts&
Tr!de $n %oods
Tr!de $n serv$ces
Income
Tr!nsfers&
When (ourn!l$sts on econom$sts spe!# of the b!l!nce of p!"ments the" !re usu!ll" referr$n% to the def$c$t or surplus on the
current !ccount&
The %overnment of ! countr" w$th ! b!l!nce of p!"ments def$c$t w$ll usu!ll" be expected to t!#e me!sures to reduce or
el$m$n!te the def$c$t b" one or more of the follow$n% me!sures'
A deprec$!t$on of the currenc" #nown !s dev!lu!t$on
D$rect me!sures to restr$ct $mports, such !s t!r$ffs or $mport quot!s or exch!n%e control re%ul!t$ons
Domest$c defl!t$on to reduce !%%re%!te dem!nd $n the domest$c econom"
The f$rst two !re expend!ture sw!tch!n# pol$c$es wh$ch tr!nsfer resources !nd expend$ture !w!" from $mports !nd tow!rds
domest$c products wh$le the l!st $s !n expend!ture reduc!n# pol$c"&
3% Capital
If f#rms r"#se the#r f#n"nce #t w#ll result #n h#!her levels of #nvestment%
Lower #nterest r"tes w#ll m"&e c"p#t"l che"per%
4% Use of Resources
Adv"ncements #n technolo!' results #n eff#c#ent wor& pr"ct#ces "nd c"n #mprove product#v#t'%
A well-educ"ted wor& force c"n "lso result #n better "nd more product#ve wor&%
A well-educ"ted wor& force c"n "lso result #n better "nd more product#ve wor&%
5% Government Policy
Government c"n "ffect "!!re!"te dem"nd throu!h f#sc"l pol#c' (the blend of !overnment spend#n! "nd t"x"t#on)%
If Government spend#n! #ncre"ses then the over"ll "!!re!"te dem"nd w#ll #ncre"se
6% Exchange Rate Movements
A stren!then#n! currenc' w#ll m"&e exports of " p"rt#cul"r countr' more expens#ve "nd #n th"t c"se #mports w#ll result to be
che"per%
What are the impacts of having an appreciating (strengthening) currency?
1% Exports are hurt.
Most develop#n! countr#es h"ve econom#es b"sed l"r!el' on exports th"t "re compet#t#ve #n !lob"l m"r&ets bec"use of low pr#ces%
A c"se #n po#nt now"d"'s #s Ch#n"%
When those countr#es currenc' !"#ns #n v"lue, the' "re no lon!er "ble to offer exports to the !lob"l m"r&et "t the s"me low pr#ces
th"t the' pl"nned to%
Th#s m"' c"use #mporters (of other countr#es) to loo& elsewhere, to countr#es w#th lower v"lued currenc' result#n! #n better pr#ces%
It m"' "lso be the c"se th"t the #mporters w#ll st"rt order#n! less from the s"#d countr' h"v#n! "n "pprec#"t#n! currenc'%
2% Repatriated profits from a countrys international economic activity are hurt.
Currenc' "pprec#"t#on "t home me"ns th"t mone' m"de elsewhere wont stretch "s f"r #n support#n! the domest#c econom'
The #mp"ct of econom#c #ssues on the #nd#v#du"l, the household "nd the
bus#ness
Econom!c Issues
Inflation
The $nfl!t$on r!te $s the percent!%e r!te of $ncre!se $n the econom"'s !ver!%e level of pr$ces&
A h$%h $nfl!t$on r!te me!ns th!t pr$ces on !ver!%e !re r$s$n% r!p$dl", wh$le ! low $nfl!t$on r!te me!ns th!t pr$ces on !ver!%e !re
r$s$n% slowl"&
In $nfl!t$on!r" per$ods, ret$red people or those !bout to ret$re !re those of the b$%%est losers s$nce the$r h!rd-e!rned s!v$n%s w$ll
bu" less !nd less !s pr$ces %o up&
Wh$le ! h$%h $nfl!t$on r!te h!rms those who h!ve s!ved $n the p!st, $t helps those who h!ve borrowed&
It $s th$s c!pr$c$ous !spect of $nfl!t$on, t!#$n% from some !nd %$v$n% to others, th!t m!#es people d$sl$#e $nfl!t$on&
People w!nt the$r l$ves to be pred$ct!ble, but $nfl!t$on throws ! mon#e" wrench $nto $nd$v$du!l dec$s$on m!#$n%, cre!t$n%
perv!s$ve uncert!$nt"&
An !nfl"t!on"r% #"p ex$sts $n !n econom" when !%%re%!te dem!nd (tot!l dem!nd $n !n econom") $s %re!ter th!n the full
emplo"ment level of $ncome&
One $mport!nt me!sure of the %ener!l r!te of $nfl!t$on $n the U- used over m!n" "e!rs h!s been the Ret"!l Pr!ce Index (RPI)&
The RPI me!sures the percent!%e ch!n%es month b" month $n the !ver!%e level of pr$ces of the commod$t$es !nd serv$ces,
$nclud$n% hous$n% costs, purch!sed b" the %re!t m!(or$t" of households $n the U-&
The $tems of expend$ture w$th$n the RPI !re $ntended to be ! represent!t$ve l$st of $tems, current pr$ces for wh$ch !re collected !t
re%ul!r $nterv!ls&
Causes of inflation
Demand pull inflation
Dem!nd pull $nfl!t$on !r$ses from excess dem!nd over product$ve c!p!c$t" of the econom"&

It $s ! s$tu!t$on when dem!nd exceeds suppl" !nd pr$ces r$se&
Dem!nd pull $nfl!t$on onl" ex$sts when unemplo"ment $s low&
Cons$der$n% the c!se scen!r$o $n the %r!ph below, P1, th!t $s pr$ce 1 w!s the or$%$n!l pr$ce when n!t$on!l $ncome w!s
Y1&
When dem!nd pull t!#es pl!ce, the curve AD1 sh$fts to AD2 s$nce dem!nd $ncre!ses (too much mone" ch!s$n% too few
%oods)&
As ! result, P1 $ncre!ses to P2 reflect$n% $nfl!t$on !nd Y1 $ncre!ses to Y2 reflect$n% !n $ncre!se $n n!t$on!l $ncome&
When P1 decre!ses to P3, th!t me!ns th!t dem!nd decre!sed, sh$ft$n% AD1 to AD3 result$n% $n ! decre!se $n n!t$on!l
$ncome from Y1 to Y3&
In ! s$tu!t$on when $nfl!t$on $s r$s$n%, dem!nd s$de pol$c" wh$ch $s controlled b" the %overnment would focus on
reduc$n% !%%re%!te dem!nd throu%h t!x r$se, cuts $n %overnment spend$n% !nd h$%her $nterest r!tes&
Th$s $s done $n !n effort to re%ul!r$se $nfl!t$on to control $t from cont$nu$n% to r$se&
Cost-push inflation
Th$s $s ! result of $ncre!ses $n the costs of product$on thus short-run !%%re%!te suppl" (SRAS) sh$fts from SRAS1 to
SRAS2& Its effect le!ves !n $ncre!se $n pr$ce from P1 to P2&
Thus, th$s $ncre!se $n pr$ce $s $n f!ct $nfl!t$on& Cost-push $nfl!t$on !r$ses whether or not there $s ! dem!nd for suppl",
for ex!mple, !n $ncre!se $n the cost of w!%es&
Imported inflation
Cost of $mport r$ses re%!rdless of whether there $s ! h$%h dem!nd for suppl", for ex!mple, !n $ncre!se $n o$l pr$ces&
The s!me expl!n!t$on st$c#s from po$nt no& 2 c!se scen!r$o&
Monetary inflation
Monet!r" $nfl!t$on me!ns !n $ncre!se $n the suppl" of mone"& There $s ! deb!te whether !n $ncre!se $n mone" suppl"
$s ! c!use of $nfl!t$on or whether !n $ncre!se $n the mone" suppl" $s ! s"mptom of $nfl!t$on&
Wh!t h!ppens $s th!t the more suppl" $n mone", the more people w$ll bu" thus dem!nd w$ll $ncre!se&
As ! result, $f th$s $ncre!se $n dem!nd occurs f!ster th!n the exp!ns$on $n the suppl" of %oods !nd serv$ces, then,
$nfl!t$on w$ll t!#e pl!ce&
Monet!r$sts (suppl" s$de v$ew) !r%ue th!t ! %ood tool to f$%ht such $nfl!t$on $s to decre!se the suppl" of mone" !nd
$ncre!se $nterest r!tes&
Expectations effect
Expectations effect
Once $nfl!t$on h!s st!rted to r$se, there m!" be expect!t$on!l $nfl!t$on, th!t $s, people w$ll st!rt expect$n% $nfl!t$on
to r$se even h$%her&
A %ener!l held v$ew of future $nfl!t$on therefore, sets for ex!mple, w!%es !ccord$n%l"&
Th$s $s #nown !s the w!%e-pr$ce sp$r!l&
Unemployment
Unemplo"ment r!te $s the number of (obless $nd$v$du!ls who !re !ct$vel" loo#$n% for wor# d$v$ded b" the tot!l of those
emplo"ed !nd unemplo"ed&
The h$%her the over!ll unemplo"ment r!te, the h!rder $t $s for e!ch $nd$v$du!l who w!nts to f$nd wor#&
Ever"one fe!rs ! h$%h unemplo"ment s$nce $t r!$ses the ch!nces th!t the" w$ll be l!$d off from the$r present wor#, w$ll be un!ble
to p!" the$r b$lls etc&
A %overnment c!n tr" sever!l opt$ons to cre!te (obs or reduce unemplo"ment&
1& Spend$n% more mone" d$rectl" on (obs
2& Encour!%$n% %rowth
3& Encour!%$n% tr!$n$n% $n (ob s#$lls
4& Offer$n% %r!nt !ss$st!nce to emplo"ers
5& Encour!%$n% l!bour mob$l$t"
c"te#or% comments
Types of unemployment
re!l w!%e
unemplo"ment
c!used when the suppl" of l!bour exceeds dem!nd but re!l w!%es
do not f!ll& c!used b" stron% tr!de un$ons wh$ch res$st ! f!ll $n w!%es&
!bol$sh$n% (put !n end to) closed shop !%reements !nd m$n$mum
w!%e re%ul!t$ons !re pol$c$es wh$ch m!" be d$rected !t reduc$n% re!l
w!%e to m!r#et cle!r$n% levels&
fr$ct$on!l d$ff$cult" $n m!tch$n% qu$c#l" wor#ers w$th (obs& poss$bl" c!used b"
l!c# of #nowled%e of (ob opportun$t$es& usu!ll" tempor!r"
se!son!l espec$!ll" $n cert!$n tr!des !s f!rm$n% etc
structur!l occurs dur$n% lon#-term ch!n%e $n cond$t$ons& for ex!mple, !
lon%-term ch!n%e $n ! commun$t" th!t rel$es on one p!rt$cul!r $ndustr"
technolo%$c!l ! form of structur!l th!t occurs then new technolo%" !r$ses&
c"cl$c!l or
dem!nd-
def$c$ent
m!tches econom$c cl$m!te trends such !s boom, decl$ne, recess$on
!nd recover"& dem!nd for l!bour fluctu!tes !s dem!nd r$ses !nd f!lls
Stagnation or Stagflation
Th$s $s ! comb$n!t$on of un!ccept!bl" h$%h levels of unemplo"ment !nd un!ccept!bl" h$%h levels of $nfl!t$on&
Dur$n% the 1970 $n the U- ! m!(or r$se $n the pr$ce of crude o$l too# pl!ce&
Th$s me!nt th!t the cost of ener%" rose !nd therefore rendered some products unprof$t!ble&
N!t$on!l $ncome fell !nd both pr$ces !nd unemplo"ment rose& An" lon% term m!(or $ncre!se $n costs could h!ve th$s effect&
International payments Disequilibrium
A fund!ment!l d$sequ$l$br$um ex$sts when outw!rd p!"ments h!ve ! cont$nu$n% tendenc" not to b!l!nce $nw!rd
p!"ments&
D$sequ$l$br$um m!" occur for v!r$ous re!sons&
Some m!" be %rouped under the he!d of structur!l ch!n%e (result$n% from ch!n%es $n t!stes, h!b$ts, $nst$tut$ons,
technolo%", etc&)&
A fund!ment!l $mb!l!nce m!" occur $f w!%es !nd other costs r$se f!ster $n rel!t$on to product$v$t" $n one countr" th!n the"A fund!ment!l $mb!l!nce m!" occur $f w!%es !nd other costs r$se f!ster $n rel!t$on to product$v$t" $n one countr" th!n the"
do $n others& Imb!l!nce m!" !lso result when !%%re%!te dem!nd runs !bove the suppl" potent$!l of ! countr", forc$n% pr$ces
up or r!$s$n% $mports&
For ex!mple, ! w!r m!" h!ve ! profoundl" d$sturb$n% effect on ! countr"s econom"
THE MAIN TYPES OF ECONOMIC POLICY
Economic policy objectives:
A m!cro-econom$c pol$c" rel!tes to econom$c %rowth, $nfl!t$on, unemplo"ment !nd the b!l!nce of p!"ments&
The ob(ect$ves !re'
1% Ach#eve econom#c !rowth
2% Control pr#ce #nfl"t#on
3% Ach#eve full emplo'ment
4% Ach#eve b"l"nce between #mport "nd export
THE IMPACT OF FISCAL AND MONETARY POLICY
1% Fiscal policy (Keynesian view)
F#sc"l pol#c' ()e'nes#"n v#ew) h"s to do w#th the !overnments dec#s#ons "bout spend#n! "nd t"xes%
Th#s prov#des " method of m"n"!#n! "!!re!"ted dem"nd #n the econom'%
There "re sever"l elements to the f#sc"l pol#c' "nd th"t of the bud!et$
Econom!c Pol!c%
Expend!ture
The %overnment spends mone" both n!t$on!ll" !nd re%$on!ll" on such th$n%s !s he!lth serv$ces, educ!t$on!l, ro!ds, pol$c$n%&
It !lso prov$des commerc$!l $ncent$ves to the pr$v!te sector throu%h %r!nts&
Revenues
To spend the mone" on publ$c serv$ces the %overnment needs !n $ncome&
The m!(or$t" of the $ncome comes from t!xes !lthou%h some come from d$rect ch!r%es l$#e N!t$on!l He!lth Serv$ce ch!r%es&
A re#ress!ve t"x t!#es ! h$%her proport$on of ! poor persons s!l!r" th!n ! r$ch persons&
Ex!mple - ro!d t!x&
A proport!on"l t"x t!#es the s!me proport$on of $ncome $n t!x from !ll levels of $ncome&
A pro#ress!ve t"x t!#es ! h$%her proport$on of $ncome $n t!x !s $ncome r$ses& Ex!mple Income t!x&
Borrow!n#
Should ! %overnments spend$n% exceed $ts $ncome then $t must borrow&
The !mount $t must borrow $s #nown !s the PUBLIC SECTOR NET CASH REQUIREMENT (PSNCR)&
Th$s h!s ! profound effect of the f$sc!l pol$c" !s ! whole&
2% Budget Surplus and Budget Deficit
Should the !overnment use #ts f#sc"l pol#c' to #nfluence dem"nd #n the econom' then #t needs to choose e#ther expend#ture
ch"n!es or t"x ch"n!es, "s #ts pol#c' #nstruments, or " comb#n"t#on of both% The #overnment could&
Incre"se dem"nd b% d!rectl% spend!n# more !tself, for ex"mple, future #nvestment "nd spend#n! on the he"lth serv#ce or
emplo'#n! more people% If the !overnment w"s to #nfluence dem"nd b' spend#n! more, th#s would h"ve to be f#n"nced e#ther
throu!h #ncre"s#n! t"xes or borrow#n!% However, b' #ncre"s#n! t"xes, or!"n#s"t#ons, households "nd #nd#v#du"ls would h"ve less to
spend%
Incre"se dem"nd !nd!rectl% b% reduc!n# t"x"t!on - T"x cuts "re often followed b' cuts #n !overnment spend#n!% Therefore,
tot"l dem"nd w#ll not be st#mul"ted w#th#n the econom'% A!"#n, t"x cuts could "lso be funded b' "n #ncre"se #n !overnment
borrow#n!% Should the !overnment dec#de to lower t"x then or!"n#s"t#ons, households "nd #nd#v#du"ls would h"ve more mone'
"fter t"x thus h"ve the "b#l#t' to spend more%
When the !overnment #s runn#n! " bud#et def!c!t #t me"ns th"t tot"l publ#c expend#ture exceeds revenue% As " result, the
!overnment h"s to borrow throu!h the !ssue of #overnment debt%
If the !overnment sector #s t"&#n! #n more revenue th"n #t #s spend#n!, there #s " bud#et surplus "llow#n! the !overnment to
rep"' some of the "ccumul"ted debt, of perh"ps cut the burden of t"x or r"#se #overnment expend!ture%
3% Monetary Policy
Monet"r' Pol#c' loo&s "t the suppl' of mone', the monet"r' s'stem, #nterest r"tes, exch"n!e r"tes "nd the "v"#l"b#l#t' of cred#t%
All of wh#ch "re h#!hl' #mport"nt to or!"n#s"t#ons, households "nd #nd#v#du"ls% Bus#nesses c"n be "ffected b' !overnments'
t"x"t#on pol#c#es outl#ned w#th#n the f#sc"l pol#c' AND equ"ll' "ffected b' h#!h #nterest r"tes set out w#th#n the monet"r' pol#c'%
In the U), the ult#m"te ob(ect#ve of monet"r' pol#c' #n recent 'e"rs h"s been pr#nc#p"ll' to reduce the r"te of #nfl"t#on to "
sust"#n"ble low level%
The #ntermed#"te ob(ect#ves of monet"r' pol#c' h"ve rel"ted to the level of #nterest r"tes, !rowth #n the mone' suppl', the
exch"n!e r"te of sterl#n!, the exp"ns#on of cred#t "nd the !rowth of n"t#on"l #ncome%
4% Money Supply within the Monetary Policy (Moneterists view)
Th#s #s "n #ntermed#"te t"r!et "nd should be seen "s " med!um term t"r#et%
The "r!ument #s th"t b' #ncre"s#n! mone' suppl' th#s w#ll r"#se pr#ces "nd #ncomes "nd th#s w#ll #ncre"se the dem"nd for mone' to
spend%
There "re however three short-term unpred#ct"ble effects$
M!" c!use err!t$c (sudden) $nterest r!tes
T$me l!%& It t!#es t$me to cut %overnment spend$n%*
T$me l!% before control over mone" suppl" !lters expect!t$ons
5% Interest Rates within the Monetary Policy
There "re su!!est#ons th"t there #s " d#rect rel"t#onsh#p between #nterest r"tes "nd the levels of expend#ture #n the econom' or put
s#mpl', between #nterest r"tes "nd #nfl"t#on%
A r!se !n !nterest r"tes w!ll r"!se the pr!ce of borrow!n#%
Th#s could le"d to " reduct#on #n #nvestments throu!h the econom' should or!"n#s"t#ons perce#ve the h#!h r"te to be rel"t#vel'
perm"nent%
Prof#ts would f"ll due to h#!her borrow#n! r"tes "nd or!"n#s"t#ons m"' h"ve to cons#der " reduct#on #n #nventor' levels%
For #nd#v#du"ls, there #s less l#&el#hood of borrow#n! for house purch"ses%
A stron! re"son for pursu#n! "n #nterest r"te pol#c' #s th"t #t c"n be #mplemented r"p#dl' comp"red to other t"r!et pol#c#es%
6% The Exchange Rate within the Monetary Policy
There "re few re"sons wh' the exch"n!e r"te pl"'s "n #mport"nt p"rt of the monet"r' pol#c'
If exch!n%e r!tes f!ll, exports become che!per to overse!s bu"ers !nd so more compet$t$ve $n export m!r#ets& However,
$mports w$ll become more expens$ve&
Therefore, ! f!ll $n exch!n%e r!tes m$%ht be %ood for ! domest$c econom", b" %$v$n% ! st$mulus to exports !nd reduc$n%
dem!nd for $mports&
An $ncre!se $n exch!n%e r!tes w$ll h!ve the oppos$te effect, w$th de!rer exports !nd che!per $mports& If th$s h!ppens, there
should be ! reduct$on $n the r!te of domest$c $nfl!t$on&
However, the oppos$te would h!ppen w$th ! f!ll $n exch!n%e r!tes therefore, !dd$n% to the r!te of domest$c $nfl!t$on&
R!tes of domest$c $nfl!t$on need to be controlled pr$or to $ntroduc$n% ! robust t!r%et for the exch!n%e r!tes due to some
countr"s be$n% he!v$l" dependent on overse!s tr!de
7% Monetary & Fiscal Policy
Monet"r' pol#c' c"n "ct "s " subs#d#"r' to f#sc"l pol#c'% As " bud!et #s usu"ll' " once " 'e"r event, the !overnment m"' need to
use non-f#sc"l me"sures to control the econom'%
These "re t'p#c"ll'$
Low $nterest r!tes or l!c# of cred$t control to st$mul!te b!n# lend$n%
H$%h $nterest r!tes to stop b!n# lend$n%
Str$ct cred$t control to reduce lend$n% !nd reduce dem!nd on the econom"
Suppl%-s!de econom$c pol$c$es !re m!$nl" des$%ned to $mprove the suppl"-s$de potent$!l for !n econom", m!#e m!r#ets !nd
$ndustr$es oper!te more eff$c$entl" !nd thereb" contr$bute ! f!ster r!te of %rowth of re!l n!t$on!l output& There !re two bro!d
!ppro!ches to the suppl"-s$de&
F$rstl" pol$c$es focused on product m!r#ets where %oods !nd serv$ces !re produced !nd sold to consumers !nd secondl" the
l!bour m!r#et $s bou%ht !nd sold&
THE CONCEPT OF DEMAND AND SUPPLY FOR GOODS AND SERVICES
Microeconomics
M$croeconom$cs loo#s $nto the $nd$v$du!l people !nd f$rms w$th$n the econom"&
It tends to be more sc$ent$f$c $n $ts !ppro!ch th!n m!cro econom$cs&
An!l"z$n% cert!$n !spects of hum!n beh!v$or ($nclud$n% %roups !nd or%!n$z!t$ons th!t h!ve ! two-w!" oper!t$on rel!t$onsh$p
w$th the bus$ness), m$croeconom$cs shows how $nd$v$du!ls !nd f$rms respond to ch!n%es $n pr$ce !nd wh" the" dem!nd wh!t
the" do !t p!rt$cul!r pr$ce levels&
An or%!n$s!t$ons m$cro env$ronment cons$sts of $tself !nd $ts current !nd potent$!l customers, suppl$ers !nd $ntermed$!r$es&
The compet$t$on !lso h!s ! #e" $nfluence on the m$cro env$ronment&
M#cro Econom#cs F!ctors
Dem"nd & Suppl% of Goods & Serv!cesThe compet$t$on !lso h!s ! #e" $nfluence on the m$cro env$ronment&
The 5 Ms refer to !nputs th"t "n or#"n!s"t!on requ!res !n order to funct!on( The% "re&
1% M"ter#"ls
2% Mone'
3% Men (hum"n resources)
4% M"ch#nes
5% M"n"!ement
Ut$l$t" $s the word used to descr$be the s!t$sf!ct$on or benef$t ! person %ets from the consumpt$on of %oods&
Tot!l ut$l$t" $s the tot!l s!t$sf!ct$on th!t people der$ve from spend$n% the$r $ncome !nd consum$n% %oods&
M!r%$n!l ut$l$t" $s the s!t$sf!ct$on %!$ned from consum$n% one !dd$t$on!l un$t of ! %ood or the s!t$sf!ct$on for%one b" consum$n%
one un$t less&
Demand for goods and services
F$ve m!$n v!r$!bles $nfluence the qu!nt$t" of e!ch product th!t $s dem!nded b" e!ch $nd$v$du!l consumer'
1% The pr!ce of the product cre"tes " movement #n the dem"nd curve
2% The pr!ces of other products cre"tes " sh#ft #n the dem"nd curve
3% The consumers !ncome "nd we"lth cre"tes " sh#ft #n the dem"nd curve
4% V"r!ous soc!olo#!c"l f"ctors cre"tes " sh#ft #n the dem"nd curve
5% The consumers t"stes cre"tes " sh#ft #n the dem"nd curve
A b!s$c econom$c h"pothes$s $s th!t the lower the pr$ce of ! product, the l!r%er the qu!nt$t" th!t w$ll be dem!nded, other th$n%s
be$n% equ!l&
Th$s $n f!ct reflects ! downw!rd slop$n% curve !s $n below d$!%r!m&
A, B !nd C !re po$nts on the dem!nd curve&
E!ch po$nt on the curve reflects ! d$rect correl!t$on between qu!nt$t$es dem!nded (Q) !nd pr$ce (P)&
So, !t po$nt A, the qu!nt$t" dem!nded w$ll be Q1 !nd the pr$ce w$ll be P1, !nd so on&
The dem!nd rel!t$onsh$p curve $llustr!tes the ne%!t$ve rel!t$onsh$p between pr$ce !nd qu!nt$t" dem!nded&
The h$%her the pr$ce of ! %ood the lower the qu!nt$t" dem!nded (A), !nd the lower the pr$ce, the more the %ood w$ll be $n
dem!nd (C)&
Supply for goods and services
Four m!(or determ$n!nts of the qu!nt$t" suppl$ed $n ! p!rt$cul!r m!r#et !re'
1% The pr!ce of the product cre"tes " movement #n the suppl' curve
2% The pr!ces of f"ctors of product!on cre"tes " sh#ft #n the suppl' curve
3% The #o"ls of produc!n# f!rms cre"tes " sh#ft #n the suppl' curve
4% The st"te of technolo#% cre"tes " sh#ft #n the suppl' curve
The !mount of ! product th!t f$rms !re !ble !nd w$ll$n% to offer for s!le $s c!lled qu!nt$t" suppl$ed&
Suppl" $s ! des$red flow, how much f$rms !re w$ll$n% to sell per per$od of t$me, not how much the" !ctu!ll" sell&
The qu!nt$t" of !n" product th!t f$rms w$ll produce !nd offer for s!le $s pos$t$vel" rel!ted to the products own pr$ce, r$s$n% when
pr$ce r$ses !nd f!ll$n% when pr$ce f!lls&
Th$s $n f!ct reflects !n upw!rd slop$n% curve !s $n below d$!%r!m&
A, B !nd C !re po$nts on the suppl" curve&
E!ch po$nt on the curve reflects ! d$rect correl!t$on between qu!nt$t$es suppl$ed (Q) !nd pr$ce (P)&
At po$nt B, the qu!nt$t" suppl$ed w$ll be Q2 !nd the pr$ce w$ll be P2, !nd so on&
Equilibrium
When suppl" !nd dem!nd !re equ!l ($&e& when the suppl" funct$on !nd dem!nd funct$on $ntersect) the econom" $s s!$d to be
!t equ$l$br$um&
At th$s po$nt, the !lloc!t$on of %oods $s !t $ts most eff$c$ent bec!use the !mount of %oods be$n% suppl$ed $s ex!ctl" the s!me
!s the !mount of %oods be$n% dem!nded&
Thus, ever"one $s s!t$sf$ed w$th the current econom$c cond$t$on&
At the %$ven pr$ce, suppl$ers !re sell$n% !ll the %oods th!t the" h!ve produced !nd consumers !re %ett$n% !ll the %oods th!t
the" !re dem!nd$n%&
ELASTICITY OF DEMAND AND THE IMPACT OF SUBSTITUTE AND
COMPLEMENTARY GOODS
El"st!c!t% of Dem"nd
Price Elasticity of Demand
If P$zz! Hut r!$ses $ts pr$ces b" ten percent, wh!t w$ll h!ppen to $ts revenues)
The !nswer depends on how consumers w$ll respond& W$ll the" cut b!c# purch!ses ! l$ttle or ! lot)
Th$s quest$on of how respons$ve consumers !re to pr$ce ch!n%es $nvolves the econom$c concept of el!st$c$t"&
The most common el!st$c$t" me!surement $s pr$ce el!st$c$t" of dem!nd&
It me!sures how much consumers respond $n the$r bu"$n% dec$s$ons to ! ch!n%e $n pr$ce&
Pr$ce el!st$c$t" of dem!nd (PED) $s ! me!sure of the extent of ch!n%e $n the m!r#et dem!nd for ! %ood $n response to !
ch!n%e $n $ts pr$ce&
The coefficient of PED is measured as:
Percent"#e ch"n#e !n qu"nt!t% dem"nded / Percent"#e ch"n#e !n pr!ce
S$nce dem!nd usu!ll" $ncre!ses when the pr$ce f!lls, !nd decre!ses when the pr$ce r$ses, el!st$c$t" h!s ! ne%!t$ve v!lue&
However $t $s usu!l to $%nore the m$nus s$%n !nd (ust descr$be the !bsolute v!lue of the coeff$c$ent&
If we !re me!sur$n% the respons$veness of dem!nd to ! l!r%e ch!n%e $n pr$ce, we c!n me!sure el!st$c$t" between two
po$nts on the dem!nd curve, !nd the result$n% me!sure $s c!lled the !rc el!st$c$t" of dem!nd&
Example
Annu!l dem!nd !t .1&10 per un$t $s 700,000 un$ts&
Annu!l dem!nd !t .1&20 per un$t $s 650,000 un$ts&
Aver!%e qu!nt$t" over the r!n%e $s 675,000 un$ts&
Aver!%e pr$ce $s .1&15&
% ch!n%e $n dem!nd = 50,000 / 675,000 x 100% = 7&4%

% ch!n%e $n pr$ce = 10c / 115c x 100% = 8&7%

Pr$ce el!st$c$t" of dem!nd = -7&4 / 8&7 = -0&85
Dem!nd $s INELASTIC over the dem!nd r!n%e cons$dered, bec!use the pr$ce el!st$c$t" of dem!nd ($%nor$n% the m$nus s$%n) $s less
th!n 1&
Pr$ce el!st$c$t" of dem!nd $s cons$dered to be el!st$c&
When the !nswer $s %re!ter th!n 1 ($%nore the m$nus s$%n)&
Factors that determine the value of price elasticity of demand
1% Number of close subst!tutes w!th!n the m"r$et
The more ("nd closer) subst#tutes "v"#l"ble #n the m"r&et the more el"st#c dem"nd w#ll be #n response to " ch"n!e #n pr#ce%
In th#s c"se, the subst#tut#on effect w#ll be qu#te stron!
2% Luxur!es "nd necess!t!es
Necess#t#es tend to h"ve " more #nel"st#c dem"nd, where"s luxur' !oods "nd serv#ces tend to be more el"st#c%
For ex"mple, the dem"nd for c#nem" t#c&ets #s more el"st#c th"n the dem"nd for bus tr"vel%
The dem"nd for v"c"t#on "#r tr"vel #s more el"st#c th"n the dem"nd for bus#ness "#r tr"vel%
3% Percent"#e of !ncome spent on " #ood
It m"' be the c"se th"t the sm"ller the proport#on of #ncome spent, t"&en up w#th purch"s#n! the !ood or serv#ce, the more
#nel"st#c dem"nd w#ll be%
4% H"b!t form!n# #oods
Goods such "s c#!"rettes "nd dru!s tend to be #nel"st#c #n dem"nd%
Preferences "re such th"t h"b#tu"l consumers of cert"#n products become desens#t#zed to pr#ce ch"n!es%
5% T!me per!od under cons!der"t!on
Dem"nd tends to be more el"st#c #n the lon! run r"ther th"n #n the short run%
Income elasticity of demand
Income el!st$c$t" of dem!nd = % ch!n%e $n qu!nt$t" dem!nded / % ch!n%e $n $ncome
Dem!nd for ! %ood $s $ncome el!st$c $f $ncome el!st$c$t" $s %re!ter th!n 1 !nd $t $s $nel!st$c between 0 !nd 1&
Goods whose $ncome el!st$c$t" of dem!nd $s pos$t$ve !re s!$d to be NORMAL GOODS, me!n$n% th!t dem!nd for them w$ll r$se
when household $ncome r$ses&
If $ncome el!st$c$t" $s ne%!t$ve, the commod$t" $s c!lled !n INFERIOR GOOD s$nce dem!nd for $t f!lls !s $ncome r$ses&
Cross elasticity of demand
Cross el!st$c$t" $nvolves ! comp!r$son between two products&
The concept $s ! useful one $n the context of cons$der$n% subst$tutes !nd complement!r" products&
Cross el!st$c$t" of dem!nd = % ch!n%e $n qu!nt$t" dem!nded of %ood A / % ch!n%e $n the pr$ce of %ood B
cross el"st!c!t% v"lue
perfect complements -1
complements -ve
unrel!ted products 0
subst$tutes +ve
perfect subst$tutes +1
THE ECONOMIC BEHAVIOUR OF COSTS IN THE SHORT AND LONG TERM
Econom!c Beh"v!our of Costs
Short vs Long run
1% The short run #s " per#od of t#me #n wh#ch the qu"nt#t' of "t le"st one #nput #s f#xed "nd the qu"nt#t#es of the other #nputs c"n be
v"r#ed%
2% The lon! run #s " per#od of t#me #n wh#ch the qu"nt#t#es of "ll #nputs c"n be v"r#ed%
There $s no f$xed t$me th!t c!n be m!r#ed on the c!lend!r to sep!r!te the short run from the lon% run&
The short run !nd lon% run d$st$nct$on v!r$es from one $ndustr" to !nother&"
Long run
In the lon% run, f$rms ch!n%e product$on levels $n response to (expected) econom$c prof$ts or losses, !nd the l!nd, l!bour,
c!p$t!l !nd entrepreneursh$p (f!ctors of product$on) v!r" to re!ch !ssoc$!ted lon%-run !ver!%e cost&
The lon% run $s !ssoc$!ted w$th the lon% run !ver!%e cost (LRAC) curve $n m$croeconom$c models !lon% wh$ch ! f$rm would
m$n$m$ze $ts !ver!%e cost (cost per un$t) for e!ch respect$ve lon%-run qu!nt$t" of output&
Lon% run m!r%$n!l cost (LRMC) $s the !dded cost of prov$d$n% !n !dd$t$on!l un$t of commod$t" from ch!n%$n% c!p!c$t" level
to re!ch the lowest cost !ssoc$!ted w$th th!t extr! output&
The concept of lon%-run cost $s !lso used $n determ$n$n% whether the lon%-run $s expected to $nduce the f$rm to rem!$n $n
the $ndustr" or shut down product$on&
The lon% run $s ! pl!nn$n% !nd $mplement!t$on st!%e& Here ! f$rm m!" dec$de th!t $t needs to produce on ! l!r%er sc!le b"
bu$ld$n% ! new pl!nt or !dd$n% ! product$on l$ne&
The f$rm m!" dec$de th!t new technolo%" should be $ncorpor!ted $nto $ts product$on process&
The f$rm thus cons$ders !ll $ts lon%-run product$on opt$ons !nd selects the opt$m!l comb$n!t$on of $nputs !nd technolo%"
for $ts lon%-run purposes&
Lon%-run dec$s$ons !re r$s#" bec!use the f$rm must !nt$c$p!te wh!t methods of product$on w$ll be eff$c$ent, not onl" tod!",
but !lso for m!n" "e!rs $n the future, when the costs of l!bour !nd r!w m!ter$!ls w$ll no doubt h!ve ch!n%ed&
The dec$s$ons !re !lso r$s#" bec!use the f$rm must est$m!te how much output $t w$ll w!nt to product&
Is the $ndustr" to wh$ch $t belon%s %row$n% or decl$n$n%)Is the $ndustr" to wh$ch $t belon%s %row$n% or decl$n$n%)
W$ll new products emer%e to render $ts ex$st$n% products less useful th!n !n extr!pol!t$on of p!st s!les su%%est)
Short run
Once the dec$s$ons !re m!de !nd $mplemented !nd product$on be%$ns, the f$rm $s oper!t$n% $n the short run w$th f$xed !nd
v!r$!ble $nputs&
The short run $s the conceptu!l t$me per$od $n wh$ch !t le!st one f!ctor of product$on $s f$xed $n !mount !nd others !re
v!r$!ble $n !mount&
Costs th!t !re f$xed, s!" from ex$st$n% pl!nt s$ze, h!ve no $mp!ct on ! f$rm's short-run dec$s$ons, s$nce onl" v!r$!ble costs
!nd revenues !ffect short-run prof$ts&
In the short run, ! f$rm c!n r!$se output b" $ncre!s$n% the !mount of the v!r$!ble f!ctor(s), s!" l!bour throu%h overt$me&
Compet#t#ve M"r&ets
Perfect Competition
Perfect compet$t$on $s ch!r!cter$sed b" m!n" bu"ers !nd sellers, m!n" products th!t !re s$m$l!r $n n!ture !nd, !s ! result,
m!n" subst$tutes&
Perfect compet$t$on me!ns there !re few, $f !n", b!rr$ers to entr" for new comp!n$es, !nd pr$ces !re determ$ned b" suppl"
!nd dem!nd&
Thus, producers $n ! perfectl" compet$t$ve m!r#et !re sub(ect to the pr$ces determ$ned b" the m!r#et !nd do not h!ve !n"
$nfluence&
For ex!mple, $n ! perfectl" compet$t$ve m!r#et, should ! s$n%le f$rm dec$de to $ncre!se $ts sell$n% pr$ce of ! %ood, the
consumers c!n (ust turn to the ne!rest compet$tor for ! better pr$ce, c!us$n% !n" f$rm th!t $ncre!ses $ts pr$ces to lose
m!r#et sh!re !nd prof$ts&
Perfect, Imperfect "nd Monopol!st!c M"r$etsm!r#et sh!re !nd prof$ts&
Imperfect Competition
Imperfect compet$t$on $s when ! f$rm h!s too much control over the m!r#et of ! p!rt$cul!r %ood or serv$ce !nd c!n
therefore ch!r%e more th!n $ts re!l m!r#et v!lue&
When the m!r#et for ! cert!$n %ood or serv$ce does not h!ve ! lot of compet$tors, the few f$rms control the m!r#et&
Monopolistic Competition
Monopol$st$c compet$t$on refers to ! m!r#et structure th!t $s ! cross between the two extremes of perfect compet$t$on !nd
monopol"&
The model !llows for the presence of $ncre!s$n% returns to sc!le $n product$on !nd for d$fferent$!ted (r!ther th!n
homo%eneous or $dent$c!l) products&
However the model ret!$ns m!n" fe!tures of perfect compet$t$on, such !s the presence of m!n" f$rms $n the $ndustr" !nd
the l$#el$hood th!t free entr" !nd ex$t of f$rms $n response to prof$t would el$m$n!te econom$c prof$t !mon% the f$rms&
As ! result, the model offers ! somewh!t more re!l$st$c dep$ct$on of m!n" common econom$c m!r#ets&
The model best descr$bes m!r#ets $n wh$ch numerous f$rms suppl" products wh$ch !re e!ch sl$%htl" d$fferent from th!t
suppl$ed b" $ts compet$tors&
Ex!mples $nclude !utomob$les, toothp!ste, furn!ces (ovens), rest!ur!nt me!ls, mot$on p$ctures, rom!nce novels, w$ne, beer,
cheese, sh!v$n% cre!m !nd m!n" more&
EFFECTS ON BUSINESS OUTCOMES AND THE ECONOMY
Soc#!l !nd Demo$r!ph#c F!ctors
Soc!"l & Demo#r"ph!c trends
Key social and demographic issues include:
1% popul"t#on
2% we"lth
3% educ"t#on "nd tr"#n#n!
4% he"lth
5% soc#"l structure, "tt#tudes, v"lues "nd t"stes
1% Population
Wh"t c"uses popul"t#on to !row*
H$%her b$rth r!tes
Lower r!tes of de!th
Imm$%r!t$on
Due to $mprovement $n technolo%" !nd $n p!rt$cul!r the ph!rm!ceut$c!l !re! ! lower r!te of de!th $s result$n% dur$n% the
"e!rs& Also, educ!t$on !bout nutr$t$on helped $n extend$n% the l$fe expect!nc" for both m!les !nd fem!les&
There $s !n $mprovement $n the %ener!l soc$!l cond$t$ons l$#e the cond$t$ons of hous$n% (or shelter)&
A %row$n% popul!t$on offers ! l!r%er l!bour m!r#et or wor#force&
Therefore !n $ncre!se $n modern d!" b$rth r!te would me!n "oun%er people w$th$n the wor#force such !s $n the c!se of
Irel!nd&
Th$s $s compounded b" ! f!ll$n% de!th r!te !nd more elderl" people cont$nu$n% to wor#&
2% Wealth
Econom#c !rowth often results #n h#!her d#spos"ble #ncomes w#th the &noc& "n effect of !re"ter dem"nd for (most) products%
The four f"stest !row#n! econom#es #n the world "re the BRIC -
Br!z$l
Russ$!
Ind$!
Ch$n!
3% Education and Training
An educ"ted wor&force #s " &e' dr#ver of econom#c !rowth, e%!% #n Ch#n" 99% of the 'outh popul"t#on #n now l#ter"te comp"red to
An educ"ted wor&force #s " &e' dr#ver of econom#c !rowth, e%!% #n Ch#n" 99% of the 'outh popul"t#on #n now l#ter"te comp"red to
70% #n the 1980s%
Incre"s#n! st"nd"rds of educ"t#on "nd !re"ter "ccess to IT h"ve m"de the #nternet " m"(or ch"nnel for sell#n! "nd "dvert#s#n!%
4% Health
In m"n' western countr#es the popul"t#on #s becom#n! #ncre"s#n!l' overwe#!ht% Th#s pl"ces !re"ter dem"nds on he"lthc"re
prov#ders%
More th"n 12% of South Afr#c"ns "re #nfected b' HIV% South Afr#c"'s decl#n#n! l#fe expect"nc' (currentl' 51 'e"rs) #s " m"(or
concern, espec#"ll' "s the popul"t#on structure h"s ch"n!ed w#th fewer people #n the#r m#ddle "!es%
Th#s #s norm"ll' the most econom#c"ll' "ct#ve "nd s&#lled !roup who support the elderl' "nd 'oun!er !roups%
5% Social structure, attitudes, values and tastes
1% M"n' countr#es "re f#nd#n! the dem"nd for hous#n! !row#n! f"ster th"n the popul"t#on
2% An #ncre"s#n! concern "bout the ozone l"'er, test#n! on "n#m"ls
3% M"n' women "re b"c& to wor&
4% Ch"n!es #n publ#c "tt#tudes tow"rds rec'cl#n! h"ve resulted #n opportun#t#es for rec'cl#n! f#rms
5% Ch"n!es #n t"stes "nd f"sh#ons c"n h"ve " d"m"!#n! effect on or!"n#s"t#ons th"t f"#l to "nt#c#p"te the ch"n!es
Imp"ct of Or!"n#s"t#ons$
top!c !mp"ct
he!lth & d$et * %row$n% m!r#et for sports rel!ted %oods
* emplo"ee he!lth pro%r!mmes
* new food - !dded v$t!m$ns etc
* dem!nd for or%!n$c foods
women $n wor# * $ncre!se $n p!rt-t$me roles
* the sex d$scr$m$n!t$on !ct
* equ!l p!" & v!lue
Soc!"l structure, V"lues, Att!tudes "nd T"stes* equ!l p!" & v!lue
* promot$on & sen$or$t"
* equ!l opportun$t$es
env$ronment!l * med$! cover!%e fuels publ$c concern
* world d$s!ster = publ$c !ttent$on
The Bus#ness Response
bus!ness "#end" response
%reen products explo$t ecolo%$c!l fr$endl$ness
!s ! m!r#et$n% tool
ch!n%e wor#$n% pr!ct$ces #nowled%e le!ds to consumer stren%th&
b!d publ$c$t" h!s led to $mprovements
l$m$ts there m!" be l$m$ts to how much consumers
w$ll ch!n%e the$r l$fest"les
educ!t$on & confus$on consumers wron%l" educ!ted
env$ronment!l $mp!ct !ssessments rev$ew process !nd f$n$shed product
MEDIUM AND LONG-TERM IMPACT OF DEMOGRAPHIC CHANGE
Me"surements t"$en b% Government
Measures undertaken by Governments
Governments of countr$es w$th low b$rth r!tes often $ntroduce t!x !dv!nt!%es !nd other f$n!nc$!l $ncent$ves to encour!%e
women to h!ve more ch$ldren&
Th$s $s the c!se scen!r$o $n S$n%!pore for ex!mple&
Another common pol$c" $s to encour!%e $mm$%r!t$on& Both C!n!d! !nd Austr!l$! h!ve been promot$n% th$s for over !
dec!de&
Governments $n countr$es w$th r!p$dl" r$s$n% popul!t$ons often put $n pl!ce pol$c$es to d$scour!%e l!r%e f!m$l$es, e&%& the
one ch$ld pol$c" !dopted b" Ch$n!&
The $ncre!s$n% percent!%e of the popul!t$on !%ed over 65 $s cre!t$n% ! pens$ons cr$s$s $n m!n" countr$es&
The m!$n concern $s th!t the t!xes rece$ved from ! sm!ller proport$on of wor#ers w$ll be $nsuff$c$ent to meet the pens$on
dem!nds of ! %row$n% ret$red popul!t$on w$thout hu%e $ncre!ses t!x r!tes&
T"p$c!l %overnment responses $nclude r$s$n% the ret$rement !%e !nd encour!%$n% pr$v!te !nd occup!t$on!l pens$on schemes&
The percent!%e of s$n%le-p!rent f!m$l$es $n the U- rose from 7% $n 1971 to 23% $n 2005&
The U- %overnment h!s focused on en!bl$n% s$n%le p!rents to return to wor# throu%h ! m$xture of ch$ldc!re vouchers !nd
t!x cred$ts&
Amon% others th$s h!s cre!ted extr! dem!nd for ch$ldc!re serv$ces !nd !fter-school clubs&
Concerns over the effects of smo#$n% h!ve resulted $n b!ns on t!b!cco !dvert$s$n% on telev$s$on $n m!n" countr$es !nd the
b!n from smo#$n% $n publ$c $n-door !re!s&
Concerns over obes$t" !re %$v$n% r$se to $ncre!s$n% pressure on %overnment to le%$sl!te $n ! s$m$l!r w!" $n the f!st food
$ndustr"&
In the South Afr$c! the %overnment h!s put $n pl!ce m!n" $n$t$!t$ves to r!$se !w!reness to AIDS !nd sexu!l he!lth&
The %lob!l commun$t" $s under %re!ter pressure to prov$de che!p dru%s to help&
Technolo$#c!l F!ctors
Technolo#!c"l Ch"n#e
ORGANISATION STRUCTURE AND STRATEGY
A ch!n%e $n technolo%" h!s h!d ! m!(or $mp!ct on the structure !nd str!te%" of or%!n$s!t$ons&
Th$s h!s encour!%ed the fl!tten$n% of or%!n$s!t$on!l h$er!rch$es !nd offer$n% ! w$der sp!n of control&
More !nd more comp!n$es !re empower$n% emplo"ees or outsourc$n%, cutt$n% out the need for m$ddle m!n!%ement
DOWNSIZING
Downs$z$n% $s the term used to refer to ! s$tu!t$on when ! comp!n" $s reduc$n% the number of emplo"ees w$thout
necess!r$l" reduc$n% the wor# or output&
DELAYERING
M!n" or%!n$z!t$ons h!ve recentl" been del!"er$n%& M$ddle l$ne (obs !re reduc$n%&
Or%!n$z!t$ons !re $ncre!s$n% the !ver!%e sp!n of control, reduc$n% m!n!%ement levels !nd becom$n% fl!tter& Wh")
Inform!t$on technolo%" reduces the need for m$ddle m!n!%ers to process $nform!t$on&
Empowerment - M!n" or%!n$s!t$ons, espec$!ll" serv$ce bus$nesses, !re #een to dele%!te !uthor$t" down the l$ne to
the lowest poss$ble level&
Front l$ne wor#ers !re !llowed to t!#e dec$s$ons, wh$ch $s often the best w!" to st!" flex$ble !nd respons$ve to
customer dem!nds&
OUTSOURCING
Outsourc$n% h!s to do w$th contr!ct$n% out spec$f$c oper!t$ons or serv$ces to !n extern!l vendor& Outsourc$n% c!n
help remove the uncert!$nt" of costs !nd repl!ce $t w$th ! f$xed pr$ce&
It encour!%es pl!nn$n% !s m!n" of the outsourced contr!cts !re lon%-term& It !lso c!n benef$t from econom$es of
sc!le&
An outsourc$n% or%!n$s!t$on c!n !lso sh!re st!ff !nd expert$se between cl$ents& It !lso %$ves both comp!n$es lots of
flex$b$l$t"&
Outsourc$n% c!n wor# on ! pro(ect b!s$s, for ex!mple ! m!r#et$n% comp!n" or PR or%!n$s!t$on help$n% to l!unch !
p!rt$cul!r product&
There "re however, cert"!n dr"wb"c$s of outsourc!n# th"t h"ve to be me"sured "#"!nst the potent!"l #"!ns&
There "re however, cert"!n dr"wb"c$s of outsourc!n# th"t h"ve to be me"sured "#"!nst the potent!"l #"!ns&
Conf$dent$!ll" of $nform!t$on or techn$ques
Compet$t$ve !dv!nt!%e
Loc#ed $nto !n uns!t$sf!ctor" contr!ct
Leth!r%" (not ver" product$ve) tow!rds cost $mpl$c!t$ons
Effects of IT "nd Inform"t#on S'stems on Bus#ness Processes
rout$ne process$n% $ncre!se $n volume, speed !nd !ccur!c"
d$%$t!l $nform!t$on
& record #eep$n%
people l$#e to pr$nt stuff out*
m!n!%ers h!ve !ccess to more $nform!t$on
more det!$led pl!nn$n% $s poss$ble
$nform!t$on for control poss$ble
better dec$s$on m!#$n% due to better $nform!t$on
news s#$lls/w!"s
of wor#$n%
emplo"ees to ut$l$se $t
new s"stems requ$re new w!"s of wor#$n%
technolo%$c!l comm$ts !n or%!n$s!t$on to cont$nu!l ch!n%e
customer serv$ce d!t!b!se, webs$te etc = better customer serv$ce
$nform!t$on m!r#ets or%!n$s!t$ons h!ve h!d to loo# upon $nform!t$on
!s ! commod$t" !nd to loo# more closel" !t
how th$s !ffects the$r bus$ness
developments $n
commun$c!t$on
$mprovements !nd developments $n commun$c!t$on
!re h!v$n% ! hu%e $mp!ct on bus$nesses& em!$l $s
qu$c# !nd eff$c$ent, vo$ce m!$l !llows flex$b$l$t",
Inform"t!on Technolo#% & Inform"t!on s%tems
technolo%" c!n route $ncom$n% c!lls !nd person!l$se
commun$c!t$on& computer conferenc$n% encour!%es
commun$c!t$on !nd v$deo conferenc$n% $mprove
f!ce to f!ce cont!ct !nd reduce tr!vel costs
$t & the emplo"ee/
emplo"er rel!t$onsh$p
there's ! reduced need to follow ch!$ns of comm!nd
$nform!t$on overlo!d
n!ture of wor#
close bus$ness rel!t$onsh$p re%!rdless of loc!t$on
flex$ble wor#$n% !rr!n%ements
%re!ter mon$tor$n% !nd control
these !re the s!me $ssues th!t !re !ffected dur$n%
downs$z$n% due to developments $n commun$c!t$ons
Inform"t#on S'stems "nd Technolo!#es
Inform"t!on s%stems !nd technolo#!es h!ve become v$t!l components of successful bus$nesses !nd or%!n$s!t$ons&
An $nform!t$on s"stem $s !n or%!n$sed comb$n!t$on of people, h!rdw!re, softw!re, commun$c!t$ons networ#s !nd d!t! resources
th!t collects, tr!nsforms !nd d$ssem$n!tes $nform!t$on $n !n or%!n$s!t$on&
Inform!t$on s"stems prov$de !n or%!n$s!t$on w$th support for bus$ness oper!t$ons, m!n!%er$!l dec$s$on m!#$n% !nd str!te%$c
!dv!nt!%e&
Electronic data processing, transaction processing system and management information
system
Unt$l the 1960s, the role of $nform!t$on s"stems w!s s$mple tr!ns!ct$on process$n%, record-#eep$n%, !ccount$n% !nd other
electron!c d"t" process!n# (EDP) !ppl$c!t$ons or tr"ns"ct!on process!n# s%stem (TPS)&
Then, !nother role w!s !dded, !s the concept of m"n"#ement !nform"t!on s%stems (MIS) w!s conce$ved&
Th$s new role focused on prov$d$n% m!n!%er$!l end users w$th predef$ned m!n!%ement reports th!t would %$ve m!n!%ers
the $nform!t$on the" needed for dec$s$on-m!#$n% purposes&
T%pes of Inform"t!on Technolo#% "nd S%stems
Decision support systems
B" 1970s, $t w!s ev$dent th!t the prespec$f$ed $nform!t$on products produced b" such m!n!%ement $nform!t$on s"stems
were not !dequ!tel" meet$n% m!n" of the dec$s$on-m!#$n% needs of m!n!%ement&
So the concept of dec!s!on support s%stems (DSS) w!s born&
The new role for $nform!t$on s"stems w!s to prov$de m!n!%er$!l end users w$th !d hoc !nd $nter!ct$ve support of the$r
dec$s$on-m!#$n% processes&
Th$s support would be t!$lored to the un$que dec$s$on-m!#$n% st"les of m!n!%ers !s the" confronted spec$f$c t"pes of
problems $n the re!l world&
Executive information systems, expert support systems and knowledge-based systems
In the 1980s, sever!l new roles for $nform!t$on s"stems !ppe!red&
It bec!me ev$dent th!t most top execut$ves d$d not d$rectl" use e$ther the reports of $nform!t$on report$n% s"stems or the
m!them!t$c!l !n!l"t$c!l model$n% c!p!b$l$t$es of DSS, so the concept of execut!ve !nform"t!on s%stems (EIS) w!s
developed&
These $nform!t$on s"stems !ttempt to %$ve top execut$ves !n e!s" w!" to %et the cr$t$c!l $nform!t$on the" w!nt, when
the" w!nt $t, t!$lored to the form!ts the" prefer&
Expert support s%stems (ESS) !nd other $nowled#e-b"sed s%stems for%ed ! new role for $nform!t$on s"stems&
Tod!", expert s"stems c!n serve consult!nts to users b" prov$d$n% expert !dv$ce $n l$m$ted sub(ect&
F$n!ll", the r!p$d %rowth of the Internet, $ntr!nets, extr!nets $n the 1990s h!s dr!m!t$c!ll" ch!n%ed the c!p!b$l$t$es of
$nform!t$on s"stems $n bus$ness&
Such %lob!l $nternet wor# $s revolut$on$s$n% !nd support$n% bus$ness oper!t$ons !nd m!n!%ement of d$fferent enterpr$ses&
Sources of Intern"l "nd Extern"l Inform"t!on
Inform"t#on c"n be !"thered e#ther v#" #ntern"l or extern"l sources
1% Internal Information
A system needs to be devised to gather this information. The types of internal
information could be:
Account$n% Records
HR & Personnel Inform!t$on
P!"roll
Product$on Inform!t$on
The system should take into account such things as:
Wh!t d!t!/$nform!t$on)
When)
B" who)
Wh!t method)
Process, f$led !nd commun$c!ted)
2% External Information
Extern"l #nform"t#on #s !"thered v#" " form"l or !nform"l collect#on of d"t" from outs#de sources%
For ex"mple " form"l process would re"d someth#n! l#&e th#s$
A comp"n#es HR dep"rtment should !"ther #nform"t#on re!"rd#n! ch"n!es #n emplo'ment l"w or #ndeed " m"r&et#n! m"n"!er
should per#od#c"ll' "ssess the extern"l m"r&et throu!h m"r&et rese"rch etc to ensure "ll #nform"t#on #s !"thered to m"&e "n
#nformed dec#s#on%
3% Informal Information
Inform"l #nform"t#on !"ther#n! occurs n"tur"ll' "s emplo'ees become "w"re of the env#ronment "round them%
Level S'stems
1% Strategic Level Systems
Fe"tures of Inform"t!on S%stems1% Strategic Level Systems
Execut!ve Support S%stems (ESS)
Pools d!t! from $ntern!l !nd extern!l sources !nd helps form ! str!te%$c p$cture& Needs flex$b$l$t", the !b$l$t" to prov$de !
qu$c# response !nd to !n!l"se d!t!&
2% Management Level Systems
M"n"#ement Inform"t!on S%stems (MIS)
Converts m!$nl" $ntern!l $nform!t$on !nd prov$des reports th!t en!ble m!n!%ers to m!#e !ppropr$!te dec$s$ons& Needs to
support structured dec$s$ons, report on ex$st$n% oper!t$ons, $ntern!l focus !nd be rel!t$vel" $nflex$ble&
Dec!s!on Support S%stem (DSS)
Comb$nes d!t! !nd !n!l"t$c!l models or d!t! !n!l"s$s tools to support dec$s$on m!#$n%& Needs flex$b$l$t", be user-fr$endl" !nd
offer !ltern!t$ves&
3% Knowledge Level Systems
'nowled#e Wor$ S%stems ('WS)
Inte%r!te new #nowled%e $nto !n or%!n$s!t$on&
Off!ce Autom"t!on S%stems (OAS)
Des$%ned to $ncre!se the product$v$t" of d!t! !nd $nform!t$on wor#ers& These $nclude em!$l, word process$n% etc&
4% Operational Level Systems
Tr"ns"ct!on Process!n# S%stems (TPS)
Performs !nd records rout$ne tr!ns!ct$ons& For ex!mple, S!les orders, purch!s$n% orders, p!"roll, re%$str!t$on etc&
BENEFITS TO A RANGE OF STA)EHOLDERS
Econom$c sust!$n!b$l$t" $s the term used to $dent$f" v!r$ous str!te%$es th!t m!#e $t poss$ble to ut$l$se !v!$l!ble resources to best
!dv!nt!%e&
The $de! $s to promote us!%e of those resources th!t $s both eff$c$ent !nd respons$ble, !nd l$#el" to prov$de lon%-tem benef$ts&
In the c!se of ! bus$ness oper!t$on, econom$c sust!$n!b$l$t" c!lls for us$n% resources so th!t the bus$ness cont$nues to funct$on
over ! number of "e!rs, wh$le cons$stentl" return$n% ! prof$t&
Econom$c sust!$n!b$l$t" forces ! comp!n" to loo# on the $ntern!l !nd extern!l $mpl$c!t$ons of sust!$n!b$l$t" m!n!%ement&
Env#ronment!l F!ctors
Econom!c Sust"n"b!l!t%Econom$c sust!$n!b$l$t" forces ! comp!n" to loo# on the $ntern!l !nd extern!l $mpl$c!t$ons of sust!$n!b$l$t" m!n!%ement&
This means that managing economic sustainability must consider:
the f$n!nc$!l perform!nce of ! comp!n",
how the comp!n" m!n!%es $nt!n%$ble !ssets,
$ts $nfluence on the w$der econom", !nd
how $t $nfluences !nd m!n!%es soc$!l !nd env$ronment!l $mp!cts
There $s some consensus th!t sust!$n!b$l$t" $s des$r!ble for $nd$v$du!l bus$nesses to prevent the dev!st!t$n% !nd $neff$c$ent
$mp!cts of corpor!te prem!ture de!th, !nd to en!ble !nd protect soc$!l !nd env$ronment!l $n$t$!t$ves, wh$ch tend to be the
product of more m!ture bus$nesses&
Econom$c sust!$n!b$l$t" c!n be seen !s ! tool to m!#e sure the bus$ness does h!ve ! future !nd cont$nues to contr$bute to the
f$n!nc$!l welf!re of the owners, the emplo"ees, !nd to the commun$t" where the bus$ness $s loc!ted&
ENVIRONMENTAL CONDITIONS
A countr"'s terr$tor$!l s$ze, %eo%r!ph$c!l loc!t$on, n!tur!l resources, cl$m!te, r$vers, l!#es !nd forests const$tute $ts ph"s$c!l
env$ronment&
Bus$nesses !re m!$nl" concerned w$th e$ther s"stem!t$c ch!n%e $n env$ronment!l cond$t$ons such !s %lob!l w!rn$n% or result of
sudden !nd unexpected n!tur!l events such !s floods, storms !nd e!rthqu!#es&
Wh!t $s $mport!nt for bus$nesses $s to re!l$se th!t bus$ness beh!v$or must be !d(usted to expected v!r$!t$ons $n ph"s$c!l
cond$t$ons&
Just !s comp!n$es successfull" oper!te w$th$n !n envelope of ch!n%$n% econom$c cond$t$ons (econom$c %rowth, $nfl!t$on,
Ph%s!c"l Env!ronment
Just !s comp!n$es successfull" oper!te w$th$n !n envelope of ch!n%$n% econom$c cond$t$ons (econom$c %rowth, $nfl!t$on,
unemplo"ment) so the" oper!te w$th$n !n envelope of v!r"$n% ph"s$c!l cond$t$ons&
Businesses can mainly affect or be affected by the following:
A$r pollut$on (em$ss$ons from $ndustr$es)
W!ter pollut$on (d$sch!r%es from $ndustr$es
So$l pollut$on (when w!ste $s d$sposed ruthlessl" $t d!m!%es the so$l)
Glob!l w!rn$n%
Ozone Deplet$on (the ozone l!"er protects the entr" of h!rmful ultr!v$olet r!"s from corn$n% to the e!rth)
WAYS TO LIMIT DAMAGE TO THE ENVIRONMENT
Store !nd h!ndle h!z!rdous subst!nces s!fel"
Prevent w!ter pollut$on from s$te dr!$n!%e
Sep!r!te h!z!rdous w!ste from other w!ste t"pes
Store !nd tr!nsport w!ste $n su$t!ble cont!$ners such !s s#$ps
Avo$d c!us$n% ! nu$s!nce ($rr$t!t$on) from dust or no$se em$ss$ons
Use !n env$ronment m!n!%ement s"stem (An EMS w$ll help the bus$ness m!n!%e !nd control $ts !ct$v$t$es, $nclud$n%
em$ss$ons !nd d$sch!r%es, resource use, !nd w!ste $n ! pl!nned w!")
Eff!c!ent "nd effect!ve W"%s
Wh"t #s SWOT An"l's#s*
SWOT !n!l"s$s $s ! b!s$c, str!$%htforw!rd model th!t prov$des d$rect$on !nd serves !s ! b!s$s for the development of pl!ns&
It !ccompl$shes th$s b" !ssess$n% !n or%!n$s!t$ons stren%ths (wh!t !n or%!n$s!t$on c!n do) !nd we!#nesses (wh!t !n or%!n$s!t$on
c!nnot do) $n !dd$t$on to opportun$t$es (potent$!l f!vor!ble cond$t$ons for !n or%!n$s!t$on) !nd thre!ts (potent$!l unf!vor!ble
cond$t$ons for !n or%!n$s!t$on)&
SWOT !n!l"s$s $s !n $mport!nt step $n pl!nn$n% !nd $ts v!lue $s often underest$m!ted desp$te the s$mpl$c$t" $n cre!t$on&
Strengths and Weaknesses
A m!n!%er must be%$n to th$n# $n terms of wh!t the f$rm c!n do well !nd where $t m!" h!ve def$c$enc$es&
Stren%ths !nd we!#nesses ex$st $ntern!ll" w$th$n ! f$rm, or $n #e" rel!t$onsh$ps between the f$rm !nd $ts customers&
SWOT !n!l"s$s must be customer focused to %!$n m!x$mum benef$t&
Stren%th $s re!ll" me!n$n%ful onl" when $t $s useful $n s!t$sf"$n% the needs of ! customer& At th$s po$nt, the stren%th
becomes ! c!p!b$l$t"&
When wr$t$n% down stren%ths, $t $s $mper!t$ve th!t the" be cons$dered from both the v$ew of the f$rm !s well !s from the
customers th!t !re de!lt w$th&
These stren%ths should be re!l$st$c !nd not modest&
We!#nesses should !lso be cons$dered from !n $ntern!l v$ewpo$nt& It $s $mport!nt th!t l$st$n% of ! f$rms we!#nesses $s
truthful so th!t the" m!" be overcome !s qu$c#l" !s poss$ble&
Del!"$n% the d$scover" of we!#nesses th!t !lre!d" ex$st w$th$n ! comp!n" w$ll onl" further hurt the f$rm&
Compet#t#ve F!ctors
SWOT An"l%s!s
Opportunities and Threats
M!n!%ers who !re c!u%ht up $n develop$n% stren%ths !nd c!p!b$l$t$es m!" $%nore the extern!l env$ronment&
A m$st!#e of th$s m!%n$tude could le!d to !n eff$c$ent or%!n$s!t$on th!t $s no lon%er effect$ve when ch!n%es $n the extern!l
env$ronment proh$b$t the f$rms !b$l$t" to del$ver v!lue to $ts t!r%eted customer se%ments&
These ch!n%es c!n occur $n the r!te of over!ll m!r#et %rowth !nd $n the compet$t$ve, econom$c, pol$t$c!l/le%!l, technolo%$c!l,
or soc$o-cultur!l env$ronments
The main sources of Competitive Advantage
Compet$t$ve !dv!nt!%e occurs when !n or%!n$s!t$on !cqu$res or develops !n !ttr$bute or comb$n!t$on of !ttr$butes th!t !llows $t
to outperform $ts compet$tors&
Compet$t$ve !dv!nt!%e $s ! #e" determ$n!nt of super$or perform!nce !nd $t w$ll ensure surv$v!l !nd prom$nent pl!c$n% $n the
m!r#et&
Some of the m!$n sources of compet$t$ve !dv!nt!%e $nclude'
1% S'ner!'
2% Effect#ve le"dersh#p
3% Te"mwor&
4% Le"rn#n! or!"n#z"t#on
5% Econom#es of sc"le
6% D#fferent#"t#on
7% Cost le"dersh#p
Compet#t#ve "dv"nt"!e
Act!v!t!es of "n Or#"n!s"t!on th"t effect !ts compet!t!veness
Compet$t$ve !dv!nt!%e or the compet$t$veness of !n or%!n$s!t$on c!n be !ch$eved b" the w!" $n wh$ch $t or%!n$ses !nd performs
$ts !ct$v$t$es&
V"lue "ct!v!t!es !re the !ct$v$t$es b" wh$ch !n or%!n$s!t$on cre!tes v!lue $n $ts products&
A V"lue ch"!n descr$bes the !ct$v$t$es of the or%!n$s!t$on th!t !dd v!lue to purch!sed $nputs&
Pr$m!r" !ct$v$t$es !re those $nvolved $n the product$on of %oods or serv$ce& Support serv$ces suppl" !ss$st!nce&
The l$n#!%es !re the rel!t$onsh$ps between !ct$v$t$es& M!n!%$n% the v!lue ch!$n, wh$ch $ncludes rel!t$onsh$ps w$th suppl$ers, c!n
be ! source of str!te%$c !dv!nt!%e over compet$tors $n the $ndustr"&
The best way to demonstrate this process is through the example of a restaurant.
A rest!ur!nt h!s to bu" food, coo# $t !nd then serve $t to customers&
Customers purch"se v"lue&
A customer comp!res "our product w$th s$m$l!r compet$tors&
The bus!ness cre"tes v!lue b" ensur$n% the$r product (food, effect$ve serv$ce etc) $s e$ther more eff$c$ent or th!t the" !re
prov$d$n% ! un$que product or serv$ce&
Porter developed h$s v"lue ch"!n to determ$ne whether !nd how ! f$rm's !ct$v$t$es contr$bute tow!rds $ts compet$t$ve
!dv!nt!%e&
"ct!v!t% comments
$nbound lo%$st$cs rece$v$n%, h!ndl$n% !nd stor$n% $nputs to the product$on
s"stem, w!rehous$n%, tr!nsport, $nventor" control etc
oper!t$ons convert resources $nto f$n!l product& people !re !lso !
resource $n serv$ce $ndustr$es
outbound lo%$st$cs stor$n% the product & d$str$but$n% products& p!c#!%$n%,
test$n%, del$ver" etc
test$n%, del$ver" etc
m!r#et$n% & s!les $nform!t$on customers !bout s!les, persu!d$n% them
to bu", !dvert$s$n%, promot$ons etc
!fter s!les serv$ce $nst!ll$n% products, rep!$r, up%r!d$n%, sp!re p!rts etc
procurement bu"$n% the resources $nputs to the pr$m!r" !ct$v$t$es
technolo%"
development
product des$%n, $mprov$n% processes !nd/or resource
ut$l$s!t$on
hum!n resource
m!n!%ement
recru$t$n%, tr!$n$n%, development !nd rew!rd$n% people
f$rm $nfr!structure pl!nn$n%, f$n!nce, qu!l$t" control, porter bel$eves th$s
c!n be of %re!t str!te%$c $mport!nce for !n or%!n$s!t$on
LEVEL OF COMPETITIVENESS
Michael Porter
st!ted th!t ! f$rm w$sh$n% to obt!$n ! compet$t$ve !dv!nt!%e over $ts r$v!ls $s f!ced w$th two cho$ces'
Cost Le"dersh!p
vs
D!fferent!"t!on OR De#ree of Focus
Cost Leadership
Porter's F!ve Forces Model
W$th th$s str!te%", the ob(ect$ve $s to become the lowest-cost producer $n the $ndustr"&
M!n" m!r#et se%ments $n the $ndustr" !re suppl$ed w$th the emph!s$s pl!ced m$n$m$s$n% costs&
If the !ch$eved sell$n% pr$ce c!n !t le!st equ!l (or ne!r) the !ver!%e for the m!r#et, then the lowest-cost producer w$ll ($n
theor") en(o" the best prof$ts&
Th$s str!te%" $s usu!ll" !ssoc$!ted w$th l!r%e-sc!le bus$nesses offer$n% "st!nd!rd" products w$th rel!t$vel" l$ttle
d$fferent$!t$on th!t !re perfectl" !ccept!ble to the m!(or$t" of customers&
Occ!s$on!ll", ! low-cost le!der w$ll !lso d$scount $ts product to m!x$m$se s!les, p!rt$cul!rl" $f $t h!s ! s$%n$f$c!nt cost
!dv!nt!%e over the compet$t$on !nd, $n do$n% so, $t c!n further $ncre!se $ts m!r#et sh!re&
Ex!mple from the c!r $ndustr" N$ss!n, Ford, Hond!
Differentiation
In ! d$fferent$!t$on str!te%" ! f$rm loo#s for w!"s to be un$que !lon% some d$mens$ons th!t !re w$del" v!lued b" bu"ers&
It selects one or more !ttr$butes th!t bu"ers perce$ve !s $mport!nt !nd un$quel" pos$t$ons $tself to meet those needs !nd $t
$s rew!rded for $ts un$queness w$th ! prem$um pr$ce&
One c!n d$fferent$!te $n des$%n, br!nd $m!%e, customer serv$ce&
Ex!mple from the c!r $ndustr" BMW, J!%u!r, Mercedes
Focus
A focused str!te%" chooses ! se%ment or %roup of se%ments $n the $ndustr" !nd t!$lors $ts str!te%" to serv$n% them !t the
exclus$on of others&
Th$s se%ment c!n be ! p!rt$cul!r bu"er %roup, se%ment of the product l$ne or %eo%r!ph$c m!r#et&
There !re two v!r$!t$ons to th$s str!te%" - ! cost focus where ! f$rm see#s ! cost !dv!nt!%e $n $ts t!r%et se%ment !nd !
d$fferent$!t$on focus where ! f$rm see#s d$fferent$!t$on $n $ts t!r%et se%ment&
The t!r%et se%ments must e$ther h!ve bu"ers w$th unusu!l needs (d$fferent$!t$on focus) or the product$on !nd del$ver"
s"stem th!t best serves the t!r%et se%ment must d$ffer from th!t of others $ndustr" se%ments&
A cost focus explo$ts d$fferences $n cost beh!v$our $n some se%ments&
A cost focus explo$ts d$fferences $n cost beh!v$our $n some se%ments&
Ex!mple from the c!r $ndustr" Ferr!r$ !nd Rolls Ro"ce
Porter's 5 forces approach looks in detail at the firm's competitive environment by
analysing five forces.
To%ether these forces determ$ne the over!ll prof$t potent$!l of the $ndustr"&
Loo#$n% !t !n $nd$v$du!l f$rm, $ts !b$l$t" to e!rn h$%her prof$t m!r%$ns w$ll be determ$ned b" whether or not $t c!n m!n!%e the 5
forces more effect$vel" th!n compet$tors&
1% The threat of new entrants (and barriers to keep them out)
A new entr"nt #nto "n #ndustr' w#ll br#n! extr" c"p"c#t' "nd more compet#t#on%
The stren!th of the thre"t "nd the new entr"nt w#ll depend on two th#n!s$
Stren%th of the b"rr!ers of entr%
The response of ex!st!n# compet!tors $n the m!r#etpl!ce
2% The threat from substitute products
A subst#tute product #s " !ood product or serv#ce from "nother #ndustr' th"t s"t#sf#es th"t customer need%
3% The bargaining power of customers
Customers requ#re better qu"l#t' products "nd serv#ce "t " lower pr#ce%
B' s"t#sf'#n! these, "n or!"n#s"t#on or #ndustr' m"' force down the prof#t"b#l#t' of suppl#ers #n the #ndustr'%
How stron! the customers pos#t#on #s, depends on " number of f"ctors$
How much the customer bu"s
How cr$t$c!l the product $s to the customers bus$ness
Sw$tch$n% costs (sw$tch$n% from one suppl$er to !nother)
Are the products st!nd!rd $tems (e!s$l" cop$ed))
The customers own prof$t!b$l$t" (low customer prof$ts = lower pr$ces from suppl$ers)
Aw!reness of customers purch!s$n% st!ff/pr$ce !w!reness
When the qu!l$t" of the product $s more $mport!nt to the customer, the customer $s less l$#el" to be pr$ce sens$t$ve
4% The bargaining power of suppliers
Suppl#ers "re "ble to exert pressure for h#!her pr#ces however th#s depends on sever"l other f"ctors$
1% Are the' more th"n one or two dom#n"nt suppl#ers (ch"r!e monopol' pr#ces)
2% The thre"t of new entr"nts
3% Whether the suppl#er h"s other customers or subst#tute products
4% Import"nce of the suppl#ers product to the customers bus#ness
5% H"s the suppl#ers !ot " d#fferent#"ted product
6% Are the sw#tch#n! costs too h#!h
5% The rivalry amongst current competitors
The #ntens#t' of compet#t#on w#th#n the #ndustr' w#ll "ffect the prof#t"b#l#t' of the #ndustr'%
Compet#t#ve "ct#ons could be$
Pr$ce compet$t$on
Advert$s$n% b!ttles
S!les promot$on c!mp!$%ns
Introduc$n% new products
Improv$n% s!les !fterc!re
Prov$d$n% %u!r!ntees or w!rr!nts
Or!"n#s"t#on"l Structure
Or%!n$s!t$on!l structure $s ! p!ttern of respons$b$l$t$es show$n% the form"l connect$ons between the $nd$v$du!ls en%!%ed $n the
collect$ve !ct$v$t" !nd the respons$b$l$t$es of e!ch of them&
The f$eld of or%!n$s!t$on!l structure lends $tself to sc$ent$f$c tre!tment&
Yet, such tre!tment !ppe!red to h!ve become too form!l, be!r$n% the st!mp of !n en%$neer$n% !ppro!ch see#$n% sc$ent$f$c
prec$s$on !nd ! lo%$c!l form*
As ! result, there h!s !ppe!red ! counterv!$l$n% (offsett$n%) theor" of !nform"l or#"n!s"t!on wh$ch focuses !ttent$on on hum!n
Bus!ness Or#"n!s"t!on Structure, Funct!ons "nd Govern"nce
Form!l !nd Inform!l Bus#ness Or$!n#s!t#on
Inform"l Or#"n!s"t!on
rel!t$ons !nd the w!" $n wh$ch the !ct$ons of the people $n the or%!n$s!t$on dev$!te from the pl!n&
The form!l or%!n$s!t$on $s one wh$ch lo%$c!ll" %roups !ct$v$t$es, del$ne!t$on of !uthor$t" !nd respons$b$l$t" !nd the est!bl$shment
of rel!t$onsh$ps to en!ble people to wor# most effect$vel" to%ether $n !ccompl$sh$n% the ob(ect$ves of the bus$ness&
It $s $mport!nt to note th!t these form!l rel!t$onsh$ps emer%e from the def$n$t$on of the respons$b$l$t$es !tt!ched to the holder of
the post, for ex!mple, ! rel!t$onsh$p between the l!bourer !nd the superv$sor bec!use he $s respons$ble for h$m&
Such form!l rel!t$ons c!n be set out $n det!$l w$th !s much prec$s$on !s $s des$red $n the form of (ob spec$f$c!t$ons !nd the
%ener!l n!ture of the$r $nter-rel!t$ons c!n be set forth $n !n or%!n$s!t$on!l ch!rt&
However, there $s the ex$stence of the $nform!l or%!n$s!t$on wh$ch depends on the person!l$t$es of the people occup"$n% the
v!r$ous pos$t$ons $n the or%!n$s!t$on!l structure&
Soc#"l Forces
Soc$!l forces of v!r$ous t"pes from the w$der commun$t" outs$de the bus$ness $nf$ltr!te $nto the or%!n$s!t$on !nd $nfluence the
rel!t$onsh$ps of $ts members !nd the w!" $t wor#s&
It $s obv$ousl" $mport!nt th!t such $nform!l rel!t$ons sh!ll not confl$ct w$th those est!bl$shed b" the form!l structure&
Inform!l or%!n$s!t$ons c!n become detr$ment!l or benef$c$!l to the form!l or%!n$s!t$on depend$n% on how $t $s
m!n!%ed& Inform!l or%!n$s!t$ons !re loosel" structured, flex$ble !nd spont!neous&
The benefits of an informal organisation can be:
1% Emplo'ee comm#tment
2% )nowled!e sh"r#n!
3% Speed
4% Respons#veness
5% Co-oper"t#on
Imp"ct of !nform"l or#"n!s"t!on on the bus!ness
Managerial problems of informal organisation
1% Soc#"l !roup#n!s m"' "ct collect#vel' "!"#nst or!"n#z"t#on"l #nterests
2% Mor"le-d"m"!#n! rumors
3% Emplo'ees m"' suffer #f the' excluded from the soc#"l !roup#n!
D#fferent Structures
Ever" or%!n$s!t$on ex$sts for the purpose of c!rr"$n% out cert!$n predeterm$ned ob(ect$ves !nd $ts structure must be necess!r$l"
to promote these ob(ect$ves&
Onl" $n ver" except$on!l c!ses does !n or%!n$s!t$on rem!$n structured on $ts found!t$on !fter $t under%oes %rowth&
Thus !n or%!n$s!t$on!l structure $s not f$xed, $t c!n ch!n%e !s the need requ$res& It $s !lso $mport!nt to note th!t $n d$fferent
or%!n$s!t$ons one m$%ht f$nd d$fferent or%!n$s!t$on!l structures wh$lst one m!" !lso f$nd d$fferent structures $n the s!me
or%!n$s!t$on&
In !n" %$ven c!se the or%!n$s!t$on structure owns much to the h$stor$c!l b!c#%round of the f$rm !nd to the person!l$t$es of those
who m!n!%ed $t $n $ts form!t$ve "e!rs&
Other $nfluences wh$ch !re equ!ll" relev!nt !nd poss$bl" more pers$stent $n determ$n$n% or%!n$s!t$on structure !re the t"pe of
m!r#ets !nd customers to wh$ch the bus$ness sells, the t"pe of product sold !nd the s"stem of technolo%" $n use, to produce the
product&
Henry Minzberg's organisational ideology
Henr" M$nzber% produced !n or%!n$s!t$on!l $deolo%" d$v$ded $nto 5 or%!n$s!t$on!l conf$%ur!t$ons th!t help $n underst!nd$n%
better how !n or%!n$s!t$on should be structured&
It $s $mport!nt to !dd th!t these conf$%ur!t$ons m!" not ex$st $n re!l world but c!n be ver" helpful for someone who would l$#e
to underst!nd the re!l$t$es of !n or%!n$s!t$on!l structure&
Bus#ness Or$!n#s!t#on Structure !nd Des#$n
Form"l Or#"n!s"t!ons
1% Str"te#!c Apex
dr#ves the d#rect#on of the bus#ness throu!h control over dec#s#on-m"&#n!%
Str"te!#c Apex h"s to do w#th the top m"n"!ement "nd those who m"&e the rules (dec#s#on m"&ers)
2% M!ddle L!ne
performs the m"n"!er#"l funct#ons of control over resources, processes "nd bus#ness "re"s%
3% Oper"t!n# Core
performs the rout#ne "ct#v#t#es of the or!"n#s"t#on, "lso &nown "s the do-er's%
4% Technostructure
dr#ves eff#c#enc' throu!h rules "nd procedures%
These "re the people who !u#de the oper"t#n! core #n be#n! eff#c#ent #n the#r (obs%
5% Support St"ff
support "ll the comp"n#es' "ct#v#t#es "nd prov#des expert#se "nd serv#ce to the or!"n#s"t#on%
Methods of Grouping Activities
The process of d$v$d$n% !nd %roup$n% the t!s#s wh$ch h!ve to be performed $nto conven$ent un$ts of m!n!%ement m!" be
termed dep"rtment"l!s"t!on&
The bo!rd of d$rectors !nd the ch$ef execut$ve must dec$de on the m!(or d$v$s$ons of !ct$v$t"&
The he!ds of e!ch d$v$s$on w$ll then h!ve the$r own un$ts, sect$ons, br!nches or dep!rtments&
B% Product/D!v!s!on/Dep"rtment
Th$s method $s used when ! f$rm dec$des to %roup !ccord$n% to the product $n quest$on&
Th$s t"pe of method $s m!$nl" used b" for ex!mple, ! dep!rtment store wh$ch sells so!ps, h!$r products, feet products,
m!#eup !nd fr!%r!nces&
When ! v!r$et" of products of d$fferent t"pes !re be$n% m!nuf!ctured or sold there $s !lw!"s ! d!n%er th!t some products
or l$nes w$ll rece$ve too l$ttle !ttent$on $n sell$n% !nd %ener!l promot$on!l !ct$v$t$es&
Th$s d!n%er c!n be met b" form$n% !n or%!n$s!t$on!l structure on the b!s$s of product %roup$n%s&
"dv"nt"#es d!s"dv"nt"#es
!ccount!b$l$t" $ncre!ses the overhe!d costs
spec$!l$s!t$on f!$l to sh!re resources
co-ord$n!t$on
Geo#r"ph!c"l or b% Terr!tor%
Geo#r"ph!c"l or b% Terr!tor%
Th$s method h!s ! %re!t de!l $n $ts f!vour where the or%!n$s!t$on $s b!sed on %eo%r!ph$c!ll" sc!ttered un$ts&
For ex!mple, the br!nches of ! b!n# m!" be %rouped $n th$s w!" under re%$on!l off$ces&
Of %re!t $mport!nce $s the need for secur$n% due !ttent$on to loc!l f!ctors bec!use ! full !pprec$!t$on $s not !lw!"s poss$ble
!t ! d$st!nce&
Funct!on"l
Dep!rtment!l$s!t$on m!" t!#e pl!ce on the b!s$s of funct$on&
Some funct$ons m!" $nclude S!les, M!r#et$n%, Purch!s$n% !nd Rese!rch & Development&
"dv"nt"#es d!s"dv"nt"#es
pools expert$se focus on processes & $nputs not customers !nd outputs
!vo$ds dupl$c!t$on commun$c!t$on problems
helps recru$tment, development etc poor co-ord$n!t$on
wor#s well w$th centr!l$sed bus$nesses cre!tes vert$c!l b!rr$ers
M"tr!x
A m!tr$x structure or%!n$s!t$on $s formed b" ! te!m of people com$n% from d$fferent sect$ons of the or%!n$s!t$on&
Th$s te!m $s formed for ! per$od of t$me to wor# on !n !ss$%ned pro(ect&
The m!$n !dv!nt!%e w$th ! m!tr$x structure $s th!t the best people !re chosen for ! spec$f$c pro(ect thus expect$n% better
results& A m!tr$x structure $s led b" ! pro(ect m!n!%er !nd !ll te!m members h!ve to report to h$m wh$lst wor#$n% on th$s
pro(ect&
On the other h!nd, the s!me members of th$s pro(ect h!ve to report to the$r l$ne m!n!%er when the" !re do$n% the$r norm!l
(ob (the" report onl" $ssues th!t h!s to do w$th the$r norm!l (ob)& Th$s s$tu!t$on m!" le!d to ! confl$ct$n% lo"!lt" tow!rds
who $s re!ll" m!n!%$n%*
Entrepreneur!"l
Th$s t"pe of structure $s bu$lt !round the owner m!n!%er !nd $s t"p$c!l w$th sm!ll comp!n$es $n the e!rl" st!%es of the$r
development&
The entrepreneur often h!s spec$!l$st #nowled%e of the product or serv$ce&
Customer dep"rtment"t!on
An or%!n$s!t$on m!" or%!n$ze $ts !ct$v$t$es on the b!s$s of t"pes of customer or m!r#et se%ment&
H%br!d structures
Or%!n$s!t$on structures !re r!rel" composed of onl" one t"pe of or%!n$s!t$on& H"br$d structures $nvolve ! m$x of structures&
The Shamrock Approach
1% Core Wor$ers rece#ve !ood promot#on, secur#t' "nd st"tus prospects rel"t#ve to others "nd "re often m"n"!ers, te"m le"ders
"nd profess#on"l st"ff%
2% Interf"ce Wor$ers low s&#lled l"bour th"t "re !ener"ll' c"lled when needed for ex"mple p"rt-t#me, se"son"l st"ff these
t%pe of wor$ers "re becom!n# more dom!n"nt "nd more dem"nded(
3% Suppl!ers tempor"r' "nd self-emplo'ed w#th !ener"l s&#lls "s needed, for ex"mple, consult"nts%
Sep"r"t#on of D#rect#on "nd M"n"!ement
Ownersh$p !nd m!n!%ement of l!r%er or%!n$s!t$ons !re often sep!r!ted&
The sep!r!t$on of ownersh$p !nd m!n!%ement h!s proven enormousl" benef$c$!l to both owners !nd m!n!%ers, s$nce $t br$n%s
to%ether those who h!ve c!p$t!l but not necess!r$l" the s#$lls or t$me to run ! bus$ness !nd those who h!ve m!n!%er$!l s#$lls but
not necess!r$l" the c!p$t!l&
In order to ensure th!t m!n!%ers !re m!n!%$n% the bus$ness $n the best $nterests of the owners, m!n" s!fe%u!rds/controls !re
put $n pl!ce, wh$ch w$ll le!d to, for ex!mple, form!l or%!n$s!t$on structures be$n% set up for !n or%!n$s!t$on&
Span of control and Scalar chain
The term Sp"n of Control refers to the number of emplo"ees/subord$n!tes d$rectl" respons$ble to ! super$or&
Therefore, $f ! m!n!%er of ! l!r%e or%!n$s!t$on h!s 10 subord$n!tes, the sp!n of control $s 10&
A number of f!ctors $nfluence ! sp!n of control'
1% C"p"b#l#t#es often l#m#t the sp"n of control ("b#l#t'/#n"b#l#t' to m"n"!er people)
2% N"ture of the wor&lo"d
3% Geo!r"ph#c"l% If over " w#de "re" th#s becomes more d#ff#cult
4% Subord#n"tes wor&% If the' do " s#m#l"r t"s&s
5% N"ture of problems% If problems th"t t"&e " lot of t#me to sort, #t would su!!est " n"rrow sp"n of control (less people to m"n"!e)
6% A !ood #nter"ct#on between subord#n"tes would su!!est " w#de sp"n of control "s the' "re "ble to help e"ch other
7% The level of support requ#red
A sc"l"r ch"!n of comm"nd refers to !ll levels between the ver" top !nd the lowest $n the h$er!rch"&
B"s!c Or#"n!s"t!on"l Structure Concepts
A sc"l"r ch"!n of comm"nd refers to !ll levels between the ver" top !nd the lowest $n the h$er!rch"&
F!"ol emph!s$sed the need of h!v$n% report$n% rel!t$onsh$ps from top execut$ve to the ord$n!r" shop oper!t$ve or dr$ver,
sens$ble, cle!r !nd understood&
Delayering
Th$s $s the process of reduc$n% the number of m!n!%ement levels from the bottom to the top&
Therefore or%!n$s!t$ons !re $ncre!s$n% the !ver!%e sp!n of control, reduc$n% m!n!%ement levels !nd becom$n% fl!tter&
Tall and Flat organisations
If the sp!n of control $s ver" l$m$ted, the number of or%!n$s!t$on!l levels (sc!l!r ch!$n) w$ll $ncre!se, !s the or%!n$s!t$on
%rows $n s$ze, the or%!n$s!t$on!l structure becomes TALL&
The f!ct th!t the number of $mmed$!te subord$n!tes $s l$m$ted !t e!ch level tends to cre!te close superv$s$on !nd $ncre!sed
dependence of the subord$n!te on h$s pr$nc$p!l&
A FLAT or%!n$s!t$on $s one wh$ch h!s ! sm!ller number of or%!n$s!t$on!l levels (sc!l!r ch!$n) !nd thus ! w$der sp!n of
control&
THE CHARACTERISTICS OF THE STRATEGIC, TACTICAL AND OPERATIONAL
LEVELS IN THE ORGANISATION
Str"te#!c Pl"nn!n# $s !ppl$ed b" top m!n!%ers&
It $s b!s$c!ll" the pl!nn$n% for the lon%-term future $nclud$n% the def$n$t$on of where the or%!n$s!t$on needs to %o !nd how
to %et there&
T"ct!c"l Pl"nn!n# loo#s !t the med$um term !nd $s more of ! spec$f$c n!ture th!n the str!te%$c pl!nn$n%&
It loo#s !t the dep!rtment!l level !nd spec$f$es how to use resources&
Anthon% H!er"rch%
It loo#s !t the dep!rtment!l level !nd spec$f$es how to use resources&
Oper"t!on"l Pl"nn!n# loo#s !t the short term (d!" to d!") !nd $s ver" det!$led&
Th$s t"pe of pl!nn$n% h!s ! m!$n concern of controll$n% wh!t $s set for the short term&
Str"te#!c pl"ns w!ll h"ve to be tr"nsl"ted !nto med!um term t"ct!c"l pl"ns wh!ch !n turn need to be converted !nto
det"!led perform"nce t"r#ets "nd bud#ets(
THE DIFFERENCE BETWEEN%%%
Centr"l!s"t!on $mpl$es th!t there ex$sts more th!n one level w$th$n !n or%!n$s!t$on !nd th!t dec$s$ons !re m!de onl" b"
the h$%hest level&
Therefore, one m!" s!" th!t ! centr!l$sed or%!n$s!t$on h!s ! centr!l !uthor$t" !nd no dec$s$ons !re m!de !t lower levels&
Decentr"l!s"t!on encour!%es the ex$stence of more th!n one centre of dec$s$on-m!#$n%&
A decentr!l$sed comp!n" empowers lower levels w$th$n the h$er!rch" to t!#e dec$s$ons&
"dv"nt"#es of
centr"l!s"t!on
"dv"nt"#es of
decentr"l!s"t!on
e!s" co-ord$n!t$on of dec$s$on dec$s$ons !re dele%!ted = less
stress for sen$or m!n!%ement
w$der v$ew of consequences !nd $mproves mot$v!t$on
Centr"l!s"t!on & Decentr"l!s"t!on
w$der v$ew of consequences !nd
problems
$mproves mot$v!t$on
b!l!nce $nterests of d$fferent
funct$ons
%re!ter !w!reness of loc!l
problems
qu!l$t" of dec$s$ons better due to
s#$ll level of sen$or m!n!%ement
qu$c#er dec$s$on m!#$n%
che!per&&&&&&&less m!n!%ers* develops s#$ll level of (un$or
m!n!%ers
cr$s$s dec$s$ons t!#en qu$c#l" sep!r!te respons$b$l$t$es
st!nd!rd$sed procedures dec$s$ons c!n be m!de loc!ll"
ROLES AND FUNCTIONS OF THE MAIN DEPARTMENTS
1% Research & Development
Th#s dep"rtment h"s "ch#eved !re"t #mport"nce #n tod"''s compet#t#ve world%
Or!"n#s"t#ons "re "lw"'s on the loo& out to !mprove the#r products (process rese"rch) or even to cre"te portfol#o #nnov"t#on to
be better "nd "he"d of compet#t#on (product rese"rch)%
The m"#n roles of "n R&D dep"rtment bes#des #mprov#n! "nd #nvent#n! products #s to "nt!c!p"te customer needs "nd th#s #s wh'
most of the t#me R&D f"lls under the umbrell" of M"r&et#n!%
2% Purchasing
Purch"s#n! #s re!"rded "s " ver' #mport"nt m"n"!ement funct#on #n "n or!"n#s"t#on%
The m"#n re"son for th#s #s th"t f#rms must be "ble to purch"se !oods "nd serv#ces "t "n "ccept"ble pr#ce "nd qu"l#t'%
The purch"s#n! m"n"!er h"s to obt"#n the best purch"s#n! m#x%
Qu!nt$t"
Bus!ness Or#"n!s"t!onQu!nt$t"
Qu!l$t"
Pr$ce
Del$ver"
3% Production or Operations
The m"#n (ob of the product#on dep"rtment #s to convert r"w m"ter#"ls #nto f#n#shed !oods%
The' "re "lso "fter us#n! the methods of product#on wh#ch "re the most eff#c#ent for the product#on #n quest#on%
Th#s #s onl' m"de poss#ble #f !ood pl"nn#n! #s conducted pr#or to the #mplement"t#on of product#on%
Costs "re to be mon#tored "ll the t#me thus w"st"!e should be "vo#ded "s much "s poss#ble
4% Direct service provision
Th#s dep"rtment or funct#on h"s to do w#th the del#ver' of " serv#ce d#rectl' to the end consumer%
For ex"mple "n "ccount"nc' f#rm f"lls under th#s c"te!or'% To ensure the best serv#ce for "ll cl#ents, !ood t#me m"n"!ement #s to
be enforced%
The s"l#ent ch"r"cter#st#cs of serv#ces "re$
Int!n%$b$l$t"
Insep!r!b$l$t" (from serv$ce prov$der)
V!r$!b$l$t"
Ownersh$p ("ou c!n never be !n owner of ! serv$ce)
5% Marketing
The m"#n concern #n " m"r&et#n! dep"rtment #s the consumer% Th#s dep"rtment tr#es to #dent#f' customer needs "nd w"nts, tr'
to "ccommod"te them #n the best poss#ble w"' "nd better then the compet#tors "nd #n the c"se of " prof#t m"&#n! or!"n#s"t#on,
"ll th#s must be "t " result of " prof#t%
M"n' people th#n& th"t M"r&et#n! #s purel' s"les% In f"ct, S"les #s onl' one "re of m"r&et#n!%
The m"#n d#fference between " m"r&et#n! or#ented f#rm "nd " s"les or#ented f#rm #s th"t the l"tter !ener"tes prof#ts throu!h s"les
volumes wh#lst m"r&et#n! or#ented f#rms #ncur prof#ts b' est"bl#sh#n! lon! term customer s"t#sf"ct#on%
6% Administration
The Adm#n#str"t#on dep"rtment should support the other dep"rtments b' process#n! "dm#n#str"t#ve requests such "s
correspondence, photocop'#n! etc%
These people must h"ve excellent commun#c"t#on s&#lls to coord#n"te the needs between the dep"rtments%
7% Finance
It #s #mport"nt th"t the f#n"nce dep"rtment h"s cont#nuous l#n&s w#th the other dep"rtments%
The m"#n role of th#s dep"rtment, thou!h, #s to m"n"!e the f#n"nces of "n or!"n#s"t#on b' mon#tor#n! #ncome "nd expend#ture%
It #s "lso #n ch"r!e of prep"r#n! the f#n"l "ccounts "nd to r"#se f#n"nces of the comp"n'%
Th#s #s !ener"ll' done b' e#ther #ssu#n! sh"res or t"&#n! lo"ns%
8% Human Resources
Hum"n resources m"n"!ement (HRM) #s #n ch"r!e of recru#t#n! "nd select#n! emplo'ees, mot#v"t#n! emplo'ees "nd m"&#n! the
most effect#ve use of hum"n resources%
THE ROLE OF MAR)ETING IN AN ORGANISATION
The Definition of Marketing
M!r#et$n% touches !ll of us ever" d!" of our l$ves&
We w!#e up $n the morn$n% !nd brush our teeth w$th Sensod"ne toothp!ste, sh!ve w$th G$llette Sensor r!zor !nd use Dove
shower %el&
We put on ! p!$r of Guess (e!ns !nd N$#e runn$n% shoes wh$lst he!d$n% to the #$tchen&
We serve ourselves some -ello%%'s Spec$!l - cere!l !nd dr$n# ! cup of Nesc!fe coffee&
We %o to wor#, sw$tch on the r!d$o !nd most of the t$me we end up bomb!rded w$th on%o$n% commerc$!ls&
M!r#et$n% w!s def$ned b" the Amer$c!n Assoc$!t$on !s'
the process of pl!nn$n% !nd execut$n% the concept$on, pr$c$n%, promot$on !nd d$str$but$on of $de!s, %oods, !nd serv$ces to
cre!te exch!n%es th!t s!t$sf" $nd$v$du!l !nd or%!n$s!t$on!l ob(ect$ves
Ph$l$p -otler def$nes M!r#et$n% !s'
the !n!l"s$s, pl!nn$n%, $mplement!t$on !nd control of pro%r!mmes des$%ned to br$n% !bout des$red exch!n%es w$th t!r%et
!ud$ences for the purpose of person!l or mutu!l %!$n&
It rel$es he!v$l" on the !d!pt!t$on !nd co-ord$n!t$on of product, pr$ce, pl!ce !nd promot$on for !ch$ev$n% effect$ve
response
M"r$et!n# !n "n or#"n!s"t!on
There are many accepted definitions of marketing and in fact there is no one unified
definition.
All the !bove def$n$t$ons !re correct but bec!use of the d$ff$cult" of $ncorpor!t$n% !ll the f!cets of m!r#et$n% $nto ! s$mple
def$n$t$on some !dd$t$on!l #e" po$nts !re $mport!nt to be !dded&
M!r#et$n% focuses on the needs !nd w!nts of the m!r#etpl!ce
M!r#et$n% $s concerned w$th s!t$sf"$n% the needs !nd w!nts
M!r#et$n% $nvolves !n!l"s$s, pl!nn$n% !nd control
M!r#et$n% focuses on !ch$ev$n% customer s!t$sf!ct$on to !ch$eve $ts bus$ness ob(ect$ves, thus ! m!r#et$n% or$ented f$rm $s
one th!t h!s ch!n%ed the m!r#et$n% ph$losoph" $nto !n over!ll bus$ness ph$losoph"
Is Marketing all about selling?
NO !lthou%h we !ll tend to be bomb!rded w$th d$fferent commerc$!ls throu%h d$fferent med$! ch!nnels, m!r#et$n% $s not
onl" s!les&
The l!tter $s onl" the t$p of the m!r#et$n% $ceber%&
The Marketing Mix
The M!r#et$n% M$x !lso #nown !s the 4 P's $s compr$sed of'
1% Product
2% Pr#ce
3% Pl"ce
4% Promot#on
ProductProduct
A product $s !n"th$n% th!t c!n be offered to ! m!r#et for !ttent$on, for !cqu$s$t$on, use or consumpt$on th!t m$%ht s!t$sf" !
w!nt or ! need&
A product c!n be e$ther ! %ood or ! serv$ce th!t $s perce$ved to%ether w$th $ts t!n%$ble !nd $nt!n%$ble !ttr$butes&
One m$%ht th$n# the #e" product dec$s$on for ! m!nuf!cturer of floor deter%ent $s to focus on cre!t$n% ! formul! th!t cle!ns
more effect$vel"&
In !ctu!l$t", wh$le dec$s$ons rel!ted to the consum!ble p!rts of the product !re extremel" $mport!nt, the TOTAL product cons$sts
of more th!n wh!t $s consumed&
The tot!l product offer$n% !nd the dec$s$ons f!c$n% the m!r#eter c!n be bro#en down $nto three #e" p!rts'
THE CORE PRODUCT - the over!ll benef$t of bu"$n% the product
THE ACTUAL PRODUCT the br!nd !nd qu!l$t" "ou !re purch!s$n%
THE AUGMENTED PRODUCT - !n"th$n% over !nd !bove the purch!se such !s del$ver"
Price
In order to m!#e ! prof$t, ! bus$ness should ensure th!t $ts products !re pr$ced !bove the$r tot!l !ver!%e cost&
In the short-term, $t m!" be !ccept!ble to pr$ce below tot!l cost $f th$s pr$ce exceeds the m!r%$n!l cost of product$on so th!t
the s!le st$ll produces ! pos$t$ve contr$but$on to f$xed costs&
If the bus$ness $s ! monopol$st, then $t c!n set !n" pr$ce&
At the other extreme, $f ! f$rm oper!tes under cond$t$ons of perfect compet$t$on, $t h!s no cho$ce !nd must !ccept the m!r#et
pr$ce&
The re!l$t" $s usu!ll" somewhere $n between& In such c!ses the chosen pr$ce needs to be ver" c!refull" cons$dered rel!t$ve to
those of close compet$tors&
Cons$der!t$on of customer expect!t$ons !bout pr$ce must be !ddressed&
Ide!ll", ! bus$ness should !ttempt to qu!nt$f" $ts dem!nd curve to est$m!te wh!t volume of s!les w$ll be !ch$eved !t %$ven
pr$ces&
Somet$mes ! comp!n" $s not free to pr$ce $ts product !t !n" level $t chooses&
For ex!mple, there m!" be pr$ce controls th!t proh$b$t pr$c$n% ! product too h$%h&
Pr$c$n% $t too low m!" be cons$dered pred!tor" pr$c$n% or dump$n% $n the c!se of $ntern!t$on!l tr!de&
Offer$n% d$fferent pr$ce for d$fferent consumers m!" v$ol!te l!ws !%!$nst pr$ce d$scr$m$n!t$on&
F$n!ll", collus$on w$th compet$tors to f$x pr$ces !t !n !%reed level $s $lle%!l $n m!n" countr$es&
The m"!n $e% cons!der"t!ons when dec!d!n# the pr!ce of " product&
4 C's
COST CUSTOMERS COMPETITION - CORPORATE OBJECTIVES
Some pr!c!n# str"te#!es would !nclude&
Cost-plus pr$c$n% $nvolves the determ$n!t$on of !ll f$xed !nd v!r$!ble costs !ssoc$!ted w$th products or serv$ces&
After the tot!l costs !ttr$but!ble to the product or serv$ce h!ve been determ$ned, m!n!%ers !dd ! des$red prof$t % to e!ch
un$t such !s ! 5 or 10 percent m!r#up&
The %o!l of the cost-or$ented !ppro!ch $s to cover !ll costs $ncurred $n produc$n% or del$ver$n% products or serv$ces !nd to
The %o!l of the cost-or$ented !ppro!ch $s to cover !ll costs $ncurred $n produc$n% or del$ver$n% products or serv$ces !nd to
!ch$eve ! t!r%eted level of prof$t&
Go$n% r!te pr$c$n% $s when ! comp!n" sets $ts pr$ce of ! product !ccord$n% to the pr$ce be$n% ch!r%ed b" compet$tors
offer$n% s$m$l!r products&
Th$s $s %ener!ll" pr!ct$sed when there $s ! m!r#et le!der !nd the other comp!n$es tr" !nd meet h$s pr$ces&
Th$s method c!n be r!ther d!n%erous for sm!ll comp!n$es who !re tr"$n% to compete w$th b$%%er comp!n$es th!t en(o"
benef$ts result$n% from econom$es of sc!le&
The pr!ct$ce of pr$ce s#$mm$n% $nvolves ch!r%$n% ! rel!t$vel" h$%h pr$ce for ! short t$me where ! new, $nnov!t$ve, or much-
$mproved product $s l!unched onto ! m!r#et&
The ob(ect$ve w$th s#$mm$n% $s to s#$m off customers who !re w$ll$n% to p!" more to h!ve the product sooner, pr$ces !re
lowered l!ter when dem!nd from the e!rl" !dopters f!lls&
Penetr!t$on pr$c$n% $nvolves the sett$n% of lower, r!ther th!n h$%her pr$ces $n order to !ch$eve ! l!r%e, $f not dom$n!nt
m!r#et sh!re&
Th$s str!te%" $s most often used b" bus$nesses w$sh$n% to enter ! new m!r#et or bu$ld on ! rel!t$vel" sm!ll m!r#et sh!re&
Th$s w$ll onl" be poss$ble where dem!nd for the product $s bel$eved to be h$%hl" el!st$c, $&e& dem!nd $s pr$ce-sens$t$ve !nd
e$ther new bu"er w$ll be !ttr!cted, or ex$st$n% bu"ers w$ll bu" more of the product !s ! result of ! low pr$ce&
D$scr$m$n!t$on pr$c$n% t!#es pl!ce when ! d$fferent pr$ce $s ch!r%ed e$ther to d$fferent people or else dur$n% pe!# !nd off-
pe!#&
For ex!mple, some publ$c tr!nsport serv$ces ent$tle ! pens$oner to p!" ! d$fferent pr$ce th!n ! person under 61 of !%e&
The d$!l-up $nternet ch!r%es !re h$%her dur$n% pe!# hours&
Place
Pl!ce $s !lso #nown !s ch!nnel or d$str$but$on& It $s the mech!n$sm throu%h wh$ch %oods !nd/or serv$ces !re moved from the
m!nuf!cturer/serv$ce prov$der to the user or consumer&
These !re comp!n$es or persons th!t help $n some w!" or other for %oods !nd serv$ces to be d$str$buted from m!nuf!cturers $n
order to re!ch consumers&
These !ntermed!"r!es "re #ener"ll% referred to "s&
1% A!ents
2% Wholes"lers
3% Ret"#lers
4% F#n"nc#"l comp"n#es
5% Tr"nsport comp"n#es
Intermediaries perform tasks such as:
1% mov#n! the !oods eff#c#entl'
2% bre"&#n! bul&
3% consol#d"t#n! !oods (ret"#l stores c"rr' " w#de "ssortment of !oods from d#fferent m"nuf"cturerse%!%, superm"r&ets sp"n from
to#let p"per to c"t food)
4% "dded serv#ces (e%!%, demonstr"t#ons "nd rep"#rs)
Promotion
Person!l Sell$n% $s !n or!l present!t$on $n ! convers!t$on w$th one or more prospect$ve bu"ers for the purpose of m!#$n% !
s!le&
Advert$s$n% $s !n" p!$d form of non person!l present!t$on !nd promot$on of $de!s, %oods or serv$ces b" !n $dent$f$ed
sponsor&
Sponsorsh$p $s where !n or%!n$z!t$on p!"s to be !ssoc$!ted w$th ! p!rt$cul!r event, c!use or $m!%e&
Comp!n$es w$ll sponsor sports events such !s the Ol"mp$cs or Formul! One& The !ttr$butes of the event !re then !ssoc$!ted
w$th the sponsor$n% or%!n$s!t$on&
D$rect m!r#et$n% $s !n" unsol$c$ted (spont!neous) cont!ct ! bus$ness m!#es w$th ex$st$n% or potent$!l customers $n order to
%ener!te s!les or r!$se !w!reness&
D$rect m!r#et$n% !llows ! bus$ness to %ener!te ! spec$f$c response from t!r%eted %roups of customers&
Publ$c Rel!t$ons $s the !rt !nd sc$ence of m!n!%$n% commun$c!t$on between !n or%!n$s!t$on !nd $ts #e" publ$c const$tuents
to bu$ld, m!n!%e !nd sust!$n $ts pos$t$ve $m!%e&
The AIDA Model
AIDA $s ! commun$c!t$on model wh$ch c!n be used b" f$rms to !$d them $n promot$n% the$r product or serv$ces&
AIDA $s !n Acron"m for'
AIDA $s !n Acron"m for'
Attent$on
Interest
Des$re
Act$on
Be"ond the 4P's other elements of the m!r#et$n% m$x h!ve come to l$%ht throu%h the wor# of -otler !mon%st others&
These include:
1% People
2% Process
3% Ph's#c"l Ev#dence
People
An essent$!l $n%red$ent to !n" serv$ce prov$s$on $s the use of !ppropr$!te st!ff !nd people&
Recru$t$n% the r$%ht st!ff !nd tr!$n$n% them !ppropr$!tel" $n the del$ver" of the$r serv$ce $s essent$!l $f the or%!n$s!t$on w!nts to
obt!$n ! form of compet$t$ve !dv!nt!%e&
Consumers m!#e (ud%ments !nd del$ver percept$ons of the serv$ce b!sed on the emplo"ees the" $nter!ct w$th&
St!ff should h!ve the !ppropr$!te $nterperson!l s#$lls, !tt$tude !nd serv$ce #nowled%e to prov$de the serv$ce th!t consumers !re
p!"$n% for&
Process
Process refers to the s"stem used to !ss$st the or%!n$s!t$on $n del$ver$n% the serv$ce&
Physical Evidence
Ph"s$c!l Ev$dence $s the element of the serv$ce m$x wh$ch !llows the consumer !%!$n to m!#e (ud%ments on the or%!n$s!t$on&
Ph"s$c!l ev$dence $s !n essent$!l $n%red$ent of the serv$ce m$x&
Consumers w$ll m!#e percept$ons b!sed on the$r s$%ht of the serv$ce prov$s$on wh$ch w$ll h!ve !n $mp!ct on the or%!n$s!t$ons
perceptu!l pl!n of the serv$ce&
The relationship of the Marketing Plan to the Strategic Plan
The focus of ! str!te%$c pl!n $s on the ent$re or%!n$s!t$on& It h!s to do w$th the v$s$on of !n or%!n$s!t$on spell$n% out where the
or%!n$s!t$on would l$#e to %o $n the future !nd how to %et there&
On the other h!nd, ! m!r#et$n% pl!n spells out the !ct$v$t$es rel!ted to m!r#et$n% (product, pr$ce, pl!ce !nd promot$on)
!ct$v$t$es&
It $s onl" !fter formul!t$n% ! ver" %ood str!te%$c pl!n c!n ! m!r#et$n% pl!n be prep!red&
The m"!n 3 steps !n " str"te#!c pl"n "re&
1% An"l%s!s
An"l's#s #mpl#es the ex"m#n"t#on of the present s#tu"t#on%
Th#s #s !ener"ll' conducted b' " SWOT "n"l's#s (stren!ths, we"&nesses, opportun#t#es, thre"ts)%
2% Cho!ce
At the t#me of perform#n! "n"l's#s, lon! term !o"ls "re est"bl#shed%
It #s then the t#me to choose the best methods or str"te!#es to "ch#eve the !o"ls%
One h"s to dec#de where to compete "nd how to compete "nd #f st"'#n! #n the loc"l m"r&et or exp"nd#n! #n the #ntern"t#on"l
m"r&ets%
3% Implement"t!on
If " comp"n' m"n"!es to choose the r#!ht str"te!#es, #t would help #n the execut#on or #mplement"t#on of such str"te!#es%
It #s onl' "t th#s st"!e th"t the lon!-term str"te!' c"n be tr"nsl"ted #nto other pl"ns such "s$
m!r#et$n% m!n!%ement
oper!t$ons/product$on !ccount$n%/f$n!nce
computer $nform!t$on s"stems rese!rch !nd development
CULTURE
Culture $s def$ned b" Ch!rles H!nd" !s be$n% - the w!" we do th$n%s !round here&
B" th$s H!nd" me!ns the sum tot!l of the bel$efs, #nowled%e, !tt$tudes, norms !nd customers th!t prev!$l $n !n or%!n$s!t$on&
The main components of Culture
If one h!d to !n!l"se Culture $n more det!$l, one m$%ht s!" th!t or%!n$s!t$on!l culture forms $n response of two m!(or ch!llen%es
th!t confront ever" or%!n$s!t$on'
1% Extern"l "d"pt"t!on
wh#ch h"s to do w#th how the or!"n#s"t#on copes w#th #ts const"ntl' ch"n!#n! extern"l env#ronment+
2% Intern"l !nte#r"t!on
wh#ch h"s to do w#th the est"bl#shment of effect#ve wor&#n! rel"t#onsh#ps "mon! the members of "n or!"n#s"t#on%
Or$!n#s!t#on!l Culture #n Bus#ness
Or#"n!s"t!on"l Culture
The n!t$on!l culture, customs !nd soc$et!l norms of ! countr" !lso sh!pe the cultures of or%!n$s!t$ons oper!t$n% $n $t&
The dom$n!nt v!lues of ! n!t$on!l culture m!" be reflected $n the constr!$nts $mposed on or%!n$s!t$ons b" others&
For ex!mple, ! countr"'s form of %overnment m!" h!ve ! dr!m!t$c $mp!ct on how !n or%!n$s!t$on does bus$ness&
It $s $mport!nt to ment$on !t th$s st!%e, th!t culture $s not someth$n% st!nd!rd, thus !n or%!n$s!t$on!l culture found $n !n
!ccount!nc" f$rm no& 1 does not me!n $s the s!me !s the or%!n$s!t$on!l culture found $n !n !ccount!nc" f$rm no& 2&
THE FACTORS THAT SHAPE THE CULTURE OF THE ORGANISATION
The six major influences on the culture of an organisation
1% S!ze
how l"r!e #s the or!"n#s"t#on #n terms of turnover, ph's#c"l s#ze "nd emplo'ee numbers
2% Technolo#%
how technolo!#c"ll' "dv"nced #s the or!"n#s"t#on e#ther #n terms of #ts products, or #ts product#ve processes
3% D!vers!t%
how d#verse #s the comp"n' e#ther #n terms of product r"n!e, !eo!r"ph#c"l spre"d or cultur"l m"&e-up of #ts st"&eholders
4% A#e
how old #s the bus#ness or the m"n"!ers of the bus#ness how exper#enced "re the str"te!#c level dec#s#on m"&ers
5% H!stor%
wh"t wor&ed #n the p"st* Do dec#s#on m"&ers h"ve p"st successes to dr"w upon+ "re the' w#ll#n! to le"rn from the#r m#st"&es*
6% Ownersh!p
#s the or!"n#s"t#on owned b' " sole tr"der* Are there " sm"ll number of #nst#tut#on"l sh"reholders or "re there l"r!e numbers of
sm"ll sh"reholders*
Wh$le !ll the !bove cultur!l levers !re $mport!nt, the ch!r!cter$st$cs !nd conf$%ur!t$on of the bo!rd !nd the m!n!%ement te!m
F"ctors th"t sh"pe Culture of Or#"n!s"t!onWh$le !ll the !bove cultur!l levers !re $mport!nt, the ch!r!cter$st$cs !nd conf$%ur!t$on of the bo!rd !nd the m!n!%ement te!m
!re #e" elements&
To ! ver" l!r%e extent, the" control e!ch other, est!bl$sh$n% the st!nd!rds !nd the tone&
A ch!n%e $n m!n!%ement c!n h!ve ! profound $mp!ct on or%!n$s!t$on!l culture, effect$veness !nd perform!nce&
Often subtl", throu%h the$r !ct$ons !nd words, m!n!%ement sh!pe, foster !nd evolve !n or%!n$s!t$ons culture b" push$n% or
pull$n% the levers th!t c!n $nfluence $t&
It $s !lso the$r respons$b$l$t" to ult$m!tel" d$sm!ntle the culture when $t becomes d$sfunct$on!l&
In re!l$t" however th$s $s frequentl" not the c!se& M!n" or%!n$s!t$ons !re so loc#ed w$th$n the$r h$stor$c!l cultures th!t the"
c!nnot see re!l$t" for wh!t $t re!ll" $s&
It $s d$ff$cult to !ch$eve !bove !ver!%e perform!nce when conf$ned b" such ment!l model restr!$nts&
In ! st!ble env$ronment th$s m!" not be ! m!(or problem&
However $n tod!"s r!p$dl" ch!n%$n% world, th$s rel$!nce on d!ted !ssumpt$ons c!n e!s$l" le!d to ! term$n!l $llness c!p!ble of
dev!st!t$n% !n or%!n$s!t$on !nd destro"$n% m!n" $nd$v$du!l c!reers&
THE CONTRIBUTION MADE BY WRITERS ON CULTURE
Edgar Schein Determinants of organisational culture
Sche$n !r%ues th!t there ex$sts ! stron% $nfluence on or%!n$s!t$on!l culture b" who le!ds the or%!n$s!t$on&
He further commented th!t $f le!ders !re to le!d then $t $s essent$!l th!t the" underst!nd the levels of or%!n$s!t$on!l culture&
Sche$n's Cultur!l theor" $s somet$mes represented !s the Iceber% Concept
Sche!n d!v!ded or#"n!s"t!on culture !nto 3 levels&
1% Artef"cts
"re the "spects of culture th"t c"n e"s#l' be seen l#&e for ex"mple the w"' th"t people dress%
2% Expoused v"lues
"re the str"te!#es "nd !o"ls of "n or!"n#s"t#on, #nclud#n! comp"n' slo!"ns%
3% B"s!c "ssumpt!ons "nd v"lues
"re d#ff#cult to #dent#f' "s the' "re unseen "nd ex#st m"#nl' "t the unconsc#ous level%
Contr!but!on on Culture
"re d#ff#cult to #dent#f' "s the' "re unseen "nd ex#st m"#nl' "t the unconsc#ous level%
Handy Four Cultural Types
In 1972, H!rr$son cl!ss$f$ed !n or%!n$s!t$on $nto four d$fferent t"pes onl" for Ch!rles H!nd" to popul!r$se them b" us$n% Gree#
Gods*
1% ZUES Power Culture
Zeus (Power Culture) the "ll-powerful he"d of the !ods, "n or!"n#s"t#on dom#n"ted b' the person"l#t' "nd power of one person,
Zeus (Power Culture) the "ll-powerful he"d of the !ods, "n or!"n#s"t#on dom#n"ted b' the person"l#t' "nd power of one person,
often the founder or owner%
2% APOLLO Role Culture
Then there w"s the Apollo (Role Culture) or!"n#s"t#on, dom#n"ted b' rules "nd procedures, "fter Apollo the God of h"rmon' "nd
order% In th#s vers#on of culture, people descr#be the#r (ob b' #ts dut#es, not b' #ts purpose%
It #s " bure"ucr"t#c or!"n#s"t#on, where the structure determ#nes the "uthor#t' "nd respons#b#l#t' of #nd#v#du"ls "nd there #s "
stron! emph"s#s on h#er"rch' "nd st"tus%
3% ATHENA T"s$ Culture
Athen" (T"s& Culture), the w"rr#or !oddess, w"s the s'mbol of the pro(ect or!"n#z"t#on, the culture th"t dom#n"tes consult"nc#es,
"dvert#s#n! "!enc#es "nd, #ncre"s#n!l', "ll #nnov"t#ve bus#nesses%
In th#s t'pe of culture, people descr#be the#r pos#t#on #n terms of the results th"t the' "re "ch#ev#n!% It #s "fter "ccompl#sh#n! "
t"s&%
4% DIONYSUS Person Culture or Ex!stent!"l Culture
L"stl' there w"s the D#on's#"n (Person) culture, one #n wh#ch the #nd#v#du"l h"s the freedom to develop h#s or her own #de"s #n the
w"' the' w"nt - "n "rt#sts' stud#o, perh"ps, or " un#vers#t'%
The' "re h"rd to m"n"!e, these D#on's#"n pl"ces, but #ncre"s#n!l' necess"r' #f 'ou w"nt to emplo' re"ll' cre"t#ve people%
Does th"t me"n th"t "n% or#"n!s"t!on h"s onl% four opt!ons to choose from for !ts st%le of m"n"#ement)
No& The world $s not th!t s$mple& In f!ct ever" or%!n$s!t$on, (ust l$#e ever" $nd$v$du!l, $s d$fferent from ever" other one, but wh!t
the" !re $ncludes ! d$fferent m$x of the s!me four b!s$c cultures&
The trouble $s th!t some %et stuc# $n one of them $nste!d of m$x$n% !ll four&
Handy matched its cultural models to Robert Anthonys classification of Managerial
activity.
1% Str"te#!c m"n"#ement
#s concerned w#th d#rect#on-sett#n!, pol#c' m"&#n! "nd cr#s#s h"ndl#n!% Therefore #t su#ts power culture%
2% T"ct!c"l m"n"#ement
#s concerned w#th est"bl#sh#n! me"ns to corpor"te ends therefore su#ts " t"s& culture%
3% Oper"t!on"l m"n"#ement
#s concerned w#th rout#ne "ct#v#t#es therefore #t su#ts role culture%
Hofstede International perspectives of Culture
Hofstede loo#ed for n!t$on!l d$fferences between over 100,000 of IBM's emplo"ees $n d$fferent p!rts of the world, $n !n !ttempt
to f$nd !spects of culture th!t m$%ht $nfluence bus$ness beh!v$our&
Power distance
Power d$st!nce me!sures how subord$n!tes respond to power !nd !uthor$t"&Power d$st!nce me!sures how subord$n!tes respond to power !nd !uthor$t"&
In h$%h-power d$st!nce countr$es (L!t$n Amer$c!, Fr!nce, Sp!$n, most As$!n !nd Afr$c!n countr$es), subord$n!tes tend to be
!fr!$d of the$r bosses, !nd bosses tend to be p!tern!l$st$c !nd !utocr!t$c&
In low-power d$st!nce countr$es (the US, Br$t!$n, most of the rest of Europe), subord$n!tes !re more l$#el" to ch!llen%e
bosses !nd bosses tend to use ! consult!t$ve m!n!%ement st"le&
It su%%ests th!t ! soc$et"'s level of $nequ!l$t" $s endorsed b" the followers !s much !s b" the le!ders&
Power !nd $nequ!l$t", of course, !re extremel" fund!ment!l f!cts of !n" soc$et" !nd !n"bod" w$th some $ntern!t$on!l
exper$ence w$ll be !w!re th!t '!ll soc$et$es !re unequ!l, but some !re more unequ!l th!n others'&
Collectivism versus Individualism
In $nd$v$du!l$st$c countr$es (Fr!nce, Germ!n", South Afr$c!, C!n!d!, etc&), people !re expected to loo# out for themselves&
Sol$d!r$t" $s or%!n$c (!ll contr$bute to ! common %o!l, but w$th l$ttle mutu!l pressure) r!ther th!n mech!n$c!l&
T"p$c!l v!lues !re person!l t$me, freedom, !nd ch!llen%e&
In collect$v$st cultures (J!p!n, Mex$co, -ore!, Greece) $nd$v$du!ls !re bounded throu%h stron% person!l !nd protect$ve t$es
b!sed on lo"!lt" to the %roup dur$n% one's l$fet$me !nd often be"ond (m$rrored on f!m$l" t$es)&
Masculinity versus Femininity
M!scul$n$t" versus $ts oppos$te, fem$n$n$t", refers to the d$str$but$on of roles between the %enders wh$ch $s !nother fund!ment!l
$ssue for !n" soc$et" to wh$ch ! r!n%e of solut$ons !re found&
The IBM stud$es reve!led th!t
(!) women's v!lues d$ffer less !mon% soc$et$es th!n men's v!lues,
(b) men's v!lues from one countr" to !nother cont!$n ! d$mens$on from ver" !ssert$ve !nd compet$t$ve !nd m!x$m!ll"
d$fferent from women's v!lues on the one s$de, to modest !nd c!r$n% !nd s$m$l!r to women's v!lues on the other&
The !ssert$ve pole h!s been c!lled 'm!scul$ne' !nd the modest, c!r$n% pole 'fem$n$ne'&
The women $n fem$n$ne countr$es h!ve the s!me modest, c!r$n% v!lues !s the men, $n the m!scul$ne countr$es the" !re
somewh!t !ssert$ve !nd compet$t$ve, but not !s much !s the men, so th!t these countr$es show ! %!p between men's
v!lues !nd women's v!lues&
Uncertainty avoidance
Uncert!$nt" !vo$d!nce de!ls w$th ! soc$et"'s toler!nce for uncert!$nt" !nd !mb$%u$t",
$t ult$m!tel" refers to m!n's se!rch for Truth&
It $nd$c!tes to wh!t extent ! culture pro%r!ms $ts members to feel e$ther uncomfort!ble or comfort!ble $n unstructured
s$tu!t$ons&
Unstructured s$tu!t$ons !re novel, un#nown, surpr$s$n% !nd d$fferent from usu!l&
Uncert!$nt" !vo$d$n% cultures tr" to m$n$m$ze the poss$b$l$t" of such s$tu!t$ons b" str$ct l!ws !nd rules, s!fet" !nd secur$t"
me!sures, !nd on the ph$losoph$c!l !nd rel$%$ous level b" ! bel$ef $n !bsolute Truth,
'there c!n onl" be one Truth !nd we h!ve $t'&
People $n uncert!$nt" !vo$d$n% countr$es !re !lso more emot$on!l, !nd mot$v!ted b" $nner nervous ener%"&
The oppos$te t"pe, uncert!$nt" !ccept$n% cultures, !re more toler!nt of op$n$ons d$fferent from wh!t the" !re used to, the"
tr" to h!ve !s few rules !s poss$ble, !nd on the ph$losoph$c!l !nd rel$%$ous level the" !re rel!t$v$st !nd !llow m!n" currents
to flow s$de b" s$de&
People w$th$n these cultures !re more phle%m!t$c !nd contempl!t$ve, !nd not expected b" the$r env$ronment to express
emot$ons&
Confucianism versus Dynamism (Long term versus Short term)
Lon%-term or$ent!t$on versus short-term or$ent!t$on de!ls w$th V$rtue re%!rdless of Truth&
V!lues !ssoc$!ted w$th Lon% Term Or$ent!t$on !re thr$ft !nd persever!nce,
V!lues !ssoc$!ted w$th Short Term Or$ent!t$on !re respect for tr!d$t$on, fulf$ll$n% soc$!l obl$%!t$ons, !nd protect$n% one's
'f!ce'&
Both the pos$t$vel" !nd the ne%!t$vel" r!ted v!lues of th$s d$mens$on !re found $n the te!ch$n%s of Confuc$us, the most
$nfluent$!l Ch$nese ph$losopher who l$ved !round 500 B&C&, however, the d$mens$on !lso !ppl$es to countr$es w$thout !
Confuc$!n her$t!%e&
THE BASIS OF COMMITTEES
A comm!ttee $s ! %roup of people !ss$%ned ! t!s# th!t the" !re expected to c!rr" out !s ! %roup&
The #e" ob(ect$ve of the rules of procedure for comm$ttees $s to f!c$l$t!te the smooth runn$n% of ! comm$ttee&
Its !ct$ons c!n onl" be %roup !ct$ons $nd$v$du!l members h!ve no v!l$d power to !ct or to dec$de !n"th$n% !p!rt from the
%roup&
If, $n f!ct, the" do !ct !p!rt from the$r fellows !nd the$r !cts !re !ccepted !s v!l$d, then the comm$ttee $s ! mere f!c!de w$thout
!n" re!l subst!nce*
In theor", when !ct$n% !s ! comm$ttee, !ll members enter $t !s equ!ls&
The" w$ll norm!ll" elect ! ch!$rm!n !nd ! secret!r" $f the proceed$n%s !re to be form!l !nd record $s me!nt to be #ept&
In fact, one can mention three main types of committees:
1% The "d hoc comm!ttees wh#ch "re cre"ted for " spec#f#c re"son "nd on tempor"r' b"s#s
2% The form"l comm!ttees "re p"rt of the or!"n#s"t#on"l structure w#th spec#f#c"ll' dele!"ted dut#es "nd "uthor#t'
3% Aud!t comm!ttees rev#ew the comp"n''s "ccount#n! pol#c#es "nd #ntern"l controls, "nnu"l f#n"nc#"l st"tements "nd the "ud#t
report w#th the comp"n''s extern"l "ud#tors
The most common compl!$nt brou%ht !%!$nst comm$ttee wor# $s the !mount of t$me wh$ch $t consumes $n rel!t$on to the results
!ch$eved&
Th$s $s the s!me th$n% !s s!"$n% th!t comm$ttees !re !n expens$ve $nstrument of !dm$n$str!t$on&
Th$s $s bec!use the modern world h!s f!r too m!n" of them !nd the$r proceed$n%s !re not !lw!"s successful&
Comm$ttees prol$fer!te not onl" w$th$n bus$nesses but !lso outs$de $n connect$on w$th tr!de !ssoc$!t$ons !nd %overnment
dep!rtments !nd the" m!#e $ncre!s$n% dem!nds upon the t$me of m!n!%ers&
Comm#ttees #n Bus#ness Or$!n#s!t#on
Purposes of Comm!ttees
dep!rtments !nd the" m!#e $ncre!s$n% dem!nds upon the t$me of m!n!%ers&
E!ch d$fferent po$nt of v$ew expressed b" the members of the comm$ttee must be vent$l!ted !nd !ttempts m!de to construct !
br$d%e between them&
Even $f ! s$mple m!(or$t" vote $s !ll th!t $s needed, cons$der!ble t$me m!" be t!#en up to !vo$d !n" !ppe!r!nce of st$fl$n% the
express$on of m$nor$t" op$n$on&
Jobs !ss$%ned to comm$ttees !re expected to !ch$eve better results th!n th!t of ! s$n%le person bec!use of the n!ture of %roup
dec$s$on t!#$n%&
From th$s po$nt of v$ew, therefore, the comm$ttee w$ll prob!bl" be emplo"ed $n those c!ses where %roup del$ber!t$on !nd
(ud%ement !re l$#el" to be of better qu!l$t" th!n th!t of !n $nd$v$du!l - two he!ds !re better th!n one&
The following points summarise the purpose of the committee within an organisation:
%!ther $nform!t$on
d$ssem$n!te $nform!t$on or $nstruct$ons dele%!t$n% !uthor$t" to emplo"ees or m!n!%ers
%ener!te $de!s
m!#e or $mplement dec$s$ons comm$ttees m!" %$ve ! vo$ce $n the m!#$n% of the dec$s$ons before be$n% $mplemented
coord$n!te the efforts of ! number of people from d$ver%ent d$sc$pl$nes br$n%$n% p!rt$es to%ether for d$scuss$on $n the
hope of f$nd$n% reconc$l$!t$on
!ct !s ! del!"$n% mech!n$sm !nd thus !ch$ev$n% t$me
oversee ! funct$on or procedure
TYPES OF COMMITTEES USED BY BUSINESS ORGANISATIONS
Committees have been classified in various ways according to the major purposes which
they are intended to serve and the power they exercise.
T%pes of Comm!ttee
they are intended to serve and the power they exercise.
1% Bo"rd of D!rectors !roup of people th"t !overn the or!"n#s"t#on
2% Steer!n# Comm!ttee
oversee " m"(or pro(ect, !ener"ll' IT b"sed%
It #s often #nvolved #n dec#d#n! how to "lloc"te sc"rce IT resources "nd pl"nn#n! for future s'stem development%
3% Wor$s s"fet% Comm!ttee
4% Eth!cs comm!ttee
5% The Account!n# St"nd"rds Bo"rd (ASB)
"#ms to promote cons#stenc' #n corpor"te report#n! b' cre"t#n! f#n"nc#"l report#n! st"nd"rds to wh#ch m"(or bus#nesses "re
expected to "dhere
6% Remuner"t!on Comm!ttee
#n ch"r!e of sett#n! the s"l"r#es of D#rectors
COMMITTEES
Adv"nt"#es D!s"dv"nt"#es
consol$d!t$on of !uthor$t" somet$mes too l!r%e to wor#
dele%!te effect$vel" t$me consum$n% !nd c!n be expens$ve
blurr$n% respons$b$l$t$es c!n del!" m!tters due to other wor# lo!ds
del!" or %!$n t$me frequent or $nfrequent !ttend!nce
$ncorrect or $neffect$ve dec$s$ons
c!n $nv$te comprom$se
Adv"nt"#es & D!s"dv"nt"#es of Comm!ttees
The Ch"#rperson
Respons$b$l$t" for the eff$c$ent runn$n% of the comm$ttee meet$n% rests w$th the ch!$r&
Wh$le ever"one h!s some respons$b$l$t" for ! well-run meet$n%, the ch!$r w$ll, $n the end, m!#e the %re!test contr$but$on to the
success of the meet$n%&
The ch!$r must ensure th!t !ll d$scuss$on $s orderl", th!t ever" $nd$v$du!l h!s !n opportun$t" to p!rt$c$p!te !nd th!t ! dec$s$on $s
m!de on e!ch top$c before proceed$n%&
The ch!$r must ensure $mp!rt$!l$t" dur$n% d$scuss$ons, m!$nt!$n !n open m$nd, !nd not $nfluence the f$n!l dec$s$on&
If, for !n" re!son, the ch!$r feels compelled to (o$n the d$scuss$on, other th!n to prov$de f!ctu!l $nform!t$on to the !ssembl", or to
express !n op$n$on, he/she must v!c!te the ch!$r dur$n% d$scuss$on on the top$c !nd !s# !nother d$rector to ch!$r the meet$n%&
When th!t top$c $s de!lt w$th, the off$c$!l ch!$r m!" resume the pos$t$on !nd cont$nue w$th the meet$n%&
The Comm#ttee Secret"r'
One of the bus$est people !t the meet$n% $s the secret!r"&
Th$s person $s respons$ble for t!#$n% notes, document$n% pro%ress !nd procedures !nd eventu!ll" produc$n% ! set of m$nutes th!t
!ccur!tel" reflects the dec$s$ons m!de b" the comm$ttee&
The secret!r" $s respons$ble for h!v$n% cop$es of the l!ws, pol$c$es !nd prev$ous m$nutes ($n the c!se of ! cont$nu!t$on meet$n%)
!v!$l!ble should members of the comm$ttee requ$re them dur$n% the course of the meet$n%&
One must !lso ment$on th!t the wor# of the secret!r" $s not onl" dur$n% the meet$n%&
The secret!r" h!s d$fferent t!s#s both before !nd !fter the meet$n%&
Ch"!r & Secret"r% of " Comm!ttee
Before the meet$n% the secret!r" must f$x the d!te, boo# the venue, th$n# for !n" refreshments needed !nd m!#e sure there $s
!lso !ccess for people w$th d$s!b$l$t" $n c!se one of the !ttend!nts h!s such ! cond$t$on&
S/he needs to prep!re !nd $ssue the !%end! !nd other relev!nt documents&
After the meet$n%, the secret!r" h!s the role of prep!r$n% the m$nutes !nd send$n% them to !ll members of the comm$ttee !fter
h!v$n% them s$%ned b" the ch!$r&
Respons$b$l$t" for correspondence rests w$th the secret!r"&
SEPARATION OF OWNERSHIP AND CONTROL
The sep!r!t$on of ownersh$p !nd control $s ! s$tu!t$on where dec$s$on m!#ers do not own ! m!(or sh!re of the we!lth effects of
the$r dec$s$ons&
However, the sh!reholders w$ll w!nt to bu$ld $n s!fe%u!rds to ensure th!t the m!n!%ers run the bus$ness $n the $nterests of !ll
the st!#eholders f!$rl", !nd not (ust $n the m!n!%ers' own $nterest&
There are three different views associated with the ownership and management of
organisations:
1% The Stew"rdsh#p Theor'
2% A!enc' Theor'
3% St"&eholder Theor'
The Stewardship Theory
Th$s v$ews the m!n!%ement of the or%!n$s!t$on !s the stew!rds of $ts !ssets, ch!r%ed w$th the$r emplo"ment !nd
deplo"ment $n w!"s cons$stent w$th the over!ll str!te%" of the or%!n$s!t$on&
Other %roups t!#e l$ttle or no p!rt $n the oper!t$ons of the comp!n"& The" rece$ve $nform!t$on v$! reports, !ccounts etc&
Govern!nce !nd Soc#!l Respons#b#l#t" #n Bus#ness
Ownersh!p & Control
Other %roups t!#e l$ttle or no p!rt $n the oper!t$ons of the comp!n"& The" rece$ve $nform!t$on v$! reports, !ccounts etc&
Techn$c!ll", the sh!reholders h!ve the r$%ht to d$sm$ss stew!rds v$! ! vote !t the AGM (Annu!l Gener!l Meet$n%)&
The Agency Theory
A ver" d$fferent !ppro!ch to %overn!nce $s held w$th$n th!t of the !%enc" theor"&
It bel$eves th!t r!ther th!n !ct$n% !s ! stew!rd of the comp!n" the m!n!%ement see#s to serv$ce the$r own $nterests&
The" w$ll onl" loo# !fter the perform!nce of the comp!n" $f $t co$nc$des w$th the$r person!l %o!ls&
The Stakeholder Theory
Th$s theor" loo#s !t the b$%%er p$cture&
It bel$eves th!t the m!n!%ement h!s ! dut" of c!re, not (ust to the owners of the comp!n" but !lso to the w$der commun$t"
of $nterest, or st!#eholders&
CORPORATE GOVERNANCE AND SOCIAL RESPONSIBILITY
Corpor"te Govern"nce $s the set of processes !nd pol$c$es b" wh$ch ! comp!n" $s d$rected, !dm$n$stered !nd controlled& It
$ncludes the !ppropr$!te role of bo!rd of d$rectors !nd of the !ud$tors of ! comp!n"&
Corpor"te Soc!"l Respons!b!l!t% refers to the $de! th!t ! comp!n" should be sens$t$ve to the needs !nd w!nts of !ll the
st!#eholders $n $ts bus$ness oper!t$ons, not (ust the sh!reholders&
A closel" l$n#ed $de! $s th!t of Sust"!n"ble Development& Comp!n$es should m!#e dec$s$ons b!sed not onl" on f$n!nc$!l
f!ctors, but !lso on the soc$!l !nd env$ronment!l consequences of the$r !ct$ons&
Due to extens$ve !buse !nd sc!nd!ls $n recent "e!rs, corpor!te %overn!nce !nd !n underst!nd$n% of the soc$!l $mp!ct h!ve been
h$%hl$%hted w$th the bus$ness commun$t"&
Impos$n% str$ct corpor!te %overn!nce procedures c!n v!stl" $mprove the w!" $n wh$ch !n or%!n$s!t$on $s run&
Poor corpor!te %overn!nce c!n le!d to poor or%!n$s!t$on!l perform!nce&
Contempor"r% Or#"n!s"t!ons
Poor corpor!te %overn!nce c!n le!d to poor or%!n$s!t$on!l perform!nce&
In M!" 1991, due to l!c# of conf$dence $n the f$n!nc$!l report$n% !nd the !b$l$t" of extern!l !ud$tors to prov$de the !ssur!nces
requ$red b" the users of f$n!nc$!l st!tements, the C!dbur" Comm$ttee w!s set up& Th$s led to the 2003 Comb$ned Code of
Corpor!te Govern!nce&
Features of poor corporate governance
1% Dom#n"t#on b' " s#n!le #nd#v#du"l
2% L"c& of #nvolvement of bo"rd
3% L"c& of "dequ"te control funct#on
4% L"c& of superv#s#on
5% L"c& of #ndependent scrut#n'
6% Emph"s#s on short-term prof#t"b#l#t'
7% M#sle"d#n! "ccounts "nd #nform"t#on
TO MAINTAIN APPROPRIATE STANDARDS OF CORPORATE GOVERNANCE
AND CORPORATE SOCIAL RESPONSIBILITY
The tr!d$t$on!l v$ew h!s been th!t corpor"te soc!"l respons!b!l!t% offers no bus$ness benef$ts, !nd destro"s sh!reholder v!lue
b" d$vert$n% resources !w!" from commerc$!l !ct$v$t"&
Such tr!d$t$on!l$sts !r%ue th!t comp!n$es should oper!te solel" to m!#e mone" for sh!reholders !nd th!t $t $s not ! comp!n"'s
role to worr" !bout soc$!l respons$b$l$t$es&
Comp!n$es p!" t!xes to %overnment, !nd $t $s %overnments !nd ch!r$t$es th!t should be respons$ble for soc$!l m!tters&
Th$s tr!d$t$on!l v$ew $s los$n% support !mon%st !ll s$zes of bus$nesses&
The modern view is that a coherent CSR strategy can offer business benefits by enabling a
company to:
1% mon#tor ch"n!#n! soc#"l expect"t#ons
2% m"n"!e oper"t#on"l r#s&s
3% #dent#f' new m"r&et opportun#t#es
4% ret"#n &e' emplo'ees
B" !l$%n$n% the comp!n"'s core v!lues w$th the v!lues of soc$et", the comp!n" c!n $mprove $ts reput!t$on !nd ensure $t h!s !
Respons!b!l!t% of Or#"n!s"t!onsB" !l$%n$n% the comp!n"'s core v!lues w$th the v!lues of soc$et", the comp!n" c!n $mprove $ts reput!t$on !nd ensure $t h!s !
lon%-term future&
Balanced Scorecard Approach
The B!l!nced Scorec!rd !ppro!ch emph!s$ses the need to prov$de the user of ! set of !ccounts w$th $nform!t$on wh$ch !ddresses
!ll relev!nt !re!s of perform!nce ob(ect$vel"&
Th$s $nform!t$on should $nclude both f$n!nc$!l !nd non-f$n!nc$!l elements, !nd the usu!l b!l!nced scorec!rd !ppro!ch $s to
report perform!nce from four sep!r!te perspect$ves'
1% f!n"nc!"l perspect!ve
2% customer perspect!ve
3% !ntern"l perspect!ve (!ntern"l eff!c!enc%)
4% !nnov"t!ve perspect!ve
THE MAIN RECOMMENDATIONS OF BEST PRACTICE
NON-EXECUTIVE DIRECTORS
Wh$lst comp!n" l!w refers onl" to d$rectors $n %ener!l, two t"pes of d$rectors h!ve emer%ed&
Those who !re $nvolved $n the d!"-to-d!" execut$on of m!n!%ement !re #nown !s execut!ve d!rectors !nd those who pr$m!r$l"
onl" !ttend bo!rd meet$n%s !re #nown !s non-execut!ve d!rectors&
Non-execut$ve d$rectors should prov$de ! b!l!nc$n% $nfluence !nd pl!" ! #e" role $n reduc$n% confl$cts of $nterest between
m!n!%ement !nd sh!reholders&
The U-s H$%%s report prov$de ! useful summ!r" of the role of non-execut$ve summ!r"&
1% Str"te#%
sett#n! d#rect#on
2% Perform"nce
Effect!ve Corpor"te Govern"nce
should scrut#n#ze the perform"nce of m"n"!ement #n meet#n!s !o"ls "nd ob(ect#ves
3% R!s$
should ensure th"t r#s& m"n"!ement #s robust
REMUNERATION COMMITTEES
D$rectors remuner!t$on should be set v$! ! remuner!t$on comm$ttee cons$st$n% of $ndependent non-execut$ves&
Due to d$rectors be$n% p!$d l!r%e s!l!r$es etc for ! number of "e!rs (!nd be$n% seen !s m!(or corpor!te !buse) The Greenbur"
comm$ttee $n the U- set out pr$nc$ples to demonstr!te wh!t ! %ood remuner!t$on pol$c" should loo# l$#e'
1% D#rectors remuner"t#on should be set b' #ndependent members of the bo"rd
2% Bonuses etc rel"te to me"sur"ble perform"nce or enh"nce sh"re v"lue
3% Full tr"nsp"renc' of d#rectors remuner"t#on
The committee also has to take into account the wider picture.
So, for ex!mple the p!c#!%e w$ll need to !ttr!ct, ret!$n !nd mot$v!te d$rectors of suff$c$ent qu!l$t"&
There $s !lso ! b!l!nce between th$s !nd the sh!reholders $nterests&
The comm!ttee "lso h"s to cons!der&
The d$fferent levels of m!n!%ement/d$rectorsh$p
The !b$l$t" for m!n!%ers to le!ve
Ind$v$du!l perform!nce
Over!ll or%!n$s!t$on!l perform!nce
AUDIT COMMITTEES
An !ud$t comm$ttee of $ndependent non-execut$ve d$rectors should l$!$se w$th extern!l !ud$t, superv$se $ntern!l !ud$t, !nd
An !ud$t comm$ttee of $ndependent non-execut$ve d$rectors should l$!$se w$th extern!l !ud$t, superv$se $ntern!l !ud$t, !nd
rev$ew the !nnu!l !ccounts !nd $ntern!l control&
Aud$t comm$ttees !re ver" s$%n$f$c!nt due to the$r respons$b$l$t$es for superv$s$n% !nd offer$n% !n over!ll rev$ew&
The" should h!ve close $nterest $n the wor# of the $ntern!l !ud$t&
The benef!ts of "n effect!ve "ud!t comm!ttee, "s h!#hl!#hted b% the C"dbur% comm!ttee&
Improve the qu!l$t" of f$n!nc$!l report$n%, b" rev$ew$n% the f$n!nc$!l st!tements
Reduce opportun$t" for fr!ud b" cre!t$n% ! cl$m!te of d$sc$pl$ne !nd control
En!ble the non-execut$ve to pl!" ! pos$t$ve role b" %$v$n% !n $ndependent (ud%ment
Help the f$n!nce d$rector, b" prov$d$n% the forum to r!$se concern $n s$tu!t$ons th!t otherw$se m!" be d$ff$cult
Stren%then the pos$t$on of the extern!l !ud$tor but prov$d$n% ! ch!nnel of commun$c!t$on !nd forum for $ssue of concern
Prov$de ! fr!mewor# w$th$n wh$ch the extern!l !ud$tor c!n !ssert the$r $ndependence $n the event of ! d$spute
Stren%then the pos$t$on of the $ntern!l !ud$tor
Incre!se publ$c conf$dence !nd cred$b$l$t" $n the f$n!nc$!l st!tements
PUBLIC OVERSIGHT
The publ$c $s ! le%$t$m!te st!#eholder, thus $t h!s the r$%ht to #now how ! p!rt$cul!r comp!n" $s be$n% %overned&
One c!n !lso ment$on th!t the publ$c h!s the r$%ht to be $nvolved $n the %overn!nce process of comp!n$es&
The most obv$ous me!ns of publ$c overs$%ht of corpor!te %overn!nce $s v$! the publ$c!t$on of Annu!l Reports !nd Accounts&
Comp!n$es should !lso d$scuss the$r pl!ns w$th the$r represent!t$ves of v!r$ous st!#eholder %roups $nclud$n% (ourn!l$sts !nd
loc!l pol$t$c$!ns&
NOMINATION COMMITTEE
A nom$n!t$on comm$ttee should be $n pl!ce for select$n% bo!rd members !nd m!#$n% recommend!t$ons to the bo!rd&
It should cons$st of ! m!(or$t" of non-execut$ve d$rectors !nd should be respons$ble for f$nd$n% su$t!ble !ppl$c!nts to f$ll
bo!rd v!c!nc$es !nd recommend$n% them to the bo!rd for !pprov!l&
Corpor"te Soc#"l Respons#b#l#t'
Corpor"te Soc!"l Respons!b!l!t% (CSR) ph$losoph" $s b!sed on the $de! of be$n% sens$t$ve to the needs !nd w!nts of !ll the
st!#eholders $n the bus$ness, not (ust the sh!reholders&
A stakeholder needs analysis can be carried out to bring some structure to the
implementation of CSR programme.
The !n!l"s$s $nvolves do$n% rese!rch to determ$ne'
1% Who "re the &e' st"&eholders of the bus#ness*
2% Wh"t "re the#r needs*
Econom$c !ct$v$t$es often $mp!ct those who !re not $nvolved $n the !ct$v$t"&
For ex!mple, ! corpor!t$on m!nuf!ctur$n% !utomob$les %ener!tes pollut$on !nd the cost of th$s pollut$on $s borne b" ne!rb"
res$dents&
Extern!l costs (or benef$ts) !r$s$n% from econom$c !ct$v$t$es !re referred to !s extern!l$t$es&
Wh$le f$rms of !n" s$ze c!n cre!te extern!l$t$es, mult$n!t$on!l corpor!t$ons c!n use the$r pol$t$c!l $nfluence to !vo$d be!r$n%
respons$b$l$t" for s$%n$f$c!nt extern!l costs&
G$ven the close rel!t$on between m$n$m$z$n% costs !nd m!x$m$z$n% prof$ts, $t $s n!tur!l to !ssume th!t !n or%!n$z!t$on th!t
see#s prof$ts !nd h!s s$%n$f$c!nt pol$t$c!l power w$ll feel some mot$v!t$on to use th!t power to extern!l$ze costs, where poss$ble&
Soc!"l Respons!b!l!t% Ob*ect!vessee#s prof$ts !nd h!s s$%n$f$c!nt pol$t$c!l power w$ll feel some mot$v!t$on to use th!t power to extern!l$ze costs, where poss$ble&
Th$s mot$v!t$on m!" be held $n chec# b" eth$c!l cons$der!t$ons, b" re%ul!t$on, or b" ! fe!r of b!c#l!sh from %roups th!t m$%ht
h!rm the or%!n$z!t$on,
for ex!mple, consumer %roups, or others who could mob$l$ze effect$ve publ$c op$n$on& (Goodw$n, 2003)
The benef$ts f$rms obt!$n from be$n% !ble to $mpose extern!l$t$es !nd sh$ft costs to others !re d$ff$cult to me!sure $n econom$c
terms&
The onl" !v!$l!ble est$m!te of the tot!l publ$c cost $ncurred to support the oper!t$ons of pr$v!te corpor!t$ons w!s $2&6 tr$ll$on for
1994 $n the Un$ted St!tes&
THE RELATIONSHIP
The purch!s$n%/bu"$n% funct$on $s respons$ble for pl!c$n% !nd follow$n% up orders& It coord$n!tes w$th the !ccount$n% dep!rtment
!s follows'
est"bl!sh!n# cred!t terms the !ccount$n% dep!rtment w$ll wor# w$th the
bu"$n% dep!rtment to l$!$se w$th suppl$ers to
obt!$n ! cred$t !ccount !nd to ne%ot$!te cred$t
terms wh$ch !re !ccept!ble&
Account!n# "nd Report!n# S%stems, Controls "nd
Compl!"nce
The Rel!t#onsh#p of Account#n$ w#th Other
Bus#ness Funct#ons
Account!n# & Purch"s!n# Procurement
pr!ces the !ccount$n% dep!rtment c!n !dv$se the
bu"$n% dep!rtment on the m!x$mum pr$ce th!t
should be p!$d to m!$nt!$n m!r%$ns
p"%ment p!"ments m!" be !pproved b" the bu"$n%
dep!rtment but !re m!de b" the !ccount$n%
dep!rtment
d"t" c"pture e(#( orders order det!$ls w$ll be $nput b" bu"$n% dep!rtment
!nd det!$ls p!ssed to !ccount$n% dep!rtment
!nventor% the purch!s$n% dep!rtment w$ll consult w$th the
$nventor" sect$on of the !ccount$n% dep!rtment
to determ$ne the qu!nt$t" of $tems !lre!d" $n
stoc# !nd therefore the qu!nt$t" requ$red
bud#et!n# the !ccount$n% dep!rtment w$ll consult w$th the
bu"$n% dep!rtment on l$#el" costs $n prep!r$n%
bud%ets
The product#on dep"rtment pl"ns "nd oversees the product#on of !oods
It l$!$ses w$th the !ccount$n% dep!rtment !s follows'
cost me"surement,
"lloc"t!on,
"bsorpt!on
the production department measures quantitiesof materials and time
used;
the management accountant gives a monetary value to them. costs
are
then allocated and absorbed to calculate production costs based on
advice
given by the production department.
F!n"nc!"l cons!der"t!ons !n Product!on
given by the production department.
bud#et!n# the production department will decide how many items of what type
are to
be produced. the cost of producing these will be determined by the
accounting and production departments together, and incorporated
into the
overall budget.
cost vs qu"l!t% the production and accounting departments will discuss the features
that
can be included in products and the raw materials that should be
used.
they should agree which better quality materials and features justify
the
extra cost, and discuss how to maximise quality and profit.
!nventor% the production department will liaise with the inventory section to
ensure
that there are sufficient raw materials in stock for the production that
is
planned.
The m"r&et#n! dep"rtment coord#n"tes w#th the "ccount#n! dep"rtment
"s follows$
Budgeting
The !ccount$n% dep!rtment w$ll d$scuss the l$#el" s!les volume of e!ch product w$th the m!r#et$n% dep!rtment, $n order to
produce the s!les bud%et&
Advertising
The !ccount$n% dep!rtment w$ll help the m!r#et$n% dep!rtment $n sett$n% ! bud%et, !nd $n mon$tor$n% whether $t $s cost
effect$ve&
F!n"nc!"l !ssues Assoc!"ted w!th M"r$et!n#
effect$ve&
For ex!mple, the" could help $n me!sur$n% new bus$ness %ener!ted !s ! result of d$fferent !dvert$s$n% c!mp!$%ns&
Pricing
The !ccount$n% dep!rtment w$ll h!ve $nput $nto the pr$ce th!t $s ch!r%ed&
Often products !re pr$ced !t cost plus ! percent!%e&
Even $f the m!r#et$n% dep!rtment determ$nes the pr$ce b!sed on m!r#et forces the" need to consult w$th the !ccount$n%
dep!rtment to ensure th!t costs !re covered&
Market share
The !ccount$n% dep!rtment c!n prov$de the m!r#et$n% dep!rtment w$th $nform!t$on on s!les volumes for e!ch product, to
help the m!r#et$n% dep!rtment $n determ$n$n% m!r#et sh!re&
In m!n" comp!n$es there c!n be ! %re!t de!l of !nt!%on$sm between m!r#et$n% !nd !ccount$n%, espec$!ll" over pr$c$n% !nd
cost control&
Service provision
Comp!n$es ver" often prov$de serv$ces to customers, !t the s!me t$me !s ! s!le or !fterw!rds, e&%& ! computer ret!$ler m!"
ch!r%e !n extr! fee to help customers set up the$r s"stem, or ! c!r de!ler m!" prov$de c!r serv$c$n%&
There !re sever!l $ssues !bout wh$ch the serv$ce dep!rtments m!" need the $nput of the !ccount$n% dep!rtment&
Chargeout rates
Th$s $s the hourl" r!te wh$ch the comp!n" ch!r%es cl$ents&
It should be h$%her th!n s!l!r", !s $t should $nclude ! sh!re of overhe!ds, e&%& tr!$n$n% !nd !n" prof$t the comp!n" w$shes to
m!#e&
However $f the Ch!r%eout r!te $s too h$%h customers w$ll not use the serv$ce&
M!n" !ccount$n% f$rms b!se Ch!r%eout r!tes for the$r st!ff on rou%hl" three t$mes th!t persons s!l!r"&
Estimating costs
Estimating costs
Problems !r$se $n determ$n$n% the !mount of overhe!d to be $ncluded $n the ch!r%eout r!te&
Also, $f the serv$ce t!#es lon%er to prov$de th!n expected, the comp!n" m!" not be !ble to p!ss on the extr! cost&
Problems measuring benefits
M!r#et cond$t$ons m!" me!n th!t the ch!r%eout r!te cont!$ns ! ver" low prof$t element&
The comp!n" m!" quest$on whether $t $s worth c!rr"$n% out these serv$ces&
The problem $s th!t the benef$ts !re $nt!n%$ble !nd not e!s" to me!sure, but nevertheless re!l&
A comp!n" w$th effect$ve serv$ce prov$s$on h!s h!pp$er customers, !nd h!pp" customers !re more l$#el" to bu" from the
comp!n" $n the future, therefore le!d$n% to lower sell$n% costs& But $t $s ver" d$ff$cult to me!sure these benef$ts&
Formul"t#on #mplement"t#on "nd control
Groups that may have an interest in the financial information:
M"n"#er of the comp"n%& The" superv$se the !ct$v$t$es of the or%!n$s!t$on !nd need th$s $nform!t$on to pl!n effect$vel",
t!#e control, forec!st future e!rn$n%s&
Sh"reholders of the comp"n%& The" need to !ssess how effect$vel" the comp!n" $s be$n% run&
Tr"de cont"cts& Suppl$ers need to underst!nd the cred$t worth$ness, customers need to be conf$dent th!t the comp!n" $s
not %o$n% to close down&
Prov!ders of f!n"nce to the comp"n%& B!n#s need th$s $nform!t$on to !pprove cred$t, lo!ns, overdr!fts&
Revenue & Customs& Need to #now th$s $nform!t$on to !ssess bus$ness prof$ts !nd t!x p!"!ble b" the comp!n"&
Account#n$ !nd F#n!nce Funct#ons w#th#n
Bus#ness
Formul"t!on !mplement"t!on "nd control
Emplo%ees of the comp"n%& Need to #now th$s $nform!t$on !s the$r future s!l!r$es, w!%es etc depend on the f$n!nc$!l
st!b$l$t" of the or%!n$z!t$on&
F!n"nc!"l "n"l%sts "nd "dv!sers& M!" need th$s $nform!t$on for the$r cl$ents&
Government "nd the!r "#enc!es& Government m!" need th$s $nform!t$on to !ssess the$r !lloc!t$on of resources !nd for
n!t$on!l st!t$st$cs&
The publ!c& Or%!n$s!t$ons m!" well h!ve ! subst!nt$!l $mp!ct on the loc!l econom" or $ndeed on env$ronment!l $ssues such
!s pollut$on&
At the head of each accounting department is usually a finance director
The f$n!nce d$rectors h!s se!t upon the bo!rd of d$rectors !nd $s respons$ble for rout$ne !ccount$n% !nd the bro!der f$n!nc$!l
pol$c$es&
The respons$b$l$t$es w$th$n ! l!r%e f$n!nce/!ccount$n% dep!rtment m!" be p!ssed down to less sen$or st!ff such !s'
1% Financial Controller:
Rout$ne !ccount$n%
Prov$d$n% reports for other dep!rtments
C!sh$ers dut$es !nd c!sh control
2% Management Accountant
Th#s pos#t#on h"s equ"l st"tus to the F#n"nc#"l Controller but w#th sep"r"te respons#b#l#t#es$
Cost !ccount$n%
Bud%ets !nd bud%et!r" control
F$n!nc$!l m!n!%ement of pro(ects
3% Treasurer
R!$s$n% funds b" borrow$n%
Invest$n% surplus funds
C!sh flow control
Strategic management
refers to the !rt of pl!nn$n% the bus$ness !t the h$%hest poss$ble level&
It $s the dut" of the comp!n"s le!der (or le!ders) $nclud$n% !lso the !ccount$n% funct$on&
Str!te%$c m!n!%ement focuses on bu$ld$n% ! sol$d underl"$n% structure to ! bus$ness th!t w$ll subsequentl" be fleshed out
throu%h the comb$ned efforts of ever" $nd$v$du!l emplo"ed w$th the or%!n$s!t$on&
formul!te pol$c"
$mplement pol$c" b" est!bl$sh$n% procedures to be followed
control perform!nce
Policy formulation
$s des$%ned to !ch$eve the or%!n$s!t$ons ob(ect$ves, so the st!rt$n% po$nt must be to $dent$f" the ob(ect$ves&
The purpose of sett$n% ob(ect$ves $s to convert m$ss$on $nto perform!nce t!r%ets, cre!te "!rdst$c#s to tr!c# perform!nce !nd push
the f$rm to be $nvent$ve, $ntent$on!l !nd focused&
One c"n d!st!n#u!sh between two t%pes of ob*ect!ves&
1% F!n"nc!"l ob*ect!ves
outcomes th"t rel"te to #mprov#n! f#rm's f#n"nc#"l perform"nce, e%!% to m"x#m#se the reported prof#ts "fter t"x, sub(ect to
tre"t#n! e"ch st"&eholder !roup properl'%
2% Str"te#!c ob*ect!ves
outcomes th"t w#ll result #n !re"ter compet#t#veness "nd stron!er lon!-term m"r&et pos#t#on, e%!% become le"der #n " new
product #ntroduct#on #n the next 5 'e"rs end#n! 2014%
Planning
$s the est!bl$shment of ob(ect$ves, !nd the formul!t$on, ev!lu!t$on !nd select$on of the pol$c$es, str!te%$es, t!ct$cs !nd !ct$on
requ$red to !ch$eve them& The pl!nn$n% process $s convent$on!ll" spl$t $nto 3 t$mesc!les'
str!te%$c pl!nn$n%
t!ct$c!l pl!nn$n%
oper!t$on!l pl!nn$n%
Once ! pl!n h!s been !dopted, $t $s then poss$ble to control the !ct$v$t$es of the bus$ness to see# to !ch$eve the pl!ns outcomes&
Pl!nn$n% !nd control !re thus $nterrel!ted terms&
Control over organisational performance can be achieved by:
1% bud!et"r' control, "nd1% bud!et"r' control, "nd
2% the est"bl#shment of st"nd"rds%
A bud#et $s ! pl!n expressed $n qu!nt$t!t$ve (norm!ll" f$n!nc$!l) terms for e$ther the whole of ! bus$ness or for the v!r$ous p!rts
of ! bus$ness for ! spec$f$ed per$od of t$me $n the future&
Bud#et"r% control $s the est!bl$shment of bud%ets rel!t$n% the respons$b$l$t$es of m!n!%ers to the requ$rements of ! pol$c", !nd
the cont$nuous comp!r$son of !ctu!l w$th bud%eted results&
For ex!mple, ! comp!n"s s!les bud%et m!" be dr!wn up for e!ch qu!rter of the next c!lend!r "e!r, e$ther $n un$ts sold or $n
mone" !mounts&
As the "e!r %oes b" the !ctu!l s!les w$ll be comp!red w$th the bud%eted s!les, !nd the s!les d$rector w$ll be !s#ed to expl!$n !n"
l!r%e d$fferences between the two (bud%et v!r$!nces)&
It $s the m!n!%ement !ccount$n% sect$on $n the !ccount$n% funct$on th!t h!s p!rt$cul!r respons$b$l$t" for bud%et$n% !nd st!nd!rd
cost$n% m!tters&
THE MAIN ACCOUNTING AND REPORTING FUNCTIONS IN BUSINESS
M"!n "ccount!n# & report!n# funct!ons
Whenever ! bus$ness tr!ns!ct$on t!#es pl!ce (! s!le or ! purch!se, or p!"ment of w!%es, etc&), there $s ! need to record the
tr!ns!ct$on $n the !ccount$n% records&
The tr!ns!ct$on $s f$rst entered $n the boo#s of pr$me entr" (or boo#s of or$%$n!l entr")&
The main books of prime entry are:
the purch!ses d!" boo#
the s!les d!" boo#
the c!sh boo#
the pett" c!sh boo#
the (ourn!l
On ! re%ul!r b!s$s (e&%& monthl"), the d!" boo#s !re tot!led !nd the tot!ls for the per$od !re entered $nto the led%er !ccounts&
For ex!mple, $f the s!les d!" boo# $s tot!led !t the end of e!ch month, the tot!l s!les for the month !re posted $nto the led%er
!ccounts of the bus$ness&
At the !ccount$n% "e!r end of the bus$ness, the b!l!nce $s c!lcul!ted on e!ch led%er !ccount, !nd these b!l!nces !re t!#en, w$th
!n" necess!r" !d(ustments !s recorded $n the (ourn!l, to become the f$n!nc$!l st!tements of the or%!n$s!t$on for the per$od&
The main financial statements produced each year are:
! b"l"nce sheet st"tement of f!n"nc!"l pos!t!on !t the "e!r end, show$n% the !ssets owned !nd the l$!b$l$t$es owed, !nd
how these net !ssets !re f$n!nced&
!n !ncome st"tement of comprehens!ve !ncome for the "e!r, show$n% the revenues e!rned !nd the costs $ncurred,
le!d$n% to the net prof$t or loss !r$s$n% for the "e!r&
! c"sh flow st"tement, st!tement of c!sh flow summ!r$s$n% the c!sh rece$pts for the "e!r !nd the c!sh p!"ments p!$d
out, to help re!ders of the !ccounts to underst!nd the l$qu$d$t" of the bus$ness&
Comp!n$es must send ! cop" of the$r f$n!nc$!l st!tements to the$r sh!reholders e!ch "e!r&
L!r%e comp!n$es must !ppo$nt extern!l !ud$tors e!ch "e!r to %$ve the$r $ndependent op$n$on on whether the publ$shed f$n!nc$!l
st!tements h!ve been dr!wn up properl" !nd whether the" %$ve ! true !nd f!$r v$ew&
GAAP (Gener!ll" Accepted Account$n% Pr!ct$ce) $s ! set of rules %overn$n% !ccount$n%&
The rules may derive from:
comp!n" l!w
!ccount$n% st!nd!rds
$ntern!t$on!l !ccount$n% st!nd!rds !nd st!tutor" requ$rements
stoc# exch!n%e requ$rements
THE MAIN MANAGEMENT ACCOUNTING AND PERFORMANCE
MANAGEMENT FUNCTIONS IN BUSINESS
m"n"#ement "ccount!n# f!n"nc!"l "ccount!n#
wh% !nform"t!on !s
m"!nl% produced
for $ntern!l use, e%& m!n!%ers
!nd emplo"ees
for extern!l use, e%& sh!reholders
cred$tors, b!n#s, %overnment
purpose of
!nform"t!on
to !$d pl!nn$n%, controll$n% !nd
dec$s$on m!#$n%
to record the f$n!nc$!l perform!nce
$n ! per$od !nd the f$n!nc$!l pos$t$on
!t the end of the per$od&
le#"l requ!rement none l$m$ted comp!n$es must produce
f$n!nc$!l !ccounts
form"ts m!n!%ement dec$de on the
$nform!t$on th!t the" requ$re !nd
the most useful w!" of present$n%
$t
form!t !nd content of f$n!nc$!l
!ccounts must follow !ccount$n%
st!nd!rds !nd comp!n" l!w&
n"ture of !nform"t!on f$n!nc$!l !nd non-f$n!nc$!l mostl" f$n!nc$!l
t!me per!od h$stor$c!l !nd forw!rd loo#$n% m!$nl" ! h$stor$c!l record
Examples of decision making that management accountants can help management with
are:
Bre"$even "n"l%s!s
wh!t products or customer se%ments !re currentl" prof$t m!#$n% or loss m!#$n%)
M"n"#ement Account!n# & Perform"nce m"n"#ement
wh!t products or customer se%ments !re currentl" prof$t m!#$n% or loss m!#$n%)
'e% f"ctor "n"l%s!s
should products be m!de $n house w$th !v!$l!ble resources or should the$r m!nuf!cture be outsourced to somewhere
che!per)
Pr!c!n# dec!s!ons
should the pr$ces of stron%l" sell$n% $tems be $ncre!sed to tr" !nd $ncre!se over!ll prof$t)
Investment "ppr"!s"l
should ! new m!ch$ne be bou%ht for the f!ctor" to repl!ce !n old m!ch$ne ne!r the end of $ts useful l$fe)
One should !pprec$!te th!t s$mpl" prep!r$n% !n $ncome st!tement for the "e!r, !s ! f$n!nc$!l !ccount!nt does, $s ! v!lu!ble
exerc$se $n $tself, but $s of no $mmed$!te help $n !nswer$n% !ll the !bove sorts of quest$ons&
M!n!%ement !ccount!nts !re needed to !ddress these $ssues&
The bud#et"r% control process $nvolves pl!nn$n% !nd control&
Pl!nn$n% $nvolves the sett$n% of the v!r$ous bud%ets (s!les bud%et, m!npower bud%et, etc&) for the !ppropr$!te future per$od&
All the bud%ets of the v!r$ous p!rts of the bus$ness need to be coord$n!ted, to ensure th!t the" !re complement!r" !nd $n l$ne
w$th the over!ll comp!n" ob(ect$ves !nd pol$c$es&
Once the bud%ets h!ve been set !nd !%reed for the future per$od, the control element of bud%et!r" control $s re!d" to st!rt&
Th$s control $nvolves comp!r$son of the pl!n $n the form of the bud%et w$th the !ctu!l results !ch$eved for the bud%et per$od&
An" s$%n$f$c!nt d$ver%ences between the bud%eted !nd the !ctu!l f$%ures should be reported to the !ppropr$!te m!n!%er so th!t
!n" necess!r" !ct$on c!n be t!#en&
The funct#ons of the tre"sur'
Tre"sur% m"n"#ement $s the corpor!te h!ndl$n% of !ll f$n!nc$!l m!tters, the %ener!t$on of extern!l !nd $ntern!l funds for
bus$ness, the m!n!%ement of currenc$es !nd c!sh flows, !nd the complex str!te%$es, pol$c$es !nd procedures of corpor!te f$n!nce&
The Assoc!"t!on of Corpor"te Tre"surers
c"sh m"n"#ement the tre!sur" sect$on w$ll mon$tor the comp!n"'s
c!sh b!l!nce !nd dec$de $f $t $s !dv!nt!%eous
to %$ve/t!#e settlement d$scounts to/from
customers/suppl$ers even $f th!t me!ns the b!n#
!ccount w$ll be overdr!wn&
f!n"nc!n# the tre!sur" sect$on w$ll mon$tor the comp!n"'s
$nvestment/borrow$n%s to ensure the" %!$n !s
much $nterest $ncome !s poss$ble !nd $ncur !s
l$ttle $nterest expense !s poss$ble&
fore!#n currenc% the tre!sur" sect$on w$ll mon$tor fore$%n exch!n%e
r!tes !nd tr" to m!n!%e the comp!n"'s !ff!$rs so
th!t $t reduces losses due to ch!n%es $n fore$%n
exch!n%e r!tes&
M"!n funct!ons & tre"sur% funct!ons
t"x the tre!sur" sect$on w$ll tr" to m!n!%e the
comp!n"'s !ff!$rs to le%!ll" !vo$d !s much t!x !s
poss$ble&
The role of the finance function in determining business tax liabilities
One of the roles of the f$n!nce funct$on $s to c!lcul!te the bus$ness t!x l$!b$l$t" !nd to m$t$%!te th!t l$!b$l$t" !s f!r !s poss$ble
w$th$n the l!w&
1% T"x "vo!d"nce
#s the le!"l use of the rules of the t"x re!#me to ones own "dv"nt"!e, #n order to reduce the "mount of t"x p"'"ble b' me"ns th"t
"re w#th#n the l"w%
2% T"x ev"s!on
#s the use of #lle!"l me"ns to reduce ones t"x l#"b#l#t', for ex"mple b' del#ber"tel' m#srepresent#n! the true st"te of 'our "ff"#rs to
the t"x "uthor#t#es%
The d$rectors of ! comp!n" h!ve ! dut" to the$r sh!reholders to m!x$m$se the post t!x prof$ts th!t !re !v!$l!ble for d$str$but$on
!s d$v$dends to the sh!reholders, thus the" h!ve ! dut" to !rr!n%e the comp!n"s !ff!$rs to !vo$d t!xes !s f!r !s poss$ble&
However, d$shonest report$n% to the t!x !uthor$t$es (e&%& decl!r$n% less $ncome th!n !ctu!ll" e!rned) would be t!x ev!s$on !nd !
cr$m$n!l offense&
Wh$le the tr!d$t$on!l d$st$nct$on between t!x !vo$d!nce !nd t!x ev!s$on $s f!$rl" cle!r, recent !uthor$t$es h!ve $ntroduced the
$de! of t"x m!t!#"t!on to me!n conduct th!t reduces t"x l!"b!l!t!es w$thout frustr!t$n% the $ntent$ons of P!rl$!ment, wh$le t"x
"vo!d"nce $s used to descr$be schemes wh$ch, wh$le the" !re le%!l, !re des!#ned to defe"t (null!f%) the !ntent!ons of
P"rl!"ment&
Thus, once ! t!x !vo$d!nce scheme becomes publ$c #nowled%e, P!rl$!ment w$ll ne!rl" !lw!"s step $n to ch!n%e the l!w $n order
to stop the scheme from wor#$n%&
Responsibilities of the finance function
The f$n!nce funct$on of !n" comp!n" $s respons$ble b" l!w for'
1% m"#nt"#n#n! proper "ccount#n! records th"t cont"#n "n "ccur"te "ccount of the #ncome "nd expenses #ncurred, "nd the "ssets "nd
l#"b#l#t#es pert"#n#n! to the comp"n'%
l#"b#l#t#es pert"#n#n! to the comp"n'%
2% c"lcul"t#n! the t"x l#"b#l#t' "r#s#n! from the prof#ts e"rned e"ch 'e"r, "nd p"'#n! "mounts due to the t"x "uthor#t#es on " t#mel'
b"s#s%
In pr"ct#ce, most comp"n#es (p"rt#cul"rl' sm"ll comp"n#es) w#ll see& the "dv#ce of extern"l t"x spec#"l#sts to help them c"lcul"te
the#r "nnu"l t"x l#"b#l#t'%
Investment appraisal and financing viable investments
Investment !ppr!$s!l $s concerned w$th lon% term $nvestment dec$s$ons, such !s whether to bu$ld ! new f!ctor", bu" ! new
m!ch$ne for the f!ctor", bu" ! r$v!l comp!n", etc&
T"p$c!ll" mone" $s p!$d out now, w$th !n expect!t$on of rece$v$n% c!sh $nflows over ! number of "e!rs $n the future&
There "re two quest!ons to be "ddressed&
1% Is the poss#ble #nvestment opportun#t' worthwh#le*
2% If so, then how #s #t to be f#n"nced*
For ex!mple, $f ! comp!n" $s offered !n $nvestment opportun$t" th!t requ$res p!"$n% out .1m now, !nd w$ll le!d to c!sh $nflows
of .2m $n one "e!rs t$me !nd .2m $n two "e!rs t$me, dur$n% ! per$od when $nterest r!tes !re 5%, "ou c!n see th!t th$s
$nvestment $s worthwh$le $n re!l terms&
If the .1m w!s $nvested to e!rn $nterest, $t would be worth .1&05m $n one "e!rs t$me&
However the $nvestment w$ll %$ve "ou .2m $n one "e!rs t$me !nd !nother .2m $n two "e!rs t$me&
So the $nvestment $s worthwh$le&
The second quest$on $s how th$s .1m requ$red now should be f$n!nced&
Perh!ps there $s ! surplus .1m s$tt$n% unused $n ! b!n# !ccount&
It $s more l$#el" th!t fresh funds w$ll be requ$red, poss$bl" b" !ssu!n# new sh"res, or poss$bl" b" r"!s!n# " lo"n (e&%& from the
b!n#)&
There !re !dv!nt!%es !nd d$s!dv!nt!%es of e!ch poss$b$l$t"&
Advantages of issuing new ordinary shares:
D$v$dends c!n be suspended $f prof$ts !re low, where!s $nterest p!"ments h!ve to be p!$d e!ch "e!r&
The b!n# w$ll t"p$c!ll" requ$re secur$t" on the comp!n"s !ssets before $t w$ll !dv!nce ! lo!n&
Perh!ps there !re no su$t!ble !ssets !v!$l!ble&
Advantages of raising loan finance:
Interest p!"ments !re !llow!ble !%!$nst t!x, where!s d$v$dend p!"ments !re not !n !llow!ble deduct$on !%!$nst t!x
No ch!n%e $s requ$red $n the ownersh$p of the comp!n", wh$ch $s %overned b" who owns the sh!res of the comp!n"&
Gener!ll" the f$n!nce funct$on !nd the tre!sur" funct$on w$ll wor# to%ether $n !ppr!$s$n% poss$ble $nvestment opportun$t$es !nd
dec$d$n% on how the" should be f$n!nced&
Management of working capital
A comp!n" must !lso dec$de on the !ppropr$!te level of $nvestment $n short term net !ssets, $&e& the levels of'
$nventor"
tr!de rece$v!bles (!mounts due from debtors for s!les on cred$t)
c!sh b!l!nces
tr!de p!"!bles (!mounts due to cred$tors for purch!ses on cred$t)&
There !re !dv!nt!%es $n hold$n% l!r%e b!l!nces of e!ch component of wor#$n% c!p$t!l, !nd !dv!nt!%es $n hold$n% sm!ll b!l!nces,
!s below&
"dv"nt"#e of l"r#e b"l"nce "dv"nt"#e of sm"ll b"l"nce
!nventor% customers !re h!pp" s$nce the"
c!n be $mmed$!tel" prov$ded
w$th %ood
low hold$n% costs& less r$s# of
obsolescence costs&
tr"de rece!v"bles customers !re h!pp" s$nce the"
l$#e cred$t&
less r$s# of b!d debts, %ood
for c!sh flow&
c"sh cred$tors !re h!pp" s$nce b$lls
c!n be p!$d promptl"
more c!n be $nvested elsewhere
to e!rn prof$ts&
tr"de p"%"bles preserves "our own c!sh suppl$ers !re h!pp" !nd m!"
offer d$scounts
THE MAIN AUDIT AND ASSURANCE ROLES IN BUSINESS
Types of audit
1% Intern"l "ud!t!n#
#s "n #ndependent "ct#v#t', est"bl#shed b' m"n"!ement to ex"m#ne "nd ev"lu"te the or!"n#s"t#ons r#s& m"n"!ement processes "nd
s'stems of control, "nd to m"&e recommend"t#ons for the "ch#evement of comp"n' ob(ect#ves%
Intern"l "ud#tors h"ve "n un"vo#d"ble #ndependence problem%
The' "re emplo'ed b' the m"n"!ement of the comp"n' "nd 'et "re expected to !#ve "n ob(ect#ve op#n#on on m"tters for wh#ch
m"n"!ement "re respons#ble%
2% Extern"l "ud!t!n#
#s the #ndependent ex"m#n"t#on of the ev#dence from wh#ch the f#n"nc#"l st"tements "re der#ved, #n order to !#ve the re"der of
those st"tements conf#dence "s to the truth "nd f"#rness of the st"te of "ff"#rs wh#ch the' d#sclose%
Aud!t & "ssu"nce
The f"ct th"t emplo'ees of the comp"n' &now th"t the#r wor& m"' be #nspected b' extern"l "ud#tors m"' encour"!e them to
document the#r wor& properl' "nd d#ssu"de them from fr"ud%
THE MAIN FUNCTIONS OF THE INTERNAL AUDITOR AND THE EXTERNAL
AUDITOR
Intern"l & Extern"l Aud!torAUDITOR
!ntern"l "ud!t!n# extern"l "ud!t!n#
role to !dv$se m!n!%ement on whether
the or%!n$s!t$on h!s sound s"stems
of $ntern!l controls to protect the
or%!n$s!t$on !%!$nst loss
to prov$de !n op$n$on to the
sh!reholders on whether the f$n!nc$!l
st!tements %$ve ! true !nd f!$r v$ew
le#"l b"s!s %ener!ll" not ! le%!l requ$rement&
however the comb$ned code on
corpor!te %overn!nce recommends
th!t $f ! l$sted comp!n" does not
h!ve !n $ntern!l !ud$t dep!rtment, $t
should !nnu!ll" !ssess the need for
one&
le%!l requ$rement for l!r%e comp!n$es,
publ$c comp!n$es !nd m!n" publ$c
bod$es
scope of wor$ determ$ned b" m!n!%ement& covers
!ll !re!s of the or%!n$s!t$on,
oper!t$on!l !s well !s f$n!nc$!l
determ$ned b" the !ud$tor $n order to
c!rr" out h$s st!tutor" dut" to report&
f$n!nc$!l focus
"ppro"ch $ncre!s$n%l" r$s# b!sed& !ssess r$s#s&
ev!lu!te s"stems of control& test
oper!t$ons of s"stems& m!#e
recommend!t$ons for $mprovements
$nre!s$n%l" r$s# b!sed& test underl"$n%
tr!ns!ct$ons th!t form the b!s$s of
the f$n!nc$!l st!tements&
respons!b!l!t% to !dv$se !nd m!#e recommend!t$ons
on $ntern!l control !nd corpor!te
%overn!nce&
to form !n op$n$on on whether the
f$n!nc$!l st!tements %$ve ! true !nd
f!$r v$ew
BASIC LEGAL REQUIREMENTS IN RELATION TO )EEPING AND
SUBMITTING PROPER RECORDS AND PREPARING FINANCIAL ACCOUNTS
Pr#nc#ples of l!w & re$ul!t#on $overn#n$
!ccount#n$ & !ud#t
B"s!c Le#"l Requ!rements
SUBMITTING PROPER RECORDS AND PREPARING FINANCIAL ACCOUNTS
Account"b!l!t% refers to the st!te of be$n% !ccount!ble, l$!ble or !nswer!ble for !ct$ons !nd conduct&
In most countr$es there w$ll be ! %overnment dep!rtment set up to oversee the re%ul!t$on !nd !ccounts of comp!n$es&
Thus, comp!n$es $n ! p!rt$cul!r countr" !re !ccount!ble to th$s %overnment dep!rtment&
In the U-, th$s %overnment dep!rtment (re%ul!tor" bod") $s Comp"n!es House&
Most countr$es h!ve ! l!w wh$ch %overns the prep!r!t$on of f$n!nc$!l st!tements&
The n!me of th$s l!w v!r$es from countr" to countr", !s does the content&
The comp!n$es le%$sl!t$on $n m!n" commonwe!lth countr$es $s b!sed on the U' Comp"n!es Act&
The Comp!n$es Acts $n the U- requ$re th!t f$n!nc$!l st!tements !re prep!red wh$ch %$ve ! true "nd f"!r v!ew, th!t $s, the"
follow !ccount$n% st!nd!rds, follow %ener!ll"-!ccepted best pr!ct$ce !nd h!ve $nform!t$on of suff$c$ent qu!nt$t" (!dequ!tel"
det!$led) !nd qu!l$t" (re!son!bl" !ccur!te) to s!t$sf" the re!son!ble expect!t$ons of the users&
Under comp!n$es le%$sl!t$on, d!rectors "re respons!ble for produc!n# f!n"nc!"l st"tements wh$ch %$ve ! true !nd f!$r v$ew&
THE BROAD CONSEQUENCES OF FAILING TO COMPLY WITH THE LEGAL
REQUIREMENTS FOR MAINTAINING ACCOUNTING RECORDS
F!$l$n% to #eep the proper !ccount$n% records !nd prep!r$n% f$n!nc$!l st!tements th!t do not %$ve ! true !nd f!$r v$ew !re
cr$m$n!l offences !nd m!" le!d to prosecut$on&
The respons$b$l$t" $s th!t of the d$rectors !nd the" c!n be f$ned for f!$lure to compl"&
There could be problems w$th the t!x !uthor$t$es $f records !re found to be $ncorrect, the t!x !uthor$t$es could $nvest$%!te, !nd $f
the t!x p!$d $s too low, then, the comp!n" $s %u$lt" of t!x ev!s$on, wh$ch $s ! cr$me&
If the poor !ccount$n% records me!ns th!t the f$n!nc$!l st!tements do not %$ve ! true !nd f!$r v$ew, !nd $f th$s $s detected b" the
!ud$tor, the extern!l !ud$tor could %$ve ! qu!l$f$ed !ud$t report&
Th$s w$ll d!m!%e the comp!n"'s reput!t$on !nd could m!#e $t h!rder to borrow mone" !nd to %et sh!reholders to $nvest&
Consequences of F"!l!n# to Compl%
Poor !ccount$n% records could !lso me!n th!t the comp!n" h!s $n!dequ!te records of rece$v!bles !nd p!"!bles&
It could therefore f!$l to collect mone" owed from customers wh$ch w$ll d!m!%e c!sh flow, !nd p!" suppl$ers on t$me wh$ch could
le!d to suppl$ers c!ncell$n% cred$t f!c$l$t$es&
These $ssues could eventu!ll" le!d to f$n!nc$!l d$ff$cult$es !nd the comp!n" %o$n% out of bus$ness&
The !ccount$n% funct$on wh$ch $s ver" #een to be self-re%ul!ted h!s to follow the requ$rements of the Comp!n$es Act !nd t!x
!uthor$t$es $n order to !vo$d the comp!n" f!c$n% le%!l !ct$on&
B" the 1970's, th$s me!nt th!t there w!s ! mult$tude of d$fferent !ccount$n% st!nd!rd worldw$de m!#$n% $t ver" d$ff$cult for
$nvestors to comp!re the f$n!nc$!l st!tements of comp!n$es $n d$fferent countr$es&
In 1973, the Intern"t!on"l Account!n# St"nd"rds Comm!ttee (IASC) w!s formed to tr" to h!rmon$se (m!#e s$m$l!r) !ccount$n%
st!nd!rds $n d$fferent countr$es&
In 2001 the IASC w!s repl!ced b" the Intern"t!on"l Account!n# St"nd"rds Bo"rd (IASB)&
HOW THE INTERNATIONAL ACCOUNTANCY PROFESSION REGULATES
ITSELF THROUGH THE ESTABLISHMENT OF REPORTING STANDARDS
AND THEIR MONITORING
The Intern!t$on!l Account$n% St!nd!rds Bo!rd (IASB) $s !n $ndependent, pr$v!te-sector bod" th!t develops !nd !pproves
Intern"t!on"l F!n"nc!"l Report!n# St"nd"rds (IFRS)&
The IASB oper!tes under the overs$%ht of the Intern"t!on"l Account!n# St"nd"rds Comm!ttee Found"t!on (IASCF)&
The $ntern!t$on!l !ccount!nc" profess$on re%ul!tes $tself throu%h the Intern"t!on"l Account!n# St"nd"rds Bo"rd (IASB)&
A new st!nd!rd st!rts l$fe !s D!scuss!on P"per (DP)&
The IASB !ss$%ns ! wor#$n% %roup to develop ! new st!nd!rd, follow$n% $nput from the St"nd"rds Adv!sor% Counc!l (SAC) !nd
produces ! f$rst dr!ft w$th some po$nts for d$scuss$on&
Th$s $s then m!de !v!$l!ble for publ$c comment&
The v$ews expressed on the D$scuss$on P!per (DP) !re t!#en $nto !ccount $n produc$n% the next dr!ft, #nown !s Exposure Dr"ft
(ED)&
A%!$n publ$c comment $s $nv$ted&
F$6n!ll" !n IFRS $s $ssued&
Intern"t!on"l Account"nc% Profess!ons
F$6n!ll" !n IFRS $s $ssued&
The IFRS m!" l!ter be !mended $f necess!r"&
The objectives of the IASB are:
Under the IASCF Const$tut$on, the ob*ect!ves of the IASB !re'
1% to develop, #n the publ#c #nterest, " s#n!le set of h#!h qu"l#t', underst"nd"ble "nd enforce"ble !lob"l "ccount#n! st"nd"rds th"t
requ#re h#!h qu"l#t', tr"nsp"rent "nd comp"r"ble #nform"t#on #n f#n"nc#"l st"tements "nd other f#n"nc#"l report#n! to help
p"rt#c#p"nts #n the world's c"p#t"l m"r&ets "nd other users m"&e econom#c dec#s#ons
2% to promote the use "nd r#!orous "ppl#c"t#on of those st"nd"rds+ "nd
3% #n fulf#ll#n! the ob(ect#ves "ssoc#"ted w#th (") "nd (b), to t"&e "ccount of, "s "ppropr#"te, the spec#"l needs of sm"ll "nd med#um-
s#zed ent#t#es "nd emer!#n! econom#es+ "nd
4% to br#n! "bout conver!ence of n"t#on"l "ccount#n! st"nd"rds "nd Intern"t#on"l Account#n! St"nd"rds "nd Intern"t#on"l F#n"nc#"l
Report#n! St"nd"rds to h#!h qu"l#t' solut#ons
THE VARIOUS PURPOSES FOR WHICH THE FOLLOWING FINANCIAL
INFORMATION IS REQUIRED
The Income Statement
The $ncome st!tement l$sts revenues !nd expenses !nd c!lcul!tes the comp!n"'s net $ncome or net loss for ! per$od of t$me&
Net !ncome me!ns tot!l revenues !re %re!ter th!n tot!l expenses&
Net loss me!ns tot!l expenses !re %re!ter th!n tot!l revenues&
It serves !s the b!s$c me!sur$n% st$c# of prof$t!b$l$t"&
The $ncome st!tement prov$des $mport!nt f$n!nc$!l $nform!t$on to bus$ness m!n!%ers, $nvestors, lenders, !nd !n!l"sts&
Sources !nd Purpose of Intern!l & Extern!l
Inform!t#o
V"r!ous Purposes of F!n"nc!"l Infrom"t!on
The Statement of Cash flows
The st!tement of c!sh flows reports the c!sh rece$pts, c!sh p!"ments, !nd the net ch!n%e $n c!sh result$n% from the oper!t$n%,
$nvest$n%, !nd f$n!nc$n% !ct$v$t$es of ! comp!n" dur$n% the per$od&
The c"sh flow st"tement !s !ntended to&
1% prov#de #nform"t#on on " f#rm's l#qu#d#t' "nd #ts "b#l#t' to ch"n!e c"sh flows #n future c#rcumst"nces
2% prov#de "dd#t#on"l #nform"t#on for ev"lu"t#n! ch"n!es #n "ssets, l#"b#l#t#es "nd equ#t'
3% #mprove the comp"r"b#l#t' of d#fferent f#rms' oper"t#n! perform"nce b' el#m#n"t#n! the effects of d#fferent "ccount#n! methods
4% #nd#c"te the "mount, t#m#n! "nd prob"b#l#t' of future c"sh flows
The Statement of Financial Position
The st!tement of f$n!nc$!l pos$t$on shows wh!t resources !re owned b" ! bus$ness ("!ssets") !nd wh!t $t owes to other
p!rt$es ("l$!b$l$t$es") !t ! p!rt$cul!r po$nt $n t$me&
It !lso shows how much h!s been $nvested $n the bus$ness !nd wh!t the sources of th!t $nvestment f$n!nce were&
THE MAIN PURPOSES OF THE FOLLOWING TYPES OF MANAGEMENT
ACCOUNTING REPORTS
Cost Schedules
Cost schedules !re used to c!lcul!te the cost of produc$n% products for ! per$od of t$me&
The cost of %oods !mount $s tr!nsferred to the f$n$shed %oods $nventor" !ccount dur$n% the per$od !nd $s used $n c!lcul!t$n% cost
of %oods sold on the $ncome st!tement&
W!%es !nd s!l!r$es
M"!n Purposes of M"n"#ement Account!n# ReportsW!%es !nd s!l!r$es
Dep!rtment!l costs
Cost of s!les
Sell$n% expenses
Adm$n$str!t$on costs
Budgets
Bud%ets !re p!rt of ! comp!n"'s pl!nn$n% s"stem&
It $s ! set of $nterl$n#ed pl!ns th!t qu!nt$t!t$vel" descr$be !n ent$t"'s pro(ected future oper!t$ons&
A bud%et $s used !s ! "!rdst$c# !%!$nst wh$ch to me!sure !ctu!l oper!t$n% results, for the !lloc!t$on of fund$n%, !nd !s ! pl!n
for future oper!t$ons&
Variance Reports
Once ! bud%et $s est!bl$shed, one of the m!$n f$n!nc$!l t!s#s $s to expl!$n v!r$!nces between !ctu!l perform!nce !nd the
bud%et&
It m!" be th$n%s h!ve ch!n%ed from the bud%et&
Volume m!" h!ve ch!n%ed $ncre!sed, or there m!" h!ve been unexpected pr$ce $ncre!ses&
AN ORGANISATIONS SYSTEM REQUIREMENTS IN RELATION TO THE
OBJECTIVES AND POLICIES OF THE ORGANISATION
F#n!nc#!l S"stems, procedures !nd rel!ted IT
!ppl#c!t#ons
Ob*ect!ves & Pol!c!es
Account$n% s"stems l!" down procedures !nd %u$del$nes th!t reflect the Comp!n"s pol$c$es&
term me"n!n#
s"stem ! %roup of $ndependent but $nterrel!ted elements compr$s$n%
! un$f$ed whole, ! process for obt!$n$n% !n ob(ect$ve
pol$c" ! %u$d$n% pr$nc$ple
procedure ! ser$es of !cts, ! set sequence of steps
%u$del$ne ! recommended !ppro!ch for conduct$n% ! t!s#
In !n or%!n$s!t$on there !re m!n" tr!ns!ct$ons !nd roles therefore, !n or%!n$s!t$on m!" opt to $mplement more form!l rules !nd
procedures pol$c" to ensure the m!n!%ement !re !ble to #eep control of the !ct$v$t$es&
For ex!mple, h!v$n% $n pl!ce !n !uthor$s!t$on pol$c" for the purch!se of !ccept$n% new customers, new suppl$ers etc&
In ! sm!ller or%!n$s!t$on, such procedures !nd rules c!n be commun$c!ted or!ll" b" the m!n!%ement, however $n ! l!r%er
or%!n$s!t$on th$s m$%ht not be $mposs$ble therefore ! more form!l procedure m!" be needed&
Th$s could be $n the sh!pe of ! pol!c% m"nu"l&
Effective systems and procedures should ensure that:
Rel!t$onsh$ps w$th customers !re effect$vel" m!n!%ed
Rel!t$onsh$ps w$th suppl$ers !re effect$vel" m!n!%ed
Off$ce funct$ons $nterrel!te properl" !nd !re not dupl$c!te
THE MAIN FINANCIAL SYSTEMS USED WITHIN AN ORGANISATION
Purchases and sales invoicing and Credit control
Purch!s$n% $s !n $mport!nt !re! to control p!rt$cul!rl" $f $tems !re of ! h$%h v!lue&
The or%!n$s!t$on $s l$#el" to $ns$st on ! spec$f$c !uthor$s!t$on procedure espec$!ll" for the purch!se of non-current !ssets&
Inputs to " purch"se led#er s%stem !nclude&
1% Det"#ls of purch"ses recorded on #nvo#ces
2% Det"#ls of returns to suppl#ers for wh#ch cred#t notes "re rece#ved
3% Det"#ls of p"'ments to suppl#ers
fe"tures "!ms
order!n# * !ll orders for, !nd, expend$ture on, %oods !nd serv$ces
!re properl" !uthor$sed, !nd !re for %oods !nd serv$ces
th!t !re !ctu!ll" rece$ved !nd !re for the comp!n"&
* orders !re onl" m!de to !uthor$sed suppl$ers
* orders !re m!de !t compet$t$ve pr$ces
rece!pts & !nvo!ces * %oods/serv$ces used onl" for the or%!n$s!t$ons purposes
* %oods/serv$ces onl" !ccepted $f ordered & !uthor$sed
* %oods/serv$ces !re !ccur!tel" recorded
* l$!b$l$t$es reco%n$sed for !ll %oods/serv$ce
* cred$ts for wh$ch the bus$ness $s due !re cl!$med
* ! rece$pt $s needed to ensure ! bus$ness est!bl$sh ! l$!b$l$t"
"ccount!n# * expend$ture $s !uthor$sed - %oods !ctu!ll" rece$ved
* expend$ture $s recorded $n the nom$n!l !nd purch!se led%er
M"!n F!n"nc!"l S%stems
* cred$t notes recorded
* entr$es m!de to the correct led%er
* cut-off $s !ppl$ed correctl" to the led%er
For s!les, bus$nesses w!nt onl" to %$ve cred$t to those customers who c!n settle the$r debts&
The s!les led%er w$ll help tr!c# wh!t $s owed b" e!ch customer&
Inputs to " s"les led#er s%stem !nclude&
1% Amendments customer det"#ls, new customers etc
2% Tr"ns"ct!on d"t" S"les, customer p"'ments, cred#t notes
fe"tures "!ms
order!n# & #r"nt!n#
of cred!t
* %oods/serv$ce to onl" to customers w$th %ood cred$t r!t$n%
* cutomers p!" promptl"
* orders recorded correctl"
* orders !re fulf$lled
desp"tch & !nvo!c!n# * desp!tches of %oods !re recorded
* %oods/serv$ces sold !re correctl" $nvo$ced
* !ll $nvo$ces r!$se rel!te to %oods/serv$ce suppl$ed
* cred$t notes onl" %$ven for v!l$d re!sons
record!n#,"ccount!n#
& cred!t control
* s!les $nvo$ced !nd recorded
* cred$t notes $ssues !nd recorded
* entr$es $n s!les led%er m!de to the correct led%er
* cut-off !ppl$ed
* doubtful debtors $dent$f$ed
Payroll
The #e" funct$ons of p!"roll !re'The #e" funct$ons of p!"roll !re'
1% Documents "nd "uthor#s"t#on of st"ff ch"n!es
2% C"lcul"t#on of w"!es "nd s"l"r#es
3% P"'ment of w"!es "nd s"l"r#es
4% Author#s"t#on of deduct#ons
fe"tures "!ms
sett!n# of w"#es &
s"l"r!es
* emplo"ees !re onl" p!$d for wor# the" h!ve done
* %ross p!" c!lcul!ted correctl" !nd !uthor$sed
record!n# of w"#es &
s"l"r!es
* %ross/net p!" !nd deduct$ons !re !ccur!tel" recorded
* w!%es & s!l!r$es p!$d !re recorded correctl" $n the
b!n# !nd c!sh records
* w!%es & s!l!r$es !re correctl" recorded $n the %ener!l
led%er
p"%ment of w"#es &
s"l"r!es
* the correct emplo"ees !re p!$d
deduct!ons * st!tu!r" !nd non-st!tu!r" deduct$ons h!ve been c!lcul!ted
correctl" !nd !uthor$sed
* the correct !mounts !re p!$d to the t!x!t$on !uthor$t$es
Cash & Working Capital
C!sh !nd pett" c!sh !nd therefore wor#$n% c!p$t!l must be re%ul!rl" reconc$led&
The forms of p"%ment to " bus!ness could be throu#h&
1% Comp"n' cheque
2% B"n& tr"nsfer
3% Internet tr"nsfer
4% St"nd#n! order/d#rect deb#t
A control of rece$pt $s fund!ment!l $f the comp!n" $s to #eep ! he!lth" c!sh/wor#$n% c!p$t!l pos$t$on&
Therefore&
1% Rece#pts must be b"n&ed promptl'
2% The record of rece#pts must be complete
3% The loss of rece#pts throu!h theft or "cc#dent must be prevented
C!sh controls must be str$ct&
The" should !ppl" to the sm!llest !nd the l!r%est of tr!ns!ct$ons&
The three m"!n steps to "ppl%!n# control over c"sh/wor$!n# c"p!t"l p"%ments "re&
1% Document"r' ev#dence to prove th"t the purch"se #s requ#red
2% An "uthor#s"t#on of the p"'ment
3% Restr#ct#n! the "uthor#t' to "ctu"ll' m"&e the p"'ment to " cert"#n number of #nd#v#du"ls
WHY IS IT IMPORTANT TO ADHERE TO POLICIES AND PROCEDURES FOR
HANDLING CLIENTS MONEY
F$n!nc$!l tr!ns!ct$ons !re properl" c!rr$ed out
The !ssets of the bus$ness !re s!fe%u!rded
Pol!c!es & Procedures for h"ndl!n# C"sh
Accur!te !nd t$mel" m!n!%ement $nform!t$on $s produced
WEA)NESSES, POTENTIAL FOR ERROR AND INEFFICIENCIES IN
ACCOUNTING SYSTEMS
C!sh or cheques %o$n% m$ss$n%
Excess$ve b!d or doubtful debts
Customers not p!"$n% w$th$n cred$t terms
Suppl$ers not be$n% p!$d on t$me
Un!uthor$zed purch!ses be$n% m!de
F!$lure to produce !ccounts or other reports !t the spec$f$ed t$me
IMPROVEMENTS TO ACCOUNTING SYSTEMS TO PREVENT ERROR AND
FRAUD AND TO IMPROVE OVERALL EFFICIENCY
Cheques over ! cert!$n !mount of mone" need two s$%n!tor$es
We"$nesses !n Account!n# S%stems
Improvements to Account!n# S%stems
Cheques over ! cert!$n !mount of mone" need two s$%n!tor$es
Author$z!t$on l$m$ts for purch!se orders
Author$z!t$on for pett" c!sh !nd expenses cl!$ms
Effect$ve cred$t control procedures
Computer secur$t" procedures !nd !ccess levels
WHY APPROPRIATE CONTROLS ARE NECESSARY IN RELATION TO
BUSINESS AND I T SYSTEMS AND PROCEDURES
Management must have control over the following areas:
S"les on cred!t m"de to new customers
$f ! s!le $s m!de on cred$t the %oods !re sent out w$th ! prom$se from the customer to p!" $n the future therefore the
m!n!%ement of the bus$ness must be !s cert!$n !s the" c!n be th!t th$s new customer c!n, !nd w$ll, p!" for the %oods
wh$ch me!ns th!t the cred$t controller must be h!pp" th!t the new customer h!s ! %ood cred$t r!t$n% !nd $s f!$rl" cert!$n
to p!" for the %oods
Purch"ses of #oods or non-current "ssets "nd p"%ments for expenses
th$s $s mone" %o$n% out of the bus$ness therefore $t $s essent$!l th!t these !re necess!r" !nd v!l$d expend$tures so !
respons$ble off$c$!l must !uthor$ze them
P"%roll
one of the l!r%est p!"ments m!de b" most or%!n$z!t$ons $s th!t of the w!%es b$ll for the$r emplo"ees&
It $s essent$!l th!t onl" bon! f$de emplo"ees !re p!$d for the !ctu!l hours th!t the" h!ve wor#ed therefore !uthor$z!t$on of
the p!"roll $s ! ver" $mport!nt p!rt of !n" bus$ness
Controls & Procedure !n Bus!ness & IT S%stems
BUSINESS USES OF COMPUTERS AND IT SOFTWARE APPLICATIONS AND
THE RELATIVE BENEFITS AND LIMITATIONS OF MANUAL AND
AUTOMATED FINANCIAL SYTSTEMS THAT MAY BE USED IN AN
ORGANISATION
Spreadsheet application
A spre!dsheet $s essent$!ll" !n electron$c p$ece of p!per d$v$ded $nto rows !nd columns w$th ! bu$lt $n penc$l, er!ser !nd
c!lcul!tor& It prov$des !n e!s" w!" of perform$n% numer$c!l c!lcul!t$ons
Spre!dsheets h!ve m!n" uses w$th$n the bus$ness !ren!&
From cre!t$n% b!l!nce sheets, $ncome st!tements, f$n!nc$!l !ccounts etc but !lso help develop !n $nformed !nd structured
dec$s$on&
Database system
A d!t!b!se h!s m!n" uses !nd cons$sts of pooled d!t! !v!$l!ble to not onl" the !ccounts dep!rtment but usu!ll" the whole
or%!n$s!t$ons&
There are three main virtues of a database:
1& Common d!t! for !ll users
2& Th!t extr! effort $s requ$red $n d$fferent dep!rtments to !vo$d dupl$c!t$on
3& Confl$cts between dep!rtments who h!ve confl$ct$n% d!t! !re !vo$ded
A database should have 4 main objectives:
1& Sh!red $nform!t$on& D$fferent users w$th$n d$fferent dep!rtments should be !ble to !ccess the s!me $nform!t$on
2& The $nte%r$t" of the d!t!b!se must be preserved&
Computers & IT Softw"re Appl!c"t!ons
2& The $nte%r$t" of the d!t!b!se must be preserved&
3& The d!t!b!se should meet the requ$rements of !ll users
4& The d!t!b!se should be c!p!ble of evolv$n%
m"nu"l s%stem
"dv"nt"#es d!s"dv"nt"#es
low c!p$t!l costs slower !t perform$n% c!lcul!t$ons
no computer exper$ence requ$red more l$#el" to m!#e c!lcul!t$ons errors
e!s" to correct errors (wh$ten$n% flu$d) !n!l"s$s of $nform!t$on $s more t$me-consum$n%
c!n rev$ew tr!ns!ct$ons for lo%$c!l sense
wh$le enter$n%/perform$n% c!lcul!t$ons
less e!s" to !ud$t
"utom"ted s%stem
"dv"nt"#es d!s"dv"nt"#es
qu$c#er c!p$t!l cost
c!n perform more complex c!lcul!t$ons tr!$n$n% cost, espec$!ll" for older st!ff
fewer errors less e!s" to correct errors
more secur$t" (p!sswords) s"stems c!n cr!sh
e!s$er to sort !nd !n!l"se d!t!
e!s$er to sort !nd !n!l"se d!t!
INTERNAL CONTROL AND INTERNAL CHEC)
Internal control
$s the process des$%ned !nd !ffected b" m!n!%ement to prov$de re!son!ble !ssur!nce on' (Def$n$t$on b!sed on the Aud$t$n%
Pr!ct$ces Bo!rd Gloss!r" of Terms)
rel$!b$l$t" of f$n!nc$!l report$n%
effect$veness !nd eff$c$enc" of oper!t$ons, !nd
compl$!nce w$th !ppl$c!ble l!ws !nd re%ul!t$ons&
Intern"l chec$ $s !n element of $ntern!l control, concerned w$th ensur$n% th!t no s$n%le t!s# $s executed from st!rt to f$n$sh b"
onl" one person&
E!ch $nd$v$du!ls wor# $s sub(ect to !n $ndependent chec# b" !nother person $n the course of th!t other persons dut$es&
The purpose of $ntern!l chec#$n% $s to reduce the l$#el$hood of errors !nd fr!ud&
Errors should be reduced s$nce !n emplo"ee w$ll t!#e more c!re over the$r wor# $f the" #now $t $s %o$n% to be loo#ed !t b"
someone else&
Intern!l Controls, !uthor#s!t#on, secur#t", &
compl#!nce
Intern"l control & Intern"l chec$
Components of Internal Control
the control env$ronment
the ent$t"s r$s# !ssessment process
control !ct$v$t$es
the $nform!t$on s"stem relev!nt to f$n!nc$!l report$n%
mon$tor$n% of controls&
The term $ntern!l control c!n refer to !n" of these f$ve components&
The control env$ronment $s the over!ll !tt$tude of m!n!%ement re%!rd$n% $ntern!l controls !nd the$r $mport!nce&
It encomp!sses m!n!%ements ph$losoph", e&%& ! comm$tment to $nte%r$t" !nd eth$c!l v!lues, ! form!l or%!n$s!t$on structure !nd
proper tr!$n$n% of st!ff&
THE IMPORTANCE OF INTERNAL FINANCIAL CONTROLS IN AN
ORGANISATION AND THE FEATURES OF EFFECTIVE INTERNAL FINANCIAL
CONTROL PROCEDURES IN AN ORGANISATION
The purpose of internal control is implied to help management achieve the entitys
objectives, especially in terms of ensuring:
the orderl" !nd eff$c$ent conduct of the bus$ness
the s!fe%u!rd$n% of !ssets
the prevent$on !nd detect$on of fr!ud !nd error
the !ccur!c" !nd completeness of the !ccount$n% records, !nd
the t$mel" prep!r!t$on of rel$!ble f$n!nc$!l $nform!t$on&
The importance of internal controls
Intern!l controls !re there to prevent r$s#s occurr$n% or to m$n$m$se the $mp!ct of r$s#s ($&e& to help prevent th$n%s %o$n%
wron%)&
Even when controls !re $n pl!ce documents m!" st$ll %et lost or port!ble !ssets m!" %o m$ss$n%&
The level !nd extent of $ntern!l controls requ$red depend on wh!t the r$s#s !re $f such controls f!$l&
It $s p!rt$cul!rl" $mport!nt th!t str$n%ent controls ex$st where there !re !ssoc$!ted le%!l requ$rements&
Most $ntern!l controls !re of %re!t $nterest to the extern!l !ud$tor&
If $ntern!l controls !re bel$eved to be ver" rel$!ble from the extern!l !ud$tor po$nt of v$ew, th!t w$ll me!n th!t the !mount
of subst"nt!ve test!n# (tests to !dent!f% errors "nd om!ss!ons !n f!n"nc!"l records) of tr!ns!ct$ons !nd result!nt
b!l!nces $n the led%er !ccounts w$ll be reduced&
Intern"l F!n"nc!"l Controls
Intern!l controls !re fund!ment!l to $ntern!l !ud$tors&
The" h!ve to m!#e dec$s$ons on the extent of rel$!nce on controls to m!n!%e r$s#s to prov$de !ssur!nce th!t the corpor!te
%overn!nce requ$rements !s be$n% met&
THE RESPONSIBILITIES OF MANAGEMENT FOR INTERNAL FINANCIAL
CONTROL
It $s m!n!%ements respons$b$l$t" to est!bl$sh proper $ntern!l control !rr!n%ements w$th$n the$r comp!n"&
Th$s respons$b$l$t" m!" der$ve from st!tutor" requ$rements or from %ener!l corpor!te %overn!nce !rr!n%ements&
Th$s requ$rement $s set out more cle!rl" $n the Comb$ned Code on Corpor!te Govern!nce&
Pr$nc$ple C2 of the Code st!tes th!t' The bo!rd should m!$nt!$n ! sound s"stem of $ntern!l control to s!fe%u!rd sh!reholders
$nvestment !nd the comp!n"s !ssets&
Prov$s$on C2&1 of the Code %oes on to expl!$n th!t the bo!rd should, !t le!st !nnu!ll", conduct ! rev$ew of the effect$veness of
the s"stem of $ntern!l controls !nd should report to sh!reholders th!t the" h!ve done so&
Th$s rev$ew must cover !ll m!ter$!l controls, $nclud$n% f$n!nc$!l, oper!t$on!l !nd compl$!nce controls !nd r$s# m!n!%ement
s"stems&
In its annual assessment of internal control, the board should consider:
The ch!n%es $n the n!ture !nd extent of s$%n$f$c!nt r$s#s s$nce the l!st !nnu!l !ssessment&
The scope of m!n!%ements on%o$n% mon$tor$n% of r$s#s, $nclud$n% the reports m!n!%ement h!s m!de to the bo!rd !nd !n"
relev!nt wor# b" $ntern!l !ud$t&
The $nc$dence of !n" s$%n$f$c!nt control f!$l$n%s or we!#nesses th!t h!ve been $dent$f$ed dur$n% the "e!r&
Respons!b!l!t!es of M"n"#ement
Intern!l f$n!nc$!l control $s p!rt of over!ll $ntern!l control&
Althou%h the !ud$tors, for ex!mple, w$ll be p!rt$cul!rl" $nterested $n test$n% !nd report$n% on the f$n!nc$!l controls, the bo!rd $s
respons$ble for !ll the controls $n the comp!n"' f$n!nc$!l, oper!t$on!l !nd compl$!nce controls&
GENERAL AND APPLICATION SYSTEMS CONTROLS IN BUSINESS
Different books identify different categories of control activities.
One poss$b$l$t" $s'
Author$s!t$on
Comp!r$son
Computer controls
Ar$thmet$c!l controls ($nclude pre-l$st, post-l$sts !nd control tot!ls)
M!$nt!$n$n% ! tr$!l b!l!nce !nd control !ccounts
Account$n% reconc$l$!t$ons
Ph"s$c!l controls&
(Use the mnemon!c ACCA MAP to remember these c"te#or!es()
Secur!t% of IT S%tems & Softw"re
Mon!tor!n# of controls $s ! process to !ssess the qu!l$t" of $ntern!l control perform!nce over t$me&
It $nvolves !ssess$n% the des$%n !nd oper!t$on of controls on ! t$mel" b!s$s !nd t!#$n% necess!r" correct$ve !ct$ons&
Compl$!nce f!$lures m!" !r$se bec!use of l!c# of st!ff mot$v!t$on or throu%h poor tr!$n$n% !nd superv$s$on&
Alternative analysis of internal controls
1% Prevent!ve controls
These "re controls th"t prevent r#s&s occurr#n!%
For ex"mple, "uthor#s"t#on controls should prevent fr"udulent or erroneous tr"ns"ct#ons t"&#n! pl"ce%
Other prevent#ve controls #nclude se!re!"t#on of dut#es, recru#t#n! "nd tr"#n#n! the r#!ht st"ff "nd h"v#n! "n effect#ve control
culture%
2% Detect!ve controls
These "re controls th"t detect #f "n' problems h"ve occurred%
The' "re des#!ned to p#c& up errors th"t h"ve not been prevented%
These could be except#on reports th"t reve"l th"t controls h"ve been c#rcumvented (for ex"mple, l"r!e "mounts p"#d w#thout
be#n! "uthor#sed)%
Other ex"mples could #nclude reconc#l#"t#ons, superv#s#on "nd #ntern"l chec&s%
3% Correct!ve controls
These "re controls th"t "ddress "n' problems th"t h"ve occurred%
B"s#c"ll', correct#ve controls "re "#med "t restor#n! the s'stem to #ts expected st"te%
H"v#n! b"c&up conf#!ur"t#on f#les or h"rd dr#ve #m"!es th"t c"n be relo"ded to restore the st"te "re both !ood ex"mples%
So where problems "re #dent#f#ed, the controls ensure th"t the' "re properl' rect#f#ed%
Cle!rl" the most powerful t"pe of control $s prevent!t$ve&
It $s more effect$ve to h!ve ! control th!t stops problems occurr$n% r!ther th!n to detect or correct them once the" h!ve
occurred&
There $s !lw!"s ! poss$b$l$t" th!t $t $s too l!te to sort out the problem&
Other Cl"ss!f!c"t!ons
cl"ss!f!c"t!ons det"!ls
d$scret$on!r" controls wh$ch !re sub(ect to hum!n d$scret$on
non-d$scret$on!r" controls !utom!t$c!ll" prov$ded b" the s"stem !nd
c!nnot be overr$dden e%& use of p!ssword
volunt!r" controls chosen b" the or%!n$z!t$on to support
m!n!%ement
m!nd!ted requ$red b" l!w !nd $mposed b" extern!l
!uthor$t$es
m!nu!l these controls demonstr!te ! one-to-one
rel!t$onsh$p between the process$n% funct$ons !nd
controls !nd the hum!n funct$ons
!utom!ted these controls !re pro%r!mmed procedures
des$%ned to prevent, detect !nd correct errors !ll
the w!" throu%h process$n%
Types of Audit
Intern!l !ud$t $s ! m!n!%ement control, !s $t $s ! tool used to ensure th!t other $ntern!l controls !re wor#$n% s!t$sf!ctor"&
D!fferent t%pes of "ud!t c"n be d!st!n#u!shed&
1% Oper"t!on"l "ud!t
concerned w#th over"ll m"n"!ements perform"nce #nclud#n! outputs of the s'stem "nd eff#c#enc' of the or!"n#z"t#on%
2% S%stems "ud!t
b"sed on test#n! "nd ev"lu"t#on of the #ntern"l controls #nclud#n! compl#"nce tests to see th"t controls "re "ppl#ed "s the'
should "nd subst"nt#ve tests used to d#scover errors "nd om#ss#ons%
3% Tr"ns"ct!on "ud!t
4% Soc!"l "ud!t
5% M"n"#ement !nvest!#"t!ons%
THE CIRCUMSTANCES
Fr!ud $s !n $ntent$on!l !ct b" one or more $nd$v$du!ls !mon% m!n!%ement, those ch!r%ed w$th %overn!nce, emplo"ees or th$rd
p!rt$es, $nvolv$n% the use of decept$on to obt!$n !n un(ust or $lle%!l !dv!nt!%e& (Aud$t$n% Pr!ct$ces Bo!rd Gloss!r" of Terms)
For ex!mple, m!n!%ers m!" del$ber!tel" select $n!ppropr$!te !ccount$n% pol$c$es&
Emplo"ees m!" se$ze the proceeds of c!sh s!les !nd om$t to enter the s!le $nto the !ccount$n% records&
Th$rd p!rt$es m!" send bo%us (f!#e) $nvo$ces to the comp!n", hop$n% th!t the" w$ll be p!$d $n error&
The prerequisites of fraud
There !re three prerequ$s$tes for fr!ud to occur' d!shonest%, opportun!t% "nd mot!ve&
All three !re usu!ll" requ$red for ex!mple !n honest emplo"ee $s unl$#el" to comm$t fr!ud even $f %$ven the opportun$t" !nd
mot$ve&
Fr!ud $s more l$#el" to occur $n ! bus$ness env$ronment w$th poor or no controls&
If the control env$ronment $s soft !nd m!n!%ement h!s $mplemented few spec$f$c control !ct$v$t$es, then the potent$!l for fr!ud
$s h$%h&
F"ctors th"t m!#ht !ncre"se the r!s$ of fr"ud "nd error&
m!n!%ement dom$n!t$on b" one person, or ! sm!ll %roup of people
unnecess!r$l" complex corpor!te structure
h$%h turnover r!te of #e" !ccount$n% personnel
personnel who do not t!#e le!ve/hol$d!"s
Fr!ud & Fr!dulent beh!v#our
Fr"ud & the!r Prevent!on !n Bus!ness
underst!ffed !ccount$n% dep!rtment
vol!t$le bus$ness env$ronment
$n!dequ!te wor#$n% c!p$t!l
deter$or!t$n% qu!l$t" of e!rn$n%s
$n!dequ!te se%re%!t$on of dut$es
l!c# of mon$tor$n% of control s"stems
unusu!l tr!ns!ct$ons $n c!sh, or d$rect to numbered b!n# !ccounts
p!"ments for serv$ces d$sproport$on!te to effort
s$%n$f$c!nt tr!ns!ct$ons w$th rel!ted p!rt$es
$n!dequ!te IT s"stems&
IN THE ORGANISATION AND THE IMPLICATIONS OF FRAUD FOR THE
ORGANISATION
Example fraud by management
F$n!nc$!l st!tement fr!ud, e&%& w$ndow dress$n% !nd coo#$n% the boo#s
* W$ndow Dress$n%/Coo#$n% the boo#s !re the decept$ve pr!ct$ces of us$n% !ccount$n% tr$c#s to m!#e ! comp!n"'s b!l!nce
sheet !nd $ncome st!tement !ppe!r better th!n the" re!ll" !re&
A norm!ll" used tr$c# $s to enter tr!ns!ct$ons before "e!r end !nd then the" !re reversed out !fter the "e!r end&
M$s!ppropr$!t$on of !ssets ste!l$n% ph"s$c!l !ssets or sell$n% propert"
D!fferent T%pes of Fr"ud
F!lse $nsur!nce cl!$ms
Us$n% the comp!n"s !ssets for person!l use&
Example frauds by employees
S!les led%er fr!ud teem$n% !nd l!d$n%
* Teem$n% !nd l!d$n% $s ! t"pe of fr!ud norm!ll" on the s!les led%er whereb" the rece$pts of l!ter debtors !re !lloc!ted to
p!" off e!rl$er debtors
Purch!se led%er fr!ud
S#$mm$n% schemes
* S#$mm$n% schemes $s when the fr!udster d$verts sm!ll !mounts from ! l!r%e number of tr!ns!ct$ons, bel$ev$n% th!t no
one w$ll bother to $nvest$%!te the sm!ll d$fferences $nd$v$du!ll", !lthou%h $n the !%%re%!te the" c!n tot!l to ! worthwh$le
sum&
P!"roll fr!ud&
Example frauds by third parties
F!lse b$ll$n% fr!ud th$rd p!rt$es send$n% bo%us $nvo$ces to the comp!n"
B!n# !ccount fr!ud
Adv!nce fee fr!ud (419 fr!ud)
* Adv!nce fee fr!ud $s ! tr$c# where ! comp!n" $s $nv$ted to p!" ! modest fee up front $n the prom$se of be$n% p!$d ! l!r%e
!mount $n the future&
Ponz$/P"r!m$d schemes
* Ponz$/P"r!m$d schemes !re fr!udulent $nvestments offers th!t $nvolve p!"$n% !bnorm!ll" h$%h returns to e!rl" $nvestors
out of the new mone" p!$d $n b" subsequent $nvestors, r!ther th!n from !n" %enu$ne underl"$n% bus$ness&
The possible implications of fraud to the company
There $s ! spectrum of $mpl$c!t$ons of fr!ud, $nclud$n%'
1% M#suse of "ssets
2% Loss of "ssets
3% F#n"nc#"l d#ff#cult#es
4% Coll"pse of the comp"n'
THE FRAUD DETECTION AND PREVENTION PROCESS
The duties to prevent and detect fraud can be split between:
the dut$es of the bo!rd of d$rectors
the dut$es of the !ud$t comm$ttee
the dut$es of emplo"ees %ener!ll" ($nclud$n% sen$or emplo"ees below bo!rd level)&
The duties of the board of directors
The bo!rd of d$rectors $s requ$red b" the Comb$ned Code to m!$nt!$n ! sound s"stem of $ntern!l control&
At le!st !nnu!ll", the bo!rd should conduct ! rev$ew of the effect$veness of the $ntern!l control s"stem !nd should report to
sh!reholders&
Role & Dut!es of M"n"#ers !n Fr"ud Detect!on
The duties of the audit committee
The !ud$t comm$ttee $s requ$red b" the Comb$ned Code to mon$tor !nd rev$ew the comp!n"'s $ntern!l control !nd r$s#
m!n!%ement s"stems&
Th$s should ensure the cont$nu$n% effect$veness of the controls $n prevent$n% !nd detect$n% fr!ud&
The duties of employees
The spec$f$c dut$es of emplo"ees !re set out $n the$r contr!ct of emplo"ment !nd $n wh!t the" !re told to do b" the$r
superv$sors, but there w$ll !lw!"s be !n $mpl$ed dut" to !ct honestl" !nd to report suspected or !ctu!l fr!uds encountered
to superv$sors&
Fr!ud prevent$on !nd detect$on $s the respons$b$l$t" of ever" emplo"ee $n ! comp!n", not (ust the bo!rd of d$rectors&
Ille!"ll'-Obt"#ned Mone'
Money laundering
$s the pr!ct$ce of cover$n% the or$%$ns of $lle%!ll"-obt!$ned mone"&
Ult$m!tel", $t $s the process b" wh$ch the proceeds of cr$me !re m!de to !ppe!r le%$t$m!te&
L!under$n% !llows cr$m$n!ls to tr!nsform $lle%!ll" obt!$ned %!$n $nto seem$n%l" le%$t$m!te funds&
It seems to be ! worldw$de problem&
Cr$m$n!ls w!nt the$r $lle%!l funds l!undered bec!use the" c!n then move the$r mone" throu%h soc$et" freel", w$thout fe!r
th!t the funds w$ll be tr!ced to the$r cr$m$n!l deeds&
In !dd$t$on, l!under$n% prevents the funds from be$n% conf$sc!ted b" the pol$ce&
Mone% L"under!n#
RECOGNISED OFFENCES & METHODS OF DETECTING AND PREVENTING
MONEY LAUNDERING
The b$%%est source of $ll$c$t prof$ts comes from the dru%s' tr!de !nd $t w!s dru% tr!ff$c#$n% th!t prov$ded the $n$t$!l c!t!l"st for
concerted $ntern!t$on!l efforts !%!$nst mone" l!under$n%&
The dru%s' $ndustr" $s ! h$%hl" c!sh $ntens$ve bus$ness !nd "$n the c!se of coc!$ne !nd hero$n the ph"s$c!l volume of notes
rece$ved $s much l!r%er th!n the volume of dru%s themselves"&
In order to r$d themselves of th$s l!r%e burden $t $s necess!r" to use the f$n!nc$!l serv$ces $ndustr" !nd $n p!rt$cul!r, depos$t-
t!#$n% $nst$tut$ons&
Money laundering usually consists of three steps:
1% pl"cement,
2% l"'er#n! "nd
3% #nte!r"t#on%
Placement
$s the depos$t$n% of funds $n f$n!nc$!l $nst$tut$ons or the convers$on of c!sh $nto ne%ot$!ble $nstruments&
Pl!cement $s the most d$ff$cult step&
To d$s%u$se cr$m$n!l !ct$v$t", l!underers route c!sh throu%h ! "front" oper!t$on, th!t $s, ! bus$ness such !s ! cheque-c!sh$n%
serv$ce or ! (eweller" store&
Another opt$on $s to convert the c!sh $nto ne%ot$!ble $nstruments, such !s mone" orders (s$m$l!r to ! cert$f$ed cheque) or
tr!veller's cheques (f$xed-!mount cheque des$%ned to !llow the person s$%n$n% $t to m!#e !n uncond$t$on!l p!"ment to
someone else !s ! result of h!v$n% p!$d the $ssuer for th!t pr$v$le%e)&
The entr" of c!sh $nto the f$n!nc$!l s"stem, (pl!cement st!%e) $s where the l!underer $s most vulner!ble to detect$on&
Bec!use of the l!r%e !mounts of c!sh $nvolved $t $s extremel" h!rd to pl!ce $t $nto ! b!n# !ccount le%$t$m!tel"
Mone% L"under!n# Re#ul"t!ons
Layering
$nvolves the w$re tr!nsfer of funds throu%h ! ser$es of !ccounts $n !n !ttempt to h$de the funds' true or$%$ns&
Th$s often me!ns tr!nsferr$n% funds to countr$es outs$de the countr" th!t h!ve str$ct b!n#-secrec" l!ws&
Once depos$ted $n ! fore$%n b!n#, the funds c!n be moved throu%h !ccounts of "shell" corpor!t$ons, wh$ch ex$st solel" for
l!under$n% purposes&
The h$%h d!$l" volume of w$re tr!nsfers m!#es $t d$ff$cult for l!w enforcement !%enc$es to tr!ce these tr!ns!ct$ons&
Tr!nsfers to !nd from the f$n!nc$!l s"stem !re !lso under the umbrell! of report$n% of susp$c$ous tr!ns!ct$ons !nd th$s c!n
prov$de useful $nform!t$on on the l!"er$n% st!%e of the mone" l!under$n% process&
The #eep$n% of comprehens$ve tr!ns!ct$on records (p!rt of the procedures) b" f$n!nc$!l or%!n$s!t$ons prov$des ! useful !ud$t
tr!$l !nd %$ves useful $nform!t$on on people !nd or%!n$s!t$ons $nvolved $n l!under$n% schemes once d$scovered&
Integration
$nvolves the movement of l!"ered funds, wh$ch !re no lon%er tr!ce!ble to the$r cr$m$n!l or$%$n, $nto the f$n!nc$!l world,
where the" !re m$xed w$th funds of le%$t$m!te or$%$n
REPORTED TO THE APPROPRIATE AUTHORITIES
Tod!", most f$n!nc$!l $nst$tut$ons %lob!ll", !nd m!n" non-f$n!nc$!l $nst$tut$ons, !re requ$red to $dent$f" !nd report tr!ns!ct$ons of
! susp$c$ous n!ture to the f$n!nc$!l $ntell$%ence un$t $n the respect$ve countr"&
For ex!mple, ! b!n# must perform due d$l$%ence b" ver$f"$n% ! customer's $dent$t" !nd mon$tor tr!ns!ct$ons for susp$c$ous
!ct$v$t"&
To do th$s, m!n" f$n!nc$!l $nst$tut$ons ut$l$ze the serv$ces of spec$!l softw!re to %!ther $nform!t$on !bout h$%h r$s# $nd$v$du!ls
!nd or%!n$z!t$ons&
If ! susp$c$ous tr!ns!ct$on $s $dent$f$ed then th$s should be reported $mmed$!tel" e$ther to ! nom$n!ted Mone" L!under$n%
Report!n# Susp!c!ons of Mone% L"under!n#
If ! susp$c$ous tr!ns!ct$on $s $dent$f$ed then th$s should be reported $mmed$!tel" e$ther to ! nom$n!ted Mone" L!under$n%
Report$n% Off$cer (MLRO) w$th$n the$r or%!n$s!t$on or SOCA (Ser$ous Or%!n$sed Cr$me A%enc")
For Account!nts, the most worr"$n% !spect of the l!w on mone" l!under$n% rel!tes to the offence of f"!l!n# to d!sclose&
It $s rel!t$vel" str!$%htforw!rd to $dent$f" !ctu!l #nowled%e of mone" l!under$n% !nd therefore of the need to d$sclose $t, but
the term susp$c$on of mone" l!under$n% $s not def$ned&
The ne!rest there $s to ! def$n$t$on $s th!t susp$c$on $s more th!n mere specul!t$on but f!lls short of proof or #nowled%e&
It $s ! quest$on of (ud%ement&
LEADERSHIP, MANAGEMENT AND SUPERVISION
Leadership
A b!s$c def$n$t$on of ! le!der $s someone who exerc!ses !nfluence over other people&
Th$s c!n be exp!nded $nto ! more complex def$n$t$on' Le"dersh!p !s "n !nterperson"l !nfluence d!rected tow"rd the
"ch!evement of " #o"l or #o"ls&
Interperson"l between people&
Influence the power to !ffect others&
Go"l someth$n% th!t we need/w!nt to !ch$eve&
Le!dersh$p $s ! consc$ous !ct$v$t" !nd $s concerned w$th sett$n% %o!ls !nd $nsp$r$n% people to prov$de comm$tment to !ch$eve the
or%!n$s!t$ons %o!ls&
The le!der !ccepts respons$b$l$t" for the !ccompl$shment of %roup ob(ect$ves&
Le"d!n# "nd M"n#"!n# Ind!v!du"ls "nd Te"ms
Le!dersh#p, m!n!$ement !nd superv#s#on
Terms Def!n!t!on & D!st!nct!on
The le!der !ccepts respons$b$l$t" for the !ccompl$shment of %roup ob(ect$ves&
S/he must d$sch!r%e th$s respons$b$l$t" to the s!t$sf!ct$on of the %roup, otherw$se, there w$ll be ! loss of effect$veness&
The or%!n$s!t$on of effect$ve te!mwor# requ$res !n !c#nowled%ment b" the le!der th!t he c!nnot %et results un!$ded, th!t s/he
does not h$mself #now !ll the !nswers&
Managers
All m!n!%ers h!ve $n common the over!ll !$m of %ett$n% th$n%s done, dele%!t$n% to other people r!ther th!n do$n% ever"th$n%
themselves&
It c!n be def$ned !s the effect!ve use "nd coord!n"t!on of resources such "s c"p!t"l, pl"nt, m"ter!"ls "nd l"bour to
"ch!eve def!ned ob*ect!ves w!th m"x!mum eff!c!enc%&
M"n"#ement c"n be cons!dered "s&
1% Funct!on
the respons#b#l#t' for d#rect#n! "nd runn#n! "n or!"n#s"t#on
2% Process
#t #ncorpor"tes "ct#v#t#es b' wh#ch #ntern"l "nd extern"l resources "re comb#ned to "ch#eve the ob(ect#ves of the
or!"n#s"t#ons% These resources #nclude people, mone', m"ch#nes "nd m"ter#"ls%
3% D!sc!pl!ne
th#s #s both "n "rt "nd " sc#ence #n the stud' of m"n"!ement
4% Profess!on
- th#s pos#t#on #s "ch#eved onl' "fter sever"l 'e"rs of stud' "nd "dv"nced tr"#n#n! "nd educ"t#on%
Supervision
The superv$sor $s p!rt of the m!n!%ement te!m&
The superv$sor $s ! person %$ven !uthor$t" for pl!nn$n% !nd controll$n% the wor# of the$r %roup, but !ll the" c!n dele%!te to
the %roup $s the wor# $tself&
A superv$sor, therefore, $s ! t"pe of m!n!%er whose m!$n role $s to ensure th!t spec$f$ed t!s#s !re performed correctl" !nd
eff$c$entl" b" ! def$ned %roup of people&
In %ener!l, superv$sors w$ll !lso be do$n% oper!t$ons wor# !nd %$v$n% !dv$ce to others to help $n solv$n% problems&
If the more sen$or m!n!%er $s !bsent, the superv$sor w$ll t!#e over the role&
A le"der c"n be " m"n"#er, but " m"n"#er !s not necess"r!l% " le"der(
If " m"n"#er !s "ble to !nfluence people to "ch!eve the #o"ls of the or#"n!s"t!on, w!thout us!n# form"l "uthor!t% to do
so, then the m"n"#er !s demonstr"t!n# le"dersh!p(
THE NATURE OF MANAGEMENT
Some people !ssert th!t one needs no #nowled%e of theor" to solve problems $n the pr!ct$c!l world of bus$ness&
In th$s v$ew, m!n!%ement $s ! m!tter of common sense, !nd theor" e$ther $s not needed !t !ll or $s un$mport!nt&
M!n!%ement $s ent$rel" !n !rt !nd not ! sc$ence&
Such v$ews proceed from MISTA'EN IDEAS !bout the n!ture !nd role of theor" !nd $ts rel!t$on to !ct$on !nd dec$s$on $n the re!l
world&
Scientific/Classical theories of management Fayol and Taylor
A m!n of cons$der!ble $nfluence $n the sc$ent$f$c m!n!%ement movement $s Fredr!c$ W( T"%lor&
T!"lor bel$eved th!t m!n!%ers should !ccept spec$!l respons$b$l$t$es for pl!nn$n%, d$rect$n% !nd or%!n$s$n% wor#&
He deemed $t essent$!l, to sep!r!te the pl!nn$n% of wor# from $ts execut$on, so th!t e!ch $nd$v$du!l could wor# !t h$s best
eff$c$enc" !nd could be compens!ted !ccord$n%l"&
He thou%ht th!t m!n!%ement should develop ! sc$ence of do$n% wor# (centr!l !uthor$t") !nd th!t e!ch #$nd of wor# h!d $ts own
sc$ence&
Henr! F"%ol w!s ! #e" f$%ure $n the turn-of-the-centur" Cl!ss$c!l School of m!n!%ement theor"&
M"n"#ement
He s"w " m"n"#er's *ob "s&
pl!nn$n%
or%!n$s$n%
comm!nd$n%
coord$n!t$n% !ct$v$t$es
controll$n% perform!nce
These !ct$v$t$es !re ver" t!s#-or$ented, r!ther th!n people-or$ented (modern-v$ew)&
Henr$ F!"ol re!l$sed th!t or%!n$s!t$ons were becom$n% more complex !nd requ$red the$r m!n!%ers to wor# more profess$on!ll"&
H$s mot$v!t$on w!s to cre!te ! theoret$c!l found!t$on for !n educ!t$on!l pro%r!m for m!n!%ers who l!c#ed form!l tr!$n$n% $n
those d!"s&
B!s$n% h$s wor# on h$s exper$ence !s ! successful m!n!%$n% d$rector of ! m$n$n% comp!n", he developed %ener$c 'Pr$nc$ples of
M!n!%ement' to help or%!n$s!t$ons !ch$eve opt$mum perform!nce wor#$n% tow!rd the$r %o!ls !nd comp!n" ob(ect$ves&
Fayol described fourteen Principles of Management
1% D!v!s!on of l"bour
Ach#ev#n! the m"x#mum eff#c#enc' from l"bour throu!h spec#"l#s"t#on "cross "ll "spects of or!"n#s"t#on (commerc#"l, f#n"nc#"l,
secur#t', "ccount#n!, m"n"!er#"l) r"ther th"n (ust focus#n! purel' on "re"s of techn#c"l "ct#v#t#es%
2% Est"bl!shment of "uthor!t%
H"v#n! the le!#t#m"te st"nd#n! to !#ve orders l#n&ed w#th respons#b#l#t'%
3% Enforcement of d!sc!pl!ne
Uphold#n! d#sc#pl#ne #s " core "ct#v#t' when runn#n! "n or!"n#s"t#on, "lthou!h #ts form v"r#es "cross or!"n#s"t#ons%
M"n"!ement c"n s"nct#on emplo'ees w#th w"rn#n!s, pen"lt#es, demot#ons or even d#sm#ss"ls%
4% Un!t% of comm"nd
An emplo'ee should rece#ve orders from one superv!sor onl%%
Du"l comm"nd !ener"tes tens#on, confus#on "nd confl#ct, "nd results d#luted respons#b#l#t' "nd blurred commun#c"t#on%
5% Un!t% of d!rect!on
A common ob(ect#ve for " !roup of "ct#v#t#es #s "n essent#"l cond#t#on to obt"#n#n! un#t' of "ct#on, coord#n"t#on of stren!th "nd the
focus#n! of effort%
6% Subord!n"t!on of !nd!v!du"l !nterest to the !nterests of the or#"n!s"t!on
Reconc#l#n! !ener"l #nterest w#th th"t of the !roup or the #nd#v#du"l #s one of the !re"test problems m"n"!ers f"ce "nd "ppl#es to
the rel"t#onsh#p between st"ff "nd superv#sor "s well%
Too often, m"n"!ers pursue person"l #nterest r"ther th"n the common !ood%
7% F"!r remuner"t!on for "ll
Should be f"#r to both the rec#p#ent "nd the f#rm
8% Centr"l!s"t!on

F"'ol choose the 'l#v#n! or!"n#sm' "s met"phor for "n or!"n#s"t#on when cons#der#n! centr"l#s"t#on versus decentr"l#s"t#on%
The level of centr"l#s"t#on #s " m"tter of proport#on "s #s the d#v#s#on of l"bour%
9% Adopt!on of " 'sc"l"r ch"!n'
The ch"#n of superv#s#on th"t connects the m"n"!#n! d#rector to the lowest r"n&s%
F"'ol comb#ned h#er"rch' th"t m"&es emplo'ees "w"re of the#r pl"ce "nd dut#es, w#th "n or!"n#s"t#on's l#nes of commun#c"t#on%
10% A sense of order "nd purpose
Wor&ers "nd m"ter#"ls should be #n the#r prescr#bed pl"ce%
11% Equ!t%
Equ#t' #s the comb#n"t#on of (ust#ce "nd &#ndness%
M"n"!ers must const"ntl' "ppl' the correct b"l"nce between equ#t' "nd d#sc#pl#ne%
12% St"b!l!t% of *obs "nd pos!t!ons/Tenure of personnel
Both st"ff "nd m"n"!ement requ#re su#t"ble #nduct#on per#ods to f"m#l#"r#se themselves w#th new wor& h"b#ts "nd s#tu"t#ons%
13% Development of !nd!v!du"l !n!t!"t!ve
In#t#"t#ve should be encour"!ed w#th#n the bound"r#es of "uthor#t' "nd d#sc#pl#ne%
14% Espr!t de Corps
Bu#ld#n! "nd m"#nt"#n#n! st"ff "nd m"n"!ement mor"le "nd un#t'%
H"rmon' "nd te"mwor& should be encour"!ed #n the or!"n#s"t#on%
The human relations school Mayo
Worr$ed b" the f!$lure of the $ndustr$!l en%$neer$n% !ppro!ch to !ch$eve h$%h product$v$t", the Western Electr$c Comp!n" of
Ch$c!%o dec$ded to c!ll $n $ndustr$!l ps"cholo%$sts th!t c!me !lon% under the %u$d!nce of Elton M"%o, of H!rv!rd Un$vers$t"&
For f$ve "e!rs, from 1927 to 1932, the te!m conducted ! ser$es of $nvest$%!t$ons cover$n% such f!ctors !s p!"ment schemes, rest
p!uses, !nd $nform!l %roup controls over output&
The rese!rchers concluded th!t %roup rel!t$onsh$ps !nd m!n!%ement wor#er commun$c!t$on were f!r more $mport!nt $n
determ$n$n% emplo"ee beh!v$our th!n were ph"s$c!l cond$t$ons !nd the wor#$n% pr!ct$ces $mposed b" m!n!%ement&
Also, w!%e levels were not the dom$n!nt mot$v!t$n% f!ctor for most wor#ers&
Further rese"rch est"bl!shed the follow!n# propos!t!ons of the hum"n rel"t!ons school(
Emplo"ee beh!v$our depends pr$m!r$l" on the soc$!l !nd or%!n$s!t$on!l c$rcumst!nces of wor#&
Le!dersh$p st"le, %roup cohes$on !nd (ob s!t$sf!ct$on !re m!(or determ$n!nts of the outputs of the wor#$n% %roup&
Emplo"ees wor# better $f the" !re %$ven ! w$de r!n%e of t!s#s to complete&
St!nd!rds set $ntern!ll" b" ! wor#$n% %roup $nfluence emplo"ee !tt$tudes !nd perspect$ves more th!n st!nd!rds set b"
m!n!%ement&
So, wh" $s the hum!n rel!t$ons !ppro!ch useful)
The school expl$c$tl" reco%n$sed the role of $nterperson!l rel!t$ons $n determ$n$n% wor#pl!ce beh!v$our, !nd $t demonstr!ted th!t
f!ctors other th!n p!" c!n mot$v!te wor#ers&
However, the !ppro!ch poss$bl" overest$m!tes the comm$tment, mot$v!t$on !nd des$re to p!rt$c$p!te $n dec$s$on m!#$n% of m!n"
emplo"ees&
The functions of a manager Drucker - Mintzberg
Peter Druc$er $s one of the most $nfluent$!l m!n!%ement ph$losopher of the modern er!&
As ! consult!nt, !uthor !nd spe!#er for over s$xt" "e!rs, Druc#er $nfluenced the th$n#$n% of m!n" execut$ves $n bus$nesses !nd
not-for-prof$ts&
Accord!n# to Druc$er, the m"n"#er h"s 5 b"s!c oper"t!ons !n h!s wor$&
Henr% M!ntzber#, on the other h!nd, $dent$f$ed ten s#$lls wh$ch m!n!%ers need $f the" !re to develop %re!ter effect$veness, !nd
%rouped them to%ether under three c!te%or$es, $nterperson!l, $nform!t$on!l !nd dec$s$on!l&
interpersonal example
figurehead symbolic role, manager e.g. receiving
figurehead symbolic role, manager
obliged to carry out social,
inspirational, legal and
ceremonial duties.
e.g. receiving
visitorsand making
presentations.
leader managers relationship
with subordinates,
especially in allocating
tasks, hiring, training and
motivating staff.
e.g. seeking to
build teamwork
and foster employee
commitment.
liaison the development of a
network of contacts
outside the chain of
command through which
information and favours
can be traded for mutual
benefits.
e.g. lunches with
suppliers or customers.
informational example
monitor the manager collects and
sorts out information which
is used to build up a
general understanding of
the organisation and its
environment as a basis for
decision making.
e.g. readingreports
and interrogating
subordinates.
disseminator to be a disseminator
means to spread the
information widely.
e.g. passingprivileged
information to
subordinates.
spokesperson managers transmit
information to various
external groups by acting
in a pr capacity, lobbying
for the organisation,
informing the public about
the organisations
performance, plans and
policies.
e.g. a sales presentation
toprospective customers.
decisional example
entrepreneur managers should be
looking continually for
problems and opportunities
when situations requiring
improvement are discovered.
e.g. launching anew
idea orintroducing
procedures such as
a cost reduction
programme.
disturbance handler a manager has to respond
to pressures over which
the department has no
control.
e.g. strikes.
resource
allocator
choosing from among
competing demands for
money, equipment,
personnel and
management time.
e.g. approving
expenditure
on a project.
negotiator managers take charge
when their organisation
must engage in negotiating
with others. in these
negotiations, the manager
participates as figurehead,
spokesperson and resource
allocator.
e.g. drawing up
contractswith
suppliers.
AREAS OF MANAGERIAL AUTHORITY AND RESPONSIBILITY
M"n"#er!"l Author!t% "nd Respons!b!l!t%
Author!t% $s the r$%ht to m!#e dec$s$ons $n the course of d$sch!r%$n% ! respons!b!l!t% !nd to requ$re others to !ccept these
dec$s$ons !nd, $f necess!r", to enforce them (sense of power)&

Author$t" stems from two m!$n sources&
In the f$rst pl!ce $t owes much to the pos$t$on wh$ch the m!n!%er occup$es $n the h$er!rch"&
It $s of course true th!t re!l !uthor$t" does not come !utom!t$c!ll" w$th the ent$tlement of us$n% ! (ob t$tle, but $t $s unden$!ble
th!t ! person c!n be m!ter$!ll" !ss$sted b" the !uthor$t" !nd $nfluence !ssoc$!ted w$th h$s pos$t$on&
H!v$n% s!$d th$s, however, $t must be reco%n$sed th!t the person!l qu!l$t$es of the $nd$v$du!l h$s %ener!l competence !nd the
conf$dence wh$ch he $nsp$res !re even more $mport!nt&
Respons$b$l$t" expresses the obl$%!t$on ! person h!s to fulf$ll ! t!s#, wh$ch he or she h!s been %$ven&
A person $s s!$d to be respons$ble for ! p$ece of wor# when he or she $s requ$red to ensure th!t the wor# $s done&
Respons$b$l$t" $s the obl$%!t$on to use dele%!ted powers&
A ver" $mport!nt po$nt th!t ever"one m!n!%er h!s to cons$der $s th!t m!n!%ers !nd superv$sors themselves !re ult$m!tel"
respons$ble for the !ct$ons of the$r subord$n!tes, The term !ccount!ble $s often used&
It $s !ccount!b$l$t" for the perform!nce of spec$f$ed dut$es or the s!t$sf!ctor" !ch$evement of def$ned comp!n" ob(ect$ves&
Bec!use respons$b$l$t" $s !n obl$%!t$on owed, $t c!nnot be dele%!ted&
No super$or c!n esc!pe respons$b$l$t" for the !ct$v$t$es of subord$n!tes, for $t $s the superv$sor who dele%!tes !uthor$t" !nd
!ss$%ns the dut$es&
John French and Bertram Raven identified 5 sources or bases of power
1% Rew"rd Power
#s b"sed on one person h"v#n! the "b#l#t' to rew"rd "nother person for c"rr'#n! out orders or meet#n! other requ#rements
2% Coerc!ve Power
#s b"sed on one person's "b#l#t' to pun#sh "nother for not meet#n! requ#rements, #s the ne!"t#ve s#de of rew"rd power
3% Expert Power
#s b"sed on the percept#on or bel#ef th"t " person h"s some relev"nt expert#se or spec#"l &nowled!e th"t others do not
4% Referent Power
#s b"sed on one person's des#re to #dent#f' w#th or #m#t"te "nother
5% Le#!t!m"te Power
the power der#ved from be#n! #n " pos#t#on of "uthor#t' w#th#n the or!"n#s"t#on structure
S#tu"t#on"l, Funct#on"l & Cont#n!enc'
Appro"ches to Le"dersh!p
THEORIES FOR APPROACHES TO LEADERSHIP
The action centred approach (Adair)
Ad!$r su%%ests th!t !n" le!der h!s to str$ve to !ch$eve three m!(or %o!ls wh$le !t the s!me t$me m!$nt!$n$n% ! pos$t$on !s
!n effect$ve le!der&
Ad!$rs !ct$on centred le!dersh$p model loo#s !t le!dersh$p $n rel!t$on to the needs of the t!s#, $nd$v$du!l !nd %roup&
The contingency approach - (Fiedler)
Cont$n%enc" theor" sees effect$ve le!dersh$p !s be$n% dependent on ! number of v!r$!ble or cont$n%ent f!ctors&
There $s no one r$%ht w!" to le!d th!t w$ll f$t !ll s$tu!t$ons, R!ther, $t $s necess!r" to le!d $n ! m!nner th!t $s !ppropr$!te to !
p!rt$cul!r s$tu!t$on&
F$edler stud$ed the rel!t$onsh$p between st"le of le!dersh$p !nd effect$veness of the wor# %roup&
Two st%les of le"der were !dent!f!ed(
Psychologically distant managers (PDMs).
M!$nt!$n d$st!nce from the$r subord$n!tes b" form!l$s$n% roles !nd rel!t$onsh$ps w$th$n the te!m&
Are w$thdr!wn !nd reserved $n the$r $nterperson!l rel!t$onsh$ps&
Prefer form!l commun$c!t$on !nd consult!t$on methods r!ther th!n see# $nform!l op$n$on&
Jud%e subord$n!tes on the b!s$s of perform!nce !nd !re pr$m!r$l" t!s# or$ent!ted&
F$edler found th!t le!ders of the most effect$ve wor# %roups !ctu!ll" tend to be PDMs&
Psychologically close managers (PCMs)
1& Do not see# to form!l$se roles !nd rel!t$onsh$ps&
2& Prefer $nform!l cont!cts to re%ul!r form!l st!ff meet$n%s&
3& The" !re more concerned to m!$nt!$n %ood hum!n rel!t$onsh$ps !t wor# to ensure th!t t!s#s !re c!rr$ed out eff$c$entl"&
4& F$edler concluded th!t ! structured (or ps"cholo%$c!ll" d$st!nt) st"le wor#s best when the s$tu!t$on $s e$ther ver"
f!vour!ble or ver" unf!vour!ble to the le!der&
5& On the other h!nd, ! support$ve (or ps"cholo%$c!ll" close) st"le wor#s best when the s$tu!t$on $s moder!tel" f!vour!ble
to the le!der&
6& He further su%%ested th!t %roup perform!nce would be cont$n%ent upon the !ppropr$!te m!tch$n% of le!dersh$p st"les
!nd the de%ree of f!vour!bleness of the %roup s$tu!t$on for the le!der
Transformational leadership (Bennis)
Some of the v!lues used to d$st$n%u$sh between m!n!%ers !nd le!ders h!ve !lso been $dent$f$ed !s'
Tr"ns"ct!on"l le"ders see the rel!t$onsh$p w$th the$r followers $n terms of ! tr!de' the" %$ve followers the rew!rds the"
w!nt $n exch!n%e for serv$ce, lo"!lt" !nd compl$!nce& (do$n% th$n%s r$%ht)
Tr"nsform"t!on"l le"ders see the$r role !s $nsp$r$n% !nd mot$v!t$n% others to wor# !t levels be"ond more compl$!nce&
Onl" tr!nsform!t$on!l le!dersh$p $s s!$d to be !ble to ch!n%e te!m/or%!n$s!t$on!l cultures !nd cre!te ! new d$rect$on&
(do$n% the r$%ht th$n%)
Managing change (Kotter)
People res$st wh!t the" do not underst!nd&
People res$st wh!t the" do not l$#e&
People res$st bec!use, We tr$ed th!t before !nd $t d$dnt wor#&
People res$st (ust for the s!#e of res$st$n%&
People res$st for m!n" re!sons&
It $s $mport!nt to underst!nd the d"n!m$cs of res$st!nce !nd to pro!ct$vel" pl!n !nd de!l w$th such res$st!nce&
-otter set out the follow$n% ch!n%e !ppro!ches to de!l w$th res$st!nce&
He$fetz !r%ues th!t the role of the le!der $s to help people f!ce re!l$t" !nd to mob$l$se them to m!#e ch!n%e&
He$fetz su%%ests th!t the old !ppro!ch to le!dersh$p w!s th!t le!ders h!d the !nswers, the v$s$on !nd then needed to persu!de
people to s$%n up for the ch!n%e&
He$fetz bel$eves th!t le!ders prov$de d$rect$on but do not h!ve to offer def$n$te !nswers !nd should mob$l$se people to t!c#le the
tou%h ch!llen%es for themselves&
Le"ders h"ve two cho!ces when resolv!n# " s!tu"t!on&
1% Techn!c"l ch"n#e
the "ppl#c"t#on of current &nowled!e, s&#lls "nd or tools to resolve " s#tu"t#on%
2% Ad"pt!ve ch"n#e
#s requ#red when the problem c"nnot be solved w#th ex#st#n! s&#lls "nd &nowled!e "nd requ#res people to m"&e " sh#ft #n the#r
v"lues, expect"t#ons, "tt#tudes or h"b#ts of beh"v#our%
Th#s #s often requ#red to ensure or!"n#s"t#on"l surv#v"l%
USING THE MODELS OF ASHRIDGE, BLA)E AND MOUTON
Le"dersh!p St%les "nd Contexts
USING THE MODELS OF ASHRIDGE, BLA)E AND MOUTON
Blake and Mouton
Robert Bl!#e !nd J!ne Mouton c!rr$ed out rese!rch $nto m!n!%er$!l beh!v$our !nd observed two b!s$c d$mens$ons of le!dersh$p'
concern for product$on (or t!s# perform!nce) !nd concern for people&
B!sed on the results of st!ff quest$onn!$res, m!n!%ers c!n then be plotted on Bl!#e !nd Moutons %r$d&
M"n"#ement !mpover!shed& th$s m!n!%er onl" m!#es m$n$mum effort $n e$ther !re! !nd w$ll m!#e the sm!llest poss$ble
effort requ$red to %et the (ob done&
Countr% Club m"n"#ement& th$s m!n!%er $s thou%htful !nd !ttent$ve to the needs of the people, wh$ch le!ds to !
comfort!ble fr$endl" or%!n$s!t$on !tmosphere but ver" l$ttle wor# $s !ctu!ll" !ch$eved&
T"s$ m"n"#ement& th$s m!n!%er $s onl" concerned w$th product$on !nd !rr!n%es wor# $n such ! w!" th!t people
$nterference $s m$n$m$sed&
'M!ddle of the ro"d m"n"#ement'& th$s m!n!%er $s !ble to b!l!nce the t!s# $n h!nd !nd mot$v!te the people to !ch$eve
these t!s#s&
Te"m m"n"#ement& th$s m!n!%er $nte%r!tes the two !re!s to foster wor#$n% to%ether !nd h$%h product$on to produce
true te!m le!dersh$p&
benef!ts dr"wb"c$s
1& the %r$d shows !re!s where
m!n!%ement f!ults c!n be
$dent$f$ed !nd c!n then
prov$de the b!s$s for tr!$n$n%
!nd for m!n!%ement
development&
2& !s !n !ppr!$s!l !nd
m!n!%ement development
tool to $nform m!n!%ers th!t
!ttent$on to both t!s# !nd
people $s poss$ble !nd
des$r!ble&
3& m!n!%ers c!n determ$ne how
the" !re v$ewed b" the$r
subord$n!tes&
1& the %r$d !ssumes th!t
le!dersh$p st"le c!n be
c!te%or$sed $nto the two
d$mens$ons !nd th!t
results c!n be plotted on
the %r$d&
2& the pos$t$on of te!m
m!n!%ement $s !ccepted
!s the best form of
le!dersh$p& th$s m!" not
be pr!ct$c!l or $ndeed
!dv$s!ble& $n m!n"
$ndustr$es, concern for the
t!s# m!" be more
$mport!nt th!n concern for
people, !nd v$s! vers!
!nd w$ll !lw!"s depend on
the $nd$v$du!l s$tu!t$on&
Ashridge
Rese!rch !t Ashr$d%e M!n!%ement Colle%e focuses on four d$fferent m!n!%ement st"les&
1% Tells (autocratic)
The m"n"!er m"&es "ll the dec#s#ons "nd #ssues #nstruct#ons wh#ch must be obe'ed w#thout quest#on%
Stren#ths
- Qu$c# dec$s$ons c!n be m!de when requ$red&
- The most eff$c$ent t"pe of le!dersh$p for h$%hl" pro%r!mmed wor#&
We"$nesses
- Commun$c!t$ons !re one w!", ne%lect$n% feedb!c# !nd potent$!l for upw!rd commun$c!t$on or te!m member $nput&
- Does not encour!%e $n$t$!t$ve or comm$tment from subord$n!tes, merel" compl$!nce&
2% Sells (persuasive)
The m"n"!er st#ll m"&es "ll the dec#s#ons, but bel#eves th"t te"m members must be mot#v"ted to "ccept them #n order to c"rr'
them out properl'%
Stren#ths
- Te!m members underst!nd the re!son for dec$s$ons&
- Te!m members m!" be more comm$tted&
- Te!m members m!" be !ble to funct$on sl$%htl" better $n the !bsence of $nstruct$on&
We"$nesses
- Commun$c!t$ons !re st$ll l!r%el" one w!"&
- Te!m members !re not necess!r$l" mot$v!ted to !ccept the dec$s$on&
- It st$ll doesnt encour!%e $n$t$!t$ve or comm$tment&
3% Consults (participative)
The m"n"!er confers w#th the te"m "nd t"&es the#r v#ews #nto "ccount, "lthou!h st#ll ret"#ns the f#n"l s"'%
Stren#ths
- Involves te!m members $n dec$s$ons, encour!%$n% mot$v!t$on throu%h %re!ter $nterest !nd $nvolvement&
- Consensus m!" be re!ched, enh!nc$n% the !ccept!b$l$t" of the dec$s$on to te!m members&
- The qu!l$t" of the dec$s$on m!" benef$t from the $nput of those who do the wor#&
- Encour!%es upw!rd commun$c!t$on&
We"$nesses
- M!" t!#e lon%er to re!ch dec$s$ons (espec$!ll" $f consensus $s sou%ht)&
- Te!m member $nput m!" not enh!nce the qu!l$t" of the dec$s$on&
- Consult!t$on c!n be ! f!!de for ! b!s$c sells st"le&
4% Joins (democratic)
The le"der "nd the te"m members m"&e the dec#s#on to!ether on the b"s#s of consensus%
The le"der "nd the te"m members m"&e the dec#s#on to!ether on the b"s#s of consensus%
Stren#ths
- C!n prov$de h$%h mot$v!t$on !nd comm$tment from te!m members&
- Empowers ! te!m member to t!#e the $n$t$!t$ve (e %& $n respond$n% flex$bl" to customer dem!nds !nd problems)&
- Sh!res other !dv!nt!%es of the consults st"le (espec$!ll" where te!m members c!n !dd v!lue)&
We"$nesses
- M!" underm$ne the !uthor$t" of the m!n!%er&
- M!" further len%then the dec$s$on m!#$n% process&
- M!" reduce the qu!l$t" of the dec$s$on bec!use of the pol$t$cs of dec$s$on bec!use of the pol$t$cs of dec$s$on m!#$n%&
THE IMPORTANCE OF EFFECTIVE RECRUITMENT AND SELECTION TO THE
ORGANISATION
Recruitment
$s the process of $dent$f"$n% th!t the or%!n$s!t$on needs to emplo" someone up to the po$nt !t wh$ch !ppl$c!t$on forms for the
post h!ve !rr$ved !t the or%!n$s!t$on&
Thus, recru$tment $s the process of %ener!t$n% ! suppl" of poss$ble c!nd$d!tes for pos$t$ons w$th$n !n enterpr$se&
It $s ver" $mport!nt th!t ! recru$tment !ct$v$t" $s done $n ! s"stem!t$c !nd cons$stent w!" throu%hout the or%!n$s!t$on s$nce
such !ct$v$t" $s !n $nterf!ce between the or%!n$s!t$on !nd the outer world&
If !ppl$c!nts feel th!t the" were tre!ted unf!$rl", the" m$%ht le!ve ! b!d $mp!ct on the or%!n$s!t$on's reput!t$on throu%h
word of mouth&
Selection
then cons$sts of the processes $nvolved $n choos$n% from the suppl" of !ppl$c!nts, ! su$t!ble c!nd$d!te to f$ll ! post&
Recru#tment !nd select#on of emplo"ees
Effect!ve Recru!tment "nd Select!on
A %ood select$on process should $nvolve f$rst of !ll ! rev$ew of !ll the !ppl$c!t$on forms, $nterv$ew$n% !nd f$n!ll" obt!$n$n%
references&
Recru$t$n% people who !re not su$t!ble for the or%!n$s!t$on me!ns the" !re l$#el" to be d$scontented, unl$#el" to %$ve the$r best,
!nd end up le!v$n% volunt!r$l" or $nvolunt!r$l" when the$r unsu$t!b$l$t" becomes ev$dent&
consequences of effect!ve
recru!tment "nd select!on
consequences of poor
recru!tment "nd select!on
the person !ppo$nted w$ll'
1& h!ve the techn$c!l
competence !nd !b$l$t" to
perform cert!$n t!s#s
2& h!ve the potent$!l for tr!$n$n%,
development !nd future
promot$on
3& be flex$ble !nd !d!pt!ble to
poss$ble new methods,
procedures or wor#$n%
cond$t$ons
4& be soc$!ble, wor#
h!rmon$ousl" !nd f$t w$th$n the
cultur!l !nd soc$!l structure of
the or%!n$s!t$on
5& compl" full" w$th !ll the le%!l
requ$rements rel!t$n% to
emplo"ment !nd equ!l
opportun$t$es&
1& h$%h st!ff turnover
2& the cost of !dvert$s$n%
3& the m!n!%ement t$me
$nvolved $n select$on !nd
tr!$n$n%
4& the expense of d$sm$ss!l
5& the effects of h$%h turnover
on the mor!le, mot$v!t$on
!nd (ob s!t$sf!ct$on of st!ff
6& reduced bus$ness
opportun$t$es
7& reduced qu!l$t" of product
or serv$ce&
RECRUITMENT AND SELECTION
Recru!tment "nd Select!on Process & Methods
A#ree on the v"c"nc% to be f!lled
A v!c!nc" presents !n opportun$t" to e$ther re!ssess the requ$rements of the (ob or to cons$der restructur$n%& A number of
quest$ons should !lw!"s be !s#ed pr$or to recru$t$n% to the v!c!nc"'
Wh" repl!ce !t !ll) Altern!t$ves to recru$tment $nclude retr!$n$n%, promot$on !nd (ob rot!t$on
Wh!t $s the purpose of the post)
H!s the funct$on ch!n%ed)
C!n wor#lo!ds be !d(usted)
C!n the (ob be c!rr$ed out on ! p!rt t$me r!ther th!n ! full t$me b!s$s)
Altern!t$ves to full-t$me emplo"ment $nclude home wor#$n% (or telewor#$n%), (ob sh!r$n%, flex$t$me or f$xed term contr!cts&
Job An"l%s!s
The process of *ob "n"l%s!s st!rts w$th re!l$s$n% th!t there $s ! need or requ$rement of ! (ob& A *ob spec!f!c"t!on $s ! det!$led
stud" !nd descr$pt$on of the t!s#s th!t m!#e up the (ob !nd the #$nd of person requ$red to do the (ob& A *ob descr!pt!on w$ll set
out how ! p!rt$cul!r emplo"ee w$ll f$t $nto the or%!n$s!t$on& It w$ll therefore need to set out'
the t$tle of the (ob
to whom the emplo"ee $s respons$ble
for whom the emplo"ee $s respons$ble
! s$mple descr$pt$on of the role !nd
dut$es of the emplo"ee w$th$n the
or%!n$s!t$on&
Person Spec!f!c"t!on
A person spec$f$c!t$on def$nes the !ttr$butes of the $de!l c!nd$d!te $t $s ! bluepr$nt of the qu!l$t$es requ$red of the (obholder&
There !re two m!$n theor$es rel!t$n% to the content of ! person spec$f$c!t$on those put forw!rd b" Alec Rod#ers "nd John
Munro Fr"ser&
Recru!t or promote)
There !re m!n" !ltern!t$ves to extern!l recru$tment'
promot$on of ex$st$n% st!ff (upw!rds or l!ter!ll")
secondment (tempor!r" tr!nsfers to !nother dep!rtment, off$ce, pl!nt or countr") of ex$st$n% st!ff, wh$ch m!" or m!" not
become perm!nent
clos$n% the (ob down, b" sh!r$n% out dut$es !nd respons$b$l$t$es !mon% ex$st$n% st!ff
rot!t$n% (obs !mon% st!ff, so th!t the v!c!nt (ob $s covered b" d$fferent st!ff, on ! s"stem!t$c b!s$s over sever!l months&
The dec$s$ons on whether to recru$t someone from outs$de the or%!n$s!t$on or to promote or tr!nsfer someone from w$th$n the
ex$st$n% wor#force w$ll depend m!$nl" on the !v!$l!b$l$t" of the s#$lls !nd !ttr$butes requ$red to f$ll the v!c!nc"& Where there !re
s#$ll short!%es $n the countr", $t m!" be necess!r" to develop them w$th$n the or%!n$s!t$on& Other re!sons $nclude'
Attr"ct " f!eld of c"nd!d"tes
It $s $mport!nt to #now where su$t!ble !ppl$c!nts !re l$#el" to be found, how to m!#e cont!ct w$th them !nd to secure the$r
It $s $mport!nt to #now where su$t!ble !ppl$c!nts !re l$#el" to be found, how to m!#e cont!ct w$th them !nd to secure the$r
!ppl$c!t$on& Potent$!l sources'
emplo"ment serv$ce (ob centers !nd !%enc$es
pr$v!te emplo"ment !%enc$es
c!reer !dv$sor" off$ces
un$vers$t$es, colle%es !nd schools
profess$on!l !nd execut$ve !ppo$ntments re%$sters
execut$ve se!rch or he!dhunt$n%
!dvert$s$n%&
Recru!tment consult"nts
An" or%!n$s!t$on wh$ch $s cons$der$n% the use of extern!l recru$tment consult!nts would m!#e $ts dec$s$on upon the follow$n%'
1& the !v!$l!b$l$t", level !nd !ppropr$!teness of expert$se !v!$l!ble w$th$n the or%!n$s!t$on !nd $ts l$#el" effect$veness
2& the cost of us$n% consult!nts !%!$nst the cost $nvolved $n us$n% the or%!n$s!t$ons own st!ff, reco%n$s$n% the level of the
v!c!nc" or v!c!nc$es !%!$nst the consult!nts fee
3& the p!rt$cul!r expert$se of the consult!nts !nd the !ppropr$!te exper$ence w$th !n" p!rt$cul!r spec$!l$sed !spect of the
recru$tment process
4& the level of expert$se requ$red of potent$!l emplo"ees !nd therefore the !ppropr$!te #nowled%e requ$red of the consult!nts&
Prep"re recru!tment "dvert!sements
The content of the !dvert$sement should be'
conc$se, but comprehens$ve enou%h to be !n !ccur!te descr$pt$on of the (ob, $ts rew!rds !nd requ$rements
!ttr!ct$ve to the m!x$mum number of the r$%ht people
pos$t$ve !nd honest !bout the or%!n$s!t$on& D$s!ppo$nted expect!t$ons w$ll be ! pr$me source of d$ss!t$sf!ct$on when !n
!ppl$c!nt !ctu!ll" comes $nto cont!ct w$th the or%!n$s!t$on
Choos!n# "dvert!s!n# med!"
The select$on of the r$%ht med$um depends on sever!l f!ctors'
T"pe of or%!n$s!t$on&
T"pe of (ob&
Geo%r!ph$c cover!%e of the med$um&
Re!dersh$p !nd c$rcul!t$on&
Cost of med$um
Frequenc" !nd dur!t$on&
Th$s could be !n" of the follow$n%'
N!t$on!l Press
Loc!l Press
Internet
R!d$o & TV
Spec$!l$st Journ!ls
Sort c"nd!d"tes
Methods of select$on %ener!ll" st!rt w$th the short l$st$n% of !ppl$c!nts& The potent$!l c!nd$d!tes then f!ce ! v!r$et" of other
methods used $n the select$on process& These $nclude'
Select!on Methods&
Appl$c!t$on Forms
Assessment Centers
References
Tests
Interv$ews
Interv$ews
Select!on !nterv!ews
Interv$ews !re b" f!r the most w$del" used select$on techn$que& The m!$n $nterv$ew opt$ons !re'
1& F!ce to f!ce
2& Group Interv$ews
3& Success$on Interv$ew$n%
4& Problem Solv$n%
5& P!nel Interv$ew
6& Stress
advantages of the interview
technique
disadvantages of the interview
technique
l places candidate at ease
l highly interactive, allowing
flexible question and answers
l opportunities to use
nonverbal
lcommunication
lopportunities to assess
appearance, interpersonal
and communication skills
lopportunities to evaluate
rapport between the
candidate and the potential
colleagues/bosses.
ltoo brief to 'get to know'
candidates
linterview is an artificial
situation
lhalo effect from initial
impression
lqualitative factors such as
motivation, honesty or
integrity are difficult to
assess prejudice -
stereotyping groups of
people
llack of interviewer
preparation, skill, training
and practice
lsubjectivity and bias.
Select!on test!n#
There !re two b!s$c t"pes of test'
1& Prof$c$enc" !nd !tt!$nment tests !re used to me!sure !n $nd$v$du!l's demonstr!ted competence $n p!rt$cul!r (ob rel!ted t!s#s&
2& Ps"chometr$c test$n% me!sures such ps"cholo%$c!l f!ctors !s !pt$tude, $ntell$%ence !nd person!l$t"&
The elements of the select!on process "re&
Intell$%ence test me!sur$n% %ener!l $ntellectu!l !b$l$t"
Prof$c$enc" test me!sur$n% the !b$l$t" to do the wor# $nvolved $n the (ob
Ps"chometr$c test !ssess the th$n#$n% processes of the person
Apt$tude test test$n% spec$f$c !b$l$t$es
Med$c!l ex!m$n!t$on tests re%!rd$n% he!lth $ssues
Ps"cholo%$c!l !nd person!l$t" test b!s$c !tt$tude prof$les c!n be !ccessed throu%h quest$onn!$res
Assessment centre
An !ssessment centre c!n cons$st of m!n" processes'
Group d$scuss$ons
Present!t$ons
Quest$onn!$res
S$mul!t$ons !n $m$t!t$on
G!mes
Speeches
Peer r!t$n%s
Self-!ppr!$s!l
Role-pl!"
Wr$tten tests
References
The purpose of references $s to conf$rm f!cts !bout the emplo"ee !nd $ncre!se the de%ree of conf$dence felt !bout $nform!t$on
%$ven dur$n% $nterv$ews !nd from !ppl$c!t$on forms !nd CVs& References should cont!$n two t"pes of $nform!t$on'
1& Str!$%htforw!rd f!ctu!l $nform!t$on& Th$s conf$rms the n!ture of the !ppl$c!nts prev$ous (ob(s), per$od of emplo"ment, p!",
!nd c$rcumst!nces of le!v$n%&
2& Op$n$ons !bout the !ppl$c!nts person!l$t" !nd other !ttr$butes&
RECRUITMENT AND SELECTION PROCESSES & STAGES
Agree on the vacancy to be filled
A v!c!nc" presents !n opportun$t" to e$ther re!ssess the requ$rements of the (ob or to cons$der restructur$n%&
A number of quest$ons should !lw!"s be !s#ed pr$or to recru$t$n% to the v!c!nc"'
Wh" repl!ce !t !ll) Altern!t$ves to recru$tment $nclude retr!$n$n%, promot$on !nd (ob rot!t$on
Wh!t $s the purpose of the post)
H!s the funct$on ch!n%ed)
C!n wor#lo!ds be !d(usted)
C!n the (ob be c!rr$ed out on ! p!rt t$me r!ther th!n ! full t$me b!s$s)
Altern!t$ves to full-t$me emplo"ment $nclude home wor#$n% (or telewor#$n%), (ob sh!r$n%, flex$t$me or f$xed term contr!cts&
Job Analysis
The process of *ob "n"l%s!s st!rts w$th re!l$s$n% th!t there $s ! need or requ$rement of ! (ob&
A *ob spec!f!c"t!on $s ! det!$led stud" !nd descr$pt$on of the t!s#s th!t m!#e up the (ob !nd the #$nd of person requ$red to do
the (ob&
A *ob descr!pt!on w$ll set out how ! p!rt$cul!r emplo"ee w$ll f$t $nto the or%!n$s!t$on&
It w$ll therefore need to set out'
the t$tle of the (ob
to whom the emplo"ee $s respons$ble
for whom the emplo"ee $s respons$ble
! s$mple descr$pt$on of the role !nd dut$es of the emplo"ee w$th$n the or%!n$s!t$on&
Person Specification
A person spec$f$c!t$on def$nes the !ttr$butes of the $de!l c!nd$d!te $t $s ! bluepr$nt of the qu!l$t$es requ$red of the (obholder&
A person spec$f$c!t$on def$nes the !ttr$butes of the $de!l c!nd$d!te $t $s ! bluepr$nt of the qu!l$t$es requ$red of the (obholder&
There !re two m!$n theor$es rel!t$n% to the content of ! person spec$f$c!t$on those put forw!rd b"'
1% Alec Rod#ers
2% John Munro Fr"ser
alec roger 7 point plan fraser 5 point plan
s special aptitudes
c circumstances
i interests
p physical makeup
d disposition
a attainments
g general intelligence
f flexibility and adjustment
i impact on other people
r required qualifications
m motivation
i innate abilities
Recruit or promote?
There !re m!n" !ltern!t$ves to extern!l recru$tment'
promot$on of ex$st$n% st!ff (upw!rds or l!ter!ll")
secondment (tempor!r" tr!nsfers to !nother dep!rtment, off$ce, pl!nt or countr") of ex$st$n% st!ff, wh$ch m!" or m!" not
become perm!nent
clos$n% the (ob down, b" sh!r$n% out dut$es !nd respons$b$l$t$es !mon% ex$st$n% st!ff
rot!t$n% (obs !mon% st!ff, so th!t the v!c!nt (ob $s covered b" d$fferent st!ff, on ! s"stem!t$c b!s$s over sever!l months&
The dec$s$ons on whether to recru$t someone from outs$de the or%!n$s!t$on or to promote or tr!nsfer someone from w$th$n the
ex$st$n% wor#force w$ll depend m!$nl" on the !v!$l!b$l$t" of the s#$lls !nd !ttr$butes requ$red to f$ll the v!c!nc"&
Where there !re s#$ll short!%es $n the countr", $t m!" be necess!r" to develop them w$th$n the or%!n$s!t$on&
Other re"sons !nclude&
internal external
l motivating present employees
l part of career development plan
l know the staff already
l candidate understands work
l save time and money
l no induction necessary
l obtain specialist skills
l inject new blood into company
but
l may create dissatisfaction in existing employees
l may cost more (higher wage)
DIFFERENT RECRUITMENT AND SELECTION METHODS
Roles #n Recru#tment "nd Select#on Processes & Meet#n! Recru#tment
Needs
Recru!tment "nd Select!on Processes & Recru!tment Needs
DIVERSITY AND EQUAL OPPORTUNITIES POLICY
Or%!n$s!t$ons !nd bus$nesses !re m!de up of m!n" $nd$v$du!ls wor#$n% to%ether to !ch$eve or%!n$s!t$on!l success&
These $nd$v$du!ls br$n% d$fferent !tt$tudes, percept$ons !nd le!rn$n% exper$ences to the wor#pl!ce, !s well !s ethn$c, %ender !nd
D!vers!t% "nd Equ"l Opportun!t!es Pol!c%These $nd$v$du!ls br$n% d$fferent !tt$tudes, percept$ons !nd le!rn$n% exper$ences to the wor#pl!ce, !s well !s ethn$c, %ender !nd
person!l$t" d$fferences&
These c!n be ! source for develop$n% cre!t$v$t" w$th$n !n or%!n$s!t$on&
However the" c!n !lso be the c!use of problems&
Over the p!st 30 "e!rs or so, emplo"ment h!s ch!n%ed be"ond !ll reco%n$t$on&
Th$s ch!n%e h!s led to ! fund!ment!l re-th$n#$n% of the w!" emplo"ees !re m!n!%ed&
M!n!%ers h!ve h!d to reco%n$se the need (or $n m!n" countr$es the le%!l requ$rement) to develop !nd enforce comp!n" pol$c$es
!$med !t reduc$n% !nd el$m$n!t$n% d$scr$m$n!t$on&
In !dd$t$on, the $ncre!s$n% %lob!l$s!t$on of bus$ness h!s me!nt th!t m!n!%ers must be !w!re of cultur!l !nd r!ce $ssues
(d!vers!t%)&
Equ"l opportun!t!es $s ! un$vers!ll" used !nd understood term wh$ch descr$bes the $de! th!t ever"one $n !n or%!n$s!t$on should
h!ve !n equ!l ch!nce to !ppl" !nd be selected for posts, to be tr!$ned or promoted !nd to h!ve emplo"ment term$n!ted f!$rl"&
Emplo"ers c!n d$scr$m$n!te onl" on the b!s$s of !b$l$t", exper$ence or potent$!l&
All emplo"ment dec$s$ons !re b!sed solel" on !n $nd$v$du!ls !b$l$t" to do ! p!rt$cul!r (ob&
No cons$der!t$on should be t!#en of ! persons sex, !%e, r!c$!l or$%$n, d$s!b$l$t" or m!r$t!l st!tus&
Sex discrimination policy
In !dd$t$on, m!n" or%!n$s!t$ons h!ve !dopted ! sex d!scr!m!n"t!on pol!c% th!t requ$res %ender equ!l$t" $n !ll !re!s of
emplo"ment $nclud$n% the select$on process, opportun$t$es for tr!$n$n%, promot$on, benef$t prov$s$on, f!c$l$t$es !nd d$sm$ss!l&
Such ! pol$c" deems $t wron% to m!#e !n" form of d$scr$m$n!t$on w$th$n emplo"ment m!tters bec!use of m!r$t!l st!tus or sex
!nd covers three m!$n c!te%or$es of sex d$scr$m$n!t$on' d$rect d$scr$m$n!t$on, $nd$rect d$scr$m$n!t$on !nd v$ct$m$s!t$on&
D$rect d$scr$m$n!t$on $nvolves tre!t$n% ! person less f!vour!bl" th!n others on sexu!l, r!c$!l or m!r$t!l %rounds&
Th$s m$%ht $nclude for ex!mple, ! d$sm$ss!l from emplo"ment upon m!rr$!%e&
One !ct of d$scr$m$n!t$on $s suff$c$ent !nd must be d$rected !%!$nst !n $nd$v$du!l&
Ind$rect d$scr$m$n!t$on descr$bes ! term or cond$t$on !ppl$c!ble to both sexes, but where one sex h!s ! cons$der!bl" lesser
!b$l$t" to compl" w$th $t th!n the other&
An ex!mple would be ! cond$t$on th!t ! c!nd$d!te must be of ! p!rt$cul!r he$%ht&
F$n!ll", v$ct$m$s!t$on $s d$scr$m$n!t$on !%!$nst !n $nd$v$du!l who h!s brou%ht proceed$n%s or %$ven ev$dence $n !nother c!se
$nvolv$n% d$scr$m$n!t$on or d$sc$pl$n!r" m!tters&
The promot$on of equ!l opportun$t$es m!#es %ood bus$ness sense&
Equ!l opportun$t$es !re promoted !s ! #e" component of %ood m!n!%ement !s well !s be$n% ! le%!l requ$rement&
It $s !lso soc$!ll" des$r!ble !nd mor!ll" r$%ht& M!n!%$n% d$vers$t" on the other h!nd exp!nds the hor$zons be"ond equ!l$t" $ssues
!nd bu$lds on reco%n$sed !ppro!ches to equ!l opportun$t$es&
It !dds on to the development of equ!l opportun$t$es !nd cre!tes !n env$ronment $n wh$ch enh!nced contr$but$ons from !ll
emplo"ees wor# to the !dv!nt!%e of the bus$ness, emplo"ees themselves !nd soc$et" %ener!ll"& It offers !n opportun$t" for
or%!n$s!t$ons to develop ! wor#force to meet bus$ness %o!ls !nd to $mprove !ppro!ches to customer c!re&
M!n!%$n% d$vers$t" $s !bout h!v$n% the r$%ht person for the (ob re%!rdless of sex, r!ce or rel$%$on&
MAIN CHARACTERISTICS
Behaviour always involves a complex interaction of the person and the situation.
Events $n the surround$n% env$ronment ($nclud$n% the presence !nd beh!v$our of others) stron%l" $nfluence the w!" people
beh!ve to !n" p!rt$cul!r t$me, "et people !lw!"s br$n% someth$n% of themselves $n the s$tu!t$on&
Th!s someth!n# m"% !nclude&
mot$v!t$on level
percept$on
!tt$tudes
person!l$t"
Beh!v#our #n bus#ness or$!n#s!t#ons
Ind!v!du"l "nd Group Beh"v!our
When you are dealing with other people there are different types of behaviour that can be
adopted.
Assert!ve beh"v!our
- $s d$rect, honest !nd profess$on!l commun$c!t$on&
It $s $ns$st$n% on "our r$%hts w$thout v$ol!t$n% the r$%hts of others&
E&%& I would l$#e "ou to rewor# th$s report there !re sever!l m$st!#es $n $t&
A##ress!ve beh"v!our
- v$ol!tes !nother persons r$%hts !nd c!n le!d to confl$ct&
E&%& I do not #now how "ou h!ve the nerve to subm$t th$s report, $t h!s so m!n" m$st!#es $n $t&
P"ss!ve beh"v!our
- $s %$v$n% $n to !nother person $n the bel$ef th!t the$r r$%hts !re more $mport!nt th!n ones own&
E&%& The m$st!#es $n the report !re prob!bl" m" f!ult for not expl!$n$n% $t properl"&
CONTRIBUTIONS OF INDIVIDUALS AND TEAMS OF ORGANISATIONAL
SUCCESS
Be$n% $nherentl" soc$!l, people %ener!ll" do not choose to l$ve or wor# !lone&
Most of the$r t$me $s spent $nter!ct$n% w$th others&
People !re born $nto ! f!m$l" %roup, wor# $n %roups !nd pl!" $n te!ms&
One person c!nnot do ever"th$n%, but ! te!m c!n comb$ne !ll the m!$n !re!s of s#$ll !nd #nowled%e th!t !re needed for !
p!rt$cul!r (ob&
Or#"n!s"t!on"l Success
Synergy
descr$bes the phenomenon $n wh$ch comb$ned !ct$v$t" of sep!r!te ent$t$es h!s ! %re!ter effect th!n the sum of !ct$v$t$es of e!ch
ent$t" wor#$n% !lone often descr$bed !s ! w!" of m!#$n% 2 + 2 = 5&
W$th$n or%!n$s!t$ons there h!s been !n $mpl$c$t bel$ef th!t people wor#$n% !s members of ! %roup or te!m perform more
effect$vel" th!n $f the" !re or%!n$sed !s $nd$v$du!ls&
There "re, of course, m"n% wor$ s!tu"t!ons where the #roup !s the best me"ns to #et wor$ done, such "s&
When wor#$n% cooper!t$vel", r!ther th!n wor#$n% $nd$v$du!ll", %$ves ! better end result $n terms of speed, eff$c$enc" or
qu!l$t"&
Where the t!s# requ$res ! m$xture of d$fferent s#$lls or spec$!l$sms&
Where compet$t$on between $nd$v$du!ls le!ds to less effect$veness r!ther th!n more&
Where the t!s# requ$res the coord$n!t$on of !ct$v$t$es&
INDIVIDUAL AND TEAM APPROACHES TO WOR)
One of the #e" po$nts th!t m!n%ers need to %r!sp $s th!t !n effect$ve %roup $s one, wh$ch not onl" !ch$eves $ts t!s# ob(ect$ves,
but s!t$sf$es the needs of $ts members !s well&
For e!ch $nd$v$du!l there !re m!n" f!ctors th!t !ffect beh!v$our !nd perform!nce !t wor#&
Motivation
M!n" of the f!ctors th!t mot$v!te $nd$v$du!ls to perform !re soc$!l $n n!ture, %roups c!n br$n% out the best $n people !nd c!n be
essent$!l for the del$ver" of soc$!l needs&
Appro"ches to Wor$
Ph"s$c!l !nd wor#$n% cond$t$ons&
S!fet"&
Monet!r" rew!rds&
Reco%n$t$on&
Perception
Develop$n% ! %roup me!ns $dent$f"$n% d$st$nct roles for e!ch of $ts members&
An" $nd$v$du!l c!n h!ve sever!l roles, v!r"$n% between d$fferent %roups !nd !ct$v$t$es&
The role !dopted w$ll !ffect the $nd$v$du!ls !tt$tude tow!rds other people&
1% A role #s the expected p"ttern of beh"v#ours "ssoc#"ted w#th members occup'#n! " p"rt#cul"r pos#t#on w#th#n the structure of the
or!"n#s"t#on%
It "lso descr#bes how #nd#v#du"ls perce#ve the#r own s#tu"t#on%
2% An #nd#v#du"ls percept#ons of other people "nd #nter"ct#ons w#th other people w#ll be #nfluenced b' the d#fferent roles%
The role the' "dopt w#ll "ffect the#r own beh"v#our, "s well "s the#r "tt#tude tow"rds other people%
Role theory
There !s "lso " role theor% wh!ch su##ests th"t people beh"ve !n "n% s!tu"t!on "ccord!n# to other peoples
expect"t!ons of how the% should beh"ve !n th"t s!tu"t!on
Role "mb!#u!t% !r$ses when $nd$v$du!ls !re unsure wh!t role the" !re to pl!", or others !re uncle!r of th!t persons role
!nd so hold b!c# cooper!t$on&
If ! m!n!%er tr$es to be fr$end w$th st!ff, th$s m!" cre!te !mb$%u$t" !nd people w$ll not #now where the" st!nd
Role confl!ct !r$ses, when $nd$v$du!ls f$nd ! cl!sh between d$ffer$n% roles th!t the" h!ve !dopted&
For ex!mple, $f "ou h!ve to d$sc$pl$ne ! member of st!ff ($n "our role of superv$sor) w$th whom "ou h!ve become
$nform!ll" fr$endl" ($n "our role !s ! soc$!ble person)
Role !ncomp"t!b!l!t% occurs when $nd$v$du!ls exper$ence expect!t$ons from outs$de %roups !bout the$r role th!t !re
Role !ncomp"t!b!l!t% occurs when $nd$v$du!ls exper$ence expect!t$ons from outs$de %roups !bout the$r role th!t !re
d$fferent from the$r own role expect!t$ons&
Role s!#ns !re v$s$ble $nd$c!t$ons of the role&
St"le of dress !nd un$form !re cle!r ex!mples of role s$%ns&
Role set descr$bes the people who support ! le!d person $n ! m!(or role, e&%& the !ccounts cler# w$ll rel!te to the !ccounts
m!n!%er&
Role models !re the $nd$v$du!ls "ou !sp$re to be l$#e' people "ou loo# up to !nd model "our own beh!v$or on&
DIFFERENCES AND PURPOSES
A #roup $s !n" collect$on of people who perce$ve themselves to be ! %roup&
Groups have the following attributes:
1% A sense of #dent#t' - there "re "c&nowled!ed bound"r#es of the !roup, who #s #n "nd who #s out%
2% Lo'"lt' to the !roup "ccept"nce th"t b#nd the !roup to!ether%
3% Purpose "nd le"dersh#p express purpose, choose #nd#v#du"ls to le"d them tow"rds the#r !o"ls%
In groups:
people !ccommod!te e!ch other
Te!m form!t#on, development !nd m!n!$ement
A Group "nd " Te"m
people ne%ot$!te
ob(ect$ves m!" be mod$f$ed
the process $ssues !re often covert (h$dden)
pol$t$cs !re r$fe (frequent)
comm$tment c!n be h$%h&
An informal group
$s one th!t develops out of the d!"-to-d!" !ct$v$t$es, $nter!ct$ons !nd sent$ments th!t the members h!ve for e!ch other&
Inform!l %roups t"p$c!ll" meet the$r members' secur$t" !nd soc$!l needs&
In the wor# sett$n%, the purpose of $nform!l %roups $s not rel!ted to or%!n$s!t$on!l %o!ls&
Inform!l %roups $n or%!n$s!t$ons c!nnot !lw!"s be cl!ss$f$ed s$mpl" !s pos$t$ve or ne%!t$ve bec!use m!" exh$b$t both
c$rcumst!nces from t$me to t$me, depend$n% on the c$rcumst!nces or $ssues f!c$n% the or%!n$s!t$on !t ! po$nt $n t$me&
A formal group
$s used $n or%!n$s!t$ons to c!rr" out t!s#s, commun$c!te !nd solve problems&
Membersh$p $s norm!ll" form!l, often determ$ned or constr!$ned b" the or%!n$s!t$on $nto dep!rtments or d$v$s$ons&
A team
$s ! number of emplo"ees w$th complement!r" competenc$es such !s !b$l$t$es, s#$lls !nd #nowled%e who !re comm$tted to
common perform!nce %o!ls !nd wor#$n% rel!t$onsh$ps for wh$ch the" hold themselves mutu!ll" !ccount!ble&
The he!rt of !n" te!m $s ! sh!red comm$tment b" $ts members for comb$ned perform!nce&
Go!ls c!nnot be !ch$eved w$thout the cooper!t$on !nd commun$c!t$on of te!m members&
When ! te!m $s formed, $ts members must h!ve the r$%ht m$x of competenc$es to !ch$eve the te!m's %o!ls&
Also, $ts members need to be !ble to $nfluence how the" w$ll wor# to%ether to !ccompl$sh those %o!ls even $f $t $ncludes the
need of construct$ve cr$t$c$sm&
ROLE OF A MANAGER IN BUIDING A TEAM AND DEVELOPING
INDIVIDUALS WITHIN A TEAM
Belbin's team role theory
The role te!m role theor" $s developed b" Mered$th Belb!n $n 1981, follow$n% n$ne "e!rs of stud"&
The Belb$n's te!m role theor" h!s become one of the most !ccess$ble !nd w$del" used tools to support te!m bu$ld$n%&
The te!m roles were des$%ned to def$ne !nd pred$ct potent$!l success of m!n!%ement te!ms, reco%n$s$n% th!t the stron%est
te!ms h!ve ! d$vers$t" of ch!r!cters !nd person!l$t" t"pes&
It h!s been cr$t$c$sed due to $ts potent$!l overs$mpl$f$c!t$on&
However, when used w$sel" to %!$n $ns$%ht !bout the wor#$n% of the te!m !nd $dent$f" the te!m stren%ths !nd we!#nesses $t
c!n be extremel" useful&
Belb!n su%%ested th!t ! %roup needs ! b!l!nce of the !bove roles to be effect$ve&
le"der coord$n!tor
sh"per t!s# le!der, extrovert
pl"nt thou%htful !nd thou%ht provo#$n%, $de!s
person
mon!tor ev"lu"tor cr$t$c$ses others $de!s, br$n%s the te!m
down to e!rth
resource
!nvest!#"tor
extrovert, networ#er, loo#s for !ltern!t$ve
solut$ons
the comp"n% wor$er !dm$n$str!tor, or%!n$zer
M"n"#er's Role
the te"m wor$er concerned w$th rel!t$onsh$ps w$th$n the
%roups
the f!n!sher the pro%ress ch!ser
the expert !s requ$red b" the pro(ect
Rackham and Manga have developed a helpful categorization of the types of contribution
people can make to team discussion and decision making, including:
Propos$n%
Support$n%
See#$n% $nform!t$on
G$v$n% $nform!t$on
Bloc#$n% / d$ff$cult" st!t$n%
Shutt$n%-out beh!v$or
Br$n%$n%-$n beh!v$or
Test$n% underst!nd$n%
Summ!r$z$n%
E!ch t"pe of beh!v$or m!" be !ppropr$!te $n the r$%ht s$tu!t$on !t the r$%ht t$me&
A te!m m!" be low on some t"pes of contr$but$on !nd $t m!" be up to the te!m le!der to !dopt beh!v$ors !s to prov$de !
b!l!nce&
Tuc$m"n's theor% of te"m development
Groups $n$t$!ll" concern themselves w$th or$ent!t$on !ccompl$shed pr$m!r$l" throu%h test$n%&
Such test$n% serves to $dent$f" the bound!r$es of both $nterperson!l !nd t!s# beh!v$ours&
Co$nc$dent w$th test$n% $n the $nterperson!l re!lm $s the est!bl$shment of dependenc" rel!t$onsh$ps w$th le!ders, other %roup
members, or pre-ex$st$n% st!nd!rds&
It m!" be s!$d th!t or$ent!t$on, test$n% !nd dependence const$tute the %roup process of form!n#&
The second po$nt $n the sequence $s ch!r!cter$sed b" confl$ct !nd pol!r$s!t$on !round $nterperson!l $ssues, w$th concom$t!nt
(be$n% p!r!llel w$th) emot$on!l respond$n% $n the t!s# sphere&
These beh!v$ours serve !s res$st!nce to %roup $nfluence !nd t!s# requ$rements !nd m!" be l!belled !s storm!n#&
Res$st!nce $s overcome $n the th$rd st!%e $n wh$ch $n-%roup feel$n% !nd cohes$veness develop, new st!nd!rds evolve, !nd new
roles !re !dopted&
In the t!s# re!lm, $nt$m!te, person!l op$n$ons !re expressed&
Thus, th$s $s the st!%e of norm!n#&
F$n!ll", the %roup !tt!$ns the fourth !nd f$n!l st!%e $n wh$ch $nterperson!l structure becomes the tool of t!s# !ct$v$t$es&
Roles become flex$ble !nd funct$on!l, !nd %roup ener%" $s ch!nneled $nto the t!s#&
Structur!l $ssues h!ve been resolved, !nd structure c!n now become support$ve of t!s# perform!nce&
Th$s st!%e c!n be l!belled !s perform!n#& (Tuc#m!n 1965 - p!%e 78 $n the 2001 repr$nt)&
More recentl" ! 5th st!%e h!s been !dded to Tuc#m!n's or$%$n!l four&
Dorm!n# If ! te!m rem!$ns for ! lon% t$me $n the perform$n% ph!se, there $s ! d!n%er th!t $t w$ll be oper!t$n% on !utom!t$c
p$lot&
Groupth$n# occurs to the extent th!t the %roup m!" be un!w!re of ch!n%$n% c$rcumst!nces&
Inste!d, m!$nt!$n% $n the te!m becomes one of $ts pr$me ob(ect$ves&
EFFECTIVE AND INEFFECTIVE TEAMS
Ineffective Teams
$n!ppropr$!te le!dersh$p
unqu!l$f$ed membersh$p
unconstruct$ve cl$m!te
uncle!r ob(ect$ves
Effect!ve "nd Ineffect!ve Te"ms
poor !ch$evement
$neffect$ve wor# methods
$nsuff$c$ent openness !nd confront!t$on
undeveloped $nd$v$du!ls
low cre!t$ve c!p!c$t"
unconstruct$ve rel!t$onsh$ps between te!m members
Effective Teams
Peters !nd W!term!n def$ne the f$ve #e" !spects of successful t!s#force te!ms !s'
1% The numbers should be sm"ll+ Inev#t"bl' e"ch member w#ll then represent the #nterest of the#r sect#on/ dep"rtment%
2% The te"m should be of l#m#ted dur"t#on, "nd ex#st onl' to resolve th#s p"rt#cul"r t"s&%
3% Membersh#p should be volunt"r'%
4% Commun#c"t#on should be #nform"l "nd unstructured, w#th l#ttle document"t#on "nd no st"tus b"rr#ers%
5% It should be "ct#on or#ented - The te"m should f#n#sh w#th " pl"n for "ct#on
Evaluating team effectiveness
The or%!n$s!t$on could me!sure the follow$n%'
effect$veness the de%ree to wh$ch ob(ect$ves !re !ch$eved
eff$c$enc" the use of resources $n !ch$ev$n% the ob(ect$ves
te!m member s!t$sf!ct$on the mot$v!t$on!l cl$m!te
observe !nd r!te the te!ms beh!v$our
$nterv$ew the te!m !bout perform!nce
send out ! quest$onn!$re to te!m members&
IMPORTANCE TO THE ORGANISATION, TEAMS AND INDIVIDUALS
Motivation
represents the forces !ct$n% on or w$th$n ! person th!t c!use the person to beh!ve $n ! spec$f$c, %o!l-d$rected m!nner&
S$nce mot$ves of emplo"ees !ffect the$r product$v$t", one of m!n!%ement's (obs $s to ch!nnel emplo"ee mot$v!t$on
effect$vel" tow!rd !ch$ev$n% or%!n$s!t$on!l %o!ls&
However, mot$v!t$on $s not the s!me !s perform!nce&
Even the most h$%hl" mot$v!ted emplo"ees m!" not be successful $n the$r (obs, espec$!ll" $f the" do not h!ve the
competenc$es needed to perform the (obs or wor# under unf!vour!ble (ob cond$t$ons&
Althou%h (ob perform!nce $nvolves more th!n mot$v!t$on, the l!tter $s !n $mport!nt f!ctor $n !ch$ev$n% h$%h perform!nce&
A distinction should be made here between:
mot$v!t$on (how h!rd "ou !re w$ll$n% to wor#) !nd
s!t$sf!ct$on (be$n% content w$th "our (ob !nd not loo#$n% for !nother)&
Mot#v!t#n$ #nd#v#du!ls !nd $roups
Mot!v"t!on
In the short run you can have one without the other but in the long run there is usually
congruence.
Cons$der someone wor#$n% for ! ver" !%%ress$ve m!n!%er who const!ntl" shouts !t them&
The" m!" wor# ver" h!rd to !vo$d further !buse from the$r boss but would prob!bl" be loo#$n% for !nother (ob&
In the lon%er term the poor wor#$n% cond$t$ons would !lso d!mpen the$r mot$v!t$on&
From the or#"n!s"t!ons perspect!ve $t $s h$%hl" des$r!ble to h!ve mot$v!ted wor#ers, !s the"
wor# h!rder
m!#e fewer m$st!#es
%ener!te less w!ste
prov$de more feedb!c#
m!#e more su%%est$ons
!re more l$#el" to be s!t$sf$ed w$th the$r (obs !nd
dont w!ste t$me
Teams
Mot$v!t$on $s !lso $mport!nt to the eff$c$ent runn$n% of te!ms&
Ap!rt from the benef$ts outl$ned !bove, mot$v!ted emplo"ees !re !lso
more l$#el" to cooper!te !nd put te!m $nterests f$rst&
Individuals
From !n $nd$v$du!ls perspect$ve be$n% mot$v!ted should result $n'
%re!ter (ob s!t$sf!ct$on
%re!ter (ob s!t$sf!ct$on
$mproved he!lth (less stress)
$mproved c!reer prospects !nd
f$nd$n% the (ob more $nterest$n%&
Content & Process Theor#es
content theories process theories
ask the question what are the
things that motivate people? they
are also referred to as need
theories and assume that human
beings have a set of needs or
desired outcomes which can be
satisfied through work.
content theories assume that
everyone responds to motivating
factors in the same way and that
there is one best way to motivate
everybody.
ask the question how are
people motivated. they attempt
to explain how
individuals start, sustain and
direct behaviour and assume that
individuals are able to select their
own goals and means of
achieving those goals through a
process of calculation. process theories change the
emphasis from needs to the goals
and processes by which workers
are motivated.
M"slow H!er"rch% of Needs (Content Theor%)
Theor!es of Mot!v"t!on & T%pes of Intr!ns!c "nd Extr!ns!c Rew"rd
M!slow proposed th!t people h!ve f$ve t"pes of needs (!s c$ted $n the d$!%r!m !bove) !nd when ! need $s s!t$sf$ed $t no lon%er
mot$v!tes ! person&
Hertzber#'s two f"ctor theor% of mot!v"t!on (Content
Theor%)
Theor%)
Hygiene factors must be addressed to avoid dissatisfaction and include:
Pol$c$es !nd procedures for st!ff tre!tment
Su$t!ble level !nd qu!l$t" of superv$s$on
Ple!s!nt ph"s$c!l !nd wor#$n% cond$t$ons
Appropr$!te level of s!l!r" !nd st!tus for the (ob
Appropr$!te level of s!l!r" !nd st!tus for the (ob
Te!m wor#$n%
H"%$ene f!ctors !re concerned w$th extr$ns$c f!ctors these !re sep!r!te from or extern!l to the (ob $tself !nd !re dependent on
the dec$s$ons of others&
However, $n themselves h"%$ene f!ctors !re not suff$c$ent to result $n pos$t$ve mot$v!t$on&
Motivators include
Sense of !ch$evement
Reco%n$t$on of %ood wor#
Incre!s$n% levels of respons$b$l$t"
C!reer !dv!ncement
Attr!ct$on of the (ob $tself
The m!$n mot$v!t$on f!ctors !re thus not $n the env$ronment but $n the $ntr$ns$c v!lue !nd s!t$sf!ct$on %!$ned from the (ob $tself&
Most !re non f$n!nc$!l $n n!ture&
Fredr$c# Herzber% def$nes three w!"s th!t m!n!%ement c!n !ttempt to $mprove st!ff s!t$sf!ct$on !nd mot$v!t$on
1% Job enr!chment (somet#mes c"lled vert#c"l (ob enl"r!ement) " del#ber"te, pl"nned process to #mprove the respons#b#l#t',
ch"llen!e "nd cre"t#v#t' of " (ob%
T'p#c"l ex"mples #nclude dele!"t#on or problem solv#n!%
For #nst"nce, where "n "ccount"nts respons#b#l#t#es for produc#n! qu"rterl' m"n"!ement reports end "t the st"!e of produc#n! the
f#!ures, the' could be extended so th"t the' #ncluded the prep"r"t#on of them "nd the "ccount"nt could subm#t them to sen#or
m"n"!ement%
Th#s "lter"t#on #n respons#b#l#t#es could not onl' enr#ch the (ob but "lso #ncre"se the wor&lo"d, le"d#n! to dele!"t#on of cert"#n
respons#b#l#t#es to cler&s w#th#n the dep"rtment, the c"sc"d#n! effect enr#ch#n! other (obs "s well%
2% Job enl"r#ement w#den#n! the r"n!e of (obs, "nd so develop#n! " (ob "w"' from n"rrow spec#"l#s"t#on%
There #s no element of enr#chment%
Ar!'r#s c"lls th#s hor#zont"l (ob enl"r!ement%
Herzber! contends th"t there #s l#ttle mot#v"t#on v"lue #n th#s "ppro"ch%
3% Job rot"t!on the pl"nned rot"t#n! of st"ff between (obs to "llev#"te monoton' "nd prov#de " fresh (ob ch"llen!e% The
documented ex"mple quotes " w"rehouse !"n! of four wor&ers, where the worst (ob w"s t'#n! the nec&s of the s"c&s "t the b"se
of the hopper "fter f#ll#n!+ the best (ob w"s seen "s be#n! the for&l#ft truc& dr#ver% Job rot"t!on would ensure th"t equ"l t#me w"s
spent b' e"ch #nd#v#du"l on "ll (obs%
Herzber! su!!ests th"t th#s w#ll help to rel#eve monoton' "nd #mprove (ob s"t#sf"ct#on but #s unl#&el' to cre"te pos#t#ve
mot#v"t#on%
McGregor's Theory X and Theory Y (Content Theory)
McGre%or presented two oppos$te sets of !ssumpt$ons m!de b" m!n!%ers !bout the$r st!ff&
These !ssumpt$ons, wh$ch he c!lled Theor" X !nd Theor" Y, !re $mpl$c$t $n most !ppro!ches to superv$s$on&
These theor$es !re oppos$te ends of ! cont$nuum&
Theory X assumptions: (Negative approach)
People d$sl$#e wor# !nd respons$b$l$t"
People must be coerced to %et them to m!#e !n effort
Subord$n!tes prefer to be d$rected, w$sh to !vo$d respons$b$l$t", h!ve rel!t$vel" l$ttle !mb$t$on, !nd w!nt secur$t" !bove !ll&
Theory Y assumptions: (Positive approach)
ph"s$c!l !nd ment!l effort $n wor# $s !s n!tur!l !s pl!" or rest
the !ver!%e hum!n be$n% does not $nherentl" d$sl$#e wor#, bec!use $t c!n be ! source of s!t$sf!ct$on
people c!n exerc$se self d$rect$on !nd self-control to !ch$eve ob(ect$ves to wh$ch the" !re comm$tted&
people c!n exerc$se self d$rect$on !nd self-control to !ch$eve ob(ect$ves to wh$ch the" !re comm$tted&
people c!n le!rn to en(o" !nd see# respons$b$l$t"
Vroom's Expect"nc% Model (Process Theor%)
The expect!nc" model holds th!t $nd$v$du!ls #now wh!t the" des$re from wor#&
The" choose !ct$v$t$es onl" !fter the" dec$de th!t the !ct$v$t$es w$ll s!t$sf" the$r needs&
An $nd$v$du!l bel$eves th!t effort expended w$ll le!d (expect!nc") to some des$red level of perform!nce !nd th!t th$s level of
perform!nce w$ll le!d ($nstrument!l$t") to des$red rew!rds&
Vrooms theor" m!" be st!ted !s'

Force = v"lence x expect"nc%
Force = the stren#th of " persons mot!v"t!on
V"lence = the stren#th of "n !nd!v!du"ls preference for "n outcome
Expect"nc% = the prob"b!l!t% of success
DESIGNED AND IMPLEMENTED TO MOTIVATE TEAMS AND INDIVIDUALS
M!n!%ement !ct$on $s requ$red to #eep st!ff h$%hl" mot$v!ted $n order to del$ver h$%h perform!nce&
Ach$evement of h$%h perform!nce m!" be del$vered throu%h pos$t$ve rew!rds&
It $s $mport!nt th!t $n sett$n% the rew!rd s"stem %o!l con%ruence $s !ch$eved (e&%& h$%her product$v$t" m!" be !t the expense of
qu!l$t" when us$n% ! p$ece r!te s"stem)&
These rewards should help to:
1% Attr"ct "nd ret"#n st"ff%
2% Demonstr"te c"re for emplo'ees%
Rew"rd S%stems
3% Improve comp"n' #m"!e be#n! seen "s " comp"n' who #s soc#"ll' respons#ble%
4% To encour"!e des#r"ble beh"v#our (mot#v"t#on)%
5% Prov#de " f"#r "nd cons#stent b"s#s for mot#v"t#n! "nd rew"rd#n! emplo'ees%
6% To further comp"n' ob(ect#ves throu!h "n extern"ll' b"sed f"#r s'stem%
7% To rew"rd pro!ress#on or promot#on throu!h developed p"thw"'s%
8% To reco!n#se the v"r#ous f"ctors "p"rt from perform"nce such "s (ob s#ze, contr#but#on, s&#lls "nd competences%
9% To control s"l"r' costs%
Incentive schemes
An $ncent$ve scheme t$es p!" d$rectl" to perform!nce !nd the rew!rd should encour!%e $mprovements $n perform!nce&
It c!n be t$ed to the perform!nce of !n $nd$v$du!l or ! te!m of emplo"ees&
The scheme should l$n# perform!nce to or%!n$s!t$on!l %o!ls&
There "re three m"!n t%pes of !ncent!ve schemes&
1% Performance related pay (PRP)
P$ecewor# rew!rd rel!ted to the p!ce of wor# or effort& The f!ster the emplo"ee wor#s, the h$%her the output !nd the %re!ter
the rew!rd&
M!n!%ement b" ob(ect$ves (MBO) #e" results !re $dent$f$ed for wh$ch rew!rds w$ll be p!$d on top of s!l!r"&
Po$nts s"stem th$s $s !n extens$on to MBO rew!rd s"stems where ! r!n%e of rew!rds $s !v!$l!ble b!sed on ! po$nt s"stem
der$ved from the sc!le of $mprovement m!de such !s the !mount of cost reduct$on !ch$eved&
Comm$ss$on p!$d on the perform!nce of !n $nd$v$du!l t"p$c!ll" p!$d to s!l!r$ed st!ff $n s!les funct$ons, where the comm$ss$on
e!rned $s ! proport$on of tot!l s!les&
2% Bonus schemes
Bonus schemes usu!ll" ! one off !s oppose to PRP schemes wh$ch !re usu!ll" ! cont$nu!l m!n!%ement pol$c"
3% Profit sharing
Usu!ll" !v!$l!ble to ! w$de %roup of emplo"ees (often comp!n"w$de) where p!"ments !re m!de $n the l$%ht of the over!ll
prof$t!b$l$t" of the comp!n"&
Sh!re $ssues m!" be p!rt of the scheme&
Incentives need to encourage effort or action towards the delivery of organisational
objectives.
There c!n be potent$!l confl$ct when contr!st$n% lon% !nd short term ob(ect$ves& (e&%& s!les st!ff offer$n% d$scounts to customers
to w$n extr! orders th$s "e!r to %et ! bonus, !t the expense of next "e!rs s!les)
Lon# term !ncent!ve schemes w$ll be those th!t !re des$%ned to cont$nu!ll" mot$v!te !nd del$ver or%!n$s!t$on!l
ob(ect$ves&
Short term !ncent!ve schemes w$ll be those th!t mot$v!te $n the short term but do not del$ver on%o$n% mot$v!t$on !nd
!re often !ch$eved !t the detr$ment of lon%er term ob(ect$ves&
Le"rn#n! c"n be def#ned "s%%%
&&&the process of !cqu$r$n% #nowled%e throu%h exper$ence, wh$ch le!ds to ! ch!n%e $n beh!v$our&
It $ncludes the !cqu$s$t$on of ! new s#$ll, new #nowled%e, ! mod$f$ed !tt$tude or ! comb$n!t$on of !ll three&
M!n" emplo"ers, mostl" of sm!ll bus$nesses, perce$ve $nvestment $n wor# rel!ted le!rn$n% to be ! dr!$n on the$r bus$ness&
However, stud$es h!ve shown th!t or%!n$s!t$ons th!t del$ber!tel" foster ! culture of le!rn$n% !re those th!t !re on the le!d$n%
ed%e of development !nd ch!n%e&
Learning in the workplace is important for the following reasons:
1% It c"n le"d to #ncre"sed competence, underst"nd#n!, self-esteem "nd mor"le%
2% People who en(o' le"rn#n! "re more l#&el' to be flex#ble #n t#mes of const"nt ch"n!e "nd therefore "re more "d"pt"ble to
or!"n#s"t#on"l turbulence%
3% There #s !row#n! ev#dence th"t " le"rn#n! culture c"n #ncre"se the product#v#t' "nd compet#t#veness of or!"n#s"t#ons%
4% If wor&ers "re not !#ven le"rn#n! opportun#t#es, there #s " r#s& th"t the' w#ll feel underv"lued "nd become d#sench"nted%
Le!rn#n$ !nd tr!#n#n$ !t wor%
Le"rn!n# "nd Development !n the Wor$pl"ce
As !s so often s"!d b% m"n"#ement wr!ters $f "ou w!nt to develop !n or%!n$s!t$on, then develop $ts people !nd the" w$ll
develop the or%!n$s!t$on&
L$felon% le!rn$n% should be the concern of !ll emplo"ees $n the or%!n$s!t$on !nd, desp$te $ts t$tle, $t $s !r%u!ble th!t the concept
of cont$nu$n% profess$on!l development (CPD) should not be seen !s !ppl"$n% onl" to profess$on!ls or m!n!%ers&
CPD cont!nu!n# profess!on"l development - c!n be def$ned !s the cont$nuous m!$nten!nce, development !nd
enh!ncement of the profess$on!l !nd person!l #nowled%e, s#$lls !nd !b$l$t", often termed competence, wh$ch members of cert!$n
profess$ons requ$re throu%hout the$r wor#$n% l$ves&
Put s$mpl", $t $s ! l$felon% le!rn$n% !ppro!ch to pl!nn$n%, m!n!%$n% !nd %ett$n% the most from !n $nd$v$du!ls own development&
Le!rn$n% !nd development !re pl!nned, r!ther th!n !cc$dent!l&
THE LEARNING PROCESS$ HONEY AND MUMFORD, )OLB
Kolbs experiential learning theory
Exper!ent!"l le"rn!n# c!n !ppl" to !n" #$nd of le!rn$n% throu%h exper$ence&
D"v!d 'olb su%%ests th!t le!rn$n% $s ! ser$es of steps b!sed on le!rn$n% from exper$ence&
He su%%ested th!t cl!ssroom le!rn$n% $s f!lse !nd th!t !ctu!l le!rn$n% comes from re!l l$fe exper$ences&
Exper$ent$!l le!rn$n% comes from DOING !nd th$s ensures th!t le!rners !ctu!ll" solve problems&
To le!rn effect$vel" from exper$ence (wh$ch $ncludes wor# pl!cements !nd pr!ct$c!l !ct$v$t$es w$th$n t!u%ht courses) usu!ll"
$nvolves complet$n% ! c"cle of !ct$v$t$es&
All four st!%es of the le!rn$n% c"cle (shown below) h!ve to be !ddressed&
The Four Learning Styles
1% Accommod"t!ve feel#n! "nd do#n! stron! preference for concrete exper#ences "nd "ct#ve exper#ment"t#on (h"nds on)%
2% D!ver#ent feel#n! "nd w"tch#n! preference for concrete exper#ences, but to reflect on these from d#fferent perspect#ves%
The Le"rn!n# Process
2% D!ver#ent feel#n! "nd w"tch#n! preference for concrete exper#ences, but to reflect on these from d#fferent perspect#ves%
3% Ass!m!l"t!ve th#n&#n! "nd w"tch#n! prefers to sw#n! between reflect#on "nd conceptu"l#s"t#on "nd w#ll use #nduct#ve
re"son#n! to develop new theor'%
4% Conver#ent th#n&#n! "nd do#n! prefers to "ppl' #de"s, w#ll t"&e "n #de" "nd test #t out #n pr"ct#ce%
Learning styles Honey and Mumford
There !re d$fferent w!"s of le!rn$n% !nd people le!rn more effect$vel" $f the" !re !w!re of the$r own le!rn$n% st"le preferences&
Most people exh$b$t cle!r stron% preferences for ! %$ven le!rn$n% st"le&
We should not !ssume th!t the !b$l$t" to use or sw$tch between d$fferent st"les comes e!s$l" or n!tur!ll" to m!n" people&
People who h!ve ! cle!r le!rn$n% st"le preference, for wh!tever re!son, w$ll tend to le!rn more effect$vel" $f le!rn$n% $s %e!red to
the$r preference&
For !nst"nce "ccord!n# to 'olb&
people who prefer the !ss$m$l!t$n% le!rn$n% st"le w$ll not be comfort!ble be$n% thrown $n !t the deep end w$thout notes
!nd $nstruct$ons
people who prefer to use !n !ccommod!t$n% le!rn$n% st"le !re l$#el" to become frustr!ted $f the" !re forced to re!d lots of
$nstruct$ons !nd rules, !nd !re un!ble to %et h!nds on exper$ence !s soon !s poss$ble&
Hone" !nd Mumford des$%ned ! self descr$pt$on quest$onn!$re so th!t people c!n d$scover the$r preferred le!rn$n% st"le&
The scor$n% reve!ls the persons stren%th of preference for e!ch of the four le!rn$n% st"les&
Those who l$#e !ct$ve le!rn$n% t$c# st!tements such !s I often !ct w$thout cons$der$n% the poss$ble consequences !nd I !m
often one of the people who puts l$fe $nto ! p!rt"&
Reflectors !%ree w$th st!tements such !s I l$#e the sort of wor# where I h!ve t$me for thorou%h prep!r!t$on !nd I !m
!lw!"s $nterested to f$nd out wh!t people th$n#&
Theor$sts t$c# st!tements such !s I tend to solve problems us$n% ! step b" step !ppro!ch&
Pr!%m!t$sts !%ree w$th Wh!t m!tters most $s whether someth$n% wor#s $n pr!ct$ce&
A fe!ture of Hone" !nd Mumfords model $s th!t $t prov$des su%%est$ons !bout the best w!"s for $nd$v$du!ls to le!rn&
The most effect$ve le!rn$n% methods !re d$fferent for e!ch le!rn$n% st"le&
1% Act!v!sts h"ve " pr"ct#c"l "ppro"ch to tr"#n#n!, "re flex#ble "nd opt#m#st#c%
The' prefer pr"ct#c"l problems, en(o' p"rt#c#p"t#on "nd ch"llen!e, "re e"s#l' bored "nd h"ve " d#sl#&e of theor'%
The' must h"ve h"ndson tr"#n#n!%
2% Theor!sts requ#re the#r le"rn#n! to be pro!r"mmed "nd structured+ des#!ned to "llow t#me for "n"l's#s+ "nd prov#ded b' people
who sh"re the s"me preference for #de"s "nd "n"l's#s%
3% Reflectors need "n observ"t#on"l "ppro"ch to tr"#n#n!%
The' need to wor& "t the#r own p"ce slow, c"ut#ous "nd non p"rt#c#p"t#ve where conclus#ons "re c"refull' thou!ht out%
The' do not f#nd le"rn#n! e"s' espec#"ll' #f rushed%
4% Pr"#m"t!sts need to see " d#rect v"lue "nd l#n& between tr"#n#n! "nd re"l problems "nd "#m to do th#n!s better%
The' en(o' le"rn#n! new techn#ques "nd t"s&s "nd "re !ood "t f#nd#n! #mproved w"'s of do#n! th#n!s%
THE ROLE OF THE HUMAN RESOURCES DEPARTMENT AND INDIVIDUAL
MANAGERS IN THE LEARNING PROCESS
Within organisations, HR Department programmes are divided into three main categories:
1% tr"#n#n! for the present
2% educ"t#n! for the future
3% develop#n! to le"d%
The main characteristics of each include:
Tr!$n$n% usu!ll" $mpl$es ! pl!nned process to mod$f" !tt$tude, #nowled%e, s#$ll or beh!v$our to !ch$eve effect$ve
perform!nce $n !n !ct$v$t" or r!n%e of !ct$v$t$es&
It $s (ob or$ent!ted r!ther th!n person!l&
Educ!t$on $s usu!ll" $ntended to me!n b!s$c $nstruct$on $n #nowled%e !nd s#$lls des$%ned to en!ble people to m!#e the
most of l$fe $n %ener!l&
It $s person!l !nd bro!dl" b!sed&
Development su%%ests ! bro!der v$ew of #nowled%e !nd s#$lls !cqu$s$t$on th!n tr!$n$n%, concerned more w$th ch!n%es $n
!tt$tudes, beh!v$our !nd potent$!l th!n w$th $mmed$!te s#$ll&
It rel!tes more to c!reer development th!n (ob development le!rn$n% for %rowth of the $nd$v$du!l, but not rel!ted to !
spec$f$c present or future (ob&
Role of Management in a learning organisation
The role of the m!n!%ement $n ! le!rn$n% or%!n$s!t$on $s to encour!%e cont$nuous le!rn$n% !nd !cqu$s$t$on of new #nowled%e
!nd s#$lls !nd to tr!nsform these $nto !ctu!l beh!v$our, products !nd processes w$th$n the or%!n$s!t$on
The tr"!n!n# m"n"#er $s respons$ble for determ$n$n%, or%!n$s$n%, m!n!%$n% !nd d$rect$n% tr!$n$n% !ct$v$t$es !s well !s !ct$n% $n
Roles !n the Le"rn!n# Process
!n !dv$sor" c!p!c$t"&
Respons$b$l$t" for tr!$n$n% $s usu!ll" sh!red between personnel tr!$n$n% spec$!l$sts !nd dep!rtment!l superv$sors&
Tr"!n!n# "nd development methods for !nd!v!du"ls !nclude&
1% Tr"#n#n! courses, both extern"l "nd #n-house
2% Mentor#n!
3% Co"ch#n!
4% Computer#sed #nter"ct#ve le"rn#n!
5% Pl"nned exper#ences
6% Self m"n"!ed le"rn#n!%
THE TRAINING AND DEVELOPMENT PROCESS
Identifying training needs
The tr!$n$n% needs w$ll be $nd$c!ted b" ! (ob tr!$n$n% !n!l"s$s&
However, $t $s v$t!l th!t the l$ne m!n!%er be%$ns w$th !n underst!nd$n% of the or%!n$s!t$on!l str!te%" !nd dep!rtment!l
%o!ls !nd ob(ect$ves before he or she c!rr$es out the tr!$n$n% needs !n!l"s$s&
perform"nce
"ppr"!s"l
!e!ch emplo"ees wor# $s me!sured
!%!$nst the perform!nce st!nd!rds or
ob(ect$ves est!bl$shed for the$r (ob
!tr!$n$n% !nd development needs !re cons$dered $n terms of future (ob perform!nce !s well !s $n terms
of $mprov$n% current perform!nce&
"n"l%s!s of *ob
requ!rements
!the s#$lls !nd #nowled%e spec$f$ed $n the
Tr"!n!n# "nd Development Process
requ!rements
!!ppropr$!te (ob descr$pt$on !re comp!red w$th d!t! concern$n% (obs !nd !ct$v$t$es, e&%& (ob descr$pt$ons,
personnel spec$f$c!t$ons, !nd le!dersh$p !nd commun$c!t$on !ct$v$t$es to $dent$f" c!nd$d!tes for
tr!$n$n%&
or#"n!s"t!on"l
"n"l%s!s
! uses d!t! !bout the or%!n$s!t$on !s ! whole, e&%& $ts structure, m!r#ets, products or serv$ces, hum!n
resources requ$rements, etc&
! the #e" success f!ctors !re $dent$f$ed !nd !n!l"sed $nto hr !ct$v$t$es&
Defining the learning required
Spec$f" the #nowled%e, s#$lls or competenc$es th!t h!ve to be !cqu$red&
Setting training objectives
As w$th !ll ob(ect$ves these should h!ve cle!r, spec$f$c, me!sur!ble t!r%ets $n rel!t$on to the beh!v$our !nd st!nd!rd of
beh!v$our $n order to !ch$eve ! %$ven level of perform!nce
Planning the training
Th$s covers who prov$des the tr!$n$n%, where the tr!$n$n% t!#es pl!ce !nd d$v$s$ons of respons$b$l$t$es between tr!$ners, l$ne
m!n!%ers or te!m le!ders !nd the $nd$v$du!l person!ll"
Delivering/implementing the training
A comb$n!t$on of form!l !nd on-the-(ob tr!$n$n% pro%r!mmes w$ll be use
Evaluating training
A cost-benef$t !n!l"s$s w$th feedb!c# to $mprove select$on of method !nd del$ver"
Terms "nd ch"r"cter#st#cs of tr"#n#n!", "development", "nd "educ"t#on" &
the benef#ts of effect#ve tr"#n#n! "nd development #n the wor&pl"ce
Education
$s def$ned !s the !ct$v$t$es wh$ch !$m !t develop$n% the #nowled%e s#$lls, mor!l v!lues !nd underst!nd$n% requ$red $n !ll !spects
of l$fe r!ther th!n ! #nowled%e s#$ll rel!ted to onl" ! l$m$ted f$eld of !ct$v$t"&
Educ!t$on $s usu!ll" $ntended to me!n b!s$c $nstruct$on $n #nowled%e !nd s#$lls des$%ned to en!ble people to m!#e the most
of l$fe $n %ener!l&
It $s person!l !nd bro!dl" b!sed&
Training
$s the pl!nned !nd s"stem!t$c mod$f$c!t$on of beh!v$our throu%h le!rn$n% events, pro%r!mmes !nd $nstruct$on wh$ch en!ble
$nd$v$du!ls to !ch$eve the level of #nowled%e, s#$lls !nd competence to c!rr" out the$r wor# effect$vel"&
Tr!$n$n% usu!ll" $mpl$es ! pl!nned process to mod$f" !tt$tude, #nowled%e, s#$ll or beh!v$our to !ch$eve effect$ve perform!nce
$n !n !ct$v$t" or r!n%e of !ct$v$t$es&
It $s (ob or$ent!ted r!ther th!n person!l&
Development
$s the %rowth or re!l$s!t$on of ! persons !b$l$t" !nd potent$!l throu%h consc$ous or unconsc$ous le!rn$n% !nd educ!t$on!l
exper$ences&
Development su%%ests ! bro!der v$ew of #nowled%e !nd s#$lls !cqu$s$t$on th!n tr!$n$n%, concerned more w$th ch!n%es $n
!tt$tudes, beh!v$our !nd potent$!l th!n w$th $mmed$!te s#$ll&
It rel!tes more to c!reer development th!n (ob development le!rn$n% for %rowth of the $nd$v$du!l, but not rel!ted to !
spec$f$c present or future (ob&
Tr"!n!n#, Development "nd Educ"t!on
M!n" emplo"ers, mostl" of sm!ll bus$nesses, perce$ve $nvestment $n wor# rel!ted le!rn$n% to be ! dr!$n on the$r bus$ness&
However, stud$es h!ve shown th!t or%!n$s!t$ons th!t del$ber!tel" foster ! culture of le!rn$n% !re those th!t !re on the le!d$n%
ed%e of development !nd ch!n%e&
Learning in the workplace is important for the following reasons:
It c!n le!d to $ncre!sed competence, underst!nd$n%, self esteem !nd mor!le&
People who en(o" le!rn$n% !re more l$#el" to be flex$ble $n t$mes of const!nt ch!n%e !nd therefore !re more !d!pt!ble to
or%!n$s!t$on!l turbulence&
There $s %row$n% ev$dence th!t ! le!rn$n% culture c!n $ncre!se the product$v$t" !nd compet$t$veness of or%!n$s!t$ons&
If wor#ers !re not %$ven le!rn$n% opportun$t$es, there $s ! r$s# th!t the" w$ll feel underv!lued !nd become d$sench!nted&
EXPLAIN THE IMPORTANCE OF PERFORMANCE ASSESSMENT
Jud%ements !nd cho$ces !bout people h!ve to be m!de w$th$n !ll or%!n$s!t$ons, !nd for the s!#e of ever"one $nvolved, $t $s
des$r!ble th!t the" should be m!de on the b!s$s of s"stem!t$c ev!lu!t$on r!ther th!n c!su!ll", !nd #nown to be m!de $n ! w!"
wh$ch $s !s f!$r !nd !ccept!ble !s poss$ble&
Perform!nce !ppr!$s!l m!" be def$ned !s the re#ul"r "nd s%stem"t!c rev!ew of perform"nce "nd the "ssessment of
potent!"l w!th the "!m of produc!n# "ct!on pro#r"mmes to develop both wor$ "nd !nd!v!du"ls&
Perform!nce !ppr!$s!l !$ms to $mprove the eff$c$enc" of the or%!n$s!t$on b" ensur$n% th!t the $nd$v$du!l emplo"ees !re
perform$n% to the best of the$r !b$l$t" !nd develop$n% the$r potent$!l for $mprovement&
Rev#ew !nd !ppr!#s!l of #nd#v#du!l perform!nce
Perform"nce Assessment
perform$n% to the best of the$r !b$l$t" !nd develop$n% the$r potent$!l for $mprovement&
Appr!$s!l schemes c!n contr$bute usefull" to !ll or m!n" of the or%!n$s!t$on!l ob(ect$ves !nd thus the" should be cons$dered of
utmost s$%n$f$c!nce&
EXPLAIN HOW ORGANISATIONS ASSESS THE PERFORMANCE OF HUMAN
RESOURCES
An effect$ve !ppr!$s!l s"stem c!n be used to !ssess !tt$tudes, beh!v$our !nd perform!nce but must h!ve ! b!l!nce of both
me!sures of results !nd me!sures of !ct$v$t$es&
The" m!" be ! comb$n!t$on of'
qu"nt!t"t!ve me"sures us$n% some form of r!t$n% sc!le
qu"l!t"t!ve me"sures $nvolv$n% !n unstructured n!rr!t$ve report on spec$f$c f!ctors !nd over!ll levels of beh!v$our !nd
wor# perform!nce&
A #e" $ssue $n perform!nce !ppr!$s!l $s determ$n$n% wh!t const$tute v!l$d cr$ter$! or me!sures of effect$ve perform!nce&
The problem $s m!de more d$ff$cult bec!use !lmost !ll (obs h!ve m!n" d$mens$ons so th!t perform!nce !ppr!$s!l must emplo"
mult$ple cr$ter$! or me!sures of effect$veness $n order to !ccur!tel" reflect the !ctu!l perform!nce of the emplo"ee&
Beer et al. (1984) suggest four criteria for assessing performance:
1% h!#h comm!tment the wor&force #s mot#v"ted "nd underst"nd#n!, "nd "re w#ll#n! to #nter"ct w#th m"n"!ement "bout ch"n!es
w#th#n the or!"n#s"t#on%
Improved comm#tment m"' le"d to more lo'"lt' "nd better perform"nce for the bus#ness%
It c"n "lso benef#t the #nd#v#du"l throu!h enh"nced self worth, d#!n#t', ps'cholo!#c"l #nvolvement, "nd #dent#t'
Perform"nce of Hum"n Resources
It c"n "lso benef#t the #nd#v#du"l throu!h enh"nced self worth, d#!n#t', ps'cholo!#c"l #nvolvement, "nd #dent#t'
2% h!#h competence the c"p"c#t' of emplo'ees to le"rn new t"s&s "nd roles #f the c#rcumst"nces requ#re #t "nd the or!"n#s"t#ons
"b#l#t' to "ttr"ct, &eep, or develop emplo'ees who h"ve v"lu"ble s&#lls "nd &nowled!e
3% cost effect!veness c"n be ev"lu"ted #n terms of w"!es, benef#ts, turnover, "bsentee#sm, str#&es, etc%
4% h!#her con#ruence the #ntern"l or!"n#s"t#on, the rew"rd s'stem, "nd the #nput, throu!hput, "nd output of personnel, wh#ch
need to be structured #n the #nterests of "ll st"&eholders%
Appr!$s!l cr$ter$! m!" $nclude the follow$n%'
volume of wor$ produced
w$th$n t$me per$od
ev$dence of wor# pl!nn$n%
person!l t$me m!n!%ement
effect$veness of wor# under pressure
$nowled#e of wor$
%!$ned throu%h exper$ence
%!$ned throu%h tr!$n$n% courses
%!$ned pr$or to emplo"ment
qu"l!t% of wor$
level of !n!l"t$c!l !b$l$t"
level of techn$c!l #nowled%e !ccur!c"
(ud%ement exerc$sed
cost effect$veness
m"n"#ement s$!lls
commun$c!t$on s#$lls
mot$v!t$on s#$lls
tr!$n$n% !nd development s#$lls
dele%!t$on s#$lls
person"l qu"l!t!es&
dec$s$on m!#$n% c!p!b$l$t$es
flex$b$l$t"
!d!pt!b$l$t"
!ssert$veness
te!m $nvolvement
mot$v!t$on
comm$tment to or%!n$s!t$on!l %o!ls
Appr!$s!l s"stems !re often m$sunderstood !nd m$sm!n!%ed&
Appr!$s!ls !re centr!l both to hum!n resource m!n!%ement !nd perform!nce m!n!%ement&
Underst!nd$n% the$r role, ob(ect$ves, benef$ts !nd purpose $s $mport!nt to !ll emplo"ers&
C!reful prep!r!t$on !nd underst!nd$n% $s requ$red $f the !ppr!$s!l process $s to be successful, worthwh$le !nd relev!nt&
Appr!$s!l s"stems ex$st to $mprove or%!n$s!t$on!l eff$c$enc" b" ensur$n% th!t $nd$v$du!ls perform to the best of the$r !b$l$t",
develop the$r potent$!l, !nd e!rn !ppropr$!te rew!rd&
Th$s $n turn le!ds to $mproved or%!n$s!t$on!l perform!nce&
Appraisals have three main purposes
These !re often m$sunderstood&
1% The f#rst #s to me"sure the extent to wh#ch "n #nd#v#du"l m"' be "w"rded " s"l"r' #ncre"se comp"red w#th h#s or her peers%
Th#s #s the rew"rd rev!ew component%
2% The second purpose of "n "ppr"#s"l #s to #dent#f' "n' tr"#n#n! needs "nd, #f "ppropr#"te, to prov#de tr"#n#n! "nd development to
en"ble "n #nd#v#du"l to help the or!"n#s"t#on to "ch#eve #ts ob(ect#ves%
Th#s #s the perform"nce rev!ew component%
3% F#n"ll', "ppr"#s"ls "re "lso #mport"nt to "#d "n #nd#v#du"l's c"reer development b' "ttempt#n! to pred#ct wor& th"t the #nd#v#du"l
m"' be c"p"ble of #n the future%
Th#s #s the potent!"l rev!ew component%
Emplo"ees often quest$on the v!lue !nd usefulness of the t$me !nd effort t!#en up b" !n !ppr!$s!l&
However, $t est!bl$shes #e" results th!t !n $nd$v$du!l needs to !ch$eve w$th$n ! t$me per$od wh$le !lso comp!r$n% the $nd$v$du!l's
perform!nce !%!$nst ! set !nd est!bl$shed st!nd!rd&
The emplo"ee $s not the onl" benef$c$!r" - the or%!n$s!t$on benef$ts throu%h $dent$f"$n% emplo"ees for promot$on, not$n% !re!s
for $nd$v$du!l $mprovement, !nd b" us$n% the s"stem !s ! b!s$s for hum!n resource pl!nn$n%&
for $nd$v$du!l $mprovement, !nd b" us$n% the s"stem !s ! b!s$s for hum!n resource pl!nn$n%&
PERFORMANCE APPRAISAL AND ITS PURPOSES
An !ppr!$s!l $s ! process b" wh$ch the pro%ress, perform!nce, results !nd somet$mes person!l$t" of !n emplo"ee !re rev$ewed
!nd !ssessed b" h$s or her $mmed$!te super$or&
It $s custom!r" for !ppr!$s!ls to be m!de b" !n emplo"ees $mmed$!te super$or, !nd th$s h!s !n obv$ous r!t$on!le&
The super$or h!s ! w$der v$ew of the or%!n$s!t$on's ob(ect$ves !nd h$s subord$n!te $s respons$ble for the wor# to !ccompl$sh such
ob(ect$ves&
Thus, the $mmed$!te super$or $s the person best pl!ced to (ud%e how well h$s (un$or h!s done, !nd help/%u$de h$m to do better&
For !n effect$ve perform!nce !ppr!$s!l, emplo"ees must #now not onl" wh!t $s expected of them, but !lso the re!son for do$n%
the (ob the w!" the" do $t, !nd how %ood/b!d the" !re !t the$r wor#&
Each person will be appraised individually on:
1% the pro!ress the' h"ve been m"&#n! #n the#r (ob
2% the#r stren!ths "nd we"&nesses
3% the#r future needs "s re!"rds tr"#n#n! "nd development
4% the#r potent#"l for promot#on%
The other s$de of th$s $s th!t m!n!%ement !re full" !w!re of wh!t the st!ff !re supposed to be do$n% !nd how the" !re !ctu!ll"
do$n% $t&
Th$s c!n be !ch$eved $f perform!nce cr$ter$! !re est!bl$shed (o$ntl", !ppropr$!te on the (ob beh!v$our $s mutu!ll" understood !nd
the rev$ew $s ! cont$nu!l process focused on %rowth !nd development&
The or#"n!s"t!ons "ppr"!s"l scheme !s !nextr!c"bl% l!n$ed to !ts control structure&
Perform"nce Appr"!s"l
1% #t cl"r#f#es spec#f#c (obs rel"t#n! them to the ob(ect#ves of the or!"n#s"t#on
2% #t develops re"l#st#c "nd "ppropr#"te perform"nce st"nd"rds
3% #t "ssesses competenc#es
4% #t uses feedb"c& "nd rew"rd to #mprove perform"nce
5% #t l#n&s perform"nce to or!"n#s"t#on"l !o"ls%
It !$ms to m!#e the beh!v$our of emplo"ees pred$ct!ble !nd, hence, controll!ble&
Obv$ousl" !n" r!t$n% could onl" occur $n s$tu!t$ons where the cl$m!te $s open, th!t $s, the subord$n!te $s m!de comfort!ble !nd
the $mmed$!te super$or $s feel$n% so !s well&
Ide!ll" !ppropr$!te perform!nce st!nd!rds should wor# under def$ned procedures&
THE PERFORMANCE PROCESS
The process of performance appraisal usually entails:
1% #dent#f'#n! the cr!ter!" for "ssessment perh"ps b"sed on (ob "n"l's#s, (ob requ#rements, perform"nce st"nd"rds "nd person
spec#f#c"t#on
2% "ssess#n! competence
3% m"n"!er prep"r!n# "n "ppr"!s"l report somet#mes both "ppr"#ser "nd "ppr"#see prep"re " report "nd the' "re then
comp"red%
Assessments must be rel"ted to me"n#n!ful perform"nce cr#ter#" "nd " common st"nd"rd so th"t comp"r#sons c"n be m"de
between #nd#v#du"ls
4% m"n"!er !nterv!ew!n# the (obholder for "n exch"n!e of v#ews "bout the "ppr"#s"l report
5% #dent#f'#n! "nd "!ree#n! future #o"ls "nd t"r!ets for #mprovement, solut#ons to problems
6% m"n"!ers own super!or rev!ew!n# the "ssessment to est"bl#sh the f"#rness of the procedure
7% "!ree#n!, prep"r#n! "nd !mplement!n# "ct!on po!nts, pl"ns to "ch#eve #mprovements, e%!% tr"#n#n! needs
Perform"nce Appr"!s"l Process
8% follow!n# up !#v#n! the results of the "ppr"#s"l, mon#tor#n! the pro!ress of the "ct#on pl"n, c"rr'#n! out "!reed "ct#ons on
tr"#n#n!, promot#on "nd so on "nd !#v#n! re!ul"r feedb"c&%
Wh$le m!n" people v$ew the perform!nce !ppr!$s!l process !s be%$nn$n% !fter 6 months or 12 months of emplo"ment !nd v$ew
$t !s ! rev$ew of how the emplo"ee h!s performed for the prev$ous per$od, ! successful perform!nce m!n!%ement process be%$ns
dur$n% the h$r$n% process&
It cont$nues !s !n on%o$n% c"cle from recru$tment, throu%h select$on, $nduct$on/or$ent!t$on, !nd %o!l sett$n% !nd on to
perform!nce !ppr!$s!l !nd ev!lu!t$on&
This process occurs in 3 stages with the following components:
1% Rev!ew "nd comp"r!son cons#sts of the #nd#v#du"l be#n! "ssessed "nd "n"l'sed #n terms of ob(ect#ves, t"s&s, wor&flows "nd
results "ch#eved%
2% M"n"#ement b% ob*ect!ves m"n"!ers "!ree cert"#n ob(ect#ves w#th the#r subord#n"tes "nd then rev#ew the results "ch#eved%
It #s b"sed on the #de" th"t #f subord#n"tes &now the#r ob(ect#ves the' "re more l#&el' to re"ch them%
3% The t"s$-centred method rel"tes to wh"t the subord#n"te #s do#n! "nd how the' do #t%
It "vo#ds the more form"l "ppro"ch to st"ff "ppr"#s"l "nd "dopts " cont#nu"l "ssessment "ppro"ch%
THE BENEFITS OF EFFECTIVE APPRAISAL
Effect$ve !ppr!$s!l $s %rounded $n the bel$ef th!t feedb!c# on p!st perform!nce $nfluences future perform!nce, !nd th!t the
process of $sol!t$n% !nd rew!rd$n% %ood perform!nce $s l$#el" to repe!t $t&
A%reement on ch!llen%$n% but !ch$ev!ble t!r%ets for perform!nce mot$v!tes emplo"ees b" cl!r$f"$n% %o!ls !nd sett$n% the v!lue
of $ncent$ves offered&
St"ff "ppr"!s"l c"n h"ve benef!ts for both the emplo%er (the or#"n!s"t!on) "nd the emplo%ee&
Benef!ts of Effect!ve Appr"!s"l
benef!ts for the emplo%er benef!ts for the emplo%ee
it provides a formal system for assessing the
performance and potential of employees, with a view to
identifying candidates for promotion.
the employee gets feedback about
performance at work, and an assessment of
competence.
it provides a system for identifying ways of improving
the competence of employees, in order to raise the
general level of efficiency and effectiveness of the work
force.
a formal appraisal system offers the
employee an opportunity to discuss future
prospects and ambitions.
it is a valuable system for humanresource planning, and
ensuring that employees are ready for promotion, to fillmanagement job
vacancies that arise.
an appraisal interview may
beused as a basis for
considering pay and rewards.
if it is well managed, communications can be improved
between managers and staff and so improve working
relationships.
appraisal can be used to identify and
agree measures for further training
anddevelopment, to improve the employees
competence.
THE BARRIERS OF EFFECTIVE APPRAISAL AND HOW THESE MAY BE
OVERCOME
There have been studies on the effects of appraisal, which show some negative effects:
cr$t$c$sm h!d ! ne%!t$ve effect on %o!l !ch$evement
subord$n!tes %ener!ll" re!ct defens$vel" to cr$t$c$sm dur$n% !ppr!$s!l $nterv$ews
$nfer$or perform!nce resulted from defens$ve re!ct$ons to cr$t$c$sm
Effect!ve Appr"!s"l
repe!ted cr$t$c$sm h!d the worst effect on subsequent perform!nce of $nd$v$du!ls who h!d l$ttle self conf$dence&
J Loc$ett su##ests th"t "ppr"!s"l b"rr!ers c"n be !dent!f!ed "s follows&
"ppr"!s"l "s
confront"t!on
l differing views regarding performance.
l feedback is subjective the manager is biased, allowing personality differences to get in
the way of actual performance.
l feedback is badly delivered.
l assessment is based on yesterdays performance not on the whole year.
ldisagreement over prospects and solutions.
"ppr"!s"l "s
*ud#ement
l appraisal is seen as a one sided process the manager is judge, jury and counsel for the
prosecution.
lappraisal is imposed.
"ppr"!s"l "s ch"t l lack of will from either party.
l an unproductive conversation.
lno outcomes set.
"ppr"!s"l "s
bure"ucr"c%
l a traditional ceremony.
lno purpose or worth.
"ppr"!s"l "s "n "nnu"l
event
l a traditional ceremony.
lno purpose or worth.
"ppr"!s"l "s unf!n!shed
bus!ness
l frustration at limited appraisal time.
l no belief that issues will be followed up.
Overcoming the barriers to effective appraisal
One of the b!rr$ers to effect$ve !ppr!$s!l w!s the v$ew of emplo"ees th!t the !nnu!l !ppr!$s!l w!s not tre!ted !s someth$n%
$mport!nt, !nd th!t noth$n% w!s done !fter !n !ppr!$s!l $nterv$ew h!d f$n$shed&
$mport!nt, !nd th!t noth$n% w!s done !fter !n !ppr!$s!l $nterv$ew h!d f$n$shed&
1% There must be " s'stem of follow up "nd feedb"c&%
2% There m"' be "!reement between the #nterv#ewer "nd the emplo'ee #n the "ppr"#s"l #nterv#ew "bout further tr"#n#n! th"t the
emplo'ee needs, or w"'s #n wh#ch the emplo'ee c"n be developed%
These "!reements should be recorded "s p"rt of the off#c#"l record of the "ppr"#s"l #nterv#ew%
3% The "ct#on pl"n th"t h"s been "!reed w#th the emplo'ee should be reported to sen#or m"n"!ement "nd the HR dep"rtment%
4% The #nterv#ewer #s norm"ll' the m"n"!er of the emplo'ee%
He or she should follow up the "ppr"#s"l report "nd should "rr"n!e the tr"#n#n! or development th"t h"s been "!reed%
5% At the next "ppr"#s"l #nterv#ew, the #nterv#ewer "nd the emplo'ee should d#scuss whether the "!reed tr"#n#n! or development w"s
prov#ded, "nd wh"t h"s been #ts effect%
The appraisal system itself should be assessed and the claims made by Lockett will need to
be addressed to ensure:
Relev"nce does the s"stem h!ve ! useful purpose !nd $s $t relev!nt to the needs of both the or%!n$s!t$on !nd the
$nd$v$du!l)
F"!rness $s there re!son!ble ob(ect$v$t" !nd st!nd!rd$s!t$on of cr$ter$! throu%hout the or%!n$s!t$on)
Ser!ous !ntent $s the m!n!%ement comm$tted to the s"stem or h!s $t been thrust on them b" the HR dep!rtment) Do
the !ppr!$sers h!ve tr!$n$n% $n $nterv$ew$n% !nd !ssessment techn$ques) Is there ! demonstr!ble l$n# between perform!nce
!nd rew!rd)
Cooper"t!on $s the !ppr!$s!l ! p!rt$c$p!t$ve, problem solv$n% !ct$v$t" w$th the !ppr!$see %$ven t$me !nd encour!%ement
to prep!re for $t to be !ble to m!#e ! construct$ve contr$but$on) Wh!t t"pe of conclus$on emer%es from the process)
Eff!c!enc% $s $t costl" !nd d$ff$cult to !dm$n$ster !nd does $t seem too t$me consum$n% comp!red w$th the v!lue of $ts
outcome)
Another way of ensuring effective appraisals is to apply the 4Fs:
1% F!rm m"n"!ers should be w#ll#n! to d#scuss ne!"t#ve "s well "s f"vour"ble "spects of perform"nce%
2% F"ctu"l sub(ect#ve "spects should be "vo#ded%
3% F"!r "ll emplo'ees should be tre"ted the s"me%
4% Frequent "ppr"#s"ls should be held on " re!ul"r b"s#s r"ther th"n when " problem "r#ses%
Approaches to Performance Appraisal
Tell "nd Sell -
Th$s emph!s$ses the m!n!%ers role !s (ud%e, tell$n% the emplo"ee the outcome of the !ppr!$s!l !nd where the" need to
$mprove&
Th$s !ppro!ch m!" be effect$ve w$th $nexper$enced emplo"ees, but $s unl$#el" to be well rece$ved b" someone who feels
the" h!ve the c!p!c$t" to (ud%e the$r own perform!nce&
It $s h$%hl" controll$n% !nd $t $s mostl" ! one-w!" commun$c!t$on s"stem&
Tell "nd L!sten -
The !ppr!$ser st$ll t!#es on the role of (ud%e, p!ss$n% on the results of !n !ppr!$s!l wh$ch h!s !lre!d" been completed, but
then el$c$ts the !ppr!$sees re!ct$ons&
Th$s m!" en!ble the !ppr!$see to $nfluence the results, b" offer$n% ev$dence or expl!n!t$ons wh$ch were prev$ousl"
un#nown to the !ppr!$ser&
Cert!$nl" th$s !ppro!ch $s more l$#el" to $nvolve the !ppr!$see $n dec$s$ons !bout how development needs m$%ht be
!ddressed, such !s whether the" would prefer to !ttend ! tr!$n$n% course or rece$ve such on the (ob co!ch$n%&
Nevertheless, $dent$f$c!t$on of the development need $n the f$rst pl!ce rem!$ns w$th the !ppr!$ser&
Most of the control therefore rem!$ns w$th the !ppr!$ser, but the !ppr!$see $s !llowed the$r s!" w$th$n the l$m$ts th!t the
!ppr!$ser !llows&
Problem solv!n# "ppro"ch -
descr$bed !s ! ver" d$fferent #$nd of $nterv$ew&
The emph!s$s $s not on the (ud%ments of the !ppr!$ser but the %rowth !nd development of the !ppr!$see&
The !ppr!$sers role $s to el$c$t the$r self-reflect$on, so th!t the !ppr!$see $s !ble to $dent$f" the$r own stren%ths !nd
development needs, !nd how these needs m$%ht be met&
The term problem solv$n% m!" be off-putt$n% to the emplo"ee the !ppr!$s!l m!" reve!l ! h$%h level of perform!nce w$th
few problems !t !ll* Non-d$rect$ve $nterv$ew$n% $s ! poss$ble !ltern!t$ve, !nd $s more l$#el" to prov$de ! focus on future
development&
360 de#ree "ppro"ch -
founded on the $de! th!t !n" emplo"ees perform!nce $s seen b" m!n" othersthe$r m!n!%er, peers, d$rect reports,
customers, etc&
Nevertheless, none of these people see !n"one elses perform!nce !ll the t$me&
360- de%ree !ppr!$s!ls $mprove on !n" ev!lu!t$on done b" one person b" comb$n$n% r!t$n%s from m!n" people who see
d$fferent p!rts of !n emplo"ees perform!nce&
HOW THE EFFECTIVENESS OF PERFORMANCE APPRAISAL MAY BE
EVALUATED
Evaluating the appraisal scheme can involve the following:
1% c"lcul"t#n! the costs "nd benef#ts of the "ppr"#s"l process
2% #nvest#!"t#n! #f there h"ve been "n' #mprovements #n perform"nce b' the #nd#v#du"l "nd the or!"n#s"t#on
3% "s&#n! "ppr"#sers "nd "ppr"#sees the#r op#n#ons on the process
4% mon#tor#n! perform"nce results
5% w"tch#n! t"&e up of tr"#n#n! "nd development opportun#t#es
6% chec&#n! success#on "nd promot#on processes/results
7% rev#ew#n! other f"ctors such "s st"ff turnover " f#!ure th"t #s too h#!h or too low #s "n #nd#c"t#on th"t someth#n! #s wron! #n "n
or!"n#s"t#on%
Also, the "ppr"#s"l scheme ou!ht to #dent#f' #nd#v#du"ls who "re re"d' for promot#on "nd #f m"n' t"lented people le"ve on the
!rounds th"t there "re no (ob opportun#t#es then the over"ll development s'stem m"' be "t f"ult%
The process of !ssessment !nd st!ff !ppr!$s!l should h$%hl$%ht some of the c!uses of d$ss!t$sf!ct$on, f$nd solut$ons !nd remed"
them before the emplo"ee becomes d$s$llus$oned, loo#s for !nother (ob !nd res$%ns&
The causes of staff leaving fall into three categories:
1% D!sch"r#e
"s " result of "n emplo'ees unsu#t"b#l#t', d#sc#pl#n"r' "ct#on or redund"nc'%
2% Un"vo!d"ble
Effect!veness of Perform"nce Appr"!s"l
bec"use of m"rr#"!e, mov#n! house, #llness or de"th%
3% Avo!d"ble
due to p"', wor&#n! cond#t#ons, rel"t#onsh#ps w#th wor& colle"!ues%
From records, the st!ff turnover c!n be c!lcul!ted b" d$v$d$n% e$ther the tot!l sep!r!t$ons (those le!v$n% the or%!n$s!t$on) or the
tot!l repl!cements b" the !ver!%e number $n the wor#force, !nd express$n% the result !s ! percent!%e&
Ex!m$n!t$on of th$s f$%ure m!" h$%hl$%ht v$t!l $nform!t$on, e&%& poor select$on techn$ques or poor wor#$n% cond$t$ons&
EFFECTIVE USE OF TIME
Wh!tever the qu!l$t$es or !ttr$butes of ! successful m!n!%er, or the qu!l$t$es of the people wor#$n% for h$m or her, one essent$!l
underl"$n% cr$ter$on $s the effect$ve use of t$me&
T$me $s ! un$que resource "ou c!nnot h$re, rent or bu" more t$me&
The suppl" $s tot!ll" $rrepl!ce!ble !nd ever"th$n% requ$res t$me&
The purpose of time management (TM) is to:
1% pl"n the best use of t#me
2% cut down on t#me w"sted
3% devote more t#me to the re"ll' #mport"nt #ssues, or (obs on h"nd
4% complete more #n the t#me "v"#l"ble%
Person"l Effect!veness "nd Commun!c"t!on !n Bus!ness
Person!l effect#veness Techn#ques
Import"nce of Effect!ve T!me M"n"#ement
4% complete more #n the t#me "v"#l"ble%
This will allow you to:
el$m$n!te w!st!%e
refuse excess$ve wor#lo!ds
mon$tor pro(ect pro%ress
!lloc!te resource (t$me) !ppropr$!te to ! t!s#s $mport!nce
pl!n e!ch d!"/wee# eff$c$entl"&
The f$rst po$nt we h!ve to reco%n$se $s th!t we !re the persons respons$ble for the effect$ve m!n!%ement of our own t$me&
A %ood pl!ce to st!rt $s to set our %o!ls, m$ss$ons !nd over!ll ob(ect$ves&
We c!n then pl!n !he!d !nd m!x$m$se our t$me b" devot$n% m!x$mum effort to !ct$v$t$es wh$ch d$rectl" contr$bute to the
!ch$evement of these %o!ls&
THE BARRIERS OF EFFECTIVE TIME MANAGEMENT AND HOW THEY MAY
BE OVERCOME
Three keys to effective time management are:
1% remember#n!
2% sett#n! pr#or#t#es
3% mot#v"t#on
Effect!ve T!me M"n"#ement
3% mot#v"t#on
It $s e!s" to f!ll $nto the tr!p of th$n#$n% "I won't for%et th!t&"
But the $mport!nt th$n% $s not (ust to remember $t, but to remember $t !t the r$%ht t$me -- ! t$me when "ou c!n t!#e the f$rst
step $n do$n% $t&
Some people s!" the" do not need to spend t$me pl!nn$n%& Th!t m!" be true&
If "ou h!ve ! l$st of th$n%s to do th!t !re !ll !bout equ!ll" $mport!nt, !nd $f "ou !re sure th!t the most $mport!nt th$n%s !re on
the l$st, then "ou do not need to spend !n" t$me comp!r$n% them&
Just st!rt do$n% one of them, $t does not m!tter wh$ch one&
But for most people most of the t$me, some of the th$n%s !re more $mport!nt th!n others, so $t $s worthwh$le t!#$n% ! few
m$nutes to re!d over the l$st !nd choose the most $mport!nt to do f$rst&
John Ad!$r $n h$s boo# How to m!n!%e "our t$me, su%%ests th!t there !re 5 problems common to !lmost !ll m!n!%ers&
1% Procr"st#n"t#n!
2% Dele!"t#n! #neffect#vel'
3% M#sm"n"!#n! p"perwor&
4% Hold#n! unnecess"r' meet#n!s
5% F"#l#n! to set pr#or#t#es
Ap!rt from wor#$n% to pl!ns, chec#l$sts !nd schedules, or%!n$z!t$ons m$%ht be $mproved b" the ABCD method !n-tr"%
m"n"#ement&
Act ($mmed$!tel")
B$n ($t)
Cre!te (! pl!n)
Dele%!te
Dele%!te
The main influences of effective time management are:
Culture
Colle!%ues Influence
St!ff Dem!nds
Ind$v$du!ls Person!l$t"
Ind$v$du!ls Person!l S#$lls
N!ture of Wor#
M!n!%ement St"le
Internal Barriers
D$sc$pl$ne
Procr!st$n!t$on (Putt$n% off)
L!c# of Mot$v!t$on
External Barriers
Wor#lo!d Issues
Av!$l!ble Resources
overcome the internal barriers overcome the external barriers
be assertive identify your
time wasters and resolve to
deal with them, learn to say
no, delegate.
do the right thing right
doing the right thing is
effectiveness; doing things
right is efficiency. focus
first on effectiveness
(identifying what is the
right thing to do),
identify and make use of your
personal biorhythms, or up
time and down time.
then concentrate on
efficiency (doing it right).
conquer procrastination find
out what causes you to put off
doing something and
eliminate the urgent
urgent tasks with short
term consequences often
get done
remedy it, e.g. a feeling of
inadequacy could be due to
lack of information, lack of a
particular skill or lack of
training.
to the detriment of the
important tasks those
with long term, goal related
implications.
promise yourself a reward. break big jobs into little
steps.
use negotiation to improve
the use of time.
THE ROLE OF INFORMATION TECHNOLOGY IN IMPROVING PERSONAL
EFFECTIVENESS
Role of Inform"t!on Technolo#%
IT Planning Aids:
Electron$c person!l or%!n$sers
Pro(ect m!n!%ement softw!re
H!nd-held computer$sed d!$r$es
Inte%r!ted softw!re p!c#!%es
Integrated software packages like MS Outlook has the following features for personal
productivity management:
1% A c"lend"r "llows users to t#met"ble the#r "ct#v#t#es for the d"' "nd pl"n meet#n!s w#th others%
It w#ll "lso be "ble to !ener"te rem#nders, for ex"mple when " de"dl#ne #s "ppro"ch#n!, or the d"te of " meet#n!%
2% An "ddress boo&%
3% To do l#sts%
4% A (ourn"l% Th#s c"n "utom"t#c"ll' record #nter"ct#ons w#th people #nvolved #n " pro(ect, such "s em"#l mess"!es "nd record "nd t#me
"ct#ons such "s cre"t#n! "nd wor&#n! on f#les%
The (ourn"l w#ll &eep tr"c& of "ll of th#s "nd #s useful both "s " record of wor& done "nd "s " qu#c& w"' of f#nd#n! relev"nt f#les
"nd mess"!es w#thout h"v#n! to remember where e"ch one #s s"ved%
5% A (otter for (ott#n! down notes "s qu#c& rem#nders of quest#ons, #de"s, "nd so on%
Handheld
Computers l$#e the P!lm do not !ttempt to do the wor# of ! complete computer&
It tr!c#s !ppo$ntments !nd cont!cts, s"nchron$ses them w$th ! des#top computer, !nd t!#es the occ!s$on!l note&
The fe!tures $nclude
D!te boo#
Address boo#
To Do l$st
To Do l$st
C!lcul!tor
Expense Tr!c#$n%
Memo p!d
THE MAIN WAYS IN WHICH PEOPLE AND TEAMS CAN BE INEFFECTIVE AT
WOR)
It is a tough job balancing needs of the organisation and the needs of a team.
The m"!n problems result!n# !n !neffect!ve wor$ "re&
uncomm$tted wor#force
unequ!l p!rt$c$p!t$on between wor#force
unmot$v!ted wor#force
people h!v$n% d$fferent %o!ls !nd pr$or$t$es
d$storted commun$c!t$on
$n!dequ!te tr!$n$n%
no (ob descr$pt$on
l!c# of te!m support from m!n!%ement
Consequences of Ineffect#veness !t Wor%
Ineffect!ve "t Wor$
l!c# of te!m support from m!n!%ement
confl$ct between te!m members
HOW INDIVIDUAL OR TEAM INEFFECTIVENESS CAN AFFECT
ORGANISATIONAL PERFORMANCE
Employees are the lifeblood of an organisation.
How the" feel !bout the wor# the" !re do$n% !nd the results rece$ved from th!t wor# d$rectl" $mp!ct !n or%!n$s!t$on's
perform!nce !nd, ult$m!tel", $ts st!b$l$t"&
For $nst!nce, $f !n or%!n$s!t$on's emplo"ees !re h$%hl" mot$v!ted !nd pro!ct$ve (!nd therefore be$n% effect$ve), the" w$ll do
wh!tever $s necess!r" to !ch$eve the %o!ls of the or%!n$s!t$on !s well !s #eep tr!c# of $ndustr" perform!nce to !ddress !n"
potent$!l ch!llen%es&
Th$s two-pron% !ppro!ch bu$lds !n or%!n$s!t$on's st!b$l$t"&
An or%!n$s!t$on whose emplo"ees h!ve low mot$v!t$on !nd !re $neffect$ve $n the$r wor# !re completel" vulner!ble to both
$ntern!l !nd extern!l ch!llen%es&
Such emplo"ees w$ll not d!re to t!#e th!t extr! m$le to m!$nt!$n the or%!n$s!t$on's st!b$l$t"&
An unst!ble or%!n$z!t$on ult$m!tel" underperforms&
THE FEATURES & HOW A COMPETENCE FRAMEWOR) UNDERPINS
PROFESSIONAL DEVELOPMENT NEEDS
Ineffect!veness Affects on Or#"n!s"t!on"l Perform"nce
Competence Fr!mewor%s !nd Person!l
Development
Competence Fr"mewor$
PROFESSIONAL DEVELOPMENT NEEDS
What is competence framework?
Competence m!" be def$ned !s the beh!v$ours (!nd, where !ppropr$!te, techn$c!l !ttr$butes) th!t $nd$v$du!ls must h!ve, or
must !cqu$re, to perform effect$vel" !t wor# th!t $s, the term focus on the person!l !ttr$butes or $nputs of the $nd$v$du!l&
A competenc" fr!mewor# $s ! structure th!t sets out !nd def$nes e!ch $nd$v$du!l competenc" (such !s problem-solv$n% or
people m!n!%ement) requ$red b" $nd$v$du!ls wor#$n% $n !n or%!n$s!t$on or p!rt of !n or%!n$s!t$on
Competenc$es !re ! s$%n!l from the or%!n$s!t$on to the $nd$v$du!l of the expected !re!s !nd levels of perform!nce&
The" prov$de the $nd$v$du!l w$th ! m!p or $nd$c!t$on of the beh!v$ours !nd !ct$ons th!t w$ll be v!lued, reco%n$sed !nd $n
some or%!n$s!t$ons rew!rded&
Competenc$es c!n be understood to represent the l!n%u!%e of perform!nce $n !n or%!n$s!t$on&
Cre!t$n% ! competenc" fr!mewor# $s !n effect$ve method to !ssess, m!$nt!$n, !nd mon$tor the #nowled%e, s#$lls, !nd
!ttr$butes of people $n or%!n$s!t$ons&
The fr!mewor# !llows to me!sure current competenc" levels to m!#e sure st!ff members h!ve the expert$se needed to !dd
v!lue to the bus$ness&
It !lso helps m!n!%ers m!#e $nformed dec$s$ons !bout t!lent recru$tment, retent$on, !nd success$on str!te%$es&
And, b" $dent$f"$n% the spec$f$c beh!v$ours !nd s#$lls needed for e!ch role, $t en!bles the comp!n" to bud%et !nd pl!n for
the tr!$n$n% !nd development "our comp!n" re!ll" needs&
HOW PERSONAL AND CONTINUOUS PROFESSIONAL DEVELOPMENT
CAN INCREASE PERSONAL EFFECTIVENESS AT WOR)
Person!l effect$veness encomp!sses both the centr!l $mport!nce of !c#nowled%$n% th!t we !ll need to cont$nuousl" str$ve to
!ch$eve our potent$!l !nd l$ve fulf$lled l$ves, for our own sense of self-worth !nd s!t$sf!ct$on&
Person"l "nd Cont!nuous Profess!on"l Development
As consequence, we $mprove our !b$l$t" to re!ch out !nd touch the l$ves of others wh$lst be$n% open !nd respons$ve to the$r
needs !nd w!nts&
Underl"$n% th$s $s the !ssumpt$on th!t our !ct$ons !re conducted w$th pos$t$ve $ntent, so th!t $n meet$n% our own needs !nd
w!nts we beh!ve w$th $nte%r$t" !nd %eneros$t" of sp$r$t&
But why should this emphasis on personal growth and development matter in a business
context?
It m!tters bec!use $f we !re not full" effect$ve !s $nd$v$du!ls, we !re unl$#el" to be effect$ve !s le!ders !nd m!n!%ers, our
rel!t$onsh$ps m!" be w!nt$n%, our !b$l$t" to $nfluence reduced !nd our perform!nce !nd contr$but$on to our or%!n$s!t$ons
d$m$n$shed&
There $s !n $nev$t!ble l$n# between person!l !nd or%!n$s!t$on!l success&
When $nd$v$du!l effect$veness !nd $nte%r$t" $s l!c#$n% $t c!n result $n ser$ous problems&
Person!l !nd profess$on!l development opens the door $nto r!$sed self-!w!reness th!t encour!%es to t!#e !ct$on to ch!n%e
wh!t one dont l$#e !nd wor# on wh!t s/he do re!ll" well, so th!t ! person becomes d$st$nct$ve !nd stron% $n h$s own self-
bel$ef&
These !re core qu!l$t$es for le!dersh$p !t !ll levels !nd for success $n !n" role&
THE PURPOSES AND PROCESSES OF COACHING, MENTORING AND
COUNSELLING AND THEIR BENEFITS
Mentor!n# $s ! process where one person offers help, %u$d!nce, !dv$ce !nd support to f!c$l$t!te the le!rn$n% or development of
!nother&
It follows !n open !nd evolv$n% !%end! !nd de!ls w$th ! r!n%e of $ssues&
The mentoring process consists of three core activities, which set it apart from other
developmental activities:
Emplo%ee Effect!veness
developmental activities:
1% exch"n!e of &nowled!e th"t #s un#que to " bus#ness, #ndustr', profess#on or or!"n#s"t#on
2% " sust"#ned p"rtner#n! rel"t#onsh#p
3% me"sur"ble, benef#c#"l outcomes for the #nd#v#du"l p"rt#es #nvolved "nd for the l"r!er or!"n#s"t#on%
A mentor is a guide, counsellor, tutor or trainer who:
c!n %$ve pr!ct$c!l stud" support !nd !dv$ce
c!n %$ve techn$c!l, eth$c!l !nd %ener!l bus$ness %u$d!nce
c!n help w$th development of $nterperson!l !nd wor# s#$lls
$s !n $mp!rt$!l sound$n% bo!rd no d$rect report$n% respons$b$l$t"
$s ! role model who c!n help $mprove c!reer %o!ls&
Coaching
focuses on !ch$ev$n% spec$f$c ob(ect$ves, usu!ll" w$th$n ! preferred t$me per$od&
It $s more !bout $mprov$n% the perform!nce of someone who $s !lre!d" competent r!ther th!n est!bl$sh$n% competenc" $n the
f$rst pl!ce, or focus$n% on the t!s# !nd ensur$n% th!t the le!rner %!$ns competence&
1% It #s usu"ll' on " one to one b"s#s, #s set #n the ever'd"' wor&#n! s#tu"t#on "nd #s " cont#nu#n! "ct#v#t'%
2% It #nvolves !entl' nud!#n! people to #mprove the#r perform"nce, to develop the#r s&#lls "nd to #ncre"se the#r self conf#dence so th"t
the' c"n t"&e more respons#b#l#t' for the#r own wor& "nd develop the#r c"reer prospects%
3% Most co"ch#n! #s c"rr#ed out b' " more sen#or person, or m"n"!er%
Wh"t #s essent#"l #s th"t the co"ch should h"ve the qu"l#t#es of expert#se, (ud!ement "nd exper#ence th"t m"&e #t poss#ble for the
person co"ched to follow the !u#d"nce%
Counselling
c!n be def$ned !s ! purposeful rel!t$onsh$p $n wh$ch one person helps !nother to help h$mself/herself&
It $s ! w!" of rel!t$n% !nd respond$n% to !nother person so th!t the person $s helped to explore h$s/her thou%hts, feel$n%s !nd
beh!v$our w$th the !$m of re!ch$n% ! cle!rer underst!nd$n%&
The cle!rer underst!nd$n% m!" be of h$mself/herself or of ! problem, or of the one $n rel!t$on to the other&
The counsellor needs to be&
1% Observ"nt
- There #s " need to note beh"v#our, wh#ch m"' be s'mptom"t#c of " problem%
2% Sens!t!ve
- There #s " need to "c&nowled!e "nd underst"nd th"t "nother persons bel#efs "nd v"lues m"' be d#fferent from the#r own (for
ex"mple rel#!#ous bel#efs)%
3% Emp"thet!c
- There #s " need to "pprec#"te th"t the problem m"' seem overwhelm#n! to the #nd#v#du"l%
4% Imp"rt!"l
- There #s " need to rem"#n #mp"rt#"l "nd refr"#n from !#v#n! "dv#ce%
5% D!screet
- There w#ll be s#tu"t#ons when "n emplo'ee c"nnot be completel' open unless the' "re sure th"t the comments the' m"&e w#ll be
tre"ted w#th conf#dent#"l#t'%
Throu%h !ct$ve l$sten$n%, the use of open quest$ons !nd cl!r$f$c!t$ons, the counsellor encour!%es reflect$on !nd help the cl$ent
$dent$f" $ssues !nd solut$ons&
Counsell$n% does not $nvolve %$v$n% !dv$ce or m!#$n% su%%est$ons&
Wh"t "dv"nt"#es does counsell!n# prov!de for the w!der or#"n!s"t!on)
It prov$des ! me!ns of underst!nd$n% !nd !ddress$n% $nd$v$du!l problems, wh$ch !re ver" often not d$rectl" rel!ted to the
wor#pl!ce&
It !lso prov$des ! conf$dent$!l serv$ce for the emplo"ee to d$scuss problems w$thout d$rectl" $nvolv$n% m!n!%ement&
Over the lon%er term, !n or%!n$s!t$on m$%ht develop counsell$n% !s p!rt of $ts hum!n resources pol$c", demonstr!t$n% !
comm$tment to $ts emplo"ees be"ond th!t norm!ll" expected&
Person"l Development Pl"n
HOW A PERSONAL DEVELOPMENT PLAN SHOULD BE FORMULATED,
IMPLEMENTED, MONITORED AND REVIEWED BY THE INDIVIDUAL
A person"l development pl"n $s ! cle!r development!l !ct$on pl!n for !n $nd$v$du!l th!t $ncorpor!tes ! w$de set of
development!l opportun$t$es $nclud$n% form!l tr!$n$n%&
Dur$n% the$r c!reer, emplo"ees !re $ncre!s$n%l" encour!%ed to m!n!%e the$r own development&
In consult!t$on w$th m!n!%ement, the" m$%ht be !s#ed to set up person!l development pl!ns whereb" the" set t!r%ets !nd
propose !ct$ons/!ct$v$t$es to !ch$eve them&
Development $s more %ener!l th!n tr!$n$n%, $s more forw!rd loo#$n% !nd or$ent!ted tow!rds the $nd$v$du!l, !nd $s concerned w$th
en!bl$n% the $nd$v$du!l to fulf$l h$s or her potent$!l&
The purpose of person!l development $s to ensure %rowth dur$n% the persons c!reer&
The %rowth should be tr$%%ered b" ! (ob th!t prov$des ch!llen%$n%, stretch$n% %o!ls&
The cle!rer !nd more ch!llen%$n% the %o!ls, the more effort w$ll be exerted, !nd the more l$#el" $t $s th!t %ood perform!nce w$ll
result&
If the person does ! %ood (ob !nd rece$ves pos$t$ve feedb!c#, he or she w$ll feel successful (ps"cholo%$c!l success)&
These feel$n%s w$ll $ncre!se the feel$n%s of conf$dence !nd self esteem !nd le!d to $nvolvement $n the wor#, wh$ch $n turn le!ds
to the sett$n% of future stretch$n% %o!ls&
Stage 1
An"l%s!s of current pos!t!on requ$res the $nd$v$du!l, w$th the$r m!n!%er, to c!rr" out ! person!l SWOT (stren%ths,
we!#nesses, opportun$t$es, thre!ts) !n!l"s$s&
Th$s c!n be !s s$mple !s !ssess$n% wh!t !n $nd$v$du!l does b" referr$n% to the (ob descr$pt$on, ev!lu!t$n% wh$ch !spects of !
(ob !n $nd$v$du!l l$#es !nd d$sl$#es on the one h!nd, !nd those !spects th!t !n $nd$v$du!l does well !nd not so well $n on the
other&
Stage 2
Set Go"ls - follow$n% the !bove !n!l"s$s, person!l %o!ls should be set for the $nd$v$du!l&
The t!s#s the person does not do well !re ex!m$ned !nd re!sons !re est!bl$shed&
Person"l Development Pl"n
Th$s c!n t!#e the form of !n !ltern!t$ve !nd more tr!d$t$on!l t"pe of SWOT !n!l"s$s b" ex!m$n$n% the persons stren%ths
!nd we!#nesses&
P!rt$cul!r we!#nesses should be $dent$f$ed !s be$n% the c!use of f!$lure to c!rr" out cert!$n t!s#s well&
Th$s should then $nform ! person!l set of ob(ect$ves $n order to overcome these we!#nesses&
Go"ls should h"ve the ch"r"cter!st!c of SMART ob*ect!ves&
Spec$f$c
Me!sur!ble
Att!$n!ble
Re!l$st$c
T$me bounded
Stage 3
Dr"w up "ct!on pl"n !n !ct$on pl!n !nd tr!$n$n% pro%r!mme should be b!sed on !ddress$n% the $dent$f$ed we!#nesses
!nd tr"$n% to move more of the t!s#s of the current role $nto the do well s$de&
It $s e!s$er to $mprove the perform!nce of $nd$v$du!ls $n t!s#s th!t the" l$#e perform$n% th!n $n those th!t the" do not&
SITUATIONS WHERE CONFLICT AT WOR) CAN ARISE
Conflict refers to a process in which one party (person or group) perceives that its interests
are being opposed or negatively affected by another party.
Sources of Confl#ct !nd Techn#ques for Confl#ct
Resolut#on !nd R
Ar!s!n# Confl!ct "t Wor$
Four pr!m"r% levels of confl!ct m"% be present !n or#"n!z"t!ons&
1% Intr"person"l confl!ct
occurs w#th#n "n #nd#v#du"l "nd commonl' result #n #nner tens#ons "nd frustr"t#on
2% Interperson"l confl!ct
occurs when two or more #nd#v#du"ls perce#ve th"t the#r "tt#tudes, beh"v#ours or preferred !o"ls "re #n oppos#t#on
3% Intr"#roup confl!ct
refers to d#sputes "mon! some or "ll of " !roups members, wh#ch often "ffect " !roups d'n"m#cs "nd effect#veness% F"m#l'-run
bus#nesses c"n be espec#"ll' prone to #ntr"!roup "nd other t'pes of confl#ct
4% Inter#roup confl!ct
refers to oppos#t#on, d#s"!reements "nd d#sputes between !roups or te"ms%
HOW CONFLICT CAN AFFECT PERSONAL AND ORGANISATIONAL
PERFORMANCE
M!n" people !utom!t$c!ll" !ssume th!t confl$ct $s rel!ted to lower %roup !nd or%!n$s!t$on!l perform!nce&
Th$s !ssumpt$on $s frequentl" $ncorrect&
Confl$ct c!n be e$ther construct$ve or destruct$ve to the funct$on of ! %roup&
Levels of confl$ct c!n be e$ther too h$%h or too low&
E$ther extreme h$nders perform!nce&
An opt$m!l level $s one !t wh$ch there $s enou%h confl$ct to st$mul!te cre!t$v$t", !llow tens$ons to be rele!sed !nd $n$t$!te the
seeds for ch!n%e&
In!dequ!te or excess$ve levels of confl$ct c!n h$nder the effect$veness of ! %roup or !n or%!n$z!t$on, result$n% $n reduced
s!t$sf!ct$on of %roup members, $ncre!sed !bsence !nd turnover r!tes !nd eventu!ll" lower product$v$t"&
Person"l "nd Or#"n!s"t!on"l Perform"nce
HOW CONFLICT CAN BE AVOIDED
The avoiding style refers to unassertive and uncooperative behaviours.
A person uses th$s st"le to st!" !w!" from confl$ct, $%nore d$s!%reements or rem!$n neutr!l&
The !vo$d!nce !ppro!ch reflects !n !vers$on (d$sl$#e) to tens$on !nd frustr!t$on !nd m!" $nvolve ! dec$s$on to let ! confl$ct wor#
$tself out&
Th!s st%le m"% be des!r"ble under some s!tu"t!ons such "s&
The $ssue $s m$nor or onl" of p!ss$n% $mport!nce !nd thus not worth the $nd$v$du!ls t$me or ener%" to confront the confl$ct
The $nd$v$du!l does not h!ve enou%h $nform!t$on to de!l effect$vel" w$th the confl$ct !t th!t t$me
The $nd$v$du!ls power $s so low rel!t$ve to the other persons th!t there $s l$ttle ch!nce of c!us$n% ch!n%e
Others m!" resolve the confl$ct more effect$vel"
WAYS IN WHICH CONFLICT CAN BE RESOLVED OR REFERRED
1% D!rect Appro"ch&
Th#s "ppro"ch concentr"tes on the le"der confront#n! the #ssue he"d-on "nd #s prob"bl' the best "ppro"ch of "ll%
Adm#ttedl', confl#ct #s uncomfort"ble to de"l w#th, but #t #s best to loo& "t #ssues ob(ect#vel' "nd to f"ce them "s the' "re%
If cr#t#c#sm #s used, #t must be construct#ve to the rec#p#ents%
Confl!ct Avo!d"nce
Confl!ct Resolut!on or Referr"l
2% B"r#"!n!n#&
Th#s techn#que #s best used when both p"rt#es h"ve some sort of #de" or solut#on but s#mpl' c"nnot f#nd common !round%
Often " th#rd p"rt', such "s " te"m le"der, #s needed to help f#nd the comprom#se%
Comprom#se #nvolves !#ve "nd t"&e on both s#des%
3% Enforcement of Te"m Rules&
Th#s techn#que #s onl' used when #t #s obv#ous th"t " member does not w"nt to be " te"m pl"'er "nd refuses to wor& w#th the
rest%
If enforcement h"s to be used on "n #nd#v#du"l, #t m"' be best for th"t person to f#nd "nother te"m%
4% Retre"t&
B' s#mpl' "vo#d#n! #t or wor&#n! "round #t, " le"der c"n often del"' lon! enou!h for the #nd#v#du"l to cool off%
If th#s techn#que #s used #n the r#!ht env#ronment "nd b' "n exper#enced le"der, #t c"n help to prevent m#nor #nc#dents th"t "re the
result of someone h"v#n! " b"d d"' from becom#n! re"l problems th"t should never h"ve occurred%
5% De-emph"s!s&
Th#s #s " form of b"r!"#n#n! where the emph"s#s #s on the "re"s of "!reement%
When p"rt#es re"l#se th"t there "re "re"s where the' "re #n "!reement, the' c"n often be!#n to move #n " new d#rect#on%
DEFINITION
In our ever"d!" l$ves, we !ll commun$c!te**
Commun$c!t$on $s the process of tr!nsm$tt$n% $nform!t$on from one person to !nother&
Commun$c!t$on !lw!"s $nvolves two or more people&
True le!ders must h!ndle commun$c!t$on effect$vel" cons$der$n% th!t ! lot of t$me w$th$n !n or%!n$s!t$on $s spent $n order to
solve problems, d$scuss future pl!ns !nd dele%!te wor#&
Commun#c!t#n$ #n Bus#ness
Commun!c"t!ons
Communication
$s the $nterch!n%e of $nform!t$on, $de!s, f!cts !nd emot$ons b" two or more persons& It est!bl$shes rel!t$onsh$ps !nd m!#es
or%!n$s$n% poss$ble&
W$thout commun$c!t$on members of !n or%!n$s!t$on would be wor#$n% $n ! v!cuum cons$der$n% no l$n#s c!n be undert!#en
w$th the people !round us&
The t!s#s of m!n!%ement $n %u$d$n%, $nstruct$n%, w!rn$n% !nd encour!%e wor#ers would become $mposs$ble&
Im!%$ne ! person wor#$n% $n the product$on l$ne of ! f!ctor" produc$n% den$m (e!ns, !nd, let us !ssume th!t th$s l!bourer $s
$n ch!r%e of sew$n% the poc#ets of the (e!ns !nd he $s const!ntl" conduct$n% h$s wor# wron%l"*
If there $s no commun$c!t$on !nd s/he cont$nues to be unproduct$ve, the f$n!l product w$ll not qu!l$f" the f$n!l $nspect$on
!nd qu!l$t" chec#$n%&
As ! result, therefore, the comp!n" w$ll end up w$th unqu!l$f$ed %oods th!t c!nnot be sold to the end customer (! process
wh$ch !t the end $s %ett$n% no return to the or%!n$s!t$on th!n#s to the l!c# of commun$c!t$on)&
METHODS OF COMMUNICATION USED IN THE ORGANISATION, HOW
THEY ARE USED & THE MAIN METHODS AND PATTERNS OF
COMMUNICATION
When we loo# be"ond two person commun$c!t$on to the l$n#!%es !mon% wor# %roups, dep!rtment!l or or%!n$z!t$on!l members,
we !re concerned w$th commun$c!t$on networ#s, wh$ch !re s"stems of commun$c!t$on l$nes l$n#$n% v!r$ous senders !nd rece$vers&
The flow of information is regulated by several factors:
1% the prox#m#t' of wor&ers to one "nother
Methods "nd P"tterns of Commun!c"t!on
2% the rules !overn#n! who commun#c"tes w#th whom
3% the st"tus h#er"rch'
4% other elements such "s (ob "ss#!nments "nd dut#es%
Five major types have been studied in depth:
1% wheel or the st"r
2% c#rcle
3% "ll ch"nnels
4% ch"#n or the l#ne
5% Y
There h!s been extens$ve rese!rch on commun$c!t$on networ#s&
The results of these stud$es $nd$c!te th!t e!ch of the d$fferent networ#s h!s d$fferent stren%ths !nd we!#nesses'
In the centr!l$sed networ#s (ch!$n, wheel !nd Y), %roup members h!ve to %o throu%h ! person loc!ted $n the centr!l
pos$t$on $n the networ# $n order to commun$c!te w$th others&
Th$s le!ds to unequ!l !ccess to $nform!t$on $n the %roup&
In decentr!l$sed networ#s (c$rcle !nd !ll ch!nnels) $nform!t$on c!n flow freel" between members w$thout h!v$n% to %o
throu%h ! centr!l person&
The main conclusions of the experiment were:
The wheel $s !lw!"s the qu$c#est w!" to re!ch ! conclus$on, !nd the c$rcle the slowest&
For complex problems, the !ll ch!nnel $s the most l$#el" process to re!ch the best dec$s$on&
The level of s!t$sf!ct$on for $nd$v$du!ls $s lowest $n the c$rcle, f!$rl" h$%h $n the !ll ch!nnel, m$xed $n the wheel, w$th the
centr!l f$%ures usu!ll" express$n% %re!ter s!t$sf!ct$on, !nd the rest feel$n% $sol!ted&
Under t$me pressure the !ll ch!nnels s"stem e$ther restructures, to become ! wheel, or d$s$nte%r!tes&
HOW THE TYPE OF INFORMATION DIFFERS AND THE PURPOSE FOR
WHICH IT IS APPLIED AT DIFFERENT LEVELS OF THE ORGANISATION
T%pe of Inform"t!on
The levels of decision-making and the information required to support it have been
classified into three levels.
1% Str"te#!c Inform"t!on
Helps sen#or m"n"!ers w#th lon! term pl"nn#n! "nd the development of " str"te!#c pl"n%
2% T"ct!c"l Inform"t!on
To help m#ddle m"n"!ement mon#tor "nd control the or!"n#s"t#on%
3% Oper"t!on"l Inform"t!on
To help &nowled!e "nd d"t" wor&ers des#!n serv#ces/products, d#ssem#n"te #nform"t#on "nd perform rout#ne "dm#n#str"t#ve t"s&s%
Example of a retail store:
As ! consumer "ou h!ve to de!l re%ul!rl" w$th the $nform!t$on s"stems th!t support bus$ness oper!t$ons !t the m!n" ret!$l
stores where "ou shop&
Most ret!$l shops now use computer-b!sed $nform!t$on s"stems to help them record customer purch!ses, #eep tr!c# of
$nventor" !nd ev!lu!te s!les trends&
Store oper!t$ons would %r$nd to ! h!lt w$thout support of such $nform!t$on s"stems&
Inform!t$on s"stems !lso help store m!n!%ers m!#e better dec$s$ons !nd !ttempt to %!$n ! str!te%$c compet$t$ve
!dv!nt!%e&
For ex!mple, dec$s$ons on wh!t l$nes of merch!nd$se need to be !dded or d$scont$nued, or on wh!t #$nd of $nvestment the"
requ$re, !re t"p$c!ll" m!de !fter !n !n!l"s$s prov$ded b" computer-b!sed $nform!t$on s"stems&
THE ATTRIBUTES OF GOOD QUALITY INFORMATION
Bus$nesses !re often cr$t$c$sed for produc$n% too much $nform!t$on s$mpl" bec!use the$r $nform!t$on s"stems c!n do $t&
A %ood w!" of ensur$n% relev!nce $s to closel" def$ne the ob(ect$ves of !n" $nform!t$on report !nd produce $nform!t$on th!t !re
ACCURATE&
A Accur!te
C Complete
C Cost
U Underst!nd!ble
R Relev!nt
A Ad!pt!ble
T T$mel"
E E!s" to use
Accur"te
- $nform!t$on should be suff$c$entl" !ccur!te for $ts $ntended purpose !nd the dec$s$on-m!#er should be !ble to rel" on the
$nform!t$on&
Good Qu"l!t% Inform"t!on
Complete
the more complete $nform!t$on $s, the more rel$!ble $t w$ll be&
Cost
the $nform!t$on should not cost more to obt!$n th!n the benef$t der$ved from $t&
Underst"nd"ble
user fr$endl" $nform!t$on $s much more re!d$l" !cted upon&
Relev"nt
the $nform!t$on prov$ded should concentr!te on the essent$!ls !nd $%nore tr$v$! (useless $nform!t$on)
Ad"pt"ble
$nform!t$on should be t!$lored to the needs !nd level of underst!nd$n% of $ts $ntended rec$p$ents
T!mel%
$nform!t$on th!t $s out-of-d!te $s ! w!ste of t$me, effort !nd mone"
A SIMPLE COMMUNICATION MODEL SENDER, MESSAGE, RECEIVER,
FEEDBAC) AND NOISE
S!mple Commun!c"t!on Model
Effect$ve commun$c!t$on $nvolves ! mess!%e be$n% sent !nd rece$ved successfull"&
A TRANSMITTER/SENDER/ENCODER
of the mess!%e $s the person who st!rts the commun$c!t$on process $n order to p!ss on $nform!t$on to others&
The MESSAGE
$s the $nform!t$on th!t the sender w!nts to tr!nsm$t&
The MEDIUM/MEANS OF COMMUNICATION/CHANNEL
$s the method used for send$n% the mess!%e&
For ex!mple ! letter on the not$ce bo!rd or !n em!$l&
A me!ns of commun$c!t$on c!n !lso be thou%ht of ! smell, t!ste !nd feel&
A RECEIVER/DECODER
of the $nform!t$on $s the person to whom the mess!%e $s sent&
In bus$nesses, $neffect$ve commun$c!t$on, or commun$c!t$on f!$lure, between people $n the f$rm c!n h!ve ser$ous consequences&
NOISE
c!n be one of the re!sons wh" we end up w$th $neffect$ve commun$c!t$on&
No$se c!n be !n"th$n% th!t $nterferes w$th the commun$c!t$on or m!#es $t d$ff$cult to underst!nd&
No$se c!n !r$se from m!n" sources, e&%&, f!ctors !s d$verse !s lo!d m!ch$ner", techn$c!l no$se such !s poor telephone
connect$on to smud%es on ! pr$nted p!%e, st!tus d$fferent$!ls between sender !nd rece$ver !nd d$str!ct$ons of pressure !t
wor# or emot$on!l upsets&
FEEDBACK
$s when the rece$ver conf$rms th!t the mess!%e h!s been rece$ved !nd responds to $t&
Th$s ensures th!t the $nform!t$on h!s been correctl" rece$ved b" the r$%ht person !nd $f necess!r", !cted upon&
FORMAL AND INFORMAL COMMUNICATION EXPLANATION AND
IMPORTANCE IN THE WOR)PLACE
Formal communication
Form!l commun$c!t$on $n or%!n$s!t$ons follows off$c$!l report$n% rel!t$onsh$ps !nd/or prescr$bed ch!nnels&
Not$ces, not$cebo!rds, reports, em!$ls, memos !nd form!l meet$n%s !re !ll ex!mple of form!l commun$c!t$on&
These !re ch!nnels of commun$c!t$on wh$ch !re set up !nd reco%n$sed b" !n or%!n$s!t$on&
Even thou%h form!l commun$c!t$on $s $mport!nt !nd $s mostl" used both between the m!n!%ement !nd the emplo"ees (vert$c!l
commun$c!t$on) !nd between wor#ers $n the s!me h$er!rch$c!l level (hor$zont!l commun$c!t$on), $t $s not the onl" me!ns of
commun$c!t$on th!t $s used $n ! comp!n"&
Commun$c!t$on throu%h the form!l ch!nnels $n !n or%!n$s!t$on m!" be (!s c$ted $n the f$%ure !bove)'
Downw"rd commun!c"t!on
prov$des ! b!s$s for spec$f$c (ob $nstruct$ons, pol$c" dec$s$ons, %u$d!nce !nd resolut$on of quer$es&
Upw"rd commun!c"t!on
feedb!c# from emplo"ees or the levels below $n ! p!rt$cul!r h$er!rch" expl!$n$n% !n" results !ch$eved !nd problems
encountered&
Hor!zont"l/L"ter"l commun!c"t!on
refers to commun$c!t$on between people or %roups !t the s!me level $n the or%!n$s!t$on&
D!"#on"l commun!c"t!on
$nterdep!rtment!l commun$c!t$on b" people com$n% from d$fferent r!n#s
Form"l "nd Inform"l Commun!c"t!on
Informal communication
One $s !lso l$#el" to rece$ve $nform!t$on throu%h $nform!l ch!nnels, such !s meet$n%s w$th fr$ends or cont!cts w$th others $n the
c!nteen or !t bre!# t$mes&
These $nform!l or unreco%n$zed meet$n%s !re somet$mes c!lled !s the %r!pev$ne&
The %r!pev$ne $s !n $nform!l commun$c!t$on networ# th!t c!n perme!te (spre!d throu%h) !n ent$re or%!n$s!t$on&
These $nform!l ch!nnels c!n be used b" m!n!%ers to tr" out the re!ct$ons of new $de!s such !s ! new sh$ft s"stem $n the f!ctor"
before commun$c!t$n% det!$ls of the new s"stem form!ll"&
If the re!ct$on to m!n!%ement from the %r!pev$ne $s ne%!t$ve, the" m$%ht recons$der or even ch!n%e some det!$ls&
THE CONSEQUENCES OF INEFFECTIVE COMMUNICATION
Lack of downward communication is likely to result in:
poor !w!reness of corpor!te ob(ect$ves !t lower m!n!%ement levels
poor underst!nd$n% of wor#$n% $nstruct$ons !nd respons$b$l$t$es
poor mor!le of (un$or m!n!%ers bec!use the" !re not consulted !bout ch!n%es wh$ch !ffect them or the$r wor#$n%
cond$t$ons&
Lack of upward communication, including feedback, has the following undesirable
consequences for management:
e!rl" w!rn$n% of troubled !re!s $s not rece$ved
benef$t of cre!t$ve !b$l$t" $n subord$n!tes $s lost
p!rt$c$p!t$on of subord$n!tes $s l$m$ted
need for ch!n%e $s not !pprec$!ted bec!use m!n!%ement $s $sol!ted from the oper!t$on !re!s
control becomes d$ff$cult
$ntroduct$on of ch!n%e $s d$ff$cult&
Lack of lateral communication often leads to:
d$v$s$ons $n m!n!%ement te!ms
l!c# of coord$n!t$on
Ineffect!ve Commun!c"t!on
l!c# of coord$n!t$on
r$v!lr" between sect$ons !nd dep!rtments
l!c# of !dv$ce !nd $nvolvement b" st!ff spec$!l$sts&
The ult#m"te test of the effect#veness of commun#c"t#on
For wh!tever purpose, however $t $s del$vered or wh!tever $ts n!ture $s th!t those who need the $nform!t$on rece$ve $t $n !
comprehens$ble form, $n the r$%ht form!t, on t$me !nd $n ! st!te where $t c!n be !cted on&
Effect$ve commun$c!t$on w$ll ensure th!t the r$%ht person rece$ves the r$%ht $nform!t$on !t the r$%ht t$me&
This means it must be:
T!mel%
Accur"te
Complete
To the po!nt
D!rected to the r!#ht people
Underst"nd"ble
Attr!butes of Effect!ve Commun!c"t!on
THE BARRIERS TO EFFECTIVE COMMUNICATION AND PRACTICAL STEPS
THAT MAY BE TA)EN TO OVERCOME THEM
Poor communication can be the result of any number of causes, some of which are discussed
below:
1% Uncle"r Mess"#e
2% Mess"#e Overlo"d
3% B"d T!m!n#
4% J"r#on
5% Speed
THE IMPORTANCE OF ETHICS TO THE ORGANISATION AND TO THE
INDIVIDUAL
Ethics
h!s to do w$th the r$%htness or wron%ness of the dec$s$ons !nd beh!v$ours of $nd$v$du!ls !nd the or%!n$s!t$on of wh$ch the"
!re members&
Business ethics
Effect!ve Commun!c"t!on
Profess!on"l Eth!cs !n Account!n# "nd Bus!ness
Fund!ment!l Pr#nc#ples of Eth#c!l Beh!v#our
Bus!ness Eth!csBusiness ethics
$s the !ppl$c!t$on of eth$c!l v!lues to bus$ness beh!v$our&
Eth$c!l $ssues $n or%!n$s!t$ons !re more common !nd complex th!n %ener!ll" reco%n$sed&
Some eth$c!l $ssues $nfluence the dec$s$ons th!t emplo"ees m!#e d!$l"& Some eth$c!l $ssues $nvolve f!ctors th!t blur the
d$st$nct$on between r$%ht or wron%&
As ! result emplo"ees m!" exper$ence eth!c"l d!lemm"&
There is no simple rule for making ethical decisions but the following points may act as
guidelines or considerations:
1% The consequences
th"t #s, the end (ust#f#es the me"ns
2% The mot!v"t!on
of the p"rt#es concerned
3% Gu!d!n# pr!nc!ples
for ex"mple, tre"t others "s 'ou would l#&e to be tre"ted
4% Dut!es
for ex"mple, b"sed on rel#!#ous codes
5% 'e% v"lues
for ex"mple, the #mport"nce of hum"n r#!hts
Ethical considerations are important for both the organisation and the individual.
The follow$n% po$nts h$%hl$%ht some re!sons wh" eth!cs !s ver% !mport"nt for or#"n!s"t!ons&
Eth$cs $s ! dr$ver for prof$t!b$l$t" r!ther th!n ! burden
Eth$cs $s ! p!rt of %ood corpor!te %overn!nce
Eth$cs re!ssures $nvestors !bout the comp!n"'s !ppro!ch tow!rds r$s# m!n!%ement
Eth$cs re!ssures $nvestors !bout the comp!n"'s !ppro!ch tow!rds r$s# m!n!%ement
Eth$cs cre!te ! w!rm env$ronment $n wh$ch emplo"ees !re more mot$v!ted to wor#
The following points highlight the importance of ethics to the individual:
Consumers m!" choose to bu" eth$c!l $tems, for ex!mple f!$rtr!de products even $f the" !re not !lw!"s the che!pest
Emplo"ees w$ll not bl$ndl" !ccept orders to !ct $n ! m!nner th!t the" person!ll" perce$ve to be uneth$c!l
DESCRIBE AND DEMONSTRATE THE PRINCIPLES
Most comp!n$es h!ve !ppro!ched the bus$ness eth$cs $ssue b" formul!t$n% ! set of $ntern!l pol$c$es !nd $nstruct$n% emplo"ees to
follow them&
Often eth$cs off$cers !lso c!lled compl$!nce off$cers !re !ppo$nted to mon$tor the !ppl$c!t$on of the pol$c$es !nd to be !ble to
d$scuss eth$c!l d$lemm!s w$th emplo"ees who !ppro!ch them&
Code of Ethics for Accountants
The Intern!t$on!l Feder!t$on of Account!nts (IFAC) $s !n $ntern!t$on!l bod" represent$n% !ll the m!(or !ccount!nc" bod$es !cross
the world&
Its m$ss$on $s to develop the h$%h st!nd!rds of profess$on!l !ccount!nts !nd enh!nce the qu!l$t" of serv$ces the" prov$de
IFAC & ACCA (Association of Chartered Certified Accountants)
IFAC (IESBA) Code of Eth!csIFAC & ACCA (Association of Chartered Certified Accountants)
To ensure the development of h$%h st!nd!rds w$th$n the profess$on, the IFAC est!bl$shed ! code of eth$cs&
These $nd$c!te ! m$n$mum level of conduct&
As ! member the ACCA rele!sed there own code of eth$cs, des$%ned to !l$%n to those of the IFAC (th$s me!ns th!t the st!nd!rds
of ACCA !re the s!me !s those of IFAC)
ACCA Fundamental Principles
1% Inte#r!t%
Members should be str"#!htforw"rd "nd honest #n "ll profess#on"l "nd bus#ness rel"t#onsh#ps%
The ACCA Ruleboo$ ("nd the IFAC Code of Eth#cs) !oes on to st"te th"t #nte!r#t' #mpl#es not merel' honest', but f"#r de"l#n! "nd
truthfulness%
2% Ob*ect!v!t%
Members should not "llow b#"s, confl#cts of #nterest or undue #nfluence of others to overr#de profess#on"l or bus#ness (ud!ements%
3% Profess!on"l competence "nd due c"re
Members h"ve " cont#nu#n! dut' to m"#nt"#n profess#on"l &nowled!e "nd s&#ll "t " level requ#red to ensure th"t " cl#ent or
emplo'er rece#ves competent profess#on"l serv#ce b"sed on current developments #n pr"ct#ce, le!#sl"t#on "nd techn#ques%
Members should "ct d#l#!entl' "nd #n "ccord"nce w#th "ppl#c"ble techn#c"l "nd profess#on"l st"nd"rds when prov#d#n! profess#on"l
serv#ces%
4% Conf!dent!"l!t%
Members should respect the conf#dent#"l#t' of #nform"t#on "cqu#red "s " result of profess#on"l "nd bus#ness rel"t#onsh#ps "nd
should not d#sclose "n' such #nform"t#on to th#rd p"rt#es w#thout proper "nd spec#f#c "uthor#t' or unless there #s " le!"l or
profess#on"l r#!ht or dut' to d#sclose%
Conf#dent#"l #nform"t#on "cqu#red "s " result of profess#on"l "nd bus#ness rel"t#onsh#ps should not be used for the person"l
"dv"nt"!e of members or th#rd p"rt#es%
5% Profess!on"l beh"v!our
Members should compl' w#th relev"nt l"ws "nd re!ul"t#ons "nd should "vo#d "n' "ct#on th"t d#scred#ts the profess#on%
The ACCA Ruleboo$ !oes further, "nd st"tes th"t members should beh"ve w#th courtes' "nd cons#der"t#on tow"rds "ll w#th
whom the' come #nto cont"ct #n " profess#on"l c"p"c#t'%
The ACCA's Code of Eth$cs !nd Conduct $s cont!$ned $n the !nnu!l Ruleboo# $ssued b" the Assoc$!t$on& All re%$stered students,
!ff$l$!tes !nd members of the ACCA !re requ$red to compl"&
All ACCA members must compl" w$th the Fund!ment!ls Pr$nc$ples, whether or not the" !re $n pr!ct$ce& Members must $dent$f"
thre!ts to compl$!nce w$th the Pr$nc$ples !nd !ppl" s!fe%u!rds to el$m$n!te the thre!t or to reduce $t to !n !ccept!ble level such
th!t compl$!nce w$th the Fund!ment!l Pr$nc$ples $s not comprom$sed
An ACCA member m!" be c!lled to !ppe!r before the D$sc$pl$n!r" Comm$ttee for bre!ch of !n" of the eth$c!l pr$nc$ples !nd m!"
be !dmon$shed (w!rned), f$ned, suspended or excluded from membersh$p&
DESCRIBE ORGANISATIONAL VALUES WHICH PROMOTE ETHICAL
BEHAVIOUR
V!lues !re ps"cholo%$c!l constructs, $ntern!l to ! person&
Or%!n$z!t$ons !s such don't h!ve v!lues but, bec!use the" !re composed of people, the$r cultures !re sh!ped b" v!lues th!t !re
sh!red $n v!r"$n% de%rees&
Or%!n$s!t$on!l v!lues !ct !s %u$d$n% pr$nc$ples to the$r emplo"ees&
Openness
A culture h$%h on openness encour!%es rece$v$n% !nd %$v$n% $de!s !nd feel$n%s from $ntern!l !nd extern!l env$ronment&
Openness m!" !lso me!n sp!t$!l openness, $n terms of !ccess$b$l$t" l$#e $nst!ll$n% f!ceboo#, no sep!r!te c!b$n for execut$ves&
Th$s openness comb$ned w$th w$ll$n%ness to sh!re results $n %re!ter cl!r$t" of ob(ect$ves !nd free $nter!ct$ons !mon% people&
Trust
No m!tter how m!n" such form!l structures there m!" be $n or%!n$s!t$ons, $f we do not trust e!ch other s$mpl" to do wh!t
we s!" we w$ll, we c!nnot conduct bus$ness $n the modern world&
Trust $s conf$dence $n the $nte%r$t", !b$l$t", ch!r!cter, !nd truth of ! person th$n% (Berube, 1985)&
It $s the most cr$t$c!l prerequ$s$te for #nowled%e exch!n%e !nd w$thout trust, #nowled%e $n$t$!t$ves w$ll f!$l, re%!rdless of
how thorou%hl" the" !re supported b" technolo%" !nd rhetor$c (publ$c spe!#$n%) (D!venport !nd Prus!#, 1998)&
Or#"n!s"t!on"l V"lues
Honesty
In the context of hum!n commun$c!t$on, people !re %ener!ll" s!$d to be honest when the" tell the truth to the best of the$r
#nowled%e !nd do not h$de wh!t the" #now or th$n#&
Ap!rt from be$n% truthful, honest" $s !lso %ener!ll" thou%ht to $nvolve !bst!$n$n% from unf!$r beh!v$or&
Respect
Respect $s !n $mport!nt v!lue th!t t!#es $nto cons$der!t$on others stren%ths !nd we!#nesses !nd who the" !re !s persons&
Respect $ncludes !lso the courtes" tow!rds others !nd !lso the w$ll$n%ness to #eep conf$dent$!l$t"&
Empowerment
Empowerment should be seen !s the process of !n $nd$v$du!l en!bl$n% h$mself to t!#e !ct$on !nd control wor# !nd dec$s$on
m!#$n% $n !utonomous w!"s&
The or%!n$s!t$on h!s the respons$b$l$t" to cre!te ! wor# env$ronment wh$ch helps foster the !b$l$t" !nd des$re of emplo"ees
to !ct $n empowered w!"s&
The wor# or%!n$s!t$on h!s the respons$b$l$t" to remove b!rr$ers th!t l$m$t the !b$l$t" of st!ff to !ct $n empowered w!"s&
Accountability
It $s frequentl" descr$bed !s !n !ccount-%$v$n% rel!t$onsh$p between $nd$v$du!ls,
e&%& "A $s !ccount!ble to B when A $s obl$%ed to $nform B !bout As (p!st or future) !ct$ons !nd dec$s$ons, to (ust$f" them, !nd
to suffer pun$shment $n the c!se of eventu!l m$sconduct"&
Account!b$l$t" c!nnot ex$st w$thout proper !ccount$n% pr!ct$ces, $n other words, !n !bsence of !ccount$n% me!ns !n !bsence
of !ccount!b$l$t"&
Act!n# !n the Publ!c Interest
EXPLAIN THE CONCEPT
Act$n% $n the publ$c $nterest me!ns !ct$n% for the common %ood of the commun$t"&
The me!n$n% of the publ$c $nterest $s often t!#en !s self-ev$dent&
Proponents !nd opponents of ! propos!l c!n equ!ll" !nd stron%l" !r%ue th!t ! p!rt$cul!r propos!l $s, or $s not $n the publ$c
$nterest, often le!d$n% to confus$on !bout the !ppl$c!t$on of the term&
There are any numbers of variables in trying to understand why someone thinks something
is in the public interest.
Appl%!n# d!fferent v!ews on' who the publ$c !re' wh!t the$r ob(ect$ves should be, wh!t the publ$c !ctu!ll" w!nt, wh!t
underl"$n% v!lues should be !ppl$ed)
Appl%!n# d!fferent we!#ht!n# to v!r$ous $nterests th!t need b!l!nc$n%)
Appl%!n# d!fferent dec!s!on-m"$!n# processes on, for ex!mple, when $nd$v$du!l preferences should be over-r$dden, the
mer$ts of d$fferent t"pes of $ncent$ve, how people w$ll re!ct, etc)
The emer%$n% %overn!nce !nd !ccount!b$l$t" re%$me for bus$ness !nd the profess$ons h!s become f!r more concerned w$th
st!#eholder $nterests !nd eth$c!l m!tters th!n h!s been the c!se $n the p!st&
D$rectors, execut$ves !nd profess$on!l !ccount!nts who serve the often confl$ct$n% $nterests of sh!reholders d$rectl" !nd publ$c
$nd$rectl", must be !w!re of the publ$cs new expect!t$ons for bus$nesses !nd must m!n!%e the$r r$s#s !ccord$n%l"&
Th$s !w!reness must be comb$ned w$th tr!d$t$on!l v!lues !nd $ncorpor!ted $nto ! fr!mewor# for eth$c!l dec$s$on m!#$n% !nd
!ct$on&
The ch!n%es $n publ$c expect!t$ons !nd $nterests h!ve tr$%%ered, $n turn, !n evolut$on $n the m!nd!te for bus$ness&
For some bus$nesses, th$s m!" be st!t$n% the de%ree of ch!n%e too stron%l", but even the" would concede th!t the rel!t$onsh$p
of bus$ness to soc$et" $s one of $nterdependence where the lon%-run he!lth of one determ$nes th!t of the other&
The UK governments Committee of Standards in Public Life set out seven principles that
individuals employed in the public sector must follow:
individuals employed in the public sector must follow:
1% Selflessness
#nd#v#du"ls should "ct solel' #n the publ#c #nterest "nd not for person"l !"#n or th"t of fr#ends "nd f"m#l'
2% Inte#r!t%
#nd#v#du"ls should "vo#d "ct#ons wh#ch would pl"ce them under f#n"nc#"l or other obl#!"t#ons whereb' the person hold#n! the#r
obl#!"t#on could #nfluence the#r publ#c dut#es
3% Ob*ect!v!t%
"ll cho#ces, espec#"ll' those re!"rd#n! "w"rd#n! contr"cts, rew"rd#n! or prov#d#n! benef#ts to others "nd m"&e publ#c
"ppo#ntments must be m"de purel' on mer#t
4% Account"b!l!t%
#nd#v#du"ls "re respons#ble for the#r own "ct#ons "nd "re "ccount"ble to others%
The' must sub(ect themselves to wh"tever scrut#n' comes w#th the#r off#ce
5% Openness
#nd#v#du"ls must be open "bout the#r dec#s#ons "nd "ct#ons%
Inform"t#on re!"rd#n! the re"sons for the#r dec#s#ons must be freel' "v"#l"ble%
Restr#ct#ons on #nform"t#on "re onl' perm#tted when #t #s #n the w#der publ#c #nterest
6% Honest%
where #nd#v#du"ls h"ve pr#v"te #nterests wh#ch rel"te to the#r publ#c ones, the' should decl"re them "nd see& to resolve "n'
confl#ct to protect the publ#c #nterest
7% Le"dersh!p
#nd#v#du"ls must promote "nd respect the other s#x pr#nc#ples throu!h le"dersh#p "nd ex"mple
RECOGNISE THE PURPOSE OF BOTH INTERNATIONAL AND
ORGANISATIONAL
The Role of Re$ul!tor" !nd Profess#on!l Bod#es
Codes of Eth!cs & Codes of Conduct
Reform of the !ccount$n% profess$on h!s sh$fted to h!rmon$s!t$on w$th %lob!l st!nd!rds wor#ed out under the support of the
IASB !nd IFAC&
These %lob!l st!nd!rds h!ve returned profess$on!l !ccount!nts to focus on serv$n% the publ$c $nterest&
IFAC Code of Ethics Preface:
The m$ss$on of the Intern!t$on!l Feder!t$on of Account!nts (IFAC), !s set out $n $ts const$tut$on, $s the worldw$de development
!nd enh!ncement of !n !ccount!nc" profess$on w$th h!rmon$sed st!nd!rds, !ble to prov$de serv$ces of cons$stentl" h$%h qu!l$t"
$n the publ$c $nterest&
In pursu$n% th$s m$ss$on, the IFAC Bo!rd h!s est!bl$shed the IFAC Eth$cs Comm$ttee to develop !nd $ssue, under $ts own
!uthor$t", h$%h qu!l$t" eth$c!l st!nd!rds !nd other pronouncements for profess$on!l !ccount!nts for use !round the world&
Th$s Code of Eth$cs est!bl$shes eth$c!l requ$rements for profess$on!l !ccount!nts&
A member bod" of IFAC or f$rm m!" not !ppl" less str$n%ent st!nd!rds th!n those st!ted $n th$s Code&
However, $f ! member bod" or f$rm $s proh$b$ted from compl"$n% w$th cert!$n p!rts of th$s Code b" l!w or re%ul!t$on, the"
should compl" w$th !ll other p!rts of th$s Code&
Some (ur$sd$ct$ons m!" h!ve requ$rements !nd %u$d!nce th!t d$ffers from th$s Code&
Profess$on!l !ccount!nts should be !w!re of those d$fferences !nd compl" w$th the more str$n%ent requ$rements !nd
%u$d!nce unless proh$b$ted b" l!w or re%ul!t$on&
Eth#c"l Cons#der"t#ons
Eth!c"l Aw"reness
An !ccount!nc" student should st!rt !t !n e!rl" st!%e of h$s c!reer (from t$me of stud"$n%) to !ppl" eth$c!l cons$der!t$ons $n h$s
dec$s$ons&
The d$!%r!m !bove shows how ! student should develop h$s s#$lls $n eth$cs st!rt$n% from enh!nc$n% the eth$cs #nowled%e !nd
mov$n% on to develop$n% eth$c!l sens$t$v$t"&
Once these cr$ter$ons !re re!ched, the student / (un$or !ccount!nt needs to $mprove eth$c!l (ud%ment !nd cont$nue to m!$nt!$n
!n on%o$n% comm$tment to eth$c!l beh!v$our&
The member bod$es of IFAC !re profess$on!l bod$es such !s the ACCA, so IFAC h!s no d$rect !b$l$t" to pun$sh !n !ccount!nt who
!cts contr!r" to the code&
However, IFAC expect the tr!ns%ressors profess$on!l bod" to $nvest$%!te the m!tter !nd pun$sh the !ccount!nt $f necess!r"&
Usu!ll" the d$sc$pl$ne process be%$ns w$th ! compl!$nt be$n% lod%ed w$th the profess$on!l bod" !bout the eth$c!l conduct of !
member or f$rm&
Altern!t$vel", the conv$ct$on on ! le%!l ch!r%e of consequence (ex!mple, fr!ud) m!" !lso tr$%%er the d$sc$pl$ne process&
The compl!$nt or le%!l ch!r%e $s $nvest$%!ted b" st!ff, !nd ! dec$s$on $s m!de to l!" ! ch!r%e or not&
L!"$n% ! ch!r%e necess$t!tes ! he!r$n% to determ$ne %u$lt or $nnocence, !nd the he!r$n% process c!n be qu$te cumbersome
(burdensome)&
When ! profess$on!l !ccount!nt $s found %u$lt", the det!$ls of the c!se !re m!de publ$c&
L"nne P!$ne su%%ests th!t eth$c!l dec$s$ons !re becom$n% more $mport!nt !nd th!t there !re two !ppro!ches to the m!n!%ement
of eth$cs $n or%!n$z!t$ons'
1% Compl!"nce-b"sed "ppro"ch des#!ned to ensure th"t the comp"n' "cts w#th#n the letter of the l"w, "nd th"t v#ol"t#ons "re
prevented, detected "nd pun#shed%
2% Inte#r!t%-b"sed "ppro"ch str#ve to def#ne comp"n#es !u#d#n! v"lues, "sp#r"t#ons "nd p"tterns of thou!ht "nd conduct%
THE FACTORS THAT DISTINGUISH A PROFESSION FROM OTHER TYPES
OF OCCUPATION
Essential professional qualities of an accountant:
Independence must be !ble to complete wor# w$thout b$!s
S$ept!c!sm "ou quest$on $nform!t$on
Account"b!l!t% respons$ble for "our own (ud%ments !nd dec$s$ons
Soc!"l respons!b!l!t% !ct $n the $nterest of soc$et" !t l!r%e
Essential personal qualities of an accountant:
Rel!"b!l!t% when t!#$n% on wor#, "ou must ensure th!t $t %ets done !nd meets profess$on!l st!nd!rds
D!fferent!"te " Profess!on from "n Occup"t!on
Respons!b!l!t% $n the wor#pl!ce "ou should t!#e ownersh$p of "our wor#
T!mel!ness cl$ents !nd wor# colle!%ues rel" on "ou to be on t$me !nd produce wor# w$th$n ! spec$f$ed t$me fr!me
Courtes% "ou should conduct "ourself w$th courtes" !nd cons$der!t$on tow!rds cl$ents !nd colle!%ues
Respect !s !n !ccount!nt, "ou should respect others b" develop$n% construct$ve rel!t$onsh$ps !nd reco%n$z$n% the v!lues
!nd r$%hts of others
THE ROLE OF THE ACCOUNTANT IN PROMOTING ETHICAL BEHAVIOUR
Wh$le re%ul!t$on $s $mport!nt, $t $s not on $ts own enou%h to !ch$eve the ob(ect$ve of !ssur$n% qu!l$t" !nd cons$stenc" of
qu!l$t" $n the prov$s$on of profess$on!l serv$ces&
IFAC reco%n$zes th!t v!lues !lso !re cr$t$c!l $n dr$v$n% beh!v$or&
No re%ul!t$on c!n be trul" effect$ve unless $t $s !ccomp!n$ed b" eth$c!l beh!v$or&
It $s the eth$c!l beh!v$or of the profess$on!l !ccount!nt th!t $s the ult$m!te %u!r!ntee of %ood serv$ce !nd qu!l$t"&
Educ!t$on $n v!lues, espec$!ll" throu%h ex!mple !nd the !ppropr$!te use of exper$ence !nd profess$on!l (ud%ment, b!sed
on ! sol$d educ!t$on!l found!t$on, !nd re$nforced throu%h cont$nu$n% profess$on!l educ!t$on, w$ll be essent$!l to the future
of the !ccount!nc" profess$on&
Re%ul!tor" s"stems should be des$%ned to promote !nd to !ch$eve these beh!v$ours&
H$%h qu!l$t" serv$ce from the profess$on $s ult$m!tel" ! funct$on of profess$on!l st!nd!rds, $nclud$n% eth$cs, person!l
competenc$es !nd v!lues, !nd re%ul!tor" s"stems, !ll of wh$ch must be cons$stent w$th !nd support$ve of one !nother&
The Role of the Account"nt
Corpor!te Codes of Eth#cs
DEFINE CORPORATE CODE OF ETHICS
Corpor!te code of eth$cs !re des$%ned to prov$de %u$d!nce !bout the conduct expected b" members $n order th!t the
serv$ces offered w$ll be of !ccept!ble qu!l$t" !nd the reput!t$on of the comp!n" w$ll not be v$ol!ted&
To be effect$ve, codes of conduct need to blend fund!ment!l pr$nc$ples w$th ! l$m$ted number of spec$f$c rules&
If ! code were dr!fted to cover !ll poss$ble problems, $t would be extremel" volum$nous&
Corpor!te codes of conduct !re completel" volunt"r%&
The" c!n t!#e ! number of form!ts !nd !ddress !n" $ssue - wor#pl!ce $ssues !nd wor#ers' r$%hts be$n% (ust one poss$ble
c!te%or"&
Also, the$r $mplement!t$on depends tot!ll" on the comp!n" concerned&
THE TYPICAL CONTENTS OF A CORPORATE CODE OF ETHICS
Typical framework for a Code of Conduct for Professional Accountants
1% Introduct#on "nd purpose
2% Fund"ment"l pr#nc#ples "nd st"nd"rds
3% Gener"l rules
4% Spec#f#c rules
5% D#sc#pl#ne
6% Interpret"t#ons of rules
Corpor!te Codes of Eth#cs
Def!n!t!on
T%p!c"l Contents
6% Interpret"t#ons of rules
Fundamental Principles in Codes of Conduct for Professional Accountants
Members should'
Act $n the publ$c $nterest,
At !ll t$mes m!$nt!$n the %ood reput!t$on of the profess$on !nd $ts !b$l$t" to serve the publ$c $nterest,
Perform w$th $nte%r$t", ob(ect$v$t" !nd $ndependence, profess$on!l competence, due c!re !nd profess$on!l s#ept$c$sm, !nd
conf$dent$!l$t",
Not be !ssoc$!ted w$th !n" m$sle!d$n% $nform!t$on or m$srepresent!t$on
CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS CONTENTS
P!%e PREFACE&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& 2
PART A' GENERAL APPLICATION OF THE CODE
Introduct$on !nd Fund!ment!l Pr$nc$ples&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& 4
Inte%r$t"&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& 9
Ob(ect$v$t"&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& 10
Profess$on!l Competence !nd Due C!re&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& 11
Conf$dent$!l$t"&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& 12
Profess$on!l Beh!v$or&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& 14
PART B' PROFESSIONAL ACCOUNTANTS IN PUBLIC PRACTICE
Introduct$on&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& 16
Profess$on!l Appo$ntment&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& 21
Confl$cts of Interest&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& 24
Second Op$n$ons&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& 26
Fees !nd Other T"pes of Remuner!t$on&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& 27
M!r#et$n% Profess$on!l Serv$ces&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& 29
G$fts !nd Hosp$t!l$t"&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& 30
Custod" of Cl$ents Assets&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& 31
Ob(ect$v$t"All Serv$ces&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& 32
IndependenceAssur!nce En%!%ements&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& 33
PART C' PROFESSIONAL ACCOUNTANTS IN BUSINESS
Introduct$on&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& 79
Potent$!l Confl$cts&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& 83
Prep!r!t$on !nd Report$n% of Inform!t$on&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& 85
Prep!r!t$on !nd Report$n% of Inform!t$on&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& 85
Act$n% w$th Suff$c$ent Expert$se&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& 86
F$n!nc$!l Interests&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& 87
Inducements&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& 89
DEFINITIONS&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& 91
THE BENEFITS OF A CORPORATE CODE OF ETHICS TO THE
ORGANISATION AND ITS EMPLOYEES
D$rectors, owners !nd sen$or m!n!%ement !re $n the process of re!l$s$n% th!t the" !nd the$r emplo"ees need to underst!nd
th!t !ppropr$!te eth$c!l v!lues !re to be cons$dered when dec$s$ons !re be$n% m!de&
Or%!n$s!t$on!l, profess$on!l !nd person!l v!lues prov$de the fr!mewor# to dec$s$on m!#$n%, therefore, $t $s v$t!l th!t
or%!n$s!t$ons cre!te !n env$ronment or culture where !ppropr$!te sh!red v!lues !re cre!ted, understood, fostered !nd
comm$tted to b" !ll concerned&
Th$s c!nnot be rel$!bl" !ch$eved b" s$mpl" le!v$n% eth$cs solel" to the (ud%ment of $nd$v$du!ls $n ! wor#force of d$ver%ent
exper$ences !nd b!c#%rounds to wor# out b" tr$!l !nd error&
Nor c!n $t be !ch$eved b" s$mpl" send$n% ! letter ur%$n% emplo"ees to be on the$r best beh!v$our, or b" (ust publ$sh$n% !
code of conduct&
In order to ensure comm$tment to the eth$c!l pr$nc$ples or v!lues cons$dered !ppropr$!te for the or%!n$z!t$on, $t must be
ev$dent to the members of the or%!n$z!t$on th!t top m!n!%ement $s full" support$ve !nd th!t such support $s ev$dent
throu%hout the or%!n$z!t$ons %overn!nce s"stem&
A code of eth$cs promotes !n env$ronment of respect b!sed on $nte%r$t"&
When people #now the code of eth$cs !nd follow $t, th$s cre!tes !n !tmosphere of trust, respect !nd conf$dence $n the
!ct$ons of e!ch person $nvolved $n the or%!n$z!t$on or %roup&
In the presence of ! wr$tten code of eth$cs, emplo"ees !t ! comp!n", for $nst!nce, !re expected to beh!ve ! cert!$n w!"
tow!rd e!ch other !nd tow!rd customers&
The pr!ct$c!l result of th$s $s ! more pe!ceful !tmosphere $n wh$ch to wor#, !nd one th!t $s free of such w$despre!d
problems !s wor#-b!sed sexu!l h!r!ssment, v$olence !nd other forms of m$sconduct&
A code of eth$cs $s onl" effect$ve $n th$s w!" when %roup members !re conf$dent th!t the rules w$ll be enforced&
Benef!ts
SITUATIONS WHERE ETHICAL CONFLICTS CAN ARISE
There !re no un$vers!ll" !ccepted pr$nc$ples !nd rules for resolv$n% !ll the eth$c!l $ssues $n complex dec$s$on-m!#$n% s$tu!t$ons&
In !dd$t$on, $nd$v$du!ls !nd %roups d$ffer over wh!t $nfluences both eth$c!l !nd uneth$c!l beh!v$ours !nd dec$s$ons&
Organisations, though, can draft sets of criteria to be used in making difficult decisions:
1% Is #t le!"l*
2% Is #t contr"r' to our comp"n''s "dopted code of eth#cs*
3% Is #t contr"r' to "n' other publ#shed off#c#"l code of eth#cs l#&e for ex"mple, the ACCA code of eth#cs "nd conduct*
4% Would 'ou m#nd other people &now#n! wh"t 'ou h"ve dec#ded, for ex"mple, #f #t w"s publ#shed #n tomorrow's newsp"per*
5% Who #s "ffected b' th#s dec#s#on* Would the' re!"rd the dec#s#on "s f"#r*
The h$%hest form of eth$c!l dec$s$on m!#$n% $nvolves ! c!reful determ$n!t$on of who w$ll rece$ve benef$ts or $ncur costs !t the
consequence of ! dec$s$on&
For m!(or dec$s$ons, th$s !ssessment m!" $nclude ! v!r$et" of st!#eholders for ex!mple, sh!reholders, customers, b!n#s, suppl$ers
etc&
The more spec$f$c !n $nd$v$du!l or %roup c!n be !bout who m!" benef$t !nd who m!" $ncur costs from ! p!rt$cul!r dec$s$on, the
more l$#el" $t $s th!t eth$c!l $mpl$c!t$on w$ll be full" cons$dered&
There $s ! sect$on $n the ACCAs Code of Eth$cs !nd Conduct ded$c!ted to the sub(ect of confl$cts of $nterest&
ACCA members need to be !w!re th!t ! confl$ct between members !nd cl$ents $nterests m$%ht !r$se $f members compete
d$rectl" w$th ! cl$ent, or h!ve ! (o$nt venture w$th ! comp!n" th!t $s $n compet$t$on w$th the cl$ent&
The rules st!te th!t members !nd f$rms should not !ccept or cont$nue en%!%ements $n wh$ch there !re or !re l$#el" to be
Eth#c!l Confl#cts !nd D#lemm!s
Eth!c"l Confl!cts
The rules st!te th!t members !nd f$rms should not !ccept or cont$nue en%!%ements $n wh$ch there !re or !re l$#el" to be
s$%n$f$c!nt confl$cts of $nterest between members, f$rms or cl$ents&
Members should ev!lu!te the thre!ts !r$s$n% from ! confl$ct of $nterest !nd unless the" !re $ns$%n$f$c!nt, the" should !ppl"
s!fe%u!rds&
The test of whether ! tre!t $s s$%n$f$c!nt $s whether ! re!son!ble !nd $nformed th$rd p!rt" h!v$n% #nowled%e of !ll relev!nt
$nform!t$on, would cons$der the confl$ct of $nterest !s l$#el" to !ffect the (ud%ment of members !nd f$rms&
THE MAIN THREATS TO ETHICAL BEHAVIOUR
Paragraph 100.12 of the IFAC Code provides:
Thre!ts m!" be cre!ted b" ! bro!d r!n%e of rel!t$onsh$ps !nd c$rcumst!nces& When ! rel!t$onsh$p or c$rcumst!nce cre!tes !
thre!t, such ! thre!t could comprom$se, or could be perce$ved to comprom$se, ! profess$on!l !ccount!nts compl$!nce w$th the
fund!ment!l pr$nc$ples& A c$rcumst!nce or rel!t$onsh$p m!" cre!te more th!n one thre!t, !nd ! thre!t m!" !ffect compl$!nce
w$th more th!n one fund!ment!l pr$nc$ple&
Thre"ts f"ll !nto one or more of the follow!n# c"te#or!es&
1% Self-!nterest thre"t
- the thre"t th"t " f#n"nc#"l or other #nterest w#ll #n"ppropr#"tel' #nfluence the profess#on"l "ccount"nts (ud!ment or beh"v#our+
2% Self-rev!ew thre"t
- the thre"t th"t " profess#on"l "ccount"nt w#ll not "ppropr#"tel' ev"lu"te the results of " prev#ous (ud!ment m"de or serv#ce
performed b' the profess#on"l "ccount"nt, or b' "nother #nd#v#du"l w#th#n the profess#on"l "ccount"nts f#rm or emplo'#n!
or!"n#s"t#on, on wh#ch the "ccount"nt w#ll rel' when form#n! " (ud!ment "s p"rt of prov#d#n! " current serv#ce+
3% Advoc"c% thre"t
- the thre"t th"t " profess#on"l "ccount"nt w#ll promote " cl#ents or emplo'ers pos#t#on to the po#nt th"t the profess#on"l
"ccount"nts ob(ect#v#t' #s comprom#sed+
4% F"m!l!"r!t% thre"t
- the thre"t th"t due to " lon! or close rel"t#onsh#p w#th " cl#ent or emplo'er, " profess#on"l "ccount"nt w#ll be too s'mp"thet#c to
the#r #nterests or too "ccept#n! of the#r wor&+ "nd
5% Int!m!d"t!on thre"t
- the thre"t th"t " profess#on"l "ccount"nt w#ll be deterred from "ct#n! ob(ect#vel' bec"use of "ctu"l or perce#ved pressures,
#nclud#n! "ttempts to exerc#se undue #nfluence over the profess#on"l "ccount"nt
Thre"ts to Eth!c"l Beh"v!our
#nclud#n! "ttempts to exerc#se undue #nfluence over the profess#on"l "ccount"nt
SITUATIONS AT WOR) WHERE ETHICAL DILEMMA MAY BE FACED
Most people, most of the t$me, #now the d$fference between r$%ht !nd wron%&
Eth$c!l d$lemm!s r!rel" $nvolve choos$n% between these two st!r# !ltern!t$ves&
Inste!d, eth$c!l d$lemm!s norm!ll" !r$se bec!use there $s no ent$rel" r$%ht opt$on&
Inste!d, there !re compell$n% re!sons for e!ch of the !ltern!t$ves so $t $s up to the $nd$v$du!l to dec$de wh$ch !ltern!t$ve to
choose&
Example 1
You !re under t$mer pressure to complete th$s months m!n!%ement !ccounts&
Import!nt s!les $nform!t$on $s prov$ded b" the s!les dep!rtment usu!ll" $n %ood t$me for "ou to $ncorpor!te $t $nto the f$n!l
f$%ures&
The s!les report $s del!"ed th$s month due to st!ff s$c#ness !nd "ou w$ll not rece$ve the $nform!t$on unt$l ! few hours
before the !ccounts !re due for present!t$on to the f$n!nce d$rector&
Answer there $s $nte%r$t" $ssue her&
Wh$lst "ou m!" h!ve t$me to $nclude the $nform!t$on $n the m!n!%ement !ccounts, $t $s unl$#el" th!t "ou w$ll be !ble to
chec# $ts !ccur!c" !s well&
Therefore "ou r$s# m$s$nform$n% the f$n!nce d$rector of the months s!les&
Example 2
Dur$n% "our lunch bre!#, "our comp!n"s hum!n resources m!n!%er h!s !s#ed "ou for some help&
Eth!c"l D!lemm"s
She h!s recentl" $nher$ted ! cons$der!ble sum of mone" !nd would l$#e "ou to c!lcul!te her $nher$t!nce t!x !nd c!p$t!l
%!$ns t!x l$!b$l$t"&
She h!s !lso !s#ed "ou for !dv$ce on how she should $nvest the mone"&
Answer the $ssues here !re profess$on!l competence !nd due c!re&
Unless "ou !re ! t!x expert, $t $s unl$#el" th!t "ou would h!ve suff$c$ent competence to c!lcul!te the t!x l$!b$l$t$es&
G$v$n% f$n!nc$!l !dv$ce c!n be ! m$nef$eld, !nd "ou m!" need to be qu!l$f$ed under the f$n!nc$!l serv$ces re%ul!t$on before
"ou could do so&
Examples of circumstances that may create self-interest threats for warrant holders in
public practice include, but are not limited to:
A f$n!nc$!l $nterest $n ! cl$ent where the perform!nce of profess$on!l serv$ces m!" !ffect the v!lue of th!t $nterest&
A lo!n to or from !n !ssur!nce cl$ent or !n" of $ts d$rectors or off$cers where the perform!nce of profess$on!l serv$ces m!"
!ffect the v!lue of th!t lo!n&
Concern !bout the poss$b$l$t" of los$n% ! recurr$n% cl$ent&
Potent$!l emplo"ment w$th ! cl$ent&
Examples of circumstances that may create self-review threats include, but are not limited
to:
The d$scover" of ! s$%n$f$c!nt error dur$n% ! re-ev!lu!t$on&
Report$n% on the oper!t$on of f$n!nc$!l s"stems !fter be$n% $nvolved $n the$r des$%n or $mplement!t$on&
A member of the en%!%ement te!m for !n !ssur!nce cl$ent be$n%, or h!v$n% recentl" been, ! d$rector or off$cer of th!t
cl$ent&
A member of the en%!%ement te!m be$n%, or h!v$n% recentl" been, emplo"ed b" the cl$ent $n ! pos$t$on to exert d$rect !nd
s$%n$f$c!nt $nfluence over the sub(ect m!tter of the en%!%ement&
H!v$n% prep!red the or$%$n!l d!t! used to %ener!te records th!t !re the sub(ect m!tter of the en%!%ement&
Examples of circumstances that may create advocacy threats include, but are not limited to:
Promot$n% sh!res $n ! publ$c $nterest ent$t" when th!t ent$t" $s !n !ud$t cl$ent&
Act$n% !s !n !dvoc!te on beh!lf of !n !ssur!nce cl$ent $n resolv$n% d$sputes w$th th$rd p!rt$es&
Examples of circumstances that may create familiarity threats include, but are not limited
to:
A member of the en%!%ement te!m h!v$n% ! close or $mmed$!te f!m$l" rel!t$onsh$p w$th ! d$rector or off$cer of the cl$ent&
A member of the en%!%ement te!m h!v$n% ! close or $mmed$!te f!m$l" rel!t$onsh$p w$th !n emplo"ee of the cl$ent who $s
$n ! pos$t$on to exert d$rect !nd s$%n$f$c!nt $nfluence over the sub(ect m!tter of the en%!%ement&
A former pr$nc$p!l of the f$rm be$n% ! d$rector or off$cer of the cl$ent or !n emplo"ee $n ! pos$t$on to exert d$rect !nd
s$%n$f$c!nt $nfluence over the sub(ect m!tter of the en%!%ement&
Accept$n% %$fts or preferent$!l tre!tment, unless the v!lue $s cle!rl" $ns$%n$f$c!nt&
Examples of circumstances that may create intimidation threats include, but are not limited
to:
Be$n% thre!tened w$th d$sm$ss!l or repl!cement $n rel!t$on to ! cl$ent en%!%ement&
Be$n% thre!tened w$th l$t$%!t$on&
Be$n% pressured to reduce $n!ppropr$!tel" the extent of wor# performed $n order to reduce fees&
S"fe#u"rds A#"!nst Eth!c"l Thre"ts "nd D!lemm"s
THE MAIN SAFEGUARDS AGAINST ETHICAL THREATS AND DILEMMAS
Safeguards that may eliminate or reduce ethical threats to an acceptable level fall into two
broad categories:
1% S"fe!u"rds cre"ted b' the profess#on, le!#sl"t#on or re!ul"t#on+ "nd
2% S"fe!u"rds #n the wor& env#ronment%
These may include:
Educ!t$on!l, tr!$n$n% !nd exper$ence requ$rements for entr" $nto the profess$on&
Cont$nu$n% profess$on!l development requ$rements&
Corpor!te %overn!nce re%ul!t$ons&
Profess$on!l st!nd!rds&
Profess$on!l or re%ul!tor" mon$tor$n% !nd d$sc$pl$n!r" procedures&
Extern!l rev$ew b" ! le%!ll" empowered th$rd p!rt" of the reports, returns, commun$c!t$ons or $nform!t$on produced b" !
w!rr!nt holder&