PRINCIPLES OF BUSINESS

PD1:ORGANIZATIONAL PRINCIPLES
SECTION2 :INTERNAL ORGANISATIONAL ENVIRONMENT

FUNCTIONAL AREAS OF A BUSINESS

1. Production
This department deals with the actual manufacturing or conversion of raw materials
to a product for sale. It can include such activities as quality control, purchasing raw
materials, organising production, timing etc.
2. Finance
This area is concerned with the overall accounts of the business. E.g. preparing
` income statements, balance sheets, maintaining cash flows, making payments and
issuing receipts, advising on sources of capital, establishing hire purchase and credit
controls, paying wages and salaries etc.
3. Research & Development
This department carried out various types of research such as product research,
consumer research, financial research as well as feasibility studies. In this
department, new products are developed or improvements are made to currents
ones, as feed back is received from other departments such as the marketing
department.
4. Marketing
The department seeks to identify, anticipate and satisfy the wants/needs of
customers in a manner which is profitable to the organisation. Activities include
marketing research, choosing methods of promotion, setting prices, product distribution, developing
new products etc. This department often works closely with the R & D department to design and
develop new products.
5. Personnel
This department is concerned with the human element of the organisation. This
includes training and development, recruitment of labour, improving morale,
industrial relations, disciplining workers, administering leave, pension schemes etc.

FUNCTIONS OF MANAGEMENT
Management is the process of combining all the resources of an organisation
(human & physical), towards achieving the various goals of the organisation. Management comprises of all
those individuals who collectively carry out the processes necessary to achieve the organisational goals. The
functions of management include:
1. Planning:

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 This function is carried out by top management. It involves the overall formulation
Of policy, aims and objectives of the business. The structure of the organisation is
determined and various duties of other managers are set out. It gives the
organisation focus and is necessary because the firm operates in an uncertain
environment.
2. Directing:
This is the giving of instructions, usually on a daily basis to workers. This is carried
out mainly by lower level managers.
3. Delegating:
Assignments/instructions are transferred from management to subordinates who are
also given power/authority to carry out the instructions. This ensures the sharing of
the work load. Mainly top/middle level management carries out this function.
4. Controlling:
This is the regulation and monitoring of activities for the purpose of achieving
profitable objectives and using corrective measures when the objectives are not
being met. It is carried out mainly by middle/lower level management. Top level management would
engage in this function on a long term basis especially by looking at the overall financial position of
the business.
5. Organising:
This is ensuring that everything is in place so that the operations can run smoothly
and effectively. It is carried out mainly by middle/lower level management.
6. Coordinating:
The bringing together of all functions of the organisation with the aim of
harmonizing all activities to successfully achieve a common goal. This is the
function of top and middle level management.
7. Motivating:
The process whereby management encourages and provides incentives to employees
To produce at their best so that the goals of the organisation can be met.

RESPONSIBILITIES OF MANAGEMENT
The management of any business has a number of responsibilities to the various stakeholders in the business
environment. These include the following:
To Owners/Shareholders:
Achieving profit
Providing information such as annual reports
Protecting assets
Reinvesting some of the profits to ensure growth

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 Declaring dividends where possible
To Employees:
Fair wages
Good working conditions
Training
Benefits such as sickness, retirement
Provision of procedures to handle grievances
To Customers:
Quality product/services at reasonable prices
Compensation for customers injuries on business compound
Product/Services should be safe
Conduct research to improve quality
Provide adequate labeling and instructions
To Society:
Avoid pollution/destruction of physical environment
Conserve scarce resources e.g. water, fossil fuels
Preserve culture and traditions
To Government:
Pay taxes
Abide by local and international laws which affect the industry

ORGANISATIONAL STRUCTURE
A well planned relationship among the individuals and the functions of the organisation, in accordance with
stated goals. It may be formal or informal. The FORMAL structure is the official and accepted channel of
communication of the firm. It is shown on the organisational charts, official standards, statements and
procedures. Its objective is the achievement of organisational goals. The INFORMAL structure is the
unofficial, social interaction which exist among employees.
There are FOUR types of formal organisational structures.
1. Line Structure
It shows the authority within the organisation from top to bottom(chain of
command) and who is responsible for the persons below them
2. Staff Structure
Shows functions which are needed within the organisation but may not be directly
connected to production, distribution etc. It can include functions such as lawyers,
economists, architects etc. depending on the type of business
3. Functional Structure
This shows the specialized functioned within the organisation such as production,

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 marketing, personnel etc.
4. Committee
A group of persons set up to carry out certain duties, at the end of which the group
may be broken up

ORGANISATIONAL CHART
This diagram shows the structure of the organisation and indicates the links between different functions. It
also identifies the span of control and the chain of command within the organisation. The Span of Control
refers to how many subordinates report to a manager/supervisor. The Chain of Command shows to whom an
employee is to report to
immediately and at each level within the organisation. Organisational charts may be vertical, circular of
horizontal.
Diagrams of Organisational Charts

LEADERSHIP

Leadership is the style of management which is used to operate and control the
organisation.

CHARACTERISTICS OF A GOOD LEADER

1. Must be knowledgeable about the business
2. Be fair when dealing with employees
3. Good interpersonal skills with employees
4. The ability to make decisions quickly
5. The ability to motivate workers
6. Be able to resolve conflict

TYPES OF LEADERSHIP
There are FOUR main types of leadership styles
1. Authoritarian
With this style of leadership, employees are told what to do and how it is to be done.
There tends to be little delegation of responsibilities and authority. Only

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 management controls, rewards and punishes. The advantages are
Decisions can be made quickly
Everyone knows exactly what to do
The disadvantages include:
No ones opinion is heard
Lack of employee motivation
Individual creativity and initiative is stifled

2. Laissez-faire
Employees are given various tasks and when they are to complete them. It is then
their responsibility to determine how to achieve the objectives. There is minimal
supervision and may only succeed where workers are experienced. It has the
potential to be unstable. The benefits are:
Creativity is encouraged
Individuals can work at their own pace.
The problems include:
Work not being completed on time
Work not done to the required standard
Greater likelihood of confusion

3. Charismatic
This leadership style is mainly based on the leaders personality and his ability to
motivate others by leading from example. As long as the leader is present, there
individuals will function but when he/she leaves/dies, persons have no one to look to
and work suffers

4. Democratic
The leader seeks to find the middle ground. He/She maintains the necessary
authority to control and at the same time, employees are allowed to express their
views. Participation is encouraged but the leader maintains the power of decision
making. The benefits of this leadership include:
Members assist in decision making, allowing them to feel valuable
Views are listened to
Persons are motivated to participate.
The disadvantages include:
Decision making may be a lengthy process
Stronger members may overpower weaker ones.

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IMPORTANCE OF A GOOD LEADER
1. To ensure the smooth running of the business
2. To ensure the viability and profitability of the organisation
3. To ensure that goals are met
4. To reduce or handle conflict which can affect productivity.

CONFLICT
In any organisation, there will always be differences between management and their
employees. The organisation may claim that it provides good wages, working conditions etc. yet employees
may complain about issues such as lack of communication, unfair and practices. Sources of conflict at work
include:
Unfair practices
Safety and health issues
Union rights
Working conditions
Job security
Recognition of workers
Management/Leadership style of the organisation.

During periods of conflict between employees and management, various strategies are used by both sides in
an attempt to get the upper hand.

Employer Strategies
1. Lock Out
Employees may not be allowed to enter the building until the matter has been
resolved. This may cause the organisation to loose money.
2. Scab Labour
This is the use of a skeleton staff, mainly management in an effort to continue
work as normal. Workers may not be paid if they do not attend work. This may
force employees to return to work.

Employee Strategies
1. Strike Action
This is the refusal to do work. It may /may not be sanctioned by the trade unions.
Workers may turn up for work and do nothing or remain on the outside.
2. Work to rule
Workers will only complete the tasks which are clearly set out in their job

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 descriptions or condition of employment. This may slow down production/service.
3. Sick Out
Employees may call in sick for the day or may get certificates for doctors for
prolonged period( usually more than 2 days)

CONFLICT RESOLUTION STRATEGIES

As a result of various internal conflicts between management and employees, a number of strategies have
been employed to resolve such conflict. These include:

1. Arbitration
This is the settlement of a dispute by an outside or neutral person(s). The person is
called an arbitrator or there may be a Broad of Arbitrators.
2. The Chief Labour Officer
This individual may be informed that a situation exists and this individual may then
use his office to try to resolve the conflict through a mutual agreement of the parties.
3. The Minister of Labour
This individual may be called upon in the event that the Chief Labour Officer is
unable to resolve the issue
4. Industrial Court
This is an accepted court of law and the agreement is legally binding on both parties.

GUIDELINES FOR ESTABLISHING GOOD RELATIONS BETWEEN MANAGEMENT AND

EMPLOYEES
Good management-worker relationships are important to all organizations. This can be achieved if
management takes the following actions:

1. Maintain good communication with workers

Two way communication should be encouraged. This allows for employee views
and problems to be heard. Instructions should be given as clearly as possible to
avoid misunderstanding.
2. Establish grievance procedures
These must be used by both management and employees. This would eliminate
possible industrial action since there would be opportunity for dialogue and
mediation to occur.
3. Practice good leadership

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 Employees should be guided towards the organizational goals without being treated
harshly. Good leaders should give employees the opportunity to talk and be willing
to then listen. Feedback is also necessary and non-monetary rewards can be
included e.g. giving of praise for a job well done.

4. Seek to motivate employees with compensation and other incentives.

If workers feel that they are being adequately compensated for a job, then this helps
to build trust, loyalty and employees self worth.
5. Improve working conditions
Pleasant and clean surroundings help to lift the spirit of workers in an organization.
6. Where possible, jobs should be interesting and challenging.
This allows the workers to use a variety of skills which they possess. Training and
self improvement should also be encouraged.

TEAMWORK
In any organization there may be the element of teamwork which may prove to be of great importance to the
overall success. Teamwork is the use of individuals as a group, with different skills to accomplish a particular
task or group of tasks. It is designed to encourage production at rates above the minimum required standard.
It fosters cooperation and interaction among team members, thus resulting in a pleasant working atmosphere.

Team members should:

1. Listen to others and consider their ideas
2. Be prepared to accept constructive criticism
3. Make suggestions and offer help and support
4. Whenever needed, act as peacemakers
5. Think carefully before speaking, respecting each other

Whenever forming a group, management should consider the following factors:

1. Common goals
2. Interests of members
3. Age
4. Length of time to complete tasks
5. Personalities of team members

Advantages

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1. Various views are heard and the best solution can be sought
2. A larger pool of ideas
3. Individuals may feel a greater since of belonging to the organization
4. Tasks may be completed with better results since the best of skills of each team member can be used.
5. Increased productivity

Disadvantages
1. It may take longer to make decisions
2. Some individuals may be ignored
3. Increase in the level of conflict which can lead to reduced productivity
4. Individuals with powerful personalities may dominate/take over the group and refuse to listen to others.
5. Good solutions may not be considered especially if they are coming from the weaker team members
6. Deadlines may not be adhered to.

COMMUNICATION
This is the movement of information from one point to another which helps towards the understanding and
fulfillment of an objective. Effective communication requires a two-way flow of timely information.
Through communication, the different parts of the organization are linked. It also connects it with the outside
world (i.e. other firms, individuals, government etc.). If the communication process is not effective, the
following may happen:
1. Delays may occur
2. Production may cease
3. Increase in production cost
4. Closure of the organization
5. Increase in level of conflict

Process of Communication
The following elements are needed if communication is to take place.

SENDER: origin of message

MESSAGE: actual information
MEANS OF COMMUNICATION: method used to transfer information
RECEIVER: intended party
E.g. The Human Resource Officer placed a memo on the Office notice board stating that lunch would be
changed from 11:30-12:30 to 12:00-1:00. This would only apply to production staff.

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 Methods of Communication (Internal)
(Under each heading insert different methods of communication)

ORAL WRITTEN VISUAL

Methods of Communication (External)

ORAL WRITTEN VISUAL

Factors Affecting Effective Communication

1. The sender may not be trusted
2. The information may not be timely or accurate.
3. The method of communication may be experiencing technical problems or may not be
appropriate
4. The sender may not understand the message
5. Unresolved conflict between the sender and receiver
Ex. List at least 5 methods/strategies that may be used to improve the effectiveness of communication.

MANAGEMENT INFORMATION SYSTEMS (MIS)

This is any system which has been put in placed within the organisation to provide management with needed
to make accurate and timely decisions. It is usually computer based but may also be manual

Benefits of MIS
1. Savings in time

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 It is easier to access information from a computer than from manually stored files.
2. Savings in money
In the long run it is easier to store files on a computerised system
3. Improvements in production and marketing techniques
4. Improvement in decision making
If management can get accurate information they are better equipped to make
decisions
5. Increase in profit margins
Better operations and decision making leads to increased profits
6. Increased competitiveness
If the needs of the market are better known, then the organisation can position itself
to compete with others firms.
7. There is greater sharing of data among different departments
8. Savings in labour
Less people are neede3d to work if a system is computerised
9. It enhances communication by making information more readily available.

Challenges of MIS
1. Costly of setting up and maintenance
e.g. purchasing equipment, security system, maintenance personnel ( in-house or out
sourced)
2. Training
When introducing a new system, members of staff must be trained on its operations
if it is to work effectively. This is an additional cost to the organisation
3. Human error
There is always the issue of information being input to the system incorrectly. This
in term will affect the accuracy of information filtered through the organisation and
hence decision making.

MOTIVATION
As a part of managing or leading a group of individuals, motivation is the key to achievement of goals. This
can take a monetary or non-monetary form.
Monetary Incentives
Increase in salary
Bonus(maybe at year end)
Merit pay( for persons who have excellent work)

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 Profit-sharing
Employee shares
Commission (percentage of sales made by the employee)

Non-monetary Incentives
Housing Allowance
Health benefits
Pension Schemes
Employee of the Month Programmes

NEEDS SATISFIED THROUGH WORK

Monetary satisfaction
Achievement
Status
Social needs (friendship)
Psychological needs met(personal growth)

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