Theme 1- Marketing and people Flashcards
what are the 7 factors leading to a change in demand?
- changes in the prices of substitutes and complementary goods
- change in consumer incomes
- fashion, tastes and preferences
- advertising and branding
- demographics
- external shocks
- seasonal factors
explain ‘changes in the prices of substitutes and complementary goods’ for a change in demand
- if the price of substitutes go down it could lead to a decrease in demand for your product
- if the price set by the software producers for the PS4 games goes up it would have an effect on hardware. some would still to PS3 or change products. the software and hardware are complementary goods and so sales of one have a positive effect on sales of the other
explain ‘changes in consumer incomes’ for a change in demand
- the demand for most products and services grows as the economy grows. goods like cars and cinema tickets are normal goods so demand lines with income
- inferior goods see sales falling when people are better off, e.g. Tesco value products
explain ‘fashion, tastes and preferences’ for a change in demand
- Fashion is very difficult to manage as by definition what goes up must come down. Very few brands stay in fashion forever. Yet some brands such as Chanel and Nike do seem to be eternally fashionable.
- Consumer tastes and preferences can be fickle but generally, there is a core of stability that helps companies feel confident about ongoing demand. An example is the demand for gym membership. Yes, it may suffer during a recession but the ongoing consumer preference for this expenditure has been proven over the decades.
explain ‘advertising and branding’ for a change in demand
- Those who do the most advertising are much more likely to suffer higher demand due to the increased awareness of the product.
- In the long run, branding is more important than advertising as if the brand is one that the customer finds memorable and can identify with then the payback will be huge. The value of a brand is its ability to command a higher price for products and to achieve high levels of customer loyalty.
explain ‘demographics’ for a change in demand
- The top two yoghurt brands are focused on children and so these demographically based brands transformed demand in the yoghurt market. In the 1970’s, the market consisted solely of plain, unsweetened yoghurt in glass jars.
- Today the most exciting area for demographic opportunity is old people. There is a large growth projected to happen in this age bracket as life expectancy rises. This could lead to many businesses adapting their products to suit the demographic change, thus leading to higher demand.
explain ‘external shocks’ to a change in demand
- in May 1996, the EU banned all exports of beef from the UK due to the fear of ‘mad cow disease’, lifted after 10 years and led to a collapse in the market price of beef in the UK due to the very low demand
- Lots of businesses will face external shocks on a fairly regular system. For example, if there is a train line down or there is a blocked road due to works it will lead to the nearby shops receiving much less demand
- Further external shocks include natural disasters, a change in law and an unexpected change of mind by a major customer or supplier
explain ‘seasonal factors’ for a change in demand
- Some markets such as ice cream, soft drinks and seaside hotels boom in the summer and slump in the winter whilst markets such as sales of perfume, liquors and greeting cards boom at Christmas.
- Those with less obvious seasonal variations in demand include cars, TVs and newspapers. The variation is caused by patterns of customer behaviour and nothing can be done.
- A well-run business makes sure it understands and predicts the seasonal variations in demand to then form a plan for coping
what are the two demand risks?
1) undiversified demand
- a business must try to diversify, spreading the risk by fining new sources of demand and therefore being less reliant upon any single source
2) overtrading
- sometimes small business grow so quickly that they struggle to generate enough cash to meet rising bills due to rising production levels
- Meeting next month’s higher demand levels requires extra cash spent today, creating a strain on the firm’s cash position
what is supply?
the quantity of a product that producers are able to deliver within a specific time period.
what is the profit-maximising point?
where firms supply at the level that makes as high a profit as possible
what are the 5 factors leading to a change in supply?
- changes in the costs of production
- introduction of new technology
- indirect taxes
- government subsidies
- external shocks
explain ‘changes in the cost of production’ on supply
- These include the cost of materials, rent, fuel, salaries and advertising
- The higher the costs, the lower the incentive to supply due to the lower profits. However, if all your competitors face the same cost increases you may not worry. You can assume that if everyone puts their price up then market share figures should remain unchanged.
explain ‘introduction of new technology’ on supply
- This can have a significant effect on production costs and efficiencies.
- A big increase in the supply of robots can lower production costs and also help to boost production capacity. Therefore, supply is not only cheaper but also more plentiful.
explain ‘indirect taxes’ on supply
- These are taxes levied by government onto goods and services. The most common one is the 20% rate of VAT put onto most goods and services.
- If the government decided to increase the duty on petrol, this would add to the cost of supply. Therefore, oil companies would wish to supply less petrol to the market and therefore would push the price up.
explain ‘government subsidies’ on supply
- The reverse of taxation is subsidy. This is when the government wants to promote supply and therefore gives businesses a financial contribution towards supply.
- Through an increased amount of subsidies it will increase supply.
explain ‘external shocks’ on supply
- Cars are made out of steel and aluminium but also use a lot of copper. These metals are commodities with prices governed by the world market. When the recession hit in late 2008, the copper price crashed majorly. Any company that bought stockpiles of copper at the much higher previous price would suffer significant losses when the market price fell in that way.
- Other external shocks include natural disasters such as floods and earthquakes as they can disrupt supply lines, causing particular problems for retailers who choose to keep minimal stock. This led to very low stock and therefore prices rose.
what is a supply curve
a graphical representation of the relationship between quantity supplied and price, for all suppliers
what is equilibrium?
is the point where there is a balance between supply and demand, this makes the price stable
what is market price?
when price is determined by market forces (supply and demand)
what is a demand curve?
shows how much will be consumed of a good at each and every price level
explain what is shown on a demand curve
- There is generally a negative relationship between price and quantity demanded
- The areas underneath the demand graph is the sales revenue
- Increase in demand is a shift to the right (coke, summer weather)
- Decrease in demand is a shift to the left (increase in diabetes for coke
explain the interaction of supply and demand
- the only point at which supply and demand are equal is where the two lines cross over, this is called equilibrium
- price on y axis and quantity on x axis
- At a lower price, there is lots of demand and not enough supply so they must increase prices
- Q supplied – Q demanded = unsold stock/excess supply. They must then drop prices to get back to equilibrium.
what happens when supply is down and:
demand up
demand the same
demand down
when supply is down:
demand up = price up sharply
demand the same = price up
demand down = price same
what happens when supply is the same and:
demand up
demand the same
demand down
when supply is the same:
demand up = price up
demand the same = price same
demand down = price down
what happens when supply is up and:
demand up
demand the same
demand down
when supply is up:
demand up = price same
demand the same = price down
demand down = down sharply
explain supply and demand in practise
- The key to meeting varying demand is to anticipate it by varying supply
- A seaside hotel would hire more staff during its busy summer months due to the higher demand for hotel rooms
- Businesses need to be able to adapt their supply depending on their demand, this can be stressful for employees when it isn’t correctly predicted.
- If there is a low demand, supplies must lower and if this isn’t done then it can be very costly to the business as there will be lots of waste.
what does price elasticity of demand mean?
measure the extent to which demand for a product changes when its price is change
- If a customer is sensitive, the demand is elastic
- If a customer is not sensitive, demand is inelastic
what is a price-elastic product?
a product with demand that is highly price sensitive, so price elasticity is above 1
This means the percentage change in demand is greater than the percentage change in price that created it.
The higher the price elasticity figure, the more price elastic the demand. Cutting price on a product with price-elastic demand will boost total revenue.
On the other hand, a price increase on a product with price-elastic demand will lead to a fall in total revenue.
they have a PED of between -1 and -5
what is a price-inelastic product?
a product with demand that is not very price sensitive, so price elasticity is below 1
Products with price-inelastic demand have price elasticities below 1.
This means the percentage change in demand is less than the percentage change in price. In other words, price changes have hardly any effect on demand, perhaps because consumers feel they must have the product or brand. The companies will be tempted to push the prices up.
A price increase will boost revenue because it’ll only create a small fall in sales. This means the majority of customers will continue to buy the brand but at a higher price.
they have a PED of between -0.1 and -0.99
what does price elasticity do
Economists use the term ‘the law of demand’ to suggest that, almost invariably when price goes up demand goes down and when price goes down, demand goes up. Price elasticity thinks further than the law of demand by asking, ‘when the price goes up, by how much do sales fall?’. It allows businesses to forecast what will happen to sale volumes and revenue if prices were to change.
what is the formula for price elasticity of demand?
% change in quantity demanded / % change in price
it will always be a negative number because there is negative relationship between price and demand
what are the 3 factors determining PED
- availability of consumer substitutes
- branding and brand loyalty
- the degree of product differentiation
explain the influence of ‘availability of consumer substitutes’ on PED
- e.g. is there a goof replica?
- If a brand had no direct competition then price elasticity is much lower (inelastic) and therefore the brand owner can push the price up without losing too many customers
explain the influence of ‘branding and brand loyalty’ on PED
- e.g. those with a low PED are those that consumers grab without looking at the price tag. This could be coke.
- If a good is a necessity then it is more inelastic, if it is a luxury then it is elastic
- strong brand names with strong brand image creates customers who buy out of loyalty
explain the influence of ‘the degree of product differentiation’ on PED
- this is the extent to which customers view the product as being distinctive from its rivals, if the cover price is increased and it is similar to rivals then it is easy for people to switch to an alternative
what does knowing your price elasticity mean for a business
A business that knows its price elasticity can make better decisions than one that is in ignorance. Data on a product’s price elasticity of demand can be used for two purposes: sales forecasting and price strategy
how does price elasticity help sales forecasting
- A firm considering a price rise will want to know the effect the price change is likely to have on demand
- Producing a sales forecast will make possible accurate production, personnel and purchasing decisions. This will allows them to produce the perfect amount of stock and avoid waste.
how does price elasticity help pricing strategies
- Pricing is a crucial factor in determining demand and profitability, implications of a price change on revenue.
- see what price would work the best for the business and how much revenue they would expect to get from the change in price
what are the strategies for reducing price elasticity
Companies prefer to sell products with price-inelastic demand. Charging more for these guarantees an increase in short-term profit. If a firm have price-elastic products they will feel vulnerable.
To reduce price elasticity they need to find a way of reducing the number of substitutes available. This is done by:
- Product differentiation
- Reducing the competition (done through predatory pricing, such low prices that it forces a competitor out of a market by charging a low, loss-making price)
Why are consumers better off buying price-elastic products?
Because the close rivalry between suppliers ensures efficient, value-for-money products
Why might it be a mistake to cut the price of a product with high price elasticity of demand?
As demand will jump ahead following the price cut, this might hit competitors so hard that they have to respond- risking a price war
what is the impact of a price rise on revenue for products with price-elastic and also for price-inelastic demand?
elastic- sales fall sharply…so revenue falls
inelastic- sales fall, but not much…so revenue rises
what is income elasticity of demand and how do you calculate it?
measures the extent to which demand for a product changes when there is a change in consumers’ real incomes. The shorthand YED is often used for income elasticity of demand.
% change in quantity demanded / % change in real income
how is income elasticity of demand different to price elasticity of demand?
In contrast to price elasticity, this is out of the business’ hands and is affected by changes in the economy- that is, changes that are totally outside the company’s control. This occurred after the recession with car sales where in Italy they halved. Car companies had to cut production and cut costs.
what is meant by real income and how is it calculated?
This is the amount the average employee receives before any deductions for tax or pension contributions. In 2014 the figure was 0.6% higher than the previous year.
% change in real income = % rise in average earnings - % rise in price
Another way of expressing this is to say that real incomes are incomes after allowing for inflation.
how do you interpret numerical values for income elasticity?
- A ‘normal good’ with positive income elasticity of demand, and a YED of between 0.1 and 1.5
- A ‘luxury good’ with very positive income elasticity of demand more than 1.5
- An ‘inferior good’ which is one with a negative income elasticity of demand, as people become better off, they buy less of it
what is positive and negative income elasticity?
positive- a product for which sales rise when people are better off (but fall in recessions)
negative- a product for which sales fall when people are better off ( but rise when people are worse off)
what are the 3 factors influencing income elasticity of demand?
- whether the product is a necessity or self-indulgence
- who buys the product/ level of income
- positive and negative elasticity
explain the influence of ‘whether the product is a necessity or self-indulgence’ on income elasticity of demand
- When incomes rise people are happier to splash out on luxuries like posh hotels and champagne but when real incomes decrease they suffer sharp sales declines
- So for luxury products, income elasticities are strongly positive
- By contrast, necessity goods will have low (but usually positive) income elasticities of demand
explain the influence of ‘who buys the product’ on income elasticity of demand
- Some luxury products are bought only by the super rich and their incomes may not be affected by a change in ‘average’ real incomes, e.g. Chanel bags may be unaffected. It is important to measure income elasticity of demand for each individual brand rather than assume that all posh bags are the same.
explain the influence of ‘positive and negative elasticity’ on income elasticity of demand
- When falling incomes lead to a sales boom, the product or service has negative income elasticity, e.g. poundland
- However, the majority of products have positive income elasticity of demand- that is the better off we feel, the more we spend and buy. Most goods are ‘normal’ and their income elasticity is about +1 meaning a 3% rise in real incomes would cause a 3% rise in sales
what is the significance of income elasticity of demand to businesses
It is vital in order to develop a well-balanced product portfolio. Because inferior goods sell well during a recession, it is good for a company to have inferior goods as well as luxury goods. Data on a product’s income elasticity can be used for two purposes:
1) sales forecasting
2) financial planning
how can knowing a product’s income elasticity help firms for sales forecasting?
- In order to determine how many stores a firm can open up they must look at forecasts for economic growth in the UK, together with forecasts for the likely changes in real incomes.
- If and when the forecasts turned strongly positive, it would say that Poundland would start flattening off however jaguar land rover would have a very different sales forecast. The rising real incomes would mean higher sales and therefore higher production capacity and hiring and training new staff.
how can knowing a product’s income elasticity help firms for financial planning?
- Once a business can forecast its future sales level, it can start to plan for the financial implications.
- If sales are likely to boom then higher production will be needed and so they will probably need a significant amount of extra funding, perhaps requiring a bank loan.
- If sales are likely to fall then the business will try to find a plan to cut its cash outgoings in order to survive the problem period.
Why might it be a good thing if your product has negative income elasticity of demand?
Because it gives your company some protection against periods when people are getting worse off (recessions)
Why do products with high price elasticity not necessarily have high income elasticity of demand?
Price elasticity is about competition and differentiation, income elasticity is about luxury, so a Bentley has low price elasticity but high income elasticity.
what is a normal good?
- A ‘normal good’ with positive income elasticity of demand, and a YED of between 0.1 and 1.5
- demand increases as consumer income rises
- goods which sales move in line with changes in consumer incomes
what is an inferior good?
An inferior good means an increase in income causes a fall in demand.
- It is a good with a negative income elasticity of demand (YED).
what is a luxury good?
- A luxury good means an increase in income causes a bigger percentage increase in demand, however struggles during harder times
- It means that the income elasticity of demand is greater than one.
what is a unitary price elasticity of demand?
This means that the percentage increase/decrease in price will be exactly equal to the decrease/increase in quantity demanded.
what can staff be viewed as?
a cost or an asset
why would one see staff as an asset?
some say that your staff are your greatest asset- your competitive advantage. you want to attract and retain the best, provide them with encouragement and make them feel like they are an integral part of the company’s mission
why would one see staff as a cost and what would they do?
some seize every opportunity to cut these costs, perhaps by outsourcing tasks and by changing employment contracts from permanent and full-time towards the insecure wolf dog zero-hour contracts
what is the key to effective people management?
1) Making sure you have the correct amount of staff, with the right skills and experience and in the right places to meet all production and customer service requirements
2) Making sure those staff understand the business culture and are motivated in the right way, to ensure that quality standards match or beat customer expectations
what does redeployment mean?
retaining a staff member to give the skills required to take on a new job role
what is the concept of a flexible workforce?
To succeed in modern markets where customer needs are ever-changing, many firms have adopted lean production.
This approach implies the use of machinery that can be quickly reprogrammed to carry out a range of tasks, and the creation of a multi-skilled and flexible workforce that can quickly adapt – and be adapted – to meet a firm’s changing requirements.
- ever-imrpovng technology means that the marketplace is subject to frequent and often rapid change. firms need to be able to adapt to these changes quickly.
- firms adapt their goods and services to meet demand
- increasing competition especially from overseas means they need to introduce greater operational flexibility
what are the 4 ways of achieving a flexible workforce?
multi-skilling
part-time and temporary
flexible hours and home working
outsourcing
what is multi skilling and what are the benefits and costs?
this occurs when workers are given the scope and ability to carry out a variety of tasks, rather than specialising in completion of one particular area. this can be done through job rotation.
benefits:
- Increases in productivity from greater utilisation of employees
- Reduction in disruption to production caused by staff absence
- Greater employee motivation created by more varied and challenging tasks
costs:
- Potential loss of production as workers switch between different tasks
- Greater training requirements and cost as workers gain a range of skills
- Workers may be reluctant to gain more skills, especially if there is no corresponding increase in pay
what is part-time and temporary working and what are the benefits and costs?
giving staff short-term contracts in order to cut staff or keep up with busy periods
benefits:
- gives businesses flexibility, saves money
- it makes it easier for firms to cut staff without criticism
- able to increase staff in busy periods, sustain customer service
costs:
- this can be difficult for employees as they aren’t earning a lot of money
- difficult for communication
- fewer chances of receiving a promotion, decreased motivation
what is the use of flexible hours and home-working?
when home-workers generally work on a laptop connected permanently to the main office in their home, this can be done through part-time, job sharing, annualised hours contacts and flexitime. this is done to respond more effectively to customer demands.
benefits:
- benefits for employees who have other commitments such as family
- Providing staff with more flexible working arrangements can help to improve recruitment, increase motivation and reduce labour turnover, leading to reduced costs and a boost of productivity
- Home-working may be preferred by a business as they want to keep overhead costs down so they encourage them to work at home.
- this can be done in order to respond more effectively to customer demands.
costs:
- may not be as productive at home, productivity down, profits down for the business
- the use of zero-hour is risky as they are unsure whether they will have any actual work
- harder for team orientated environments where they have frequent meetings and conferences to discuss about future projects
what is outsourcing and what are the benefits and costs?
This involves a firm finding an external business to carry out part of the production process, in order to cut costs or achieve a better level of service.
benefits:
- access cheaper labour, reducing costs
- allows the office in the UK to focus on business strategy rather than on production, could lead to increased productivity
costs:
- loss of control as you go abroad, may lead to poor decisions being made
- the quality of the workforce may be poorer abroad and so the job may not be does to the same standard
- problems with shipping if everything is made abroad
what are the overall positives of flexible working?
- Reduce costs when people work part time and can be employed only for seasonal periods when there is an increase in demand
- Higher motivation and less travel time when involved with homeworking
- Multiskilling means less staff are needed, motivating due to varied tasks
what are the overall costs of flexible working?
- Homeworking means it is difficult to communicate and many lack motivation due to the lack of team spirit, decreases productivity
- Managers find it difficult to manage
- Multiskilling means greater training requirements and costs
what are the 3 scenarios when a firm may dismiss staff?
1) When they lack the competence to carry out their duties effectively- or are too disruptive
2) When economic or other factors depress demand, need to cut costs
3) When competitive or other factors cause the business to lose market share which means they need to cut staff
the last two cases are times of redundancy. in these cases there are legal requirements they need to abide to.
what is dismissal?
Dismissal isn’t about the job, it is about the individual. This can be done due to misconduct or a lack of competence. The management must demonstrate fairness by giving warnings. Dismissal comes with no payments at all.
what are employers-employee relationships like depending on the business?
- In smaller firms they may have an informal group consisting of one person from each department where monthly meetings are used as a way to raise problems and discuss future plans
- In larger firms, more formal methods are used to ensure there is a structure to allow an element of workplace democracy. Or they may belong to a trade union that represents their interests.
what are trade unions?
A trade union is an organisation that employees pay to join in order to gain greater power and security at work.
- Union membership provides greater influence collectively in relations with employers than workers have as separate individuals
- Before trade unions were solely for obtaining satisfactory rates of pay but now the most important aspect is the protection of workers’ rights under the law.
- Traditionally the key function of a union was ‘collective bargaining’. This means that the union bargains with the employers on behalf of all the workers.
what is individual bargaining and what are the pros and cons?
Negotiations between individual employees and the employer. This is usually regarding contract of employments and the term and conditions.
-Most employers are in favour of individual rather than collective bargaining as it puts the boss in a stronger position
Positives:
- prevents an uncomfortable work environment, composed and maintains relationship
- reduces es disruption, only one member
Negatives:
- lack of voice, may not be successful
- Can face discrimination due to the lack of people involved, not a set up group, more vulnerable to misjudgement
why have trade unions declined in recent years?
tougher laws and privatisation has made it harder for strikes to succeed, and that weakens union power
what is hot-desk?
an approach that provides a temporary desk for home-workers to use when they come to the main office, they are not allowed to keep any of their possessions here
what are peripheral workers?
those workers who are not seen as being central to a firm’s operations. They may be required only on a temporary basis and may be easily replaced.
what are the 4 reasons to recruit staff?
1) Business expansion
- Increasing sales of existing products
- Developing new products
- Entering new markets
2) Existing employees leaving
- Work with competitors or other local employers
- Due to retirement, sick leave or maternity leave
3) Business needs employees with new skills
4) Business is relocating
- Not all existing workforce want to move to the location
outline the recruitment and selection process
1) Identify the vacancy
2) Draw up a job description (responsibilities and workload)
3) Draw up a job specification (qualifications, characteristics)
4) Advertise the vacancy (internally or externally)
5) Shortlist applicants
6) Interview
7) Appoint the successful candidate
what is internal recruitment?
within a business, recruitment within a company lacking
selection from existing staff
- Promotion/transfer
- Internal advertisement, e.g. intranet, noticeboards
- Personal recommendation, e.g. from a manager
what are the positives and negatives of internal recruitment?
Positives:
- Cheaper (no induction training) and quick
- Promotion/varied job opportunities can be used as a form of motivation for employees
- Already know who you are recruiting
Negatives:
- Another vacancy may be created
- Ideas may stagnate due to ‘lack of new blood’ in the organisation
- Existing workers may not have the skills required
what is external recruitment?
External recruitment- advertising job vacancies outside of the business to recruit people who do not already work there
- Recruitment agencies
- media advertising
- firm’s website
- Job centre
what are the positives and negatives of external recruitment?
Positives:
- Bigger group of people to select from (could be better suited/qualified)
- No vacancy created as a result
- New ideas and perspectives may be brought to the business
Negatives:
- Can be very expensive and time consuming (especially for smaller business)
- Induction training needed which is an additional cost
- It can be demotivating to existing members of the existing workforce
what is the process of candidates being shortlisted?
- Shortlisted according to how well they fit the job description and person specification
- A shortlisting scoring grid will be used with candidates score according to ‘desirable’ and essential qualities
what is the process of candidates being interviewed?
- May be a face-to-face interview with a panel or one person
- May be a telephone interview or carried out on skype
- Group interviews where a group of candidates are observed completing a task
what are other possible recruitment activities?
- Aptitude test (usually multiple choice) to test knowledge/skills/ability/ intelligence
- Assessment centre where candidates get real life stimulations
- Psychometric testing where personal and attitudes are tested to see if they ‘fit’ with the business
what are the positives and negatives of video interviewing?
Positives:
- You can see someone and get an impression
- Quick, saves time as you can get through a few at a time
Negatives:
- Not as detailed as meeting face-to-face
- Can’t amend questions/change conversation, can’t tailor
what are 2 costs of recruitment and selection?
- This includes the cost of hiring temporary workers and the 28 weeks it takes until the new employee is working at their maximum productivity
- Another direct cost is the management time spent interviewing candidates, recruitment agency fees, advertising and HR time spent administrating the process
what is training?
process of equipping employees with the skills and knowledge necessary to carry out their job efficiency
what are the positives and negatives of training?
Positives of training:
- It increases the level and range of skills available to the business, leading to an increase in productivity
- It increases the degree of flexibility within a business, allowing it to respond quickly to changes in demand
- It can lead to a more motivated workforce by creating opportunities for development and promotion
Negatives of training:
- It can be expensive, providing the training itself and the cost of evaluating its effectiveness
- Production may be disrupted while training is taking place
- Newly trained workers may be persuaded to leave and take up job elsewhere
what is on-the-job training?
where an employee learns in the workplace from experienced employees, they acquire or develop skills without leaving their usual workplace
what are the positives and negatives of on-the-job training?
Positives of on-the-job:
- Tailored to the company’s own ways of working
- After a mistake, can get instant advice from fellow workers
- Saves the time and cost of spending people out
Negatives of on-the-job:
- Less knowledge acquired on methods used elsewhere
- May take a lower priority, as staff focus on production targets
what is off-the-job training?
where employees leave their normal place of work in order to undertake training, either within the firm or by using an external organisation
what is induction training for a new employee?
Induction is introductory training for employees new to an organisation
- They receive a tour of the organisation, introduced to other colleagues, details of employment, e.g. holidays and salary
what is an evaluation of training?
Many organisations continue to view training in particular as an avoidable expense, choosing to cut training budgets when under pressure to cut costs.
Although training is an expensive process, the cost of a lack of staff retention is greater and so effective training is vital otherwise the firm is to face serious burdens.
what is an organisational structure and what does it show?
creates a formal hierarchy that establishes who is accountable to whom throughout an organisation
It shows:
- Authority and responsibility
- Job roles and titles
- Accountability
- How communication flows
why is it necessary to have a structure?
- Divides up roles so everyone does something different and knows what they are doing so no time is wasted
- Need to know who has authority to make decisions
- Easier to find gaps and problems to recruit new people
- It determines the efficiency of the business through the determination of communication, tasks being overlooked and the duplication of tasks
what is a hierarchy?
A system in which people within an organisation are arranged based upon their importance
what is the span of control?
the number of employees for whom a manager is responsible
The ideal span of control will depend upon the nature of the tasks and the skills and attitude of the workforce and manager.
what is a tall hierarchy and what are the positives and negatives? (narrow span of control)
they have lots of different levels of authority within the business. these are largely present in focused, career-orientated workforces. the span of control is narrow.
Advantages:
- lots of supervision
- helps more effective communication with the small, immediate team
Disadvantages:
- no freedom, very structured approach, restricted scope for initiative and experiment
- usually not very caring, one may feel devalued and isolated due to the number of people in the business
what is a flat hierarchy?
this is when they have less levels of hierarchy. they are perhaps present in innovative and smaller businesses and through the minimal levels, one may say that communication is easier. this creates a wide span of control.
what are the positives and negatives of a flat hierarchy/wide span of control
Advantages:
- cheaper, reduce the need for managers
- lots of freedom, great for a young and dynamic market
- perfect for the service sector, where most workers are always in touch with the customers, creates motivation
Disadvantages:
- trust-dependant, lots of people to look after and so it is impossible to closely supervise people
- can’t talk to everyone, relationships
- may not be suitable for big businesses due to the lack of control in a very important business
what is the chain of command?
it describes the lines of authority within a business. this is the flow of information, power and authority through the organisation.
- Those at the top have more power and authority
- They can delegate tasks to those subordinate to them in the hierarchy (below them)
- Complaints and status reports flow up the chain, orders flow down the chain
- In a structure with several levels of hierarchy the chain of command will be longer and so if the info has to travel through several people, there is a chance it becomes distorted
what did Taylor and fayol base their thoughts on for organisational structures?
- They both saw the function of organisations as converting inputs such as money or materials into output. Therefore, designing an organisation was like designing a machine, the objective being to maximise efficiency
The key features of their hierarchy would be as follows:
- To break up the organisation up into divisions with a common purpose, these being the 4 business functions
- Every individual would answer to one person: their line manager
- The span of control would be kept low so the managers aren’t overloaded with subordinates
- To achieve low spans of control, it would be necessary to have many management layers
what is a centralised and decentralised business?
centralised- one in which the decision making power and control remains at the central headquarters in the hands of the top management levels
decentralised- the transfer of decision making and responsibility away from the central headquarters to local divisions
how can business be both centralised and de-centralised?
in schools, decentralised as in the resources needed but centralised in the future of the school
what is a matrix structure?
where staff work in project teams in addition to their responsibilities within their own department. therefore, staff can be answerable to more than one boss.
Whereas most people know who their boss is and the lines of accountability are clear, in a matrix structure it is different. Your job description may say that you work in marketing but you may have been put in a project team that is ‘cross-functional’. This means it may include a design engineer from operations, an accountant and a marketing executive, all working together to find a solution to a problem.
what are the pros and cons of a matrix structure?
Advantages:
- Working together should avoid each function trying to ‘win’ by getting its own ideas at the forefront
- Working together should avoid hold-ups (marketing putting something through and then operations stalling on it) and speed is vital to a competitive advantage
- It enriches the experience of every team member, as they learn the views of those from other departments
Disadvantages:
- each matrix member will now have two bosses: the project leader and their functional boss meaning it is hard to resolve priorities, caught in the middle
- unless the project manager is experienced, people from four functions may struggle to agree when key decisions are needed
- increases organisational complexity
what is motivation?
the desire to push yourself to achieve what you want to achieve, inspiring the will to work within employees
how can different organisational structures affect motivation?
- extremely unlikely in a tightly supervised role, and therefore a narrow span of control/tall hierarchy is likely to limit motivation.
- Much more promising is a less structured, flat hierarchy. This is what determined the success of Microsoft and apple. Individuals were given freedom to develop their ideas within a loose, but flat structure.
who is Taylor and what was the F.W. Taylor and scientific management?
He was an American (1856-1917) and had a massive influence over the 20th century. much business practise in America, Japan and europe is still rooted in his writing and work.
- Taylor believed that people only work for one reason: money and so he saw it as the task of the manager to devise a system that would maximise efficiency in order to generate a higher profit and then the workers will be able to be payed a higher wage.
- Workers do not enjoy work and so they should be supervised closely
- Managers should break down production into a series of small tasks so that it can be done quicker
- Workers should be given appropriate training and tools so that they can work efficiently
- Workers should be paid by performance (piece rate) as then they will be encouraged to work hard and maximise productivity.
- This theory is associated with manufacturing and factory work.
what were the main outcomes of F.W Taylor and scientific management?
- Tall hierarchy may be better so workers can be supervised and controlled
- Autocratic leaderships style links with this theory
- Performance related pay would be a good motivator, e.g. piece-rate, bonus
- high division of labour
how was Henry ford influenced by Taylor’s work?
- By 1911, the ford factory in Detroit was already applying Taylor’s principles of high division of labour, purpose-built machinery and rigid management control.
- When ford introduced the conveyor belt in 1913 he achieved Taylor’s idea of men’s pace of work dictated by a mechanical conveyor belt.
- This eventually led to workers rebelling against being treated like machines.
- Trade union membership thrived in factories run on Taylorite lines.
what was Elton Mayo and his human relations theory and what did he find out?
His first experiment was known as the relay assembly test. Six volunteer female assembly staff were separated from their workmates and a series of experiments were carried out. These were then discussed with the volunteers. Every 12 weeks, a new working method was tried such as:
- Bonus methods
- Rest periods
- Refreshments
- Work layouts
He found that:
- Employees are motivated by relational factors (attention and camaraderie) more than monetary rewards or environmental factors
- In 1920 he discovered that employee satisfaction increased employee participation in decisions (productivity). He also found that improved lighting and regular breaks only temporarily increased productivity
- He concluded that 3 main things are needed for motivation: better communication, greater participation from managers and working as a team.
- Businesses should encourage team-work and introduce personnel departments to encourage involvement from the manager
- Involve workers in decisions = more motivation
- Workers must believe that their managers are interested in them, the influence of this upon motivation is known as the ‘Hawthorne effect’
- Financial incentives and working conditions only improve motivation temporarily
who is mayo and what were the main outcomes of Mayo’s work?
Elton mayo (1880-1949) was a medical student who became an academic with a particular itnerst in people in organisations. Early in his career, his methods were heavily influenced by F.W. Taylor.
- Businesses should encourage team-work and introduce personnel departments to encourage involvement from the manager
- Involve workers in decisions = more motivation
- Workers must believe that their managers are interested in them, the influence of this upon motivation is known as the ‘Hawthorne effect’
- Financial incentives and working conditions only improve motivation temporarily
Who was Maslow and what was the hierarchy of needs?
what were the main outcomes?
Abraham Maslow (1908-1970) was an American psychologist whose great contribution to motivation theory was the ‘hierarchy of needs’
- He believed that everybody has the same needs, all of which can be arranged into a hierarchy
- At the base of the hierarchy are physical needs such as food, shelter and warmth. When unsatisfied, these are a persons primary motivation.
- When employees earn enough to satisfy their needs their motivation fades away and their new motivation becomes the level above them. This is how they move up the pyramid.
main outcomes:
- Methods of motivations will depend on where they are on the pyramid
- In very low-paid jobs, money may be a motivator but once money needs have been met health, safety and job security become more important.
what were the 5 levels of hierarchy in Maslow’s hierarchy of needs?
from bottom to top:
1) physical needs (food, shelter, pay levels)
2) safety needs (a safe structured environment, stability, job security)
3) social needs (belonging, friendship, team working)
4) esteem needs (strength, status, recognition for achievement)
5) self-actualisation (self-fulfilment, scope to develop new skills and meet new challenges)
what are the criticisms of Maslow’s hierarchy of needs?
Do all humans have the same set of needs? Are there some people who need no more from a job than money?
Can anyone’s needs ever be said to be fully satisfied? The reason the hierarchy diagram has an open top is to suggest that the human desire for achievement is limitless.
what was herzberg’s two-factor theory?
the key test of a theory is its analytic usefulness.
- he asked employees for 5 changes that would increase motivation and 5 changes that would decrease their motivation
- herzberg saw salary as a hygiene factor, not a motivator
for herzberg’s two-factor theory what were the 5 changes that increased motivation?
recognition for achievement, work itself, responsibility, advancements, achievements
for herzberg’s two-factor theory what were the 5 changes that decreased motivation?
working conditions, interpersonal relations, salary, supervision and company policy and administration
what were the main outcomes of herzberg’s two-factor theory?
- A business has to provide the hygiene factors otherwise employees will be dissatisfied
- To motivate workers they must recognise and reward achievement, make jobs interesting, give workers responsibility and help workers develop progress
what were hygiene factors for Herzberg?
Hygeine factors- ‘everything that surrounds what you do in the job’, such as pay, working conditions and social status; all are potential causes of dissatisfaction, according to Herzberg
Care to fulfil hygiene factors prevents job dissatisfaction
for herzberg’s two-factor theory what was his distinguishement between movement and motivation?
Movement occurs when somebody does something, motivation is when they want to do something.
Herzberg advised against payment methods such as piece rate as this would achieve movement but would reinforce worker behaviour, making them inflexible. The salaried, motivated employee would care about quality.
- his work was so good because he not only analysed motivation but he also had a method for improving it. this was called job enrichment which he defined as ‘giving people the opportunity to use their ability’
what is job enrichment?
This involved jobs constantly changing for the employee in order to make it more varied and challenging.
This would lead to them becoming more motivated as it is less repetitive.
what are the 4 main variables that influence the motivation of staff in practise?
1) Financial incentives
2) Empowering the employees: delegation, consultation and empowerment
3) Team and flexible working
4) Job enlargement: job enrichment and job rotation
what are the 5 financial reward systems?
piecework commission bonus profit share performance-related pay
what is piecework and what are the positives and drawbacks?
Piecework means working in return for a payment per unit produced. Pieceworkers receive no basic or shift pay, so there is no sick pay, holiday pay or company pension.
It is used in small-scale manufacturing and means that supervision is virtually unnecessary. All the manager needs to do is operate a quality control system.
Positives:
- increased production will reduce the cost of production allowing a greater profit margin to the employer
- less supervision is required because workers have the fear of not earning wages if they do not work
- the employer is able to how his exact labour cost per unit which will help managers see who is working the most efficiently
Disadvantages of piecework
- Scrap levels may be high, if workers are focused entirely on speed of output.
- There is a incentive to provide acceptable quality, but not the best possible quality.
- Workers will work hardest when they want higher earnings (probably before Christmas and before their summer holiday), this may not coincide at all with seasonal patterns of customer demand
what is commission?
Commission is a bonus earned on top of a basic salary, usually in line with a specific achievement, such as meeting a sales target.
It is used widely to incentivise staff in clothes shops, furniture shops and other outlets where it can take effort and skill to clinch a sale. In Herzberg’s terms, commission is simply a hygiene factor not a motivator.
what is a bonus?
This is a sum of money added to wages/salary as a reward to employees.
- According to Professor Herzberg, He considered every attempt to ‘motivate’ people through financial incentives doomed to fail. This was proved in the 2008 financial crisis where people would believe that by taking risks and them paying off they would earn a higher bonus.
- Banks in Britain say that bonuses are an important, positive part of remuneration. Banks complained about an EU ruling that no bank should pay a bonus greater than double a person’s salary.
- Relatively small-scale bonuses can act as a nice thank you for a job well done. When they become large enough to become the focus of an individual’s working life, they distort behaviour and turn people into a money-seeking robot.
what is remuneration?
all the financial rewards received by an employee: pay, pension, bonuses
what is profit share?
This is when employees receive a share of the profit of the business.
- This gives a sense of involvement to staff and may affect behaviour favourably. If staff receive some share of the profits, they may be slightly warmer towards customers.
- An annual profit share is a fine thing but if you’re not enjoying your job then few would look forward to £500 in a year’s time and say it’ll all be worth it. Good employers realise that motivation comes from the satisfaction/pleasure of doing a good job. A profit share is a lovely thank-you but no more than that
what is performance-related pay?
This is a financial reward to staff whose work is considered above average. It is used for employees whose work achievements cannot be assessed simply through numerical measures (such as units produced or sold)
- PRP awards are usually made after an appraisal process has evaluated the performance of staff during the year.
- They are normally determined based on their targets
what are the benefits and problems of Performance-Related pay systems?
Benefits
1) To make it easier for managers to manage/control their staff
2) To reduce the influence of collective bargaining and therefore trade unions
1) There is a lack of evidence for benefits of PRP- rewarding individuals does nothing to promote teamwork, it could also create unhealthy rivalry between managers, with each going for the same Merit 1 spot
2) Perceived fairness/unfairness- staff often suspect that those awarded the maximum are being rewarded not for performance but out of favouritism, this may damage team spirit
3) Whether they have a sound basis in human psychology- Herzberg would be very critical of any attempt to influence work behaviour by financial incentives, a LSE study found that in a workplace only 12% of staff believed PRP had raised motivation at work
what are the 8 methods of non-financial techniques to improve employee performance?
delegation consultation empowerment team working flexible working Job enrichment job rotation job enlargement
what is empowerment?
Empowerment means having more power and control over your working life, and having the scope to make significant decisions about how to allocate your time and how to move forward.
- It is a practical application of the theories of Maslow and Herzberg
- It may lead to greater risks being taken, but can also lead to opportunities being identified and exploited. Above all else, it should aid motivation.
It is a modern term for delegation however the difference is that empowerment allows some scope to decide what that task should be
what is delegation?
This means passing the authority for a task down to junior staff.
To be effective, the boss has to:
1) Trust the junior staff member
2) Provide extra training, if needed
3) Provide the resources that will be needed, e.g. a budget
4) Stay interested, but not intervene
- When effective, delegation should be motivating to the staff member, as it is great to be trusted and great to tackle a new challenge
- Effective delegation of substantial tasks is a sign of democratic leadership, as it passes decision making down the hierarchy
what is consultation?
This means asking the views of the staff you manage, then taking them into account in the decisions you make.
Effective consultation requires that the boss:
1) Consults on important issues (some bosses take big decisions without discussion)
2) Consults widely and deeply, so that all full-time staff feel they have had their say, no matter how junior
3) Takes those views into account when making decisions…and explains how they have been taken into account, including when they have been considered but rejected
what are the benefits of consultation?
- When effectively done, consultation helps boost team working and morale.
- People want to be able to express their views and occasionally find those views have made a difference.
- Effective consultation is a sign of high-quality paternalistic leadership
what are quality circles?
discussion groups in which staff discuss an operational problem with a view to recommending a solution to management
what is team working?
This is the attempt to maximise staff satisfaction and involvement by organising employees into relatively small teams. These teams may be functional or geographic.
The key features of such teams are that they should be:
1) Multi-skilled, so that everyone can do everyone else’s jobs
2) Working together to meet shared objectives, such as to serve every customer within a minute
3) Encouraged to think of the future as well as the present, in a spirit of kaizen (continuous improvement)
what are the benefits of team working?
From a theoretical point of view, team working fits in well with Maslow’s findings on the importance of social needs.
- Modern managers like team working because of the flexibility it implies. If one of the workers is absent then there are plenty of other dealing with the job, therefore there is no disruption.
- Team working gives scope for motivating influences, such as job enrichment and quality circles
- Professor Charles Handy suggests in his book Inside Organisations that ‘a good team is a great place to be, exciting, stimulating, supportive, successful. A bad team is horrible, a sort of human prison.’
what is job enlargement?
it is the general term for anything that increases the scope of a job. this allows for employees not to become bored, through the changing of the job. the two ways of doing this are job rotation and job enrichment.
what is job rotation?
This is increasing a worker’s activities by switching between tasks of a similar level of difficulty
- This does not increase the difficulty of the job but instead may reduce the boredom of the job
- An example of job enlargement is the changing from checkouts to shelf-stacking to then in the warehouse. It can be argued that this horizonal job enlargement will do little more than relieve the boredom. They are likely to still see work as a chore.
evaluate the use of motivation in practise
- Serious problems can arise within the workplace, serious problems such as bullying to ‘motivate’ staff into working harder, or creating a culture of overwork
- Successful motivation in the long term is a result of careful job design, employee training and development, honesty and trust.
- It may be possible to supplement this with an attractive financial reward scheme bit money will never be a substitute for motivation.
what is the difference between being an entrepreneur and a leader?
- Entrepreneurs struggle being part of a group because they are usually independent and want to do their own work themselves
- Entrepreneurs usually want to get stuck into the business and works everyday to drive the business forward. They are hands on.
- Entrepreneurs may not like becoming a leader because they have to step back and trust others
what is the difference in the person between one in leadership and management?
- Leaders need to have steely qualities when needed, e.g. when firing someone. However, a manager may get away with ducking difficult decisions.
- Although leaders do not need to have natural charisma, they need to have qualities that make people willing to follow them
what are the main parts of management and leadership?
management:
- directing and monitoring others
- problem solver
- official position of responsibility
- plans
- maintains
leadership:
- motivating and inspiring people
- natural abilities and instincts
- motivates
- develops
- respected and trusted by followers
- innovative
what are the different leadership styles?
their styles can be categorised under three headings: autocratic, democratic and paternalistic. A further type (laissez-faire) is best understood as a subset of democratic.
what are autocratic managers?
they are authoritarian, they tell employees what to do and do not listen much to what workers themselves have to say. They give orders to workers and do not want feedback. They take all decisions, command and control.
what are democratic managers?
they like to involve their workers in decisions. They tend to listen to employees’ ideas and ensure people contribute to the discussion. Communication by democratic managers tends to be two-way. They would regularly delegate decision-making power to junior staff.
what are laissez-faire managers?
this occurs when managers are so busy or lazy that they do not take the time to ensure than junior staff know what to do or how to do it.
Some people may respond very well to the freedom to decide how to spend their working lives however others may become frustrated.
what are paternalistic managers?
they think and act like a father. They try to do what is best for their staff/children. There may be consultation to find out the views of the employees, but decisions are made by the head of the ‘family’. They believe employees need direction but thinks it is important that they are supported and cared for properly.
what is democratic managing in terms of the style it is derived from, approach to staff, approach to staff remuneration and approach to human resource management?
style:
belief in Maslow’s higher-order needs or in herzberg’s motivators
approach to staff:
delegation of authority
approach to staff remuneration:
salary, perhaps plus employee shareholdings
approach to HRM:
recruitment and training based on attitudes and teamwork
what is paternalistic managing in terms of the style it is derived from, approach to staff, approach to staff remuneration and approach to human resource management?
style:
mayo’s work on human relations and Maslow’s low and middle order needs
approach to staff:
consultation with staff
approach to staff remuneration:
salary plus extensive fringe benefits
approach to HRM:
emphasis on train and appraisal for personal development
what is autocratic managing in terms of the style it is derived from, approach to staff, approach to staff remuneration and approach to human resource management?
style:
a taylorite view of staff
approach to staff:
orders must be obeyed
approach to staff remuneration:
payment by results, e.g. piece rate
approach to HRM:
recruitment and training based on skills, appraisal linked to pay
what is charismatic leadership?
Charismatic leaders are people who are able to connect with an audience and who can get others to buy into their ideas.
Charisma can have a downside, the combination of charisma and early success as a leader can result in too much praise and not enough friendly criticism.
what is hubris?
overweening arrogance leading to excessive self-confidence and therefore blindness to the risks being taken
what is nemesis?
divine punishment for wrongdoing or presumption, in other words, the fall that comes after pride.
what is the best style of leadership?
- Each style of leaderships can work well in different situations, if there is a crisis people often look for a strong leader to tell them what to do
- In a stable situation, where employees are trained and able to do their work, a more democratic leadership style may be more suitable
- The best style depends on an enormous range of factors, such as the personalities and abilities of the leader, of the workers, and the nature of the task.
- Leadership style should therefore change according to the particular situation and the people involved. It will also vary with time and degree of risk involved. If a decision has to be made urgently then the leader is likely to be quite autocratic. If there is plenty of time to discuss matters the style may well be more democratic.
what are the 5 roles of an entrepreneur?
1) creating and setting up a business
2) running and expanding/developing a business
3) innovation within a business (intrapreneurship)
4) barriers to entrepreneur
5) anticipating risk and uncertainty in the business
explain the role of an entrepreneur to create and set up a business
- generating business ideas
- spotting an opportunity
- small budget research
explain the generating of business ideas by an entrepreneur
- The most important part of a successful entrepreneurship is spotting a good business idea. This based on a good understanding of consumer tastes and/or the retail trade.
- The main sources of business ideas are through observation, brain-storming, thinking ahead, ideas from personal or business experiences and innovations
explain the spotting of an opportunity by an entrepreneur
- Through our ever-changing society, there will always be business opportunities, find something that people are more concerned about today, e.g. environmentally friendly products
- Thinking about changes to our economy, will a continuing boom in China give opportunities for British brands such as Burberry and Jaguar
- Thinking about the local housing market, are people moving into or out of your area, are prices going up or down? Many local business opportunities may rise or fall depending on these factors
- You must use small budget research and careful market mapping
what is small budget research?
- Before spending money on market research, good entrepreneurs must take the time to gain a general understanding of their market
- Say you wanted to open a subway franchise it would include walking around the town where other fast food outlets are (this is called geographical mapping), check on prices and special deals in the area and arrange to spend a day at another local subway franchise to see how it works
- Based on the knowledge gained by the above you should produce a market map of fast food and this will help to identify whether subway will have a market niche to itself
