year 13 feb mock, 3.2.1, 3.3.2, 3.3.4 product, 3.4.3, 3.5.2, 3.5.3, 3.6, 3.7.2, 3.7.6, 3.7.8 Flashcards
What are managers responsible for?
Ensuring tasks are completed in the day-to-day running of the business
Characteristics of managers in a small business
The leaders and managers are often the same people
What happens to leaders and managers once a business grows
Their roles become distinct from one another
What is the role of a leader in a growing business
Provide a focus on long-term vision and direction is often needed
What is the role of a manager in a growing business
Focus on ensuring tasks are completed, and deadlines are met, in such way to support the long-term vision and direction of the leader
Roles of a manager, as a decision maker
- Set objectives so that success criteria are available to later establish whether or not a task has been completed successfully
- Review and analyse data so that adaptations to current processes ca be made if required
- Select strategies and implement these to ensure processes are working efficiently and are supporting overall objectives
- Review the impact of their decision and use this review to inform the setting of future objectives
Factors which influence styles of management and leadership
- External environment ( appropriate for the business)
- Culture of business (best suited to the business’ needs)
e.g = in businesses with a very clear and well-defined culture, a change of leadership style may be difficult to introduce without resistance from the majority of employees - Skill level of workforce (may or may not want workforce to be in decision making process = value the knowledge of skilled and qualified staff)
Autocratic leadership
An approach by leaders or managers to keep control of decision making and ensure that employees are closely supervised
When is an autocratic approach most suited
If a business has a largely unskilled workforce so a manager or leader may wish to maintain decision making powers
Democratic leadership
An approach by leaders or managers to discuss and consult with employees, delegate decision making authority and empower employees through their involvement
When is a democratic approach most suitable for a business
In businesses which employ highly skilled and highly qualified employees, such as universities, Google & Microsoft, a manager or leader may decide that the contributions of such staff could be highly valuable to the business. Employees can contribute their expertise to the decision making process
What does Blake Mouton’s Theory grid classify
Styles according to whether a manager or leader places more emphasis on concern for people or concern for task completion
Blake Mouton’s Grid:
Low Concern about task, Low concern about people
Impoverished
Blake Mouton’s Grid:
Low Concern about task, High concern about people
Country club
Blake Mouton’s Grid:
High concern about task, low concern about people
Produce or perish
Blake Mouton’s Grid:
High concern about task, High concern about people
Team leader
Blake Mouton’s Grid:
In the middle
Stuck in the middle
What is country club leadership
Real focus on business’s employees, though this may be an enjoyable place to work, it can be detrimental to the business’s levels of production
Example of a business with country club leadership
Virgin- some employees have unlimited holidays - ensures employee satisfaction but comes at cost in terms of production and efficiency
What is team leader
Values both the importance of task completion and people. People are satisfied, feel valued and production is also a focus.
What is produce or perish leadership
So focused on production that the effect of this on employees is of no concern to the business in any way. e.g call centres- accused of focussing heavily on no. of outbound calls made p/h with no concern for staff well-being
What is impoverished leadership
Ineffective - often difficult to find examples for this type of leader as leaders in this category usually fail and do not become well known
What is middle of the road / stuck in the middle
Some focus on task completion and people; neither gains the advantage of a full focus so there will be a poorer performance in each area
What did Tannenbaum and Schmidt make to show theories on management
The management continuum
What is to the left of the management continuum
- managers maintain full authority and decision making power
- managers communicate such decisions to employees who have to comply
- similar to an approach of autocratic leadership
What is to the right of the management continuum
- employees are given authority ad decision making power
- democratic leadership
Stages of the continuum (left - right)
- manager alone makes a decision and tells employees
- manager sells their decision to employees
- manager presents decision t employees and asks for questions
- manager presents decision to employees and is open to change
- manager presents an issue and asks for suggestions
- manager outlines limits of an issue and asks employees to make a decision
- manager allows employees to make their own decision, within limits
What leadership focus increases from left to right on the management continuum
employees (freedom)
What leadership focus decreases from right to left on the management continuum
manager (authority)
When is appropriate to change style of leadership
- state of emergency = managers/leaders may prefer to retain decision making and authority
- fast communication required = e.g BP’S Deepwater Horizon oil spill (killed 11 people, 2010)
- if employees’ views are valued, managers/leaders may adopt position on right so these views can be gathered
What is market research
The process of collecting and processing information about the market that a business operates in.
Market research gathers info on…
- Demand
- Competition
- Target Market
What info does market research gather on demand
- insights into customers’ wants and needs = help improve the product, spot market opportunities and stay competitive
- insights into overall demand trends can help a business to spot opportunities for growth and potential threats from new products / technology
What info does market research gather on competition
- understand the major threats in the market and then prepare the business to deal with these
What info does market research gather on target market
insights into their customers’ wants and needs and how they are changing over time
What is Qualitative research
info about opinions and views
What is quantitative research
facts and figures
When is market mapping used and why
- once business have segmented the market
- can identify a gap in the market by looking at what competitors offer
What variables are commonly used when market mapping
Quality and price
Methods of market research are
- Sampling
- Technology
What is sampling in market research
When a business selects a sample of the population to save collecting data from everybody in that population
Advantage of sampling
Reduces cost as a business can choose a cross-section of the population instead of collecting data from everybody
Disadvantage of sampling
May not accurately reflect the full target market if the sample is not chosen properly
Why is technology a method of market research
Used to analyse market research data by completing calculations and creating graphs and charts which can be used by managers and leaders
How to calculate PED
% change in quantity demanded / % change in price
What is the co-efficient
a value / number
What elasticity is penetration pricing pricing likely to have
Elastic
What elasticity is price skimming likely to have
Inelastic
What does PED measure
The responsiveness of demand after a change in price
What does PED actually mean - simpler
For every 1% change of price, demand is going to change by the co-efficient value
PED:
Co-efficient GREATER than 1 means a product is…
Price Elastic
PED:
When a product is price elastic it means…
% change in quantity demanded is GREATER THAN the % change in price
PED:
Co-efficient LESS THAN 1 means a product is…
Price Inelastic
PED:
When a product is price inelastic it means…
the % change in quantity demanded is less than the % change in price
PED:
When the price elasticity is exactly 1, it means…
the % change in quantity demanded = the % change in price
PED:
Impact on profit & sales revenue if a product/service is price ELASTIC
Decrease in price = increase in sales revenue
WHEREAS
Increase in price = decrease in sales revenue
PED:
Impact on profit & sales revenue if a product / service is price INELASTIC
Decrease in price = decrease in sales revenue
WHEREAS
Increase in price = increase in sales revenue
Example of a product that is price inelastic
Petrol - it is a necessity
What does YED stand for
Income elasticity of demand
What does YED measure
The responsiveness of quantity demanded to a change in consumer income
How to calculate YED
( % change in quantity demanded ) / ( % change in income )
YED:
If the co-efficient is positive it means…
An increase in income will increase demand
AND
a fall in income will decrease demand
YED:
If the co-efficient is negative it means…
An increase in income will decrease demand
AND
a fall in income will increase demand
YED:
The larger the YED co-efficient…
The greater the responsiveness if quantity demanded to a change in income
YED less than 1 means it is
Income Inelastic - a change in income will lead to a change in quantity demanded which is LESS THAN the change in income
YED more than 1 means it is…
Income Elastic - a change in income will lead to a change in quantity demanded which is GREATER THAN the change in income
Example of a product that is income elastic
Premium cars
What is extrapolation?
Involves the use of trends established by historical data to make predictions about future values - the pattern will continue into the future unless evidence suggests otherwise
Advantages of extrapolation
- simple method of forecasting
- not much data required
- quick and cheap
Disadvantages of using extrapolation
- unreliable if there are significant fluctuations in historical data
- assumes past trend will continue into the future - unlikely in many competitive business environments
- ignores qualitative factors ( e.g changes in tastes & fashions )
Stages of the product life cycle
Research and Development
Introduction
Growth
Maturity
Saturation
Decline
What is R&D in the product life cycle
Before the product is made
Expensive
- often complex
- may not be successful
- may involve a long lead time before sales are achieved
What is Introduction in the product life cycle
- Introduces / launces the new product or service to the market
- Marketing and advertising are important - make consumers aware what the product is and that it exists
- usually low sales
- low capacity utilisation & high unit costs
- heavy promotion
- usually negative cash flow
What is Growth in product life cycle
- More customers discover and buy the product
- much faster growing sales
- product gains market acceptance
- unit costs fall with economies of scale
- the market grows. profits rise but attracts the entry of new competitors
- cash flow may become positive
What is Maturity in the product life cycle
- The number of new customers buying the product has slowed down
- slower sales growth as rivals enter the market = intense competition + fight for market share
- low unit costs = very efficient
- high profits for those with high market share
- weaker competitors start to leave the market
- prices start to fall
- cash flow should be strongly positive (less need for investment & marketing)
What is Saturation in the product life cycle
- Sales have reached its peak and no longer increase but remain steady
What is Decline in the product life cycle
- Changes in fashion, consumer tastes / preferences
- Technological advances
- New competition offering similar products
= demand for product begins to fall - market saturation
- rapid fall in profits & weak cash flow
- more competitors leave the market
- excess capacity & rising unit costs
What does the Boston Matrix measure
Market Share (x axis) and Rate of market growth (Y axis)
Boston Matrix - Low market share and Low rate of market growth
Dog e.g DVD and CD discs
Boston Matrix - Low market share and high rate of market growth
Question mark e.g
Boston Matrix - High market share and low rate of market growth
Cash Cow e.g Apple TV products
Boston Matrix - High market share and high rate of market growth
Star e.g new iPhones
Factors influencing decisions on the marketing mix
- objectives
- target market
- presence and size of competitors
- type of product
Strategies at the introduction stage of product life cycle
- aim = encourage customer adoption
- high promotional spending to create awareness and inform people
- either skimming or penetration pricing
- limited, focused distribution
- demand initially from “early adopters”
Strategies in the growth stage of product life cycle
- promote brand awareness
- intensive distribution - many new outlets
- market penetration
- wider target customer base
- improve the product - new features, improved styling, more options
Strategies for mature products
- manage capacity & production
- promotion focuses on differentiation
- intensive distribution
- adopt extension strategies :
attract new, late users
develop new uses
reposition in the market
Reasons why products enter the decline stage
- technological advance
- changes in consumer tastes and behaviour
- increased competition
- failure to innovate and develop the product
What does current ratio easure
The liquidity of a business by comparing current assets with current liabilities e.g how much a business can turn into cash quickly
How to calculate current ration
Current assets / current liabilities = ? : 1
What can gearing calculations measure
Calculate the proportion of long-term funding which comes from debt
How to calculate gearing
(non current liabilities / capital employed ) x 100
What is the ideal current ration of a business and why
1.5 : 1
- A bit of money to fall back on
- buffer cash
How to calculate capital employed
total equity + non total liabilities
What is gearing
What a business owes compared to what they own
Range of gearing %
0 - 33% = low
33% - 50% = moderate
50% - 66% = high
66% - 100% = very high
What is liquidity
- how easy it is to turn into cash
- ability to pay off short-term debts - borrowing, lending money
What does a high amount of oweing / gearing mean
- ability to borrow
- cost of borrowing
What does 0% gearing mean
could question because they haven’t done anything with their money
What is Investment Appraisal
How firms evaluate in quantitative terms the feasibility of a project
The 3 methods of investment appraisal
- payback
- ARR (average rate of return)
- NPV (net present value)
What is payback
A methods that refers to the amount of time it takes to recover the initial investment
How to calculate payback when it is in-between a year
left to pay / could pay
Advantages of payback
- simple to understand and compare
- easy to calculate (and fast)
- emphasises cash flow by focusing only on the time taken to return the money - relevant to businesses with cash flow difficulties
- emphasising the speed of return: payback period is popular with firms operating in markets that are experiencing rapid change because estimates for years in distant future are going to be less reliable than those for near future
Disadvantages of pay back
- doesn’t look at money back after payback period
- time value of money isn’t being taken account of
- may be encouraged towards short-termism
What is ARR (average rate of return)
a method that measures the net return each year as a % of the initial cost
How to calculate ARR
(((total return - inital cost) / number of years ) / initial cost ) x 100
Advantages of ARR
- includes whole income stream
- easily comparable to other investments - can be interpreted by non-accountants
- the only method that takes into consideration every item of revenue and expenditure at its face value
What is NPV (net present value)
calculates the total present day value of an investment value by taking into account the time value of money
How to calculate NPV
Net profit x discount factor = NPV.
- Add each NPV of each year and - the initial cost
What is the risk that surrounds investment
- require a financial commitment
- taking risks in the hope of a possible reward or profit
- allows businesses to decide whether any potential return is worth the risk associated with an investment
Disadvantages of ARR
- Harder and more time consuming to calculate - may use valuable company tie in compiling shortlists of potential investments
- it considers all income and expenditure as equal in value
Advantages of NPV
- takes time value of money into consideration
- gives a precise answer
Disadvantages of NPV
- Time consuming and more difficult to calculate
- more difficult to understand - decision makers distrust any conclusions
What are the key factors influencing investment decisions
- investment criteria
- non-financial factors
- risk and uncertainty
What is investment criteria
The ways in which a business will judge whether an investment should be undertaken e.g 3 year payback period or 10% ARR
Other investment criterias could be
- Strategic fit : is the investment consistent with the corporate strategy that the business is pursuing?
- Cash flow implications : is the investment going to place the business into liquidity problems in the short run?
- Prestige : will the investment enhance the reputation or image of the brand / business?
- Competition : how competitive is the market?
- Change : will tastes change or technological process negate the potential benefits of the project?
- Impact on stakeholders : will the investment impact favourably or unfavourably on different stakeholders
- Strengths : does the investment play to the strengths of the business or might it expose weaknesses?
What are the non-financial (qualitative) factors influencing the investment
- Aims of organisation :
- Reliability of the data
- Personnel e.g will the new equipment or method suit the staff? Level of training needed, safety of machinery, impact on number of staff employed
- Economy e.g predicting a recession or boom
- Legal requirements
- Subjective criteria e.g a manager might have a ‘gut feeling’
What is risk and uncertainty (investment)
The probability of unforeseen circumstances that may harm the success of a business decision
What actions do firms take to allow for risks and uncertainties in their investment appraisals?
- build allowances or contingencies in case problems occur
- use sensitivity analysis to calculate alternative results
- set more demanding targets, such as short payback period or a high ARR - the business is allowing for risks and uncertainties
What is sensitivity analysis?
A technique used to examine the impact of possible changes in certain variables on the outcome of a project or investment
How is sensitivity analysis used?
Uses three scenarios and calculates : the expected outcome, the best-case scenario and the worst-case scenario. It can be combined to assess the overall risk.
What are cash flow forecasts used for
To estimate the total cash inflows and the total cash outflows for a future period of time
What is shown a cash flow forecast and what are they
- total inflows = include all cash inflows coming into the business during the period
- total outflows = includes all cash outflows leaving the business during the period
- net cash flow = difference between total inflows and total outflows
- opening balance = the balance at the start of the month and is the same as the closing balance the previous month
Why do businesses have cash flow problems
Businesses that are profitable but have cash-flow or liquidity problems can become bankrupt as they lack short-term cash to pay short-term debts
How can a business improve cash flow
- Money owed to the business is known as a RECEIVABLE and businesses can reduce the trade credit period given to increase how quickly they receive their receivables
- Money owed by the business to others is known as a DEBTOR (or payable) and a business can ask others for longer trade credit to reduce how quickly they must pay payables
How to calculate net cash flow
Total inflows - total outflows
What is a revenue budget
Forecasts expected revenues for a business during a period.
Favourable variance = actual revenue higher than forecast
Adverse variance = if revenue is less than expected
What is an expenditure budget
Forecasts expected costs for a business during a period
Favourable variance = lower actual cost than forecast
Adverse variance = higher actual cost than forecast
What is a profit budget
Revenue and expenditure budgets can be used to create profit budgets.
Favourable variance = overall profit is higher than forecast
Adverse variance = Overall profit is lower than forecast
Advantages of budgeting
- helps businesses achieve targets and objectives
- help managers and leader focus on cost control which can increase profit
- can be used to motivate staff by providing spending authority to individual departments and teams
Why do businesses use breakeven analysis
To predict the level of output at which total costs and total revenues will be the same
What is contribution per unit
The amount of revenue which contributes to covering a business’ fixed costs after the variable cost per unit has ben taken away from revenue per unit
How to calculate contribution per unit
Selling price per unit - variable cost per unit
What is total contribution
The amount of revenue from the sale of all products which contributes to fixed costs once total variable costs have been taken away
How to calculate total contribution
Total revenue - total variable costs
What are gross profit targets
involve the amount of profit remaining once direct costs ( cost of sales ) have been paid by the business
How to calculate gross profit margin
(gross profit / sales revenue) X 100
What is operating profit
Involve the amount of profit remaining once direct costs ( costs of sales ) and indirect costs (expenses) have been paid by the business
How to calculate operating profit
(operating profit / sales revenue) X 100
What is a profit for the year target
Involves the amount of profit remaining once all costs and financing fees have been considered
How to calculate profit of the year
(profit for the yar / sales revenue) X 100
What are the assumptions for break even analysis
- the selling price remains the same, regardless of the the number of units sold
- fixed costs remain the same, regardless of the number of units of output
- variable costs vary in direct proportion to output
- every unit of output that is produced is sold
Advantages of break even analysis
- assesses the viability of a product - useful to know when to expect to reach a profit level (help to gain financial support)
- simple, straight forward way of discovering whether a business plan is likely to succeed financially - shows margin of safety - can calculate by how much sales can fall before it drops below the quantity to break even
- shows ‘expected results’ - analyses ‘best-case’ and ‘worst case’ scenarios - can see max and min possible profits or losses (shows level of risk)
- shows the different levels of profit arising from the various levels of output and sales that might be achieved - can predict its profits level if it knows the number of units are going to sell
Disadvantages of break even analysis
- unreliable info (it is a forecast) - difficult to predict demand, even with careful market research. Actual production costs can change, esp if shortage of raw materials or breakdown of equipment
- sales are unlikely to be exactly the same as output - remain unsold, especially perishable goods. Likely to be a wastage of raw materials
- selling price may change as more is purchased / sold. Price elasticity - demand will decrease as price increases.
- fixed costs may not stay the same as output changes e.g new machines and new buildings may need to be purchased - sudden rise of fixed costs
- variable costs per unit will often decline in firms, often discounts when buying in bulk - costs per unit may rise if diseconomies cause inefficiency
What are the 2 departments that use the data for financial decision making and planning
- management accounting
- financial accounting
Examples for management accounting data are (financial decision making)
- Revenue, costs and profit objectives : can estimate likely revenue and costs and set objectives for profit - influence and be influenced by the income and expenditure budgets of various departments
- Decision trees : provides likely revenue and cost for decision trees
- Investment data : collected to estimate the likely financial returns of investment being undertaken
- Capital structure data and sources of finance
- Cash flow forecasts ad their outcomes : data to inform future predictions if inflows and outflows
- Budgets and their outcomes : budgets indicate where financial efficiency and inefficiency is occurring, mainly through the use of variance analysis
Examples for financial accounting data are (financial decision making)
- Cash flow statements : show the outcomes of cash flow forecasts - useful for external users to assess if there is a healthy cash balance = ability to attract investors
- Data on profitability : helps external users decide whether to invest
- Income statements : helps internal users identify strengths and weaknesses but mainly for external users - breakdown of revenue, cost and profit
- Balance sheets - shows the value of a business, its capital structure and details fo assets and liabilities
What is capacity?
The maximum level of production possible using the resources available within the business
What is the importance of capacity
Must understand it to make sure that it does not commit to more orders than it can fulfil within a certain time period
What is the importance of productivity
Increasing the number of, or productivity levels of staff and investing in tech can help to increase total capacity
What is capacity utilisation
The proportion of total capacity being used by a business
- aim to increase capacity utilisation - means that fixed costs can be spread out over a greater number of units
How to increase production capacity
- increasing staff productivity levels
- investing in technology
- outsourcing
- increasing the number of staff
What is outsourcing
- allows to increase total capacity which may allow to meet increasing demand
- can lead to quality issues if outsourcers do not take quality as seriously as the business
Disadvantage of 100% capacity utilisation
- cannot respond to additional or special orders made at short notice as no further capacity to produce the products
What is efficiency
The ability of employees to increase their output from a fixed amount of inputs like raw materials
What is lean production
Minimises waste to it increases efficiency
What is JUST IN TIME production
- a form of lean production!!!
- businesses only ordering supplies when they are needs and reduced waste
Disadvantage of Just in Time production
- businesses will have no spare stock respond to an unexpected customer order which may affect customer satisfaction
How do capital intensive businesses increase efficiency
rely on the use of capital, or machinery
- cheaper in long-term
- expensive start up (machinery)
How do labour intensive businesses increase efficiency
rely on the use of human labour
- increases operation flexibility as people can be reassigned to different projects or retrained to complete different tasks
How can technology be used to increase efficiency
- computer aided design (CAD) - create and amend designs instead of manually
- computer aided manufacture (CAM) - used to create products
- e-commerce and email systems - administrative tasks can be completed more quickly than using paper-based systems
Internal sources of finance
- personal savings - invested by the owner of the business (most relevant for start-up business, in which the entrepreneur has saved up to fund his/her venture)
- retained profit - profit that the business has saved whilst it has been operating
- selling assets - selling buildings or machinery that they do not use
Advantages of selling assets as in internal source of finance
- cheap ( no interest to pay )
Disadvantages of selling assets as an internal source of finance
- can harm a business’ operations
Advantages of retained profit as an internal source of finance
- cheap (no interest to pay )
Disadvantage of retained profit as an internal source of finance
- limited - only spend profits that have been saved
- may not be high enough to fund big, long-term projects
External sources of finance
- share capital
- loans
- overdrafts
- venture capital
- debt factoring
What is share capital as an external source of finance
- sell shares to other people or business as a % of the business in return for getting finance invested in the business
- PLC’s may do new share issues, creating shares and issuing them to investors through the stock market
- Ltd’s can sell shares to family, friends or a private equity company
What are loans as an external source of finance?
- borrowing money from a bank and then paying interest on the money borrowed
- harder for new businesses as banks see them as riskier
What is debt-factoring as an external source of finance?
- selling debt to a third party business
- the business selling its debt will gain cash immediately rather than wait for debts to be settled although the business will sell its debt for less than its original value
- the third party will arrange and organise invoices and ensure that the debt money is collected. They will retain a fee to cover the costs of its debt collection service
What is venture capital as an external source of finance
- involves investors, or venture capitalists, providing a business with loans and share capital which is usually to support business growth
- venture capitalists will ask for some control of the business they are investing in and this can be through the issue of shares or through the appointment of venture capitalists as non-executive directors of the business
What is overdraft as an external source of finance?
- a service offered by banks allowing businesses to borrow an amount of money up to a limit which has been agreed in advance
- flexible (allow businesses to borrow as much as it wishes provided that the amount stays within an agreed limit)
- often pay for this flexibility through higher interest rates
Examples of changes in society and technology that can affect a business’ strategic and functional decision making
- urbanisation
- migration
- consumer lifestyle changes
- social changes
What is urbanisation
- people moving from rural to urban areas (job opportunities)
- affects the nature of demand for goods and services and also businesses’ supply chains
What is migration
- people moving from one country to another, with the intention of residing and accessing employment
e.g increasing migration has increased demand for cultural food shops and this can reduce demand for groceries from established retailers
What is consumer lifestyle changes
- occur when buying habits or spending patterns change
e.g morrisons has introduced online grocery shopping to respond to changes in consumer expectations
What are social changes
- include the growth of e-commerce and the changes in buying habits as people begin to expect the availability of e-commerce platforms to complete online transactions
3 impacts of demographic changes
- ageing population
- rising birth rates
- migration
What is the impact of the ageing population on a business
- UK’s population is ageing, and as healthcare improves and people live longer, demand for products and services change
What is the impact of rising birth rates on a business
- an expanding population will increase demand for products and services and businesses must be able to respond to these increases to maintain market
e.g food producers must be able to increase production to meet demand
What are the 4 impacts of lifestyle and technological changes that can affect a business
- emphasis on healthy eating
- emphasis on wellness
- e-commerce
- social media
how does an emphasis on healthy eating affect a business
- consumers may demand healthier food options
e.g june 2018 mcdonalds introduced a healthier kids menu
how does an emphasis on wellness affect a business
- as wellness and fitness continues to increase consumer demand for fitness products is likely to increase
e.g fitbits will increase
how does e-commerce affect a business
- as consumers take advantage of advancements in e-commerce, demand for online shopping will increase and businesses must be responsive to these changes
how does social media affect a business
- as it grows, businesses must adapt customer service procedures to reflect changes in consumer expectations
e.g consumers expect to be able to contact businesses through social media and businesses must respond by updating their processes to offer this contact method if they are to maintain competitiveness
What is CSR (Corporate Social Responsibility)
An approach whereby businesses seek to exceed basic legal requirements by considering their impact on society
What are some legal requirements for CSR
- satisfying employees
- satisfying customers
- satisfying shareholders
- satisfying suppliers
- satisfying the community
How can a business satisfy employees on their social responsibilities
offering job security, safe working conditions and fair wages
How can a business satisfy customers on their social responsibilities
offering reliable products, fairly priced, which exceed legal safety requirements
How can a business satisfy shareholders on their social responsibilities
increasing share price and through payment of stable and regular dividends
How can a business satisfy suppliers on their social responsiblities
paying fair prices, making regular on-time payments and offering exclusivity
How can a business satisfy the community on their social responsibilities
offering employment and funding restoration projects and community facilities
What is an advantage of CSR
It can attract customers to the business and increase market share and sales revenue in the long-term
What is a disadvantage of CSR
It can increase a business’ costs through paying for initiatives, offering employees fair wages and agreeing to pay suppliers fair prices
What is carroll’s Corporate Social Responsibility Pyramid
It can be used by managers and leaders to fulfil a business’ social responsibilities
bottom - top :
1) economic
2) legal
3) ethical
4) philanthropic
What is the first responsibility in Carroll’s CSR pyramid
Economic - being profitable is the foundation of the hierarchy and allows the business to move through additional responsibilities
What is the second responsibility in Carroll’s CSR pyramid
Legal - paying employees the national minimum wage
What is the third responsibility in Carroll’s CSR pyramid
Ethical - making moral decisions such as agreeing to pay employees more than the legal requirement in order to support their standard of living
What is the fourth responsibility in Carroll’s CSR pyramid
Philanthropic - supports society and the community by supporting charitable events and sponsoring public facilities
What is the shareholder concept
The businesses have a responsibility only to raise value for shareholders through increasing share prices and paying dividends and that profit maximisation is the only focus of the business
What is the stakeholder concept
States that as well as satisfying shareholders’ needs, the business must place equal emphasis on satisfying the needs of all other stakeholders, including employees, customers and suppliers
What are some appropriate objectives in the HR department and examples
- Employee engagement and involvement : listening to staff, involving staff in decision making processes and building relationships between staff and managers
- Talent development : developing their current employees so that they can support the business’ future success
- Training
- Diversity
- Aligning values : involves ensuring employees have similar values and beliefs to a business e.g thorough training, or may only recruit individuals who have demonstrated at interview that their values are similar to those of the business
- Location and skills of employees : HR are responsible for recruiting so can determine the number of employees available and the skill set of each of these individuals. Hr may also employee staff to work at different locations within the business e.g across several factories or stores
What are the internal influences of HR objectives
- objectives at a functional or departmental level must support the overall business
- availability of internal funding can influence the choice of human resources objectives as this may determine how many vacancies are advertised
- objectives of other business functions e.g if operational objectives are focussed on flexibility and require the recruitment of additional temporary staff for the festive period, HR will need to support this through focussing on recruitment
What are some external influences on setting HR objectives
- Legal considerations : HR will have to comply with laws around recruitment and employment
- Technological advancements : developments may require HR to organise training on new technologies used in the business
- Ethical considerations : HR may need to consider whether to pay the National Minimum Wage, or whether to use zero-hour contracts
What is hard HR
- employees are seen simply as a resource to be used
- employees are not trusted and will be closely supervised, with little training given
What is an advantage of hard HR
- Managers retain full control of employees
Disadvantage of hard HR
- Doesn’t allow employees to contribute their full potential to the business
What is soft HR
- employees are recognised as the most important resource within the business
- employees are trusted and given opportunities to develop
Advantage of soft HR
Empowers employees - increase production and efficiency
Disadvantage of soft HR
More freedom so mistakes may occur if employees make poor decisions
What calculations can be used to analyse employees’ performance
- labour turnover
- retention
- productivity
- costs
What is labour turnover and retention
% of staff that leaves the business per year
% of staff that stays at the business per year
How to calculate labour turnover
labour turnover % = ( total number staff leaving / average number of total staff ) x 100
How to calculate average number of total staff
( no. of staff at beginning of period + no. of staff at end of period ) / 2
Reasons why labour turnover is high
- competitors offer higher wages and salaries
- demotivated
Advantages of low labour turnover
- experienced employees remain
- training and recruitment costs are low (fewer vacancies to be filled)
Disadvantage of labour turnover
fewer opportunities to recruit new talent, skills and ideas
How to calculate retention rates
Total number of staff who worked at a business for the whole period of time / total number of staff at the beginning of the period of time x 100
What is the cause of high retention rates
- employees are motivated, empowered and valued
How to calculate labour productivity
Total output / total number of employees
How to calculate employee costs (% of turnover)
Total employee costs / total revenue X 100
How to calculate labour costs per unit
Total labour costs / total units produced
The importance of labour cost per unit
- use the calculation to compare data to previous years, to competitors and to the wider industry
- if HR manager are unhappy with the current cost per unit, they may decide to increase productivity, so that employees produce more, or they may reduce employee costs
What would improve labour costs per unit
- increase productivity
- reducing employee costs
When a business makes decisions, what factors help them consider the extent to which employees will be involved in the process
- Influence of employees
- Trade Unions
- Employee representation
- Influence of communication
What is the influence of employees when improving employer-employee relations
- expertise and skill set of employees will improve involvement in decision making- affects how the business values contributions of staff
- culture of business - affect the extent to which employees are involved in the decision making
- the size of the business - smaller businesses may find it more manageable to involve their employees in decisions made
What are trade unions when improving employer-employee relations (involvement in decision making)
Instead of active involvement, the views of employees can also be represented by trade unions and work councils:
- trade union represents a group of employees and negotiate with the employer on behalf of the employees
- works council is a committer or group of individuals, including employees and the employer, and regular meetings take place to discuss work-related issues on behalf of all employees
Advantage of employee representation (trade unions, work councils)
- offers managers and leaders to gain an understanding of their employees and issues affecting them
Disadvantage of employee representation (trade unions, work councils)
unsuccessful employee representation can lead to strikes and industrial action which affects reputation and productivity
What is the influence of communication when improving employer-employee relations (decision making involvement)
honest and open communication for the process to be successful
Why is it important to improve employer representation process
- employees fell valued and will trust their employer, which supports retention and productivity
- understanding the views of employees can improve the decision-making process which minimises mistakes
What is job design
Refers to an employer’s creation and planning of a job considering the job’s aspectsRefers to an employer’s creation and planning of a job considering the job’s aspects
What does the job design include
- the roles & responsibilities of the job itself
- the systems & methods used by an employee to carry out their role
- the relationships between the employer and the employee, and between other managers, subordinates and stakeholders
How does business objectives influence job design
The overall business objective may influence job design as all jobs within the business should contribute to the overall business objectives and they should be designed in such a way to do so
How can an individual influence job design
If employees are demotivated and there is a problem with productivity, managers may use job design to motivate employees and improve productivity
How available resources influence job design
Major changes to job design may require the additional support of resources such as labour and capital, and these resources must be available for the change to be successful
How market research influences job design
If a HR manager is expecting there to be a change in the external environment, jobs may be designed or redesigned to reflect the demands of a changing external environment
Examples of approaches an employer can to take to job design
Job enlargement, enrichment, empowerment & rotation
When will job enlargement used
When a business is considering the motivation and productivity of its employees
What is job enlargement
When an employer increases the number of jobs an employee is responsible for in order to increase the challenge of their role. Additional jobs assigned to employees are usually at a level similar to their original duties
When is job enrichment used
When a business is considering the motivation and productivity of its employees
What is job enrichment
When an employer provides and employee with jobs which are more complex and challenging jobs assigned to employees are usually at a level above their original duties in terms of complexity and challenge
What is job empowerment
When an employer gives an employee more control over their job, including the ability to decide the best way to fulfil their duties
What is job rotation
It is an example of job enlargement and refers to an employer allowing an employee to move from one role or duty to another, regularly
What does hackman and Oldham’s job model show
That there are five core characteristics of a job which motivate employees
Hackman and Oldham’s Job Model: skill variety
Refers to employees being given opportunities to use a range of skills as part of their normal duties and responsibilities
1st core characteristic
Hackman and Oldham’s Job Model: task identity
Refers to employees being given a sense of conclusion or completion
2nd core characteristic
Hackman and Oldham’s Job Model: task significance
Refers to employees feeling as though their duties and responsibilities contribute to the overall business success
3rd core characteristic
Hackman and Oldham’s Job Model:
What does the 1st, 2nd and 3rd characteristic lead to
- Allows employees to experience meaningfulness of work
- results in high motivation
Hackman and Oldham’s Job Model: autonomy
Refers to employees having some independence within their duties and responsibilities
4th core characteristic
Hackman and Oldham’s Job Model:
What does the 4th characteristic lead to
- allows employees to take responsibility for outcomes
- results in high job satisfaction
Hackman and Oldham’s Job Model: Feedback
Refers to employees receiving feedback, whether oral, written or verbal, on the work they have completed.
Hackman and Oldham’s Job Model:
What does the 5th characteristic lead to
- Allows employees to develop knowledge or their own results
- leads to lower absenteeism and lower turnover
What is organisational design
Involves making sure that an organisation is designed appropriately to increase its chances of meeting its aims and objectives.
When leaders are planning the design of their organisation, they will consider…
- authority
- spans of control
- hierarchies
- delegation
- centralisation and decentralisation
What is authority
Linked to delegation. Delegation involves passing authority to employees further down in the hierarchy.
- can motivate and empower employees = increases productivity
What is spans of control
The number of people who report directly to a supervisor or manager
- tall hierarches = narrow spans of controls , monitored more easily
- flat hierarchies = wider spans, harder to monitor as each manager will manage & lead a larger group of employees
What are hierarchies
Levels and layers of management. Tall hierarchies = many layers, flat = few levels
- communication more difficult in tall hierarchy = more layers for communication to pass through
- tall hierarchies = promotional opportunities
What is delayering
Reducing the number of layers in the hierarchy of a business, usually by removing middle managers
What is delegation
Refers to a manager passing responsibility or authority to a employee below them in the hierarchy
Advantages of having engaged and motivated employees
- greater productivity (work harder and produce more)
- promoting the business (share experiences with other people - attract workers, and a good reputation)
- trust between employer and employee (fewer absences)
What is Taylor’s Theory of Motivation
Employees should be paid based on the output they produce - piece rate pay.
They will become more motivated and engaged with their job
Advantage of Taylor’s theory
May improve productivity, a business can reduce its costs by employing fewer employees
Disadvantages of Taylor’s theory
- employees may rush during the production process leading to mistakes and errors
- employees may become bored with completing same task over and over again
What is included in Maslow’s Theory of motivation
A hierarchy of needs
- bottom-top:
1)Psychological needs
2) safety needs
3) social needs
4) self-esteem needs
5) self-actualisation
One must be completed before moving up the hierarchy
What is self-actualisation
When a business gives employees the opportunity to meet their full potential through achievement, responsibility and the development of new skills and knowledge
e/g offering an opportunity to access a management training programme which challenges and develops them could allow an employee to realise their true potential
What is self-esteem
Opportunities for promotion and through recognising and celebrating successes
e.g recognising success during an appraisal review could boost their esteem
What is social needs
Opportunities to build relationships through teamwork and social interactions
e.g social club event that allows employees to socialise once a month
What are safety needs
When a business offers employees job security and a safe working environment
What are basic psychological needs
pay - purchase food and accommodation
Advantage of Maslow’s hierarchy of needs
Structured approach to improve motivation
Disadvantage of Maslow’s hierarchy of needs
Assumes that employees will place the same importance on each of their needs as ordered within the hierarchy and this may not apply to all staff
What is Herzberg’s theory on motivation
2 groups of factors which impact upon employee’s motivation : hygiene and motivator factors
What are hygiene factors
- safe working conditions
- pay
- relationships
- clear policies
Will not motivate employees but will stop them from being demotivated
What are motivator factors
- opportunities for recognition, achievement and responsibility
These will directly motivate
Advantage of Herzberg’s theory
Offers a structured approach to try improve motivation
Disadvantage of Herzberg’s theory
Assumes that employees will place the same importance on each of the hygiene and motivating factors as Herzberg did
What are the financial incentives to motivate
- commission (payment) based on amount of goods an employee sells. - % of sales made or can be a flat fee according to volume sold
- salary schemes : pension benefits based on their earnings and length of employment or membership of the scheme
- Performance related pay : whether employees meet objectives or how many products are made / sold within a period of time
What are the non-financial ways of motivation
- healthcare (free private healthcare access)
- gym memberships
- child care
What must a business consider when deciding whether to use financial or non-financial methods of motivation
- financial position ( costly )
- demands of employees
- competitors
