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Foundation F1
First Edition 2012
This study manual has been fully revised and updated
in accordance with the current syllabus.
It has been developed in consultation with experienced lecturers.
Title Page
Introduction to the Course
Nature and Role of Management
Management - Definition
Role of Management
Levels of Management
Management Skills
Effective Managers
Mistakes Managers Make
Business Ethics and Social Responsibility
Evolution of Management Theory
Introduction to History of Management
Classical Management Theories
Contemporary Management Theories
Planning and Control
Role of Planning
Levels of Planning
Hierarchy of Planning
The Process of Planning
Management by Objectives
Management Decision Making
Organisational Control
The Process Theory of Control,
Categories of Control Systems
Characteristics of Effective Control Systems
Financial Methods of Control
Non-Financial Methods of Control
Title Page
Organisation and Structure
Nature of Organising
Approaches to Structuring Organisations
Factors affecting Organisation structure (Lynch and Roche, 1999)
Recent Developments in Organisational Structure
New Approaches to Designing and Structuring Organisations
The Mintzberg Framework - Five Types of Structure
Leadership styles
Leadership Theories
Theories of Motivation
Structuring of work
Importance of Teamwork in Modern Organisations
Types of Teams
Characteristics of Effective Teams or Groups
Team Size and Roles 85
Stages of Team Development
Team Cohesiveness and Team Norms
Team Conflict
Developing Interpersonal Skills
Communicating in Organisations
Importance of Communications in Organisations
The Communications Process
Organisational Communications
Barriers to Organisational Communications
Improving Organisational Communications
Electronic Forms of Communication
Title Page
Construction of Effective Business Correspondence
A Three Step Process for Writing Messages
Writing Styles
Change Management
Nature of Change in Business
Importance of Managing Change
Models of Change Management
Dealing with Resistance to Change
Implementing Change Management Programmes
Sales and Marketing
The Concept of Marketing and its Role in Business
The Elements of the Marketing Mix
The Marketing of Services
Market Segmentation, Targeting and Positioning
Customer Care and Relationship Management
Information Systems in the Sales and Marketing Function
Impact of e-Commerce
Finance and Accounting
Introduction to Financial Management
Financial Planning
Sources of Finance
Financial Analysis and Reporting
Management Accounting
Information Systems in Finance and Accounting
Impact of e-Commerce
Human Resource Management
The Main Elements of Human Resource Management
Human Resource Planning
Employee Recruitment Selection and Induction
Title Page
Employee Training and Development
Employee Appraisal
Employee Compensation
Other Aspect of HR
Trends in Human Resource Management
Information Systems in Human Resource Functions
Impact of e-Commerce
Business Integration
Inter-Relationship between Business Functions
Other Types of Integration
Information Systems facilitating Integration
Information Systems
Acquiring Information Systems
The System Development Life Cycle (SDLC)
Security and Control
Trends in Information Systems
Introduction –International Federation of Accountants (IFAC)
Fundamental Principles
Professional Accountants in Public Practice
Professional Accountants in Business
Disciplinary Procedures
Ethical Obligations of Company Directors & Auditors
Stage: Foundation 1
Subject Title: F1.4 Business Management, Ethics and
The aim of this subject is to ensure that students have an understanding of key principles and
concepts in business management and also a full understanding of the importance of business
and professional ethics in their conduct and actions. They should also be aware of the skills
required to be a successful entrepreneur and the importance and techniques of effective
Business Management, Ethics and Entrepreneurship as an Integral Part of
the Syllabus
The principles and concepts learnt in this subject are relevant to students throughout their
professional accounting studies.
Although there are connections with many subjects throughout the syllabus, knowledge
gained from this subject will also be particularly relevant in the further study of Auditing,
Audit Practice and Assurance Services, Financial Accounting, Introduction to Law,
Management Accounting and Strategy and Leadership. There is a connection between
communications subjects and the Information Systems paper.
Learning Outcomes
On successful completion of this subject students should be able to show:
An understanding of the core Business functions of Management and marketing
An understanding of the attributes of an effective entrepreneur.
An understanding of how these functions affect the running of a modern business.
An understanding of the key concepts and fundamental principles of Ethics and the
practical application of them in the context of business and commercial activities.
Enhanced communication skills, verbal and written, that allow candidates to
disseminate information and messages clearly to a range of audiences.
1. Foundations of Business Management
The nature of management and its role in business
Common business analysis techniques such as SWOT and PEST
The challenges that arise in the contemporary business environment and its
dynamic nature
2. Management
The fundamental principles and theories on which business management is based
The contributions of management within a modern business organisation
The challenges involved in effective business management
Functions of Management
The role of Human Resource management within the organisation and the associated
challenges that may arise
3. Marketing
The role of marketing and sales within the organisation
The importance of customer relations, market research and marketing
The use of the internet in marketing
Marketing ethics
The different elements of the marketing mix and the role of services marketing
4. Governance
The main elements of governance that apply to both large and small companies
5. Ethics
The concepts and principles of the ICPAR Code of Ethics and the IFAC Code of
Disciplinary procedures of ICPAR and the consequences of a breach of the
The ethical obligations upon a person dealing with financial information, products
and services
The ethical obligations of company directors
The ethical obligations of auditors
6. Entrepreneurship and self-employment
The definition of entrepreneurs and entrepreneurship
Factors to be reviewed when considering self-employment
The economic importance of self-employment
Entrepreneurship and innovation
Entrepreneurial characteristics
The role and challenges of an entrepreneur
7. Entrepreneurial opportunities
Generation and sources of business ideas
Business incubation
Qualities of a good business opportunity
Assessing and selecting a suitable market
Matching skills and resources to changing technology
The protection of business ideas and business security issues
8. Enterprise development
Factors and trends that influence the growth of business enterprises
Business life cycles, stages and challenges faced by an entrepreneur at each
Strategies for managing growth and transition
Factors for success at each stage of development
Statutory policies on enterprise development
9. Entrepreneurial awareness and motivation
Procedures involved in starting a business
Sources of business finance, for example micro-finance
Legal forms of business ownership
Legal aspects in business: licenses, labour laws, health and safety rules
Business contracts and tendering procedures
Business amalgamations for example mergers, acquisitions, franchise, take-
overs, integrations
Motivational theories of entrepreneurship
Incentives for aspiring entrepreneurs
10. Business plan development
The definition and importance of a business plan
The components of a business plan: business description, owners, products/services,
marketing plan, organisation and management plan, operational/production plan,
personal financial statement, financial plan, executive summary, appendices.
11. Current issues in entrepreneurship
Taxation, trade exhibitions, e-commerce, globalisation, outsourcing
Entrepreneurship Education & Training
Social Entrepreneurship (NFP- Not for Profit)
12. Essential communication skills
Communication processes and barriers
Channels of communication
Types of verbal and non-verbal communication
The importance of listening skills, critical thinking and problem solving
13. Business communication
Meetings and interviews
Business correspondences: letters, memos, circulars
Report writing, types, structure and uses of reports
Postal and courier services
Presentations: planning, organising/delivering business presentations
14. Technology and communication
Telephone, fax
Electronic postal services and money transfers
Other modern communication technologies
15. Emerging trends in communication
Diversity in physical infrastructure & Higher Speed broadband networks
Network Management Technologies e.g. E-Security
Web based services and the emerging “social web social networking sites
(SNS), Mobile Web, Internet TV, Cloud Computing, Virtual Identities, Semantic Web
Study Unit 1
Nature and Role of Management
Management is the process of achieving organisational objectives by working with and
through others in an ever-changing environment.
Fayol (1916) wrote that all managers perform five main management functions:
1. Planning: Planning is an activity which involves making decision about ends.
2. Organising: This is concerned with dividing and coordinating tasks.
3. Commanding: This refers to the importance of leadership in organisations.
4. Controlling: Controlling involves measuring actual performance against agreed
standards and taking corrective action if necessary.
5. Co-ordinating: This involves ensuring that all activities and groups are brought
together to achieve the overall objectives.
Today these functions have been condensed down to the following four:
1. Planning
2. Organising
3. Leading
4. Controlling
1. Planning
Planning is concerned with where the organisation wants to be in the future and how it is
going to get there. The planning function includes defining an organisation’s goals,
establishing an overall strategy for achieving those goals and developing a hierarchy of plans
to co-ordinate all activities. Planning can be long term or short term and takes place at all
levels in the organisation.
2. Organising
Organising generally follows planning and it refers to deciding on an organisational structure,
staffing it adequately and making sure the organisation is running efficiently. Managers
develop a framework of necessary tasks and available resources called an organisational
structure. This structure sets out the groupings of staff organisation. In simple terms
organising includes determining how tasks are to be done, who is to do them, how the tasks
are to be grouped, who reports to whom and where decisions are to be made.
3. Leading
Leadership involves motivating employees to achieve organisational goals. Leading entails
creating a vision, communicating that vision and goals, and influencing others to achieve
high levels of performance. It also involves directing the activities of others and resolving
conflicts among employees.
4. Controlling
Activities within an organisation don’t always go as smoothly as planned. Controlling
involves monitoring employee activities to determine whether or not they are achieving
targets. It involves comparing actual performance against predetermined goals and taking
corrective action if necessary.
Mintzberg (1973) suggested that rather than looking at the functions of managers, we should
instead look at the roles they perform. Mintzberg identified ten roles that all managers
perform and grouped these roles into three categories as shown in Figure 1.1.
Interpersonal Role
Information Role
Decisional Role
Disturbance Handler
Resource Allocator
Figure 1.1: The role of management
Interpersonal Role
A key aspect of a manager’s job involves interacting with other people. In the role of
figurehead the manager represents the organisation by performing ceremonial and symbolic
activities. In the role of leader a manager will attempt to motivate, communicate with and
influence people. As a liaison a manager develops relations with groups both inside and
outside the organisation. These groups could include customers, trade unions and government
Information Role
Information is a very important resource of any organisation. The monitor role refers to the
acquiring of information from internal and external resources. The disseminator role refers
to the transmitting of information to those who require it. As a spokesman a manager
conveys information to groups outside the organisation such as the media.
Decisional Role
The entrepreneur role involves the manger seeking out new ways to deal with problems and
find opportunities for the organisation. The disturbance handler role involves resolving
conflicts between individuals and teams. In the resource allocator role the manager must
make decisions on how to allocate resources such as money, people, materials and time, to
best achieve the objectives of the organisation. In the negotiator role a manager will
negotiate with various interest groups such as customers, suppliers and other managers.
The following are the three main levels of management:
1. Senior Management
2. Middle Management
3. Front Line Management
Senior Management
Senior management are concerned with strategic issues such as the mission and direction they
will take into the future. They must make and implement strategic decisions and
communicate these decisions to relevant parties such as the shareholders and customers.
Senior managers include the Chairperson, Chief Executive, Directors and members of the
Middle Management
Middle management operates at a tactical level, translating strategic direction and
organisational goals into tangible achievable objectives for their division. Middle
management acts as a link between the strategic level and the operational levels. Examples of
middle managers include Plant and Operations managers.
Front Line Management
This level of management, which is also referred to as "Supervisory Management" and
“Operations Management”, is responsible for directly managing and supervising employees
involved in the day-to-day operations of the organisation. Front line managers operate
between middle management and the operational personnel.
Team Leaders
In the traditional management hierarchy there are three levels of management as shown in
Figure 1.2. In these traditional structures the line managers are responsible for the
performance of non-managerial employees and have the authority to hire and fire workers,
make job assignments and control resources. Williams, C. (2007) identifies a fourth kind of
manager the team leader. This new kind of management job has developed as companies
have shifted to self-managed teams. Team leaders are responsible for facilitating team
performance. Team leaders help their team members plan and schedule work, learn to solve
problems and work effectively with each other. Team leaders act as a bridge between their
own teams and other teams. Team leaders are also responsible for internal team relationships.
Figure 1.2: The different levels of Management
Planning Horizon
A key task of managers at all levels is planning. However the planning timeframe is different
for each level. Senior managers plan for the long term, between 3-5 years. Middle managers
focus on a mid-term timeframe, normally for up to three years. Front-line managers plan for
the short term normally in term of weeks and months.
Horizontal levels of Management
The three levels of management discussed above are called vertical levels. Different types of
management also occur horizontally across the organisation. Functional departments such as
marketing, operations, finance and human resources have their own functional managers who
are responsible for activities within their department. The various management functions are
discussed in Section 3 of this course manual.
A manager should posses a range of skills in order to be successful. The skills required can be
grouped into three categories (Katz, R. 1973):
Technical Skills
Human Skills
Conceptual Skills
Technical Skills
Technical skills relate to the performance of specific tasks. It relates to expertise in specific
organisational functions such as finance, operations etc. Technical skills could also include
specialised knowledge and competencies with particular tools and techniques. Technical
skills are more important at lower levels of management.
Middle Mamagement
Front Line Mamagement
Strategic Level
Tactical Level
Operation Level
Middle Mamagement
Front Line Mamagement
Strategic Level
Tactical Level
Operation Level
Human Skills
Human skills are often referred to as interpersonal skills and include the ability to work with
other people and work effectively in group situations. Human skills are concerned with a
manager's ability to motivate, lead, communicate and resolve conflict. Human skills are
important at all levels of management.
Conceptual Skills
Conceptual skills refer to the ability to think strategically, to take a long-term, broad view of
the organisation in its entirety and the relationship between each part.
Managers at all levels in the organisation require conceptual skills but they are of greater
importance at the senior levels.
In addition to these three categories of skills managers must be effective in a range of other
skills such as verbal and written skills.
According to research by John Kotter (1999), Effective Managers spend significant time
establishing personal agendas and goals; both short and long-term. Effective managers spend
a great deal of time building an interpersonal network composed of people at virtually all
levels of the organisation. Managers use their networks to execute personal agendas and
accomplish their own goals.
To be an effective manager a person must have the necessary skills required to manage.
Characteristics of Effective Managers
Bateman and Zeithamal (1993) proposed the following three characteristics of effective
managers or leaders:
1. Active Leadership
2. Ability to Motivate Others
3. Opportunity of High Performance
Active Leadership
Active leaders are those who take a hands-on role. They make an active contribution to the
team effort.
Ability to Motivate Others
Effective managers are able to motivate others to achieve the organisation’s goals. They
communicate to workers the importance of these goals and the performance required to
achieve the goals.
Provide Opportunity of High Performance
To be able to achieve a high level of performance; managers must have autonomy and control
over their area of work. Having control over resource and decision-making is crucial to the
effectiveness of managers.
Another way to understand what it takes to be a manager is to look at the mistakes managers
make. Based on studies of US and British managers, Williams, C. (2007) identifies the
following top ten mistakes that managers make:
1. Insensitive to others; abrasive, intimidating; bullying style
2. Cold aloof, arrogant
3. Overly ambitious: thinking of the next job, playing politics
4. Specific performance problems with the business
5. Over-managing; inability to delegate
6. Unable to staff effectively
7. Unable to think strategically
8. Unable to adapt to a boss with a different style
9. Over-dependent on advocate or mentor
Business ethics concerns the moral conduct of an organisation. It concerns the moral
judgements that managers have to make, taking into account their own belief and the
organisation's belief of what is right and what is wrong. There are three categories that govern
human behaviour (Daft, 2010). The first relates to the law and what is legal, while the third is
the area of free choice where the individual (or firm) is free to choose how to behave. In
between the two extremes is the second category which is the area of ethics choice. While the
law does not govern actions in these areas, there are moral standard, values and expectations
that are shared by society and should guide individual and corporate behaviour. For example
is it ethical for a profitable company to cut employee’s wages so it can make even greater
profits? Ethics presents dilemmas for business as a decision made on an ethical basis may
reject the most profitable option in favour of one that is of greater benefit to society.
Ethical Decision Making
To aid organisations that want to pursue an ethical direction in their activities, they can apply
one of the following ethical decision making approaches:
Utilitarian Model
Moral Rights Model
Justice Model
Utilitarian Model
Under a utilitarian model an ethical decision is one that produces the greatest good for the
greatest number of stakeholders. Therefore a manager would consider the impact of a
decision on each stakeholder group and attempt to choose a course of action that would
maximise the benefits and minimise the costs overall. Therefore this represents a
logical/benefits analysis approach that appeals to managers. However the difficulty is trying
to appreciate the value of the decision to each stakeholder group.
Note: Stakeholders would typically include:
Owners and Senior Managers
Local Community
Moral Rights Model
This approach proposes that certain rights should be protected, such as freedom of choice,
privacy, health and safety, freedom of speech etc. Therefore any decision that violates these
rights is considered to be unethical. The difficulty with this approach is deciding the
importance of stakeholder’s rights, whose rights takes priority the right of the individual or
the rights of the business.
Justice Model
This approach rests on equity, fairness and impartiality. Therefore, an ethical decision is one
which shares the costs and benefits of a decision amongst stakeholders groups, in a fair
manner. However, equity does not imply equality, consequently when distributing pay rises it
may seem equitable to reward those performing at a higher level. This may be seen as fair but
not equal.
Corporate Social Responsibility
Corporate social responsibility is management’s obligation to make choices and take actions
that will contribute to the welfare and interests of society as well as to the welfare and
interests of the organisation (Daft, 2010). A business has economic responsibilities to
produce goods and services that society wants and to generate profits for shareholders.
Organisations have legal responsibilities to operate within the law. A business also has an
ethical responsibility that may go beyond areas covered by the law to treat individuals fairly
and equally, and to respect the rights of the individual and society as a whole. The company
can also exercise discretionary responsibilities, which drive voluntary acts that make a
contribution to society, for which no economic gain is expected.
Corporate Governance
Corporate governance is concerned with the structures and systems of control by which
managers are held accountable to the stakeholders in an organisation (Jacoby, S. 2005). In
simple terms corporate governance refers to the system by which companies are directed and
controlled. It can include internal elements defined by the company officers, shareholders or
the constitution of a company, as well as external elements such as government regulations.
The aim of corporate governance is to increase transparency and accountability in the manner
in which companies are governed.
Corporate governance deals with how management conduct their affairs and how the board of
directors supervise the running of the organisation. Corporate governance is the response to
the need for ways of ensuring that an organisation is pursuing its proper ends, typically by
keeping directors and managers accountable to the shareholders.
Better, more ethical corporate governance has come to be seen as the answer to the public
perception of corporate wrongdoing. People often point to practices such as high dividend
payouts to shareholders, high executive compensation and the 'short-termism' of many
business enterprises, which focus exclusively on immediate profits, as evidence that new
codes of conduct are needed.
In response to a series of high profile corporate failures and evidence of corporate
wrongdoing in the United States in early 2002 (Enron, WorldCom etc.), many countries
enacted laws and put codes of practice in place to improve corporate governance. In the US
the 2002 Sarbanes-Oxley Act was put in place to protect shareholders and the general public
from accounting errors and fraudulent practices in business.
Whistleblowing occurs when an employee informs the public of inappropriate activities
going on in the organisation. The whistleblower may be motivated by moral reasons or may
have been passed over for promotion or suffered some other injustice in the workplace. The
consequences of whistleblowing are often extreme: loss of job and/or home, ostracism by
peers, loss of family relationships, personal isolation and effects on physical health.
Employers look on whistleblowers as disloyal and unworthy of trust, while their peers may
regard them as weak or unbalanced. Legislation has been passed in many countries to protect
the whistleblower, because if these individuals do not come forward, many cases of
wrongdoing would never be exposed.
The arguments for Ethics and Social Responsibility
Daft, (2010) put forward a number of reasons why it makes good business sense to be
concerned about ethics and social responsibility:
Paying attention to ethics and social responsibility is as important as profits and costs
Ethical and social actions impact financial performance
Companies are beginning to measure non-financial factors that create value
Customers pay attention to a company’s ethics and social responsibility
Study Unit 2
Evolution of Management Theory
Introduction to History of Management
Classical Management Theories
Contemporary Management Theories
Management may only have been a field of study for the last 100 years, but management
principles have guided how work has been done for over 5,000 years.
From the ancient Egyptians, Greeks, Chinese and Romans to modern times, leaders have
used planning, organising, leading and controlling to accomplish all types of tasks, from the
daily duties to large civil engineering projects.
Work has shifted from families and self-organised groups of skilled labourers, to large
factories employing thousands of individuals that use large standardised mass production. As
these organisations developed, managers were needed to enforce order and structure, to
motivate and direct large groups of workers, and to plan and make decisions that optimised
overall performance (Williams, C. 2007).
There are a number of key phases in the development of management theory over the last 100
years. Some of the key approaches are shown Figure 2.1.
Classical Approaches Date when approach began
Scientific Management 1898
Bureaucracy Management 1916
Administrative Management 1920s
Human Relations Management 1927
Modern Approaches
System theory 1950s
Contingency theory 1960s
Total quality Management 1970s
Organisational Culture 1980s
Figure 2.1: The evolution of Management thought (Tiernan, Morley & Foley, 2001).
The study of management theory began around the start of the twentieth century. Mass
production and the development of large industries gave rise to demand for a way to manage
these organisations and increase labour productivity.
The key elements of the classical management approach are:
1. Scientific Management
2. Bureaucracy Management
3. Administrative Management
4. Human Relations Management
Scientific Management
Fredrick Taylor (1865-1915) is credited as one of the founders of scientific management. In
his book "The Principles of Scientific Management” in 1911, he emphasised the need to take
a more scientific and systematic approach to management.
The main elements of Taylor’s approach were:
A "work study" or systematic analysis of the production process followed by the
breaking of jobs into a number of key tasks with each task to be performed separately.
All planning was taken over by management, leading to workers losing control over
how their work was done.
Workers were issued with work instructions that set out:
What needed to be done
How it should be done
How long it should take
Select workers that were most suitable for the job and train them.
Provide workers with financial incentives by results based payments - a piece rate
Scientific Management led to increased labour productivity from workers who specialised in
one simple repetitive task. Replacing skilled workers with non-skilled workers could also
reduce labour costs.
Scientific management could also lead to deskilling of workers that may result in
dissatisfaction among workers and low levels of motivation, which could adversely affect
This approach was also accused of dehumanising of workers treating them as if they were
Scientific Management after Taylor
Three followers of scientific management were Frank and Lillian Gilbreth and Henry Gantt.
The Gilbreth’s followed on from Taylor's work on work-study by analysing bricklayer's
movements. From their work on task or method study they were able to reduce the
movements of a bricklayer. Flow charts were devised by the Gilbreths to enable whole
processes or operations to be analysed.
Henry Gantt a contemporary of Taylor felt that the individual worker was not given enough
consideration. Gantt introduced a payment system where performance below that described
on a workers instruction card still qualified that person for the day rate but performance of all
work on the instruction card qualified the individual for a bonus. The Gantt chart was initially
used to graphically represent tasks achieved. See Chapter 7 for a description of a Gantt chart.
Overall the most important outcome of scientific management was that it stimulated ideas for
improving the systematic analysis of work at the workplace. The disadvantage of scientific
management is that it subordinated the worker to the work system.
Bureaucratic Management
Max Weber (1864-1920), a German theorist put forward the idea of the Bureaucratic
organisation with its pyramid structure and chain of command with the senior manager at the
top. Weber felt that bureaucracy was indispensable for the needs of large-scale organisations
and that this form of organisation exists to a greater or lesser extent in practically every
business and public enterprise.
The six main elements of Weber's approach were:
1. Division of Labour: The division of labour allowed specialisation, responsibility and
authority to be defined, which led to increased efficiency.
2. Hierarchy: Authority was centralised at the top of the organisation and positions
were organised in a hierarchy structure. The degree of one’s authority depended on
the position you occupied in the hierarchy.
3. Selection: Weber believed that jobs should be filled according to technical skill and
expertise of the individual rather than through favouritism.
4. Career Orientation: Management was considered a professional career that did not
necessarily involve future ownership in the company.
5. Formalisation: Roles and procedures were developed to guide the way things are
done, rather than ad-hoc decision-making.
6. Impersonality: Rules and procedures applied to all employees regardless of their
position in the hierarchy.
Today the term bureaucracy has tended to take on a negative meaning, as it is often
associated with excessive administration, overstaffing, inefficiency, rigid rules and
Administrative Management
Administrative management focused on the whole organisation rather than solely on the
employees. Henry Fayol (1841-1925) was one of the pioneers of administrative management.
In contrast to Taylor who focused on the bottom of the organisation, Fayol’s focus was on
management. The main task of the organisation head, according to Fayol, was forecasting and
planning. Fayol believed that all activities in a business could be split into the following six
Technical (Production)
Commercial (Buying and selling)
Financial (Accessing and using capital)
Security (Guarding property)
Accounting (Costing and stock-taking)
Managerial (Planning, organising, controlling, commanding and coordinating)
Fayol believed that all six groups of activities were dependent on each other, and that they all
needed to be run effectively for the business to prosper.
During his career Fayol developed the following fourteen principles of management, which
he believed could be applied to any organisation:
Division of Work: Specialisation leads to efficiency as workers develop practice and
Authority and Responsibility: The right to give orders should not be considered without
reference to responsibility.
Unity of command: Employees should only receive orders from one superior or a manager.
Discipline: Clear defined rules and procedures to ensure order and proper behaviour.
Unity of direction: One head and one plan for group activities.
Subordination: Subordination of the individual interest to group interest.
Remuneration: Pay should be fair and satisfactory to both the employee and the firm.
Centralisation: May be present depending upon the quality of management and size of the
Scalar chain: This is the line of authority from the top of the organisation to the bottom.
Order: A place for everything and everything in its place.
Equity: A combination of kindness and justice to employees.
Stability of tenure: Employees need time to settle into their jobs and feel secure.
Initiative: All levels of the organisation’s staff should be encouraged to show initiative.
Espirit de corps: Teamwork and team spirit should be encouraged.
Human Relations Theory
While the classical theorists were principally concerned with the structure and mechanics of
the organisation, the theorists of the humanistic school were interested in the human factor.
The human relations movement emphasised the necessity to satisfy employees’ basic needs in
order for employee productivity to be increased. They believed that if workers are happy they
will work harder.
The turning point in the development of the human relations movement came with the
famous Hawthorne experiments at the Western Electric Company’s Hawthorn plant in
Illinois (1924-32). Elton Mayo and Fritz Roethlisberger carried out these experiments.
There were four main phases to the Hawthorne experiments:
1. The illumination experiment,
2. The relay assembly test room experiment,
3. The interviewing programme,
4. The bank wiring observation room experiment.
The illumination experiment divided the workers into two groups, an experimental and
control group. Lighting levels fluctuated with one of the groups whilst the lighting with the
other group remained constant.
The results of the tests were inconclusive as production in the experimental group varied
without any relationship to the level of lighting, but actually increased when conditions were
worse. They concluded that there was no simple cause and effect relationship between
illumination and productivity and the increase in output was due to the workers being
observed. This phenomenon was called the Hawthorne Effect, where workers were
influenced more by psychological and social factors (observation) than by physical and
logical factors (illumination).
In the relay assembly test room the work was boring and repetitive. Six women were
transferred from another department to the assembly room where a number of tests were
carried out including altering hours, rest periods and the provision of refreshments. The
observer consulted regularly with the women, listened to their complaints, and kept them
All of the changes to their conditions except one yielded an increase in production and so the
conclusion drawn was that the attention paid to the workers was the main reason for the
increased productivity.
The interviewing programme was conducted using prepared questions regarding workers
feelings towards supervisors and their general work conditions. The result of the programme
has given impetus to present day personnel management, counselling interviews and the need
for management to listen to the workers.
The bank wiring observation room was centred around a group of fourteen men. It noted
that the men formed their own informal organisation with sub groups or cliques. Despite
financial incentive the group decided on a level of output below the level they were capable
of producing; group pressures were stronger than financial incentives.
The main finding of the Hawthorn experiments is that workers increased their productivity
simply because their needs were being catered for as part of the experiment. They were
consulted about their part in the work and made to feel special.
Human relations writers demonstrated that people go to work to satisfy a complexity of needs
and not simply for monetary reward.
Two other key contributors to the human relations approach were Abraham Maslow (1908-
1970) and Douglas McGregor (1906- 1964).
Maslow proposed that people seek to satisfy a series of needs that range from basic needs
such as food and shelter, to high level needs such as "self actualisation". Maslow’s theory is
covered in detail in Chapter 4.
McGregor questioned the assumptions made about workers in the past such as they disliked
work and had to be directed and controlled. McGregor believed that organisations should
harness the imagination and intellect of workers. His Theory X-Y is covered in detail in
Chapter 4.
Other Contributors to the Classical Approach to the Study of Management
Two other important contributions to the study of management were:
Mary Parker Follett’s theories of constructive conflict and coordination.
Chester Barnard’s theories of cooperation and acceptance of authority.
Mary Parker Follett is often called the “mother of management”. Her many contributions to
modern management include the ideas of negotiation, conflict resolution and power sharing.
She believed that conflict could be a good thing and that it should be embraced and not
avoided. She said that conflict is “the appearance of difference, difference of opinion and of
interests”. She identified three ways of dealing with conflict:
Domination: An approach to dealing with conflict in which one party deals with the
conflict by satisfying its own desires and objectives at the expense of the other party’s
desires and objectives.
Compromise: An approach to dealing with conflict in which both parties deal with
the conflict by giving up some of what they want in order to reach agreement on a
plan by reducing or settling the conflict.
Integrative conflict resolution: An approach to dealing with conflict in which both
parties deal with the conflict by indicating their preferences and then working together
to find an alternative that meets the needs of both parties.
Follett believed that integrative conflict resolution was superior to the other methods used
because it focused on developing creative methods for meeting conflicting parties’ needs.
Follett used four principles to emphasise the importance of coordination where leaders and
workers at different levels and in different parts of the organisation directly coordinate their
efforts to solve problems and produce the best overall outcomes in an integrative way.
These principles are:
Coordination in relation to all factors in a situation: Because most things that
occur in an organisation are related, managers at different levels and at different parts
of the organisation must coordinate their efforts to solve problems and produce the
best overall outcome.
Coordination by direct contact with the people concerned: Working with those
involved or affected by the organisation problem or issue will produce more effective
Coordination in the early stages: The direct contact should be early in the process
before people’s views have become crystallised they can still modify one another’s
Coordination as a continuous process: The need for coordination is never ending.
The very process of solving a problem is likely to result in the generation of new
problems to solve.
Follett’s work significantly contributed to modern understandings of the human, social and
psychological sides of management.
The former president of the New Jersey Bell Telephone Company, Chester Barnard,
emphasised the critical importance of willing cooperation in organisations and said that
managers could gain workers’ willing cooperation through three executive functions:
Securing essential services from individuals (through material, nonmaterial and
associational incentives).
Unifying members of the organisation by clearly formulating the organisation’s
purpose and objectives.
Providing a system of communication.
Barnard’s definition of an organisation relies heavily on his comprehensive theory of
cooperation. He defined an organisation as “a system of consciously coordinated activities or
forces created by two or more people”.
Finally, most managerial requests or directives will be accepted because they fall within the
zone of indifference, in which acceptance of managerial decisions are automatic. In general
people will be indifferent to managerial directives or orders if they:
are understood
are consistent with the purpose of the organisation
are compatible with the people’s personal interests
can actually be carried out by those people
Rather than threatening workers to force cooperation, Barnard maintained that it is more
effective to induce cooperation through incentives, clearly formulating organisational
objectives, and effective communication throughout the organisation. Ultimately, he believes
that workers grant managers their authority, not the other way around.
Since the 1950s, modern approaches to the study of management have tried to build on and
integrate many of the elements of the classical approaches to provide a framework for
managing modern organisations. This section concentrates on the following four important
System Theory
Contingency Theory
Total Quality Management
Organisational Culture
System Theory
System theory focuses on the analysis of organisations as systems with a number of
interrelated sub systems and also an external environment that affects organisational
performance (See Figure 2.2).
One of the key elements of system theory is that the organisation should be viewed as an
open system with a range of inter-dependencies and both an internal and external
environment. In contrast a closed system is one which focuses only on the internal
environment of the organisation. Because organisations are open systems, they need to
understand and anticipate the external environment if they are to survive.
Organisations also need to consider the subsystems within the business as synergies that can
be achieved when all systems are working together (the whole being greater than the sum of
its parts). Another aspect of system theory is called entropy; this refers to the tendency of
systems to collapse and die if they don't receive new impetus from the external environment.
Figure 2.2: The System view of organisations
Contingency Theory
One of the limitations of many traditional management theories was that it was assumed that
they apply to all situations. The contingency theory suggests that there is no single way to
organise or manage. So when managers try to answer the questions outlined below, the
contingency approach to management assumes there is no universal answer because
organisations, people and the external environment vary widely and are constantly changing.
Should we have a functional or divisional structure?
Should we have narrow or wide spans of control?
Should we have centralised or decentralised decision making?
Should we have an organic or mechanistic structure?
Should we have a simple versus complex control systems?
The Transformation Process
External Environment
The Transformation Process
External Environment
Should we pursue a task focused or people focused style of leadership?
The contingency approach proposes the view that there are contingencies and variables that
exist in most business situations and an analysis of these contingencies will assist managers
in selecting the best course of action in a particular situation. The main factors or
contingencies, which a manager should consider are:
Production technology
Size of the organisation
Organisation structure
Economic environment; in particular market competition and technological change
For example, according to the contingency view a stable external environment would suggest
a centralised structure with an emphasis on standardised rules and procedures in order to
achieve efficiency and consistency. On the other hand, an unstable environment suggests a
decentralised structure to achieve flexibility and adaptability.
The most appropriate structure and systems of management are dependent upon the
contingencies of the situation for each particular organisation.
Total Quality Management (TQM)
The quality movement is associated with the Japanese economic renaissance after World War
II. TQM is an approach based on the use of quality concepts developed in Japan. The aim of
TQM is to minimise waste and reworking by achieving zero defects in the production
Two of the best-known writers on the TQM approach are Deming and Juran.
Deming identified a number of points that were essential ingredients for achieving quality
within the organisation. These include:
Organisations should cease to rely on inspection to ensure quality.
Quality should be built into every stage of the production process.
The cause of inefficiency and poor quality lay with the systems used and not with the
people using them.
It was management’s responsibility to correct the systems in order to achieve high
Deming also stressed the importance of reducing deviations from standards.
Juran believed that quality revolved around three areas:
1. Quality planning to identify the key processes capable of achieving standards.
2. Quality control to highlight when corrective action is necessary.
3. Quality improvement to identify ways of doing things better.
The TQM approach involves a number of steps:
1. Find out what the customer wants,
2. Design products /services that meets/exceeds customer requirements,
3. Design quality into the work processes so that tasks are done correctly,
4. Monitor performance,
5. Expand the approach to suppliers and distributors.
Organisational Culture
An organisational culture is the shared values, beliefs and assumptions held by members of
the organisation and are commonly communicated through symbolic means. Schiein (1985)
defines organisational culture as:
"The pattern of basic assumptions that a given group has invented, discovered or developed
in learning to cope with its problems of external adaptation and internal integration".
Organisational culture can be described as consisting of four layers:
Values: These may be easy to identify in an organisation as they are often written down
as statements about the organisation’s mission, objectives or strategy. However they often
tend to be vague such as “service to the community”.
Beliefs: These tend to be more specific but again there are issues, which people in the
organisation can bring to the surface and talk about. They might include the belief that the
company should not trade with a particular country.
Behaviours: These are the day-to-day ways in which an organisation operates and can be
seen by people both inside and outside the organisation. This includes the work routines,
and how the organisation is structured and controlled.
Taken for granted Assumptions (paradigm): These are the core of an organisation’s
culture. They are the aspects of organisational life which people find difficult to identify
and explain. For an organisation to operate effectively there has to be a generally
accepted set of assumptions. These assumptions can underpin successful strategies and
constrain the development of new strategies.
The culture of an organisation develops over time from a number of interdependent
Firstly it is developed by the prevailing national culture which influences attitudes to
work, authority, equality and a number of other important factors that differ from one
location to another. These values will change over time, and may even vary between
different regions in larger countries. Organisations that operate internationally have the
added problem of having to deal with many different national cultures.
The second major influence is the nature of the industry, which acts as a determinant of
an organisation’s culture. Specific industries contain cultural characteristics which
become manifested in an organisation’s culture. Gordon (1991) argues that organisational
culture is shaped by the competitive environment and the degree to which the
organisation is in a monopoly situation or faced by many competitors. Similarly customer
requirements in the form of reliability versus novelty shape an organisation’s culture.
Finally society holds certain expectations about particular industries, which influence the
values adopted.
The final element shaping an organisation’s culture is the role of the founder of the
organisation. Founder members shape organisational culture by their own cultural values,
which they use to develop assumptions and theories in establishing organisations.
Organisational culture is therefore developed from three interdependent sources all of which
influence the beliefs, values and assumptions of the organisation.
A number of books published in the early 1980s sought to explain why some organisations
were more successful than others and pointed at aspects of culture, which they argue,
contributed to organisational performance.
Peters and Waterman (1982) focused on the relationship between organisation culture and
performance. They chose a sample of highly successful organisations and tried to describe the
management practices that led these organisations to be successful. They identified eight
cultural values that led to successful management practices, which they called excellent
The characteristics of the excellent organisation suggested by Peters and Waterman are:
1. Bias for action: Managers are expected to make decisions even if all the facts are not
2. Stay close to the customer: Customers should be highly valued.
3. Encourage autonomy and entrepreneurship: The organisation is broken into small,
more manageable parts and these are encouraged to be independent, creative and risk-
4. Encourage productivity through people: People are the organisation's most important
asset and the organisation must let them flourish.
5. Hands-on management: Managers stay in touch with business activities by wandering
around the organisation and not managing from behind closed doors
6. Stick to the knitting: These organisations are reluctant to engage in business activities
outside of the organisation's core expertise – i.e. what it is good at.
7. Simple form, lean staff: Few administrative and hierarchical layers, and small corporate
8. Simultaneously loosely and tightly organised: Tightly organised in that all
organisational members understand and believe in the organisation's values. At the same
time, loosely organised in that the organisation has fewer administrative overheads, fewer
staff members and fewer rules and procedures.
In summary, the organisational culture perspective argued that successful management
resulted from the development of key cultural values rather than any innovations in structure
and systems.
Study Unit 3
Planning and Control
Role of Planning
Levels of Planning
Hierarchy of Planning
The Process of Planning
Management by Objectives
Management Decision Making
Organisational Control
The Process Theory of Control,
Categories of Control Systems
Characteristics of Effective Control Systems
Financial Methods of Control
Non-Financial Methods of Control
In Chapter 1, the four basic functions of management process were identified as planning,
organising, leading and controlling. It could be argued that planning is the most important of
these functions as everything else flows from it. Planning takes place in all organisations
either formally or informally. It is important that organisations know where their future lies
and that they have planned for it. Planning is future oriented and involves selecting from a
number of possible courses of actions. The rapid rate of change that faces all firms makes
planning more difficult but also more important.
A plan is a statement of action to be undertaken by the organisation aimed at helping achieve
its objectives.
Planning is defined as “The establishment of objectives, and the formulation, evaluation and
selection of policies, strategies, tactics and action required to achieve them” (Foulks &
Lynch, 1999).
Planning and control are closely linked, as a plan is effectively a road map that tells everyone
in the organisation where they are going and control ensures that they get there.
In general there are three levels of planning within organisations as shown in Figure 3.1.
Figure 3.1: Levels of Planning
Strategic Planning
Strategic planning is concerned with determining the major goals and mission of an
organisation and crafting a strategy to achieve them. Strategic planning is normally carried
out at the senior management level. A strategic plan is a long-term plan that will stretch from
three to five years.
All other planning in an organisation is derived from the strategic plans.
Middle Mamagement
Front Line Mamagement
Strategic Planning
Tactical Planning
Operation Planning
Tactical Planning
Tactical planning takes place at the middle management level and is concerned with the
various component parts of the organisation. A tactical plan is normally a medium term plan
covering a period of up to 1 year. Tactical plans will be focused on achieving the overall
objectives of the organisation.
Operational Planning
Operational planning is concerned with the short-term, day-to-day functions of the
organisation. It is concerned with achieving the operational targets set out in the tactical
plans. Operational planning is normally undertaken by front line managers and supervisors
within the different functions of the business including sales, production, human resources
and finance.
Organisations typically use a wide variety of plans to assist in their planning process.
Weihrich and Koontz (1993) state that there are eight different types of plans, which form a
hierarchy as shown in Figure 7.2.
Figure 3.2 Hierarchy of Planning
Mission or Purpose
The mission or purpose is set out in a mission statement that is used to communicate the
strategic vision through the organisation. A mission statement will set out how to make the
firm distinctive in the eyes of its employees, customers and suppliers. A mission statement
will generally include a description of the company's basic product or service and its target
Goals and Objectives
Organisational goals set out the long-term targets that have to be achieved if the hopes in the
mission statement are to be attained. Objectives set out in the medium-term outline how these
goals are to be achieved. Sample goals and objectives might include:
Goal: To become Africa's number one low cost airline with five years.
Objectives: To become market leader on Kenyan and Ugandan routes within two
years, to increase market share on Kenyan to Ugandan routes by 10% per year, to
open 6 new routes per year and to increase seat occupancy by 3% per year.
It is possible for objectives/goals to be in direct conflict with each other. For example, the
organisation might have set a goal to reduce costs and at the same time improve
product/service quality. The basic conflict in this example is that improving product or
service quality can lead to increased costs and reducing costs can have a negative effect on
quality. The organisation in this example must strike a balance between the two or drop one.
The fundamental plans that an organisation devises in order to achieve its goals and
objectives are called strategies. Strategies are the set of activities identified to achieve goals
and objectives. Strategies should take account of the company’s strengths and weaknesses
and the opportunities and threats that exist in the external market.
A company's strategy represents the management’s answer to such issues as whether to
concentrate on a single business or build a diversified group of businesses, whether to cater
for a broad range of customers or concentrate on a niche market, whether to develop a narrow
or broad product line and whether to pursue competitive advantage through low cost or
product superiority.
Policies provide a framework to assist managers in their decision-making. Policies tend to
limit an area within which a decision can be made and ensure that the decision will be
consistent with and contribute to the overall organisational objectives.
Policies can be in two forms, namely express or implied. An express policy is a written or
verbal statement, which guides managers in their decision-making. For example personnel
may state an organisation is an equal opportunities employer. An implied policy is inferred
from looking at the organisation’s behaviour and actions. Sometimes an organisation’s
expressed and implied policies may conflict or contradict each other, with the organisation
pursuing an expressed policy openly yet privately applying an implied policy.
Procedures are used to standardise activities ensuring consistency. They provide a framework
to assist management in decision-making. Procedures are set out for the different functions.
For example there might be purchasing procedures, hiring procedures, procedures to handle
bad debts, customer complaints procedures etc.
Procedures exist at all levels in the organisation but tend to proliferate at lower levels often as
a means of control. Weihrich and Koontz (1993) argue that one of the reasons for the
widespread use of procedures at lower levels is that routine jobs can often be completed more
efficiently when management details the best way to carry them out.
Well-established procedures are commonly termed ‘standard operating procedures’. These
are procedures that the organisation uses in a routine manner.
Rules are statements that either prohibit or prescribe certain actions by clearly specifying
what employees can and cannot do. Examples of rules would include "No Smoking", “Safety
helmets must be worn on the building site" and "No cheques accepted without cheque card".
Unlike procedures rules allow no discretion in their application.
Programmes provide a link between strategy and execution. Programmes are a method by
which middle management can translate organisational strategy into activities to meet its
goals and objectives. For example an IT manager may develop a computer replacement
program to reduce maintenance costs of obsolete equipment. The introduction of a program
within an organisation may lead to the development of a number of supporting programmes.
A budget is a numerical expression of a plan, which deals with future allocation and
utilisation of resources over a given period of time. Budgets are normally expressed in
financial terms, person hours, productivity or any other measurable unit.
Budgeting is an important planning tool in many businesses. Financial budgets are developed
in conjunction with a programme and they set out the financial resources available to achieve
the programme's objectives.
A budget also serves as an important control mechanism. One of the advantages of a budget
is that it forces people to plan in a precise way.
To gain an understanding of the planning process we will look at one type of planning
(Strategic planning) and describe the steps involved.
Strategic planning involves the following stages:
1. Developing a mission statement
2. Setting objectives
3. Analysing the company’s internal and external environment
4. Developing plans
5. Implementation of plans
6. Evaluating performance
Developing a Mission Statement
This stage involves an analysis of the organisation’s current position and an investigation of
the external environment, in order to establish where the company is and where it is headed.
It also involves identifying gaps in human (skills) and materials resources that need to be
filled. The purpose is to provide a long-term direction on what the company is trying to
Setting Objectives
This stage involves translating the strategic vision or mission into specific performance
targets to be achieved. Objectives should be Specific, Measurable, Achievable, Realistic and
Time-bound (S.M.A.R.T)
Analyse the Company’s Internal and External Environment
Before preparing a strategy, an organisation needs to carry out an analysis of both its internal
and external environment. The business environment is made up of a number of different
layers as shown in Figure 3.1. These layers include the macro-environment and the industry
or sector in which it operates.
Figure 3.1: The Business Environment (Adapted from Johnson and Scholes, 2008).
The Macro-Environment: This “general” layer consists of broad environmental factors that
impact almost all organisations. It is important to build up an understanding of how changes
in the macro-environment are likely to impact on individual organisations. While the firm
may have little control over these factors it must be in a position to deal with these effects
whether they represent a threat or an opportunity for the firm. The PESTEL framework can
be used to identify how future trends in the political, economic, social, technological,
environmental and legal environments might impact on organisations.
Political Factors: The political and legal factors are shaped by the activities of
governments at both national and international levels. On a national level, a government
The Macro-Environment
Industry or Sector
The Organisation
Social Technological
can affect business through its policies in relation to industrial development, and in
particular by the tax incentives, capital grants and expansion schemes made available. On
an international level, the political environment influences business through policies in
relation to international trade and deregulation.
Economic Factors: The economic environment affects the purchasing power of a given
market and therefore will affect the level of demand for a firm's products and services.
Societal Factors: The culture of a society in terms of basic beliefs, values and norms
within which a firm operates can affect the type of products the society needs and wants.
Demographic factors relate to the nature and structure of the population from which the
firm's customer base is chosen. Factors such as population increase or decrease,
movement of population, age of the population and education level will all have to be
considered when preparing the organisations strategy. Organisations will need to establish
what the current and emerging trends are in fashion and lifestyle, what demographic
changes are occurring and what the likely impact on the firm’s markets is.
Technological Factors: The pace of technological change can affect the product service
offering available in the marketplace, the methods of production used and the channels of
distribution used. Organisations need to determine which emerging technological trends
are likely to affect the industry in which they are operating.
Environmental Factors: The cost-effectiveness of raw materials and energy, and the
need for a cleaner environment have a major impact on the type of product and service
offerings available and the way in which they are produced. Organisations need to be
aware of their environmental responsibilities.
Legal Factors: There is a wide range of laws that can impact an organisation which
include the following:
Competition law: Unfair competition, below cost selling, regulated industries.
Employment law: Unfair dismissal, minimum wage, holiday pay, redundancy etc.
Health and safety: All employers are required by law to protect the safety, health
and welfare of their employees.
Product safety: Laws to protect the consumer.
Industry or Sector:
This is the next layer within the broad general environment. The industry or sector is a group
of organisations producing the same products or services. The five forces framework can be
useful in understanding how the competitive dynamics within and around an industry are
Porter’s Five Forces Framework
Porter identified five competitive forces that can be used to analyse the intensity of
competition within an industry, and the attractiveness and profitability of an industry. By
understanding these forces management can develop effective strategies.
Porter’s framework states that competition in an industry is a composite of five competitive
forces (see Figure 3.3):
1. The threat of new entrants
2. The bargaining power of supplier
3. The bargaining power of buyers
4. The threat of substitute products
5. The intensity of rivalry
Each of these forces is now discussed in detail.
Figure 3.3: Porter’s Five Forces
The threat of new entrants will depend on the extent to which there are barriers to entry.
Barriers to entry are factors that need to be overcome by new entrants if they are to compete
successfully. Typical barriers include; capital cost of building and equipment, economies of
scale, access to supply or distribution channels, customer loyalty, experience, government
regulations and differentiation.
Whether the suppliers to an industry are a weak or strong competitive force depends on
market conditions in the supplier industry and the importance of the item they supply.
Supplier-related competitive pressures tend to be minimal whenever the item supplied is a
standard commodity available on the open market from a large number of suppliers with
ample capacity. Suppliers also tend to have less leverage to bargain over price and other
terms of sale when the firm they are supplying is a major customer. Supplier’s power is likely
to be high when there are only a few main suppliers of the product or service, or when the
costs of switching from one supplier to another are high. Supplier power is also strong if
there is the possibility of the supplier competing directly with their buyers (forward
The bargaining power of the buyer is strong when some of the following conditions exist:
Where there are a few dominant buyers and a large number of small suppliers
Where the number of buyers is small
If the costs of switching to a competing product or substitute are relatively low
If the buyer poses a credible threat of backward integration into the business of the
Firms in one industry are quiet often in close competition with firms in another industry
because their products are good substitutes. Substitution reduces demand for a particular class
of products as customers switch to the alternatives.
This is normally the strongest of the five competitive forces. In some industries rivalry is
centred around price competition, which sometimes results in lowered prices. In other
industries rivalry is focused on factors such as performance features, new product innovation,
quality, warranties, after-sale service and brand image.
Rivalry intensifies as the number of competitors increase and as competitors become more
equal in size. Also rivalry is usually stronger when demand for a product is growing slowly
or shrinking.
SWOT Analysis
SWOT is a Strategic planning tool used to assess the Strengths, Weaknesses, Opportunities
and Threats of a business. Strengths and weaknesses are internal to the organisation while
opportunities and threats are external to the organisation.
Strengths are what a company is good at doing or a feature of its operation that gives it a
competitive advantage. Strengths can be the skills of the workforce, patented technology,
organisational resources, quality products, strong brand names or low manufacturing costs.
Weaknesses are those features of its operations that have a negative impact on its
performance and profitability. Weaknesses put companies at a disadvantage and if they are
not corrected can make them vulnerable. Weaknesses might include high cost of production,
low skilled workforce, outdated products, poor brand image etc.
Industry opportunities are an important element in determining a company's strategy.
Industry opportunities relevant to a company are those that provide the best ways of
achieving growth in sales and profitability by taking into account the company's skills and
These are factors that have ability to impact negatively on the company. Threats can come
from substitute products, increased power of suppliers and buyers, new entrants to the
market, increased rivalry within the industry and new competitor products. Threats might also
come from new government legalisation, slowdown in economic growth, changes in
customer’s tastes or rapid technology change.
Opportunities and threats highlight the need for strategic action. A SWOT analysis can be
used to complete a detailed evaluation of a company's strengths, weaknesses, opportunities
and threats, in order to highlight the need for change and to build this into the organisation’s
Develop Plans
This stage involves developing the plan to achieve the desired objectives. The objectives are
the ends and the strategy is the means. The strategic plan will consist of a number of planned
actions to address such issues as: how to satisfy customer needs, how to overcome rivals,
how to respond to changing market conditions and how to develop specific organisational
capabilities. Two important steps in strategic planning are SWOT Analysis and evaluating
alternative strategies.
The organisation will develop a list of strategic options that will help it achieve its strategic
objectives. Options could include expanding into new markets with existing products or
launching new products on the existing market of even acquiring a competitor. The company
will need to evaluate each of the alternatives and choose the most viable one(s).
Implementation of Plans
This stage involves implementing the strategic plan. The task on management includes such
actions as assessing what needs to be done to put the strategy in place, executing it
proficiently and achieving good results. Implementing strategy involves developing the
capabilities of the organisation, creating a suitable culture and motivating the people to
pursue the target objectives. It also involves developing and controlling a budget towards the
resources critical to the strategic plan.
Evaluating Performance
This stage involves evaluating performance and initiating corrective adjustments in the
direction, objectives, or implementation in light of changing conditions or new opportunities
that may arise.
Management by Objectives (MBO) is an approach which encourages managers and
employees to set their own goals within a framework set out by senior management. It is
based on the idea that when employees are set specific and challenging goals, accompanied
by feedback, they are more likely to be motivated to give their best.
The specific stages of the MBO process are:
Senior management set long-term goals for the organisation
Each department within the organisation is assigned specific targets.
Lower level manager’s objectives and targets are set and agreed with the
managers and employees involved.
Progress towards achieving objectives is constantly monitored and corrective
action is taken where necessary.
The management writer Peter Drucker argued in his book “The Process of Management” that
MBO was the ideal way of delegating authority in a large organisation.
Benefits of MBO
It encourages managers to employ a result focus to their planning.
It can help identify deficiencies in the organisational structure as MBO forces
managers to clarify organisational roles and structure.
Can lead to improved moral and motivation among the managers and employees
involved as they have input into the goals that are set.
Can increase employee commitment to achieving the goals set for them.
Supports the development of management control and performance measurement.
Weaknesses of MBO
MBO relies on commitment of all management to succeed and it will fail without
top management commitment.
It can be difficult to set goals for all managers in all circumstances
Management can become disillusioned if unrealistic and unachievable targets are
set for them.
It can encourage individual achievement at the expense of a team focus.
Decision-making is defined as choosing one alternative from several. This definition could be
extended to include an identification phase, where problems and opportunities are identified
that require decisions to be made. Decision-making is a key task of management, in particular
in the context of planning.
Types of Decisions
There are basically two types of decisions:
1. Programmed Decision: This is a decision or problem that recurs regularly enough for a
decision rule to be developed. The decision rule tells the manager which alternative to
2. Non-programmed Decision: This is a decision or problem not encountered before where
the decision maker cannot rely on previously defined decision rules.
The Decision Making Process
Despite the fact that decisions will be made in different organisational contexts, it is possible
to create a model that can be applied to most situations. A six-step model called the Rational
Model (Moorhead and Griffin, 1995) is one that can be applied to a variety of decision-
making situations. The six steps are as follows:
1. Stating the goal: The first step is to establish the goal or desired end state against which
solution will be measured.
2. Identifying the problem: The problem is in effect the difference between the current
and the desired or goal state.
3. Determining the decision type: The type of decision must be determined. If the
decision is a programmed decision, then there should already be policies or rules that can
be used. If a non-programmed decision is involved, the decision makers will have to
generate solutions as well as evaluate them.
4. Choosing an alternative: The alternative chosen will be the one with the highest
possible benefits while taking into account the risks involved.
5. Implementation: In this phase the chosen alternative will be implemented. The
implementation phase will involve planning and communication to ensure that all those
affected are aware of the decision and what is required of them.
6. Measurement and control: Measurements should be taken to establish the success or
otherwise of the implementation. Corrective action should be taken where required.
The Administrative Model of Decision Making
The administrative model describes how decisions are made in difficult situations of
uncertainty and ambiguity.
Three important aspects of this model are:
Bounded rationality means people have limits or bounds on how rational they can be.
Organisations are very complex and have time only to process limited amounts of
information to make decisions. Therefore they choose the first solution that satisfies the
minimal decision criteria.
Intuition entails a quick apprehension of a decision situation based on past experience
but without conscious thought. Intuitive decision making is not arbitrary or irrational
because it is based on past experience.
Coalition building - entails forming an informal alliance among managers who support a
specific goal. Managers gain support through discussion, negotiation and bargaining.
The administrative model is more realistic than the rational model as it focuses on
organisational factors that influence individual decisions.
Group Decision Making
Group decision-making can be a very powerful tool if utilised successfully as it can bring a
wide range of knowledge, skills and experiences to a particular problem or situation.
However, the disadvantage is that too many strongly held viewpoints can make it difficult to
reach consensus. A number of different formats/techniques have been developed to facilitate
group-decision making.
1. Interactive Groups: A group is brought together face to face with a specific agenda. The
discussion group will generate ideas and all ideas will be discussed. A vote is taken to
reach consensus on a chosen solution.
2. Brainstorming: This is a creative process used to generate ideas involving a group of
people who are encouraged to contribute ideas. All ideas are written down without
evaluation and are examined in more detail once the brainstorming process is completed.
3. Nominal Groups: Group members assess the problem and ideas are generated by the
individuals. These ideas are then presented and discussed as a group. Group members
then rate ideas individually and the idea with the highest score is chosen.
4. Delphi technique: This is a decision making process that was designed to avoid conflict
between participants and to prevent any one participant having undue influence on the
decision making. A chairman or facilitator asks each participant to fill in a questionnaire.
The chairman summarises the replies and sends the summary to each participant for their
opinion. The process continues until consensus is reached. The main disadvantage of this
technique is its slowness.
Individual versus Group Decision Making
Benefits of Individual Decision Making
The benefits associated with individual decision-making are:
Clear Accountability
Benefits of Group Decision Making
The benefits associated with group decision-making are:
Wider range of skills and experience used in the decision making process
Higher quality decisions
Greater acceptance of the decision made
Organisational control can be defined as the process through which managers regulate
organisational activities to make them consistent with present performance standards.
Management control is designed to provide information on progress against present
performance targets. Control is crucial to managers as it enables them to:
Prevent problems for growing and becoming crises
Standardise output in terms of quality and quantity
Carry out performance assessment of employees
Update plans - actual progress against planned progress
Protect assets by preventing inefficiency and waste
The careful design of a management control system can ensure that all employees, work
teams and functional departments meet the objectives and targets of the organisation with
minimum deviation. The basic activities involved in a control process are:
Setting Performance Standards
Performance Measurement
Corrective Action
Setting Performance Standards
Standards set out what must be achieved in terms of quantity or quality to meet the
organisation's objectives. Performance standards are set at a specific point in an
implementation program and will assist managers in gauging the actual performance against
the planned performance objectives. Setting performance standards is a key aspect of the
planning process at all levels in the organisation. To be effective standards must be
measurable so that they can be recorded and monitored.
Performance Measurement
This stage involves measuring or evaluating actual performance against standards. There are
various reasons why performance could fall below the standards set out at the planning stage:
Standards may have been inappropriately set
Lack of effort by employees or managers in meeting the standards
Failure to use the resources efficiently
When examining performance results it is normal for management to concentrate on
deviations that lie outside the upper and lower limits set.
Corrective Action
The final stage in the control process involves taking action to correct deviations from the
standards. In some situations the standards may have to be revised especially if they are based
on historical data that is no longer appropriate.
There are three general categories of control systems:
1. Feedforward: These types of controls are implemented before the plan becomes
operative and attempt to prevent problems from occurring. It analyses the inputs (e.g.
human, materials and financial) to establish if they are adequate in terms of quantity and
2. Concurrent: These types of control monitor the process of transformation of inputs to
outputs and enable adjustments to be made during the operation of the process. It is
normal with these types of controls to have guidelines for dealing with contingencies that
may arise.
3. Feedback: This type of control monitors the quality and/or quantity of output after the
transformation of input has occurred. This enables managers to decide whether to
instigate new plans or continue with existing ones. A customer satisfaction survey is an
example of this type of control.
The category of control to be used will depend on the stage of operation in which it is to be
applied. Feedforward controls would be appropriate before the process commences while
concurrent controls would be used during operation and feedback controls after operation.
For an organisational control system to be effective it must be linked to the organisational
strategy and be accepted by employees. The information it produces must be accurate and
timely. Effective controls display the following characteristics:
Cost Effectiveness
Focus on Critical Points and Exceptions
Reliability and Validity
Accessibility and Comprehensibility
The type of control to be used depends on factors such as the size of the organisation, the area
or function to which they are being applied, and the management level that they are designed
for. Controls should be aligned with the organisational structure when assigning
responsibility for implementing plans and for correcting any deviations. Controls should be
geared to provide relevant information only and avoid generating redundant data.
Cost Effectiveness
Control mechanisms should be designed to work in a cost effective way. They control system
should save more money than it costs to implement.
Controls should be designed in a way that avoids causing antagonism between management
and staff.
Focus on Critical Points and Exceptions
Controls should focus on significant variations and on those points that are important to the
overall objectives of the organisation. A small deviation on one point could be more
significant than a larger deviation at a different point.
The control mechanism should ideally be flexible to cater for changed circumstances. A
budget would be an example of an inflexible control mechanism because of its inability to
cater for changed circumstance.
Reliability and Validity
The information supplied by the control mechanism must be dependable and must measure
what it claims to measure.
Accessibility and Comprehensibility
Employees should have access to feedback on their performance and should understand how
the control process operates. This will make them more likely to get involved in the
corrective actions suggested by the control mechanism.
Financial methods of control include:
Financial Statements
Budgetary Control
Financial Analysis
Financial Statements:
Financial statements are summaries of an organisation's accounting records and are
concerned with three key areas of financial performance: namely liquidity, profitability and
general financial health. Financial statements are prepared based on past information and can
provide managers with useful information about trends. The main financial statements are:
Balance Sheets
Income Statements
Cash Flow Statements
Budgetary Control
Budgets are the most widely used means of planning and controlling activities at every level
of an organisation. Budgets are widely used as they provide a clear standard of performance
within a specified time. At regular intervals during the time period addressed by the budget,
actual results are compared with budget figures and this allows deviations to be detected and
In general, budgets are drawn up by middle managers in response to guidelines set by senior
management and are then submitted to higher management for approval.
Note: Budgets are discussed in more detail in Chapter 11
Financial Analysis
Analysis of a firm’s performance can be undertaken using a number of different forms of
financial analysis which include:
Ratio Analysis
Break Even Analysis
Ratio Analysis
Ratio analysis can be used by managers and others to evaluate a firm’s past and current
performance. Ratio analysis is a useful method of comparing a company's financial
performance against competing firms in the industry (benchmarking). Financial ratios are
calculated from information contained in the financial statements.
The four key categories of financial ratios used by companies are:
1. Profitability Ratios: These measure the efficiency of a firm in generating profit which is
achieved by comparing its sales performance to the assets of the firm.
2. Liquidity Ratios: This measures a firm's ability to pay back its short-term debt.
3. Leverage Ratios: These identify the source of an organisations capital.
4. Activity Ratios: These measure the efficiency of a firm in using the resources it deploys.
Break Even Analysis
Break-even analysis seeks to identify the point (break even point) at which revenue generated
from a given volume of output matches total costs (fixed costs + variable) of that output (See
Figure 3.4). Break-even analysis can be used to calculate the output volume necessary to
break even or to make a specific level of profit.
Break-even analysis is widely used both in decision-making and control situations as it is
reasonable easy to use.
Figure 3.4: Break-Even Point
The main non-financial control methods are:
Functional Audits
Quality Control
Inventory Control
Production Control
Functional Audits
Functional Audits evaluate the accuracy of accounting and related records. These audits
should be comprehensive, systematic, independent and periodic. The audits can be internal or
external. Internal audits concentrate the financial health of the company - sales, resources,
production etc. Audits may be conducted in each of the functional areas of the business,
namely production, marketing, finance and human resource.
External audits, which relies on information that has been made public about competitor
firms has the objective of analysing the performance of individual competitors or the industry
as a whole.
Quality Control Systems
Quality control relates to the activities employed by a firm to achieve and maintain a certain
level of quality for a product, a process or a service. Traditionally quality control was a
monitoring activity but is increasingly concerned with identifying and eliminating the root
causes of poor quality.
Japanese organisations introduced the concept of quality circles, which involved groups of
employees getting together to solve problems in the workplace related to quality.
ISO Standardisation
ISO is an internationally recognised set of quality standards related to design, manufacture
supply and servicing of products. Before a company can obtain ISO certification, they must
re-examine their operations, document procedures and put a quality systems in place.
Inventory Control
The goal of inventory control is to reduce the cost of handling and storing inventory. The aim
is to have adequate inventory at hand but no more than is required. To achieve this aim an
inventory control system is used to indicate how much inventory should be bought and at
what point it should be reordered. Factors that have to be taken into account include the lead-
time involved and the amount of safety stock kept in reserve in case of problems with
suppliers. The inventory control system must also decide on the Economic Order Quantity.
The Economic Order Quantity is the point where the cost of ordering the goods is not greater
than the cost of holding the goods. The task of inventory control has been simplified by the
widespread availability of information technology.
Production Control
Production control systems are used to determine where and when a task is to be performed
so that an order can be delivered at the appropriated time. These systems also support
monitoring of the production process to enable early detection of problems. The type of
production control system being used will depend on the organisations production methods.
An assembly plant will use a flow control system to reduce bottlenecks. A specialist firm
making one off products may use an order control system to track the order from design
through to delivery.
Study Unit 4
Organisation and Structure
The organisation of a firm is closely linked to the planning process; it creates the structure in
which the firm fits its strategy. The organisational structure is one of the tools that
management uses to get work done.
Core Features of Organising
Organisational Structure
Organisational structure refers to the framework in which the organisation sets out how tasks
are divided, resources are deployed and departments are coordinated. The main features of
organisational structure are:
The set of tasks assigned to individuals and departments.
The formal reporting relationship, including lines of authority, decision responsibility,
number of levels and the span of a manager control.
The systems that ensure effective coordination across departments.
The characteristics of the vertical structure of an organisation are represented in the
organisational chart.
Work specialisation
Work specialisation, which is also called division of labour, is the degree to which
organisational tasks are subdivided into separate jobs. This is done because in many work
situations it is more efficient if employees are allowed to specialise on a particular task.
Chain of Command
The chain of command is the unbroken line of authority that links all persons in an
organisation - it effectively shows who reports to whom. A closely linked principal is called
Unity of Command, which means that each employee is held accountable to only one
Authority, Responsibility, Accountability and Delegation
Authority is defined as the right to make decisions and take action.
Responsibility is the obligation of a person to complete a given task.
Accountability is the requirement that managers and workers accept the consequences of
their actions and report those actions to their immediate supervisor.
Delegation is the process that merges authority, responsibility and accountability. Senior
management may delegate authority and responsibility to lower level management but they
are still accountable for the outcome.
Span of Control
Span of control defines the number of subordinates a manager supervises. Wider spans of
control give employees greater freedom while a narrow span of control involves close
supervision of subordinates. The breath of the span of control is a function of the complexity
of the organisational structure and task complexity coupled with the amount of time required.
The exact number will depend on a variety of factors such as:
1. The geographic proximity of the personnel: The more concentrated the work area is the
greater span of control that is possible.
2. The functional similarity of operations: A manager can exercise a broad span of control
if the majority of staff performs similar tasks.
3. Functional complexity of the organisation: Organisations with complex functions
require narrow spans of control.
4. The need of the employees for supervision: The greater the need for supervision the
narrower the span of control.
5. The clarity and complexity of plans: Well defined and straight forward plans support a
broad span of control.
6. The level of managerial support available: The span of control can be extended if there
is support from higher-level managers.
7. The need for coordination within functions: A narrow span of control will be necessary
in organisations where there is a need to coordinate between functions.
Centralisation versus Decentralisation
The extent to which authority is delegated depends on the extent of centralisation or
decentralisation. A decentralised organisation is one in which the authority to make decisions
and to commit money and materials is widely delegated throughout every level of the
organisation. A centralised organisation is one where little authority is exercised outside the
key group of senior managers.
The advantages of decentralisation are as follows:
1. Top management are free to concentrate on their strategic responsibilities.
2. It speeds up operational decisions as they can be made nearer to where they apply.
3. It allows local management to be flexible.
4. It can contribute to staff motivation.
5. It encourages responsibility among junior managers.
The main disadvantages of decentralisation are,
1. Control and co-ordination by management (top management in particular) is more
difficult to accomplish.
2. Communication is more difficult but also more important.
3. It can encourage people to focus on their own individual goals rather than the
organisation’s goals.
4. It requires well-trained, capable and motivated managers.
Overall, the advantages of decentralisation outweigh the disadvantages because of the
pressure on modern organisations to be flexible and respond quickly to the business
Tall versus Flat Organisational Structures
Flat organisations
Tall organisations
Decentralised authority
Centralised authority
Few levels of management
Many levels of management
Wide span of control
Narrow spans of control
Table 4.1: Tall versus Flat Organisational Structures
A flat structure would generally apply to smaller organisations of 500 employees or less;
however control can become unmanageable for some managers and supervisors. In flat
organisations managers are more likely to delegate responsibilities.
The advantage of tall organisations is they can maintain a very high degree of specialisation
of functions and roles. However, tall organisations tend to be very formalised with
standardisation of procedures that usually discourages initiative and risk taking.
Functional Approach
In this type of organisational structure tasks are linked based on common function (Figure
4.1). For example, all tasks associated with production are grouped in a single function and
all sales activities are grouped together. Figure 4.1 is an organisational chart of a functional
Figure 4.1: A functional organisational structure (Plunkett, W. 2007)
Sales and
Marketing Production
Finance Human
Sales Advertising
Wage and
Credit Funds
Acquisition Benefits
Accounting Training Assembly
Sales and
Marketing Production
Finance Human
Sales Advertising
Wage and
Credit Funds
Acquisition Benefits
Accounting Training Assembly
There is a high degree of division of labour and specialisation in this approach, which can
yield economies of scale. However the high degree of coordination required between
departments may result in delays in adapting to changes in the external environment.
Divisional Approach
In this approach, departments are grouped together into separate self-contained divisions
based on a common product or a geographical region (Figure 4.2). The divisional approach
has the advantage that reporting lines and chain of command are in line with the main
activities of the organisation. This provides a clear framework for channelling strategic
efforts to achieve the strategic aims of the organisation.
Figure 4.2: A Divisional Organisational Structure
The main disadvantage of this type of organisation is that divisions can become
compartmentalised and focused on divisional interest to the detriment of the overall
organisation. Divisions may also become isolated and unaware of what the other sections of
the business are doing.
Matrix Approach
In the matrix approach, both functional and divisional chains of command are implemented
simultaneously and overlap with one another in the same departments. Two chains of
command exist and employees report to two bosses.
Figure 4.3: A Matrix Organisational Structure
Division 1
Sales and
Marketing ProductionFinance
Division 2
Sales and
Marketing ProductionFinance
Division 1
Sales and
Marketing ProductionFinance
Division 2
Sales and
Marketing ProductionFinance
Sales and
Marketing Production
Resources Finance
Division 1
Division 2
Sales and
Marketing Production
Resources Finance
Division 1
Division 2
This approach tries to bring the best of both worlds - functional specialisation and expertise
with a product focus. The main disadvantage is that individuals may experience divided
loyalties between individual bosses.
AND ROCHE, 1999)
In general, the structure of an organisation depends on a variety of contingency factors.
Different organisations require different types of structure. The factors involved in the choice
of structure include:
The Business Environment
Size and Life Cycle
Manufacturing and Service Technologies
Department Interdependences
In general, an organisation’s structure follows the strategy being pursued. For example, a
start-up company operating in a domestic market may be able to centralise decision making
to a greater extent than an export led company. A company pursuing a differentiation strategy
might require a more flexible structure than a company pursuing a low cost strategy.
The Business Environment
Firms operating in a dynamic environment need a more flexible structure. Firms operating in
a stable environment need a rigid structure, whereas firms operating in an intermediate
environment need a hybrid structure.
Size and Life Cycle
One of the major determinants of organisational structure is the size of the organisation.
Larger firms that have greater access to capital can attract better management, greater market
share and superior market information than smaller firms. As an organisation grows in size,
so too must its structure, as more levels or layers of management are needed to co-ordinate
operations. The problems for large firms are how to manage layers of managers, how to
delegate to all their employees, and how to obtain commitment and employee satisfaction,
while at the same time achieving the organisation’s objectives.
Manufacturing and Service Technologies
There is a direct relationship between the level of technology involved and the required
structure of the organisation. In general the use of IT within organisations is reducing
management layers and increasing spans of control. Also, very high levels of customer
service requirements suggest the need for locally responsive decentralised types of structure.
Furthermore, a company utilising high levels of mass production to produce standard
products might employ a formal structure as workers are required to carry out repetitive
Department Interdependences
This refers to the level of dependence between departments’ vis-à-vis resources and supplies
in accomplishing tasks and has an influence on the required organisational structure. Where
interdependence is low, there is little need for a structure, which facilitates interaction,
information sharing and coordination.
The challenge facing organisations is the need to become more flexible and responsive to
changes in the external environment. There has been a shift from bureaucratic hierarchical
forms of organisation to flatter, more adaptable ones. The changes in organisational practices
can be grouped under the following headings:
Flatter hierarchies: Many organisations are de-layering their management structure in an
effort to speed up decision-making and communications. The widespread use of
information technology has facilitated a reduction in layers of clerical management in
particular. Overall, in many companies the number of managers and in particular middle
management is being reduced.
Emphasis on teamwork: The use of different teams from project teams to product
development teams and sales teams has become a common feature in many organisations,
particularly in the technology sector. The use of the team approach is an effort to improve
employee commitment and motivation, thereby increasing productivity and profitability.
The subject of teamwork is covered in more detail in Chapter 5.
More distributed responsibility and decision-making authority: Flatter organisations
have facilitated a move to delegate authority down to lower levels in the organisation than
was previously possible. The emergence of teamwork has enabled decision making to be
moved closer to the front line.
Organisational thinking has continued to evolve in the last 100 years and with it the structure
of organisation continues to change. Two of the new organisational structures that have
developed are:
1. The Network Organisation
2. The High Performance Organisation
The Network Organisation
The network organisation extends the trend of decentralisation further by granting more
authority to departments and functions. Instead of the traditional hierarchical model of
authority within the organisation, control and responsibility is assigned to effectively
independent units. The aim of this structure is to enable different parts of the organisation to
work together. The networking approach can be taken a step further where the network
involves external suppliers and customers. Alliances with competitors can be formed where
the relationship can be mutually beneficial. In the airline industry airlines that are in
competition on some routes often form alliances that allow passengers to switch between
airlines on different segments of long haul routes. Another form of the network approach is
where an organisation can outsource a part of its operation from other companies. The main
company becomes a small central broker electronically connected to other companies that
perform vital functions. Department are independent, contracting services to the broker for a
profit (See Figure 4.4).
Figure 4.4: A Network Organisational Structure
A similar approach to networking is called the modular approach; an example of this
approach is where a manufacturing company uses outside suppliers to provide entire chunks
of a product, which are then assembled by a handful of workers.
Another example is when Apple developed its iPod digital music player; it outsourced the
audio chip design and manufactures a company in the US and the final assembly to a
Taiwanese company. Doing this not only reduced cost and sped up production but also
allowed Apple to concentrate on what it does best design innovative products with easy to
use software.
Advantages of the network approach include:
Can draw on expertise worldwide
Highly flexible and responsive
Reduced overhead costs
Disadvantages of the network approach include:
Loss of control when key business activities are outsourced
Loss of competitive advantage when core business activities are mistakenly outsourced
Greater demand on managers
Employee loyalty is weakened
The High Performance Organisation
High performance organisations are structured to encourage and enable employees to deliver
a high performance. Key aspects of this approach are the development of self- managed
Agency Product Design
Company Manufacturing
Agency Product Design
Company Manufacturing
teams, decentralisation and a focus on products, services and customers. Employees are
encouraged to take responsibility and also deal directly with customers and suppliers. These
types of structures tend to be common in the technology sector where innovation and
flexibility are needed to be able to deal with a rapidly changing environment.
According to Mintzberg (1979), the choice of an appropriate structure depends on the
productive combination of an organisation's strategy (given its size and market position), and
its internal culture (what type of decision making and co-ordination does it employ, and how
does its division of labour function). Mintzberg lists five types of organisation:
Simple Structure: This suits small organisations in a competitive environment, such as
family-owned shops. Direct supervision of employees is possible in these organisations,
and is necessary as they are required to react quickly to changes in the environment.
Machine Bureaucracy: This is found in many large organisations that operate in a stable
environment such as the civil service or large production organisations. Its main features
are standardisation of work processes and centralised decision-making.
Professional Bureaucracy: This is appropriate for organisations such as hospitals, which
operate in a stable but complex environment. Decision-making is relatively decentralised,
and co-ordination of activities is reliant on the standardisation of employee skills.
Divisionalised Structure: These operate in organisations where decision-making is split
between headquarters and various divisions operating in distinct markets. Machine
bureaucracies can develop in each of the divisions, so that the output of each is
standardised to the satisfaction of headquarters.
Adhocracy: This is usually found in young organisations producing technical products,
where organisational flexibility and dynamism is key. Decision-making is spread
throughout the organisation and specialist project teams are set up as required.
Age & Type Small, new Large, mature Professional
organisations Old and large Young, fast
technology based
Simple but
dynamic Simple and
stable Stable but
complex Simple and
stable Complex and
Examples Small Local
business Civil Service Universities
and hospitals Fast moving
consumer goods
supervision Standardisation
of work
n of employee
n of output Mutual
adjustment -
Structure Organic, little
Relatively flat
Usually tall
Matrix and project
team based
Making Centralised in
Centralised Decentralised
in the basis of
Split Spread throughout
the organisation
Division of
Labour Minimal Strong and
inflexible Based on
expertise with
Similar to
but dependent
on degree of
autonomy of
Specialist based,
and innovation
Figure 4.5: The Mintzberg Framework
Study Unit 5
Leadership styles
Leadership Theories
A key role of management is to direct and motivate employees to work productively, in order
to achieve the organisational objectives that have been set for them. While organisations
traditionally focused on directing employees in a top down hierarchical fashion the current
focus in on leading and motivating.
Leadership can be defined as the capacity to achieve the objectives of the organisation, by
showing what needs to be done and by showing how to do it. Therefore, leadership is a
management process of getting results through people and other resources and involves:
Creating a vision for others to follow
Establishing values
Transforming the efficiency and effectiveness of the organisation
Organising and motivating employees by means of workgroups, teams and
Organising resources in the most effective manner
Resolving conflicts that may arise
Difference between Leadership and Management
Leadership and management are different, but compatible qualities that are both important to
the organisation. While management is concerned with organising, planning, directing, and
controlling through formal authority, leadership is concerned with creating a vision for the
future and developing a strategy to make the vision a reality.
Though leadership and management qualities may overlap within the same individual, there
are distinct differences. Leadership qualities tend to be visionary, passionate, creative,
flexible, inspiring, innovative, courageous and imaginative. On the other hand management
qualities tend to be rational, consulting, persistent, problem solving, analytical and tough
mindedness. While a person may possess more of one set of qualities than the other, a
manager should have a balance between both leadership and managerial qualities.
Source of Power
One of the main differences between management and leadership relates to the source of their
power. Power is important in an organisational context as it linked with the ability to
influence the behaviour of others. The types of power associated with leadership and
management are personal power and positional power, respectively.
Personal power comes from the leaders themselves - their interest, values and goals. Personal
power promotes vision, creativity and change within the organisation.
Positional power is associated with management and it comes for the organisational structure.
It promotes stability, order and problem solving within the structure.
The differences between leadership and management are summarised in Figure 5.1:
Creating a vision for the future Organising, planning, directing
Developing a strategy to realise
the vision Controlling through formal authority
Focus on bringing about
change Operation of current procedures
Inspiring people towards higher
levels of performance Achieving goals
Visionary, passionate, creative Rational, consulting, persistent
Flexible, inspiring, innovative Problem solving, analytical
Courageous and imaginative Tough minded
Source of Power Personal power Positional power
Figure 5.1: Differences between leadership and management
The fundamental difference between leadership styles has to do with where decision making
rests. It is possible to identify the following five generic leadership styles as shown in Figure
Figure 5.2: Leadership Styles
Laissez Fair Democratic
Laissez Fair Democratic
Autocratic Leadership
This style of leadership involves making decision without consultation. Management retain
high levels of power over subordinates through the issuing of orders. The dominant
characteristics of an autocratic leader include:
Autocratic leadership is most prevalent in the military and is most effective in emergency
situations where absolute trust in the leaderships is required. Motivation will often be the
result of fear and intimidation.
Bureaucratic Leadership
This style of leadership involves centralised managerial decision-making and is supported by
rules, regulations and policies, which employees must follow. Because of the absence of
flexibility, organisations using bureaucratic leadership will often find it difficult to cope with
changes in the market place. The dominant characteristics of this type of leadership include:
Strength of conviction
This style of leadership is most prevalent in large organisations and in the civil service.
Democratic Leadership
Democratic leadership involves wider participation in the decision-making process - it would
involve employees having input in management decision making. The management
characteristics associated with democratic leadership include:
Good communication skills
Organisations that rely on rigorous and consistent procedures for their success would have
limited scope for democratic leadership.
Laissez Fair Leadership
This style involves management setting goals and objectives, and allowing employees a free
reign to accomplish these as they see fit. It is most commonly seen in high tech industries;
engineering, research and development and professions such as architecture, management
consultancy and medicine. The managerial characteristics required for this style of leadership
Good judgement
Employee Controlled Leadership
In these types of organisations employees set goals and make decisions, while management
deal with the administrative aspects of these decisions. An example of where this style of
leadership would be used is in universities. Dominant management characteristics include:
This section provides a summary on four main schools of thought on leadership, namely:
The trait approach
The behaviour approach
The contingency approach
The charismatic approach
Trait Theories
The earliest theories of leadership focused on traits. The basis of these theories was that it
was possible to identify a set of underlying characteristics that make all great leaders great.
The trait theories argue that leaders are born with particular traits such as personality traits,
and physical traits that mark them out to be leaders.
Research into the universal traits possessed by leaders has produced little by way of
compelling evidence. The view that leaders are born and not made is not as strongly held
The following is a summary of trait theories:
Traits and skills can be identified that set leaders apart from non-leaders.
The traits identified mainly concern personality, including such characteristics as
dependability, intelligence, shows initiative, lateral thinker, need for achievement,
visionary etc.
These traits and skills can be used to select leaders - such an approach is used in personal
specifications for selection.
This approach has re-emerged as management competencies.
Behaviour and Style Theories
Results from two research groups at the Ohio State University (Stogdill and Coons, 1957)
and at the University of Michigan (Likert, 1961) are described as follows:
Ohio State University Studies
These studies sought to identify and classify the various dimensions of leadership behaviour.
Two categories were identified that accounted for the majority of the leadership behaviour.
These two categories were called:
Initiating Structure style (Task-oriented behaviour): This style reflects the extent to
which the leader defines his/her role and the role of their followers in achieving
established goals.
Considerate style (People-oriented behaviour): This style reflects the extent to which the
leader focuses on establishing trust, mutual respect and rapport between themselves and
their followers and among the group of followers.
This research demonstrated that leaders that show behaviour with high levels of initiating
structure style and high levels of considerate style were generally more likely to achieve
higher performance among their followers.
University of Michigan Studies
These studies sought to examine the nature of the relationship between behavioural
characteristics of leaders and performance effectiveness. The research produces a two-way
classification of leadership; employee-oriented and production-oriented styles. Employee-
oriented leaders emphasise interpersonal relations in the workplace while production-oriented
leaders focus on the technical aspects of work.
The results of the study showed that the employee-oriented leaders achieved higher
productivity and job satisfaction among their workers than production-oriented leaders.
However, the study also found that the employee-oriented and production-oriented
approaches needed to be balanced.
The results of the two studies could be summarised as follows:
They suggest that the behaviour of the leader, rather than a personality trait, determines
leadership effectiveness.
There are two dimensions of leader behaviour; production-oriented versus employee-
centred leaders.
Employee-centred leadership is favoured over task-centred leadership.
The most effective leaders emphasise concern for their employees.
There are some situations where task-centred leadership is more appropriate.
Contingency Leadership Theory
These theories are based on the premise that predicting leadership success and effectiveness
is more complex than simply isolating traits or behaviour. Situational factors, such as the
characteristics of the employees, experience of the leader and the nature of the task being
done also have an effect on the leader’s effectiveness.
Fielder Theory (1970s) was an attempt to combine leadership style and organisational
situation. The idea was to match the leader’s style with the most favourable situation.
According to Fielder effective leadership is a function of four factors:
o Leader’s preferred style
o Leader-member relations
o Task structure Situational Factors
o Leader’s position power
Leadership Style
Fielder identified two main leadership styles:
Relationship-motivated leaders: These obtain satisfaction from having good
relationships with others. They usually encourage participation and involvement and are
concerned about what the other team members think of them.
Task-motivated leaders: These are strongly focused on the task and emphasise
procedures and task completion.
Fielder’s view was that both these styles could be useful and effective in appropriate
Leadership style was measured with a questionnaire known as the least preferred co-worker
(LPC) scale. The LPC scale has an 18 adjectives pairs (each adjective in a pair oppose one
another) along an 8 point scale.
Examples of the adjectives are as follows:
open 1 2 3 4 5 6 7 8 guarded
quarrelsome 8 7 6 5 4 3 2 1 harmonious
efficient 1 2 3 4 5 6 7 8 inefficient
self-assured 1 2 3 4 5 6 7 8 hesitant
gloomy 8 7 6 5 4 3 2 1 cheerful
The manager (leader) is asked to describe the person they worked least well with- in the past
(least preferred co-worker) on a scale 1-8. If the leader describes the least preferred co-
worker using positive concepts, he or she is considered relationship-oriented a leader who
cares about and is sensitive to others feelings. On the other hand, if a leader uses negative
concepts to describe the least preferred co-worker, he or she is considered task oriented a
leader who places greater value on tasks than on people.
Leadership situations can be analysed in terms of three elements which can be favourable or
unfavourable for the leader:
Leader-member relations: This refers to group atmosphere, and members’ attitude
towards and acceptance of the leader.
Task structure: This refers to the extent to which tasks performed by the group are
defined, have specific procedures and have clear explicit goals.
Leader’s position power: This refers to the extent to which the leader has formal
authority over subordinates.
When he examined the relationship between leadership style and situational factors, and the
link with performance Fielder found the following:
When all three elements are favourable, the task oriented leader excelled because
everyone got on well together, the task is clear and the leader has power all that is
needed is for someone to provide direction.
When the situation is unfavourable to the leader, a great deal of structure and task
direction is needed so a task-oriented leader will do best.
When the situation is intermediately favourable the relationship-oriented leader will
do best because human relations skills are important in achieving high group
This theory focuses on the characteristics of the employee in determining appropriate
leadership behaviour. According to Hersey and Blanchard, subordinates vary in their
readiness level. People who are low in task readiness, because of little ability or training, or
insecurity, need a different leadership style than those who are high in readiness and have
good ability, skills, confidence and willingness to work.
According to the situational theory a leader can adopt one of four leadership styles based on a
combination of relationship (concern for people) and task (concern for production) behaviour.
The four styles are as follows:
1. Telling Style: This style reflects a high concern for task and a low concern for people and
relationships. It involves giving explicit instructions on how a task should be
accomplished. A telling style is appropriate when followers are at a low readiness level
because of poor ability and skills, little experience, insecurity or unwillingness to take
responsibility for their own task behaviour.
2. Selling style: This style is based on a high concern for both people and tasks. The selling
style involves giving direction but also includes seeking input and clarifying the task
rather than simply giving instructions. A selling style is appropriate with moderate levels
of readiness. These subordinates might lack some education, experience and skills, but
they demonstrate high confidence, ability, interest and willingness to learn.
3. Participation Style: The style is based on a combination of high concern for people and
low concern for production tasks. The leader shares ideas with subordinates, gives them a
chance to participate and facilitates decision making. A participating style is appropriate
with high levels of readiness. These subordinates might have the necessary education,
experience and skills, but might be insecure in their abilities and need some guidance
4. Delegation Style: This style reflects a low concern for both relationships and tasks. This
leader style provides little direction and little support because the leader turns over
responsibility for decisions and their implementation to subordinates. When followers
have a very high level of education, experience and readiness to take responsibility for
their own task behaviour, the delegating style can be used effectively.
Charismatic Leadership Theories
Studies have focused on the behaviours that distinguish charismatic leaders from non-
charismatic leaders. House (1977) suggests that charismatic leaders are exceptionally self-
confident, are strongly motivated to attain and assert influence, and have strong conviction in
the moral rightness of their beliefs.
Studies have focused on the behaviours that distinguish charismatic leaders from non-
charismatic leaders.
Competencies displayed by charismatic leaders include the following:
Compelling vision or purpose
The ability to communicate the vision to others
Demonstrate consistency and focus in pursuit of vision
Know their own strengths and capitalise on them.
Transactional -Transformational Leadership
Burns (1978) looked at management differences between successful and unsuccessful
companies and concluded that the key factor contributing to success was “transformational
leadership”. In his research he identified two types of leadership; transactional and
transformational. These leadership types are summarised as follows:
Transactional leadership:
Leaders motivate their followers in the direction of established goals by clarifying role
and task requirements.
Leaders allocate work, make routine decisions and monitor performance.
Works best in stable situations with routine tasks.
Transformational leadership:
Leaders have skills to recognise the need for change and identify action.
Associated with vision, inspiration and charisma.
Focus on high performance.
Works best in uncertainty and change.
Study Unit 6
Theories of Motivation
Structuring of work
Motivation can be described as the forces acting on or within an individual, which determine
the direction as well as the strength of their behaviours. This definition implies that there are
four elements to the motivational process:
Internal forces: These are forces within the individual such as the need to belong.
External Forces: These are forces from outside the individual such as the need to obtain
financial resources.
Direction: Individuals are directed towards achieving particular goals such as being
Strength: This refers to the amount of effort an individual expends to achieve a particular
The Link between Performance and Motivation
If an organisation is to be successful in meeting goals and objectives, managers and
employees must be in a position to perform their jobs competently. An individual's
performance in any job is a function of three variables:
Ability: This refers to the abilities and skills an individual possesses.
Motivation: This refers to an individual’s desire to use their abilities and skills to perform
a particular task.
Environment: This refers to issues external to the individual such as the availability of
financial or information resources.
Beyond a certain point lack of ability cannot be compensated for by high motivation. Also if
an employee is not motivated, high level of ability will not suffice.
To meet goals/objectives managers must understand the needs, perceptions and expectations
of employees that underlie their behaviour.
There are many theories of motivation and various ways of classifying them. In this chapter
we will looks at two broad categories of theories referred to as:
Content Theories
Process Theories
Content Theories
Content theories, which are sometimes referred to as needs theories, try to explain motivation
in terms of the needs experienced by employees. The main theories are:
Maslow's Hierarchy of Needs
Alderfer's ERG Motivation Theory
McClelland's Achievement Theory
Herzberg Two Factor Theory
Maslow's Hierarchy of Needs
Maslow's Hierarchy of Needs theory states that human motivation is dependent on the desire
to satisfy various levels of needs. According to this theory, human needs are classified into
five categories and grouped in a hierarchy with the most basic needs (those essential for
survival) located at the bottom (see Figure 6.1).
The basic assumptions of this theory are:
Only unsatisfied needs are motivators.
Higher level needs will not emerge until lower level needs have been satisfied.
Lower level needs are called deficiency needs and higher level needs are called growth needs.
Physiological Needs: These needs relate to basic survival needs, which allow for
continued existence and include food, water, warmth and freedom from pain.
Safety Needs: These needs relate to physical and psychological safety from external
threats to our well- being, such as the need for security and protection. These needs take
effect when physiological needs have been met.
Social Needs: This level of needs relate to the requirement for company and
companionship, and for a sense of personal belonging. These needs for personal contact
and interaction with other people are triggered once physiological and safety needs have
been met.
Esteem Needs: These relate to the need for self-esteem and a feeling of personal self-
worth. These needs become active once all the deficiency needs have been satisfied
Self-Actualisation Needs: These refer to an individual’s need for self-fulfilment,
personal development and realising ones potential. This need level is different from
others in that such needs can rarely be fully satisfied or fulfilled. The more they are
satisfied the stronger they become. Maslow believed that managers should strive to create
the climate necessary to develop employees’ potential to their fullest.
Although research findings on the validity of Maslow's hierarchy have not always been
positive it remains useful as an introduction to needs theory.
Figure 6.1: Maslow's Hierarchy of Needs
Alderfer's ERG Motivation Theory
Alderfer's (1969) ERG (Existence, Relatedness and Growth) Theory specifies that individuals
have three basic needs:
Existence: The need for food, water, air etc.
Relatedness: The need for interpersonal relations.
Growth: The need for personal development.
Building upon the work of Maslow, ERG theory avoids some of the criticism of Maslow’s
work. The ERG model suggests that more than one set of needs can be active at the same
time. Individuals can move from one category of needs to another and lack of fulfilment in
one category can affect needs in another. For example, if an individual fails in a task that
would satisfy a growth need that person might then regress back to a relatedness need.
McClelland's Achievement Theory
McClelland (1960) concentrated on developing and identifying motivational differences
between individuals. He proposed that people have three key sets of needs:
The need for achievement, which is a desire for challenging tasks and a good deal of
The need for affiliation, which refers to the need for developing social and personal
The need for power, which refers to the need for dominance.
The needs identified by McClelland can be useful in helping managers to recognise the
differences in people at work. McClelland suggested that people posses an extremely wide
variety of different types of needs and these needs are not arranged in any particular
hierarchy. He believed that needs are learned through life rather than inherited and suggested
(self development
& realisation)
(hunger and thirst)
(sense of belonging)
(self esteem, recognition & status)
(security, protection)
(self development
& realisation)
(hunger and thirst)
(sense of belonging)
(self esteem, recognition & status)
(security, protection)
that they may be activated by events in the external environment. McClelland argued that the
main factor in willingness to perform is the intensity of an individual’s actual need for
Other needs he identified include autonomy, aggression, endurance, impulsiveness,
nurturance and understanding. From a managerial viewpoint, this research suggests that it is
important for managers to assess the strengths of various needs in their employees and to
design motivational strategies that enable employees to satisfy the needs that are strongest in
the individual.
Herzberg Two Factor Theory
According to Herzberg's two factor theory (1962), there are two sets of factors affecting
employees. One set of factors can cause extreme satisfaction and the second set can cause
extreme dissatisfaction. The factors that cause satisfaction are called motivators and the
factors that cause dissatisfaction are called hygiene factors.
These factors, which can lead to extreme satisfaction, are related to job content issues such as
the nature of the work itself, achievement, responsibility, recognition, advancement
possibilities and self-growth potential. According to Herzberg, employees can be motivated
by maximising satisfaction in terms of these factors.
These factors, which can lead to extreme dissatisfaction, are issues related to the job context
such as company policy, supervision, pay, status, security and relationships with superiors,
peers and subordinates. Although these factors do not explicitly motivate people, if an
organisation were to perform poorly with regard to them, extreme dissatisfaction would
occur. Thus, if these factors are good dissatisfaction is removed, but satisfaction does not
occur. Hertzberg’s findings indicate that satisfaction and dissatisfaction are not at opposite
ends of the same spectrum. Rather they are on two separate spectra. The opposite of
satisfaction is not dissatisfaction but no satisfaction. Similarly the opposite of dissatisfaction
is no dissatisfaction. Thus, pleasant or good working conditions do not actually produce
motivation – as hygiene factors they simply prevent dissatisfaction.
Process Theories
Process theories attempt to explain motivation in terms of people's thoughts, feelings and
perceptions regarding their job and the organisation in which they work. The process theories
are concerned with determining how individual behaviour is initiated, directed and
maintained. The major process theories of motivation are expectancy theory, equity theory,
goal-setting theory and reinforcement theory. The following process theories are discussed:
McGregor's XY Theory
Vroom's Expectancy Theory
Equity Theory
Reinforcement Theory
Goal Setting Theory
McGregor's XY Theory
McGregor focused on the assumptions that managers hold in relation to employees and on
how this affects managerial behaviour in terms of motivating them. He suggested two sets of
managerial assumptions about employees called Theory X and Theory Y.
In Theory X, managers see employees as inherently lazy, doing as little work as possible and
therefore they need to be corrected, controlled and directed to ensure that they do enough
In Theory Y, managers see employees as liking work and needing challenges. The
implication of this theory is that if the work and organisational environment are appropriate,
employees will embrace the tasks set for them without any need for control or coercion.
McGregor believed that all workers are naturally Theory Y, but may become Theory X as a
result of how they are treated in organisations. Therefore organisational structures, systems
and practices should allow for employee participation in the decision making process, and job
enrichment and flexibility should be allowed and even encouraged.
Vroom's Expectancy Theory
This theory was developed by Victor Vroom in 1964 and is sometimes called the
Expectancy-Valence theory. This theory identifies important expectations that the individual
brings to the workplace and focuses on the relationship between the efforts put into
completion of a particular activity by the individual and the expectations concerning the
actual reward that will accrue as a result of expending the effort. This theory argues that
individuals base decisions about their behaviour on the expectation that one behaviour or
another is more likely to lead to needed or desired outcomes. The relationship between one’s
behaviour and particular desired outcomes is affected by individual factors such as
personality, perception, motives, skills, abilities etc, and by organisational factors such as
culture, structure, managerial style, etc. This theory argues that a worker’s motivation is
dependent on how the employee perceives the relationship between effort, performance and
Motivation = Expectancy x Instrumentality x Valence
Expectancy: This is the probability assigned by the individual that work level will be
followed by a given level of achieved task performance.
Instrumentality: This is the probability assigned by the individual that a given level of
achieved task performance will lead to various work outcomes (rewards).
Valence: This is the value attached by the individual to various work outcomes.
Therefore the level of motivation associated with a given task or job is drastically reduced
whenever one or more of the factors approaches the value zero. Vroom's theory suggests that
effort (motivation) is not simply a function of rewards - the individual must feel that they
have the ability to perform the task (expectancy), that this performance will impact on the
reward and that this reward is actually valued.
Vroom (1964) suggests that managers must seek to understand individual employee goals and
motives; ensure these are clearly and positively linked to desired performance levels, which
in turn are achievable from the employee’s perspectives.
Equity Theory
This theory was developed by Adams (1965) and focuses on people’s feelings on how fairly
they have been treated in comparison to how others are treated. It is based on the comparison
between two variables, inputs and outcomes. Inputs refer to what employees bring to his or
her job and include effort, experience and skills. Outcomes from a job are what the person
receives in return for his or her inputs and include pay, recognition, benefits, promotion etc.
The input output ratio may be compared to that of another employee. A state of equity exists
when the input outcome ratio is perceived to be equal to that of another person or the group
average. Inequity occurs when the input to outcome ratio is perceived to be out of balance
when compared to others.
The most common way of reducing perceived inequity is to:
Change their input – may reduce their level of effort
Try to change outcomesfor example by looking for a pay increase
Leave the job – if they feel they are under paid
The implications for managers are that employees evaluate the equity of their rewards
compared to others and will not be motivated if they feel they are not being treated equally.
Reinforcement Theory
The emphasis of reinforcement theory is that the behaviour of a person in a situation is
influenced by the rewards or penalties that a person experienced in a similar situation in the
Reinforcement theory introduces an important point about motivation; that a large amount of
motivated behaviour is learned behaviour.
There are four main types of reinforcement behaviours available to managers:
Positive reinforcement (for example; pay raise, promotion) is provided after desired
behaviour occurs, with the intention of increasing the probability that the desired
behaviour will be repeated.
Avoidance is an attempt to increase the probability that the desired behaviour will be
repeated. When the manager uses avoidance, the employee is shown what the
consequences of improper behaviour will be, but is allowed to avoid those consequences
by displaying good behaviour. This is sometimes referred to as negative reinforcement.
Extinction is basically ignoring the behaviour of subordinates. It is an attempt to weaken
behaviour by giving the employee neither positive nor negative reinforcement. This
approach can be used when the behaviour is seen by the supervisor as temporary, non-
typical, and not serious in its negative consequences.
Punishment (threats, docking pay and suspension) is an attempt to decrease the
likelihood of a behaviour recurring by applying negative consequences.
Reinforcement theory has a number of implications for management:
Motivated behaviour is influenced by learning what is acceptable to the organisation.
If managers are working with the employees to develop motivated behaviour, they
o Tell the employee what they are doing wrong.
o Be careful not to reward all individuals at the same time.
o Tell individuals what they can do to get positive reinforcement.
o Be sure to administer the reinforcement as closely as possible to the
occurrence of the behaviour.
o Recognise that failure to reward can also modify behaviour
Goal-Setting Theory
A goal is a target, objective or result that someone tries to accomplish. Goals tell an employee
what needs to be done and how much effort will be expanded. Goal setting focuses on the
conscious choices a person has to make.
Goal-setting theory states that people will be motivated to the extent to which they accept
specific, challenging goals and receive feedback that indicates their progress towards goal
There can be two approaches to goal setting:
Management sets goals for the employees.
The employees and managers mutually develop goals with each other.
The goal-setting theory has implications for management:
Managers need to work with employees in goal setting to provide targets for motivation.
The goals established should be specific rather than general in nature.
Goal setting requires that the manager provide feedback on performance
B. Structuring of work
Organisations can also use job design to improve motivation by making task more interesting
to the employees. The following are the main approaches:
Job Enlargement
Job Enrichment
Job Rotation
Job Enlargement
Job enlargement involves increasing the scope of the job by extending the range of duties and
responsibilities involved. Job enlargement is a reversal of the process of division of labour.
Job Enrichment
Job enrichment was developed for the advancement of the Hertzberg’s ‘two factor’ theory of
work motivation discussed earlier in the chapter. The job enrichment approach suggests that
employees gain most satisfaction from the work itself and it was the intrinsic outcomes
arising from the work that motivated employees to perform well in their job. Herzberg (1966)
established the concept of vertical loading. Vertical loading involves the addition of more
challenging dimensions to the job; including increasing the authority, responsibility and
accountability associated with the job and at the same time reducing some controls.
On a similar line Hackman and Oldham (1980) suggested that three basic conditions
necessary for promoting job satisfaction and employee motivation:
Work should be meaningful for the doer.
Doers should have responsibility for the results.
Doers should get feedback on the results.
Hackman and Oldham identified five core job characteristics, which needed to be
incorporated into job design to increase meaningfulness and feedback:
Skill variety: the extent to which a job requires a variety of skills from an
Task identity: the degree to which a task is perceived as a unified one with a clear
outcome visible from the start.
Task significance: the degree to which the task has an impact on others in the
Autonomy: the degree of discretion the employee has in scheduling work and
determining procedure.
Feedback: the amount and kind of information that is received about job
Job Rotation
This approach involves moving workers from one job to another, in order to increase interest,
satisfaction and motivation.
Study Unit 7
Importance of Teamwork in Modern Organisations
Types of Teams
Characteristics of Effective Teams or Groups
Team Size and Roles
Stages of Team Development
Team Cohesiveness and Team Norms
Team Conflict
Developing Interpersonal Skills
A team, in an organisational context, can be defined as a unit of two or more people who
interact and co-ordinate actively to meet a particular organisational objective.
A team is more than just a collection of skilled individuals. They must share a collective
vision and work together to achieve a common objective. Finally the team’s objectives and
goals must be in line with the organisations.
The importance of teams and teamwork stems from the need for organisations to be flexible
and responsive to customer requirements in an increasingly competitive market, while at the
same time ensuring that management and staff work together to meet these changing business
The benefits that can be gained through teamwork include:
Increased Performance: Teams tend to produce more than if each person were to work
alone. Teams develop a synergy where the whole is greater than the sum of the parts.
Increased Responsiveness: Because of the range of skills available in a team, they are
better able and quicker to respond to changes.
Increased Innovation: While an individual can produce the initial idea, a range of skills
will be required to develop and implement the idea.
Increased Motivation: Generally speaking people experience a stronger sense of
satisfaction and motivation from working in a successful team than working on their own.
However a poorly managed and performing team can be de-motivating.
Different types of teams exist within organisations to perform a variety of activities. There
are two main categories of teams:
Formal Teams
Self Directed Teams
Formal Teams
Formal teams are created by the organisation as part of the formal organisational structure.
The four most common types of formal teams are:
Vertical Teams
Horizontal Teams
Special Purpose Teams
Vertical Teams
A vertical team usually refers to a manager and their direct reports (subordinated) in an
organisation's formal structure. A vertical team can also be referred to as a functional team.
Horizontal Teams
This type of team is composed of employees of a similar hierarchical level but from different
functions or departments. This is also called a cross-functional team or task force.
Special Purpose Teams
A special purpose team is one that is created from outside the normal organisational structure
to undertake a special project. This type of team will normally disband after the project is
This type of team deals with activities that occur on a regular basis and would generally be a
permanent team. An example would be a health and safety committee.
Self Directed Teams
Self directed teams are part of a modern approach to organising work that tries to involve
employees in the decision making process. It is felt that the increased involvement of front
line staff in the decision making process will lead to improved performance.
Self directed teams usually involve 5 to 20 multi skilled workers who have responsibility for
a range of task such as scheduling of work, planning, decision-making and the control of
To enable self directed teams to be effective they should:
Be given autonomy, authority and responsibility.
Have sufficient knowledge, training and experience.
Should be free from interference from outside the group.
Be given reasonably complex and challenging activities.
Two forms of self directed teams are:
Problem Solving Teams
Network/Virtual Team
Problem Solving Teams
A problem solving team usually consists of 5 to 12 employees from the same functional area
who meet to find ways of improving quality, efficiency and effectiveness of their work.
Network/Virtual Teams
The network or virtual team is a team that uses computer technology such electronic
conferencing facilities, email and collaboration systems to enable them to work together on
projects. The members of a network/virtual team are normally geographically dispersed.
The characteristics of an effective team are not easy to identify. Mullins (2007, p311)
suggests that the underlying feature of effective teams is a spirit of co-operation in which
members work well together as a united team, with harmonious and supportive relationships.
This is shown when teams exhibit the following:
A belief in shared aims and objectives
A sense of belonging to the group
Acceptance of group values and norms
A feeling of mutual trust and dependency
Full participation by all members and decision making by consensus
A free flow of information and communication
Open expression of feelings and disagreements
Conflict resolution by the members themselves
Low levels of staff turnover, absenteeism, accidents, errors and complaints
Enhancing Work Team Effectiveness
Managing Teams is a challenging process. According to Williams (2007) companies can
increase the likelihood that teams will succeed by carefully managing the setting of team
goals and priorities, how team members are selected, trained and compensated.
Teams need to have four main characteristics in order to be properly motivated to achieve
challenging goals:
A high degree of autonomy or control to make decisions and to carry out their own plans.
Empowerment to control resources such as budgets, workspaces, computers or whatever
is needed to do their jobs.
Structural accommodation: the ability to change organisational structures, policies and
Bureaucratic immunity: the ability to make changes without first getting approval from
managers or other parts of an organisation.
A focus on teamwork, team level and team diversity can help companies choose the right
Team members must show a preference for teamwork, which can be assessed by each
member’s degree of individualism versus collectivism.
Individualists generally prefer independent tasks in which they work alone and would not
necessarily make great team members.
Collectivists prefer interdependent tasks in which they work with others. The latter would
make better team members because they put the interests of the group ahead of
Team level: the average level of ability, experience, personality or any other factor in a
team. A high level of team experience means that a team has experienced team members.
Team diversity: the variances or differences in ability, experience, personality or any
other factor in a team. Teams with strong diversity in job experience would have a mix of
team members, ranging from seasoned veterans, to people with three or four years of
experience, to rookies with little or no experience.
Teams need training to be successful. Many companies underestimate the amount of training
that team members need. There are four types of team training:
Training in interpersonal skills: Interpersonal skills: these include skills such as
listening, communicating, questioning and providing feedback, that enable people to have
effective working relationships with others.
Training in decision-making and problem-solving; this is sometimes taught in
conjunction with conflict-resolution skills.
Technical training needed to do their jobs.
Training for team leaders.
Compensating teams can be very difficult. However, companies can compensate employees
for team participation in three different ways:
Skill-based pay: a compensation system that pays employees for learning additional
skills or knowledge.
Gainsharing: a compensation system in which companies share the financial value of
performance gains, such as productivity, cost savings, or quality, with their workers.
Non-financial rewards such as vacations, plaques or inexpensive gifts.
Two important characteristics of a team that will affect the overall performance of the
organisation are the size of the team and the roles that members perform within the team.
Team Size
The ideal size of a manageable work team is believed to be 7, although teams of 5 to 12 can
be used effectively depending on the issue involved.
Small Teams: These teams, which have 2 to 4 members, will normally work better together.
They tend to be more informal, exchange more opinions, get into more discussions and
generally make fewer demands on team leaders.
Large Teams: These teams, which have 12 or more members, tend to suffer from many
problems. They tend to be less friendly and have more disagreements. Conflict levels are
higher and subgroups often form. Demands on the team leader are greater because of
centralised decision making and less member participation. Turnover and absenteeism levels
are higher in large teams especially for operatives and support staff.
Team Roles
A team role refers to the part someone plays in the team. Dr R. M. Belbin suggested that for a
team to be effective it needs to have a number of participants who play very different roles
within the team structure. Belbin's research indicated that it was possible to identify and
distinguish nine distinct management styles, which he labelled team roles.
Belbin's Nine Team Roles
1. Plant: Advances proposals and makes criticisms that lead to counter suggestions. Can
offer new insights into old ways.
2. Resource Investigator: Introduces new ideas from external origins and engages in
negotiation type activities. Makes contact with others.
3. Coordinator/Chairperson: Clarifies goals, objectives and selects problems on which
decisions have to be made. Helps to establish roles, responsibilities and work boundaries.
Sums up the achievements and feelings of the group.
4. Shaper: Pushes the group towards agreement. Shapes roles and responsibilities, tasks and
5. Monitor /Evaluator: Analyses problems and situations. Can interpret complex
information and clarify obscurities, assesses the contribution of others.
6. Team-worker: Gives personal support to others and builds on another member’s ideas. A
team-worker will normally take steps to avert or overcome disruption.
7. Company Worker/Implementer: Transforms talk and ideas into practical steps.
8. Completer: Emphasises the need for task completion, identifies errors and omissions,
and galvanises others into action.
9. Specialist: Brings knowledge and expertise to the team.
Effective teams have members who recognise the roles they play best and who attempt to
enhance the strengths of that role.
Managers and team leaders need to understand the stages a team goes through and the
dynamics that need to be managed at each stage in the process. B. W. Tuckman proposes a 5-
stage model to describe the stages a team goes through. These stages are illustrated in Figure
Figure 5.1: Stages of Team Development
The team is formally introduced and given its tasks or goals. At this stage members will be
uncertain about their own role, the role of others and what it is that they have to achieve. This
stage is likely to involve some members "jockeying for position" within the team. The team
leader should focus on facilitating social interaction within the team and making everyone
aware of the team objectives, and individual roles and requirements.
This is the stage of team development in which individual personalities and roles emerge.
The potential for conflict and misunderstanding of individual roles becomes an issue here.
At this stage the team may break into factions, which if not addressed, will have a serious
impact on the overall cohesiveness of the group.
The challenge of the team leader or manager is to ensure healthy participation by all
members, and that disagreements are minimised and conflicts are dealt with.
This stage is characterised by team harmony and unity starting to emerge. The conflicts
developed during the storming stage are now resolved and the members of the group start to
develop their own norms of acceptable behaviour. The team leader should focus on the team
rather than the individual performance and assist in clarifying team roles and values.
At this stage, the team is highly motivated and focused on their individual roles. The team
moves towards problem solving and the accomplishment of the task at hand. During this
stage, the role of the team leader is one of facilitator of high performance.
At this stage in team development, the team members prepare for the team's disbandment.
This may be because they team has achieved their goal or it could be because of changes in
the organisation. Members may be anxious and uncertain about their future. The role of the
team leader will be to ensure task completion and to reward members where appropriate.
Team Cohesiveness
Team cohesiveness can be defined as the extent to which team members are attracted to the
team and are motivated to remain in it to accomplish required tasks.
Benefits of Team Cohesiveness
The benefits of team cohesiveness are:
Improved Performance: Improved performance levels generally result from team
cohesiveness, but is often dependent upon the relationship between management and
employees. Where industrial relations are strained, team cohesiveness can have a negative
effect on productivity. Team cohesiveness can often lead to a standardisation of
performance rather than its optimisation.
Improved Morale: A high level of team morale is evidence of a cohesive team. This is
due to greater levels of communications, information sharing between team members, and
high levels of loyalty, participation and involvement within the team.
Factors Affecting Team Cohesiveness
A number of factors can influence team cohesiveness. The factors include the following:
Interactions within the team: The level of workplace and social interactions between
members of the team has a direct effect on cohesiveness.
Shared Goals: If the team members agree on the purpose and goals of the team it is
likely to be more cohesive.
Personal values: The level of team cohesiveness is affected by shared values, attitudes
and motivations within a team.
Competition: The level of cohesiveness with a team is affected by competition with other
internal teams.
Feedback: Positive feedback from the organisation for achievements will increase the
cohesiveness of the team.
Team Norms
Team norms are defined as informal standards of conduct shared by team members, which
control and guide their behaviour. Team members generally conform to team norms, as they
want to be accepted within the team. Team norms can help reduce conflict and achieve a
consistent way of doing things.
Team norms can have both positive and negative effects. Depending on the relationship
between employees and management, team norms can evolve to embrace an organisational
change or create a resistance to the specific change.
Development of Team Norm
There are a number of factors that can influence the development of team norms, which
include the following:
Initial Behaviour: The initial behaviour of a team can develop into team norms and a
precedent for future expectations. Therefore the forming stage of team development needs
to be carefully managed (start as you mean to continue).
Inherited Behaviour: Members will often bring with them experiences and behaviour
from other teams or work culture.
Explicit Directions: Explicit statements or directions from management or team leaders
are an effective way of developing positive team norms or re-directing established team
Critical events: Team norms can develop from a critical event which the team
Team conflict is defined as the antagonistic interaction in which one party attempts to block
the intentions or goals of another. Team conflict can have a detrimental effect on team
performance and morale and therefore needs to be carefully managed.
Causes of Conflict Within and Among Teams
Personality Differences: Differences in personalities among team members can result in
conflict. The job of team leader will be to diffuse any situations that may occur and to
minimise interactions between the individuals at critical decision-making points.
Power and Status Differences: When a team comes together from various departments
and from different levels in the organisations, some individuals may feel they have to be
perceived to exert power over other members of the team. This can result in conflict
within the team.
Goal Differences: Goal differences can be a source of conflict among teams that
comprise individuals from different departments (e.g. a cross functional project team).
This can occur if the goals of the team are at odds with the goals of the various functions.
Communications Breakdown: When there is a communications breakdown, the goals or
objectives of the group can get misunderstood due to poor communication and conflict
can arise.
Unclear Boundaries or Responsibilities: When job boundaries are unclear, tensions can
arise between group members. This can become a problem during times of change within
the organisation.
Scarce Resources: As financial and human resources are always scarce in organisations,
conflicts can arise in cross-functional teams who have an inherent loyalty to their own
Managing Conflicts
A variety of approaches are available to managers and team leaders for handling conflict
situations. The approach taken will depend on the situation at hand. In general, managers
will choose an assertive approach or a co-operative approach. The following five styles,
which have varying levels of assertion/co-operation, are available for managers to follow
when dealing with conflict:
1. Competing: This style is most effective during crises or when decisive action is required.
It requires a very high level of assertiveness. This is an appropriate style when:
Time is short and a rapid decision must be made.
The other party may take advantage of you, if you adopt a non-competitive style.
Your survival is at stake.
You have to implement an unpopular decision regarding an important issue.
2. Avoiding: This is a neutral style which is most appropriate when the conflict is not
priority, where there is not adequate information available or when there is no hope of an
immediate resolution of the problem. This is an appropriate style when:
There is no need to reach an immediate solution.
It is useful to buy time in order to let feelings simmer down.
Time is needed to gain more information about the issue.
There is little chance of winning on the issue.
The issue is not important or there are more important issues.
The possibility of disruption is high but the likely benefits of a solution are low.
3. Compromising: This involves a degree of both assertiveness and co-cooperativeness. It
requires each party to be prepared to give up something of value to reach an agreement.
This is appropriate when:
Both sides have valid arguments, equal power and incompatible goals.
A problem has to be split down into manageable parts.
A temporary agreement is needed over an issue.
Neither competition nor collaboration are practical approaches.
Time is short and a solution must be found quickly.
4. Accommodating: This is a highly co-operative style where group harmony is vital and
where one side realises their arguments are weak or invalid. This style is appropriate
You think the outcome is more important for the other party than for you.
You need to cut your losses.
You find you are wrong over the issue.
You feel it would be useful to build up some credit for the future.
It is important to maintain harmony and avoid the potentially disruptive effects of
5. Collaborating: This is when both parties are willing to work together and they are
genuinely concerned about seeking a conclusion where the concerns of both sides are
satisfied. This is often referred to as a win-win situation. This style is appropriate when;
Reaching commitment and consensus is paramount.
Both parties feel it is worthwhile to commit resources to developing a collaborative
The goal for both parties is to learn from each other.
Normally team members receive training on interpersonal skills. Interpersonal skills, such as
listening, communicating, questioning and providing feedback, enable people to have
effective working relationships with others. Also, because managers ultimately get things
done through others, competencies in leadership, communication and other interpersonal
skills are prerequisites to managerial effectiveness.
The following provides a brief summary of some of the main interpersonal skills:
Listening requires paying attention to what is being said.
Effective listening is active rather than passive. You need to get inside the speaker’s mind so
that you can understand the meaning of the communication from his or her point of view.
Active listening requires:
Listening attentively (intensely) to the speaker.
Developing empathy for what the speaker is saying.
Accepting by listening without judging content.
Taking responsibility for completeness in getting the full meaning from the speaker’s
Skills in feedback and evaluation are essential to improving learning, team communication
and the quality of products, processes and relationships. Receiving feedback can help team
members to get a more rounded view of their performance and helps the reviewer to
recognise their strengths and development needs. For those giving feedback there are a
number of points to consider:
Positive feedback:
Is more readily and accurately perceived than negative feedback.
Is almost always accepted, whereas negative feedback often meets resistance.
Negative feedback:
Is most likely to be accepted when it comes from a credible source or if it is objective.
Carries weight only when it comes from a person with high status and credibility.
The following are some suggestions for making feedback more effective:
Focus on specific behaviour
Keep feedback impersonal
Keep feedback goal oriented
Make feedback well-timed
Ensure understanding
Direct negative feedback towards behaviour that the receiver can control
Empowerment Skills - Delegation
Delegation is defined as: “The assignment of authority to another person to carry out specific
activities while retaining the ultimate responsibility for the activities”.
Proper delegation requires:
Clarifying the exact job to be done
Setting the range of the employee’s discretion
Defining the expected level of performance
Setting the time frame for the task to be completed
Allowing employees to participate
Establishing feedback controls
Effective delegation pushes authority down vertically through the ranks of an organisation. A
number of contingency factors that can influence delegation include:
The size of the organisation
The importance of the duty or decision
Organisational culture
Task complexity
Qualities of the employees
Managing Conflict
The topic “Managing Conflicts” is discussed in detail in Section 7.7.2 of this chapter.
This is a process in which two or more parties who have different preferences must make a
joint decision and come to an agreement. To achieve this goal, both parties typically use a
bargaining strategy. The following are two types of bargaining strategies:
Distributive Bargaining: Negotiation under zero-sum conditions, in which the gains by
one party involve losses by the other party. An example of distributive bargaining is in
traditional labour-management negotiations over wages and benefits. Each party has a
resistance point that marks the lowest outcome that’s acceptable. The area between their
resistance points is the settlement range and as long as there is some overlap in their
aspiration ranges, there exists a settlement area in which each party’s aspiration can be
Integrative Bargaining: Negotiation in which there is at least one settlement that
involves no loss to either party. In general, integrative bargaining is preferable to
distributive bargaining because it builds long-term relationships and facilitates working
together in the future.
Research the individual with whom you’ll be negotiating.
Begin with a positive overture.
Address problems, not personalities.
Pay little attention to initial offers.
Emphasise win-win solutions.
Create an open and trusting climate.
If needed, be open to accepting third-party assistance.
Effective Presentations
The ability to deliver effective presentations is an important skill. The following are some
guidelines when making presentations:
Prepare for the presentation.
Make your opening comments.
Make your points.
End the presentation.
Answer questions
Be natural in your presentation, but address what’s important to the listener.
If your audience is interested in what you have to say they will listen.
Source: Fundamentals of Management by S. Robbins & D DeCenzo (2005). Publisher:
Prentice Hall
Study Unit 8
Communicating in Organisations
Importance of Communications in Organisations
The Communications Process
Organisational Communications
Barriers to Organisational Communications
Improving Organisational Communications
Electronic Forms of Communication
Construction of Effective Business Correspondence
A Three Step Process for Writing Messages
Writing Styles
Communicating in Organisations
Communication can be defined as the process by which ideas, information, opinions,
attitudes, etc. are conveyed from one person to another.
Organisational communication is about sharing information with others, listening to and
receiving information from all levels of the organisation.
For organisations to function effectively, information must be exchanged efficiently, meaning
that the information received must have the same meaning as the information sent.
The primary purpose of communications in organisations is to achieve coordinated action,
information and decision-making.
The communications process is made up of a number of elements or stages through which
every form of communication must pass (Figure 6.1):
1. Sender: The entire process starts when the sender decides that he or she wants to send a
message to another person. For example, the sender may want to inform his/her manager
about a systems problem.
2. Encoding the message: Before a message can be sent, it must be encoded in a suitable
language. This language or sign could be any of the following; a gesture or non-verbal
communication, written word, spoken word, picture or illustration.
3. Medium: Once the sender has encoded the message the next decision is to choose which
medium to use to transmit the message. Different types of medium include: email, memo,
briefing, meeting, videoconference and telephone. The choice of medium will depend on
a number of factors such as; is the message bad news, what is the speed of transmission of
the message or a report.
4. Decoding process: The receiver must decode the message and understand it before acting
on the message. The use of unfamiliar language will impact the understanding of the
5. Receiver: Finally once the receiver has decoded and understood the message, the receiver
then becomes the sender in the process. The receiver then sends feedback to the original
sender to indicate that the message has been received and understood. The receiver also
acts on the contents of the message if a direct action is required.
Figure 6.1: Model of the communication process
Two important elements of the communications process are feedback and noise.
Feedback: It is importance that the sender of the message gets feedback from the recipient to
indicate that the message has been received and understood correctly. Feedback enables
corrective action to be taken if there is a breakdown in the communications process.
Noise: Is used to denote anything that inhibits the success of the communications process.
Noise can refer to actual noise in the room or the reader's state of mind. It is the job of the
communicator to ensure that noise does not interfere with the successful communication of
the message.
Methods of Communication
The primary methods of communication are written, oral and non-verbal.
Written Communication: This allows a permanent method of communication, for example
memos, reports and e-mails.
Oral (verbal) Communication: This is the most prevalent form of organisational
communication and also the most powerful because in addition to words it can contain other
information conveyed by the speaker's change of tone, volume and pitch.
Non-verbal Communication: This includes personal and environmental information such as
body language, handshake, facial expression, eye movement or contact. Environmental
factors include the layout or space. For example a large office may place more status on the
There are two forms of organisational communications:
Formal Communications
Informal Communications
Formal Communications
Formal communications are those that flow within the chain of command defined by the
organisation. There are three distinct types of formal communications:
Downward Communications
Message Reciever
Encoding Transmission Decoding
Message Reciever
Encoding Transmission Decoding
Upward Communications
Horizontal Communications
Downward Communications
This is the most common form of communication in an organisation and usually involves
messages and information from top management flowing down through the organisation.
The most common media used for downward communications are speeches, e-mail,
published reports, newsletters and increasingly the company’s Intranet site.
The topics covered in downward communications include:
The vision, goals and objectives of the organisation
Procedures and policies
Specific job instruction
Feedback on performance and attainment of objectives
The main problems associated with downward communications are that the message will not
filter down to all levels and it can get misinterpreted through numerous reiterations.
Upward Communications
Upward communication is the process of encouraging employees to share feelings and ideas
with managers and employees at a higher level in the organisation.
Upward communication is becoming increasingly important as employees are demanding and
receiving more involvement in decision-making.
The following are some methods that can be used to establish and improve upward
Formal grievance procedure
Opinion surveys
Open door policy
Informal meetings
Task forces
Team meetings
Horizontal Communications
Horizontal communication involves the lateral exchange of information among employees at
the same level within an organisation, or between different departments in the organisation.
Horizontal communication falls into three main categories:
Intra-departmental Communication - Within a department
Inter-departmental Communication - Between departments
Manager/Supervisor Communication - Between a Manager and their Supervisor(s)
Poor horizontal communications can result in lack of coordination between departments and
rivalry between departments. These factors will have a negative impact on organisation
Informal Communications
Informal communications can also exist within an organisation and they can have both
negative and positive impacts on communication effectiveness. The main informal
communication system is referred to as the grapevine.
Chester Bernard identified four functions of informal communications:
To communicate intangible facts, opinions, suggestions and suspicions.
To minimise excessive cliques within an organisation arising from too great a
divergence of interests and views.
To promote self- discipline of the group.
To promote important personal influence in the organisation.
Some of the reasons for the development of informal communication systems are the lack of
an effective formal communications system, or a lack of openness in the organisation.
Informal organisations can present management with formidable challenges. It can stall and
slow down their plans, it can act as a covert third force. However it would be incorrect to
presume this is always negative. In some instances the informal organisation may be
presenting a picture of "lived experience” that is worthy of greater managerial attention.
Improving organisational communications depends on identifying barriers to effective
communication, which may include the following:
Poorly defined Channels of Communications: The organisational structure may hinder
good communications. Managers and employees may not be aware of the information
needs of other sections of the organisation.
Organisational Culture: The culture of the organisation may not allow for sufficient
opportunities for communication to take place. Meetings may be arranged infrequently
and even then they are not conducive to free speech and openness.
Personality Clashes: Personality differences between individuals or rivalry between
departments can stifle communications.
Inappropriate Choice of Medium or Presentation: Information can be either too
detailed or too generalised or the information may not be expressed clearly. A medium
such as written communication is more suitable for detailed communication while verbal
communication in more appropriate when persuasion and clarification are necessary.
Frame of Reference: Depending on past experience, individuals may interpret
communications differently. This is a common cause of breakdown in communications.
Jargon: Using technical language may make communication incomplete or
incomprehensible to those unfamiliar with it.
Communication Overload or Underload: Too much or too little information being
communicated, directly affects receiver comprehension. Too little generates a feeling of
mistrust, while too much information may produce mental overload or stress.
Communicator Credibility: The level of credibility a receiver assigns to a sender will
affect how the receiver will react to the ideas suggested by the sender.
Selective Listening: Individuals tend to selectively perceive information which reaffirms
their beliefs and filter out conflicting information.
Withholding Information and Filtering: The sender may withhold or manipulate
information for to create a more favourable appearance. The communication may become
distorted and meaningless if information is omitted.
The following can enhance effective communications in an organisational context:
Effective Listening
Effective Writing
Effective Meetings.
Effective Listening
For listening to be effective it needs to be active. Active listening is more than simply
listening to what is being said, it is also confirming to the speaker that their points are being
understood in the way that they were intended to be. In turn, they will be more open and
participative in their work. Active listening skills can be verbal and non-verbal. Verbal
listening skills include:
Summarising what the person is saying.
Clarifying that what was said is understood, such as facts, opinions etc.
Paraphrasing repeating back to the speakers a little of what was said either in their own
words or similar words.
Explaining – giving an interpretation of previous statements.
Open-ended questions to encourage further disclosure.
Encouraging – thanking the person for their contribution.
Silence – to encourage the speaker to continue.
Linking – linking various statements and comments.
Non-verbal listening skills are rarely used alone and work in conjunction with and enhance
verbal skills. They include facial expression, eye contact, body language, gestures, personal
space and timing. There are cultural variations in how non-verbal language is used and in the
meaning attached to them.
Active listening skills are very valuable but there are a number of pitfalls, which should be
avoided. These include over-analysing, parroting, over-expansion, omitting, exaggerating and
rushing. It is also important that the person chooses the right environment for the meeting and
avoids a judgmental attitude. If the listener is trying to find a solution, they may be
concentrating on what they are going to say, and not on what is being said. Good listening
skills are a very important part of management. To improve on their listening skills a person
needs to be aware of their present level of skills in this area, recognise the areas that need
improvement and then actively work on those areas.
With the wide spread use of e-mail and other forms of electronic communication, writing
remains an important method of communication. It is a particularly important skill for
managers whose job will involve writing reports, memos, etc. The following points should
bourn in mind when writing any document.
Keeping the words as simple as possible will make the document more
Avoid unnecessary formality but adapt your style to the purpose of the
Be concise and specific, otherwise accuracy and clarity may be lost.
Writing is covered in detail later in this chapter.
Effective Meetings
Meetings are an important means of sharing information and making decisions and those who
chair them must ensure that people’s time and talent are used effectively. The following are
some guidelines for effective meetings:
Make sure that the meeting is necessary and cannot be achieved by a memo or phone
Set out an agenda; including items to be covered and what is expected of participants.
Invite only those who need to attend.
Prepare for the meeting, including a strategy on how to stimulate discussion on areas
you need the meeting to focus on. Reserve your own opinion until near the end to
avoid unduly influencing others.
Give the meeting your undivided attention and avoid possible interruptions.
Encourage participants to contribute, but keep to the agenda and avoid discussions of
unrelated topics.
Conclude the meeting by summarising the discussion, and confirm any action to be
taken and by whom. As soon as possible after the meeting make out a set of minutes
and distribute to participants.
The widespread use of Information Technology has introduced new methods of
communication. These include the use of:
E-mail is becoming one of the most widespread means of communication within
organisation. It is very fast and efficient and supports one-to-one and one-to-many
communications. Another advantage is that there is a written record of the communication.
Some points to bear in mind when using e-mail are:
Do not assume privacy, as the receiver can forward your message to another
person without the knowledge or permission of the sender.
Keep message to the point but not overly short as this may annoy the recipients.
Respond to e-mails in a timely manner.
The following are some guidelines for creating effective emails:
Be sure to recognise the differences between business e-mail and personal e-mail.
The consequences of poor judgment in the use of e-mail can be quite serious in business.
Electronic documents have the same legal weight as printed documents.
Be sure to clarify if your company has an e-mail policy and follow it.
Be careful what you write: 25% of companies monitor internal e-mail; 50% of companies
monitor incoming and outgoing e-mail.
Planning effective e-mail messages involves:
o Sending only those messages that are essential
o Paying attention to e-mail etiquette
o Making sure every e-mail you send is necessary
o Using the “cc” function carefully
o Being specific
o Respecting the chain of command
When writing most e-mail messages, you don’t need to compose perfect works of
literature, but you do need to be careful and sensitive to your audience’s needs.
Subject lines are one of the most important parts of e-mail messages; they help the reader
decide whether or not to open the message.
o Make sure your subject line is informative and compelling.
o Do more than just describe or classify message content—build interest with
key words, quotations, directions, or questions.
o When exchanging multiple e-mails with someone on the same topic, modify
the subject line to reflect the revised message content.
Keep your emotions under control:
o Never allow yourself to send a highly emotional e-mail
o Ask yourself if you would say this to your audience face-to-face and if you are
happy with the idea of this message potentially being read by anybody in the
Like other messages, e-mail requires revision, production and proofing.
Use your e-mail system’s ability to include a signature.
Pause to verify what you’re doing before you click “Send.”
Videoconferencing is a live video (television) exchange between people in different
locations. The main benefits of Videoconferencing are the time and costs saved by not having
to travel to meetings. Videoconferencing is still quite expensive and this has tended to limit
its use.
Teleconferencing is cheaper to set up and use than videoconferencing. Teleconferencing is
used widely to enable groups of graphically dispersed people to communicate. It can be
useful for briefing staff at short notice and also for project teams to monitor the progress of a
project. It is limited in its use in group decision-making situations, unless the issues are
clearly understood and there is unlikely to be conflicting views within the group.
Blogs, which represent the earliest form of social media, are special types of websites that
usually display date stamped entries in reverse chronological order. They are the social media
equivalent of personal web pages and can come in a multitude of different variations; from
personal diaries describing the author’s life to summaries of all relevant information in one
specific content area. Blogs are usually managed by one person only, but provide the
possibility of interaction with others through the addition of comments. Due to their historical
roots, text-based blogs are still by far the most common.
Social Networks
Social networks such as Facebook are being used to complement other communication
channels such as the telephone and email. Social networks also provide the opportunity to
interact and engage with customers and the wider community.
Many companies have Facebook pages to communicate new products and offers with the
public. Social networks are a very cost effective way of communicating with customers and
getting their feedback on products and services. Social networks have opened up another
dimension of advertising to the wider community. Two of the most popular social networking
service are Facebook and Twitter.
Twitter is an online social networking and micro-blogging service that enables its users to
send and read text-based posts of up to 140 characters. Twitter can provide businesses a
means of fast, free, up-to-date communication of products/services/offers with twitter users.
Social networks and blogs are of great importance for communication in businesses involved
in media such as newspapers and magazines.
LinkedIn is a business orientated social networking service that can be used by businesses to
communicate with potential further employees.
Web Conferencing (Webinars)
Web conferencing services enable conferences to be shared with remote locations. The web
conference utilises Internet technologies, to allow the sender to communicate in real-time
with many receivers using computers. This is referred to as a multicast communication. The
Web conference enable information in text, audio, graphics and video formats to shared over
large geographic regions. Web conferencing can be utilised for meetings, presentations,
lectures and training.
Web conferences are also referred to as Webinars (short for Web seminars). Webinars are
generally interactive; that is as well as allowing the audience to receive information, they can
also interact with the teacher/speaker to discuss and provide feedback.
Wikis are a type of Web site that allows users to edit Web pages or create new Web pages
directly from the browser without any need use Web development tools or programming
languages. Wikis can be utilised by organisations to create and store knowledge as they cost
much less than formal knowledge management systems and they are more flexible and
G. Construction of Effective Business Correspondence
Business Letters
The following is the most widely used format for business letters:
Letter head including
senders address
telephone number and e-
mail address
Reference (Initials of
writer/typist and
sometimes a filing
Date (day, month, year)
Inside address (name,
title, company, full
Heading (indication of
the contents of the letter
Body of letter (one line
space between
Complementary close
Signature (leave room
Name of sender
PO Box 1234
Kigali, Rwanda
Tel: (078) 1112222
Fax: (078) 1112233
10 October 2011
Mr Paul Orr
Sales Manager
The Print Company
PO Box 777
Dear Mr Orr,
Delivery of New Laptop Computer
This layout has been established as the most popular way of
setting out letters, fax, messages and memos
in fact most
business correspondence.
Consistency is important in layout and spacing of all documents.
It is usual to leave just one clear line space between each section
Yours Sincerely
John Sarr
John Sarr
Sales Executive
Sender’s designation or
Enc (if anything is
Copy (if appropriate)
Writing Reports
Many different types of reports are used in business some are formal and quite long, while
others are short and informal. The main purpose of a report is to provide information that is
ultimately used to aid in decision-making.
Some reports contain little more than the recordings of an event, providing some facts on the
event and possible actions to be taken. Other more detailed reports contain comprehensive
explanations of facts, with conclusions and possibly recommendations for actions.
The more detailed reports will require an amount of research, which may involve interviews,
questionnaires, observations and investigation. The information in a report may be presented
in written, tabular or graphical form.
A Guide to Writing Reports (Taylor, S. 2003)
The main stages in writing a report are:
Defining a Purpose: The author should be clear about:
o Why they are writing the report
o What to include
o What to leave out
o Who the readers are
Investigating the Topic: This depends on the topic and purpose of the report. You may
need to read, interview, experiment and observe.
Organising the report into sections: Reports can be set out in eight parts but not all
parts are always necessary.
o Title or title page: A short report will not need a titles page, only a title.
o Contents list: This is normally only needed for long reports.
o Abstract: This is only needed for formal reports such as scientific research.
The abstract is a summary of the report that appears in library files and
journals. It is usually between 150 to 300 words.
o Introduction: The introduction should be brief and answer questions such as:
What is the topic? What was the method used? What is the background? What
were the sources?
o Discussion: This is the main body of the report. It will generally be the longest
part of the report containing all the details of the work organised under
headings and sub headings.
o Summary and conclusions: This section describes the purpose of the report,
the conclusions and how they were reached. This section is sometimes placed
before the discussion section
o Recommendations: The section details what future actions are required to
improve the situation.
o Appendix: This contains material which readers only need if they are studying
the report in depth.
Note: Writers often put the summary conclusions and recommendations together and
circulate them as a separate document. This is often called an executive summary
Order of presentation: The following is the recommended order of presentation.
However all the sections would not be required for every report, especially those shown
in brackets
Long Report
o Title or title page
o Contents list
o (Abstract)
o Introduction
o Discussion
o Summary and conclusions
o Recommendations
o (Appendix)
o (Bibliography): Long reports might include research and thus a bibliography
or reference page may be required.
Short Report
o Title
o Introduction
o Discussion
o Summary and conclusions
o Recommendations
o (Appendix)
Order of Writing: The order of writing doesn’t have to follow the order of presentation.
The following approach is useful as each section helps to write the next:
o Introduction
o Discussion
o Summary and conclusions
o Recommendations
o (Abstract)
o Title or title page
o Contents list
o (Appendix)
Numbering of sections and paragraphs: Sections and paragraphs should be numbered
and labelled.
Planning the writing: Before writing a report you will normally have to collect a large
volume of information. To save time and to produce a better organised report you should
make a plan for each of the main sections of your report.
Revision: You should always critically read what you have written. You may have to
change your structure and rewrite parts of the report so that it is clear and concise.
In their book “Excellence in Business Communication”, Thrill and Bovee propose a three-
step process for writing messages:
The writing process may be viewed as three simple steps:
Step 1. Planning business messages
Analysing the situation: A successful message starts with a clear purpose that
connects the sender’s needs with the audience’s needs. All business messages have
both a general purpose (to inform, to persuade or to collaborate) and a specific
purpose (such as placing an order). Develop an audience profile by identifying the
primary audience, determining audience size and composition, evaluating the level of
knowledge, and gauging the probable reaction.
Gathering information: For many kinds of business messages, you can informally
gather information to satisfy your audience’s needs by:
Considering other viewpoints
Reading reports and other company documents
Talking with supervisors, colleagues or customers
Asking your audience for input
Selecting the right medium: The choice of media include:
Oral - face-to-face conversation, speeches, presentations and meetings
Written - notes, letters, memos, reports and proposals
Visual - charts, graphs and diagrams
Electronic Media includes telephone calls, teleconferencing, voice-mail
messages and audio recordings such as compact discs and podcasts, e-mail,
instant messages, blogs, websites, text messaging, electronic presentations,
computer animation and video.
Organising the information: The four steps for organising messages are:
Define the main idea
Limit the scope of the message
Group the points in an outline
Choose a direct or an indirect approach, dependin