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Managing Performance (E2)

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E2 Managing PerformanceOverview of Paper E2 3

1. Ecosystems for organisations 5

2. Management 19

3. Human Resources Management 31

4. Behavioural aspects of management control 41

5. Culture 45

6. Groups and teams 49

7. Communication and relationship management 53

8. Project management 61

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OVERVIEW OF PAPER E2

The syllabus consists of the following sections

A Business models and value creation This looks at business ecosystems, business models how value is created and how existing businesses can be disrupted by new entrant.

B Managing people and performance Human resources are some of the most valuable assets of a business - and also they are assets that are subject moods, motivation and decisions to move to a rival business.

C Managing projects Projects are discrete activities, not part of normal working habits. They have to be properly approved the carefully managed with respect to time, cost, scope and quality.





Chapter 1

ECOSYSTEMS FOR ORGANISATIONS

1. Introduction

The term ‘ecosystem’ was first used in a biological context meaning a community of animals, plants, micro-organisms, non-living things and their shared environment.

Biological ecosystems therefore consist of habitats and communities and within the ecosystem there will be the transfer of resources such as food, energy and waste between and within communities and also to and from the habitat. In a biological ecosystem, new challengers can arrive and place existing creatures under pressure. A simple example is seen in the UK squirrel population which had consisted entirely of red squirrels. In 1876 grey squirrels were released and this species was more resilient and successful than the native red squirrels, which are now confined to the north of England and Scotland.

Similarly, in a business ecosystem new challengers can arrive and threaten existing organisations. For example:

๏ Low cost airlines challenge traditional carriers

๏ VOIP services such as Skype challenge traditional phone companies

๏ Ikea challenges traditional furniture stores

๏ Netflix challenges cinema and traditional TV stations.

To survive challenges companies need to be proactive and quickly adaptable. They also need to be able to forge and sustain mutually beneficial relationships with suppliers, logistics companies, manufacturers (outsourcers), customers, competitors, governments and universities (where new discoveries might be made). In biological terms, a relationship which benefits two parties is known as a symbiotic relationship, in particular showing mutualism where both parties benefit rather than being parasitic where one partner is harmed.

Example of symbiotic relationships in business ecosystems are:

๏ Gaming platforms, such as Sony Playstations and Nintendo consoles depend on game creators and vice versa.

๏ The car industry depends on a network of filling stations sustained by oil companies

๏ The pharmaceutical industry makes use of university research findings in exchange for research grants





In the early 1990s, James F Moore, in his book “The Death of Competition: Leadership and Strategy in the Age of Business Ecosystems”, began to apply the term ‘ecosystem’ to businesses, and defined a business ecosystem as:

An economic community supported by a foundation of interacting organisations and

individuals - the organisms of the business world. The economic community produces goods

and services of value to customers who are themselves members of the ecosystem. The

member organisms also include suppliers, lead producers, competitors and other

stakeholders. Over time, they co-evolve their capabilities and roles, and tend to align

themselves with the directions set out by one or more central companies. Those companies

holding leadership roles may change over time, but the function of ecosystem leader is

valued by the community because it enables members to move towards shared visions to

align their investments, and to find mutually supportive roles.

2. Participants in a business ecosystem

Moore suggested the following:

Business ecosystem

Extended enterprise

Investors Competitors

Government

Regulators

Lenders

Universities

World economy

Local people

Unions

Standard bodies

Makers of complementary

products

Customers

Core businessSuppliers

Core contributors

Distribution channels

Customers’ customers

Suppliers‘ suppliers





Here, the ecosystem consists of several layers:

Core business layer: the members of this layer form the ‘heart’ of the business. Essentially it is made up of:

Suppliers Core contributors Distribution channels

Some businesses carry out these functions themselves and the core contributors are employees working in the company, for example manufacturing staff. Alternatively, some of these functions can be carries out by a network of several companies.

Extended enterprise: this widens the ecosystem so that it now contains customers, companies which make complementary products, members of the extended supply chain.

Business ecosystem: although the entities in the outside layer will often not have a contractual relationship with the business and will not usually affect the company on a day-to-day basis, they can have very material effects on the success of the organisation. For example, a government might rule that a product is dangerous and must be discontinued; the world-economy could swiftly move into recession; a competitor could make a fantastic technical advance.

Most of an of the elements of an ecosystem are covered by the following two models:

๏ PESTEL:

‣ Political

‣ Economic

‣ Social

‣ Technological

‣ Ecological/environment

‣ Legal.

These are macro-influences, often affecting the whole world and they will usually therefore affect each eco system. For example, technological advances have made possible the internet and mobile devices and these have profoundly affected the eco systems of banks, music companies, retail organisations and, of course the pervasive effect of social media.

Changes in populations produce major social effects; political factors can help or hinder organisations; economic developments are fundamental to organisations’ success.

๏ Porter’s 5 forces look at nearer ecosystem influences:

‣ Competitors (are there a few, large powerful competitors or many much weaker ones?)

‣ Suppliers (a monopoly supplier is usually bad news).

‣ Customers (too much reliance on one customer leaves organisations vulnerable)

‣ Potential new entrants (new entrants are a nuisance as they usually come into the market with a fanfare of special offers: what organisations want are barriers to entrants to make it more difficult for newcomers)

‣ The possibility of substitute products arriving suddenly and pulling the rug from under a business.





3. Ecosystems v networks and clusters

Before the term ‘ecosystem’ became popular (and in the 2019 CIMA Professional Qualification Syllabus document the term is mentioned 34 times - so someone at CIMA HQ is definitely very excited about the concept), the terms ‘network’ or ‘cluster’ might have been used. For example, a network of suppliers, logistics companies, distributors, industrial design companies. all operating within an environment (usually described by political, economic, social, technological environmental and legal effects - PESTEL). They would have been exchanging information, cooperating, competing, lobbying - much as happens in an ecosystem. Does the change in terminology and the ubiquitous adoption of the term ‘ecosystem’ really reflect a substantive change in thinking? There might be less to it than meets the eye, but if the term is mentioned 34 times in the syllabus you need to be able to at least pretend it’s an important advance in management theory.

So, what might possibly elevate the concept of ecosystem into something worthwhile? Perhaps the ideas of:

๏ Sustainability: we know from its definition that a biological ecosystem consists of living factors (biotic factors, like people) and non-living factors (abiotic factors, such as physical resources). Sustainability implies that an ecosystem can survive, support itself and prosper without relying on outside help. The ecosystem can meet its current needs without depleting the resources it will need in the future: that would imply the systems life is limited

๏ Self-governance: Biological systems generally exhibit self-governance, perhaps summed up by the phrase ‘the balance of nature’. If grassland is over-grazed, herbivores will perish and the grassland returns to support a viable population. The term ‘cybernetics’ is defined as:

‘the study of control and communication in the animal and the machine’

It means that there is a feedback loop of some sort. For example, if a company treats a unique supplier so harshly that the supplier goes out of business and supplies fail there has been a failure in self-governance and the purchaser suffers also. We are currently experiencing difficult choices about how social media should be regulated, for example the phenomena of ‘trolling’ and the streaming of live video of shooting rampages. A properly functioning ecosystem will permit the emergence of controls.

However, there can be difficulties here. If ecosystems are pursuing innovation, and this arises through collaboration (typical of an ecosystem) there is unlikely yo be any form of regulation in place and to set it up is complex because the innovative ‘business’ does not consist of a single company. Think of Airbnb. This depends on the IT system presenting lists of accommodation throughout the world and it also processes payments and deals with disputes. But regulating that accommodation business is very different to regulating, say, Holiday Inn. There are thousands of property owners with a wide range of property types in many different countries. How are guests safeguarded with respect to electrical, gas and fire risks? How does Airbnb affect the price of residential accommodation in popular destinations.? How does Airbnb deal with boisterous, noisy guests? What safeguards are in place for refunds if your accommodation had been double-booked or not up to standard?

Approaches include:

‣ Rating systems: guests rate accommodation suppliers and vice versa

‣ Central and local governments can impose national or local laws, but note that governments have been lobbied hard by large hotel chains to be tougher on Airbnb. The lobbying is not always done with the customers’ benefit in mind.





Perhaps traditional country based laws are not up to the task of dealing with the fast evolution of novel enterprises. Therefore, some writers (G Hadfield) suggest that there should be globally based laws (rather like the World Trade Organisation’s economic rules). Rules would be outcome-based and the task of detailed regulation would be outsourced to non-government regulators. It would be rather like the system used for corporate governance. The OECD (the Organisation for Economic Co-operation and Development) announced high-level principles and countries put in place their own ways of trying to achieve the desired outcomes. In the UK, the Corporate Governance Code was then issued by the Financial Reporting Council and, effectively this is enforced through the London Stock Exchange.

๏ Evolution/adaptation: biological evolution occurs through a system of random experiments, abandoning failures and adopting successes. There should be more rationale used in business evolution but it is still a risky, but essential activity. For example:

‣ The market is changing and to do nothing will mean extinction.

‣ Gathering data, carrying out market surveys and feasibility studies will indicate changes that might work.

‣ Changes are attempted - but they are not guaranteed to work. An element of experimentation, chance and good fortune are present in every attempted change.

4. Business models and value

4.1. Business models

A business model describes how an organisation creates, delivers and then captures value back from its customers or clients and how the entity generates or preserves value over the longer term.

It can start with a unique value proposition: what benefits do consumers get if they buy a particular product or service? For example, airlines deliver quick, safe transport over large distances. Internet service providers provide access to the internet and hence access to many web-sites. A fashion company delivers clothing for warmth and decency but might also deliver feelings of luxury and superiority to customers. Value is met by customers or consumers when their needs are met.

To derive a value proposition, companies have to understand what customers need and want. Do they have a problem that needs to be solved (so a pharmaceutical company will address diseases) or do potential customers simply want a product or service (such as an orchestra delivering music).

The product or service must then be created: the solution. For example, a manufacturing company could simply design a product and sub-contract production or it could carry out the entire operation. A bank can deliver certain services in-house or can subcontract them to call centres. There is almost an infinite number of patterns which can be used to deliver many products and services, usually making use of other elements of the business eco system.

Finally, the goods or services have to sold and delivered through channels, which also play a part in communication. It is only upon delivery that customers finally enjoy the value created. Once again, there are a wide number of types of delivery channel. Clothes, for example, can be sold directly by manufacturers, or though retail outlets or posted via another company such as Amazon or Asos. Technology has opened up many channels through which organisations can communicate with their customers (internet, email, social media).

Note that customers might form different market segments so that the products or services delivered to each segment might have to be tailored to what the segment requires. For example, Furniture manufacturers have different ranges for domestic and business customers; food manufacturers package ingredients differently for supermarket shoppers and catering companies.





Value is captured back from customers via revenue streams created when they pay for the goods. Note that customers do not care about a manufacturer’s costs. They have a view about what the product or service is worth (perhaps by comparing to competing products and services) and that is the amount they will be prepared to pay and that must cover all the costs of everyone involved in delivering the products or services as well as providing each participant with some profit.

The model can be represented as:

Activity perspectiveActivity perspective Offer Customer perspectiveCustomer perspective

Key activities and processes

Customer relationship

Key partners The value proposition

Customer segments

Key resources Channels

Cost structure Financial perspective

Revenue streams

Activities are carried on in-house or by key partners and will make use of resources. Note that to make a product or deliver a service an organisation needs the right capabilities. Capabilities consist of:

๏ Resources: raw materials, money, machinery, patents, people, management and brand strength

๏ Competences: the ability to use the resources to create something of value. Essentially, these equate to the processes in the diagram above; processes consist of a sequence of activities, so a process might be quality control and this consists of activities such as reviewing designs, inspecting material and testing output. Competences include the skills of employees but also reflect the organisation’s success at building links with suppliers, sub-contractors and customers.

Resources without competence will achieve nothing. Sometimes outside suppliers (ie partners) might have greater capabilities and that’s when that part of the process should be outsourced

The left hand section of the diagram is where costs are incurred

The value proposition, for example a product, is created and this is delivered to customers through building relationship, choosing delivery suitable channels that will reach each chosen customer segment. That side of the model produced revenue streams.

In summary, you can think of the business model as simply:

1 Defining value

2 Creating value (resources, processes, activities, partners are used to create outputs)

3 Delivering value

4 Capturing value





4.2. Stakeholders

Stakeholders can be defined as anyone affected by the organisation. It’s important to know who your stakeholders are and what they want, because if the stakeholders are unwilling to cooperate you may find it difficult to put a strategy into action. Furthermore, as we will see, stakeholders are frequently closely involved with the concept of value.

Stakeholders include:

๏ Shareholders ๏ Employees

๏ Managers/directors ๏ Suppliers

๏ Customers ๏ Competitors

๏ The government ๏ The local community

All of the above, with the exception of competitors, want value from the organisation:

๏ Shareholders: dividends and increased share prices

๏ Managers and directors: salaries, experience and a career

๏ Employees: salaries, wages, safe employment, training

๏ Customers: a product or service that meets their needs

๏ Suppliers: payment, more orders, good prices

๏ The government: tax

๏ Local community: stable employment, low pollution.

The steps to take in analysing stakeholders are:

๏ Identify relevant stakeholders (typically customers, employees, shareholders and suppliers)

๏ Prioritise and rank the stakeholders to understand which group must be given the most attention. Typically, this will be customers because if customers do not buy the product, no other stakeholder gets anything.

๏ Then go on down the list of stakeholders, and find out their needs. For example, do suppliers might prefer high prices or stable orders. Similarly, do employees want a wage rise of better training or conditions. These are possible items of value for the various stakeholders.

๏ Formulate value proposition. Essentially this is sharing out the spoils: wages or shorter hours to employees etc. The residue of value is normally paid to shareholders through dividends, though some companies, after working out their profits, will gave employees a bonus of some kind.

Obviously, as value generated by the company is shared out, there is competition for the amount of value each group gets. The higher employee wages, probably the lower are profits and dividends, though it might not always be a zero-sum game. Sometimes paying more to employees, giving them better working conditions and so on will attract more talented employees who enable the company to make larger long-term profits.





Stakeholders can be prioritised on the basis of power, legitimacy, interest and urgency:

๏ Power: can they impose their will on other stakeholders? For example, regulators (the government) has high power. Skilled employees who are in short supply have power through taking industrial action.

๏ Legitimacy: are their actions deemed legitimate within the organisation and in society at large. For example, doctors in hospitals have great power, but if they went on strike they would lose legitimacy, so doctors can be quite a long way down a hospital stakeholder list. Note if stakeholders feel that an action is legitimate.

๏ Interest: meaning are they likely to be active in pursuing their needs (high interest) or more passive (low interest)?

๏ Urgency: does the stakeholder’s claim require immediate action or can it be deferred. For example, improving safety of a product after a series of accidents is urgent and customer value must be increased by immediately spending money on the product to make it safe. If, however, an employee wanted to be seconded abroad, he or she might be happy to wait for a year or so.

5. Capturing and sharing value

5.1. Introduction

As mentioned above, the final selling price obtained from customers represents the flow of value into the organisation. If value has been created through doing something that customers value and which they cannot doe for themselves, r do not want to do for themselves, revenue should be greater than costs.

The difference between revenue and costs is the profit and this has to be shared amongst stakeholders.

CIMA suggests that there are three main issues to be considered when capturing value: the cost model, the revenue model and the distribution of the surplus. Actually, the use of the word ‘model’ is pretentious: it just means what determines cost and what determines revenue

Cost model

The costs of the organisation depend on:

๏ The efficiency of the processes: For example, large batch production can achieve economies of scale, but high degrees of automation can reduce costs by giving organisations the ability to quickly and efficiently switch between making small numbers of different units. Minimise idle time

๏ The level of activity: High levels of activity make better use of fixed costs.

๏ Resources consumed: Resources, such as materials, will have a lower impact if used efficiently.

๏ Cost of resources: For example, negotiate low costs to keep costs down.





Revenue model

The revenue of the organisation depend on:

๏ Pricing policies. Price products so that it is healthy from different market segments. If one market segment is affluent, then prices can be relatively high. If another market segment is less well-off, better revenues might be obtained by lower prices so that volume stays high.

๏ Collection policy/terms: this highlights the difference between revenue (on an accruals basis) and cash available,

Sharing residual value - ie sharing profit

Four stakeholder groups are potentially involved in the sharing of residual value:

๏ Government (tax)

๏ Shareholders (dividends and share price growth if profits are retained and reinvested)

๏ Directors/managers/employees: through profit-related pay and bonuses.

๏ The company itself: retain profit and reinvest

So, who gets what? Some influences are:

๏ Government tax rates

๏ Capital allowances rates (which might encourage/discourage reinvestment)

๏ Laws and regulations on profit distribution

๏ Industry norms

๏ Dividend policy For example, the clientele effect suggests that shareholders, such as pension funds, invest in companies which pay dependable dividends and any disturbance of dividend policy is likely to be unpopular.

๏ Legislation about distributable profits

๏ Reinvestment and expansion plans

๏ Contractual arrangements with directors and employees with respect to bonuses

๏ Desired capital structure (retain profits to allow loans to be repaid)

6. Strategic drift and disruption

6.1. Strategic drift

Strategic drift occurs when the strategy of a business is no longer relevant to the external environment it faces.

The process of strategic drift and its consequences can be illustrated using a number of stages:





Change

Incremental change

Strategic drift

Flux TransformationalChange or death

Environment

Company

During incremental change, the company keeps up with the environment and matches it fairly closely. Then, strategic drift sets in, either because the environment changes and the company doesn’t, or the company changes in an inappropriate way. Flux occurs when the company recognises that something is wrong and various adjustments are made, often in a state of panic.

Either the company will manage to move radically to catch up with the environment (transformation) or the company will fail (death).

For example, an analysis of the macro-environment might let a company identify, and perhaps anticipate, changes that will affect it. If it ignored these changes then the company’s strategy and business model will be less successful. For example:

๏ Ignoring increased concern about pollution might harm the company’s reputation and bring government sanction.

๏ Ignoring the increased cost of energy and not exploring the possibility of wind turbines, could leave the company with a cost base higher than competitors.

๏ Ignoring changes in consumer consumption, or the price of competing products will lead to lower sales unless we try to respond.

Of course, performing an analysis on the environment, competitors, does not guarantee survival as some major environmental changes can happen suddenly and unexpectedly. But these effects are not covered by the term ‘strategic drift’ which implies a slow divergence of the company and its environment: abrupt, revolutionary changes are known as ‘disruption’.

6.2. Disruption

Increasingly an organisation’s environment and ecosystem can be described as VUCA: volatile, uncertain, complex and ambiguous. For example, think about the travel industry, assailed by oil price uncertainty, environmental concerns, political unrest and erratic economies.

Organisations need to protect themselves against the VUCA factors and this can be done by:

๏ Using innovation to become the cause of volatility and disruption. They shouldn’t just wait the react: they should be proactive so as to push other parties onto the defensive. For example, when Apple first launched its iPod, the device was quite large but it quickly brought out two smaller models, first the mini then the nano. The nano was launched whilst the mini





was still selling very well, cannibalising it sales. Apple did this to unsettle the competition who thought they had caught up only to find their technology leapfrogged by a new Apple product. This can be termed ‘self-disruption’.

๏ Create a safe space for your organisation to try to insulate it from adverse events. For example, if competition floods the market with cheap products, consider moving up-market where competition is less fierce. If commodity prices are very volatile, enter into a long-term contract to bring more certainty to the environment.

๏ Build in resilience. Keep some cash or borrowing available to see the company through hard times. Negotiate break clauses in leases to give flexibility; try not to be overly reliant on one supplier or one customer.

Examples of disruptive technologies include:

๏ RFID (Radio frequency identification) tags that allow individual inventory items to be tracked

๏ Robotics

๏ Artificial learning

๏ 3D (additive printing)

๏ Augmented reality

Self-disruption

The first defence, above, is self-disruption. This is an astonishingly difficult step for businesses to take because it will usually endanger current products and revenue streams and attempt to replace these with radically different offerings.

For example, around 2000, Microsoft was an immensely successful company concentrating on operating systems and business programs such as Word and Excel. Luckily for Microsoft, these products are still successful but its focus on those meant that the company substantially failed to react to the disruption caused by the popularity of the internet, streaming and mobile devices. Apple was the competitor which really made a success of these technologies, probably because Apple had nothing to lose by abandoning its small market share of existing technology.

It will be interesting to see which car companies successfully deal with the disruption caused by electric vehicle technology. Perhaps, instead of reporting misleading emissions figures to try to convince governments that their old technology was clean, large car companies might have done better by facing the unpalatable possibility that the internal combusting engines, no matter how refined they had become, might be on the way out and that they should develop battery or fuel cell technology.





There are five ways in which organisations can approach self-disruption:

Build

This means that the company creates the new product or service itself. This is most likely to be possible if:

๏ The new approach is related to the company’s core business i.e. the company has some skills and knowledge that it can bring to the new venture.

๏ The company has time on its side, because building implies delays and, perhaps, false starts.

๏ If the company can acquire the necessary skills, resources and human talent.

Buy

For example, take over an existing business. This is suitable if:

๏ There is great urgency: a ready-made new business model is acquired instantly.

๏ If the new opportunity is unlike what the business does currently. It is much safer to take over a business that already has the required resources and skills than to learn a new, alien set of skills.

๏ If there is a need to substantially own a market, then buying a major player gives an instant major presence in the market.

Partner

For example, enter into a joint venture relationship with a company already in the new market. This is suitable if:

๏ The company needs to learn and to share risk and investment burdens.

๏ There is no need to ‘own’ the market.

๏ The company has existing skills in managing strategic alliances and joint ventures and might want to continue using this type of expansion.

Invest

This approach means that the established company puts money into a relatively young start-up, acting as a venture capitalist or business angel. The advantages are:

๏ For a relatively small investment, the established company gets access to the new technology or approach. If the eventual direction of the disruptive technology is not known yet, the company can enter into several relationships to spread the risk.

๏ The investor company keeps the new company at arms length, interfering relatively little, so that management of the new company retain flexibility and stay nimble. There is little point in investing in a new company that is exploring a radical approach then insisting that it must operate in the old company’s way. The whole purpose of the investment is for the old company to learn something and to be ready for radical changes.

Incubate/accelerate

This is quite similar to the invest option, above. However, whereas in the investment approach the new company if managed at a distance, incubation and acceleration means that there is a more hand-on approach. For example, the new company can provides much needed skills (like marketing) or resources (like computer processing power) that are needed by the new company.





This can be called ‘parental development’ where the investing company (‘the parent’) helps the new company (‘the child’) to become mature and successful.

7. Digital operating models

7.1. Introduction

An operating model can be defined as the description of the key relationships between business functions, processes and structures that are required for the organisation to fulfill its mission or purpose.

For example, the operating model of Ryanair is focussed on keeping costs low so it buys only Boeing aircraft (bulk discounts and often interchangeable spares), often flies to cheaper airports, prefers interactions through its web-site. Other airlines have a different model where cost cutting is not so important, but there fares and standard of service might be higher - and that suits their market segment.

7.2. Five digital operating models

๏ Customer-centric. This concentrates on making customers’ lives easier and emphasises the convenience of the processes experienced by customers. For example, now in McDonald stores, you order and pay using touch screens and are then alerted when your order is ready. So, much less queueing for your delicious meal. Another example is a logistics company allowing you to track the progress of your order, even to the extent that a map shows you where the delivery vehicle is.

๏ Extra-frugal (‘less is more’). Concentrated on using IT to allow products and services to be delivered at low cost. IT is used to optimise the processes of ordering, manufacturing and delivery. Products and services are standardised. For example, Ryanair makes intense use of IT to analyse routes, load-factors and fares.

๏ Data-powered. This model depends on the receipt and the use of analytics to make use of that data. Examples include Google, which attracts advertising revenue because it is so good at responding to users’ search queries. Advertisers and web-sites can obtain huge amounts of information form Google Analytics. Other examples include Facebook and Youtube. Airbnb and eBay can also be included in this category as they use data to allow buyers and suppliers to match up.

๏ Skynet. This uses machines intensively to increase productivity and flexibility in production. For example, Dell computers consolidates its sales orders every hour and sends out orders to component suppliers who have to deliver within an hour. Components go straight from delivery vehicles onto the production line, eliminating raw material inventory and wastage. The process is substantially automated, computers are made to customers’ specifications, manufacturing is efficient and costs are low. Amazon is another example as the company uses highly automated warehouse machinery to efficiently find and pack order.

๏ Open and liquid. This approach attempts to create an ecosystem that can improve what is offered to the customer. It requires a constant flow of information between the company and the outside world (hence ‘open’) and, also, is built around the ‘sharing customer’. The companies access the best talent, through a mixture of employees, sub-contractors, and partners to respond to changing market demands. They can even use consumers by crowd-sourcing talent to solve problems, generate ideas and complete tasks. For example, Toyota and Boeing use a vast network of partners all focussed on bring new products to market in record time. Rolls Royce monitors its engines as they are in flight and can therefore predict problems so that the engine can be serviced before a fault disrupts flights.





Chapter 2

MANAGEMENT

1. The purpose and process of management

There are many possible definitions of ‘management’ and here are two:

“Getting things done through other people”.

Management implies that you are in some way organising what other people are doing, and indeed the idea of organising should make us consider what’s meant by an organisation.

“A social arrangement with a controlled performance of collective goals”.

The important words here are “social,” “controlled,” and “collective.”

The word “social” recognises that we are not machines, that we are people, that we have an important social or human aspect to our characters. We will see that in the early theories of management, the social dimension was often rather understated.

The idea of “controlled” is important. Basically, one of the roles of management will be to set some sort of goals or targets and then to try to ensure that people achieve that.

Finally, “collective”; the idea that in an organisation we should all be working together.

2. Trait theory

Much of the discussion of management concerns what makes a good manager and what activities good managers should actually undertake.

One of the earliest theories is known as “trait theory.” Here the hope was that we could perhaps spot who will be a good manager through certain other traits that they might possess such as intelligence, initiative, self-assurance, even how tall the person was. This never really got very far: it was too subjective. For example, how would you balance intelligence versus charisma? Many good leaders are tall but then leaders such as Napoleon and many others were rather small and were perhaps overcompensating. Trait theory was really a dead end: it proved to be no good whatsoever by predicting who the good managers might be.





3. Henri Fayol - Classical Management

One of the earliest management theorists was Henri Fayol who was active in the early 1900s. He believed that the management theories could be developed, then that management could be taught. He said that managers have five functions:

๏ Planning

๏ Organising

๏ Commanding

๏ Coordinating

๏ Controlling.

There are perhaps two things to note here. First of all, he really said nothing about inspiring or leading or motivating; much of the social aspects of management were missing. Secondly, although none of us is likely to deny that planning, organising, commanding, coordinating, and controlling are important aspects of management, dividing the management tasks into these five functions doesn’t necessarily help us to be better managers. We are unlikely to set our diaries saying that from 9:00 to 10:00 in the morning we will do a bit of planning, from 10:00 to 11:00 perhaps a bit of commanding and so on. Knowing what you should do is very different from being able to do it at appropriate times.

Fayol’s work comes under the heading of “classical management” and classical management theories hold a view that there is a correct way of managing, just as classical architecture put forward the idea that there are proper proportions of buildings which please the eye and which are therefore correct.

Classical management held a view that there was a set of golden rules and if you obeyed these you would be a good manager.

In general, classical management theory is not believed, or at least not naively believed, any more.





4. Taylor – scientific management

Frederick Taylor was an American who developed his theories of scientific management in the late 1800s. He was the first man who deemed work deserving of systematic observation and study. You must remember that really until the late 1800s most businesses had been relatively small, often consisting of one or two people, perhaps within a family, making use of individual crafts and skills. As businesses grew in size, until Taylor came along, no one thought that employees should be told how to do something. That was simply not thought to be a function of management.

Taylor said that it is a function of management to study work, to develop a science of work, and from that to work out how jobs could be designed so that they could be carried out efficiently. This could allow employees to earn more. Rule of thumb methods should be replaced by methods based on scientific study of the tasks. Scientifically select, train, and develop each employee rather than letting them train themselves; provide detailed instructions and supervision of each worker; divide work nearly equally between managers and workers so that the managers apply scientific management principles to planning the work that the workers have to actually carry out.

Inevitably this led to task specialisation, which is basically the classic production line, because it was discovered that one of the most efficient ways of carrying out work was to do a relatively simple task over and over again. In later life Taylor was criticised for dehumanising work. But it’s important to remember that his ambition was not to do this - his ambition was to enable workers to earn more through working in a more efficient environment.

Potential benefits arising from Taylorism are:

๏ Increases in productivity,

๏ Fair and higher wage allocation based on output, and

๏ Workforce care programs because if you didn’t care for your work force, you have to waste money through additional recruitment, training, and inefficiencies.

On the downside it had a great capacity for dehumanising work.





5. Human relations school

Around 1935, Elton Mayo carried out a very important series of experiments at the Hawthorne plant of the Western Electric company. In one of these experiments he divided a department into two. Half of the workers were the control group, but for the other half he varied the lighting, sometimes making it better, sometimes worse. He then asked those workers what lighting they preferred and what suggestions they might have for improving it. Much to his surprise he discovered that whether or not the lighting was increased or decreased, the productivity of the people in the experimental group went up.

The conclusion from this experiment was that by making these people feel special, by asking their opinions, by asking for suggestions, they were motivated. They enjoyed being treated as individuals, as people, rather than simply being told what to do. This led to what was called a “human relations school” in recognition that there is more to good management than simply planning, organising, controlling, coordinating, and communicating.

The second part of these studies dealt with groups. Management had tried to increase productivity by offering people higher wages, and was surprised to discover that productivity did not increase.

What Mayo discovered was that there was a sophisticated but informal system whereby people agreed what the proper level of productivity actually was. These people formed what’s now known as a group: a number of individuals who develop group norms, in other words, an accepted standard of behaviour. If you don’t comply with the norms of the group, you are likely to be excluded from that group. Note that management did not deliberately form groups; these were formed by people just because they worked together or relied on each other or they became friends. People inevitably liked being part of the group and being associated with other people. These groups have a very profound influence on how people are likely to behave.





6. Style theories

We have already said that trait theory has been discredited. We now come on to what are known as “style theories”, in other words, a good manager becomes a good manager because of his style of management. Whether or not this information helps to be a good manager is another matter but you have to know the names and the key terms that they were associated with.

First, Peter Drucker who stated that management has five categories of activity:

๏ setting objectives,

๏ organising the group,

๏ motivating and communicating,

๏ measuring performance, and

๏ developing people.

There are two important additions here to what Fayol suggested.

First, Drucker said that motivation is a very important part of management, and secondly, developing people is also important, so they feel fulfilled, that they are growing, that they are gaining new skills, that they are achieving their maximum potential.

Really the rest of the list isn’t very much new on what Fayol suggested about planning, organising, controlling, coordinating, and communicating.





7. Mintzberg – managerial functions

Mintzberg divided up managerial functions in a slightly different way:

Interpersonal roles arising from formal authority and status and supporting the information and decision activities:

๏ figurehead

๏ liaison

๏ leader

Information processing roles. For example, they monitor information maybe by looking at management accounts and they distribute information:

๏ monitor

๏ disseminator

๏ spokesman

Decisional roles making significant decisions, perhaps about how resources should be allocated, negotiating with suppliers or lead members of staff, and dealing with disputes; in other words, the disturbance handling role.

๏ improver/changer

๏ disturbance handler

๏ resource allocator

๏ negotiator

Once again, perhaps knowing that management might have these three functions - interpersonal, information processing and decisional - doesn’t necessarily help one be a better manager.





8. Ashridge Management College model

This model identified four types of leadership style, but remember these are only points in the continuum of management styles.

Tells Sells Consults Joins

DemocraticAutocratic

First and the most autocratic or dictatorial is “tells.” The manager simply tells the staff what to do. The manager does not even feel a need to have to explain why that’s what has to be done.

A slightly more liberal approach is “sells.” Here the manager tells people what to do but then sells that idea to them, convinces or persuades them, or explains why it has to be done that way.

Next, there is the “consults” style. Here the manager will ask staff what they think ought to be done, but then the manager will make the final decision. However, this is quite a participative style.

Finally there is “joins” or joins with. This can be entirely democratic where the manager actually abandons management and asks people to vote on what should be done. This might be the sort of style adopted for deciding things like where should the summer outing be. However, many people regard this extremely democratic style of leadership as abandoning one of the important functions of management which is to direct and control.





9. Blake and Mouton’s managerial grid

The final style theory is Blake and Mouton’s managerial grid. These researchers measured two elements of management or leadership. First, the leader’s concern for people, and second their concern for the task that had to be accomplished.

Concern for people

Concern for the task

1, 9 Country club 9, 9 Team

5,5 Middle of the road

0,0 Impoverished 9, 1 Authoritarian

The grid was initially devised as a way of analysing a manager’s approach through a series of questionnaires and their position would then be plotted on the grid. This would give them some indication of where improvement was needed.

First, go to the top left of the grid - someone who has a very high concern for people but relatively low concern for accomplishing the task. This manager adopted a country club style. In a way they weren’t really very interested in accomplishing tasks at all as long as people had a pleasant time. Hence their name “country club”: everything was fine as long as people were happy.

The other extreme is at the bottom right of the grid, the authoritarian or task-oriented style. Here the leader puts all their energies into getting the task done but couldn’t care less about the people. These managers wouldn’t be easy or reasonable to work for: they will put you under a lot of pressure, they certainly wouldn’t be interested in dealing with any personal issues that you might have which stood in the way of getting the task done.

The best style is presumably at the top right, someone who has great concern for people and also great concern for the task. This is regarded as the team leadership style: someone who will be a very good leader simultaneously getting tasks accomplished as required but also making their staff feel wanted and needed, and having time for them.

Most ordinary managers are probably going to be near the middle, the 5,5 position, the middle of the road style. Reasonably good with people, reasonably good with the task, but of course what we want to do is to try and shift people up towards the 9,9 position. There will be some managers at the 1-1 position, the impoverished style: not much good at anything. One really has to ask: Why are they managers? Is there any way their performance can be improved at all?





10. Contingency theories

We now come to a group of theories known as “contingency theories.” These are the most modern theories and are miles away from the original classical theories. If you remember, the idea behind classical theories was that they presented a set of golden rules which promised that if you manage like this, then you will manage successfully. Contingency theories say that there aren’t any golden rules. There is no single, proper way of managing. If you ask someone, “How should I manage?” the appropriate reply is, “Well, it depends.” It might depend for example on the people you are managing, the urgency of the task and the resources you have available. Contingency theories mean that style of management is contingent or dependent on the situation. You will probably find some of these more interesting and more helpful than others.

11. Adair – action-centred leadership

Adair is associated with action-centred leadership.

๏ Concern for individuals

๏ Concern for the task

๏ Concern for the group

We know that Blake and Mouton plotted people’s approach to leadership by looking at their concern for individuals and the concern for the task. Adair added a third variable - a recognition that there should be a concern for the group. How shall we manage? Well, according to Adair, it depends. On some occasions there may be a very urgent task and we have to reduce our concern for individuals and the group and concentrate on the task. Sometimes there may be crisis within a group; perhaps their leader has left, perhaps there is disagreement within it, and then the manager or leader should pay more attention to making sure that the group operates properly. Of course, sometimes the proper approach to leadership will mean concentrating on an individual and seeing to their needs, perhaps like giving advice or training.

12. Handy’s best fit theory

Handy’s best-fit theory identified four variables:

๏ Leader

๏ Subordinates

๏ Task

๏ Environment.

Handy said that each of these variables could be what he described as ‘loose’ or ‘tight’. Loose Tight

A tight leader is very autocratic. Tight subordinates like being told what to do and want to avoid risk. They want repetitive tasks; tighter tasks are routine and well understood, relatively simple. And a tight environment would be one where, perhaps, time is short or there isn’t much resource to go around.

‘Loose’ would mean that the leader is very participative or democratic; subordinates want to participate and contribute to solutions. The tasks are novel, complex, high risk; the environment is one which is more generous in time and resources to allow complex tasks to be dealt with.





Handy said that provided all four variables line up, either all loose or all tight, things will work fairly well. So an autocratic manager in charge of staff who want to be told what to do, doing routine, repetitive tasks in an environment which is rather constrained will tend to work. However, he said that once you get a crossover you are in trouble. If you put an autocratic leader in charge of highly trained subordinates who are used to contributing towards solutions or problems, and who are used to participation, and these people are given routine tasks with not much time to do them in, then it’s not going to work very well. The subordinates will not get on with their leader; the subordinates will not enjoy the task.

So when it comes to “How shall we manage?” Handy is saying it depends on the situation and the variables. The best way of managing is to make sure the leader, subordinates, task, and environments all match. Note that this is quite different from saying that tight is better than loose or loose is better than tight. What we are saying is that either will work provided the four variables match.

13. Bennis

Bennis makes a distinction between the term “manager” and the term “leader.” A manager is primarily concerned with administering the status quo. In other words, primarily looking after the existing business somewhat in the short term, keeps an eye on the profit for the coming year. That’s not to say it’s not an important activity. But best to think of a manager as having a time horizon of about a year.

A leader is more concerned with innovation, will be looking at the long-term future of the organisation, will not be so concerned with matters of detailed control, but will be focusing on people, inspiring trust, asking “How can we improve, where should the business go, what should the business do?”.

The leader can therefore be regarded as transformational - in other words, concerned with doing the right thing; whereas the manger is more concerned with transactional leadership - in other words, doing things right, but not necessarily questioning whether what we are doing and controlling is useful.

Bennis suggested that great leaders have certain qualities. You might like to compare this list with the qualities of good managers you have known or good world leaders and politicians you know about.

๏ Integrity – that really means honesty;

๏ Dedication;

๏ Magnanimity - magnanimity is like generosity, particularly when you have won a battle; humility;

๏ Openness, so that people can trust you;

๏ Creativity, so that you can think of novel solutions to difficult problems.





14. Fiedler

Fiedler suggested that leadership effectiveness depends on:

๏ Leadership style - that’s the leader’s own attributes, and the leader can either be psychologically close or psychologically distant, and

๏ Situational favourableness, the degree to which a situation gives the leader control and influence.

A leadership style which is psychologically distant is one where there tends to be very formal, effectively distant relations between the leader and the subordinates. For example, they prefer formal consultations with subordinates rather than more informal seeking of opinions.

A psychologically close leader will be more concerned to maintain good human relationships at work than to ensure that tasks are being carried out well. They are a friendlier, perhaps more easy-going type of leader. A favourable situation is one where there is a good relationship between the leader and followers. For example, if the followers trust the leader, or where the structure of the task is clearly defined so that everyone knows what has to be achieved, or where the leader has power to, for example, reward and punish. Successful or effective leadership depends on adopting the right style so that it matches the situation.

Fiedler suggested that a psychologically distant style would work well where either the situation was very favourable or very unfavourable. So in these two extremes, the leadership style should be psychologically distant. If however the situation was unfavourable, a more difficult situation, then it would be more important for the leader to try to adopt a close leadership style.





15. Power, authority, responsibility, delegation

There are four important terms regarding management:

๏ Power

Power is the ability to influence people or events. What gives people power?

‣ Rational-legal, that’s the power your manager has. You do what your manager tells you because that person is called “manager” and part of your contract of employment implies that you should do what your manager tells you provided that it’s legal.

‣ Coercive power - use of force.

‣ Reward power – offering you more pay or promotion if you do what you are told.

‣ Knowledge power - the power that some people have because they have specialist knowledge which they release selectively.

‣ Charismatic power - the power that some people have simply by their force of personality or their charm.

๏ Authority

Of course having power doesn’t mean you have a right to exercise that power. If you have the right to exercise power then you have what’s known as authority. So for example, you will be well aware of the term “authority limits” where people may be able to buy fixed assets up to $1,000 but not beyond that. Having power without authority is poor but so is having authority without power. We probably all remember some school teachers who have the authority, the right to tell the class to sit down and be quiet, but when they try to exercise that authority, they had a complete lack of power over the class.

๏ Responsibility.

This is the same as accountability. If you are made responsible or accountable for something then as the saying goes “the buck stops with you”.

๏ Delegation

This is the transfer of authority. Note that it is the transfer of authority: you cannot transfer responsibility. Inevitable, if authority is transferred so must power as authority is the legitimate exercise of power. If your manager asks you to do something and you delegate that task to one of your staff members, and that staff member messes it up, when your manager reprimands you, you can’t blame that staff member. The task was yours and either you have to do it yourself or ensure that you delegated it properly to a staff member who had the time and skills, and whom you could supervise to make sure that the task was actually completed.





Chapter 3

HUMAN RESOURCES MANAGEMENT

1. Introduction

Human resource management is a critical area: recruiting, training, motivating, appraising and disciplining employees takes up a huge amount of managerial time. Then you find that a star employee decides to join a competitor!

This chapter deals with training, appraisal, equal opportunities and diversity, grievance and disciplinary procedures health and safety, and dismissal. The next chapter deals with behavioural aspects of management: target-setting and motivation.

2. Developing and training

2.1. Introduction

Training is very specific. It is needed for your current role. So you would talk about training in use of a spreadsheet or a database or the accounting system.

Development is much less specific; it’s needed at some time in the future. Very often the word “development” is linked to management to give the term ‘management development’. Say that we know that, probably, as a manager’s career progresses, the manager will be required to make presentations, to write reports, perhaps to interview potential new employees. The manager might not need to carry out these activities within the next month or so or even the next year. But we know that probably at some time in the future a manager should be equipped with these skills.

Education is knowledge acquired gradually through learning and instruction. It might or might not be work-related.

2.2. Methods of training

๏ Formal courses: employees attend formal classes either at their work-premises or at another location. These courses can be designed to address specific training needs or a syllabus. However, they run the risk that the new knowledge is not then applied when the employee returns to their work environment. The knowledge can be regarded as theoretical rather than practical. In addition, formal courses might not be available at the times employees need training being run either too early or too late to be of use.

๏ Coaching: this is a form of on-the-job training where a skilled, experienced employee looks after the progress of the less experienced employee as they carry out their duties. It is therefore a very practical approach to training, though might lack theoretical grounding in ‘why’ operations are carried out as they are. There is also a danger that, because training is given as needed rather than following a prescribed syllabus, that the trainee does not receive training in every potential aspect of their job.

๏ Mentoring: a senior or more experienced employee (the mentor) acts as a trusted advisor or guide to the individual in his or her charge. Compared to coaching, the emphasis on





mentoring is on the individual rather than on the task. A mentor can be likened to having an official ‘friend’ in the organisation who can give advice on work-related issues.

3. Introduction to performance appraisal

We now come to look in another area of human resources management, performance appraisal.

The purpose of performance appraisal is first to improve the organisational performance and secondly to develop individuals. This should be win-win. Developing individuals should motivate them. They feel that they’ve recognised, they feel their skills maybe growing and that they are doing more meaningful jobs. Of course, improving organisational performance is very important, but if you don’t let people know how they’re getting on, where they perhaps need to improve, or where they’ve done well, it is going to be relatively difficult to improve organisational performance, because ultimately that depends on the performance of the individuals in the organisation.

4. Appraisal systems

It’s often said that there are three elements to an appraisal interview.

๏ First, reward. What are we going pay these people next year?

๏ Secondly, performance, looking back over the previous year and seeing whether people hit their targets and met their objectives.

๏ Thirdly, potential, looking forward to the next period, setting objectives, listening to people’s preferences, deciding perhaps where they require training.

It must be said however that some human resources professionals suggest that the reward part of the appraisal should be kept quite separate from the other two parts. They argue that there is more to reward than simply basing it on performance. You have to look at what can the company afford and they say it doesn’t look too good if you say someone has done really well and then you immediately say, “…but we can’t give you much of a pay rise this year.” Some people therefore suggest that the reward part of the review should be about six months away from the other parts of the review.





5. Appraisal interviews

Employees’ performance must be monitored to identify and evaluate:

๏ Inadequate standards of work

๏ Where training or additional experience might be needed

๏ Where promotion might be in order (progression)

๏ To determine pay and bonuses

It is important that managers prepare properly for appraisal interviews by collecting information about each employee’s performance and also looking at previous appraisal records where the employee might have been told areas where improvement is needed.

3600 appraisal is becoming increasingly common where employees are appraised by their boss, their subordinates and their colleagues.

It is also important that good two-way communication is encouraged rather than the manager simply doing all the talking. Employees might have legitimate complaints or reasons why their performance seemed to be inadequate. Finding out employees’ preferences is also important for the employees’ promotion and movement through the organisation.

Most appraisal processes make use of a form listing the important aspects of performance such as: technical ability, punctuality, ability to get on with customers etc. Scores are allocated to these elements of performance (eg – 5 to + 5).

The most effective way of doing this is using an open appraisal process in which the form is initially blank and the manager and employee go through it together discussing what the mark should be. This forces the parties to communicate. Less successful is where the manager has already filled in the form and then goes through it with the employee. Managers will rarely change a score no matter what the employee says.

The appraisal approaches are sometimes described as:

๏ Tell. Your manager tells you how you have got on with little room for discussion or disagreement.

๏ Tells and sells. Your manager tells you how you got on and tries to persuade you that view is correct

๏ Problem-solving where employer and employee cooperate in arriving at a fair appraisal.

A number of problems can arise from poorly-executed performance appraisals. Indeed some writers and practitioners dislike the term ‘performance appraisal’ because of its judgemental and critical overtones. They prefer to use the term ‘performance management’ so that emphasis is placed on improving the performance of the employee – which should benefit both employer and employee.





J Lockett suggested six barriers of performance appraisal. These are:

๏ Confrontation: angry disagreement and emotions block any useful communication and the employee feels persecuted.

๏ Judgement: one-sided criticism by the manager with no employee input.

๏ Chat: too informal and doesn’t lead to conclusions or targets.

๏ Bureaucracy: form-filling the appraisal form so that the manager can say that task is done – but no other purpose.

๏ Event: a traditional, annual ceremony carried out every year with little thought about its purpose.

๏ Unfinished business: no proper to-do lists or follow up. Promises might have been made in the meeting but they are then forgotten.

At the conclusion of appraisal interviews managers and subordinate should agree on and commit to what the employee is expected to do in the future. Summarise and formally record the agreement.

There should be a report, probably two-part. The top copy can go to the employee with agreed conclusions and perhaps objectives. The other part will go on the personnel file.

Finally there should be follow-up. If you have arranged for training then make sure it takes place. If you have arranged for that employee to spend three months in another department make sure that takes place. If the employee has been having difficulty you may want to monitor their progress continually before waiting a whole year till their next appraisal interview.

6. Equal opportunities and diversity

6.1. Equal opportunities

In the UK, the law provides for equal opportunities in the areas of:

๏ Sex discrimination

๏ Race

๏ Religion

๏ Sexual orientation

๏ Age

๏ Disability where there have to be equal opportunities and reasonable adjustments have to be made to allow disables people to work.

In general there are three possible types of discrimination:

๏ Direct. For example, a job advert saying ‘Salesman required’ would be direct sex discrimination.

๏ Indirect. For example, a job advert saying ‘Sales representative requires: must be over 2m tall and have a large black beard’ would be indirect sex discrimination because the requirements favour male candidates.

๏ Victimisation. This is where an employee is treated less favourably because he or she took legal action against the employer.





6.2. Diversity

Diversity of employment is ensuring that the composition of the workforce reflects the population as a whole. There are sound reasons for diversity:

๏ First of all you’re likely to attract a wider range of candidates if you are known as an employer who embraces diversity. Diversity means more than race or sexual diversity; it can also mean offering people part-time work or working from home. If you can offer part-time work or home working you may well get additional good candidates worthy of consideration. So why reduce the field by putting unnecessary restrictions?

๏ Second, a diverse workforce brings a variety of skills. If you employ people just like yourself you’ll probably get skills just like yours.

๏ Third, the diverse workforce might better reflect customers and clients so your customers and clients are likely to feel more comfortable.

๏ Finally you may be able claim the moral high ground by having a diverse workforce and this of itself may be attractive to customers, clients, and potential employees.

7. Disciplinary and grievance procedures

7.1. Disciplinary procedures

These may be needed to address issues of both misconduct (such as poor time-keeping or health and safety breaches) and poor performance. It is important for disciplinary procedures to be handled properly because otherwise, if they lead to dismissal, it is likely that employment tribunals will find the dismissal unfair.

Initially there will be an informal talk with the employee and that might be enough to correct performance.

If that doesn’t product results, then there should be a verbal warning. This can be informal (not entered on the employee’s record), or formal (entered on the employee’s record).

If improvements are still not made (and time must be given in some cases for this) then there will be:

๏ First written warning

๏ Second (final) written warning

๏ Suspension/demotion/dismissal

Some acts, termed gross misconduct, are so serious that they may justify dismissal without initial warnings. But a fair disciplinary process should always be followed, before dismissing for gross misconduct





A fair disciplinary procedure will follow the following steps:

๏ Establish the facts. It is important to carry out investigations of potential disciplinary matters promptly to establish the facts of the case. This might require an investigatory meeting with the employee before proceeding to any disciplinary hearing. In others cases the investigation stage will be the collection of evidence by the employer for use at any disciplinary hearing.

๏ Inform the employee. If there is a disciplinary case to answer, the employee should be notified of this in writing with enough information about the alleged misconduct or poor performance allow the employee to prepare a response at a disciplinary meeting. The notification should also give details of the time and place for the meeting and advise the employee of their right to be accompanied at the meeting.

๏ Hold the disciplinary meeting. This should be held without unreasonable delay whilst allowing the employee reasonable time to prepare their case. The employer should explain the problem and go through the evidence that has been gathered. The employee should be allowed to answer any allegations that have been made and to ask questions, present evidence and call relevant witnesses.

Workers have a statutory right to be accompanied by a companion where the disciplinary meeting could result in:

‣ a formal warning being issued; or

‣ the taking of some other disciplinary action; or

‣ the confirmation of a warning or some other disciplinary action (appeal hearings)

๏ Decide on action. After the meeting decide whether or not disciplinary or any other action is required and inform the employee in writing.

๏ Appeals. If an employee feels that disciplinary action taken against them is unjust they should appeal against the decision. Appeals should be heard without unreasonable delay and should be dealt with impartially and, wherever possible, by a manager who has not previously been involved in the case. Workers have a statutory right to be accompanied at appeal hearings.

7.2. Grievance procedures

Grievance procedures are a means of dispute resolution that can be used by a company to address complaints by employees, suppliers, customers, and/or competitors. Employers must set out a grievance procedure and share it in writing with all employees. It must:

๏ Identify who to contact if the normal contact person is involved in the grievance.

๏ Explain that if the problem can’t be resolved informally, there will be a meeting with the employee, called a grievance hearing.

๏ Set out time limits for each stage of the process.

๏ Explain how to appeal a decision (The appeal should be dealt with impartially and wherever possible by a manager who has not previously been involved in the case.

๏ State that employees can be accompanied in any meetings by a colleague or union representative.





8. Health and safety

8.1. Employer’s duties

There is probably not much in employers’ duties that is surprising:

๏ Work practices and the work environment must be safe and healthy.

๏ The plant and equipment should be maintained to the necessary standard.

๏ There should be information, instructions, training and supervision so people know how to work the machinery and that safe working practices are adopted.

๏ People should know that there is a policy.

๏ People should be aware of the organisation’s safety policy

๏ Employers must carry out risk assessments, thinking ahead, identifying risks, seeing to what extent those risks need to be worried about, and providing training, guidance, and protection as necessary.

๏ Note there is a requirement to share hazards and risk information with others.

๏ You have to identify employees who are particularly at risk.

๏ You must employ competent safety and health advisors

Within the organisation there will be a safety representative effectively from the employee side, and probably a safety committee which meets regularly to consider health and safety matters.

8.2. Employees’ duties

These include:

๏ They have to take reasonable care of themselves and others and for example these duties could be breached by employees playing practical jokes with their colleagues.

๏ They must allow the employer to carry out any duties in relation to safety.

๏ They mustn’t interfere intentionally or recklessly with machinery for example by taking off guards from machine.

๏ They must inform the employer of any situation which they think is a danger. For example if an employee sees that a machine has deteriorated and is now perhaps dangerous they have a duty to inform their employer.

๏ They have to use equipment properly, making use of all the safety features that it may incorporate.





8.3. Health and safety policy

Some companies establish and publish a health and safety policy. This will usually have the following sections:

๏ A statement of the principles.

๏ There will then be a section on certain procedures, perhaps relating to fire safety procedures.

๏ They may emphasise how important it is to comply with the law, and in some cases state what is necessary to comply with the law.

๏ There may be a section on the detailed instructions about operating machinery.

๏ A section dealing with the training requirements, and perhaps the qualifications needed to ensure that health and safety policies are properly implemented.

9. Employment protection - termination of employment

Employment can be ended in three ways:

๏ Retirement

๏ Resignation

๏ Dismissal

There are three forms of dismissal:

๏ Termination by the employer (sacking)

๏ Ending a fixed term contract without renewal

๏ Constructive dismissal. This is where the employer’s behaviour entitles the employee to presume he or she has been dismissed.

Wrongful dismissal is when the dismissal breaches the contract of employment, for example, not giving the employee the agreed amount of notice. A more serious problem is unfair dismissal, a part of the law that gives the employee some protection against as it is assumed that dismissal is unfair unless the employer can proves it to have been fair.

Dismissal is fair if:

๏ It is caused by redundancy (and selection of redundant employees is fair).

๏ Non-capability: the employee is incapable of doing the job despite training

๏ Legal restrictions: such as a driver losing his or her driving licence

๏ Misconduct: provided suitable warning have been given. Gross misconduct (eg hitting a customer!) can be grounds for instant dismissal.

๏ Other substantial reasons: for example the sales director is married to the sales director of a rival.





Dismissal is automatically unfair if it is because of:

๏ Pregnancy

๏ Membership of a trade union

๏ Carrying out health and safety procedures

๏ Insisting on employment contracts and payslips.

Disputes about dismissal can be heard by an employment tribunal (effectively a court) which can order:

๏ Reinstatement to the original job

๏ Re-engagement to a similar job

๏ Damages.

Most often the remedy is damages because usually neither party wants to be associated with the other after legal action.





Chapter 4

BEHAVIOURAL ASPECTS OF

MANAGEMENT CONTROL

1. Introduction

Control of an organisation’s performance ultimately depends on controlling the people who work in that organisation.

By ‘control’ we do not necessarily mean ordering people around and watching them closely, but their performance has to be managed so that the necessary organisational performance is attained. A completely hands-off approach by management is unlikely to work. Apart from anything else, the organisation would probably be poorly coordinated and potentially chaotic.

2. McGregor: Theory X and Theory Y

McGregor identified two extreme ways of managing people, which he called Theory X and Theory Y. You might remember the Ashridge model of management style: tells, sells, consults, joins with. This model presented a range of style going from very autocratic and dictatorial to one which was increasingly democratic and participative. Theory X and Theory Y simply represent the two extremes.

๏ The Theory X manager assumes that people really don’t want to work, that they have to be watched very carefully, that they are lazy, that they only go to work with some reluctance because they have to earn money to live. There is little or no trust between managers and their subordinates.

๏ The Theory Y manager believes. Under this approach there inevitable has to be greater trust between managers and their subordinates. Managers trust subordinates to carry out their tasks responsibly and well.

So how do we motivate these people so as to get the best possible performance from them?

McGregor called his model Theory X and Theory Y to be entirely neutral, not Theory Wrong and Theory Right, or Theory Good and Theory Bad. Basically, he was saying that if you are put in charge of people who don’t like to work and who go there reluctantly, then perhaps the way you have to get the best work out of these people is to be very strict with them, to watch them carefully, to control them closely (a Theory X approach).

If, however, you are a manager of people who have good qualifications, who are used to being asked their opinion, who have high technical skills, then by far the best way to motivate them is a much more participative approach (a theory Y approach).

So motivation is effectively a matter of contingency. It depends whom you are trying to motivate. Different people are motivated by different managerial approaches. You will understand





3. Intrinsic and extrinsic rewards

Motivational influences can be termed “intrinsic” and “extrinsic rewards.”

๏ Intrinsic rewards come from within - a feeling of achievement, challenge, personal advancement, self-fulfilment.

๏ Extrinsic rewards come from outside. Typically they would be pay, praise and recognition.

Both types of reward have a place in managing employees.

4. Increasing motivation

So how on a practical basis could we go about increasing motivation?

The first approach which is normally suggested is participation. Elton Mayo’s investigations in the 1930s suggested that taking an interest in people, asking their opinion, allowing them to contribute towards decisions, seems to motivate. If an employee can contribute to problem-solving and decision-making decisions this provides strong intrinsic rewards.

The second approach is job design, of which there are three main types, although probably the first two aren’t, in fact, going to be very motivating.

๏ Job enlargement means more of almost exactly the same. It is certainly what will be called a horizontal change; there is no more challenge or responsibility in the job. So if you are working in a car factory and your job was putting on the front wheels, job enlargement would let you put on the back wheels as well.

๏ Job rotation is also a horizontal change, no real increase in challenge. Here if you were working in a car factory and your job was putting on the wheels then perhaps next week you could put in the headlights, the week after that you could fit the exhaust pipe and so on. But they are all essentially fairly basic manual jobs and at best perhaps job rotation alleviates some of the boredom.

๏ Job enrichment is a vertical change. It’s giving people more responsibility and more challenge in their job. Here we use our car factory analogy again. If your job was putting on wheels it could perhaps be enriched if you are also given responsibility for some sort of quality control. Perhaps as a car went past you’d be asked to identify blemishes in the paintwork and to report those. Here there is an undoubted increased responsibility and interest and this is assumed to increase people’s motivation somewhat.

5. Pay as a motivator

Finally on motivation we look at the extent to which pay, wages, and salaries can be regarded as a motivator.

If it’s going to motivating it’s really essential that pay is related in some way to effort or to achievement, but there are certain difficulties here.

First, businesses often don’t have complete freedom relating to what to pay people. They have to bear in mind what they can afford, what the going rate is. You can’t keep giving people increases over and above inflation otherwise they’ll simply be priced out of their market.





Second, many large companies have strict pay bands and if you are a certain grade you’ll be paid within that band irrespective of how good you are.

Third, performance-related pay can be difficult to assess unless that person’s performance can be directly measured and assessed. However, in many organisations performance depends on what other people do as well as what you do, and it can become very difficult to be sure that you’re giving group rewards or performance-related pay in fair ways.

6. Target setting

No matter how they are set, targets should be SMART:

๏ Specific - so that you know precisely what is expected of you

๏ Measurable - to eliminate subjectivity

๏ Achievable/agreed - so that you will be committed to reaching the target

๏ Relevant - to your function (so that you can influence reaching the target) and to the organisation so that they are meaningful.

๏ Time-limited - for example, what you should achieve within a year.

Targets can be set in two principal ways:

๏ Top-down: here managers impose targets on subordinates. This is an autocratic, Theory X approach.

๏ Bottom-up: here subordinates propose targets that are then negotiated with their managers. This is a participative, Theory Y approach.

In general, the bottom-up approach is likely to be more effective because:

๏ Having a target imposed with little explanation can cause resentment and a rejection of the target. It is easy to argue to oneself that the target is too difficult, has not been properly explained and so the target is rejected. Of course, the threat of disciplinary action can make people take heed of targets, but not with enthusiasm or with motivation.

๏ Participating in the target-setting process provides motivation and, having negotiated and agreed the target, it is much more difficult to later disown it.

A second problem with target-setting is deciding how difficult the target should be to achieve:

๏ If the target is too easy, it is likely to pull down performance.

๏ If it is too difficult, many employees might simply give up trying to achieve it.

๏ What’s needed is a target that is challenging but achievable so that employees are motivated to better performance. They then feel good when the target has been achieved.





7. Management by objectives

This term was first used by the management theorist Peter Drucker.

Management by objectives is a management model that aims to improve an organisation's performance by clearly defining objectives that are agreed to by both management and employees.

It is important that the objectives are agreed by both parties because this should ensure better participation and commitment among employees, as well as alignment of objectives across the organisation.

Therefore there are two elements to the approach:

๏ Employees understand and help to determine their objectives. It is then substantially left up to them to decide how to achieve those objectives with management taking a relatively hands-off approach. Employees should find this relative independence motivating.

๏ Objectives are coordinated by management to ensure that, if all objectives are achieved, then the organisation will achieve its overall objectives.





Chapter 5

CULTURE

1. Cultural web

Charles Handy defined the culture as “the way we do things around here.”

You will be aware of the effect of culture. For example whenever you join a new organisation, whether school or college or work, you tend to go carefully for the first couple of days or couple of weeks until you see how people behave, and then you usually try to fit in.

The influences on culture could be represented by the cultural web.

Organisational assumptions(paradigm)

Power relations

Organisational structure

Symbols and titles

Control systems

Rituals and routines

Myths and stories

Starting at the top:

๏ Symbols and titles. Are you an organisation with many presidents and vice-presidents? Where everyone has a particular title implying that the organisation might be rather formal? Where symbols might be those such as a private dining room for top managers or reserved parking spaces or particular perks which only those of a certain grade obtain? Some organisations are quite hierarchical like that, others try to be much more egalitarian.

๏ Power relations. Do top managers keep most power to themselves or is it dispersed? Are you told what to do or is it more likely you will be asked to contribute your ideas about what should be done?

๏ Organisational structure. Some organisations are what’s known as ‘tall narrow’ with many layers, each layer being carefully supervised by the supervisor or manager above. Other organisations are what’s known as ‘flat wide’ organisations, relatively few vertical layers and





each manager therefore having to look after a relatively large number of people, but inevitably because they are looking after more people, people have to be better at looking after themselves.

๏ Control systems. For example, how carefully do you have to account for your time? Some organisations, perhaps for billing purposes, insist that people record what they are doing every 12 minutes. Other organisations don’t control individual activities quite so closely and are more interested in the overall results.

๏ Rituals and routines. For example, in some organisations when a sale is made, the person who has made the sale has to stand up and ring a bell. Other people then applaud. To some of you this may seem childish. But those organisations which do it presumably think it’s worthwhile in terms of morale-boosting and challenging others who have not yet made the sale. In some organisations you are expected to socialise, say on a Friday evening after work.

๏ Myths and stories. How the company in the past won a particular contract which was very valuable, the way in which a clever presentation was made or the way in which they worked hard against the clock to ensure that a job was finished on time.

๏ Organisational assumptions. For example the assumption that we are the best, that we are never beaten, that we only produce work of the highest quality.

2. Types of culture – Handy’s classification

Charles Handy identified four types of organisational culture:

๏ Power culture. In the power culture power is concentrated in the hands of essentially one person, the boss - probably the person who started the company, or at least the person whose name is probably the same as the company. This person’s word is law. There is very little delegation, very little decentralisation. Almost all decisions are made by that person.

๏ Role culture. It becomes difficult to sustain a power culture as the business grows, there is simply too much to know, too much to do, and it may then change into a role culture. In the role culture there is effectively a management structure with different people having different roles. The problem with the role culture is that sometimes the title, the job, is regarded as more important than actually getting the job done. Often associated with role culture are very strict job specifications and if something isn’t on the specification then people will refuse to do it even if it hurts a client or customer.

๏ Task culture. The task culture is where there is a great emphasis on getting the job done and achieving the task. People do not depend so much on their job specifications or their particular place in a hierarchy. Really, everyone pulls together for the sake of the organisation and to please clients and customers.

As competitive environments and technology began to change increasingly quickly, there has been a move from role cultures to task cultures. Old roles quickly become out-of-date and irrelevant and task cultures are needed to respond quickly to environmental changes.

๏ Person culture. A relatively rare type of culture is the person organisation. Here you have people who are essentially pursuing a private ambition in the context of an organisation. It’s not very important in business. An example might be a surgeon in a hospital. The surgeon gets enormous job satisfaction from performing operations and making people better. To some extent surgeons might not be terribly interested in interacting with the rest of the organisation. They are there primarily to fill their personal ambitions and the rest of the organisation is almost an essential evil.





3. Schein - three levels of culture

Schein usefully identified three levels of culture.

๏ Artifacts. The topmost and the most superficial level is that of artifacts. These are essentially what you see, the way people dress, the way they behave, the structure of the company as set out in the organisation chart, the way in which you have to have your expenses approved. These are most obvious things that you see when you join an organisation but in some ways the least important.

๏ Espoused values. At a slightly deeper level are espoused values. These are the stated goals, strategies, and philosophies. The mission statement of a company, for example, may set out what the company’s purpose is and how it perceives itself within the marketplace, how it values employees, how it tries not to harm the environment.

๏ Underlying assumptions. The most fundamental level is the basic underlying assumptions. These are very important but are often the most difficult to identify and to understand. They will often not be stated, but there is an assumption about the quality of work, about never missing deadlines, about our willingness to work overtime even if not paid in order to hit a deadline, the assumption that we are the best. It can take time before these basic underlying assumptions are understood by new members of organisations.





Chapter 6

GROUPS AND TEAMS

1. Groups

Knowledge of groups is an important aspect of management theory. Groups can be formal or informal.

๏ Formal group: A formal group is simply one which is formed and known by management.

๏ Informal group: Informal groups are not formed by management action and indeed management may not even be aware of their existence. However we are social beings and we like being part of a group and therefore understanding groups is important to management.

Handy defined a group as: “any collection of people who perceive themselves to be a group”.

This is a very good definition because it includes both formal and informal groups. Handy said any group will have:

๏ A sense of purpose or aim.

๏ An identity; in another words, there is a feeling of who is within the group and who isn’t within the group.

๏ Group norms, that is, accepted ways of behaving and if you don’t fall in line with group norms, you are likely to be excluded from the group.

๏ Communication between the members of the group.

2. Team Roles

A team is an example of a formal group: the team would have been deliberately created by management.

One of the great advantages of the team is that people with different skills are brought together so that the team is stronger than any one person individually could be. So if you’re forming a team to look at the implementation of a new IT system, you probably have someone with IT skills, someone with accounting skills, someone with production skills, and so on. Each of these people will bring knowledge and can also represent their own particular interests.





However, as well as bringing different technical skills it has been recognised that people bring different psychological profiles, and this has been examined by Dr Meredith Belbin who categorised eight or perhaps nine team roles, and produced questionnaires that would allow people to assess what their particular characteristic or characteristics were.

๏ Chairman. (sometimes called, the “coordinator.”) This person clarifies goals, promotes decision-making and is a good delegator.

๏ Shaper. Someone who is someone driven, thrives under pressure, wants to overcome obstacles, tends to want to get their own way.

๏ Monitor/evaluator. Sees all options, judges things accurately and fairly objectively.

๏ Company worker (sometimes called an “implementer”). Turns ideas into practical actions. They’re not particularly the theoretical person, more the “roll your sleeves up and get on with it” sort of person.

๏ Resource-investigator. Explores opportunities, examines contacts.

๏ Team worker. Listens, builds, tries to play down potential friction, calms the water.

๏ Plant. A rather unusual unorthodox person - creative, imaginative, and is deliberately put into the team - planted in other words - with the hope that they will solve difficult problems and bring some slightly offbeat ideas into consideration.

๏ Completer/finisher. Is painstaking, conscientious, careful, looks for errors and is keen on finishing within the deadline.

๏ Specialist. A single-minded person who provides particular knowledge and the skills which may be in rare supply otherwise.

Belbin says that you want people with all of these characteristics within a team; this doesn’t mean you have to have eight or nine people because many people are strong in more than one of these characteristics. You also have to sometimes be careful not to have more than one person of a particular sort. For example if you have two shapers – they were the people who quite liked their own way. If you have two shapers there is likely to be some conflict.





3. Tuckman – Stages of team development

Another area of groups which will easily lend itself to questions in the examination is Tuckman’s stages of team development. He said every team or indeed group will go through these stages.

๏ Forming: First, there is the forming stage; a rather slow tentative stage - should we form a group? What might it be for? In informal groups, a gradual coming together of people with like interests.

๏ Storming: This is a stage where different people might compete for different roles within the group; perhaps two people with shaper-type characteristics fighting over who is actually going to become the main spokesperson for the group. Then there would be norming - establishment of how the group is going to behave, acceptable methods of behaviour.

๏ Norming: Settling down to normal methods and habits of working.

๏ Performing: At long last the group begins to perform; we get some output from it. People know each other, they know what the group is for, they know who is the leader of the group, they know who is the spokesperson of the group, they know who the completer/finisher is, they know how often they are going to meet, whether formal records are going to be kept and so on, and they can perform.

๏ Dorming: Finally there is a dorming stage. This is where a group meets out of habit rather than out of any real need. At the dorming stage, effectively the sleeping stage, not much is achieved and really the group at this point should be disbanded.

Are there any lessons to be learned from these stages of team development? Well, the main one is that no useful output is really achieved until the group reaches its performing stage. Therefore anything management can do to accelerate the passage from forming, trough storming and norming until we get to performing, is good.

So when a formal group is created, management form it and they will say who is in it and what it’s for. They will also say who the leader of the group or the team is going to be. That’s the storming process out of the way. They might tell the group that you will meet once a week, that we want you to report once a month. That addresses norming. So very quickly the group can get down to actually performing its task so that the organisation gets useful output.

The second thing that Tuckman said was that every time the composition of the group changes - one member leaves, another one joins - you go through these stages again and there is a slight loss of performance. Once again, management could take action to try to introduce a new person to the group in such a way that the group is disturbed relatively little, and the performing continues almost unabated.





4. Teams and committees

Finally on groups, a couple of descriptions of two types of formal group.

Teams. We use the word “team” automatically whether it’s an IT implementation team, a project team, a football team. Teams are deliberately formed, they have very specific objectives, almost always they bring together mixed skills, and they will have a definite leader or captain.

Committees. These formal groups are deliberately created and have specific areas or tasks to deal with. However, rather than actually carrying out specific tasks they tend to be more involved in planning and decision-making. There will be a chairperson or chairman (or nowadays even just called “chair”). This person tends to coordinate the committee rather than giving it orders. The committee members will be drawn from different departments and they will have mixed skills so information is shared. After discussion and exploring the issues any decisions made are normally recorded formally in the committee’s minutes.





Chapter 7

COMMUNICATION AND RELATIONSHIP

MANAGEMENT

1. Communication

Communication within businesses is obviously important: in particular it’s required for planning, coordination, and control. The communication pathway is more complex than you might think and you need to know what these steps are.

Encode Transmit Receive DecodeForm thought

Feedback

๏ First, the person who wants to do the communicating forms the thought.

๏ Then they encode it: they find a way of expressing it.

๏ The thought is transmitted and that could be by sound, it could be by letter, it could be by email.

๏ It has to be received by the recipient.

๏ The recipient has to decode it.

๏ Often after it’s decoded there will be some sort of feedback. Feedback could be an action, it could be nodding your head, it can be asking a question because you don’t understand the message properly or it has provoked further queries.

The important thing to realise is that communication can break down at any of these stages and anything that interferes with the successful communication is known as noise.

If the thought was garbled to start with, you are lost. If it’s not encoded properly, for example if it’s written down in a confusing way, then that will interfere with successful communication. Transmission can be messed up. We have all had, no doubt, examples of letters which have gone astray or emails which have gone to the wrong person. The intended recipient might not receive the message. One of the reasons it might not be received is that they simply don’t open their inbox. Finally they might decode it incorrectly, they misunderstand what you are trying to communicate.





2. Direction and types of communication

Communication within the organisation can be:

๏ Vertical, such as between subordinate and superior.

๏ Horizontal, between the people of the same levels and different departments.

๏ Diagonal when a subordinate in one department has to report or give information to a superior in another department.

Communication can be:

๏ Formal or

๏ Informal.

Examples of informal communication would simply be chatting around the coffee machine. An example of a formal communication would be memorandum issued to all members of staff.

Informal communication is often very fast as little preparation is needed. Formal communication needs to be thought about and the message needs to be carefully crafted. Sometime informal communication is more suitable than formal (for example, a gentle reminder about inadequate performance); sometimes formal communication is needed (for example, a final written warning or the offer of a job).

Communication can be:

๏ Written

๏ Oral

๏ Graphical

๏ Non-verbal (for example, body language and facial expression and tone of voice).

Non-verbal language is extremely important in any face-to-face communication. For example, when appraising a staff member, a huge amount of information can be gathered by watching that person’s reaction: surprise, anger, disappointment…..tears.

Written communication is vital if a high amount of information has to be provided. For example, pension scheme rules, product specifications and budgets. Written communication provides a record of the transfer of information and also becomes a reference document that can be consulted again later.

Oral communication is expected where interactions are more personal and subjective, such as in a staff appraisal. In addition, oral communication will often evolve into a discussion in which clarification can be immediately requested, objections aired and suggestions made.

Graphical (graphs, diagrams, pie charts, bar charts etc) communication provides data visualisation and this can:

๏ Make the information easier to assimilate.

๏ Enable better understanding of movements and relationships.

๏ Make the information more memorable.

Note that new forms of communication, particularly Facebook, Instagram and Twitter have become important means of communication, particularly between a company and its customers.





3. Barriers to communication

It’s important to understand what can act as barriers to communication.

๏ Inappropriate language.

Obviously this could mean speaking a foreign language to people who don’t understand it, but in practice it is more likely to be using terminology which not everyone understands. So for example, if you are in a firm of accountants and you are writing to a client and you are talking about tax computations, terms such as “disallowable”, “capital allowances”, “adjustment of profits” and so on may not simply be understood by the client and if that’s the case communication has not been successful.

๏ Status.

Differences in status can interfere. This can be in two ways. First, it could be the person at the top of an organisation not wanting to hear what the people at the bottom are saying, perhaps not believing that people at the bottom have anything of value to say. It can happen the other way round where people at the bottom of the organisation are frightened to talk to people at the top of the organisation.

๏ Emotion.

If you go into an appraisal review and you are very angry or worked up about something or even just frightened about something, the chances are that communication will not be successful.

๏ Wrong medium.

If, for example, you wanted to give your employees information about the technicalities of their pension scheme, probably giving them a long lecture isn’t going to be very useful. There is too much technical information in that for them to understand. Presenting the information in written form or perhaps a mix of communication, some lectures in outline and then the detailed material available in written form, will be more successful.

๏ Not wanting to transmit and not wanting to receive can both occur.

It could be that a manager doesn’t want to point out shortcomings in a staff member’s performance. It could be that the staff member is not willing to believe that there is anything wrong with their performance.

๏ Information overload.

A curse of the information age, for example the ‘copy everyone email’. We are often bombarded with so much information that we really can’t see the wood for the trees. We spend so much time looking at information, deciding whether or not we need to know the information or not, that there is a real danger we overlook the important material.





4. Negotiation

Negotiation is a particular form of communications. It can be defined as:

“A bargaining process between two or more parties, each with their own objectives trying to find common ground that will be the basis of an agreement.”

For example:

๏ A supplier and customer negotiating prices.

๏ A supplier and a customer negotiating compensation for poor or late products.

๏ An employer and employee negotiating salary.

๏ A company negotiating the takeover price of another business.

For negotiation to be successful both parties must be prepared to give some ground and for an agreement to be reached. The parties should aim for a ‘win-win’ solution where each comes away with something they want.

The following presents a summary of how negotiations can proceed:

๏ Work out the minimum you will be prepared to accept.

๏ Try to anticipate what the other person most wants out of the agreement.

๏ Work out what’s cheap for you to give but is valuable to the other person.

๏ Make an opening statement setting out your ideal position; listen to the other person state theirs.

๏ Look for areas in common and emphasise those.

๏ Ask questions to see where compromise might be reached.

๏ Counter blocking moves. For example if a sales representative says that they do not have authority to give a larger discount then ask them to contact someone who has.

๏ Take a break to assess where you’ve got to and think again about where the win-win position might be.

๏ If agreement is reached then summarise and confirm the positions reached.





5. Conflicts in teams and organisations

Unfortunately conflict often arises in groups, teams and committees. There can be many causes, such as:

๏ Different objectives

๏ Competition for resources

๏ Personal animosity

๏ Rewards which encourage one faction winning at the expense of another

๏ Turf wars ie disagreement about who is responsible for an area’s management or a decision.

Conflict can also arise in relations with parties outside the organisation such as customers, suppliers, regulators and competitors.

Conflicts can be of two types:

๏ Constructive: Here the participants might argue and tussle, but the outcome is beneficial. Poor ideas get dropped, responsibilities are crystallised and a better allocation of resources is achieved.

๏ Destructive: Here the conflict causes harm to both individuals and organisations. If destructive conflicts are not resolved then the work of the group is imperilled.

In 1974 Thomas and Kilmann introduced their Thomas–Kilmann Conflict Mode Instrument (TKI). This model uses two variables (assertiveness and co-operativeness) for mapping the nature of the conflict and how it might - or might not - be resolved:

Assertiveness

Co-operativeness

Competing Collaborating

Compromising

Avoiding Accommodating

Low High

Low

High

๏ Low assertiveness and low co-operativeness

Avoiding. Participants do no co-operative nor do they state what they want. The conflict festers and simmers and they all hope the problem will go away. This might be fine if the problem is trivial but larger issues might burst out later with greater force.





๏ High assertiveness and low co-operativeness

Competing. Each participant is determined to win. Whichever wins, the other loses. Probably not good in the long term.

๏ Low assertiveness and high co-operativeness

Accommodating. One party gives way relatively easily. The conflict ends but the solution might not be a good one. If there are two legitimate points of view, this approach can mean that the solution has not been properly challenged and alternatives not properly investigated.

๏ High assertiveness and high co-operativeness

Collaborating. Participants look for a win-win outcome where both sides of the conflict are examined and creative solutions are sought.

๏ Moderate assertiveness and moderate co-operativeness

Compromising. Each party gives way on some elements of what they want. A middle - ground is sought. Care is needed to ensure that the middle ground solution resulting from compromise is internally consistent and is a viable solution.

6. Communication and business relationships for Chartered

Management Accountants

Good communication is essential for Chartered Management Accountants. Here is a list of some of the areas where communication will be used:

๏ Negotiation: customers, suppliers, employees, bank managers, shareholders, collaborators.

๏ Reporting information: budgets, results, objectives, explanations. Both internally and externally.

๏ Communication with employees: interviews, appraisals, disciplinary matters, training, conflict resolution.

๏ Communicating strategic plans: to managers, employees and suppliers of capital.





6.1. Relationships within the organisation

The finance function can be thought of as sitting at the middle of the organisation. Not much goes on without some aspect of finance being involved

Finance function

Purchasing and suppliers

Sales and customers

Research and development

Treasury Marketing

Production

Capital projects Wages and salaries

Examples of interactions are:

๏ Purchasing and suppliers: negotiating prices and terms, maintenance of the payables ledger, receiving discounts, payment of amounts owing.

๏ Production: estimating costs of production – material, labour, indirect costs.

๏ Sales and customers: negotiating prices and terms, credit checks, issuing invoices, credit control, receiving payment.

๏ Wages and salaries: processing leavers, joiners and wage rate changes, dealing with clock cards, income tax, calculation of pay (basic and bonuses) payment to employees.

๏ Marketing: agreeing marketing budgets, paying amounts due. Perhaps negotiating advertising rates.

๏ Research and development: approving budgets, monitoring expenditure, estimating future expenditure needed.

๏ Treasury: raising funds, depositing surplus funds, dealing with exchange rate and interest rate risk.

๏ Capital projects: calculation of investment measured such as NPV and ROCE. Estimating expenditure and income.





Chapter 8

PROJECT MANAGEMENT

1. The characteristics of projects

We tend to recognise the concept of a project intuitively, but projects of certain important characteristics.

๏ First, they are really by definition non-routine. They are different from one’s day-to-day activities. They will have specific starting and ending points.

๏ Second, they are usually addressing novel or unique challenges, something which you haven’t done before and will probably never be asked to do again.

๏ Third, projects usually have project teams and the team members will normally be from different departments with different backgrounds, so these people may have different priorities. They may want different things from the project. They will use different terminology. They will have different outlooks, for example, different attention to detail, different sense of urgency, different attitudes towards quality, and differ in views on costs.

๏ Fourth, for most projects though not all, there is no benefit until the project is finished. Usually, half a computer system, or half a factory, or half a system of quality control will be rather useless. Therefore, many projects are characterised by a period of spending and effort, and only much later, perhaps after several years, will we see whether the project works and whether the benefits we had hoped for are actually realised. All of these characteristics of a project should worry you. Its non-routine, its novel, there are people from many backgrounds who have not worked together before. There is no benefit until the project is finished.

Therefore the risk attaching to projects can often be very great. We need, carefully how to control the project and its scope otherwise we will simply have wasted the organisation’s effort and money

2. Why the study of projects is important

A strategic plan is typically for a five year time-horizon and for whole organisations. To implement that as a single task is impossible and it must be broken down into a series of smaller tasks. Each task is a project and each will have a planned:

๏ Start date

๏ Duration

๏ Finish date

๏ A relationship to other projects: after some, before others etc

๏ A cost

๏ A person responsible

๏ A closely defined set of outcomes





3. The stages of a project

These can be described in a number of ways. For example:

๏ Initiation/initial screening

๏ Risk assessment.

๏ Business case

๏ Project plan

๏ Executing

๏ Monitoring and controlling/project milestones

๏ Closing: delivery

๏ Review

A project milestone is a fixed date by which certain parts of the project should have been accomplished.

4. Risk assessment

Risk assessment has four responses. The CIMA terms are remembered by TARA:

๏ Transfer: transfer the risk to another party. For example, outsource part of the project so that risk falls upon the sub-contractor. Insurance is another way to transfer risk.

๏ Avoid: the risk is assessed as being so great that the project should be completely avoided.

๏ Reduce: take measures to mitigate or reduce the risk. For example, instead of putting a new IT system into every branch, implement it in one branch first, learn from mistakes, gain expertise then it can be rolled out more safely across the whole organisation.

๏ Accept: every project or business undertaking has some risk and often this is simply accepted. The risk is not so great that it needs anything done with it.

These responses are sometimes also known as the 4Ts: transfer, terminate, treat, tolerate.





Project risk can be partially judged by considering the following independent variables:

๏ Project scope definition: How well defined is the project? If you were to embark on a project which was defined as something like “we want to improve the inventory system”, really we have to ask what on earth that means. What does the word ‘Improve’ mean? Does it mean going all the way to just-in-time inventory? Does it mean automatic reordering? Does it mean having fewer stock-outs? Does it mean lowering the average inventory value? A project defined as “improved inventory” is very hazy, and hazy projects are full of risks. Basically, we have no idea what its scope is, and if we have no idea what its scope is we will find it’s susceptible to what is called project drift. In other words the objectives and deliverables of the project are never really defined, or keep changing, and we will get hopelessly lost.

๏ The size of the project. You can easily see that if a project were simply something to do with the receivables ledger that is relatively small. If it goes wrong, it’s only the receivables ledger which is affected. If it’s however to do with the whole of the accounting system and it goes wrong then all of the accounting system is going to be affected with large-scale disruption.

๏ Complexity. If the technical complexity is low, it’s a fairly well-understood problem, there are well-understood solutions to those problems, and we are on pretty safe ground. If however the project is cutting-edge and rather experimental, no one has really much experience of it before, and involves many different stakeholders, you can see that the project risk is much higher. So if you are in charge of a project which is not well-defined, it is hazy, it’s large, it’s very complex, you might like to think about finding a new job.

It’s important to be aware of project risk because high risk projects should be more carefully monitored for cost, time, quality, and scope.

5. The business case

A business case should be prepared for any project and will begin with a feasibility analysis using four criteria:

๏ Financial feasibility (see below)

๏ Technical feasibility (will it work?)

๏ Operational feasibility (will it help the organisation to carry out its functions)

๏ Social feasibility (will it be acceptable to stakeholders. For example, what is its impact on the environment? Will customers like using the new web-site?)

Financial feasibility should always form a very important part of any business case. In a profit-seeking organisation it is necessary to demonstrate that the project will increase profits. In a not-for-profit organisation it should show how service levels or other outcomes will be improved.

Possible techniques include:

๏ Cost / benefit analysis

๏ Net present value/payback/ROCE

๏ Sensitivity analysis and risk analysis

๏ Forecasting techniques

๏ Expected values

๏ Decision trees





Usually costs are easy to budget. However, often benefits are intangible (such as customer service level) and are much more difficult to quantify with any precision. For example, how would you quantify the benefits arising from a major training project? You might firmly believe that the project is worthwhile, but could you prove it in advance?

Ward and Daniels identified four types of benefit:

๏ Observable: impossible to measure and often unexpected. For example, a new IT system may allow staff to complete their work more efficiently will lead to better morale and lower staff turnover. The benefit can be seen but would be difficult to measure.

๏ Measurable: can be measured but not predicted. For example, better stock-control could reduce stock-outs and so improve a company’s reputation. Sales increases can be measured, but would be very difficult to predict.

๏ Quantifiable: measurable and predictable. For example, calculations that show that the average volume of stock held should decrease by 20% if a new stock control system is introduced.

๏ Financial: the financial benefit can be assessed and predicted. Once a benefit has been quantified, making the last step to predicting financial benefits is relatively easy: a 20% lowering in stock volume will probably reduce stock-holding costs by 20% also. Once the financial benefit has been assessed this can be put into a DCF calculation to appraise the project.

The benefits really begin to be more easily dealt with once they change from measurable to quantifiable because predictions are needed for DCF calculations. Methods for making this transition include:

๏ Pilot operation. Try out the new system in one branch, measure the improvements and assume these will be available company-wide.

๏ Simulation. Based on mathematical models.

๏ Observing improvements found by other users. Be careful a vendor does not simply show you the most delighted user who might be completely uncritical of the new system.





6. Project initiation document

The project initiation document addresses: Who? Why? When? How? What? How much?

It is an immensely important document and accomplishes the following:

๏ Defines the project, its scope and its deliverables.

๏ Justifies the project: cost/benefit analysis; risk analysis.

๏ Secures funding for the project, if necessary.

๏ Defines the roles and responsibilities of project participants: sponsor, manager team.

๏ Gives people the information they need to be productive and effective right from the start: assignments, schedule, human resources, project control, and quality control.

Think of the project initiation document as the master handbook of the project.

First, what is the project? The initiation document defines the project. It sets out the scope of the project and its deliverables. Only by setting out deliverables in advance can we possibly judge after the event whether the project has been successful or not?

It justifies a project both in terms of cost benefit analysis and also risk analysis. Remember a project could potentially show substantial benefits, but if it was at very high risks we might prefer not to embark upon it.

If necessary we have to secure funding for the project to see it right the way through bearing in mind that most projects yield no benefits whatsoever until they are completed successfully.

It defines the roles and responsibilities of the project participants. The project sponsor can be regarded as a person to whom the project belongs and very often is a person or department which is providing the funding. The project manager has got day-to-day responsibilities for looking after the progress of the project and that manager in particular will be looking after a project team. Do not underestimate the skills required of a project manager. They will probably be in charge of a diverse group of people; they will be working to time, cost, and quality standards. They have to liaise with the sponsor. They have to interpret what is wanted, from time to time they may have to reach comprises with the various stakeholders.

And finally, it gives people information; they need to be productive and effective right from the start of the project. It will assign responsibilities. It will set out a schedule perhaps on a network diagram. It will ensure that the right people are there at the right time. It will establish ways of controlling the project in terms of time, money, quality, and scope.





7. The project manager

This is the person in charge of the running of the project – tracking resources, controlling, leading, inspiring, negotiating, reviewing, resolving disputes. It is an immensely challenging job and requires personal qualities such as:

๏ Leadership abilities, including the ability to motivate

๏ Technical ability in running projects and in the subject matter

๏ Negotiation ability to negotiate with project sponsors (those who are paying), project team members and suppliers.

๏ Reporting on progress and difficulties

๏ The ability to stay calm in a crisis

๏ Excellent communication

๏ Ability to delegate to team members.

8. The project team

A team can be defined as:

“A group of people with a full set of complementary skills required to complete a task, job, or project.”

Teams usually work best if they:

๏ Are fairly small

๏ Are united in what they want out of the project

๏ Have the right mix of complementary skills

๏ Have the right mix of personalities

This can be difficult to achieve because they will be drawn from different backgrounds and departments and are likely to have different priorities for project outcome. It is an important task of the project manager to get the diverse team members to work well together.

Matrix management is often used for project teams because teams usually need a mix of disciplines. Therefore, employees from different disciplines and departments can be assigned to project teams. They will have dual responsibilities: to the project and its manager, and to their ‘home’ department and the manager there.





9. Project management: the variables

Project managers have to control:

Time

QualityCost

Scope

This is a useful diagram which depicts the problems of project management.

It says there are four variables, the time or deadline, the cost, the scope or extent of a project, and the quality we have to achieve. The diagram first states that if you change one of these variables we are bound to affect the others. So if you want the project to be done more quickly you may have to spend more money, you may have to limit scope, or you may cut corners and quality. If you want the project to be done more cheaply at a lower cost it may take longer, you may reduce its scope, and again you might comprise quality

Furthermore, even if you are not adjusting one of these variables, most projects will have one of them as a priority. It might be that above all we have to have something done within a deadline and if we concentrate tremendously on getting the project done within a deadline, inevitably we may compromise costs, scope, and quality. Similarly, if the project were to do with public safety and the quality of the output was to be the highest possible standard, then we have to be aware there is a danger that the project will take too long, it will be very expensive, or we compromise on its scope.

Scenario planning can be helpful in attempting to manage project risk. This involves looking at the events that could unfold and creating from these a coherent set of possible futures. For example, if there were quality problems identified at a testing stage then this will probably also delay project completion and increase cost, so that is a viable scenario that should be perhaps be planned for.

10. Work breakdown structures

Typically projects will consist of a number of separately identifiable steps which in turn can be broken down, hierarchically, until manageable work packages are produced which can be assigned to the appropriate people. This is the process of deriving the work breakdown structure (or work breakdown schedule) for the project.

Each work package, or task, will have four components:

๏ The task name and description.

๏ The costs, both marginal and any fixed element included.

๏ The duration of the task.

๏ Who is responsible and, in particular, whether the work will be carried out internally or externally?

So now the project manager knows who is doing what and how much each element should cost. Costs are relatively easy to track: give each project a cost-code so that material, labour and





overhead costs can be booked to it. Cost codes could be created for every activity that makes up the project so that more detailed monitoring could be undertaken and actual costs compared to budgeted costs.

Controlling the use of time requires specialist techniques….

11. Critical path analysis – network diagrams

Critical path analysis and network diagrams can be used to monitor and control the time a project is taking. The diagrams also dhow that some activities can be carried out at the same time whereas others must be carried out serially, in sequence.

These diagrams (or similar) are universally used in large projects such as IT development, construction, ship-building and so on.

To illustrate the use of these diagrams we will use the example of a project to build a house. The project has been broken down into the following activities, labelled A – F, and the durations of each activity in weeks has been noted:

A Putting in the foundations (2)

B Brickwork for walls (6)

C Joinery work for window frames, door frames and the roof (3)

D Fitting windows and doors (2)

E fit roof beams (3)

F Putting on the roof covering, for example tiles (4)

G Internal wiring, plastering and decoration. (6)

We will assume that foundations have to be in before brickwork can commence, but that the joinery work for the windows, door and roof beams can be carried on off-site, in a factory.

Doors, windows and the roof beams can be fitted only after the brickwork is finished.

The roof covering can only be installed once the roof beams are there.

The house has to be weatherproof (roof, doors and windows) before wiring and decoration can start.





The activities can therefore be set out as follows:

A 2

C 4 D 2 G 6

F 4

E 3

B 6

1 3 5

2 4

6

The numbers in the circles are for reference only and they number events, points in time

The activities are A – G with their durations noted.

So A and C can be carried out together, but B (brickwork) can start only when A (foundations) are finished.

Walls and joinery have to be completed before the roof beams (E) and windows and doors (D) can be fitted. The roof (F) has to come after the roof beam fitting (E). The house has to be weatherproof before the internal work (G) can begin.

You can now look at each pathway through the network (moving forwards only) and calculate its length:

ABEFG = 2 + 6 + 3 + 4 + 6 = 21 weeks

ABDG = 2 + 6 + 2 + 6 = 16 weeks

CEFG = 4 + 3 + 4 + 6 = 17 weeks

CDG = 4 + 2 + 6 = 12 weeks.

The critical path length is the longest way through the project. This project cannot be completed in less than 21 weeks as the sequential activities A, B, E, F, and G dominate the project.

A, B, E, F, and G are known as critical activities. If any one of them takes longer than planned, the project will take longer than the planned 21 weeks.

There is some flexibility with respect to other activities. For example, you can probably see that C could take up to 8 days without harming completion because A + B = 8 days. Similarly D could take up to 7 days because E + F take 7.

In simple projects as above, the critical path can be found by looking at all the possible pathways and choosing the largest.





12. Gantt charts

These provide an alternative layout of the problem. They highlight gloats and plainly show which activities can be carried on at the same time.

Using the above example, the Gantt chart would look like:

Activity 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

A

B

C

D

E

F

G

This Gantt chart is simply an alternative representation of the previous network diagram. Here the time and week goes along the bottom of the chart and activities go down the side of the chart.

The dark shading shows where activities start and end. This shows we can start activities “A” and “C” together. We can start activity “B” as soon as “A” is completed, but we can’t start “D” until “B,” and “C” are completed. The light shading shows the amount of flexibility (float) we have over the duration of the non-critical path activities: 4 days for C and 5 days for D.

13. PERT

PERT = program evaluation and review technique

This is an approach to dealing with uncertain activity times: obviously if activity times could vary, so too could the total project duration. PERT takes timing uncertainties into account – though rather subjectively.

Each activity needs three estimates:

The optimistic time, o

The most likely time, m

The pessimistic time p

The expected time for each activity is then =o + 4m + p

The expected time for each activity is then =6

It is the expected time that is placed on network charts and Gantt charts.

Another way of dealing with uncertainty is simply to build padding into estimated times. So, if you think that an activity should take 10 days, you will put 12 on any planning charts to build in some safety. This, of course, can lead to inefficiency and complacency. If an activity is allowed to take 12 days, it probably will.

The term that tries to make padding sound respectable if ‘buffering’





14. Controlling scope

Of all the things likely to go wrong with a project allowing the scope to drift (‘project drift’) is the most likely and the most serious problem.

This can happen for two main reasons:

1. The scope (deliverables) had never been properly defined in the first place. This might have been cowardice on the part of the project sponsors and manager as it avoids making hard decisions at the start and everyone hopes that it will sort itself out. It won’t.

2. Changes are permitted as the project develops, but the changes are not properly costed or evaluated. Stakeholders want more and more but the costs are not taken into account. In many types of project, IT projects are a good example, changing the design part way through is very expensive and puts at risk the success of the whole undertaking.

Any change to a project’s specification and scope should be subjected to a rigorous feasibility study to check on economic, technical operational and social feasibility. A cost-benefit analysis should certainly be carried out before any changes are authorised.

15. Completion

15.1.The completion report

Completion involves formally accepting the project and bringing it to a close. A completion report shows the outcome of the project and is used to:

๏ Check that everything promised by the project has been delivered ie that the project objectives have been achieved.

๏ Check on any changes which had to be made to reach acceptance, and that there are no outstanding project issues.

๏ Deliver the final budget report.

๏ Arrange for post-project and post-implementation reviews.

There are two types of review that should be carried out after the project is completed:

๏ A post-project review. This is about the project.

๏ A post-implementation review. This is about what the project achieved.

15.2.Post-project review

This examines the project looking for areas that did not go smoothly and for those that did. For example, the project might have been late and that needs to be examined to see if it could have been prevented and to learn lessons for future projects. It can also look at the performance of the project team members.

Without such a review, there is little hope of improving the management of future projects





15.3.Post-implementation review

This examines what the project achieved. Before the project was started there should have been hopes and ambitions for it. These would have been set out in the business case and the project initiation document.

It is now time to see if the project has delivered anything of sufficient value, at the right cost, by the right time and which people are prepared to use enthusiastically. In other words, has the project realised benefits?

If the answer is negative, then the organisation has to critically examine what went wrong so that similar waste does not happen in the future.

16. Project methodologies – Prince 2

PRINCE2 (an acronym for PRojects IN Controlled Environments) is a method for effective project management and it is now the de facto UK standard for systems project management and is widely used in other countries.

A methodology provides:

๏ Documentation – such as project initiation documents

๏ Technique – a set of standard project management techniques required to plan and control the project (Critical Path Analysis, PERT)

๏ Sequence - the order in which the stages will be performed

๏ Overview – a picture of how the documentation and techniques fit together

Stage control is the process undertaken by the project manager to ensure that any given stage of the project remains on course. A project might consist of just one stage.

The stages, or processes, are as follows:

1. Starting a project: the business case must be made (this will include scope, why it is needed, feasibility studies and risks) and plan for the project initiation. Before going to the next stage, the board should approve the project.

2. Directing a project: the project manager and project sponsors must control the project throughout.

3. Initiating a project: a detailed project plan is drafted together with project controls. Mile posts should be established.

4. Controlling a stage of the project: the project is broken down into activities each with a start point, end point, duration and cost. Regular reports on progress are needed.

5. Managing stage boundaries: for example, ensuring that one stage is completed satisfactorily before a subsequent one begins.Agreeing remedial work if necessary.

6. Managing product delivery: managing acceptance and sign-off. Ensures that the project delivers what was promised.

7. Closing a project: final reports and reviews of the project management and its outcomes.





The stages of the project and the processes carried on can be depicted as follows:

Starting up a project

Directing a project

Initiating a project

Controlling a stage

Managing a stage boundary

Managing a product delivery

Closing a project

Final stageStage 2, 3, 4..Initiation stagePre-project

PRINCE2 project control includes a structure of reports and meetings as follows:

(1) A project initiation meeting agrees the scope and objectives of the project and gives approval for it to start.

(2) The completion of each project stage is marked by an end stage reports from the project manager. The next stage does not commence until its plans have been reviewed and approved. This is known as managing the stage boundary

(3) Mid-stage assessments are optional and might be needed if, for example, a stage is very long or a new stage has to be started before the current one is complete. They are interim progress reports.

(4) Progress reports are submitted regularly by the project manager to sponsors and the board. These reports form the main overall routine controls mechanism and their frequency (often monthly) is agreed at project initiation. They are essentially progress reports and should include brief summaries of project schedule, budget status and any problems encountered.

(5) Meetings are also held by the project team more frequently than highlight reports are prepared (possibly weekly) and are the basis for detailed management project managers, team leaders and team members.




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