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ACCA
PaperF1
and
FIA
DiplomainAccounting
and
Business
AccountantinBusiness(AB/FAB)
StudyNotes
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British library cataloguinginpublication data
AcataloguerecordforthisbookisavailablefromtheBritishLibrary.
Publishedby:KaplanPublishingUKUnit2TheBusinessCentreMollyMillarsLaneWokinghamBerkshireRG412QZ
KaplanFinancialLimited,2013
ThetextinthismaterialandanyothersmadeavailablebyanyKaplanGroupcompanydoesnotamounttoadviceonaparticularmatterandshouldnotbetakenassuch.Norelianceshouldbeplacedonthecontentasthebasisforanyinvestmentorotherdecisionorinconnectionwithanyadvicegiventothirdparties.Pleaseconsultyourappropriateprofessionaladviserasnecessary.KaplanPublishingLimitedandallotherKaplangroupcompanies expresslydisclaimallliabilitytoanypersoninrespectofanylossesorotherclaims,whetherdirect,indirect,incidental,consequentialorotherwisearisingin relationtotheuseofsuchmaterials.
PrintedandboundinGreatBritain.
Acknowledgements
WearegratefultotheAssociationofCharteredCertifiedAccountantsandtheCharteredInstituteofManagementAccountantsforpermissiontoreproducepastexaminationquestions. TheanswershavebeenpreparedbyKaplanPublishing.
Allrightsreserved.Nopartofthispublicationmaybereproduced,storedinaretrievalsystem,ortransmitted,inanyformorbyanymeans,electronic,mechanical,photocopying,recordingorotherwise,withoutthepriorwrittenpermissionofKaplanPublishing.
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Contents
Page
Chapter 1 Thebusinessorganisation 1
Chapter 2 Businessorganisationandstructure 17
Chapter 3 Organisationalcultureinbusiness 51
Chapter 4 Informationtechnologyandinformationsystemsinbusiness
67
Chapter 5 Stakeholdersinbusinessorganisations 89
Chapter 6 Externalanalysispoliticalandlegalfactors 103
Chapter 7 Externalanalysiseconomicfactors 127
Chapter 8 Externalanalysissocial,environmentalandtechnologicalfactors
189
Chapter 9 Competitivefactors 213
Chapter 10 Professionalethicsinaccountingandbusiness 231
Chapter 11 Governanceandsocialresponsibilityinbusiness 257
Chapter 12 Lawandregulationgoverningaccounting 285
Chapter 13 Accountingandfinancefunctionswithinbusiness 305
Chapter 14 Financialsystemsandprocedures 327
Chapter 15 Therelationshipbetweenaccountingandotherbusinessfunctions
363
Chapter 16 Auditandfinancialcontrol 379
Chapter 17 Fraud,fraudulentbehaviour,andtheirpreventioninbusiness
405
Chapter 18 Leadership,managementandsupervision 427
Chapter 19 Recruitmentandselectionofemployees 455
Chapter 20 Individual,groupandteambehaviour 485
Chapter 21 Motivatingindividualsandgroups 507
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Chapter 22 Learningandtrainingatwork 529
Chapter 23 Reviewandappraisalofindividualperformance 553
Chapter 24 Personaleffectivenessatwork 575
Chapter 25 Communicatinginbusiness 603
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PaperIntroduction
v
chapterIntroduction
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How to Use the Materials TheseKaplanPublishinglearningmaterialshavebeencarefullydesignedtomakeyourlearningexperienceaseasyaspossibleandtogiveyouthebestchancesofsuccessinyourexaminations.
Theproductrangecontainsanumberoffeaturestohelpyouinthestudyprocess.Theyinclude:
Thesectionsonthestudyguide,thesyllabusobjectives,theexaminationandstudyskillsshouldallbereadbeforeyoucommenceyourstudies.Theyaredesignedtofamiliariseyouwiththenatureandcontentoftheexaminationandgiveyoutipsonhowtobesttoapproachyourlearning.
Thecomplete text or essential textcomprisesthemainlearningmaterialsandgivesguidanceastotheimportanceoftopicsandwhereotherrelatedresourcescanbefound.Eachchapterincludes:
(1) Detailedstudyguideandsyllabusobjectives(2) Descriptionoftheexamination(3) Studyskillsandrevisionguidance(4) Completetextoressentialtext(5) Questionpractice
Thelearning objectivescontainedineachchapter,whichhavebeencarefullymappedtotheexaminingbody'sownsyllabuslearningobjectivesoroutcomes.Youshouldusethesetocheckyouhaveaclearunderstandingofallthetopicsonwhichyoumightbeassessedintheexamination.
Thechapter diagramprovidesavisualreferenceforthecontentinthechapter,givinganoverviewofthetopicsandhowtheylinktogether.
Thecontentforeachtopicareacommenceswithabriefexplanationordefinitiontoputthetopicintocontextbeforecoveringthetopicindetail.Youshouldfollowyourstudyingofthecontentwithareviewoftheillustration/s.Theseareworkedexampleswhichwillhelpyoutounderstandbetterhowtoapplythecontentforthetopic.
Introduction
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Test your understandingsectionsprovideanopportunitytoassessyourunderstandingofthekeytopicsbyapplyingwhatyouhavelearnedtoshortquestions.Answerscanbefoundatthebackofeachchapter.
Summary diagrams completeeachchaptertoshowtheimportantlinksbetweentopicsandtheoverallcontentofthepaper.Thesediagramsshouldbeusedtocheckthatyouhavecoveredandunderstoodthecoretopicsbeforemovingon.
Question practiceisprovidedatthebackofeachtext.
Icon Explanations
Definition Keydefinitionsthatyouwillneedtolearnfromthecorecontent.
Key PointIdentifiestopicsthatarekeytosuccessandareoftenexamined.
Expandable textExpandabletextprovidesyouwithadditionalinformationaboutatopicareaandmayhelpyougainabetterunderstandingofthecorecontent.Essentialtextuserscanaccessthisadditionalcontentonline(readitwhereyouneedfurtherguidanceorskipoverwhenyouarehappywiththetopic)
IllustrationWorkedexampleshelpyouunderstandthecorecontentbetter.
Test Your UnderstandingExercisesforyoutocompletetoensurethatyouhaveunderstoodthetopicsjustlearned.
Tricky topicWhenreviewingtheseareascareshouldbetakenandallillustrationsandtestyourunderstandingexercisesshouldbecompletedtoensurethatthetopicisunderstood.
Formoredetailsaboutthesyllabusandtheformatofyourexam,pleaseseeyourCompleteTextorgoonline.
Online subscribers
Paper background
Objectives of the syllabus
Core areas of the syllabus
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Syllabus objectives and chapter references
The examination
Examination format
Paperbased examination tips
Computerbased examination (CBE) tips
Study skills and revision guidance
Preparing to study
Three ways of taking notes
Revision
Further reading
YoucanfindfurtherreadingandtechnicalarticlesunderthestudentsectionofACCAswebsite.
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ThebusinessorganisationChapter learning objectives
Uponcompletionofthischapteryouwillbeableto:
definebusinessorganisationsandexplainwhytheyareformed describecommonfeaturesofbusinessorganisations outlinehowbusinessorganisationsdiffer listtheindustrialandcommercialsectorsinwhichbusiness
organisationsoperate identifythedifferenttypesofbusinessorganisation:commercial,
notforprofit,publicsector,nongovernmentalorganisations,cooperatives.
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1Business organisations and the reason they are formed 1.1 What is a business organisation?
Defininganorganisationisdifficultastherearemanytypesoforganisationswhicharesetuptomeetavarietyofneeds,suchasclubs,schoolscompanies,charitiesandhospitals.
WhattheyallhaveincommonissummarisedinthedefinitionproducedbyBuchanan and Huczynski.
Organisationsaresocialarrangementsforthecontrolledperformanceofcollectivegoals.
Notethethreekeyaspectsofthisdefinition:
collectivegoals socialarrangements controlledperformance
Afootballteamcanbedescribedasanorganisationbecause:
Ithasanumberofplayerswhohavecometogethertoplayagame. Theteamhasanobjective(toscoremoregoalsthanitsopponent). Todotheirjobproperly,themembershavetomaintainaninternal
systemofcontroltogettheteamtoworktogether.Intrainingtheyworkouttacticssothatinplaytheycanrelyontheballbeingpassedtothosewhocanscoregoals.
The business organisation
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What is an organisation?
Illustration 1 Football team
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Eachmemberoftheteamispartoftheorganisationalstructureandisskilledinadifferenttask:thegoalkeeperhasmoreexperienceinstoppinggoalsbeingscoredthanthoseintheforwardlineoftheteam.
Inaddition,theremustbeteamspirit,sothateveryoneworkstogether.Playersareencouragedtodotheirbest,bothonandoffthefield.
Whichofthefollowingwouldbeconsideredtobeanorganisation?
(i) Asoletrader(ii) Atennisclub(iii) AhospitalA (i),(ii)and(iii)B (i)and(ii)onlyC (ii)and(iii)onlyD (i)and(iii)only
1.2 Why do we need organisations?
Organisationsenablepeopleto:
Thisresultsinsynergywhereorganisationscanachievemorethantheindividualscouldontheirown.
Share skills and knowledgethiscanenablepeopletoperformtasksthattheywouldbeunabletoachieveontheirown.Knowledgecanalsobesharedbetweenallthepeoplewithintheorganisation.
Specialiseindividualworkerscanconcentrateonalimitedtypeofactivity.Thisallowsthemtobuildupagreaterlevelofskillandknowledgethantheywouldhaveiftheyattemptedtobegoodateverything.
Pool resourceswhethermoneyortime.
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Jaredisorganisingasocialevent.Whichofthefollowingwouldbebenefitsofhimformingacommitteetomanagetheplanningprocessandtheeventitself?
(i) Itwouldhelptoovercomehislimitations,bybringingonboardotherpeoplewithdifferentskillstohim.
(ii) Itwouldsavetimethroughthejointeffortsofeveryoneonthecommittee.
(iii) ItwouldhelptosatisfyJaredssocialneeds.(iv) Allmembersofthecommitteewouldhavetobeskilledinallaspects
ofmanagingthesocialevent.A (i),(ii)and(iii)onlyB (i),(iii)and(iv)onlyC AlloftheaboveD Noneoftheabove
2Different types of organisation
Aswehavediscussed,differentorganisationshavedifferentgoals.Wecanthereforeclassifythemintoseveraldifferentcategories.
2.1 Commercial versus notforprofit
Commercial organisations
Commercial(orprofitseeking)organisationsseetheirmainobjectiveasmaximisingthewealthoftheirowners.
Therearethreecommonformsthatacommercialcompanycantake:
Notethatinbothoftheseorganisations,theownerofthebusinessisnotlegallyseparatefromthebusinessitself.Ifapartnershipissuedbyacustomer,thecustomerisactuallysuingtheownerofthebusiness.
Sole traderstheorganisationisownedandrunbyoneperson. Partnershipstheorganisationisownedandrunbytwoormore
individuals.
Limited liability companiesacompanyhasaseparatelegalidentitytoitsowners(whoareknownasshareholders).Theownersliabilityislimitedtotheamounttheyhaveinvestedintothecompany.
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IntheUK,therearetwotypesoflimitedcompany:
Private limited companies(withLtdaftertheirname)thesetendtobesmallerbusinesses,oftenownedbyafewshareholders.Sharescannotbeofferedtothegeneralpublic.
Public limited companies(withplcaftertheirname)thesecanbemuchlargerbusinesses.Sharescanbeofferedtothegeneralpublic,meaningthattherecanbemillionsofdifferentshareholders.Thismakesiteasierforthecompanytoraisefinance,enablingfurthergrowth.
Not for profit organisations
Notforprofitorganisations(NFPsorNPOs)donotseeprofitabilityastheirmainobjective.Instead,theyseektosatisfytheparticularneedsoftheirmembersorthesectorsofsocietythattheyhavebeensetuptobenefit.
NFPsincludethefollowing:
governmentdepartmentsandagencies(suchasHMRevenueandCustoms)
schools hospitals charities(suchastheRedCross,OxfamandDoctorsWithout
Borders) clubs.
TheobjectivesofdifferentNFPswillvarysignificantly:
Hospitalsexisttotreatpatients. Councilsmayseetheirmissionascaringfortheircommunities. Governmentorganisationsusuallyexisttoimplementgovernment
policy. Acharitymayhaveprovisionofrelieftovictimsofdisastersasitsmain
objective.
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Illustration 2 NFP examples
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2.2 Public versus private sector organisations
Public sector organisations
Thepublicsectoristhepartoftheeconomythatisconcernedwithprovidingbasicgovernmentservicesandiscontrolledbygovernmentorganisations.
Theorganisationsthatmakeupthepublicsectorvaryfromcountrytocountry,butgenerallyinclude:
police military publictransport primaryeducation healthcareforthepoor
Private sector organisations
Theprivatesectorconsistsoforganisationsthatarerunbyprivateindividualsandgroupsratherthanthegovernment.
Theprivatesectorwillthereforenormallyinclude:
Withinthesewillbebothprofitseekingandnotforprofitorganisations.
businesses charitiesand clubs.
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Illustration 3 Public sector organisations
Illustration 4 Private sector
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Manyschoolsrunfundraisingeventssuchasftes,wheretheintentionistomakeaprofit.Thismakesthemprofitseeking.
Isthisstatement:
A TrueB False
Nongovernmental organisations (NGOs)
Anongovernmentalorganisationisonewhichdoesnothaveprofitasitsprimarygoalandisnotdirectlylinkedtothenationalgovernment.
NGOsoftenpromotepolitical,socialorenvironmentalchangewithinthecountriestheyoperate.
NGOsinclude:
theRedCross DoctorsWithoutBorders Greenpeace AmnestyInternational.
2.3 Cooperatives
Cooperativesareorganisationsthatareownedanddemocraticallycontrolledbytheirmembersthepeoplewhobuytheirgoodsorservices.
Theyareorganisedsolelytomeettheneedsofthememberowners,whousuallyshareanyprofits.
IntheUK,thelargestexampleofacooperativeistheCooperativeGroup,whichhasover5.5millionmembersandoperatesindiversemarkets,suchasbanking,travelandgroceries.
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Illustration 5 NGOs
Illustration 6 Cooperatives
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Whichofthefollowingareusuallyseenastheprimaryobjectivesofcompanies?
(i) Tomaximisethewealthofshareholders(ii) Toprotecttheenvironment(iii) TomakeaprofitA (i),(ii)and(iii)B (i)and(ii)onlyC (ii)and(iii)onlyD (i)and(iii)only
Whichofthefollowingorganisationsismostlikelytobeclassifiedaspartofthepublicsector?
A AcharityB AsocialclubC AschoolD Apubliclimitedcompany
3Sectors in which organisations operate
Afurtherdifferencebetweenorganisationsisthemarketinwhichtheyoperate.Therearealargenumberofdifferentsectors,whichinclude:
Thisisnotanexhaustivelist,butitshouldgiveyousomeideaofthewiderangeofactivitiesthatsupportorganisations.
Agriculture production,processingandpackagingoffoodstuffs. Mining extractionandprocessingofminerals. Financethisincludesbanksandothercompaniesthatprofitthrough
investmentsandthelendingofmoneytoothers. Retailerssaleofgoodsproducedbymanufacturerstoconsumers. Serviceproductionofintangiblegoodsandservices. Transportationmovementofgoodsbetweenlocations.
The business organisation
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4Summary
Insummary,thereareanumberofkeydifferencesbetweenthevarioustypesof organisations.Theseinclude(butarenotlimitedto):
Inspiteofthesedifferences,thedifferenttypesoforganisationsoftenfacesimilarissuestoeachother.Forinstance,mostwillhaveemployeesthatneedtobemotivated.Manyorganisationswillneedtodesignstrategiesforthefuture,orwillneedtoconsiderwhatsystemsshouldbeputinplacetoensuretheaccuraterecordingoftransactions.
Itisthesecommonissuesthatwearegoingtoexamineinmoredetailinthecomingchapters.
Ownershipprivatesectororganisationsarelikelytobeownedbyindividualownersorshareholders(dependingonthetypeoforganisation).Publicsectororganisationswillbecontrolledbythegovernment,whilecooperativeswillbeownedbytheirmembers.
Objectivesasmentioned,eachorganisationhasverydifferentgoals.Thiscanrangefromtheprovisionofsocialservices(forcharitiesandpublicsectororganisations)tothemaximisationofownerwealth(forprofitseekingorganisations).
Activitiestheactivitiesofanorganisationwillbedesignedtosupportitsobjectives.Thismeansthatorganisationalactivitiesareasvariedastheorganisationsthemselves!
Sources of fundingpublicsectororganisationswilltendtoraisemoneyfromthecentralgovernment.Privatesectororganisations,suchascompaniesandcooperatives,willmostlikelyhavetoraisefundsfromtheirowners.Charitiesareusuallyfundedbydonations.
Sizeorganisationsvaryinsizefromlarge,multinationalcompaniestosoletradersconsistingofonlyoneperson.
Liabilitytheownersofsoletradersorpartnershipsareliableforanylossestheirbusinessesmake.Ownersofcompaniesenjoylimited liability.
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Chapter summary
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5Practice questions
Whichofthefollowingstatementsregardingtypesofbusinessiscorrect?
A PartnershipsareownedandrunbyoneormorepeopleB PrivatelimitedcompaniescansellsharestothepublicC ShareholdersincompaniestypicallyhavelimitedliabilityD Theownersofsoletraderstypicallyhavelimitedliability
GreenWatchisanindependentenvironmentalcharitysetuptolobbythegovernmentforimprovedenvironmentalregulationonbusiness.WhattypeoforganisationisGreenWatchmostlikelytobeclassedas?
A PublicsectorB CooperativeC NongovernmentalD Commercial
WhichofthefollowingisNOTabenefitthatorganisationshaveoverindividuals?
A TheyallowthesharingskillsandknowledgeB Theyenablepeopletoperformtaskstheywouldbeunableto
achieveontheirownC TheyenablesynergytobeachievedD Theyspeedupthetimetakentomakedecisions
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Whichofthefollowingstatementsregardingorganisationsarecorrect?
(i) Companiestendtoraisemoneyfromcentralgovernment.(ii) Mostsoletradersandpartnershipshavetheaimofmaximising
ownerwealth.(iii) Publicsectororganisationsarecontrolledbythecentral
government.(iv) Charitiesformpartofthepublicsector.A (i)and(ii)onlyB (iii)and(iv)onlyC (ii)and(iii)onlyD (ii)and(iv)only
Herearefourstatementsrelatingtothefeaturesofdifferenttypesoforganisation:
Required:
(0.5 marks each, total = 3 marks)
A Thistypeoforganisationcansellitssharestothepublic.B Thistypeoforganisationisownedandrunbytwoormorepeople
whoarelegallyindistinguishablefromtheorganisationitself.C Thistypeoforganisationiscontrolledbythegovernment.D Thistypeoforganisationisownedanddemocraticallycontrolledby
itsmembers.
(a) Identifythedescriptionabovewhichisassociatedwitheachofthefollowingtypesoforganisation,byselectingA,B,C,Dornone.(i) Privatelimitedcompany(ii) Partnership(iii) Publiclimitedcompany(iv) Cooperative(v) Publicsectororganisation(vi) Soletrader
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Required:
WritedownwhichtwooftheabovearemostlikelytobeclassifiedaspartoftheprivatesectorbyselectingTWOofthelettersfrom(A,B,C,D).
(0.5 marks each, total = 1 mark)
(4 marks)
(b) Belowarefourtypesoforganisation:A CharitiesB SchoolsC LimitedcompaniesD Policeforces
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Test your understanding answers
The correct answer is C
Asoletraderwouldnormallybesomeoneworkingontheirown,sotherewouldbenocollectivegoals.
The correct answer is A
Statement(iv)wouldnotbetrue,asorganisations(whichthiscommitteecouldbeclassifiedas)allowforspecialisation.Notallofthememberswouldhavetobeskilledatperformingallofthenecessarytasks.
The correct answer is B False
Schoolsrunfundraisingactivitiestohelppayforextrabooks,e.g.toimprovethequalityofeducationgiventopupils.Theprimaryobjectiveiseducational,notprofit.Themoneymadeatthefteisthusameansnotanend.
The correct answer is D
Whileprotectingtheenvironmentistobeencouragedandisreinforcedwithinstatutetosomedegree,itisnotaprimaryobjectiveofthecompany.Companiesexistprimarilytomaximisethereturntotheirowners.
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The correct answer is C
Publicsectororganisationswillbecontrolledbythecentralgovernment.Thisisunlikelytobeacharity,acompanyorasocialclubwhicharetypicalexamplesoftheprivatesector.
Notethataprivatelyownedandoperatedschoolcouldbepartoftheprivatesector,butschoolsarestillthemostlikelyfromthelisttobepublic.
The correct answer is C
Soletradersdonotenjoylimitedliabilityas,legally,theyarenotseparatefromtheirowners.Onlypubliclimitedcompaniescanissuesharestothepublicandpartnershipscannotbeownedbyoneperson!
The correct answer is C
Asacharity,GreenWatchisnotcommercialasitdoesnothaveaprofitmakingobjective.Itisnotobviouslycontrolledbythecentralgovernment,meaningthatitisnotinthepublicsector.Italsoclearlydoesnotmeetthedefinitionofacooperative,whichisanorganisationthatiscontrolledbythepeoplewhobuyitsgoods.
The correct answer is D
Forminganorganisationmeansthatpeopleworkcollectively.Typicallythiswillmeanthatdecisionmakingwillbecomeslower,asmorepeople(withpotentiallydifferingideas)areinvolvedinthedecisionmakingprocess.
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The correct answer is C
Companiesusuallyraisemoneyfromsourcesotherthanthecentralgovernmentandcharitiesarepartoftheprivatesector,ratherthanthepublicsector.
(a) Thecorrectanswersare:(i) None
(ii) B
(iii) A
(iv) D
(v) C
(vi) None
(b) Theprivatesectorreferstoorganisationsthatarerunbyprivateindividualsandgroupsratherthanthegovernment.Therefore,thecorrectanswersare AandC.
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BusinessorganisationandstructureChapter learning objectives
Uponcompletionofthischapteryouwillbeableto:
describethedifferentwaysinwhichformalorganisationsmaybestructured:entrepreneurial,matrix,functional,divisional(bygeographicalarea,byproductorbycustomertype),boundaryless(virtual,hollowormodular)
explainbasicorganisationalstructureconcepts:separationofownershipandcontrol,separationofdirectionandmanagement,spanofcontrolandscalarchain,tallandflatorganisations,outsourcingandoffshoring,sharedservicesapproach
explainthecharacteristicsofthestrategic,tacticalandoperationallevelsintheorganisationinthecontextoftheAnthonyhierarchy
explaincentralisationanddecentralisationandlisttheiradvantagesanddisadvantages
describetherolesandfunctionsofthemaindepartmentsinabusinessorganisation:researchanddevelopment,purchasing,production,directserviceprovision,marketing,administrationandfinance
explaintheroleofmarketinginanorganisation: thedefinitionofmarketing themarketingmix therelationshipofthemarketingplantothestrategicplan.
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1Organisational structure
Organisationalstructureisconcernedwiththewayinwhichworkisdividedupandallocated.
Itoutlinestherolesandresponsibilitiesofindividualsandgroupswithintheorganisation.
Thereareseveralpossiblewaysinwhichanorganisationcanbestructured.Forthisexamyouneedtobefamiliarwitheachofthem,aswellasbeingabletoweighuptheiradvantagesanddisadvantages.
Thestructureofmostorganisationswillchangeovertimeasthecompanygrows.Atypicalpatternofstructuralchangewouldbeasfollows:
1.1 Entrepreneurial
Thisstructureisbuiltaroundtheownermanagerandistypical of small businesses in the early stages of their development.
Itisalsooftenfoundwheretheentrepreneurhasspecialistknowledgeoftheproductorservicethattheorganisationoffers.
Advantages Disadvantages
Fastdecisionmaking. Moreresponsivetomarket. Goalcongruence. Goodcontrol. Closebondtoworkforce.
Lackofcareerstructure. Dependentonthecapabilities
ofthemanager/owner. Cannotcopewith
diversification/growth.
Business organisation and structure
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1.2 Functional/departmental structure
Functionalorganisationsgrouptogetheremployeesthatundertakesimilartasksintodepartments.
Thistypeofstructureisoftenfoundinorganisationsthathaveoutgrowntheentrepreneurialstructure.
Itismostappropriateforsmallorganisationswhichhaverelativelyfewproductsorlocationsandwhichexistinarelativelystableenvironment.
Advantages Disadvantages
Economiesofscale. Standardisation. Specialistsmorecomfortable. Careeropportunities.
Empirebuilding. Slow. Conflictsbetweenfunctions. Cannotcopewith
diversification.
1.3 Divisional/product structure
Thisstructureoccurswhereanorganisationissplitintoseveraldivisionseachoneautonomouslyoverseeingaproduct(i.e.separatedivisionsforcarsandmotorbikes),ageographicsection(i.e.separatedivisionsforUSandEurope)orevenbycustomer(i.e.separatedivisionsthatlookaftercorporateclientsandprivateclients).
Eachdivisionislikelytohaveafunctionalstructure,withallthedepartmentsitneedsinordertooperateinitsparticularmarketsegment.
Divisionsarelikelytoberunasprofitcentres,withtheirownrevenues,expenditureandcapitalinvestments.Eachdivisionisaseparatelyidentifiablepartoftheoverallorganisation,whichisoftenreferredtoasastrategic business unit(SBU).
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Advantages & disadvantages of functional structures
Advantages & disadvantages of entrepreneurial structures
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ALtdisacompanythatmanufacturestwodifferentproductstoastersandtelevisions.Theproductsrequiredifferentcomponentsandrequiredifferentadvertisingandsales.
ALtdthereforeoperatesadivisionalstructure,withatoastersdivisionandatelevisiondivision.Eachdivisionhasitsownsales,purchasing,HRandadvertisingdivisions.
Thefinancedepartment,however,isstilloperatedcentrally.
Advantages Disadvantages
Enablesgrowth. Clearresponsibilityfor
products/divisions. Trainingofgeneralmanagers. Easilyadaptedforfurther
diversification. Topmanagementfreeto
concentrateonstrategicmatters.
Potentiallossofcontrol. Lackofgoalcongruence. Duplication. Specialistsmayfeelisolated. Allocationofcentralcostscan
beaproblem.
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20 KAPLAN PUBLISHING
Illustration 1 Divisional structure
Advantages & disadvantages of divisional structures
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1.4 Geographically structured
Thisissimilartothedivisionalstructure,butinvolveseachdivisioncoveringaspecificlocation.
Forexample,aglobalcompanymaybesplitintodifferentdivisionsbasedongeographicareas.TheremaybeadivisionthatlooksaftertheorganisationsAsianoperations,onethatcoversEuropeandanotherdivisionforAmerica.
Advantages Disadvantages
Enablesgeographicgrowth. Allowslocaldecisionmaking. Clearresponsibilityforareas. Trainingofgeneralmanagers. Topmanagementfreeto
concentrateonstrategicmatters.
Asfordivisionalstructureabove.
1.5 Matrix structure
Matrixstructuresareacombinationofthefunctionalanddivisionalstructures.
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Product v geographic divisional structure
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Thematrixrequiresdualreportingtotwodifferentmanagers.Forexample,lookingatthediagramabove,anemployeemanufacturingproductAwouldhavetoreporttothemanageroftheproductiondepartmentandthemanagerinchargeofproductA.
Theaimofthematrixstructureistocombinethebenefitsofboththedivisionalandfunctionalstructures.
Advantages Disadvantages
Advantagesofbothfunctionalanddivisionalstructures.
Flexibility. Customerorientation. Encourageteamworkandthe
exchangeofopinionsandexpertise
Dualcommandandconflict. Dilutionoffunctionalauthority. Timeconsumingmeetings. Higheradmincosts.
Considerthefollowingstatements:
(i) Underthefunctionalstructure,eachdepartmentoperatesasastrategicbusinessunit.
(ii) Thematrixstructurewillenablerapiddecisionmakingwithintheorganisation.
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22 KAPLAN PUBLISHING
Advantages and disadvantages of matrix structures
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Whichofthestatementsis/arecorrect?
A (i)onlyB (ii)onlyC BothD Neither
MplcisalargecompanythatoperatesincountryG.Itmanufacturesseveraldifferentproducts,eachofwhichishighlycomplexandextremelyspecialised.Itssaleshavegrownsignificantlyoverthelastseveralyears,witheachofitsproductsproducingaroughlyequalamountofM'soverallrevenue.
WhichorganisationalstructureismostlikelytobeappropriateforM?
A GeographicB DivisionalC FunctionalD Entrepreneurial
1.6 Boundaryless structure
Thisisacontemporarymodeloforganisationaldesign,whichadoptsamoreflexibleapproachtostructure.
Boundarylessorganisationsare,essentially,anunstructureddesignthatisnotconstrainedbyhavingachainofcommandorformaldepartments,withthefocusinsteadbeingonflexibility.
Thereareanumberofdifferenttypesofboundarylessorganisationsthatyouneedtobeawareofhollow,virtualandmodular.
Hollow organisations
Holloworganisationssplittheirfunctionsintocore(i.e.strategicallyimportant)andnoncoreactivities.Anythingwhichisclassifiedasnoncoreisoutsourcedtootherorganisations.
Outsourcingreferstothecontractingoutofaspectsoftheorganisationsworktospecialistproviders.Wewilllookatoutsourcinginmoredetailinchapter8.
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Forexample,anaccountancytrainingorganisationmightoutsourcelessimportantfunctions(suchaspayroll)toathirdpartyorganisationspecialisinginpayrollprocessing.Corefunctions,suchastrainingstudents,wouldbekeptinhouseandundertakenbyemployeesofthecompany.
Virtual organisations
Thisoccurswhereanorganisationoutsourcesmanyofitsfunctionstootherorganisationsandsimplyexistsasanetworkofcontracts,withveryfew,ifany,functionsbeingkeptinhouse.
Forexample,manyinternetretailerscouldbeseenasvirtualcompanies.Theirproductsareboughtinfrommanufacturers,salesaredeliveredtocustomersbythirdpartycouriersandeventheirwebsitesmaybemaintainedandhostedbyexternalITspecialists.
Thereis typicallyonlyasmallcentralstaffwithinavirtualbusiness, whocoordinateallofthesedifferentthirdpartiesandensurethattheircustomersneedsarethereforemet.
Modular organisations
Theseareexamplesofboundarylessmanufacturingcompanies.Ratherthansimplymakingtheirownproduct,theybreakthemanufacturingprocessdownintomodulesorcomponents.Eachcomponentcanthenbemadebythecompanyoroutsourcedtoanexternalsupplier.
Forexample,amobilephonemanufacturermaypayexternalmanufacturerstomakesomekeycomponentsforitshandsetssuchasprocessorsandscreens.Thesearethenassembledbythemanufactureralongwithothercomponentsithasmanufactureditself.
Inextremecases,themanufacturingofallcomponentscanbeoutsourced,meaningthatthecompanysimplyassemblesthemtocreateitsfinalproduct.
2Other basic organisational concepts
Aswellasthedifferenttypesoforganisationstructure,youneedtobeawareoffourotherkeystructuralconcepts.
2.1 Separation of direction and management
Ownershipandmanagementoflargerorganisationsareoftenseparated.Thisisespeciallycommoninlargercompanies,wheretheowners(shareholders)electdirectorstorunthecompanyontheirbehalf.
Inordertoensurethatdirectorsarerunningthebusinessinthebestinterestsoftheowners,manysafeguardsandcontrolsareputinplace.Thesewillbedealtwithinmoredetailinchapter11.
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Notethatdirectionandmanagementmayalsobeseparatedinlargerorganisations.Directorsmaylackthetimetodealwitheveryissuethatarisesinthedaytodayrunningoftheorganisation.Theywillthereforeappointmanagerstoundertakethesetasksforthem.
Thisleavesthedirectorsfreetofocusoncreatingandmanagingthehighlevelstrategiesfortheorganisation,whilethemanagersfocusonthedaytodayoperationalissues.Forexample,thedirectorsmaydecidethattheorganisationisgoingtolaunchanewproduct,orwillopenachainofnewstores.Themanagerswillbeinchargeofdecisionssuchashiringandfiringjuniorstaffanddealingwithcustomercomplaints.
Inasmallcompanythereisusuallyadivorceofownershipandcontrol.
Isthisstatement:
A TrueB False
2.2 Scalar chain
Thisisthelineofauthoritywhichcanbetracedupordownthechainofcommand,fromthemostseniormemberofstafftothemostjunior.Itthereforerelatestothenumberoflevelsofmanagementwithinanorganisation.
2.3 Span of control
Amanagersspanofcontrolisthenumberofpeopleforwhomheorsheisdirectlyresponsible.
Thefactorsthatinfluencethespanofcontrolinclude:
the nature of the workthemorerepetitiveorsimplethework,thewiderthespanofcontrolcanbe.
the type of personnelthemoreskilledandmotivatedthemanagersandotherstaffmembersare,thewiderthespanofcontrolcanbe.
the location of personnelifpersonnelarealllocatedlocally,ittakesrelativelylittletimeandefforttosupervisethem.Thisallowsthespanofcontroltobecomewider.
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Considerthefollowingstatements:
Whichofthesestatementsis/arecorrect?
(i) Thescalarchainrelatestothenumberofpeopleoverwhomamanagerhasauthority.
(ii) Abusinesswithhighlyskilled,motivatedmembersofstaffwilltendtohaveawiderspanofcontrolthanabusinesswithdemotivatedemployees.
A (i)onlyB (ii)onlyC BothD Neither
2.4 Tall and flat organisations
Atallorganisationhasmanylevelsofmanagement(alongscalarchain)andanarrowspanofcontrol.
Aflatorganisationhasfewlevelsofmanagement(ashortscalarchain)andawidespanofcontrol.
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Itisworthnotingthattallorganisationstendtobemorebureaucraticandtakelongertomakedecisions,duetothelargenumberoflevelsofmanagementthatneedtobeinvolved.
Flatorganisationstendtohaveweakercontrolandfewerchancesforemployeestoprogressorbepromotedwithintheorganisation.
Ifamanagerialstructurehasmanylevelsofmanagement,isitlikelytohaveanarroworwidespanofcontrolateachlevelofmanagement?
2.5 Offshoring
Offshoringreferstotheprocessofoutsourcingorrelocatingsomeofanorganisationsfunctionsfromonecountrytoanother,usuallyinanefforttoreducecosts.
Forexample,manycompaniesintheUKhavemovedtheircustomercallcentrestoothercountries,suchasIndiaandthePhilippines.ThesecountrieshavesignificantlylowerwageratesthantheUK,makingthe callcentrescheaperfortheoffshoringcompanytooperate.
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Whilethecostsavingscanbesignificant,offshoringcancreateadditionalproblemsfortheorganisation,includingproblemswithculturaldifferencesandlanguagebarriers.
2.6 Shared Services Approach
Thisapproachinvolvesrestructuringtheprovisionofcertainserviceswithintheorganisationsothatinsteadoftheservicebeingfoundinseveraldifferentpartsoftheorganisationitiscentralisedintoonespecificpartoftheorganisation.
Forexample,amediumsizedbusinessmayhaveacoupleofstaffineachdepartment(i.e.sales,production)thatdealwithITforthatpartoftheorganisation.
AsharedservicesapproachwouldbetoformadistinctITdepartmentthatalltheITstaffweretransferredinto.ThisITdepartmentwouldthenofferITservicestotheentireorganisation.
Thisapproachhasseveraladvantages,including:
Notethatasharedservicesapproachismorethansimplycentralisingthefunctionintooneplace.Sharedservicesofteninvolvesrunningtheservice,forexampleIT,likeaseparatebusinesswithintheorganisationandchargingtherestoftheorganisationfortheuseoftheservice.
improvedqualityofserviceprovision improvedconsistencyofservice costsavingsthroughgreaterefficiencyandreducedduplicationofroles
3Centralisation and decentralisation
Anothermethodofanalysingstructuresisbyreferencetothelevelatwhichdecisionsaremade.
Thefactorsthatwillaffecttheamountofdecentralisationare:
Inacentralisedstructure,theupperlevelsofanorganisation'shierarchyretaintheauthoritytomakedecisions.
Inadecentralisedstructuretheauthoritytotakedecisionsispasseddowntounitsandpeopleatlowerlevels.
managementstyle abilityofmanagement/employees geographicspread sizeoftheorganisation/scaleofactivities.
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Theadvantagesanddisadvantagesofdecentralisationare:
Advantages Disadvantages
Seniormanagementfreetoconcentrateonstrategy.
Betterlocaldecisionsduetolocalexpertise.
Bettermotivationduetoincreasedtrainingandcareerpath.
Quickerresponses/flexibility,duetosmallerchainofcommand.
Lossofcontrolbyseniormanagement.
Dysfunctionaldecisionsduetoalackofgoalcongruence.
Poordecisionsmadebyinexperiencedmanagers.
Trainingcosts. Duplicationofroleswithinthe
organisation. Extracostsinobtaining
information.
WhichofthefollowingisNOTalikelyadditionalcosttoanorganisationcausedbydecentralisation?
A Additionaltrainingcostsareoftenrequiredinadecentralisedorganisation
B Duplicationofroles,leadingtohigherpersonnelcostsC Extracostsofgatheringinformationfromvarioussourcesand
locationsD Lostsalesduetolackoflocalknowledgeandexpertise
Howdoestheabilityoftheemployeesaffectthelevelofdecentralisation?
4Levels of strategy
Withinanorganisation,eachlevelofmanagementwillhavedifferentrolesandresponsibilities.Thisisespeciallythecasewhenitcomestodevelopingastrategy,orplanforthefuture,fortheorganisation.
TheAnthonyTriangleisamodelthatcanbeusedtoillustratethetypesofstrategicplanningthatwillbemadeateachleveloftheorganisationshierarchy.
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Different levels of planning
Strategic planningisundertakenbyseniormanagers.Itinvolvesmakinglongtermdecisionsfortheentireorganisation.
Tactical planningisundertakenbymiddlemanagement.Ittendstolookatplansforspecificdivisionsordepartmentsandspecifieshowtouseresources.
Operational planningisundertakenbyjuniormanagersandsupervisors.Itisshortterm,detailedandpractical.
Theaboveplanninglevelscouldbeappliedtoasupermarketasfollows:
Notethatinordertobesuccessful,thelevelsofstrategymustsupporteachother.Ifastrategicdecisionismadetoimprovecustomerservice,thismustbesupportedbyappropriatetacticaldecisionsbeingmadeineachstore,suchasallocatingmoreofthestoresbudgettohiringadditionalcustomerservicesemployees.Eventhen,thiswillonlybeasuccessiftheoperationalstrategiesselectthemostappropriatecandidatesforthenewrole.
Strategicplanningwouldinvolvemakingplansforthewholebusiness.Thiscouldinvolvewhichlocationstoopenorclosestoresandwhethertoraisecashfrominvestors.
Tacticalplanningwouldbethecreationofstrategiesforaparticularsupermarket.Forexampledecisionsaboutspecialoffers,localadvertisingandwhichproductsshouldbestocked.
Operationalplanninginvolvepractical,daytodaystrategies,suchasorganisingshiftpatterns,decidingwhentostocktheshelvesandadvertisingforandselectingnewemployees.
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Illustration 2 Strategic, tactical and operational planning
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Hisaretailstoresellingelectronics.Itiscurrentlydecidinghowmanyunitsofitsproductsitwillneedtoordernextmonthinordertomeetcustomerdemand.
Whichlevelofstrategicplanningdoesthisrelateto?
A StrategicB FunctionalC TacticalD Operational
5The roles and functions of the main departments in a business organisation
Inspiteoftheirstructuraldifferences,organisationsusuallyhavemanysimilarities.Oneoftheseisthatmanyorganisationsoperatesimilarbasicdepartmentstoeachother,withthesamerolesandconcerns.
Someofthemostcommondepartmentsarelistedbelow.
Department Role Key concernsResearch and development
Improvingexistingproducts
Developingnewproducts
Purchasing Acquiringthegoodsandservicesnecessaryforthebusiness
Priceandpaymentterms Quality Stocklevels/delivery
schedules
Production Convertingrawmaterialsintofinishedgoods
Quality(ofmaterialsandfinishedgoods)
Costs Wastage/efficiency Stocklevels/production
schedules
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Direct service provision
Providingservicestoclients(e.g.accountancyfirm)
Quality Timesheets/scheduling
Marketing Identifyingcustomerneeds
Marketresearch Productdesign Pricing Promotion Distribution
Customerneeds Quality Promotionalstrategy Distributionchannelstrategy Pricingstrategy
Administration Administrativesupport
Processingtransactions
Efficiency Informationprocessing
Finance Bookkeeping Financial
reporting Financial
controls Budgeting Theraisingof
capital
Accuracyandcompletenessofrecordkeeping
Monthlymanagementreporting Annualfinancialreporting
Whichofthefollowingisnotpartoftheresponsibilityofaresearchanddevelopmentdepartment?
A ImprovingexistingproductsB DevelopingnewproductsC ResearchingnewtechnologiesforapplicationtofutureproductsD Researchingmarketdemandforproducts
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6Marketing
6.1 What is meant by marketing?
MarketingisdefinedbytheInstituteofMarketingasthemanagementprocessthatidentifies,anticipatesandsuppliescustomerneedsefficientlyandprofitably.
Thekeyemphasisisthusoncustomerneeds:
Identifyingandanticipatingneedsmarketresearch. Supplyingcustomerneedsproductdesignanddevelopment. Efficiencydistribution. Profitabilitypricingdecisionsandpromotion(informingcustomers
aboutyourproductsotheybuyit).
Marketinginvolvesmuchmorethanjustadvertising!
Marketingismainlyconcernedwithwhichofthefollowing?
A IncreasingsalesrevenueB StreamliningproductionC AnticipatingandmeetingcustomerneedsD Maximisingprofit
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Marketing versus product orientation
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6.2 The marketing mix
Themarketingmixisthesetofcontrollablevariablesthatafirmblendstoproducedesiredresultsfromitschosentargetmarket.
Therearefourbasicelements(the4Ps),whichmustbemanagedtosatisfycustomersneedsataprofit.
Product Thisincludesproductfeatures,durability,design,brandname,packaging,range,aftersalesservice,warrantiesandguarantees.
Place Choiceofdistributionchannels,transportation,outletmanagement,stocksandwarehouses.
Promotion (distribution)
Advertising,personalselling,publicity,salespromotiontechniques.
Price Pricelevels,discounts,allowances,paymentterms,creditpolicy.
6.3 Product issues
Therearetwomainproductissuestoconsider:
ProductdefinitionThemainissueregardingproductistodefineexactlywhattheproductshouldbe.Thiscanbedoneonthreelevels:
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ProductpositioningWithallofthesefactorsthequestionofproductpositioningiscriticalhowdoesourproductcomparewiththeofferingsofcompetitors?Isourproductbetter?Ifso,inwhatway?
Anewcarcouldbespecifiedasfollows:
Core/genericproductpersonaltransportation. Actualproductrangeofenginesizes,differentbodyshapes
offered,etc. Augmentedproductmanufacturerswarrantyordealers
discountedservicecontract.
6.4 Pricing issues
Therearefourkeyconsiderations(the4Cs)whendecidingthepriceofaproduct:
Theseissuescanbeblendedtogivearangeofpricingtactics,includingthefollowing:
Costthepricemustbehighenoughtomakeaprofit. Customerswhataretheywillingtopay? Competitionisourpricehigherthancompetitors? Corporate objectivese.g.thepricecouldbesetlowtogainmarket
share.
Costpluspricingthecostperunitiscalculatedandthenamarkupadded.
Penetrationpricingalowpriceissettogainmarketshare. Perceivedqualitypricingahighpriceissettoreflect/createanimage
ofhighquality. Pricediscriminationdifferentpricesaresetforthesameproductin
differentmarkets,e.g.peak/offpeakrailfares. Goingratepricingpricesaresettomatchcompetitors. Priceskimminghighpricesaresetwhenanewproductislaunched.
Laterthepriceisdroppedtoincreasedemandoncethecustomerswhoarewillingtopaymorehavebeenskimmedoff.
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Illustration 3 Marketing
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6.5 Promotional issues
Promotionisessentiallyaboutmarketcommunication.TheprimaryaimistoencouragecustomerstobuytheproductsbymovingthemalongtheAIDAsequence:
Towardsthisfirmswilluseacombinationofdifferentpromotionaltechniquesaspartoftheirpromotionalmix,including:
6.6 Place (distribution) issues
Thekeydecisionunderplaceisbetween:
Lossleadersoneproductmaybesoldatalosswiththeexpectationthatcustomerswillthengoonandbuyothermoreprofitableproducts.
Captiveproductpricingthisisusedwherecustomersmustbuytwoproducts.Thefirstischeaptoattractcustomersbutthesecondisexpensive,oncetheyarecaptive.
Advertisinge.g.placingadvertsonTV,innewspapers,onbillboards,etc.
Salespromotiontechniquese.g.Buyonegetonefree. Personalsellinge.g.doortodoorsalesmen. Personalrelations(PR)e.g.sponsoringsportsevents.
Selling directherethemanufacturersellsdirectlytotheultimateconsumerwithoutusinganymiddlemen,e.g.accountancyfirmsdealdirectlywiththeirclientswithoutrecoursetobrokersorothermiddlemen.
Selling indirectherethechannelstrategycouldcompriseamixtureofretailer,distributors,wholesalersandshippingagents,e.g.fooddistributionwillofteninvolvedistributorsandretailerstogettheproductfromfarmertoconsumer.
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Variations in marketing mix settings
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Nileisanonlineretailerofgames,DVDsandbooks.Itiscurrentlyplanninganupgradetoitswebsitetomakeiteasierforcustomerstofindtheitemsthattheyarelookingfor.
Whichoneofthe4Psofmarketingdoesthisrelateto?
A PriceB PlaceC PromotionD Product
6.7 The strategic marketing process
Themarketingprocessimpactsthestrategicplanningprocessofanorganisationasfollows:
Strategic analysis of the firm and its business environment
Marketinganalysiswillinclude:
Strategic choice
Marketingdecisionswillinclude:
analysisofbrandstrength,productquality,reputation,etc. analysisofcompetition marketresearchtodeterminemarketattractiveness detailedanalysisofcustomerexpectationsandpower.
decisionsregardingwhichproductstosell segmentingpotentialmarkets(e.g.byage)andthentargetingattractive
segments developingstrategiesforeachofthemarketingmixvariables.
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Strategy implementation
Implementingmarketingstrategieswillinclude:
settingbudgetsforadvertising,etc. settingtargetsforsalesrevenue,marketshare,brandawareness,etc. monitoringandcontrol.
Analysisofbrandstrengthwouldcomeunderwhichpartofthestrategicplanningprocess?
A StrategicanalysisB StrategicchoiceC Strategicimplementation
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Strategic marketing further analysis
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Chapter summary
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7Practice questions
Thefollowingfourstatementsrelatetoeitherthefunctionalordivisionalstructures.
Whichofthestatementsrelatetoafunctionalstructure?
(i) Enablesaccesstoeconomiesofscale(ii) Tendstocauseduplicationofroles(iii) Doesnotusuallycopewellwithdiversification(iv) Specialistsmayfeelisolated
A (i)and(ii)B (i)and(iii)C (ii)and(iii)D (ii)and(iv)
Conflictingdemandsoverallocationofresourcesismostlikelytobeadisadvantageforwhichtypeoforganisationalstructure?
A EntrepreneurialB MatrixC DivisionalD Geographical
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HLtdisamanufacturingcompany.Theworkundertakenissimple,meaningthateachmanagerlooksafteralargenumberofemployees.Becauseofthis,therearerelativelyfewlevelsofmanagementwithinthecompany.
WhichofthefollowingiscorrectwithregardstothestructureofHLtd?
A Widespanofcontrol,shortscalarchainB Narrowspanofcontrol,shortscalarchainC Widespanofcontrol,longscalarchainD Narrowspanofcontrol,longscalarchain
Whichofthefollowingwouldbeatypicalfeatureofaflatorganisation?
A EasycareerprogressionforemployeesB ClosesupervisionofemployeesbymanagersC FasterdecisionmakingD Highlevelsofbureaucracy
Whichofthefollowingisanadvantageofcentraliseddecisionmaking?
A Allowsseniormanagementtofocusonhighlevelstrategicdecisions
B BettermotivationformorejuniorstaffC ImprovedlocaldecisionsD Avoidanceofdysfunctionaldecisionmaking
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GLtdisasupermarket.Ithasthreestrategiesinplace:
UsingtheAnthonytrianglemodel,whatwouldeachofthesestrategiesbeclassifiedas?
(1) Tohirefiftynewcheckoutoperatorswithinthenextfiveweekstohelpreducecustomerqueuetimes
(2) Tobeginthesaleofelectronicsinallstoreswithinthenexttwoyears(3) TorelocateoneofitsstoresintownAtoanew,moresuitablesite,
locatedbythestoremanager
Strategy 1 Strategy 2 Strategy 3A Strategic Tactical OperationalB Operational Strategic TacticalC Tactical Operational StrategicD Operational Tactical Strategic
Pearplchascreatedanewtypeofmobilephone.IttookanumberofyearsofresearchanddevelopmentandPearareconcernedthatthecompanysrivalswillquicklycopythephoneandselltheirownversions.Pearhavethereforedecidedtosellthephoneataveryhighinitialpriceperunitinordertoquicklyrecoupthedevelopmentcosts.Oncerivalproductsarelaunched,Pearwilldropthepriceinordertocompetemoreeffectively.
WhattypeofpricingstrategyisPearusing?
A PenetrationpricingB GoingrateC PerceivedqualityD Priceskimming
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Considerthefollowingstatements.
Whichofthesestatementsis/arecorrect?
(i) PromotioninvolvestheuseoftheAIDAsequence,whichstandsforAdvertise,Interest,DesireandAction.
(ii) Whenlookingatstrategicmarketing,settingbudgetsforadvertswouldoccuratthestrategicimplementationstage.
A (i)onlyB (ii)onlyC BothD Neither
Jplcwishestochangeitscorporatestructure.Ithasdecidedtooutsourceallofitsnoncorefunctionstoexternalthirdparties.
WhichofthefollowingboundarylessstructuresisJplcplanningtoadopt?
A InformalB VirtualC ModularD Hollow
(a) ALtdisconsideringchangingitsorganisationalstructure.However,itisconcernedaboutthepossibledrawbacksofwhicheverstructureisselected.
Thetwoorganisationalstructuresthatarebeingconsideredare:
A FunctionalB Matrix
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Required:
Classify the following disadvantages as primarily relating to either A (Functional) or B (Matrix):
(0.5 marks each = 2 marks in total)
Thefollowingsentencescontaingapswhichspecifytherelevantaspectofthemarketingfunction.
ALtdfeelsitisimportanttoconsiderthecost,customers,competitionanditsowncorporateobjectiveswhenthinkingabout1.
Required:
ALtdisconcernedthatitisfailingtocommunicatewiththemarket,meaningthatcustomersaresimplynotinterestedinbuyingAsproducts.ThisindicatesaweaknessinAs2.
Required:
(1 mark each, total = 2 marks in total)
(4 marks)
(i) Largenumbersoftimeconsumingmeetings(ii) Dualcommand,leadingtoconflict(iii) Difficultycopingwithdiversification(iv) Overlapofauthoritybetweenmanagers
(b) ALtdisalsoconcernedaboutitsmarketingprocess,whichitbelievesiscurrentlyineffective.Itisawarethattherearefourkeyaspectstothemarketingfunction,whichare:A ProductB PlaceC PromotionD Price
(i) Select the aspect of the marketing function which appropriately fills gap 1 above i.e. select A, B, C or D.
(ii) Select the aspect of the marketing function which appropriately fills gap 2 above i.e. select A, B, C or D.
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Test your understanding answers
The correct answer is D
TheseparatepartsoftheorganisationoperateasSBUsinadivisionalstructurenotafunctionalstructure.
Thematrixstructuretendstorequiretimeconsumingmeetingsandhassignificantoverlapofauthoritybetweenmanagers.Thistendstoslowthedecisionmakingprocessdown.
The correct answer is B
AsMhasseveralcomplexproducts,astructurethatcreatesaseparatedivisiontolookaftereachoneseemsthemostlogical.Functionalandgeographicalstructureswouldstruggletocopewiththedifferingneedsoftheproducts.Thelevelofworkneededtorunalarge,complexorganisationwouldalsoprobablybebeyondthecapabilitiesofanentrepreneurialstructure.
The correct answer is B False
Theytendtobeownermanaged.
The correct answer is B
Thescalarchainrelatestothenumberoflevelsofmanagementwithintheorganisation.
Narrow
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The correct answer is D
Adecentralisedbusinessdelegatesdecisionmakingdowntoemployeesatalower,ormorelocal,level.Thisshouldallowforbetterlocaldecisionstobemade,hopefullymaximisingsales.
Notethatanothercostofdecentralisationcouldbepoordecisionsorgoalcongruenceleadingtoincreasedcosts.
Themoreabletheemployees,themoredecisionstheycanbeentrustedwith,andthegreaterthelevelofdecentralisation.
The correct answer is D
Thisstrategyisverydetailedandpractical.Notethatfunctionalstrategyisanothernamefortacticalstrategy.
The correct answer is D
Demandwouldbeassessedbyamarketresearchfunctionwithinthemarketingdepartment.
The correct answer is C
Thekeyfocusofmarketingiscustomerneeds.
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The correct answer is B
GiventhatthewebsiteisthemainlocationthatNiletransactsbusiness,makingthesiteiteasiertousewillbeimprovingNilesplaceofbusiness.
The correct answer is A
Strategicanalysiswouldincludeanassessmentofthefirmsstrengthsandweaknesses,includingbrandname.
The correct answer is B
Makesureyouremembertherelativeadvantagesanddisadvantagesofeachorganisationalstructure.
The correct answer is B
Themaindifficultywithmatrixorganisationsisconflictsoverthelinesofcontrolwhichcanleadtoconflictingdemandsoverallocationofresources.
The correct answer is A
Therearefewlevelsofmanagement,meaningthescalarchainisshort.Thefactthateachmanagerhasalargenumberofsubordinateswouldindicateawidespanofcontrol.
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The correct answer is C
Flatorganisationshavewidespansofcontrolandashortscalarchain.Thismeansthattherewillberelativelyfewmanagementpositionsforstafftobepromotedinto.Awidespanofcontrolwillalsomeanthatitisdifficultformanagerstomonitortheactivitiesofallstaff.However,fewermanagerstendstomeanfasterdecisionscanbemade.
The correct answer is D
Centralisationinvolvesdecisionsbeingmadebyseniormanagement,ratherthanbyjuniororregionalstaff.OptionsA,BandCareadvantagesofdecentralisation.Centralisationdoes,however,ensurethatallthedecisionsaremadebythesameteamofmanagers,improvinggoalcongruence.
The correct answer is B
Strategyoneispracticalandshortterm,makingitanoperationalstrategy.Strategy2affectsthewholebusinessandislongterm,indicatingastrategicplan.Strategythreeaffectsaspecificsectionofthebusiness(inthiscase,aparticularstore)andismadebymiddlemanagement(thestoremanager),indicatingatacticalplan.
The correct answer is D
Thisisaclassicexampleofpriceskimming.
The correct answer is B
AIDAstandsforawareness,interestdesireandaction,sostatement(i)iswrong.Statement(ii)iscorrect.
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The correct answer is D
Rememberthatoutsourcingnoncoreactivitiesreferstoaholloworganisation.Virtualorganisationsoutsourceallfunctions(includingcore),whilemodularorganisationshavesomecomponentsoftheirproductmadebyotherorganisations.
(a) Thecorrectanswersare:(i) B
(ii) B
(iii) A
(iv) B
Rememberthatthematrixstructurehasbothfunctionalanddivisionalmanagementinplace.Whilethiscanbeanadvantagewhendiversifying,itmeanshavingtwosetsofmanagement,whichcanleadtoconflict,disagreementandadditionalexpense.
(b) Thecorrectanswersare:(i) D youareprovidedwiththe4Csinthestatement,whichrelate
topricing.(ii) Cbydefinition,thisreferstopromotion.
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OrganisationalcultureinbusinessChapter learning objectives
Uponcompletionofthischapteryouwillbeableto:
defineorganisationalculture describethefactorsthatshapethecultureoftheorganisation explainthecontributionmadebywritersonculture:
Scheindeterminantsoforganisationalculture Handyfourculturalstereotypes Hofstedeinternationalperspectivesonculture
explaintheinformalorganisationanditsrelationshipwiththeformalorganisation
describetheimpactoftheinformalorganisationonthebusiness.
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1Defining organisational culture 1.1 Definition
Therearemanydefinitionsofcorporateculture.Theseinclude:
Thespecificcollectionofvaluesandnormsthataresharedbypeopleandgroupsinanorganisationandthatcontrolthewaytheyinteractwitheachotherandwithstakeholdersoutsidetheorganisation.Hill & Jones
Thewaywedothingsaroundhere.Handy
Ultimately,culturemeansthesumtotalofallthebeliefs,attitudes,normsandcustomsthatprevailwithinanorganisation.
Eachorganisationwillhaveitsowndistinctivecultures,andbehaviouracceptableinoneorganisationalculturemaybeinappropriateinanother.Forexample,somecompanieswillexpectstafftoundertakeadditionalworkintheirowntime,whileotherorganisationswillnot.
Alsoculturesdevelopovertimeorcanchangeinstantlyasaresultofasinglemajorevent,e.g.deathofcompanyfounder,threatenedtakeover,etc.
1.2 Components of culture
Therearethreekeyelementstoanyorganisationsculture.
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Normsguidepeoplesbehaviour,suggestingwhatisorisnotappropriate(thedonething)e.g.informaldresscodes
Symbolsorsymbolicactione.g.ritualssuchasbuyingtheofficeacakeonyourbirthday.
Sharedvaluesandbeliefsunderlietheculturebyidentifyingwhatisimportante.g.abeliefintheimportanceofpeopleasindividuals.
2The factors that shape the culture of the organisation
Thesixmajorinfluencesonthecultureofanorganisationareasfollows:
Size Technology Diversity Age History Ownership
3Writers on culture
Therearethreewritersyouneedtohaveknowledgeof:Schein,HandyandHofstede.
3.1 Schein
Scheinarguesthatthefirstleadersofacompanycreateitsculture.Futureleaderswillonlybeselectediftheysupportthisoriginalculture.Thusthelinkbetweencultureandleadershipisverystronganditcanbeverydifficulttochange.
Scheinfurthercommentedthatitifleadersaretolead,itisessentialthattheyunderstandthecultureoftheorganisation.Inordertotryanddefineculture,Scheindescribedthreelevels:
Artefactsthesearetheaspectsofculturethatcanbeeasilyseen,e.g.thewaythatpeopledress.
Espoused valuesthesearethestrategiesandgoalsofanorganisation,includingcompanyslogansetc.
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Newemployeesfindthelastlevelofculturethemostdifficulttounderstand,andlackofunderstandingofthebasicvaluesisoneofthemaincontributorstofailurewhentryingtoimplementchange.
Basic assumptions and valuesthesearedifficulttoidentifyastheyareunseen,andexistmainlyattheunconsciouslevel.
WhichofthefollowingwouldNOTbeclassifiedbyScheinasanartefact?
A DresscodesintheorganisationB DesignoftheorganisationspremisesC StatedaimoftheorganisationtoimprovecustomerserviceD Officefacilitiesprovidedbytheorganisation
3.2 Handy
Handypopularisedfourculturaltypes.
Notethatthisisoftenfoundinorganisationswithanentrepreneurialstructure,asoutlinedinthelastchapter.
Thistendstobemosteffectiveinstableenvironments,wheretheworkperformedbyemployeesrarelychanges.
Powerculture(denotedbytheGreekgodZeus)Herethereisone major source of powerandinfluence.Forexample,inasmallownermanagedbusinesstheownermaystrivetomaintainabsolutecontroloversubordinates.Theremaybefewproceduresandrulesofaformalkindasstafftakedirectiondirectlyfromtheowner.
Roleculture(denotedbytheGreekgodApollo)Inthisversionofculture,peopledescribetheirjobbyitsduties,notbyitspurpose,sojobdescriptionsdictatethewaywedothingsaroundhere.Thiswouldbeseeninabureaucraticorganisation,wherethestructuredeterminestheauthorityandresponsibilityofindividualsandthereisastrongemphasisonhierarchyandstatus.
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Taskculture(denotedbytheGreekgodAthena)Theemphasishereisonachieving the particular task at handandstaffmayneedtobeflexibletoensuredeadlinesaremet.Peoplethereforedescribetheirpositionsintermsoftheresultstheyareachieving.Nothingisallowedtogetinthewayoftaskaccomplishment.Thisisbestseeninprojectteamsthatexistforaspecifictask.
Personculture(denotedbytheGreekgodDionysius)Thisischaracterisedbythefactitexiststosatisfy the requirements of the particular individual(s)involvedintheorganisation.Thepersoncultureistobefoundinasmall,highlyparticipatoryorganisationwhereindividualsundertakeallthedutiesthemselves,forexample,abarristerinchambers.
IdentifythecorrectstatementregardingHandysculturaltypesfromthefollowing:
A Roleculturestendtofocusontheneedsoftheindividualsworkingintheorganisation
B Powerculturestendtobebureaucraticorganisationswithlargenumbersofpowerfulmanagers
C Personculturestendtodevelopinsmall,highlyparticipatoryorganisations
D Roleculturesnormallyrequirestafftobeflexibleinordertoensuredeadlinesaremet
Identifytwodisadvantagesthatataskculturecouldcreateforanorganisation.
3.3 Hofstede
Hofstedelookedfornationaldifferencesbetweenover100,000ofIBMsemployeesindifferentpartsoftheworld,inanattempttofindaspectsofculturethatmightinfluencebusinessbehaviour.
Hefoundfourtraitsorculturaldimensions:
Individualism (vs. collectivism)looksattheextenttowhichpeopleareintegratedintogroups.Someculturesaremorecohesivethanothers.e.g.AngloSaxonculturesaregenerallymoreindividualisticthanthecollectivistculturesofSouthAmerica.
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Highindividualismindicatesthatstaffexpecttobeassessedontheirownachievementsandperformance.
Lowindividualism(orcollectivism)wouldmeanthatstaffexpecttobeassessedonagroupbasisandprefertheorganisationtosetgroupgoals.
HighUAcultureswillnotliketoactoutsidetheirnormaljobdescriptionsorroles.Theyprefertobedirectedbymanagementandlikeformalrulesandguidelines.
LowUAcultureswillbepreparedtotakemorerisksandgobeyondtheircomfortzones.Theytendtodislikebureaucracyasitstiflesinitiative.
HighPDculturesexpecttoanswertopowerfulmanagersanddonotexpecttohaveanydemocraticinputintodecisionsthataremade.
LowPDculturesexpecttobeinvolvedwiththedecisionmakingprocessandwantlessdirectsupervisionbymanagers.
Employeesinmasculineculturescanbemotivatedbyofferingthemjobtitles,increasedstatusandpayrises,asthisiswhattheculturevalues.
Staffinfemininecultureswillbemotivatedmorebyworklifebalance,qualityoflifeandrelationshipsatwork.
Uncertainty avoidance (UA) indexdealswithasociety'stoleranceforuncertaintyandambiguitye.g.FranceandJapanusebureaucracytoreduceuncertaintybecausetheydislikeit.
Power distance (PD) index theextenttowhichthelesspowerfulmembersoforganisationsandinstitutionsacceptandexpectthatpowerisdistributedunequallye.g.inSouthAmericansocieties,differencesinpowerweretoleratedmorethaninNorthEuropeancultures.
Masculinity (vs. femininity)amasculinecultureisonewherethedistinctionbetweentherolesandvaluesofthegendersislargeandthemalesfocusonwork,powerandsuccess(e.g.inJapaneseculture)whereasinfeminineculturessuchasFinland,thedifferencesbetweenthegenderrolesismuchsmaller.
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LookingattheHofstedetraits,choosetheclassificationthatmostcloselyfitsGreatBritain.
Individualisticorcollective?
Largepowerdistanceorsmall?
Masculineorfeminineroles?
JanehasrecentlymovedtocountryAtoheadupanewlycreatedresearchteam.
Shequicklydiscoversthatherstaffseemunwillingtomakemajordecisionsforthemselvesandexpecthertomonitortheirworkclosely.
WhichofthefollowingfeaturesofHofstedesculturaldimensionsareJanesstaffdemonstrating?
A HighindividualismB LowpowerdistanceindexC HighuncertaintyavoidanceD Femininity
4The informal organisation and its relationship with the formal organisation
Inthelastchapter,welookedattheconceptoftheformalstructuresofanorganisation.Thesehavebeendesignedbymanagementtotryandensurethattheorganisationmeetsitsgoals.
Nowweneedtolookattheinformalorganisation.
Theinformalorganisationisthenetworkofrelationshipsthatexistwithinanorganisation.
Thisnetworkevolvesovertimeandtendstoarisethroughcommoninterestsandfriendshipsbetweenmembersofstaff.Theserelationshipsareoftenacrossdivisions.
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Aninformalorganisationwillbepresenttosomedegreewithinallformalorganisations.
Thinkoftheinformalorganisationasbeinganaspectoftheorganisationsculture.
Theadvantagesanddisadvantagesofinformalorganisationare:
Advantages Disadvantages
bettermotivation
bettercommunication
provisionofsocialcontrol
inefficientorganisations oppositiontochangecanbe
intensified thegrapevineeffect,wherepotentially
inaccurateinformationorrumoursspreadthroughtheinformalorganisation
conformity
Whichofthefollowingstatementsis/arecorrect?
(i) Informalrelationshipsareshownonorganisationalcharts.(ii) Informalrelationshipswithinanorganisationcanbeacross
divisions.A (i)onlyB (ii)onlyC BothD Neither
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Theinformalorganisationcaneitherenhanceorholdbackthebusiness.
Managersneedtobeawareoftheinformalstructureandensurethatthey:
adapttheformalstructuretocomplementtheinformalone maintainalooserformalstructuresothattheinformalstructurecan
thrive. attheveryleasttakeaccountoftheinformalstructureindecision
making.
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Chapter summary
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5Practice questions
AccordingtoSchein,thereisastronglinkbetweencultureand_________.
Whichwordorwordsbestfilltheblank?
A ManagementstyleB LeadershipC DiversityD Thesizeoftheorganisation
Hcompanyisanalysingitscorporateculture.Ithasfoundthatmanyofitsstaffbelievethatthemainpurposeofthecompanyistosimplyearnasmuchprofitaspossibleandthereforetheyarefailingtoprovidehighqualityservicetocustomers.
AccordingtoSchein,whatlevelofculturehasHcompanyidentified?
A EspousedvaluesB ArtefactsC BasicassumptionsandvaluesD Power
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CountryVhasastandingarmyoftenthousandsoldiers.Eachsoldierhasaseriesofcloselydefineddutiesandtasksthattheyareexpectedtofulfilonaregularbasis.Theaccomplishmentofthesetasksismonitoredbyahighlybureaucraticadministrationfunction.Noncompliancewiththerulesispunishedandsoldiersarenotexpectedtogobeyondthedutiestheyhavebeenset.
AccordingtoCharlesHandy,whattypeofculturedoescountryVsarmydemonstrate?
A RoleB TaskC PowerD Person
StaffincountryGdisliketheirmanagersinterferingintheirwork.AccordingtoHofstede,thismeansthatthecultureis:
A MasculineB HighuncertaintyavoidanceC LowpowerdistanceD Collective
Informationmaybepassedinformallybetweenindividualswithinanorganisation,sometimesleadingtothespreadofinaccuraterumour.Thisisknownasthe_______________.
Whichwordorwordsbestfillthegap?
A InformalorganisationB FormalorganisationC CorporatecultureD Grapevineeffect
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Company Risamanufacturingcompanywheremostworkersarepartofthesameunion.Employeesprefertonegotiatepayandconditionsasagroup,ratherthanitbeingnegotiatedonaonetoonebasiswithmanagement.
Company Soperatesalargecallcentre.Staffmembershavestatedtheirpreferencetohavedetailedscriptsprovidedbymanagement.Thesescriptscanhelptheemployeestodealwithanyunexpectedqueriesorobjectionsthatmayarisewhentalkingtocustomers.
Company Thasrelativelyfewmanagers,asmoststaffmembersarefelttobeselfmotivatedandtrustworthy.Whendecisionsaremadebymanagers,employeesexpecttohaveachancetostatetheiropinionsandhavethesetakenintoaccountbytheirmanagers.
Company Uhasrecentlybeeninvolvedinpaynegotiationswithmembersofitsworkforce.Itsmanagershavediscoveredthatmostemployeessimplywishtobepaidmoreorbegivennewjobtitles.Theyseemuninterestedinadditionalholidaysortheofferofflexibleworkingarrangements.
ThefollowingaredimensionsusedbyHofstedetoclassifydifferenttypesoforganisationalculture:
Required:
(1 mark each, total = 4 marks)
1 High 2 LowA Powerdistance A1 A2B Uncertaintyavoidance B1 B2C Individualism C1 C2D Masculinity D1 D2
(i) ForCompanyR,selectwhichcombinationofdimensionsapplyfromthegridabove(i.e.A1).
(ii) ForcompanyS,selectwhichcombinationofdimensionsapplyfromthegridabove(i.e.A1).
(iii) ForCompanyT,selectwhichcombinationofdimensionsapplyfromthegridabove(i.e.A1)
(iv) ForCompanyU,selectwhichcombinationofdimensionsapplyfromthegridabove(i.e.A1)
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Test your understanding answers
The correct answer is C
Thiswouldbeclassifiedasoneoftheorganisationsespousedvalues.
The correct answer is C
Aisadefinitionofthepersonculture,nottheroleculture.
Bisincorrectasapowerculturetendstoonlyhaveonemajorsourceofpower.Bureaucracytendstobefoundinaroleculture.
Disalsoincorrectasthisdescribesataskculture.
Ataskcultureisonewherenothingisallowedtogetinthewayofcompletingthetask.
Disadvantagescouldbe:
highlevelsofstress qualitycompromisedinanefforttogetthejobfinishedontime peoplefeelingthattheirindividualneedsaresurpassedbythe
needsofthetask,e.g.feelingpressurisedtoworklate.
Althoughthepointscanbedebated,andthecultureischanging,GreatBritainisprobably:
Individualistic
Smallpowerdistance
Masculineroles
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The correct answer is C
Theworkersaredemonstratingadislikeofuncertainty.Notethatiftheyhadlowpowerdistance,theywouldnotwantJanetosupervisetheirworkclosely.
Thereisinsufficientinformationavailabletoconcludeonthemasculinityorindividualismoftheculture.
The correct answer is B
The correct answer is B
Whiletheothersarefactorsthatmayaffectculture,Scheinbelievedinastronglinkbetweenleadershipandculture.
The correct answer is C
Basicassumptionsandvaluesareoftendifficulttoidentifyandexistmainlyatanunconsciouslevel.Inthiscase,itrelatestowhatstaffbelievetheirfunctionisandwhattheythinktheorganisationexpectsofthem.Thiscanbequitedifferenttotheorganisationsstatedgoals(espousedvalues).
The correct answer is A
Roleculturesvaluetheperformanceofanindividualsdutiesnomore,noless.Armedforcesareacommonrealworldexampleofthis.
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The correct answer is C
Bydefinition.
The correct answer is D
Thegrapevineeffectrelatestoinformalcommunicationbetweenindividualswithintheorganisation.Don'tgetconfusedbetweenthisandinformalorganisationitself,whichdescribestherelationshipsbetweenindividualsintheorganisation.Inreality,thegrapevineoftenfollowsthesameroutesastheinformalorganisation.
Thecorrectanswersare:
(i) C2workersprefertonegotiateandbejudgedcollectively,ratherthanasindividuals.
(ii) B1employeesclearlydislikedealingwiththeunexpected,indicatinghighUA.
(iii) A2employeesexpecttohaveasayinmanagementactivities,indicatingalowpowerdistance.
(iv) D1employeesaremotivatedbymoneyandstatus,ratherthanworklifebalance.Thisindicatesamasculineculture.
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InformationtechnologyandinformationsystemsinbusinessChapter learning objectives
Uponcompletionofthischapteryouwillbeableto:
identifyanorganisationssystemrequirementsinrelationtotheobjectivesandpoliciesoftheorganisation
identifybusinessusesofcomputersandITsoftwareapplications:spreadsheets,databasesandaccountingpackages
describeandcomparetherelativebenefitsandlimitationsofmanualandautomatedfinancialsystemsthatmaybeusedinanorganisation
explainhowthetypeofinformationdiffersandthepurposesforwhichitisappliedatdifferentlevelsoftheorganisation:strategic,tacticalandoperational
listtheattributesofgoodqualityinformation.
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4To downlo