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MAY 2018 PROFESSIONAL EXAMINATIONS BUSINESS MANAGEMENT & INFORMATION SYSTEMS (PAPER 1.2)

CHIEF EXAMINER’S REPORT, QUESTIONS AND MARKING SCHEME STANDARD OF THE PAPER The Business Management and Information Systems paper was of standard quality, except that some of the question setters failed in some cases to indicate how many points candidates were required to explain/discuss for the marks allocated. There were no grammatical or typing errors in the questions, a marked improved upon the previous diet. The questions were fairly spread across the syllabus. PERFORMANCE OF CANDIDATES The performance of candidates was generally not good. This can largely be attributed to inadequate preparation on the part of candidates whose performance compared very negatively with that of the November 2017 edition. Out of the 405 candidates who wrote the Paper, only152 of them passed, resulting in a 37.53% pass rate, as against the 56% pass rate recorded in the previous examinations.

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QUESTION ONE

You have decided to start a business with a colleague who has substantial expertise in

company affairs. While you believe a partnership form of business is the most suitable, he

prefers either a sole proprietorship or a limited liability company.

Required:

a) Explain FIVE benefits which are likely to accrue to a limited liability company.

(10 marks) b) Identify the TWO types of limited companies and explain the differences. (10 marks)

(Total: 20 marks)

QUESTION TWO

Big Hand Behind Company Limited (BHBCL) is a well-established, family business which

has been in operation for the past fifty years. It obtains raw materials from a large number

of suppliers. The Purchasing Manager explained that using a large number of suppliers is

necessary so that the company does not become too reliant on a few of them. However in

recent times the quality of the components supplied has been variable and delivery times

unreliable. The company has started experiencing shortages in supplies at a time when its

suppliers continued to supply its competitors. The Managing Director has proposed

adopting a single sourcing approach in obtaining raw materials

Required:

a) Explain how BHBCL can deploy good Supply Chain Management techniques to streamline

its purchasing operations. (8 marks)

b) Explain Single Sourcing. (2 marks)

c) Explain THREE disadvantages of Single Sourcing (6 marks)

d) If the company decides to follow a strategic approach to supply, describe TWO

organisational factors needed to be integrated, co-ordinated and developed. (4 marks)

(Total: 20 marks)

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QUESTION THREE

a) Human resource management regards training and development as organizational activity

aimed at improving upon the job performance of individuals and groups in organizational

settings. Employee training and development is a broad term covering multiple kinds of

employee learning.

Required:

Distinguish between training and development. (6 marks)

b) A disciplinary procedure is a process for dealing with perceived employee misconduct.

Organisations will typically have a wide range of disciplinary procedures to invoke

depending on the severity of the offence. Disciplinary procedures vary between informal

and formal processes.

Required:

Explain a six-step formal disciplinary procedure which you wish to recommend to your

organisation for inclusion in its policies. (12 marks)

c) The importance of motivation is often under-estimated and it is the least understood

knowledge area among people who hold vital leadership roles within an organization.

Being proficient at motivating your workforce will, without a doubt, be a measure of your

success as a leader.

Required:

Identify TWO characteristics of a motivated workforce. (2 marks)

(Total: 20 marks)

QUESTION FOUR

Akate Furniture Enterprise is a small scale manufacturer of bedroom furniture. The

Enterprise has suffered from the effects of cheap imports into the country and as such is

experiencing a declining financial performance. The experienced owner of the enterprise

has reviewed the operations his business and has highlighted the issues of greatest concern.

His main findings are as follows:

No systematic Quality Control exists.

There is an increasing incidence of furniture being returned which requires replacement or

reworking.

Currently Akate Furniture Enterprise tries to sell its full product range to all potential

customers, even though it is geographically difficult to fulfil obligations to customers in

the north of the country.

Akate Furniture Enterprise needs to rethink this marketing approach and should undertake

careful market segmentation. Having considered the consultant’s report, the MD has

decided that Top Furniture will conduct a detailed exercise in market segmentation and,

furthermore, will put in place measures to improve product quality. He thinks that obtaining

certification under international quality standard ISO 9000 should deliver significant

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benefits to Top Furniture, even though the company has no immediate plans to sell globally.

The Production Manager has, however, previously suggested to him that the way forward

is to employ dedicated Quality Control (QC) inspectors as part of a Quality Control (QC)

system.

Required:

a) What is Market Segmentation? (5 marks)

b) Describe the advantages of market segmentation to Akate Furniture Enterprise.

(15 marks)

(Total: 20 marks)

QUESTION FIVE

a) Define Leadership. (2 marks)

b) Explain the THREE basic “schools” of thought underlying the theory of leadership.

(6 marks)

c) Effective managers are expected to possess and exhibit a range of business and managerial

skills.

Required:

Identify and explain FOUR of these skills. (12 marks)

(Total: 20 marks)

QUESTION SIX

a) What is Organisational Structure and Organisational Strategy?

(Explain how they are linked) (4 marks)

b) Distinguish between centralisation and decentralisation. (4 marks)

c) Explain FOUR advantages associated with centralisation. (6 marks)

d) Explain FOUR disadvantages of centralisation. (6 marks)

(Total: 20 marks)

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QUESTION SEVEN

Quick Sand Accounting Firm (QSAF) hires out Trainee Accountants to their various clients

on outsourced basis. The Trainees Accountants work on the clients’ premises using a laptop

because of a lack of office space at QSAF. They can use whatever software provided by

the client. However as a consequence of this none of the Trainee Accountants use software

which is compatible. To improve its services, QSAF intends to invest in a suite of

compatible accounting software packages that all Trainee Accountants will use in their

work. However, this will mean switching over from their existing software to the new

system. Senior Partner of QSAF is concerned that this will be unpopular with the Trainee

Accountants who are used to working with their own familiar software.

Required:

a) Explain how the new system will transform QSAF as a firm. (8 marks)

b) Explain the concept of the 'virtual team' and relate it to QSAF. (4 marks)

c) Explain the reasons why an organisation such as QSAF might choose a direct approach to

system changeover. (8 marks)

(Total: 20 marks)

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SOLUTION TO QUESTIONS QUESTION ONE a) Benefits of forming a Limited Liability Company (LLC)

Limited liability: Owners or members of a Limited Liability Company have limited liability. This means that unlike partnerships and sole proprietorships the liabilities of members is limited to the shares they hold or any unpaid amount on the shares issued to them. They do not assume the risks for any debts or financial obligations and some acts incurred by their companies.

Flexibility in allocation: The amount of money members invest in an LLC does not need to be equal to their percentage of ownership. Percentages of profits and losses can be assigned to owners using an operating agreement. This also means that an investor can finance half of an LLC without necessarily owning half of the business.

A Limited Liability Company has a separate identity and is recognized as a separate company under law. The company can also own property due to this feature.

Greater pool of knowledge, ideas, skills, abilities and expertise. The large scale of the operations of new company will enable it to attract highly talented specialists who have the knowledge to steer the affairs of the company.

A Limited Liability Company has stability in that its existence is not affected by the death of a member/s as in the case of a sole proprietorship or partnership.

It gives the company more authority of risks taking.

A lot of shareholders are allowed in the company. Hence, this makes it easier to raise capital in comparison to other forms of companies increasing the scope of expansion in future. Growth and Expansion – due to the larger capital base, growth and expansion can be carried out easily.

No double taxation. Sole proprietors may pay income tax and at the same time the firm also pays tax resulting to double taxation under the new arrangement, tax will be based on the profit made by the company

(Any 5 points for 10 marks) b) There are two types of limited liability companies:

Private Limited Company

Public Limited Company The Private Limited Liability Company A private limited liability company is a limited liability company formed by a minimum of two people and a maximum of fifty people, with the exception of banks where the maximum is ten. These shareholders make financial contributions where capital is needed as the shares of a private limited liability company cannot be floated on the stock exchange nor sold to members of the public in a trading year.

(2 marks)

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Features of the Private Limited Liability Company

Ownership – shareholders range from two to fifty people (except in the case of banks where the range is from two to ten people).

Legal status – as a separate legal entity, the company can sue and be sued.

Shareholders are limited by the shares held.

Transfer of share(s) is made possible only with the consent of other shareholders.

Source of capital – additional capital can only be raised through private contributions made by shareholders which are converted into shares or by the contribution(s) made by a new shareholder(s). Other sources of capital to the company include loans from private individuals, loans and overdrafts from financial institutions such as banks, the company’s retained earnings and credit facilities from suppliers.

Privacy – the company’s books of accounts are not made public for inspection nor published in the dailies. As required by the law, audited reports are sent to the registrar of companies to attest to the non-sale of shares to members of the public in a trading year.

‘Ltd.’ – the name of a private limited liability company ends with the acronym ‘Ltd.’ which implies ‘limited’. This indicates limited liabilities by shares.

(Any 3 points for 3 marks) The Public Limited Liability Company A public limited liability company is a company that can be formed by a large number of people, but a minimum of seven shareholders. This is because a public limited liability company offers its shares to members of the public through the stock exchange. The motive for the establishment of the company is to make profit. In the Public limited liability company, the shareholders elect members of the board of directors who direct the affairs of the organization, alongside the managing director or any other person as the chairman.

(2 marks) Features of the Public Limited Liability Company

Ownership – shareholders range from seven and above.

Legal status – as a separate legal entity, the company can sue and be sued.

Shareholders are limited by the shares held.

Transfer of share(s) is made possible without the consent of other shareholders or the members of the board of directors.

Source of capital – additional capital can be raised through the value of shares sold to members of the public through the stock exchange, loans and overdrafts from financial institutions such as banks, the company’s retained earnings and credit facilities from suppliers.

Publicity/Inspection – the company’s books of accounts are made public for inspection in the dailies. As required by the law, audited reports are sent to the registrar of companies in a trading year.

Incorporation – the company is incorporated under the Companies Act. (Any 3 points for 3 marks)

(Total: 20 marks)

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EXAMINER’S COMMENTS Almost all the candidates answered this question with most of them scoring very good marks. QUESTION TWO a) How BHBCL can deploy good Supply Chain Management techniques

To obtain the best possible purchase prices – bulk buying contracts

To improve quality in the future – quality standards can be agreed

To ensure continuity of supply during periods of limited availability

To tie the supplier to the organisation – reducing the supply options of competitors (4 points for 8 marks)

b) Single Sourcing is a practice of using one supply source without a competitive

bidding process for a justifiable reason. A particular supplier is purposefully chosen by the buying organisation, even when other suppliers are available.

(2 marks) c) Disadvantages of Single Sourcing

It is more difficult for the buyer to be sure that he/she is keeping the company competitive if there is only one source.

In periods of tight supply, the buyer may be at a disadvantage in being able to ask other suppliers to accept orders.

Other suppliers may lose interest in trying to compete for the business if they see that a sole source situation is likely to persist.

There is a real risk if the single source has a catastrophic event, gets bought by a competitor or has financial problems, etc.

(Any 3 points for 2 marks)

d) Organisational factors to support supply chain

Organisational structure: The type of structure adopted by the organisation in terms of how the other functional areas interact with each other must be taken into consideration.

Relationship portfolio: The relationship between the suppliers and the organisation must be considered.

The organisation should match the benefits to be enjoyed to the costs involved in the transactions and take a decision.

Skills and competencies: The skills and competencies of the staff must be assessed to determine whether they fit the adopted strategy.

Performance measures: The organisation must implement monitoring and control measures to streamline the adopted strategy.


(Total: 20 marks)

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EXAMINER’S COMMENTS Most candidates refrained from answering this question and those who attempted it performed very poorly. Section (a) did not indicate how many techniques were to be explained for the marks allocated which could have acted against the candidates. QUESTION THREE a) Distinction between training and development

In general, training faces an immediate challenge and teaches the knowledge or skills needed by company employees in a short period of time (one day, one week, several months). It is all about “here and now”. It could be a course to improve the communication skills of employees, a conference to explain the protocol for returning a product or a class to use the Excel program.

On the other hand, development focuses on the long term. Human resource managers propose a strategy to put in place over several months or years, comprising a set of initiatives that are expected to bear fruit over a long period of time. It is a continuous process in which you are trying to develop professionals in their next step or their next position of responsibility.

Job position vs. Professional career Due to its precision and commitment to the short term, training is designed for a specific job position. It seeks to provide professionals with tools and skills, taking into account the work that they will be doing at the company.

However, development focuses on the person: its objective is to get the best out of each employee in the company, identifying their interests and the fields in which they can more easily progress. If training focuses on a job position, development puts the emphasis on building a successful professional career.

Specific objectives vs. Open objectives In training, the objectives are specific and well defined: learning how to use a program, obtaining a certain personal skill or teaching the new protocols put in place by the company.

When we talk about development however, the objectives are always much broader and can cover all types of knowledge and skills. Compared to training, development is less tangible and often focuses on philosophical issues, changing habits and improving skills. Not only that, but objectives can be changed over time and completed according to the new demands of the market or the company.

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Group vs. Individual Training tends to be an initiative designed by a company and taught by a tutor or expert. The company pays for the expenses and organizes the courses, decides what sort of tools its employees should use, and sets the guidelines to follow in all the training activities. These initiatives often focus on a group of employees (a department, people who have recently joined the company, etc.).

However, with development, the emphasis is put on the individual. Development programs are often personalized and the person who is ultimately responsible is the employee.

(Any 3 points well explained for 6 marks) b) How to carry out a formal disciplinary procedure The steps in the disciplinary procedure generally follow graduated steps including a verbal warning, written warning, final written warning, and dismissal. However, in cases of gross or serious misconduct it is permissible to start at stage 4 of the procedure. However, other sanctions apart from the nuclear option of dismissal should be considered by the employer. Alternatives might include a transfer to a different part of the workplace, different role, or demotion. Keep in mind that an employee can be suspended on pay pending investigation but would only be suspended without pay pending an appeal of a dismissal. Stage 1-Verbal/Informal warning Generally an employee should receive a verbal warning for a first transgression. Even though the employer is “only” giving a verbal warning, it is still part of a formal disciplinary process and the principles of natural justice, fair procedures, and equity/fairness would apply at all times. This would involve a meeting with the employee at which the employee could bring a colleague or other representative. There is no right to bring a legal representative, unless the employer agrees. This may be a trade union representative, even though the employer may not formally recognise or engage with the union. His role will be as a minute taker and witness, not an advocate or spokesperson. At the meeting the employee should be advised of what the problem is and invited to respond and explain his actions. There should be no rush to judgement by the employer as the meeting is investigatory. Following the meeting a confirmatory letter should be given to the employee. This letter confirms that the employee has been given a verbal/oral warning. It should also contain the improvements required of the employee in respect of the behaviour which led to the warning and the timeframe within which the improvement must be made. This letter should also state that failure to improve will lead to the 2nd stage of the disciplinary procedure and ultimately dismissal. It should also state the time period for which it will remain on the employee’s file, after which it will be removed. 3 months would

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be a reasonable period for this 1st verbal warning to stay on file, but it could remain for 6 months. If an employee was suspended with pay pending an investigation it is vital that he knows how long the suspension is to last and the investigation must be held within a reasonable time frame. “Justice delayed is justice denied”. Once this disciplinary procedure has started the employer should assist the employee to improve conduct or performance, whichever was the source of the problem in the 1st place. The employer should record the details of this 3 month monitoring period and retraining or relocation should be considered, if possible and reasonable. However, if the employee fails to improve or there is a repeat of the activity that caused the oral warning in the 1st place the employer can then issue a first written warning. Stage 2-First Written Warning The 1st written warning can be issued within the period of time advised for monitoring after the verbal warning, provided there is no improvement in conduct or performance. Before issuing it, the employee should be invited to another meeting, told of the transgression, and given the opportunity to respond. The written warning will then be issued and last for another 3 months. This warning should also clearly set out the nature of the problem, suggest solutions such as retraining, and advise of the possible sanctions (including dismissal) if no improvement is observed within the 3 months. The employer should again afford all reasonable assistance to the employee to help him improve conduct and/or performance. However the empo9yer must be mindful of his duty of care to other employees also. Stage 3-Second Written Warning If the required improvement is not forthcoming within the 3 month period after the 1st written warning then a 2nd written warning may be issued. This is entirely a matter for the employer and it is common for many employers to only issue a 1st and final written warning. This warning is done in a similar fashion to the other 2 warnings referred to above but you would consider giving a 6 month monitoring period to allow improvement. Stage 4-Final Written Warning If the required improvement is not happening then a final written warning would be issued with a 12 month monitoring period. The letter confirming this warning will advise that if there is no improvement or if the bad behaviour/performance is repeated then dismissal will occur. This warning letter will be the final one prior to dismissal so it is important that it is well drafted as it will be scrutinised closely by the employee and probably his legal advisor. This letter should only refer to the matters which have been the subject of the disciplinary procedure to date and not other matters which have never been put to the employee.

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Stage 5: Suspension without pay Intended to signal seriousness and get employee to think over commitment to changing/improving behavior. May be used for very serious first offenses, such as: Gross insubordination Substance abuse on the job Others (as outlined in your discipline policy) Review company policy and procedure. Stage 6-Dismissal or action short of dismissal If there is no improvement after the final written warning then dismissal is the likely outcome. A meeting should be called and the employee and his representative invited. The employer should remind the employee of the behaviour/conduct that has led to this point, the repeated transgressions/failure to improve performance sufficiently, and that the dismissal is in accordance with the disciplinary procedure. The employee should be given the opportunity to appeal within 14 days. He should also be given a letter confirming the dismissal and the right to appeal, the time period for appeal, and who to appeal to.

(2 marks for every step= 12 marks) c) Benefits of a well-motivated workforce A well-motivated workforce can provide several advantages:

Increased productivity (amount produced per employee). This can lead to lower unit costs of production and so enable a firm to sell its product at a lower price

Lower levels of absenteeism as the employees are content with their working lives

Lower levels of staff turnover (the number of employees leaving the business). This can lead to lower training and recruitment costs

Improved industrial relations with trade unions

Contented workers give the firm a good reputation as an employer so making it easier to recruit the best workers

Motivated employees are likely to improve product quality or the customer service associated with a product, etc

(Any 2 points for 2 marks) EXAMINER’S COMMENTS Most of the candidates answered this question and many of those who did scored very high marks.

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QUESTION FOUR a) Market segmentation is the subdivision of the market into distinct groups, each

group made of homogenous members who react in a similar way to marketing activity (to a distinct marketing mix). Therefore, a different marketing approach (mix) can be devised for each market segment.

(5 marks) b) Advantages of market segmentation to Akate Furniture Enterprise are:

Efficient use of marketing budget. By carefully segmenting the market, Top Furniture can target segments appropriately. This means it can apportion its marketing budget to each segment in proportion to the likely return it may receive from them. This will help maximise the return on its marketing spend. Akate Furniture Enterprise currently sells its range to the whole market and is therefore not using its marketing budget effectively. This is something that can be resolved by market segmentation.

Identify new opportunities. Segmentation will enable Akate Furniture Enterprise to understand the needs of its customers better. Understanding these needs may identify gaps in the market or other opportunities that Top Furniture may be able to exploit.

Efficient use of resources. By having a better understanding the needs of its customers, Akate Furniture Enterprise can make changes to its products, for example in materials and features. Meeting the needs of customers and not providing any unnecessary features promotes the efficient use of raw materials and other resources.

Competitive advantage. Akate Furniture Enterprise can look to dominate particular market segments. This will not only maximise the profit from each segment, but also help reduce the market share of its competitors, thereby forcing them out of the market.

Better customer relations. Top Furniture may segment the market geographically and switch its focus away from the north where it has difficulty in fulfilling its obligations. This will help bring its attention to the customers that it can serve more productively and therefore improve its relationship with them.

(3 marks each for every point well explained = 15 marks)

(Total: 20 marks) EXAMINER’S COMMENTS Not many of the candidates answered this question and those who did scored very low marks. Section (b) of the question did not state how many advantages were to be explained for the marks indicated.

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QUESTION FIVE a) Leadership involves: establishing a clear vision, sharing that vision with others so

that they will follow willingly, providing the information, knowledge and methods to realize that vision, and coordinating and balancing the conflicting interests of all members and stakeholders.

(2 marks) b) Basic schools of thought of Leadership

Trait Theory of Leadership The trait theory of leadership suggested that there are certain personal traits or qualities which successful leaders possess. In order words, leaders are thought to be born and not made. Some of these traits are fairness, ambition, integrity and objectivity.

(2 marks)

Style Theory of Leadership The assumption underlying this theory of leadership is that successful leaders adopt a given management style in all circumstances. Such leaders could be wholly task-focused in which case they pay greater attention to the performance of assigned tasks or human-centred where they demonstrate supportive, relational leadership behaviors.

(2 marks)

Contingency Theory of Leadership This theory of leadership sees effective leadership as being dependent on a number of variable or contingent factors. It is based on the assumption that there is no one best way to lead that will fit all situations and that the behavior of an effective leader at any given time deplanes on the environment in which he finds himself.

(2 marks each = 6 marks) c)

Technical Skills As the name of these skills tells us, they give the manager’s knowledge and ability to use different techniques to achieve what they want to achieve. Technical skills are not related only to machines, production tools or other equipment, but also they are skills that will be required to increase sales, design different types of products and services, market the products and services, etc.

For example, let’s take an individual who works in the sales department and has highly developed sales skills achieved through education and experience in his department or the same departments in different organizations. Because of these skills that he possesses, this person can be a perfect solution to become a sales manager. This is the best solution because he has excellent technical skills related to the sales department.

On the other hand, the person who becomes sales manager will start to build his next type of required skills. It is because if his task until now was only to work

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with the customers as a sales representative, now he will need to work with employees in the sales department in addition to the work with customers.

Conceptual Skills Conceptual skills present knowledge or ability of a manager for more abstract thinking. That means he can easily see the whole through analysis and diagnosis of different states in such a way they can predict the future of the business or department as a whole. At a first glance, a company includes more business elements or functions as selling, marketing, finance and production,

Conceptual skills are vital for top managers, less critical for mid-level managers, and not required for first-level managers. As we go from a bottom of the managerial hierarchy to the top, the importance of these skills will rise.

Human or Interpersonal Managerial Skills Human or interpersonal management skills present a manager’s knowledge and ability to work with people. One of the most critical management tasks is to work with people. Without people, there will not be a need for the existence of management and managers.

These skills will enable managers to become leaders and motivate employees for better accomplishments. Also, they will help them to make more effective use of human potential in the company. Simply, they are the essential skills for managers. Interpersonal management skills are essential for all hierarchical levels in the company.

Problem solving and decision-making As a manager you'll be tasked with spotting and solving problems on daily basis. This requires outstanding attention to detail and the ability to remain calm under pressure. To ensure that your team is productive and that the workflow runs smoothly you'll have to think on your feet when problems arise. Creative thinking will help you to come up with innovative solutions that minimise the impact on your team and the business as a whole. Thinking on your feet also comes in useful when you have to make a snap decision about how to successfully complete a task or meet a business goal. Being able to quickly weigh up the pros and cons of a situation and make an informed decision is essential.

Commercial awareness This skill is in huge demand among business employers, in fact according to recruiters commercial awareness is something that the majority of graduates applying for management roles lack.

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If you want to progress to management level it is imperative that you have an understanding of the marketplace in which a business operates and of what makes a business successful. To demonstrate this you'll need to show that you:

o are aware of the organisation’s mission and aims o have an understanding of the sector that the company belongs to o possess knowledge of political and economic issues affecting the business o Know all about the company's competitors.

Mentoring As well as being business-focused decision-makers, managers also need to play a supportive role. If you've reached this senior level you have proven experience, knowledge and skills and it's your job to pass this knowledge along and share your skills with other colleagues. This involves training and advising staff and building their confidence and skills. In a management position you're charged with overseeing the continued professional development of all employees and will be the driving force behind the progression of team members.

(Any 4 points well explained for 12 marks)

(Total: 20 marks)

EXAMINER’S COMMENTS This was a very clear question and most candidates answered it, many of them scoring very low marks.

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QUESTION SIX a) Business strategy is a practical plan for achieving an organization's mission and objectives. Organizational structure is the formal layout of a company's hierarchy. Both strategy and structure are crucial elements of doing business, and even companies that do not have formal strategies and structures likely still have both in one form or another. (2 marks) A company's organizational structure must support its strategy. Employees at all levels of the company must be empowered to effectively complete the tasks necessary to achieve organizational objectives, and company structure can aid or hinder employees in their roles. Structure can also dictate the means by which strategies are crafted and implemented.

(2 marks) b) A centralised organization is one where core important decisions are taken by those at a higher level of authority. All important decisions are routed through this channel and are taken by those who are in a position to look at things from a broader perspective and have gained a lot of knowledge and experience over the years. After the decision is taken, it is communicated to the lower level employees who are expected to follow the orders. This kind of structure depends heavily on certain key people to conceptualise and implement certain key decisions. This needn’t mean that there is just one person making all the decisions in the organization. People at different levels are authorised but, unlike decentralised organizations, there is less team based decision making and more of individual decision making. A decentralised organization is one where the decision making authority is not solely in the hands of a particular group or figure but with multiple people at multiple levels of the hierarchy. In this type of organization, most of the decisions are made by middle level or lower level employees rather than being made by the top management, as is the case with centralised organizations.

(4 marks) c) Advantages of centralisation

Decisions can be co-ordinated more easily, and management have better control over decisions.

Goal congruence. Decisions taken carefully should be based on overall objectives, whereas decentralised decisions may be influenced by short-term or local objectives of the people making the decisions.

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Standardisation. For example, in any country McDonald’s customers expect to find standard menus and pricing. If local managers were allowed to take decision about changing menus or prices, this could undermine the business model.

Resource allocation. Centralised decision making should allow resource usage to be coordinated effectively between different functions and divisions, based on overall corporate objectives.

Economies of scale. For example, companies might be able to get bulk discounts if they coordinate all their purchasing requirements and make a single order. Similarly, the corporate centre may be able to obtain cheaper bank loans and finance than (which have less assets to secure a loan against).

Speed of decision making. For example, when a quick decision is required in response to a crisis, it may not be practical to involve local managers.

(Any 4 points @ 1.5 marks each = 6 marks)

d) Disadvantages of Centralization

Centralization Is Unsuitable For Large Organization Centralization is impractical in large business organization having various branches in different locations. It is difficult to communicate managerial decisions to different operating levels in the management hierarchy. Top level managers cannot effectively supervise and control all the activities of the organization.

Manager Is Overburdened In centralization, top managers are over-burdened with authority and responsibility while managing each and every activity of the organization. He/she cannot devote sufficient time in other major issues. It tends to decrease working efficiency of the organization.

Possibility Of Power Misuse Centralization of authority at the top level may result in under-utilization of power. Top level managers may exercise their powers on the basis of their personal judgment. This may lead to misuse of authority if the managers lack proper skills and ability.

Low Morale/Motivation In centralization, middle and lower level managers feel uncomfortable while performing the assigned task. They do not have the required authority to deal with problems effectively. They do not get any opportunity to show and develop their personality. The lack of motivation tends to affect the morale of subordinates.

Lack Of Environmental Adaptation Business environment is dynamic and therefore, it changes according to time. In business, it is essential to take quick decisions to resolve problems of concerned departments or branches. Centralization is not applicable in dynamic environment as flexibility will not come promptly from the top level.

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Inappropriate For Routine Decisions In centralization, top level managers may be compelled to devote maximum time in taking routine decisions. Therefore, they cannot devote more time in non-programmed decisions. This will have a negative impact on the long term performance of the organization

(Any 4 points @ 1.5 marks each = 6 marks)

(Total: 20 marks) EXAMINER’S COMMENTS More than half of the candidates answered this question and some of those who did

scored good marks.

QUESTION SEVEN a) The new system will:

Change the way trainee accountants work

Compatible software allows workers to share ideas electronically. Change the way the company’s services are provided.

As the Trainee Accountants can share ideas electronically, they no longer need to work together at the client’s premises.


b) Virtual teams are interconnected groups of people who may not be present in the same office or organisation but who:

Share information and tasks

Make joint decisions

Fulfil the collaborative function of a team. (4 marks)

c) A direct approach may be preferred because:

To overcome a reluctance to 'let the old system go.

It is cheaper and more convenient than running two systems.

The change may be implemented before any objection is encountered. (4 points @ 2 marks each = 8 marks)

(Total: 20 marks)

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EXAMINER’S COMMENTS Most candidates refrained from answering this question and many of those who did scored very low marks. It appears to be the case that most candidates did not concern themselves with that part of the syllabus hence their poor performance there. CONCLUSION We believe that the very poor performance of candidates was largely due to the fact that most candidates did not take time to prepare for the examinations.

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