Managing a business
Contents
Introduction
Management models
Examination context
10
Business functions
Topic list
1 What is management?
11
Marketing management
2 What is governance?
12
Operations management
13
14
Introduction to organisational
behaviour
4 Types of manager
5 The management hierarchy
Answers to Self-test
7 Managerial roles
23
Introduction
Learning objectives
Show how the business functions assist in the achievement of business objectives
Show how the nature and functions of management are influenced by human behaviour
Tick off
Practical significance
In order to understand how a business works you need to appreciate how it is managed: what are the roles
and tasks of individual managers, and how do these fit together to form a coherent management structure?
Working context
As you build up your exposure to different organisations in audit or other professional engagements, you
will begin to see that while they vary tremendously in their operations and environment, the fundamental
features of management remain the same.
Syllabus links
The material in this chapter will be developed further in this paper, and then in the Business Strategy paper
at the next level in the Professional stage.
24
MANAGING A BUSINESS
Examination context
Examination commentary
Questions on the nature of management, business functions and organisational behaviour could all easily
appear in the exam.
Exam requirements
Questions are equally likely to be set as straight tests of knowledge and scenarios.
25
1 What is management?
Section overview
Definition
Management: 'Getting things done through other people' (Stewart).
We defined an organisation in Chapter 1 as 'a social arrangement for the controlled performance of
collective goals.' This definition itself suggests the need for management.
In a business managers act, ultimately, on behalf of owners (shareholders). In practical terms, shareholders
rarely interfere, as long as the business delivers profits year on year.
In a public sector organisation, management acts on behalf of the government. Politicians in a
democracy are in turn accountable to the electorate. More of the objectives of a public sector organisation
might be set by the 'owners' i.e. the government rather than by managers. The government might also
tell senior managers to carry out certain policies or plans, thereby restricting their discretion.
2 What is governance?
Section overview
Management is essentially a very practical matter: 'getting things done'. It should not be confused with a
term that is frequently used interchangeably with management, which is governance.
Definition
Governance: The system by which businesses are directed and controlled.
Governance incorporates concepts of ethics, risk management and stakeholder protection, extending way
beyond management alone. We shall come back to governance in a great deal more detail later; for now,
make sure you are clear that the term 'management' is here being used in the restrictive sense of simply
'getting things done'.
26
MANAGING A BUSINESS
3.1
There are a number of significant forces at work in an organisation, which need to be managed. They
include power, authority, responsibility, accountability and delegation.
Responsibility is the obligation that someone has to do the thing that the person in authority over
them has required.
Accountability is the responsible person's liability to answer for what has happened to those with a
legitimate interest in the matter.
Delegation means giving someone else the responsibility and authority to do something, whilst
remaining responsible and accountable for that thing being done properly.
3.2
Power
Definition
Power: The ability to get things done.
Power is not something a manager 'has' in isolation: it is exercised over other individuals or groups, and
to an extent depends on their recognising the manager's power over them.
French and Raven (followed by Charles Handy) classified power into six types or sources.
Type of power
Description
Coercive power
27
Description
Expert power
Nisar Iqbal is a manager in the IT department of his firm. He has a degree in ICT and 14 staff reporting to
him. What types of power can Nisar exert as a manager in order to make sure a project is completed on
time?
See Answer at the end of this chapter.
3.3
Authority
Definition
Authority: The right to do something, or to ask someone else to do it and expect it to be done.
Authority is thus another word for position or legitimate power.
3.4
Making decisions within the scope of authority given to the position. For example, a supervisor's
authority is limited to his/her team and has certain limits. For items of expenditure more than a certain
amount, the supervisor has to go to the manager
28
MANAGING A BUSINESS
A person is said to be responsible for a piece of work when he or she is required to ensure that the
work is done
The same person is said to be accountable to a superior when he or she is given work by that superior
One is thus accountable to a superior (or other persons with legitimate interest) for a piece of work for
which one is responsible.
3.5
Delegation
The principle of delegation is that a manager may make subordinates responsible for work, but remains
accountable to his or her own manager for ensuring that the work is done, that s/he retains overall
responsibility. Appropriate decision-making authority must be delegated alongside responsibility.
We will come back to delegation at the end of this chapter.
4 Types of manager
Section overview
Types of manager in a business can be classified according to the types of authority they hold.
A staff manager has authority in giving specialist advice to another manager or department, over
which they have no line authority. Staff authority does not entail the right to make or influence
decisions in the advisee department. An example might be a human resources manager advising a
finance line manager on selection interviewing methods.
A functional manager has functional authority, a hybrid of line and staff authority, whereby the
manager has the authority, in certain circumstances, to direct, design or control activities or
procedures in another department. An example is where a finance manager has authority to require
timely reports from managers in other departments.
A project manager has authority over project team members in respect of the project in progress;
this authority is likely to be temporary (for the duration of the project) and the project team are likely
still to have line managers who also have authority over them.
There are inevitable tensions involved in staff managers asserting staff authority in giving specialist advice to
other managers.
Problem
Possible solution
29
The relationships of power, authority, responsibility, accountability and delegation together form a
management hierarchy in most organisations, with a few managers holding the most power and
authority towards the apex, with many managers holding less power and authority beneath them.
Ultimately it is the manager at the very apex the Chief Executive who has ultimate authority and
bears ultimate responsibility to the shareholders.
Businesses of any size develop a management hierarchy, with some management positions holding more
power and authority than others, the less powerful managers being accountable to the more powerful ones,
and the latter being responsible for the performance of the managers lower down the hierarchy. As in
Figure 2.1, the hierarchy is usually represented as a pyramid, as top managers are far less numerous than
direct operational staff.
Characteristic
Top
managers:
managing the
business
Authority/
Accountability
responsibility
Middle managers:
managing managers
Power
30
Planning involves setting detailed objectives and targets in the light of the overall objective, forecasts
and resources.
Plans should be constantly reviewed and updated in the light of actual performance.
Organising involves identifying the processes, technology and people that are required and then
allocating and co-ordinating the work.
Controlling follows on from reviewing plans in the light of experience; control actions will often have
to be taken to ensure that the overall objective can still be met.
MANAGING A BUSINESS
6.1
6.2
Planning
Following on from the business's overall objective, mission and goals, managers need to set the direction of
the work to be done. This includes:
6.3
Using feedback from the control part of the process to make necessary amendments to the plan (as
we saw in Chapter 1 when we looked at Figure 1.2 Planning and control systems)
Organising
Managers allocate time and effort in such a way that the objectives, plans and targets are likely to be met.
This includes:
6.4
Controlling
Managers monitor events so they can be compared with the plan and remedial action can be taken if
required.
6.5
Leading
Managers generate effort and commitment towards meeting objectives, including motivation of staff. We
shall see more about this later in this chapter.
6.6
31
7 Managerial roles
Section overview
Managers actually do a great many things in the course of the management process, namely handling
data and information, dealing with people, and making decisions.
Decisions have to be made regarding resource allocation, handling disturbances, negotiating, problemsolving and acting in an entrepreneurial way.
The management process sets out what managers have to achieve and how, but it does not as such
describe what managers actually do. Mintzberg (1973) defined what managers do in terms of three key
roles:
The informational role (checking data received and passing it on to relevant people, as well as acting
as the 'spokesperson' for his or her team in relation to other teams or his or her own manager)
The interpersonal role (acting as leader for his or her own team, and linking with the managers of
other teams)
The decisional role. It is in this role that managers actually 'do' what we perceive as managing. In this
role they:
Allocate resources to operations for instance, deciding that three people are needed on an
audit assignment
Handle disturbances such as dealing with an awkward client, or sorting out a crisis in staffing
caused by illness
Negotiate for what they need this may be with more senior managers or with client staff
The organisation's culture has a very profound effect on how managers perform their roles.
Culture incorporates the common assumptions, values and beliefs that people in an organisation
share.
Organisational culture varies depending on whether the business is inward or outward looking, and
on whether there is a greater comparative need for flexibility or control.
Internal process cultures look inwards and seek control over their environment.
At the other extreme, open systems cultures look outwards and are very flexible about the effects of
the environment.
A human relations culture is inward-looking but is flexible as it focuses on the needs of people.
A rational goal culture is very aware of the external environment but seeks to control it and its own
processes.
Managers have to operate within what is often referred to as the 'culture' of their particular business.
32
MANAGING A BUSINESS
Definition
Culture: The common assumptions, values and beliefs that people share, 'the way we do things
round here'.
Quinn (1995) emphasises two distinct tensions that affect the type of culture a particular business manifests:
Figure 2.2 allows us to identify four different cultural types, which may characterise entire businesses or just
parts of businesses.
Internal process culture: The business looks inwards, aiming to make its internal environment
stable and controlled. Goals are known and unchanging, and there are defined methods, rules and
procedures. Security, stability and order motivate staff. Example: public sector organisations.
Rational goal culture: Effectiveness is defined as achieving goals that satisfy external requirements.
The business is structured and controlled so as to deal effectively with the outside world. Competition
and the achievement of goals motivate staff. Example: large established businesses.
Open systems culture: The external environment is a source of energy and opportunity, but it is
ever-changing and unpredictable. The business must be highly flexible and open to new ideas, so it is
very adaptable in structure. Staff are motivated by growth, creativity and variety. Example: a new
business unit working with fast-changing technology.
Human relations culture: The business looks inwards, aiming to maintain its existence and the
well-being of staff. Staff are motivated by a sense of belonging. Example: support service units
The type of culture manifested by an organisation affects the way in which it is managed, as we shall see.
9 Management models
Section overview
9.1
Complex realities such as are found in any business of any size can be 'modelled' or described fully, so
that their workings can be understood and the effects of future policies and decisions can be
predicted.
What is a model?
Models are used in management theory to represent a complex reality, such as a client's business, which is
then analysed and broken down into its constituent parts. Handy points out that management models:
33
9.2
Scientific management has come in and out of fashion over the years; there are strong elements of the
model in some rational goal ideas commonly seen in organisations today:
9.3
Rationality use of the most efficient means to meet the business's objectives
Hierarchical lines of authority; managers have closely defined areas of authority, and have none
outside those areas
Detailed rules and procedures businesses which are subject to tight regulation and public scrutiny,
such as those in the financial services sector, tend to have more rules and procedures
Division of labour tight limits are set on the areas of responsibility of staff
Impersonality appraisals of staff performance are based on objective criteria, not personal
preference
Businesses today operate in an environment which requires a high degree of control (because of
regulations) but in which there is a high degree of competition. Therefore management will apply the
principles of both the rational goal and the internal process models.
10 Business functions
Section overview
The key functions in any business are marketing, operations/production, human resources and
finance.
The functions that need to be performed in a business depend on many variables, such as what industry it is
in, how geographically spread it is, and what its plans are for the future. Historically these functions have
been identified generically as the following:
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MANAGING A BUSINESS
The finance function is a major focus of the Business and Finance syllabus and will be covered in Chapter 7
and throughout this Study Manual. Here we shall introduce a few of the principles that underlie the other
functions.
11
Marketing management
Section overview
11.1
Marketing is the management process which identifies, anticipates and supplies customer
requirements efficiently and profitably. It forms one of the key functions in any business.
A customer may buy goods and services but the person who uses them is called the consumer.
The elements of product marketing comprise the marketing mix, which entails price, product, place
(distribution) and promotion. For services it also includes people, processes and physical evidence.
Important issues related to product marketing include quality, reliability, packaging, branding,
aesthetics, mix and servicing.
The right price can make or break a product. Setting the price in the light of market demand, costs
and competition is a key aspect of marketing management and one in which accountants very often
play a supporting role.
Promotion incorporates advertising, sales promotions, public relations and personal selling via a sales
team.
Push techniques of promotion ensure that the product is there for the customer to buy; pull
techniques persuade them to do so.
Making sure products are in the right place at the right time so that customers can buy them is vital.
The key 'place' or distribution decision is whether to sell direct (higher margin, lower volume due to
inaccessibility) or whether to go via intermediaries (lower margins, but higher volumes).
What is marketing?
Definition
Marketing: The set of human activities directed at facilitating and consummating exchanges. It therefore
covers the whole range of a business's activities.
OR
Marketing: The management process which identifies, anticipates and supplies customer requirements
efficiently and profitably.
35
11.2
FMCGs (fast-moving consumer goods). These are high volume, low unit value, fast repurchase, such
as bread, baked beans.
Consumer durables. These have low volume but high unit value. They may be further divided into
Soft goods: these may be thought of as synonymous with consumer durables, e.g. clothes, bed
linen
A business which operates in the consumer market, selling to consumers, is often described as being in the
'business to consumers', or B2C market.
The main goods and services covered by industrial markets are shown below.
Raw materials
Processed materials
and components
Capital goods
Supplies
Services
Iron ore
Steel
Machine tools
Stationery
Accountancy
Timber
Textiles
Computers
Carbide tips
Legal
Coal
Packing materials
Buildings
Lubricants
Distribution
Crude oil
Lorries
Businesses operating in industrial markets are often described as 'business to business' or B2B.
11.3
One of the most common ways of presenting the marketing mix for tangible products is the four 'P's.
36
Product: quality of the product as perceived by the potential customer. This involves an assessment
of the product's suitability for its stated purpose (i.e. its features and benefits), its aesthetic factors, its
durability, brand factors, packaging, associated services, etc.
Price: prices to the customer, discount structures for the trade, promotion pricing, methods of
purchase, alternatives to outright purchase.
Promotion: advertisement of a product, its sales promotion, the company's public relations effort,
salesmanship.
MANAGING A BUSINESS
Place: distribution channel decisions, website selling (e-tailing), location of outlets, position of
warehouses, inventory levels, delivery frequency, geographic market definition, sales territory
organisation.
How the elements are mixed varies enormously from product to product, and from business to business as
can be seen below.
Company
products/Marketing
mix variable
Internet order
clothes company
Mainframe computer
manufacturer
Product
Similar to those of
several other
manufacturers
Price
A vital factor.
Probably lower than
similar physically
retailed goods
Promotion
A high percentage of
product cost. Use of TV
and various press media.
Sales promotions
important
A low percentage of
product cost. Use of
trade press and upmarket magazines and
newspapers
No intermediaries.
Distribution
determined by postal
and courier systems
Extensive use of
wholesalers, retailers and
licensees of premises.
Frequent deliveries,
regional warehouses,
company owns its
transport fleet
No intermediaries. Small
vehicle fleet. Relatively
infrequent deliveries.
Little storage of finished
items
Place (distribution)
Different sorts of business use the same basic marketing tools in very different ways. Conversely, there is a
tendency for businesses operating in the same markets and with the same products as their competitors to
use the marketing mix in the same way.
A business operating in one market may vary the marketing mix for various segments of that market. For
instance, Ford operates in the new car market but does not sell one car in one way to the whole market. It
segments the market (separating it into various sub-markets which have shared characteristics) and then
targets the consumers within the segment using varying marketing mixes. It places different emphasis on
the mix variables depending on the segment targeted.
Segment of market
37
Pick a product that you see in the supermarket and try to identify how the various elements of the
marketing mix have been used in marketing it to you.
See Answer at the end of this chapter.
11.4
Product
Definition
Product: Anything that can be offered to a market for attention, acquisition, use or consumption that
might satisfy a want or need. It includes physical objects, services, persons, places, organisations and ideas.
Marketers tend to consider products not as 'things' with 'features' but packages of 'benefits' that satisfy a
variety of consumer needs.
Basic (or core) product a car. This looks at the perceived or real benefits to be gained from the
product, e.g. Volvo cars satisfy safety/security needs, BMWs satisfy ego or status needs, etc
Augmented product Ford Focus with 0% finance or extended warranty. Essentially an augmented
product can be thought of as having more features per CU
General factors to be considered when taking a product from basic to actual and augmented include the
following:
11.5
Quality and reliability often linked to the pricing decision, these are used for positioning the
product. Level and consistency should be considered
Packaging is it functional (e.g. round a fridge) or part of the overall appeal (e.g. perfume)?
Price
At what level the product should be priced is highly relevant in any marketing mix. Price is particularly
important as it is the only P producing revenue (the other three incur costs). We shall see more about
pricing in Chapter 7 and about market price and factors affecting demand in Chapter 14.
11.6
Place (distribution)
Providing customers with satisfying products at a price they like, while important, is not sufficient to ensure
success. Such products must also be made available in adequate quantities, in the locations where
customers expect to find them and at the times when customers want to buy them.
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MANAGING A BUSINESS
The basic decision to be made when considering distribution is whether to sell direct, often via the
internet.
Producer
Consumer
Wholesalers
Retailers
Consumers
INTERMEDIARIES
Advantages of selling direct
11.7
Promotion
Promotion is all about communication, thus informing customers about the product and persuading them to
buy it.
There are four main types of promotion ('the communication mix'):
Advertising
Sales promotion (such as 'buy one, get one free' offers)
Public relations; and
Personal selling.
PUSH
Ensuring products/
services are available
to consumers by
encouraging
intermediaries, e.g.
Sainsburys, to stock
items
PULL
Persuading the
ultimate consumers
to buy
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11.8
People: the people employed by the service deliverer are uniquely important given they are likely to
have regular interactions with customers. Service businesses therefore need to have excellent
recruitment and selection policies, good training programmes (both in procedures and the service
ethos), standard consistent operational procedures (e.g. airlines), the flexibility to enable staff to give
good service, and effective motivational programmes.
Processes: these often determine the structure of the 'service encounter'. There are some important
'moments of truth' that determine how effective a service is, such as enquiries and reservations before
the service is granted, registration procedures, timing of when the service is consumed (the internet
allows the purchase of many services to be done 24/7, for instance), and what happens after the
service has been consumed.
Physical evidence that the service has been performed, such as a certificate or a receipt.
These three are important because of the varying degrees of intangibility that characterise services relative
to tangible products.
12 Operations management
Section overview
Operations management (or production management) means creating the goods or services that the
business supplies to customers.
The key variables that must be balanced in order to deliver effective operations are the overall level
of demand for the goods and services, resources, capacity, inventory levels and performance levels of
the processes required.
Forecasting, whether to 'make or buy', inventory management, supply chain management of suppliers
and deliveries, resource scheduling, quality and waste are all areas in which operations managers must
make decisions.
Definition
Operations (or production) management: Creating as required the goods or services that the
business is engaged in supplying to customers.
Resources
Capacity of the long-term assets of the business such as machinery, buildings and computer systems,
and of the other assets of the business such as people
Inventory levels
40
Deciding whether products should be made in-house or bought-in from outside ('make or buy')
MANAGING A BUSINESS
Managing the supply chain, so inbound deliveries are tied in properly to the production/operations
plan in terms of timing and quality
Ensuring quality
13.1
Managing human resources means creating, developing and maintaining an effective workforce which
matches the business's requirements and which responds effectively to the environment.
Hard approaches to HRM focus on workers as resources; soft approaches emphasise that they are
human, with short- and long-term needs and goals.
HRM functions include planning and control of personnel levels; job design; recruitment and selection;
training and development; performance appraisal; disciplinary procedures; remuneration decisions;
grievance and dispute handling; compliance with legal and other standards, including those related to
health and safety; communication with employees; counselling employees; maintaining information and
records on personnel; encouraging workforce diversity.
Harvard's four Cs model of HRM suggests that it should achieve: commitment, competence,
congruence and cost-effectiveness in the workforce.
13.2
The hard approach emphasises the resources element of HRM. Human resources are planned and
developed to meet the wider objectives of the business, as with any other resource such as materials
or money. It involves managing the functions of HRM (set out below) to maximise employee
effectiveness and control staff costs.
The soft approach emphasises the human element of HRM. It is concerned with employee
relations, the development of individual skills and the welfare of staff. It is exemplified in developing:
41
13.3
Personnel planning and control. Analysis of the business's future need for employee resources
with respect to quantity and skills, given the nature of the labour market
Job design. Production of a job description and person specification in terms of what is needed
regarding experience, skills and education
Recruitment and selection. Choosing the right person for the job described in the job design, using
external recruitment consultants if necessary
Training and development. Analysing training needs and organising the provision of training and
staff development to meet those needs. Includes new and existing staff and all levels of management
Performance appraisal. Setting performance standards and competency profiles, and developing
formal systems of appraising employees in attaining those standards
Grievances and disputes. Setting up employee grievance procedures and participating in their
implementation. May involve participation in an arbitration process
Compliance with legal and other standards. Involves informing and advising managers of
employment, contract, health and safety and other relevant law with respect to employees, and setting
up procedures to comply with such legislation and other codes of conduct, agreements and standards
Personnel information and records. Maintaining the records of individual employees concerning
relevant personal and employment details
While these functions are likely to be the responsibility of a human resource department, many aspects are
also the responsibility of line managers.
13.4
Situational factors (e.g. labour market conditions, management style, technology, ownership,
competitive conditions)
The model suggests that the effectiveness of HRM should be evaluated under four headings:
42
Commitment. Assesses employees' motivation, loyalty and job satisfaction. These factors are likely
to measure an employee's commitment to a business. Measures can include labour turnover (how
many people leave in a period compared with how many on average are employed), absenteeism, exit
interviews, and satisfaction surveys.
Competence. Relates to employees' skills, abilities and potential. These may be measured by a skills
inventory and appraisal system. The objective of HRM policies in this area should be to attract, retain,
motivate, train and promote the right people.
MANAGING A BUSINESS
Congruence. This is a measure of the extent to which management and employees share a common
vision for the business and act consistently to attain that vision. Evidence of congruence can include
absence of grievances, conflicts and strikes, and the state of industrial relations.
Organisational behaviour is affected by many variables, only some of which have obvious
manifestations (they appear above the waterline in the organisational iceberg). These overt variables
include customers, organisational goals, technology, physical facilities, organisational design, financial
resources, overt competence and skills, and rules and regulations.
There are also some very important variables which are not usually physically manifested but which
are capable of undermining an organisation. These covert variables include attitudes, patterns of
communication, informal team processes, personalities, conflict, political behaviour and underlying
competencies and skills.
It can be helpful to see an organisation in terms of one or more of Morgan's metaphors: a machine,
an organism, a brain, a culture, a political system, a psychic prison, flux and transformation, and an
instrument of domination.
An organisation can be seen as a psychological contract, that is a balance of mutual expectations and
needs. Managers need to be aware of what workers are probably expecting from the organisation.
Important models of human behaviour in organisations include Taylor's scientific management theory,
and McGregor's Theory X and Theory Y. Taylor and Theory X both emphasise the importance of
remuneration as a key need and therefore motivator of people.
Maslow's more complex model or hierarchy of people's needs specifies that people's behaviour stems
from their desire to fulfil their needs, but that once certain needs (e.g. for a good level of pay) are
fulfilled they no longer motivate.
Herzberg goes one further to say that remuneration is simply a hygiene factor: it can demotivate but
does not of itself motivate people to fulfil their true potential. This can only be achieved by motivator
factors, such as recognition, challenge, responsibility and advancement.
Teams or groups of people in organisations who communicate with each other and who have a
leader, a common sense of identity, a common aim, group norms of behaviour are often very
effective.
Groups go through a number of stages as they develop: forming, storming, norming and performing
(Tuckman).
In an active work group there are a number of key roles, including those of the leader, shaper, 'plant',
evaluator, resource-investigator, company worker, team worker and finisher (Belbin).
The effectiveness of a manager is determined by the degree of autonomy and authority they have, and
what sort of leadership style they manifest.
Leadership style varies from being exploitative and authoritative to being participative. A manager
who subscribes to McGregor's Theory X will favour the former, while a manager who favours
Theory Y will veer towards the latter.
Delegation is a very important means by which managers get things done but it has drawbacks as well
as advantages.
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14.1
Organisational behaviour is not about human behaviour alone, but about how people's behaviour
interlinks with the business's formal structure, the tasks to be undertaken, the technology and
processes used, the management process and the external environment.
14.2
Formal
aspects
(overt)
Customers
Formal goals
Technology
Financial resources
Behavioural
aspects
(covert)
Submerged
iceberg
beneath
waterline
Physical facilities
Iceberg visible
above waterline
Organisation design
Rules and regulations
Attitudes
Communication patterns
Informal team processes
Personality
Conflict
Political behaviour
Underlying competencies and skills
14.3
Organisational metaphors
In order to help us understand the complex nature of life in businesses, Morgan developed a range of
metaphors, likening the business to a number of different things in order to bring out certain characteristics
of organisational behaviour. Note that some or all of the metaphors may be applied to the same business
they are mostly not mutually exclusive.
44
MANAGING A BUSINESS
14.4
A machine
An organism
A brain
A culture
A political system
A psychic prison
An instrument of
domination
Power struggles which lead to the business pursuing the goals of the
few, not the many; again, helpful in understanding why things do or do
not get done
The expectations and needs that are characteristic of individuals in the business are that the business will:
The business also has expectations, namely that staff members will:
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14.5
14.5.1
People are rational economic animals concerned with maximising their economic gain
People respond as individuals, not groups
People can be treated in a standardised fashion, like machines
Taylor wrote his Principles of Scientific Management in 1911. How relevant is it today?
See Answer at the end of this chapter.
14.5.2
Theory X
Theory Y
Commitment to objectives is driven by rewards self-actualisation is the most important reward (see
Maslow's hierarchy below)
External control and threats are not the only way to achieve objectives self-control and direction are
very important
The intellectual potential of the average human is only partially utilised it needs to develop further
In order to understand 'what' motivates people we shall look first at content theories of motivation, then
focus on creating conditions that meet individuals' needs.
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MANAGING A BUSINESS
14.6
Motivation
Definition
Motivation: The degree to which a person wants certain behaviours and chooses to engage in them.
Higher productivity
Better quality work with less waste
A greater sense of urgency
More feedback and suggestions made for improvement
More feedback demanded from superiors
Clearly these are desirable features to have. Research has shown that motivated employees will work at 8095% of their ability whereas employees lacking motivation will typically work at 30% of their ability.
Demotivated workers are likely to become alienated.
14.6.1
Behaviour
Figure 2.5: Basic model of need-driven behaviour
Abraham Maslow (Motivation and Personality (1954)) suggested a hierarchy of such needs to explain an
individual's motivation.
Selfactualisation
needs
Status/ego needs
Social needs
Safety/security needs
Basic/physiological needs
Figure 2.6: Maslow's hierarchy of needs
47
A person will start at the bottom of the hierarchy or pyramid and will initially seek to satisfy basic
needs food, shelter, clothing etc
Once these needs are satisfied they no longer motivate and the individual concerned moves up to the
next level; safety/security needs
Safety needs could encompass physical safety (e.g. wearing a hard hat on a building site) and/or
protection against unemployment, the consequences of sickness as well as being safeguarded against
unfair treatment
Again, once these needs are satisfied (e.g. by company rules re dismissal, pension policies etc) they no
longer motivate and the person moves up to the next level in the hierarchy
Status/ego needs involve the desire to have the respect and esteem of others. This could be satisfied,
for example, by gaining a promotion
Self-actualisation needs are concerned with what people think about themselves, whether they feel
that their lives are worthwhile and that they have meaning. For many this can only be satisfied by
ongoing success and new challenges
Needs may be met in or out of the workplace. For example, a person who is captain of a local sports team
may not feel the need to engage in social activities at work.
Maslow's hierarchy does not mention money in its list of specific factors (social needs etc). One of the
important emphases of the theory was on the significance of non-financial motivators. However, Maslow did
see money as a contributory factor i.e. money itself is not important except where it helps one satisfy the
basic and safety needs.
While money is likely to be very important in satisfying basic physiological needs it is only important
regarding status needs if status symbols such as BMWs, Rolex watches, etc are valued by others.
14.6.2
Hygiene factors
(1)
Motivating factors
Workers no
Positive
(2)
longer dissatisfied
satisfaction and
but not yet
motivation
motivated
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MANAGING A BUSINESS
Motivating factors are concerned with the content of people's jobs and need to be addressed to ensure
motivation. They include:
A sense of achievement
Recognition
Challenging work
Responsibility
Advancement
The job itself
One of the most significant aspects of Herzberg's findings was the classification of salary as a hygiene factor,
that is that increasing salary would reduce dissatisfaction but would not motivate workers other than
perhaps as a short-term KITA ('kick in the ass'). Like Maslow, Herzberg emphasised the importance of nonfinancial motivators.
This was in contrast to the prevailing thought of the time that would attempt to deal with problems
regarding motivation by paying people more.
Note that hygiene factors are concerned with satisfying lower-level Maslow needs (basic, safety, social)
whereas motivating factors are more concerned with higher Maslow needs (status and self-actualisation).
14.7
Group behaviour
Definition
Group: A collection of people with the following characteristics:
14.7.1
49
14.7.2
Forming. At this initial stage, the group is no more than a collection of individuals who are seeking to
define the purpose of the group and how it will operate
Storming. Most groups go through this conflict stage. Here, preconceptions are challenged, and
norms of attitude, behaviour etc are challenged and rejected. Members compete for chosen roles
within the group (e.g. leader, comedian). If successful, this stage will have forged a stronger team with
greater knowledge of each other and their objectives
Norming. This stage establishes the norms under which the group will operate. Members experiment
and test group reaction as the norms become established. Typically, the norming stage will establish
how the group will take decisions, behaviour patterns, level of trust and openness, individuals' roles,
and so on
Performing. Once this final stage has been reached the group is capable of operating to full potential,
since the difficulties of adjustment, leadership contests etc should have been resolved
Tuckman suggested that groups are inefficient at the forming and storming stages, become more efficient at
the norming stage but really need to reach the performing stage for maximum efficiency.
14.7.3
Team roles
Belbin observed that people adopt one or more of the following eight roles when placed within a particular
type of group context, this is a team.
The shaper committed to the task; may be aggressive and challenging; will also always promote
activity
The evaluator analytically criticises others' ideas; brings team down to earth
The resource-investigator not a new ideas person but tends to pick up others' ideas and adds to
them; is usually a social type of person who often acts as a bridge to the outside world
The company worker turns general ideas into specifics; is practical and efficient; tends to be an
administrator handling the scheduling aspects
The team worker concerned with the relationships within the team; is supportive and defuses
potential conflict situations
The finisher unpopular, but a necessary individual: the progress chaser ensuring that timetables are
met
Belbin suggested that an effective team will have each personality type represented, subject to the following:
Belbin later suggested an additional role: the specialist, brought in from outside the team.
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MANAGING A BUSINESS
14.8
Leadership style
The effectiveness of any given manager will be influenced by their:
Authority: having sufficient rights to control and judge the actions of subordinates
Autonomy: giving subordinates necessary and reasonable freedom of action to carry out their roles
Leadership: exercising the power conferred by right in such a way as to win a willing and positive
response from subordinates
There has been extensive research into 'managerial effectiveness' and numerous attempts to
describe/identify the 'best' leadership 'style' to adopt.
14.8.1
Exploitative
Benevolent
authoritative
Decisions
imposed
Consultative
Participative
Complete
trust +
discussion
Motivated
by threats
e par
Centralised
decisionmaking
e motivation style
Motivated
by rewards
goals agreed
High
degree of
delegation
easing delegation
Little superior/
subordinate
communication
Increasing communication
Superior +
subordinates
act as individuals
no teamwork
ork
Frequent
communication
Superior +
subordinates
act as a team
Exploitative-authoritative
Benevolent-authoritative
Consultative
51
Participative
Likert considered the participative style to be ideal for the profit-oriented and human-conscious business,
and said that all businesses should adopt this style. Other writers disagree, arguing that under certain
circumstances a form of authoritarian management works best, e.g. in the small entrepreneurial business.
Likert also identified four characteristics of effective managers
1
2
3
4
Consider a manager for whom you have worked in the past, or perhaps the manager of the audit on which
you are currently engaged. Consider objectively how effective that manager was, and try to identify what in
particular the manager was/is good/bad at.
See Answer at the end of this chapter.
14.8.2
14.8.3
Figure 2.9: Blake and Mouton's Managerial Grid (republished in 1991 as the Leadership Grid)
52
MANAGING A BUSINESS
14.9
Delegation
Definition
Delegation: Delegation involves giving a subordinate responsibility and authority to carry out a given task,
while the manager retains overall responsibility.
Advantages of delegation:
It enables decisions to be taken nearer to the point of impact and without the delays caused by
reference upwards
Too much supervision can waste time and be demotivating for the subordinate
Too little supervision can lead to subordinates feeling abandoned and may result in an inferior
outcome if they are not completely happy with what they are doing
Manager tries to delegate full responsibility, that is s/he uses delegation to 'pass the buck'
Managers may not delegate enough because they fear their status is being undermined, and they want
to stay in control
53
Summary 2/1
Balance variables:
Demand
Resources
Capacity
Inventory
Processes
Evaluation of 4Cs
Commitment
Competence
Confidence
Cost-effectiveness
Functions
Effective management
= harnessing forces of
may be delegated
Management process
Planning
Organising
(Chapter 8)
Informational
Interpersonal
Decisional
54
Governance
(Chapters 12/13)
Culture
Internal process
Rational goal
Open systems
Human relations
Types of manager
Line Staff
Functional Project
Management roles
Management
hierarchy
(Chapter 3)
Finance
(Chapter 7)
Business functions
Behaviour in
organisations (2/2)
Power
Authority
Responsibility
Accountability
Markets
Industrial B2B
Consumer B2C
Marketing
HRM
Operations/production
Marketing mix
Product Price Place
Promotion People Processes
Physical evidence
Control
Leading
MANAGING A BUSINESS
Summary 2/2
Covert
variables
Overt
variables
Organisational
iceberg
Psychological
contract
Delegation
Authority
How managers behave
in organisations
Leadership style
Behaviour in organisations
Scientific
management
(Taylor)
Metaphors
(Morgan)
Motivation
Theory X and Y
(McGregor)
Maslows
hierarchy
Roles
(Belbin)
Development
(Tuckman)
Form
Storm
Norm
Perform
Self-test
Answer the following questions.
1
When a manager delegates authority and responsibility for a task, they also delegate full accountability.
True or false?
Cedric is an IT specialist responsible for a new database which is used by all functions in the
organisation. If Kara, a human resources manager, attempted to alter the database parameters Cedric
could prevent her from doing so by exercising:
A
B
C
D
Line authority
Staff authority
Functional authority
Project authority
Ethel has been given responsibility for identifying the processes, technology and up to five people
required to complete a particular project, and then to allocate the work and co-ordinate it. In terms of
the management process, Ethel is
A
B
C
D
Planning
Organising
Controlling
Leading
55
Which two of the following qualities are typical of a rational goal culture?
A
B
C
D
Which two of the following elements of the marketing mix are peculiar to services marketing?
A
B
C
D
E
F
Political behaviour
Organisational design
Organisational goals
Regulations
The model of human behaviour that states that humans seeks security above all else is called
A
B
C
D
10
In terms of the organisational iceberg, which of the following is a covert variable affecting
organisational behaviour?
A
B
C
D
Price
Place
People
Promotion
Processes
Place
Randalf, a manager with Trent Ltd, is faced with a decision about a service that is being marketed to
consumers. The service requires four people for delivery and costs CU1,000 when these people are
directly employed. A sub-contractor has told Randalf that he would charge Trent Ltd CU1,000 to
deliver the service to customers. This decision is one about
A
B
C
D
Inward looking
The need to be flexible
The need to control the environment
Outward looking
Theory X
Scientific management
The hygiene factor
Theory Y
Sitin's team leader has told him that as a member of the team he is very committed to the team's task
and always promotes activity, but that sometimes he can be too aggressive and challenging. In terms of
Belbin's roles, Sitin is the team's
A
B
C
D
Plant
Evaluator
Shaper
Finisher
Now, go back to the Learning Objectives in the Introduction. If you are satisfied you have achieved these
objectives, please tick them off.
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MANAGING A BUSINESS
Answers to Self-test
1
While management means getting things done, governance means directing and controlling the
organisation for all stakeholders
False. The manager remains accountable to senior management for the task
C and D
C and E
10
Cedric has line authority only over his immediate subordinates. He has general staff authority
by which he can advise other line managers on using the database, but in an issue such as this
where he is responsible for the database, he can exercise functional authority to prevent Kara
from changing the parameters
57
58