Anda di halaman 1dari 409

1

Large-scaLe
organisations

Whats ahead

Contribution to
the economy

Management
functions

Importance
Large-scale
organisations

Objectives
and strategies

Characteristics

Types

Features

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Key Knowledge

Students will learn the following about large-scale organisations:


the context that contributes to the unique nature of large-scale
organisations
the characteristics of large-scale organisations
variations in types of large-scale organisations
objectives of large-scale organisations and related business strategies
typical management functions in large-scale organisations, including
operations, finance, human resources, marketing, and research and
development
the contributions both positive and negative of large-scale
organisations to the economy.

Throughout a persons life, they are part of


some form of organisation. During our years
as a student, we may belong to a wide range
of organisations: kindergarten (a privately
operated or government-funded organisation),
primary and secondary schools (government or
privately operated organisations), and university or TAFE (government-funded institutions).
When we enter the workforce, we will usually

be involved in small-, medium- or large-scale


organisations. Even in our leisure-time activities whether we play sport, attend church or
participate in charity work we are members of
an organisation.
By becoming a customer, employee or
shareholder, people are seen to have a vested
interest in the operation of a business and are
classified as a stakeholder of that organisation.

area of study

Large-scaLe organisations in context

stakeholder
individual or group that
has a direct or vested
interest in the activities
of an organisation

1
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

What is an
organisation?
organisation
two or more people
who work together in
a structured way to
achieve a specific goal
or set of goals

An organisation is a formal or structured


arrangement where two or more people work
together to accomplish some specific purpose
or set of goals. They take physical, human,
informational and financial inputs, then process
them to create outputs of goods and/or services.

Why are
organisations
needed?
Organisations exist to support the aims of a
business and the people within it.

Karpin report
the name given to
a document called
Enterprising Nation:
Renewing Australias
Manager to meet the
challenges of the
Asia-Pacific century,
produced in 1995;
like a report card on
current Australian
management practices,
it recommended the
changes needed if
Australian managers
were to compete
successfully in the
global marketplace
decision making
a multistep approach
whereby a selection is
made between a range
of different alternatives

Organisations can
achieve things that
could not be achieved by
individuals
Working as part of a group, people are able
to achieve a common purpose or goal.
This underlines the importance of the team
approach, where it is said that Together Everyone Achieves More (TEAM). The importance
of the team approach was highlighted in 1995
in the Karpin Report, which emphasised that
the ideal manager of the future must be able to
perform as a team player.

Organisations serve
to manage complex
social and technological
change
As part of a group, people share responsibilities
and dont need to carry the load on their own.
In the current dynamic operating environment,

Figure 1.1 A good manager is just one of the team.

where it is important for organisations to respond


to both social and technological change, sharing
assists in the effective management of the
required change.

Organisations ensure
that there can be
continuity of knowledge
between past and future
generations
Having people within an organisation of varying
ages, life and business experiences allows the
passing down of valuable knowledge while also
providing the future members or group leaders
with a diverse range of opinions and experiences. It is invaluable for an organisation when
undertaking planning and decision making, to
be able to reflect on and incorporate the important elements of wisdom and hindsight brought
by the older and/or more experienced members
of the group.

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Organisations, whether
they are for profit or
not for profit in their
orientation, provide an
important source of
employment
In addition to employment opportunities,
organisations can also influence our career
direction. Membership of an organisation could
initially come from having an interest in some
form of social or community organisation.

During a persons teenage years they may be a


member of a sporting team, such as netball or
football. Alternatively, they may be a member
of a defence force cadet unit. This initial interest
may turn into a career opportunity, as they may
decide to study sports management or enter the
defence forces.
Being part of an organisation, such as a
school, sports club or cadet unit, may create
employment opportunities through connections
with prospective employers who may be past
students of the school, members of the sports
club or have been in the defence forces. This is
referred to as networking.

networking
using connections
gained through
business, sport, school
and other activities

What do all organisations have


in common?
Purpose

Organisations may take many forms, but they


all have several characteristics in common:
They have a distinct purpose, which is generally expressed as an objective or set of
objectives that the organisation wishes to
accomplish.
They comprise two or more people (people/
human resources).
They have a deliberate form of structure
either a formal structure with clearly
defined rules, regulations and procedures,
or an informal structure with a simple
network of loose working relationships.

People
Figure 1.2

formal structure
the official division
of responsibilities,
authority, tasks and
lines of communication
within an organisation

Structure

informal structure
what actually happens
in an organisation in
relation to division of
responsibility, tasks,
authority, and lines
of communication,
compared with what is
formally stated

Characteristics of organisations

Characteristics of large-scale
organisations
There are a range of circumstances or facts that
contribute to the unique nature of large-scale
organisations, and while there is no formal
definition for a large-scale organisation, the
generally accepted criteria for classifying an
organisation as large are:

Employee base it employs more than 200


employees (Australian Bureau of Statistics
definition).
Total assets it owns substantial assets.
Total revenue it earns substantial gross
income or earnings.

c h a p ter 1 Large-scaLe organisations


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

assets
an item of monetary
value owned by the
organisation

Cambridge University Press

Profits it has substantial gross profits or net


profits after tax.
Market share it commands a large percentage of the marketplace.
Size of operations it can operate using
single or multiple factories, branches and
stores.
Number of business locations can be local,
regional, state-based, national or global.
These criteria for classifying an organisation as large are used by media such as Business Review Weekly in its annual ranking of

Australias biggest enterprises (published in the


November issue).
Using Coca-Cola Amatil Limited (one of the
largest premium branded beverage and food
companies in the AsiaPacific region) as an
example, it is possible to apply these criteria to
confirm that it is a large-scale organisation. With
30 per cent of its ownership in the hands of the
Coca-Cola company, it also operates in a 50/50
joint venture with SAB Miller (Pacific Beverages),
which involves the manufacture and distribution
of SAB Miller premium beer brands.

Application of classification criteria


to Coca-Cola Amatil Limited

criteria

organisation as of 31 December 2010

Number of employees in Australia

In excess of 5700 employees

Value of net assets

$1833.4 million

Capital employed

$3522.8 million

Trading revenue

Group: $4490.3 million


Australia: $3281 .1 million
Rest of world: $1209.2 million

Profits

EBIT Group: $844.9 million


Australia: $688.5 million
Rest of world: $156.4 million

Australian market share

Over 116,000 active customers


Drinks carbonated drinks 56%, sports drinks 45%, bottled
water 25%, energy drinks 25%, juice 1%
Food packaged fruit 50%, fruit snacks 75%, tinned tomatoes
29%, baked beans and spaghetti 26%, spreads 21%

Number of business locations

Operates across five countries Australia, New Zealand,


Indonesia, Fiji and Papua New Guinea. In Australia fifteen
production facilities

Size of operations

Multiple manufacturing plants and distribution outlets throughout


Australia, New Zealand, Indonesia, Papua New Guinea and Fiji.

Source: Coca-Cola Amatil Limited, www.ccamatil.com Fact Book 2010 and 2010 Annual Report

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Activity 1.1
Visit the websites of two of the following
organisations. For each organisation, create a
table similar to the above table classifying CocaCola Amatil Limited to determine whether it is a
large-scale organisation.

Westpac Bank (www.westpac.com.au)


Orica (www.orica.com.au)
Australia Post (www.auspost.com.au)
Telstra (www.telstra.com.au).

2 Strategic planning is
undertaken
Strategic planning involves the long-term
planning (two to five years) undertaken by
senior management to achieve specific corporate objectives.

3 Formalised policies,
procedures and rules are
adopted and documented

Apart from being classified as a large-scale


organisation based on the above criteria, organisations adopt, and are noted as having, the
following characteristics.

1 Strategic objectives are


formulated
These are set to provide the long-term objectives (usually for the next five years) for the
organisation. When dealing with large numbers
of employees, it is important that both management and employees are working to achieve a
common set of objectives and not carrying on
activities only relevant to their own individual
agenda. It is important to create synergy.

Formalised policies, procedures and rules are


adopted and documented in order for the
organisation to function properly and for all
employees to know how to act and react.

4 An organisational structure is
devised
An organisational structure forms the basis of its
internal formal framework to show how management is linked and how authority is transmitted.
A typical structure is based on departmental
lines, with departments being divided according
to their function, such as operations, finance,
human resources, marketing, and research
and development. The common way of showing
an organisations structure is diagrammatically
in an organisational chart.

strategic planning
long-term (two to
five years) planning
undertaken by senior
management to achieve
corporate objectives
corporate objectives
the long-term
objectives of the
organisation, which
provide focus and
direction; they form the
foundation for strategic
planning
human resources
the employees of
an organisation,
referred to as the most
important asset
organisational chart
a diagram showing the
lines of authority and
levels of hierarchy in an
organisation; it defines
the relationships
between people within
an organisation
synergy
working together to
achieve a common
goal; the sum of all
parts is greater than
the individual parts

Chief Executive
Officer (CEO)

Finance Director

Financial
Accountant

Administrative
Manager

Payroll
Officer

Human Resources
Director

Training
Manager

Compliance
Manager

Marketing
Director

Trade Marketing
Manager

Supervisor of
Training

Retail Marketing
Manager

Assistant Trade
Manager

Figure 1.3 An organisational chart

c h a p ter 1 Large-scaLe organisations


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

chain of command
the vertical line of
authority that passes
command down
through the levels of an
organisations hierarchy
chief executive officer
the most senior
management position
in an organisation
hierarchical structure
different levels of
management and staff,
with higher levels
exercising greater
authority and control
decentralisation
power and decisionmaking authority are
delegated from head
office to lower levels in
the hierarchy
specialisation
concentrating on one
part of the production
process
open market economy
an economy that
operates freely
without government
intervention; the market
is driven by market
forces of supply and
demand
multinational
corporation
(transnational)
a business that has
its main office in one
country, but operates in
other countries as well
joint venture
the setting up of a
business enterprise
by two or more
organisations to
achieve a particular
venture

5 A chain of command and


hierarchical management
structure are established

coordination to ensure that decisions made


throughout the organisation work towards
achieving its overall corporate objectives.

A chain of command is created due to the


need for a route through which authority can
be passed down. The chain of command originates with the board of directors and the chief
executive officer and passes down to each
level of the hierarchical structure. Each level
represents a ranking of staff, with lower ranks
being subordinate to superiors of a higher rank.
The trend in modern organisations has been a
move towards flatter management structures.

7 Specialisation of activities
into departments or within
departments occurs

6 A coordinated and
decentralised approach to
decision making is adopted

The size and range of activities in which an


organisation is involved will generally require
it to be broken into departments. This will
allow for the specialisation of the activities
into departments or within departments. For
example, the marketing department will be
responsible for all decisions relating to marketing a product, as well as working in conjunction
with the research and development department
in product development.

Decentralisation involves delegation to and


empowerment of employees and requires

Large-scale organisations in Australia


Australia is proud of its tradition of operating as
an open market economy and of its organisations taking their place in the global marketplace.
Organisations that are owned and based solely
in one country are referred to as being domestic
or national in their operations. Many businesses
choose to expand their business operations
beyond their national or domestic borders and
become international or global in their business
focus. Organisations that are owned and based in
one country while having branches or subsidiaries in other countries are referred to as multinational/transnational corporations. Some
examples of Australian multinational companies
are Amcor, BHP Billiton, Lend Lease, Qantas and
National Australia Bank.
Australian businesses can find it difficult to
access money from the foreign capital markets
to expand their business operations. Entering
into a joint venture agreement with a foreign

enterprise (particularly with rapidly growing


economies such as China) can help provide
those much-needed funds as well as providing for economies of scale in production.
This practice has become popular in the key
commodities, such as iron ore, coal, copper,
nickel, uranium, oil and gas.
Organisations can change in size as the
result of a takeover, merger or a demerger.
Some takeovers or mergers can be mutually
beneficial in advancing the strategic direction
of the organisations involved. A hostile takeover, however, can mean that a vulnerable
organisation is virtually wiped out by another
organisation taking it over. In 2010, Orica was
involved in a demerger strategy spinning off
the DuluxGroup into a separate publicly listed
company. This demerger strategy had to gain
the approval of the Supreme Court of Victoria
prior to its implementation.

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

A takeover occurs when one organisation


purchases either the whole or a controlling
interest in another organisation. This takeover
or acquisition strategy may result from the
desire of a business to diversify its operations,
eliminate a competitor, or be a way of expanding into a new market.
The diversification approach was the case
in 2007 when Wesfarmers acquired the Coles
Group. This takeover strategy then resulted in
a previously publicly listed company (Coles)
reverting to becoming a subsidiary company,
forming part of the group of companies under
the control of the acquiring company (Wesfarmers). This action eliminated the acquired
companys original public company listing and
its ability to trade its shares independently on
the Australian Securities Exchange. Shareholders now only purchase shares in Wesfarmers
Limited as Coles exists as a separate business
unit within the Wesfarmers group.

Figure 1.4
merged

Organisations that have diversified or

A merger can be viewed by both parties as


being beneficial to their joint long-term (strategic) direction. In 2007, Adelaide Bank and
Bendigo Bank merged. The new entity, Bendigo
and Adelaide Bank Limited, combines the core
competencies of Adelaide Banks wholesale
product business with Bendigo Banks retail
capabilities and unique community banking
model. Adelaide Bank became a wholly owned
subsidiary of Bendigo Bank, resulting in its

takeover
the means by which an
organisation becomes
larger by purchasing
a controlling share (at
least 50.1 per cent) in
another business
merger
an agreement
between two or more
organisations to join
together to form one
united business

Figure 1.5

demerger
the opposite of an
acquisition; a company
spins off some
business it owns to
form a completely
separate company

BHP Billiton Centre, Melbourne

shares being delisted from the Australian Securities Exchange.


A different merger structure was used to
create BHP Billiton in June 2001. BHP Limited,
Australias largest resource company, merged
with Billiton Plc, a large UK-registered resource
business, and adopted a dual-listed company
structure. The dual-listed company (DLC)
structure provides the benefits of economies of
scale, merger synergies and access to foreign
capital markets. Shareholders of both merging
entities continue to retain their original shares
and are entitled to dividend payments. As part
of the merger arrangements, it was negotiated
that Melbourne would become the corporate
headquarters for the merged companies.

diversification
the process of entering
new markets and/
or developing new
products
dual-listed company
a structure that occurs
when two companies
merge but retain their
original listing on two
stock exchanges
dividend
a portion of the
net profit paid to
shareholders

Activity 1.2
1 Identify whether there are any large-scale
organisations currently in the process of either
being taken over, merging or demerging.
(Hint: see www.asic.gov.au, www.asx.com.au,
newspapers and television news programs for
current examples.)
2 Analyse why the takeover, merger or
demerger is occurring and who it will benefit.

c h a p ter 1 Large-scaLe organisations


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Different types of large-scale


organisations
public sector
part of the economy
operated by the
government
private sector
part of the economy
operated by private
individuals and
companies, either
private (Pty Ltd) or
public (Ltd)
government business
enterprise (gBe)
a business that is
government owned and
operated; GBEs seek
to run profitably by
controlling costs and
selling their goods and
services at a price to
cover costs
corporatisation
government businesses
are incorporated, given
a corporate identity
and are run along the
lines of companies,
requiring them to
be fully accountable
for expenditure,
pay tax, seek profit
maximisation and
increase efficiency;
these are known as
government business
enterprises (GBEs)
privatisation
the process of
selling public sector
(government)
businesses to the
private sector

Public or private sector


Australia is a mixed or market economy, where
ownership of resources, property and the means
of production differ. Where the resources, property and production are owned by the government (federal, state or local), these are deemed to
be in the public sector. If the resources, property
and means of production are held privately or
corporately, they are in the private sector.

Public sector organisations


Public sector organisations include government business enterprises (GBEs), government departments and statutory authorities,
which usually employ large numbers of people.
They are owned and operated by one of the
three tiers of government (federal, state or
local). These organisations provide essential
community services, such as health (government hospitals and Metropolitan Ambulance
Service), education (Department of Education,

Victorian Curriculum and Assessment Authority


(VCAA) and Victorian Registration and Qualifications Authority (VRQA)), roads (VicRoads),
law enforcement (Victoria Police and Australian
Federal Police), justice (state and federal court
systems), museums (Museum Victoria, which
incorporates Scienceworks, the Immigration
Museum and Melbourne Museum) and postal
delivery (Australia Post).
Over the past two decades, it has become
both a business trend and government policy
at federal and state level to convert traditional
bureaucratically run statutory authorities into
corporately run GBEs. This process is referred
to as corporatisation. Following corporatisation, some of these organisations are then sold
to private owners (individual or companies),
thus transferring from the public to the private
sector. This second step is referred to as privatisation. Examples of some traditional public
sector GBEs that have been privatised are listed
in table 1.1.

Large-scale organisations

Public sector

Private sector
Privatisation

Government business
enterprises (GBEs)

Public
companies
(Ltd)

Private
companies
(Pty Ltd)

Corporatisation
Statutory authorities

Non-government
organisations (NGOs)

Government departments
Figure 1.6

Large-scale organisations public and private sector

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

table 1.1

Examples of GBEs that have been privatised

industry

organisation

Transport and storage

QANTAS

Finance and insurance

Commonwealth Bank

Communications

Telstra

Electricity, gas and water


supply

Energy 21, AGL Electricity, United


Energy, TRUenergy, Powercor

Activity 1.3
Read the media release and answer the questions that follow.

Media release
Future Ready: Australia Posts
business renewal program
21 April 2010
Future Ready is a five year program which
represents a transformation of the iconic
organisation. The program will lay the foundations to create a more customer-focussed
and sustainable Australia Post.
As the world has moved on from the horse
and buggy and has shifted from the telegraph
to the telephone, Australia Post must embrace
the digital world, said Managing Director and
CEO Ahmed Fahour.
Future Ready will enable Australia Post to
do everything it does in the physical world in
the digital world.
Under the program, a strong growth platform will be established that will see letter
declines offset by the growth in parcels, retail
and business-to-business express delivery. This

will be done by building a customer-focused,


collaborative culture with strong accountability and transparency.
The new organisation structure is
designed to unlock the depth of talent within
Australia Post which will be developed and
rewarded for sustainable outcomes, said
Mr Fahour.
Under the Future Ready program, Australia
Post will be restructured into four strategic
business units with individual profit and loss
accountability.
The strategic business units are
Postal Services;
Retail Services;
Express Distribution Services; and
e-Services.

c h a p ter 1 Large-scaLe organisations


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Postal Services will be responsible for


providing both letters and parcels services
enabling Australia Post to offset the decline in
letters with the growth in parcels. While the
internet is the letter business worst enemy it
is the parcels business best friend, said Mr
Fahour.
Retail Services will be responsible for
everything Australia Post does and everything
we offer in our 4433 retail stores. We are in
every major town across Australia and play a
vital role at the centre of each community. We
want to be the community hub for important
trusted services like passports, identity verification, payments and more, said Mr Fahour.
Express Distribution Services will oversee
Australia Posts courier and logistics business

and our joint ventures; Australian Air Express,


Star Track Express and Sai Cheng Logistics. It
will focus on the business-to-business market
with a strong focus on Australia and Asia.
e-Services business will be a dedicated
new business incubator focusing on opportunities such as secure, identity-verified, digital
communications, e-commerce initiatives and
other services that we can offer electronically,
to complement our physical network.
Future Ready will see a new structure put
in place and bedded down in 2010/11 and then
a shift to a rebuilding and growing phase in
2012 and beyond, said Mr Fahour.
Source: Australia Post

Questions
1 Identify the form of structure and orientation of Australia Post.
2 Identify whether Australia Post operates in the public or private sector. Justify your answer.
3 What was the original core business of Australia Post?
4 Describe the major changes that will occur to Australia Post under the Future Ready program.
5 Analyse whether you believe the change in strategic direction will prove to be a successful strategy
for Australia Post.

Private sector organisations


company
separate legal entity
(incorporated body)
that is subject to the
requirements of the
Corporations Act 2001
(Commonwealth);
owned by shareholders
whose liability is
limited to the extent
of their shareholding
in the company; it can
sue and be sued in its
own right and is run by
directors, registered
officers and its owners;
it has perpetual
succession

10

Private business organisations make up the


private sector in the economy. These organisations are owned and operated by private
individuals, groups or institutions. Large-scale
organisations in the private sector normally
operate as incorporated bodies, commonly
referred to as companies.
There are two basic types of company:
public and private. The simplest way of identifying a company type is to refer to its name:
Proprietary Limited (Pty Ltd) at the end of the
name signifies a private company, whereas the
word Limited (Ltd) signifies a public company
and its shares may be openly traded on the
Australian Securities Exchange.

Orientation or focus
Organisations can also be categorised according
to their orientation or focus.

Profit
The focus of for-profit organisations is profit
attainment, market share and growth. This classification makes up the majority of enterprises
in Australia; for example, Amcor, ANZ Bank,
Commonwealth Bank, National Australia Bank,
Westpac, Wesfarmers and Toll Holdings are forprofit organisations.

Not for profit


The focus of not-for-profit (NFP) organisations is
on providing a specific service to the community.

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

table 1.2

Characteristics of a company

Legal entity

Separate legal entity from its owners (shareholders); in legal terms,


it has its own entity or life

Liability

Liability of the owners is limited to their investment in the company

Management/decision making

Board of directors is appointed by shareholders to run the company


with management teams appointed by the board to undertake
decentralised decision-making functions

Owners

Shareholders

Regulation as to establishment and


ongoing registration/compliance

Australian Securities and Investments Commission (ASIC)

Structure/objectives/internal
management direction

Replaceable Rules (previously governed by the Memorandum and


Articles Association, abolished 1 July 1998)

Public company

Shares are listed on the Australian Securities Exchange


Shares can be bought and sold by any person or company
Must have at least 50 shareholders with unlimited upper
number of shareholders to be listed on the Australian Securities
Exchange
Must have the word Limited at the end of the company name

Private company

Small number of shareholders (two to 50)


Shares bought and sold privately with consent of other
shareholders
Often run as family businesses
Must have the words Proprietary Limited at the end of the
company name

table 1.3

Profile of the Australian Red Cross

Vision

To improve the lives of vulnerable people in Australia and internationally by mobilising the
power of humanity

Mission

To be a leading humanitarian organisation in Australia, improving the lives of vulnerable


people through services delivered and promotion of humanitarian laws and values

Guiding
principles

Humanity

Voluntary service

Impartiality

Unity

Neutrality

Universality

Independence
Areas of
operation

Strengthening national emergency preparedness, response and recovery, increasing


international aid and development, strengthening communities in areas of locational
disadvantage, championing international humanitarian law, addressing the impact of
migration, partnering with Aboriginal and Torres Strait Islander people and overcoming
social exclusion by providing bridges back into the community.
Source: www.redcross.org.au

c h a p t er 1 Large-scaLe organisations
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

11

Cambridge University Press

There are over 700 000 not-for-profit organisations in Australia, including but not limited to the
following: charities, environmental conservation
organisations, special schools, medical research
organisations, local sporting groups, hobby
clubs and philanthropic foundations. Their
main aims are to provide social, educational,
religious, medical or humanitarian assistance.
The added assistance provided by volunteers
who work to support the paid employees of

these organisations should not be overlooked.


For example, Museum Victoria is assisted by
over 500 trained volunteers.
An example of a charity with a strong
humanitarian purpose is the Australian Red
Cross. The extent of its operations (see table
1.3, on the previous page), together with its
membership of the worldwide network of Red
Cross organisations, confirms its status as a
large organisation.

Activity 1.4
1 Research two other not-for-profit organisations apart from the Australian Red Cross that operate in
Australia. To gain ideas on the names of charities, visit the website www.donations.com.au, which
provides an alphabetical list of registered charities. For each organisation chosen:
a state its vision or mission
b state its guiding principles or what governs its actions and direction
c identify its areas of operation.
2 Would you classify these two not-for-profit organisations as large? Justify your answer.

Type of business activity


Australian businesses are categorised by the
Australian Bureau of Statistics (ABS) into 496
individual industries. These individual industries
are further grouped into 17 industry categories
(see table 1.4). While some organisations are
diverse in their operations (they cut across
several industries), this group classification of

table 1.4

industries simplifies government and regulatory


processes. For example, an industry is used
as the basis to determine award wages and
working conditions.
Organisations are also placed into industry
sectors associated with a particular product or
service. There are three main types of industry groups or sectors: primary, secondary and
tertiary (see table 1.5).

Chart of 17 main industry categories

Accommodation, cafs and restaurants

Health and community services

Agriculture, forestry and fishing

Manufacturing

Communication services

Mining

Construction

Personal and other services

Cultural and recreation services

Property and business services

Education

Retail trade

Electricity, gas and water supply

Transport and storage

Finance and insurance

Wholesale trade

Government administration and defence

12

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

table 1.5 The three main industry sectors: primary, secondary and tertiary (with subsectors of
quaternary and quinary)
Level of sector

type of business/service

Primary

Mining, agriculture, fishing and forestry those industries concerned with land or sea

Secondary

Manufacturing, processing, construction and fabrication of final product

Tertiary

Wholesaling, retailing and transport

a Quaternary

Information processing, finance and insurance, property and business services and education

b Quinary

Hospitality, health and social assistance, personal and other services

Organisational objectives and strategies


All organisations must establish aims or objectives, and then determine strategies or actions to
achieve these aims. Objectives are statements
of desired achievement that provide direction
for actions. Organisations, no matter what their
size or ownership, must do this to succeed.
When establishing the objectives, the following characteristics must be addressed:
The objectives being set are specific (S).
The objectives and their outcomes are
measurable (M).
The objectives, while difficult, are achievable/attainable (A).
The objectives are understood and accepted
by the organisation as relevant (R).
The objectives are time-bound (T).
This is known as adopting the SMART principle and its application ensures clarity of the
objectives being set.

Hierarchy of objectives
The first task for every organisation, whether
for-profit or not-for-profit, is to establish its
overall purpose or reason for existence.
1 A mission statement expresses the purpose
or reason for an organisations existence. For
example, the mission statement of the Bendigo
and Adelaide Bank Group is: We focus on
building and improving the prospects of our
customers, communities and partnerships in

order to develop sustainable earnings and


growth for our business, and thus provide
increasing wealth for our shareholders.
Some organisations also use a vision
statement to outline their overall concept
or aspirations. In addition to these two statements, many organisations now produce a
values statement, which outlines what the
organisation sees as its corporate values or
cultural priorities. The Bendigo and Adelaide
Bank have used their corporate values to
provide a framework that guides them in
the way they interact with each other, their
customers, partners, shareholders, suppliers and the community. These values and
behaviours are expressed as follows:

Teamwork We are one team with one


vision. We work together, encourage diversity and respect the unique contribution of
each individual.
Engagement We listen, understand, then
deliver. We build our success through the
success of others.
Performance We strive for sustainable
success. We seek and provide feedback and
find a better way.
Leadership We all lead by example.
We show initiative, are accountable and
empower others.

c h a p t er 1 Large-scaLe organisations
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

objectives
targets or outcomes
that an organisation
aims to achieve
sMart principle
outlines that goals/
objectives must be
specific, measurable,
achievable (attainable),
relevant and timebound
mission statement
a global statement
that reflects an
organisations reason
for being or purpose
and the way it will be
managed
vision statement
a statement that
outlines the aspirations
of the organisation
values statement
a statement that
outlines what the
organisation sees as
its corporate values,
e.g. integrity, honesty,
responsibility

13

Cambridge University Press

strategic objectives
important long-term
objectives of an
organisation, usually
set for a period of
two to five years;
established for an
entire organisation by
its senior management
tactical objectives
often referred to
as departmental
objectives, established
by departmental
managers for their area
of responsibility
operational objectives
objectives established
by front-line managers
for their work team or
area of responsibility
with a daily, weekly or
monthly time span

Passion We believe in what we do and are


proud of our bank.
Integrity We build a culture of trust. We
are open, honest and fair.

In organisations, the mission statement,


vision and values statements are usually determined by the board of directors working in
conjunction with the chief executive officer.
2 Corporate objectives establish the strategic
objectives required by the organisation as
a whole to reach its overall purpose. Senior
management determines these long-term (two
to five years) objectives and must be certain
they are specific, achievable and measurable. In addition, these objectives should be
communicated to stakeholders, while also
acting as motivators to employees. Corporate
objectives often cover issues such as financial,
social, ethical and environmental goals.

3 Department objectives are the tactical


objectives or medium-term (one to two
years) objectives needed to achieve the
specific targets set for a department of
division. They must be consistent with the
corporate objectives and sufficient resources
must be allocated to allow for the achievement of these objectives. It is important that
coordination takes place between department and divisions to ensure a cohesive
approach to objective achievement.
4 Operational objectives are the next level
of objectives established. They are precise,
measurable and establish the short-term
(daily, weekly, half-yearly, annual) objectives. For example, a sales manager sets an
objective relating to a sales quota for the
next month, or a production supervisor sets
the production output for the assembly line
for the coming week.

Mission
statement
Corporate
objectives
(strategic)

Departmental objectives
(tactical)

Operational objectives

Individual employee objectives

Figure 1.7 The hierarchy of objectives commonly established in organisations

14

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

5 Individual department members objectives and tasks performed. An employee is


set individual objectives or tasks that they
are required to perform. The setting of these
tasks and objectives form the basis of a

process called Management by Objectives


(MBO). This process underpins the method
by which the employee will be appraised.
(See chapter 10 for more information on
performance appraisal.)

Management by
objectives (MBo)
involves setting
specific, measurable
objectives with an
employee and then
periodically reviewing
the employees
performance

Activity 1.5
Read the extract below and answer the questions that follow.

RSPCA Australia
Mission statement: To prevent cruelty to
animals by actively promoting their care and
protection.
RSPCA Australia vision: To be the leading
authority in animal care and protection.
The objectives of the RSPCA in Australia are:
To prevent cruelty to animals by ensuring
the enforcement of existing laws at federal
and state level.
To procure the passage of such amending
or new legislation as is necessary for the
protection of animals.
To develop and promote policies for the
humane treatment of animals that reflect contemporary values and scientific knowledge.

To educate the community with regard to


the humane treatment of animals.
To engage with relevant stakeholders to
improve animal welfare.
To sustain an intelligent public opinion
regarding animal welfare.
To operate facilities for the care and
protection of animals.
These objectives are supported by a
federation of member Societies known as
RSPCA Australia, a National Council and
administration.
Source: www.rspca.org.au

Questions
1 For the RSPCA and the Bendigo and Adelaide Bank, use their mission statements and vision or
values statements to identify:
a the purpose of the organisation
b basic philosophies and values underpinning the organisation
c goods and services offered
d target market.
2 Consider the mission statement of the RSPCA. Which stakeholder groups are likely to have
influenced the creation of this particular mission statement and why?
3 Use the internet to locate the mission statement of one of Bendigo and Adelaide Banks
competitors, such as Westpac, National Australia Bank or ANZ Bank. Compare the mission
statements of Bendigo and Adelaide Bank and the competitor. What differences and
similarities exist?

c h a p t er 1 Large-scaLe organisations
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

15

Cambridge University Press

Activity 1.6
1 Classify each of the following as strategic, tactical or operational objectives.
a Ivana, the CEO, sets an objective to increase market share by 25 per cent within five years.
b Greg and his work team aim to reduce their defect rate by half over the next month.
c The manager of the finance department aims to reduce staff turnover by 40 per cent within
12 months.
d The library staff set out to reduce theft by at least 25 per cent within 12 months.
e Senior management aim to reduce emissions by 30 per cent over a threeyear period.
2 Referring to the SMART principle, identify what is wrong with each of the following objectives.
a
b
c
d
e
f

We want to do better.
I aim to make lots of money.
To achieve a happy workplace.
To be the worlds leading fast-food chain within six months of commencing operations.
To be successful.
To do nearly as well as last year.

Types of objectives

Service objectives

There are also different types of objectives that


a large-scale organisation can set. These are
detailed below.

Service objectives relate to an organisations


desire to provide a stated service either to its
clients/customers or to the community at large.
Examples include:

Financial objectives
financial objectives
objectives relating to
achieving financial
performance
service objectives
an organisations desire
to provide a stated
service either to its
clients/customers or to
the community at large
social objectives
objectives relating to
the level of participation
in and contribution to
community/society

Financial objectives relate to the desired


financial performance of an organisation. These
include areas such as profit maximisation, sales
growth, improving market share, increasing
productivity, innovation, business diversification, asset value, management performance,
staff performance and increasing returns on
shareholder investment.
Generally, financial objectives are prominent
in private sector, profit-making organisations.
Not-for-profit and government-owned public
sector organisations, while still emphasising
financial objectives to a degree, generally do
not place the same weight on them.
Examples of financial objectives include:
To increase profits by a stated percentage.
To reduce production costs by a stated
amount.
To gain a stated percentage of market share.

16

St Vincents Institute (based in Melbourne),


a worldwide recognised centre of excellence for medical research, has established
its objectives based on the desire to strive
through research to alleviate the impact of
serious diseases (www.svi.edu.au).
To meet the needs of our customers.

Ethical and social responsibility


objectives
Social objectives relate to an organisations
role and participation in the community as a
corporate citizen. The role may extend to the
provision of community facilities or services,
contribution to community causes, the adoption of policies reflecting community views,
such as equal employment opportunity, or
even assistance for causes, such as The Body
Shops support of animal rights. Examples
include:

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

To promote equity in the workplace.


To support unemployed youth through our
recruitment program.

Environmental objectives
Environmental objectives relate to an organisations minimisation of resource use and the
environmental effects of its activities. Examples
might be related to waste and emission reduction,
lessening environmental impact, and adoption of
recycling. The Body Shops environmental objective is to courageously ensure that our business
is ecologically sustainable, meeting the needs of
the present without compromising the future.
Following on from objective setting, strategies need to be put in place to achieve those

targets. Strategies are the plans or actions that


need to be formulated by the various departments to actually get things done. The strategies
to be used will depend not only on the objectives being set, but also on the strengths of the
organisation, the resources available to it and
the nature of its competitive environment.
It is important to establish which department or individual is responsible for achieving
the output and determining appropriate performance measures, namely performance indicators (PIs). This forms part of the Management by Objectives process and can be used
as a way of integrating an entire workforce
(senior management to front-line workers) into
a cohesive team.

environmental
objectives
objectives relating to an
organisations use of
resources and degree
of environmental
impact
strategy
a plan of action that
aims to achieve a
specific objective
performance
indicators (Pis)
a set of measures
that helps a
company determine
if it is reaching its
performance and
operational objectives

Activity 1.7
The table below sets out different types of organisations and an example of an objective that each
organisation could set.
Copy and complete the table by providing two additional objectives for each organisation. (Hint:
refer to the broad types of objectives financial, service, social and environmental and main areas
from which objectives are drawn.)

type of organisation

name of organisation

objectives

Corporation (profit)

Wesfarmers

To maximise profits

National Australia Bank

To add to financial worth (net assets)

Orica

To integrate newly acquired businesses to deliver


increased earning expectations

Australia Post

To provide first-class quality service delivery

Australian Broadcasting
Corporation

To provide quality broadcasting services to Australians

VicRoads

To provide a quality road infrastructure for Victoria

government
department/local
government

Australian Taxation
Office

To implement government legislation relating to the


collection of taxation

City of Melbourne

To provide the best level of service to our community

Charities

Salvation Army

To fight for the disadvantaged

World Vision

To provide financial assistance to overseas


communities

Asthma Foundation

To use our financial base for community benefit

Government business
enterprise or corporation

Foundations

c h a p t er 1 Large-scaLe organisations
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

government
department
established by the
government to reflect
a functional area
(ministerial portfolio);
ultimate responsibility
for the functioning of
the department rests
with the minister of the
government (federal or
state)

17

Cambridge University Press

Typical management functions


hierarchy of
objectives
the aims and objectives
of an organisation are
placed in descending
order of strategic
importance
management
the process of planning,
organising, leading and
controlling the work
of subordinates to
achieve organisational
objectives; getting work
done through other
people
capital
funds invested in a
business, which form
one of the main inputs
for the production
process

If an organisation is to survive, grow and be profitable, it is important that it is able to achieve the
hierarchy of objectives mentioned above. It is
the function of management to ensure that this
occurs. Management can therefore be regarded as
the process of coordinating and integrating work
activities so that they are completed efficiently
and effectively with and through other people.
All managers, regardless of their level in the
organisational hierarchy and in which functional
area they operate, have one thing in common:
getting things done through the work of others.
Management uses resources to achieve the
organisations objectives. These resources are:
human the people or employees of the
organisation; generally regarded as the most
important resource of any organisation
material the raw material, equipment,
buildings and machinery
financial the capital and ongoing finances
required to establish and operate the business activity
informational the vast amount of data,
information and intellectual property available to the organisation.
In a traditional organisation, it is possible to
classify managers into levels, which reflects their
level of seniority in the organisational hierarchy:

Senior
(executive)
managers

Middle managers

Front-line managers (supervisors)


Figure 1.8
18

Management levels

1 Senior (executive) managers spend a large


proportion of their time planning and setting
objectives. They are in charge of managers
subordinate to them (middle managers).
2 Middle managers translate these objectives
into specific projects for their subordinates
(front-line managers) and monitor the progress of these projects.
3 Front-line managers (supervisors) are the
lowest level of management. The majority of
their time is spent leading, supervising and
controlling their subordinates (workers) who
are working on specific projects.
The management process, which is common
to all levels of management, relates to the
ongoing functions or primary activities in which
managers are engaged. (See chapter 5 for more
information on senior (executive) managers and
on management functions and roles.)
Here is a brief summary of what are
commonly referred to as the basic roles of
management:
Planning involves establishing the general
direction and objectives of the organisation.
Senior management will be responsible
for setting the overall strategic (long-term)
objectives for the entire organisation. These
objectives will then be broken down into
tactical objectives for achieving over a
medium time frame. On a more immediate
level, operational plans will be put into place
to achieve targets that have been set. Managers at all levels are involved in the planning
needed to put these objectives into effect.
Organising relates to developing a systematic approach to coordinate the human, material, financial and informational resources
of the organisation in order to achieve
organisational objectives. It can cover areas
such as setting up work groups or teams,
establishing a chain of command, channels of
communication, outlining an organisational
or departmental structure to establish a division of tasks and allocating jobs or tasks.

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Leading refers to how a manager, by their


behaviour and style, directs, influences
and motivates their subordinates to work
towards achieving organisational objectives.
It is important that managers establish an
atmosphere where their subordinates want
to work and are able to excel.
Controlling involves the necessary monitoring and evaluation to ensure that organisational objectives are being met. Standards

will need to be established, and checks


carried out to assess performance against
forecast or budget, and if required, corrective action will need to be taken.
It has been observed that as managers move
into higher positions within an organisation, the
role of the manager changes: they are required
to spend a greater percentage of their time planning rather than supervising.

Typical management functional areas


Managers at all levels (senior, middle and frontline) perform these roles in the different functional areas of the organisation, which include:
operations where the focus is on creating
the organisations final output (product or
service)
finance where the focus is on planning,
maintaining and reporting on the financial
aspects of the organisations performance
human resources where the focus is
on managing the overall relationship the

organisation has with its employees


marketing where the focus is on developing
strategies to create an ongoing relationship
between the organisation and its customers
research and development where the
focus is on studying and developing new
and improved products for the organisation.
The two functional areas of operations and
human resources will be covered in greater
detail in later chapters.

Contributions (positive and negative) of


large-scale organisations to the economy
The actual number of large-scale organisations
in Australia is small in comparison with the
number of small- and medium-sized businesses in operation. However, the groups
overall contribution to the Australian economy
is significant, particularly in the following
five areas.

Gross domestic product


Gross domestic product (GDP) is the total
monetary value of all goods and services
produced in Australia in a one-year period. It
is estimated, by research carried out by IBISWorld on behalf of Business Review Weekly,
that approximately 51.3 per cent of all revenue

generated in Australia comes from BRW 1000


enterprises.

Employment
Large-scale organisations, by the very nature
of their size, employ a large percentage of our
total workforce. By providing this employment
the economy benefits, as it provides income for
workers who may then spend the money on
consumer items. The government also benefits
through receiving taxation revenue from personal
income tax, goods and services tax (GST) and
payroll tax. If there is a downturn in the economy
and organisations downsize their operations, this
will impact negatively on the economy.
c h a p t er 1 Large-scaLe organisations

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

gross domestic
product (gDP)
the total value of output
produced in a country
in one year

19

Cambridge University Press

table 1.6 Ten largest employers


organisation

number of employees

industry sector

Wesfarmers

201 202

Diversified, Retail

Woolworths

191 000

Retail Food

Queensland Health (GBE)

60 770

Health, Community Services

Commonwealth Bank

44 218

Finance, Investment

BHP Billiton

40 990

Mining

Telstra

39 464

Telecommunications

Leighton Holdings

39 327

Construction

Rio Tinto

39 326

Mining

National Australia Bank

38 953

Finance, Investment

ANZ Banking Group

37 687

Finance, Investment

Source: Business Review Weekly, TOP 1000 2010 Lists, 9 March 2010

downsizing
a reduction in a
companys workforce
through elimination
of jobs, generally
made to improve an
organisations profit
outsourcing
process of using
another business to
undertake some task or
work process

Figure 1.9 Banks are among Australias largest


employers.

In recent years, reducing the size of an


organisations workforce has become a major
objective of some Australian employers. Many
organisations are downsizing in an effort to cut
costs and increase productivity. Their intention
is to make their organisations lean and mean
in order to achieve a competitive edge. This,
however, results in staff being made redundant
(losing their jobs).

20

As a consequence, many organisations now


outsource some non-core organisational functions, e.g. catering, cleaning and transport. This
has led to an increase in the number of small
businesses that now act to service large-scale
organisations. Outsourcing is not only beneficial
to small business operators; large-scale organisations are also gaining, through businesses closely
examining the financial side of their operations.
Fosters Brewing, for instance, recognised
that one of its core business activities was
brewing beer (not the actual distribution of the
product). Fosters realised that if it arranged for
the transport and distribution of its products
to be outsourced to Linfox, Australias leading
logistics provider and supply manager, this
would assist the company to achieve its corporate objectives in a more efficient and effective
manner. This has proven a successful strategy,
without disruption to the supply chain (delivery
of products) since that decision was made.
The use of contractors has become popular
with large-scale organisations that have downsized, because it allows the organisation to
acquire qualified workers to undertake projects
on a needs basis, without the additional costs
associated with permanent employment.

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Activity 1.8
Refer to table 1.6 to answer the following
questions.
1 Identify why businesses in the retail sector
would be among the largest employer group.
2 The finance industry is also represented in the
top 10 list in table 1.6. What is the common
business characteristic of this sector that
would make it possible for them to be ranked
in the top 10?
3 For the remaining organisations, identify the
particular business characteristics that would
cause them to employ large numbers of
people.

Balance of payments
Balance of payments is an annual record
of Australias trade and financial transactions
(exports and imports) with the rest of the world.
Large-scale organisations, through their desire
to trade in the global marketplace, assist in
earning export income, which improves Australias balance of payments performance, while
organisations importing goods negatively affect
the balance of payments.
One organisation making a sizeable contribution is Toyota Australia. In the past 14 years,
Toyota has exported more than 870 000 vehicles
to over 20 destinations around the world. The
Middle East is a major importer of the vehicles,
with Toyota shipping its 500 000th vehicle in
October 2010. The Camry is the most popular
passenger car in the Middle East and was worth
$1.3 million to Toyotas Australian operations in
200910.

of recouping expenditure. In a bid to encourage organisations to make this commitment,


government policy often extends to providing
financial incentives in the form of grants or
taxation rebates.

table 1.7 Top 10 Australian R & D spenders


rank

organisation

expenditure
($m)

CSIRO

University of Melbourne

635.7

University of Sydney

555.4

GM Holden

360.2

CSL

311.6

Ford Australia

250.7

BHP Billiton

210.1

University of Western
Australia

208.0

OneSteel

179.3

Aristocrat Leisure

117.2

10

1180.8

balance of payments
annual record of
Australian trade and
financial transactions
(export/import) with the
rest of the world

Source: Business Review Weekly, TOP 1000 2010 Lists, 9 March 2010

Research and
development
A large outlay of capital expenditure is
required to carry out research and development (commonly referred to as R & D). It is
a high-risk decision that provides no certainty

Figure 1.10 The CSIRO is Australias leader in


research and development spending.

c h a p t er 1 Large-scaLe organisations
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

21

Cambridge University Press

Activity 1.9
1 Identify which of the top 10 organisations for research and development are government-financed
bodies (refer to table 1.7).
2 Why do you think these government-financed bodies comprise a third of the list?
3 Eliminate the government-financed bodies from the list. Now identify which is the highest placed
locally owned business on the list.
4 Two car manufacturers appear on the list. Identify the areas of their operations that would gain the
greatest benefit from expenditure on research and development.
5 Explain why industries such as information technology, business services and finance spend heavily
on research and development, while many large-scale organisations spend very little.

Infrastructure growth
infrastructure
physical resources of
an area, e.g. power,
transport, utility
services, that benefit
the entire community

The majority of infrastructure is provided


either by government business enterprises or
recently privatised, former GBEs. Infrastructure
can take the form of roads/highways/freeways,

transport systems (rail, bus and train), utilities (gas,


electricity, and water), communication, health
and education. It is seen as the role of government to act as a social and economic developer of
the country. In this way it is supporting all levels
of business and the broader community.

Activity 1.10
Copy and complete the following table by inserting examples of positive and negative impacts of
each of the five contributing areas of large-scale organisations to the economy of Australia.

contribution to economy

Positive impact

Gross domestic product

negative impact
e.g. Outsourcing of product
manufacture overseas

Employment
Balance of payments

Exporting of Australian made


products

Research and development


Infrastructure growth

22

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Organisations occur in every part of our lives,


both socially and in our business or work life.

Organisations are a deliberate arrangement of


people working to achieve a specific purpose or
set of goals.

Organisations enable us to achieve more


through a team environment.

They provide continuity of knowledge and


experience and help us to manage complex
social and technological change. Employment
and career opportunities can result from being
part of an organisation.

Organisations have common characteristics:


distinct purpose or goal(s), comprised of two
or more people, and adopt a distinct form of
structure.

Common criteria for classifying an organisation


as large are:

number of employees (more than 200)


substantial total assets
substantial total revenue
substantial profits
dominant market share
large-sized operations
business locations generally multiple.

Organisations often enter into joint ventures,


merge together, demerge, are taken over in
a hostile manner, or are acquired by another
organisation. Some may choose to downsize
their operations or outsource their non-core
activities.

A dual-listed company is created when a


company, usually as the result of a merger,
applies to have two independent listings
(separate shareholders) on two stock exchanges.

There are many ways in which large-scale


organisations can be differentiated:
Ownership government business
enterprises (GBEs), government departments
and statutory authorities that form the basis
of the public sector, or private business
organisations that form the basis of the
private sector
Orientation or focus either as a for-profit or
not-for-profit organisation
Type of business activity to which industry
classification and level they belong.

All organisations must set objectives.


The objectives set will depend on the nature
of the business activity being undertaken.
A hierarchy of objectives needs to be
established, commencing with the mission
statement (common purpose) down to the
individual objectives of employees.
This process is referred to as Management
by Objectives.

The SMART principle is used to ensure that


objectives being set are specific, measurable,
achievable, relevant and time-bound.

Objectives may cover the areas of: financial,


service, ethical and social responsibility, and
environment.

Plans (strategic, tactical and operational)


need to be put in place at each level of
the organisation to assist in achieving the
objectives.

General characteristics of a large-scale


organisation:
Strategic objectives are formulated.
Strategic planning is undertaken.
Formalised policies, procedures and rules
are adopted and documented.
Organisational structure is devised.
A chain of command and hierarchical
management structure is established.
A coordinated and decentralised approach
to decision making is adopted.
Specialisation of activities into departments
or within departments occurs.

Many Australian large-scale organisations operate


as multinational corporations with their business
activities occurring in more than one country.

CHAPTER SummARy

c h a p t er 1 Large-scaLe organisations
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

23

Cambridge University Press

Management undertakes the key roles of


planning, organising, leading and controlling
to assist the organisation to achieve these
objectives.

Typical management functional areas in largescale organisations include operations, finance,


human resources, marketing and research and
development.

1 Define the following terms. Demonstrate your

CHAPTER SummARy
QuESTIONS

understanding of each term by incorporating it


into a sentence.

Large-scale organisations contribute either


positively or negatively to our economy through:
gross domestic product (GDP), employment,
balance of payment (exports/imports), research
and development, and infrastructure growth.

d Shareholders in a company have unlimited

a Multinational corporation

liability.

b Takeover
c

profit.

Merger

organisation that does not have a mission


statement is doomed to fail.

Management by Objectives

7 How would you suggest that an organisation

g Joint venture

communicate its mission statement to:

h Hierarchy of objectives

a its employees?

SMART principle.

b its stakeholders?

2 Identify three common features of all

organisations.
3 Outline the seven common criteria that can be

used to classify an organisation.

the broader community?

8 Establish four factors that would assist an

organisation to achieve its corporate objectives.


9 In what circumstances might the objective of

4 Identify the seven general characteristics of a

profit maximisation not be appropriate for an


organisation?

large-scale organisation.
5 Indicate whether the following statements are

true or false.

10 Outline what factors need to be considered

when an organisation is establishing its


objectives.

a Employee base, total assets and profit

are the only criteria used to classify an


organisation as large.

T/F

6 Discuss the following statement: An

e Outsourcing

T/F

e The focus of an NFP organisation is to make

d Dual-listed company
f

GBEs form part of the private sector in our


economy.
T/F

T/F

b A takeover results in one organisation

gaining a controlling interest in another


organisation.

24

T/F

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Question 1

a Define the terms corporatisation and

privatisation and provide an example of each.


b Explain why you believe this trend occurred.

4 + 2 = 6 marks

a Not-for-profit organisation
b Downsizing
c

ExAmINATION
PREPARATION

Define the following three terms and provide an


example to demonstrate your understanding.

Question 3: Extended response

Large-scale organisation.
6 marks

Question 2
As a result of past government policies during
the last two decades, many government
departments and statutory authorities underwent a
corporatisation process. This was followed, in many
instances, by privatisation of those government
business enterprises.

Large-scale organisations often outsource non-core


functions. You have been asked by the board of
directors of a major organisation to provide them
with a reasoned argument as to the advantages
and disadvantages of outsourcing non-core
activities of their organisation.
10 marks

c h a p t er 1 Large-scaLe organisations
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

25

Cambridge University Press

EnvironmEnts
of businEss

Whats ahead

Macro
environment

Stakeholders

Large-scale
organisations

Objectives
and strategies

External
pressures

Internal
pressures

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Operating
environment

Cambridge University Press

Key Knowledge

Students will learn the following about large-scale organisations:


internal and external (macro and operating) environments of largescale organisations
identification and characteristics of stakeholders of large-scale
organisations their interest, possible conflicts and related ethical and
socially responsible considerations.

area of study

Large-scaLe organisations in context

All large-scale organisations, whether they are for profit or not for profit, operate in a complex
and rapidly changing business environment. In Australia, organisations operate within an open
system that interacts with and is dependent upon its specific (internal and operating) environment
while always remaining aware of the potential influences of its general (macro) environment. For
a business to be successful, it must be able to respond quickly to changes or pressures that come
from either its external or internal environments.

27
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Stakeholders in large-scale organisations


stakeholder
individual or group that
has a direct or vested
interest in the activities
of an organisation

At each level of the environment of a business,


there are stakeholders or pressures that impact
directly on the organisation. A stakeholder can
either affect or be affected by the operations of
an organisation.
Ideally, all stakeholders should want an
organisation to achieve its aims or objectives. In
reality, this does not occur as various stakeholders a competitor, for example would have
conflicting interests. In addition, the needs of
stakeholders can actually contradict each other.

table 2.1

Lobby groups interested in the environment may have a conflicting interest to those
who believe an organisations only purpose is
to make a sizeable profit. Success comes from
working out strategies to overcome or satisfy
these varying interests.
Set out in table 2.1 are some of the major
stakeholders of an organisation, together with
their most likely interests and issues. These are
generally drawn from the internal and operating
environment of the business.

Stakeholders and their interests and issues

stakeholder

interests and issues

Shareholders

Profitability of the business


To receive dividends (dividend yield)
Increased share prices (capital appreciation)
Ethical business operations
Socially responsible behaviour

Directors

To develop and direct strategy and major business decisions


To ensure strict adherence to corporate governance, social responsibility, and ethical and
honest behaviour
To gain personal power and status by being a director of a business
To be well remunerated (money and share options)

Management

To be involved in setting goals and objectives


To achieve goals and objectives
To secure their position within the business and work on their career development

fringe benefits
benefits received by
employees in addition
to their normal wage or
salary, e.g. company
car, medical benefits

To receive a fair remuneration package (pay and fringe benefits)


To gain job satisfaction
To work for an organisation that is ethical and socially responsible
Employees

To receive a fair wage or salary


To work in a non-discriminatory and ethical workplace
To have the opportunity of career advancement
To gain job satisfaction
To feel secure in the long-term survival of their job
To work for an organisation that is ethical and socially responsible

Trade unions

To negotiate fair wages, working conditions, working hours and other related work issues
To be represented in the workplace

28

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

stakeholder

interests and issues


To be involved in the decision making with management over issues relating to employees
To ensure the welfare of their members, both health and safety
To be a party to any collective bargaining agreement established at a workplace

Customers

To obtain quality goods and service


To receive high levels of customer service (pre- and post-sale)
To establish a long-term relationship with the business
To ensure that products are Australian made
To support Australian-owned businesses
That the business is acting in an ethical and socially responsible manner

Suppliers

To ensure your business is profitable (so they get paid)


To be paid promptly
To be able to establish and guarantee a long-term preferred supplier relationship

Creditors/
banks

To be paid repayments, both principal and interest, due on loans


To be repaid loans in full
To ensure all banking interests of the business are secured by that bank
To be certain that customers are being open and honest in their financial dealings

Community

To benefit from the employment opportunities created by the business


For the business to participate in their community
To ensure that the business is a socially responsible corporate citizen
To ensure the business is ethical in its operations
To ensure the business operations are environmentally responsible/sustainable

Government

To receive taxation revenue from profitable businesses


To provide incentives for businesses to relocate to benefit a community
To provide a legislative framework to control business operations, such as the Trade
Practices Act 1974, the Environment Protection Act 1978, the Equal Employment
Opportunity Act 1987, the Workplace Relations Act 1996 and successive amendments
To provide assistance to businesses to establish and run their operations

Competitors

To ensure they gain a competitive edge over the business


To differentiate their product or services from their competitors
To compare and evaluate their performance against other businesses

Activity 2.1
Identify the various stakeholders of two of the following large-scale organisations.
1 Nestl the worlds largest food and beverage company
2 Billabong a well-known surfwear manufacturer and retailer
3 BHP Billiton a diversified mining company
4 Qantas Australias airline.

c h a p ter 2 environments of business


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

29

Cambridge University Press

Three levels of the organisational


environment
1 Internal
environment
2 Operating
environment
3 Macro
environment

figure 2.1

Internal environment
It is important for organisations to take account
of and respond to the pressures and forces from
within their organisation. When making decisions in relation to these factors, management
has a fair degree of certainty and control.

Owners/shareholders
Board of directors
and management
Employees
Organisational structure
Corporate structure

Internal
environment

30

External

The three levels of environment

All businesses, whether small, medium or large,


must operate in a complex and rapidly changing business environment. For any business to
be successful, no matter what its size, it must be
able to respond quickly to changes or pressures
that may come from the internal, operating and
macro environments.

figure 2.2

Internal environment

Owners/shareholders

voting on motions at the Annual General Meeting

An individual minority shareholder (owner)


will find it difficult to pressure or influence the
direction of a large organisation. Through being
a member of the pressure group, the Australian
Shareholders Association, or by attending and

of the company in which they hold shares, that


individual shareholder may exert some influence
on the composition of the board of directors.
Shareholders may also wish to exert
pressure on organisations to become more

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

environmentally sustainable in their business


operations. An example of shareholder consent
being required for strategic change in the direction of an organisation was the necessity of majority affirmation from both Broken Hill Proprietary
Limited and Billiton Plc shareholders prior to
the merger of these two corporate giants. Had
majority consent not been obtained, these two
companies would not have been able to merge.
Institutional shareholders can have a large
impact on the share value of an organisation. Banking, insurance companies and fund
managers acting on behalf of superannuation
funds hold large portfolios of shares which they
actively trade to earn money for their investors. Should one of these institutions decide to
sell a large parcel of shares as part of a profit
realisation or change in investment strategy, the
share price for the target organisation could be
negatively impacted.

Board of directors and


management
It is the role of the board of directors to work
on and develop important strategic decisions
and oversee the organisations management.
It is important that the board of directors and
management work to manage corporate risk
and eliminate poor corporate conduct. Strict
adherence to corporate governance, social
responsibility, ethical and honest behaviour
must be treated as core issues of an organisation.
While the board of directors should not
intervene in the internal management of an
organisation, they must not simply rubberstamp the strategies determined by the chief
executive officer. Motivated by a need to protect
shareholder interests and their personal liability
as directors, boards are increasing their scrutiny
of senior management, both in terms of their
management style and skill base.

Employees
Employees, while reliant on the large-scale
organisation for employment, are now seeking

to work in a non-discriminatory and ethical


workplace that provides workplace flexibility options, equal employment opportunities,
career development and a healthy and safe work
environment. This places pressure on organisations to provide these policies, procedures and
work practices. Many organisations seek to be
regarded as conducting best practice with
regard to providing for their employees. To
have this recognition makes them an employer
of choice and provides them with a competitive
edge when seeking to attract and retain the best
employees. It has become common practice in
recent years to publish an annual ranking of the
top employee-friendly organisations as well as
to list the variety of initiatives they offer.
The Equal Opportunity for Women in the
Workplace Agency recognises organisations that
proactively provide programs for advancing their
female workforce. Recipients of the award EOWA
Employer of Choice for Women (EOCFW) can
cite this in their recruitment, advertising and
other company promotional material.

best practice
a form of
benchmarking where
organisations compare
themselves with the
best in their industry or
operating area

figure 2.3 Advancing the role of women in the workforce

Organisational structure
Organisations have been actively involved in
downsizing, returning to core business activities and reorganising their operations. These
strategies have resulted in many organisations
changing from the multilayered bureaucratic

c h a p ter 2 environments of business


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

31

Cambridge University Press

organisational
structure
the way in which an
organisations activities
are divided, organised
and coordinated
corporate culture
the shared values
and beliefs of an
organisation, which can
influence the actions
and decision-making
style of managers and
employees
entrepreneur
a person who in
addition to having
management skills is
prepared to take risks

structure to a flatter organisational structure.


This change has removed the emphasis on the
structural level of middle management and
created a greater emphasis on the use of teams
and the empowerment of workers. It has also
created opportunities for non-core activities to
be outsourced or undertaken by contractors.
These strategies usually result from an organisations efforts to reduce costs.

Corporate culture
Corporate culture evolves over time and
reflects the shared values, beliefs and expectations of employees. It can reflect the personality
of the original founder or owner of the business.

Two examples of this might be Lindsay Fox and


his company Linfox, or Richard Branson and his
Virgin Group. These are examples of individuals who would be classified as entrepreneurs,
as they initially saw a business opportunity and
pursued it.
Establishing a positive corporate culture
that supports the organisations objectives is
important. This will assist managers as they
build on an existing foundation of motivation
and team spirit. Organisations must incorporate
flexibility and adaptability into their culture to
remain dynamic and responsive to a changing
operating environment.

Activity 2.2
Read the Linfox corporate culture statement and answer the questions that follow.

customer focus
responding to the
needs and problems of
customers is the most
important consideration
of an organisation
cultural diversity
open recognition that
our values and beliefs
form the basis of our
culture, and are diverse
due to our varied
backgrounds

Linfox Logistics has grown from a one


man operation in 1956 to a sophisticated
international business providing work for
more than 18 500 people across 10 countries.
We base our culture on the principles of
safe behaviours, customer focus, development of our people and living our values,
remaining lean and competitive and generating
new business. Linfox believes in forging strong
relationships with our customers and working
with them to achieve goals.
The working culture is one of teamwork
and dedication. The business regularly com-

municates with employees to highlight business achievements and news.


The business celebrates the cultural
diversity of our employees throughout our
operations. We work with the communities in
which we operate and respect local laws and
traditions.
Linfox takes our impact on the environment very seriously. Through our sustainability strategy Linfox aims to reduce our carbon
footprint by 50 per cent by 2015.
Source: Linfox Logistics

Questions
1 What type of business does Linfox conduct?
2 After reading the Linfox corporate culture statement, do you believe that the organisation has a
positive or negative culture? Justify your answer.
3 How important are its customers to Linfox?
4 Linfox makes the statement that it believes in forging strong relationships with our customers and
working with them to achieve goals. What does this mean?
5 Visit the Linfoxwebsite www.linfox.com and provide examples of how Linfox works to assist
businesses in their operations.

32

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Operating environment

titors Suppliers Re
ompe
gula
tor
rs C
Operating
e
yb
m
o
t
o
s
u

External

ns

un

ti o

Tr a d

figure 2.4

1 Internal
environment
2 Operating
environment
3 Macro
environment

es
di

Organisations face different pressures and


uncertainties from their operating environment.
The factors within this environment directly

interact with the business and its operations.


They can provide both opportunities and threats
to a business relating to its success and ability to
be competitive.

io n

in s
s L
obby
cial
/pressure groups Finan

tit

Operating environment

Customers
Customers pose potential uncertainty to the
profitability and ongoing success of any business. It is important that organisations adopt the
following philosophies: the customer comes
first and the customer is always right. Both
these philosophies are widely adopted in retailing, and in marketing it is referred to as developing the customer relationship or customer
relationship marketing.
Customers are now more discerning and
educated in their consumer choices. Consumers have become more health conscious, and
in food are looking for products that are low
in fat and salt, and that contain no additives or
preservatives. Customers often make a product
selection based on whether it has the Heart
Foundations tick of approval. Whether a
product is Australian made is another common
factor in consumer choice.
The socially responsible and ethical nature
of an organisations practices can also influence customers prior to making a decision
to purchase a product or use the services of
that organisation. Customers of the major
banks, incensed with branch closures in

many suburban shopping centres and country


towns, have shown their anger by closing their
accounts. This positive action by customers has
caused some banks to rethink their strategy,
while providing an opportunity for community
banks to be established.

figure 2.5

customer
someone who buys
goods or services
consumer
a person or group who
purchases or uses
a product

Consumers are looking for healthier food choices.

c h a p ter 2 environments of business


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

33

Cambridge University Press

Activity 2.3
Read the article and answer the questions that follow.

Nine eyes women, Seven woos men


by Peter Ker
Television stations have picked sides in the
battle of the sexes, with two new digital
channels set to launch next week.
Nine yesterday confirmed plans to launch
a new digital channel aimed at women aged
35 and over, screening drama, movies and
comedy.
Named GEM, the channel will launch on
the same weekend that Seven launches its new
digital channel aimed at men: 7mate.
Nine wants to use GEM to target people
who buy groceries, and the new channel will
complement Nines other digital channel GO!
which is aimed at viewers aged 16 to 39.

Nines chief executive David Gyngell said


news content from the networks primary
channel could also be repackaged in a way to
make it better suited to the GEM audience.
GEM is what its title suggests, a general
entertainment and movie channel, carefully crafted and targeted like GO! before it,
to appeal to the wide audience cross-section
and complement Nines existing successful
brands, he said.
Ten, which operates the sports orientated
ONE on digital television, will also launch a
second digital channel in coming months.
Source: The Age, 14 September 2010

Questions
1 How has the customer comes first philosophy affected the new digital television channels?
2 Identify the target customers/viewers for GEM, GO!, 7mate and ONE.
3 What opportunities has creating these new television channels provided for Nine, Seven and Ten?
4 Discuss whether you believe that the television stations would have established these new free-toair channels if they were not operating in a competitive business environment.

Competitors

competitor
a business rival in
the same market
for products or
services offered by an
organisation

34

Competing businesses must never be overlooked, even if a business is ranked No. 1; to


do this could be a very costly exercise. Constant
monitoring must occur with regard to a competitors products or services. Has the competitor
introduced a new product, extended a product
line, or changed its pricing strategies?
In the area of banking, Australias four major
banks National Australia Bank, ANZ Limited,
Commonwealth Bank and Westpac are fiercely
competitive. These financial institutions earn a
large percentage of their revenue from the interest they charge other businesses and individuals

for the use of their money. The Reserve Bank,


as part of its role in implementing the governments monetary policy, is responsible for monitoring and setting the official target interest rate
in Australia. It is interesting to watch how these
banks react if the official interest rate goes up or
down. Which one will be the first to change and
how quickly will the others follow?
Another example of how businesses endeavour to gain an edge over their competitors is by
offering inducements and incentive programs.
A very successful everyday rewards program
was established by Woolworths (Safeway)
which initially linked credits towards your fuel

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

a National Business Park adjoining its national


headquarters in Campbellfield. It aimed to bring
a number of its component suppliers together in
one location, thereby creating direct access to the
assembly line at its plant. This reduced the waiting
time for parts being transported from other locations and warehousing and storage costs, as the
suppliers now transfer their products directly to
the production line as Ford needs them.
figure 2.6 Businesses offer many incentives for
customer loyalty.

purchase and now extends to a far wider range


of benefits. Other retail outlets have seen the
benefit of recognising loyal customers and have
introduced similar schemes.

Activity 2.4
1 Identify examples of two inducements or
incentive programs currently being offered by
large organisations.
2 Explain why these businesses see the need to
offer these inducements or incentives.

Suppliers
A supplier is any provider of input into a
businesss operations. It could take the form
of raw materials, services, energy, equipment,
labour and capital. Businesses must ensure a
steady, reliable flow of needed inputs at the
lowest possible cost. It is essential to establish
a guaranteed stable, long-term relationship with
selected suppliers.
Australia has three car manufacturing
companies: Ford, Holden and Toyota. These
companies are heavily reliant upon component
parts for the assembling of their cars. If there is
a problem with supply, which generally occurs
due to a strike at one of the component part
manufacturers, they ultimately will have to close
down their assembly plants until the industrial
dispute is settled.
In a move to establish the ideal supplier
relationship, Ford Motor Company has created

Trade unions
Trade unions represent workers who are
members, and act on their behalf to negotiate
with management on issues such as wages,
working conditions, working hours and other
aspects of work. Union influence is based on
gaining power through solidarity of workers
against management and employers. They
provide a channel for collective bargaining for
wages and conditions, while also providing
support for workers who have grievances in
the workplace. If a workplace dispute escalates,
the union will provide support and legal representation for its members.
Trade unions also provide a range of welfare
and social benefits for members. In recent
times, unions have adopted a more cooperative
role with employers and management. This role
is based on partnership building and working

supplier
supplies the inputs
(resources) required for
the production process
wage
the monetary
reward for labour,
paid on a weekly
basis, calculated by
multiplying the hourly
rate by the number of
hours worked for the
period
grievance
any dispute arising
between an employer
and employee or union

figure 2.7 Approximately 2 million Australian workers


are members of unions and many more benefit from the
achievements of unions. The ACTU is the peak body of
the Australian union movement.

c h a p ter 2 environments of business


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

35

Cambridge University Press

Activity 2.5
Read the media release and answer the questions that follow.

Media release
Unions spread the word to remind working families to apply for
new Paid Parental Leave scheme
15 October 2010
Unions will be spreading the word about the
new Paid Parental Leave scheme to begin in
January to ensure that all workers are aware of
their new entitlement and how to apply for it.
Speaking at the launch of a public information campaign alongside Prime Minister Julia
Gillard today, ACTU President Ged Kearney
said unions wanted to celebrate the historic
achievement of a PPL scheme and to also
make sure no workers missed out.
After 30 years of campaigning by unions
and community groups, its very exciting that
the new 18 week scheme is now less than three
months away, Ms Kearney said.
Its long overdue, and will encourage
higher workforce participation by the twothirds of women who currently have no access
to paid parental leave.
All employees, women especially, need
to be fully aware they will be entitled to paid
parental leave from January 1 next year.
Its vitally important as the onus will be on
the employee to make an application to receive
paid leave. Most employers will do the right
thing by informing their staff, but some may
not or may simply be unaware of the change.
We would hate to see working women
and their families miss out because they are

unaware that they now have this important


workplace right or are unsure how to access
it.
Ms Kearney helped launch a public information campaign today at Holden in Port
Melbourne, one of more than 150 employers
who have registered with Centrelink to provide
government-funded parental leave to their
employees.
The government scheme provides all
parents of babies born after 1 January 2011
with payment of $10 258.20 for 18 weeks leave.
Parents expecting on or after 1 January can
begin applying for payments now.
Ms Kearney said unions would visit workplaces to provide further information about
the scheme.
She said unions would use collective
bargaining to build on the solid foundation
provided by the national PPL scheme towards
the goal of full income replacement for six
months of paid leave for all new working
mothers.
Some employers already provide this
entitlement, and through collective bargaining
unions will seek to top up the government
scheme to extend it to all workers.
Source: www.actu.asn.au

Questions
1 What is the ACTU and what is its role?
2 Describe the changes to parental leave that are effective from 1 January 2011.
3 Identify the actions that trade unions will undertake to ensure that this change in pay and working
conditions is effectively implemented in Australian workplaces.

36

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

towards mutual organisational objectives. This


new approach has provided employers with a
forum for discussing issues of common interest,
such as business competitiveness and productivity, and making new workplace agreements.
This cooperative approach will hopefully result
in increased productivity and profits for businesses and job security for employees.

Lobby/pressure groups
Special interest groups can attempt to influence
the actions of organisations. While many of
these groups focus on environmental issues,
others may lobby for safer working conditions
for employees. For instance, the Cancer Council
has been instrumental in ensuring workplaces
implement non-smoking and SunSmart policies
to protect the health of employees.
The Australian Consumers Association is
a very powerful lobby group that represents
consumers rights. Choice, the associations
monthly magazine, is a common reference point
for consumers wishing to purchase products. A
favourable or damning report in this magazine
certainly has an impact on consumers purchasing patterns. A group growing in prominence
to protect and improve the livelihoods and
wellbeing of disadvantaged producers is the
International Fair Trade Association. It protects
members who trade in a wide variety of fair
trade goods, such as: giftware, household
goods, furniture, garments, jewellery, food and
beverages.
Community groups can also have an effect on
a businesss licence to operate. If the community does not like the way a business is operating, it can cause it to lose brand value overnight.
For example, Nike sales were adversely affected
when it was accused of using child labour in its
factories. Nike does not operate its own factories, as its production is contracted out under
licence to other manufacturers. As a result, Nike
has established very stringent operating conditions for the contracting factories that produce

its goods. The instant brand recognition of the


Nike Swoosh, while very successful in marketing terms, has also made them an easy target for
any adverse publicity relating to the use of child
labour and poor working conditions.

Activity 2.6
In groups of two or three as organised by your
teacher, complete the following tasks.
1 Research a recent issue regarding a large
business and a lobby group(s) that has been
in the spotlight.
2 Identify the relevant lobby/pressure group(s).
3 Describe what action is being taken by the
group(s) to highlight the issue.
4 What action is being taken by the
organisation as a result of the pressure?

Financial institutions
Deregulation of the banking and finance industry has allowed for a more competitive financial
environment. Businesses need to keep up to
date with interest rates, loan arrangements,
credit facilities and electronic banking to make
sure they are not incurring excessive costs.

Regulatory bodies
All three levels of government federal, state
and local place pressure on businesses in the
conduct of their operations. All businesses need
to respond to and interact with bodies such as
the Australian Taxation Office, the Australian
Securities and Investment Commission (ASIC),
the Australian Competition and Consumer
Commission (ACCC), occupational health and
safety authorities and local councils.
There are also established standards with
which businesses must comply. The Environmental Management Standard (ISO 140001) has
been established to set minimum environmental
performance standards for businesses wishing to
adopt best practice guidelines for management

c h a p ter 2 environments of business


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

fair trade
contributes to
sustainable
development by
offering better trading
conditions to, and
securing the rights of,
marginalised producers
and workers
Australian
Competition
and Consumer
Commission (ACCC)
government authority
created to promote
competition and
increase productivity;
it enforces the
provisions of the Trade
Practices Act 1974 and
subsequent legislation

37

Cambridge University Press

international
organization for
standardization (iso)
certification
quality assurance
standard established
internationally; referred
to as the 9000 series

of the global environment. Quality standards


are also set by the International Organization
for Standardization (ISO). Any organisation that
acquires an International Organization for
Standardization (ISO) 9000 series certification has demonstrated to the public its commitment to having a quality operations system in
place.
In Australia, there are also product labelling standards that must be met which require

manufacturers to state the percentage of an


ingredient contained in a particular product.
They were introduced with the intention of
helping consumers to shop for better value
and nutrition, and to be able to identify foods
containing potential allergens. Regulatory bodies
are also established by industry groups. For
instance, the banking industry has the Australian
Banking Industry Ombudsman, who handles any
customer complaints made against banks.

Macro environment
1 Internal
environment
2 Operating
environment
3 Macro
environment

ocial/cultural Econom
Legal S
ic

Macro

38

ba

al
t P
ent
olitic
ironm
al Tec
v
n
E
t
hnological developmen

Gl

Macro environment

(Boom)

Do

nt

G
(R row
ec
ov th
er
y)

Peak

th

The business cycle is the pattern of growth


and decline in the economy and usually goes
in cycles: a period of accelerating growth (a
boom), a sharp downturn (recession) and then
recovery and growth. The Australian economy
often mirrors or is influenced by the economic
cycles of other trading nations such as the United
States, United Kingdom, Japan or China. The
level of impact on a business of these changes
in economic pattern is linked to the type of
business. In a time of downturn or recession,

Economic forces

new car manufacturers and housing construction may be adversely affected, while businesses
dealing with liquidated and discounted stock
may see a growth in their business.
It is important to understand the characteristics of boom conditions and the opportunities
they can provide. Similarly, an understanding
of what characterises economic decline and the
associated threats it can impose on a business is
very important.

ro

Macro environment refers to the range of


factors that can influence the operation and
performance of an organisation, over which
the organisation has no control. Following is a
description of the factors that can occur in the
macro environment.

business cycle
the level of domestic
economic activity,
measured by GDP,
which passes through
a cyclical pattern; the
phases include a period
of expansion, peak
(boom), contraction and
trough (recession)

en

Growth in production

nm

figure 2.8
macro environment
broad operating
conditions in which an
organisation operates
and over which it has
no control

External

Go

er

ur

Recession
Time

figure 2.9

Economic activity cycle

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

table 2.2

Characteristics and impact of economic boom and decline

Economic boom characteristics

Economic decline characteristics

Strong economic growth

Slow economic growth

Increased consumer spending

Reduced consumer spending

Business confidence is high

Low business confidence

Low or falling unemployment

High or growing unemployment

Rising inflation

Inflation slowing down


Recession if two consecutive periods of negative
economic growth

Favourable to business as

Unfavourable to business as

New jobs are created

Jobs are lost

Sales and profits increase due to a rise in


consumer spending

Consumer spending is reduced

New business opportunities arise

Fewer sales and declining profits

Investment opportunities for existing businesses


open up

No new businesses starting

Expansion opportunities for existing businesses


are created

Fall in consumer demand

Too high a risk of failure


Established firms hold back on investment, cut
back operations or go out of business

Activity 2.7
Read the article and answer the questions that follow.

Luxury car sales near record highs


by Craig James, CommSec
If youve noticed more Aston Martins,
Maseratis or Ferraris on the streets, youre not
imagining it. In June, the share of luxury car
sales was just below record highs at 5.6 per
cent of the passenger car market. Australians
have been getting increasingly wealthy over
time and many have chosen to upgrade their
rides as a consequence.
Sales of luxury cars are growing at the
fastest annual rate in four years, highlighting
the rapid recovery of the Australian economy
from the effects of the global financial crisis.
In the year to June, sales of luxury cars rose
by almost 16 per cent on a year ago more

than double the sales pace for the broader


market.
The CommSec index of luxury passenger
car sales hit a 19-month high in May, before
easing modestly in June. The index is based
on industry sales data made freely available to
journalists and car retailers/manufacturers.
But while the rolling annual total growth
rate is still rising, the simple (month on
month) annual growth rate of luxury car
sales peaked in December 2009, pre-dating
broader car sales and home prices. Movements at the top-end of car and housing
markets lead the broader economy so the

c h a p ter 2 environments of business


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

39

Cambridge University Press

Reserve Bank needs to closely monitor the


sharp slowdown in momentum.

What does it all mean?


Luxury cars sales are a useful leading
indicator for the broader economy, as well
as highlighting the growing wealth levels of
ordinary Australians. In June, luxury cars
accounted for 5.6 per cent of all passenger car
sales, (luxury vehicle sales were 8.2 per cent
of all vehicles) just off the record high set in
March at 5.7 per cent.
While some complain about the extra
savings needed to buy a home, it is clear that
a raft of other key consumer items like cars,
household electrical goods and travel have
been getting substantially cheaper over time,
providing households with extra dollars to buy
other goods like homes.
The consistent lift in real wages over
time and the best car affordability since the
mid 1970s have prompted many Australians
to upgrade their rides over time, purchasing

luxury vehicles. Today it takes a worker on


average earnings just 43 weeks to buy a new
BMW 320i, down from 54 weeks of wages just
over five years ago.
Apart from being a key measure of wealth,
luxury car sales are a useful economic gauge,
leading the broader car market and housing
market. And the rebound in the top end of the
car market has been nothing short of astounding. After hitting record highs in the year to
June 2008, luxury cars sales slumped by almost
20 per cent. But in the past year, a remarkable
V-shaped recovery has occurred with sales of
luxury passenger cars up 16 per cent.
For the past eight months, annual sales
of luxury cars have outperformed not just
the broader passenger car market but also all
vehicles, including four-wheel drive and work
vehicles. That is remarkable given government
tax breaks to small- and medium-sized companies to purchase work vehicles.
Source: www.switzer.com.au

Questions
1 Which of the following describes Australias current economic position?
a downturn
b upturn
c boom
d recession.
2 Identify the reasons why the luxury car market appears to be on a high.
3 Describe what you believe is the impact of the exchange rate of the Australian dollar on the luxury
car market.

monetary policy
action taken by the
government or Reserve
Bank to vary the rate
of interest or supply of
credit in the economy

40

Government forces

monetary poLicy

Both the federal and state governments can


have a large impact on the operations of organisations. A change in government resulting from
an election can lead to many changes, as the
new government endeavours to implement its
election policies. Areas of federal government
impact and management are outlined here.

The federal government, working with the


Reserve Bank of Australia, determines monetary policy. The Reserve Bank sets the target
interest rate, which directly affects the interest
rates set by financial institutions. High interest
rates, while good for investors, slow down
consumer demand, whereas a cut in interest

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

rates encourages growth and boosts consumer


confidence.

fiscaL (budgetary) poLicy


The federal government sets an annual fiscal
(budgetary) policy, which outlines its revenueraising and spending activities for the forthcoming year. The government may wish to stimulate
a particular sector of the economy; for example,
the health sector. This decision would lead to
construction of more public hospital facilities,
increased need for medical staff and associated
business activities.
Should the federal government decide
to alter the taxation scheme by changing the
income levels applicable to our progressive
taxation system or lowering the overall rates,
this change could positively affect consumers
by increasing the money in their pay packets.
The imposition of the Goods and Services
Tax (GST) in July 2000 had a major impact
on businesses. This change created a structure
where businesses became responsible for
collecting tax on behalf of the government.

Through the imposition of indirect taxes


for example, land tax or stamp duty. This
becomes an additional expense for the
business.
As a purchaser of goods and services, the
government requires organisations that wish
to tender for government contracts to have
gained ISO 9000 series certification, an international quality standard registration.
Provision of incentives and assistance to
specific industries and organisations to locate
or relocate within the state boundaries or in
a particular area the government favours for
development.

Legal forces

Recent microeconomic reform has placed


emphasis on improving efficiency and a greater
reliance on businesses and markets to determine the direction of the economy rather than
government intervention and ownership. The
removal of ownership and trading restrictions
(deregulation) in industries such as banking,
airlines and telecommunications has resulted in
making the marketplace more competitive. In
addition, change has come through the selling
of government business enterprises to the
private sector.

It is imperative that organisations comply with


Commonwealth and state legislation, as well
as common law in the operation of their business. While Australia operates as a generally
deregulated marketplace, laws are still in place
to guide, protect and control both business
operators and consumers.
Organisations are required to comply with
laws and regulations relating to a wide variety
of areas, such as business licensing, business
names, fair trading, occupational health and
safety, workers compensation, environmental protection, workplace relations, unfair
dismissal, equal employment opportunity, antidiscrimination, weights and measures, packaging, labelling, consumer law and taxation. Noncompliance with these laws and regulations
can result in the organisation being prosecuted.
Penalties can range from fines to imprisonment
of company directors or owners for criminal
offences. Successful civil actions will result in
damages, usually monetary, being imposed.

areas of victorian government


impact and management

Technological developmental
forces

The Victorian state government can affect businesses in several ways:

In an era commonly referred to as the Information Communication and Technology Age,

microeconomic reform

c h a p ter 2 environments of business


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

fiscal (budgetary)
policy
measures taken by
governments (federal
and state) to change
taxes and level of
government spending
Goods and services
tax (Gst)
federal government
taxation imposed on
goods and services
microeconomic
reform
changes made in
the internal business
environment of a
country
deregulation
involves removing
government
regulation from an
industry in pursuit
of greater efficiency
and creating an
improved competitive
environment
legislation
Act of parliament
(statute)
common law
law that has been made
by the courts

41

Cambridge University Press

technology
practical application
of science to achieve
a commercial or
industrial objective; it
often involves the use
of computers and can
relate to information,
communication, design
and manufacturing

it would be very short-sighted of an organisation


not to be responsive to the advantages offered
by technological development.
Technology has become a key feature in
assisting a business to be competitive by adopting technology-based production and information processing procedures. This can assist a

business to lower costs, improve quality, become


environmentally responsible and deliver goods
and services to customers more quickly. For
instance, in the airline industry passengers can
use online services to book a flight, choose their
seat on the plane, check in, and gain up-to-date
information on arrival and departure times.

figure 2.10 Thanks to technological development, some passengers can now avoid lengthy queues by checking in
for their flights online.

Activity 2.8
economies of scale
the per unit cost of
the fixed costs of
production are reduced
with the increased size
of a production run

Identify ways in which technological advances


(forces) have affected the following large-scale
organisations.
1 ANZ Bank
2 Telstra
3 Harvey Norman
4 Toyota
5 Cadbury Schweppes.

Globalisation forces
The emergence of the global economy means
that organisations cannot ignore foreign competition. The Australian Government has had to
remove or lower its restrictions and trade barriers
that previously existed to protect our domestic
businesses. The shrinking of the world, mainly
due to technological development and improved
communication, has led to businesses either

42

merging or being taken over. This larger business


is then able to gain a competitive advantage in
the marketplace, as well as make use of economies of scale in manufacturing of products.
The saving comes from cost reduction linked to
manufacturing in larger quantities or bulk.
For some organisations, it has meant that they
have reorganised their structure to operate on a
regional basis. Major cities compete to become
the global headquarters for these organisations.
For instance, Melbourne has become headquarters for both BHP Billiton and National Australia
Bank Limited.

Political forces
Political forces can affect the general stability
of the country in which an organisation operates. Australias political environment is stable.
Should an organisation decide to operate in
another country or globally, it needs to carefully
research the political environment of the areas

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

into which it intends to expand. Instability can


affect the value of the countrys currency or its
attitude towards foreign investment. An organisation does not want to establish operations in
a country, only to have its assets expropriated
by a rebel insurgence or a corrupt government.
Businesses can also be affected by unrest in
other parts of the world, even in countries in
which they do not trade. In the past 10 years,
major political unrest has been experienced in
Iraq and Afghanistan, and closer to Australia,
local incidents and unrest have occurred in East
Timor, Bali and the Solomon Islands. While the
foreign affairs departments of many governments
(including Australia, the United Kingdom and the
United States) issue warnings, both businesses
and travellers can be affected by these activities.
Should a business have operations located in
risk-prone countries, then it places additional
pressure on the running of that business, as well
as the safety considerations for employees.

Environmental forces
Organisations are under increasing pressure
to take care of our environment. Either selfregulatory or government-mandated measures
are put in place to ensure that the environment
is protected. For instance, mining companies
must conduct environmental impact studies as
part of their strategic planning process prior to
undertaking any mining operation. Approval
to mine is dependent on these studies being
conducted and a favourable outcome being
negotiated with adjoining landowners. Other
examples of environmental forces extend to
the forms of packaging being used. Both Coles
and Safeway introduced green, recyclable shopping bags in an effort to discourage customers
from using plastic bags. Other organisations

Social and cultural forces


Organisations must be aware of and respond
to the changing conditions that affect society,
such as:
increased career expectations of women
increase in female work participation rates
changing dimension of families: dual income,
fewer children, two partners working, sole
parents
changing attitude to work, family role and
lifestyle desire for balance between work
and family
higher education levels and career expectations of both males and females
changing expectations of our younger
generation more mobility in their working
life
the ageing workforce
levels of unemployment
society expecting organisations to be more
socially responsible
migration patterns diverse backgrounds
and social issues.

figure 2.11

Melbournes CH2 Building

c h a p ter 2 environments of business


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

43

Cambridge University Press

are offsetting their carbon emissions. The


environmental pressure has also extended to
ensuring that organisations endeavour to work

table 2.3

from sustainable buildings, to the extent that a


classification scheme has been developed and
buildings are rated accordingly.

Melbournes sustainable buildings

number of stars

Certified as

Examples of melbourne CbD buildings awarded


this rating

****

Best Practice

15 William Street, Melbourne

4 Star Green Star

50 and 150 Lonsdale Street, Melbourne


485 and 469 La Trobe Street, Melbourne
541 St Kilda Road, Melbourne
60 Leicester Street, Carlton
800 Bourke Street, Melbourne

*****

Australian Excellence

5 Star Green Star

181 William Street, Melbourne


370 Docklands Drive, Docklands
500 Collins Street, Melbourne
Automotive Centre of Excellence (Kangan Batman TAFE)
Docklands
Digital Harbour Port, 1010 La Trobe Street, Docklands
550 Bourke Street, Melbourne

******

World Leadership

6 Star Green Star

CH2, 240 Little Collins Street, Melbourne


The Gauge, 825 Bourke Street, Docklands
The Melbourne Convention Centre

figure 2.12 The Gauge Australias first 6 Star Office As Built


v2 certified building

44

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

system that interacts and is dependent upon


its specific internal and operating environment.

Stakeholders, being those individuals or groups


with a vested interest in an organisations
operations, are most commonly found in the
operating and internal environments of the
organisation.

Stakeholders can be shareholders, directors,


management, employees, trade unions,
customers, suppliers, creditors/banks, the
community, government and competitors.
Each of these stakeholders has either issues or
interests associated with the organisation.

Business success for an organisation is


dependent upon being able to respond quickly
to changes or pressures that come from either
its external or internal environment. Awareness
of the interests and issues of stakeholders must
also be taken into account.

The general (macro) environment also exerts


pressure on all businesses.

There are three levels of environment: external


(macro and operating) and internal.

The macro environment refers to a range


of factors or pressures such as economic,
government and political, legal, technological,
global, social and environmental.

The operating environment refers to a range


of factors or pressures such as customers,
competitors, suppliers, trade unions, lobby
groups, financial institutions and regulatory
bodies.

The internal environment refers to a range


of factors or pressures such as shareholders/

1 Define the following terms. Use each in a


a Macro environment
b Operating environment
c

Internal environment

d Stakeholders
e Competitors
f

Board of Directors

g Corporate culture.
2 Which of the following best describes a

stakeholder?

d People who pay money to or receive money

from a business.
3 Describe why it is important for management

to respond to internal pressures exerted on an


organisation.
4 Outline some current issues that employees

could use to pressure an organisation to


change.
5 Describe why it is important for an organisation

to interact with its operating environment.


6 For each of the following factors in the

a A person who part-owns a business

operating environment, identify an issue or


pressure that may concern an organisation.

b A creditor owed money by a business

a Customers, e.g. changing consumer

An individual or group of people affected by


the activities of a business

ChaPTER SuMMaRy
QuESTIOnS

sentence to demonstrate your understanding.

ChaPTER SuMMaRy

owners, management, employees,


organisational structure and corporate culture.

Businesses in Australia operate in an open

preferences
b Competitors

c h a p ter 2 environments of business


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

45

Cambridge University Press

Suppliers

7 Explain why it is important for an organisation

to respond to the range of pressures from its


macro environment. Use examples in support of
your explanation.

d Trade unions
e Lobby groups
f

Financial institutions

g Regulatory bodies.

ExaMInaTIOn
PREPaRaTIOn

Question 1

b Describe what that force/pressure covers in

Identify two stakeholders who would have an


interest in an organisation and its operations.
Describe the nature of the interest each of the
stakeholders would have in that organisation and
how these interests could in fact conflict with each
other.
3 marks

Question 2
Using a large-scale organisation with which you are
familiar, consider what the next 12 months will hold
for that organisation and its operations.
a Identify one environmental force from each level

(macro, operating and internal) for your chosen


organisation.

general terms.
c

Explain how that force/pressure will impact on


your organisation.
1 + 3 + 3 = 7 marks

Question 3: Extended response


All businesses in Australia, if they wish to succeed,
must recognise that they operate within an open
operating environment. No business can operate
in isolation; it must interact with and be dependent
upon its specific (internal and operating)
environment. In addition, the potential influences
of its general (macro) environment must never be
overlooked.
Discuss whether you believe this statement to
be accurate. Justify your answer.
5 marks

46

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Evaluation of
pErformancE

Whats ahead

Alternative
performance measures

Effectiveness

Evaluation of performance

Efficiency

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Performance
indicators

Cambridge University Press

Key Knowledge

Students will learn about the performance indicators used to evaluate the
performance of large-scale organisations.

area of study

Large-scaLe organisations in context

In everything we do, our performance is evaluated. An athlete or swimmer wants to know the
time taken to complete the race. Similarly, after taking an exam a student wants to know the result.
In the same way, all stakeholders in an organisation want to know how it has been performing.
There needs to be measures in place to determine whether the organisation has been successful in
relation to its objectives.

49
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

The concepts of efficiency and


effectiveness
components
processed parts
purchased from another
producer
efficiency
the way the
organisation uses its
available resources to
achieve its objectives;
doing things right
productivity
a measure of the
functioning and
efficiency of a
production system; the
level of output obtained
from a set level of input
quantitative measures
measures that are
based on the use of
numerical data
effectiveness
the degree to which an
organisation achieves
its stated objectives;
doing the right things

Part of a managers role is to analyse the efficiency of all activities in the organisation, including the production processes, service delivery,
and effectiveness of staff and procedures. The
effectiveness of such processes and activities
needs to be measured against the predetermined
objectives of the organisation and against how
efficiently resources have been distributed and
used. A number of different measures or performance indicators can be used to evaluate both
resource efficiency and objective effectiveness.

Efficiency
The management process requires the efficient and effective combination of resources
to produce goods or to successfully deliver a
service. These resources can include:
financial resources such as cash and loans
material resources such as raw materials and
components or parts
human resources such as skills and contribution of the employees
information resources such as knowledge
about a product or market.
Efficiency is judged as the best use of
resources in the production of goods and/or
services. The outcome can be judged on both
the quality and quantity of the goods or services
produced.
Productivity is a quantitative measure of
efficiency. A quantitative measure is one that
can be examined in terms of a number or an
amount. Productivity measures the relationship
between resource inputs and outputs. Inputs
are the resources used to produce goods and
services. Inputs can include raw materials,
time, technology and employees and capital
equipment. Outputs include the production of
goods and delivery of services, such as a motor
vehicle, furniture, a restaurant meal or having
a tax return completed by an accountant or tax

50

agent. Examples of measures of productivity


can include:
the number of visitors to the Melbourne
Museum per week
the number of barrels of wine produced per
harvest of grapes
the number of motor bikes produced per
year by Honda.
There are a number of ways an organisation
can attempt to increase productivity and therefore increase efficiency. (See chapters 6 and 7
for more information.)

Activity 3.1
Determine whether the following are inputs or
outputs. Give reasons for your answers.
1 A computer desk
2 A software program to design kitchens
3 An employee entering data into an
accounting program
4 A digital camera
5 A bathroom cabinet
6 A will completed by a solicitor
7 Ingredients purchased for a restaurant meal.

Effectiveness
Effectiveness is the ability of the organisation
to achieve its previously determined objectives.
These objectives are developed at the strategic
level of the organisation and are written in line
with the overall mission and vision statements
and strategy of the organisation.
Departments and areas of the organisation
will develop their objectives using the strategic objectives, and individual managers and
employees will also establish their own objectives for their areas of responsibility. Managers
and employees can then be appraised against
the organisational and departmental objectives.

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

figure 3.1

Use of data and information

Measuring organisational efficiency and


effectiveness
It is important for an organisation to measure
both efficiency and effectiveness in terms of
its strategic objectives. These concepts can be
measured through the use of performance
indicators (PIs).

organisational objectives. The PIs used will be


determined by the specific objectives of the
organisation. When a number of PIs are used
together, they can provide an overview of the
organisations performance. PIs can either be
qualitative or quantitative:

Performance indicators

Qualitative measures rate the quality of


performance and may include the level of
job satisfaction and customer service levels.
Quantitative measures are usually measured
as a number or figure and include indicators
such as profit margins and debt level.

A performance indicator is a tool used to


measure progress towards the achievement of

Mission
statement

Measuring performance
Performance measurement is a complex issue
and there are a number of considerations
that need to be taken into account, including
whether the measure should be qualitative or
quantitative, and whether the impact is immediate or delayed.
Any performance measure must be:

Corporate
objectives

Departmental
objectives

Individual
objectives

figure 3.2
Hierarchy of objectives

performance
indicators (pis)
a set of measures
that help a company
determine if it
is reaching its
performance and
operational objectives
qualitative
involves distinctions
based on qualities;
relating to, or
concerning, quality
quantitative
expressed or
expressible as a
quantity; relating to
measurement, numbers
or quantity

relevant does it provide the information


required by users?
valid has the information or data been
collected correctly?
reliable what is the source of the data? Has
it been based on measurable data or is it
anecdotal?

c h a p t er 3 evaLuation of performance
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

51

Cambridge University Press

delivering valuable information will the


PI provide useful information that will assist
users to make decisions?
All PIs should be comparative and may be
compared to:

figure 3.3

Business objectives must be measurable.

benchmark
a level of quality or
achievement used as a
standard of comparison
for others; a point of
comparison used to
evaluate success levels

52

changes in PIs over time for example, did


the rate or amount increase or decrease over
the past year? Did sales increase by 10 per
cent over the period?
other organisations or benchmarks in the
industry sector does the organisation meet
or exceed benchmarks set by the best organisations in the industry?
budgets, estimates or targets set by the
organisation did the figures or performance match or exceed what was expected
or budgeted for?

Performance indicators used to


evaluate the performance of large-scale
organisations
There are a number of ways to evaluate organisational performance. The main ones are outlined
in table 3.1.

table 3.1

Performance indicators used to measure efficiency and effectiveness

performance indicator

Definition and use of the pi in the organisation

Number of sales

The number or level of sales of a product or service will allow an


organisation to determine whether it is meeting sales forecasts and
whether the organisation has to look at ways to increase sales.

Percentage of market share

A proportion or amount of the market. If market share increases, the


organisation has a greater percentage of the market and sales.

Net profit figures

Profit is the difference between revenue and expenses. If an organisation


makes a profit, it may be considered to be successful. Usually, a level of
profit will be determined as acceptable by the organisation (in terms of
its organisational objectives and the expectations of investors and other
institutions). For example, a large organisation listed on the Australian
Securities Exchange may be expected to perform at a certain level by the
market.

Productivity and the rate of


productivity growth

Productivity measures the organisations ability to transform inputs into


outputs. An organisation that increases productivity uses resources
more efficiently.

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

performance indicator

Definition and use of the pi in the organisation


Productivity may be measured in a number of ways. If, for instance,
employees are able to increase the number of cameras produced each
day by 10 per cent using the same amount of inputs, then productivity
has increased.
It is important for an organisation to evaluate whether productivity has
met budget and also to determine whether productivity is growing each
period and, if it is, whether it is increasing at the required rate.

Level of staff turnover

Staff turnover measures the number of people leaving an organisation. If


the level of staff turnover is high (for example, higher than other similar
companies), it may indicate dissatisfaction in the workplace. Staff
turnover results in a cost for recruiting and training employees, and is a
loss of organisational knowledge and history that the employee has.

Level of job satisfaction through


a staff satisfaction survey

The level of satisfaction employees have can impact on organisational


performance. If job satisfaction is high, employees are more likely to
be productive. Providing an opportunity to gain feedback from staff of
their satisfaction with their jobs and with the organisation is a method of
gaining a view of how employees are feeling in the workplace. If levels
of staff satisfaction are low, the organisation needs to examine ways to
improve performance and satisfaction in the areas indicated.

Customer satisfaction levels


through a customer survey

If the focus in the organisation is on improving customer service levels


and customer satisfaction, then the number of customer complaints
per month, for example, may indicate whether customers are happy
with the service of the organisation. A decrease in the level of customer
complaints may be seen as a positive indicator of performance.

customer satisfaction
degree to which
customer expectations
have been met

Receiving feedback from customers through a customer satisfaction


survey will also provide an organisation with information about the
attitudes of its customers to the organisation. It may provide a means to
look at what needs to be done within the organisation to improve areas
noted as a concern.
Number of workplace accidents

The rate and number of workplace accidents can provide an insight into
whether an organisation views employee safety as an important priority.
Reducing the number of workplace accidents means employees are less
likely to be injured in the workplace and also allows the organisation to
reduce its WorkCover premiums.

Level of waste

The level or proportion of waste in a production process will give an


indication of organisational efficiency. Reducing waste will reduce the
costs associated with producing a product and it may also mean that
fewer non-renewable resources are used, having a positive impact in
the wider community.

Number of customer complaints

The number of customer complaints is an indicator of how customers


view the organisation. It allows the organisation to compare the number
of complaints over time or to competitors. An increase in customer
complaints may indicate that there is a need for further training of
employees or products may not be of a satisfactory standard.

c h a p t er 3 evaLuation of performance
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

53

Cambridge University Press

figure 3.4 A customer survey is a way to collect nonfinancial qualitative information.

absenteeism
unexplained absence
from work

Other PIs organisations


can use to assess
performance
Organisations use a wide range of PIs to determine performance. Some additional PIs include:
return on investment this measures the
return, usually as a percentage, that the
shareholder or owner receives on their initial
investment.
debt-to-equity ratio an organisation can
calculate the level of debt compared to the
level of owners equity (outlay). If debt levels
are greater than 50 per cent, it is said that

a business is negatively geared. This means


that the organisations debt to outside parties
or entities exceeds the level of owners
equity.
debtors turnover this is the amount of time
taken for a debtor to pay off their debts. For
example, an organisation that can encourage customers to pay within a shorter time
period has a better cash flow. If debtors do
not pay, it may impact on the ability of the
organisation to meet its commitments.
number of faulty products this measures
the number or percentage of faulty products
produced by an organisation. If the percentage of defects can be reduced, it means that
resources are used more efficiently.
staff absenteeism if employees are absent
from the workplace, this is a cost to the
business in terms of less productivity and
the cost of using other staff. If an organisation has high levels of absenteeism, it may
indicate that employees are unhappy in the
workplace (job dissatisfaction). Organisations should monitor levels of staff absenteeism and take steps to reduce this. (See
chapters 1113 for more information on
human resource management.)

Activity 3.2
Performance indicators
1 What is the most appropriate performance indicator (PI) for each of the following situations? Justify
your choices.
a
b
c
d
e
f
g

54

The human resource manager is concerned about the number of people leaving the
organisation.
A manager is concerned about the high number of staff sick days compared to last year.
Shareholders want to know how the organisation is performing (may be more than one PI).
The marketing manager would like to know about customer satisfaction with the
organisation.
A consultant wishes to determine the level of staff job satisfaction.
The operations manager wants to know whether resources are being used properly.
The marketing manager would like to check the percentage of company sales in the
marketplace.

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

2 Match the PI to the appropriate outcome or situation.

Five hundred employees left the organisation in the


past 10 months.

Market share

Revenue less expenses is greater than the previous


financial period.

Number of customer complaints

Total proportion of the market increased by 5% in the


previous six months.

Net profit

The number of workplace injuries has dropped.

Productivity

Customer complaints have been targeted as an area


for improvement in the next three months.

Customer satisfaction

Feedback from customers has indicated some


unhappiness with the time taken to answer a phone
enquiry.

Staff turnover

Resources have been used more effectively than in


the previous period.

Number of workplace accidents

Why do organisations use performance


indicators?
All organisations need to continue to examine
how the business has been performing against
organisational objectives, to determine whether
resources are used properly and to see if budgets
and forecasts are being met or exceeded. If an
organisation does not continually monitor its

performance, it may not be aware of issues


until it is too late to change or amend processes.
Monitoring of performance also allows the
organisation and its employees to have a method
to determine how individuals are performing
against benchmarks or standards.

figure 3.5 Monitoring employees against


an organisations benchmarks

c h a p t er 3 evaLuation of performance
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

55

Cambridge University Press

Activity 3.3
Examine the data provided by Matt Hussey, Sales Manager, of KSC Car Detailers. The company has
been operating for the past five years and has gradually built up a reputation for quality service and
reliability. Matt has noticed that the change to a new supplier of cleaning products has led to a poorer
finish on some cars.
He has collected the following data:

performance indicator
Number of customer complaints per month
Market share
Net profit for 12 months
Number of workplace accidents per month

2011

2012

18%

24%

$23 4000

$25 3000

13

17

Matt has also examined some of the data available for competitors and the industry benchmarks.
While KSC is still performing at or just above industry standards, Matt is concerned that performance
is starting to slip.

Questions
1 Write a brief report (one or two paragraphs) on what information and trends the PIs provide.
2 Choose two PIs and make a recommendation on what the organisation might do now.

Growing importance of other measures


of organisational performance

balanced scorecard
looks at an
organisations
performance from
the perspective of
customers, internal
reflection, innovation
and shareholders

56

Many organisations are primarily focused on


financial performance indicators to measure
success, such as sustaining reduced costs and
increased market share. Other performance
indicators, however, are also important for an
organisation to monitor. It is necessary to have
information on how human, organisational and
intellectual assets combine to create value.
The measurements should be broad and
cover areas such as progress towards objectives, employees performance levels, customer
satisfaction levels, and other indicators such as
quality, efficiency, creativity and innovation.

The balanced scorecard


measurement
The balanced scorecard approach is a method
of determining organisational performance that

allows managers to look at performance in an


organisation from four perspectives:
1 Customer perspective (How do customers
see us?)
2 Internal capabilities perspective (At what
must we excel?)
3 Innovation and learning perspective (Can
we continue to improve and create value?)
4 Financial perspective (How do our owners/
shareholders see us?)
The balanced scorecard approach has the
following characteristics:
regular emphasis on the strategic intent and
direction of the business by highlighting
strategic goals
broad focus of management to include
sustainable long-term performance
improved communication within the organisation regarding performance and appraisals

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Vision
and
strategy

To satisfy our
shareholders
and customers,
what business
processes must
we excel at?

Initiatives

Initiatives

Targets

Measures

Objectives

To achieve our
vision, how
should we
appear to our
customers?

Objectives

Internal business
processes

Customer

Measures

Initiatives

Targets

Measures

Objectives

To succeed
financially, how
should we
appear to our
shareholders?

Targets

figure 3.6 The balanced


scorecard approach looks
at performance from
a number of different
perspectives.

Financial

a focus for business process improvement


managements attention focused on capabilities needed for strategic goals.
The balanced scorecard approach enables an
organisation to track its progress in the long term.

Why implement a balanced


scorecard?
The balanced scorecard approach assists organisations to assess performance in the following
ways:
an increased focus on strategy and results
improved organisational performance by
measuring what matters
alignment of organisational strategy with the
work people do on a day-to-day basis
a focus on the drivers of future performance
improved communication of the organisations vision and strategy
prioritising of projects and initiatives.

Stakeholder approach
The stakeholder approach focuses on how the
organisation meets the needs of its stakeholders.
There are a number of different stakeholders in

Initiatives

Targets

Measures

To achieve our
vision, how will
we sustain our
ability to
change and
improve?

Objectives

Learning and growth

an organisation who all have a vested interest in


its performance:
1 Customers are interested in quality products
and customer satisfaction.
2 Suppliers want to be paid promptly.
3 Governments want the organisation to
comply with legal requirements.
4 Employees want a safe working environment, opportunities for skill development
and a flexible workplace.
5 Competitors will often benchmark against
the organisation.
6 The community wants organisations to take
on social responsibility, behave ethically and
to have a commitment to charity.
7 Shareholders want a satisfactory rate of
return in terms of dividends from the organisation and also an increased share price.
Stakeholders are able to review and evaluate
the performance of an organisation by referring to the Corporate Responsibility Index.
This index is a management tool that can be
used to examine performance in a number of
areas within the organisation. The focus is on
the organisations performance and strategies in
relation to its social responsibility obligations.
c h a p t er 3 evaLuation of performance

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

corporate
responsibility index
a strategic
management tool to
enhance the capacity
of businesses to
develop, measure and
communicate best
practice in the field of
corporate responsibility
in Australia

57

Cambridge University Press

Customers
Employees

Suppliers
Organisation

Shareholders

Competitors
Government

figure 3.7

The stakeholders of a large-scale organisation

figure 3.8

Stakeholders will meet to discuss an organisations performance.

Social responsibility
and evaluation of
performance
While the majority of large-scale organisations
will focus on profit and financial performance,
many stakeholders and the community now
expect social responsibility and other nonfinancial measures to be equally important. All
organisations must ensure that social responsibility is incorporated into their measurement
of performance. PIs such as the level of waste
may reflect waste minimisation and the positive
impact of the organisation on the environment. Staff turnover, absenteeism and the level
of workplace accidents will often indicate
whether an organisation has the interests of the
employees as an important goal. Non-traditional
indicators and measurements incorporating the
triple bottom line are now seen as important
and necessary.

figure 3.9 A happy customer!

58

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

All stakeholders in an organisation want to know


how it has been performing.

Efficiency measures the use of the resources of


an organisation to produce goods and services.

Using the balanced scorecard approach enables


an organisation to review and assess the
performance in a range of areas.

Effectiveness is measured in terms of whether


an organisation has met its objectives.

The stakeholder approach evaluates the


organisation from other perspectives.

Alternative performance indicators are


becoming more important as these measures
provide a more rounded approach to
organisational evaluation.

Stakeholders such as employees, shareholders,


government, customers, suppliers and
competitors all have an interest in the
performance of the organisation.

It is important for organisations to examine their


performance in their role as a good corporate
citizen and for their contribution to the
community and social responsibility.

Productivity is a quantitative measure of


efficiency. It measures the relationship between
resource inputs and outputs.

Performance indicators (PIs) measure the


efficiency and effectiveness of the organisation.

PIs include: number of sales, percentage of


market share, profit, the rate of productivity
growth, the results of staff and customer
complaints, the number of workplace accidents,
job satisfaction and staff turnover.

1 Define the following terms.


b Efficiency
c

Effectiveness.

2 Why is it important for an organisation to

monitor performance?
3 Explain why it is necessary for organisations to

use a range of different performance indicators.


4 Outline three PIs that can be used to measure

performance in the following organisations.


Justify your choices.

5 What is the link between strategic plans and the

performance of an organisation?

ChaPTEr SuMMary
QuESTIOnS

a Performance indicators

ChaPTEr SuMMary

6 Identify two PIs you believe would be important

for a car manufacturer to monitor. Justify your


answer.
7 What is meant by the balanced scorecard

approach to assessing business performance?


8 Performance measurement is a complex issue.

Discuss this statement in terms of the use of


traditional performance indicators and the
balanced scorecard approach to organisational
performance.

a A hospital
b A restaurant
c

A university.

c h a p t er 3 evaLuation of performance
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

59

Cambridge University Press

ExaMInaTIOn
PrEParaTIOn

Read the case study and answer the questions that follow.

Case study: Telecommunications industry


Telstra warns of profit plunge
David Thodey, CEO of Telstra, has announced
a 200910 profit post-tax of $A3.88bn, down
4.7%. A major factor was the continuing
decline in fixed-line telephone subscriber
numbers, which created an impact of $A504m
in lost revenue. Thodey also forecast that the

necessary transformation of the group will


mean its 201011 profit may fall by as much as
9%. On 12 August 2010 the stock closed $A0.31
lower at $A2.94.
Source: 12 August 2010
www.tmcnet.com

Optus ready for Telstras new path


by AAP, Drew Cratchley
Optus has posted its strongest quarterly
earnings growth in five years as it continues
to attract mobile phone customers from its
competitors.
But Australias second-largest telco faces
tougher competition from Telstra in the sector.
Optus, a wholly owned subsidiary of
SingTel, reported net profit of $170 million for
the three months to June 30, up 22 per cent on
the previous corresponding period.
Earnings before interest, tax, depreciation
and amortisation (EBITDA) were up 10 per
cent on the previous corresponding period to
$553 million.
Optus chief executive Paul OSullivan said
a focus on customer service and improvements
in the telcos network coverage drove revenue
growth from its mobile phone services.
Based on all of the disclosures weve now
seen, were confident that we can continue to
gain revenue market share in the mobile area,
he said.
Optus had a 6.7 per cent rise in mobile
revenue compared with the previous

60

corresponding quarter to $1.4 billion. The


mobile phone division now makes up 63 per
cent of its total revenue.
The quarters 190 000 new mobile phone
customers took the total customer base to 8.69
million.
Optus is also benefiting from its offering
of smartphones, such as the iPhone, with data
use making up 40 per cent of mobile revenue,
up from 38 per cent three months earlier.
Mr OSullivan noted Telstras plans,
announced yesterday, to simplify its business
and focus on marketing and sales, which are
aimed squarely at its falling market share in the
mobile phone market.
We expect that whats been signalled by
our competitor is a far more aggressive period
in the next six to 12 months, Mr OSullivan
said.
We look forward to seeing them in the
marketplace.
Among its other divisions, Optuss
consumer and small-business fixed-line division recorded a 10.1 per cent rise in EBITDA

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

from the previous corresponding period, as


broadband revenue and customer numbers
rose.
Revenue from business and wholesale
fixed lines fell 5.1 per cent. That was despite
signs of recovery in fixed-line use by business
clients, with a 7 per cent rise in revenue from
such services compared with the same quarter
last year.
We believe that reflects a recovery in the
corporate sector in Australia, Mr OSullivan
said.

Optus maintained its full-year guidance for


mid-single-digit percentage growth in operating revenue and EBITDA.
For the whole SingTel group, first-quarter
net profit was down 0.2 per cent from the previous corresponding period to $S943 million
($A773.2 million).
Group chief executive Chua Sock Koong
said competition in emerging markets led to
lower earnings as its divisions responded to
protect market share.
SingTel shares ended down 1 at $2.46.
Source: The Age, 13 August 2010
2010 AAP.

Question 1

Question 3

Why do organisations use performance indicators?

Both organisations have outlined a plan to increase


their customer base. Why would an organisation
focus on customer service in this industry?

2 marks

Question 2

3 marks

Identify and describe two performance indicators


used by either Telstra or Optus. Analyse why the
organisations might use these particular indicators.
4 marks

Question 4
Organisations need to seek a balanced approach
to evaluating performance. Discuss this statement.
6 marks

c h a p t er 3 evaLuation of performance
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

61

Cambridge University Press

The inTernal
environmenT

Whats ahead

Management
structures

Organisational
structure

Organisation

Corporate
culture

Policies and
procedures

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Key Knowledge

Students will learn the following about the internal environment of largescale organisations:
management structures
corporate culture and its future development
the need for, and process of, policy development and its application.

All organisations exist with a view to achieving


their stated objectives. It is a managers role to
oversee the operation of the internal environment with a view to achieving these objectives.
The operating and macro environments of an
organisation are beyond the control of management, as it is extremely difficult for management to influence external factors such as the
economic situation, societal expectations relating
to ethical and social responsibility, consumer
tastes and supplier costs. The internal organisational environment is the only area over which
management has a significant level of control.

area of study

Internal envIronment of large-scale


organIsatIons

Managers must therefore influence the


performance of their organisation through
planning, organising, leading and controlling
the internal environment. They aim to create an
internal structure in which the organisation can
operate to optimal efficiency and effectiveness.
Similarly, a corporate culture should be created
that allows the organisation to operate effectively and efficiently. In order to do all this,
policies must be developed and implemented
which ensure that everyone within the organisation is working towards the achievement of
its objectives.

63
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

The role of management


Managers coordinate and initiate activities
within an organisation with a view to achieving that organisations objectives. This involves
planning, organising, leading and controlling
the use of the organisations resources in order
to optimise its performance and achieve its
stated objectives. (See chapter 5 for more information on effective management.) The achievement of organisational objectives requires the

internal environment to operate in an efficient


and effective manner within the larger operating
and macro environments.
Each large-scale organisation has its own
unique style of operating and managing its
resources. This will be affected by the size,
function, purpose and processes used by the
organisation to achieve its stated objectives.

Management structure
hierarchical structure
different levels of
management and staff,
with higher levels
exercising greater
authority and control
senior or executive
management
the level of
management involved
in the strategic
planning and decision
making of an
organisation
middle manager
translates corporate
objectives into specific
projects, monitors
progress of projects
and supervises frontline managers

Management structure (also known as organisational structure) is the method or framework by


which staff, departments, divisions and regions
work and interact with one another. The term
structure refers to the way in which the parts
of a system or objectives are organised and
coordinated. By examining an organisations
structure, it is possible to determine how work
is divided up and coordinated and the context
in which organisational policies and procedures
operate. Authority and relationships between
the different parts are also shown. Structures
vary between organisations depending on the

nature of what they do, their size, numbers of


staff, and the prevailing organisational culture.
Organisations have traditionally operated
using a hierarchical structure featuring three
levels of management:
1 Senior or executive management is the
top level and has responsibility for strategic
(long-term) planning for the whole organisation. The board of directors, the chief
executive officer (CEO) and their executive
management team fall into this category.
2 Middle managers are in charge of a designated department or organisational division.

Figure 4.1 Traditionally, most large organisations have had a hierarchical


management structure with three levels of management.

64

unIt 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Reduces

Senior
management

Middle management

Front-line management
Power

Figure 4.2

Authority

Responsibility

The management hierarchy and its relationship to power, authority and responsibility

An example of a middle manager might be a


store manager for a large supermarket chain
or the manager of a bank branch. They have
responsibility for tactical decision making.
3 Front-line managers may be supervisors,
team leaders or leading hands. They are
responsible for day-to-day planning and
decision making.
Features of an organisational management
structure include:
the division of labour (who does what)
division of employees into departments or
divisions (segmentation), referred to as horizontal differentiation
chains of command, control and authority
(who is responsible to whom and for what),
referred to as vertical differentiation
communication channels
patterns of decision making (centralised or
decentralised), as well as the number of
layers in the organisation.
The structure of an organisation is usually
depicted in an organisational chart. It can also
be gleaned by examining policies and procedures and in individual position descriptions.

The division of labour


Division of labour refers to the segmentation
and coordination of activity that is required to

ensure that organisational goals are met. Traditionally, in hierarchical structures, there has
been a degree of specialisation, with workers
becoming expert in a particular activity or
set of activities. This is changing as organisations move towards less hierarchical (flatter)
structures. Employees are being encouraged to
become multiskilled with a view to increasing
worker motivation, productivity and workplace
flexibility.

Organisational
departments or divisions
Divisions are a key component of any organisational structure. Organisations group workers
together according to any of the following
classifications:
Function departments are based on the
function performed. Most organisations,
for instance, group employees into one
of marketing, operations, finance, human
resources, information technology, and
research and development departments.
Geographic departments are often created
based on the location of the employees. For
example, an organisation may have state or
regional operations; a transnational business will have operations based in different
countries.

c h a p t er 4 the Internal envIronment


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

front-line manager
lowest level of
managers in the
hierarchy; responsible
for the work of
operating employees
only and does not
supervise other
managers
management
structure
the ways in which
parts of an organisation
are formally arranged
to link management,
employees and
functions together to
achieve objectives

65

Cambridge University Press

Chains of command,
control and authority

Figure 4.3

A transnational business has offices in countries all around the world.

authority
the power and status to
pass commands down
an organisation
span of control
the number of people
reporting directly to one
manager or supervisor

Product-based divisions are based on the


actual product produced by that group of
employees. A sporting goods manufacturer
may, for instance, have departments such
as Footwear, Clothing, and specific types
of sports such as AFL, Soccer, Tennis or
Netball.
Customer-based divisions are based on
a type of customer who has special requirements. For example, a car manufacturer will
have distinct retail and fleet sales departments.

Authority refers to the legal and/or moral right


to control something or someone. Managers
who have the authority to perform certain tasks
and/or require someone else to do these things
in an organisation form an integral part of the
organisational structure. Organisational structure identifies who has responsibility for seeing
that certain tasks are completed.
A manager usually has responsibility for
managing other people within the organisation. Span of control is a term that refers to
the number of people a manager has direct
responsibility for; this is shown in an organisations structure. The larger the number of people
a manager has responsibility for, the wider (or
more horizontal) their span of management
control. An organisation with a flatter structure
will see managers having a wider span of control.
A narrow span of control is associated with a
more hierarchical management structure.

Communication
channels
Official communication channels within an
organisation, whether upward, downward or
lateral, are all-important aspects of an organisations structure.

Manager

Subordinate 1

66

Subordinate 2

Subordinate 3

Figure 4.4 In this


example, the manager is
responsible for three other
people (subordinates). The
span of control in this case
is three.

unIt 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Patterns of decision
making
Patterns of decision making are directly influenced by an organisations structure. More
centralised decision-making patterns are associated with hierarchical structures, while flatter
structures facilitate more decentralised decisionmaking patterns.
An organisational chart depicts:
lines of authority, responsibility and span of
control of individual management positions
the chain of command
reporting relationships
job titles and responsibilities
formal channels of communication
division of labour
levels of management.

Hierarchical
management
(organisational) structure
A hierarchical organisational structure has
evolved in large-scale organisations and is often
referred to as a vertical structure. Traditionally,
this was based on a bureaucratic model. In more
recent times, the model has become flatter. The
following are features of a hierarchical structure:
employees arranged into layers, or levels,
with power, authority, responsibility and
accountability increasing the further up the
hierarchy they progress
rigid lines of communication, with most
communication occurring in a downward
pattern; for example, orders or instructions
are passed down to subordinates

chain of command
the vertical line of
authority that passes
command down
through the levels of an
organisations hierarchy

CEO

Chief General
Manager
Information
Services

Chief General
Manager
Finance & Strategy

General Manager
Finance &
Corporate Services

General Manager
Business Futures

General Manager
Medicare &
Associate
Government
Programs

General Manager
IT Services

General Manager
Program Review

Chief General
Manager
Operations

Legal, Privacy
& Information
Services

Chief General
Manager
Research &
Development

Chief General
Manager
Marketing

Brand
Manager

Brand
Manager

Product
Manager 1

Manager
eCommerce

Chief General
Manager
Audit & Risk
Assessment

Product
Manager

Product
Manager 2

Manager
Online
Development

Manager
Service
Delivery Reform

Figure 4.5

Typical formal organisational chart

c h a p t er 4 the Internal envIronment


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

67

Cambridge University Press

centralised decision
making
where management
make decisions and
pass on directions
to those below
them in a hierarchy;
communication is
downward and worker
participation in decision
making is non-existent
line authority
authority that relates
to the main tasks
of an organisation,
e.g. production,
distribution and sales;
line managers have
authority over the
subordinates in their
specific area
unity of command
each employee is
directly responsible to
one manager
bureaucracy
complex hierarchical
management structure
based on clear division
of labour, downward
communication,
centralised decision
making, line
management and
narrow span of control
benefits
all financial rewards
that are not paid
directly in cash to
an employee, e.g.
maternity leave, family
leave, sick leave
flat organisational
structure
an organisational
structure that has a
wide span of control,
few management levels
and a short chain of
command

68

clearly identifiable organisational positions, roles, responsibilities and accountability in place


clearly definable span of control (responsibility for a designated number of employees) exists for each manager represented on
the organisational chart
centralised decision making,
with
management making decisions and passing
on instructions to those below them in the
hierarchy, who in turn pass on instructions to
those below them, and so on; this is referred
to as line authority or a chain of command
the principle of unity of command,
where each employee is directly responsible
to one manager.

Bureaucratic structure
A bureaucracy is a complex hierarchical
management structure. Max Weber (18641924)
developed the classical theory of bureaucratic management. Based on the three levels of
management, a bureaucracy has the following
features:
a clear division of labour with a large degree
of specialisation
most communication is in a downward
pattern with management passing instructions to those below them (subordinates);
employees report directly to the manager
to whom they are responsible; employee
communication with senior management is
often not practical or even possible
employee performance is usually judged
against budgets, benchmarks and peers
centralised decision making
a clearly defined hierarchy, with each level
supervising and exerting control over that
below it (line management)
a narrow span of control
clearly defined salaries and benefits at each
level
clearly defined promotion and selection
procedures based on merit and technical

Figure 4.6

Bureaucrats rule from their desks.

competence (qualifications, experience, past


assessment)
clear accountability
detailed rules and regulations governing all
actions and relationships
clearly specified procedures for all aspects of
the business
all rules, decisions and actions are formulated and recorded in writing
clear lines of control with distinct processes
and procedures for each level
authority vested in the official positions and
not in the personnel that hold those posts.

The term bureaucracy literally means to


rule from the desk. Record keeping, following
set rules and due process are at the heart of
bureaucracy. The goal of the system is consistency, fairness and the operation of a large
organisation that enables the achievement of
organisational goals.

Flatter organisational
structure
The flatter organisational structure has
come about in response to the need of organisations to become more dynamic in their
operations, be more responsive to changes in
their business environment, to increase their
level of productivity and competitiveness. The

unIt 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

traditional bureaucratic (multilayered) hierarchical structure was viewed by many as being too
inflexible, too expensive, stifling of employee
creativity, and unresponsive to change. Consequently, many organisations began to break
down their hierarchical structures (through a
process of delayering) in favour of more flexible, flatter organisational structures.
The effects of a flatter organisational structure are:
fewer levels of staff between senior management and front-line employees, resulting in
shorter and improved communication paths
employees actively involved in participative
decision making (a decentralised model),
resulting in worker empowerment and
improved motivation
use of employee knowledge, skills, experience and potential for innovation

greater workplace flexibility and greater


ability to respond to changes in the external
environment
a reduction in operating costs due to
management downsizing
fewer status distinctions, such as offices, a
workplace where people are encouraged to
work together for a common goal in teams
increased training and multiskilling of
employees.

Activity 4.1
It is said that Harry Truman, the president of the
United States in the 1950s, had a sign on his
desk stating: The buck stops here.
Explain what you think this statement
means in light of the bureaucratic structures of
government.

Forms of hierarchical organisation


structures
There are a range of hierarchical organisational
structures that may be adopted by an organisation. Some organisations adopt a combination of
structures. For instance, a multinational organisation may operate using a geographic structure
to represent worldwide operations, and within
each regional area adopt a functional structure
representing its specialised operational areas.

Functional structures
Employees are grouped into departments according to the tasks they perform (function). Functional structure allows for the introduction of
employee specialisation, which improves productivity through well-trained staff, career paths, and

functional structure
a form of traditional
organisational structure
that is based on the
functions performed,
e.g. finance, marketing

possible economies of scale. Each department


Chief Executive
Officer

Quality
Supervisor
Figure 4.7

Manager
Operations

Manager
Finance

Manager
Sales & Marketing

Production
Supervisor

Maintenance
Supervisor

Manager
Human Resources

Functional hierarchy

c h a p t er 4 the Internal envIronment


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

69

Cambridge University Press

has a separate manager and distinct levels of


management directly responsible to them.

Geographic structures

make or sell. For example, a retail department


store will have departments such as: Mens clothing, Womens clothing, Furniture, Electrical,
Sporting goods, Shoes and Accessories.

These are structures based on divisions according to location.

Customer-based
structures

Product-based
structures

These are departments based on the types of


customers dealt with by a group of employees.
A car manufacturer may have one sales department dealing with fleet sales and another one
dealing with businesses or retail sales.

These are departments where employees are


grouped together according to the product they

Chief Executive
Officer

General
Manager
Australia
Figure 4.8

General
Manager
USA

General
Manager
Asia

General
Manager
UK

Geographic hierarchy

Chief Executive
Officer (retail
business)

Manager
Human
Resources

Manager
clothing &
footwear
Figure 4.9

70

Manager
Operations

Manager
homewares

Manager
Sales &
Marketing

Manager
books &
stationery

Manager
Finance

Manager
sporting goods

Product-based functional hierarchy

unIt 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Chief Executive
Officer (car
manufacturer)

Manager
Human
Resources

Manager
Operations

Manager
Sales &
Marketing

Manager
fleet sales
Figure 4.10

Manager
Finance

Manager
retail

Customer-based
-based functional hierarchy

Consequences of less hierarchical


organisational structures
The process of delayering is common in
modern large-scale organisations. The contemporary organisation adopts a flatter or less
hierarchical organisational structure. This tends
to have a direct impact on the operations of that
organisation as follows:

A more decentralised decision making


structure tends to evolve in organisations
with a less hierarchical management structure. Employees are given authority over
their own work sphere through participation
in autonomous work teams. Consequently

Table 4.1 Traditional versus contemporary organisational structure


elements of structure

Traditional hierarchical
structure

Contemporary structure

Communication

Downward

Multidirectional

Communication channels

Slow and unresponsive to change

Shorter communication paths

Decision making

Centralised

Decentralised

Delegation

Downward

Downwards and lateral

Management style

Autocratic

Consultative/participative

Layers in structure

Multilayered

Fewer layers

Span of control

Narrow

Broad

Division of labour

Specialisation

Multiskilled

Roles and responsibilities

Clear and narrow

Greater autonomy

Departmentalisation

Well defined

Cross-departmental teams

Outsourcing

Limited

Non-core functions

c h a p t er 4 the Internal envIronment


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

delayering
reorganisation of an
organisation by removal
of one or more layers of
management
decentralised
decision making
where workers are
given responsibility for
decision making in their
own areas
autonomous work
teams
teams of workers that
are given delegated
authority to perform
certain tasks to
select who does what
and how the task is
performed
departmentalisation
the division of an
organisation into
departments on the
basis of function
(duties), product,
process, customer or
geographic location

71

Cambridge University Press

matrix structure
a structure that
places managers
and employees into
project teams that cut
across functional or
departmental lines, and
requires them to report
to both functional and
task management

employees tend to be more motivated and


committed, resulting in greater productivity.
Work teams are taking over many of the
responsibilities and decision-making functions previously assumed by middle managers; consequently, many of these middlemanagement jobs have disappeared. The
1990s in particular saw many white-collar
employees made redundant as a result of
this trend.

Other forms of
organisational structure
Matrix structures

network structure
organisational structure
where functions are
outsourced to other
organisations; the core
organisation exerts
control via outsourcing
contracts

When an organisation wishes to undertake


a project or assignment, a matrix structure
can be created. This team structure is made
up of specialists from different functional
areas within the organisation. People working
under this structure remain part of their functional department and are responsible to their
own departmental manager while also having

reports to

improved communication channels across


the organisation, with employees working
outside their departments for a period
a reduction in interdepartmental rivalries
a greater level of cross-pollination of ideas,
with employees being exposed to the different
perspectives of those in other departments.

Network structure
Many organisations are choosing to adopt a
network structure in order to gain a competitive advantage through additional operational
flexibility. A network structure involves an
organisation outsourcing a number of its functions to outside organisations, in effect creating
its products in cooperation with others. The
central, or core, organisation exerts administrative control over the organisations to which
it has outsourced its functions. It can also be

Chief Executive
Officer

Manager
R&D

Manager
Operations

Manager Sales
& Marketing

Manager
Human
Resources

Manager
Finance

Team Leader
Project X

R&D officers
Project X

Operations
Project X

Marketing
Project X

HR officer
Project X

Finance
Project X

Team Leader
Project Y

R&D officers
Project Y

Operations
Project Y

Marketing
Project Y

HR officer
Project Y

Finance
Project Y

Team Leader
Project Z

R&D officers
Project Z

Operations
Project Z

Marketing
Project Z

HR officer
Project Z

Finance
Project Z

Team Leader
Project O

R&D officers
Project O

Operations
Project O

Marketing
Project O

HR officer
Project O

Finance
Project O

Figure 4.11

72

whole team reports to

responsibility to their project team manager


or leader.
The advantages of using cross-departmental
teams (matrix structure) are:

Matrix management structure

unIt 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

referred to as a virtual corporation. Dick


Smith Foods is an example of a virtual business.
All production of the food items sold under the
Dick Smith label is outsourced to Australian
food manufacturers; these products are then
packaged and sold under the Dick Smith Foods
brand. The potential cost savings offered by
the network structure mean the virtual business
model is a growing trend as organisations strive
to compete in a global economy.

Legal firm

HR
consultancy

Marketing
& public
relations firm

Network organisations are extremely flexible


and able to readily adapt to changes in consumer
demand and choices. A network structure offers
considerable cost-saving opportunities through
reduced inputs costs. Inputs such as staff, capital
outlay and maintenance are considerably less.
Consequently, many organisations, such
as the building firm Multiplex, now choose to
outsource many or all of their functions, retaining only a small group of core employees.

virtual corporation
an organisation that
uses the network
structure

Advertising
agency

Manufacturer
(balls)

Core organisation
(sporting goods
manufacturer)

Research &
development
firm

Manufacturer
(equipment)

Accounting
firm

Manufacturer
(footwear)
Figure 4.12

Network/organic structure

Activity 4.2
Write out the following passage, inserting the missing words from the list below.

Learmonths, a market leader in the catering business, has recently decided that to
increase workplace flexibility the company
must undergo an organisational __________.
CEO, Carla Snobbins, has decided that the oldstyle __________ structures must be replaced
with a more flexible structure. This will allow
the business to reduce their __________ bill
as a consequence of outsourcing __________
functions, such as marketing and finance.

Under the old bureaucratic structure,


many employees had started working for the
company straight out of school and worked
their way up the __________. All employees
were under the direct control of a __________
who had direct __________ over all employees
under them and who was held responsible for
the __________ of their department.
Employees in recent years have begun to
demand greater __________ in their own work

c h a p t er 4 the Internal envIronment


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

73

Cambridge University Press

areas and have been calling for __________


processes as a consequence.
Carla and her __________ management
team have therefore decided that the company
is to adopt a __________ structure with workers
to be placed in work teams responsible for
their own work areas.
This will involve redundancies with several
layers of __________ no longer necessary due

middle management
autonomy
bureaucratic
executive
network

to __________ taking over the decision-making


functions previously done by them.
Employees working in the marketing,
finance and legal departments will lose their
jobs in the restructure. These functions will all
now be __________.

line manager
performance
authority
restructure
decentralised decision making

non-core
outsourced
wages
hierarchy
work teams

Corporate culture and its future


development

Figure 4.13

No two organisations are the same.

Walking around any organisation it is apparent


that no two organisations are the same. For
example, if you went to another secondary
school you would immediately notice differences to your own school in regard to the
physical environment, the dress code, the way
that people interact, the way people address
one another and generally what is assumed to

74

be the standard behaviour. You are observing


differences in the culture between your school
and another. No two organisations are identical,
each has a unique culture.
The internal culture of an organisation is
in fact its personality. Culture is an important
determinant of how effectively and efficiently an
organisation functions. An important component

unIt 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

in managing a large-scale organisation is that


of monitoring and altering the organisational
culture when necessary.
Culture determines the appropriate norms
and behaviours within an organisation. Pressures to change organisational culture may
come from internal or external sources. It is
up to management to take leadership roles in
cultural change.

What is corporate
culture?
Corporate culture is a system of values and
beliefs shared by the people within an organisation. This then affects how they behave and
act towards one another. It includes a shared
view of organisational directions and values,
priorities, commitments, as well as feelings of
loyalty and personal worth within an organisation. Corporate culture has both observable and

non-observable elements. The expression this


is how we do things around here is really a
statement about culture.
Corporate culture is:
a pattern of basic assumptions shared within
an organisation
developed and shared by a group
representative of things that worked well in
the past and are considered valid within the
organisation
taught to newcomers as the correct way of
thinking, feeling and doing.
In order to recognise the culture of an
organisation, you need to look at the following:
Formal written company policies and objectives these reflect the official objectives and
mission of the organisation. Company values
are also an important indicator of culture.
All these things demonstrate priorities and

corporate culture
the shared values
and beliefs of an
organisation, which can
influence the actions
and decision-making
style of managers and
employees

important official values.

ARTEFACTS: clearly visible language


symbols, objects, appearances etc

VALUES: shared rules residing just below the


surface that influence/control peoples behaviour

ASSUMPTIONS: beliefs about human nature and environment that


reside just below the surface, and are taken for granted

Figure 4.14

Corporate culture includes observable and non-observable elements.

c h a p t er 4 the Internal envIronment


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

75

Cambridge University Press

Physical environment the architecture and


layout of the work environment, the colour
scheme, even the staff uniform are all indicators of the culture of an organisation.
Organisational structures and management
styles these show much about the relationships between people.
Organisational processes the steps taken
to do things demonstrate a lot about culture
and what is valued.

Rituals, symbols and what is celebrated.


How people address each other are titles
used or do people simply address each other
on a first name basis?
The language used.
Official company documentation such as
brochures and logos are important indicators
of culture.

Activity 4.3

Figure 4.15 Anita Roddick founder of The Body Shop

Figure 4.16

Richard Branson founder of Virgin Airlines

1 Explain what each of the following indicates about the corporate culture of an organisation.
a
b
c
d
e
f
g
h
i
j

The receptionist is wearing jeans.


Staff address each other as Mr or Ms, never by first names.
Staff are rewarded for increased sales figures with bonuses.
Staff may work from home when caring for a sick family member.
Employees must make an appointment in order to speak with the manager.
Employees who contribute ideas at a weekly staff meeting are highly regarded.
Correct procedures must be followed without fail.
There are very few employees of a non-Anglo-Saxon background.
An environmental policy is on prominent display at the front office.
Work hours are very flexible.

2 Go to the website of two of the following large-scale organisations.


a
b
c
d
e
f

The Body Shop (www.thebodyshop.com.au)


Coles (www.coles.com.au)
Qantas (www.qantas.com.au)
Woolworths (www.woolworths.com.au)
Australia Post (www.auspost.com.au)
Virgin Airlines (www.virginblue.com.au).

For each organisation, write a paragraph describing what you can tell from its website about the
culture of the organisation. Look at things such as uniforms, colours, website design, management
structure, and the age and type of employees featured.

76

unIt 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Differences in corporate
culture
All organisations have a culture that is unique
to them. Key points of difference may include:
Degree to which people are encouraged
to become risk takers and innovators
for example, the risk-taking culture of
the Virgin Group derives directly from its
founder and owner, Richard Branson. His
personal high propensity for risk taking has
had immense influence on the culture of
the Virgin Group employees are encouraged to be innovative and entrepreneurial in
their approach to work and business ideas.
Branson has backed some of these ideas.
For example, Virgin Bride, a bridal business, came from an idea of one of his flight
attendants.
Attention to detail the degree to which
employees are expected to exhibit precision,
analysis and attention to detail. For instance,
does every step in a set of procedures have
to be followed every time?
People orientation to what extent are
the wants and needs of employees taken
into account when making decisions? For
example, is worklife balance important for
their employees?
Task or process orientation do managers focus on results/outcomes or is how
results were obtained more important, e.g.
were guidelines followed?
Team orientation to what degree are
activities organised around teams?
Level of competitiveness is the organisation striving to be the best or number one?
Or is it content to simply provide a service?
Degree of emphasis on ethical and social
responsibilities are these given priority?
Diversity among employees the degree
of skills, ideas, knowledge, ethnic mix and
ratio of males to females are all indicators of
culture.

Age of the organisation the older an


organisation, the more likely it is to have
firmly entrenched and traditional customs
and practices.

Activity 4.4
1 Consider and explain what each of the
following aspects of your school indicates
about its culture.
a

The dress code. Is it a uniform or


casual dress? What is the uniform like?
b The layout of the school. Is it formal or
informal? Consider the layout of areas
such as classrooms, the front office and
staff areas.
c The type of logo and branding. Is it
traditional or modern? Consider the
colours used.
d The behaviour of the employees
towards clients or customers. How
do you address teachers? How do
teachers address each other? Consider
the degree of student influence over
decisions made.
e The level of formality. Is it relaxed
or formal? Do you need to make
appointments to see people?
f The backgrounds of students.
2 Write a paragraph describing the key aspects
of the culture of your school. How might this
compare to another school that you know of?

How does a new


employee learn the
organisational culture?
Organisational culture can be seen in the physical surrounds of an organisation and in more
subtle ways:
Stories and narratives about significant
events and/or people in the organisation,
about its founders, rules being broken, and
rags to riches success stories are all important
indicators of the values of an organisation.

c h a p t er 4 the Internal envIronment


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

77

Cambridge University Press

Figure 4.17 The culture of an organisation can take time to develop.

The people about whom stories are told


are often organisational heroes. Look for
portraits on the walls and stories told, as
well as at publicity material.
Rituals express key values and expectations within an organisation. Recognition
and reward ceremonies, weekly social gettogethers, participation in social club activities or even the annual Christmas party are
examples. Other rituals reflecting an organisations culture are formal introductions of new
and promoted staff, special clothing, casual
dress days, uniforms, identification badges
and participation in charity fundraisers.

Material symbols represent status in


the organisation. For instance, do senior
managers have bigger offices than middle
managers? Is there a separate cafeteria for
blue-collar and white-collar workers?
The behaviour of management acts as a
role model for others within the organisation.
How are people recognised and for what
things do they receive recognition?
The form and manner of communication are strong indicators of organisational
culture; for instance, whether formal or
informal communication channels, such as
the grapevine, are used to pass on information. Are there specific protocols for communication or not?
Specific or specialist language such as the
use of jargon and acronyms bind employees
to a workplace. For instance, schools all use
educational jargon such as VCAA, VCE, GAT,
SAC and ATAR.
Culture can be gleaned through participation
in workplace training activities.
Written documents such as policies (as
mentioned previously) are strong indicators
of corporate culture.

Activity 4.5
Woofer Dog Products, a subsidiary of a pet
food manufacturer, has been in operation for
five years. It has become highly competitive in
boutique dog-related products. Management
has decided to increase the number of
employees to meet its plan for expansion. As a
new employee, you need to learn the culture of
Woofer Dog Products in order to be successful
within the organisation.
1 Suggest and explain fours ways in which you
can learn the culture.
2 Suggest what each of the following would
indicate about the culture at Woofers.

Figure 4.18 The grapevine is an informal channel for organisational communication.

78

a All managers are referred to as Sir.


b Whenever the supervisor leaves the
room, everyone stops working.
c The dress code is very formal.

unIt 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Pressures to change
corporate culture
Corporate culture is an important influence on
organisational success. A positive corporate
culture will have the following beneficial effects:
increased productivity this comes
through an employees sense of commitment
and belonging in an organisation. If employees feel valued and part of a team, they will
be more committed to the organisation.
greater employee work ethic
reduced staff absenteeism and turnover
reduced cost of recruitment and training
greater profitability
positive public perception of the organisation staff who are loyal, satisfied and
proud to belong to an organisation will
provide better customer service.
It is important that management is able
to recognise and rectify negative aspects of

the organisations corporate culture in order


to improve its competitiveness. As all three
business environments (macro, operating and
internal) are in a constant state of change, it
is important that an organisation is able to
recognise and change culture where necessary.
Management should implement the following
steps in doing this:
1 Determine the type of culture that should be
adopted.
2 Establish what aspects of the organisational
culture need to go/stay.
3 Plan the proposed change/development of
the desired culture (see chapter 13).
4 Use leadership skills to bring about cultural
change.
5 Set objectives, and work to achieve these.
6 Monitor the level of acceptance and practice
of the culture.
7 Evaluate the outcome of the change and
compare with the desired behaviours.

Activity 4.6
Read the article and answer the questions that follow.

Women sue, saying Wall Street favours men


by AP, Marcy Gordon
Three women who formerly worked for
Goldman Sachs are suing the big Wall Street
firm for what they say is rampant gender
discrimination that unfairly favours men in
pay and promotions.
The lawsuit filed on Wednesday alleges
that Goldman has violated federal and New
York City laws by engaging in a systematic
pattern and practice of discrimination against
female professionals at the firm. They are
asking a federal judge to certify the case as a
class-action suit on behalf of the firms women
employees.
The three, who were a vice president, a
managing director and an associate, also are

seeking damages from Goldman for emotional


distress they say theyve suffered and for lost
income.
We believe this suit is without merit,
Goldman spokesman Lucas van Praag in New
York said in a statement. People are critical
to our business, and we make extraordinary
efforts to recruit, develop and retain outstanding women professionals. The suit was filed in
US District Court in New York.
Goldman Sachs, with some 34 000 employees, is one of the most powerful and influential
firms on Wall Street. The employees suit cites
2009 company figures showing that women
represented 29 per cent of Goldmans vice

c h a p t er 4 the Internal envIronment


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

discrimination
any practice that makes
distinctions between
different groups based
on characteristics such
as sex, race, age and
religion

79

Cambridge University Press

presidents and 17 per cent of its managing


directors. Figures from 2008 had women representing only 14 per cent of the firms partners,
the complaint said.
The three women are H Christina ChenOster, who was a vice president for eight years
in Goldmans convertible bonds department;
Lisa Parisi, a vice president and later a managing director for a total seven years in the firms
asset management division; and Shanna Orlich,
who worked as an associate in the capital
structure franchise trading group for a year.
They say in their suit that as a result of
Goldmans discriminatory policies and practices, female employees have been paid less and
promoted less often than their male colleagues
with equivalent experience and abilities.

The violations of its female employees


rights are systemic, are based upon companywide policies and practices, and are the result
of unchecked gender bias that pervades
Goldman Sachs corporate culture, the suit
alleges. They have not been isolated or
exceptional incidents, but rather the regular
and predictable result of Goldman Sachs
company-wide policies and practices.
Among other things, the former employees
maintain, the firm gives its managers the vast
majority of whom are men wide discretion
to assign responsibilities and opportunities to
their subordinates. The most promising assignments, fostering career advancement and better
pay, most frequently go to men, they contend.
Source: The Age, 16 September 2010

Questions
1 Write definitions of the following terms.
a Corporate culture
b Policies.
2 Briefly outline the reasons why three former employees of Goldman Sachs have taken the company
to court.
3 Explain how and why the former employees believe that Goldman Sachs corporate culture acts to
discriminate against female employees.
4 What evidence is cited in the article to support the contention of the three former employees that
the culture of Goldman Sachs is discriminatory towards female employees?
5 Explain how each of the following could act as pressures for Goldman Sachs to change its
corporate culture in this instance.
a

Legal pressures caused by a new affirmative action law that forces employers to give equal
representation to females in senior management.
b Negative publicity and a poor public image as a result of publicity surrounding this lawsuit.
c Several high-profile female employees resign from the company citing a lack of opportunity
to advancement as a reason.

Policy development and its application


policy
a written statement
of the processes and
procedures, rules and
regulations

80

A policy is a written statement detailing


processes, procedures, rules and regulations
that must be observed in a given situation. Policies must reflect the organisations mission and
objectives, and should provide the guiding or
governing principles that mandate or constrain

the actions of people within the organisation.


Stated simply, a policy guides a member of
an organisation as to what they are expected to
do in a given situation. For example, schools
have a multitude of policies. Look at your
school planner and you will see all the policies

unIt 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

offer guiding principles for actions within


the organisation policies allow and restrict
what people can do
reflect the mission and objectives of the
organisation
assist with compliance and acceptance of
desired behaviours within the organisation
recognise the rights and obligations of
people within the organisation
identify means and procedures for resolution of conflict.

Figure 4.19

Policy development

that affect you as a student. Usually there will


be a uniform policy explaining exactly what
the school uniform is and what will happen if
you do not follow the policy. Most workplaces
also have policies regarding smoking, outlining when and where smoking may occur, if
at all, and what procedures will be followed if
someone is in breach of the policy.
Policies establish expected standards of
and guidelines for behaviour. They set guiding
principles for peoples actions to ensure that in
a given situation what happens is within boundaries of what is expected. Policies that are based
on an organisations mission and goals will:
establish a consistent interpretation of the
intentions of senior management for
instance, a non-smoking policy in a school
ensures that a person caught smoking will be
treated in the same manner no matter which
teacher or coordinator deals with them
include procedures a series of steps that
must be followed to implement a policy;
these specify how someone will go about
doing something

The policies of an organisation can usually


be found in staff handbooks, manuals, annual
reports and the company website or intranet.
Anyone directly affected by, or expected
to follow, a particular policy should have the
details of that policy made clear to them. Policies are usually devised by management, with
employees often having input into the process
of policy development.
Effective policies are:
clearly expressed so that everyone can
understand them
clearly communicated so everyone is aware
of their existence, and potential and actual
changes to them
often introduced by training employees and
management about procedures to be followed
within a policy and the rationale for the policy.
Large-scale organisations typically have
policies to cover things such as bullying,
sexual harassment, equal opportunity, privacy,
smoking, occupational health and safety, email
and use of the internet, uniform and dress
codes, attendance and lateness, staff discipline,
corporate governance, conflict of interest, confidentiality and security of information.

Pressures on policy
development
Pressures to develop new policies or to change
existing policies come from both the external
and internal environments of an organisation.

c h a p t er 4 the Internal envIronment


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

procedures
series of interrelated
steps to implement
policy

81

Cambridge University Press

External pressures

dealing with sexual harassment, recruitment

External pressures are generally beyond the control of management, employers and employees.

procedures, training and promotion procedures.

legal pressures/legIslatIve
complIance

breach of the law and fined.

When governments create new laws or change


existing laws, large-scale organisations are
often required to develop policies in order to
be compliant. For example, the introduction of
equal opportunity (EO) legislation has required
all employers to develop EO policies. An equal
opportunity policy must cover things such as

Failure to do this in line with the EO laws could


mean that an organisation is liable to be held in
Occupational health and safety (OH&S) laws
have also compelled all organisations to develop
OH&S policies with procedures for protective
clothing requirements, smoking, safe work practices, and so on. Large-scale organisations must
be aware of proposed changes to laws affecting
them, and evaluate these for their potential impact
on the organisation and its policies. Consumer

Activity 4.7
Read the extract and answer the questions that follow.

SKILLED STADIUM SmokeFree Policy


RATIONALE
In line with current State legislation covering
Stadiums and Places of Entertainment from
June 1st 2008, the City of Greater Geelong
and the Geelong Football Club introduced a
SmokeFree policy for Skilled Stadium for the
following reasons: The City of Greater Geelong (CoGG) and
the Geelong Football Club (GFC) recognises
that passive smoking is hazardous to health
and that non-smokers should be protected
from tobacco smoke.
CoGG and GFC want to create a healthy,
safe, and clean environment for its patrons,
staff, and visitors.
Research clearly indicates that the majority
of patrons prefer to view games at Skilled
Stadium in a SmokeFree environment.
CoGG and GFC are following the current
SmokeFree trend in the AFL and at other
major Victorian and Australian sporting
venues.

82

CoGG and GFC recognises the legal liability


associated with:
Providing a safe and healthy workplace
for employees and workers at Skilled
Stadium;
Providing a safe and healthy environment
for patrons, users, and guests at Skilled
Stadium.

POLICY ON SMOKING
The following outlines the requirements of
CoGG and GFCs Skilled Stadium SmokeFree
policy.

Skilled Stadium
All areas of Skilled Stadium are to be
SmokeFree.

General
All functions and activities held within
Skilled Stadium are to be SmokeFree;
Players and staff are to refrain from smoking
while in club uniform and while representing
CoGG or GFC.

unIt 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Other Sporting / Cultural Events


All patrons using Skilled Stadium for any other
non-football events or functions must be made
aware that the stadium is a SmokeFree area.
They will be given maps of all designated
smoking and non-smoking areas and must
abide by Skilled Stadiums SmokeFree policy at
all times. Please see attachment of the Skilled
Stadium layout which indicates smoking is not
permitted inside the black line.

Other
The above policy requirements apply to all
employees, contractors, members, administrators, officials, coaches, players and visitors
at Skilled Stadium.

Timing
The City of Greater Geelong, Geelong Football
Club and Skilled Stadium will be SmokeFree
effective from the 1st June 2008.

Designated Smoking Areas


Skilled Stadium has designated smoking areas
outside the stadium boundary. These areas
are clearly marked around the stadium with
appropriate signage. Match day staff can also
direct patrons to designated smoking areas.
Smoke poles have been installed around the
stadium for the disposal of cigarette butts for
those who wish to smoke.

Non-Compliance Strategy
Staff being advised of or observing patrons
smoking in the SmokeFree areas should:
1 Assume the patron is unaware that Skilled
Stadium is a SmokeFree area, advise the
patron, ask that the cigarette be extinguished and inform him or her of the nearest
designated smoking area.
2 If the patron lights up again and refuses to
go to a designated smoking area, contact
your supervisor or the nearest security staff
immediately.
3 Even if the offender is not smoking when
security arrives, they are instructed to

remove him or her from the stadium as the


patron has already received two warnings.
This action is not the role of events staff.
4 Security personnel and supervisors are
advised to seek Police assistance if any form
of physical persuasion is required to remove
the patron. Police also should offer all assistance possible to events staff endeavouring
to carry out their duties.
5 Supervisors should ensure that all staff are
aware of this policy. They must not ignore
patrons smoking under any circumstances
and should respond to requests for action
from other patrons complaining about
smokers inside the stadium.
All staff, security and uniformed police are
required to act in a similar fashion to events
staff if they observe patrons in breach of the
non-smoking regulations.

Tobacco Products
Tobacco products will not be sold anywhere
within the Skilled Stadium facility.

Education and Training


Staff at Skilled Stadium will undergo training
to help make them aware of Skilled Stadiums
SmokeFree policy and will focus on the
following issues:
Why Skilled Stadium is a SmokeFree area;
The SmokeFree areas of Skilled Stadium;
What to do when patrons wont comply with
the SmokeFree policy;
All staff will receive copies of Skilled
Stadiums SmokeFree policy.

Policy Review
CoGG and GFCs SmokeFree policy will be
reviewed on an annual basis. This will ensure
that the policy remains current and practical
for Skilled Stadium, the City of Greater
Geelong and the Geelong Football Club.
Source: www.geelongaustralia.com.au

c h a p t er 4 the Internal envIronment


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

83

Cambridge University Press

Questions
1 Name the two organisations that have introduced this new policy. What is the name of the new
policy?
2 Outline the reasons why this policy has been introduced.
3 Which stakeholder groups are affected by this policy? Describe how each group will be affected.
4 Have internal or external pressures brought about this policy change? Give reasons for your answer.
5 Summarise the procedures outlined in the policy for dealing with offenders against the new policy.
6 Why do you think these procedures are detailed so specifically?
7 What training is it proposed will be undertaken by staff? Why is this necessary, in your view?
8 Outline the possible consequences if a no-smoking policy was not introduced in this case.

protection laws also affect policies such as those


on exchange and return of goods.

socIal responsIbIlIty

social responsibility
accountability of a
business towards
its stakeholders; the
idea that businesses
should contribute to
the welfare of their
communities

Large-scale organisations are under increasing


pressure from the community to be good corporate citizens and accountable to all stakeholders.
Social responsibility involves looking beyond
financial objectives and being responsible for all
of the social effects of their actions as well. A
desire to be seen to be more socially responsible
could prompt the adoption of policies such as:
environmental policies many organisations
have adopted policies aimed at moderating
the environmental impact of their operations.
family-friendly workplace policies organisations that adopt policies that allow employees

Figure 4.20 A paper recycling bin

to maintain a better work/family life balance


are viewed as being more socially responsible. This makes it easier to attract and retain
skilled and experienced employees.

Activity 4.8
Read the case study and answer the questions that follow.

Case study: Honda Corporate Policies

84

Our Principle

Our Mission

Maintaining a global viewpoint, we are


dedicated to supplying products of the highest
quality, yet at a reasonable price for worldwide
customer satisfaction.

Honda MPE will always try to provide the best


products and services for our market.
We will strive for market leadership and
while doing so, work harmoniously together to
achieve an excellent result.
We acknowledge our responsibilities to
the community and the environment in which

unIt 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

we work and will always seek to improve


the areas in which we work for the benefit of
future generations.
http://hondampe.com.au/repository/
about_honda/corporate-profile/
philosophy.aspx

Environmental Policy
In line with the theme of Honda Motor Company
to act as responsible members of society,
whose task lies in the preservation of the global
environment, our company will make every
effort to contribute to the human health and the
preservation of the global environment in each
phase of our corporate activity.
Honda Australia Ltd is committed to:
Complying with ISO 14001 the International
Standard for Environmental Management
Systems.
Addressing the management of energy
within its operations to ensure that energy
from non-renewable sources is used as
efficiently as possible and greenhouse gas
emissions are minimized.
Minimizing waste and pollution in all our
operations and ensure effective recycling
programs are maintained.
Ensuring adherence to all Federal, State and
Local Environmental Agency Regulations.

Developing appropriate tools and resources


for our franchised Dealers to ensure that
they also, are continuously acting as responsible corporate citizens.
Working with our suppliers to achieve sound
environmental practices at all levels of
production whilst ensuring stable supplies of
materials, parts and accessories for Honda
Australias operations.
Establish programs to achieve agreed environmental objectives and targets appropriate to our activities.
Promoting an awareness of environmental
issues with all persons working for or on
behalf of the organization and provide the
training and resources that will enable them
to actively contribute to fulfilling our environmental objectives and targets.
Conducting regular environmental audits
and assessments of compliance with
company and legal requirements and periodically providing appropriate information
to Hondas Board of Directors, associates,
authorities and the public.
Promoting this commitment by making
copies of this policy freely available to associates and the public.
Source: www.honda.com.au/corporatepolicies.aspx

Questions
1 Visit Honda Australias website (www.hondampe.com.au/repository/about_honda/about_honda.
aspx). Write a description of Honda Australia, including products it produces and size.
2 Which aspects of the mission statement of Honda Australia indicate that social responsibility is a
priority?
3 Briefly outline the environmental objectives of this company.
4 Describe the pressures that are likely to have prompted Honda to adopt this environmental policy.
5 Explain the effect Honda might anticipate the adoption of this policy might have on:
a its image with the community
b compliance with government environmental legislation
c market share.
6 Describe two things that are likely to change as a result of the adoption of this policy for:
a Honda employees
b Honda customers
c Honda shareholders.

c h a p t er 4 the Internal envIronment


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

85

Cambridge University Press

changIng markets and other


InternatIonal pressures
Events and developments outside Australia also
have the potential to affect policy development
within Australian large-scale organisations. The
rise of international terrorism and increased
threat of terrorist attacks have caused many
Australian organisations to adopt and change
security policies.
Changing political circumstances within other
countries are also a trigger for policy change.
Many organisations are forced to change their
procurement/acquisition policies based on
political circumstances occurring in other nations
with which they are trading. For example,
Amnesty International will often put pressure on

organisations not to do business with countries


that have poor human rights records.

changes In technology
Technology is constantly evolving and changing. Organisations must respond to these
changes by adapting and developing policies
to take advantage of the new features and to
guard against the potential harmful effects. For
example, the development of email as a form
of business communication has prompted most
organisations to adopt policies that regulate
and control the use of their email system. Similarly, the development of the mobile phone has
resulted in many organisations adopting policies on the use of these devices while at work.

Activity 4.9
Read the case study and answer the questions that follow.

Oxfam supports workers rights


The global sportswear and garment market is
very lucrative.
In the 2008 financial year, two of the biggest
sportswear companies, Nike and adidas earned
profits of US$1.88 billion and US$800million
respectively.
So it seems that while the big wigs behind
the big sportswear and garment brands are
getting richer, the workers actually making the
products are living in poverty.
They barely earn enough money to look
after themselves and their families. Many are
forced to work long hours, and there have
been cases where sportswear workers have
been given amphetamines so they can work
through the night. And when workers try to
join together to fight for their rights they often
experience violence, threats or sacking for
trying to improve their conditions.

86

Oxfam Australia is working, along with


other international organisations, to persuade
major companies to improve the rights and
conditions of workers.
We are keeping a watchful eye on the big
brands and encouraging them to do more to
uphold workers rights.

Who were watching


Nike
Puma
Adidas
Australian clothing brands
Were also watching many of the other big
sportswear brands like ASICS, FILA, Kappa,
Lotto, Mizuno, New Balance, Reebok, Speedo,
Umbro and other lesser-known brands have
their products made in the same factories as
the big three.

unIt 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

What were doing


Supporting unions
Were supporting workers to form into
networks and unions where they can actively
work together to uphold their rights.

Supporting womens rights


Women make up approximately 80 per cent
of the global workforce in the sportswear
sector and are often subjected to greater
difficulties than men, including sexual
harassment and discrimination against
women workers who become pregnant.
Were encouraging discussion in the unions
and organisations on how to best support
womens rights and womens.

Campaigning
Were lobbying brand representatives and
publicly encouraging them to improve their
labour practices.
We help mobilise national and international
pressure on brands to improve their labour
practices.

We encourage journalists to research and


write about the working conditions of people
who produce for big brands. For example in
2009, Pacific Brands (owner of Bonds) were
found to be using a big Hong Kong manufacturer who had a poor record in terms of transparency on workers rights. Intense Australian
media scrutiny has meant that the Hong Kong
company is now talking about change.

Educating
We support training for workers representatives, particularly women workers, to help
them build their knowledge of their rights
and their skills in campaigning to get those
rights respected.
We provide educational resources for high
school teachers, to help students learn about
conditions facing the workers who make
their sneakers.
Source: www.oxfam.org.
au/explore/workers-rights/
oxfam-supports-workers-rights

Questions
1 What is the aim of the campaign being conducted by Oxfam in relation to the use of sweatshop
labour in other countries?
2 Which organisations are being targeted by Oxfam through this campaign? What is Oxfam trying to
pressure them to do?
3 How does Oxfam try to pressure these businesses to change their policies?
4 Go to the Nike website www.nikebiz.com/responsibility/ then click on Workers/ Factories.
Describe the policies Nike has adopted in regard to this issue.
5 Describe the possible impact campaigns by groups such as Oxfam could have had on Nikes policy
on the use of labour and factory conditions in other countries.

Pressures for change from the


operating environment
Pressure to change and develop policy frequently
comes from the operating environment of an
organisation. Stakeholders from the operating environment, such as trade unions, lobby
groups, regulatory bodies, and customers and
suppliers, can all pressure for policy change.

lobby groups
Lobby groups are groups of individuals with a
vested interest in something. They act to pressure governments and organisations to adopt
policies favourable to their interests. Environmental groups, for instance, pressure governments and organisations to adopt policies that
have a positive effect on the environment.

c h a p t er 4 the Internal envIronment


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

87

Cambridge University Press

trade unIons
Trade unions directly influence organisational
policies on behalf of employees whose interests
they are representing. Family-friendly policies,
equal opportunity policies and occupational
health and safety policies are common targets
for such campaigns.

Activity 4.10
Go to the Campaigns page of the ACTU website
www.actu.asn.au/Campaigns/default.aspx. List
and briefly outline four campaigns that the
trade union movement is currently engaged in.
Describe how each of these campaigns could
lead to organisational policy change.

Figure 4.21 Trade unions can exercise their power by protesting and striking.

Table 4.2 The external and internal pressures on policy


The environment

Types and sources of pressure

examples of impacted policies

Macro
environment

Legislative compliance

Equal opportunity; health and safety;


smoking

Business ethics and social responsibility

Paid maternity and parental leave; health


and safety; environment

Changing markets and international


pressures; terrorism; global financial crisis

Corporate relocation and travel; finance


lending

Changes in technology

Internet use and email

Competitiveness

Compliance in trade practices;


anticompetitive behaviour; non-collusive
bargaining (e.g. channels Nine and Ten
on football rights)

Regulatory body, e.g. Environmental


Protection Authority of Australia (EPA)

Waste

Unions, e.g. Australian Educational Union


(AEU), Australian Nursing Federation (ANF)

Early childhood; job sharing; paid


maternity leave

Lobby groups, e.g. Royal Automobile Club


of Victoria (RACV)

Road funding; safer roads

Owners/shareholders

Salary; corporate social


responsibility

Management, employees

Dress code; workplace flexibility; training


and development; bullying; non-smoking

Operating
environment

Internal
environment

88

unIt 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Internal pressure for policy


changes
Pressures to change policy can also come from
within an organisation.

interest in the organisation are able to direct


the appointment of the board of directors.
They therefore have significant influence
over policy.

management and employees

oWners/shareholders
As owners of a company, shareholders have
an influence in proportion to the percentage
of shares held. The companys annual general
meeting is often where shareholders can have
their views heard. Those with a controlling

Management has a significant influence over


policy that falls under their sphere of control.
Employees often have input into policy that
directly affects them; for example, uniform
policy. Participative management styles allow
employees a greater say in policy creation.

The policy development process


Policy development in a large-scale organisation
is a seven-step process of continuous assessment, implementation and reassessment as the
company responds to external and internal
pressures.

Stage 1
Issue
identification

1 Issue identification
This is wrong, we need to fix it!
At this stage, people become aware of the need
for a new policy or the need to change an existing policy. For example:

Stage 2
Research
and analysis

Stage 7
Evaluation

Stage 3
Stakeholder
input

Stage 6
Policy
approval

Stage 4
Policy
development
Stage 5
Draft policy
posting

Figure 4.22 The process of


policy development

c h a p t er 4 the Internal envIronment


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

89

Cambridge University Press

A change in law has been passed on paid


maternity leave that will require the organisation to look at its parental leave policy
to ensure it is compliant with the legal
requirements while also reflecting what the
organisation wants to provide.
A school realises that its lateness policy is
not working. This will require the school
to review its policy so it is more effective
in achieving the schools goals in regard to
student punctuality.

2 Research and analysis


What exactly needs to be changed and
what are the possibilities for the exact form
of the change?
Research is conducted into the policies of
competitors, trading partners and organisations that are known to have best practice
to determine possible alternatives.
Assessment of what is needed in the new/
updated policy is conducted. Often a working
group is put together to do this research.

3 Stakeholder input
What do those affected by a new policy
think?
Stakeholders are informed of possible
impending policy change and why the
change is required.
Comment and feedback is called for from
interested stakeholders. A meeting may be
called for this.

90

4 Policy development
Preparation of a proposed policy
A draft policy or policy amendment is
prepared by a working party taking stakeholder views and ideas into account.

5 Draft policy is posted


This is what is being proposed
The draft policy is displayed in a public
place, e.g. noticeboard, newsletter.
Stakeholders are given the opportunity to
make comments.
Comments are invited and advance notice of
intended change is issued.

6 Policy approval
This is what the policy is going to be
Feedback is considered by the working
party.
Necessary changes are made.
Appropriate level of management approval
is obtained.
A final copy is issued.
Management and employee training on the
new policy occurs if it is required.

7 Evaluation
Did the new policy help achieve organisational objectives?
Did it work?
Was the new policy effective?

unIt 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

All organisations have objectives. Managers


are responsible for overseeing the internal
environment with a view to the organisation
achieving its goals through the coordination
and initiation of activities through planning,
organising, leading and controlling.

Management structure (organisational structure)


the organisation and coordination of the parts
of an organisation are often depicted in an
organisational chart; includes division of labour,
departments, chains of command, control and
authority.

Organisational structure vertical and


horizontal:
Hierarchical (vertical) three levels of
management, (senior, middle and front
line), employees arranged into layers with
authority, power and responsibility increasing
as one rises through the layers. Rigid and
mainly downward lines of communication.
Centralised decision making. Clear lines of
authority, positions, roles, responsibilities
and accountability. Bureaucracy is a complex
hierarchical structure. Flatter structures:
involve de-layering, participative decision
making, use of employee skills and ideas,
greater flexibility.

1 Define each of the following terms, then

Policy development involves the following:


Policy a written statement detailing
processes and procedures, rules and
regulations that must be observed in a given
situation
External pressures to change policies can
be legal, social, environmental, international,
technology
Operating pressures lobby groups,
regulatory bodies, customers, suppliers,
unions
Internal pressures these come from owners/
shareholders, management, employees.

2 Copy and complete the following statements,

adding the missing words.


a The ___________ of an organisation refers

a Organisational structure

to the segmentation of activity within that


organisation.

b Line management
c

Bureaucracy

b To have a Victorian, a West Australian and

a Queensland division is an example of


___________ departmentalisation.

d Corporate culture
e Policy procedure
f

Environmental policy.

CHaPTER SuMMaRy
QuESTIONS

use each in a sentence to demonstrate your


understanding.

Forms of organisational structure (horizontal)


can be based on: function, geographic,
product, customer
Internal structure matrix model used for
team- or project-based activities
Matrix cross-department teams are
established for designated projects
Other forms virtual corporation/networking.
Corporate culture the shared values and
beliefs of people within an organisation.
Reflected in formal policies and objectives,
physical environment, organisational structures
and management styles, processes, rituals,
symbols and celebrations, language used and
official documentation.

CHaPTER SuMMaRy

The further up the ___________ a manager is,


the ___________ the amounts of power and
responsibility held by that person.

c h a p t er 4 the Internal envIronment


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

91

Cambridge University Press

d ___________ ___________ is a system of

a your primary school and your secondary

shared values and beliefs.

school

e A policy is a written statement detailing

b The Body Shop and David Jones Ltd.

processes, ___________, rules and


___________.

8 Explain what a policy is. Outline how a policy

___________ policies allow employers


increased flexibility in worklife balance.

9 How would you evaluate the effectiveness of a

ensures consistency.
policy?

3 List the key features of a bureaucracy.

10 Identify and explain what policies will need to

4 Explain the purpose of an organisational chart.

What features of an organisation are depicted in


an organisational chart?

be amended in an organisation in response to


the following:
a Laws are passed requiring employees be

5 Identify the three levels of management found

trained in safety procedures

in most hierarchies. Discuss the degrees of


responsibility, authority and control exerted by
each level of management.

b Global warming
c

6 List and explain four factors that influence the

An increase in staff turnover due to several


incidences of sexual harassment

d Staff wearing inappropriate clothing to work

development of a corporate culture.

e An overseas supplier is found to have

7 Compare and contrast the corporate culture of:

exploited child labour.

ExaMINaTION
PREPaRaTION

Read the case study and answer the questions that follow.

Case study
Snorbins City Council has recently privatised
all its childcare services. Five childcare centres
previously owned and operated by the council
have all been sold to a private childcare
business named Sheenies Ltd.
Before privatisation, the mission statement
for the five council-owned childcare centres was:
To provide an affordable and high-quality childcare service to the citizens of Snorbins. In doing
so we aim to provide children in our care with a
stimulating and enjoyable childcare experience.
Since privatisation, this has changed to the
mission statement of Sheenies, which reads:
Sheenies aims to provide value for shareholders

92

and to be recognised as the leading provider of


childcare services Australia wide.
Since the change in ownership structure,
there have been several problems at the
centres:
There have been complaints from users of
the centre that charges have increased by 30
per cent over the past six months.
The staff have taken industrial action on
several occasions over cuts to their working
conditions.
Children with a disability have been refused
a place at the centres. Previously all children
were accepted.

unIt 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Complaints have been made about an apparent decline in the quality of the food served
to children in the centres over the past six
months. The catering at all centres has been
outsourced.

An organisational restructure has seen five


centre assistant managers made redundant.

Question 1

Question 5

Define each of the following terms and use an


example to demonstrate your understanding.

Analyse how and why the change in ownership


structure and mission in this instance have affected
activities at the childcare centres.

a Privatisation

4 marks

b Outsourcing
c

Question 6

Mission statement.
6 marks

Question 2

What evidence is there that Sheenies has moved to


a flatter organisational structure?
2 marks

List the stakeholders of the childcare centres:


a before privatisation

Question 7

b post-privatisation.

Voula Manopoulos is CEO of Sparks Ltd, a large


car-parts manufacturer. Sparks workforce is 85
per cent male of a European background. Voulas
objectives for the next five years are:

Explain how and why these have changed.


4 marks

Question 3
Explain which groups of stakeholders interests
are reflected in the mission statement before
privatisation.
2 marks

Question 4

To increase the percentage of female


employees to 50 per cent.
To increase diversity in the workforce.
To create a more family-friendly workplace.
To multiskill employees.
a Describe the effect the increase in the

Discuss how and why the mission statement


changed post-privatisation. Which stakeholder
groups interests are now reflected in the mission?
3 marks

percentage of female workers is likely to


have on the corporate culture of Sparks Ltd.
b List and explain three policies that are likely

to require change or establishment over the


next five years.
4 marks

c h a p t er 4 the Internal envIronment


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

93

Cambridge University Press

EffEctivE
managEmEnt

Whats ahead

Management
roles

Management
styles

Effective
management

Management
skills

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Key Knowledge

Students will learn the following about the internal environment of largescale organisations:

key management roles


planning (long-, medium-, and short-term)
organising (resource and task allocation techniques)
leading (importance of leadership qualities, including interpersonal,
informational and decision making)
controlling (financial and non-financial processes and control systems)
different styles of management (autocratic, persuasive, consultative,
participative and laissez-faire) and their appropriate application to
various situations
key management skills as appropriate to the process of effective
management
the relationship between management styles and skills.

To a very large extent, the success of an


organisation depends on the role of management. Management is the process of planning,
organising, leading and controlling resources
(human, financial, physical and informational)

area of study

Internal envIronment of large-scale


organIsatIons

and all phases of the organisations operation


in order to achieve its objectives. Management
involves getting work done through the actions
of other people.

95
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Key roles of management


Resources
Human
Financial
Physical
Informational
figure 5.1

competency
the ability to be able to
perform a task

conceptual skills
the ability to recognise
complex and dynamic
issues and to conceive
a notion or concept

planning
a formalised procedure
to produce a set of
integrated systems of
decisions

96

Management roles
Planning

Organising

Leading

Objectives
achieved

Controlling

Managerial process

To ensure growth and profitability of an organisation, managers need to respond to changes in


all levels of environment: macro, operating and
internal. To be an effective manager requires
competency in the key management roles of
planning, organising, leading and controlling.
The particular management style chosen by
the manager when managing a particular situation is very important, as one style does not fit all
situations. The styles range from one where the
manager is extremely centralised in their control
of a situation (autocratic) to one where they
allow their staff to have free rein (laissez-faire)
and are extremely decentralised in their control.
A managers job is varied and complex, and
consequently they require a range of skills to
perform their duties and activities. For example,
it is important that a senior manager possesses
conceptual skills, a middle manager would
need good interpersonal skills and technical
skills would be essential for a front-line manager.
Henri Fayol, a French industrialist, was the
original proponent of the concept that managers need to perform four management roles:
planning, organising, leading and controlling
(POLC). Such roles are objectives-directed,
interrelated and interdependent and operate
to achieve a systematic process for attaining
the objectives of the organisation. These roles
prepare the organisation for all time frames
long-term, medium-term and short-term.
The management of an organisation is
responsible for:
determining the corporate objectives in
line with the mission and vision of the
organisation

proactively planning for the further growth


of the organisation
predicting and making plans for any changes
that result from pressures in the organisations internal and external environments
integrating all the resources (human, physical and informational) available
administering and controlling the activities
of the organisation
accounting for the organisations operations
and outcomes.

Organising
Develops an
organisational
structure to implement
strategies

Planning
Formalised procedure
to produce a set
of integrated systems
of decisions

Leading
Use of power or
influence to get the
best out of workers

Controlling
Keeping up
standards

figure 5.2

Roles of management

Planning
Planning is a formalised process to produce
a result in the form of integrated systems of
decisions. In a large organisation, planning
involves a series of decisions in order to achieve
the organisational objectives. A systematic
process of planning based on five stages can be

unIt 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Establishing an objective i.e. What do we want?

Identification of present situation and forecasting the


future situation. (SWOT analysis for strategic planning)

Developing and evaluating planning alternatives.

Selecting and implementing the plan.

Monitoring and reviewing the results.


figure 5.3

undertaken by different levels of management,


with the decisions made varying in time frame
from short-term to long-term.

Levels of planning

provide direction to the business towards


achieving objectives and performance targets
for the organisation
plan for the future and focus on anticipating
the future
concentrate on an idea and vision

Planning is organised in a hierarchical structure, with the overall direction coming from
the board of directors and senior management.
Planning is categorised into three levels, strategic, tactical and operational, which correspond
to the levels of management.

Senior
management
strategic planning

Strategic planning
Strategic planning can be defined as a formal
long-term (two to five years) planning process
undertaken by senior management to define its
strategic direction and objectives.
Organisations plan on a strategic level to do
the following:
respond to emerging trends, events, challenges and opportunities within a framework
of its vision and mission

Five stages of planning

strategic planning
long-term (two to
five years) planning
undertaken by senior
management to achieve
corporate objectives

Middle management
tactical planning

Front-line management
operational planning
figure 5.4

Levels of management and planning

c h a p t er 5 effectIve management
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

97

Cambridge University Press

A SWOT analysis can be broken down into


the following areas:

figure 5.5 An organisation must plan on a strategic level what its vision will be.

create a framework for achieving competitive advantage by analysing the organisation


internally and externally and its potential
guide management of the human, social,
environmental and technical resources.

SWOt analysis
an assessment of the
internal strengths and
weaknesses and the
external opportunities
and threats for an
organisation in a given
situation
tactical planning
planning undertaken
by middle-level
management to assist
in implementing
strategic decisions; its
time frame is mediumterm, usually between
one to two years

98

Telstra, Australias largest telecommunications business, uses strategic planning to implement its mission to create solutions that are
simple, easy to use and valued by individuals,
businesses, enterprises and governments. The
strategic planning, which commenced in 2005
under Telstras Transformation Plan, covered all
aspects of the business, including Operations,
Network Infrastructure and Marketing. An initial
five-year time frame was established to implement these transformational strategies.
An important analytical tool used when
undertaking strategic planning is a SWOT analysis. This analytical exercise helps an organisation
to focus on its internal environment by recognising its strengths (what it is good at) and minimising its weaknesses (what it has performed
poorly at). The organisation also needs to focus
on its external environment so that it may take
advantage of opportunities (what it can use to its
advantage) and reduce any threats (things that
could adversely affect it).

Strength can be defined as an internal characteristic that contributes to the realisation


of the organisations mission. This could
include a positive reputation, strong branding, type of product, how the product is
made or the quality of the service provided.
A weakness is an internal characteristic that
negatively influences the functioning of the
organisation. For example, poor reputation,
weak market and the current structure of the
organisation may not be suitable.
An opportunity is an external fact or development that if taken advantage of, could
contribute to the realisation of the organisations mission. This could include globalisation and decreased interest rates.
A threat can be defined as an external fact
or development that can have a substantial
negative effect on an organisations performance. Examples of threats could include
globalisation, increasing costs, environmental issues, or a decline in the industry.

Activity 5.1
1 Using table 5.1 as a guide, complete a SWOT
analysis on:
a your school
b McDonalds.
2 Look up the McDonalds website (www.
mcdonalds.com.au) and/or discuss SWOTs
with students who have part-time jobs at
McDonalds.

Tactical planning
Tactical planning is:
the formal medium-term (one to two years)
planning undertaken by middle management to implement the organisations strategic plan
responding to changes internally or externally
the allocation of resources in order to
achieve the organisations objectives.

unIt 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

table 5.1

SWOT analysis: examples of strengths, weaknesses, opportunities and threats

internal environment
Strengths

Weaknesses

Skilled workforce

Unskilled workforce

Strong reputation/brand

Poor reputation and brand recognition

Quality customer service

Poor customer relations

Excellent product/service

Outdated product/service

Market share increasing

Drop in market share

Highly skilled/experienced management team

Unskilled/inexperienced management team

Strong financial position

Under-capitalisation/constantly needing funds

Up-to-date facilities

Outdated facilities

Dynamic and responsive organisational structure

Bureaucratic management structure

Positive corporate culture

Poor/toxic corporate culture

Stable workforce

High level of staff turnover

External environment
Opportunities

threats

New and changing customer needs

Changes in customer preferences and buying behaviour

Development of new products/services

Actions taken by competitors, including: pricing, special


offers, promotions

Expansion to different locations

Changes in lease conditions, e.g. increased rental or eviction

Government policies favourable

Government policies restrictive

Improving economic conditions

Economic factors

New technologies

Developments in technology

Strategic alliances

Competitors entering into strategic alliances

Excess of resources

Shortages of resources, e.g. materials, skilled staff

Legal issues protection/removal of restrictions

Legal restrictive legislation or legal action

A large amount of tactical planning would


have been undertaken by various business units
at Telstra to ensure that the network infrastructure changes required to implement the strategic plans for the transformational change were
successful. The planning would have involved
developing strategies relating to choosing
technology partners (suppliers), feasibility of
retaining some or all of the existing network
and phases of roll-out of the new technology.

Operational planning
Operational planning is:
the planning of operations on a daily, monthly,
or up to one year basis by lower-level supervi-

operational planning
detailed, short-term
planning undertaken by
an organisation

sors and managers within an organisation


a detailed level of planning that implements
strategies to ultimately achieve specific objectives generally determined by a higher level
of management.

c h a p t er 5 effectIve management
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

99

Cambridge University Press

Activity 5.2
Copy and complete the table below by indicating the appropriate level of planning and provide your
reasons for choosing the particular level.

Planning activity

Level of planning

Reason for choosing

An organisation plans to build a new


office building in a regional area of
Victoria
A front-line manager wants to arrange
weekly production meetings of the car
assembly staff
The sales manager requires the sales
team to increase sales by 10 per cent
over the next six months
A government business enterprise
decides to undertake planning to fully
privatise its operations during the next
four years
A team leader decides to monitor the
teams progress over a two-month period
A large-scale organisation decides to
diversify its operations by acquiring
another organisation
A marketing department is to relocate to
a new site in another city
A car manufacturer is to install robots
onto its assembly line
An engineering organisation wishes to
expand internationally and develop new
markets and production facilities in five
countries
A single-sex independent school wishes
to change to become a coeducational
school

Organising
organising
coordination of the
various human and
physical activities of an
organisation

Organising is the role of management whereby


they are responsible for coordinating their
organisations human and material resources
to ensure the achievement of its objectives.
The way an organisation is structured provides

100

the framework within which to operate. The


structure is depicted in an organisational chart
(see chapter 4), which provides a graphic
representation of the chain of command within
the organisation. The success of an organisation
depends on the managers ability to marshal
and coordinate the organisations resources to

unIt 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

attain its objectives. The more integrated and


coordinated its work, the more effective the
organisation will be.
Organising is a multistep process that
involves:
1 determining all the work that must be done
to attain organisational objectives
2 dividing the total workload into activities
that can be performed logically and comfortably by individuals or by work groups (task
allocation)
3 combining or aggregating tasks in a logical
and efficient manner
4 setting up departments to coordinate the
work of organisation members and ensuring that all departments are mindful of their
contribution to the organisational objectives
5 monitoring the effectiveness of the organisation and making adjustments to its structure
when required.
Because organising is an ongoing process,
periodic assessment of steps 14 will be necessary. A manager may need to reorganise the
workplace, the division of labour, the delegation
of authority, and how departments are coordinated should there be a change in its organisational structure. Pressures for this change may
come from internal or external sources. For
example, a change in corporate culture could
result in increasing the degree of autonomy that
is designed into a workers job or the adoption
of a team-based approach to task completion.
As part of organising, managers must design
an organisations authority system. There are
three different types of authority found in these
relationships: line, staff and functional authority.
Line authority is a command authority, giving
the manager the organisational right (legitimate
power) to make decisions and commit the
organisation to action. Line authority is represented by the chain of command, whereby
they have the right to make decisions, issue
directives and to expect compliance from their
subordinates in their span of control.

Staff authority is advisory authority, which


takes the form of advice or recommendations.
Functional authority is the right to direct or
control special activities that are under other
managers span of control. For example, the
human resources department may create
policies guiding an organisations compliance with workplace relations.

Leading
Leading involves influencing others towards the
attainment of organisational objectives. Effective
leading requires the manager to motivate subordinates, be a good communicator, act as a role
model and effectively use power. To be effective
at leading, a manager needs to have an understanding of those whom they are going to lead:
their personalities, values, attitudes and emotions.

What makes an effective leader?


It is generally accepted that good leadership
is essential to the functioning of an organisation. Leadership is the ability to influence and
to gain individuals or groups confidence, so
empowering and motivating them to achieve
the organisations objectives. While different
leadership styles suit different circumstances, it
is generally felt that most effective leaders have
the following characteristics or traits:

leadership
defined as ones ability
to get others to willingly
follow

intelligence and knowledge that is generally of a higher level than that of their followers. The intelligence does not have to be in the
form of academic learning or achievement.
social maturity a tendency towards
emotional maturity, together with a broad
range of interests
an orientation towards internal motivation
(drive) and achievement. To them, the
sense of accomplishment is very important.
After achieving one goal, they are driven to
achieve the next.
self-confidence and good communication. The need to work with others and
respect other peoples individuality is

c h a p t er 5 effectIve management
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

101

Cambridge University Press

Activity 5.3
1 Working in pairs, choose two people from
your community they could be business
people, sports people, musicians, politicians
or individuals within your school that you
consider to be good leaders.
2 List five traits (characteristics/attributes) that
you can identify which are central to being
good a leader.
3 Rank these traits from 5 to 1 (5 = most
important; 1 = least important). Explain why
you have ranked the traits in that order.

figure 5.6 An effective leader must be a good communicator.

recognised. Their communication skills are


used to promote a feeling of mutual cooperation and support.

interpersonal qualities such as visionary


skills, ability to inspire and establish trust
while retaining humility in their achievements.
the ability to take responsibility seriously
and make decisions that are fair and just.

Activity 5.4
Read the article and answer the questions that follow.

Flexibility is key to retail success


by Narelle Hooper, editor of AFR Boss Magazine
7 September 2010
Speaking at Meet the CEO in Melbourne, an
Australian School of Business Alumni event,
Naomi Milgrom AO, the Executive Chair and
CEO of the Sussan Group, discussed with
Narelle Hooper, editor of AFR Boss Magazine,
her leadership of Australias largest privately
held specialty fashion retail company.
The Sussan Group comprises three fashion
brands Sussan, Suzanne Grae and Sportsgirl.
Under Ms Milgroms leadership, the Sussan
Group has grown to over 550 stores and more
than 4500 employees throughout Australia and
New Zealand.
Naomi joined Sussan in 1989 having had
a varied career in education, advertising and

102

marketing. My father rang and asked me


to come and work with the company and I
initially said no as I had many other priorities
at the time. But he was very persuasive, she
said. Growing up my parents gave me a belief
in myself and my ability to do anything, Ms
Milgrom added.
Ms Milgrom believes her particular management strengths lie in strategic planning and
helping the company maintain focus, keeping
the three brands on track and distinctive. This
single mindedness has propelled the Sussan
group to its greatest success.
A refreshing attitude is applied to looking
after the companys employees. Ninety-nine

unIt 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

per cent of my staff are women and mostly


working mothers. I believe that the best way to
manage this workforce is through consultation
and having flexible working hours. Ms Milgrom
believes in having a great deal of contact with
her staff at head office and store level. She
admits to not having an office, preferring to be
constantly on the floor and in touch.
When questioned about the impact that
the introduction of international retailers such
as GAP and Zara might have on her company,
Ms Milgrom was circumspect. I think they
would be great for the market and add another
dimension to the sector. I think a far greater
challenge is doing business on the internet
which is gaining much more momentum and

represents a far greater risk than new players


in the market. Because, as she put it, Young
people particularly want the latest fashion
trends from Europe now and they will go to
the net to purchase it. Therefore we need to
get with the program. And we have.
Taking questions from the floor, one alumni
asked Ms Milgrom to reflect on her most
outstanding professional experience. Buying
Sportsgirl and turning around that business
was the single most important thing I did. It
was a business that was completely broken
and taking it over gave me so much courage
to do other things and it gave me the ability to
look at business in a different way right across
the brand.
Source: www.asb.unsw.edu.au

Questions
1 Define the term leadership.
2 List and explain three characteristics of Naomi Milgrom that make her a leader.
3 Describe what Naomi Milgrom believes is the best way to manage her workforce.
4 What does Naomi Milgrom believe is one of the greatest challenges to the future success of her
business? How does the Sussan Group intend to meet this challenge?
5 How does Naomi Milgrom view competitors are they a threat or an opportunity? Justify your
answer.

Sources of leadership

2 expert poWer

The sources of leadership are many and varied,


but power or influence is the focal point of
leadership. Power, in the case of leadership, is
divided into various categories, and each can be
interlinked with the others. The categories for
power or influence are described below.

Expert power employs skills, knowledge and


information, which a person of power can wield
in order to influence others.

1 legItImate poWer
Legitimate power is power that has been
confirmed by the positions placement in the
managerial hierarchy and its associated authority
or structure of the group or organisation itself, and
is accepted by all as correct and without dispute.

3 reWard poWer
Reward power involves the ability to reward a
person in order to gain compliance to a certain
way of thinking or behaving.

4 coercIve poWer
Coercive power involves the ability to punish
others when they do not engage in desired
behaviour.

c h a p t er 5 effectIve management
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

legitimate power
power that exists by
virtue of that person
being appointed by
the organisation to
a position (formal
authority)
expert power
power based on the
person possessing
specific knowledge or
expertise
reward power
power derived from the
ability of one person
to reward another for
carrying out express or
implied orders
coercive power
the negative side of
reward power, based
on the influencers
ability to influence by
threat of punishment

103

Cambridge University Press

5 referent poWer
referent power
power based on the
desire to be liked by
or to identify with a
person

Referent power means the leader is liked and


respected by subordinates, peers and supervisors and gains power through this.

Controlling
Controlling is directly related to planning. The
controlling process ensures that plans are being
implemented appropriately and alerts managers
to any deviations from the plan so corrective
action may be instigated.
There are four basic steps in the control
process:
1 Setting a standard, target or objective for
example, 30 per cent increase in sales for
January, an absenteeism rate of not more
than 5 per cent per week, staff turnover of
not more then 10 per cent per annum, or
zero number of workplace accidents.
2 Measuring performance is done through
observation, establishing quantitative and
qualitative measures and benchmarks, and
comparing these to the standard established,
target, objectives or prior period.
3 Identifying and investigating any deviations
these may be positive (e.g. an increase in
sales) or negative (e.g. a decrease in sales).
4 Making changes where necessary to ensure
that the objectives established in step 1 are
being achieved.
There are several different types of controls
put in place to achieve a continuous flow
between measuring, comparing and action in
the control process. These are described below.
management style
the manner and
approach of providing
direction, implementing
plans and motivating
people

104

Financial controls
Budgets are an example of financial planning.
Budgets are important because they provide
a benchmark for management to evaluate the
financial performance of those responsible for
carrying out set plans, and, in turn, control
their actions. Control measures could include
accounting systems that can track where money

is going, and having your financial records


checked by an external auditor.

Establishing performance
standards
Standards are created when objectives are set
during the planning process. A standard is any
guideline established as the basis of measurement. For example, in the car industry cars
would need to be manufactured according to
environmental and safety standards relating to
emissions and passenger safety.

Time controls
These controls relate to deadlines and time constraints. For example, an individual car company
would need to ensure that it is able to produce a
particular number of cars per day in order to meet
demand and maintain its profit margin.

Cost controls
These cost controls help ensure standards are
met. Employee performance controls focus
on behaviour of individuals and groups of
employees. These may include staff absences
and workplace accidents. For instance, if there
are set standards on health and safety within a
company, such as a building organisation, then
there should be fewer workplace accidents and
subsequently less cost to the company in the
form of WorkCover premiums and claims, and
legal actions for negligence.

Management styles
Management style is the manner and approach
of providing direction, implementing plans and
motivating people. There are distinctly different
styles of management: autocratic, persuasive,
consultative, participative and laissez-faire.
Management styles can have specific features.
For example, the way managers interact with
employees will depend on how they control
authority, the degree of task or employee

unIt 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

orientation, and the manner of communication


(top-down, bottom-up or lateral). The type
of management structure, such as bureaucratic
(multilayered) or a flatter structure or teambased structure in order to achieve the organisations goals and objectives, is also important.
Most leaders use a range of styles based on
the situation that is required to be managed,
their own (managers) personality and the characteristics of their subordinates.
For instance, if a manager wanted to
introduce 12-hour shifts to raise productivity
by increasing the use of expensive plant and
equipment, it is unlikely that an autocratic

Task-oriented styles

Autocratic
figure 5.7

Persuasive

task-oriented style would be effective in managing this situation. A participative or consultative


management style, where employee input was
sought and considered before making the decision, would be more appropriate.
Management styles can be placed somewhere
on a continuum relating to their approaches to
management based on their orientation towards
the task or employees/people. At one end
of the continuum, the importance of the task
outweighs that of the employee/people. The
other end places greater importance on the
people, while not forgetting the importance of
task achievement.

Employee/people-oriented styles

Consultative

Participative

Laissez-faire

Management style continuum

Contrast of two styles there is no one right way


to manage people
Bill Gates (Microsoft) bases his style on
control. He has great concern for detail (almost
obsessive). He places great importance on
monitoring of staff and financial control,
demonstrated by the fact that he even used to
sign off on expenses for his right-hand man,
Steve Ballmer.
Warren Buffett stressed a desire for the
managers of Berkshire Hathaway to think like
they were owners of the organisation. Look at
the business you run as if it were the only asset
of your family, one that must be operated for
the next 50 years and can never be sold.

figure 5.8 Warren Buffet and Bill Gates

Source: www.thinkingmanagers.com

c h a p t er 5 effectIve management
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

105

Cambridge University Press

Types of management
style
Management style refers to the different ways in
which managers behave. The preferred style of
a manager will depend on many factors, such
as cultural styles of leadership and the type of
organisation.

Autocratic management style


autocratic
management style
(authoritarian)
management style
where all decision
making is centralised,
there is little delegated
authority, and
communication is oneway downwards

Autocratic management style is often referred


to as the classical management style.
The characteristics of autocratic management
style are:
Managers have the desire to be in control
and to retain authority. The function of planning, organising, leading and controlling are
centralised around the manager.
Managers place great importance on achieving
the task and following the established process.
Policies and procedures are maintained in
detail and enforced by frequent checks.
Managers have a belief or perception that
payment (money) is the main motivator for
work performance.

Decision making is centralised or controlled


by management, with the decision or order
then passed on or told to subordinates.
Managers place little value on the importance of the employees contribution to the
overall performance of the organisation. The
objectives, aims and operating environments
reflect the ideas, beliefs and values of the
manager.
Communication is centralised with a strict
top-down or hierarchal chain-of-command
approach to management.
An autocratic manager has a high regard
for production and efficiency (task-orientated).
Managers expect team members to comply
with their decisions and they are not concerned
with the attitude or thinking of the group.
This approach to management can result in
passive resistance from team members and
requires continual pressure and direction from
the manager in order to get things done. Such
managers use punishment and rewards to
achieve their objectives.

table 5.2 Advantages and disadvantages of an autocratic management style

106

advantages

Disadvantages

Decision making is quick, as only one person needs


to be involved

A quick decision is not always the best decision

Decisions are made by an experienced leader

Discourages teamwork; employees opinions and


input are not sought

Communication is direct

Does not allow for open communication and


feedback on ideas

Employees roles and expectations are defined and


monitored

Low motivation and job satisfaction, as workers are


not empowered; staff turnover may increase when
staff feel undervalued

High regard for production and efficiency

Too task-focused, with insufficient regard for workers as


people with needs; does not take account of needs of
Generations X and Y and the Baby Boomer employees

Suits high-risk or difficult decisions, e.g. closure of


business operations, retrenchment of staff

Creates feeling of unease and being kept in the dark

unIt 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Persuasive management style


A persuasive management style is that of a
manager who uses their ability to interpret a situation, peoples actions and dialogue, and then
strongly urges or convinces them to do a task or
achieve objectives the managers way. This style
has many characteristics in common with the
autocratic style. The main difference between
the styles, however, is that once a persuasive
manager makes a decision, they then try to
convince a subordinate that what was decided
by the manager is in the subordinates best
interests. For example, a marketing department
manager who has an idea for increasing sales
targets will try to convince the rest of the team
that only this idea will improve the sales targets.
This type of manager will try to bring people
around to their own view, but will also stick to
their decision with or without agreement. Under
this type of management style, employees will
have a better idea of what to do when there is
a change externally or internally, because the
manager has explained their intentions.

The characteristics of persuasive management style are:


It has a centralised system of control and
authority.
It places great importance on achieving the
task and following the established process.
Policies and procedures are maintained in
detail and enforced by frequent checks.
There is a belief or perception that payment
(money) for tasks performed is the main
motivator for work performance.
Decision making is centralised or controlled
by management, with the decision or order
then explained or presented to subordinates.
It places some value on the importance of
the employees contribution to the overall
performance of the organisation. The objectives, aims and operating environments still,
however, reflect the ideas, beliefs and values
of the manager.
Communication is centralised, with a strict
top-down or hierarchal chain-of-command
approach to management.

persuasive
management style
managers make
the decisions then
persuade workers of
the benefits of those
decisions

table 5.3 Advantages and disadvantages of a persuasive management style


advantages

Disadvantages

Decision making is quick and still made by one


person

No input from workers into decision-making process;


undervalues benefit of teamwork

Suits high-risk decisions, e.g. closure of factory,


redundancy

Workers can still feel alienated, as their opinions are


not sought

Employees have a clear idea about what they have to


achieve

Opportunities for employee initiative and commitment


overlooked, leading to low levels of motivation and
job satisfaction

Consultative management style


A consultative management style takes into
account the opinions of team members before
making a decision. This style is moving further
along the continuum from being purely taskcentred to now taking the people/employees
more into account. For example, a school
principal may ask the student leadership group,
parents and staff for their suggestions on a new

uniform, then consider all the arguments and


make a decision on the type of uniform that will
be introduced.
The characteristics of consultative management style are:
Control and authority, while centralised, is
more employee-based and less centralised
than the autocratic and persuasive styles.
The employees provide the ideas, concepts

c h a p t er 5 effectIve management
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

consultative
management style
management consults
with employees when
discussing an issue;
however, the manager
ultimately makes the
decision

107

Cambridge University Press

or suggestions to the manager, who will then


make a decision based on this input.

figure 5.9 A consultative manager seeks input from their staff.

Task achievement is still an important


driving factor, but is now being balanced
with an understanding of the importance of
the people factor.
A reasonable level of employee involvement
is wanted in decision making, which results
in employees becoming more motivated and
wanting to perform at their best.
Decision making, while centralised with
the manager, occurs after consultation with
employees.
It places value on the importance of the
employees contribution to the overall
performance of the organisation.
Communication is two-way, being top-down
by management to subordinates, and upwards
from the subordinates to management when
their opinion and feedback is sought.

table 5.4 Advantages and disadvantages of a consultative management style


advantages

Disadvantages

Gain a variety of ideas from the suggestions of


employees, which will lead to a better decisionmaking outcome

Employees may not understand the complexity of the


problem

Reasonable level of employee involvement

Time-consuming if many stakeholders are consulted

Acts to motivate and increase an employees level of


job satisfaction

Employees may still not feel valued if they have


provided their ideas, but these are overlooked

Participative management style


participative
management style
decision making is
performed as a team
with management and
staff working together

108

Participative management style has become


very popular because it focuses on the interaction between management and employees.
This style keeps employees informed about
issues that affect their work, with management
and employees sharing in decision-making and
problem-solving tasks. The manager is now
acting more as a coach who gets their team
of employees to work together to improve the
overall performance of the organisation. The
manager does not delegate away responsibility,
as they still are entitled to have the final say.
The characteristics of participative management style are:

Control and authority is decentralised.


Corporate objectives, while determined by
senior management, are followed by the
setting of departmental, team and individual
objectives, so allowing for group ownership
of the corporate direction.
Orientation or focus is towards people. If the
employees are satisfied and productive, this
will result in an increase in productivity.
There is a belief that motivation of employees relates to an understanding of how to
satisfy the employees broad range of needs.
Decision making is decentralised, with
management and employees sharing in
decision-making and problem-solving tasks,

unIt 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

table 5.5 Advantages and disadvantages of a participative management style


advantages

Disadvantages

Manager demonstrates trust and faith in the ability of


employees

Can give rise to conflict between employees who


question the ability of their co-workers

Employee morale is increased, as employees feel


part of the organisations processes; this leads to an
increase in motivation and productivity

Some workers would prefer to have their level of


productivity (output) linked to money rather than job
satisfaction

Employees feel a sense of ownership and


empowerment as they are now decision makers

Lack of contribution by all employees, as some would


rather not be involved in decision making, preferring
to be told what to do

Decision making, particularly at middle to lower


levels of the organisation, is improved because
employees are involved in making decisions on
actions directly related to them; a diversity of
viewpoints is evident in discussions

It can be time-consuming seeking the involvement of


groups or teams when making decisions

Open communication within the organisation

Conflict may arise when there are varying viewpoints

Empowerment and coaching encourages


opportunities for employee development

coaching
on-the-job approach to
training where teaching
is conducted on a oneto-one basis

Creates good employee relations


Shared vision and direction between management
and employees towards achievement of the
organisations objectives

and decisions being made after consultation


with employees.
Value is placed on the importance of the
employees contribution to the overall
performance of the organisation.
Communication is two-way, being top-down
from management to subordinates, and
upwards from the subordinates to management when their opinion and feedback
is sought.

Laissez-faire management style


The laissez-faire management style can also
be called free-rein or hands-off style. It is a
style in which management provides little direction to employees. Managements involvement
and responsibility often relates to outlining
budgetary constraints, coordinating timelines
and ensuring broad corporate objectives are

achieved. Employees are then empowered to


determine their own objectives, solve their own
problems and make their own decisions.
This style is commonly found in workplaces
where the employees are highly educated,
skilled and experienced. This group of employees requires little direction and has their own
motivation (drive) to accomplish and take pride
in their accomplishments.
A manager of a website development
company would, for instance, entrust the
website designers to work independently with
little interference from the manager when fulfilling the customers needs. The group members
are allowed to perform as they like, so far as
this does not violate the organisations objectives and policies. This style also suits the
dynamic nature of an advertising company
where creative freedom is very important.

c h a p t er 5 effectIve management
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

laissez-faire
management style
a leadership style that
leaves the majority of
decision making and
running of the business
operation to the
employees

109

Cambridge University Press

table 5.6 Advantages and disadvantages of the laissez-faire management style


advantages

Disadvantages

High employee control, as employees can set their


own tasks with little involvement from management

Lack of guidance can cause some employees to have


a sense of loss of direction

Strong motivation, empowerment and job satisfaction


for employees

Some employees may feel unsettled by the freedom


of this style

Good environment for encouraging creativity and


innovation

Does not suit employees who are unskilled or need


structure and routine tasks

Conducive to team work


Decentralised and flatter structure encourages good
communication, as ideas are openly discussed

Activity 5.5
Read the article and answer the questions that follow.

Lead to succeed
by Ken Gunn, Chairman and CEO, The CEO Institute
Autocratic leaders are the has-beens of
modern organisations. But how should a
democratic business work and be led? Todays
confident, options-savvy workers wont put
up with autocratic leaders. They want to feel
engaged, heard and as though they are making
a difference. They want industrial democracy.
We have learned that productivity and
worker satisfaction levels increase dramatically when leaders lead with emotional intelligence. But what does this mean in practice?
Good leaders reflect on themselves, refine
how they work with others and use their
personality effectively. They listen more than
they talk. Great leaders know their staff and
understand what makes them tick.
Adversity always sorts the leaders from the
pack. Blaming others, throwing tantrums and
sulking are the traits of corporate dictators.
Democratic leaders such as Winston Churchill
during WWII are realistic, motivational and
optimistic. Honesty and optimism underwrite

110

any leaders capacity to inspire confidence and


buy-in from staff.
Autocrats like to set their flunkies against
each other (it keeps them from eyeing the top
job and always leaves someone else to blame
for failure). Callum Davidson CEO of Medfin
Australia and a member of the CEO Institute
tells a story about working in a financial
markets dealing room 10 years ago where staff
in different business units were pitted against
each other. Callum says that staff members were
more worried about doing better than the next
business unit and comparing their budgets than
working together to look after clients. It was just
counter-productive. The clients werent being
serviced properly and the staff were unhappy.
As Medfin Australia CEO, Callum has a
very different way of getting people working
together productively. He says: We used to
have a huge divide between sales and support
people. Salespeople were paid commissions
while support staff (who were instrumental

unIt 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

in generating the commission) missed out.


Callum introduced a commission pool, which
everyone shares. Initially there was some
push-back from sales. Getting the change
through wasnt easy. But nobody is worse off
because salespeople are getting more out of
the support staff who, in turn, are much more
invested in helping salespeople. If you do it
right you get a win-win situation.
Bob Johnson, a CEO Institute syndicate
chairman, says that HR departments can add
value by being the catalysts for bringing information out into the open. CEOs cant respond
to all issues. Good HR people can use their
creativity to constantly seek out information
artfully without interrupting the productive
process too much.
Bob notes a semantic difference in two ways
of asking employees for their opinion. Asking
How do you feel about this? invites a binary
answer (good or bad); asking What is important
to you? is subtle, inclusive and empowering.
Some bosses have always known how to
treat staff well. As a young man, Bob worked
at a business in New York that had an unusually harmonious working environment. He

says: Staff werent paid much and there was


absolutely nothing glamorous about the workplace. There were certainly no perks such as
complementary gym memberships. But staff
turnover was extremely low and the company
never had to advertise for staff. So what were
they doing right?
The secret, according to Bob, was that
management were tuned in to what was really
important to the workers. Staff worked a fourday week and all religious and public holidays
were observed, which meant employees had
a lot more time off than most workers. There
was an unwritten rule that if anybody was
caught short financially, the owner would put
his hand into his own pocket to help them
through. In other words, management showed
genuine concern for the workers.
Nobody is suggesting that all leaders
should rescue their employees from every selfinflicted debt they run up. But at that company
the boss created a culture of loyalty, trust and
respect which produced a happy, productive
workforce. What are you doing for yours?
Source: www.ceo.com.au

Questions
1 Define the term autocratic leadership style.
2 What does the term industrial democracy mean?
3 Explain the characteristics of a great leader.
4 What type of motivation does an autocratic leader use to achieve their objectives?
5 Explain the problems with this style of motivation.
6 How does the approach of the autocratic leader differ from that of the participative leader?

Situational or
contingency
management approach

in order to compete against other organisations.

Business environments (external and internal)


are constantly changing, including innovations in
product development and fast delivery of goods.
Organisations need to respond to these changes

managers must take into account all aspects of

This can have an impact on the management


style adopted by the manager. In a situational
or

contingency management approach,

the current external and internal situation and act


on those aspects that are important to the situation that has arisen. The manager demonstrates

c h a p t er 5 effectIve management
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

contingency
management
approach
use of a range of
variables to determine
the most appropriate
management style
required to attain
organisational goals
in different types of
situations

111

Cambridge University Press

The managers
personality, skills,
experience

External
environmental
factors

Employees
knowledge, skills,
experience, values

Management
style
Corporate
culture
Constraints
time, money
and resources

flexibility in these situations, which is a response


known as contingency approach.
This approach works by applying a range of
variables to assist in selecting the most appropriate management style for managing a given
situation. The following are considered:
the managers personality, characteristics or
qualities, their values, skills and how they
communicate with staff
their subordinates (employees) characteristics, such as their level of knowledge, skills,
experience and values
the tasks that need to be completed by the
team or organisation
the constraints, such as time, money and
resource availability
the corporate culture of the organisation and
the relationships between management and
staff.

Types of task
routine or high
risk, high cost or
low cost, individual
or team

figure 5.10
Variables influencing
the choice of
management style

As a result of the forces or situations, managers may not use any one particular management
style. Rather, a manager could use a variety of
management styles as outlined in the following
situations:
An authoritarian style would be appropriate where there are a number of new and
unskilled employees who need to learn a
job. The manager would need to keep tight
control on the situation and teach the new
employees what their job entails in as short a
time as possible in order for them to become
productive.
The participative management style would
best suit the project manager of a group of
experienced, motivated employees working
as a project team who are capable of
running the project within the established
time frame.

Activity 5.6
Read the three scenarios and complete the questions that follow.

Portside Hotels Limited


Portside Hotels Limited is a large international
five-star chain of hotels and eco-resorts. In
Australia, it has operated hotels in all the

112

major capital cities for the past 25 years. In the


late 2000s, Portside Hotels decided to diversify
its operations into eco-tourism. This resulted

unIt 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

in the building of three eco-resorts, one near

made a significant effort to resist incorporating

the Great Barrier Reef, the second in the

any participative management practices into

Northern Territory (Kakadu National Park)

his department. Jeremy believes that workers

and the third in Western Australia at Cable

in his department should follow his orders,

Beach, Broome.

without question. At the beginning of each shift

Scenario 1

he holds a briefing session to give instructions

Harry Moore is currently the General Manager


of Portsides Gold Coast Hotel. Commencing
as a hotel porter at 15 years of age, and without
completing any formal management training,
he has worked his way up the organisations
hierarchy to now hold this top position.
Most of Harrys working life has been spent
working under a multi-layered hierarchical
structure. Harry enjoys the status and prestige
the position of General Manager affords him.

and distribute tasks, but is unresponsive to any


questions that are asked. A few of the younger
hospitality trained staff in his department have
started to resent his dictatorial style. Staff
turnover in Jeremys department has been
very high. Jeremy has stated on numerous
occasions that far too much time was wasted
consulting and talking with staff. He advocated
that in his position as manager he knew best,
and therefore workers should follow his orders

Many of his staff comment that they feel

and simply get on with their jobs.

that Harry isnt interested in implementing

Scenario 3

change and that he seems more interested in


maintaining his position and status within the
organisation as a senior manager. It is also
noted that Harry is often absent, spending long
weekends at his beach house at Bribie Island,
leaving strict instructions not to be disturbed.
One employee was overheard saying, All he
really cares about these days is how large a
payout he will receive on his retirement.
Harrys approach now seems to be distant
with middle managers, such as Jeremy Hall,
who are basically being left to run their own
departments as they see fit.

Since being appointed as the General Manager


of the three eco-resorts in 2010, Jenny
Kelly has approached her role in an entirely
different manner. She has appointed a Resort
Manager for each resort, suggesting to them
to organise their staff into departments and
teams based on functions such as: food and
beverage, housekeeping, activities indoor/
outdoor. Each work group is given specific
goals and their performance is appraised
against achievement of these goals. The Resort
Managers are requested to hold department
meetings on a weekly basis, and to encourage

Scenario 2

staff to have input into these meetings. Jenny

Jeremy Hall, the Food and Beverage Manager

emphasises that she values their advice as to

at Portsides Gold Coast Hotel, is in his late 30s

how the teams, departments and resorts are

with a tertiary hospitality qualification. He has

operating.

Questions
1 Identify the management style currently being used by Harry Moore and Jeremy Hall at
Portsides Gold Coast Hotel. Explain three key features of each management style, linking it
to the case study.
2 Identify the management style currently being used by Jenny Kelly as General Manager
of the three eco-resorts. Explain three features of that management style, linking it to the
case study.

c h a p t er 5 effectIve management
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

113

Cambridge University Press

Management skills

skills
the ability to do
something well, gained
through training and
experience

communication
a process of creating
and exchanging
information between
people that produces
the required response
delegation
passing of authority
down the hierarchy to
perform tasks or make
decisions; responsibility
remains with the
person delegating
formal authority
influence or authority
derived from the
position in the
organisation (legitimate
power)

114

Effective management requires a manager to be


capable of producing an outcome that meets
or exceeds accepted ethical standards. Skills
refer to the ability to do something well, gained
through training and experience, in order to
achieve the required work. A close relationship
exists between management styles and skills,
with certain management styles placing greater
emphasis on different skills.
For example, to be effective, a manager
using a participative style must ensure they have
good communication and interpersonal skills,
problem-solving, decision-making, delegation
and negotiation skills. In addition, they may also
require technical skills to deal with a particular
requirement of a task.
No matter what their management level
(senior, middle or front-line management)
or their functional classification (e.g. human
resource management or operations), managers
will need to possess a range of skills, such as:









communication
delegation
decision making and problem solving
negotiation
team leadership
time management
stress management
analytical
technical
emotional intelligence.

Communication skills
Communication skills are essential, as managers must be able to clarify with employees the
tasks that are required to be completed.
Managers are involved in two kinds of
communication:
interpersonal communication which
involves them in sharing information
and understanding between two people,

themselves and a subordinate or a small


group or work team
organisational communication where
systems are used to share information and
understanding with larger numbers/groups
of people.
It is estimated that managers spend between
60 and 80 per cent of their work time in conversation; therefore it is extremely important that
they are effective in their interpersonal communication. Open communication is also vital if a
manager wishes to gain employee involvement
in the expression and development of ideas in
order to achieve the vision of the organisation.
Weak or restricted communication flow can lead
to frustration, lack of motivation and inadequate
direction and feedback between management
and their subordinates.
There are several forms of communication:
reading which involves the manager locating, understanding and interpreting written
data and information, such as letters, reports,
emails, documents, policies, procedures,
codes of practice, contracts and graphs
verbal written communication which can
express thoughts and ideas, information and
messages through emails, word-processing
documents, manuals and reports
verbal oral communication which can
enable the manager to communicate orally
by talking to people individually or in groups
(small or large) to disseminate information
and gain feedback. Listening to oral messages is an essential form of communication as
a manager receives, attends to, interprets
and responds to oral messages. If managers
do not develop the skill of listening, they
may not hear the suggestions or information
from the most valuable employees.

Delegation
Delegation is the process where formal
authority is passed down an organisations

unIt 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Activity 5.7
Read the following scenarios and recommend the form(s) of communication that you believe would be
most effective. Justify your choice.

Scenario 1
The General Manager of a major tyre manufacturer needs to advise staff that due to a recent
downturn in the market, it will be necessary for the business to make 20 staff redundant.

Scenario 2
The human resource management department has drafted a policy that sets out the overall guidelines
and procedures relating to creating a smoke-free workplace. The department now wants to gain
feedback from affected stakeholders before formulating the final version of the policy that will be
presented to senior management for approval.

Scenario 3
The board of directors has decided that the organisation needs to gain ISO 9000 accreditation as
part of its quest to become global in its operations. The board has ascertained that this is a complex
activity that will require a vast amount of paperwork and input from all members of the organisation
relating to establishing and documenting their quality procedures.

hierarchy. It can occur at all levels; for example,


a senior manager will delegate to middle
management, who will then delegate further
down the chain of command to front-line
managers, ultimately stopping with the workers
receiving their task instructions.
The delegation process has five steps:
1 Analysis the tasks to be delegated need to
be determined
2 Appointment involves nominating the subordinate to whom the task is to be allocated
3 Briefing involves defining the task(s) that
are to be delegated
4 Control the progress of the delegated tasks
needs to be monitored and encouragement
given to those undertaking the task
5 Appraisal the process needs to be reviewed
and revised.
The authority to delegate needs to come
right from the top of the organisation. The shareholders upon electing the board of directors
assign to them the right or power to delegate to
the chief executive officer and senior management the running of the organisation.

The acceptance of authority by a person


indicates their acceptance of responsibility and accountability. Responsibility remains
with the manager to whom it is assigned
and the only way that manager can be released
from that responsibility is if a superior takes
it away.
Authority, if retained by senior management
and not delegated, is said to be centralised,
whereas authority when passed down to the
lower levels of the organisation is said to be
decentralised.
There are a range of benefits for an organisation if delegation of tasks occurs:
It assists in the smooth flow of production
and work process, as work will continue
even in the absence of the manager.
It acts as a time saver, freeing management
to be involved in longer-term planning and
more important tasks.
It provides an opportunity for skill training,
personal development and job satisfaction
for employees while also showing trust and
faith in employees abilities.

c h a p t er 5 effectIve management
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

responsibility
position or job requires
you to perform a task
accountability
the extent to
which a worker is
held answerable
to supervisors or
managers for their
work actions or
performance

authority
the power and status to
pass commands down
an organisation

115

Cambridge University Press

While delegation is a skill in itself, it is also


a process that requires other skills to make it
effective, such as:
the ability to analyse a job and have a clear
understanding of what authority is required
to carry out the various parts of the job
the ability to establish performance standards
the ability to set realistic checkpoints and
deadlines for tasks
the ability to select appropriate people to
perform the delegated tasks

table 5.7

good communication skills


the ability to assess completed delegated
tasks and provide feedback, in the form of
praise or further advice, to subordinates.
It is important to note that not all the tasks
and actions to be undertaken by management
are suitable for delegation. Table 5.7 identifies
some of those tasks that are suited to delegation and others where delegation would be
ill-advised.

Examples of tasks suited to and not suited to delegation

tasks suited to delegation

tasks not suited to delegation

Tasks that form part of a larger project

Strategic planning

Repetitive or time-consuming tasks

High-risk decisions

The collection or organisation of data

High-cost decisions

Training and development of subordinates

Confidential matters
Highly specialised areas requiring specific training

problem solving
the systematic
approach to finding and
implementing a course
of action to correct an
unsatisfactory situation

116

It is also important to note that not all


managers are good at delegating. There may be
a variety of reasons for this:

Decision-making and
problem-solving skills

insecurity or fear that the subordinate to


whom they have delegated a task may let
them down
feeling threatened that it might show up
their inadequacies if the subordinate does
too good a job
being too disorganised or inflexible in how
they organise their own work
being focused too heavily on the short-term
achievement of work deadlines and therefore
thinking it is quicker to do the job themselves
a lack of trust and faith in their subordinates
abilities
a desire for their own power and therefore
being reluctant to relinquish authority as it
might make them feel less important
subordinates lack confidence, training or
experience or may even not want to accept
responsibility for any delegated tasks.

In the day-to-day operations of an organisation, a manager can be faced with numerous


problems as a result of changes in the macro,
operating and internal environments. The
problem-solving skill recognises problems,
then devises and implements a plan of action. It

figure 5.11 A manager needs problem-solving skills.

unIt 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

table 5.8

Systematic approach to decision making/problem solving

Steps

Explanation

1 Identify the problem and define the


objectives

Make sure you identify and define the actual problem or issue
needing resolution.

2 Gather the necessary information to


establish the cause of the problem

Investigate the circumstances surrounding the issue and


search for factors that may have created the problem. Once
all the information is gathered, reassess the problem to see if
it is the same.

3 Develop alternative solutions

The existence of some choice is necessary for effective


decision making. Find standard alternatives (e.g. retaining the
status quo); also develop creative and imaginative possible
solutions to the problem.

4 Analyse the alternatives

Rank and sort the different alternatives. Each alternative


must be evaluated in terms of its strengths and weaknesses,
benefits, costs, advantages and disadvantages in achieving
the departments or organisations objectives.

5 Choose an alternative and implement it

Management needs to decide the best outcome, given


the conditions under which the decision has to be made.
Management must communicate clearly the decision that is to
be taken, the required results and personnel associated with
its implementation.

6 Evaluate the implementation

Provide feedback on progress, making the necessary


adjustments. Evaluation enables managers to learn from
experience and improve their further decision making and
problem solving.

involves a manager being resourceful in seeking


help from others and to think critically, creatively and reflectively, and to adapt to alternative
solutions. These managers understand a quick
solution will not work to resolve a complex

issue. They spend time analysing the problem


from all angles and come up with a contingency
plan. To problem-solve, the manager needs to
be open and honest in communication with
those involved.

Decision making

Step 1

Step 2

Step 3

Step 4

Step 5

Step 6

Identify the
problem
Define the
objective

Gather
information

Develop
alternatives

Analyse
alternatives
Rank and
sort

Choose an
alternative
and
implement

Evaluate

Problem solving
figure 5.12

Action
plan

Decision-making and problem-solving steps

c h a p t er 5 effectIve management
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

117

Cambridge University Press

action plan
the detailed actions
undertaken to
implement a strategic
plan or implement an
alternative to solve a
problem

The problem-solving process incorporates


the decision-making process but goes on to
formulate an action plan to implement the
decision. This consists of the following stages:
1
2
3
4
5

Objectives of the plan are stated.


Personnel requirements are specified.
Tasks are allocated to personnel.
Timeline for implementation is created.
Evaluation process is outlined.

In some cases, the decision-making process


may reflect a strong team involvement at the
discussion stage of the risks and alternatives,
and the overall decision may be a team effort
or it may require an individual to make a decision. This depends largely on the complexity of
the issue, management style and organisational
structure.

Activity 5.8
Angelina Silvano, the general manager of Biscotti Deliziose, has been advised by one of her front-line
managers that a potentially dangerous situation has developed in the baking section of the factory.
One of the team members in the baking section has been found drinking alcohol in the toilets
during his afternoon tea break. He has now returned to his job operating the baking ovens. Further
investigation reveals that there had been earlier reports from other team members about this person
experiencing both financial problems and a break-up of his marriage.

Task
Angelina has asked you to assist her in solving this problem. Your answer must include both the
theoretical steps of the problem-solving process as well as linking these at each step to the case study.
negotiation
the process by which
one party seeks to
obtain something it
wants from another
party, e.g. employee
seeking pay increase
from employer

table 5.9

Negotiation
Negotiation is the process of the parties
reaching an agreement or resolution through
discussion. For managers to be able to negotiate
successfully, they need to be able to perform
five core skills:

1 Define a range of objectives, yet retain flexibility about some of these.


2 Explore the possibilities of a wide range of
options (think laterally).
3 Prepare well.
4 Listen (actively) and question.
5 Prioritise clearly.

Steps for successful negotiation

1 Preparation

Establish objectives.
Identify issues that are open/closed to compromise.
Gather all key information relevant to the negotiation.
Assess the opposition.
Choose a strategy decide who is playing which role in the negotiating team, i.e.
leader, good guy, bad guy, hard-line, sweeper.

2 Establish a positive working atmosphere

Where will negotiations occur office or neutral ground?


Use seating plans, timeline and built in break times.

3 Make the proposal

Present it clearly and confidently.

4 Responding to the proposal

Listen carefully.

5 Establishing positions

Watch for body language; asking how questions implies willingness to


compromise, bargain and debate on issues.

6 Record information and confirm understanding

Record points for later verification and clarification.

118

unIt 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Managers may be involved in a range of


activities that require them to negotiate. For
example, negotiations will occur when entering
into contractual arrangements with stakeholders
such as suppliers relating to prices, quantity
and delivery dates. Internally, managers will be
negotiating with incoming employees relating to
their pay and working conditions. With current
employees they will have ongoing negotiation
about working conditions, work expectations
and remuneration entitlements. Table 5.9 outlines
steps that can assist in reaching a successful
outcome from the negotiation process.
figure 5.13

Organisations may have to negotiate with unions.

Activity 5.9
Read the media release and answer the questions that follow.

Media release
Members vote up Telstra EA
10 September 2010
The approval of a new Union-negotiated
collective agreement covering 10 000 employees
at Telstra is a major achievement for Union
members as provided for under the Fair Work
Act 2009.
The new enterprise agreement which was
resoundingly approved by Telstra workers,
will deliver an initial 2% pay rise backdated to
1 July 2010 and further pay rises totalling 6%
between now and October 2011.
Employee participation was exceptionally high with 71% returning a vote with 86%
of those voting, voting yes to the Telstra EA
proposal sending a clear message to Telstra
that its employees take a very keen interest in
their jobs, pay and conditions.
The EA covering almost 10 000 workers
for the next two years preserves existing
terms and conditions of employment, defines
a clear path on to the Union-negotiated EA for
workers covered by non-Union agreements

and includes access to enforcement through


arbitration by Fair Work Australia for the first
time in many, many years.
Some of these conditions include salary
sacrifice arrangements, trade union training leave, option to cash out annual leave,
improved performance management regulation, hours of work, redundancy, overtime
rates, RDOs, and so on.
Around 6000 Telstra employees on Australian Workplace Agreements and other non-Union
agreements were this week informed of their
pay being frozen until at least March next year.
The pay freeze shows how one-sided AWAs
and inferior non-Union agreements are when
an employer can unilaterally decide there will
be no pay rise, without any negotiation or
consultation with those affected employees.
By contrast, the new EA shows the benefits
of working under a Union-negotiated collective agreement.

c h a p t er 5 effectIve management
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

119

Cambridge University Press

Ahead of the agreement coming into force,


the CEPU will be continuing to push for the
creation of pay parity between those on existing Employee Collective Agreements (ECAs)
and those on the new EA.
As reported previously to members, Telstra
has given commitments to engage in talks with
the Unions on this issue.

During the 2 year term of the new EA,


the CEPU will be working towards all
employees ultimately benefiting from better
wages and conditions and importantly [having]
access to equal rights.
Source: www.cepu.org

Questions
1 Identify the areas where Telstra and the CEPU have followed the guidelines relating to successful
negotiation.
2 Identify the areas where Telstra and the CEPU are still in conflict.
3 Describe the area where the CEPU has identified a point of negotiating strength in its ongoing
negotiation of wages with Telstra.

Team leadership
Organisations function more effectively when
they operate as a team. These teams may occur
at various levels; for instance, the senior management team establishes the strategic direction for
the organisation. Within the organisation there
will be many project teams and natural work
groups. It is important that team leadership skills
are exhibited by the team leader to ensure the
success of the team in achieving their objectives.
Team leadership involves the manager
possessing the following abilities:
teamwork
when a group
works together to
complete a task; it
requires workers to
be multiskilled and
allows for worker
empowerment
time management
the efficient utilisation
of work time, which
involves setting and
prioritising tasks,
allocating time and
avoiding time-wasting
activities

120

to function as a coach and mentor to team


members
to encourage contributions from all team
members to work to achieve the objectives
of the group/team
to build a cohesive and trusting group of
team members
to facilitate resolution of any problems
encountered by the group/team
to manage team dynamics and relationships.
Teamwork is best understood as a set of
behaviours that two or more people demonstrate when working on some common task or
pursuing a common objective. Employees are

more likely to share the vision and objectives


of an organisation if they participate as a team,
particularly in the problem-solving and the
decision-making processes.
When people listen carefully to each other,
seek and take seriously each others opinions,
and make use of each others competencies and
expertise, they are involved in teamwork.
Teamwork encourages open communication, improves morale, workplace cooperation
and productivity, and develops a positive
corporate culture. Team leadership skills are
therefore important to be able to guide and
direct this powerful organisational tool teams.

Time management
Time management involves the process of
managing the things we do in the time we have
available. Time is a fixed resource and it is the
use to which time is put that separates effective
and ineffective managers and workers.
There are three types of work time:
Boss-determined this is the time spent
doing work initiated by your manager. It may
be regular ongoing work or work delegated
to you on an ad hoc basis.

unIt 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Organisation-determined this is when you


complete work initiated by the organisation.
It includes demands upon your time by your
colleagues, customers and other departments and external bodies.
Self-determined this is time spent completing work over which you have control. This
will include the roles of planning, organising, leading and controlling.
Managers cannot control all of their time,
as they are frequently interrupted and have to
respond to unexpected crises. The time spent
responding to requests, demands and problems
initiated by others are more difficult to control
than the time directly under their control. The
challenge for a manager is to know what time
they directly control and then to make that
time more productive.
To be skilled in time management requires
a combination of a systematic approach and
one of self-discipline. A systematic approach
involves the following five steps:
1 Make a list of the objectives you need to
achieve.
2 Rank the objectives according to their
importance.
3 List the activities needed to achieve the
objectives.
4 Assign priorities to each activity. The priority
could be based on urgency or importance of
task. If the activity is not urgent, delay it. If
the activity is not important, delegate it to a
subordinate.
5 Schedule activities according to the priorities
set. Prepare a daily plan by creating a list of
the important activities you need to undertake during the day. For each item on the
list, set priorities based on their importance
and urgency.
Many interruptions to an established action
plan are self-created (for example, socialising)
or avoidable. If a manager used a log book
or diary to record their activities over a set
period of time, they would gain insight into

areas where they could improve their time


management and turn non-productive time into
productive time.

Activity 5.10
Self-test
Using a diary or log book, record your activities
for one school week.
1 Calculate the percentage of time you have
spent on: teacher-determined, schooldetermined and self-determined activities.
2 Identify your major time-wasters. What
strategies could you use to decrease or
eliminate these?

Stress management
Stress is a very real occurrence in the modern
workplace. Managers must be aware of their
duties and the significant cost the organisation
can incur if they do not adequately address
stress management. While stress is normal
and can activate us to achieve, too much stress
can lead to workers developing a range of
medical symptoms, such as insomnia, headaches, back pain, gastrointestinal disorders,
fatigue, anxiety, irritability and depression. Our
individual capacity to cope varies and depends
on our resources, skills and confidence.
There are a range of factors that can lead to
stress. These include:

stress
physical, mental or
emotional strain or
tension occurring in
response to adverse
influences and capable
of affecting physical
health
stress management
skills required by a
manager to reduce the
level of stress/distress
in both themselves and
their subordinates

workload lack of control over it, consistently having too much to do, long working
hours, after hours and weekend work
coping with organisational change, such as
restructuring, management downsizing, job
insecurity, redundancy, redeployment or
relocation
interpersonal conflict, which could occur
between a manager and their subordinate,
between managers in different departments,
or between employees in a department or
work team

c h a p t er 5 effectIve management
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

121

Cambridge University Press

harassment
behaviour designed
to make a person
feel uncomfortable,
offended, humiliated or
intimidated

analytical skills
the ability to analyse or
study the nature of a
given situation or set of
circumstances

poor management practices, inappropriate


management style and toxic corporate
culture
shift work and associated fatigue, or lack of
adequate breaks
lack of communication or consultation
bullying, aggression or harassment, threats
and intimidation
technology being introduced or constant
breakdown
lack of training.
Stress can have a major effect on work
performance. Some of the consequences include
absenteeism, diminished performance, negative attitude and cynicism, decline in commitment and creativity, and a decreased ability
to concentrate, learn and interact with other
employees. It will also have a direct impact
on the organisations bottom line as stressed
employees will cost the organisation due to
lost productivity, poor motivation and staff
absenteeism. Researchers from VicHealth and
the University of Melbourne believe workplaces

that are damaging to employees mental health


cost the economy $730 million per annum.
To help avoid workplace stress, managers
can undertake the following steps:
Provide support to employees by matching
them with competent colleagues, coaches
and mentors and professional networks.
Assess the employees workload through
collecting information from peers, supervisors
and managers. Clarify work roles and redesign particular tasks or reduce the workload.
Implement any changes in a consultative manner, ensuring employees are fully
informed and involved in the plans and
progress at each stage.
Establish training and a conflict resolution
mechanism through which employees may
address matters such as conflict with peers
or supervisors, anger management, antibullying and harassment.
Promote worklife balance and introduce
flexible work options, such as paid parental leave, part-time work, flexible working
hours and job-sharing.
Have an effective counselling procedure
in place for staff with personal needs, e.g.
alcohol or drug addiction, financial hardship, relationship problems.
Introduce or encourage participation in
activities such as a staff social club, community involvement and wellbeing services
(gymnasium facilities or membership, or
yoga classes).

Analytical skills

figure 5.14 Workers can experience stress when they feel they have no control
over their workload.

122

A manager needs to possess analytical skills:


the ability to identify and solve complex problems and concepts and then make sensible and
reasoned decisions based on the information
available at the time. Effective analysis requires
the manager to apply logical thinking to be able
to understand what it is they are looking at or
looking for, drawing on their expertise to then
investigate the relevant facts, causes or issues.

unIt 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

At the conclusion of analysis, the manager will


be in a position to develop the most effective
and efficient course of action to be taken to
achieve the desired outcome.
The ability to analyse is judged as an important management skill, particularly for middle
and senior level management. When selecting
a new manager to join an organisation, the
interview panel will normally pose questions
that will require the applicant to use their logic
to pick apart a problem or come up with a
solution. Psychometric testing will also include
a component that tests this ability.

Technical skills
Technical skills include the knowledge of and
proficiency in a certain specialised field; for
example, accounting, legal, marketing, information technology. Front-line and middle managers are heavily involved in the technical aspects
of an organisations operations.
The higher a manager progresses up the
management hierarchy, the less important
the technical skills become on a daily basis.
Senior management will, however, draw upon
their technical expertise when conceptualising
and analysing key organisational plans and

decisions. In addition to their original area of


technical expertise, many senior managers
complete higher qualifications in business
administration from major business schools,
such as Masters degrees from Harvard, the
University of Melbourne or Monash University.

Emotional intelligence
Emotional intelligence (EI) refers to an
individuals possession of the personal qualities
and attributes of self-awareness, self-regulation,
motivation, empathy and social skills. The
concept of EI gained authority in 1990 through
US psychologists Salovey and Mayer, when they
were attempting to develop a way of scientifically measuring the difference between an
individuals use, awareness and control in the
area of emotions.
Daniel Goleman popularised the idea in his
best selling book Emotional Intelligence (1995).
He claimed that EI could carry the same power
or even more than IQ, with research showing
that nearly 90 per cent of high-performance
leaders have high EI.
Set out below are seven elements of
emotional intelligence based on Golemans
Emotional Intelligence model:

technical skills
represents a managers
ability to perform
a particular task,
e.g. knowledge of
computing technology,
accounting
emotional
intelligence (Ei)
a set of competencies
that allow us to
perceive, understand,
and regulate emotions
in ourselves and in
others (McShane
and Von Glinow,
Organizational
Behavior, 2004)

Golemans Emotional Intelligence model


1 Self-awareness is an individuals ability to
recognise and understand moods, emotions,
personal drivers as well as how they affect
other people.
2 Self-regulation (resilience) relates to
their ability to control or redirect disruptive
impulses and moods and to think before
acting.
3 Motivation is the passion of the individual
to work for reasons that go beyond money
or status. They have a propensity to pursue
goals with energy and persistence.
4 Empathy (interpersonal sensitivity) to
understand the emotional make-up of others

and the ability to treat people according to


their emotional reactions.
5 Social skills (influence) relating to their
proficiency in managing relationships and
building networks and rapport with others.
6 Intuitiveness at being able to arrive at clear
decisions and drive their implementation
when presented with incomplete or ambiguous information.
7 Conscientiousness in displaying clear and
personal commitment in pursuing an ethical
solution to a difficult issue or problem.
Source: www.ceoonline.com

c h a p t er 5 effectIve management
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

123

Cambridge University Press

It is possible to measure EI using psychometrics, which are expressed as an emotional


quotient (EQ). An individuals EI may be
enhanced by matching them to an experienced
coach with whom they work on a one-to-one
basis to change their current approach.
If a high EQ can be achieved by an organisations management, it will have a positive impact
in assisting it to achieve its strategic direction
and objectives. A higher level of EQ should
result in better teamwork, reduced levels of

stress and a heightened motivation (emotional


engagement) to achieve objectives.
Major Australian organisations, such as
Australia Post and Holden, have incorporated the concept of EI into their development
programs for senior managers. This has led to
performance management reviews now being
broadened beyond merely assessing a person
on their technical ability to incorporate a more
people-focused assessment.

Effective management how do we know


if it is occurring?
The most effective measure of leadership is
the performance of the team in your absence.

style and applying the requisite skills all work

Anonymous

either as a senior, middle or front-line manager.

Understanding the roles required of management, choosing the appropriate management

towards a manager being effective in their role,


The importance of understanding management styles and choosing the appropriate style

Top 10 strategies of an effective boss


1 Convey the vision. Communicate a
desired state of affairs, a clear vision and
share your philosophy of management.
2 Set the example. Display a set of behaviours that reflect the values and standards
you want for the organisation.
3 Mentor. Provide direction, guidance and
create an environment where it is safe to
learn.
4 Promote creativity. Encourage people to
be creative, challenge assumption and see
problems as opportunities.
5 Be a storyteller. Tell stories about
successes, organisational heroes, and talk
about peoples strengths.
6 Manage by excellence. Focus on what is
being done right, show interest in the work
of others and how things get done, and
notice excellence when and where it occurs.

124

7 Offer feedback. Let people know when


they have done well.
8 Use rewards. Recognise desired behaviours and make an effort to increase their
frequency. Offer new opportunities to
people, give praise and celebrate others
successes.
9 Create a culture of participation. Let
people participate in some decision making
to gain cooperation. Ensure decisions are
understood and accepted, and influence
others by being open to their influence.
10 Empower staff. Work to develop your
employees. Be concerned with their learning and development.
Source: Business Review Weekly,
915 October 2008

unIt 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

to manage a given situation was highlighted in


the Human Synergetics report Transforming
Leadership and Culture. This report concluded
that 50.4 per cent of managers contribute to poor
employee behaviour and negative workplace
cultures. It was discovered that most managers
still use a command and control leadership/
management style and had no idea what impact
their behaviour had on those around them.

Human Synergetics identified the top 10


strategies of an effective leader in Australia as
outlined on the previous page.
Assessment of a managers effectiveness in
their role can be based on a range of areas, such
as those outlined in table 5.10.

table 5.10 Areas of assessment of a managers effectiveness


area

Explanation

Outcomes/results based on objectives

Have these been achieved in an ethical manner?


Is the manager observing social responsibility to
stakeholders?

External/internal environment

Was the correct (appropriate) management style


adopted to manage the given situation?

Communication

Were the forms chosen appropriate and effective in


communicating with all stakeholders, e.g. employees
(subordinates), shareholders, customers, suppliers?

Motivation

Were the workers (subordinates) in the business area


motivated to achieve? Were the correct motivational
strategies implemented?

Job satisfaction and employee relations

Were the managers subordinates satisfied with their


jobs and motivated to work? Was the relationship
between manager and subordinates good?

Teamwork

Was this apparent and encouraged? What level of


decentralised decision making has occurred?

Staff absenteeism

How did the level of staff absenteeism compare with


other business units within the organisation and
industry (in general)?

Staff turnover

How did the level of staff turnover compare with


other business units within the organisation and
industry (in general)?

Training and development

Did the manager make available and oversee these


areas for their subordinates to help them to develop?

Performance appraisal

Was a performance appraisal system in place to


highlight the strengths and weaknesses of the
manager and subordinates?

c h a p t er 5 effectIve management
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

125

Cambridge University Press

ChAPTEr SuMMAry

Management involves getting work done


through the actions of other people.

The role of management is to plan, organise,


lead and control (POLC).

Planning involves establishing objectives and


devising plans to achieve them. There are five
stages in planning and three levels (strategic,
tactical and operational). Strategic planning
involves the use of SWOT analysis.

Organising involves developing an organisational


structure to implement strategies, and
coordinating the organisations human and
material resources.

Leading uses power or influence to get the


best out of workers. There are five sources of
leadership power: legitimate, expert, reward,
coercive and referent.

Controlling involves monitoring and keeping


up standards and is directly related to
planning. There are five steps in the control
process setting a standard, measuring actual
performance, identifying and investigating any
deviations and making the necessary changes.
Controls can relate to: financial, performance
standards, time and cost.

ChAPTEr SuMMAry
QuESTiONS

1 Write definitions for the following terms.

Management style is the approach used


to provide direction, implement plans and
motivate people. There are a variety of
styles: autocratic, persuasive, consultative,
participative and laissez-faire. The styles vary in
their orientation towards task or people.

The contingency or situational management


approach applies a range of variables that can
be used to determine the appropriate style for
a given set of circumstances.

Management skills are the abilities or expertise


required by a manager to achieve their work.
A range of skills are required by management,
regardless of their level in the management
hierarchy: communication, delegation, decision
making and problem solving, negotiation,
team leadership, time management, stress
management, analytical, technical and
emotional intelligence.

The interrelationship that exists between


management roles, styles and skills provides an
opportunity for assessing whether management
has been effective.

m Consultative management style

a Management

n Participative management style

b Management role

o Laissez-faire management style

Planning

p Situational/contingency management

approach

d Strategic planning
e Tactical planning
f

Operational planning

g SWOT
h Organising
i

Leading

Controlling

k Autocratic management style


l

126

Persuasive management style

q Effective management
r

Skills.

2 Refer to the Management roles chart on

Cambridge GO. Construct three management


role charts. In each chart set out what
you consider to be the specific tasks that
management would perform as part of
planning, organising, leading and controlling.
For example:

unIt 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

and their characteristics based on the acronym


COMDAC (control, orientation, motivation,
decision making, attitude, communication).

a Senior management, e.g. planning

strategic (long-term, two to five years),


organisation-wide, objectives, high level of
uncertainty/risk

5 Create a separate table showing the advantages

and disadvantages of each style.

b Middle management, e.g. organising

assigning tasks and jobs, training, liaison


with suppliers, negotiating business deals,
decision making, problem solving, delegation
of authority and tasks, coordinating resources
within their department
c

Front-line management, e.g. controlling


close control of operations (tasks/
employees), checking forecast/budgets
against actuals, taking corrective action
where necessary.

3 Why are management styles so important to an

organisation?
4 Refer to the Management styles chart on

6 Explain the statement Not one management

style fits all situations. Provide examples to


support your explanation.
7 Identify 10 management skills. Fully describe

their features, advantages and disadvantages.


8 Outline the management skills that an autocratic

manager is likely to use.


9 Outline the management skills that a

participative manager is likely to use.


10 Discuss what is meant by effective

management.
11 Explain the relationship between management

style and skills. Give an example.

Cambridge GO. Create your own summary


table setting out the five management styles

Read the case study and answer the questions that follow.

ExAMiNATiON
PrEPArATiON

Case study
Stewarts at Swanston is a department store
that forms part of the international chain of
Stewarts stores. In Australia, it operates large
stores in all the major capital cities, with
smaller stores operating in regional areas
such as Geelong and Bendigo. The company
employs 1800 staff in Australia and prides itself
on its commitment to training young people in
the ways of the firms retail operations.
Stewarts mission statement is To be the
worlds leading department store. We aim
to meet and exceed the expectations of our
customers in quality service and all-round

excellence. Its motto is To provide the ultimate shopping experience.


In 2011, it was noted that the Stewarts
at Swanston store was beginning to cause
some concerns as its profit was down 20 per
cent on its 2010 figure. Head Office in London
arranged for a management consultant, Angus
McDougall, to assess and hopefully remedy the
situation.
After a period of investigation that involved
talking to staff, management and customers,
and observation of retail operations, Angus
McDougall found:

c h a p t er 5 effectIve management
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

127

Cambridge University Press

There had been a dramatic increase in staff


turnover. During 2010, staff turnover had
been recorded as 20 per cent, whereas in
2011 it had increased to 45 per cent.
Staff felt they were being ignored and not
appreciated by management. Also, rival
department stores, such as Myer and David
Jones had been headhunting their highly
regarded and trained staff, offering them
more generous employment packages.
Customer complaints had increased from
5 per cent in 2010 to 30 per cent in 2011.
These complaints largely related to levels of
customer service and product quality, which
was noted to have drastically deteriorated in
the past 12 months.
Sales revenue had fallen to the point where
the Stewarts at Swanston store was the
worst performer in the Australian operation.
The General Manager of Stewarts at Swanston was Colin Russell, a long-serving employee
who had commenced as a sales assistant at 15
years of age and worked his way up through
the multi-layered hierarchical structure of the

organisation to hold this top position. Colin


enjoyed the status and prestige the position
of General Manager afforded him. Many of his
staff commented to Angus that they felt that
Colin really wasnt interested in implementing
change and that he seemed more interested in
maintaining his position and status within the
organisation as a senior manager.
Angus noted that Colin was often absent,
spending long weekends at his beach house at
Sorrento, and asked not to be contacted when
he was not at work, preferring to allow his
subordinates to operate and make decisions by
themselves. Staff told Angus, all Colin really
cares about now is the large payout and performance bonus he will receive on his retirement.
Colins approach now seemed to be distant,
with middle managers basically being left to
run their own departments as they saw fit.
Angus McDougalls recommendation to the
Board of Directors was that Colin Russell be
provided with a generous separation (retirement) package and that a new general manager
be appointed.

Question 1

Question 4

Identify and describe the management style


adopted by Colin Russell.

List and explain two management roles that the


new general manager at Stewarts at Swanston
would need to perform.

2 marks

5 marks

Question 2
Discuss whether this style has been effective.
2 marks

Question 3
Identify and explain an alternative management
style that could be used by the new general
manager. Justify your answer.
5 marks

Question 5
Describe two management skills (other than
communication) that could be used by the new
general manager.
2 marks

Question 6
Establish four criteria that could be examined to
assist in assessing whether a manager has been
effective in performing their role.
4 marks

128

unIt 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

OperatiOns
management functiOn

Whats ahead
OPERATIONS FUNCTION

Business
objectives

Productivity
Competitiveness

Business
strategies

Operations system
Inputs

Processes

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Outputs

Cambridge University Press

Key Knowledge

Students will learn the following about the operations management


function:
operations function and its relationship to business objectives and
business strategy
characteristics of operations management within large-scale
manufacturing and service organisations
key elements of an operations system (inputs, processes and outputs)
in different types of large-scale organisations
the reasons why productivity and business competitiveness are
important and their impact on the operations system.

Good operations management is vital to


the achievement of organisational objectives.
Operations refers to the actual work done in
transforming inputs and thereby preparing and
delivering goods and/or services for sale.
Operations are the core function, or purpose,
of an organisation. Operations management was
previously known as production management.
With the decrease in the relative importance of
manufacturing to the Australian economy, the
focus on pure production has changed.

Tertiary industries have all increased their


relative contribution to gross domestic product
(GDP). Consequently, production management
has evolved to become operations management,
which allows for analysis of all businesses,
whether primary, secondary or tertiary, whether
manufacturing or services. In short, operations
management encompasses both manufacturing
and service industries.

area of study

operations management function

operations
management
management of
resources to achieve
efficient output of
goods or services

131
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Operations and business objectives


In any organisation, whether it is a manufacturer
of goods or a provider of services, all departments will function with the aim of improving
the competitiveness of that organisation.
The operations management department,
as a functional department, aims to maximise
the levels of productivity and quality through
the operations process. The human resources

department has the task of supporting the operations management department by ensuring that
there are sufficient workers available to meet
operational needs and that they are trained and
motivated. Similarly, the information technology
department provides support and advice relating to the technology issues that arise within the
operations department.

Chief Executive
Officer (CEO)

Information
Technology Manager

Finance
Manager

Operations
Manager

Marketing
Manager

Human Resources
Manager

Production
Manager

Quality
Manager

Materials
Manager

IT
Manager

Maintenance
Manager

Procurement
Manager

Logistics
Manager

Inventory Control
Manager

figure 6.1

Functional organisational structure chart

The operations manager performs the planning, organising, leading and controlling functions in relation to the accurate and efficient
coordination of the tens, hundreds, thousands,
and even millions of tasks, parts and processes
in an organisations production process. At
the same time, rigorous quality standards
should be applied while producing goods and/
or services.

132

Operations management entails all the


management functions of:
planning objectives and courses of action
or strategies
organising resources to produce goods
and/or services
leading motivating and coaching people
through change
controlling organisational processes and
systems.

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

table 6.1

Levels of planning and decision making in operations management

Level of planning

Description of tasks undertaken

1 Executive level/strategic planning


undertaken by senior management
(two to five years)

Decisions about what to make (products) or services to provide


Process and layout
Facilities
Location (where to manufacture, e.g. overseas or domestic)
Quantity of production (capacity planning)

2 Tactical planning undertaken


by middle management (one to
two years)

Decisions about material resourcing (inventory and frequency/


amounts of its replenishment)
Supply chain management

capacity planning
operations decision
concerned with the
quantity of goods or
services to be produced

Labour resourcing (planning to meet present and future labour


requirements)
Layout and process design or reengineering
Sourcing of technology
Decisions about quality management
3 Operational planning undertaken
by front-line management (daily,
weekly or monthly basis)

Decisions about what to process and when (scheduling)


Decisions about order to be taken to process requirements
(sequencing)
Amount of work to be placed onto resources (loading)
Decisions about who does what work and when (rostering/
assignments)

The role of the operations manager


In particular it relates to:

The role of the operations manager covers:


ensuring that the operations systems meet
the operational strategy and objectives of the
organisation as a whole
making strategic decisions relating to planning and designing an operating system, e.g.
design and layout of factory or workplace,
product, process, capacity, location, human
resources, quality management, i.e. strategic
planning
operating the system, which includes establishing plans, processes and methods of
production control, making decisions on dayto-day management of operations system,
e.g. stock levels, work rosters, production
schedules, maintenance, quality control, i.e.
tactical and operational planning.

inventory management determining the


levels of stock to be ordered and stored to
ensure customer service requirements are
fulfilled, and timeliness of deliveries
manufacturing determining the production
rate required to meet budgets or forecasts,
managing direct labour costs, controlling
cost of wastage, defects and rework
quality determining required standards,
documentation of quality procedures, standards and codes of practice
maintenance/engineering ensuring equipment is reliable and regularly maintained,
controlling maintenance costs, and keeping
up-to-date and accurate documentation of
maintenance records.

ch a p t er 6 operations management function


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

capacity
volume or potential
ability to produce a
certain amount of
product

133

Cambridge University Press

figure 6.2

One of the roles of the operations manager is to manage inventory levels.

Activity 6.1
Read the job advertisement and answer the questions that follow.

Operations Manager
Equipment Hire
Market Leader: SNORHIRE Ltd
Western Suburbs
We are one of the leading equipment hire
companies in Snorbins. We offer the latest
and most comprehensive range of access
equipment (including Scissor lifts, Electronic
booms, Forklifts, Spiderlifts, Telehandlers,
Vertical lifts, Cranes and Trailers). As a growing
company we require an Operations Manager to
control all aspects of the day-to-day operation.
This is a hands-on role.
Duties will include:
Liaising with clients, suppliers, subcontractors and other hire companies
Overseeing transportation of hire equipment
Supervising workshop staff

134

Invoicing, cash accounts, contracts and


documentation
Ensuring compliance with OH&S, safety,
maintenance and other legislation and
regulations
Overseeing maintenance and servicing of
equipment
Liaising with internal administration and
sales departments.
We seek a person with:
Experience with and product knowledge of
heavy equipment
Experience in the hire industry
An understanding of required licences and
permits desirable
An ability to manage staff and operational
issues effectively and efficiently.
Customer service is our primary focus.
Applications are to be emailed to:
theo@snorhire.com.au.

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Questions
1 Briefly outline the role to be performed by the successful candidate for this position.
2 What skills, knowledge and experience is the employer looking for in the successful candidate?
3 Describe three tasks that the person in this job would be likely to carry out on a regular basis.
4 Locate two advertisements for operations management positions. Identify the role, duties,
qualifications and experience required for each.
5 Write your own advertisement for an operations manager position.

The operations system


The operations system refers to the series
of procedures and processes an organisation
undertakes in order to create its outputs of
finished goods and services through the transformation of inputs, including raw materials,
capital, labour, knowledge and technology.
Operations are the businesss revenue generator
as well as its most visible feature, which defines
the organisations identity.
The production process is the process
of transforming resource inputs into finished
goods and services. For example, manufacturing

a physical product either as a finished product


or a component part used as an input in other
manufacturing systems. For a service organisation, an intangible or non-physical product is
provided, such as finance, education, recreational or legal services.
While both result from the production
process, it is important to understand the differences between goods and services.
Organisational operations vary in their
complexity according to the types of goods
and services being produced. For example,

operations
a series of procedures
and processes
undertaken in order to
create outputs
outputs
transformed inputs
that are returned to the
external environment
as products or services
transformation
the process involved in
converting inputs into
outputs
inputs
resources such as raw
materials, labour, plant,
equipment, capital,
information used in
any organisational
production system
production process
the process of
transforming resource
inputs into finished
goods and services

figure 6.3

Operations is the actual work done by an organisation in preparing goods and services for sale.

ch a p t er 6 operations management function


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

135

Cambridge University Press

a modern car has more than 10 000 parts


and components, and its production process
involves more than 8000 tasks. The process
of transforming millions of parts into a large

table 6.2

passenger aircraft must be planned, managed,


and carefully coordinated by the operations
management team, with a view to achieving the
organisations mission.

Differences between goods and services

goods

services

Tangible

Intangible. Quality levels are therefore more difficult


to measure

Production and consumption occur separately, e.g.


manufacture soft drink, then distribute to retailer,
customer purchases and consumers drink

Production and consumption often occurs


concurrently/simultaneously, e.g. patient goes to
see a doctor who performs the service (i.e. provides
medical treatment at the time of consultation)

Can be stored as inventory

Difficult to store; however, record of service is


maintained, e.g. medical history, legal advice on file

Can be standardised/consistent quality, e.g. Mars


bars, cars, clothing

Often specifically provided/tailored to meet individual


client/customer requirements, e.g. tax advice

Minimal customer contact, e.g. manufacturer will


deal with wholesaler/distributor not generally with
final consumer

Higher degree of customer contact established

Produced

Performed

Key elements of operations systems


The production process in all organisations can be broken down into three stages:
1 Inputs (or ingredients) required to produce the required goods/services are gathered.
2 Those inputs are put through a series of procedures in order to transform them into finished
goods/services (transformation).
3 The final output is generated.

table 6.3 The key elements of an operations system


resource input

production process

Outputs

Materials (raw and


components)

Transformation process that adds


value

Products/results of process in the


form of goods and services

Human resources
Technology
Capital
Plant and equipment
Information and knowledge
Time (non-renewable)

136

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Inputs
Inputs to an operations system are like the
ingredients that, when mixed together and
processed, will become a finished product. The
categories of inputs are described below.

Raw materials and components


Raw materials are unprocessed inputs sourced
from primary producers; for example, farm
produce, minerals and water. Components are
processed parts, usually purchased from another
producer; for example, car manufacturers use
components such as ready-made windscreens,
engine parts, tyres and processed steel.

Human resources
Labour is the human effort expended in a
production process. Human resources are
employed by organisations to oversee and enact
the operations processes that create the output.

figure 6.4

Raw materials and components

Technology
Technology includes computerisation and new
developments, such as automation, robotics and
e-commerce that could potentially improve the
efficiency and/or effectiveness of an operations
process.

Capital, plant and equipment

figure 6.5 Human resources at work on a production line

figure 6.6

Robotic technology

Capital refers to any human-made object, tool or


machine that assists in the production process.
Cash is often classified as capital, as it can be

figure 6.7 Pieces of machinery and equipment are


examples of capital items.

ch a p t er 6 operations management function


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

137

Cambridge University Press

readily converted into necessary capital items.


Plant refers to buildings and non-moveable
capital items, while equipment refers to machinery and other tools such as vehicles, computers,
furniture and mobile phones.

Information and knowledge


This is the specialised knowledge required
in order to enact the production/operations
system and to produce the specified goods and
services. For example, knowledge of computers
and specialised machinery, or the knowledge an
experienced teacher may use in order to teach
their subject, while at the same time keeping
order in the classroom.
This category of input is an intangible and
can be easily overlooked by management.
Often it is only when an experienced employee
leaves an organisation that their experience and
specialised knowledge is actually missed or
appreciated. Employee specialist knowledge is
a major contributor to an operations systems
effectiveness and efficiency.
Knowledge, in the form of data or information, may also be obtained from a source external to the organisation for example, statistics
sourced from the Australian Bureau of Statistics.

Time
Time is a non-renewable resource that, if
wasted, will add to production costs.

The transformation
process
This involves the transformation of inputs into
finished outputs. The operations manager plans
the transformation process and then organises
its implementation. They lead others in implementing the plan, and control the operation of
the production process.
The operations process and systems will
vary according to the:
type of goods and services being produced
size of the organisation
number, quality and availability of resources.
While manufacturing organisations have
more clearly identifiable production systems,
service providers nonetheless still have inputs,
and a transformation process that results in a
service output. The transformation stage for
services is often not as easy to identify. The
transformation stage is important, as it is the
stage where value can be added to the inputs
and productivity gains made due to efficiency in
the processes and procedures undertaken.
The decisions made by operations managers
should be geared towards achieving organisational objectives. This invariably relates to
optimising operational efficiency and effectiveness, which in turn will increase organisational
competitiveness in increasingly competitive
world markets.

Outputs

figure 6.8 Time is a non-renewable resource.

138

Outputs are the final product, or the results of


the operations process. Output is divided into
two categories: goods and services. Goods
are tangible, while services are intangible. A
service involves someone doing something for
someone else. When a good is purchased, an

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

object usually changes hands; when a service is


sold, it involves the purchase of labour.
In order to maximise competitiveness,
management should ensure that its output type
is responsive to the needs of the market. In
other words, it must be what the market wants
to buy or the service it requires. The organisation needs to seek feedback on the efficiency of
its operations and effectiveness in achieving its
objectives. As an organisation does not operate
in isolation, environmental factors must be
taken into consideration.
The following example of the operations
system for a hospital identifies the range of
inputs involved, the likely processes that could
occur in the transformation process, resulting in
a treated patient as the output. For the hospital, it is important that it gains feedback on its
operations system. This could be in the form of
patient feedback, occupancy rates and number
of days taken to treat a patient. This feedback

Inputs
Medical personnel, orderlies,
nurses, cleaners, caterers
Medical equipment
Medical supplies
Technology, e.g. X-ray, MRI
Skill and expertise

would be important in assisting the hospital to


determine ways it may increase its productivity
and efficiency.
External factors will also influence the
hospitals operations system, such as the level
of government funding it receives, availability
of qualified staff, or unforeseen circumstances
such as a disaster or major accident.

Activity 6.2
Using the same format as outlined in table 6.3,
describe the inputs, transformation and final
outputs for two of the following types of largescale organisations.
A secondary school
A commercial radio station
A department store
A car manufacturing plant.

Transformation
Medical treatment
such as surgery, therapy,
care, diet, physiotherapy,
X-rays, nursing

Feedback / evaluation (examples)


Costs
Statistics
Staff turnover
Survey results
Productivity

Final outputs
Treated patients

External environmental influences


Government policy
Legal
Insurance companies
Staff availability
Accidents
Health and lifestyle of population

figure 6.9 The operations system for a hospital

How operations management relates to


business objectives and strategy
Organisations strive to achieve corporate
objectives through the operations function.
In its desire to increase its level of business
competitiveness, an organisation will require the

operations management professionals to establish objectives such as increasing productivity,


improving quality of processes and output, and
adopting a sustainable approach to operations.

ch a p t er 6 operations management function


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

139

Cambridge University Press

Operations management is vital to any


organisation because the decisions made by the
operations managers have a direct impact on
the level of competitiveness of that organisation
and the attainment of corporate objectives. The
operations system will determine the cost of
production and the quality of the finished products. It therefore directly impacts upon revenue,
costs, quality of output and, ultimately, profits.
The same applies to not-for-profit organisations that aim to produce services and will be
judged on how well they satisfy the community
with prompt and effective service delivery.
The following features can contribute to
an organisations operating system in order to
enhance its business competitiveness:

There should be optimal levels of operational efficiency, based on a reliable supply


chain, minimal wastage and defects, use
of technology and an appropriate facilities
design and layout.
High standards of quality should be built
into the processes, both at input and transformation stages.
Ethical and socially responsible considerations must be taken into account during
planning and operational phases. Organisations have to consider carefully the effects of
their output on all stakeholders.
The operations system must also be measurable against the level of achievement of
organisational objectives and mission.

The productivity objective


productivity
a measure of the
functioning and
efficiency of a
production system; the
level of output obtained
from a set level of input

competitive
advantage
a point of difference or
superiority held over
ones competitors

140

The primary aim of the operations manager is to


enhance operational efficiency and productivity. Productivity refers to the level of output

Productivity (P)

obtained from a level of input. Put simply, it is


what you get out for what you put in.

Output (O) (units of production)


Inputs (I) (units of raw materials, capital, labour)

If a worker is able to produce 10 units of


work per hour at the same cost as one who is
only able to produce eight units per hour, the
first worker has 20 per cent better productivity.
Similarly, imagine that a moccasin factory is able
to produce 5000 pairs of moccasins at a cost of
$10 000 in one month. If the factory changes its
work practices and brings in new computerised
equipment that allows it to halve its workforce,
then as a result the next month the factory will
be able to produce 10 000 pairs for the same
cost. The productivity of the factory will have
increased by 100 per cent.

Examples of productivity measures include:


units of production produced per employee
crop tonnage per hectare planted
number of clients attended to per hour or
per unit of wage cost
number of units produced per unit of money.
Productivity and quality improvements are the
keys to achieving international competitiveness.
A business will attempt to establish a competitive advantage based on one or both of these.

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Factors determining organisational


productivity
In the quest to gain an increase in organisational productivity, an organisation has a range
of factors that can be utilised. These include
implementing new technology, ensuring equipment and facilities are in first-rate condition,
and safe work practices are being used.
Technology levels the implementation of
new technology, such as robotics, scanning,
wireless communications, teleconferencing.
Research and development offer scope
for the development of innovative work
practices.
Equipment and facilities the quality of
the working equipment and facilities and
their regular maintenance will affect reliability and reduce the likelihood of breakdowns
and downtime.
Tasks and processes the types of tasks
and the methods used in undertaking
these will affect how much is produced
at what cost. Simple task analysis and the
resulting sequencing and reordering of
tasks will produce significant productivity
improvements.
Layout of facilities often simply redesigning a workstation, moving equipment or
fittings, or relocating stock storage areas can
generate efficiency savings.

Communications processes when information flow is restricted, so too is productivity. The accurate processing of orders and
specification requirements will improve
accuracy in the processing of orders.
Workplace safety Australian occupational
health and safety legislation has decreed that
all Australian employees have the right to a
safe workplace and employers are obliged
to provide this. Failure to take account of
occupational health and safety requirements
could see a worksite closed down until
breaches are rectified. Machinery downtime
or industrial accidents can have a significant
effect on productivity.

equipment
machinery and other
tools
facilities
capital items that
facilitate or assist
production
downtime
period during which
production is not
occurring

figure 6.10 All Australian employees have the right to


a safe work environment.

Activity 6.3
Read the case study and answer the questions that follow.

Case study
Ford: How has car production changed over the past 85 years?
Ford Motor Company of Australia was
incorporated on March 31 1925 in Geelong,
Victoria and almost immediately began
assembling Model T cars in a temporary plant

in Gheringhap St, virtually opposite the site of


the Ford Discovery Centre today.
In the following 80 years since that momentous day for the Australian motor industry, Ford

ch a p t er 6 operations management function


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

141

Cambridge University Press

has been at the forefront of innovation, design


and manufacturing in this country. It has a
proud history of producing affordable, reliable
transport for generations of Australians.
That first assembly line compared with
today was a very crude affair with vehicles
being pushed by hand from one area to the
next as they were assembled.
Only one model was available the ubiquitous Model T. It came with several different
body styles but the choice of engines and
transmissions were limited to one of each.
Assembly of the Model T was a simple task.
Huge crates were offloaded at the nearby wharf
from ships that came from Ford (Canada).
Chassis components, engines, transmissions
and rear axles were unpacked and stacked
alongside the 40-metre line. Workers used hand
tools to bolt the components together and a
block and tackle to lift the assembled body
onto the spindly chassis. All the upholstery was
hand stitched and the body frame was made of
wood by skilled craftsmen and supplied by an
outside vendor until Fords brand new factory
was finished on Geelongs Melbourne Road. As
each car was built, it was pushed out the door
and across the street where it was either driven
to the railway station or picked up by a dealer.
Over the years, Ford introduced many
innovations and new technology into the manufacturing and assembly process In 1936
it was the first Australian manufacturer to
replace the wooden body frame with an allsteel frame with the body panels welded to it.
One year later, Ford installed a massive
stamping press that was capable of stamping
the entire roof panel of a Ford V8 sedan in one
piece and so was born the complete steel
body as we know it today.
Fords engineers were constantly improving
the assembly line process to increase production and improve the quality of the vehicles.
When the first Model T rolled out the door of
the temporary factory in Geelong in July 1925,
production was around thirty vehicles a day.

142

In 2005, Fords huge assembly plant in


Broadmeadows on the outskirts of Melbourne
built 500 vehicles a day. The whole assembly
process was extremely well organised it
had to be! Controlled by a master computer,
dealer orders from all over Australia were
programmed into a production sequence.
Up to 20 different models were built on
the same production line, ranging from Falcon
sedans, wagons and utes, Fairmont Ghia,
Fairlane and LTD luxury vehicles to Fords new
award-winning Territory Sports Utility Vehicle.
Each different model comprises different
components, colours and trim levels. To manage
this complexity, each vehicle had its own identity card, which specified the exact component
to be fitted. With more than 4000 individual parts
in each car, there was no room for mistakes.
Still today, Ford uses a Just In Time supply
system to deliver components to the assembly
line. Rather than waiting for parts to be transported from other locations, suppliers can
transfer their products directly to the production line as they are needed.
Each new Falcon or Territory that starts
down the assembly line at Broadmeadows
passes a barcode scanner. This triggers
an electronic data message to each onsite
supplier, specifying the model, trim level and
suspension requirements.
Ford was the first assembly plant in
Australia to use robotics and in 2005 had 123
robots (compared with 50 five years earlier)
undertake work such as welding and painting.
Most importantly, the lives of people on
the assembly line have improved dramatically.
Gone are the images portraying manufacturing as dirty and dangerous. Todays modern
facilities provide bright, clean, healthy and
safe workplaces compared to 80 or more years
ago when there was little understanding of the
importance of the workplace environment.
The modern assembly line is a far cry
from the crude line where men pushed the
cars along in often hazardous conditions.

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

High-technology robots have replaced the


hand tools, sophisticated water-based paints
and automatic paint systems have replaced the
original lacquer and brushes, and computerdriven machinery produces thousands of seat
and door trims from materials never dreamed
of in 1925.
While proud of past achievements, todays
Ford employees are already looking to the
future and are developing the technologies
that may one day shape the workplace of 2085.
Source: www.ford.com.au

figure 6.11

Questions
1 When did Ford begin production in Australia?
2 What evidence is cited in the above article to show that productivity and quality improvement have
been considerable at Ford over the past 85 years?
3 Describe how the first assembly line operated.
4 Describe the improvements made by Ford in respect to the following:
a Development of the steel body
b Greater range of products
c Just In Time supply system
d Computerisation
e Innovation and technology
f Occupational health and safety.
5 What might have occurred if Ford had not adopted innovations and improvements to its
operations system over the past 85 years? Why?

Activity 6.4
Virtual tours of operations systems
Visit the website http://manufacturing.stanford.edu. This website will take you on a virtual tour of
the operations systems involved in the production of a variety of manufactured products. Select two
products and summarise the operations process in a copy of the following table.

inputs

transformation steps

product (output)
e.g. Jelly beans
e.g. Cars

ch a p t er 6 operations management function


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

143

Cambridge University Press

CHaPTeR summaRy

Operations covers the actual work done


transforming inputs into finished products,
(outputs). All large-scale organisations must
manage their operations system in the most
efficient and effective manner possible in
order to become and remain competitive in
an increasingly competitive global business
environment.

The operations system has three key elements:

Inputs raw materials, component


parts, human resources, information and
knowledge, capital, plant and equipment,
technology, time.
Transformation the operations manager
plans the transformation process. They then
organise and lead its implementation and
control the production process.
Outputs the final product of the system.
Outputs can be either goods (tangible) or
services (intangible).

CHaPTeR summaRy
QuesTIOns

1 Define each of the following terms, then explain

Operations management affects


competitiveness through costs of production,
quality of finished products and the delivery
of services associated with products, such as
warranties. An efficient and effective operations
system maximises efficiency, produces highquality standards, includes ethical and social
considerations and assists in the achievement of
organisational objectives.

Productivity is a measure of the ratio of inputs


to final outputs and is determined by:

technology levels

quality of equipment and facilities used


(including maintenance and servicing)

efficiency of tasks undertaken

innovation

layout of plant and equipment

effectiveness of communication processes

occupational health and safety.

5 Suggest and justify an appropriate measure of

the relevance or role of each in regards to


operations management.

a A hospital

a Operations manager

b A brewery

b Goods

c A secondary school

Services

d Productivity
e Operations strategy
f

Facilities

g Transformation.
2 Compare and contrast the features of goods

and services.

productivity for each of the following:

d A police station
e A call centre.
6 Explain and discuss the effect each of the

following might have on productivity and quality


levels in a large organisation.
a The introduction of robotics
b Training and subsequent multiskilling of

employees

3 Summarise the role of an operations manager.


4 Discuss and explain the importance of

maximising productivity and quality levels to


business competitiveness.

144

The introduction of participative


(decentralised) decision making in the
workplace

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

d The introduction of a system of regular

7 Differentiate between each of the following:

maintenance for plant and equipment

a Production and productivity

e The introduction of employee share

b Inputs and outputs

ownership schemes.

Human resources and capital resources

d Service industry and manufacturing industry


e Raw materials and component parts.

Read the case study and answer the questions that follow.

examInaTIOn
PRePaRaTIOn

Case study
Hugo James is the operations manager of Snorclean, a large contract cleaning business. In recent
months, Snorclean has lost 15 per cent of its market share. Client survey results indicate that
Snorclean is significantly more expensive than several of its competitors and the quality of the
services provided is significantly poorer.

Question 1

Question 4

Is Snorclean a service or manufacturing firm? Justify


your answer.

Identify and explain two management roles that


Hugo would need to perform on a day-to-day basis.

2 marks

4 marks

Question 2

Question 5

List and explain three distinguishing features of


services as opposed to goods.

Identify and describe two PIs that might be used by


Snorclean to measure its productivity.

4 marks

4 marks

Question 3
Identify, describe and explain the elements of
an operations system. Use Snorclean and its
operations system to illustrate each element.
6 marks

ch a p t er 6 operations management function


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

145

Cambridge University Press

Optimising
OperatiOns

Whats ahead

Optimising
operations

Facilities design
and layout

Materials
management

Technology

Management
of quality

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Key Knowledge

Students will learn about the following strategies to optimise operations:

facilities design and layout


materials management
management of quality
extent of the use of technology.

It has been established that the aim of the operations manager is to extract maximum productivity
and levels of quality from the production process,
while also achieving organisational ethical and
social responsibility objectives. In other words,
the operations manager is responsible for optimising an organisations operations. So how does
an operations manager do this?
In this chapter, we will examine some of the
strategies currently used by organisations in order
to optimise their operations and thereby improve
their competitiveness in a global market.

area of study

the operations management function

More specifically, we will look at strategies


that aim to optimise the following aspects of the
operations system:
facilities design and layout (floor plan)
extent and impact of technology used in an
operations system
materials and supply chain management
management of quality.
Finally, we will also look at the integration
of social responsibility considerations into the
design and operation of an organisation.

147
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Facilities design and layout (floor plan)


The physical layout of plant and equipment
has a significant impact on the efficiency of
an organisations operations. There are critical
factors that influence the location and design
decisions, such as:
the product being manufactured or service
being provided
volume of output required to be produced
or services provided
actual amount of physical space required
and the location
process to be undertaken closed or virtual
appropriate type of layout.

The following must also be considered


in order to optimise the production process
efficiency.

Optimising the use of


physical space
Adequate workspace must be provided to all
areas. Insufficient workspace will often result
in bottlenecks and subsequent blockages in
workflows. The workspace, however, must not
be too large, as it may hinder productivity if
workers have to move around or walk long
distances during completion of tasks.

Activity 7.1
Working in groups of three to four, your task is to evaluate the workspaces in your school. Each
group is to visit a different workstation, such as teacher offices, the general office, or even the
school canteen, and then write a report on the following to be presented to the class.
1 Describe the tasks and workflows that occur in the area designated to you. (What is done here?
What steps are usually followed?)
2 Is the workspace inadequate/adequate? Explain why you believe this to be so.
3 Make at least three suggestions that could improve the productivity in this work area. Justify
your answer.

Optimising the use of


equipment
Extracting maximum productivity from equipment is a key to operational optimisation.
Equipment must be easily accessible, reliable
and operational to maximise its throughput. It is
vital that each piece is located so that it is easily
accessible to those who require it.

Regular maintenance
program
Figure 7.1

Equipment needs regular maintenance.

148

A regular maintenance program is essential to


keeping equipment and facilities operational.
Easy accessibility to these for maintenance is

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

crucial in order to minimise downtime. Multiskilling of workers is necessary to ensure


maximum utilisation of equipment. While
regular maintenance will be a cost in time,
labour and component parts, it will avert costly
downtime. Any piece of equipment lying idle
results in lost output and thus, lost revenue.

Location of raw
materials stocks and
finished products
The location of raw materials stocks and finished
products is another determinant of operational
efficiency and effectiveness. These must be readily
accessible during the production process. Time
wasted in locating and moving required inputs
must be minimised in order to optimise productivity. Raw materials and component parts should
be within easy reach of where they are required.
Finished products must be placed where they can
be easily accessed and moved out for delivery.
This enables materials handling to be carried out
in an orderly and efficient manner.

Layout of plant and


equipment
The layout of plant and equipment must allow
for an efficient flow of production. This involves

Figure 7.2

Fixed position layout

linking the processes and the different stages of


production so that production needs are met.

Types of layout
The facility layout must be planned with a
view to streamlining the production process.
The best layout to adopt depends on the type
of organisation and the nature of its activities.
Fixed position/project layout occurs
when the product remains in one position
while it is being built or constructed. All of the
labour and resources are brought to it. This
layout type is used for the construction of large
and bulky products, such as building or aircraft
construction. It is used to produce a customised
product as a single entity from start to finish.
Each individual product is completed before the
next is started.
The advantage of a fixed position layout is
its greater flexibility, enabling manufacture of
product to exact specifications. This also allows
for high quality to be built into the production
process. However, a fixed position layout is
expensive as it is time-consuming and has high
input requirements of labour.
Process/functional layout involves pieces
of equipment with like functions being grouped
together. It is used with products that require
a large degree of variety, but that are generally only produced in small amounts. Batch
production employs this layout, as it allows
for intermittent production of different batches
of products. Each batch or product is taken to
the appropriate machinery as required. Because
each product or batch is different, there is no
established pattern of use of machinery, so
similar machinery is placed together. A hospital would use a process layout, for example.
Each patient will have different requirements
and needs, therefore they will utilise different
machinery and locations with no set pattern. A
functional layout allows for variations in volume
produced and specification.
Product layout is used when employing
mass production techniques that create large

c h a p ter 7 optimising operations


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

multiskilling
equipping employees
with a variety of job
skills to increase their
flexibility
facility layout
the physical layout of a
work environment, e.g.
factory, shop, office,
warehouse
fixed position layout
the product remains
in a fixed position with
the required resources
taken to the product
process layout
production layout where
pieces of equipment
with like function are
grouped together
functional layout
pieces of equipment
with like function are
grouped together; the
product being produced
is taken to each piece
of equipment
batch production
the manufacture of
a limited number of
identical products;
every item in the batch
is completed at each
stage before they all
pass on to the next
stage of production
product layout
equipment is used
for a single purpose
along a production
flow line; the product
progresses along the
line in a continuous
flow; suitable for mass
production
mass production
large-scale production
of similar or identical
items

149

Cambridge University Press

assembly line
used in manufacturing
organisations when
machines pass a
product past workers
who perform a small
specialised task
customisation
made or altered to
meet an individual
order
mass customisation
large-scale production
of customised products
cell production
the production line is
split into a number of
self-contained cells
or units; each cell
produces the whole of
one unit or a significant
subassembly of a unit

amounts of consistent quality products. Mass


production usually involves automation and
generally the products move to the equipment
along a conveyor belt. Standardised inputs are
put through standardised processes to produce
the required output in large amounts.
An assembly line involves inputs moving
along different stages on a conveyor belt. Most
factories employ this production process, as
it is capable of producing larger quantities of
standardised output in a relatively short time.
It therefore suits industries where the demand
for their product is both high and consistent.
It also suits the production of a standardised
product requiring only minimal alterations. Most
large factories fit these criteria. The advantages
offered by mass production using a product
layout generally centre around questions of
cost. It is an efficient and predictable means of
production offering:
low unit costs
a constant rate of output
consistent quality standards.
The disadvantages of the mass production
method are:
initial high set-up costs with the purchase
of capital-intensive high-technology production lines
unmotivated employees through repetitive,
low-skilled work
no allowance for any customisation.

Henry Ford is credited with the introduction


of the moving assembly line at his Detroit car
plant in 1913. Its introduction saw the time
taken to produce a Model T Ford car fall from
14 man hours in 1910 to just two man hours in
1913. The price of the car therefore actually fell
from $850 to just $345 in 1916.
Continuous flow production is another
form of product layout. It is a high-volume
process that runs without ceasing. The product
goes through the same sequence of steps
continually. A refinery and printing press are
two examples of this type of production.
Mass customisation is a recent innovation in production methods as organisations
pursue ways of combining the flexibility and
worker satisfaction levels of the project process
methods with low unit cost. It is a production
process that combines the latest technology
with multiskilled employees and uses a production line to make a range of different products.
A few components are varied to allow for
customisation, but the rest are kept the same.
An example of this is a computer manufacturer
that can customise a standard computer to suit
individual customers or a car manufacturer that
customises standard models to suit individual
customer requirements.
Cell production is another recent innovation. It is a new form of flow production, but
the workers are divided into groups or units,

Figure 7.3 An assembly line is the most common form of product layout used in mass production.

150

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

known as cells. This idea is aimed at motivating


workers through friendly competition between
the cells. Each cell has a team leader and a group
of workers trained in a number of tasks. The
performance of each cell is measured against
benchmarks. These could be measures such as
output levels, quality or lead times. Each cell is
responsible for its own performance. This form
of flow production often leads to improved
worker commitment and motivation, and subsequent productivity gains.
Improved productivity and quality standards
may also be obtained through changing the
operations processes adopted and implemented.
Lean manufacturing is a system developed
in Japan after the Second World War by car manufacturer Toyota, which aims to improve efficiency

through the identification and elimination of waste


from the production system. It involves identifying and removing all activities and processes that
occur in an operations system that do not add
value to a product as it is being produced.
The steps undertaken in a lean manufacturing system are:
1 Identify what customers want in a product,
such as quality, customer service and so on.
2 Identify all steps taken in the operations
system that make the product (process
mapping).
3 Make all of the processes flow.
4 Ensure that what is produced is the quantity
the consumer demands (no overproduction).
5 Strive for perfection by continually identifying and removing waste.

Activity 7.2
Go to the Toyota website (www.toyota.com.au). Click on About Toyota, Operations, then Toyota
Production System. Answer the following questions after reading the information about the
operations system of Toyota.
1 What do the letters TPS stand for?

lean manufacturing
efficient management
of the production
process with the
aim of achieving
minimum use of
resources (streamlined
production)

2 State the goals of TPS.


3 Explain how each of these goals addresses issues important to corporate social responsibility.
4 What is meant by the term standardisation? Explain the link between standardisation and
maintaining consistently high standards of quality.
5 Define Kaizen. Explain the basic principles of Kaizen.
6 Discuss the link between Kaizen and employee empowerment.
7 Outline the key aspects of the Just In Time (JIT) system at Toyota.
8 Explain how JIT improves efficiency and acts to ensure that neither overproduction nor
underproduction occurs.
9 What is a Kanban system? How does it act to regulate production?
10 Identify and explain how the Jidoka production line differs from that originally developed by Henry
Ford.
11 Toyota suppliers have also been obliged to adopt the principles of TPS. What has been the effect
of this?

Manufacturing organisations are increasingly moving away from the closed factory
model of production, where all production is
completed within the four walls of their own
site. Replacing this model is one where many
of their productive operations are outsourced

to other component manufacturers at a lesser


cost. This is known as decentralisation or the
virtual factory. For example, it may be more
efficient for an Australian clothing manufacturer to outsource the actual production of the
designs of their designers in Australia to another

c h a p ter 7 optimising operations


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

closed factory
model of production
where all production is
carried out within the
four walls of a factory
site
virtual factory
the decentralisation of
productive activities
so that production
does not occur at one
worksite; also referred
to as decentralisation

151

Cambridge University Press

ergonomics
study of the
relationship between
people and their
working environment
work in progress
unfinished production
of goods or services
continuous
production
ongoing production of a
product assembly line

factory in another country where labour costs


are lower.
The virtual factory model operates on the
premise that components should each be manufactured and assembled in the world region
where it can be done most efficiently. Advantages offered by use of the virtual factory include:
reduced fixed costs from plant and equipment
loyalty from suppliers through a guarantee
of work
a concentration of expertise, with one site
performing a small number of tasks in large
numbers

quicker supply to some parts of the world


ability to take advantage of cost savings
offered by low-wage countries.
Disadvantages of using the virtual factory
include:
language and cultural barriers in dealings
with suppliers
high set-up costs
difficult to change suppliers if needed
possibility of political and economic disruption in developing countries
ethical and social responsibility issues.

Activity 7.3
Using the internet, research two of the following
organisations: Nike, Adidas, Country Road,
GMH, Ford, Ripcurl.
1 Ascertain the locations where each
organisation actually manufactures its
products.
2 Discuss the advantages this offers them.
3 Discuss whether or not you believe these
organisations are:
a being socially responsible
b behaving ethically.

Figure 7.4

Batch production

Figure 7.5

Continuous or mass production

152

Consideration must also be given to provision of the work environment of employees


when designing layout. It has been demonstrated that workplace ergonomics directly affects
employee productivity levels. Factors such as
appropriate furniture and equipment, height of
workbenches, provision of appropriate protective clothing and even sufficient lighting and
temperature are all examples of what should
be considered. The ergonomics professional
specialises in creating workplace designs that
optimise the work environment.
A working environment must also be
designed in accordance with legal requirements and obligations. Occupational health
and safety laws must be taken into account.
Employers who fail to provide a safe workplace
are not only liable to lose production through

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

table 7.1

Methods of production

production
type

Features

examples of when
it is used

advantages

Disadvantages

Project or job
process

Production of one item


as single entity from
start to finish. Labour
and equipment comes
to the product

Tailor makes a suit to


order

Flexibility allows
production to exact
specifications. Allows
for high quality
standards

Expensive and timeconsuming. Increases


costs of production.
This is due to high
level of labour intensity
required

Requires highly skilled


workforce

Construction of a
building
Production of single
one-off items or very
large items

Workers take pride in


craftsmanship

Goods for specialist


projects with high
value added
Batch
production

Production of different
product types in
groups/batches of
identical products
Products in the same
batch go through the
whole process together

Continuous
production
line/
line process/
mass production

Involves automation
where standardised
inputs are put
through standardised
processes in order to
produce the required
amount
Individual products
move from stage to
stage of the production
process as soon as
they are ready

Bakery makes batches


of different types of
bread and or cakes
High volume
transactions not
performed in real time,
e.g. insurance renewal
forms
Assembly lines in
factories, e.g. cars
Suits industries with
a high and consistent
demand for their
products
Suits production of
large amounts of a
standardised product
in short time

High volume process


that runs without
stopping at all

Suits producers with


moderate output levels

Refineries

Creates high levels of


work in progress
stocks at each stage of
the production process

Enables variations
in volume and
customisation of each
group of product to suit
individual requirements

Expensive

Efficient and
predictable means
of production with
low unit costs as
a consequence of
economies of scale

Initial high set-up cost


with large amounts
of capital equipment
required

Low labour costs due


to mechanisation
Easy to predict
required input stocks
Quality tends to remain
consistently high and
easy to check

Assembly line moves


inputs along to the
different stages
Continuous flow
production

Some benefits of
economies of scale

Same as mass
production

Workers likely to
be unmotivated by
repetitive, low-skilled
work and minimal
satisfaction
No allowance for
reworking errors or any
customisation
A stoppage on the line
or process means the
output could be lost
entirely
Same as mass
production

Products go through
same sequence
continually
continued next page

c h a p ter 7 optimising operations


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

153

Cambridge University Press

production
type

Features

examples of when
it is used

advantages

Disadvantages

Cell production

Form of flow
production where
employees are divided
into work teams and
motivated by friendly
competition

Requires modular
design of product,
each module being
produced by a cell,
e.g. electrical goods

Improved worker
commitment and
motivation

Higher set-up cost

Combines latest
technology with
multiskilled employees

Computer
manufacturer
who customises a
standard computer
to suit customer
specifications

Flexible but lower costs


than job process or
batch

Mass
customisation

Uses a production line


to make a range of
different products
A few components
are varied to allow for
customisation

Car manufacturer
who customises
special vehicles
according to customer
requirements

downtime from accidents, they are also likely


to encounter a greater number of workplace
disputes and costly industrial action, not to
mention possible legal sanctions.
The provision of a safe workplace is viewed
by many as a social obligation that employers
have towards their employees. The physical
layout and general ergonomics of a workplace
will significantly impact upon the level of occupational health and safety in any workplace,
which will, in turn, affect productivity, efficiency
and employee effectiveness.
Facilities design and layout must also
allow for effective communication channels
between different areas of the organisation. Site
support areas such as human resources and IT
departments also need to be within easy access.
Layout should also incorporate aspects that
make the organisation visually appealing to
potential customers, suppliers and investors.

154

Productivity gains

Ability to manufacture
a range of goods to
order with low unit
costs

Figure 7.6

Reliant on good supply


chain management
Must limit number of
variants produced in
order to succeed

Ergonomics in the workplace

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Activity 7.4
Read the article and answer the questions that follow.

Hefty fine after mine maintenance death


13 August 2010
A mine maintenance contractor has been
convicted and fined nearly half a million
dollars for a significant failure to protect its
employees, following the death of a worker
who was crushed by a steel beam.
Silcar Pty Ltd was convicted and fined
$475 000 in the Melbourne County Court today
on one count under section 21 of the Occupational Health and Safety Act 2004. This
combined two offences of failing to provide
and maintain safe plant and systems of work
and failing to provide information, instruction
and training to employees.
During sentencing, Judge Murphy said the
incident marked a significant failure in the
companys obligations to employees working
on routine maintenance tasks.
The incident occurred in 2006 at the
Yallourn Mine as maintenance fitter Richard
Gauci, 42, was carrying out maintenance work
on the head pulley of the mines conveyor, used
to transport overburden.
Mr Gauci was winching a 700 kg steel beam
into position when the cables on two winches
failed, causing the beam to fall onto him.

WorkSafes investigation found:


The hand winches and lifting rope on the
fixed belt clamp were in poor condition;
Silcar had no records to show that the belt
clamps and ropes had been inspected or
maintained; and
Silcar had failed to put safe systems of work
in place for working with fixed belt clamps.
WorkSafes Acting Hazard Management
Director, Rod Gunn, said the incident occurred
because Silcar had failed to consider all the
risks.
As a maintenance contractor, carrying out
high-risk work assessments should be an area
of expertise, he said.
This prosecution is a reminder that employers need to be vigilant about making sure plant
and equipment is inspected, maintained, and in
a condition suitable for use and that nothing
slips through the cracks, he said.
Source: www.worksafe.vic.gov.au

Questions
1 Outline the events that have led up to Silcar being brought to court.
2 What laws have been broken and what penalties have been imposed?
3 What organisation is responsible for prosecution of cases such as this?
4 Suggest three ways this incident might have impacted negatively on the productivity and/or
competitiveness of Silcar.
5 Do you believe that the prosecution of this company was justified? Give reasons for your answer.
6 Give two suggestions for potential changes to the operations system of Silcar that could be
implemented in order to reduce the chances of prosecution for workplace safety breaches in
the future.

c h a p ter 7 optimising operations


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

155

Cambridge University Press

Improving operations through technology


automation
the techniques and
equipment used to
achieve automatic, as
opposed to human,
operation or control of
a process, equipment
or a system
Computer aided
Design (CaD)
a computer program
that facilitates
the creation and
modification of product
design
robotics
the use of computercontrolled robots
to perform manual
tasks, especially on
an assembly line,
replacing functions
previously performed
by human labour

The introduction of new technology as it


becomes available to organisational operations
can offer significant efficiency savings as well
as improvements in the quality of product.
Organisations that fail to keep pace with the
latest technological advancements tend to
rapidly lose competitiveness. Following are
several examples of the technological innovations developed in recent years that have added
significantly to operational productivity. All are
examples of automation.

Computer Numerical
Control
Computer Numerical Control (CNC), also
referred to as Computer Aided Manufacturing
(CAM), involves the control of machinery, tools
and equipment through a computer. Machines

are fed programmed instructions from a central


computer, allowing for greater precision and
less margin for error.

Computer Aided Design


Computer Aided Design (CAD) is a computer
program that facilitates the creation and modification of product designs that has become the
standard in most organisations. CAD speeds up
the process of product design and increases
accuracy. It is costly to introduce, but saves time
and money in the long term.

Computer Integrated
Manufacturing
Computer Integrated Manufacturing (CIM) is
the combination of CAD and CNC. CIM is a
computer program that controls and directs
production from start to finish. Computers can
direct planning cost estimations, inventory planning, control and quality-control systems.

Robotics
Robots are machines that are usually employed
on a production line and work from a fixed
position. Robotics offers significant cost savings
and increased efficiencies as robots save on
labour costs and are not subject to human error.
Japanese industry has long employed robots
to do tasks such as the precision assembly of
circuit boards, which machines are able to do
for long periods to a very high standard.
In general, robotics offer improved quality
and efficiency and have the added advantage of
freeing employees from repetitive tasks. Robots
are sophisticated and are able to perform
complex tasks.
Figure 7.7

Robotics offers significant cost savings and efficiency.

156

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Flexible Manufacturing
Systems (FMS)
This is a complete system involving total
computer control of the operations system using
CNC-based equipment and automated transport
systems that deliver component parts and raw
materials in the correct quantities just as they
are required. FMS creates total computer control
of all aspects of the operations system involving the integration of CAD, engineering and
manufacturing. Computers detect things such as
machine breakdown and notify operators about
the correct replacement parts required. They
will also reset equipment when it is required
in order to produce different product types
according to different specifications.

Computerisation has reduced operating


costs and made significant time economies.
The development of mobile phone technology through the 3G network has opened up
many possibilities for businesses. Internet
access at broadband speed on these portable
devices is revolutionising communications for
all organisations. This offers many potential
productivity gains, greater workplace flexibility and employee worklife balance as
employees are no longer tied to a workstation.
The ability to communicate via the internet has enabled significant cost savings. For
example, many employees can now work
from home, saving office overheads. This
phenomenon is known as the virtual office.

Service industries
In recent years, service industries have had
access to considerable productivity improvements via technological development. Specific
examples of these include the following:
E-commerce allows business transactions
to occur using the internet. Online shopping, banking and marketing are expanding rapidly. Organisational websites are
important marketing tools. They also act as
virtual shop fronts and sources of product
information.

Figure 7.8 The internet has helped create the virtual office.

Materials and supply chain management


Supply chain management is the process of
integrating and planning, implementing and
controlling the system of organisations, people,
technology, activities, information and resources
that transforms inputs into finished outputs.
Aspects of supply chain management include
inventory management, the procurement of
supplies, and distribution of finished products
to customers (logistics).

Inventory management
Inventory is the storage of:
raw materials and component parts
unfinished production
finished goods ready for distribution.
The inventory of a business takes up storage
space and is therefore a cost. The aim of inventory management is to ensure that the right

c h a p ter 7 optimising operations


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

inventory
the holding or storage
of raw materials,
component parts,
work in progress and
finished goods

157

Cambridge University Press

in what quantities. The key to success is to


maintain a level of inventory that allows
production to continue without any delays,
while avoiding the cost of excess stock.
a system of inventory control that determines how and when to store items, and is
capable of tracking the movement of raw
materials, components and partly completed
units while protecting against loss due to
theft or damage.

Figure 7.9

Careful planning is involved in inventory management.

inventory control
system of overseeing
the contents of an
inventory; usually
involves maintaining
correct levels of stock
as well as averting
stock loss and theft
Just in time (Jit)
an inventory
management system
that aims to avoid
holding any stocks
(either as inputs
or finished goods);
supplies arrive just as
needed for production,
and finished products
are immediately
dispatched or sold to
customers

quantities of parts and materials are available for


the operations system to keep running and that
there are sufficient finished products to satisfy
demand. This must, however, be balanced
against the costs of storage.
If inventory fails to hold sufficient quantities of a required input, the entire operations
process could cease. On the other hand, excess
inventory takes up space and is a cost to the
business. Optimum inventory levels must be
clearly identified and monitored, and reordering procedures put into place. Acquisition of
materials must be planned to ensure timely and
uninterrupted supply of the necessary inputs
and components. Sources of supply for raw
materials and components must be identified.
Inventory management and planning necessitates decisions about:
how much to order (quantities to replenish)
timing of ordering (when to order)
control of the stock security system.
The management and control of inventory
must be carefully planned and coordinated to
optimise operations.
There are two important aspects of this:
developing a reliable and accurate inventory
system that determines what items to order,

158

Most organisations now have computerised


inventory records. This has vastly improved the
accuracy of recording systems and has reduced
opportunities for stock damage, loss and
theft. The use of a barcode scanning system
has largely replaced the physical stocktake.
Computerised stock control systems with
barcoding allow for greater control over order
assembly, stock availability and monitoring of
stock. New mechanical and automated warehousing equipment has significantly improved
the efficiency of inventories by making stock
movement easier.
In recent years, the Just In Time (JIT)
system of inventory management from Japan
has been growing in popularity with Australian
businesses. This system involves the reduction/
minimisation of inventory levels in the supply
chain, thereby reducing inventory costs. Inherent to JIT is the availability of products in the
required amounts at the right time at every stage
in the production process, while at the same
time minimising the use of materials, equipment, labour and space.
The JIT system eliminates waste and storage
costs by having all operations completed
just in time for the next stage to commence,
thereby reducing production costs via reduced
lead times, reduced inventory holdings and
subsequent decreased inventory storage space
requirements.
While JIT offers great potential for productivity improvements and cost savings, it does
have drawbacks. It is vital, for instance, that

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

supplier deliveries are reliable and received just


before the material is required in the production process. Any factor that affects the delivery
schedule has the potential to completely shut
down the whole production process. Industrial
action at a manufacturer of one component used
by all of Australias car manufacturers has, for
instance, resulted in all car production closing
down in Australia at the same time. One part
was unavailable, resulting in GMH, Ford and
Toyota shutting down their production facilities
until the dispute was resolved.
Key elements of the JIT system include the
following:
1 JIT aims to reduce costs through minimising
the amounts of inventory that must be held
at any one time.
2 Small quantities of inputs, such as raw materials and component parts, are delivered more
frequently with a view to meeting immediate
requirements. Large stockpiles are therefore
avoided.
3 Kanban method is employed, which is a
pull system of production materials control
where orders are placed in response to
needs further up the line. Inventory is only
replaced as it is used.
4 Employee participation is required in identifying wasteful work practices and eliminating these on a continuous basis.

Planning must occur in order to ascertain


the exact amounts of materials that will be
required. This may give the opportunity to
purchase in bulk and therefore obtain an
input at a lower cost per unit.
The operations manager must also factor in
an attempt to anticipate the possibility of
future price rises or falls caused by seasonal
variations, world market conditions, changes
in the value of the Australian dollar or potential industrial action at a suppliers production facility.
A system must also be established, such as
JIT, to keep inventory at the required levels
to avert theft and loss of materials while in
storage.

Transport and
distribution (logistics)
An efficient system of transporting finished
products to the customer must also be developed. This may involve contracts with transport
specialists such as couriers. The frequency of
deliveries must be established, as must the
routes taken.

Procurement of inputs
Locating and acquiring a regular and reliable
supply of high-quality inputs is a vital aspect
of efficient operations management. Contracts
need to be established with reliable suppliers of
high-quality inputs.
Supplier lead-in time must also be taken into
account. Some suppliers will require prior
warning of requirements. Component manufacture, for example, may take some time,
so orders must be made in advance to allow
for this.

Figure 7.10 An effective and efficient supply chain is vital to business success.

c h a p ter 7 optimising operations


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

159

Cambridge University Press

Activity 7.5
Outline how each of the following changes to the supply chain of a large retailer with more than 80
branches across Australia could serve to improve business competitiveness through productivity and
quality.
1 The introduction of a new IT system that tracks stock movements accurately.
2 The introduction of roll cages (on wheels) to transport stock from each store dock entrance, where
stock comes into the store, to the relevant store retail department. Previously, pallets were used
that required unpacking at the dock entrance to each store.
3 A new policy of not reordering from suppliers who deliver more than a day late.
4 The closing of more than 30 smaller warehouses, replaced with one major retail distribution centre
in each of Melbourne, Sydney, Adelaide, Brisbane and Perth. The new Super Houses are to have
the latest technology installed.
5 A decision is made only to buy from suppliers who are ethically and socially responsible. Therefore
several overseas suppliers who are found to exploit child labour lose contracts.
6 The introduction of a Just In Time system of inventory management

The management of quality


quality
the degree of
excellence in a good or
service and its ability to
satisfy the customer

Figure 7.11

Quality describes the degree of excellence in


a product or service and its ability to satisfy
client/customer needs and wants. Consumers
generally base their purchasing decisions on the
quality and price of a product as they look for
the best possible quality at the lowest price.

Organisations must manage the quality of their products and services.

160

Organisations that develop a reputation


for quality products and service operate at a
distinct competitive advantage. Similarly, those
who are able to develop operations systems that
are of a higher quality standard gain significant
advantages in terms of operating costs through
minimising waste and defect rates.
In recent years, Australian organisations
have paid greater attention to quality management programs as a means of increasing
organisational competitiveness; consequently,
quality management programs have grown in
popularity.
Quality management in a large-scale organisation may take one or a combination of quality
control, quality assurance and Total Quality
Management (TQM), as discussed later.
Quality management programs aim to:
minimise waste and defect rates in production, thereby maximising operational efficiency and productivity
obtain consistently high standards of product
and service at every stage of production
achieve set quality standards or benchmarks.

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Factors of quality
Factors that determine a products quality include:
durability
performance
maintainability
responsiveness
reliability
aesthetics
speed of service
consistency
design
ease of use
features
uniformity

satisfaction achieved for customer/client


availability of parts
conformance to specifications/standards
consideration for personal requirements
after-sales service
dependability

Activity 7.6
Figure 7.12
Products and services

List and explain the characteristics you would look for in each of
the following products/services for it to be judged as quality.
1 An education
2 A car
3 A hamburger
4 A business suit
5 A bathroom renovation
6 A taxi ride
7 A household appliance
8 A mobile phone service.

c h a p ter 7 optimising operations


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

161

Cambridge University Press

Quality control

quality control
process of checking
the quality standards
of work done or quality
of raw materials or
component parts
product recall
usually initiated by
the manufacturers/
suppliers when they
become aware of a
defect in a product
that makes it unsafe;
can also be initiated
by government
departments and
authorities

Figure 7.13 Quality control: recall of


suspected hazardous foods

1. Establishment of quality
benchmarks/standards
to be achieved.
Set out attributes that will be
checked and standards to be met.

quality assurance
a system established
to ensure that
predetermined quality
standards are achieved
proactive
using initiative to gain
an opportunity; acting
in anticipation

162

Quality control involves the use of a series


of physical checks at different stages of the
production process to ensure that products
and services meet designated standards and
errors are eliminated post-production. Defective
products are usually rejected and may be sold
as seconds.
Quality control is reactive and aims to
detect defects after they have occurred. Once
detected, operations management will decide
whether production needs to be halted to fix the
cause of the problem or that this was a one-off
case. In some instances, a product recall
becomes necessary to rectify problems on units
already sold.
For example, the Smiths Snackfood Company issued a recall on its salt and vinegar chips
as a precautionary measure after some packs
were found to have pieces of rubber in them.

2. Carry out inspections of


product performance.
Use analysis and sampling
techniques.

4. Correct processes/procedures in
order to prevent defects recurring.

3. Compare results of inspections


with established
standards/benchmarks.

Reappraisal of performance
standards may also occur.

Reject products that fail to meet


designated attribute standards.

Figure 7.14

Quality control stages

Quality assurance
A quality assurance system aims to build
quality into work processes, thereby avoiding errors before they occur. It is a proactive
process that may involve the use of an external

organisation called a certification body, which


audits against published national or international standards.
Achievement of certification entitles an
organisation to display certification marks. SAI
Global is the best-known Australian certification

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

body that issues certification against published


International Organization for Standardization
(ISO) standards. The right to use recognised
certification marks provides confidence to an
organisations stakeholders, adds great potential
for selling into export markets and demonstrates
a huge competitive advantage in globalised
markets over its non-certified competitors.
While different quality standards apply
to different types of organisations, standards
usually cover aspects such as:
specific processes to be adopted in regard to
customer satisfaction, continuous improvement, the production process

training of staff
documentation of processes
controls
corrective action
auditing of processes.

Quality certification is growing at a rapid


rate among Australian organisations as globalisation increases international competition and the
quality expectations of Australian consumers.

Adjustments in
processes and
procedures made in
line with standards
expected in order to
achieve certification

employs
1 Organisation
a consultant to advise
on quality standards
to be met in order to
obtain certification

Quality certification
processes

Figure 7.15 Stock should be monitored to avoid


product recall

Right to use
standards authority
logo in organisation
literature and
marketing granted

Figure 7.16

Certification granted
by standards
authority

Quality certification processes

Activity 7.7
Consider the quality assured marks and then answer
the following questions.
1 Explain the advantages of displaying these logos
in organisational literature.
2 Discuss and explain how it is possible to obtain
the right to use these logos.
3 Name three companies that are entitled to use
these logos.
4 Go to the SAI Global website (www.sai-global.
com). Summarise the services offered by this
organisation. What advantages do they say they
can offer a business organisation?
5 Conduct an internet search and find the name
of three businesses that act as consultants to
organisations trying to obtain ISO certification.

Figure 7.17

Quality assured marks

c h a p ter 7 optimising operations


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

163

Cambridge University Press

Total Quality
Management (TQM)

quality circle
a group of workers
who meet regularly
to discuss quality and
production issues; any
proposed changes to
production methods
are then put forward to
management

TQM is a holistic approach to quality where all


members of an organisation aim to participate in
ongoing improvement of organisational culture
and production processes. All organisational
members are required to have a commitment to
ongoing, incremental quality improvements in
everything they do. Employees are placed into
a work group known as a quality circle and
are required to work together to achieve quality
improvements on an ongoing basis.
TQM is a totally integrated, managementled effort aimed at improving performance
at every level of the enterprise and on every
aspect affecting competitiveness and customer
satisfaction.

William Edwards Deming


An American statistician named William Edwards
Deming first developed TQM after the Second
World War. He had been sent to Japan to assist
that country in rebuilding its industry base after
it had been devastated by wartime bombings.
He introduced new quality control concepts
to the Japanese, with his central idea being to
change the production system to prevent defects
rather than simply detecting and throwing out
the defective products after the defects occur.
Demings definition of quality was meeting
or exceeding the needs and expectations of the
customer. Thus, the goal of a business should
be to find out what the customer wants and
then fine-tune the process to ensure that they
get it. The term customer refers to both internal
and external customers. This means every work
group has a customer: the person who receives
their output. Demings philosophy was that
quality should be the responsibility of everyone
in the organisation.
The Japanese adopted Demings ideas and
developed them further over time. They extended the application of process improvement

164

from manufacturing to administrative functions and service industries, so that the quality
concept affected the whole organisation.
Japanese industries nowadays have a worldwide reputation for high standards of quality
and workmanship. Much of this improvement
can be traced to the adoption of quality management practices and procedures. They were able
to significantly drive down their costs, while
at the same time improve the quality of their
products.
During the 1980s, the Western world began
to realise just what the Japanese had achieved
in terms of quality improvements. Western
manufacturers began to adopt quality concepts
and added other management techniques in
the area of employee motivation, measurement
and rewards in response. This blend of quality
management techniques and philosophies is
generally referred to as TQM.

Core TQM concepts


1 continuous process
improvement
People are required to look at their work
as being one step in a continuous process
rather than as in isolation to the rest of the
organisation.
A process is a sequence of tasks, which
together produce a product or service. Every
work group therefore has a supplier and
a customer before and after them in the
process.
Therefore the way to improve quality is to
ascertain who the customer is and what they
need and improve the process to fully meet
this need.
To do this, set up teams to analyse problems
with the process and implement solutions.
Continuous improvement always takes place
in small, incremental steps and never stops.
That is, you are always looking for a better
way of doing things.

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

2 customer focus

3 defect prevention

Everyone has a customer:

TQM tries to prevent defects in products or


services before they arise rather than relying on
inspection to find them after they occur.

External customer the person who


purchases the product or service.
Internal customer those who use what
another group in the workplace provides.
Every work group must think about providing value to the people who use their product.
This involves finding out exactly what the user
needs and wants, and ensuring that the process
provides it.

4 universal responsibility
With TQM, quality is not just the responsibility
of the inspection department: it is everybodys
responsibility. Every work group in the business should be concerned with seeking ways
to improve the quality of their own product or
service.

Ethical and socially responsible


management of operations
Social responsibility requires an organisation to
do what is right to reduce economic, social and
environmental impacts on the wider community and ecosystem. Social responsibility is a
commitment to giving back to the community
and its development, and looking out for the
interests of all stakeholders.
Ethical and social responsibility considerations are important when planning the establishment and running of an operations system. As
the community becomes increasingly concerned
about social and environmental problems, there
is an increasing expectation that large organisations consider the economic, environmental and
social impacts of their actions.
In the twenty-first century, a large-scale organisation is expected to act in the interests of the
wider community, as global citizens, and not just
meet the financial expectations of its shareholders.
Therefore, social responsibilities must be taken
into account when planning an operations system.
Organisations are increasingly being evaluated by the community and the markets in terms
of their socially responsible behaviours. Socially
responsible actions are important to organisational survival today. A socially responsible

organisation builds goodwill and therefore a


positive reputation, is easily able to both attract
and retain good employees, and is often able to
gain cost advantages.
Social responsibility considerations for planning and running an operations system include
the following:
waste minimisation schemes, such as
recycling
reduction of carbon emissions
provision of enhanced quality of life for
employees through provision of safe working
environments that respect employee rights
taking responsibility for the environmental,
social and economic impact of the organisations activities.

Environmental
management systems
An

environmental management system

(EMS) is a series of policies and practices that


focuses on an organisations approach to environmental issues. An EMS affects how an organisation views its obligations to the environment

c h a p ter 7 optimising operations


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

environmental
management system
series of policies and
practices that focuses
on an organisations
approach to
environmental issues

165

Cambridge University Press

as well as how it manages the effects its activities have on the environments, both natural and
social. An EMS will affect:
how well the organisation will meet its
ethical obligations in regard to its effect on
both the natural and social environments
the efficiency of the organisational operations
systems. Environmentally friendly practices
and processes usually involve reduction of
waste and cleaner production processes that
use fewer inputs.
The International Organization for Standardization has standards relating to EMS (ISO
14001). These operate like other quality assurance standards, with organisations applying for
certification in environmental management. For
ISO accreditation, an organisation must demonstrate an EMS that:
involves participation by the whole
organisation
targets all stakeholders
has identified all of the environmental
impacts of the organisation
demonstrates proactive policies in their
implementation, organisational commitment,
vision, processes and procedures

is a coordinated EMS applying across the


entire organisation with:
commitment from all
identification of environmental issues
faced
specific goals
education and training programs,
manuals, documentation and procedures
methods of assessment, monitoring and auditing, plus dealing with
non-conformance.
The environmental performance of an organisation has become increasingly important in
recent years because growing consumer awareness of and concern for environmental issues
is affecting purchase choices. An organisation
with a sound EMS built into its operations
will therefore have a considerable competitive
advantage over its competitors.
Improved
environmental
performance
can also result from the efficiency advantages
usually offered by adopting newer, cleaner
and more environmentally friendly practices,
processes and equipment.

Activity 7.8
Read the case study and answer the questions that follow.

Case study: Social responsibility and operations


Aussie jobs head overseas but results are inferior
Nearly one in three businesses in Australia
outsources some part of their work overseas,
yet a massive 77% of Australians believe that
the quality of overseas outsourced work is
inferior to that done at home according to a
survey by Talent2, Australias leading human
resources and recruitment firm.
Contracting work to overseas firms has
become an increasingly common practice as

166

globalisation takes effect, yet 66.4% of the


1713 respondents to the survey say that
sending work overseas hurts the Australian
economy.
Mr Mark Condon of Talent2 says the jobs
most at risk to going overseas are in manufacturing, customer service/sales and IT. We live
in a global society today and Australian businesses have been embracing the competitive

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

advantages such as lower staffing-costs that


international outsourcing can bring.
Forty-five per cent of Australians say they
would reconsider signing up for a service such
as a mobile phone or internet contract if they
found out that the provider had outsourced
their customer service overseas. Businesses
need to weigh up whether or not the financial
benefits of sending work out of Australia is
balanced by the backlash they may face from
customers who want a fully Australian made
product or service.

Record low unemployment, however, has


meant that many firms are forced to outsource
work internationally as they simply cannot find
the right people willing or able to do certain
jobs. The trend of outsourcing poses a challenge for workers all over the Western world:
as workers become more educated they do not
want to do some of the more menial jobs which
are being outsourced overseas, yet the number
of jobs they do want to do is finite.
Source: www.femail.com.au

Questions
1 What percentage of Australian businesses outsource work to overseas firms?
2 Which business sectors outsource most commonly?
3 Explain the reasons why Australian firms choose to outsource to overseas contractors.
4 Explain the potential effects the practice of offshore outsourcing by Australian businesses could
have on:

business sectors
different types of
organisations and
enterprises producing
goods and services

a Australian employees
b the Australian economy.
5 According to the survey cited in the article, how do Australians view the practice of offshore
outsourcing? What are the potential negative ramifications of a business outsourcing?
6 Explain the potential backlash faced by Australian employers who outsource offshore.
7 Why has this backlash not occurred as yet?
8 Explain how the issue of offshore outsourcing could become a social responsibility concern for
Australian employees in terms of the following:
a rising unemployment in Australia
b the issue of sweatshops and poor working conditions in overseas countries.

c h a p ter 7 optimising operations


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

167

Cambridge University Press

ChAPTER SuMMARy

The aim of the operations manager is to extract


maximum amounts of productivity at the highest
levels of quality from the production process,
while at the same time, achieving the organisations
ethical and social responsibility objectives.
Strategies that may be adopted include the
following.

Facilities design and layout

Introduction of technology

Offers greater efficiency and quality. Some


examples include CAM, CNC, robotics and
virtual offices.

Materials and supply chain management


Including:

Inventory management systems, e.g. JIT

Computerisation

Sourcing and maintaining a regular and reliable


supply of high-quality inputs.

Optimising the use of physical space. Making


the best use of equipment, including a program
of regular maintenance.

Appropriate layout of plant and equipment and


thus streamlining the production process.

Management of quality programs

Types of layout:

Quality control reactive checking at end of a


process or of completed product

Quality assurance building quality into work


processes to prevent errors before they can
occur

Total Quality Management.

Fixed position product remains in one


position
Process/functional like processes/
equipment grouped together
Product assembly line where product moves
Mass customisation
Cell production
Consideration must also be given to
employee work environment (ergonomics)
and occupational health and safety
Other system changes may include adoption
of lean manufacturing and virtual factory
model.

1 Define the meaning of each of the following

ChAPTER SuMMARy
QuESTIONS

terms, then use each in a sentence to


demonstrate your understanding.
a Quality
b Facilities design and layout
c

Ergonomics

d Automation
e FMS
f

JIT

g Virtual factory

There are three types:

Social responsibility

Programs are important to gaining and


maintaining competitiveness. Some examples
include waste minimisation, reduction of
emissions, enhanced employee and community
quality of life, business sustainability.

2 Outline the three approaches to quality

management that may be adopted by an


Australian large-scale organisation. Use
examples to explain and illustrate how each
approach operates.
3 Distinguish between each of the following

terminology pairings.
a Functional layout and fixed-position layout
b JIT and inventory
c

Quality management and TQM.

h Total Quality Management.

168

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

4 Explain how the introduction of each of the

7 Explain and discuss how the principle of

following strategies has the potential to improve


operational productivity levels.

universal responsibility underpins each of the


following programs.

a Virtual factory

a TQM

b CAD

b EMS

Redesign of a layout

d JIT.

8 Companies that treat the environment with

respect in all aspects of their operations have


reduced waste output, higher quality products
and services, high resource efficiency, reduced
costs of regulatory compliance, experience low
incidence of litigation and enjoy a high degree
of loyalty from both consumers and business
clients. (Alistair C Ping, Responsible For
What?, www.insight-works.com)

5 Identify the technology that has enabled each of

the following operations improvements to occur.


Explain how each technological advancement
has enabled these to occur.
a A reduction in machine downtime due to

breakdown
b The increase in speed and accuracy of

product design
c

a Discuss what this statement means. In your

A reduction in labour costs

answer, consider both the positive and


negative effects that the adoption of an EMS
might have on organisational productivity
levels. Use specific examples to illustrate
your answer.

d Instant communication from one workstation

to another
e The integration of product design,

engineering, manufacturing and inventory


f

JIT

b In your opinion, would the adoption of an

The ability to keep up-to-date records of


inventory stocks and the movements of these.

organisational environmental policy be a


sound business decision or merely an ethical
one? Justify your answer.

6 Explain the term ergonomics. Discuss the

importance of good ergonomics to optimise the


operations system.

Read the article and answer the questions that follow.

ExAMINATION
PREPARATION

Is 787 Dreamliner novel manufacturing strategy on


the rocks?
By John Dodge, SmartPlanet, July 10, 2009
Has Boeings bold, innovative and controversial
strategy to farm out manufacturing of the major
components in its very late 787 Dreamliner failed?
That partly depends on how much, if any, of the two-

year and counting delay could have been avoided by


making the aircraft largely on its own. So far, delays
have played the starring role in losing Boeing 60 787
orders this year and winning it only 13 new ones.

c h a p ter 7 optimising operations


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

169

Cambridge University Press

With Boeings acquisition of Vought Aircrafts


North Charleston, S.C., plant this week, the strategy has certainly has taken another hit. On Tuesday,
Boeing said it would acquire the Dallas-based
aircraft concerns plant where the two aft fuselage
sections of the Boeing 787 Dreamliner are made.
There has been speculation that the deal presages a second 787 assembly line. The Seattle area
media has been buzzing about how the area will
lose the second production line for the airplane
which has garnered about 850 orders. The first
line for final assembly is in Everett, Washington.
Vought and Boeing were already linked at the
hip. The head of the Vought 787 program is former
Boeing executive Joy Romero. A year ago, Boeing
bought Voughts stake in the joint venture that
made the aft fuselage. Vought has struggled financially and dumped hundreds of millions more
than it expected into the 787 program, according
to a story in the Dallas Morning News this week.
While Vought has been the most visible thorn in
the Boeings dispersed manufacturing strategy, an
overly stressed area in the wing prompted Boeing
two weeks ago to announce another embarrassing
delay in the 787s first flight. It did not disguise
the fact that Fuji Heavy Industries and Kawasaki
Heavy Industries make that part of the plane.
Fastener shortages as well as unfinished
components showing up at the final assembly
plant in Everett have also contributed to delays.
And the key issue in an eight week machinists

strike at Boeing last Fall was the outsourcing of


work. Still, Boeing executive did not budge on the
strategy.
Ceding control of the planes manufacturing
has also led to a very a very public airing of all the
warts - or at least the ones we know about. That
said, the usually locked-down Boeing has been
more open with the development of this airplane
compared to ones in the past.
The goal of the manufacturing plan is to hold
down costs, but think about it. As I recall, final
assembly is (or was) supposed to take a mere the
three or four days per plane after all the components arrived in Everett. Its only human nature to
wonder about a plane snapped together that fast.
In April, 2007, I extensively interviewed former
787 chief project engineer Tom Cogan when the
Airbus A380 was the poster child for delayed jetliners. At the time, it looked like the 787 would fly on
time or only with a smaIl delay. I thought he was
humble, but how does what he said sound now. I
quote from my Q&A with him in Design News.
Certainly theres a quiet confidence on our part
that we can deliver what weve promised. Airbus
is a world-class manufacturer of commercial jets
and they are having their struggles just as we have
had our challenges in the past. Its the nature of the
business and the products we design. Theyll be in
this with us for many years, but we stay focused
on our products and let them worry about theirs.

Question 1

Question 2

Define each of the following terms and then briefly


describe the relevance of each to the contents of
the above article.

Briefly outline how the construction of the Boeing


787 differs from that of previous models.

a Outsourcing

4 marks

Question 3

b Globalisation.

4 marks

What is a Dreamlifter? Explain the role that this


converted aeroplane plays in this operations system
of Boeing.
2 marks

170

unit 3 corporate management

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Question 4

Question 6

Outline and describe the increased responsibilities


of a Boeing partner that have occurred as a result
of this new operations system.

Describe the problems that have arisen with the


new operations model. Can these be overcome by
Boeing in your view? Discuss.

2 marks

4 marks

Question 5

Question 7

List and describe the potential advantages offered


to Boeing through the introduction of this new
model of operations.

Identify and discuss two social responsibility issues


that arise as a consequence of the implementation
of this model of operations. Consider:

4 marks

environmental issues
ethical treatment of employees.
5 marks

c h a p ter 7 optimising operations


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

171

Cambridge University Press

Human resource
management

Whats ahead

Role of
HR Manager

Environmental
pressures

HR Manager

Relationship to
business objectives
and strategies

Measuring HR
effectiveness

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Key Knowledge

Students will learn about the factors involved in managing human


resources, including the relationship of the human resource function to
business objectives and strategy.

area of study

the human resource management function

Human resource management is the ongoing management of people within the employeremployee
relationship. It involves the use of people to achieve organisational strategic business objectives,
while also satisfying the individual employee needs. It is commonly referred to as having the right
people in the right place at the right time.

173
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

The importance of human resource


management to business success

human resource
management (Hrm)
the management
of a wide range
of responsibilities
relating to the human
(employees) function
within a business,
in order to increase
both the employees
and organisational
efficiency

Creating effective relationships, either between


an organisation and its customers or management and employees, is a very important aim if
an organisation is to gain a competitive advantage in its business environment. To achieve
this aim in relation to its human resource, the
organisation needs to ensure that its human
resource management (HRM) policies
and practices are firmly linked to its strategic
orientation, objectives, planning and decision
making. The importance of the HRM function
must never be overlooked, as it is responsible
for managing the businesss most valuable asset:
the employee.
To fully appreciate the current role of HRM,
it is worthwhile reflecting upon its development. Until the mid-1970s, the role of looking
after an organisations personnel was seen more
as administrative. It involved keeping accurate
records relating to staffing, such as salary
administration, leave entitlements, superannuation and workers compensation.
Line managers, supervisors or clerical (generalist) staff usually performed the
functions of staff recruitment, selection and

Figure 8.1 Effective relationships between management


and employees is one key to business success.

training. Gradually, specialised personnel were


employed (HR specialists) and the area began
to gain a more professional approach. From the
mid-1990s, HRM has moved towards a strategic
approach. HRM now plays a strategic role and
has senior management representation. Its role
has become more important with the increased
pressure on organisations to globalise their
operations.

Chief Executive
Officer

Marketing

Legal
services

Human
resources

Operations

Finance and
administration

Employment
services

Talent
management

Health, safety &


environment

Remuneration
and benefits

Training and
development

Recruitment and
selection

Figure 8.2

174

Organisational chart showing HRM as a divisional unit, part of a functional structure layout

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Australias largest telecommunications business, Telstra, bases its organisational structure


around its 13 business units, with Human
Resources being one of these. The Human
Resources business unit at Telstra (see www.
telstra.com.au) is responsible for all its human
resources matters, including organisational
design, implementation of people and culture
initiatives, leadership development, talent
management, health, safety and the environment, professional development, and all
employment and remuneration policies.

Human resource management is now recognised as:


assuming equal importance with business
units that provide an income/revenue stream
for the business
receiving equal status to that of other
non-revenue
generating
departments,
such as finance, marketing, legal services,
information technology, and research and
development
assuming a greater role in ensuring the right
people are recruited, inducted, trained,
compensated, motivated and appraised.

The role of a human resource manager


In the current dynamic operating environment, the need for organisations to be flexible,
competitive and customer-oriented has become
evident. It is important that human resource
managers develop a strategic, client-centred,
market-driven approach.
This new direction requires them to integrate the role of managing personnel and
employee relations into a coordinated and strategic approach. They must ensure that human
resources issues are seen as part of the way to
gain a competitive business advantage and be
willing to be measured by bottom-line (profit)
results. Their role requires them to be:
able to translate business strategy into action
by being a member of the business team
able to develop and implement human
resource strategies consistent with overall
corporate strategies
able to assist in creating policies that link
corporate-level strategic planning and operational (day-to-day) planning
involved in the long-term planning of decisions
relating to employees (e.g. forecasting demand
and supply of labour, succession planning)
involved in overall management of the
employment cycle, which relates to the
establishment, maintenance and termination
of the employment relationship

involved in innovative strategies such as


group-based performance appraisal, skill
development, equity in remuneration and
flexible work practices
an advocate of employees in their negotiations with management
involved in designing and implementing
strategies to increase employee motivation,
job satisfaction and productivity
involved in achieving improved customer
service through recruitment, selection,
employee training and development, motivation and rewards
able to act as a change agent in either the
human resources area or other business
areas. Their understanding of the importance
of adopting a change management process
and the necessity of effective communication should assist in overcoming barriers or
resistance to change that may arise
able to achieve organisational effectiveness
through focusing on organisational structure, job design, employee motivation and
employee relations
able to support and educate supervisors,
team leaders or line managers responsible
for implementing human resource policies
and practices.

c h a p ter 8 human resource management


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

business strategy
the long-term plan of
action adopted by an
organisation to achieve
its goals and objectives
change agent
the individual leading
or guiding the process
of change in an
organisational situation

175

Cambridge University Press

Human Resource
Manager

Figure 8.3 The human resource manager can support and educate those in
management and leadership roles within an organisation.

staff manager
a manager who
provides specialist
advice or assistance to
functional managers
functional manager
a manager responsible
for just one
organisational activity,
e.g. finance, human
resource management
line management
management
responsible for and
having direct authority
over subordinates
within their area of
authority

176

Human resource managers are referred to


as staff managers when they offer advice and
make decisions about policies, practices and
procedures. They may also assist employees,
other managers, such as functional managers,
and the organisation as a whole. They do not,
however, have authority to make decisions as to
what work is to be done in other departments
or to manage these departments.
Human resource managers have staff authority to advise, but not to direct other managers.
They hold a line management position within
their own department as they are directly
responsible and accountable for the department
working towards its objectives.
Human resource management, as a functional area of an organisation, must consider its
external and internal environmental influences.
This will assist in determining whether a proactive or reactive strategy needs to be adopted to
achieve the organisations objectives. Table 8.1
(on page 178) outlines a range of environmental
pressures that can impact on human resource
management.
The following are two examples of advertisements for an HR manager.

Special People is a not-for-profit community


services organisation that assists disadvantaged people within our community. We are
seeking a motivated and enthusiastic HR
Executive to join our Human Resources
Department to manage and oversee the
functions of the Human Resources Department
and report to the Executive Manager. Your
duties will include, but not be limited to:
Providing professional advice and guidance
on a range of complex and sensitive HR
related issues, including employee relations,
performance management issues, OH&S
compliance, and recruitment and selection
Developing and maintaining key relationships with senior management
Contributing to the development and effective implementation of HR strategies, policies, reports, projects and procedures.
We are looking for a person who can
demonstrate the following:
Experience in managing a HR team and
function
Significant internal HR consulting experience and business acumen
Excellent interpersonal and communication
skills
Proven ability to problem-solve, evaluate
and analyse issues
Understanding or experience in professional
services, partnership or a multistakeholder
environment will be highly regarded
Leadership of the Human Resources Department and managing of conflicting procedures
Experience in Industrial Relations Law
investigation.
This is a very rewarding role with a good work
life balance, attractive salary and supportive
working environment.
To apply for this role, please send your
rsum to mashton@sp.com.au or call
Melissa Ashton on 61 38625 5888 for
further information.

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

HR Manager Global IT Group


Are you looking for a new and exciting challenge within a global group?
Global IT Group is a printing solutions and hardware company looking for an HR Manager to provide
a range of Human Resource services to attract, retain and motivate employees to support a high
performance culture. This is a fantastic opportunity to grow within an expanding and established
printing solutions and hardware company that services large commercial and government contracts.
Reporting to the Human Resources Group Manager (Australia and New Zealand), your main
responsibilities will include:
Managing the recruitment process at all levels, including developing role descriptions, interviewing,
testing and reference checking
Providing value-adding consulting services to managers on all HR matters, including recruitment,
induction, learning and development, performance management, OH&S, payroll services, compensation and benefits and employee motivation programs
Implementing Induction and Learning & Development programs
Acting as consultant to managers in the performance management process through assisting with
the development of high performers as well as managing poor performers
Providing advocacy/advisory services for employees
Providing general assistance to the Human Resources Group Manager as required.
You will have:
Knowledge of current Human Resource related practices, trends and protocols
Knowledge of Payroll
Knowledge of Compensation and Benefits
35 years experience in HR.
You will receive:
$90K base + super + bonus (c. $9K) = $107K package
The support of a global brand and back office
A great opportunity within a well known and national brand.
This exciting opportunity could open the doors to a challenging yet highly rewarding career path that
will potentially give you exposure to key areas in an ever-growing industry. If this position interests
you, please apply today.
If you have the ability and experience, then please submit your confidential application
online at our website (www.globalitgroup.com.au). If you any further queries regarding
this role, please contact Michael Davis on 03 9666 4433.

Activity 8.1
1 Examine the two job advertisements.
a Identify the strategic areas of responsibility specified in each advertisement.
b Identify the hands-on areas of responsibility specified in each advertisement.
c What personal qualities, competencies and experience must the applicants possess?
2 Collect two other advertisements for human resource management positions from either the
Saturday Age or online sites, such as www.seek.com.au or www.mycareer.com.au and complete
questions 1a to 1c for each of these positions. Make a comparison between the four positions.

c h a p ter 8 human resource management


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

177

Cambridge University Press

table 8.1

178

Environmental pressures impacting on human resource management issues

environment: external

Influence on human resource management

Political

Interventionist or minimalist approach? This impacts on the relationships


established by employers with unions and the level to which an industry is
regulated

Legal

Impacts on laws and regulations relating to work hours, equal employment,


leave entitlements, discrimination, workers compensation, health and
safety, fringe benefits and termination

Environment

Creates new employment areas, such as environmental pollution,


workplace beautification and energy conservation. Entails new job
descriptions, employee orientation, training and development, health and
safety

Technology

Advancement and rapid rate of change has impacted on job design,


recruitment, selection, training, compensation, motivation, occupational
health and safety, and industrial relations. It has created more flexibility in
the working environment

Demographic

Changes in geographic distribution, ethnic origin, age distribution, gender


and education levels

Social/cultural

Changing values and attitudes have led to changes in job titles, language,
our way of life (more open and relaxed), dress code, style of work,
recognition and treatment of minority groups, membership and influence of
unions, social mobility, status, smoking, job security and qualify of life

Competition

Reduction/increase in industry size, takeovers and mergers, customers and


suppliers. All can influence the way businesses acquire, develop, reward,
motivate, maintain and terminate employees

Economic

Downturn in economic activity, level of investment and the change from


public to private ownership can impact on employee numbers

Industrial relations/employee
relations

Level of union membership, employee attitudes, quality of work life. Can


affect job design, absenteeism, staff turnover, industrial disputes and pay
rates

environment: internal

Influence on human resource management

Corporate culture

Importance of values, beliefs, assumptions and symbols to the way an


organisation operates

Organisational structure

Can impact directly on an employees productivity and behaviour. A narrow


span of control (hierarchical) tends to be authoritarian, rigid, formal, highly
specialised and bureaucratic. A wide span of control (flatter structure)
tends to be more flexible, adaptable, informal, less specialised and more
entrepreneurial. Structure influences job design, decision making, work
practices, and skills and abilities of employees

Employees

Greater demand for balance between work and family life. Impacts on need
for workplace flexibility, family-friendly work practices, and use of collective
bargaining agreements

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Activity 8.2
Copy and complete the following table by identifying the environmental pressure or pressures that
have led to the following change in human resource management.

Human resource change

Pressure

Level of environment

Flexible workplace

Employees

Internal

Unions

Operating

Government

Macro

Paid parental leave


Redundancy payments
Equal employment opportunities
Outsourcing and contractors
Multiskilling
Training and development
Smoke-free workplace
Collective bargaining agreements
Job share

Relationship of HR
function to business
objectives and strategies
It is the role of the human resources
department to set objectives that will
fit with the overall business direction
and corporate objectives. To achieve
these objectives, strategies need to
be determined and activities need to
be undertaken. Such activities will
relate to the acquisition, training,
reward and motivation, maintenance, development and termination
of employees.

Mission
statement

Organisational
objectives

External
environmental
pressures

Internal
environmental
pressures

HRM
objectives

HR
outcomes

Figure 8.4 Relationship of


organisational and HR objectives

HR
strategies

HR
activities

c h a p ter 8 human resource management


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

179

Cambridge University Press

table 8.2

Examples of relationship between specific organisational objectives and HRM objectives

and strategies
organisational objective

Hrm objective

Hrm strategies

To reduce overall costs of


operating the business

To reduce overall costs of human


resources

Reducing employee numbers,


improving expense control,
improving productivity, reducing
absenteeism and staff turnover

To provide excellent customer


service

To improve level of customer


service

Recruitment and selection,


employee training and
development, rewards and
motivation

To be judged as a socially
responsible organisation

To adopt a socially responsible


approach to all HR activities

Ensuring legal compliance and


improvements in areas such as
equal opportunity and diversity,
OH&S, minority training and
development programs

To optimise organisational
efficiency

To ensure HR proactively
contributes to the efficiency of the
organisation

Job design, employee motivation,


training and development,
performance management,
flexible work practices, reward
systems and employee relations

Measuring HRM effectiveness


All strategic HRM objectives, strategies and activities undertaken and the ultimate outcomes must
be evaluated against their contribution to achievement of an organisations strategic business objectives. Organisations have found that a good way to
monitor the effectiveness of their human resource
strategies and practices is by using performance
indicators such as employee turnover, absenteeism rates, pay levels, revenue and expenses per
employee, male to female staffing ratios, remuneration costs as a ratio of operating costs and
profitability, and health and safety statistics.
The following considerations should be
applied, however, to the outcomes when judging
their level of effectiveness:
Commitment to what extent did the HRM
policies enhance employee identification
with and attachment to their job and the
organisation? A high level of commitment

180

results in greater loyalty, increased teamwork, reduced labour turnover, increased


employee self-worth and dignity, psychological involvement, and feelings of being
integral to the organisation.
Competence to what extent did the
HRM policies attract, retain, motivate and
develop employees with the abilities, skills,
knowledge and competencies to achieve the
organisations strategic business objectives?
Cost effectiveness how have personnelrelated costs been reduced? Has HRM
assisted in correctly sizing the organisation,
eliminating all unnecessary work, reducing
compensation and benefit costs, reducing
staff turnover and absenteeism, improving employee health and safety, improving
employee productivity, and avoiding or
reducing costs from litigation?

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Congruence has HRM assisted in generating agreement between management and


employees, different employee groups,
organisation and community, employees
and their families?
Adaptability with the assistance of HRM,
is the organisation in a state of readiness
for change? Is innovation welcomed and
encouraged?
Performance has HRM contributed to
employees increased performance and
productivity levels? Is the organisation more
successful and profitable?

Job satisfaction as a result of HRM


actions, do employees now have more positive attitudes and feelings about their work?
Common job satisfiers are pay, promotion
opportunities, fringe benefits, supervision,
co-workers, job conditions, nature of the
work, communication and job security.
Employee motivation are employees
now stimulated to achieve designated goals?
Highly motivated employees work hard,
work long hours and contribute to achieving
the corporate objectives.

Activity 8.3
Performance indicators of HRM
Copy and complete the following table by listing two additional performance indicators (PIs) that
could be used to ascertain whether this objective has been achieved.

objective

Performance indicator

To develop the skill base of employees within the


organisation

1 Number of employees who have gained an


additional work-related qualification
2
3

To ensure that the organisation is an equal


opportunity employer

1 Number of women and other minority groups in


the workplace (diversity)
2
3

To ensure that the organisation is regarded as best


practice in the area of employee health and safety

1 Number of lost days due to injury or accident


compared to industry standard (average)
2
3

To create a harmonious workplace

1 Number of hours/days lost through industrial


disputes
2
3

c h a p ter 8 human resource management


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

181

Cambridge University Press

CHaPTeR suMMaRy

The HRM function must manage the organisations


most costly and valuable asset: its employees.

HRM has progressed from an administrative role


to its current strategic role with representation at
senior management levels.

The role of an HR manager is to translate


business strategy into action. Initially, HRM
objectives must be established. Pressures
from the organisations external and internal
environments influence these objectives.
Strategies are then developed from related HRM
activities created. Performance indicators (PIs)
are used to measure the outcomes to assess how
effectively the objectives have been achieved. In
addition, HR managers are involved in:

strategic planning, relating to forecasting


demand and supply of labour and succession
planning

management of the employment cycle, which


covers the three phases of establishment,

CHaPTeR suMMaRy
quesTions

1 Define the following terms. Demonstrate your

understanding by incorporating each term in a


sentence.
a Line manager
b Objectives
c

Strategies.

2 Identify the main functions of a human resource

manager.
3 Explain why a human resource manager is said

to have staff authority.

182

maintenance and termination

Human resource management (HRM) is the


ongoing management of people within the
employeremployee relationship. It involves
getting the right people in the right place at the
right time.

innovative strategies relating to appraisal,


skill development, remuneration and flexible
work practices

acting as an advocate for employees when


negotiating with management

designing and implementing strategies


to increase employee motivation, job
satisfaction, productivity, employee relations
and customer service

acting as a change agent and providing


support and education for supervisors, team
leaders and line managers responsible for
implementing HR policies and practices.

HR managers are referred to as staff managers,


providing specialist advice or assistance to line
or functional managers.

Effectiveness of HRM outcomes can be


evaluated against the following:

commitment and competence of employees,


level of cost effectiveness, congruence
(harmony), adaptability to change,
performance related to productivity, and level
of job satisfaction and employee motivation.

4 Describe changes that have occurred in the area

of HRM over the past 40 years. Why do you


believe these changes have occurred?
5 Explain why the function of HRM should never

be overlooked.
6 Identify the eight common outcome areas for

determining effectiveness of HRM strategies


and policies.
7 Outline measures used to determine whether

an HR manager has been competent in


their role.

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

administrative expert, employee champion and


change agent? Discuss.

8 Identify management skills that would be

required to perform the role of HR manager.

10 All managers are HR managers. Explain

9 Do you see any potential conflicts for an HR

whether you agree or disagree with this


statement.

manager in their roles as a strategic planner,

question 1
Define the following two terms and provide an
example to demonstrate your understanding.

a To increase the level of employee satisfaction

a Strategic human resource management

b To create a flexible working environment

b Staff manager.

4 marks

To ensure a safe and healthy workplace

d To create a harmonious employee relations

environment.

question 2

4 marks

Identify and explain three skills that a human


resource manager would need in order to play a
strategic role within an organisation.

question 4

6 marks

question 3
For each of the HR objectives outlined below,
provide a performance indicator that could be used

Explain how the objectives set by the human


resource management department, the role of
human resource managers and the strategies and
activities they undertake relate to the achievement
of an organisations strategic (corporate) objectives.
6 marks

c h a p ter 8 human resource management


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

183

Cambridge University Press

exaMinaTion
PRePaRaTion

to measure whether each of the objectives has been


successfully achieved.

Motivation, eMployee
and job satisfaction

Whats ahead

Human
resource
management

Employee
expectations

Employer
expectations

Theories of
motivation

Job satisfaction
and
performance

Motivation

Create:
Reward system
Job design
Flexible work practices
Positive organisational
environment and culture

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

the human resource management function


Key Knowledge

Students will learn the following about employees and the human
resource management function:
employee expectations, including conditions of employment,
occupational health and safety (OH&S), job security and worklife
balance
the key principles of theories of motivation:
Maslow
Herzberg
Locke.

Each individual employee working for an organisation will have different expectations from
their job and different factors that will motivate
them. As every person values things differently,
it must be realised that what one employee may
expect, and will be motivated by to perform

area of study

expectations

well will not necessarily motivate another.


We all have different cultural backgrounds, abilities, experiences, attitudes and learning patterns
and will therefore be motivated by different
rewards. For a reward to be effective, it must be
both attainable and worth attaining.

185
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Employee expectations
It is important for employers to gain an understanding of what employees want from their
workplace. Employees now seem to greatly
value working for a respected and successful
organisation that provides them with the opportunity for personal development and advancement. They want to feel that their work not
only contributes to the corporate bottom line

table 9.1

186

(profit), but can also have a positive impact on


the broader community.
The workplace is now seen as a place that
must have a real meaning, where employees
can gain respect, recognition and fulfilment,
not just an environment where they go to
perform a set of tasks. Occupational health and
safety are important concerns for employees.

Examples of employee/employer expectations

employees expectations

employers expectations

To be paid a fair wage

To achieve the organisational objectives in a


satisfactory manner

To finish work on time

To have employees complete their work to an agreed


standard

To gain satisfaction from the work they do

That the employee has some job satisfaction

To receive positive feedback

That employees act in a professional and loyal


manner

To be given assistance when necessary

That customers are given good customer service

To have time off (leave) for illness, maternity, family


carer responsibilities

That employees arrive on time and leave at the


scheduled time

To be able to negotiate flexible working


arrangements, e.g. hours, job share, part-time,
rostered days off

To have work completed on time

To work within a professional and respectful


environment

That employees do not deliberately sabotage the


business

That no one will interfere or make it difficult for them


to complete their work

Commitment from their employees to the workplace

That they will receive assistance (time allowance and


money) to upgrade their skills

That employees are skilled and willing to be trained


and developed

That they will have the opportunity for promotion

That employees are courteous and respectful

That they will be given the opportunity to develop,


improve themselves and their skills

That employees like what they are doing

To have interesting and challenging work to do

That employees work in a cooperative and productive


manner

That they will work in a safe and healthy work


environment

That employees comply with health and safety


policies and procedures

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Not only do they want the workplace to be


safe from occupational hazards, such as unsafe
or unprotected machinery or chemicals, they
also want to be able to complete their work
unhindered by bullying or harassing workmates
or management.

Activity 9.1
Using table 9.1 as a guide, make a list of your
own work expectations.
1 Compare these expectations with those of
other members of your class. Do they differ? If
so, why?
2 How important is a safe and healthy work
environment to you?

Generational
expectations
Currently, Australian workplaces are made up
of employees from three generational classifications: Baby Boomers (born between 1946
and 1964), Generation X (born between 1965
and 1979) and Generation Y (born between
1980 and 1994). This provides an additional
challenge to employers, as the expectations of
each of these groups are diverse. An effective
manager should be able to meet the different
expectations, while also using the strengths of
each of these employee generations to advance
their business operations.
It would appear that Baby Boomers are less
driven by financial rewards and more by the
stimulation they gain from their jobs. According
to the 2010 Intergenerational Report, by 2050
the proportion of the population over 65 is set
to more than double, with an increasing number
remaining within the workforce.
These findings are important for employers
to consider when developing strategies for Baby
Boomer staff so that they can effectively harness
their considerable skills within the organisation,
while also recognising that these employees no

figure 9.1 People from different generations have different


expectations of employment.

longer wish to hold top managerial positions


and want to work part-time.
Generation Y are very different in their expectations. A survey conducted by Smart Company
in conjunction with Roy Morgan Research and
Dun & Bradstreet found that the vast majority (90
per cent) of employers believe that Generation
Y is more demanding than other generations
when it comes to career advancement (Management Today, April 2008). They are also more
likely to ask for a pay rise and demand better
office amenities, time off for study, training and

chapt e r 9 motivation, employee expectations and job satisfaction


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

187

Cambridge University Press

mentoring. On the positive side, however, they


are tech savvy and have a huge amount of drive
and enthusiasm.
An effective manager understands that the
different characteristics of these two groups
can create a dynamic work environment. For
example, by providing a flexible worklife
plan, both groups desire for flexibility in their
working arrangements is being accommodated.
Generation Y seeks opportunities for personal development and mentoring. By linking
them with a more experienced (wiser) work
colleague as their mentor, they will be able to
work at their desired fast pace, while also receiving valuable guidance and support, and hopefully build their self-esteem. The Baby Boomer
will benefit and be enlivened by the intellectual
and fast-paced actions of the less-experienced
employee. Both employees should gain greater
job satisfaction from this experience.

Conditions of
employment and the
worklife balance
In Australia, Fair Work Australia has provided a
framework that outlines the minimum standards

figure 9.2

that employers must use when negotiating with


employees their conditions of employment. The
National Employment Standards (NES) provide
a safety net for all employees in the national
workplace relations system.
Employees are now placing increasing
demands on employers to provide more flexibility in their work practices to allow time for
their family or other responsibilities. Fair Work
Australia recognises this change in expectation
for working parents responsible for the care of
a child and encourages employers to enter into
arrangements to change the employees hours
of work, pattern of work or even the location
of that work.
Organisations that are working towards
creating worklife balance for their employees
are offering the following family-friendly work
practices: family and parental leave (either paid
or unpaid), child care which may be subsidised
and provided either on-site or off-site, and
school holiday programs. In addition, work
practices applicable to workers of all ages may
take the forms of: offering flexible working
hours, part-time work or job share, and homebased work where employees work some or all
of their hours at home.

Flexible work arrangements allow people to meet family responsibilities.

188

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

When an organisation is introducing flexible work practices, it is important that the


employees are consulted and any proposed
changes discussed, particularly with those staff
directly affected. These new arrangements
should be checked to ensure they comply
with any workplace agreements operating at
the workplace, and that neither occupational
health and safety nor anti-discrimination laws
are being violated.

Introducing flexible work practices brings


benefits to an organisation, such as: reducing or
avoiding unnecessary recruitment costs as staff
turnover will reduce; retaining valued employees who might otherwise leave the organisation;
promoting diversity and fairness throughout
the organisation; positive effects on employee
wellbeing; higher staff morale and increased
productivity of employees, as they are more
focused when at work.

flexible work
practices
work practices that
allow employees to
balance work and
family responsibilities

Activity 9.2
Read the article and answer the questions that follow.

ANZ raises the bar for working mums


by Kate Southam
ANZ Bank has upped the ante as an employer
of choice for women with the introduction of
a child care allowance and superannuation
benefits for its working mothers. The bank will
provide a $4000 child care allowance to women
returning to work from maternity leave. ANZ
will also make superannuation payments on all
paid parental leave taken by staff including
the Federal Governments paid parental leave.
ANZ already provide 12 weeks paid
parental leave at full pay to employees with no
qualifying period. Some employers only offer
paid parental leave to employees who have
been with the company for a set period of time.
For New Zealand staff, ANZ is extending its
parental leave payment from 12 to 14 weeks.
The new provisions were announced by
ANZ CEO Mike Smith at the official launch of
the 2010 Australian Census of Women in Leadership that showed women were still struggling
to land senior jobs. Weve concluded at ANZ
that if we are going to make any sustainable,
long-term progress in gender equity in our
leadership teams this is an area where we
simply have to do more, Smith says.

We have to address the reality of what


happens to women in business when they take
time off to have children, says Smith. We need
to stop penalising mothers.
The Centre for Work Life Policy in New
York found that the long term penalty for
women taking time out from their career has
worsened since the recession 73 per cent of
women trying to return to the workforce after
a voluntary break from their career for child
care or other reasons have trouble finding a
job, he told an audience yesterday.
Those who did return lost 16 per cent
of their earning power and over a quarter
reported a decrease in their management

chapt e r 9 motivation, employee expectations and job satisfaction


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

189

Cambridge University Press

responsibilities. In many situations women


simply cant sustain the increased hours at
work today when also taking on child care and
household responsibilities.
Finally, nearly 70 per cent of the women
surveyed said they wouldnt have left if their
companies had offered worklife balance
options. So where are we really at in Australia?
In January 2011, Australia will introduce its
first ever national paid parental leave scheme.
Funded by the taxpayer and administered by

the federal government, the scheme offers


eligible primary carers 18 weeks paid leave at
approx $560 a week before tax.
People wanting to access the scheme
should register from now really. Find out more
at: www.familyassist.gov.au or phone 136150.
Women can access the Federal scheme as
well as make use of any paid parental leave
scheme offered by their employer.
Source: CareerOne, 6 October 2010

Questions
1 Identify the benefits that the ANZ Bank introduced for its female employees returning to work after
maternity leave.
2 Identify the benefits that are available to all women on maternity leave, provided by both their
employer and the federal government.
3 Describe the benefits that employers gain when adopting flexible work practices.
4 Flexible work practices are an important expectation for workers at different stages in their
working life. Provide examples of different types of work practices that would provide flexibility to
workers of varying ages and stages in their working life, e.g. job share for a parent with a young
child, or part-time work for an older person.
5 Explain how flexible work practices can assist an employee in their level of job satisfaction, while
also increasing their level of productivity.
6 How is technology seen as a way to assist employers when providing flexible work practices to
their employees?

Occupational health and safety


An organisation must provide a safe and healthy
workplace for its employees. The Occupational
Health and Safety Act 2004 (the Act) is the
cornerstone of legislative and administrative
measures to improve occupational health and
safety in Victoria. It outlines the rights and
responsibilities of employers, penalties for noncompliance, Workplace insurance and how to
make a claim, and return to work expectations
and procedures.
It is the expectation that employers will
provide and maintain a safe workplace, which
includes machinery, equipment and systems of
work. Also covered is the safe use, handling,

190

storage and transport of chemicals. Employers


must ensure that safety procedures are in place,
such as fire exits not being blocked, emergency
equipment being serviceable and the worksite
being generally tidy.
Employees should also be provided with
adequate facilities, such as clean toilets, cool
and clean drinking water and hygienic eating
areas. Employees must receive information,
instruction, training and supervision to work
in a safe and healthy manner. In the event of
a workplace injury, employees have the right
to return to work to take up alternative duties
once they have received a WorkSafe Medical
Certificate of Capacity.

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Job security
Employees like to feel assured that they have
gainful employment for as long as they determine. In recent decades, many organisations
have changed the nature of their workforce
composition to reflect a greater proportion
of contractors or casual staff, or have reduced
permanent full-time employment to part-time
status. This has led to job insecurity becoming
a growing concern for many employees. This
change has been confirmed by a University of

Sydney Workplace Research Centre Report 2010,


which states that the past two decades growth in
part-time, contract and casual employment has
far outstripped the traditional full-time job with
paid leave.
Full-time jobs with paid leave now make up
slightly more than 55 per cent of jobs down
from nearly 75 per cent in the early 1990s.
Job security or lack thereof has a huge impact
on the level of motivation demonstrated by
employees as well as their feelings of loyalty and
commitment to the organisation.

Activity 9.3
Read the extract and answer the questions that follow.

Community expectations have changed but has


the workplace?
A major new study into the attitudes of
Australian workplace participants released in
July 2010 has shown that companies that fail
to keep up with community expectations about
key issues like worklife balance and respectful
and inclusive workplaces are at risk of lower
productivity and higher staff turnover.
In particular, the findings revealed a pressing need to build managerial capability around
providing and managing part-time work, and
preventing and responding to inappropriate
workplace behaviour.
With one exception! The study found that
managers with children are consistently rated
as better managers and had more satisfied staff.
It appears its time to challenge the popular
view that managerial positions and care giving
responsibilities dont mix. The findings show
that staff with such responsibilities should not
be overlooked for further promotion, if for no
other reason than their people management
capability.
The research, conducted by Diversity
Council Australia, was in partnership with AMP,

Credit Suisse, IBM Australia, McDonalds,


Stockland and Tabcorp. The findings reveal new
and much needed information on wellbeing,
productivity, diversity and worklife balance
key indicators that are not well measured in
Australia.
DCAs Acting Research Director, Lisa Annese,
said the research cast valuable light on the
organisational changes needed to move companies towards a more productive workplace.
We need strategies to move from policy to
practice, she said. The research findings highlight the fact that management practice at the
employee level on issues like part-time work
has to change significantly. They also indicate
that skills developed by being a parent should
be more highly valued at work. Employers also
need to address inappropriate behaviour, especially in relation to Indigenous Australians,
given the alarming incidence of this.
Source: Diversity Council of Australia

chapt e r 9 motivation, employee expectations and job satisfaction


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

191

Cambridge University Press

Questions
1 Describe what it means to work part-time.
2 Describe what is meant by the term care giving responsibilities.
3 Identify reasons why working in a part-time capacity could make an employee more effective in
their job.
4 Identify benefits an organisation can gain by having a workforce that has employees of different
generations and diverse ethnic backgrounds.

Motivation
motivation
the desire or drive to
work well; process of
ensuring that there is
continuing commitment
to a common set of
goals or a single goal

Motivation for individuals is the drive to


achieve an objective. For an organisation,
motivation needs to be seen as the willingness
or drive to exert high levels of effort to reach
organisational objectives, while also satisfying
individual employees need to achieve.
A managers role is largely seen as getting
things done through other people. For a
manager to gain the greatest work performance
from their subordinates, they must understand

what motivates them. It is the function of human


resource managers (as staff managers) to support
and advise line managers in their endeavours to
achieve this. This is done by ensuring that jobs
are correctly designed, a system of rewards is in
place, appropriate management style is being
used, a positive corporate culture exists, and the
organisation is structured to allow for employees
to work to their optimum level. Understanding
motivation is complex.

Theories of motivation
It is part of a managers role to provide the
right organisational climate to enhance their
subordinates motivation. If a manager can
show subordinates that by working to achieve
organisational objectives they are in fact helping
to achieve their own personal goals, then a very
powerful motivating force has been found.
Being familiar with key motivation theories can
provide insight into human behaviour that is
helpful when attempting to motivate employees
towards increasing performance. Three such
theories are those of Abraham Maslow, Frederick Herzberg and Edwin Locke.
hierarchy of needs
Abraham Maslows
representation of
human needs in the
form of a pyramid or
hierarchy

192

Abraham Maslow
Abraham Maslow developed a five-stage
hierarchy of needs. Maslow (190870) was
a humanistic psychologist who believed that

within all individuals exists a hierarchy of five


needs, which can be arranged based on the
importance of the needs. An employees level
of need in the hierarchy must be substantially
satisfied before moving to the next level, which
is then activated as a motivator. Once that level
of need is satisfied, it is no longer effective in
motivating an employees behaviour. Table 9.2
outlines the five levels in the hierarchy, what
they mean and how they relate to human
resource management practices.
Maslow further separated the five levels of
needs into:
1 Lower-order needs that are likely to be satisfied externally, e.g. physiological (basic) and
safety needs
2 Higher-order needs that are likely to be satisfied internally, e.g. social, self-esteem and
self-actualisation.

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

5.
Selfactualisation
needs
4. Self-esteem needs

3. Social needs

2. Safety needs

1. Physiological needs

table 9.2

figure 9.3 Maslows five-step


hierarchy of needs

Maslows hierarchy of needs and its relationship to human resource management (HRM)

level in hierarchy

What it means

Relevance to HRM

1 Physiological
needs

Basic needs such as food,


water, air, shelter and other
physical requirements

A job
Remuneration (pay)

2 Safety needs

Security and protection from


physical and emotional harm

Job security
Benefits
Safe and healthy work conditions (OH&S, sexual
harassment and bullying policies in place)
Superannuation and insurance
Competent, consistent and fair management

3 Social needs

Affection, affiliation, acceptance


and friendship in peer groups

Friendly work associates


Organised employee activities, e.g. birthday
celebrations, meals, parties, sporting activities

4 Esteem needs

External needs of status,


recognition and attention

Internal needs of self-respect,


autonomy and achievement

5 Self-actualisation

Ultimate need
Personal growth, achieving own
potential, self-fulfilment, and
using own creative talent

Job title and task responsibilities


Good performance management rating
Merit rewards (bonus)
Promotion
Pay linked to status of position
Prestigious workplace facilities

Challenging work allowing for creativity


Participative decision making
Opportunities for personal growth and
advancement

chapt e r 9 motivation, employee expectations and job satisfaction


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

193

Cambridge University Press

Herzbergs twofactor theory of work


motivation
hygiene theory; two
significant and different
classes of factors,
i.e. hygiene and
motivational factors,
affect job satisfaction
extrinsic motivation
external motivators
used, e.g. incentive
payments, flexible work
practices

figure 9.4
money.

Activity 9.4
For a fun exercise, visit www.businessballs.com/
maslow5quicktest.pdf and complete the quick
self-test based on the hierarchy of needs.

Frederick Herzberg
Herzbergs two-factor theory of work motivation is similar to that of Maslows lower- and
higher-order needs. Frederick Herzberg referred
to the lower-level needs as hygiene factors and
the higher-level needs as motivators.

In the long term, most workers are motivated by factors other than

Motivators are higher-order needs that are


linked to job satisfaction and performance.
Examples of motivators or satisfiers, which
are usually intrinsic in nature, are recognition,
responsibility, advancement, achievement, challenging work and the work itself. These factors
relate to job content.
Hygiene factors are lower-level needs that
are often seen as preventing motivation. The
absence of these can result in job dissatisfaction. They are usually extrinsic motivation
and include salary, working conditions,
company policy, administration, personal life,
job security, status, quality of supervision and
relationship with supervisor and peers. These
factors relate to the work environment.
There are a number of similarities between
Maslows and Herzbergs theories. The lowerlevel factors are easily satisfied and attempting
to motivate an employee by adding more of
these factors is only a short-term solution. For
example, an increased salary, while acting as a
reward, does not motivate a person in the long
term. More appropriate motivators are gaining a
more responsible and challenging job.
As job satisfaction and job dissatisfaction
are controlled by different factors, Herzberg

5.
Selfactualisation
needs
4. Self-esteem needs

3. Social
Social needs
needs
3.

2. Safety needs

1. Physiological needs
figure 9.5

194

Higher-level motivating
factors (intrinsic):
Achievement, recognition,
responsibility, challenging work
and the work itself.
Lower-level hygiene
factors (extrinsic):
Salary, working conditions,
company policy, administration,
personal life, job security,
status and quality of supervision.

Comparison of Maslows hierarchy of needs and Herzbergs motivation hygiene theory

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

concluded that job satisfaction was a distinct and


separate entity and not the opposite of job dissatisfaction. In other words, the complete removal
of the job dissatisfaction factors will not cause an
employee to feel satisfied with their job.
To apply Herzbergs theory, a manager needs
to adopt a two-stage process to motivate their
subordinates. Firstly, those factors (hygiene) that
act to dissatisfy the subordinate must be eliminated, and secondly, you need to help them to
find satisfaction. Positive actions to overcome
the hygiene factors (dissatisfiers) could be the
removal of poor and restrictive company policies, ensuring wages are competitive, building
status into a job by providing meaningful work
and ensuring job security. You then need to
create satisfaction by introducing motivating
factors associated with the work; for instance,
providing opportunities for achievement and
recognising those achievements, creating work
that is rewarding and matches the skills and
abilities of the employee, and giving greater
responsibility to team members.

Outcome:
Improved
performance
Goal achievement
Recognition
and reward

Establish goals
using SMART
principles

Undertake task/job
using effort and
persistence. Periodic
feedback is provided.

figure 9.6 The importance of goal setting

Edwin Locke
In the late 1960s, Edwin Locke developed the
goal-setting theory when he began looking
at the importance of goal setting in motivation.
It was noted that the setting of goals leads to
increased effort, task focus and persistence,
all of which lead to improved performance of
both the individual and the organisation. This
approach can be used to motivate an individual
employee or a team.
When establishing the goals, the following
characteristics must be addressed:
The goals being set are specific (S).
The goals and their outcomes are measurable (M).
The goals, while difficult, are achievable/
attainable (A).
The goals are understood and accepted by
employees as relevant (R).
The goals are time-bound (T).

figure 9.7 Goal setting for individuals and the team


can be a motivating force.

This is known as adopting the SMART


principle and its application ensures clarity of
the goal being set. Once the goals are set, it is
imperative that managers provide feedback on
progress towards goals achievement. Regular
feedback provides opportunities for expectation
clarification, adjusting the level of difficulty of
the goal and gaining recognition.

chapt e r 9 motivation, employee expectations and job satisfaction


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

goal-setting theory
a process theory of
motivation that focuses
on the process of setting
and attaining goals
sMaRt principle
outlines that goals/
objectives must be
specific, measurable,
achievable (attainable),
relevant and time-bound

195

Cambridge University Press

The value of goal setting is so well recognised that entire management systems, like
Management by Objectives (MBO), have goalsetting basics incorporated into them.
Application of the goal-setting approach
involves participation between managers and
subordinates at every organisational level. It is
reward
recognition (financial
and non-financial) for
a job well done or to
act as a motivator to
perform a job
casual employees
employed on a shortterm or irregular basis;
do not attract any leave
entitlements
job enlargement
making a job bigger
or more challenging
by combining various
operations at a similar
level (horizontal); acts
to increase motivation
and job satisfaction
job enrichment
making a job more
challenging so workers
are required to use
their full capabilities
and gain personal
growth
job rotation
workers are moved
between different jobs
to increase variety of
work and to create a
flexible workforce
quality circle
a group of workers
who meet regularly
to discuss quality and
production issues; any
proposed changes to
production methods
are then put forward to
management

196

linked to the formalised operations strategy of


Management by Objectives, where each persons
major areas of responsibility are defined in
terms of measurable expected results (objectives). MBO provides a way to focus the efforts
of all members of the organisation to achieving
both personal and organisational goals.

Motivational theories for job satisfaction


and performance
It is the role of human resource management
to ensure that the knowledge gained from the
various motivational theories is turned into
practical applications for the organisation.
Management practices that lead to a more
motivated staff will include recognising individual differences, matching people to jobs, goal
setting, creating an individualised and equitable
reward system, linking rewards to performance,
and realising that money is an important performance incentive.
In addition, broad management skills of
establishing good relations between employees and their manager, clear communication
and strong leadership all assist in achieving
good employee performance. Outlined below
are examples of management practices used
to motivate and provide job satisfaction to
employees.

Implementing a reward
and recognition system
All theorists recognise the importance of financial reward for work effort. The difference
comes with the way money is used as a form of
motivation. If it is accepted that an employees
wage or salary is insufficient to ensure long-term
motivation, then other non-financial methods
need to be considered.
To be effective in managing employees,
a system of rewards needs to be established.
Employees, whether they are full-time, part-time

or casual, all need to be remunerated. Rewards


may be either financial or non-financial. Whatever reward system is put in place, it must be
sufficiently flexible to take account of individual
employee preferences.

The design of a job


When a job is designed, it is important to ensure
that the performance tasks required contain
a degree of variety and challenge for the job
holder. In addition, there should be the possibility of personal development in the role. Additional motivation can be provided by widening
the job scope job enlargement.
Similarly, job enrichment is another way to
increase the challenge of the job. This involves
vertically expanding the job by increasing its
depth of content as well as the degree of control
the job holder has over their work.
Job rotation, while acting to reduce
boredom through encouraging an employee
to do more than one task, does not always act
as a motivator. It does, however, increase the
skills of the employee and create a more flexible workforce. This may make them a more
valuable team member.
Team work can increase job satisfaction, as it
will allow for more challenging and interesting
work, particularly if quality circles are involved.
Quality circles meet regularly to discuss
work-related problems and issues. They are an
excellent method for encouraging participation

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

figure 9.8 Work that does not sufficiently challenge a person can become boring fast!

of all employees to accept responsibility and


challenging tasks.
In addition, the requirement of setting performance targets is linked to using the MBO operational technique. It makes work more interesting,
while providing direct feedback on performance
against previously agreed objectives.
If management is using a participative style
and delegating to employees through their passing
down of authority to perform tasks, then employees should feel empowered due to this greater
control over how the tasks are to be undertaken.
An increase in both job satisfaction and work
performance should result from this approach.

The degree of flexibility


built into work practices
Recognising individual differences, whether it is
based on family, study commitments or age, can
have an impact on the motivation of employees.
Working on the assumption that most employees want to perform well at their place of work,
employers need to be able to build flexibility
into the workplace to cater for the individual
differences.
Creating a work environment that takes into
account the impact of family responsibilities
on employees will lead to a more loyal and
committed employee. In the past, employees
have taken sick leave to either cater for family
responsibilities or to complete ongoing study.

Recognising the employee holistically, and


awarding them credit for wanting to achieve
the best for the organisation, will translate
into greater job satisfaction and better work
performance.
For instance, Westpac Banking Corporation believes that the relationship between the
employer and employee is a partnership, and
recognises the value of achieving a balance
between work life and home life. As a result,
it has developed a range of family-friendly
policies and practices that allow for alternative
work arrangements to meet both short-term and
longer-term family responsibilities while still
meeting its business requirements.
Greater job satisfaction may also come from
creating flexibility through the arrangement of
part-time work and job share. This is relevant to
employees with both family responsibilities and
those nearing retirement.

The organisational
environment and
corporate culture
Modern theorists Robert Wood and Robert
Westwood of the Australian Graduate School
of Management have examined the influence
of personality and the corporate culture, or
work environment, on motivation. Respect,
independence, training and recognition of

chapt e r 9 motivation, employee expectations and job satisfaction


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

corporate culture
the shared values
and beliefs of an
organisation, which can
influence the actions
and decision-making
style of managers and
employees

197

Cambridge University Press

enjoyment at work are some of the keys to a


motivational environment, according to Wood.
Toxic work cultures identified by low levels
of mutual respect, lots of negative feedback and

highly punitive cultures have been found to


kill motivation. Tolerance of errors, which is
core to a culture of learning and development,
is central to a motivational environment.

Activity 9.5
In your role as an HR manager you have been asked by management to remedy the situations set out
in case studies 1 and 2 by answering the following questions.
1 Identify the problem in each case study.
2 Work out several possible solutions to solve the problem.
3 Explain which solution you believe is the best.

Case study 1
Ian has a problem getting out of bed in the
morning and making it to work by 9 a.m. It
has been his practice in the five years that he
has worked at the company to arrive at 9.30
a.m., work back late and often not put in for
overtime for hours worked above his normal
time (38 hours per week). Last week, however,
he missed an important telephone call because
he was not at work by 9 a.m. His manager

was extremely upset and has now insisted


that Ian must get to work by 9 a.m. or look
for another job elsewhere. Ian feels that one
of his freedoms has been taken away from him
and he is being treated like an unskilled and
unresponsive worker. His productivity level
has decreased and you as HR manager have
been asked to help.

Case study 2
Sarah has been working at the company for
eight years and is very competent at her job.
She has worked her way up the company
hierarchy and is now a supervisor. She is
well respected by her colleagues, and is fair
in her treatment of subordinates. Recently, a
management position became available. Sarah
was thought by many to be the obvious choice.
The position was the next more senior position
to hers and no one else was as experienced or
as qualified as herself.
Her interview was excellent and the general
managers secretary said to Sarah that she felt

198

confident that the job was hers. Two weeks


later, Sarah found out that a new graduate had
been appointed to the position. Naturally, she
was very disappointed. Upon confronting the
general manager, she received the response
that the company wanted new blood. Sarah is
so upset and frustrated that she is considering
leaving the company.
She is having serious motivation problems.
The general manager has asked for your help
in handling this matter.

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

work, such as: being paid a fair wage, keeping


regular work hours; gaining job satisfaction
through an interesting, challenging and secure
job; receiving assistance when needed and
positive feedback; leave being available for
personal or family reasons; flexible working
arrangements, working within a professional and
safe environment; and an opportunity for skill

Frederick Herzbergs two-factor theory identifies


higher order (motivating) and lower order
(hygiene) needs. Motivators relate to job
content (e.g. recognition and responsibility) and
are seen as intrinsic in nature. Hygiene factors
relate to the work environment (e.g. working
conditions and salary) and the absence of these
can lead to job dissatisfaction.

Edwin Lockes goal-setting theory states that


the setting of goals leads to increased effort,
tasks focus and persistence. Goals set must be
specific, measurable, achievable, relevant and
time-bound. Employees must receive feedback.
This theory links to the organisational approach
to goal setting by using the Management by
Objectives approach.

It is the role of human resource management to


put motivational theories into practice.

Commonly used motivators are established by


establishing a comprehensive reward system,
designing jobs to allow for enlargement
and enrichment, creation of teams, quality
circles and worker empowerment, flexible
work practices and a positive organisational
environment and corporate culture.

development and promotion.

Employers have expectations from employees,


such as: working towards achieving
organisational objectives; acting professionally
and gaining job satisfaction; work being
completed and on time; providing good
customer service; punctuality; not sabotaging
business activities; being committed, courteous
and respectful; and working cooperatively and
productively.

Motivation for individuals is the drive to achieve


a personal goal.

For an organisation, an individuals motivation


needs to be harnessed to assist them to
achieve personal goals, while working towards
organisational goals.

It is the function of human resource managers


to support and advise line managers on ways to
motivate their staff.

A variety of management theories discuss


approaches to motivation. Abraham Maslows
five-stage hierarchy of needs physiological,
safety, social, self-esteem and self-actualisation

chapt e r 9 motivation, employee expectations and job satisfaction


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

CHApTEr suMMAry

is based on importance of the needs. It


should be recognised that an individual would
progress through the stages. Each stage must
be substantially satisfied before moving to the
next stage, which would act as a motivator. HR
managers need to understand the relationship
between the levels of needs and what HR
activities relate to each level.

Employees have expectations from their

199

Cambridge University Press

CHApTEr suMMAry
QuEsTIOns

1 Define the following terms. Use each term in a

b After 10 minutes, compare your suggestions

sentence to demonstrate your understanding.

with the other groups.

a Motivation

b Worklife balance.

Select the top 10 suggestions based on


originality and effectiveness.

d Identify and discuss the employee needs

2 Describe how motivation impacts on the

they satisfy.

behaviour and performance of an employee.

7 What is the difference between motivators and

3 How would most employees satisfy their:

hygiene factors (Herzberg theory)?

a social needs?

8 Imagine you are an HR manager of a newly

b self-esteem needs?

formed health food chain. Describe how you


plan to motivate your employees to:

4 Identify a job in which you are/were highly

motivated or unmotivated. What characteristics


of the work, the people and/or the organisation
make/made you feel this way?

a work hard
b be punctual to work
c

5 Some people think that using motivation

provide excellent customer service

d work safely

theories in the workplace is employee


manipulation by management. What is your
opinion?

e cooperate with other employees and work as

a team

6 Form into groups of four to six students.

be committed to the business.

a Create a list of ways to motivate employees

ExAMInATIOn
prEpArATIOn

to achieve outstanding performance.

Question 1

Question 2

Identify the correct order of Maslows hierarchy


of needs (i.e. the order in which they are normally
satisfied).

Frederick Herzbergs two-factor theory of work


motivation states that:
a higher-order needs are motivators and usually

a physiological, social, safety, self-esteem, self-

actualisation

intrinsic
b lower-order needs are motivators and usually

b safety, physiological, social, self-esteem, selfc

extrinsic

actualisation

physiological, safety, social, self-actualisation,


self-esteem

d lower-order needs are hygiene and usually

d physiological, safety, social, self-esteem, self-

higher-order needs are hygiene and usually


extrinsic
intrinsic.

actualisation.

1 mark
1 mark

200

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Question 3

Question 5

Edwin Locke is responsible for:

Compare and contrast the ideas of two of the


motivational theorists: Maslow, Herzberg or Locke.

a determining the roles of management (POLC)

3 + 3 = 6 marks

b goal attainment theory


c

Question 6

scientific theory

d human relations theory.

1 mark

Question 4
Job enrichment involves:

Using one of the motivational theorists identified in


question 5, identify and describe three strategies
based on that theory which a human resource
manager could suggest to motivate staff, resulting
in job satisfaction and work performance.

a creating more tasks for an employee to perform

as part of the job


b making the employee richer by paying them

more
c

increasing the challenge of the job

d moving the employee to another department.

4 marks

Question 7
Identify and describe an appropriate management
style that could be used to implement the
strategies proposed in question 6. Justify your
choice.

1 mark

6 marks

chapt e r 9 motivation, employee expectations and job satisfaction


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

201

Cambridge University Press

10

ManageMent of the
eMployMent cycle

Whats ahead

Strategic business
objectives

Human resources
planning

Employment
cycle

Establishment

Maintenance

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Termination

Cambridge University Press

Key Knowledge

Students will learn the following about management practices and


processes associated with the key phases of the employment cycle:
Establishment phase
human resource planning related to business strategy
job analysis and job design
types of recruitment methods and selection processes
employment arrangements and remuneration
Maintenance phase
induction
training and development
recognition and reward
performance management
Termination phase
termination management, including entitlement and transition issues.

The role of human resource management is to


ensure that business strategy is followed when
developing and implementing human resource
process and practices. It involves long-term
(strategic) decisions relating to forecasting

area of study

the human resource management function

demand and supply of labour, succession planning and the overall management of the three
phases of the employment cycle: establishment,
maintenance and termination.

203
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Three phases of the employment cycle


1 Establishment phase
HR planning
Job analysis and
job design
Recruitment
Selection
Employment
arrangements
Remuneration

2 Maintenance phase
Induction
Training and
development
Recognition and
reward
Performance
management

3 Termination phase
Termination
management
Entitlements
Transition issues

figure 10.1 Three phases of the employment cycle

The employment cycle is the process of


anticipating the current and future demand for
workers in an organisation. This requires an

organisation to be prepared for changes in the


labour market.

Establishment phase
The first phase is the establishment phase and it
involves establishing the employment relationship between an organisation and an employee.
For the prospective employee, the advertisement
placed in the media is the commencement of the
relationship. For the organisation, however, the
phase commences prior to that. It is important
that the organisation plans to ensure that the
right person is ultimately selected. To make the
wrong choice could be extremely costly.

Human resource
planning
human resource
planning
planning for future
personnel needs, taking
into account both
internal activities and
factors in the external
environment

204

Human resource planning is the process


undertaken by managers to ensure an adequate
supply of competent and motivated people
are available to perform the duties and tasks
required to meet the organisations objectives.
The employees individual objectives should
not be overlooked in the process.

Human resource planning is particularly


relevant to both the establishment phase and
the termination phase of the employment
cycle. When undertaking planning, awareness
of recent factors or trends is vitally important.
These can arise from both the internal and
external environment of an organisation.
Structural changes in the labour market
growth is occurring in the service sector
(tertiary industries), whereas there is decline
in the manufacturing industries (secondary
industries).
Work patterns are changing there is
now a greater demand or emphasis by both
employers and employees on part-time,
casual, job-share employment arrangements,
increased use of contractors, flexible working
hours and a move away from the traditional
working week (Monday to Friday).
Length of working life is changing
for some people there is later entry into

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

figure 10.2 Many people are now working past the


usual retirement age.

employment due to educational commitments, some are seeking early retirement,


while others are not contemplating retirement, but maybe a reduction in number of
hours worked.
Change in skills and education expectations more people are now seeking tertiary
qualifications and not entering skilled trades,
and apprenticeships are more difficult to
secure.
Labour shortage within the next decade
due to the ageing of Australias working
population in the 10-year period 2010 to
2020, growth in labour supply is expected to
halve.
Increasing demand for worklife balance
and creating a culture of treating employees
as mature, self-motivated individuals.
Generational change awareness of the
differences between the three generations is
important. The eldest and most experienced
are the Baby Boomers affectionately referred

to as grey power, followed by Generation


Xs who are advancing in age and level of
experience, but likely to remain longer
working with one employer. Generation
Y employees are more tech savvy, and
looking for a leadership style that focuses
more on emotional intelligence rather than
command and control.
Change in strategic direction of organisations either by choice or necessity. Many
organisations have chosen a strategy of
downsizing their operations and, unfortunately, some organisations have completely
ceased operation. Human resource management would need to be involved in the
planning decisions relating to restructuring
the organisation, deciding which positions
are redundant, advising employees of
impending retrenchment and arranging for
redundancy packages to be paid.
In addition to the above trends, human
resource management must plan to assist the
organisation to:
meet current employment requirements in
all phases of the employment cycle (establishment, maintenance and termination)
cater for future needs by determining how
many employees will be required and what
specific skills they must have
ensure that the required human resources
will be available to achieve the organisations strategic plan
be in a position to assist the organisation to
respond to external forces, such as the state
of the economy, competition, technological
advances, legislative compliance and any
industrial action.

downsizing
a reduction in a
companys workforce
through elimination
of jobs, generally
made to improve an
organisations profit
redundant
an employee is
redundant when there
is no longer sufficient
work for the worker to
perform
retrenchment
the expression used
to describe what
occurs to an employee
whose employment is
terminated by reason of
his or her job becoming
redundant

By effectively addressing the above considerations, an organisation can be in a position to


forecast those areas where it will have either an
excess or a shortage of personnel. The necessary plans will then need to be made to either
overcome the shortage (recruit) or reduce the
excess (redundancy).

chapt er 1 0 management of the employment cycle


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

205

Cambridge University Press

Activity 10.1
Describe HR planning strategies that
organisations can adopt to help overcome the
following problems.
1 Employees wanting familywork balance
2 Increased need and change in skill levels
3 Labour shortages due to ageing of working
population
4 Need to downsize the organisation due to
adverse economic conditions.

Job analysis and job


design
job
a group of tasks
performed by an
employee
job analysis
systematic process of
gathering information
relating to a job being
performed
job description
a written description
of a jobs title, duties
and responsibilities,
including its location on
the organisational chart
job specification
detailed listing of the
personal skills and
characteristics
required to perform a
particular job
job design
grouping together of
tasks for a particular
job, which should
incorporate variety and
challenge for the job
holder

206

Job analysis is the systematic process of looking


at a particular job to find out exactly what it
entails, and what kind of skills and experience
people should have to do the job. Job analysis
generates the source material for preparing the
following documents:
Job description is a written statement of
tasks performed, how they are done and
why they are done. Typically it describes job
title, job summary, responsibilities, duties
and activities, relationships, where the position fits into the organisation, accountability,
special circumstances and states key performance indicators.
Job specification focuses on the persons
experience, qualifications, skills, abilities,
knowledge, personal qualities, remuneration
and any special requirements of the person.
This could include requirements such as a
current drivers licence, forklift licence or
ability to speak a foreign language.
Regular updating of both job descriptions
and job specifications is essential, as jobs
constantly change due to the introduction of
technology, new procedures or creation of a new
job. Both the job description and specification
are used for recruitment purposes, particularly

when designing job advertisements. They can


also form background material for designing
interview questions, assigning work, appraising
employees, and for general planning purposes
within a work area.
Job design is important to ensure that the
tasks required to be performed as part of an
employees job contain a degree of variety and
challenge for the job holder, while also building
in an opportunity for personal development in
the role. (See chapter 9 for more information
on job design in relation to job satisfaction and
performance.)

Methods used to conduct job


analysis
1 Interviewing the present job holder
while this method can be very time-consuming, it is probably the most widely used
information collection method.
2 Questionnaires the present job holder
completes a detailed questionnaire describing their job. It allows for information on a
large number of jobs to be collected within
a short period of time. The questionnaire
can be written with both closed and open
questions to allow for some additional input
from the job holder.
3 Observation the job holder could be
watched or a video made of them performing their job.
4 Supervisory reports details are provided
by the supervisor of the job holder to give
their perception of what the job entails. It
can act to verify information gained from the
job holder and provide additional information as to expectations of the task.
5 Log books and daily work diaries of activities may be completed by the job holder.
This method is particularly useful for analysing professional or senior management positions where observation and questioning
would not give a true indication of the job.

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Example of a job description


Surrey University Excellence in Education
Position description: Administrative Officer
Faculty: Arts Marketing and International Unit
Reports to: Coordinator of Marketing and Community Relations
Location: Surrey campus
Job level: Level 5 salary range $54 190 to $60 472 p.a. plus 17 per cent superannuation
Position status: Full-time

Job statement
The role is primarily to provide assistance
to the Marketing and Community Relations
Coordinator. The role also includes providing
support for students studying overseas on
exchange or study abroad. It requires close
liaison with the International Relations
Coordinator.

Key results areas and


responsibilities
1 Marketing support
a preparing materials, coordinating room
bookings, invitations and other speakers
b organising and providing information
sessions for outgoing study abroad and
exchange students and welcome sessions
for incoming students
c liaising with departments/schools in the
provision of marketing materials, collection of materials for enrolment sessions
and to facilitate the coordination of material updates
d gathering, preparing and writing updates
of exchange/study abroad guides and
relevant web materials
e proofreading text for other marketing
publications, including international, local
and web publications, maintaining and
updating credit equivalencies information,
based on approved guidelines

f assisting the Marketing and Community Relations Coordinator with various


marketing events, including the School
Liaison Program, Open Day and Change of
Preference Day
g responding to student enquiries and
providing course advice and study counselling to prospective students
h writing reports on the outcomes of marketing and recruitment activities undertaken
contributing to the development of annual
marketing and recruitment plans.
2 Providing support to outgoing exchange
and study abroad students
a developing streamlined procedures for
outgoing study abroad and exchange
students (under the broad direction of
the International Relations Coordinator),
individually meeting with, and providing advice to, students on overseas
study opportunities and administrative
procedures
b liaising with Surrey Abroad and managing
student files, checking students overseas study plans for relevant academic
approval, and organising their enrolment,
arranging course completions for returning students; where applicable, assisting
with other administrative requirements
for outgoing students, reporting on outgoing exchange and study abroad student
statistics for the Faculty.

chapt er 1 0 management of the employment cycle


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

207

Cambridge University Press

Person specification and


requirements
1
2

3
4
5

Appropriate degree or equivalent qualification.


Demonstrated, relevant experience in
student administration, education industry
or marketing support.
Interpersonal skills.
High-level written and verbal communication skills.
Ability to effectively set priorities, plan and
organise ones time.

Activity 10.2
1 Read the job description and specification
above. Annotate which parts of the document
relate to the job description and which parts
comprise the job specification.
2 Comment on why it is important for the job
holder to have the qualifications, specific
knowledge and skills required for this
position. Link your comments to the major
duties outlined in the job description.

Recruitment
recruitment
the process of finding
the best qualified pool
of applicants

Recruitment involves identifying, locating and


attracting a pool of qualified applicants. More
importantly, it needs to attract the right potential candidates to the right openings within an
organisation. From this pool, those who most
closely match the job specification should be
selected for interview.
Recruitment is a two-way process; it involves
information being given by the organisation and
received from the applicant. Effective communication is therefore very important.
The recruitment process begins with:
identifying human resource requirements
determining where the qualified pool
of applicants can be found (recruitment
sources)

208

6
7

Ability to work well within a team.


Ability to think clearly and analyse
information.
8 Ability to understand course requirements.
9 Understanding of the university environment, policy and procedures, including
HECS and HELP and admission policies
preferred.
10 High level of competency in Microsoft
Office.
11 Experience and proficiency in office
procedures.

choosing a specific means of attracting potential employees to the organisation (recruitment methods).

Identifying human resource


requirements
It is the role of human resources to ensure that
the people recruited and ultimately selected
have the unique skills and attributes required by
the organisation to assist in achieving its corporate business objectives. The organisational
strategies and culture also determine whether
the focus is on technical skills and formal
qualifications, or personality, the ability to fit
in and the potential for personal and career
development.

figure 10.3

Recruitment is a two-way process.

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

For example, Kathmandu (an outdoor clothing and equipment business) would be looking
for applicants who are passionate about adventurous outdoor related activities and lifestyles.
In contrast, the telecommunications giant Telstra
would place more emphasis on an applicant
having strong technical skills and qualifications.
An organisation needs to establish a recruitment policy that will provide the framework for
a consistent approach to recruitment throughout
the organisation. It will cover items such as:
formalised recruitment and selection procedures, e.g. use of job description and
job specification to generate advertisement, where to advertise, creating a short
list against established selection criteria,
composition of interview panel and question
types, testing procedures, reference checks,
advising successful and unsuccessful applicants, negotiating terms and conditions of
employment
ensuring legal compliance relating to equal
employment opportunity (EEO) and
antidiscrimination in advertising jobs and
interviewing applicants
positive approach to recruitment of people
with disabilities, minority groups, women,
older workers, Aboriginal and Torres Strait
Islanders
recruitment methods whether there is
a preference to search first for applicants
internally and then use external methods.

Recruitment sources
internal recruitment
The recruitment policies of many large organisations require that vacancies for positions be
advertised internally before entering into the
external recruitment process. This allows individuals within the organisation the opportunity
for career advancement by either transferring or
being promoted.
Position vacancies are published on the
organisations intranet, through use of interoffice
memorandums or direct approach from human
resource personnel. A job description and job
specification are made available to potential applicants for them to judge whether they possess the
necessary knowledge, skills and abilities, formal
qualifications and personal requirements.
Applicants are then requested to submit a
formal letter of application. The submission
of a rsum is not always requested as the
organisation is already familiar with the accomplishments of the employee. Table 10.1 outlines
some of the advantages and disadvantages of
recruiting internally.

external recruitment
A variety of methods can be used to locate and
attract external candidates. Most organisations
would choose a couple of methods to reach the
largest pool of potential applicants. Table 10.2
illustrates the various advantages and disadvantages associated with recruiting externally.

equal employment
opportunity (eeo)
providing people with
a fair and equitable
opportunity to succeed
without any form of
discrimination based
on age, sex, race or
nationality

table 10.1 Advantages and disadvantages of internal recruitment


advantages

Disadvantages

Quicker adjustment to the position; no induction


needed

Employees may be promoted beyond competency


level

Incentive for employees to gain career progression

No new ideas introduced, could stifle creativity and


innovation

Acts as a motivator and morale booster

Infighting and negative impact on morale for


unsuccessful applicants

Organisation knows the applicant, applicant knows


the organisation

Any poor work habits will remain and bureaucracy


encouraged

chapt er 1 0 management of the employment cycle


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

209

Cambridge University Press

table 10.2 Advantages and disadvantages of external recruitment


advantages

Disadvantages

Larger pool of applicants

Attracting/selection of new employee is timeconsuming and more difficult

New insights, skills and abilities brought into the


organisation

Induction takes longer

Costs can be lower, as do not have to fill two


positions

Limits career advancement of existing employees

New approach to work, issues and problems

Greater element of risk, as new employee is an


unknown person
Costly form of recruitment

Recruitment methods
Advertising
Electronic
recruiting

Unsolicited
applications

Graduate
recruitment

Recruitment
methods

Government
Employment
agencies

block advertisements in the front section of the


paper.
Other positions are found in the employment
section, which is categorised by job type, e.g.
education, health, sales. For an advertisement
to be effective, it should contain an attentiongrabbing headline and details that inform the
potential applicant about the position, and any
relevant personal details, such as qualifications,
knowledge, skills and abilities, required to
perform the job. Finally, contact details and the
application closing date need to be included.

electronic recruiting

Previous
applicants and
employee
referrals

Personnel and
management
recruitment
consultants
Outplacement
firms

figure 10.4
Recruitment methods

advertising
Large-scale organisations choose to place advertisements in local, state and national newspapers. For instance, the Saturday Age (Careers
section) is the most popular newspaper for
employment advertisements in Melbourne.
More senior positions are generally placed in

210

This method has seen a rapid rise in popularity.


Not only are employers using the internet to
post position vacancies on their own corporate
websites, they are also using internet recruitment company sites such as www.careerone.
com.au, www.mycareer.com.au and www.seek.
com.au.
As the internet is considerably cheaper,
since online recruiting is not bound by traditional print advertisings line or word costs, the
advertisements tend to be more detailed and
comprehensive. After reading the advertisement,
applicants are requested to submit their letter of
application and rsum online. This allows for
immediate acknowledgement of receipt of the
application. This method of recruitment has also
become very popular for university graduate

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

positions. Students are required to complete a


comprehensive application form rather than the
previous practice of submitting a written rsum
and letter of application.

government employment
agencies
The federal government provides funding
for agencies to act on its behalf in assisting
individuals to find work placement. As part
of eligibility requirements for unemployment
benefits, people are required to be work ready.
The jobs offered by these agencies are mostly
clerical, sales, technical and manual positions.
If an organisation wants employees to fill these
positions, this is a good source of supply.

personnel and management


recruitment consultants
These are privately owned employment agencies
that concentrate on recruiting for administrative,
technical, sales, professional and management
positions. Reputable consultants have strict
codes of ethics, employ qualified staff and use
a systematic approach to recruitment and selection. The consultants act on behalf of the organisation by preparing a job description (if not
already available), creating an ideal candidate
profile, writing the advertisement, screening the
candidates, undertaking reference checks and
finally submitting a short list of candidates to
their client. They charge fees for their professional services ranging from 10 to 20 per cent of
the candidates total remuneration package. In
addition, the client (organisation) pays for any
advertising and other related expenses.
For senior management positions, consultants undertake executive searches or headhunting. This involves the consultancy using their
established professional network to assess who
would best fit the position. An approach is then
made to that person and, if they are interested,
negotiations commence. This is an expensive
exercise with fees ranging between 25 and 40
per cent of the positions total remuneration

package. One advantage is that the recruitment


process is kept confidential without alerting the
industry and professional community of the
vacancy or direction the organisation wishes to
take. Also, the employer of the target person is
not alerted to the possibility of losing a valuable
employee.

outplacement firms
These firms have gained favour with the
ongoing restructuring and downsizing of
organisations over the past two decades. The
outplacement method is used as part of the
redundancy process to assist retrenched people
in finding new employment. It is popular and
cost-effective as no fee is paid by the new
employer, because the employees previous
employer has already paid for this service as
part of the redundancy arrangements.
The following methods may also be used:

outplacement
specialised assistance
given to retrenched
employees to assist
them to find jobs with
other organisations

direct recruitment of graduates from universities or TAFEs


previous unsuccessful applicants
current employee referrals
unsolicited applications
recommendations from professional
associations.

Evaluation of recruiting methods


The evaluation of recruitment processes
provides valuable feedback for controlling
costs, improving recruitment performance and
determining whether strategic business objectives are being achieved. This can be done by
looking at the measures outlined in table 10.3.

Activity 10.3
Access the websites www.careerone.com.au,
www.mycareer.com.au and www.seek.com.au
and research the following questions.
1 What type of job positions are they
advertising?
2 What procedure must an applicant follow to
apply for a position?

chapt er 1 0 management of the employment cycle


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

211

Cambridge University Press

table 10.3

Evaluating recruitment methods

Measure

evaluation

Quality of process and


outcome

How many applicants applied for the vacant position?

Cost of process

What was the total cost, including advertising, agency fees and travel expenses?

Time

How long did it take between recognising the need for the new position and receipt
of the application?

Soft data

Any additional qualitative feedback from the applicant and management on how well
the procedure worked?

How many of the applicants were qualified and suitable for short-listing?

Activity 10.4
Copy and complete the vacant positions analysis chart below and identify which external recruitment
methods you would suggest for the following two positions.
Position 1: A major food producing company requires an Occupational Health, Safety and
Environment (OHS&E) Coordinator to be responsible for implementing a range of safety and
sustainability initiatives for their manufacturing plant at King Island.
Qualifications: Bachelor of Environmental Science, formal qualification in risk and OH&S.
Experience: proven track record in similar position.
Skills/abilities: Initiative, innovation, strong commitment to continuous improvement, excellent
communicator.
Position 2: A Melbourne Municipal Council requires a Bushland Management Officer to maintain the
bushland reserves and other areas of remnant vegetation throughout its diverse municipality.
Qualifications/experience: Degree or diploma in appropriate discipline or equivalent experience.
Skills/abilities: Passionate about bushland, remnant vegetation and community education,
willingness to get your hands dirty, planning, activities and communicate with stakeholders.

Vacant positions analysis chart


Recruiting medium and source
of applicants

ohS&e coordinator

Bushland Management officer

University graduate programs


Professional associations
Competitors
Private employment agencies
Government employment agencies
Unsolicited applications
Employee referrals
Previous applicants
Temporary/replacement staff

212

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Recruiting medium and source


of applicants

ohS&e coordinator

Bushland Management officer

Newspaper advertisements
Internet
Radio/TV
Personal contact

Selection of applications

It is not only polite, but good business practice


to acknowledge any application made by a job
candidate. This can take the form of a telephone
call or a simple letter of acknowledgement.
Some organisations require an application form to be completed. This is a valuable
screening tool, as it seeks information the
organisation sees as important. Care needs to
be taken when preparing application forms
to ensure they do not breach equal employment opportunity provisions. Questions relating to marital status, residency status, ethnic
origin, age (unless minimum requirement
necessary for position, e.g. bar work) should
not be included.

Receipt of applications

Screen and short list

Interviews

Testing

Reference checking

Initial screening

Offer job to best applicant


figure 10.5

Receipt of application

Selection process

Assessment of the suitability of potential applicants is made at the commencement of this


step and ends with an offer of employment to
the candidate deemed best suited to the position. Within the selection process, a range of
methods are used to ensure the best applicant is
found. The actual order of using these selection
devices may differ depending on the particular
organisation.

This step eliminates applicants who do not


possess the skills and expertise required for
the position. By reading through the letters
of application, rsums and application forms
(if required), a short list of applicants to
be interviewed is created. When reviewing
applications there are common areas often
considered: hobbies and interests, accomplishments/results, any gaps in employment history,
stability in employment, related experience to
job advertised, appearance and overall structure
of rsum, career progression, education and
qualifications.
Often a rating system is used: Yes (will get
an interview), No (definitely no interview) and
Maybe (consider again later). If the applicant is

chapt er 1 0 management of the employment cycle


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

selection
process undertaken
by an organisation
to decide whether to
make a job offer to a
candidate
application
the act of applying for
a job or advertised
vacancy; the letter or
communication used
in expressing interest
in a job or advertised
vacancy
application form
basic source
of employment
information covering
qualifications,
experience and other
job-related data

213

Cambridge University Press

Activity 10.5
Read the advertisement and answer the questions that follow.

Careers at Virgin Australia Airlines Group


So youre considering a career in the aviation
industry? Well youve found one of the most
progressive and innovative airlines in the
world.
Virgin Australia Airlines Group prides
itself on recruiting the right people into the
right roles and were always looking for team
members in all specialities to join our team to
help us achieve our goals and play an integral
part in the future of our company and the
Australian aviation industry.
We know from experience that we have
retained a competitive edge as an employer of
choice, because not only do we offer competitive pay and incentive programs, we also offer
a unique culture. Some of what makes our
culture unique is that we challenge how things
are normally done and encourage innovation whilst remaining relevant in our chosen
markets. We deliver a high quality product but
truly recognise value and are exceptionally reliable and unquestionably safe. We want people

who are fanatical with attention to consistency


and detail, principled in dealing with any of our
stakeholders, caring and considerate, passionate and of course, fun and cheeky.
The reality is that being a team member
of the Virgin Australia Group involves hard
work but is very rewarding. The people are
amazing (everyone tells us this), the work
is exciting (its travel after all) and there is a
culture of accepting diversity and innovation.
It is a great place to work and there is obvious
loyalty and engagement of team members in
the organisation.
So if youre someone who likes working in
an energetic, fast-paced, dynamic environment
where your passion for challenging convention and fast-tracking innovations can go into
overdrive, then were probably a good match
and wed love to hear from you.
Source: www.virginaustralia.com.au

Questions
1 Identify the personal qualities that Virgin Australia is looking for in its employees.
2 Describe what you believe is the workplace culture at Virgin Australia.
3 In what ways do you believe Virgin Australia will use the information gained from questions 1 and 2
as part of its selection process?

to be interviewed, they are normally contacted


by telephone and a mutually convenient time
is arranged.

Interviews
The employment interview is the most
commonly used selection technique. The most
common interview style is structured, where a

214

series of questions are asked based on the job


description and specification. Alternatively, an
unstructured interview can be used where the
applicant is encouraged to do most of the talking
with not much direction from the interviewer.
There are certain elements that must be
addressed if a selection interview is to be successful and produce the desired outcome.

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

1 plan for the intervieW


The location must be arranged and the candidate
advised of the time and location. The location
should be private, e.g. conference room, free
of interruptions. Seating arrangements need to
be made to ensure no confronting or intimidating situations are created. The interview panel
must be formed, given all relevant information
on the candidate and the job, i.e. personal
attributes, experience, skills and qualifications
required for the job and any other relevant
organisational details. They should be directed
to look for any gaps in employment history,
vague wording, inflated job title and frequent
job changes. In addition, the panel meets to
formulate a series of questions to put to each
candidate during the interview.

2 opening the intervieW


Greet the candidate with a handshake and gain
rapport with a little small talk. It is important
to set the scene by outlining how the interview
will be conducted.

3 the main parts of the intervieW


a Questioning there are two main types
of questions that can be asked during the
interview:
Open questions usually require more
than a few words in response, giving
the applicant opportunity to answer the
question. Open questions help to reveal
thoughts, needs, feelings and opinions.
They also require the applicant to think
before answering.
Closed questions only require a short, yes
or no answer or require the candidate
to pick X or Y. They require very little
thinking and talking. Closed questions are
used to elicit specific facts or details, e.g.
Do you have a current work visa?
It is important to remember that employers believe that past behaviour is the best
predictor of future behaviour. Questions
that require the interviewee to explain past

experiences and behaviours should be asked,


e.g. Tell me about a time you encountered
a difficult customer and how you dealt
with the situation. Often you need to gain
further details by using follow-up questions.
The candidate should be allowed to talk for
approximately 70 per cent of the time, with
the interviewing panel being active listeners. Watch the body language of both the
candidate and the panel. Non-verbal signs,
such as facial expressions, fidgeting, arm
movements and the like give important clues
as to what people are really thinking.
b Understanding the legal requirements it
is important to be aware of areas of discrimination (race/nationality, marital status, age,
pregnancy, physical features, impairment/
disability, religious belief or activity, lawful
sexual activity, parental status, industrial activity) when questioning and forming opinions
of suitable applicants. This will help to protect
the panel from any accusations of discriminatory or unfair interviewing practices.
c Selling the job and the organisation
explain the key aspects of the job and where
it fits within the organisation. Ask the applicant if they have any questions or need any
more information.

figure 10.6 Listening and observing body language


are important in the interview process.

chapt er 1 0 management of the employment cycle


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

215

Cambridge University Press

4 close the intervieW

Testing

Give a firm handshake and thank the applicant


for coming. Advise them of the next stage in the
process.

Pre-employment testing falls into three basic


categories: psychometric tests, competency tests
and physical (medical) tests.
Psychometric testing provides a scientific
component to recruitment. It must be carried out
by a qualified organisational psychologist, who
has completed training in occupational testing.
It aims to assess the potential of an individual to
perform in a particular job role and covers four
main areas:

5 evaluate the applicants

capabilities
competence to perform
a task
aptitude test
test of special abilities
(e.g. clerical, language,
artistic) that are
required for a specific
job

All panel members need to finalise their notes


immediately after the interview. Assessment
should be made only on the candidates skills,
knowledge and capabilities relative to the job
requirements and you may be asked to explain
your decision and justify your choice. (Hint: do
not dismiss your gut feelings about a person.)

1 Aptitude test, or an ability or intelligence


test designed to measure an applicants
intelligence or IQ based on their ability to
reason with numbers, words and abstract

Activity 10.6
Read the scenario below and answer the questions that follow.

Richard, a front-line manager/supervisor in the


clothing and apparel department of a major
department store, approaches his department
manager, Rachel, for advice on the type of
person required to fill a newly created sales
position in their department. Rachel explains
to Richard that she would ideally want an
Australian, single, white female, aged between
25 and 30 years, as this would be the type of
person that would best fit into the departments
environment.
Rachel adds that the successful applicant
must have at least three years experience in
a sales role. Richard suggests that consideration be given to male applicants. Rachel is
adamant that as the customer expects a female

salesperson, we should adopt the approach of


what the customer wants, the customer gets.
She also adds that she does not want to have
to worry about the girl getting pregnant, so not
to bother interviewing any young girls that are
either married or in an ongoing relationship.
Richard asks about expected presentation
and grooming of the ideal candidate. Rachel
explains that, because the salesperson is the
first point of contact for customers, she needs
to be slim, attractive, preferably blonde-haired
and blue-eyed the typical Australian look!
Richard mentions that his younger sister
fits the picture and is also looking for work.
Rachel states that it is against company policy
to hire family members, so that is not an option.

Questions
1 Underline any phrases that are discriminatory.
2 Explain why you believe they are discriminatory.
3 What advice would you give Richard as to the correct basis on which to make an employment
decision?

216

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

items. This test indicates a persons ability to


think conceptually and solve problems.
2 Personality or temperament questionnaire looks at the behaviour of a person
in the workplace. One popular test is the
Myer Briggs Type Indicator, which classifies
people as being: an extrovert or introvert;
sensing or intuitive; thinking or feeling;
judgemental or perceptive.
3 Motivational questionnaire looks at a
persons drive and initiative.
4 Interest inventory tests for interest in key
areas and work types, e.g. public administration or health areas.
Competency testing is undertaken by
using business games such as a role play or
work simulation exercises. It judges how the
applicant will handle various work situations.
In some areas of employment, a physical
examination or medical examination may be
given by a doctor approved by the organisation
to find out whether the job applicant is physically able to perform the job. It helps to safeguard other employees against any spread of
contagious diseases, ensures that the applicant
is not asked to perform tasks that will aggravate
an existing condition, protects the organisation from WorkCover claims by determining
any existing conditions, and determines the
applicants eligibility for any insurance cover
provided by the organisation.

Background investigation
reference checking
Comprehensive reference checking provides
important opportunities to learn more about
candidates and should be undertaken before
offering the position. Human resource
supervisors can conduct these checks personally by contacting former supervisors and
work colleagues of the applicant or using their
professional network to talk with other individuals who can provide additional insight into
the applicant.

It may also be wise to check academic


qualifications, as there are instances of qualifications having been misstated in rsums. A
police check may also need to be undertaken
if the area of employment relates to providing
services to children, such as teaching or child
care. Social media, such as Facebook, are also
now being used by organisations as part of
background checking of applicants.

figure 10.7 Reference checks help employers learn


more about potential employees.

Advising applicants of outcome


Once all the background checks and testing
have been undertaken and the selection panel
has decided on the most suitable applicant, the
following needs to occur:
The position needs to be officially offered
to the successful job applicant. This may be
done initially by telephone and followed up
by a formal letter of offer. This letter will
contain all the conditions of work, such as
salary, leave entitlements, job title, starting date, location of job and to whom the
person will report.
The remaining unsuccessful short-listed
applicants need to be thanked for their interest and advised of their non-success.
An announcement needs to be made to the
employees of the organisation regarding the
new appointment.

chapt er 1 0 management of the employment cycle


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

217

Cambridge University Press

Activity 10.7
Read the article and answer the questions that follow.

Huge cost of a bad hire


by Jessica Gardner
Choosing the wrong candidate and then
watching that person walk out the door a
few months later is not only frustrating, it is
expensive.
The head of consulting at recruitment
firm Futurestep, Matt Dale, estimates that the
cost of a manager on a $100 000 salary who
leaves, dissatisfied after three months, is about
$60 000. Dale says direct costs such as job
advertisements, reference checking and salary
account for about $35 000.
Indirect expenses such as the human
resource managers time, technology setup,
generating contracts and induction costs firms
about $25 000. Dale says the estimate is conservative and doesnt account for lost revenue if
the person was in a sales or commercial role.
Nor does it include the cost of using a recruitment firm. I believe a bigger figure is accurate
as well, Dale says.

Companies need to better understand the


roles they are offering, including remuneration
and benefits, before they begin the recruiting
journey. Companies dont take the time to
understand and evaluate the job, Dale says. If
you are clear about the core value proposition
at the outset of recruiting, you tend to attract
the right candidates.
Understanding the cost of a bad hire is
important, too. Companies should take some
time to model and analyse both the direct and
indirect costs, Dale advises.
Many organisations only think of the direct
costs associated with employing staff such as
advertising and agency fees, Dale says. What
were saying is you spend much more by
continuing with poor processes.
Source: Business Review Weekly,
2 September 2010

Questions
1 Itemise the costs that can result from a poor recruitment and selection process being undertaken
by an organisation.
2 Identify which areas of cost would be reduced if an organisation were to recruit internally.
3 Discuss the advantages and disadvantages of recruiting from internal and external sources.

employment contract
a formal written
agreement between
an employer and an
employee setting out
the legal obligations of
each party; an informal
or oral agreement may
also be entered into

218

Employment
arrangements
An employer and employee will enter into a
legally binding employment contract. There
is a range of ways these contractual arrangements can commence. One common method is
the signing of the duplicate letter of offer by

the successful candidate and returning it to the


person making the offer.
The employment contract may engage the
employee in the following ways:
Permanent full-time basis the employee
enters into a continuing contract of employment. The number of hours worked (e.g.
38 hours per week) will depend on the

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

conditions of either the award or collective


agreement applicable to the organisation.
The employee will be entitled to receive
a salary or wages, leave entitlements and
superannuation (currently 9 per cent
employer contribution with an increase to
9.25 per cent in 2013 and 9.50 per cent in
2014), as well as accruing long service leave
entitlements.
Permanent part-time basis the employee
enters into a continuing contract; however,
while entitled to all the above employment
conditions, they will work fewer hours than
a full-time employee. All calculations for
pay and entitlements are made on a pro rata
basis.
Casual basis an employee is often
appointed by oral contract (not written) for
short-term, irregular or seasonal work. They
are usually engaged and paid on a daily
or hourly basis and do not have access to
permanent employment benefits such as
sick leave and annual leave, so their wages
usually include compensatory loadings of
between 15 and 20 per cent. Casual employees who are employed regularly may be
entitled to benefits such as superannuation
and long service leave under federal and
state legislation. Protection is now provided
for casual employees who are terminated
after having been employed for longer than
12 months.
Fixed-term basis employees can be
engaged in either a full-time or part-time
capacity for project work or to replace
employees absent on long service or parental leave. They generally accrue entitlements
such as annual and sick leave on a pro rata
basis. As the length of their employment is
finite and contractually stipulated (e.g. one
year or five years), it is not covered by the
termination of employment legislation.
Organisations may choose from one of the
following arrangements relating to the pay and

working conditions under which they employ


their staff:
Award a legally binding document
relevant to a given industry or occupation.
It is determined by Fair Work Australia and
sets the minimum wages and conditions
that must be paid to employees in specified
workplaces. Modern awards build on the
National Employment Standards and cover a
further 10 subject areas, including: minimum
wages, arrangements for when work is
performed, overtime and penalty rates,
allowances, leave and leave loadings, superannuation and procedures for consultation,
dispute resolution and the representation of
employees.
Employee collective agreement (enterprise agreement) a written collective
agreement made between an employer and
the employees, setting out terms and conditions of employment. Once in operation, it
replaces any award that would otherwise
apply. These collective agreements can have
a nominal term of up to four years.
Union collective agreement (enterprise
agreement) a written agreement made
between an employer(s) and a union(s),
which sets out the terms and conditions of
employment. An agreement may cover businesses run by more than one employer.
Prior to approval of any enterprise agreement, it must undergo checking against the
Better Off Overall Test (BOOT) created by the
Fair Work Act 2009. This test compares the
terms of the proposed enterprise agreement
against the relevant modern award to make
sure employees will be better off overall. The
National Employment Standards (NES) came
into operation on 1 January 2010. The purpose
of the NES is to ensure that all employees key
entitlements are protected in law by a strong
safety net of fair minimum conditions. The
NES apply to all employees under the federal
system, regardless of the industry to which they

chapt er 1 0 management of the employment cycle


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

award
an agreement that sets
out minimum terms
and conditions of
employment relating to
an industry

employee collective
agreement
a written collective
agreement made
between an employer
and the employees,
setting out terms
and conditions of
employment
union collective
agreement
a written agreement
made between an
employer(s) and
a union(s) that
sets out the terms
and conditions of
employment; an
agreement may cover
businesses run by more
than one employer

219

Cambridge University Press

table 10.4

compensation
payments and/or
benefits paid to an
employee in exchange
for their labour

National employment standards

Minimum standard

explanation

Maximum weekly
hours of work

Full-time employee 38 hours. May be only required to work a reasonable number


of additional hours.

Request for flexible


working arrangements

Right to request flexible hours until children reach school age, with employers only
able to refuse on reasonable business grounds.

Parental leave and


related entitlements

Parents to have a right to separate periods of 12 months of unpaid leave, up to a


total of 24 months. An employer must consult an employee if they make a decision
that will have significant effect on the status, pay or location of the employees preparental leave position.

Annual leave

All full-time, non-casual employees will be guaranteed four weeks of paid annual
leave each year (part-time employees paid pro rata). Certain shift workers will be
entitled to an additional paid week of annual leave.

Personal/carers leave
and compassionate
leave

All full-time, non-casual employees will be entitled to 10 days of paid personal and
carers leave each year (part-timers pro rata). Employees also entitled to two days
of paid compassionate leave on the death or serious illness of a family member or
a person the employee lives with, plus two days of unpaid personal leave where
required for genuine caring purposes and family emergencies.

Community service
leave

Entitlement to leave for prescribed community service activities (e.g. paid leave for
jury service and reasonable unpaid leave for emergency service duties).

Long service leave

Employees existing entitlements preserved.

Public holidays

Guarantees eight national public holidays, plus prescribed state and local holidays.
Where an employee works on a public holiday, they will be entitled to an appropriate
penalty rate of pay or other compensation (set out in an appropriate award).

Termination of
employment and
redundancy

Employees will be entitled to fair notice of termination, provided in writing, and those
who are made redundant and who are employed in workplaces with 15 or more
employees will be entitled to redundancy pay (maximum of 16 weeks pay).

Fair Work Information


Statement

Employers must provide all new employees with a Fair Work Information Statement
that contains prescribed information about the employees rights and entitlements
at work.
Source: Adapted from the Fair Work Act 2009 (Cth)

belong, their occupation or income level. The


10 standards (entitlements) are summarised in
table 10.4.
Many organisations have adopted collective
enterprise agreements as their chosen form of
employment agreement. By negotiating the
terms and conditions with their employees as a
collective group, this has provided both parties
with beneficial outcomes. For an employer, it
allows them greater control over their individual

220

workplace and the opportunity to link remuneration to productivity improvements. For


employees, it allows them to negotiate more
flexibility in their work arrangements and to be
recognised as worthwhile contributors to that
particular workplace rather than being classified merely by their industry standards. Table
10.5 outlines some criteria that can be used to
measure whether adopting collective enterprise
bargaining was a worthwhile option.

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

table 10.5

Criteria for measuring the success of the collective enterprise bargaining process

Measure

explanation

Productivity levels

Increased productivity is an aim of collective bargaining. Comparison must be made


either to productivity levels prior to the collective bargaining process or against
industry standards.

Profitability

Linked to productivity increases. Comparison must be made to earlier profitreporting periods to judge or measure the success. An increase would show a
positive result.

Level of absenteeism

Measure of job satisfaction/dissatisfaction. Looking for a decrease in level,


i.e. number of days and number of employees taking unexplained sick leave.
Comparison must be made to prior period and industry standards.

Staff turnover

Measure of job satisfaction/dissatisfaction. Looking for a decrease in number


of employees leaving. Comparison must be made to prior period and industry
standards.

Level of conflict,
incidence of forms of
industrial action, e.g.
picket lines, stop-work
meetings, strikes

Indicator of overall harmony in the workplace, whether a successful negotiation


process has occurred and workers feel empowered. Comparative figures indicating
a decrease in the number of picket lines, stop-work meetings, strikes, duration of
strikes and industry record.

Level of worker
satisfaction

attitudinal surveys will provide data. Seeking increased motivation and morale
due to flexibility, worker empowerment and industrial democracy.

Teamwork and
cooperation

One of the aims of collective bargaining is to increase the use of teams and
cooperation within the workplace.

Union membership

Measure of job satisfaction, morale and motivation, and trust in management.


Comparative membership numbers prior to and post-collective bargaining process
and industry standard.

Types of remuneration
Remuneration is the money paid in return for
the work performed by an employee. The remuneration for labour may be as straightforward as
a wage or salary, but may also encompass other
less tangible benefits.
Wages worked out on an hourly basis for
a working week (e.g. 38 hours per week).
Overtime is paid if an employee exceeds
ordinary hours, at a rate of one-and-a-half
times the normal rate. Additional penalty
rates may be paid for Sundays or public
holidays. Employees under this system are
normally paid on a weekly basis.

attitudinal survey
systematic method
of determining what
employees think about
their job, supervision
and the organisation

Salary annual figure usually paid on a


monthly or fortnightly basis. Overtime is not
normally paid to salaried employees. Additional hours worked are often taken off in
lieu.
Salary packages used for more senior
positions, which can include a salary component, performance-based pay (bonus),
superannuation entitlements, company car,
share options and other fringe benefits.
Benefits employees value additional
benefits provided by their employers. These
benefits can be categorised as dependant
care assistance programs, e.g. family care,
paid maternity/paternity leave, adoption

chapt er 1 0 management of the employment cycle


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

221

Cambridge University Press

flexitime
a system that permits
employees to nominate
their start and finish
times within a broad
range of available hours

performance
appraisal
determining how
well employees have
performed their jobs,
providing feedback
to employees and
establishing plans to
improve performance
induction
the process of
introducing new
workers to their place
of work, their job
role, their colleagues,
supervisors,
management and
corporate culture

assistance, alternative work arrangements


(flexitime, telecommuting, job share, school
holiday hours), or benefit plans (additional

superannuation contribution, travel insurance, life insurance, salary continuance,


medical benefits).

Maintenance phase
It is the role of human resource managers to
ensure that an organisation retains productive
and efficient employees who are loyal and highly
committed to their work and the organisation.
It is therefore in the best interests of the
organisation to ensure that employees are
well compensated (remunerated) for the work
they perform and that they receive appropriate
training and development. A newly appointed
employee may receive training as part of the
induction process, whereas an existing employee
may undertake training as an outcome of the
performance appraisal process.

employee to the organisation and the department in which they will work. The length of
the induction period, which often incorporates

Induction
Induction involves all the activities undertaken by the organisation to introduce a new

table 10.6

figure 10.8 An induction program can make a new


employee feel welcome.

Simple induction checklist

Item

yes/no

Prepared work area/work station, e.g. computer, telephone, desk, chair


Arranged for supervisor/manager to welcome new employee and introduce to fellow
employees in their work area and department
Organised for explanation of job procedures, duties and responsibilities
Organised any initial training requirements
Information sourced on organisations expectations as to attendance, personal conduct and
appearance
Arranged orientation tour of facilities
Staff handbook and other induction material ready to be given to new employee
All administrative/pay documentation compiled and ready for employee to complete
Sourced details of organisational chart, organisational communication and responsibility
channels, safety rules, security requirements and other relevant policies
Arranged for a mentor to assist new employee to settle into job

222

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

some form of training, can last from a couple of


hours to several days. Its main purposes are to:
commence the socialisation process, i.e.
sense of feeling of belonging
communicate the organisational values,
beliefs and expectations
provide information about job tasks and
performance expectations
create a favourable impression (public relations) about the organisation.
Using a simple induction checklist (see table
10.6) can ensure that all necessary documentation and arrangements are in place for the new
employee.
A good induction program is important, as
it reduces staff turnover and means the new
employee will become effective and reach
expected performance levels more quickly.
After the initial formal induction program, many
organisations use a mentoring or buddy system
to further assist the new employee to settle into
the job. The mentor or buddy will often be
assigned to assist the new employee in that first
important year as they gradually settle into their
new work environment.

Training and
development
In our fiercely competitive global economy, the
skills and knowledge of employees is a vital
resource to an organisation. Employees need
not only to gain technical skills for their current
working environment, but to have the ability to
be innovative to help the organisation succeed
in the future. Organisations now must concentrate on providing a learning environment for
their employees.
For example, Google excels at analytical
decision making, participative product development, experimentation and innovative practices.
Google proactively encourages its employees to
be innovative and generate ideas. In Australia,
according to a study conducted by an Australian
Industry Group, nearly two-thirds of Australian
companies use training and development to
drive their innovation.
Training is the process of providing an
employee with the knowledge or specific
skills needed to do a job. It can be as simple

training
the process of
providing an employee
with the knowledge of
specific skills needed to
do a job

Activity 10.8
As a valued and very experienced member of
your organisation (your school), you have been
asked to join a project team responsible for
running the orientation or induction day for Year
7 students at your school. This program will be
held in December and you are inducting current
Year 6 students.
1 Your contribution to this team is to create an
induction checklist to be used by the Year 7
Coordinator.
2 The Year 7 Coordinator would also like your
advice as to which year level students you
believe would be best to act as mentors/
buddies to these new students. Justify your
opinion.

figure 10.9 Training should be tailored to meet


the needs of the individual.

chapt er 1 0 management of the employment cycle


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

223

Cambridge University Press

development
process designed
to develop skills
necessary for future
work activities and
responsibilities
training needs
analysis
diagnoses the current
problems and future
challenges that need to
be overcome through
use of a training
program
interpersonal skills
skills used by a
manager when
dealing with people
on a personal basis,
such as being able
to lead, motivate,
communicate, manage
conflict and build team
rapport
competency-based
training
training that focuses on
the ability to perform
specific tasks to a
predetermined standard

as an on-the-job training exercise that involves


a production worker being instructed at the
workplace on how to use a piece of equipment.
Development usually refers to preparing
employees, often at management level, for
longer-term opportunities. It has a more general
focus (not necessarily job-specific) than skills
training. It may be decided that a manager
needs to develop their communication skills or
improve their conceptual and analytical skills to
assist in their role of managing subordinates. It
could also extend to supporting an employee as
they complete a postgraduate university course.
Employers see training as a valuable investment in their human resources assets. Human
resource management should carry out training
needs analysis to diagnose present problems
and future challenges. Three levels of analysis
are used to determine what is required:
Organisational analysis the entire business is analysed to determine where training
activities should be concentrated to best
achieve its strategic objectives. For instance,
if the organisation was to totally change its
computer network and software applications, this could require a large-scale training
program.
Task analysis the individual jobs to
be performed are analysed to determine
whether any skill deficiencies are evident.
Person analysis each employee is
assessed to determine what kind of training is
required. This analysis results in training and
development objectives being established.
Identification of the need may arise when a
new employee joins the organisation. They may
need immediate training in how to use technology and complete work processes.
Performance appraisal of an existing
employee may determine that an individual
needs training in any of the following areas:
basic skills of grammar, maths, safety,
reading, listening and writing
technical, job-specific skills, e.g. computer
software course

224

interpersonal skills, including communication, human relations, leadership, labour


relations
broader-based conceptual skills, e.g. strategic planning, operational planning, organisational design and policy skills, decisionmaking skills.
Training and development may be conducted either at the workplace (on the job) or off
the job in a more formal training environment.
Apprenticeships combine both on- and off-thejob elements, with employees learning from
experienced employees at work and attending
regular classes outside work hours at a TAFE.
Competency-based training has also
become popular, where units of competency
can be individualised by the registered training
organisation to meet the actual needs of that
workplace.
On-the-job training methods include:
coaching, tutoring/mentoring provided by
a supervisor or work colleague
role modelling training imitates the behaviour of a manager/supervisor
apprenticeship learning from an experienced person
participation in planned work activities,
special assignments, committees
job rotation within or between departments
to gain broader experience and familiarisation with the entire organisation.
Off-the-job training methods include:
information presentation style lectures are
held for a large number of attendees with
little opportunity for interaction. Material is
presented in written and visual format.
information processing style specialists
from inside and outside the organisation
are involved in conference and discussion
groups. Greater interaction takes place
and the trainees input is sought. E-training
(online) has also gained popularity with
employees being able to complete coursework both at work and in their own personal
time.

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

simulations games and case studies are


used to model real-life situations.
role plays for example, a manager may be
asked to play roles on both sides (manager
and union official) of an industrial dispute.

Activity 10.9
Visit the Qantas website (www.qantastraining.
com/index.html) and answer the following
questions.
1 Describe what you believe to be the status or
level of commitment that the Qantas Group
has to the training of its employees.

Recognition and rewards


As individuals, we like to be recognised and
gain feedback for acts that we have done. This
can be achieved through having supportive
management and being treated as a worthwhile
employee. Establishing a recognition and
reward program relates directly to motivation of
employees and can be treated as an outcome of
a successful performance appraisal.

2 For an airline pilot, identify what types of onthe-job and off-the-job training Qantas would
provide.
3 For a licensed engineer, identify what types
of on-the-job and off-the-job training Qantas
would provide.
4 For a flight attendant, identify what types of
on-the job and off-the-job training Qantas
would provide.
5 Why would Qantas Group Flight Training
(QGFT) make its training facilities available to
other individuals and airlines?

table 10.7

figure 10.10 Recognising employee achievements is


an important part of the maintenance phase.

Examples of financial and non-financial rewards

financial rewards

non-financial rewards

Wages: based on level of productivity or an


hourly rate

Promotion, opportunities to work on special projects,


opportunities to present ideas to senior management
forums

Salary: payment of an annual sum; usually paid on a


fortnightly or monthly basis

Career development, study leave, extra paid leave

Commission: a proportion of the sales gained; usually


paid in addition to a base salary

Staff recognition awards, praise for job well done,


articles published in staff magazine

Flexible salary packaging: a monetary component


together with fringe benefits customised to meet the
individual needs of the employee (e.g. car, health
insurance, housing loan, car parking)

Expense accounts (not included in salary)

Superannuation: (higher employer contribution) and/


or ability of employee to salary-sacrifice additional
superannuation contributions

Travel, entertainment vouchers, film or sports tickets,


weekends away
continued next page

chapt er 1 0 management of the employment cycle


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

225

Cambridge University Press

financial rewards

non-financial rewards

Performance-related pay: where a bonus for


exceeding targets (sales) or output (production) is
paid

Fringe benefits: personal digital assistant (PDA),


laptop computer

Employee share purchase plans: allow employees


to purchase shares without having to use a stock
broker; payment is often made as a salary deduction
over a period of time

Recognition (formally and informally)

Profit-sharing schemes: where employees share in


the profits of the business

Job title (status of position)

Allowances for travel, accommodation and clothing

Office (larger and better outfitted)

Organisations that use recognition and


rewards programs can base them either on
the achievements of individual employees or a
work group. For example, a reward could be
provided either to an individual or to a group
using a performance-based pay system or an
incentive pay plan. The increased performance
could then be recognised and rewarded in a
monetary form of sales commission, profit
sharing, employees being allocated shares or a
bonus being paid.

Performance
management
performance
management
the system used to
improve organisational,
functional and
individual performance
through linking the
objectives of each; it
assesses all phases of
the employment cycle
dismissal
termination of an
employment contract
due to incompetence or
indiscipline

226

Performance management is vital for organisations to conduct a continuous process of


evaluating how effectively employees are fulfilling their responsibilities and contributing to
the attainment of the organisations objectives.
These individual results will help the relevant
group or business unit to achieve its objectives.
Similarly, the business unit must perform its
functional objectives in line with the organisational objectives and ultimately the overall
mission statement of the organisation.
This overall performance management
approach demonstrates the strategic link and key
elements that must exist between organisational
objectives and an individual employees objectives and performance. Performance appraisal is

seen as the measuring of an individuals performance and is an important component of an


organisations performance management system.
The evaluation or appraisal of the individual
employee does not always have to be formal or
system-based. It can be performed on an informal basis by giving either oral or written feedback on a particular activity or task conducted
by an employee. This immediate evaluation will
either act to affirm and encourage, or to rectify
an undesirable situation before it gets worse.
Formal or systematic appraisal usually occurs
on an annual basis or on the completion of a
major work project or assignment.
Traditionally, performance appraisal is used
to report on past performance of both the
organisation and the individual employee, in
that it:
tells an organisation whether its selection
devices have been effective
gauges whether current training and development programs have been effective
shows where training, development and
motivational programs are required
provides the basis for decisions relating to
remuneration and reward, promotion and
dismissal.
If an organisation wants to increase its
performance, it should also adopt a dynamic
approach that has an emphasis on the growth
and development of the employee and the

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

end of the review period, performance is then


measured against those objectives. Assessment
is made on what the employee has achieved
and accomplishments are rewarded.
This method has the advantage of both manager and employee being aware of expected
objectives and standards. To be entirely effective
as a method, it needs to be adopted throughout
the entire organisation.

setting of new objectives. There are three key


steps in the appraisal process:
1 Identify and establish performance appraisal
objectives.
2 Evaluate or appraise the employees performance through a combination of observation
and analysis.
3 Review performance and provide feedback
to the employee. Strengths must be recognised and rewarded, weaknesses overcome

2 comparative standards

with assistance.

In the comparative standards method of


appraisal, comparison is made between one
employees performance and that of another.
Employees are ranked from poor to excellent
on various criteria relating to interpersonal and
workplace skills. This method may use simple
ranking, alternate ranking, paired comparison or
forced distribution models. It relies on a global
judgement of the employees performance and
does not highlight any specific strengths or
weaknesses.

Four common appraisal methods


1 management by objectives
In Management by Objectives (MBO), the
appraiser (manager) and appraisee (subordinate/employee)

jointly

determine

set

of employee objectives at the beginning of


the review period relating to either their key
areas of responsibility or the tasks required
to be undertaken to perform their job. At the

Management by
objectives (MBo)
involves setting
specific, measurable
objectives with an
employee and then
periodically reviewing
the employees
performance
comparative
standards
a form of performance
appraisal where
one employees
performance is
compared to or
ranked against the
performance of another
employee

Example of a comparative standard appraisal


format
Instructions: The appraisees capabilities or knowledge in the following areas in terms
of their current role requirements are scored by circling the number that matches the area
being evaluated.
Area

Rating
1

Poor

Satisfactory Good

10

Excellent

Commercial judgement
Product/technical knowledge
Time management
Planning, budgeting and forecasting
Reporting and administration
Communication skills
Delegation skills

continued next page

chapt er 1 0 management of the employment cycle


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

227

Cambridge University Press

Area

Rating
1

Poor

Satisfactory Good

10

Excellent

IT/equipment/machinery skills
Meeting deadlines/commitments
Creativity
Problem solving and decision making
Team work and developing others
Energy, determination and work rate
Steadiness under pressure
Leadership and integrity
Adaptability, flexibility and mobility
Personal appearance and image

Activity 10.10
1 From the above appraisal form, identify which
are personal skills (PS) and which relate to
job/task competency (TC).
2 Classify the list of personal skills as to whether
they are:
a interpersonal and communication skills
b technical skills
c conceptual/analytical and decisionmaking skills.
3 What level position(s) do you think this list
relates to: senior management, middle
management, front-line management,
administrative assistant? Justify your answer.

3 absolute standards
absolute standards
a method of
performance
appraisal involving the
independent evaluation
of an employees
performance by their
manager

228

In the absolute standards method of appraisal,


the manager undertakes independent evaluation
of employees. It may take the form of an essay
narrative, which is a simple technique requiring a manager to make honest and informed
statements about the employees performance.
This method can cause problems, as there is
no control over areas chosen for appraisal, it

is time-consuming and difficult to compare


employees due to its subjective nature.

4 critical incidents
The critical incidents method of appraisal involves
the appraiser/manager recording observations or
events of good or poor employee performance.
When an incident occurs, the manager makes a
note and then reports back to the employee at a
later date. It can end up being rather like a black
book approach where only facts are stated and
no broad comments are made.

Performance appraisal
outcomes
A successful appraisal can result in financial and
other rewards; an unsuccessful appraisal may
indicate that the employee needs support.
Remuneration and rewards a merit
reward or pay increase may be linked
to the performance of an individual or a
group. If an employees salary falls within
a salary band (e.g. $80 000$90 000 per

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

annum), a favourable appraisal might mean


the employees salary increases within that
band. Financial rewards can take the form of
payment of a bonus, participation in profit
sharing or being allocated shares under a
share acquisition scheme. Non-financial
rewards can come in the form of opportunities to participate in special projects, formal
or informal recognition for a job well done.
Training and development an appraisal
may indicate that the employee requires
additional training in an area such as workplace safety or in a technical area (e.g. a
computer course). A managers development
may be needed in the areas of interpersonal
skills (including communication, human
resources, leadership) or conceptual skills
(strategic planning, operational planning,
organisational design and policy skills, decision making).

Counselling advice may be needed on


a range of work and personal issues. If
an employees behaviour has been unacceptable, disciplinary counselling may be
recommended.
Job promotion if an employee has
performed to a high level in a position,
promotion to a position of greater responsibility, remuneration and benefits may be
suggested.
Job rotation/transfer if an employees
development would benefit from job enrichment, a recommendation of moving to a new
job area or transfer overseas or interstate
may be put forward.
Termination this is a last resort for unsatisfactory performance. It is essential that
written warnings, counselling and correct
legal termination procedure are conducted.

Outcomes
Remuneration and reward

Training and development

Counselling

Job promotion

Job rotation or transfer

Termination

figure 10.11 Outcomes of


performance appraisal

Termination phase
Termination is the third and final phase of the
employment cycle. It results from decisions
made by either the employer or the employee

to end the employment contract and relationship. The relationship may be terminated either
by voluntary or involuntary methods.

chapt er 1 0 management of the employment cycle


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

229

Cambridge University Press

resignation
voluntary termination
that occurs when an
employee leaves the
workplace, usually to
go to another job
retirement
voluntary termination
where an employee
decides to leave the
paid workforce
retrenchment
the expression used
to describe what
occurs to an employee
whose employment is
terminated by reason of
his or her job becoming
redundant

Voluntary termination
methods

Involuntary termination
methods

Resignation occurs when an employee voluntarily decides to leave an organisation, generally to take up another position. A period of
notice is given by the departing employee to the
employer. This period, if not stated in either an
award or collective agreement, normally reflects
the length of a pay period (e.g. two weeks or a
month). An exit interview is recommended, as it
helps to highlight if there are any organisational
problems causing the resignation that need to
be rectified.
Retirement occurs when an employee
decides to leave the paid workforce. It is not
only associated with older employees, it can
also be young employees who have decided
they no longer wish or need to work.
The impact of employees voluntarily leaving
an organisation can be felt in the following ways:

Retrenchment is usually linked with redundancy. Redundancy is termination of employment by an employer because it does not need
a particular job done by anyone or needs fewer
people to do a particular type of job. Redundancies commonly arise when:

an employer is closing part or all of its


business
an internal organisational restructure occurs
new technology is introduced
a business is relocating
the duties of a position are reallocated to
other employees
the business merges with or is acquired by
another business.
To be retrenched is the expression used
to describe what occurs to an employee when
their job becomes redundant. In these circumstances, employees are entitled to severance or
redundancy payments as their dismissal is based
on commercial and economic conditions. Legislative provisions set out the payment amounts
and periods of notice required.
Employees may also be entitled to additional
payments if these have been negotiated as part of
their collective agreement. If an employee is over
45 years of age and has completed at least two
years continuous service with an employer, they
may increase the period of notice by one week.

loss of talent
cost of replacement
decline in morale
breakdown of effective teams
productivity could increase or decrease
(depending on effectiveness of departing
employee).

Termination

Voluntary

Resignation

Involuntary

Retirement

Retrenchment

Dismissal

figure 10.12 Termination: voluntary and involuntary


230

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

must ensure that it has conducted appropriate


counselling and disciplinary procedures before
a dismissal takes place. An employer is required
to provide an employee with written notice of
termination and to provide the reason for such
termination. The period of notice is based on
the number of years of continuous employment
by the employee.
For example, an employee who has only
worked at the organisation for a year is required
to be given one weeks notice of termination. A
long-serving employee (more than five years)
is required to be given at least four weeks
notice. This period of notice is waived in the
case of summary dismissal (e.g. in the event of
an employee committing a criminal offence),
where no notice is required.
figure 10.13 Increased workload for remaining staff is
a negative effect of involuntary employee departure.

For example, an employee who has worked


at an organisation for between one and two
years is required to receive two weeks notice
and four weeks severance pay. The period of
notice and the severance pay required increase
according to the employees length of service.
An employee with nine years service will be
required to be given at least four weeks notice,
accompanied by 16 weeks severance pay.
The impact of employees involuntarily
leaving an organisation can have both positive
and negative effects on an organisation, as
outlined in table 10.8.
Dismissal is often referred to as being fired,
given the sack or the flick. The main reasons
for dismissal are unsatisfactory work performance and/or illegal behaviour. An organisation

figure 10.4

If only it were so easy!

table 10.8

Positive and negative effects on an organisation from involuntary employee departure

positive

negative

Cutting of non-productive employees

Loss of talent

Reduction in costs, e.g. wages and overheads

Decline in morale

Change in organisations structure

Breakdown of effective teams


Increased pressure on performance of remaining staff

chapt er 1 0 management of the employment cycle


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

231

Cambridge University Press

fair Work australia


(fWa)
one-stop shop for
information, advice
and assistance on
workplace issues

An employee working for a large-scale


organisation can apply to Fair Work Australia
(FWA) if they believe their employment was
terminated for harsh, unjust or unreasonable
reasons. When considering the case, Fair Work
Australia must take into account:
whether there was a valid reason for the
dismissal related to the employees capacity
or conduct (including its effect on the safety
and welfare of other employees)
whether the employee was notified of the
reason and given an opportunity to respond
any unreasonable refusal by the employer
to allow the employee to have a support
person present to assist at any discussions
relating to dismissal

if the dismissal related to unsatisfactory


performance by the employee, whether the
employee had been warned about that unsatisfactory performance before the dismissal
any other factors FWA considers relevant.
Employees who believe their employment
has been unlawfully terminated can make an
application to FWA on one or more of the
above-listed grounds. The FWA must first try
to conciliate the matter to help both sides to
resolve the matter by mutual agreement. If a
resolution cannot be reached, a hearing will be
held. Should it be found that the dismissal was
unfair, FWA can order the employer to reinstate
the employee (i.e. give them back their job) or
compensate them for up to 26 weeks pay (up
to a maximum amount of $56 900).

Activity 10.11
Read the case study and complete the task that follows.

Case study: Unlawful termination


Workers lose when web life clashed with their work life
by Ben Schneiders
When barman Antony Dekort took two days
off sick around New Years Eve he would
not have expected to be sacked. But after
his employer saw a photo on Facebook of
Mr Dekort celebrating the New Year he was
promptly dismissed.
Not even a doctors certificate which
Mr Dekort obtained a few days later could
save him from losing his job at Johns River
Tavern, south of Port Macquarie in New
South Wales.
Mr Dekort went to Fair Work Australia to
appeal against his dismissal, but the tribunal
found he had failed in the face of clear
evidence to put any case to meet the claim of
misleading conduct or to explain the inconsistency of his actions.

232

A year ago in Western Australia, a 15-yearold school girl was fired after comments she
made on Facebook.
It was claimed she had written to a possible
competitor of her employer, despite being told
not to. In a peculiar twist, her employer then
fired her via Facebook.
The sacking was upheld after the girl,
who cannot be named, took too long to file a
complaint.
According to an analysis by The Age,
there have been at least five cases in Fair
Work Australia where employees have been
sacked after something they wrote or did was
recorded on Facebook.
There are likely to be many more that went
unchallenged and never reached the tribunal.

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

In a recent judgment, Fair Work Australia Commissioner Michelle Bissett said


complaints by workers about their employers
on social networking sites were becoming
more common. She warned employees that
comments on Facebook were not a private
matter, rather a public comment.
A Facebook posting, while initially
undertaken outside working hours, does not
stop once work recommences it would be
foolish of employees to think they may say as
they wish on their Facebook page with total
immunity from any consequences.
In that decision, Commissioner Bissett
ruled in favour of employee Sally-Anne
Fitzgerald after she was fired earlier this year
by Melbourne hairdresser Escape Hair Design.
Ms Fitzgeralds post read: Xmas bonus along
side a job warning, followed by no holiday
pay!!! Whoooooo! The Hairdressing Industry
rocks man!! AWSOME!!!
In another case, involving Capones Pizzeria
in Kyneton, an employee was sacked after he
wrote on his Facebook profile update that he

was pissed off after his girlfriend was asked


to come into work.
His employer rang him that night and asked
if the comment was directed at him. No, it is at
everything in general, he replied.
The employer said: Well, I believe that it
was directed at me. The employer then sacked
the employee and his girlfriend. As of now,
yourself and Emily are no longer working for
me. The case was referred to conciliation.
Freehills lawyers Kate Jenkins and Andrew
Pollock have advised employers that the use of
social media was changing concepts of what
was off duty time for their staff. Negative
comments on Web 2.0 sites [such as Facebook]
or photos of employees displaying questionable conduct outside of work hours may give
rise to misconduct issues, they wrote.
The lawyers said use of social networking
sites could hurt productivity and there were
also risks to employers that it could lead to
bullying, breach of intellectual property rights,
vicarious liability for defamation and damage
to a firms reputation.
Source: The Age, 2 November 2010

Task
Evaluate whether you believe that the directive given by Fair Work Australia about the use of Facebook
is just and reasonable for it to be used as the basis for considering the dismissal of an employee.

Termination management
Human resource management must ensure that
all phases of the employment cycle are conducted in an ethical manner. Correct management of the termination phase (exit process) is
extremely important to ensure that the organisation is not only legally compliant in all its
actions, but is also acting in an ethical manner.
There are two areas where organisations can
further demonstrate their high level of ethical
behaviour towards their employees: firstly, the
provision of outplacement services to retrenched

employees, and secondly, assisting employees


in their transition from the paid workforce.

Outplacement services
These are services provided to assist employees
who have been retrenched to gain new work
and to cope with one of the top five most
stressful events that can occur in a persons
life. Edwin Trevor-Roberts stated in an article
(Outplacement Myths in Management Today,
January/February 2008) that more than 60 per
cent of large-scale organisations in Australia now

chapt er 1 0 management of the employment cycle


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

233

Cambridge University Press

provide the services of outplacement consultants to assist employees make the transition.
Initially, the work involves counselling to
counteract the negative feelings associated
with the retrenchment. It then progresses to
skill development in how to look for employment opportunities. The individual employee is
assessed on what assistance they require; some
may need assistance with rsum writing and
interview techniques, while others may only
need office space and a telephone to assist
them in setting up interviews. The costs associated with this service are borne by the (former)
employer and in some ways can be seen as
rewarding the employee for loyal service.

234

Providing this support also sends a strong


message to remaining staff that the organisation
does care about its people.

Transition services
This service is provided to employees who are
retiring and need assistance to organise their
finances (superannuation, pension entitlements
and investments), lifestyle planning and volunteering activities. Having devoted a great part
of their life to paid employment, employees
often find it hard to completely cut themselves
off from the business world. Some organisations establish ex-employees (generally retired)
groups to keep the network going.

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

The role of HRM is to ensure that business


strategy is followed when implementing human
resource strategies.

The maintenance phase involves induction,


training and development, recognition and
rewards, and performance management.

There are three phases of the employment


cycle: establishment, maintenance and
termination.

The termination phase covers the various forms


of termination (voluntary and involuntary),
entitlements, outplacement and transition.

The establishment phase involves establishing


the employment relationship. It covers areas
such as human resource planning, job analysis,
recruitment and selection, employment
arrangements and remuneration.

Each particular phase has its important


components, all of which are essential in
ensuring good performance from the human
resource management function.

1 Define the following terms, then use each in a


a Fringe benefits
b Development
c

should undertake when interviewing and


selecting job applicants.

e Induction

8 A variety of tests can be undertaken by

Resignation

applicants. What are they? Why are they used?


Explain why it is important for an organisation to
comprehensively induct new employees.

g Retrenchment
h Unfair dismissal
i

Outplacement services

Outsourcing

recruitment differ. Identify two advantages and


two disadvantages of both internal and external
recruitment.
7 Outline the process a human resource manager

Collective agreement

d Remuneration package
f

6 Explain how internal recruitment and external

9 Distinguish between training and development

in the maintenance phase.


10 Identify and describe the key elements of a

k Headhunting.
2 Identify two internal and two external factors

that can impact on human resource planning.


3 Describe the process a human resource

manager needs to undertake to prepare a job


description and job specification.
4 Outline the key elements of a job description.
5 Describe how a job description and job

specification help with:

recognition and reward program.


11 Identify and describe three key features of an

effective performance management system.


12 Describe four common appraisal processes.
13 Describe the six outcomes of performance

appraisal.
14 Outline the impacts voluntary and involuntary

termination have on an organisation.

a the recruitment process


b allocation of work
c performance management/appraisal.

chapt er 1 0 management of the employment cycle


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

235

Cambridge University Press

CHAPTER SuMMARy
QuESTIOnS

sentence to demonstrate your understanding.

CHAPTER SuMMARy

ExAMInATIOn
PREPARATIOn

Read the extract and answer the questions that follow.

Premium News Limited


Premium News Limited was created out of the
merger of two media companies, First Class
Newspapers and WebNews Limited. With a
combined workforce of 420 employees, the
merged media company is now intending to float
on the Australian Securities Exchange.
Premium News Limited feels that combining
the operation of print media and online media is a
key to its ongoing success, and is setting an objective of increasing revenue by 10 per cent in 2012.
Currently, First Class Newspapers commands
50 per cent of the local print media market. By
combining with WebNews Limited, an up-andcoming web-based media company, Premium
News Limited believes it will have the local

domestic market covered and is keen to grow its


market overseas, initially to New Zealand and then
into South East Asia.
The expansion strategy will be based on innovative ideas gained from customer (both print and
online) feedback. Premium News Limited foresees
that to be up to date and responsive to the everchanging face of news delivery, it will need to
employ a large number of staff who are proficient
in the area of online media.
Industry observers credit the business with the
ability to hire smart people and be innovative in
its business practices to recognise the change in
strategic direction of the business.

Question 1

Question 3

Describe the selection process that should be


undertaken by the Premium News Limited human
resource managers to ensure they select the best
applicants for these online media positions at their
company.

Premium News Limited is at the point of needing


to enter into a collective bargaining process with
its staff to negotiate an enterprise agreement.
What management style would you recommend
is adopted by Premium News Limited when
conducting this process? Justify your answer.

5 marks

2 marks

Question 2
Outline the induction process that you would
recommend for the newly appointed media
positions.
2 marks

Question 4
Collective bargaining encourages employers,
employees and their unions to negotiate their own
workplace agreements. Identify two criteria that
could be used by an organisation to measure the
success of its enterprise bargaining process.
2 marks

236

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Question 5

Question 8

Discuss two reasons why you would recommend


an organisation consider changing from its current
award-based pay system to adopt a collective
enterprise agreement. This discussion should take
into account the interests of both the organisation
and the employees.

Distinguish between on-the-job training and offthe-job training. Recommend a variety of training
methods that would be suitable for the new media
positions.

2 marks

Question 6
Identify two reasons why a performance
management system would be needed by Premium
News Limited.

3 marks

Question 9
Analyse the relationship that job analysis has with
other elements of the employment cycle, such as
recruitment, selection, training and performance
appraisal.
4 marks

2 marks

Question 7
Describe two methods of performance appraisal
that could be used by Premium News Limited.
State which method of performance appraisal
you believe would be most effective. Justify your
recommendation.
3 marks

chapt er 1 0 management of the employment cycle


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

237

Cambridge University Press

11

EmployEE
rElations

Whats ahead

Business
objectives and
strategy
Centralised
approach

Decentralised
approach

Employee
relations
Awards, collective
agreements and
individual contracts

Role of
human resource
managers
Management
styles and
skills

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Key Knowledge

Students will learn about the following management practices and


processes associated with employee relations:
the relationship to business objectives and business strategy
the similarities and differences between centralised and decentralised
approaches
industry-wide awards, collective agreements within an individual
organisation and individual contracts
the role of human resource managers in employee relations, under a
decentralised approach
management styles and skills in employee relations, including their
application to the resolution of conflict.

area of study

the human resource management function

The overseeing of employee relations is a key responsibility of a human resources department.


Human resource specialists are in charge of overseeing and implementing organisational employee
relations policy. In Australia, state and federal governments regulate the Australian system of
employee relations.

239
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Relationship of employee relations to


business objectives and strategies
employee relations
the relationship
between employees (or
their representatives)
and employers (or
their representatives),
encompassing all
aspects of their
working lives, including
wages and conditions
of employment based
on optimum working
relationships
dispute
a form of industrial
disagreement between
employees and
employers
deregulated labour
market
where aspects of the
employeeemployer
relationship are not
subject to government
control and regulation

The aim of employee relations is to achieve


an optimum working relationship between the
employees of an organisation and management.
This in turn will create optimum worker and
organisational productivity, resulting in greater
organisational competitiveness. The state of
employee relations within an organisation is
therefore crucial to its chances of survival in an
increasingly competitive world economy.
Since the 1980s, the Australian system of
workplace relations has undergone significant
change as governments have sought to inject
more flexibility into the system of determining
and regulating the wages and conditions of
Australian employees. This has occurred in an
effort to increase the competitiveness of Australian industry. As a consequence of significant
reform over the past 25 years, Australian workplaces now rely far less on legalistic, third-party

intervention when establishing the wages and


conditions for their workers and during the
resolution of industrial disputes. New laws
have resulted in a more deregulated labour
market, where employers and their employees
may determine wages and conditions at each
workplace via collective bargaining. Dispute
resolution now usually occurs via direct
negotiation.
The following terms are all commonly used
to describe the relationship between employees
and employers:

Figure 11.1 Traditionally, employees and employers


have tended to argue over the division of the spoils of
profits. Each saw the other as an adversary.

Figure 11.2 The new workplace relations employees


and employers working together as a team to make the
organisation more competitive and profitable.

workplace relations
employee relations
industrial relations.
Each of these terms is used to describe the
total relationship and interplay taking place
between employers and their employees in
regard to all aspects of the working relationship,

industrial relations
the relationship
between employees (or
their representatives)
and employers (or
their representatives),
encompassing all
aspects of their
working lives, including
wages and conditions
of employment

240

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

either directly or via the use of an intermediary,


such as a trade union or employer association.
Good employee relations will enhance workplace productivity through the development of
motivated, effective and highly skilled employees. The aim of the HR manager who deals in
employee relations should be to promote the
concept of the organisational team, with all
organisational members working together and
reaping the benefits of a profitable and competitive organisation, readily adaptable to change.
Employers and their employees can have
different viewpoints on how the profits generated by their productive efforts should be shared
or distributed. Employers wishing to promote

business growth seek capital reinvestment in


the business and payment of dividends to shareholders, while employees tend to seek better
pay and working conditions. It is really about
how the pie is to be divided up. Government
taxes on wages and profits further influence the
distribution of wealth.
The traditional adversarial approach to
employee relations was centred on employer
employee conflict. This is being replaced by
an approach that emphasises organisational
teamwork, with employees and their employers working together cooperatively and both
reaping the benefits of a more competitive and
profitable organisation as a result.

adversarial approach
a process that supports
conflicting positions
held by individuals or
groups, often requiring
conflict resolution, with
the outcome satisfying
the interests of only
one of the parties

Participants in Australian employee


relations
To gain an understanding of employee relations, it is important to be aware of the current
key participants (stakeholders) and the roles
they play.

Employees and trade


unions
A trade union is a group of employees, usually
from the same or a similar industry, combining
to protect their interests in all matters relating
to their employment. The Australian trade
union movement had its beginnings in the
late nineteenth century and arose as a result

of the poor working conditions experienced


by many employees at this time. By mobilising
and uniting groups of employees, trade unions
have since achieved significant improvements
in wages and working conditions for Australian
workers, such as annual leave, pensions, superannuation, maternity leave and parental leave.
Employees, if they choose to join a union,
pay an annual subscription fee. The union then:
represents workers, negotiates and bargains
on their behalf during the collective bargaining process
argues the employees case during hearings
that determine awards

trade union
an organisation formed
to represent and
protect the rights of
workers in a particular
industry

Employee
relations

Employees and
trade unions
Figure 11.3

Employers and
employer
associations

Government

Fair Work
Australia
institutions

Participants (stakeholders) in Australian employee relations

c h a p ter 1 1 employee relations


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

241

Cambridge University Press

shop steward
locally elected union
official; an employee
at a workplace is
elected by local union
members to represent
them; they act as the
first point of contact for
an employee with their
trade union
union executive/
official
officials elected by
union members to
run the organisation
(union) on a day-today basis; they act to
represent members
in negotiations with
employers

provides support and advice to local union


shop stewards and workers at the workplace level
provides assistance and support to individual
workers
offers services and facilities to members,
such as credit unions and health insurance
provides information to members on matters
relevant to their workplace situation
acts as official spokesperson to the media on
behalf of its members.

For workers in Victoria there are two key


union organisations:
The Australian Council of Trade Unions
(ACTU) is the national peak body of the
Australian union movement. Much like a
parliament of trade unions, it was formed in
1927. The ACTU elects its own executive, who
represents the trade union movement in the
media and during negotiations at a national
level. The ACTU represents the union movement in dealings with governments and at
industrial relations commission hearings.

Members of a union at a worksite elect a


shop steward/union representative from among
themselves. The representative liaises with both
management and the union executive in regard
to industrial issues. An individual employee
with a question or point to make will approach
the local shop steward first, who may choose to
take the matter up directly with management,
or go straight to the union executive, who may
take the issue further on the workers behalf.
Unions are run on a day-to-day basis by
union executives, who are full-time elected
union officials. The entire membership of the
union elects the executive to represent them at
either a national or state level.

Figure 11.4 Victorian Trades Hall Council

Australian Council
of Trade Unions
(elected executives)

Victorian Trades
Hall Council
(elected executives)

Trade unions

Trade unions

Trade unions

Trade unions

(elected executives)

(elected executives)

(elected executives)

(elected executives)

Local branch

Figure 11.5

242

Local branch

Local branch

Local branch

Structure of the Australian union movement

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

The Victorian Trades Hall Council (VTHC) is


responsible for implementing ACTU policy
within Victoria. Each union elects representatives to attend monthly VTHC meetings.
The elected administrative body of VTHC is
known as the Executive Council.

Over recent years there has been a decline in


Australian trade union membership. In August
2009, the number of employees who were trade
union members in relation to their main job was
only 1.8 million, or 20 per cent.

Activity 11.1
Using the internet, research a particular Australian trade union. Prepare a report covering the
following elements.
1 Brief history
2 Number of members and occupations covered
3 Current campaigns being undertaken
4 Names of some of the officials of this union
5 Cost of membership, who is eligible to join
6 Benefits of membership.
(Hint: Start with the ACTU and VTHC websites. Both offer links to the sites of particular unions.
Possible unions to investigate are: Australian Workers Union, Electrical Trades Union, Australian
Services Union, Australian Education Union, Australian Metal Workers Union, Maritime Union of
Australia, and Miscellaneous Workers Union.)

Figure 11.6

Prominent Australian unions

Activity 11.2

in employee relations as well as to share information and offer mutual support.


There are three types of employer association:

Interview someone who is a local union


representative in his or her workplace. Find out:
1 what the role entails

1 Industry associations are made up of

2 the types of issues they might deal with on a


day-to-day basis.

as the Master Builders Association and the

(Hint: ask who the teachers union representative


at your school is.)

employers from the same industry, such


Mining Council of Australia.
2 Professional associations are made up of
members of professions such as the Australian Medical Association (AMA).

Employers and employer


associations
Employer associations are groups of employers who unite to promote their common interest

3 Broad based, or peak bodies, are comprised


of large numbers of employers from varied
industry types. Examples are the Australian
Industry Group and the Victorian Employers Chamber of Commerce. These often act

c h a p ter 1 1 employee relations


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

employer
associations
provide a range of
advice to employers
and represent their
interests on employee
relations issues

243

Cambridge University Press

as spokesperson for employer members as


a bloc.



The role of employer associations is to:


represent employers in Industrial Relations
Commission cases
represent employers during collective
bargaining over wages and conditions
advise employers of their rights and
obligations
act as a spokesperson for members of their
organisations as a bloc.

Figure 11.7
Fair Work australia
(FWa)
one-stop shop for
information, advice
and assistance on
workplace issues

Figure 11.8

Employer associations

Government
The federal government has an enormous influence on Australian employee relations through

the enactment of legislation that controls and


influences the conduct of employee relations.
The government is also the largest employer in
the Australian economy, employing 30 per cent
of the Australian workforce.
Australian governments have felt it necessary
to actively intervene in the conduct of employee
relations as the interaction between employers
and employees can have significant repercussions for both the Australian economy and the
general public. Australian governments have
passed a multitude of laws that directly affect
the employeremployee relationship. Areas
such as employee contracts, taxation, occupational health and safety, equal opportunity and
guidelines relating to pay and working conditions for employees, all impact significantly
on the conduct of Australian employee relations. Government responsibility for economic
management also affects employee relations as
wage levels affect inflation and economic activity rates.

Fair Work Australia


institutions
Fair Work Australia (FWA) was established
by the Fair Work Act 2009 to be a one-stop
shop for information, advice and assistance
on workplace issues. It replaces the functions
of the following former government agencies established under prior legislation: AIRC,
Australian Industrial Registry, Australian Fair
Pay Commission, Australian Fair Pay Commission Secretariat, Workplace Authority and the
Workplace Ombudsman. FWA consists of the
President, Deputy Presidents, Commissioners
and Minimum Wage Panel members. It has the
power to vary awards, make minimum wage
orders, approve agreements, determine unfair
dismissal claims and make orders on such
things as good faith bargaining and industrial
action, and to assist employees and employers
to resolve disputes at the workplace.

Parliament House, Canberra

244

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Office of the Fair Work


Ombudsman

and enforce common law entitlements that relate


to the NES or modern awards.

A Fair Work Ombudsman promotes legislative


compliance while also educating, and providing information and assistance. The Fair Work
Ombudsman also appoints Fair Work Australia
Inspectors.
Fair Work Inspectors assist employers,
employees and organisations to comply with
National Employment Standards (NES), awards
and agreements. They have investigative powers
to inspect and copy documents on an employers
premises. They also bring court proceedings to
enforce rights and obligations and investigate

Fair Work Divisions of the


Federal Court and Federal
Magistrates Court
Specialist Fair Work Divisions of the Federal
Court and Federal Magistrates Court exist to
hear matters arising under the new workplace
relations laws. The courts have the power to
make orders considered appropriate to remedy
a contravention, including injunctions, rather
than just imposing a penalty.

Centralised approach to employee


relations
Australian workplace relations pre-1991 was a
centralised system with setting of wages and
conditions occurring outside the individual
workplace. The main emphasis was on conflict
resolution using conciliation (negotiation)
and arbitration to fix problems after they had
occurred.
External third parties, usually appointed by
the Australian Industrial Relations Commission, were brought in to conciliate and
arbitrate between unions and employers
on industrial disputes, or when wages and
conditions needed to be determined.
Industrial disputes tended to centre on:
wages
hours and conditions of work
problems with non-union labour in a
workplace, with unionised workers
attempting to impose a closed shop,
and refusing to work with non-union
members
protests over environmental and social
issues not related to the actual workplace
protests about government policy.

The state and federal Industrial Relations


Commissions (IRC) arbitrated on workplace
disputes. The IRC acted just like any other
court. They heard the arguments of the
employers, the employees (unions) and the
government, and then made a legally binding
decision a process known as arbitration.
Often awards were negotiated directly
between employers and the unions representing workers, then ratified by the AIRC.
This was known as a centralised system
of workplace relations. It was thus described
due to its reliance on one central body, the
AIRC, to determine standardised wages and
conditions for all employees in particular
industries.
The AIRC established industrial awards
using this process. These are agreements
setting out minimum wages and conditions
for a particular industry. Awards prescribe a
legally binding minimum standard and set
out in detail the terms of employment for the
various occupations and levels in a particular industry. Awards are extremely complex

c h a p ter 1 1 employee relations


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

conciliation
a third-party
(conciliator) facilitates
agreement between
management and
employees in relation to
a dispute
arbitration
a method of industrial
dispute resolution
where an independent
third party listens
to both sides of the
agreement, then
making a decision
based on these
arguments, which is
legally binding on both
parties
closed shop
a workplace where all
employees are union
members who refuse
to work with non-union
members
centralised system (of
employee relations)
where awards (pay and
working conditions)
were determined by
a central body (AirC)
relating to an industry
industrial awards
set out minimum
conditions of
employment for
employees doing a
particular job

245

Cambridge University Press

and detailed legal documents. For example,


the Metals and Engineering Award had more
than 300 classifications, each with different
rates of pay and conditions.
A wage case was held at the AIRC every
six months. This involved unions, employer
groups and government arguing their individual cases for and against a blanket wage
rise for all Australian employees.

When conciliation over an industrial dispute


failed, arbitration at the AIRC often followed.
Industrial awards had blanket coverage
across all Australian workplaces of the type
stipulated in the award. This made for inflexibility, as the needs and requirements of
particular workplaces and employees could
not be catered for. For example, if part-time
employment was not stipulated in the award,
it could not be offered.
The awards set by the AIRC covered areas
such as:
pay rates and methods of payment
working conditions and overtime
meal breaks
holidays and leave
loadings and allowances
special rates for dangerous work
procedures for employment, resolution
of grievances and termination
superannuation
career structure.

Figure 11.9 Arbitration can be used to fix problems after they have occurred.

No dispute
arises

Agreement
reached

Trade union/
workers

Employer

Negotiation
takes place

Agreement
reached

IRC contacted
and conciliation
arranged

No
agreement

No
agreement

Arbitration
takes place
at IRC

Legally binding
decision

Figure 11.10

246

resolution of workplace disputes pre-1991 (centralised approach)

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

table 11.1 Advantages and disadvantages of centralised approach to employee relations


advantages of the centralised approach to
employee relations

Disadvantages of the centralised approach to


employee relations

Provides certainty of pay and working conditions for


employees working in the same industry but with
different employers.

Reduces potential for employers and employees to


create flexibility relating to both pay and working
conditions for employees at their workplace.

Government has tighter control over wage outcomes


through a centralised wage determination body.

Does not recognise an individual organisations


circumstances, as the wage outcomes are imposed
with no trade-off for increased productivity.

Employees have greater opportunities for taking


industrial action. Potential for more control for trade
unions.

Provides opportunity for unions to mount harmful


industrial campaigns.

Employers can refer to a government-determined


document to find out pay and working conditions, so
saving time and effort.

As the pay and working conditions are not negotiated


at the workplace, it lessens the importance of the
participative management approach.

Decentralised approach to employee


relations
Australias system of employee relations has
undergone significant change since 1991. The
purpose of this restructure has been to inject
greater flexibility into Australian workplaces,
with a view to increased international competitiveness. Since 1991 the Australian system of
determining employee wages and conditions,
and of resolving workplace disputes, has gone
from legal arbitration, where most disputes were
resolved in the AIRC (a centralised system), to
a decentralised system where employers and
employees at each workplace work through
their differences without outside interference.
Post-1991 saw the freedom to negotiate
wages and conditions to suit individual circumstances. This was due to the introduction of
enterprise bargaining. As a result, hours and
conditions became more flexible and could
be tailored to suit individuals. These changes
facilitated greater flexibility in Australian workplaces, and resulted in significantly improved
workplace efficiency and productivity.

Several important legislative changes were


made to formalise this change in approach.

Federal Industrial
Relations Reform Act
1993
This Act saw further movement towards decentralisation. Workplace flexibility increased through
expansion of enterprise bargaining. Consequently, most workers were covered by enterprise agreements rather than industrial awards.
Awards still existed but were becoming only a
safety net minimum, with extra entitlements being
negotiated on top at the enterprise level.
The intention was to free up the system and
inject greater flexibility through the facilitation of
enterprise bargaining. Employees were assured
key minimum entitlements prescribed by international labour and human rights conventions,
so there was no disadvantage in moving to an
enterprise agreement.

c h a p ter 1 1 employee relations


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

decentralised
system (of employee
relations)
where employers and
employees at each
workplace determine
their pay and working
conditions and
work through their
differences without
outside interference

247

Cambridge University Press

Workplace Relations
Act 1996
Workplace Relations
Act 1996
federal industrial
legislation that
deregulated the labour
market by encouraging
enterprise bargaining,
simplifying the
number of allowable
matters in federal
awards, modifying
the unfair dismissal
laws and outlawing
strikes except during
renegotiation of an
enterprise agreement
collective/certified
agreement
enterprise bargaining
agreements that result
from negotiations
between an employer
and union (employees)
and are registered
(ratified) by the AirC
collective bargaining
the process by which
wages, hours, rules and
working conditions are
negotiated and agreed
upon by a union with
an employer for all the
employees collectively
whom it represents
australian Workplace
agreement (aWa)
an agreement made
directly between
an employer and
employee covering
working conditions and
remuneration

248

The effect of the Workplace Relations Act


1996 was to further accelerate the decentralisation of the Australian workplace relations
system by changing the emphasis from awards
to enterprise agreements. It was designed to
encourage employers and employees to negotiate contracts directly with each other, thereby
increasing workplace flexibility and international competitiveness of Australian business.
Awards remained but were limited in scope.
A limit of 20 allowable matters could be
included in awards. Anything else had to be
negotiated at the enterprise level. This was
known as award simplification and aimed
to encourage further bargaining based on
productivity at the individual workplace.
Collective/certified agreements are negotiated at a workplace on behalf of a group of
workers. Trade unions are usually involved
in this process and negotiate on behalf of
employees at each workplace. This is known
as collective bargaining. An enterprise
agreement must be approved by a majority
of employees. As a result, the role of the
AIRC was downsized.
Centralised awards were largely being
replaced by employment agreements of one
of two types in most Australian workplaces.
Both types of workplace agreements are
legally binding for a designated time and are
renegotiated once that period has elapsed. A
new period of enterprise bargaining occurs
at the end of an agreement. This period of
time when enterprise bargaining actually
takes place is when industrial action can
occur legally. Any action occurring while an
agreement is still in force is now illegal and
subject to legal sanction.
The Office of the Employment Advocate was
established to manage and oversee Australian Workplace Agreements (AWAs).

The Act guaranteed freedom of association


and organisation, so employers cannot be
discriminated against on the basis of their
membership of any group.
An employees right to strike was restricted.
Employers were granted the right to lock
workers out under certain conditions.

Figure 11.11 Workers often protest over wages and


working conditions.

Workplace Relations
Amendment
(WorkChoices) Act 2005
The WorkChoices amendment further decentralised the employee relations system by:
establishing the Australian Fair Pay and
Conditions standards (five minimum employment conditions). Only these five matters
could be included in awards.
increasing reliance upon use of enterprise
bargaining agreements and AWAs
removing the no disadvantage test
establishing the Australian Fair Pay Commission for setting minimum wages
reducing the role of the AIRC
exempting businesses with less than 100
employees from unfair dismissal claims
permitting large-scale organisations to dismiss workers for operational reasons of an
economic, technological or structural nature

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

placing restrictions on trade unions in areas


such as: right of entry, pattern bargaining,
prohibition on strike action except during
protected period and the need to conduct
a compulsory secret ballot prior to taking
industrial action.
The effect of WorkChoices was that in acting
to further decentralise the employee relations
environment it reduced employees protection
while promoting individual contracts (AWAs)
and also reduced the power of the unions.
Many considered that it created an unfair
environment.

Fair Work Act 2009


Following its election in 2007, the ALP government introduced new legislation changing the
employee relations environment. Fair Work
Australia was established as the main body, independent of unions, business and government,
responsible for providing information, advice
and assistance to employers and employees.
The Fair Work Act 2009 aimed to restore the
balance of power in the relationship between the
employer and the employee in three main areas:
Strengthening the safety net of minimum
wages and conditions, establishing the 10

National Employment Standards and providing a modernised system of awards based on


a small number of industries.
Abolishing Australian Workplace Agreements
(AWAs) and restoring collective bargaining
as the main means of creating an agreement
between employers and employees. Employers are also required to bargain in good faith.
Restoring to all employees protection against
unfair dismissal if they have worked for that
employer for more than six months. If the
organisation has less than 15 employees, the
employee will need to have been employed
for more than one year. The legislation also
created the office of Fair Work Ombudsman,
Fair Work Inspectors and the Specialist Fair
Work Division in both the Federal Court and
Federal Magistrates Court. Fair Work Australia had also been given broad conciliation
powers to resolve disagreements.

Industry-wide awards,
collective agreements
and individual contracts
Over the past 20 years, the Australian system of
employee relations has moved from a centralised
system where legally binding awards applied

table 11.2 Advantages and disadvantages of decentralised approach to employee relations


advantages of the decentralised approach to
employee relations

Disadvantages of the decentralised approach


to employee relations

Allows organisations and employees to negotiate


pay and working conditions relevant to the individual
workplace.

Reduces the level of control of the government in


wage determination.

Provides opportunity for employers to negotiate


for productivity gains while meeting needs of
employees for increased flexibility in their working
arrangements.

More time-consuming for employers to undertake


negotiations. May feel that some of the employees
demands are unrealistic.

Creates a more inclusive working environment,


where both parties are working together to achieve
agreement.

Reduces the influence of unions as representatives


of the workers. May make some workers feel more
vulnerable.

c h a p ter 1 1 employee relations


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

249

Cambridge University Press

across an entire industry were established by a


special tribunal known as the Industrial Relations
Commission to a decentralised system where
individual employers negotiated wages and
conditions with their own workforce (collective
bargaining).

table 11.3

Following the enactment of the Fair Work Act


2009, the vast majority of employees wages and
working conditions are to be embedded in collective agreements. While the majority of Australian
employees will be covered by an award or an
enterprise agreement, the senior managers in
organisations are generally employed under
individually negotiated contracts.

Characteristics of modern award, collective agreement and individual contract

Characteristics

modern award (FWa)

Collective agreement (FWa)

individual contract

Orientation

Centralised

Decentralised

Decentralised

Who makes
them?

Fair Work Australia

Employer/employees (collective group)


or employer/trade union/employees

Employer and individual


employee

How do they
arise?

Submissions to FWA by employer,


unions and other peak bodies

Negotiated after good faith bargaining


at the workplace between employee
representatives and the employer

Negotiated between the


parties

FWA determined

Submitted to Fair Work Australia for


approval
Content

Pay and working conditions (for


employees in an industry or
occupation)
10 minimum standards (NES)
working week (38 hours),
flexible working arrangements,
six leave entitlements (parental,
annual, personal/carers leave,
compassionate, community service,
long service) payment for public
holidays, notice of termination and
redundancy pay, provision of Fair
Work Information Statement

Pay and working conditions (for


employees at a workplace)
10 minimum standards (NES see
previous column) and additional
conditions as negotiated

Pay and working


conditions for individual
employee

National minimum wage order and


modern awards make up a safety net
for employees

Duration

Ongoing, to be revised periodically


(every four years)

Up to four years

Period determined
through negotiation (e.g.
one year)

Annual leave

Four weeks of paid leave for each


year of service paid at base rate of
pay

Four weeks of paid leave for each


year of service, paid at their base rate
of pay

As negotiated between
parties

Shift worker is entitled to five weeks


of paid leave paid at their base rate
of pay

Shift worker is entitled to five weeks


of paid leave paid at their base rate
of pay
Cash out of leave is available, but
illegal for employer to force employee
to take it

250

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Characteristics

modern award (FWa)

Collective agreement (FWa)

individual contract

Applies to

Australian workers in an industry or


occupation

Australian workers at a workplace/


enterprise

Individual employee

Industrial action
and dispute
resolution

Allowable only during protected period


or after an order from Fair Work
Australia for a protected action ballot
authorises the industrial action

Allowable only during protected period


or after an order from Fair Work
Australia for a protected action ballot
authorises the industrial action

Both parties would have


terms in contract relating
to dispute resolution and
contract cancellation

Unprotected industrial action results


in mandatory minimum deduction of
four hours pay

Unprotected industrial action results


in mandatory minimum deduction of
four hours pay

Must apply for entry permit to


workplace 24 hours notice

Must apply for entry permit to


workplace 24 hours notice

Union representation as bargaining


agent

Union representation as bargaining


agent

NES act as minimum legal


employment standards

NES and national minimum wage and


modern awards act as minimum legal
employment standards (i.e. safety net
for employees)

Role of union

Protection
provided to
employees

Protection bodies: Fair Work Australia


(tribunal) and Fair Work Ombudsman,
Fair Work Inspectors and Federal
Court Specialist Division and Federal
Magistrates Court
Unfair dismissal protection against
harsh, unjust or unreasonable
treatment by employer

None

Clauses written into


individual contract
Contracts enforceable
through courts

The Better Off Overall Test (BOOT)


checks the agreement against the
award
Protection bodies: Fair Work
Australia (tribunal) and the Fair Work
Ombudsman, Fair Work Inspectors,
Federal Court Specialist Division and
Federal Magistrates Court
Unfair dismissal protection is provided
to protect against harsh, unjust or
unreasonable treatment by employer

Conflict in the workplace


and dispute resolution
Situations of conflict can arise in a workplace.
For instance, there may be complaints relating
to calculation of wages, working hours, personality conflicts, or in some cases the need for
disciplinary action due to workplace bullying. It
is important for organisations to have in place a
grievance procedure, which the parties then
follow to resolve the grievance.
In the event that the grievance cannot be
resolved at the workplace, it may be necessary to
involve a third party to conciliate on the matter.

The conciliation process can be undertaken by


a commissioner or conciliator appointed by Fair
Work Australia. The conciliator will convene
a conference where the parties will meet and
attempt to resolve the issue.
In the event that the conciliation process
fails, the matter may then be referred to arbitration. Fair Work Australia, acting in its role as an
independent tribunal, will arrange an arbitration
hearing, which is conducted on similar lines to
a court case. The Commissioner presiding over
the case will listen to the individual parties make
their case, and then make a legally binding
order, which the parties must follow.

c h a p ter 1 1 employee relations


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

grievance procedure
a formal, systematic
process that permits
employees to complain
about matters that
affect them and their
work

251

Cambridge University Press

1 Employee and/or representative (shop steward or advocate) present


complaint to supervisor

UNRESOLVED

RESOLVED

2 Complaint is handled by middle management in meeting with employee


and/or representative (shop steward or advocate)

UNRESOLVED

RESOLVED

3 Meeting of employee and/or representative (shop steward or advocate)


with top management representative and/or grievance committee

UNRESOLVED

RESOLVED

4 Matter is referred to an external conciliation body by parties involved

UNRESOLVED

RESOLVED

5 Matter is referred for external arbitration where a legally binding


order is made to resolve the conflict

RESOLVED
Figure 11.12

Grievance procedure steps

If, however, employees wish to take industrial


action, their rights have become more restricted
under the decentralised employee relations
approach. The right to take legal industrial action
has been restricted to the protected period that
occurs when a new collective agreement is in
the process of being negotiated. Employees have

table 11.4

252

a range of actions they may take to flex their


industrial muscle, with employers having the
ultimate action of being able to conduct a lock
out of employees. Table 11.4 sets out examples
of the forms of industrial action available to
employees, ranking them from the least disruptive to most disruptive.

Forms of industrial action

Form of action

Explanation

initiated by

Passive resistance

General lack of cooperation by employees to complete tasks, taking


days off (absenteeism)

Employees

Work to rule

Workers refuse to do anything more than the bare minimum required


and follow every rule to the letter

Employees

Boycott

Employees refuse to do something or deal specifically with someone


(e.g. refusal to deal with a specific supplier)

Employees

Stop-work meeting

Employees hold a meeting during normal working hours to discuss an


issue. Production ceases during the period of the meeting

Employees

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Form of action

Explanation

initiated by

Picket line

Employees physically demonstrate outside the premises of their


employer. It is aimed at stopping production by deterring other
employees and suppliers from crossing the picket line

Employees

Strike

Employees withdraw their labour and production ceases

Employees

Lockout

Employer/management not allowing workers to enter a plant or


building to perform their work

Employer

Activity 11.3
Read the article and answer the questions that follow.

Casino staff weigh up odds of strike action


by Jason Dowling
Thousands of staff at Crown Casino could
be on strike during this years spring racing
carnival as part of an industrial campaign for
better pay.
Crown staff will vote on the possible
strike action in coming weeks after Fair Work
Australia approved the ballot. Staff are seeking
a 13.5 per cent pay increase over three years
and have rejected Crowns 11 per cent offer.
Liquor Hospitality and Miscellaneous Union
state secretary Jess Walsh said Crown had
posted a $300 million profit and could afford
the increase. She said any strike action would
involve dealers, food and beverage staff and
gaming staff. Members should be voting over
the next few weeks, so the industrial action

would occur in early October it probably


lines up with the spring racing carnival, Ms
Walsh said.
Crown chief executive David Courtney said
talk of strike action was not unusual towards
the end of long negotiations (the previous
enterprise agreement concluded on June 30).
He said Crowns 11 per cent offer was equal to
that accepted by staff at Burswood Casino in
Perth and more than the 9 per cent accepted
by staff at Sydneys Star City Casino. He said
Crown was hopeful of avoiding strike action.
If there was strike action the casino would
continue to operate, Mr Courtney said.
Source: The Age, 9 September 2010

Questions
1 Name the trade union and the group of workers it represents that is considering taking industrial
action. Name the employer.
2 What type of agreement is being negotiated here? What other methods are there for determining
wages and conditions?
3 Explain why taking industrial action, such as striking, was not an option for these employees before
30 June 2010.
4 Summarise what this group of employees is seeking. Explain the arguments being used to advance
their case.

c h a p ter 1 1 employee relations


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

253

Cambridge University Press

5 Explain why staff at other casinos appear to have different wages and conditions to those at
Crown.
6 Describe the type of industrial action that is being considered.
7 Do you believe that this action is justified? Explain your view. Back it up with logical argument.

Employee relations and HRM under a


decentralised approach
Employee relations specialists in HR liaise closely
with other departments to create a harmonious
and productive workplace staffed by motivated,
skilled and fulfilled employees. Employees are
nowadays encouraged to think of themselves
as part of a team working with management in
order to advance the whole organisation as a
competitive player in globalised markets. Consequently, the whole organisation should reap the
benefits of productivity improvements through
increased job security and a share of higher
profits. This is a far cry from the traditional view

of industrial relations where employees and


their employers saw themselves as adversaries
battling each other for a larger piece of the pie.
The human resource manager has a significant role in employee relations. It is the role of
the HRM department to:
negotiate with employees and/or their
representatives on employment relations
issues, such as the establishment of collective agreements
act as an intermediary between employees/
unions and senior management.

Activity 11.4
Read the advertisement and answer the questions that follow.

National Employee Relations Manager


Uniqueopportunitytoinfluencestrategyandexecution
Broadbusinessandcommercialexposure
Buntings is one of Australias largest retailers,
with over 25 000 team members and in excess
of 250 stores. We support our retail and trade
customers through an extensive warehouse,
store and distribution centre network and
are continuing to grow in both metropolitan
and regional locations in Australia and New
Zealand.
Our working environment and culture are
very important to us. As a result Buntings
approach to Employee Relations can be best

254

described as being focused on culturally


aligned and commercially pragmatic outcomes,
that lead to engaged Team Members working
in an environment that enables them to deliver
great Customer Service. Reporting to the
General Manager HR, a unique opportunity
now exists for an energetic and experienced
ER practitioner to join the senior HR Team.
The successful applicant will be able to
demonstrate a solid understanding of current
IR legislation nationally and a track record

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

in dealing with Industrial matters such as the


negotiation and implementation of Agreements, dispute resolution, representation in
the Industrial Courts, management of union
relationships as well as in the development of
Employee Relations strategies. This experience should ideally include an influential ER
role within a large, geographically diverse
organisation in a service industry environment,
where you have taken a lead role in coaching
managers around effective employee relations
behaviours.
Tertiary qualified in an HR discipline,
your personal skills and attributes include
strong negotiation skills, good commercial

understanding, excellent communication &


coaching skills, a pragmatic and hands-on
leadership style as well as the ability to work
in a flexible structure where teamwork is
paramount.
A competitive salary & benefits package,
including short- and long-term incentives
reflective of the seniority of this role, will be
negotiated.
Information about Buntings is available by
visiting www.buntings.com.au.
Applications can be emailed by clicking on
the apply button below or posted to General
Manager HR, 12 Hardware Street, Melbourne,
3000.

Questions
1 Name the organisation advertising this job. How many employees does it have?
2 What is the title of the job being advertised? In which department will the successful applicant be
employed? Who will they be reporting to?
3 Define each of the following terms used in the article.
a Employee relations
b Engaged team members
c Negotiation skills
d Communication skills
e Teamwork.
4 Explain why the successful applicant will require negotiation, communication and teamwork skills.
5 List and explain the skills and experience that is being sought in the successful applicant.
6 Describe the types of tasks that the successful applicant will be expected to undertake.
7 Locate another advertisement for a similar position. Identify and explain the differences and
similarities between the two jobs.

What does good


employee relations
require of management?
Management should aim to facilitate positive,
productive relationships with its employees.
This will in turn create improved productivity
and employee commitment to the organisation
as employees feel more valued. The skills of the
HR manager are vital to achieving this.

Employees will inevitably have complaints


about their workplace. Management should
attend to these in such a way as they do not
escalate. Small problems will become large ones
if not dealt with quickly and effectively.
Generally the following factors will allow for
optimal workplace relations:
Commitment of both management and
employees to the achievement of organisational objectives creates a sense of common
purpose and teamwork.

c h a p ter 1 1 employee relations


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

255

Cambridge University Press

Figure 11.13 The relationship between management and employees


should aim to be a positive one.

Allowing employees to feel their contribution


is valued and part of the decision-making
process conveys a sense of ownership of
decisions. The adoption of a participative
management style facilitates this. A team
approach to planning and decision making
develops employee trust. Employees who
are consulted feel valued and in turn develop
a loyalty to the organisation.
Treating employees and their complaints
seriously will often avert more serious problems developing.
Promotion of the concept that workplace
change is both inevitable and essential for
organisational survival will assist in creating
a more flexible mindset towards workplace
reform and workplace relations issues in
general.
Effective communication skills and methods
will alleviate and avert many industrial
disputes. Management taking the time to
explain the reasoning behind decisions gives
employees an opportunity to see things
from the point of view of management (to
empathise) and vice versa. Employees who
interact openly with management, and feel
valued, are less inclined to resort to industrial
action when dealing with workplace conflict.

256

Provision of fair pay and working conditions


and recognition of employee achievement
and effort creates a positive workplace
atmosphere.
Maintenance of good working relationships
between management and union officials.
Personal hostilities often fuel workplace
disputes. Teamwork builds a sense of shared
purpose, making industrial action and workplace dispute far less likely.
Establishment of fair and accessible grievance procedures to be taken in the resolution
of a workplace dispute. The more effective
the grievance procedures at a workplace, the
less chance there is of a dispute escalating.
Participative and open management styles
will always improve relationships within a
workplace.

Activity 11.5
1 Working in groups of two or more, your task
is to devise a role play demonstrating how a
manager might deal with one of the following
situations in the best possible way.
a

The shop steward and manager, who


hate each other, must come to an
agreement about new starting times in
a factory.
b It is time to negotiate a new enterprise
agreement.
c Employees are unhappy with a new
uniform they are required to wear.
d Management intends to make 100
employees redundant.
e The CEOs son is accused of sexually
harassing female employees.
2 Now think about the worst possible way
of dealing with the situation. Perform both
scenarios to the class, and then discuss the
differences in process and outcome you
noted.
3 Finally, identify which of the above skills
would be required in order to deal effectively
with each scenario.

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Assessment of
workplace relations
Workplace relations audits are performed to
measure the state of health of workplace relations in a specified workplace. The following
indicators are used:
Levels of employee participation in decision making. Worker empowerment enables
employees to feel a sense of control over
their working lives. If they feel valued as
part of a team, workplace disputes should
decrease as the us versus them mentality
dissipates.
The degree of consultation in a workplace
demonstrates worker empowerment levels.
The quality of communication channels
within a workplace. Most industrial disputes
can usually be averted through open and
inclusive communication between employees and employers.
The values within an organisation indicate
the attitude of employers and employees
towards each other.
Productivity levels demonstrate employee
motivation and satisfaction. Increased
productivity positively impacts upon business profitability.
Staff morale levels are a strong indicator
of employee commitment to a workplace

as well as the level of teamwork within


an organisation. These can be measured
through levels of employee satisfaction, staff
turnover and work satisfaction.
Incidences of strikes and other industrial action. Rates of union membership
indicate general employee feelings.
The ideal HR workplace relations manager
would therefore possess excellent:
communication and listening skills these
are vital, as most disputes can be solved with
effective communication
negotiation skills
people skills
team building
planning and leadership skills
understanding and knowledge of workplace
relations laws and how they apply
problem-solving skills
decision-making skills.
Generally, the adoption of a participative
style of management, when this is feasible, is
most effective in the modern workplace, as
this allows for employee input, ownership of
decisions and easier negotiations. Flexibility
in management styles is an asset; for example,
the autocratic style may need to be adopted
when difficult and/or speedy decisions, such as
retrenchments, need to be made.

c h a p ter 1 1 employee relations


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

257

Cambridge University Press

CHAPtER suMMARy

Employee relations is the total relationship and


interplay that occurs between an employer and
their employees.

Employee relations is a key responsibility of the


human resources department.

There are four main participants in Australian


employee relations: employees/unions,
employers/employer associations, government
and Fair Work Australia institutions.

Industrial action is only permitted during


the renegotiation or bargaining period of a
collective agreement.

Organisations should have in place a grievance


procedure to resolve conflicts within the
workplace.

Employees may use a variety of forms of


industrial action: passive resistance, work to
rule, boycott, stop-work meeting, picket line
and strike.

The employee relations system has gone from


a centralised model where pay and working
conditions were determined by a central
body (AIRC) to a decentralised model where
negotiations are conducted by an employer
and their employees at the individual
workplace.

Employers are permitted to conduct a lockout.

The role of the human resource manager has


greatly increased under the decentralised
approach.

Managers need to adopt a participative


management style and employ a range of skills,
especially in time of workplace conflict.

The traditional view was based on conflict and


an adversarial approach rather than the current
emphasis on teamwork and cooperation.

A range of performance indicators can be used


to measure the state of health of a workplace in
relation to its employee relations.

The aim of employee relations is to optimise


the working relationship so that it results
in an increase in productivity and business
competitiveness.
The Australian system of employee relations
has undergone significant change over the past
20 years. The reforms made aim to improve
flexibility and competitiveness in the Australian
workplace.

1 Define each of the following terms.

CHAPtER suMMARy
QuEstIOns

a Employee relations
b Industrial dispute
c

e Employer association

Australian Industrial Relations Commission

g Union executive
h ACTU
i

Workplace relations audit.

2 Identify the aim of employee relations.

258

4 Distinguish between the following terms.


a Enterprise bargaining and an enterprise

agreement

Shop steward

d Trade union

3 Explain why industrial disputes are inevitable.

b Employee and a union member


c

A trade union and an employers association

d An award and an individual contract


e A strike, a stop-work meeting and a picket

line.
5 Explain why a system of employee relations that

relies on employee wages and conditions being


established through industry awards could be
described as being inflexible and costly.

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

6 Explain how the introduction of enterprise

bargaining was the first step in the


decentralisation of the Australian system of
employee relations.
7 In 1993 the Federal Industrial Relations Reform

Act meant that industrial awards became a


safety net rather than the main determinant of
employee wages and conditions. Explain what
this statement means.
8 List and describe the three types of agreements

d Briefly describe why this dispute started.


e Summarise the arguments of both sides to

the dispute.
f

striking permitted?
10 When was the Australian Fair Pay Commission

established? Explain how this reduced the role


of the AIRC.
11 In the context of the Fair Work Act 2009:
a List the roles of Fair Work Australia.
b How is the minimum wage now set?
c

Describe how the role of unions in


negotiation of wages and conditions has
been partly restored.

12 Identify three key differences between a

decentralised and a centralised system of


employee relations.
13 Discuss whether you believe the Australian

system of employee relations is now both


centralised and decentralised in its approach.
14 Explain why there was general agreement that

the Australian system of dealing with employee


relations had to change in the 1990s.
15 Using the media (TV, radio and print), your task

is to follow an industrial dispute for a period of


at least one week. At the end of the dispute, list
the following information.

How do you believe the dispute should have


been resolved? Give reasons for your answer.

g Is this dispute linked in any way to

globalisation? In other words, has it been


caused by reforms aimed at making the
workplace more competitive?

by which employee wages and conditions can


be established.
9 Since 1996, when is industrial action such as

List the key players in the dispute, i.e.


spokespersons for both sides and names of
management and union officials.

h How might this dispute have been handled

differently if it had occurred 20 years ago?


16 Explain what is wrong with each of the following

statements.
a Joe and Dot have signed individual collective

agreements.
b The Australian Government has no role in our

employee relations system.


c

Employee relations is only about dispute


resolution.

d The Master Builders Association is an

example of a trade union.


e Strikes are now always illegal.
17 Indicate whether the following statements are

true or false.
a Trade union membership is optional in

a closed shop.

T/F

b Australias new employee relations

system has made for greater


workplace flexibility.

T/F

A shop steward is not elected.

T/F

d The ACTU is like a parliament for

trade unions.

T/F

a Name the industry involved and the

employer/s.
b Name the union, if any.

c h a p ter 1 1 employee relations


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

259

Cambridge University Press

ExAMInAtIOn
PREPARAtIOn

Read the case study and answer the questions that follow.

Case study
The long-running industrial dispute at the
exclusive Snooty Grammar School was yesterday
resolved. Principal Dick Kozmaiak emerged from a
meeting with teachers union representatives and
announced that a collective agreement has been
reached between the school and the union. Dick
announced that he was pleased that the threat of
industrial action had been averted, and that he

could guarantee that his school would be strikefree for at least the next four years. Teachers
would receive a 10 per cent pay increase as well as
increased allowances. In return, they had agreed
to productivity increases of 12 per cent. All work
bans have been lifted. The picket line has also
been disbanded.

Question 1

Question 3

Define each of the following terms. Use an example


to demonstrate your understanding of each.

Explain why Dick has been able to guarantee that


the school will be strike-free for at least four years.
2 marks

a Collective enterprise agreement


b Picket line.

4 marks

Question 2
Has this dispute been resolved using the new
decentralised system of employee relations or has
it been resolved via the old centralised system? In
your answer, explain how the two systems would
have approached the resolution of this dispute.

Question 4
Identify and discuss two skills that Dick required in
order to successfully resolve this dispute and have a
new collective agreement signed. Give an example
of when each skill would have been utilised by Dick
during the enterprise bargaining process.
4 marks

5 marks

260

unit 4 managing people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

12

Business ethics and


in large-scale

Whats ahead

Social
responsibility
why?
Internal
environment

Operations
system

Ethical and
socially responsible
management

Human
resources

Change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Key Knowledge

Students will learn the following about business ethics and social
responsibility in large-scale organisations:
Ethical and socially responsible management of the internal environment
of large-scale organisations
mission
objectives
structure
culture
policies
management styles and skills
Ethical and socially responsible management of the operations system
Ethical and socially responsible human resource management
Ethical and socially responsible management in times of change.

In every aspect of an organisations operations, it has become increasingly important that


organisations conduct themselves in an ethical
manner and are socially responsible in their
relationships with the broader community. The
various stakeholders of an organisation, such as
their local community, shareholders, employees and the public in general, now expect all

all areas of study

social responsiBility
organisations

organisations to be involved in benefiting the


community and contributing in ways other than
by simply supplying a service or product.
This chapter will focus primarily on organisations with a profit focus, although it takes
into account the fact that all organisations need
to have some level of commitment to corporate
social responsibility.

263
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Corporate social responsibility

corporate social
responsibility (csr)
a concept whereby
organisations consider
the interests of society
by taking responsibility
for the impact of their
activities on customers,
suppliers, employees,
shareholders,
communities and other
stakeholders, as well
as the environment

Dr Simon Longstaff, the Executive Director of


St James Ethics Centre, argues that one of the
most significant changes to affect the business
environment is the growing interest in questions
to do with the scope and nature of corporate
social responsibility (CSR). The growing
awareness of the need to examine ethics and
be a good corporate citizen has led to organisations investigating issues such as the extent
to which ethical obligations to stakeholders
and the community in general are important.
Related to this issue is the question of what is
good and what is right?
Many organisations have been working on
ways to integrate these concepts hoping to
present a simple map of the issues confronting
the business and those who advise and regulate
it. Current analysis suggests that there is a range
of items that may fall under the heading corporate citizenship. These issues must be clearly
identified so that the organisation is clear as to

Figure 12.1 As part of CSR, employees are encouraged


to take part in volunteer programs in the community.

264

what it is trying to develop in the areas of ethics


and social responsibility.
While CSR and business ethics has become
a high priority, some argue that it is difficult
to define and understand exactly what the
concepts are. This leads to many organisations
defining ethics and corporate social responsibility in a number of different ways.
In an article entitled 10 rules for corporate
social responsibility, Leon Gettler states that
many organisations do not really understand
CSR. For some organisations, CSR is about
compliance and philanthropy; for others, it is
about sustainability. Some talk about a companys impact on society and its relationships
with the community; others put it in a broader
strategic framework.
Leon Gettler believes that CSR is made up of
the following five areas:
1 Corporate governance and accountability the company is accountable to shareholders, government, employees, customers
and community.
2 Sustainability and environment this
takes in a huge area, including greenhouse
gas emissions, water, paper, degradation,
supply chain impact, green investment,
salinity and agricultural practices and cultural
heritage.
3 Workforce this covers areas like fair pay
and conditions, women and minorities in
management roles, maternity leave and
re-entry, people with disabilities, mature
aged workers, disadvantaged youth, longterm unemployed and Indigenous communities. It also includes occupational health
and safety, training and worklife balance.
4 Human rights this takes in supply chain
issues, fair trading, alliances and partnerships
with certain governments and the impact of
products.
5 Community involvement this covers
all sorts of areas, including meaningful

uNIt 3 aNd uNIt 4

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

volunteering programs, staff lending their


skills to the boards of non-profit organisations and philanthropy.
For the organisation, there are five key issues
that need to be addressed. If it fails to do all of
these, its moves to become socially responsible
will be ineffective.
1 Companies need to demonstrate CSR as a
value proposition to the board of directors.
2 They need to find ways of getting support
from shareholders and consumers.
3 It is absolutely critical for the organisation to
develop CSR audit tools so that it can place

a dollar value and conduct a cost-benefit


analysis of all its CSR expenditure.
4 CSR needs to be approached in a businesslike way. Good CSR should be good business.
5 The CSR programs need to be run at a
senior level, otherwise they will not have
any impact on the whole organisation or
corporate culture.
Ethical and social considerations impact on
all levels of the organisation and in many ways.
(See chapter 14 for more information on business ethics and social responsibility.)

Why do organisations need to be ethical


and socially responsible?
Companies can no longer ignore environmental and social issues. Some organisations are
so large that their revenue turnover is greater
than the GDP of some countries. For instance,
General Motors turnover was larger than the
GDP of Denmark. In her book 3-D Ethics,
ethicist Attracta Lagan argues that business will
determine the quality of the air we breathe, the
food we eat and the water we drink. Businesses
have the potential to enhance or destabilise

Figure 12.2 Organisations play a significant role in


protecting the environment.

social progress across the world and the population in general expects organisations to be
more accountable.
It is now becoming common to make an
assessment of an organisations performance
based on its triple bottom line results in
which financial performance must be matched
by environmental sustainability and corporate social responsibility, social capital, social
and ethical accounting and corporate citizenship. Social responsibility and ethics is becoming important to all organisations as shareholders and the institutions controlling shareholder
investments are examining the performance of
organisations on a number of fronts, such as
environmental, social and governance issues.
Another reason why organisations are aware of
their social responsibility is the threat of damage
to their reputations. Information and communication technologies have allowed stakeholders
to quickly access information about organisations, therefore increasing the pressure for
accountability.
Organisations have responded to environmental and social issues in different ways
and therefore the idea of social responsibility and corporate philanthropy (where the

C haPter 12 BusINess ethICs aNd soCIal resPoNsIBIlIty IN larGe-sCale orGaNIsatIoNs


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

triple bottom line


where an organisation
reports on the social
outcomes and
environmental impacts
of its activities, as
well as its financial
performance
environmental
sustainability
the ability of an
ecosystem to maintain
into the future; this
involves using the
earths resources only
at a rate at which they
can be replaced
corporate
philanthropy
corporate policies and
efforts to increase the
wellbeing of humankind
by charitable aid or
donations

265

Cambridge University Press

organisation may support financially, or through


providing employees or advice, a charity, foundation or community group) is displayed in a
number of different programs.
Ritchies Supermarkets, for example, have
donated 1 per cent of sales to a charity, school
or community group nominated by the customer and have done so since the 1990s. Sony
Australia has established a range of community

projects, including Sony Foundation Childrens


Holiday Camps. This inspirational program
matches high school students with developmentally delayed children. They team up in a
holiday environment where the focus is on fun
and the benefits are mutually rewarding. BP has
developed non-sniffable petrol called Opal to
stop young people from sniffing petrol and sells
this to other petrol retailers and companies.

Activity 12.1
Read the article and answer the questions that follow.

Ethical fund tests appetite for shareholder


activism.
by Malcolm Maiden
As the northern hemisphere moves ahead
of Australia in pushing institutions to more
actively monitor companies they invest in
after the financial crisis, a listed local fund
manager that specialises in compiling ethical
portfolios is testing the Australian appetite for
shareholder activism.
Australian Ethical Investment has about
$600 million under management in funds that
are filtered to exclude shares that are deemed
to be either socially or environmentally
harmful. It runs both negative screens to filter
out companies it deems to be offenders, and
positive screening processes to elevate ones
that pass muster.
Shares that sit at the very core of other
share funds are, as a result, missing. There are,
of course, no shares that profit from alcohol,
gambling or tobacco. And three of the big four
banks are missing from Australian Ethicals
portfolios, excised because of lending profiles,
among other things. The fourth, Westpac, was
inherited through a shareholding in St George,
and has been retained so far.
The miners are also out, and on the other
side of the ledger, positive screening has

266

thrown up an energy portfolio that includes


coal seam hopeful Origin, but also solar,
geothermal, wind and hydro power companies.
Australian Ethical is also long on bicycles (its
a shareholder in Shimano), public transport
(including Cabcharge and National Express),
and recycling and waste management (including Sims and Transpacific).
Investment returns have been reasonable.
The groups $237 million balanced fund ranks
35th out of 75 peer funds over three years and
41st out of 69 over five years, according to
Morningstar. Its $227 million smaller companies trust ranks 5th out of 42 peer funds over
three years, and 8th out of 29 over five. And its
$122 million larger companies fund ranks 2nd
out of 36 funds over three years, and 9th out of
33 over five years.
But its a niche. In a $1.2 trillion funds
management market, ethical managers who
apply filters with varying degrees of rigour
control about $20 billion, or less than 2 per cent.
Now Australian Ethical is trying a new
tack, or at least a new one in this country.
It has launched a Climate Advocacy Fund
that is an unfiltered index share fund that

uNIt 3 aNd uNIt 4

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

tracks the performance of the 200 companystrong benchmark Australian share index, the
S&P/ASX 200, including all those companies its
filters usually reject.
But it will position the fund to be an active
advocate for change, by having it requisition
shareholder votes at annual meetings on environmental and social issues.
Australian Ethical has legal advice that it
can allocate shares to a group of supporters
it has already identified to get the numbers to
put an AGM resolution up 100 shareholders
are needed and although it is promoted as
a climate change advocate, the funds charter
is broader, encompassing, for example, the
promotion of greater worker engagement and
ownership, the discouragement of speculation,
and (one for the financial sector, perhaps),
opposition to the enticement of consumers to
financially over-commit.
In its early stages at least, the fund will be
sticking to its headline brief. Perhaps half a
dozen resolutions are planned for this years
annual meeting season, and the focus will be
on the disclosure of climate and environmentrelated issues.
There is an element of financial selfinterest in what Australian Ethical is doing.
Fund management profits are directly related
to the amount of money being managed, and
by creating a fund that sits outside the filtered
niche Australias ethical fund managers occupy,
Australian Ethical is broadening its appeal: the
hope is that the fund will attract at least $100
million, most of it from institutions.
But the initiative comes at an interesting
time. Advocacy investing promotes engagement whereas ethical filtering avoids it. And
while it is unfamiliar in Australia (I know of
only one earlier attempt to create an advocacy

focus fund, with a more traditional corporate


governance focus, and super trustees and their
advisers did not embrace that idea), advocacy
or focus funds management is better known
overseas.
In Britain, the Hermes funds management
group has, for example, positioned itself as an
active promoter of corporate responsibility.
Hermes focus funds engage companies behind
closed doors, and Hermes argues the process
generates superior returns.
In the United States, environmental groups
regularly push resolutions in front of meetings
(there is usually no investor quorum needed,
but nor are the votes binding), and one of the
grandfathers of the corporate governance
movement, Institutional Shareholder Services
Inc founder, Bob Monks, is also the founder of
the LENS activist funds management stable.
And there is now a push in the northern
hemisphere to encourage institutions to
become more engaged.
They are judged to have contributed
through their passiveness to the creation of
the bubble that imploded in the global crisis,
and they are being pushed to lift their game
most recently in Britain, where a Stewardship
Code for institutional shareholders has been
announced.
The code requires institutions to monitor
the companies they invest in, and intervene
if necessary to protect shareholder value in
concert with other asset managers if necessary. Institutions must either comply with the
code, or explain why they do not.
No such code exists here. But the marketing of Australian Ethicals new fund will be one
test of the local appetite for direct action.
Source: Sydney Morning Herald.
10 July, 2010.

Questions
1 Why do shareholders now focus on social responsibility when looking for organisations to invest in?
2 How can shareholders and investment funds such as Australian Ethical Investments influence some
of the worlds largest companies in terms of ethical and socially responsible practices?

C haPter 12 BusINess ethICs aNd soCIal resPoNsIBIlIty IN larGe-sCale orGaNIsatIoNs


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

267

Cambridge University Press

Ethical and socially responsible


management of the internal environment
Management make many decisions regarding
the operation of the internal environment of the
organisation. Characteristics of the internal environment, such as the mission, vision and values
statements, the objectives, structure, culture,
policies and management styles and skills, have
been discussed in detail in previous chapters.
For an organisation to adopt a holistic
approach to business ethics and social responsibility, the approach needs to be incorporated
into all its practices and processes, commencing
with the board of directors and going down to
the individual worker.

provide a foundation for its future direction.


Most organisations reflect social responsibility
and ethical values in these statements. They
also reflect the organisations relationships with
its stakeholders.

Mission, vision and


values statements
These three statements say a lot about the
organisation. They establish its purpose or aim,
its aspirations and what it values. Together they

Figure 12.3 Corporate social responsibility should be planned


for in an organisations mission, vision and values statements.

Activity 12.2
Read the information about these major organisations and answer the questions that follow.

Qantas
Qantas was founded in the Queensland outback
in 1920. Registered originally as Queensland
and Northern Territory Aerial Services
Limited (QANTAS), it has built a reputation
for excellence in safety, operational reliability,
engineering and maintenance, and customer

service. Today, Qantas is widely regarded as


the worlds leading long-distance airline and
one of the strongest brands in Australia. It also
operates subsidiary businesses, including other
airlines, and businesses in specialist markets
such as Qantas Holidays and Q Catering.

The Commonwealth Bank


The Commonwealth Banks vision is to be
Australias finest financial services organisation
through excelling in customer service. The
bank aspires to:
have people that are engaged, passionate
and valued

268

provide a service experience its customers


appreciate
deliver top quartile returns to its shareholders
be respected and admired in the community.

uNIt 3 aNd uNIt 4

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Toyota
Toyotas vision is to be the most respected
and admired company. Its mission statement
is to deliver outstanding automotive products
and services to customers, and enrich the
community, partners and environment.

Toyotas four core values are:


Customer first
Respect for people
International focus
Continuous improvement and innovation.

Questions
1 For each of the above organisations, identify the words or terms used that would identify them as
being ethical and socially responsible organisations.
2 Investigate at least two other companies and examine their mission and/or vision statements.
Highlight any words or terms you believe are important in terms of either ethics or social
responsibility.

Objectives
Organisations use the vision and mission statements to guide their objectives. Each level of
management sets out their objectives and planning, which link to the overall strategic direction of the company. While the focus is often on
profits and performance, social responsibility
and business ethics is also a consideration.

Senior management and


strategic planning
The setting, by the board of directors and
senior management, of corporate objectives that
specifically reflect business ethics and social
responsibility establishes the strategic direction for the entire organisation. In the recent
Consumer Responsibility Index, a number of

Figure 12.4 The Macquarie Group Foundation supporting an educational program


C haPter 12 BusINess ethICs aNd soCIal resPoNsIBIlIty IN larGe-sCale orGaNIsatIoNs
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

269

Cambridge University Press

CEOs discussed the changes within their organisations that benefited the community as well as
the organisation.
The companies cited in the following examples would have adopted a proactive approach

table 12.1

270

when establishing their corporate objectives.


IBM, for example, has introduced a program
where employees have the opportunity to
work in developing countries on programs that
intersect economic development and IT. Ergon

Role of management relating to social responsibility and business ethics

level of management

Business ethics

social responsibility

Strategic senior management

Code of ethics and codes of


conduct are established.

Community links, partnerships and


sponsorship are developed at this
level. Public relations and media
relationships will be established.

Tactical middle management

Management ensure that all


policies and codes are in place
and in practice. This may include
developing training for employees.

Specific community programs


will be established and put into
practice.

Operational front-line
management

Resources are organised to


ensure that all programs are put
into place.

Local links are established and


programs are monitored.

uNIt 3 aNd uNIt 4

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Energy is examining ways to allow customers


to reduce energy consumption in response
to climate change. ANZ examines corporate
responsibility in terms of the difference it can
make to the community, with the focus on
responsible lending practices and improvement
of financial literacy. Unilever has focused on
trying to develop social responsibility strategies
at various levels within the community. In its
promotion of the Dove brand, the focus is
on marketing, but also on improving the selfesteem of all women.

Middle management and tactical


planning
Middle management is responsible for the tactical planning required to implement the strategic
plans. When an organisation wishes to focus on
social responsibility, it is this level of management that puts it into practice. For example,
when Qantas established CanTeen The Australian Organisation for Young People Living with
Cancer it set up and developed the business
model required to support this initiative.

Front-line management and


operational planning

resources needed to undertake the community


programs to which the organisation is committed or has pledged its support.

Organisational structure
and social responsibility
An organisations structure may be influenced by
its emphasis on social responsibility and ethics.
It might find that it needs to change its structure
to address its focus on ethics and a committee
may be established to oversee the introduction
of ethical business processes. Furthermore,
roles may be developed and a team may be
formed to introduce the relevant policies.
Social responsibility policies are also likely to
influence the structure of an organisation. The
need to link up with the community and notfor-profit organisations may mean that a new
department or area is established to oversee this
aspect of the business. Employees may find that
the focus of their jobs is on the community links
not directly related to the core business of the
organisation. Some companies integrate social
responsibility, ethics and corporate governance
into their organisational structure.

Front-line managers are then responsible for the


planning, organising and coordination of the

Activity 12.3
Read the extracts and answer the questions that follow.

Extract 1
Qantas has developed a Reconciliation Action
Plan (RAP). In 2009 the plan was for Qantas
to continue its work in supporting Aboriginal
and Torres Strait Islander communities. This

was done through employment initiatives,


tertiary education scholarships and promoting
indigenous art and culture.
Source: www.qantas.com.au

C haPter 12 BusINess ethICs aNd soCIal resPoNsIBIlIty IN larGe-sCale orGaNIsatIoNs


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

271

Cambridge University Press

Extract 2
Shell has a team of staff (the Social
Investment Network) responsible for running
its social investment program including
the volunteering program. The group
makes recommendations for the boards
endorsement, but is also responsible at the
local level for communicating about the
program. The volunteering program is divided
into short-term and long-term components.
The long-term projects can involve staff from
five days up to four weeks per year although
these opportunities are limited to between
20 and 30 staff annually. The volunteering
activities are part of the companys broader

social performance objectives and take place


with Shells community partners. Shorter-term
opportunities arise out of Shells two national
partners (The Smith Family and Conservation
Volunteers Australia). Partnerships are also
formed at the local level around Shells key
facilities which benefit smaller organisations.
Shell has also incorporated into its policy the
possibility of granting another days leave to
staff who, in addition to taking one days leave
for volunteering, contribute another day in
their own time to a partner organisation.
Source: www.volunteeringaustralia.org

Extract 3
The City of Melbourne provides a range
of activities and services for the Melbourne
community and ratepayers. In 2010 the City
of Melbourne funded 67 projects for a total
of $383 000. Funded projects included the

Wesley Mission Food for families and Rosies


Oblate Youth Mission. Rosies provides hot
and cold drinks to Melbournes homeless and
marginalised people.
Source: www.melbourne.vic.gov.au

Questions
1 Outline two reasons why organisations might encourage their employees to become involved in
these types of activities.
2 What are the benefits of allowing employees to be involved in local community activities?
3 Using the internet, research a large organisation and examine the type of voluntary programs the
employees may be involved with.

272

Corporate culture

this. Career development, performance review

The values, beliefs and attitudes of the organisation are reflected in the corporate culture.
It is important that a positive corporate culture
is developed and maintained. Senior management must take the lead in establishing and
maintaining a positive corporate culture that
embraces and develops high levels of ethical
behaviour and a socially responsible workforce.
Other levels of management need to reinforce

cies and procedures of the organisation must

systems, and the training and recruitment polireflect this corporate culture.
Organisations that have a positive culture
often share a number of characteristics, which
include:
collaborating as equal partners with workers
to develop innovative strategies on compensation and productivity

uNIt 3 aNd uNIt 4

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Figure 12.6 A diverse and inclusive corporate culture is a positive culture.

providing sustainable wages or progressive


increases and worker-friendly benefits
creating new jobs and implementing
employee-retention strategies
protecting workers safety and health
fostering diversity and inclusion in the
workforce
offering training and professional development opportunities
contributing positively to the broader
community.
CSR and ethics, therefore should permeate
all areas of the organisation and be reflected in
the culture.

Policies
Policies may need to be introduced or rewritten
to incorporate a more ethical approach to the
current management of an area. Policies that
might be developed include corporate governance policies, codes of ethics and conduct,
and whistleblowing policies. (See chapter 14
for a more detailed discussion.)

Management styles and


skills
Sound and well-developed management styles
and skills are essential for the effective and

efficient operation of any organisation. Organisations wanting to be socially responsible and


behave in an ethical manner are more likely
to use a participative management style. This
style of management allows for two-way open
communication, with decisions made by a
group rather than an individual manager. This
management style reflects a positive corporate
culture that values the employees and their
input, and also provides employees with the
chance to take on responsibility and develop
their own skills.
Similarly, a management team with welldeveloped communication and interpersonal
skills, the ability to motivate, to lead and to
delegate is needed for an organisation to
develop a culture that supports the ethical and
socially responsible practices and values of the
organisation. It is also essential that all levels
of management within the organisation abide
by the types of values and behaviours that are
expected from the rest of the organisation.
Leaders and managers who conform to ethical
behaviour and values in their dealings with other
managers, employees, suppliers and shareholders are more likely to be able to develop and
sustain an organisation that accepts social
responsibility and ethical codes of conduct.
Poor or inept managers and leaders create
a negative impact on the profits and overall

C haPter 12 BusINess ethICs aNd soCIal resPoNsIBIlIty IN larGe-sCale orGaNIsatIoNs


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

diversity
human characteristics
that make people
different from one
another

273

Cambridge University Press

performance of the organisation. This can be


reflected in low levels of production, high staff
turnover and increased operating costs. These
individuals all share one common trait poor
business ethics and values. Senior managers
who continually demonstrate negative values
and ethics will cause the organisations overall
performance to deteriorate.
Research suggests that leaders know what
they value. They also recognise the importance
of ethical behaviour. The best leaders exhibit
both their values and their ethics in their leadership style and actions. The leadership ethics and
values should be visible because you live them
in your actions every single day.

A lack of trust is a problem in many


workplaces. If leaders never identified their
values, the mistrust is understandable. People
dont know what they can expect. If leaders
have identified and shared their values, and
live the values daily and visibly, they will
create trust. Workplace ethics take the same
route. If the organisations leadership has a
code of conduct and ethical expectations, these
can become a joke if the leaders fail to live up
to their published code. Leaders who exhibit
ethical behaviour powerfully influence the
actions of others.

Activity 12.4
Read the extract and answer the questions that follow.

Key considerations for ethics management


1 The organisations chief executive
must fully support the program
If the chief executive isnt fully behind the
program, employees will certainly notice
and this apparent hypocrisy may cause such
cynicism that the organisation may be worse
off than having no formal ethics program at
all. Therefore, the CEO should announce the
program, and champion its development and
implementation. Most importantly, the chief
executive should consistently aspire to lead in
an ethical manner.

2 Consider establishing an ethics


management committee
The committee would be charged with
implementing and administering an ethics

management program, including training on


policies and procedures, and resolving ethical
dilemmas.

3 Consider assigning an ethics officer


This role is becoming more common,
particularly in larger organisations. The ethics
officer is usually trained about matters of
ethics, particularly about resolving ethical
dilemmas.

4 One person should have ultimate


responsibility for the ethics
management program
Note that one person must ultimately
be responsible for managing the ethics
management program.

Questions
1 Using the information above and your knowledge of management styles and skills, discuss why it
might be important to develop an ethical approach to managing employees.
2 Identify three management skills you have studied during the year and explain how these skills link
with ethical and socially responsible practices.

274

uNIt 3 aNd uNIt 4

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Poor ethical behaviours are often copied by


others and this in itself becomes the justifying
reason for these behaviours to be continued. To
avoid this happening, organisations should adopt
a code of ethics of non-negotiable behaviours.

If employees and managers are not able to


adhere to the values and expected standards of
behaviours, this code of ethics may be sufficient
grounds for such people to leave.

Ethical and socially responsible


management of the operations
management function
The operations management system of the
organisation, whether it is a product-based or
a service-based operating system, is usually the
core business and offers scope for the organisation to improve and demonstrate a commitment to operating in an ethical and socially
responsible manner.

Organisations need to examine their systems


to ensure that these operate in a way that
minimises the impact on the environment and
society. Efficient operating systems may include
the strategies shown in table 12.2.

table 12.2 The operations management system and social responsibility


operations management
strategy

influence of ethics and social responsibility on the


operating system

Waste minimisation

Reduces operating costs, while also minimising the impact of waste


on landfill and the environment. Sometimes the waste may need to
be handled in a particular way to ensure it is not dangerous to the
environment.

Recycling components

A cost-cutting measure that also means less waste is left to be


disposed of. This can have a positive impact on the environment,
especially if non-renewable components are used. At Mercedes Benz in
Germany, metal offcuts drop through the floor into containers and are
then shipped to be reused.

Lean manufacturing

This means that the production process is efficient in terms of operating


costs and also in the use of resources.

Inventory management systems

The use of materials and inventory management strategies such as JIT


allows organisations to plan their stock levels and also ensures that
there is not unused or obsolete stock. At Mercedes Benz in Germany,
components are brought to the production line in containers as
required. Minimal stock is kept near the production line.

Quality control and quality


assurance programs

Quality focus during the manufacturing process will mean inefficiencies


will be picked up and a better quality product will leave the organisation.
In terms of social responsibility and ethical practices, it may mean that
consumers are protected from faulty products.
continued next page

C haPter 12 BusINess ethICs aNd soCIal resPoNsIBIlIty IN larGe-sCale orGaNIsatIoNs


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

275

Cambridge University Press

operations management
strategy

influence of ethics and social responsibility on the


operating system

Technology

An integrated production line and the use of technology such as


robotics, CAD or, in a service-based company, the use of computerised
inventory and sales systems will mean a more efficient system and
these efficiencies may lead to better products and services at a lower
price. Technology may mean that dangerous and competitive tasks
are not completed by employees, thus reducing workplace accidents.
Mercedes Benz in Germany uses robotics for most of its processes.
Human labour is used to program the machinery. There is very limited
human labour on the assembly line.

Facilities layout and design

A focus on ensuring that the production process operates smoothly and


without bottlenecks may also mean less resources and energy used in
the production process, thus reducing the impact on some resources
such as water and electricity.

Supply chain and material


management

If an organisation is monitoring its suppliers and ensuring that a code


of conduct or ethical practices are observed, it can be assisting the
workforce of another country, or ensuring that the working conditions of
an organisation meet minimum standards. Controls over suppliers may
also mean that resources are used in a socially responsible manner.
McDonalds restaurants, for example, have developed relationships with
suppliers and only source coffee through ethical suppliers.

Environmental management
system (EMS)

A commitment to an EMS indicates that the organisation has made a


commitment to its ethical and environmental obligations. It focuses on
all areas of the organisation and its practices and ensures that these are
socially responsible.

Ergonomics

An organisation may commit to ensuring that it provides environmentally


friendly and ergonomically correct equipment. An office, for example,
may have correct lighting, chairs and furniture and may also focus on
recycling paper and minimising its energy consumption.

Case studies of ethical and socially responsible


operations management systems
The following case studies show ethical and socially responsible operations management systems
in practice.

Case study 1: Linfox


Australian road freight giant Linfox has gained
kudos for buying more environmentally friendly
vehicles as part of a pledge to halve its carbon
emissions by 2015 based on 200607 emission
levels. Under the plan, the company will use

276

more efficient prime movers, reduce power


consumption at its offices and warehouses and
embrace smarter vehicle routes.
Greener supply chains are often blamed for
imposing higher operational costs on business.

uNIt 3 aNd uNIt 4

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

But Michael Kilgariff, chief executive of the


Australian Logistics Council, says companies
are aligning greater energy efficiency with
cost-cutting measures. They are moving early,
making changes before governments start

demanding action, big sticks in hand. There


is also a growing view that being sustainable
makes long-term business sense.
Source: http://knowledge.asb.unsw.edu.au

Case study 2: Bosch


Bosch leads the way in developing operations
management systems to minimise its impact
on the environment. Across the world it has
developed many programs and procedures
to ensure that it has a positive impact on the
environment.
Examples of Boschs operations management systems that are socially responsible
include:

a Drive and transmission solutions for


wind power and marine energy plants

c Using biofuels with the Flex Fuel


system
The Flex Fuel injection technology developed
by Bosch makes it possible to use any mix of
gasoline and the biofuel ethanol. Around 80
per cent of the vehicles produced in Brazil are
fitted with a Flex Fuel injection system. Interest
in Flex Fuel is on the rise in other countries
too. For example, the French car manufacturer
PSA is installing the Bosch system in vehicles
for the French and Swedish markets.

The Bosch subsidiary Rexroth supports manufacturers of wind turbines and has developed
efficient drive concepts for the emerging marine
energy generation industry. The first prototypes
with hydraulic components and transmission
technology from Bosch Rexroth are already
being tested in plants off the coast of Norway
and Great Britain.

b Solar collectors for heat generation


Boschs innovative solar collectors allow for
heating and hot water to be provided by the sun
completely free of any CO2. Of the renewable
sources of energy, solar heat generation is one

Figure 12.7 Solar power is a more socially


responsible form of energy collection and
consumption.

of the biggest contributors towards covering


worldwide energy consumption. Bosch is
pressing ahead with further developments
in the area of solar technology with the aim
of making the production of solar cells much
more cost-effective and to increase their range
of applications. As organic solar cells can be
as flexible and thin as a transparent envelope,
they offer a great deal of potential. They can
be used on rooftops, as foldaway cell phone
chargers, or on car roofs.

Figure 12.8 Wind turbines alternative energy


use

C haPter 12 BusINess ethICs aNd soCIal resPoNsIBIlIty IN larGe-sCale orGaNIsatIoNs


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

277

Cambridge University Press

Ethical and socially responsible management of the


human resource management function
Organisations need to ensure that their human
resources, their employees, are looked after as
they often provide the business with a competitive advantage. Within this functional area, there
are many opportunities available to an organisation to develop ethical and socially responsible
practices. Just as employees can be the main
competitive advantage, they can also become a

liability or lead to the downfall of an inefficient


organisation.
The human resource management practices
and processes involved throughout the three
phases of the employment cycle will give an
indication of not only the culture, but also the
ethics of the organisation and how it views its
employees.

Activity 12.5
Read the extracts and answer the questions that follow.

BHP Billiton
BHP Billiton states that it values its employees
through a range of policies and values, including safety of the employees, environmental
responsibility and sustainable development

and a culture of diversity that is embraced and


enriched by openness, trust, sharing, teamwork
and involvement of all employees.

Wesfarmers
Each Wesfarmers division operates as a
separate business and therefore has a distinct
culture. However, there are four core values
that drive all of our businesses and shape our
culture as a whole:
Integrity
Acting ethically in all dealings.
Openness
Openness and honesty in reporting, feedback and ideas.
Accept that people make mistakes and
seek to learn from them.
Accountability
Significant delegation of authority and
decision making to divisions.

278

Accountability for performance.


Protect and enhance our reputation.
Boldness
Strong and ready to make bold decisions
and challenge the status quo in pursuit
of growth and sustainability. Support and
encourage an environment free of fear
and blame.
Wesfarmers recognises the identification and
development of talent as an investment with
expected returns not only for the business, but
also for our people.
Source: www.wesfarmers.com.au

uNIt 3 aNd uNIt 4

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Questions
1 What do the two extracts indicate about the culture of the organisations and how employees are
viewed?
2 How do social responsibility and ethical behaviour link to the information presented in the extracts?
3 Visit the website of another large-scale organisation and examine the human resource policies and
values highlighted in the information.

table 12.3

Human resource management, ethics and social responsibility

human resource management


strategy

influence of ethics and social responsibility on human resource


management

Recruitment methods

It is important that an organisation develops recruitment methods


that are socially and ethically responsible. This may mean that an
organisation targets a particular group in terms of gender, ethnicity or
disability to be given employment.

Selection and interview process

The short-listing, interviewing and checking process should follow all


relevant legislation and be transparent. Assumptions should not be made
and all applicants should be treated equally.

Induction

To ensure that the new employees act in an ethical manner, policies,


corporate culture and practices should all be clearly explained to new
employees. Setting up a mentor or buddy system also allows a new
employee to be nurtured and clear about their new role.

Policies

It is important for the organisation to have clearly defined and


established policies in place so that all employees and managers are
clear about what the expectations and codes of behaviour are. Processes
and procedures should also be in place to ensure that all behave in an
ethical manner. (See chapter 14 for more information.)

a) Occupational health and safety


b) Equal opportunity
c) Bullying and anti-harassment
policies
d) Code of ethics/Code of conduct
Motivation

Employees should be motivated in terms of positive reinforcement,


recognition of performance and opportunities to develop and take
responsibility. This will ensure that there is a positive corporate culture
and that employees are involved and therefore more productive.

Employment arrangements and


flexible employment conditions

Many employees are now seeking to work for an employer of choice


and therefore it is important that an organisation recognises the needs
of employees. In reality there is an ethical and moral responsibility
to provide flexibility in areas such as working hours, job sharing and
flexibility in arrangements such as allowing employees to take leave
around family commitments.
Workplace conditions and pay should also be negotiated in a fair and
ethical manner, not with coercion or pressure on employees who may
fear that their job is in jeopardy.
Many organisations also provide employees with time off to work in
a community or charity program in line with the social responsibility
programs of the organisation.
continued next page

C haPter 12 BusINess ethICs aNd soCIal resPoNsIBIlIty IN larGe-sCale orGaNIsatIoNs


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

279

Cambridge University Press

human resource management


strategy

influence of ethics and social responsibility on human resource


management

Training and development

Organisations invest time and money into training and developing


staff. Opportunities to develop new skills and qualifications assist the
organisation and the employees. Access to these programs should be
based on equal opportunity. Employees should be able to access training
and development according to their needs and those of the organisation.
Training should also incorporate the ethical needs of the organisation
and all policies should be clearly set out and communicated. Mercedes
Benz in Germany has its own trade school on site and trains and
develops apprentices. In a male-dominated industry, women are
encouraged to apply and work on the assembly line.

Performance management
and appraisals and career
development

All employees should be involved in performance management. Positive


and constructive feedback establishes a culture where employees
and managers are valued and judged on their work performance. This
can also assist in reducing harassment and workplace bullying, as
employees and managers are regularly given feedback and training
when required.
Succession planning and career paths also lead to a more productive
and positive workplace culture.

Exit strategies and management


of retrenchment and
redundancies

Having clear exit strategies and retrenchment procedures allows the


organisation to operate in an ethical manner. Following the procedures
ensures that policies and ethical behaviours are established and
followed.
Organisations that are forced to make employees redundant need to
have in place strategies such as the use of outplacement services and
support to assist employees in finding another job.
If employees are retiring from the organisation, the company may also
provide financial and other support services or allow them to continue
working part-time. This may be important to allow for a smooth transition
into retirement and provides the organisation with experienced staff to
support other newer employees.

Case studies of ethical


and socially responsible
human resource
management
The majority of large-scale organisations have
clear strategies and policies in place to deal with
their employees in an ethical manner.

Figure 12.9

Banks can support you in a variety of ways.

280

uNIt 3 aNd uNIt 4

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Case study 1: Bendigo Bank


The Bendigo Bank is a well-established financial institution that is well regarded for its
support of the community and community
banks. It also focuses on its employees and
believes that its success depends on the commitment, integrity and skill of its employees.
The bank encourages people from a range
of different backgrounds with a variety of skills
to work with it. All staff are measured by how
they model the companys ethics and values. In
return, the bank aims to help get the worklife
balance right. Corporate values provide the

framework to guide the interactions with


each other, customers, the community and
stakeholders.
Bendigo Banks corporate values are:
Teamwork
Integrity
Performance
Engagement
Leadership
Passion.
Source: www.bendigoadelaide.com.au/
public/about_us/our_values.asp

Case study 2: Rio Tinto


Rio Tinto is a large mining and resources
organisation. Its work operations can be
dangerous and have the potential to negatively
impact on the environment. It is committed to
good corporate values and ethical behaviour,
viewing safety and effective working
relationships as essential.
Its human resource management policies
highlight its commitment to ethical and social
responsibility in the community. Rio Tinto
states: Whilst respecting different cultures,
traditions and employment practices, we share
common goals with our employees in particular the elimination of workplace injuries.
Examples of Rio Tintos HR policies
include:
Discrimination Rio Tinto employs on
the basis of job requirements and does not
discriminate on grounds of age, ethnic or
social origin, gender, sexual orientation,
politics or religion. Exceptions are made to
favour local employment where local laws
provide. It does not employ forced, bonded
or child labour.
Health and safety undertaking training
and then working in safe, healthy and

environmentally responsible ways comes


first and foremost. Beyond that, Rio Tinto
believes in enabling employees to develop
to the extent of their abilities. To develop
employees skills and competencies, the
company uses regular performance reviews,
recognising potential and undertaking
education, training and coaching as appropriate, and offering professional development opportunities.
Conduct Rio Tinto expects managers
to be models of the highest standards of
behaviour. Employees are expected to
treat each other and external contacts with
dignity, fairness and respect. Harassment in
the workplace is guarded against and neither
abuse nor misuse of position or facilities for
personal purposes is tolerated. Collaboration
is encouraged within and across businesses,
cultures and countries to raise performance.
Speak-OUT the Speak-OUT program provides employees with an independent and
confidential means of reporting concerns and
communicating ideas to senior managers.

C haPter 12 BusINess ethICs aNd soCIal resPoNsIBIlIty IN larGe-sCale orGaNIsatIoNs


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

281

Cambridge University Press

Ethical and socially responsible


management in times of change

change process
adoption of a
systematic approach
to change occurring
within an organisation

Change can be stressful for all concerned and


is part of the life cycle of all organisations.
Changes in the environment due to economic
conditions, globalisation, technology, legislative requirements and attitudes have all caused
organisations to change rapidly in recent times.
(See chapter 13 for more information.)
While change must be implemented and
managed to ensure it is successful and smooth,
there are also ethical and social responsibility
considerations that must be taken into account.
It is imperative that management, particularly
senior managers, are able to act and behave in
an ethical manner. It is essential that management and leaders implement change in a
transparent process that allows for open and

Figure 12.10 Managers must maintain open and


transparent lines of communication with staff.

282

honest communication between employees and


management.
Operating in this way also ensures that
managers are acting in an ethical manner and
the reasons for the change and the change itself
are not shrouded by a hidden agenda.
The community expectation and the push
for social responsibility means that all organisations need to change to ensure that they are
meeting their social responsibilities. This has
often led to changes to the structure and activities of organisations. (See chapters 13 and 14 for
more information.)
There are recognised approaches that can
be adopted to effectively manage the change
process. Change management entails thoughtful planning and sensitive implementation, and
above all, consultation with, and involvement of,
the people affected by the changes. If change is
forced on people, this will normally give rise to
problems. Any change that is introduced should
also be realistic, achievable and measurable.
These aspects are especially relevant to managing changes in human resource management.
Selling change to people is not a sustainable
strategy for success; neither is manipulation
nor making threats. Most employees will see
through the sell and while they may agree,
will then usually resist the proposed changes.
For a smooth transition, change needs to be
understood and managed in a way that allows
people to cope effectively with it. Change can
be unsettling, so the employees manager needs
to provide a settling influence.
Management should ensure that those
people affected by the change agree with, or
at least understand, the need for change, and
have a chance to decide how the change will
be managed, and to be involved in the planning
and implementation of the change.

uNIt 3 aNd uNIt 4

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Face-to-face communications should be used


to handle sensitive aspects of organisational
change management.
To ensure that change is managed successfully and managers behave in an ethical manner,
the organisation should ensure that:
employees are involved in all aspects of the
implementation of the change
employees understand the current state of
the organisation and where it is going with
the change
all stakeholders understand where the
organisation wants to be, when, why, and
what measures will be taken to get there
communication should be open, continuous
and involve all parties affected.

Figure 12.11 Managers should talk face-to-face with


their staff about the changes that will affect them.

C haPter 12 BusINess ethICs aNd soCIal resPoNsIBIlIty IN larGe-sCale orGaNIsatIoNs


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

283

Cambridge University Press

ChaPtEr SuMMary

All stakeholders and the community expect


large-scale organisations to be socially
responsible and ethical in their business
practices.

Organisations differ in their interpretation of


what it means to behave ethically and in a
socially responsible manner.

Adopting an ethical and socially responsible


approach has become one of the most
significant changes required by organisations.

The internal environment is influenced by


ethics and social responsibility and its impacts
on objectives, structure, policy, culture,
management style and skills.

1 Why do shareholders, employees and the

ChaPtEr SuMMary
QuEStiOnS

community expect organisations to be


socially responsible?
2 Explain the concept of the triple bottom

line.
3 Describe the five areas of CSR.
4 Outline the arguments for organisations

behaving in an ethical manner.


5 Discuss how CSR and business ethics can

impact on the internal environment of an


organisation.

Corporate social responsibility (CSR) impacts


on the operations management system through
quality, technology, materials management,
environmental management system (EMS) and
supply chain management.

CSR impacts on Human resource management


(HRM) through recruitment methods, selection,
induction, policies, motivation, employment
arrangements, training and development,
performance management and exit strategies.

When large-scale organisations are going


through change, it is important that the
process incorporates ethical behaviours and is
influenced by CSR.

7 Describe how CSR impacts on the operations

management system.
8 Analyse how business ethics can influence

HRM within an organisation.


9 How can business ethics and CSR guide an

organisation though a change process?


10 Visit the website of a large organisation.

Examine the social responsibility and


community programs of the organisation.
What would be the impact of these
programs on the organisation?

6 What effect can ethics and social

responsibility have on the corporate culture


of an organisation?

284

uNIt 3 aNd uNIt 4

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Read the scenario below and answer the questions that follow.

A victims of crime group has approached CSI


Industries to support a new initiative and increase
community awareness of the groups programs.
As the public relations and community liaison
manager, you are required to develop a policy to
implement and develop the new program.

Question 1

Question 3

Outline two reasons why CSI Industries might wish


to support the victims of crime group.

CSI Industries is well known for its high ethical


standards. Explain why being known as an ethical
organisation might assist the organisation.

2 marks

ExaMinatiOn
PrEParatiOn

CSI Industries is a leading computer and consulting


organisation at the cutting edge of technology that
is used by the police force to investigate corporate
fraud. The organisation has tried to develop a
new approach to social responsibility and has
had a long tradition of ethical behaviour as this is
important because of its dealings with the police
department.

3 marks

Question 2
Describe two benefits for an organisation that is
seen as socially responsible.
4 marks

Question 4
Social responsibility and business ethics impact
on all facets of the organisation, including its
operations management and human resource
functions. Discuss this statement in reference to the
impact on the organisation.
8 marks

C haPter 12 BusINess ethICs aNd soCIal resPoNsIBIlIty IN larGe-sCale orGaNIsatIoNs


Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

285

Cambridge University Press

13

ManageMent
of change

Whats ahead
External
pressures

Source of change

Internal
pressures

Kotter change
management
theory

Low risk

Strategies
and practices

High risk

SIGNIFICANT ISSUES

Force field
analysis

Role of
leadership

Impact of change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Key Knowledge

Students will learn the following about the management of change:


the concept of organisational change
the dynamic nature of the internal and external (macro and operating)
environments as sources of change
driving and restraining forces for change in large-scale organisations,
including management, employees, time, competitors, low
productivity, organisational inertia, legislation and cost
the key principles of the Kotter theory of change management
a range of strategies for effective change management, including lowrisk practices and high-risk practices
the process of effective change management in the context of a
significant issue
the role of leadership in change management
the possible impact of change on the internal environment of largescale organisations, including the functional areas of operations and
human resources.

It is argued that, while people accept that


change is inevitable, most prefer change to be
continuous, predictable and comfortable. For
the modern organisation, the process of change

area of study

the management of change

is characterised by discontinuity and unpredictability. The external and internal environments


of all organisations are constant sources of
change.

287
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

While change itself is not a new concept, it is


the pace of change that is new. It is important,
therefore, for all organisations to be prepared
for change, adopt a proactive response, be flexible, and yet also manage to plan for the future.
The stability and predictable business environments of the 1950s and 1960s have given
way to increased globalisation and competition,

technological innovation, limited resources,


deregulation, legislative changes, mergers and
acquisitions, and the privatisation of public
sector organisations. Organisations and managers need to be able to develop strategies to face
the many complex challenges and opportunities
presented to them.

The concept of organisational change


change
any alteration to an
organisation and/or its
work environment

The concept of change can be defined in a


number of ways. It is the process of taking the
existing organisation, altering it and establishing
a new or altered form. Change occurs because
of pressures placed on the organisation to make
adjustments to its structures, activities, policies,
behaviours, processes and culture. Change can
take many forms. It can be widespread in all
areas of the organisation or may only impact on
one section or department.
Both the leader and manager have an important role in the change process. One of the main
tasks is to position the organisation to ensure
new ideas and plans can be implemented.
For change to be successful, it is necessary
to have all of the following components; if one
is missing, change will not occur or will not
occur smoothly.

The components needed to manage change


successfully are:
vision
values
strategy
resources
capability
motivation
feedback.

For change to be successful, it is also important to consider its effect on people. The change

288

itself is external and peoples internal reactions


to change will differ. Employees may resist the
change from their current position to a new
unfamiliar situation or altered state. Employees
may also feel a loss of personal identity, be
afraid of failing and be disoriented with where
the change is leading them.
There are a number of emotional stages of
change for employees and the more an organisation accepts and understands this, the easier
the change process will be. The four stages of
change for employees are:
1 Negation employees deny the change,
ignore it or panic.
2 Self-justification employees give reasons
for resisting and opposing change; this
allows them time to try to regain control of
the situation.
3 Exploration this may involve a SWOT
analysis or some type of cost benefit analysis
as a way to look at the change in a context.
4 Resolution this is when an employee
focuses on the future and is positive about
opportunities.
It is therefore reasonable for people to be
unreasonable about change. Many employees
will find change difficult and move backwards
and forwards between these stages. The transition stage is the most difficult employees need
to be able to move on to the new or changed
situation in order to re-establish their familiar
roles and become productive again.

unIt 4 managIng people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

The dynamic nature of the internal


and external (macro and operating)
environments as sources of change
In order to understand and manage change,
organisations need to examine and understand
the pressures for change. There are a number
of layers of the environment in which an
organisation operates. The internal environment is one that is unique to the organisation
itself. Each enterprise will have a mix of internal pressures that includes corporate culture,
employees, policies and management styles
and roles.
External pressures for change can be examined in terms of the operating and macro external environments. These can include pressures on an organisation or an industry. External
pressures include: the economic environment,
social and demographic changes, environmental
pressures, technological advancements, suppliers, competitors, creditors and trade unions.
(The internal and external environments are
discussed in more detail in chapter 2.)

Internal pressures as a
source of change
Management of change is difficult but essential
in large-scale organisations. However, there
can be no progress without it, so management
must be committed to the change to ensure the
organisations success and future, and maintain
the confidence of employees.

internal environment
activities, functions and
pressures that occur
within an organisation
over which it has
control
external environment
all elements outside
an organisation that
will act as pressures or
forces on its operation

Corporate culture
Corporate culture refers to the shared values
and beliefs held by those in the organisation.
(See chapter 4 for more information.)
The values are those principles that shape
this thinking and behaviour. Values and norms
also reveal the standards of behaviour and
conduct to which employees and managers are
expected to conform.

Corporate
culture

Policies

Organisation

Employees

Management
figure 13.1

Internal pressures for change on the organisation

c h a p t er 1 3 management of change
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

289

Cambridge University Press

Culture can impact on the organisation


and cause change. If the culture is seen to be
inappropriate or negative, management must
decide how it can be changed. This may include
training and retraining of employees, changes in
the way promotion and performance appraisals
are completed, and how new employees and
managers may be recruited externally in an
effort to bring in new ideas, values and attitudes.

Policies
Policies are statements developed by the
organisation (see chapter 4) as guidelines for
processes and procedures. Policies may be
developed or amended for a number of reasons,
including changes in the macro environment.
A change in legislation or the introduction
of a new law may require an organisation to
comply with these requirements. For example,
changes to or the introduction of new health
and safety laws or anti-discrimination legislation will require organisations to review and
amend their policies and formulate new ones
if necessary.

Management
Managers are needed whenever there is a situation where people are working together, as they
can influence the direction and progress of the
organisation. Their management style may also
influence the organisation. A participative style
of management will allow employees input into
the decision-making processes and channels.
Recent management literature argues that
the style of manager, particularly at the top
levels within the organisational structure, will
have a far-reaching impact. Some CEOs have
started to get out among their employees to talk
with them, and to delegate many tasks to senior
management. It has been found that the most
effective managers are masters of delegation
and have excellent time management skills.
These skills are vital in a time of change, as
the manager must help lead the organisation
through the required changes.

290

Activity 13.1
Match the following circumstances with an
internal pressure: employees, corporate culture,
management and policies.
1 The front-line management team has
suggested a new method of training for all
staff in the sales area.
2 Senior management has introduced a new
quality customer service program.
3 An organisation is concerned with the
levels of absenteeism within the marketing
department.
4 An organisation has decided to change its
Managing Diversity program.

Employees
Employees are seen as the most important asset
or resource of an organisation and are often
its greatest source of competitive advantage. A
committed workforce with skills and high levels
of motivation usually means a productive and
successful organisation.
Employees are an integral part of the organisation and therefore can have an influence on
its performance as well as being able to exert
pressure on the organisation for changes to areas
such as training, performance appraisal and
policies.

Operating environment
as a source of change
A large-scale organisation must respond to forces
for change that can arise from customer behaviour, supplier availability, competitors, workplace unions and legislation, and other pressures
beyond its control if it is to be successful.

Customers
Customers are crucial to the existence and
success of an organisation. Any organisation
that is not customer-focused will find that its
customers will not return, whereas those that

unIt 4 managIng people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

Customers

Creditors

Suppliers

Organisation

Competitors

Unions
figure 13.2

Operating environment pressures for change

value customers and deliver quality service will


find that customers stay with them.
Changing customer preferences have a direct
impact on the organisation. Successful organisations make sure they are in tune with the tastes
and requirements of customers (both existing
and potential).

Suppliers
Organisations can be affected by their suppliers as they are a key stakeholder. Suppliers
provide the organisation with the inputs necessary to produce a product or service. If there
is a problem with a supplier, the organisation
cannot produce its products as inputs are not
available. Having a preferred supplier or a
good relationship with a supplier may mean
the organisation has assured supply of inputs.
Some industry sectors, such as the car industry, can have their business activities affected
by industrial disputes within the suppliers
organisations.
An industrial dispute at a windscreen
company, for example, can mean the car
manufacturers, who usually operate on minimal
inventory levels, have their production halted
by an issue outside their control.

Competitors
Most organisations in Australia face competition.
A business, therefore, has to ensure that it can
out-perform its competitors. It also means that
an organisation cannot rest on its reputation
and must focus on product quality, innovation
and customer service. Changes may be required
if competitors change their business practices,
while an organisation wanting to be successful
will also have to be proactive and introduce
changes to stay ahead of the competition.

Creditors
When a supplier allows an organisation to take
goods and delay payment for a period of time,
usually a month, it provides a business with a
line of credit and allows it to manage its cash
flow. The development of secure lines of credit
enables a business to operate more efficiently.

Unions
Trade unions represent employees in the
workplace. Trade unions may exert pressure for
change in an organisation, particularly in terms
of a collective agreement (see chapters 10 and
11), which can affect the wages and working
conditions within the business.

c h a p t er 1 3 management of change
Gillian Somers, Julie Cain, Megan Jeffery 2011
ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

291

Cambridge University Press

Activity 13.2
Indicate whether the following statements are true or false.
1 A supplier can have an impact on the production levels within the organisation.

T/F

2 Credit is a way to default on paying a bill.

T/F

3 Customers are an important part of the organisation.

T/F

4 Customers are only important when they return to the business.

T/F

5 Trade unions are able to impact on the working conditions of employees in


an organisation.

T/F

6 If an organisation has a large customer base, it is able to ignore the activities of


other competitors.

T/F

7 A large organisation is always in a position where suppliers will be willing to provide


any parts or items quickly.

T/F

The macro environment


as a source of change
Organisations, even multinational corporations,
have little or no control over the macro environment. The complexities of this environment
must be dealt with in a proactive manner by an
organisation.

Economic pressures
Economic factors such as the level of business
activity, inflation and interest rates, economic
growth, unemployment rates and the value of

the Australian dollar are all factors that may


impact on the organisation.

Political pressures
Political pressures can cause changes within an
organisation. There are three levels of government in Australia: federal, state and local. Policies
and laws made by governments can influence
the organisation. Some changes to laws that
may impact on the operation of the organisation
include health and safety laws and regulations,
trade practices, taxation requirements, employee
and workplace relations, equal opportunity,

Political
pressures
Social and
demographic
pressures

Economic
pressures
Organisation
International
pressures

Geographic
pressures

Environmental
pressures
figure 13.3

292

Technological
pressures

External macro pressures on organisations

unIt 4 managIng people and change

Gillian Somers, Julie Cain, Megan Jeffery 2011


ISBN 978-1-107-63549-4
Photocopying is restricted under law and this material must not be transferred to another party.

Cambridge University Press

table 13.1

Economic pressures for change

economic pressures

Impact on organisation

Business activity

If the level of business activity is high, then people are employed and there is
usual