OpenTuition.com
16
Operational
Level
E1
ex
a
Organisational
Management
To benefit from these notes you must watch the free lectures on the
OpenTuition website in which we explain and expand on the topics covered
In addition question practice is vital!!
You must obtain a current edition of a Revision / Exam Kit - the CIMA
approved publisher is Kaplan. It contains a great number of exam standard
questions (and answers) to practice on.
You should also use the free Online Multiple Choice Tests which you can
find on the OpenTuition website:
http://opentuition.com/cima/
2016 Examinations
CIMA E1 1
Contents
An Introduction to Organisations
2.
Organisational Structure
11
3.
19
4.
23
5.
27
6.
33
7.
45
8.
Operations Management
53
9.
61
10.
73
11.
79
12.
Marketing Tools
93
13.
103
14.
109
OpenTuition.com
1.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
OpenTuition.com
2016 Examinations
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
CIMA E1
2016 Examinations
CIMA E1 3
Chapter 1
OpenTuition.com
AN INTRODUCTION TO
ORGANISATIONS
1. Organisations
An organisation can be defined as:
A social arrangement which pursues collective goals, which controls its own
performance, and has a boundary separating it from its environment.
This is, perhaps, a deceptively simple definition. Probably the most important word is social.
Organisations consist of people and we are all social animals. We have to get on with our
colleagues; ideally we would like our boss, or at least respect our boss. We have to get on with
customers; we have our own ambitions; we have our own motivations. Early management
theory tended to neglect the social side of organisations and management and had a rather
cold, militaristic approach. Modern theories have changed this considerably.
Another important aspect of the definition is that of collective goals. There has to be an
assumption that people within an organisation are ultimately aiming at the same end results,
if they are not, then chaos is likely to rule. One of the functions of management is to arrange
the business and the people in it so that everyone is pulling in the same direction, and the
collective goals are ultimately established.
2. Types of organisations
Organisations can be categorised by:
Ownership;
Motive;
Legal structure.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
2.1. Ownership
Broadly, organisations can be termed private sector or public sector.
Public sector organisations are owned by central or local government.
Private sector organisations are all the rest and will include both businesses and charities.
OpenTuition.com
2.2. Motive
Organisations can be:
Profit-seeking
The motive behind profit-seeking organisations is to make profits. The vast majority of private
organisations are profit-seeking ie they are ordinary commercial businesses. However, some
private organisations are not profit-seeking. An example is a charity. Typically charities are not
owned by governments but are private organisations which seek to raise money and
distribute cash or organise other assistance.
Also, it is possible for public organisations to be profit-seeking. For example, nationalised
industries (industries owned by a government) will often be expected to make profits.
Similarly, some government departments are expected to make profits out of their activities
such as licensing certain activities or providing information to businesses and individuals.
Non-profit organisations do not aim to make profits. They can be private (such as charities) or
public (such as a state health service). Charges might be made for some services, but their
motivation is not based on making profits.
Sole traders
Partnerships
Co-operatives
Most businesses start life with a sole trader structure. This means that a person simply
begins to trade with very little formality. There is no legal distinction between what the
business owns or owes and what its owner owns or owes. This means that the owner
has unlimited liability for the debts of the business. If the business fails, people owed
money by it can pursue the owners personal assets.
If two or more people trade together with a view to profit, then a partnership is
formed. Profits are shared according to whatever agreement has been made between
them. Each partner has unlimited liability for the debts of the business.
For both sole traders and partnerships, tax on their profits is paid by the business
owners through their income tax.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1 5
OpenTuition.com
ownership are designated by shares and they are managed by a board of directors
elected by shareholders. The shares can be bought and sold to alter the ownership of
the company.
Their great advantage is that they give their shareholders (owners) limited liability. This
means that if the company fails and cannot pay what it owes, the shareholders
personal assets are not at risk. The liability of the shareholders is limited to losing their
shares. Note that the liability of the company is unlimited and it can be forced to sell
everything to pay its debts as best it can.
In addition, incorporated entities have a separate legal existence in law. They can own
property, sue and be sued and pay their own tax (often known as corporation tax).
Incorporated businesses continue in existence even after a shareholder dies. That
persons shares are simply inherited by someone.
Limited liability companies range in size from small family companies up to the largest
companies in the world. Many of the large limited companies are listed (or quoted) on
stock exchanges where their shares can be freely bought and sold by investors. A listed
companies shares have a share price that depends on supply and demand for those
shares. Typically these prices vary frequently and the latest prices can be seen in the
financial press or on the internet. This lets investors see immediately what their shares
are worth.
Shareholders can receive a share of the companys profits if the company- directors
decide that the company should pay a dividend. Dividends are defined as a payment
per share owned. The shareholders will also benefit if the value of their shares increase
so that they make a profit when the shares are sold.
Usually limited companies are profit-seeking, but dont have to be. For example, a
charity or school could use this legal structure.
Co-operatives
A co-operative is owned, controlled, and run by a number of people for their own
benefit. They can be profit seeking (eg a cooperative of farmers working together to
harvest and market cereals) or they can be non-profit seeking such as a purchasing
cooperative in which the members can get better deals by working together.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
3. Stakeholders
3.1. Introduction
OpenTuition.com
Anyone or any entity that is aected by the organisation or who has an interest in
it.
Shareholders
Employees
Customers
Suppliers
Local people
Government
Up to around 30 years ago, the term stakeholder was not widely used; all was concentrated
on the needs and requirements of shareholders. Gradually businesses have become aware
that other entities are aected and that they might have legitimate demands. For example,
many manufacturing companies would recognise that the local population has legitimate
concerns about pollution released from the factory and that there are responsibilities to
ensure that employees are not unfairly exploited.
Customers might want 24 hour telephone service but employees want to work 9 5
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1 7
OpenTuition.com
To manage stakeholder conflict management must assess two factors for each stakeholder:
Stakeholder power
Stakeholder interest (ie is the stakeholder interested enough to take action or will the
stakeholder be passive?)
Low
High
Low
Minimal Eort
Keep Informed
Keep Satisfied
Key Players
Stakeholder
Power
High
Key players:
Minimal eort:
Keep satisfied:
potentially powerful but for some reason they choose not to use
that power. They will get some of what they want. If not kept
satisfied they might become key players if they are provoked into
taking action.
Keep informed:
Internal stakeholders
Connected stakeholders
External stakeholders
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
OpenTuition.com
4.1. Introduction
All organisations should have a purpose that is known by their stakeholders. It is important
for stakeholders to agree on the organisations purpose even if they do not necessarily
agree with that purpose. Think of the chaos that would result if shareholders thought the
purpose of the organisation was to make profits but management thought its purpose was
charitable.
4.2. Mission
An organisations mission can be defined as its reason for existence ie what its core purpose
is.
Here are some examples:
Harley-Davidson
We fulfil dreams through the experience of motorcycling, by
providing to motorcyclists and to the general public an expanding
line of motorcycles and branded products and services in selected
market segments.
Microsoft
To empower every person and every organisation on the planet to
achieve more.
GSK
Our mission is to help people do more, feel better, live longer.
Many writers would suggest that the last two mission statements are inadequate as they give
no clue about the companies activities. If you hadnt heard of Microsoft you wouldnt know
its an IT company; similarly the GSK mission statement gives no clue that it is a
pharmaceutical company.
Well-constructed mission statements should contain the following:
Values, ethics and culture (eg oering all employees the chance to progress, complying
with laws, minimising environmental impact).
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1 9
4.3. Vision
OpenTuition.com
A vision, or vision statement, has a very similar content to a mission statement, but there is
more emphasis on the future of the organisation. It is a description of what the organisation
would like to achieve in the medium to long-term. This can serve as a guide when it comes to
making business decisions.
For example, a diversified company might have both consumer products and industrial
products in its portfolio. Its vision might be to concentrate on the consumer sector so a vision
stating that will guide the company in making acquisitions and disposals of subsidiaries.
Facilitate innovation.
Laid down procedures (eg how and when are materials to be ordered?)
Segregation of duties (dividing up a transaction into stages so that several people are
involved).
The control environment (a management attitude that insists that proper procedures
must be followed).
Co-ordination also requires a system, nowadays often an information technology system. For
example, if an order is received then the following co-ordination steps are needed:
If not then:
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
Schedule machinery and labour to make the right number of goods at the right time.
Schedule delivery.
OpenTuition.com
Bad coordination wastes money and other resources, irritates many stakeholders (such as
customers) and is very bad public relations. Long-term it will often cause the organisation to
fail.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
10
2016 Examinations
CIMA E1 11
Chapter 2
ORGANISATIONAL STRUCTURE
OpenTuition.com
1. Organisational structure
This covers both the shape of the organisation and also how people within the organisation
are managed. For example, how do instructions and information get passed around the
organisation? Has the organisation decided to have all accounting going through one
department only, or has it decided that it would be better for each branch to have its own
accounting function.
2. Functional structure
2.1. Basic shape
In this structure each function of the organisation is found in a separate, specialised
department:
Chief executive ocer
Finance director
Sales director
IT director
Production
director
Human resources
director
Chief accountant
Area managers
IT Operations
manager
Factory manager
Accountants
Sales sta
The line of control from top to bottom is known as the scalar chain. Orders tend to move
down the chain from CEO though directors through managers, supervisors and eventually to
the bottom of the organisation. Information tends to move up the chain eg a manager
producing a performance report for the departmental director.
There are two main decisions to make when designing a functional structure:
How many layers should there be? For example, should there be only one managerial
layer or will it be divided into senior managers, managers and assistant managers?
The number of layers will result in an overall shape that can be described as either a tallnarrow or wide flat structure:
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
OpenTuition.com
Tall narrow. Shown below is a structure in which each manager or supervisor has only two
people directly reporting. This means that the span of control is two. There are many layers
and a considerable distance between the top and the bottom of the organisation. These are
sometimes known as vertical organisations.
Wide flat. Shown below is a wide flat structure in which each manager or supervisor has ten
people directly reporting. This means that the span of control is ten. There are few layers and
only a short distance between the top and the bottom of the organisation. These are
sometimes known as horizontal organisations.
Over the last 25 years or so, many organisations have restructured so as to move from tall
narrow towards wide flat. This was because:
It was thought that the many of the layers of middle management in the tall narrow
structure were not carrying out useful functions simply people checking on other
people. Wider, flatter structures allow these employees can be dispensed with and this
saves costs.
Tall-narrow structures were very resistant to change. Employees in each layer had their
entitlements and grades that they were reluctant to give up. There was great structural
inflexibility and this did not suit modern environments in which technical advances and
competitive changes are very rapid. Wider, flatter structures have a more egalitarian
culture with an emphasis on being flexible so as to get the job done
The many layers between top and bottom also meant that vertical communication of
ideas was very slow. In a stable environment this was not so important. Nowadays it is
likely to be a new young employee straight from university who has got valuable
messages for top management such as the importance of social media (Facebook,
Twitter etc) in marketing.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
12
2016 Examinations
CIMA E1 13
OpenTuition.com
Disadvantages
Expensive middle-management
Advantages/disadvantages of wide-flat structures
Advantages
Disadvantages
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
3. Divisional structures
3.1. Introduction
OpenTuition.com
As organisations grow, they inevitably diversify ie they begin do carry out dierent
operations. For example, they might develop additional product lines or begin to operate in
dierent countries. It is then common for the organisation to set up dierent divisions
CEO
Division 1
Finance
Sales
Division 2
Production
Finance
Sales
Production
Geographical area, for example the North American division and the European division.
Products, for example the car division and the truck division, or component
manufacture and finished goods assembly.
Customers, for example the consumer division and the business-to-business division.
Duplication of some functions. For example, the finance and IT functions might be
divided so that each division has its own. This adds to costs.
Specialisation. For example, managers in the North American division can concentrate
on its customers, its competitors, appropriate advertising and prices and the laws that
might govern its products. Similarly the European division. If divisionalisation hadnt
happened then there is a danger that neither market is properly addressed.
Comparison of performance. Divisionalisation will usually mean that the results of each
division are separately prepared and this allows the comparison of each divisions
performance and the possible identification of underperformance.
It is easier to sell a part of the business if they are already set up as divisions.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
14
2016 Examinations
CIMA E1 15
4. Matrix structures
4.1. Introduction
OpenTuition.com
In all of the structures shown so far every person reports to only one superior. In classical
management theory this is known as unity of command and it was regarded as an essential
principal of management: a person should not have to report to more than one boss.
Although this might be a fair approach (for example, how would a person resolve conflicting
demands from two bosses) it often over-simplifies how organisations operate in practice as
often sta have responsibilities to several people and several departments. This is tackled by
the matrix management approach.
Accounting
Quality control
Purchasing
Project A
Project B
Project C
The employee shown is a member of the quality control department but has also assigned to
Project B. Therefore the employee has responsibilities to the quality control manager and to
the Project B manager.
Conflicts could arise. For example, if the project were running behind time, the project
manager could put pressure on the employee to miss out some checks. However the QC
manager would want tall checks to be performed. The wrong way for the employee to make a
decision is to comply with that the manager with the loudest voice and fiercest demeanour is.
Out of the three people involved the employee is the most junior and is not the person who
should be forced to decide on priorities.
However, the matrix structure can empower the employee who can point to it and say that
there are two managers involved in this and that they should communicate with one another
to see if a mutually satisfactory solution is available. What the organisation wants is a win-win
outcome: the project should be finished on time and the work should be to a satisfactory
standard.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
The techno-structure (the people responsible for devising and imposing standards,
procedures and methodologies such as health and safety, quality control, employee
handbooks)
OpenTuition.com
The components will vary in size and importance depending on the nature of the
organisation.
Technostructure
Middle
line
Support
sta
Operating core
This shape was called by Mintzberg the machine bureaucracy and is typical of large
organisations engaged in mass production. The middle line is fairly long and the technostructure is large because consistency and rules are very important in these types of business.
This is a small young organisation that has not developed suppose or techno-structure
activities. There might be only one person with authority (The Boss) and no middle line.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
16
2016 Examinations
CIMA E1 17
OpenTuition.com
The professional bureaucracy is found in professional firms such as accountants and auditors.
The techno-structure is small because each client has a unique set of problems and the work
cannot be standardised as it can be in a mass-manufacturing business. The middle line is
relatively short because there has to be close communication between the strategic apex and
the operating core to ensure that each unique job is properly carried out.
This shows a holding (top company) and a number of divisions or subsidiaries, each with their
own organisational components.
The environment
The culture
These can influence the structure of the organisation and how it is managed.
For example:
The technology being used can mean that the good communication and wide-spread access
to communication and information will allow greater delegation to subordinates.
A very price-competitive environment could lead to a tall-narrow structure where economies
are obtained by breaking down work into simple stages and each employee repeats that task
over and over again. An organisation that relies on providing unique services to a variety of
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
clients would probably benefit from a wide-flat structure where information sharing and
team-work is encouraged.
OpenTuition.com
The culture of the employees and managers also plays a part. If someone is used to being
closely managed then they might feel uncomfortable and vulnerable if they are expected to
manage more of their own work. Highly trained engineers would, however, probably rebel if
they were continually told what to do by a closely supervising manager especially if the
managers skills were out0-of-date.
Size
Formalisation
Specialisation
These can also influence the structure of the organisation and how it is managed.
For example:
Larger organisations will usually have to develop more formal structures for commanding
and processing information.
Some organisations are very formal perhaps because of legal necessity or because they are
involved with high-risk activities (such as a chemical plant) where lives might be at risk if
something goes wrong. Similarly, airlines have very formal and strict procedures for
maintenance of aircraft and training air-crew.
Specialisation can mean that the specialists gain power. High knowledge and ability implies
that these people need to be trusted to apply their skills properly.
The organisational structure can also make a dierence. Sole trader organisations might
simply adopt Mintzbergs simple structure because sole trader businesses are usually small.
Large companies, however, might find that a divisional structure works best.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
18
2016 Examinations
CIMA E1 19
Chapter 3
BOUNDARIES AND SYSTEMS
OpenTuition.com
6.3. Definition
A system can be defined as:
Businesses and other organisations are systems. For example, we saw in the previous
chapters that organisations frequently have a functional structure and it is essential that the
separate departments work together to achieve the organisational aims.
Inputs
The system
Outputs
The system (for example, a business) is separated from its environment (suppliers, customers,
competitors, government etc) by the system boundary.
Most systems take input from the environment, process it in some way, and output it to the
environment. This is obvious in a manufacturing system that takes raw materials and
produces finished products. However, it is also found in other types of organisations. For
example, banks take in cash as deposits and make payments to businesses by way of loans.
News organisations take many pieces of information in and produce finished news stories.
Systems can be broken down into sub-systems. So if the system were a business the subsystems could be the departments within that business. The manufacturing sub-systems
environment will contain the purchasing department that furnishes it with inputs and the
sales department to which it outputs products.
This type of analysis can be useful because managers of a system have to know what is part of
their system (or sub-system), and what is part of its environment. For example, managers
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
have to be clear about who is responsible for ordering goods: it is the production department
because it can predict usage from production schedules or is it the purchasing department
because they keep an eye on stock levels.
OpenTuition.com
An open system is one which takes input from the environment and sends output to it.
Nearly all systems are open.
In theory there can also be closed systems that are completely cut-o from their
environment. These are really theoretical because what is the point in a system that is
isolated? How does it obtain resources to keep functioning? How does it know what its
customers and users want and need?
7. Outsourcing
7.1. Definition
This can be defined as:
Manufacturing. (Apple does not make its own iPhones. That process is outsourced to
manufactures such as Foxconn)
Information technology.
Design
Distribution (logistics)
It might save costs. Even though the outsource company has to make profits for itself, it
might be able to carry out the function more cheaply than the outsourcer could itself.
For example, the company doing the work could operate on a very big scale and could
therefore enjoy economies of scale. Or the company doing the work could be in a
country with lower costs. Outsourcing to a company based abroad is known as oshoring.
It turns fixed costs into variable costs. If a company sets up its own factory then it will
have to suer substantial fixed costs. Outsourcing and buying in goods as needed
makes those costs much more variable so that they fall if demand falls.
Transfer of risk. The company doing the work bears the risk if something goes wrong.
For example, the development of new software frequently takes longer and costs more
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
20
2016 Examinations
CIMA E1 21
than expected. If the development has been outsourced there is a good chance that
the software developers have to bear the costs of overrun.
OpenTuition.com
Access to technical expertise. The world gets more complex and so too do many
processes used by organisations. Now, for example, you expect organisations to have a
good website, but why should a furniture company be expected to have or to develop
expertise in website design and maintenance? It is probably much better to subcontract (outsource) to a specialist, skilled supplier.
There can be problems with quality or the level of service. For example, say that
distribution by a manufacturing is outsourced to a haulage (logistics) company. If
deliveries are late or incorrect, the customer doesnt care who was at fault: they ordered
from the manufacturer and expect deliveries to be on time.
Escape of confidential data. For example, many companies outsource their receivable
ledger processing to specialists known as factors. Obviously, these third party
companies then have a list of the companys customers. Similarly, outsourcing
production will inevitably tell the outsource company how the product is made.
Lack of responsiveness. For example, the outsource company might not update a website as quickly as needed.
8. Alliances
Alliances are agreements between two or more organisations to cooperate.
They can be relatively loose agreements such as seen between airlines when coordinating
flights, code sharing, and cooperating on frequent flyer point, flights and airport lounges.
Alternatively, they can be more formal such as joint ventures in which the participants set up
another company that they jointly own. The joint venture company allows the sharing of
investment, expertise and profits and joint ventures are particularly popular for large high-risk
projects which any single company would be reluctant to undertake.
Airbus started life as a joint venture between four European aerospace companies. The risk,
investment and expertise needed to develop passenger planes to rival Boeing, the dominant
manufacturer, were too great for any single company so the eort was shared over four
participants
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
9. Boundaryless organisations
These are relatively new, unconventional and flexible structures that often dispense with the
normal chains of command. There are three types:
Hollow
Virtual or network
Modular
OpenTuition.com
9.1. Hollow
These organisations retain their core competences and key personnel and outsource
everything else. For example, Apples core competences are in design and software. They
outsource their manufacturing and distribution. They have decided to open their own shops
presumable because of the strong cultural and stylistic message they give to customers.
9.2. Modular
A modular organisation extends the hollow concept by breaking down production processes
into modules. Production is outsourced, but each external organisation is responsible for only
one element of the process. For example, in producing the Dreamliner aircraft, Boeing enters
into contracts with many suppliers, each of which is responsible for one component or
assembly. The outputs of these suppliers can then be integrated
9.3. Virtual
The organisation hardly exists at all. Participants communicate electronically organising sales,
production and delivery. They remove many of the features of the working environment that
were once universal, such as bringing managers and sta together at a particular location
oce or factory. People work together remotely, with little or no dependence on physical
premises.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
22
2016 Examinations
CIMA E1 23
Chapter 4
ETHICS AND CORPORATE GOVERNANCE
OpenTuition.com
1. Ethics
1.1. Introduction
Ethics is concerned with distinguishing between good and evil, between right and wrong
human actions, and between virtuous and non-virtuous characteristics of people and
organisations, and the rules and principles that ought to govern behaviour.
1.2. Terminology
You need to know what the following terms mean:
Absolutists:
Relativists/pluralists:
Consequentialism:
Utilitarianism:
Deontological:
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
Often these guidelines are made available to outside stakeholders to advertise the companys
ethical stance. For example, the Coca Cola ethical guide can be found at:
http://assets.coca-colacompany.com/45/59/f85d53a84ec597f74c754003450c/COBC_English.pdf
OpenTuition.com
Here is a short extract from the section dealing with treatment of customers, suppliers and
consumers:
Always deal fairly with customers, suppliers and consumers, treating them honestly and with
respect:
Even if stakeholder disagrees about what appropriate ethics are, the importance of an
organisation being ethical can be linked to its profitability or its financial viability.
Organisations might obtain advantages by being unethical (for example to encourage sales a
pharmaceutical company could conceal a drugs side eects) but most ethical breaches are
discovered and then huge damage is done both financially and reputationally. Good ethics
therefore:
Lower risk means that capital can be raised more cheaply (the cost of capital and risk are
linked).
Regulatory compliance is easier to achieve, reducing the cost of damages and fines.
Integrity:
Objectivity:
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
24
OpenTuition.com
2016 Examinations
CIMA E1 25
Confidentiality:
Professional behaviour:
Compliance with the ethical guidelines is continually threatened. For example, integrity and
objectivity can be threatened by personal relationships which could mean that an accountant
does not want to report errors made by colleagues. Accountants have to ensure that threats
are reduced to acceptable levels.
Release less pollution and greenhouse gasses than permitted so that the local
population and world resources are safeguarded.
CSR is claimed to oer the following advantages to businesses, all of which might lead to
profit increases:
Not every commentator believes that CSR is a legitimate pursuit of companies and it can be
argued that the proper objective of a company is to maximise its profits and that, legally, it is
the duty of directors to do that on behalf of the shareholders. Of course, that should be done
within an ethical framework and CSR is fine as a marketing and public relation initiative or
where it actually saves costs, such as when energy use is reduced.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
5. Corporate governance
Definition
OpenTuition.com
Corporate governance is the way in which companies are directed and controlled.
Until about 20 years ago, corporate governance was really only exercised through the annual
publication of audited financial statements. This gave shareholders a once a year chance to
check up on how the directors were managing the company.
Major financial scandals, such as Enron and WorldCom, showed that annual financial
statements were insucient for corporate governance. Directors can have over a year
between the release of financial statements to get up to all sorts of mischief and bad decision
making. It was also discovered that directors would often award themselves very large
bonuses which were far too easy to earn.
Many countries therefore released or passed into law corporate governance regulations to try
to ensure that companies were better and more safely managed. The UK Corporate
Governance Code, which applies to companies listed on the London Stock Exchange,
specifies the following (amongst other matters):
The role of chief executive ocers and chairman should be split. This is to prevent the
concentration of power into the hands of one person at the top. The CEO runs the
company and the Chairman runs board meetings.
Boards should appoint non-executive directors (NEDs). NEDs attend board meetings
and can vote but they take no other part in the running of the company. Their purpose
is to oer advice and warnings and to bring in wider outside expertise. The NEDs are
another way of diluting the power of the CEO. Boards should have a balance of
executive directors and NEDs; in large companies this means that at least half of the
board should be NEDs.
NEDs should earn a fixed fee that is not related to profits. This is to prevent them
making decisions that might be risky but which might earn them large bonuses.
auditors
The board as a whole is responsible for decisions and, in particular, strategic (long term)
decisions about the future direction of the organisation.
The board is also specifically charges with implementing a system of internal control
and should keep under review the need for an internal audit department.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
26
2016 Examinations
CIMA E1 27
Chapter 5
THE FINANCE FUNCTION
OpenTuition.com
1. Introduction
This chapter covers:
The purpose of the finance function and its relationships with other parts of the
organisation
How the finance function supports the organisations strategies and operations.
Accounting operations
Analysis
Planning
Decision making
Control
Financial accounting
Management accounting
Treasury
Internal audit
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
OpenTuition.com
It is also responsible for maintaining the double entry system (and memorandum items) of
the organisation:
Cash book (and perhaps petty cash book also. These are books of prime entry also).
Sales day book (a book of prime entry in which credit sales are first recorded).
Purchases day book (a book of prime entry in which credit purchases are first recorded).
Transactions are recorded in these books more or less as they occur and the financial
accounting system deals with the recording of historical transactions.
The financial statements are produced from the nominal ledger as each account ends up on
either the statement of financial position or the statement of profit or loss.
In most countries, businesses have to produce annual financial statements. These are needed
for tax purposes but also they are published so that shareholders of the company can see
how it has been doing. To add credibility to the financial statements, they will often be
audited (ie checked over) by independent outside auditors.
The financial statements have to follow detailed rules and regulations about lay-out and
disclosures made.
It is generally the financial accounting department which is closely associated with the
organisations system of internal control. The internal control system is there to try to prevent,
detect and correct errors that might occur and also to ensure that the organisations assets
are safeguarded. The last function is sometimes known as stewardship. The directors,
managers and other employees have a responsibility to look after the companys assets on
behalf of the shareholders. Examples of typical internal controls in place to do this are:
Inventory should be locked in store rooms and only issued upon proper authorisation
Purchase invoices need to be checked to ensure that goods were ordered and received
Payments to suppliers should be authorised only after the company is sure proper
goods have been received.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
28
2016 Examinations
CIMA E1 29
OpenTuition.com
Drafting budgets for profits, statement of financial position and cash flow. Budgets are
rarely for less than a year and will normally be broken down month by month. Often,
longer range budgets are also estimated, such as for three years. These are useful in the
long-range planning and funding of the business.
Comparing actual results to budgets and investigating the reasons for dierences. The
dierences between budgets and actual result are known as variances.
Working out the cost of units produced and controlling those costs.
Advising on the selling prices of units produced (should be greater than cost!)
Working out the eects of business decisions such as outsourcing production, setting
up an overseas operation or closing a factory.
Management accounts (results so far, variance analyses and budgets) are usually prepared
and presented to the board once a month so that timely action can be taken if something is
going wrong.
2.4. Treasury
This department is found only in larger organisations. It is concerned with:
Company finance. Does the company need to raise a loan or issue more shares?
Where to deposit temporary surpluses of funds so that they can earn some interest.
How to reduce the risk from currency movements when importing or exporting.
How to reduce the risk from interest rate movements on borrowing or deposits.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
OpenTuition.com
Most of the work of an internal audit department is making sure that the organisations
system of internal control is operating as it should be. Internal auditors go round the various
departments and check that employees are following the laid down procedures. For example,
they might select a sample of employee time sheets and ensure that all had been authorised
by the appropriate manager. Or they might make a surprise visit to the factory stores to count
some items and compare their result to the amount of inventory shown in the inventory
records.
It might sometimes be discovered that the laid down internal control system is inadequate
and internal audit would then recommend improvements to accounting procedures.
Ideally, the internal audit department will have its work determined and will report findings
to the audit committee. The audit committee is composed of non-executive directors who are
independent of the day-to-day running of the company. So, if very poor internal control was
discovered, this would be reported to the audit committee who could then raise the matter at
a board meeting. If internal audit report to the finance director, the finance director could
well suppress the findings to save face.
The internal audit department is sometimes given special assignments such as trying to
establish the eciency of a department (value for money) or perhaps they are asked to
investigate the extent of a fraud that was discovered. Fraud requires:
Motivation (for example, an employee is short of money to pay his or her rent)
Fraudulent financial reporting eg where profits are exaggerated to achieve a high share
price.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
30
2016 Examinations
CIMA E1 31
OpenTuition.com
A company secretary is the chief administrative ocer of the company, responsible along
with the directors for certain tasks under the Companies Act, particularly with regard to
ensuring compliance with statutory and regulatory requirements.
The company secretary is not necessarily a director, though can be. The secretary will attend
board meetings and take the board minutes for later circularisation. Many of the
communications that go to shareholders, such as notification about meetings, will be sent
out by the secretary. Documents that have to be filed with the regulatory authorities will also
be sent out by the secretary.
Accounting operations
Analysis
Planning
Decision making
Control
Each of these can give rise to conflicts of interest and pressure not to record or interpret
information accurately or to make incorrect decisions. Of course, the ethical principles
described in the previous Chapter (such as integrity) should prevent this.
Here are some examples:
Accounting operations: items of expense reduce profits whilst capital expenditure does not.
An accountant could come under pressure to deal with expenditure incorrectly so as to boost
profits (ie treat it as capital expenditure rather than revenue expenditure).
Analysis: conceal the reasons for underperformance in one area. For example, the treatment
of fixed overheads is often arbitrary and shifting these about can alter the apparent
performance of dierent departments or branches.
Planning: If the directors want to close down one part of the operations, there could be
adverse knock-on eects in another. Management accountants might be pressured do
conceal this eect.
Decision-making: directors, particularly directors of listed companies, usually want to produce
increasing profits or at least profits close to those forecast. It is possible to boost short-term
profits at the expense of long-term profits. For example, cutting research and development
will increase current profits. However, this will mean that in a few years profits will suer
because there are no new products available to market.
Control: a fraud has been discovered. This can be embarrassing for the finance director, so
there is pressure to conceal it.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
OpenTuition.com
According to Burns and Scapens, there are three main reasons for the change in the
management accountants role:
Changes in management structure: the responsibility for budgeting has moved from
the centre to individual managers leaving the management account to focus more on
strategies for improvement. For example, shared services makes the single finance
function much more important.
In addition, the following will have influenced the role of the management accountant:
New business processes and business process re-engineering eg just in time inventory
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
32
2016 Examinations
CIMA E1 33
Chapter 6
TECHNOLOGY AND INFORMATION
OpenTuition.com
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
Complete:
Cost-beneficial:
User-targeted:
Relevant:
Authoritative:
Timely:
Easy-to-use:
OpenTuition.com
Accurate:
It should be realised that people at dierent levels in an organisation require dierent types
of information
Top
management
/ board
Middle management /
supervisory
Operational sta
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
34
2016 Examinations
CIMA E1 35
OpenTuition.com
Information for top management is often forward-looking (for planning purposes) as well as
historical, makes use of many estimates, and needs to be sourced externally as well as
internally (eg what are our competitors doing?). It is often highly summarised and presented
in graphical formats. It is often ad hoc meaning that very dierent reports and information
can be required at short notice.
Information for operational sta is almost always internal, historical and very detailed and
very accurate. It is almost always routine. It is primarily used for recording transactions and
making simple decisions.
Middle managers have a mix of informational needs.
A good IT system has to be capable of supplying suitable information to every level.
3. IT Choices
3.1. Introduction
The choices available can be classed under:
Configuration
Local or cloud?
Centralised or decentralised?
3.2. Configuration
At one time most computers were stand-alone ie they had no communication with other
computers. This was of limited use in business because there is usually a need to cooperate
on tasks, to share information and to send emails.
Soon, the concept of networks emerged:
Local area networks (LANs): these operate over a restricted area such as an oce, hospital
or university campus. Special wiring is installed to connect up the machines. There is usually a
special machine called a file server where shared information is held and there might be a
print server which allows a printer to be shared between many users.
Wide area networks (WANs): these operate over national and international distances,
linking users in dierent cities and countries. They rely on public networks to transmit
information from one local area network to another. This, of course, can increase the chance
of the information being intercepted or altered whilst in transit. It is vitally important that
information is encrypted before it is transmitted then decrypted by the authorised recipient.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
These technologies are not so important for oce based employees but have become vital to
employees, such as sales personnel and service engineers, who are often away from the oce
at customers premises. Sales can now be booked remotely when orders are placed, or
technical information on the network server can be easily accessed.
OpenTuition.com
By and large, until relatively recently all computers, whether stand-alone or in a network had
their own copies of every program they used and they performed their own processing. Often
results and files were stored locally also.
A new and increasingly important approach is for each machine simply to act as an interface
for the data and processing that are stored and executed elsewhere. This is the cloud
approach.
For example, if you are word processing using Word, instead of Word operating on your
machine, Word is operating on a large, remote server and the local machine simply acts as an
input-output interface. Local users have the impression of local processing but it is done
remotely. The Word file will also usually be stored remotely, but it could be printed locally.
The advantages of this approach are:
Cheaper software. The company pays for a licence which is costed according to use not
per machine.
Easier software updates. If an updated copy of the software becomes available only the
cloud version needs to be updated. Previously every users machine had to be brought
up-to-date and inevitably machines often began to run dierent versions of the
software.
Easier maintenance. The complex processing runs centrally and that is likely to be
where problems occur. So maintenance and trouble-shooting is easier.
Because the software and data are held in the cloud, it can be accessed from any
location by anyone who is authorised to do so. No longer will users be inconvenienced
because they forgot to copy a file to their lap-top as they went to visit a client.
Disadvantages:
It is completely reliant on the data communication system working and users having
access to communications.
Another company has custody of the software and the data and some users are uneasy
about confidentiality and security risks.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
36
2016 Examinations
CIMA E1 37
OpenTuition.com
In a decentralised system each computer in the system does its own processing. A
decentralised system is sometimes known as a distributed system because processing power
is distributed, or spread, over many machines.
The advantages of one system tend to be the disadvantages of the other.
Advantages of centralised/disadvantages of decentralised
All data and processing is centralised so is easier to control and safeguard. For example,
access and regular backups are centrally controlled. In a decentralised system you
would be relying on many users to back-up their files and to ensure that passwords
were changed as necessary.
Centralisation will mean that there is less risk of incompatible hardware or software
being added.
Faster and more flexible response to user needs. Each user can be given power to install
suitable software. In a centralised system budget and administration processes can slow
down the adoption of new centralised applications.
More resilient to breakdown. If a centralised computer breaks down no user will be able
to work. In a decentralised system a machine breakdown will probably aect only one
user.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
An extranet is when one intranet is given access to another. For example a supermarket
system might be given access to a suppliers system so that stock and orders can be more
easily managed.
5. Big data
OpenTuition.com
There are many definition the term big data but most suggest something like the following:
Extremely large collections of data (data sets) that may be analysed to reveal patterns,
trends, and associations, especially relating to human behaviour and interactions.
In addition, many definitions also state that the data sets are so large that conventional
methods of storing and processing the data will not work.
In 2001 Doug Laney, an analyst with Gartner (a large US IT consultancy company) stated that
big data has the following characteristics, known as the 3Vs:
Volume
Variety
Velocity
These characteristics, and sometimes additional ones, have been generally adopted as
essential qualities of big data.
Variety:
disparate non-uniform data of dierent sizes,
sources, shape, arriving irregularly, some from
internal sources and some from external sources,
some structured, but much of it is unstructured
Characteristics
of big data
(Laney)
Velocity:
data arrives continually and
often has to be processed very
quickly to yield useful results
Volume:
a very large amount of data. More than
can be easily handled by a single
computer, spreadsheet or
conventional database system
The commonest fourth V that is sometimes added is Veracity: is the data true? Can its
accuracy be relied upon?
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
38
2016 Examinations
CIMA E1 39
5.1. Volume
OpenTuition.com
The volume of big data held by large companies such as Walmart (supermarkets), Apple and
EBay is measured in multiple petabytes. Whats a petabyte? Its 1015 bytes (characters) of
information. A typical disc on a personal computer (PC) holds 109 bytes (a gigabyte), so the
big data depositories of these companies hold at least the data that could typically be held on
1 million PCs, perhaps even 10 to 20 million PCs.
These numbers probably mean little even when converted into equivalent PCs. It is more
instructive to list some of the types of data that large companies will typically store.
Retailers
Via loyalty cards being swiped at checkouts: details of all purchases you make, when,
where, how you pay, use of coupons.
Via websites: every product you have every looked at, every page you have visited,
every product you have ever bought. (To paraphrase a Sting song Every click you make
Ill be watching you.)
Banking systems
Every receipt, payment, credit card payment information (amount, date, retailer,
location), location of ATM machines used.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
5.2. Variety
Some of the variety of information can be seen from the examples listed above. In particular,
the following types of information are held:
Browsing activities: sites, pages visited, membership of sites, downloads, searches
Financial transactions
Interests
Buying habits
Geographical information
Text
Numerical information
OpenTuition.com
Structured data:
This data is stored within defined fields (numerical, text, date etc) often with defined
lengths, within a defined record, in a file of similar records. Structured data requires a
model of the types and format of business data that will be recorded and how the data
will be stored, processed and accessed. This is called a data model. Designing the model
defines and limits the data that can be collected and stored, and the processing that can
be performed on it.
An example of structured data is found in banking systems, which record the receipts
and payments from your current account: date, amount, receipt/payment, short
explanations such as payee or source of the money.
Structured data is easily accessible by well-established database structured query
languages.
Unstructured data:
Unstructured data refers to information that does not have a pre-defined data-model. It
comes in all shapes and sizes and this variety and irregularities make it difficult to store
it in a way that will allow it to be analysed, searched or otherwise used. An often quoted
statistic is that 80% of business data is unstructured, residing it in word processor
documents, spreadsheets, PowerPoint files, audio, video, social media interactions and
map data.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
40
2016 Examinations
CIMA E1 41
5.3. Velocity
OpenTuition.com
Information must be provided quickly enough to be of use in decision making. For example,
in the above store scenario, there would be little use in obtaining the price-comparison
information and texting customers once they had left the store. If facial recognition is going
to be used by shops and hotels, it has to be more-or less instant so that guests can be
welcomed by name.
You will understand that the volume and variety conspire against the third, velocity. Methods
have to be found to process huge quantities of non-uniform, awkward data in real-time.
Data mining: analysing data to identify patterns and establish relationships such as
associations (where several events are connected), sequences (where one event leads to
another) and correlations.
Predictive analytics: a type of data mining which aims to predict future events. For
example, the chance of someone being persuaded to upgrade a flight.
Text analytics: scanning text such as emails and word processing documents to extract
useful information. It could simply be looking for key-words that indicate an interest in a
product or place.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
Regulation:
Employee monitoring:
OpenTuition.com
Cost:
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
42
2016 Examinations
CIMA E1 43
OpenTuition.com
In addition to the obvious privacy issues, the following are ethical and social and
security dangers:
Theft of information (such as the theft of credit card information, the hacking of emails
and industrial espionage).
Fraudulent websites (eg phishing sites can look like legitimate bank sites and can
induce people to enter their account and PIN numbers).
Denial of service attacks (DoS) where there are attempts to make a machine or network
unavailable to its intended users. For example, a site is bombarded with automated
requests for access and the site fails.
Computer viruses which might simply be a nuisance or which are designed to cripple
machines and systems.
Physical dangers, such as floods, fire or terrorist attacks can mean that organisations
cannot continue to function.
Innocent harm being done. For example, there have been several recent cases of banks
updating their software and errors in the updates caused on-line banking and cash
machines to fail for several days.
Ensure that data is held safely and securely including physical security.
Ensure that data can be accessed only for authorised purposes by authorised
individuals
Have suitable standby arrangement (disaster recovery plan) should the computer
system be severely damaged.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
OpenTuition.com
Hot-desking: employees do not have a permanent desk, but simply log in when they
arrive at any empty desk. All calls, emails and information that they need is routed to
their location. This can allow companies to reduce the space needed for employees if
the business is one where many employees are working out of the oce at clients
oces or other sites.
Home working: many employees no longer go to work every day, but log into their
employers computer from home. Usually employees are required to physically attend
the oce some days per week for meetings, team-building and socialising.
VOIP (Voice over internet protocol): probably the best known example is Skype.
Audio-visual links are provided over the internet for a very low cost. This technology
facilitates tele-conferencing and home working.
Virtual teams: team members need to rarely meet physically. Communication and
collaboration over the internet and through networks allow geographically distant
team members to achieve a high degree of cooperation.
Product delivery: increasingly music and television are being delivered over the
internet, often on demand (eg Netflix).
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
44
2016 Examinations
CIMA E1 45
Chapter 7
IMPLEMENTING NEW IT SYSTEMS
OpenTuition.com
1. Overview
1.1. The stages
Typically these are:
Feasibility study
Investigation
Analysis
Design
Training
Installation
Testing software
Changeover
2. Feasibility study
2.1. Introduction
A feasibility study is a preliminary look at a proposed IT project to judge if it is:
Operationally feasible. Will it produce the information and results needed by the
organisation?
Socially feasible. Will sta, customers and any other stakeholders involved want to use
the system?
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
OpenTuition.com
Obviously a profit-seeking business will require this if profits are to be increased. But even in a
not-for-profit organisation, like a state hospital, funds will be rationed and they should only
be spent if the benefit is large enough.
In general, costs are relatively easy to estimate. They will be a mix of initial capital costs to
acquire the hardware and software followed up by on-going running costs. The initial costs
can be estimated from tenders from suppliers and the ongoing costs can be estimated from
salary rates and the cost of consumables.
However, estimating likely benefits is almost always much more dicult. These will occur in
the future (and that adds to the uncertainty), but not all of the benefits will be easy to predict
because of their nature. Here are two main types of benefit:
Tangible (quantifiable) benefits: for example, saving salaries because the new system allows
for more automation.
Intangible benefits: for example, benefits arising from greater eciency, less waste, better
customer satisfaction and improved reputation.
So a new inventory handling system in a supermarket might mean that the supermarket
rarely runs out of goods, but turning that improvement in customer service into quantified
increases in future profits is going to be fraught with diculty and estimates.
In addition, in most IT systems a large proportion of the costs will be incurred now, but most
benefits are likely to be enjoyed in the future. This type of project requires special investment
appraisal techniques such as discounted cash flow analyses. These techniques are not met
until paper P2
Investigation: how does the organisation process and use information at the moment?
Analysis: understand the organisations needs for better performance and information
Large organisations might have their own team of analysts who will carry out these steps, but
many smaller ones make use of third parties.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
46
2016 Examinations
CIMA E1 47
OpenTuition.com
5. Changeover
This is a critical step. The aim is to stop using the old system and to start using the new one.
There are four approaches:
Direct:
Parallel run:
Keep the old and new systems working in parallel for a few
weeks of months. If the new system does not work, you can
fall back onto the old system. The parallel run also acts as
an extended test of the new system. Of course, the
workload in increased by this type of changeover.
Pilot operation:
Phased changeover:
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
OpenTuition.com
How are the costs and benefits turning out? Are they as expected or was an error made
in the estimates?
6.2. Maintenance
Maintenance is an ongoing requirement and there are three types:
Corrective maintenance: something did not work correctly and has to be fixed.
Adaptive maintenance: the environment changes (for example dierent tax rules) and
the system has to be brought up-to-date.
Organisations have little choice in relation to the first two types: they have to be carried out.
However, care is needed in relation to the third type of maintenance. Perfective maintenance
is when users ask for enhanced performance and features. The system is working
satisfactorily, but could be improved. The danger is that users ask for improvements which
are relatively minor in their impact but which might be very expensive to implement. For
example, cutting response times from 2 seconds to 1 second might lower users irritation a
little, but could require very expensive, faster hardware.
Strictly, for perfective maintenance a new feasibility study is needed: are the costs
outweighed by the benefits?
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
48
2016 Examinations
CIMA E1 49
7. Resistance to change
OpenTuition.com
New IT systems can confront employees with considerable changes to their work
environment and duties. If is not uncommon for employees (and others) to resist change.
Some of the reasons are:
Education and communication: explain to employees why the change is needed and
communicate what it will involve. If possible tell employees that there will be no
compulsory redundancies and that training and support will be provided.
Participation: after explaining why some sort of change is needed let employees
contribute and participate in deciding what the changes should be.
Envision the future: explain that the changeover process might be dicult but after a
couple of months working will be better and jobs will be safeguarded.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
8. Outsourcing
8.1. Overview
Instead of running their own IT department some organisations outsource it to a specialist
firm. For example, in the UK many local councils have outsourced IT.
OpenTuition.com
It is often appropriate to do this if the activities being outsourced are not of strategic
importance and are more in the nature of support activities such as invoicing, payroll and
accounting. Outsourcing strategically important activities (such as design or customer
relationship management) is more problematic because you are often telling a third party
how to carry on the core activities of your business such as maintaining good customer
relations.
Transfer of risk. If data is compromised it is the responsibility of the outsource firm and
compensation should be payable.
Free management to concentrate on how the business makes money rather than how it
runs its IT department.
The outsource company might not be very responsive to the clients needs eg to update
the processing that is oered.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
50
2016 Examinations
CIMA E1 51
9. E-business
OpenTuition.com
9.1. Introduction
The terms e-business and e-marketing are often user interchangeability but strictly ecommerce refers to the customer-facing side of the operation (web-site, sales, order delivery)
whereas e-business includes e-commerce plus internal processes such as inventory, human
resources, production and finance
E-commerce implies marketing, buying and selling over the Internet. Most businesses now
have a web presence even if not buying and selling through their website. A simple web-site
can provide customers and potential customers with details about the company.
Furthermore, a well-designed web-site should be findable by Google and other searchengines and this can be a valuable source of new business.
Strictly, e-commerce means entering into transactions over the Internet. For example a
company like Amazon trades exclusively in this way. Other companies, like many
supermarkets, have a mix of physical outlets plus they allow customers to buy through their
web-site for delivery by courier or post.
Intelligence:
Individualisation:
Interactivity:
Integration:
Social media, such as Facebook, have become very important tools in e-marketing.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
OpenTuition.com
As mentioned in Chapter 6, fast, cheap and secure communication systems are increasingly
allowing employees to work from home for at least part of the time. Virtual private networks
allow sta to access their oce system from home. Homeworking (or tele-working) save
employee commuting time, reduce the environmental impact of commuting and can reduce
the size of oces needed because employees will rarely all be there at the same time. Homeworking can also attract employees who live further away and who would not be able to
commute daily.
Hot-desking is when employees do not have a permanent or set desk. When they arrive in the
morning they are assigned a desk and telephone calls are touted to them. Logging onto their
computer will allow them to see their own desktop and work. There are usually lockers
available in which personal belongings and papers can be stored. Hot-desking is particularly
useful when only a fraction of sta are physically present on any day in the oce. Desks need
to be provided only for the normal number of people there.
New technology can also allow video-conferencing so that virtual meetings can take place
without the need for sta to undertake expensive and time-consuming travel.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
52
2016 Examinations
CIMA E1 53
Chapter 8
OPERATIONS MANAGEMENT
OpenTuition.com
Procurement/purchasing
Receiving orders
Despatching goods
Support/
secondary
activities
Technology Development
Human Resource Management
Procurement
Inbound
Logistics
Operations
Outbound
Logistics
Marketing
& Sales
Service
Profit, or margin
Primary activities
This model represents organisations by setting out the activities they carry out.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
OpenTuition.com
Firm infrastructure (head oce activities and support activities such as accounting and IT),
technology development (research into new products and processes), human resources and
procurement (placing orders) are known as support activities and are mostly indirect-costs.
The other activities are primary activities. Inbound logistics is the physical receipt and
warehousing of raw materials, operations is the manufacturing stage, outbound logistics is
the storing of finished goods and delivery to customers, marketing and sales finding out what
customers want and advertising the goods, service is after-sales service such as maintenance
and the supply of consumables
By carrying out these activities organisation can make profits. However, it is essential for the
organisation to know what gives the right (or ability) to make profits. Why do customers pay
enough to allow a profit to be made? It might be because:
Whatever it is that customers value is the key to an organisations success and its
performance there needs to be carefully managed. The organisation also has to be careful
about changing or removing activities or performance that customers value and cherish. If
these activities are removed performance will suer. So short term performance
improvements in one area might lead to long-term performance decreases in another.
However, if an organisation is carrying out tasks that are not valued by customers,
performance could well improve if these were changed or discontinued.
For example, in the UK many financial institutions moved their call centres to other countries.
Many customers disliked this particularly elderly customers whose less acute hearing gave
them problems with foreign accents. The operations carried on by the financial institutions
were therefore less acceptable to customers who began to move their business elsewhere.
Many institutions have begun to reverse their call centre o-shoring
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
54
2016 Examinations
CIMA E1 55
OpenTuition.com
Sales
Procurement
Collaboration
Production
Distribution
Sales
Procurement
Collaboration
Procurement is seen as a primary activity. It is a central part of the supply chain and not
merely a support function. Wise and skilled purchasing will be capable of creating value.
Customer-facing activities (previously, sales, marketing and services) are combined into
sales.
Operations in Porters value chain are more precise (but perhaps more restricted) with
the term production.
Concluding, the supply chain and supply chain network concept extends Porters value chain
concept towards cross-company networks in order to improve eciency and delivery service,
minimise costs and inventories.
The important additional emphasis in this presentation is on collaboration between upstream suppliers and the down-stream customers.
Upstream = the supply chain before materials and goods reach the manufacturer
Downstream = the supply chain for products after they leave the manufacturer and are
on their way to customers.
Together, they form the value network that creates value through the appropriate operation
of the whole chain to improve eciency, delivery accuracy and times, cost reduction and
inventory minimisation.
You will readily understand that collaboration can often be greatly facilitated by the use of
information technology, which can integrate online orders received from customers with
manufacturing inventory management and purchases of raw materials and components from
suppliers.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
OpenTuition.com
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
56
2016 Examinations
CIMA E1 57
OpenTuition.com
Third Party
Logistics Company
Ultimate
Supplier
Supplier
ORGANISATION
Third Party
Logistics Company
Customer
Ultimate
Supplier
Third Party
Logistics Company
As with many other functions, outsourcing is increasingly used in supply chain management.
Logistics companies can perform many supply chain functions more eciently and
economically than they can be done in-house.
These can be complex. For example, here is the supply chain network for an orange juice
company:
Upstream
Downstream
Inbound logistics
Outbound logistics
Orange grower
Supermarkets
Wholesalers
Juicing plant
Bottler
Juice marketer
/supplier
Label producer
Retailers
Logistics firms
Restaurants
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
C
O
N
S
U
M
E
R
S
2016 Examinations
CIMA E1
3. Supply portfolios
3.1. Introduction
Not all supplies and raw materials are of equal importance. A supply portfolio approach
(Kraljic) allows organisations to display their supplies according to:
OpenTuition.com
Profit impact
Low
High
Low
Acquisition
Leverage
Critical/bottleneck
Strategic
Supply
diculty
High
Strategic: High profit impact; high market diculty. Example: special software.
By segmenting the market in this way, it becomes possible to decide on the required
approach to suppliers and the most eective way to purchase the resources.
Acquisition/non-critical quadrant.
Items in this quadrant have a profile of low market difficulty and a low profit impact
(expenditure). Buyers might be tempted to spend a lot of time in this quadrant.
However, that would not be a wise business decision as the return on the time invested
would be small.
Items in this quadrant should be bought in a standardised, simplified way to minimise
costs.
Critical/bottleneck quadrant.
Items here have the profile of high market difficulty and low profit impact (expenditure).
Typically, the supply market is difficult because there is only a small number of
suppliers. These items do not have a high profit impact until they are not available.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
58
2016 Examinations
CIMA E1 59
A risk analysis with respect to supply should be carried out. A cost reduction strategy
is inappropriate in the critical quadrant in case supplies dry up. One way of reducing risk
might be to over-order when supplies are good.
Leverage quadrant.
OpenTuition.com
The items in this quadrant have low supply market difficulty and high profit impact
(expenditure). The return on time invested in this area will result in profit maximisation.
A planned cost reduction strategy for items in this quadrant. For example, there are
many suppliers who can be played off against one another.
Strategic Quadrant.
Items in this quadrant have the profile of high market difficulty and high profit impact
(expenditure). These items lend themselves to a strategy such as taking over a supplier
or forming very close links with one. Cost reductions in this area require a long term
strategic plan to ensure continuity of supply in these expensive items.
Suitable strategies are those that reduce risk and maximise profit. These strategies can
take two directions: a partnering strategy with a suppliers or a strategy to create
competition (eg by self-supply) and drive the item to the Leverage Quadrant.
Some of the main choices to be made in supply chain pathways are as follows.
Who stores the goods? The organisation, the supplier, or a logistics company.
Which manufacturing, packaging, labelling, kitting, or completion tasks are carried out
by the organisation and which by other parties? (Kitting relates to processes such as
adding batteries).
Who is responsible for quality assurance and proper handling of the goods?
Environmental (ecological)
Social and
Financial
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
The social, environmental and financial objectives are sometimes referred to as the triple
bottom line. The concept is a departure from the traditional concept of the bottom line,
which evaluates all eorts in terms of their short-term eect on profits.
OpenTuition.com
Historically social and environmental concerns have been largely ignored as they were
thought to conflict with financial goals. For example, depletion of natural resources, such as
oil and gas is obviously not a sustainable practice. However, because alternatives typically
require investments in infrastructure which are slow to show returns continuing to rely upon
fossil fuels is the least expensive short-term option.
The goal of sustainability requires a more extended timeline for return on investment but
once initial investments are made, they can actually lead to increased profitability. One
example is free cooling and renewable energy sources for data centres. Companies like
Facebook, Google and Apple have huge data centres to hold and process the vast amount of
data they use. The machinery is very power hungry, so many intensive users have chosen to
locate these facilities in countries like Iceland and Norway to make use of hydro-electric
power and where the northern Nordic climate provides natural ways of cooling the servers.
Although the technologies involved may require initial cash outlay, the renewable resources
they rely upon are freely available and reliable, which will eventually pay o. Besides that,
there are valuable public relations reputational advantages.
Similarly, investments in socially ethical practices may initially cost a business a lot but
typically lead to enhanced recruitment, branding and public relations which all tend to lead
to increased profitability in the long run.
The following are examples of how organisations can improve their sustainability using
operations management:
Location of suppliers, production facilities and customers. If the distances that goods
have to be transported can be reduced, it is likely that operations will be more
environmentally sustainable. For example, buying locally produced food rather than
imported.
Eciency improvements: less raw material waste, recycling, better use of power and
conservation of heat. Not only will these measures save money (often after initial
investment) but that will then allow goods to be provided at lower prices, thereby
improving competitive strength.
Manage sta to make the best use of their skills, knowledge and experience. Recruiting
the right people for the right jobs and providing them with the necessary training,
support, safety measures and responsibility to work eciently is important to the long
term sustainability of businesses especially as the technical content of many jobs is
increasing and it might be more dicult to recruit suitable people
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
60
2016 Examinations
CIMA E1 61
Chapter 9
OpenTuition.com
Process design refers to how a process is carried out and will generally show:
Departments/people involved
Movement of material
Movement of information
Order
Received
Check
Credit
Check
Credit
OK?
No
Order Stopped
Yes
Credit OK
OK?
No
Yes
Order
Entered
Invoice
Prepared
In
Stock?
Shipped
Order?
Invoice
No
Yes
Production
Scheduled
Disk
copied
Packages
Assembled
Order
Picked
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
Order
Shipped
Payment
Process Payment
Invoice
Customer
Order
Completed
Order
Generated
Sales
Often the process is shown on a process map, also known as a swim-lane diagram. Heres an
example showing the steps involved in receiving customers orders in a software company:
2016 Examinations
CIMA E1
Process maps can be used in both manufacturing and service industries. And they have two
purposes:
To document the way operations should be carried out. This can be very useful for new
recruits and for training. It can also help to ensure that the proper steps are carried out
so that the quality of the product or service is consistent.
To analyse the processes to see if all steps are necessary or if they could be re-arranged
and simplified to deliver a more ecient operation.
OpenTuition.com
Automation:
Rationalisation:
Design:
Materials:
Processes:
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
62
2016 Examinations
CIMA E1 63
OpenTuition.com
There should be an established process for bring new products or services to market:
Market research
Screening ideas:
Design:
Test marketing:
are there
It is increasingly important to be able to develop new products and services quickly ie the
time-to-market should be short. It is important to be quick because:
Technology changes quickly and if development is too slow the product will be out of
date before launch
3. Forecasting
3.1. Introduction
Good forecasting is essential for good operations management. Forecasts are needed for
activities such as:
Ordering materials
Recruitment
Production
Scheduling work
Forecasting the demand for existing products will rely on historical data adjusted for known
or expected changes in demand.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
OpenTuition.com
For example, you might have a reading for costs when production was 10,000 units and
20,000 units. Predicting costs when production id 14,000 units is interpolation. Predicting
costs when production id 30,000 units is extrapolation.
Once demand has been predicted material, labour and machine requirements can then be
calculated.
It is important to realise that before using the linear regression results the correlation of the
two variables should be estimated. Correlation measure how reliably the two variables move
together. You would expect correlation to be high between production volume and the
quantity of material used, but low between the volume of sales in a month and, say, the
number of letters in the name of a month.
Time series analysis: one of the problems with linear regression is that it only gives straight
line results, and many businesses go through seasonal patterns or variations. For example,
sales of sun tan lotion will rise in summer. Better prediction should take account of these
variations so that production and distribution can be appropriately adjusted.
A time series is one that moves with time e.g. sales each day.
There are four components of a time series:
Seasonal variations regular variations with a cycle length of less than a year.
Cyclical variations regular variations with a cycle length of more than a year
Time series analysis tries to analyse the first two of these. Below, you can see that although
the sales rise and fall regularly, there is an underlying increase in sales. This is known as the
trend (dotted line)
Sales
Time
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
64
2016 Examinations
CIMA E1 65
The extent and timing of the seasonal variations can then be estimated so that it would be
possible to, say, predict sales in summer two years away - taking into account the particular
characteristics of that season.
OpenTuition.com
When it comes to forecasting demand for new products, organisations obviously have less
information to work on. Techniques include:
Taking into account apparent demand for similar products or rivals products
Test markets make the product available in a few outlets and measure uptake there
The Delphi technique. This is an iterative technique whereby experts give their opinions
which are then summarised and fed back to the experts who are encouraged to look
critically at the outcomes and where necessary to modify their opinions. This can go
through several cycles.
Product layout
Cell layout
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
OpenTuition.com
Cutting
Drilling
Testing
Testing
Plating
Functional layouts are very flexible and relatively robust in case of disruptions eg a machine
breakdown because often other processes will not be held up. They are also easy to supervise
at the process level because each process has its dedicated team.
However, because there are many dierent flows, managing the whole system can be
complex to ensure that there are no delays or mis-schedulings.
Process 1
Process 2
Process 3
Process 4
Process 5
The U-shaped layout can be more compact and increases communication and team work.
Process 1
Process 2
Process 3
Process 5
Process 4
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
66
2016 Examinations
CIMA E1 67
OpenTuition.com
High volume
However:
Lacks flexibility
Product 1
Process 1
Process 2
Product 2
Process 2
Process 4
Product 3
Process 1
Process 3
Process 5
Process 4
Cell layouts have the advantages of being a good compromise, allowing fast throughputs and
high motivation. However, they can require the duplication of machinery to ensure that each
cell is properly equipped.
5. Process technology
5.1. Computer numerical control (CNC)
Instead of a worker controlling a machine, such as a lathe, drill or saw, the machines are
controlled by computer. This technology has the following advantages:
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
Increases precision.
Can link to computer aided design (CAD) software so that designs can be quickly
manufactured.
The machines can work for long hours without deterioration in performance (or the
need for overtime payments!)
OpenTuition.com
5.2. Robots
Robots extend the flexibility fist seen in CNC technology. Industrial robots usually consist of a
jointed arm with a gripping tool at the end that can lift move and rotate articles. They are
commonly seen in car manufacturing plants.
Machine flexibility: a machine can quickly be reset to perform dierent tasks. For
example dierent patterns and sized of holes being drilled.
Route flexibility:
Increased machine use. Highly automated FMS can reduce tool changeover time and
machine tool-setting times. This both increases machine utilisation and reduces
manufacturing lead-time.
FMS reduces transportation times because a single machine can carry out multiple
tasks.
Shorter lead times. Because transportation, scheduling and set-up times are all reduced,
there can be a significant reduction in the lead-time for production.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
68
2016 Examinations
CIMA E1 69
Reduced labour costs. The number of employees needed to manage machines in FMS is
much lower than the conventional set-up.
OpenTuition.com
Despite these impressive figures the return on investment was only 10% even when total
savings after two years were close to $7.0 million and a projected savings of $1.5 million per
year for next 20 years was envisaged. This is why many companies have trouble justifying
investment in FMS, as the target on ROI for many is 15%
Body type
Body colour
Interior colour
Wheel styles
To make the specified cars reliably and economically requires a high degree of IT involvement
to ensure that the correct parts come together on the production line to make the specified
vehicle
These systems can also integrate computer aided design to the manufacturing process. This
means that the technical drawings specifying the size, shape and other details of a
component can be used to control the machinery used in production.
It is worth just mentioning here the new technique of additive manufacturing or 3d
printing. In this process the material is extruded to form complex shapes which harden to
produce sophisticated components that can be dicult or expensive to make in any other
way.
6. Work Study
Work study is a system of assessing methods of working so as to achieve the maximum
output and eciency.
It can involve:
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
Time and motion studies: the systematic observation, timing and measurement of
movements needed to complete a task. It can be
applied in many environments: oce, factory, shop,
hospitals etc. It is hoped that such studies will allow
tasks to be streamlined and made more ecient.
Method study:
Work measurement:
OpenTuition.com
Level capacity plan: for example, set your capacity at a reasonable level and live with it:
A manufacturer buys machinery that can produce sucient output for peak
periods or else decides to not to meet peak demand.
A shopping centre provides a fixed amount of parking spaces.
Sub-contract production
Train companies charge premium priced fares for journeys that reach their
destinations for about 9 in the morning (business trac).
Heating maintenance engineers oer extended payment terms if maintenance if
performed in summer when their work force is likely to be under-employed.
8. Managing inventory
8.1. Introduction
The aims of inventory control are to:
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
70
2016 Examinations
CIMA E1 71
Not hold too much inventory. This ties up capital and increases the risk that the inventory
will deteriorate, become damaged or obsolete so that the value of the inventory has to be
reduced or the inventory scrapped.
OpenTuition.com
Not to hold too little inventory so that the company cannot meet demand. Not being able to
meet demand is known as a stock-out and, generally, stock-outs are very expensive because:
Customers become irritated so that the companys reputation and goodwill are
adversely aected.
As protection against the eect of poor quality items being received. If the latest
delivery has to be rejected, there will be some items in inventory to keep production
going.
To make use of bulk discounts. Buying a large quantity of supplies to win a bulk
discount from a supplier inevitably means that there will be substantial inventory.
Seasonality of inventory production. For example, a jam manufacturer has to buy fruit
and make jam in certain seasons.
To make use of favourable prices: stockpile if you think the price is low.
Technical reasons. For example the Scottish Whisky industry has to keep its products
maturing for many years before sale.
Ordering costs:
The economic order quantity is where the sum of these costs is minimised.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
OpenTuition.com
Very good information technology. Lots of sales orders have to be examined and
exploded into lists of components that have to be bought. Attempting this manually
would be expensive, slow and unreliable.
Very good cooperation with suppliers so that they can deal eciently and reliably with
many small orders.
Very good quality. If inferior suppliers are received, production has to stop as there are
no alternate supplies in inventory.
Reasonably constant demand. Production takes time and JIT is dicult to deliver on if
there are huge peaks in demand which will inevitable take some time to produce.
Sometimes additional production resources are kept on standby to attempt more
flexibility in meeting orders.
Suppliers should be physically close so that there are no significant delays introduced
when goods are being transported.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
72
2016 Examinations
CIMA E1 73
Chapter 10
OpenTuition.com
MANAGEMENT OF RELATIONSHIPS
WITHIN THE SUPPLY CHAIN
1. Lean synchronisation
Lean synchronisation means that products and services are always delivered to exactly match
what customers want, in exact quantities and at the required time and place for delivery. Lean
synchronisation should achieve these objectives at the lowest possible cost and it should
result in items flowing rapidly and smoothly through manufacturing processes and supply
networks.
In a traditional manufacturing approach, each stage in the process will place its production in
an output inventory that buers that stage, helping to isolate it from the next process
downstream. The next stage of manufacturing will the take outputs from the inventory,
process them and pass the more complete items to the next buer inventory, and so on.
The intermediate inventories insulate each stage from its neighbours, making each stage
relatively independent. The system is also more resilient if there should be a problem at one
stage as buer inventory can be used to keep subsequent processes going. However, this
safety and flexibility has to be paid for in terms of:
possibly less flexibility to change production quickly because buer inventories have to
be held for even longer.
Transactional
Contractual
Value Added
Collaborative
Partnership
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
A contractual relationship
A collaborative relationship
OpenTuition.com
A transactional relationship
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
74
2016 Examinations
CIMA E1 75
OpenTuition.com
A materials resource planning (MRP) information system is one which uses sales orders and
sales forecasts to schedule raw material orders, deliveries and quantities.
For example, if an order is received for 100 units of a product, the system expands this into
the parts needed, can check inventory and work out what orders have to be placed with
suppliers in order to fulfil the sales order. Many systems will place the purchase orders
automatically.
Materials resource planning is sometimes known as MRPI to distinguish it from MRPII, which
means manufacturing resource planning where not only materials but also labour and
machine resources are integrated into the production plan.
Data that falls within the control limits indicates that everything is operating as expected and
that the small variations with control limits are likely due the natural variations that occur as
part of the process. If data falls outside of the control limits, this indicates that a specific cause
is likely the source of the product variation. For example, the setting on a machine might
have slipped. Something within the process should be changed to fix the problem.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
5. Quality management
5.1. Definitions
OpenTuition.com
Quality control refers to the processes (such as sampling and testing) that an
organisation employs to check on quality.
Quality management is the overseeing of all the activities needed to achieve and
maintain the required quality. It includes establishing the required quality level, setting
quality control procedures and also considering quality improvement
Prevention costs
Appraisal costs
Moving eort towards the top of this list should save costs.
If there is no quality at all, all failures will happen once the customer receives the goods
(external failure). That is very expensive in terms of goodwill lost and replacing goods.
If goods are tested when finished but before leaving the factory some will fail (internal
failure). The faults have to be found and the faults have to be repaired, but at least
customers are not aected. This should be cheaper than external failures.
If goods are inspected after every operation is completed, faults can be diagnosed
immediately and repaired (appraisal costs).
Cheapest of all is to prevent any quality control problems at all. This will involve careful
design, the purchase of good quality components and sta training. However, these
costs will more than compensate the cost of finding and repairing costs later in the
process.
Hence the claim that quality is free: better quality control at earlier point in the process will,
overall save costs.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
76
2016 Examinations
CIMA E1 77
OpenTuition.com
Any manufacturing company will want to deliver goods to the customer that are of
suciently high quality to avoid goods being returned. In order to check this, the company
will have some form of quality control checks on goods leaving the factory. However, even
though good quality control will results in poor quality goods being rejected, and therefore
not reaching the customer, there remain the costs associated with waste and poor quality
work.
It is therefore important that all possible steps are taken not only to check quality at each
stage, but to design processes and educate the workforce to facilitate good quality
production. If everything is done right first time, there will be no quality control problems and
no waste of materials or time.
TQM does not apply only to the manufacturing system. It will also apply to phone answering,
provision of information, the organisations web-site, order processing, invoicing, recruitment
and training.
The implementation of TQM is never really complete and there is a culture within the
organization of never being satisfied and of continually achieving improvements. Often these
are small, but nevertheless will add up to be significant. The process of a continuous series of
small improvements is known as Kaizen.
The improvements can be to cost, quality, eciency, less wastage, better service ie all aspects
of operations. Note that unlike quality control which aims to maintain quality and control
costs, kaizen aims to improve these all the time
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
Measure: ways of measuring the quality factors have to be devised. For example, failure
rate for reliability, customer surveys for style. Measure both current performance and
use the measurement methods to better define what is meant by quality i.e. set targets.
Improve: attempt to improve performance. Repeat the D, M, A, I cycle until the required
standards have been achieved.
Control: This is continuously applied to ensure, for example, that definitions are still
relevant, that costs are within budget and that progress is being made.
OpenTuition.com
DMAIC fits in with Kaizen ie a continuous series of improvements to improve quality and
reduce costs.
6. Reverse logistics
Reverse logistics refers to all operations related to the reuse of products and materials. It is:
"the process of planning, implementing, and controlling the ecient, cost eective flow of
raw materials, in-process inventory, finished goods and related information from the point of
consumption to the point of origin for the purpose of recapturing value or proper disposal.
Remanufacturing and refurbishing activities also may be included in the definition of reverse
logistics."
The reverse logistics process also includes the management and the sale of surplus as well as
returned equipment and machines from the hardware leasing business.
A manufacturer's product normally moves through the supply chain network to eventually
reach the distributor or customer. Any process or management after the sale of the product
involves reverse logistics.
If the product is defective, the customer would return the product. The manufacturing
firm would then have to organise shipping of the defective product, testing the
product, dismantling, repairing, recycling or disposing the product.
At the end of the products life it can be returned to the manufacturer for refurbishment
or recycling. For example, photocopier toner cartridges can be sent back for refilling.
At the end of the products life it could be sent back to the manufacturer for safe
disposal after the manufacturer arranges the salvaging of valuable material. For
example, electronic products contain valuable rare earth metals that can be recovered,
reprocessed and reused.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
78
2016 Examinations
CIMA E1 79
Chapter 11
OpenTuition.com
Through market research we will establish the needs of potential customers and then
develop an appropriate product to match those needs. It will stress to those customers the
ability of the product or service to satisfy their needs and it will profit through customer
satisfaction because it fulfils the needs of its customers.
In many ways its a very humble approach. Its saying that the customer knows best. There is
no point in making a product which we think is good if customers think its not very
satisfactory. It doesnt mean, of course, that its an entirely passive process, only just taking
input from customers. You cant always expect customers to be innovative and it will certainly
be part of the market research process to develop prototype products to show those to
customers, to see whether the customers will be interested, or to find out how those products
could be changed in some way to better match the requirements of the customers. But at the
end of the day, the marketing concept means finding out what do customers want and
developing products or services to fulfil customers needs.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
Economic factors:
Social factors:
Technology:
Ecology/environment:
Legal:
OpenTuition.com
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
80
2016 Examinations
CIMA E1 81
OpenTuition.com
This theory applies to whole industries such as the car industry, the newspaper industry and
so on. It looks at easy it is to make a good profit. The five forces are: competitors, customers,
suppliers, new entrants and substitutes. These can aect marketing as follows:
Competitors:
will aect the price you can charge and the features you have to
oer to compete. Advertising must emphasise superiority or
dierences.
Customers:
are there only a few large customers or many small ones. These
will require dierent approaches to advertising and selling prices
might reflect their bargaining power.
Substitutes:
New entrants: potential new boys on the block. How can marketing make attempting
to enter the market unattractive for them? Perhaps by lowering
prices to ensure they are unprofitable.
Suppliers:
4. Market segmentation
We have said that marketing is finding out what customers want and designing products and
services to meet customers needs. The first stage to find out whether all potential customers
want the same thing or can the market be broken down into dierent sections or segments.
Market segmentation looks in how a market can be split up.
Commonly it can be split up according to:
Age
Sex
Lifestyle
Wealth
Geography
For example in the fashion market, there are quite dierent fashions which are bought by
younger and older people. Obviously there are dierent fashions depending whether you are
selling to male or female. Lifestyle is important, are we addressing the leisure market or are
we addressing a more formal market? Wealth and disposable income are important, and its
normal for most ranges of fashions to have cheaper diusion lines and also the more
expensive luxury goods. Geography, for example simply whether people live in the north of
the country or the south of the country can make a dierence in the type of clothing they
want to buy.
Companies might decide not to sell to all segments of the market. They may find a segment is
too small, or too unprofitable, likely to decline because of PESTEL factors or that there is too
much competition there already.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
5. Market targeting
After investigating market segmentation, the next stage is market targeting, that is deciding
which segments of the market to attack.
OpenTuition.com
Market
This is extremely rare; in fact it is very difficult to think of an example. Even the sale of
basic products like water is to a segmented market. Some people are perfectly happy
with tap water, others want mineral water, but some want still, some want sparkling. It
is sold in different quantities of small bottles, large bottles, and there is whole range of
flavours.
Dierentiated market targeting
By far the most common type of market targeting is known as differentiated market
targeting. Here the firm perceives that the market is segmented and designs a different
product or service to suit each segment of that market.
Market Segment 1
Products
Market Segment 2
Market Segment 3
You only have to try to buy a common consumable such as shampoo or toothpaste to
see how the manufacturers have differentiated their products. There are probably
dozens of products to choose from, and the manufacturers hope that by changing the
product and a number of other variables that they make their product particularly
suitable and attractive to one segment of the market.
Product
Market Segment 2
Market Segment 3
The company perceives the market as being segmented, but for some reason decides to
target only one, or a limited number of segments of that market. It could be that the
company is too small to have a wide range of products, so concentrates on one
segment. Or, the company may believe that it has particular expertise to fulfil the needs
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
82
2016 Examinations
CIMA E1 83
of one segment or that the company perceives that segment as being the only one
that is profitable. But for whatever reason, the firm concentrates its resources in
addressing the very specific needs of one or a very limited number of segments.
OpenTuition.com
Product
Price
Promotion
Place
People
Process
Physical evidence
The first four (product, price, promotion, and place) were the original components of the
marketing mix and relate to the marketing of both services and products.. The three last ones
(people, process, and physical evidence) are specifically to do with positioning services. The
three additional Ps are sometimes known as the service extension to the marketing mix
When services are provided there is no physical product and so there is a growing importance
in skills and attitudes of the people who provide the service.
The process by which a service is provided, and the physical evidence that something has
actually happened are also important.
For example, if you are booking an airline flight, you may ring up the airline and you expect to
be dealt with in a helpful and friendly way by the representative. The process has to be
convenient to you, you dont want to be waiting too long before your phone call is answered.
Finally you expect some sort of physical evidence, such as an e-mail, to show you that the
service is actually going to be provided.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
6.2. Product
The first of the Four Ps is product, and this includes:
The features of the product (what it does)
Quality,
Design,
OpenTuition.com
Brand,
Packaging.
For example, take calculators. Some have got simple arithmetic functions whereas others
have trigonometric, scientific or statistical functions; some have rolls of paper on which
calculations can be displayed. These are all dierent features of the product. Some calculators
will be relatively cheap and perhaps very durable whereas others will be of high quality for
everyday oce use. Design might not be very important in calculators, but some are
marketed on the basis of having a sleek futuristic looking design whereas others are more
commonplace. Brand and packaging are probably not particularly important for calculators,
but are very important when considering something like cosmetics or perfume where the
packaging might possibly be more expensive than the contents.
6.3. Pricing
The second of the Four Ps is price. This includes not only the price itself (the price level or
price point), but also discounts for bulk buying which is particularly important in business-tobusiness sales. Price also includes the terms, ie how long a customer has to pay. There are also
various types of strategic pricing, described below.
Pricing can be more sophisticated than it first looks. For example if your customer had a very
seasonal business, perhaps in agriculture, you might be able to make your product attractive
to that customer if your terms of sale were arranged to match that customers cash flow.
Perhaps the customer could buy in the spring and not have to pay until the autumn when
crops are harvested.
Price skimming is when a very high initial price is set for a product, for example a new
electronic product. You might know that there will be a certain number of people who will be
prepared to pay, lets say $1000. After they have all bought the product you can then lower
the price, say to $900, and there will another layer of people who will be willing to pay that,
and so gradually you work your way down. Price skimming is nearly always a temporary
phenomenon. Prices usually fall, if for no other reason because other manufacturers will join
in and bigger volumes that have to be sold.
Penetration pricing means going in with a very low initial price in a hope of getting a very
high market share. With luck the high market share will give you very high volume and
consequently a low cost per unit for production, and you may be able to sustain a very low
market price indefinitely. Indeed, this can be a strategy to protect yourself against new
entrants to the market. If you are going with a low price and win, lets say a 70% market share,
it will be quite expensive for anyone else to come into the market and make as good profits
as you are.
Related product pricing aims to get someone hooked by a low initial price, then follow up
prices are high. A good example of related product pricing can be seen with inkjet printers.
Typically a new inkjet printer might cost around $100, but then to renew the ink cartridges
might be costing about $70. The initial printer is almost a lost leader, the rationale being that
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
84
2016 Examinations
CIMA E1 85
once you have bought that, the follow-on cost of maintaining and replenishing the supplies
is where the profit is going to be made.
OpenTuition.com
Costs
Competitors
Consumers
Controls
Costs
Ultimately revenue must cover costs. Often cost plus pricing is carried out to give an
indication of the desired cost. For example:
Cost + desired mark-up = selling price
If the mark-up required is 30% then if an item costs $150 to make it will be sold for:
$150 + 30% = $195
This is an easy calculation, but there is no guarantee that the goods will sell at the price that is
calculated. There might be cheaper competing goods or customers might baulk at the high
price demanded.
Competitors
There are four competitive environments:
There are four main types of market, each giving rise to a particular type of competition:
Perfect competition.
Oligopoly.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
OpenTuition.com
CIMA E1
Monopoly.
Monopolistic competition.
Price competition means that consumers are motivated primarily by price and usually
suppliers will have to oer low prices to succeed. Very often organisations which use a cost
leadership strategy adopt price competition. Their products are ordinary, but because their
costs are very low (if not actually the lowest) prices can also be kept down.
Many laptop producers use price competition because, for most, their products have been
commoditised: they all do the same things, with the same operating systems, run the same
application software and have similar reliabilities.
Non-price competition means that consumers pay attention not only to the price of the
goods but are also influenced by other marketing mix variables such as the:
Promotion activities
Essentially, organisations which follow a dierentiation or focus strategy will be making use
of non-price competition. They seek to make their products dierent so that they are
particularly attractive to consumers, who in turn are willing to pay premium prices.
Considering again the laptop producers mentioned above, we could probably argue that
Apple uses non-price competition. Its laptops look dierent and unique, they have a dierent
operating systems and run dierent (but often compatible) software. This can make it
dierent to directly compare prices, but many people have the impression that, insofar as its
possible to compare like with like, Apple machines are more expensive than others.
Nevertheless, they sell well and profitably.
Consumers
Suppliers have to keep in mind both what the end consumers are willing to pay and also the
profits that will be expected by intermediaries in the supply chain. Many industries have rules
of thumb about the mark-ups they expect to be able to apply. It is common to segment
markets according to wealth so that a company will have a value range of goods for poorer
or thriftier customers who might respond to price competition, and a more exclusive range
for better-o customers, who might respond to non-price competition.
Even if there are not dierent lines of goods for dierent customer groups, it can still be
possible to charge dierent prices for the same product to dierent groups. This is known as
price discrimination. For example, it is often cheaper to buy electronic goods in the USA
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
86
2016 Examinations
CIMA E1 87
OpenTuition.com
than in Europe. Leakage of goods from the cheaper to the more expensive market must be
prevented in some way, so the groups have to be suciently separate (or un-informed).
The perceived value of goods is a concept which is also related to non-price competition
and, indeed, to price. We have all, no doubt, been influenced by the thought that a higher
price implies goods of a higher value even though we are often essentially ignorant about the
merit of those goods. For example, when buying a T shirt there is a very wide range of prices
for a range of garments which are very similar looking. We assume that the expensive T shirt
with the fashionable label is better than the cheaper, more basic lines. However, often we
really dont know, and might even be paying for the kudos we feel an exclusive label gives us.
Whether goods are necessities or luxuries also influences consumers reactions to prices and
price changes. This aects the elasticity of demand of the product, which is a measure of how
a change in sales volume is caused by a change in price. Goods that have a high elasticity of
demand are very price sensitive and are likely to be luxury products that consumers are
prepared to do without if the price rises too much. Goods with a low elasticity of demand
are relatively unaected by price changes and are likely to be necessities. As prices rise,
demand will stay high because customers need the goods.
Controls
Some industries are closely regulated by statute and regulation, and they have little power to
choose their own prices. Other industries are able to, or try to, dictate final prices charged to
consumers. For example, exclusive perfume and cosmetic producers resist price competition
by insisting in their supply contracts that their retailers do not discount their products. Note
that not all contractual arrangements are legal. Pricing cartels (competitors fixing prices) are
frowned upon by most governments.
6.5. Promotion
There are four main types of promotion:
Advertising
Sales promotion
Personal selling
Public relations.
We are all familiar with advertising and we know that it can take place on a number of
dierent media. For example, television, magazines, newspapers, billboards by the side of
roads. Television addresses a mass audience and it wouldnt be particularly sensible to
advertise a specialist product there. Those types of products would be better advertised in
specialist magazine.
Billboards by the side of roads cant contain huge amounts of technical information. People
cant and wont stop to read them. They can only give a very brief impression of the product
and to spread knowledge of its existence and perhaps its brand name.
The internet is now a very important and powerful advertising medium. With television
advertising you broadcast to all viewers but only some of whom might be interested and you
are never sure who they are. Internet advertising, however, is often started when a user visits
a particular web-site or enters a search term. The users activities can then be tracked and
measured.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
Sales promotion is something which happens very close to the point-of-sale. You may have
been in supermarkets where sta oer small portions of cheese or small glasses of wine for
you to try in a hope that you will then go and purchase. Buy one get one free oers and
coupons which give you money o the next purchase are also forms of sales promotion.
OpenTuition.com
Push promotion
Pull promotion
Imagine a new product is about to be launched. Push promotion is concerned with getting
the product into the shops and would use, for example, personal selling. Pull promotion is
getting the public to demand that product, to go into shops and ask to buy it. That
promotion could be done by advertising. For the whole promotional campaign to be
successful, you need both push promotion and pull promotion to match up. There is no point
in people knowing about a product if it is not available; there is no point in the product being
available if nobody wants to buy it.
6.6. Place
The last of the four Ps is Place, meaning the place you go to buy or acquire the product. It
really means distribution. Considerations to bear in mind there are:
The length of the distribution chain. The shortest distribution chain is going directly from
manufacturer to consumer and this is sometimes seen in mail order businesses. Some
computer manufacturers such as Dell operated in this way for many years. It doesnt work
quite so well when you come to distributing something like clothing
By contrast, many consumer goods have a very long distribution chain, going from
manufacturer to wholesaler to retailer and ultimately to the consumer. Everyday products
such as sugar, milk, butter, cigarettes follow this sort of distribution chain because it gets the
goods very, very deeply and widely distributed within a community. They become available
in almost every outlet. Those types of goods are sometimes called convenience goods, goods
that you expect to be available in a convenient way and where you probably wont bother
getting in your car to travel across the city to buy a particular brand.
Things like carpets, furniture, large electrical items. These represent significant amounts of
money, they are rare purchases, which, we hope, will last for many years. There, we would
bother to travel across the city to go to a major outlet which oers us comparisons of many
dierent brands of product. So those types of goods tend to be sold through a smaller
number of larger outlets.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
88
2016 Examinations
CIMA E1 89
Suitability of the outlet. For example, if you are selling very, very high quality audio
equipment, you would expect the people in the shop to be able to explain the pros and cons
of dierent systems. Perhaps the shop should be equipped with soundproof rooms where
could try dierent speakers out in. You wouldnt expect to buy very high quality audio
equipment in your local supermarket.
OpenTuition.com
Product:
Donors will receive the satisfaction of knowing that they have done good. They need to
be informed about how the charity is spending funds.
Recipients: will receive funds, goods, accommodation, medical aid etc.
Price:
Goods and services will frequently be provided free of charge or very much reduced
prices.
Place:
Depends on the charity and whether we are talking about donors or recipients. Many
charities have shops in the high street to receive goods that can then be sold. Or, they
might arrange collection days where collections are made in the street.
Sometimes recipients must visit a charity to receive help. Sometimes representatives of
the charity will visit potential clients.
Promotion:
The full range of promotional methods is available.
People:
The right demeanour is essential both to raise funds and to dispense them.
Persuasiveness is important.
Process:
Make it easy to donate. Internet, donation by texting, stamped addressed envelopes to
encourage responses to appeals. Similarly for claimants, the process must not be so
complex as to be overwhelming. Many claimants could be vulnerable and possibly not
able to cope with complex processes
Physical evidence:
Flags and stickers are frequently given to donors. Letters of thanks and information
about how the money is used can also be vital.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
8. Consumer theory
8.1. Social interaction theory/social exchange theory
Social exchange theory has the underlying assumption that people are selfish and that they
view relationships in a profit or loss way.
OpenTuition.com
For example, people look to see how rewarding a relationship is and then how much it costs
to be in the relationship. If there is a profit left over (rewards costs = profit) then that may
encourage them to continue the relationship whereas if there is a loss this may motivate
them to end the relationship. Interactions are expensive, as they take time, energy,
commitment or money and what get out of a relationship must exceed what goes in. The
degree of attraction or liking reflects how people evaluate the rewards they receive in relative
to those given.
Social interaction theory is therefore an economic theory explaining relationships in terms of
maximising benefits and minimising costs.
A person may make their assessment of their rewards by using two comparisons:
Rewards can be compared to costs to judge profits. For example, you might decide to buy
something because last time you bought the item you were happy with what you got
compared to the price.
Rewards and costs are compared against alternative rewards and how they compare. Thus in
a shop you are comparing similar items to make a choice.
A relationship between customer and supplier is maintained if profit is perceived in both
these two comparisons.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
90
2016 Examinations
CIMA E1 91
9. Social media
OpenTuition.com
Social media such as Facebook and Twitter have become very important promotional tools.
Be-friending a supermarket allows you to receive up-to-date oers, recipes and news. Similar
eects are obtained through Twitter accounts where consumers can follow brands and
suppliers.
Note that some Twitter campaigns have backfired on companies where consumers have
been disappointed or feel that the organisation is being unfair. Angry tweets can be
retweeted and soon multiply potentially damaging a brand.
Social media can be used for guerrilla and viral marketing:
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
OpenTuition.com
2016 Examinations
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
CIMA E1
92
2016 Examinations
CIMA E1 93
Chapter 12
MARKETING TOOLS
OpenTuition.com
1. Marketing research
1.1. Introduction
Good marketing depends on good information, and this comes from marketing research.
Desk research
Field research
Test markets
Internal sources
First of all, the accounting department can supply enormous amounts of information,
provided the information with properly coded originally. For example, if instead of simply
crediting one sales account in a nominal ledger, there are various dierent categories of sales
account. One can easily see how the sales of dierent products may be increasing or
decreasing perhaps seasonally or perhaps in responds to competitor action. The process of
keeping track of sales goes in further if the company sets up a data warehousing system.
As explained in Chapter 5, big data has become a vital marketing tool. A good example of
this is seen when supermarkets provide their customers with loyalty cards. This may
encourage customers to go back and accumulate points which can then be traded in for
some product later on, but the real benefit of the supermarket is that the shopping habits of
their customers can be carefully recorded. Every purchase made at the supermarket using the
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
loyalty card is recorded and this information can be kept for many years. Thats the data
warehousing part of the operation.
OpenTuition.com
Data mining means that data is then examined in the hope of finding something useful or
unexpected which would help the marketing of the products or services of the supermarket.
It may uncover certain patterns or seasonality of the sales of products. It may uncover
unexpected correlations of sales of dierent products, so by putting these products together
near each other on the shelves overall sales are increased.
External sources
Some companies find valuable external data from the information which is routinely
collected by governments, both national and local. For example, most countries run a census
perhaps every 10 years, so governments know very precisely how many children there are, for
example under the age of five. This could be useful to a company producing educational
equipment or educational publications, they need to know whether the school population is
going to be increasing or decreasing and by roughly how much. Local governments
frequently know how many people lie within a certain radius of the centre of the city and this
can be useful when, for example deciding where to position a supermarket. Often for detailed
government information the company may have to pay, an information can be available
more or less instantly.
Finally, there are market research consultancies which collect information routinely in the
hope of selling it to suppliers of products and services. For example in the motor industry,
research consultancies routinely collect information about the number of new cars registered
in the period, the average price of second hand cars, and probably something about the
profile of customers buying each model. If you were for example working in Ford Motor
Company, it might be very useful to you to purchase this information if they gave you some
insight in the success or otherwise of a say cars manufactured and sold by Volkswagen,
Renault, and General Motors.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
94
2016 Examinations
CIMA E1 95
OpenTuition.com
The final piece of marketing research comes just before a new product is launched. The
company might decide to experiment in a test market. So, rather than a full national or
international launch, the product is tried out in a relatively small area. Test markets should be:
Small
Stable population (a university town would often be unsuitable the population varies
radically from as terms change)
Suitable facilities. So, if you were aiming to sell you product through supermarkets and
advertising it on a local radio station, your test market should have these facilities also.
The company will watch carefully how the launch goes in the test market. Frequent
additional market research should be carried out and the test market gives the company its
last opportunity to get things right before it goes to the expense of launching nationally.
Remember not only is an obvious loss of money if a product launch is unsuccessful. There will
also be damage to the companys reputation and it may mean that the company will find it
dicult to get into that segment of the market in the future had they once failed.
Business-to-business (B2B)
Very expert buyers so they will bargain very hard to get discounts and lower prices.
Promotion typically by catalogue and by sales representatives visiting. Quality often
very important. Styling can be office-like.
Large orders mean that certain buyers will be very important and must be looked after
carefully.
Business-to-government (B2G)
Often huge orders so prices will reflect this. Often specialised negotiation tactics and
promotion needed. Decision on purchasing often very slow so representatives need
patience.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
Perishability:
Intangibility:
Simultaneity:
OpenTuition.com
Heterogeneity:
The information needed to perform well when providing a service will often be more related
to qualitative than quantitative aspects. For example, reputation, customer satisfaction,
availability of the service when required,
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
96
2016 Examinations
CIMA E1 97
4. Relationship marketing
OpenTuition.com
5. Experiential marketing
Experiential marketing, sometimes called "engagement marketing," "event marketing", "onground marketing", "live marketing" or "participation marketing," is a marketing approach
that directly engages consumers and invites and encourages them to participate in the
evolution of a product or brand. The objective of experiential marketing is to create a closer
bond between the consumer and the brand by involving them in a fun, exciting and
memorable experience.
For example:
Zappos (on-line clothing): on one of the busiest travel days in the USA, Zappos sprung a
surprise on one of its most loyal markets, Houston. Zappos turned one of the baggage
carousels at George Bush Intercontinental Airport into a "Wheel of Fortune"-style game that
awarded travellers the prizes upon which piece of the carousel their luggage landed on.
Coca Cola and the Fort Lauderdale Convention & Visitors Bureau created bus shelters in some
northern cities that warm shivering commuters in wintry weather while promoting brand
messages. Coke brought "happiness" and Fort Lauderdale, Florida pointed out that they
could be sun bathing elsewhere.
6. Post-modern marketing
The term postmodern is usually taken to mean from the late 1960s onwards. It is based on a
rejection or distrust of previously adopted conventions and theories. It argues that the
characteristics of marketing have to change and adapt to new consumer outlooks. Some of
the changes claimed to have happened are:
Fragmentation: markets have fragmented into smaller and smaller market segments. This is
facilitated by the growth in consumer databases, the increasing and the concept of mass
customisation at reasonable prices.
De-dierentiation: this involves the blurring of established groups. Thus a plane flying from
the UK to Florida is likely to have a huge variety of passengers from the well-o couples to
families on package holidays
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
Hyper-reality: dream worlds are created by advertising and promotion so that even everyday
products like soap promise much more than mere cleanliness
Chronology: instead of looking towards a future that it tends not to trust, postmodernism
adopts a nostalgic desire for the past and its comforting certainties. For example, retro
styling.
OpenTuition.com
7. Internal marketing
Internal marketing is the attempt to motivate sta to change their behaviour and outlook to
achieve organisational goals. To do this, internal marketing adopts the same methods of
internal communication that companies employ to market products and services externally.
In eect, this means you must treat your employees as you would your customers and use
persuasive messages.
When an organisation wants to change it needs to align employees attitudes and behaviours
to correspond with the vision. This is essential for any business wishing to gain a competitive
advantage through enhanced service levels. Sta should be seen as internal customers and
their needs should be met. A company that concentrates solely on external customers and
ignores internal customer service will struggle.
Internal marketing should bring additional benefits such as high levels of employee
satisfaction, improved retention rates, reduced absenteeism and less resistance to any
change programme.
8. Brands
A brand is a unique design, sign, logo, symbol (or combination of these) used to create an
image that identifies a product and dierentiates it from competitors.
Over time, successful brands become associated with desirable qualities of the product such
as quality, reliability, price, taste. This enables consumers to quickly identify and buy products
that they like and trust.
For example, supermarket shelves are crowded with competing products, but when
shopping we often simply grab the familiar (for example a packet of toothpaste like Colgate).
The packaging, colours and graphical devices allow us to quickly find and buy the product
without much thought except we know that the brand has pleased us previously.
Brands owners often work hard to associate a particular image with their brands (for example,
up-market or down-market) and defend the image strongly. For example, some
manufacturers will allow their luxury brands to be stocked by only exclusive outlets.
Brand value (or brand equity) considers the additional income a company can make from a
product with a recognisable brand name as compared to its generic equivalent. If consumers
are willing to pay more for a generic product than for a branded one, however, the brand is
said to have negative brand equity. This might happen if a company had a major problem or
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
98
2016 Examinations
CIMA E1 99
scandal associated with a brand (think of Volkswagen in 2015 with the diesel emission
scandal).
OpenTuition.com
Sales
time
Introduction
Growth
Maturity
Decline
Senility
Profit
The problem with this diagram is that no product is guaranteed to follow this pattern and
even if it does the lengths of the various phases on the diagram will show tremendous
variation. For example, the mature phase of some products can last for decades, but for
others may last only a few years. What we would really like to know for product planning
purposes is when irrevocable decline sets in. This diagram doesnt predict that. What it does
do is provide us with a set of labels which can be used as a kind of shorthand. Therefore:
Growth phase:
Mature phase:
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
OpenTuition.com
Decline phase:
Low
High
High
Question mark/
problem child
Star
Dog
Cash cow
Market
growth
rate
Low
Question mark/problem child. This product has a high growth rate but a low market
share. Why is it known as a question mark or problem child? Well, the BCG analysis
suggests that there is no long-term future for this product if it has only a small market
share. Suppliers who have large market shares have much greater economies of scale
and could easily dominate the small supplier. The question therefore is: should we get
out of this product or should we try and grab a large market share? If we go for the large
market share, this will require investment. It will be a heavily negative cash flow because
money has to be spent on promotion, research and development or investing the
margin (that is reducing the selling price to win a higher market share).
Star products. If the quest by the problem child for high market share is successful, the
product will become a star. This isnt as good as it sounds. Although we now have a
high market share (and therefore would enjoy economies of scale and are well down
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
100
2016 Examinations
CIMA E1 101
OpenTuition.com
the experience curve), because we have one of the highest market shares, and highest
profiles, competitors will be trying to steal market share from us. We will be the target
for competitors also wanting to gain a high market share. Remember, if the market has
a high growth rate this product is perceived as a product with a future and many
companies will be anxious to get a large share of the action. Therefore, cash flow with
the star product is usually soon to be roughly zero.
Cash cows. The initially high growth rate of products will always slow down, perhaps to
zero or even becoming negative (a declining market). The product then becomes a cash
cow. Its a cash cow because we still have a high market share but nearly all the initial
expenses will have been written o. Also because this is now perceived as an old
product, competitors will not be keen in stealing market share from us. Essentially they
leave us alone. We therefore enjoy high cash inflows without having to spend a lot on
promotion, or research and development, or defending our market share.
The dog sector is on its own. Cash cow products do not turn into dogs! This is a product
which has a low growth rate and we dont have much of a market share. Therefore, get
out of it, divest. Theres no point spending time eort and money achieving a high
market share in an old product. So, close down the production facilities or try to sell
them to another company.
Finally lets return to the name portfolio analysis. If we have lots and lots of problem
children they will all require financing and where is that money going to come from? If we
have almost exclusively cash cows we have a very positive cash flow now, but a few years
down the line the market for those cash cows could have declined rapidly and what are we
going to replace those cash flows with?
A well-balanced portfolio has some cash cows and some question marks. The cash generated
from the cash cows can be used to invest in the question marks, so securing the long-term
future of the company.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
OpenTuition.com
2016 Examinations
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
CIMA E1
102
2016 Examinations
CIMA E1 103
Chapter 13
HUMAN RESOURCE PLANNING 1
OpenTuition.com
HRM views people as an important resource or asset to be used for the benefit of the
organisation and its employees with mutual benefit to the achievement of both
organisational and individual goals. HRM is as important as cash management, ensuring that
there are enough raw materials and that customers are happy with the products provided.
An organisations human assets leave the premises each evening and there is no
guarantee that they will come back to that they wont voluntarily relocate themselves
to a competitor. You do not get that sort of behaviour with computer equipment or
other assets!
People are not machines and their performance varies depending on their mood and
on how they are managed and treated within an organisation.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
2. The HR cycle
2.1. Introduction
OpenTuition.com
Planning
Selection:
Induction
Advertising
Shortlisting
Interviewing
Testing
References
Performance
Motivation
Job design
Appraisal
Rewards: fixed,
performance
Assess the current position: what people are there? With what skills?
Look at the future requirements. This will depend on the organisations strategy,
growth, the environment it is going to be trading in, and technological changes.
Adjust the current position for estimated leavers, estimated number of people who will
retire, the aspirations and hopes of the people already employed, and the sort of skills
they have.
Recruitment
Future human
resource needs
Lets say the current position showed 100 people with adequate skills, but the future
requirements, suggested 500 people of those skills would be required. Thats a gap of 400,
but then take into account those who may leave and retire, lets say thats another 50 people
over the five years. Therefore, the company will have to recruit around 450 people. Of course,
that wont be an accurate figure, its an estimate, but the company needs to know whether
our recruitment burden is something like 100 people, 1,000 people or only 10 people.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
104
2016 Examinations
CIMA E1 105
2.3. Selection
OpenTuition.com
Job analysis to find out what the job entails. For example, will it involve customer
contact, supervision of a team, travel, budgeting, and IT competencies?
A job description will be the result of the analysis: it sets out what the person will be
doing.
A person specification can then be prepared. This sets out the type of person, skills a
person who could carry out the job: skills, experience, intelligence, personality, physical
attributes such good eyesight.
The interview stage is usually next. Interviewing well is a skilled process if it to be of any
use identifying good candidates. Often it is done badly and is not successful at
discovering better candidates.
Closed questions (ie can be answered with Yes or No) should be avoided. For example
Can you work to deadlines? will almost certainly produce the answer Yes. Instead, ask
open questions such as How do you deal with work pressure and tight deadlines.
Increasingly frequently tests are given to candidates as part of the interviewing process:
Ability: if someone claims to be able to type at 80 words per minute, it wont take long
to prove that claim.
Intelligence: might be needed for candidates who have few formal qualifications
Psychometric tests: used to assess candidates skills, knowledge and personality. For
example, will the person show initiative or be good at working in a group.
Work sample tests replicate the work tools and environment associated with the
vacancy, to assess the level of the candidates current skills and knowledge as accurately
as possible. This involves looking at a sample of the skills and behaviours that can be
used to predict future performance in a similar work situation.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
Resignation
Dismissal
OpenTuition.com
Constructive dismissal. This is where the employers behaviour entitles the employee to
presume he or she has been dismissed.
Wrongful dismissal is when the dismissal breaches the contract of employment, for
example, not giving the employee the agreed amount of notice. A more serious problem is
unfair dismissal, a part of the law that gives the employee some protection against as it is
assumed that dismissal is unfair unless the employer can proves it to have been fair. Dismissal
is fair is:
Misconduct: provided suitable warning have been given. Gross misconduct (eg hitting a
customer!) can be grounds for instant dismissal.
Other substantial reasons: for example the sales director is married to the sales director
of a rival.
Pregnancy
Disputes about dismissal can be heard by an employment tribunal (eectively a court) which
can order:
Damages.
Most often the remedy is damages because usually neither party wants to be associated with
the other after legal action.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
106
2016 Examinations
CIMA E1 107
OpenTuition.com
In the UK, the law provides for equal opportunities in the areas of:
Sex discrimination
Race
Religion
Sexual orientation
Age
Disability where there have to be equal opportunities and reasonable adjustments have
to be made to allow disables people to work.
Direct. For example, a job advert saying Salesman required would be direct sex
discrimination.
Indirect. For example, a job advert saying Sales representative requires: must be over
2m tall and have a large black beard would be indirect sex discrimination because the
requirements favour male candidates.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
OpenTuition.com
2016 Examinations
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
CIMA E1
108
2016 Examinations
CIMA E1 109
Chapter 14
HUMAN RESOURCE PLANNING 2
OpenTuition.com
1. Appraisal
Employees performance must be monitored to identify and evaluate:
Tell. Your manager tells you how you have got on with little room for discussion or
disagreement.
Tells and sells. Your manager tells you how you got on and tries to persuade you that
view is correct
A number of problems can arise from poorly-executed performance appraisals. Indeed some
writers and practitioners dislike the term performance appraisal because of its judgemental
and critical overtones. They prefer to use the term performance management so that
emphasis is placed on improving the performance of the employee which should benefit
both employer and employee.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
Bureaucracy: form-filling the appraisal form so that the manager can say that task is
done but no other purpose.
Event: a traditional, annual ceremony carried out every year with little thought about its
purpose
Unfinished business: no proper to-do lists or follow up. Promises might have been
made in the meeting but they are then forgotten.
OpenTuition.com
2. Competency frameworks
Competency frameworks are a method of describing the values, skills and abilities that are
required to perform given roles. They also provide clear focus to support the development of
sta in order to deliver the best possible performance. They can also be used as recruitment
tools.
Typically, to define a framework for a given role, there will be a general description of the
competency followed by a list of attitudes, behaviours, skills and abilities that would indicate
competence in the relevant area.
There can also a negative statement at the end of each competency to indicate the sort of
behaviour that is actively discouraged, as it works against the principle of continual
improvement an organisation is striving for.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
110
2016 Examinations
CIMA E1 111
OpenTuition.com
Competency frameworks serve several purposes which help organisations to improve and
develop their sta, products and services. They:
Inform sta of the sort of attitudes, behaviours and skills the organisation encourages
when carrying out their duties
Can be used to shape and define the organisational culture based around strong
principles of acceptable and expected behaviour
Supports and guides sta at all levels in their development in order maximise their
potential
Should link to some of the key strategies that drive the objectives of the organisation as
these are crucial to success.
Target
performance
Actual
performance
Fire safety
80
50
First aid
Ethics
75
75
Excel
100
80
Accounting package
80
80
Generic competences
Specialist skills
Competence definition:
Evidence of employee
competency:
Skill description
Skill aims and objectives
Competency levels and their
definition
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
Training: very specific and dealing with current employees needs for their current job.
Development: less specific and more aimed at equipping employees for future jobs.
OpenTuition.com
Shadowing, whereby a trainees follows and observes a more senior person doing the
job.
Self-study of manuals.
Training and development can be expensive. Trainers have to be paid and trainees are
devoting time to being trained rather than doing their main jobs. Furthermore, if the training
is wrongly pitched, the trainees will not be more able to do their jobs after training than
before. So training has to be designed carefully and the following steps are typical:
Set training objectives eg what the person should be able to do afterwards that was not
possible before.
Plan the training and arrange for trainees to have time in which to undertake the
training.
Review the success of the training that has taken place and update training records.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
112
2016 Examinations
CIMA E1 113
OpenTuition.com
Reflectors observe whats going on and carefully consider it. They like to work at their
own pace and tend to be a relatively non-participative and cautious learner.
Activists are almost the reverse of theorists. If they had a new computer they would
switch it on and try and work it before ever thinking of looking at the user guide. They
are excited by pressure, by new projects. However they do tend to rush into things
without adequate preparation.
Pragmatists are inspired to learn if they see a practical outcome: they will learn
something if they see it will help them make their job better or easier. They wouldnt at
all be interested in learning for learnings sake and they probably would find it quite
dicult if a theoretical approach was taken to instructing them.
Whats the point of these four categories? Well, if you were trying to train a group of 20
people, remember, they wont all learn in the same way. Some will be theorists, some will be
pragmatists. Perhaps the best you can do is go for a variety of activities and approaches so
that each type of learner is given something they can respond to.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
OpenTuition.com
Experience
Try theory
Reflect
Theory
Lets take as an example a situation where we have presented to a potential new client for a
new contract, and we dont win it. Thats the experience. So we go away and think why we
didnt win it. It could be that our prices were too high; it could be that our presenters didnt
do a very good job.
Anyhow, from this reflection we develop a theory, and next time we make a presentation, we
try it out. If we fail to win the next job, we need a bit more reflection but if we win the next job
then we probably conclude that we have moved in the right direction and that we have
learned better how to pitch for new work.
4. Motivation of employees
Identifying how employees can be motivated is of great importance to employers. Motivation
was once described as getting employees to run towards a target rather than amble towards
it.
A motivated employee is fired-up to try hard and to do better.
There are many theories of motivation. One famous one that is easy to understand is
Herzbergs Hygiene Theory.
Herzberg was using the word hygiene as an analogy with hospitals. If the hospital is going
to make you well it must be hygienic; in other words, clean. If its not hygienic youll get
worse. But hygiene itself doesnt make you well: hygiene is just a starting point.
Herzberg argued that an organisation must get its hygiene factors correct before it can start
motivating employees. If a hygiene factor is missing then people become dissatisfied.
Examples of hygiene factors would be enough money to live on, reasonable relations with
colleagues and your superiors, reasonable physical conditions in which youre working, a
feeling that youre being fairly treated. If any of these is missing you are likely to be so upset
that none of the other motivating factors that the organisation tries will work.
Once the hygiene factors are in place then you can have the motivating factors such as
recognition, praise, a feeling that you are advancing and getting better skills, a feeling that
what youre doing is worthwhile interesting work, and a feeling of having responsibility.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
114
2016 Examinations
CIMA E1 115
In his first version of the theory, money was only present as a hygiene factor; later versions
had money as both a hygiene factor and a motivation factor. The Herzberg theory is
sometimes known as a two-factor theory (hygiene factors + motivation factors).
5. Job design
OpenTuition.com
5.1. Introduction
Most theories of motivation suggest that there is more to successful work environments than
simply requiring people to unthinkingly repeat simple tasks: challenge, variety, initiative,
recognition and team-work are all seen as valuable contributors to motivation and
productivity. Undoubtedly there will be some situations where traditional production lines, in
which each person does only a repetitive simple task, will minimise the marginal cost of
production. However, those calculations would not take into account:
The costs of recruitment and training caused by high sta turnover that is likely to result
if employees dislike their jobs.
Poor quality because employees do not identify with what they are producing.
In the 1960s and 1970s these considerations gave rise to the job design movement which
attempted to improve jobs (and employee performance) by deliberately designing better
jobs with characteristics that should produce the following outcomes:
Low absenteeism
Job enlargement
Job rotation
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
OpenTuition.com
Job enrichment
6. Reward systems
Rewards can be:
Extrinsic: rewards that arise outside the employee and include pay, praise by a manager
and promotion.
Intrinsic: rewards that arise from psychological enjoyment and the satisfaction of
challenge and a feeling of having done well.
This section deals with extrinsic rewards arising from an employees pay structure.
Pay can be divided into three parts:
Indirect pay: which relates to benefits such as pension contributions and employee life
assurance.
Profit-related pay: where additional payments are made based on the organisations
profits.
Share-based plan: where shares in the employer are given to employees. The hope is
that if employees own shares in their company they will want the company to do well.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
116
2016 Examinations
CIMA E1 117
OpenTuition.com
For performance pay to be an eective motivator for employees it is essential that any
objectives given in order to qualify for additional remuneration are SMART:
Specific:
Measurable:
Agreed/achievable:
Time-limited:
7. Knowledge workers
A knowledge worker is anyone who works for a living at the tasks of developing or using
knowledge. For example, IT sta, accountants, lawyers, teachers, technical writers, architects.
It can be dicult to measure the output of these employees they are not producing goods
that can be counted. This in turn means that managing these employees can be dicult.
Additionally, these workers are often independent-minded, ambitious, and eager to learn
new skills and to gain new experience. Often there are more jobs that there are workers, so
they feel empowered. Frequently they know more about a topic than anyone else in their
organisation including their managers.
Therefore, careful management is needed. Often quoted approaches are:
Encourage knowledge-sharing.
8. Communication
8.1. Introduction
Communication within businesses is obviously important: in particular its required for
planning, coordination, and control.
Communication within the organisation can be:
Horizontal, between the people of the same levels and dierent departments.
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
2016 Examinations
CIMA E1
OpenTuition.com
First, inappropriate language. Obviously this could mean speaking a foreign language
to people who dont understand it, but in practice it is more likely to be using
terminology which not everyone understands. So for example, if you are in a firm of
accountants and you are writing to a client and you are talking about tax computations,
terms such as disallowable, capital allowances, adjustment of profits and so on
may not simply be understood by the client and if thats the case communication has
not been successful.
Status. Dierences in status can interfere. This can be in two ways. First of all it could be
the person at the top of an organisation not wanting to hear what the people at the
bottom are saying, perhaps not believing that people at the bottom have anything of
value to say. It can happen the other way round where people at the bottom of the
organisation are frightened to talk to people at the top of the organisation.
Emotion. If you go into an appraisal review and you are very angry or worked up about
something or even just frightened about something, the chances are that
communication will not be successful.
Wrong medium. If, for example, you wanted to give your employees information about
the technicalities of their pension scheme, probably giving them a long lecture isnt
going to be very useful. There is too much technical information in that for them to
understand. Presenting the information in written form or perhaps a mix of
communication, some lectures in outline and then the detailed material available in
written form, will be more successful.
Not wanting to transmit and not wanting to receive can both occur. It could be that a
manager doesnt want to point out shortcomings in a sta members performance. It
could be that the sta member is not willing to believe that there is anything wrong
with their performance.
Finally a curse of the information age and emails: information overload. We are often
bombarded with so much information that we really cant see the wood for the trees.
We spend so much time looking at information, deciding whether or not we need to
know the information or not, that there is a real danger we overlook the important
material.
Preparation. Establish and clarify your main aims: what do you want and what are you
not prepared to accept?
(2)
Discuss with the other party. Listen to what they want and try to understand their
position.
(3)
Be prepared to give way on what is cheap for you but important for the other person.
(4)
(5)
(6)
Free CIMA notes Free CIMA lectures Free CIMA tests Free tutor support StudyBuddies CIMA forums
118