Operational E1

For all Section B and C questions, answer using the following methods
1.
2.
3.
4.
5.

Make a plan full of points

Make each point as a heading and underline
Make the point
Explain the %point
Apply the point to the context

If there is no context try to use real life examples

Section A The global business environment

Chapter 1 The social, political and economic context
International influences

PEST model
The political risk that organisations are exposed to as a result of a global environment can be
examined using the PEST model.
Political Government (instable government) & Legal (changes in the law)
Economic Monetary or Fiscal policy (inflation, cost of raw materials and exchange rate risk)
Social Cultural (social unrest) & Environmental (earthquakes, pollution)
Technical Technology advancements (lacking technical capabilities, changes in the market place
as a result)

Porters Diamond
Comparative advantage states that in a global economy, each nation produces the products and
services most suited to its own circumstances. Porters diamond identifies the four factors that
determine a nations comparative advantage.
1. Factor conditions The sources of comparative advantage. This can be
- Basic (raw materials, unskilled labour); which are inherent or created with minimal
investment however they cant be sustained as a source of competitive advantage as they
are widely available
- Advanced (IT infrastructure, skilled labour); which provide high order advantages such as
differentiated products
2. Related and supporting industries The industries that enable a new industry to emerge
3. Firm strategy, structure and rivalry Management style and industrial structure
4. Demand conditions Is there enough domestic demand

Economic systems

Nationalism (Protectionism) vs. Liberalisation

Economic protectionism is a nations view that it should protect its own economy and industries.
Economic liberalization involves working others in a group to benefit all member economies and
industries, through allowing the movement of goods, services, labour and capital without tariffs,
quotas, subsidies, taxation and other barriers likely to distort exchange.
Advantages of free trade
Encourages most efficient use of
resources
Protectionism promotes international
conflict
Encourages entrepreneurship
Can use resources to gain a
competitive advantage

Disadvantages of free trade

Big multi-nationals can exert
significant power
Protectionism protects emerging
industries and allows them to grow

Newly industrializing and emerging nations

A significant amount of FDI has promoted Industrialization in emerging nations; through
acquisitions where an existing company in the developing nation is acquired, or a Greenfield
investments where new facilities are set up in the developing nation.
Successful emerging nations have adopted the following methods
1. Export of national commodities: selling oil, metals and land to generate income which is
invested in domestic infrastructure
2. Import-substitution: using import taxes or tariffs to protect developing industries and remove
dependence on foreign imports

3. Export led industrialization: government devaluation of domestic currency to make export

cheaper and imports more expensive
The emergence of the BRIC economies is the result of a number of factors including:

Large pool of labour and consumers large internal production and demand
Relatively low wage rates attractive to multinationals looking to relocate and reduce cost
Increasingly educated population attractive to multinationals as domestically they can set up
efficiency production facilities
Natural resources raw materials to fund its own growth
Globalisation increased trade allowing increased external demand

Culture

Hofstedes national cultures

The culture of a nation embodies its behaviour and has a significant impact on performance. The
culture of a nation must be taken into consideration in all aspects of the business, from the product
to the employees to the management style, when moving into a new market

Individualism v
Collectivism
Do people like working
together or on there
ow
Entering a new market

Masculinity v
Femininity
Competitive or
understanding of the
people around you

Power
The extent those in
power are allowed to
wield their authority

Uncertain avoidance
The extent people accept unc
before making decisions

Farmer and Richman emphasized the importance of external factors in the way organisations act in
different economies under PEST
Political different legislation in different economies will restrict how organisations can operate
Economic availability of education and literacy skills will affect the quality of employees
Sociocultural social factors will affect relations with the organisation (a tradition of antagonism
between unions and management will impact the way management deals with trade unions)
Technology availability of infrastructure

Staff makeup
When setting up in a new country, it is important to decide the right mix of expatriates and locals

Factors favoring expatriate staff

Poor educational opportunities in the
market may require import of skilled
managers
Better communication with the
corporate center
Locals may struggle to assimilate
into the corporate culture
Offshoring and outsourcing

Factors favoring the use of local staff

Local staff are cheaper due to the
saved relocation costs
An expatriate may fail to adjust
themselves into the local culture
(leading to poor management)
Local staff have a grater knowledge
of how local business is conducted

Transnational vertical integration is relocation of production facilities to countries where production

costs are low
Offshoring is arranging for a task to be completed by its own employees in a foreign country
Outsourcing is arranging for another organisation to take responsibility for delivering an output (i.e.
recruitment)
Cox suggests that:
1. Core competences (important processes) are fundamental to a firms competitive advantage
and shouldnt be outsourced. The more a process can achieve competitive advantage the more
it becomes a core competence.
2. Complementary competences should only be given to a trusted outsourcer with whom the
company has a relationship. This is because they tend to be technical complex (i.e. IT)
3. Residual competences can be outsources as a basic transaction (i.e. cleaning)

The advantages and disadvantages of offshoring and outsourcing include:

Advantages
Saving money (able to afford more
qualified workforce)
Allows specialization (by
concentrating on one area)
Investment by host government
Accessing relevant experience
Freedom to focus on core
competences
Delegate risks
For outsourcing only
Economies of scale
Removes uncertainty about cost
Additional

Disadvantages
Risks associated with
exchange rates
Language barriers and
cultural differences
Exercising control over a
distance
Time zone
For outsourcing only
Loss of control
Risk of confidential
information leaking

The European Union (EU) is an example of a common market

Chapter 2: Corporate governance and regulation

Stakeholders

Type of stakeholder
A stakeholder is a person or group with an interest in an organisation. They can be:
Internal employees within the organisation
Connected shareholders, banks, customers, suppliers or anyone directly linked
External the immediate community, governments and competitors.

Mendelows Stakeholder mapping

Mendelow advises on how certain stakeholders should be treated based on their power and interest

Power
influence
Low
High

Level of interest
Low
Minimal effort (general population
outside of area)
Keep satisfied (government, HMRC)

High
Keep informed (employees, suppliers,
competitors)
Key player (Shareholders, CEO, Unions)

Corporate governance

Combined code
The combined code is a system of corporate governance which consists of:
1. Separate the CEO and chairman to prevent any individual dominating the board; which can
otherwise lead to the CEO operating in his own interests rather than that of the company
2. All board members should be trained to improve their effectiveness
3. All board members should feel and be able to use independent thought and judgment
4. Non-executive directors should represent shareholders and question board decisions
5. Non-executive directors should form a remuneration committee to fix remuneration packages
for directors and an audit committee to deal with auditors

Benefits of corporate governance

Improved perception
Encourages investment
Customers happier to
purchase
More efficacious marketing
Allows premium prices
Benefits of NEDS

Increased performance
More efficient (reducing
waste leads to leaner
business operations)
More accountable

Risk reduction
The chance of fraud and
getting into financial
difficulties is minimized

Non-executive directors provide the following five benefits:

They bring a wide
range of
experience and
knowledge that
allows them to
challenge the
boards decisions

They review the

performance of
executive directors
and reward them
with considered
remuneration

They review the

financial
information
produces and
ensure that they
alongside other
controls are secure
and accurate

Selection and
appoint new board
members

Act as reassurance
for existing and
potential
shareholders
ensuring that their
investment is bein
protected

Corporate governance issues

Some of the corporate governance issues that corporations face include:
Board structure
There should be a clear division of
those that run the board and that
run the company.
No one person has the
ability and time to do both
NEDS ensure the board is
acting in best interests of
shareholders

Remuneration
Should be enough to attract,
retain and motivate directors but
not be overpaying
Directors shouldnt be
involved with setting their
own remuneration

Control function
There should be a comprehensiv
system of internal control within
a company to protect its
operations. There should be an
audit committee that is
independent and that reviews th
operations and controls

Macroeconomic policy

Government objectives
Governments have a macroeconomic policy based on
Balance of trade
Imports vs. Exports
(always wanting a
balance)

Economic growth
Demand within the
economy and the
amount that is produced
in the economy

Inflation
Managing inflation
(preventing those on
fixed incomes i.e.
pension are not affected)

Employment
High employment to
maximize resources,
increase spending and
maximize taxation

The government can influence factors that create competitive advantages and encourage foreign
investment. The three main areas that a government can influence an economy are:
1. The macroeconomic environment (fiscal and monetary policy)
2. Legal and market regulation
3. Corporate governance and social responsibility

Monetary policy
The government tries to match demand and supply of money through controlling the supply of
money using interest rates
Low interest rate
Discourages saving; encourages
spending

High interest rate

Encourages saving; discourages
spending

Supply will increases to meet

demand
Otherwise, prices will inflate

Output shrinks to match demand

Otherwise, prices will deflate

Fiscal policy
This is the governments decision on taxation and spending, there are two considerations:
1. Type of taxation:
Direct Taxation (income, corporate tax)
Levied on earnings or profits
Reduces inflation as it reduces
demand
It is viewed as progressive (higher
earnings paying more), simple and
easy to understand
Unpopular as it reduces income
Expensive to administer and requires
complex laws and regulations

Indirect taxation (VAT, import duties,

demerit goods tax)
Levied on spending or expenditure
More popular as there is choice to
when it is incurred
Generally cheaper to administer
It is viewed as regressive, unfair and
difficult to understand
Increases inflation as it increases the
cost of goods

2. Proportion of tax on individuals and companies

Individuals
Stops growth as people will not have
enough disposable income to spend
on goods and services which will also
reduce company profits and tax from
corporation tax

Companies
The country may become less
attractive a place for foreign
companies to set up business. This
will affect goods available as well as
growth and unemployment levels

Market regulation

Regulation and legislative bodies

Market regulation covers the size, price and employment conditions of a market. Industry
regulators balance customer and industry needs by imposing price caps, performance standards,
minimum wages and reducing barriers to entry. The cost of regulation includes:
1. Enforcements costs direct costs (setting up and running agencies) and indirect costs
(regulated businesses confirming to regulations)
2. Regulatory capture becoming controlled by regulators to the point that they work in the
regulators rather than customers interests
3. Unintended consequences businesses will tend to move away from regulated industries
Self-regulation is a proactive approach where the organisation indicates that it understands the
risks it faces and is taking steps to mitigate against them, reducing the perceived need for
regulation. These steps tend to be less stringent than the measures a regulator would impose.

Deregulation on the other hand is the removal or weakening of current statutory regulation.
Advantages:
Encourages greater competition
leading to greater efficiency
Reduces profit margin so
organisations produce at a more
socially optimal level

Disadvantages
Lower quantity or quality of products
Reduces economies of scale (as
there is no longer larger firms)
Dominant monopolies may emerge

Corporate social responsibility

Carrol & Bucholtz Drivers of CSR in developed countries

Describes the range of obligations that an organisation in a developed country feels towards its
external stakeholders:
1. Economic responsibilities Providing a return to shareholders, remuneration to staff and value
for money to customers
2. Legal responsibilities Expected to follow legislation
3. Ethical responsibilities Exceeding legal responsibilities to act in a fair and just way
4. Philanthropic responsibilities Exceeding ethical responsibilities and offering opportunities to
improve society

Drivers of CSR in developing economies

CSR in developing countries is driven by different forces:
1. Culture Religion and other traditions create high expectations of CSR within businesses
2. Socio-economic priorities CSR duties conflicting with development (i.e. reducing pollution
stunting economic progress)
3. Governance gaps CSR can plug gaps in countries where services are not provided centrally
(i.e. health, education)
4. Market access Companies from developing nations must match high CSR expectations in
developed markets if they want to enter
5. Multinational companies Multinationals strive for CSR consistency in all aspects and locations
of its business

Code of ethics
A code of ethics would prevent future cases of unethical behavior as follows
1.
2.
3.
4.
5.

Sets expectations about what is permitted and what isnt

Provides a process to follow in cases of a breach acts as a deterrent
Increases the profile of ethics indicates business priority
Provides a basis for training ensures employees fully buy in and understand the ethics
Provides a basis for ongoing discussion encourages new ideas to be added

Additional

Private sector organisations aim for profitability while public sector organisations aim for an
efficient use of resources

Balance of payments can be impacted by:

Availability, price and quality of goods produced by local producers

Greater inflation leads to greater costs which will impact local prices
Weaker currency makes exports cheap and imports expensive
Trade agreements
Taxes, tariffs, and trade measures

Section B Information Systems

Chapter 3: The role of information systems
Information systems and technology

Information Systems
New systems change the way employees and processes work and the way goods and services are
produced or provided. Some
Decision Support Systems
(DSS)
Combines data and models to
assist management in making
decisions on issues that are
subject to high levels of
uncertainty
Flexible
User-friendly
Have greater analytical
power
Allows managers to
consider alternatives
Transaction Processing System
(TPS)
Used in routine tasks where
data items or transactions are
processed so that operations
can continue. Used for
budgeting, billing, personnel
records and other activities
that involve capturing and
storing large volumes of data

Management Information
System (MIS)
Coverts data into reports that
enable middle managers to
make effective decisions for
planning, directing and
controlling activities
(transforms TPS data into
summary files)
Reports on existing
operations
Little analytical
capability
Relatively inflexible
Decision-making
support

Executive Information Systems

(EIS)
Uses internal and external
sources to create reports that
help senior managers make
decisions on high level issues
User-friendly dashboards
Drilldown functionality
Competitor analysis
Performance
measurement
Decision-making support

Expert System (ES)

Databases of actions to
approach specific
circumstances. Allows nonspecialists to generate complex
outputs (used in loan
applications)
Checks the facts
Performs calculations to
decide feasibility of
applicants credit

Organisational level
Each organisation level has a unique IS/IT requirement
Strategic
Purpose: Assist long term
planning
Time focus: Long term
Coverage: Whole organisation
Uncertainty & subjectivity: High
Accuracy: Less critical
EIS

Tactical
Purpose: Assist monitor and
control
Time focus: Short to medium term
Coverage: Department
Uncertainty & subjectivity:
Moderate
Accuracy: Moderate

Operational
Purpose: Assist day-to-day
activities
Time focus: Immediate
Coverage: Specific activities
Uncertainty & subjectivity: Low
Accuracy: High level
TPS

MIS

Advantages and disadvantages of IS systems

The cost and benefits of database system include
Advantages
Avoidance of unnecessary duplication of data
Serves the organisation as a whole
Encourages management to analyse data
Consistency
Independent of other user platforms so
provides greater flexibility

Emerging Trends

Disadvantages
Problems associated with data security and
privacy
There may be disputes over who owns the
data
Becomes over-reliant on a single system in
case of software/hardware failure
Cost of set-up and maintenance can be high

Some emerging trends of IS/IT in organisations include:

Enterprise-wide systems

Designed to coordinate all

business functions, resources and
information so that each business
area is provided with a system
that fulfills its needs, but shares a
common database that all
functions within the organisation
use. Enterprise resource planning
software includes cloud
computing.
Controls

Knowledge Management Systems

(KMS)

Customer-relationship
managements (CRM)

KMSs store, organize and

disseminate knowledge; this
includes the Internet and intranet,
which allows staff to have access
to the latest information.

Meeting customer needs more

effectively using IT. The more a
company tailors its approach to a
customers needs, the more
competitive advantage it will
gain. This can be achieved using
IT by analysing a users buying
habits (Amazon) and showing
personalized preferences.

Work from home

Communication advancements allow people to no longer be locked to a physical location:
Advantages
Convenience
Reduced costs
Open to a larger pool of candidates

Disadvantages
Lack of productivity
Lack of staff interaction
Lack of employee control

Privacy of information
Information needs to be kept secure; otherwise it faces the consequences of:
1.
2.
3.
4.

Legal duty to maintain information security under data protection acts

Reputational damage if personal data is leaked
Source of competitive advantage (e.g. source of Coca Colas secret formula)
External effects (e.g. if takeover news was leaked, share price would rise)

Controls to manage this risk include:

Application controls
Designed to ensure data is inputted
and processed properly

General controls
Personnel checks (recruitment
checks),
Access controls (passwords, data
encryption),
Equipment controls (physical
hardware protection)

Chapter 4: Systems implementation and business strategy

Competitive advantage

Ward and Griffiths IS and competitive advantage

A system is likely to be of competitive advantage for firms if it provides cost savings and
productivity gains that are not available to its competitors. This can be achieved by:
1.
2.
3.
4.

Linking the organisation to customers or suppliers

Creating effective integration of information systems in a value-adding process
Enabling the organisation to develop, produce, market or distribute new products or services
Giving senior management information to help develop and implement strategy

All of which can be achieved through

Integration of systems
Cost and quality
Fewer errors
Capacity for growth
Speed of access to information
Speed and accuracy of data entry

Comparative efficiency
Improved management reporting
Customer experience
Control of staff
Improved look and feel
Customer management

Porters Five Forces

Analyses the effect of IS on industry
New entrants
Can provide a
barrier to entry like
economies of scale
but can leap over
entry barriers i.e.
internet banking
making branch
banking redundant

Suppliers
Can increase
competition by
allowing for easy
comparison of
prices

Buyers
Can raise switching
costs i.e. word not
being functional on
macs, or provide
analysis of
customers which
allows products to
be tailored

Substitutes
Can be the
substitute (Ecommerce for highstreet shopping)

Competition &
rivalry
Can be used to
compete, as well a
encouraging
further IS
development

The Systems Development Lifecycle (SDLC)

The 5 steps of system development are:
1. Planning and feasibility PEST study and cost-benefit analysis to ensure that the costs of the
new system do not exceed benefits
2. Analysis This determines the systems purpose and the features and procedures required in it
3. Design The component parts of the system, are decided upon and purchased
4. Development Writing the software and integrating it with hardware
5. Implementation It is used in the day to day work and reviewed for its performance

At the analysis stage, if the software does not fit its business processes, the firm must either
Customize the software to match the
process
Less disruption to the firm
Large financial cost if changes are
complex
Additional customization may lead
to glitches

Change the process to match the

software
Negative impact on morale
and efficiency of staff as it
requires a major change in the
way they work

Implementation

Preparation
The implementation stage covers five areas
1.
2.
3.
4.
5.

File conversion Converting existing files into a format suitable for the new system
Hard and software installation site preparation and installation
Training of staff to use the new systems through briefings, courses and on-the-job learning
Documentation creating manuals for procedures
Testing Realistic tests (using real data examples), Contrived testing (using data representing
unusual events), Volume test (uses large volumes of data), Acceptance testing (testing by
users)

Changeover
The four main methods of systems changeover and their benefits are:
Direct
Faster and cheaper than parallel
Implemented before staff can object
Overcomes reluctance to let old systems go

Pilot

Risky as it can disrupt operations and can be

costly if it fails
Less risky than direct changeover
Less costly than complete parallel running
Can take a long time to achieve total
changeover
Not as safe as complete parallel running

Parallel
Safe, built-in safety
Provides a way of verifying results

Perceived lack of confidence in systems

More expensive as more staff is required

Phased
Less risky than a single changeover
Problems in one area are isolated
Staff will adapt easily

Total changeover may take a while

Interface between systems make this
impractical

Important roles
Important roles in the implementation of a system include:
Leading figures Visible behaviour and making sufficient resources available
Project manager Ensuring the project is kept on track
Steering group Winning over staff who are initially against the change
Staff Their acceptance will determine the systems fate (should be made to feel they are included)
HR Should ensure staff receive sufficient training
Managers Ensuring that communication is clearly and in a timed manner to staff

Change management
Torrington and Weightman identified four types of change experience and their reactions
1.
2.
3.
4.

Imposition Initiated and driven by someone else will create resistance

Adaption A change in behaviour as a result of changes by others will create uncertainty
Growth A response to changes will create delight
Creativity The individuals instigates and controls the change process will result in excitement

Managing resistance
Kotter and Schlesinger identified sixth methods of dealing with resistance
1.
2.
3.
4.
5.

Education and communication explaining that the change is necessary

Participation and involvement involving employees in the change
Facilitation and support training and counseling to overcome anxiety
Negotiation and agreement compensating those who lose to
Manipulation and cooperation presenting partial or misleading information or buying off
individuals at the heart of the resistance
6. Explicit and implicit coercion threat of force to push through the change

Dafts considerations
When introducing change it is important for managers to consider the pace, manner and scope of
change. Daft identified the parameters required and barriers to successful change
Parameters:
The need for change is identified
Compatibility with business strategy
Resource availability (human and
capital)
Implementation approach
Resistance

Barriers:
Excessive focus on costs
Failure to highlight benefits
Lack of coordinate and cooperation
Fear of loss

Post-implementation review

Maintenance
Three factors that contribute to the need for maintenance:
Corrective maintenance
An action in response to a
problem

Adaptive maintenance
An action in response to changes
in the environment

Perfective maintenance
An action that improves or
extends the facilities available

Evaluating success
Evaluation of the implementation of a system can occur through
Cost benefit review
Analyses the actual and benefits
costs in developing and
implementing the system
(benefits tend to be difficult to
quantify)

Performance review
Examines whether the system is
performing as expected and
covers issues such as output,
security, error rates and system
efficiency

Post-implementation review
Asses whether the systems
targeted performance criteria
have been met

Additional
Decentralization means to moves services, such as the provision of information systems away from
a single, centralised location. This involves each local office being responsible for the provision of
its own service. It provides advantages of

Reduced bureaucracy
Faster decision-making
Reduced costs
Better service provision

Improved morale of staff

Improved management capability

Section C Operations management

Chapter 5: Operations management and the organisation
Organisational models

Mintzbergs organisation form

Suggests that organisations are made up of five parts
Strategic apex controls the direction of the organisation (Senior managers)
Technostructure
Standardizes work
processes
(quality control,
compliance)

Middle line
The hierarchy that
tr5anslates the business
goals into jobs and tasks
(middle managers)

Support staff
Provides infrastructure to
the business
(catering, HR, legal)

Operating core represents the primary activities of producing and selling goods

Porters value chain

Focuses on how the business processes inputs into outputs; it splits all activities into:
Primary activities: (in order of production)
1. Inbound logistics receiving, handling

Support activities:
1. Procurement acquiring resource

and storing inputs

2. Operations the activity that converts
resource inputs into a final product
3. Outbound logistics storing, testing,
packing and distributing the output
4. Sales and marketing informing,
persuading, enabling customers to buy
5. Service installing, repairing, and
upgrading the output

inputs to the primary activity

2. Technology using technology to
improve processes and the product
3. HR management recruiting,
training, developing and rewarding
people
4. Firm infrastructure planning,
finance and quality control, which
acts as the organisations strategic
capability in primary activities

Supply-chain management

Reck and Longs evaluation of the purchasing function

The view of the purchasing function has developed over the years:
1. Passive: Purchasing is viewed as clerical with a focus is on efficient transaction processing
2. Independent: Purchasing manager is appointed to negotiate best prices
3. Supportive: Centralised purchasing department is established to support wider organisational
goals
The purchase function has now developed into full supply-chain management, which is viewed as a
strategic function that provides competitive advantage as:
1. Working closely with suppliers establishes long-term relationships (strategic alignment, shorter
lead times and integrated IT systems)
2. Reducing the number of suppliers to develop deeper relationships with a select few

Cousins Strategic Supply

Wheel
Describes the various
aspects of a procurement
strategy and states that
they are all inter-connected,
with a focus on anyone area
being at the detriment to
another. The areas include;

Sourcing
Sourcing can be done as:
Single-sourcing
With a single partner

Multiple-source
With multiple partners

Delegated
An external organisation
sources

Parallel
Sourced through a mix
of the above to
maximize benefit

Frees up internal staff

Allows utilization of
external expertise

Price competition
created
Supplier failure will not
halt production
Should create
efficiencies

Advantages
Facilitates confidentiality
Strong relationship
Facilitates better
communication
Possible source of
competitive advantage
Economies of scale
Disadvantages

Access to wide range of

knowledge and expertise
Competition among
suppliers may drive
price down
Supply failure by on
supplier will cause less
disruption

Vulnerable to disruption
in supply
Dependent on the
supplier
Supplier power may
decrease

Difficult to develop
quality assurance
programs
Suppliers may show less
commitment
Economies of scale are
neglect

Quality control is difficult

to maintain
Loss of confidentiality
Competitors may use
same organisation so
unlikely to be source of
competitive advantage

Can be complicated to
manage
Quality control is difficu
to maintain

Benefits of Supply-chain management

Supply-chain management is essential to create and maintain competitive advantage. It provides
the following three main benefits:
1.
2.
3.
4.
5.

Purchase price Bulk buying contracts

Improved quality Agreeing quality standards
Ensuring continuity of supply During periods of limited availability
Tying the supplier to the organisation Reducing supply options to competitors
Confidentiality

Process maps
These are diagrammatic representations of a process. A deployment adds a further dimension to
demonstrate the department or individual responsible for each part of the process. Each
department is sectioned off into vertical grids, when a flow moves between functions a horizontal
line should cross the vertical grid. Apart from
moves between functions, sequence activities
from top to bottom
Mapping can help an organisation improve
efficiency by
Clearly documenting processes and
responsibilities
Document the desired outputs of a process
and ensuring the organisation achieves
these
Communicate steps and decisions to all staff
Eliminates costly mistakes by ensuring processes are understood before changes are made
Identifies areas of bottlenecks
Demonstrates the relationships between the process steps

Sustainability
Sustainability in operations management develops strategies ensure resource use occurs at rate
that allows them to be replenished. At the same time pollution is confined to levels that do not
exceed the capacity of the environment to absorb them. When determining sustainability considers
all aspects of business: factory location, workforce travel, disposal, raw materials transport and raw
materials source
The benefits of sustainability include
1. Cost savings allows more efficient use of resources
2. Quality improvement new operating practices that are part of becoming more efficient may
also improve quality
3. Stakeholder support gains support from the local community
4. Marketing edge products produced sustainability are becoming more desired by customers
and organisations that aim to market themselves as being green

Chapter 6: Quality management

Costs of quality

Product quality
The quality of a product is determined by a number of factors

1.
2.
3.
4.

The product is delivered with specification i.e. time and properly finished
It delivers benefits to customers i.e. taking customer feedback on
Service elements are provided i.e. approachability of staff
Accuracy of administration procedures

The importance of quality to modern organisations is the result of increased competition, increased
consumer choice, more knowledgeable customers, access to strategic competitive advantage and
brand

Quality related costs

High quality will put both costs down and revenues up. The costs are indicated as
Prevention cost
Reducing appraisal
costs to a minimum
(i.e. training, design)

Appraisal cost
Inspecting and testing
(i.e. testing,
reconciliations)

Internal failure cost

Arising before transfer
to customer
(i.e. reworking faulty
output, rejecting output
in inspection)

External failure cost

Arising after transfer to
customer
(i.e. repairs,
replacements, refunds
and their delivery)

The increase in revenue comes from improved reputation and no loss of future custom (decreasing
external failure costs).

Quality control & Quality assurance

Quality control
A standard is set and procedures are
implemented to ensure the standard is met.
It focuses on the inspection of products
produced rather than the production
process often inferences on the population
are drawn from a sample.

Quality assurance
Quality assurance is a more contemporary
system aimed at improving quality through
processes rather than controlling the
outputs of a process. QA accounts for
production, material sourcing, equipment
reliability and human training.

Can be costly, time-consuming and accepts

or misses faults.

Can be difficult to measure, bureaucratic

and costly.

Total Quality Management

Total quality management

TQM is a quality assurance culture aimed at continually improving performance throughout the
organisation over the long-term. It has seven main principles of PRECEPT
1. Prevention Advocates investment in prevention and appraisal costs to save on internal and
external failure costs
2. Right first time - Failure is not an option; appraisal and prevention costs support this
3. Eliminate waste Work must continue until all waste is eliminated
4. Continuous improvement Quality circles and communication of objectives are required to
ensure the ongoing success of TQM
5. Everybodys concern Implement a quality culture that has commitment from all staff and
considered in every decision
6. Participation Emphasizes importance of allowing all staff to contribute ideas
7. Teamwork & Empowerment Encouraged to take action if it will assist the organisation
The concept is based on the view internal and external failure costs can be reduced by spending on
prevention rather than on inspection.
Managing quality using TQM involves
Internal customers All parts of
an organisation are involved with
quality issues and need to work
together through the internal
customer and internal supplier
concept

Service level agreements

Requires a formal agreement
which states the standard of
service and supply that is
provided to an internal customer
(however they are criticized for
creating barriers to constructive

Quality culture A commitment

from all staff to not only just
comply with performance
standard but to be proactive
about improving their
performance and the
performance of others

Empowerment Allowing staff to

have the freedom to decided how
to do work and making workers
responsible for achieving
production targets

relationships and genuine

cooperation)
Continuous improvement
Quality circles and
communication of objectives are
required to ensure the ongoing
success of TQM

Quality costs The view that

internal and external failure costs
can be reduced by spending on
prevention rather than on
inspection

TQM training
The different groups within the organisation that need to be considered include:

Workforce
Educating to understand the importance of TQM
and reassuring about jobs to prevent resistance
to change. Engaging queries will be a priority
before commencing job-specific training

Supervisors
Will require development of problem solving,
communication and people management skills
through training so that they are able to
implement TQM in their teams

Senior managers
Need to be trained first as they are responsible
for the implement; they ill need to demonstrate
commitment

Quality committee
Overseeing the process of implementing TQM will
require a through grounding in all areas which
will require training over a longer period of time

Implementation of a quality management programme

The considerations and problems of implementing a programme like this include:
Considerations

Problems

Senior management commitment

Dedicated resources
Organisation-wide training
Responsibility-clarification
Use of feedback to improve systems.

Lack of management buy-in

Lack of expertise
Interpretation
Conflicts
Too many measures

Contemporary thinkers on quality

Developments of TQM
Some new ideas over quality include
1. Denning Quality must be the constant purpose of the organisation
2. Crosby Quality involves conforming to the customers needs (quality as measured as the price
of non-conformance)
3. Juran Initiate projects to solve problem areas which result in the biggest benefits
4. Ouchi Theory Z combined Japanese and US working practices to focus on participation
5. Kaizen Japanese concept which aims for continuous improvement through small incremental
steps
6. Six Sigma Reduce defects in business processes, achieving this means produce no more than
3.4 defects per million opportunities

Lean production/management
A fully integrated organisation that that minimizes resources required, eliminates non-value adding
activities and has an approach of getting the right things to the right place at the right time. It
involves the systematic elimination of waste such as overproduction, waiting, transportation,
inventory and defective units through:
1.
2.
3.
4.
5.

Improving productivity consider job design to remove unnecessary processes

Minimize labour hours wasted zero waiting time, no delays in production
Performance measurement allows focus on weak areas
Working environment safe, clean environment
Flexibility multi-skilled staff in order to manage activity in high and low demand

5-S practice

Often associated with lean production, the overriding idea is that there is a place for everything and
everything goes in its place
Structurise
Introduce order
where possible

Systemise
Arrange and
identify for ease of
use

Sanitise
Clean daily and be
tidy

Standardise
Be consistent in
your approach

Self-discipine
Follow this
approach daily

SERVQUAL
Service organisations differ from manufacturing organisations when considering capacity
management, these include:
1. Balancing demand and supply is more difficult as inventories cant be built up (production and
consumption occurs together)
2. Greater interaction the customer plays an active role in the delivery of the process
3. Output is different each time achieving a consistently high level of output is challenging
4. Greater reliance on staff dependent on the people delivering the service
5. Intangible output difficult to measure quality as there is not physical product
In light of these, SERVQUAL measure quality in service industries using RATER
R-esponsiveness responding to the customers need
A-ssurance an ability to inspire confidence
T-angible factors physical environment the service is provided (appearance of staff, location)
E-mpathy provision of a caring service (personalized approaches)
R-eliability being dependable and accurate

Tools of quality

Benchmarking
Analysis of performance against similar activity elsewhere can be achieved through
Internal benchmarking Comparisons with the best in the organisation
Competitive benchmarking Comparisons against the best in the industry
Inter-industry benchmarking Comparisons against the best function in any industry

Quality circles
Interdisciplinary, low-level groups of staff that meet regularly to identify and provide solutions to
issues relating to quality.
Benefits
Encourages culture of improvement
Makes valuable savings
Organisational unity between members of
differing functions

Drawbacks
Rejected suggestions may cause resentmen
Could lose focus
Business practicalities misunderstanding o
program costs

ISO accreditation
Provides external verification that an organisation has achieved a set of quality standards
Benefits
1. Improved processes and procedures
2. Improved quality of goods

Costs
1. Complex
2. Time-consuming

3. Improved profitability due to fewer

replacement goods and less re-working of
faulty items
4. Reputation as accreditation raises the
customers explication about the quality of
the product
5. Staff morale as employees more aware of
the importance of quality will support
management more

3. Expensive
4. Doesnt guarantee output will match a
certain level

Chapter 7 Capacity management

Capacity management strategies

Theory
Some ways of managing demand and supply include:
Managing demand
Price incentives
Advertisement
Complementary services

Managing supply
Sharing capacity with other shops
Cross training employees
Part-time employment of staff

The three main approaches to this include:

1. Level capacity where the firm builds an inventory buffer to cope with increases in demand
2. Chase where the firm adjusts operations in response to demand fluctuations
3. Demand management where the firm tries to influence demand

Capacity control IT systems

There are three main forms of capacity control:
Manufacturing resource
planning (MRP)
Technique for deciding volume
and timing of materials when
sales can be forecasted (uses a
single database to do so)

Enterprise resource planning

(ERP)
Integrate all functions of an
organisation in a system that
meets the needs of all users
(planning, purchasing,
inventory control and customer
service)

Optimized production
technology (OPT)
Computer-based methods for
scheduling production
requirements to the known
capacity constraints of the
operation (used to identify and
eliminate bottlenecks)

The costs and benefits of capacity control are:

Advantages
Reduces inventory levels
Easier to track customer orders
Better customer service
Improved information for decision
making

Disadvantages
Costly to produce
Requires extensive staff training
Can lose human touch within the
organisation and with
customers/suppliers

Reliable order fulfilment times

Restrictive

Inventory control methods

Methods
Some inventory control methods include
1. Continuous inventory systems uses an Economic Order Quantity (EOQ) to capture a purchase
level that minimizes stock costs
2. Periodic inventory systems checks stock levels at periodic intervals
3. ABC system suggests that 20% of stock makes up 80% of the stock value so only this stock is
closely monitored
Cost of holding inventory
Cost of storage
Risk of obsolescence
Interest capital is tied up which has interest
paid on it
Insurance larger the inventory the greater
the premium
Deterioration stored inventory will
deteriorate

Cost of stock out

Lost profit form sales
Lost future sales from disgruntled customer
Lost customer goodwill
Extra costs of urgent replenishment orders

Just-in-time
A chase strategy is where goods are only produced in response to an order, features of the
philosophy include:
1.
2.
3.
4.
5.

High quality JIT is often adopted along with a TQM approach

Speed Orders are met through production rather than inventory
Reliability Production must be reliable and not subject to hold-ups
Flexibility Production must be flexible to respond immediately to customer orders
Lower costs High quality production, faster throughput and elimination of errors leads to
lower costs

The JIT philosophy can also be applied to service operations:

1. Reduces queues they require space for customers to wait and decrease the customers
perception of the service
2. Flexible workforce can be moved from one type to another in response to work flow
requirements.
Section D Marketing
Chapter 8 Marketing and business strategy
Organisational orientations

Orientations
There are four organisational orientations
Product orientation
The consumer is seen as a rational person
that examines the specifications of a
product without being swayed by brand.
The organisation seeks to improve the
product

Marketing orientation
The organisation identifies a
customer need and then determines
a product that meets those needs.

Sales orientations
The organisation sets to maximize sales
regardless if the customer is not naturally
inclined to through assertive sales teams

Production orientation
The organisation sets to maximize
production efficiency and reduce
costs. The focus is on internal
processes rather than external
demand

Marketing processes

Strategic marketing plans

Marketing campaigns should have contain the following components in order to be effective
1. Set SMART objectives (Specific, Measurable, Achievable, Relevant, Timely goals)
2. Internal appraisal and external appraisal (SWOT analysis)
3. Gap analysis analysing the gap between set objectives and what might be realistically
achieved
4. Develop clear marketing strategy markets, products and customers
5. Implementation, monitoring and control

Marketing environment 1 PEST factors

Political factors
Consumer confidence in
the future, their
spending power and
their rights.

Economics
Consumers effective
demand for products
and service (uncertainty
results in less spending
and more saving

Sociocultural
Demographic factors
that indicate size and
purchasing power of
customer groups
Acceptability of
marketing messages and
products

Technological factors
Provides new methods o
communication and
marketing

Marketing environment 2 SWOT analysis

Internal appraisal
Strengths
(branding)
Weaknesses
(lack of employee incentives, cost-base,
poor customer experience, poor marketing
mix, organisational structure)

External appraisal
Opportunities
(available inherent profit-making potential,
ability to exploit and competition
Threats
(threats, affect on the organisation, affect
on competitors)

Resource-based strategies enable the organisation

to extend the use of its strengths

Position-based strategies identify the available

opportunities and what needs to be done to
exploit them

Research
A problem is defined, the scope of research agreed, techniques for data collection are chosen, data
is collected, then interpreted and reported into findings.
Primary research
This is fresh data that is unique to the
gatherer
Can be a form of competitive
advantage
Face-to-face interviews build a
detailed understanding

Secondary research
This is existing data obtained from existing
sources
Quick and cheap source of large
volume data
Publications often provide analysis
and answers to questions that might
not have been thought of

Segmentation
The process of dividing a market into customer groups with similar characteristics common bases
for segmentation include
1. End use (need the product will meet)
2. Demographics (age, gender, income, occupation, education) and geographic location.
Kotler and Lane Keller state that segments need to have the following qualities
1. Measurable The number of buyers in the segment must be able to be assessed

2. Accessible The segment must be able to be reached with existing media and distribution
3. Substantial The value of the segment must be sufficient to justify the costs of targeting it

Targeting and positioning

After grouping the market into segments of shared characteristics, the organisation can choose the
segment to target with a marketing campaign. There are three main methods of positioning
products in the market
Undifferentiated positioning
Targets the entire market with a
single marketing message

Differentiated positioning
Targets several different
segments with different
messages

Concentrated positioning
Targets a single segment with
an ideal product

Chapter 9 Marketing mix and consumer behavior

Marketing mix

Product marketing mix

In order to make a product appeal to the customer an organisation should consider its marketing

mix (known as the four Ps). Each P has to be chosen with mind to the segment it has positioned to
in order to maximize marketing impact

Promotion
Attracting attention through promotion,
advertising, internet and personal selling

Place
This distribution of the offering; type
and number of sales outlets and the
use of wholesalers, retailers and
internet

Product
Meeting the customers needs with regards
to physical and psychological factors
including quality, packaging, appearance,
image, health benefits and performance

Price
Organisations should consider the 4
Cs
Cost of manufacture and
distribution
Customers and their perception of
price
Competitor prices
Corporate strategy

Additional service marketing mixes

The service marketing mix includes three more headings to make the seven Ps as a result of an
absence of a tangible product
People
This refers to the people who
provide the service are they
knowledgeable, approachable
and professional?

Physical evidence
Using physical items to attract
customers (i.e. the building
where the service is, vehicles
associated with the service and
testimonials from previous
customers)

Processes
Efficient, user-friendly processes
make a service more attractive
(i.e. efficient booking systems
or appropriate queuing systems

Marketing models for products

The Boston Consulting Group (BSG) Matrix

States that a product is either a star, cash cow, dog or question mark

Star: A strong product although ongoing investment is needed to

maintain high market share in an attractive (and therefore
competitive), growing market
Dog: There is little justification for continuing investment in this
product
Cash cow: Lack of growth makes it a little less attractive than a
star, but it can be milked to fund question marks and stars
Question market: The high market growth makes it potentially
attractive but low market share means that it requires major
investment to realise its potential
The model assists organisations by

1. Ensuring a balance in each category Dog products need to be offset by products in other
categories
2. Spending decisions Directing funds to ensure products remain stars for as long as possible,
while cutting back on spending (marketing) on cash cows are further along in the product
lifecycle
3. Product development and termination Encourages organisations to think about question mark
products as they will often require significant investment to compete and whether it will be
worth it

Product life cycle

The sales performance of a product is shown on a product life cycle PLC
Introduction: A new product is marketed and
sold
Demand is low while customers find out
about it
Pricing will tend to be enough to recover
R&D and launch costs or to stimulate
demand but unlikely to generate a profit
Design changes may be required as the
customer becomes better understood
Requires extensive promotion to raise awareness (or market skimming)
Growth: Demand and competition increases
Increased range of products as organisations
differentiate themselves
Quality standards need to be maintained
Price impact will be much more important
Economies of scale will reduce cost per unit,
edging the organisation into profit
Marketing is required to develop a brand
Shakeout: Sales growth slows down and weaker
providers are shaken out of the market.

Maturity: Leveling demand with organisations

relying on repeat purchasing from existing
customers
Market shared by a small number of
organisations
New varieties of product developed to
extend the lifecycle
Organisation likely to compete on price
To remain competitive low costs must be
achieved through productivity improvement
Marketing should be based on segmenting to
different demographics
Decline: Total demand declines
Competitors withdraw from the market
Still excess capacity so remaining
organisations will compete on price
Organisations focus energies on developing
a new product

The model assists organisations by:

1. Ensuring a balance of products if products are in decline, newer products are needed to
maintain revenue
2. Investment decisions states that introduction stage products require investment whereas
decline products should have none
3. Product termination argues that products in the decline stage should be terminated
Types of marketing

Marketing types
There are five main types of marketing
Direct marketing
The producer interacts
directly with the end
customer to get them to
respond to an invitation
(telemarketing,
advertising)

Indirect marketing
Word of mouth or other
activities
Viral marketing
Using social networks to
spread brand awareness
Guerrilla marketing
unconventional, taking
people by surprise

Interactive marketing
Treating the customer as
a unique individual by
remembering things
about them (Customer
Relationship
Management software)

Experiential marketing:
Establishing an
emotional link between
a market segment and
brand

(publicity stunts)

Consumer behaviour
The five-stage process of consumer decision-making is:

Problem recognition
Recognises a need which acts as
motivation to search for a solution
Influenced by promotion
and marketing activities of
a company

Information searching
Marketers provide product
information, while customers
come up with alternatives
promotion and product
design is influences this

Purchase decision
Selection and purchase
If purchase is not made,
the mix needs to be
changed (i.e. segmenting
the market

Post-purchase evaluation
If satisfied the customer skips to
decision stage otherwise back to
problem recognition
Market research is
required to respond to the
evaluation

Evaluation of alternatives
The shortlist is evaluated
whole product mix affects
this

Branding
A strong brand helps to create an image of the product that the manufacturer wants to present to
the public, its benefits include:
1. Product differentiation the more similar the products the more branding required to gain a
perception of a superior product
2. Product recognition conveys information about or an image of the product, making stockists
more willing to sell the product
3. Premium pricing reduces the importance of price differentials between goods
4. Market segmentation different brands meet specific needs of categories of users
5. Brand extension other brands can be introduced on the back of articles already known to the
customer
6. Customer loyalty the brand creates a connection with the buyer

Internet
The internet can be used as part of a marketing approach in the following ways
1.
2.
3.
4.
5.

E-commerce enabling orders to be summited and paid for online

Product information websites can provide detailed product information
Corporate information websites an provide general information about the organisation
Promotion the companys website can be promoted using Google
Target marketing micro-site capability for specific target audiences could be established

The advantages that this can provide include

1.
2.
3.
4.
5.
6.
7.

Communication is quick allowing rapid responses to customer orders

Enables quick price and feature comparison
Can lower costs through reduces need for physical outlets
Provides the opportunity for global reach even for very small organisations
Facilitates information collection and developing customer databases for future promotions
Customer conveniences as it may be accessed from home at any time
Provides the opportunity to spread its message through viral and guerilla methods

Theories of decision-making
There are three theories about how the decision of consumer purchases is made:
Cognitive paradigm
Buying is a rational, decision
making process based on
objective research

Learned behavior
Customers make decisions
based on past experiences

Habitual decision-making
Customers base their
decisions on brand loyalty
or satisfying behavior
(selecting the first product
that meets their need)

Factors influencing the level of consumer involvement

The extent to which a consumer is actively involved in the buying process depends on:
1.
2.
3.
4.

Relevance the more important the purchase the more involvement there will be
Frequency less involvement if its a repeat purchase
Freedom the more alternatives the more involvement
Influence less involvement if influenced

Additional

Market skimming sets an initial high price for a product to take advantage of buyers who are
prepared to pay for it

Chapter 10 Developments in marketing

Distribution channels

People and purchasing decisions

When organisations are buyers, the purchaser acts on behalf of an organisation rather than for
themselves, the people involved are:
Initiators
The people that start
the buying process
(department
requesting stock)

Influencers
Influence the buying
decision by their
technical expertise
(procurement)

Buyers
Raise orders and
approve payments

Users
Those who use the
purchased items

The different distribution channels are

1. One level channel the distribution channel consists of manufacturer, retailer and end
consumer
2. Two level channel where there are several intermediaries in the distribution channel
3. Zero level channel where the manufacturer deals directly with the customer and the place is
likely to be the internet
Not-for-profit

Not-for-profit organisations
Charities are increasingly using marketing to further their objectives even though shareholder
wealth is not the primary objective, the marketing mix can still be applied. The stakeholders within
marketing mix consideration are beneficiaries, supporters and regulators. The charity marketing
mix is:
Product
The campaigns that
they are involved with

Price
The price which takes
into account
governance and
generating future

Processes
Ways of collecting
(online, postal, direct
debts) and distributing
funds

Place
Charity shops,
websites, retailers

income

Partnering
Not-for-profit organisations can participate in two partnering type marketing strategies for their
benefit
Partnering with commercial organisations (cause
marketing)

Partnering with key individual donors (relationship

marketing)

Forming close relationships with suitable

organisations with the aim of collaborating in
running fundraising events. The organisation
benefits from being seen as a good corporate
citizen (CSR)

Developing relationships with key donors further

by increasing their involvement with the charity,
with the aim of increasing revenue from these
individuals and the insights they provide

Other marketing developments

Internal marketing
By improving the employees ability to relate well with customers and demonstrate a customer
orientation, internal marketing can improve customer service and the customers perception of the
organisation that supports the organizations external marketing activities. It involves selling
customer orientation to employees through development, training, empowerment, performance
targets and rewards.
The advantages of doing this include
1. Emphasizes that every department adds value to the organisation
2. Allows the function to understand the needs of its customers

Social marketing
Marketing can be used to promote social and health issues, this involves encouraging merit goods
and discouraging demerit goods
Merit goods Commodities that society believes should be offered to all (healthcare)
Demerit goods Commodities that society believe damages society overall and thus should be
discouraged (tobacco)

Corporate social responsibility

Companies should consider ethical issues when marketing their products and services, this
includes;
1. Who they sell to (marketing to children is always seen as unethical as children do not have the
ability to make reasoned judgments)
2. Whether advertising is truthful (sponsoring a sport event when your product is fundamentally
unhealthy)
3. How dissatisfied customers are managed
The ethical considerations of each marketing type should be considered
Television advertising
Can be seen as wasteful and
inappropriate
Plays to peoples emotions

Viral marketing
Online presence can be seen as
an attempt to engage with
young people
Can be seen to trivialize some
matters

Celebrity endorsement
The wrong celebrity can be
associated with the company

Section E Chapter 11 Human resources management

Development of HRM

Scientific management
FW Taylor established four principles of scientific management
Development of a true
science of work (a
forensic measurement of

Scientific selection and

training of workers to
meet targets

Encouragement of the
workforce to develop
their potential

Constant and intimate

cooperation between
management and

work activities)

workers

This means finding the best way to perform a task and then providing training and detailed
instructions to staff in order to maximize output.

Human resource management

There are a number of HR issues and roles, of which when conducted suitable provides a number of
benefits
HRM is an issue of strategic importance and has 4
responsibilities
Hiring new staff
Relationships and communications
Appraisal and remuneration
Training
Redundancy management

The benefits of good HR approach include

Increased productivity
Reduced staff turnover
Initiative encouragement
Enhanced group learning

Flexible organisations

Handys organisational shamrock

Suggests that an organisation should be flexible in terms of expansion and contraction; this
shamrock organisation would have:
1. Core of professional workers
2. Contractual group of specialists
3. Flexible workforce of temporary and part-time staff.

Atkinsons flexible organisations

Suggests that organisations should be flexible in three dimensions
Task flexibility
Job classifications are removed
to give individuals a wider
range of responsibilities and
organisational dependency

Numerical flexibility
Temporary, short-term
contractors are used to allow
organisations to expand and
contract capacity as required

Financial flexibility
Rewards are tailored to
individual performance through
performance related pay
schemes

Motivating staff

Scheins types of employees

Identifies how staff can be managed depending on their motivation
Rational economic
Maximization of
personal gain
Cannot be trusted
to manage others

Social
Interaction with
others in the
workplace
Performance can
be bettered by
improving
workplace morale

Self-actualizing
Self-fulfillment
Should be given
challenges and
responsibility

Complex
Obligations
between
employer and
employee
Need to respect a
psychological
contract

McGregors management views

Douglas McGregor believed that managers had two modes of motivation

Theory X Managers believe staff have an inherent dislike of work and therefore they must be
controlled to improve productivity
Theory Y Managers believe staff regard work as natural and should be placed in participative
environments and given self-direction

Herzberg hygiene factors

Frederick Herzberg differentiates between hygiene factors and motivators:
Hygiene If absent, will demotivate however presence will not motivate beyond a neutral point
(working conditions and relationships) Motivators Can motivate but only if hygiene factors have
already been met (responsibility, recognition and achievement)

Maslows hierarchy of needs

Abraham Maslow places human needs in a hierarchy.
Only once the most basic need is met will the individual
address the other needs.
Self-actualization: fulfillment of personal potential
Esteem needs: for independence, recognition, status
Social needs: for relationships, affection, belonging
Safety needs: for security, order, freedom from threat
Physiological needs: food, shelter

Vrooms expectancy theory

The theory states that: Valence x Expectancy = Force
Valence = the amount the person desires an outcome
Expectancy = the individuals assessment of how lively a given level of effort will yield a desired
result
Force = the amount of effort or motivation present

Encouraging employee contribution

Hack and Oldhams job characteristics model

Sets out a link between motivation and performance with the characteristics of the job, it measures
this based on the extent to which a job displays five core characteristics:
Skill variety
Breadth of job
activities and skills
required

Task identity
A visible outcome
of the work

Task significance
The impact of the
job on other people

Autonomy
Degree of freedom
in executing the
work

Feedback
Information
provided on worke
performance

If the job design is addressed meaningfully, the employee will experience

1. Experienced meaningfulness a feel that their work is worthwhile (based on skill variety, task
identity and task significance)
2. Experienced responsibility a feeling that they are responsible for their work (based on
autonomy)
3. Knowledge of results an awareness of how they are performing (based on feedback)

Job changes
Practical methods changing the above characteristics include
Job enlargement
Adding more tasks at
a similar level of
complexity

Job enrichment
Adding more tasks at
a more advanced
level of complexity

Job rotation
Swapping roles at a
similar level to
create variety

Job redesign
Ensures a job suits a
person in terms of
what motivates them

HR strategy

Guests HR strategy
David Guests illustrates how HR strategy can generate measurable financial outcomes

HR Strategy
HR Practices
HR Outcomes
Behavioral outcomes
Performance outcomes
Financial outcomes

Differentiation
(innovation)
Selection
Commitment
Effort, motivation
High productivity,
quality and innovation
Profits

Quality focus
Appraisal rewards
Quality
Co-operation
Less absence, conflict,
labor turnover or
customer complaints
Return on investment

Cost reduction
Job design
involvement, status
Flexibility
Citizenship
Less absence, conflict,
labor turnover or
customer complaints
Return on investment

HR Plan
To deliver a HR strategy, an effective plan is needed
Supply forecast
The internal and external
supply of labor and specific
types of labor

Objectives
The organisations manpower
strengths and weaknesses, the
organisations use of employees,
the organisations structural
objectives (new technology,
products)

Demand forecast
The internal and external
demand for labor and specific
types of

Action
The transfer, redeployment,
recruitment policy and
redundancies
Reconciliation of demand and
supply

Shortcomings in any HR plan, whether in recruitment or selection is due to

1.
2.
3.
4.
5.

Ineffective processes
Lack of support from department managers
Losses due to wasted training expenditure
Losses due to wasted recruitment expenditure
Oss of capable employee

Chapter 12 Human resources practices

Developing the Human Resource

Human Resource Cycle

A common approach to viewing HR is as a five stage
cycle. HR tends to develop the HR plans whereas the line
mangers implement them
1. Selection obtaining people with appropriate skills
2. Appraisal setting individual performance targets in
line with organisational goals
3. Training filling skill gaps and checking the
organisation retain appropriately skills people
4. Reward system to motivate and reward employees

Pre-recruitment

Preparing for recruitment

Before recruitment can take place, three pieces of preparation are required
Job analysis
Setting out information on job
purpose, content of job,
responsibilities, performance
criteria and development
methods

Job design
Outlining competencies that will
meet the jobs demands
(communication, problemsolving)

Job description
Information on job title,
department, wages, duties,
limits to authority and dates

Recruitment

Recruitment
Recruitment is the process of attracting a pool of suitably qualified applicants. It covers
1. Advertising a job vacancy
2. Preliminary contact with potential candidates
3. Initial screening to create a pool of suitable applicants.

Selection
The process following recruitment that identifies the most suitable applicant, it must be:
1.
2.
3.
4.

Reliable (produce consistent results)

Valid (decisions made on a solid basis)
Fair
Cost effective

Some selection methods include:

Interviews:
Allows best person for the job to
be found and gives candidates
an accurate impression of the
job

Advantages

Disadvantages

Rapport can be built

Selection testing
Psychometric tests; mix of
cognitive (ability, aptitudes) and
personality tests (emotional
make-up)

Assessment centers
Groups of participants
undertaking a series of test

Tests can be sensitive

Standardized tests means
everyone is measured
equally
Moderate performance
prediction accuracy
Allows longer to study
candidates
Demonstrates social
faculties
Permits greater diversity of
assessment methods
High performance
prediction accuracy

Lack of job performance

accuracy
Unreliable
Prone to interviewer
mistakes
Over-simplifies complex
issues
Cultural specific
Results are only used to
support other selection
methods

Costly and time consumin

May allow contrived
behavior
Selectors must be
experienced

Rewards

Designing reward systems

A good reward system should:
Be able to
Recruit and retain staff
Motivate and reward employees
Recognise non-performance related
factors (skill, competence and job role)
Understandable

Consider
Size of remuneration should relate to
success contribution
Non-financial benefits (promotion and
career development)
Remuneration schemes offered by rival
companies
Total cost of remuneration scheme should
not be so high that its benefits are
questioned
Fairness

There are two main types of reward schemes

Profit sharing
schemes

Performance
related pay

Advantages
Links success to the
success of the organisation
Little difficulty in paying a
bonus as only paid when
profits are made

Easier for the individual to

control their own
performance and thus
increases motivation
Removes risk of
manipulating profits

Disadvantages
May feel that ones own
contribution is minimal

Exact conditions must be

made to avoid uncertainty
If targets are not achieved
staff may be demotivated

Appraisals

Types of appraisal
The overall purpose of an appraisal system is to improve efficiency through:

1. Reward review Measuring the extent to which an employee deserves a bonus

2. Performance review For planning training and development programs
3. Potential review Aid planning career progression

Appraisal approaches
Appraisals should be a participative, problem-solving process between the manager and appraisee.
Management led
Employee is assessed
by manager according
to targets set by
manager

Self-appraisal
Employees assesses
own performance
against criteria,
identifies issues
resolve with managers
guidance

180 degree
Feedback on the
appraisee is sought
from colleagues

360 degree
As well as receiving
feedback, the appraise
gives feedback on the
appraiser

Performance should be measured using SMART

S-pecific: Staff know aspects of performance that is relevant to their incentive
M-easurable: Should be transparent so that staff can track their progress
A-chievable: Should relate to an aspect of performance that is within the ability of the staffs control
R-ealistic: If they are unrealistic, staff may decide to ignore them completely
T-imebound: A requirement to achieve targets within a specified time period
Benefits of good appraisal include:
Rewards good performance
Sets motivating challenges
Eliminates shortcomings
Identifies training needs
Provides a forum for exchanging feedback
Identifies future aspirations (career
management)

Barriers to effective appraisals include:

Confrontation conflict between involved
parties
Judgment appraiser takes a one-sided
approach
Bureaucracy Appraisee sees the process as
a form filing exercise
Annual event Annual targets may become
redundant after 6 months

Training

Assessment of training needs

Factors to consider regarding training include
1. Strategy training should meet the individual and organisation need
2. Type of training methods of training should be most effective
3. Motivation of employees better trained employees are more motivated (training cost may
offset against lower absenteeism)
4. Productivity better trained employees are more productive which offsets training cost against
greater productivity
5. Resources training will divert resources away from the organisations core business (cost of
training)

Types of training
There are three main types of training
Advantages
Formal in-house
Consists of lectures, discussions,
exercises, role plays and case
studies run by the organisation
itself

Can be tailored to specific

requirements
Cost effective if produced
in house

Disadvantages

Participants likely to be
distracted by on-going
work issues
More likely to cancel due t
a lack of cancellation fee

Formal external
Consists of lectures, discussions,
exercises, role plays and case
studies run by an external
organisation

On-the-job training
Consists of work shadowing,
tolerating mistakes and
organizing specific assignments

Benefits from
specialization of external
organisation

Training is directly relevant

to the job
Training is just-in-time so
that specific queries are
identified

No benefit unless the

individual wants to learn
If the subject matter
doesnt relate to the job
Difficult to undergo when
real customers are being
dealt with
The person teaching may
not have the appropriate
training skills

Training evaluation
The effectiveness of training can be evaluated by
1.
2.
3.
4.

Reaction did the trainees like the training?

Learning did the trainees understand the key issues arising from the training?
Behavior has the trainees behavior changed as a consequence of the training?
Results what benefits arise from the training?

Managing development
Development focuses on developing skills rather than being trained to perform tasks. HR often plan
development for internal succession planning, which enables key roles to be filled through logical
progression
Advantages
Can be cheaper than using agencies
Develops career structures
Motivates employees as rewards are
visible
Maintains organisational culture

Disadvantages
Better candidates may be available
externally
The opportunity to progress relies on a
vacant position emerging
Planning requires resources to manage it

Kolbs learning cycle

Learning is an integral part of both training and
development, Kolbs cycle suggests that people learn
through experience