Business Notes (Unt 2)

People in Organization
Organization means to control any business through a specific systematic approach. All the
businesses have some kind of structure or hierarchies. Some are formal and owners are informal.
Formal organization of a business means that there is specific structure, hierarchy and procedures are
involved. On the other hand informal organization means that no rigid structure is there to follow and
organization style is very flexible.
Management
Management is the process of achieving the objectives of the business by using its available
resources effectively.
In a small business, the owner is likely to be the manager as well, responsible for all the managerial
tasks. However, as a business grows, then some of these tasks can be delegated to others.
The main functions of management are:
 Planning: setting clear objectives.
 Organizing: dividing the work into smaller tasks and delegating to others.
 Staffing: having the ‘right’ person in the ‘right’ job (known as Human Resource
Management).
 Directing: decision-making and giving instructions to others.
 Budgeting: preparing a detailed financial plan for the next trading year.
 Coordinating: Bringing the various parts of the business together.
One of the most important skills of management in a large business is knowing how, when and what
tasks to delegate to others. Delegation occurs when managers pass a degree of authority down the
hierarchy to their subordinates. The managers must ensure that the subordinates are sufficiently
competent to cope with the task, and that they have the necessary skills and time available to
complete the delegated task.
 Senior management (setting long-term plans and strategies, appraising middle

management).
 Middle management (establishing departmental strategies, appraising departmental staff).
 Supervisory management (monitoring the regular and routine day-to-day tasks).
The relationship that exists between the management and their subordinates in a business can be
represented diagrammatically in the form of an organizational chart.
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An organizational chart shows:
a) The different departments within the business. In this example, there are 4 different
departments (Production, Marketing, Finance, and Personnel).
b) The chain of command. In this example, a chain of command exists between person a (senior
manager), person B (middle manager), person C (supervisor), and person D (shop-floor worker).
c) The span of control of each manager. This refers to the number of people directly accountable to
a single superior. In this example, the span of control is 4 people.
d) The channels of communication used.

This diagram indicates that this business has four layers in its hierarchy and that there are many ‘line’
and ‘staff’ relationships which exist.
A ‘line’ relationship exists where there is direct authority (in the diagram, an example of a ‘line’
relationship is between person B and person C).
A ‘staff’ relationship exists where there is no direct authority. Instead, it is a relationship in an

advisory capacity (e.g. an expert who provides advice on, say, computers, or staff training). In the
diagram, an example of a ‘staff’ relationship is between person B and person D.
A recent trend in many large businesses has been delayering the organizational chart. This means
stripping out one layers of management from the hierarchy. This is done to reduce costs and to
improve the speed of communication flows within the business, as well as to provide each employee
with more responsibilities.
However, Delayering can actually overstretch employees by giving them too much work and can,
therefore, actually have a negative effect on their level of morale and motivation.
Traditionally, many businesses had highly centralized decision-making, with all they key decisions
being made by senior management, with little responsibility and authority being passed down the
hierarchy.
Functional structures:
CEO
DIR R&D DIR Marketing DIR Production DIR Finance DIR HRM DIR Admin
Manager maintenance Manager Production Manager Quality Control Manager Purchase
Workers Workers

Advantages of functional structure:
 It allows the business to be coordinated from the top and to a sense of overall direction.
 It provides clear lines of communication and authority for employees.
 It lets specialists operate in particular areas.
Disadvantages of functional structure:
 Senior managers may become very remote as the business grows and may become
unaware of local issues.
 Decision-making may be slow because of long chain of command, which may damages
the competitiveness.
 It provides little coordination and direction to those lower in the organization.
Entrepreneurial Structure (Small Businesses)
This reflects the authority the entrepreneur has control over all aspects of the business and its
employees. This kind of structure will usually encourage delegation and empowerment.
Appropriate
 where quick decision making is needed with an element of skill and flair
Problems
 As an organization gets bigger it becomes difficult for the entrepreneur to maintain direct
authority over all employees and a change in structure is necessary.

Structure by Product (Divisional Structure)
Today many companies have reduced the number of management layers and have re-organized away
from functional structure towards a divisional structure. Within each division marketing, production
and other staff would work together on the same projects.
Features
 Each division is self contained and operates as a profit centre (a firm within a firm).
 Within each division the functional structures tends to be adopted.
Advantages
 Allows individuals to specialize and gain expertise in specific products and markets.
 Allows a large company to operate as several smaller ones, each with greater identity and
autonomy, thus facilitating rapid decision making and unambiguous performance
measurement.
 Greater flexibility for growth and expansion (additional profit centers can be grafted onto the
organization).
Disadvantages
 Conflict between divisions, e.g., allocation of fixed costs and machines, setting of budgets
and availability of finance)
 There can be higher costs as activities such as marketing will be replicated in different
divisions.
 Difficult to co-ordinate if divisions grow too large.

Factors Influencing Organizational Structures
 Size. As a business grows it is unlikely to move away from an organizational structure to one
where authority is passed to other employees. A large firm will tend to have a longer chain of
command with more levels of hierarchy.
 Views of the owner or leadership style. If owners wish to retain control in the business, they
will want a narrow span of control. Owners or managers who wish to motivate employees
may delegate decision making to them.
 Business objectives. If the business wishes to expand rapidly, perhaps by a merger, it’s likely
to find its span of control gets wider.
 External factors, e.g., in a period of rising costs or recession, a business may be forced to
reduce its chain of command in order to cut costs. Similarly in a period of growth a firm may
employ extra managers as specialists in order to gain economies of scale.
 Changes in technology, e.g., a new information technology system could reduce the role of
administration.
If the Organizational Structure is not appropriate
 Decision making can be slow.

 Lack of co-ordination.
 Costs can rise.
 Failure to share ideas.
 Motivation may decrease as people don’t know what is happening or why.
Span of Control
Number of workers working under the direct supervision of senior person is known as span of control
of that senior person. The ideal span of control is five to six person but it may vary according to
nature of business is operating.
Advantages of Broad Span of Control: -
 It is very cost effective method of organization

 Less chances of miscommunication as chain of command will be short.
 More chances of delegation so there will be a more motivated work force.
Disadvantages of Broad Span of Control: -
 More chances of mistakes, errors and fraud

 Senior person will have less time for planning purposes because of workload.
 Business has to bare redoing cost.
Advantages of Narrow Span of Control: -
 Less chance of mistakes, errors and frauds

 Workload will be low for the senior managers

 There will be low or less redoing cost
Disadvantages of Narrow Span of Control: -
 Lack of innovation
 Low motivation because there will be less delegation
 More chances of miscommunication.
CHAIN OF COMMAND
Number of steps involved in any decision making process or in any organizational structure is known
as chain of command.
DELEGATION
Delegation is a process in which the senior person transfers authority, from a senior person to
subordinates. The basic objective of delegation is to motivate work force and to decrease the
workload of managers. In delegation process authority transferred to subordinates, but not the
responsibility. Senior manager will remain responsible for every act, which is carried out by the
subordinate.
Why managers Hesitate to Delegate
 Senior manager always has the fear of redoing the work if not properly completed by the
subordinate because the responsibility remains with the senior manager.
 Some manager fears that if authority is delegated subordinate can supersede the senior
manager with his/her performance. (Insecurity about the position)
 He can try to hold maximum authority and will no pass on any power to subordinate.
 Work is highly cadmic but workforce is not properly trained.
 Lack of confidence and the workforce can also cause problems in delegation
Significance of Delegation:
 It off wads the works burden of higher a management and senior manager can have more time
to plan for formation of strategy for the business.
 It can be a vital source of motivation for the workforce as a worker will feel more important
and they will work more efficiently and productively.
 Through delegation process management can generate new ideas and new decision-making
techniques, which can be useful tool for the business as every subordinate, will participate in
decision-making.
 Senior managers can train their subordinates by delegation and by providing them different
new challenges.
 In this way business can have skilled workforce without spending for training cost.

CENTRALIZED AND DECENTRALIZED
Centralization:
It is a process where all the decision are made by the head office and then these decisions are
communicated to different departments or other units of the business the basic purpose of centralized
decision making is to maintain the quality of decision making and to create a situation where each
and every department can follow the same pattern of decision making. It is also used to control
frauds, errors and duplication of resources and can also be used to economies of scales e.g. in
centralization decision making head office will purchase all the materials and components required
by each and every department so trade discounts for bulk buying can easily be achieved.
Advantages
 Decisions are made by experienced people with an overview of the company.
 Ensures policies are consistent throughout the company.
 Ensures quick decisions can be made without consultation.
 Procedures such as ordering and purchasing can be standardized throughout the company,
leading to economies of scale.
 In times of crisis the firm may need strong leadership by a central group of senior managers.
Disadvantages (mainly advantages of decentralization)
 Centralization reduces the input of the day to day experts, e.g., the shop floor staff, into the
firm’s decision making.
 It risks demoralizing branch managers who may feel mistrusted or powerless.
Decentralization
Decisions are made by different units or departments of the business independently according to their
own requirement. Head office set overall policy of the business but make the different departments
autonomous for their functional decision making so that they can make quick decision without any
time tags according to their local requirement. Decentralized decision-making can increase the
chances of frauds but can be highly beneficial where situations vary from department to department.
Advantages
 Reduces the stress and burdens of senior management
 It can empower local managers encouraging them to be more innovated and motivated.
 It reduces the volume of day to day communication between head office and the branches,
therefore giving senior managers the time to consider long term strategy.

 Subordinates may have a better knowledge of local conditions affecting their areas of work.
This should allow them to make more informed well judged choices, e.g., salespersons have
detailed knowledge of customers.
 Management at middle and junior levels are groomed to take over higher positions. They are
given the experience of decision making when carrying out delegated tasks (management
development).
 Could allow greater flexibility and a quicker response to changes. If problems do not have to
refer to senior management decision making will be quicker. Since decisions are quicker,
they are easier to change in the light of unforeseen circumstances.
Disadvantages
 Reduction in uniformity may unsettle customers who expect every product to be the same one
and look like.
 Head office is in a position to measure the success of every aspect of the product and sales
mix, therefore its instructions may prove more profitable than local manager’s intuition.
Conclusion
It is unlikely there will ever be complete centralization or decentralization. Certain functions within a
business will always be centralized because of their importance, e.g., decisions about budget
allocation are likely to be centralized as they affect the whole economy. The decision to distribute
profits is also taken only by a few. Some delegation is necessary in all firms because the limits to the
amount of work senior management can carry out. Even if authority is delegated to a subordinate it
is usual for the manager to retain responsibility
TYPES OF AUTHORITY
Line Authority: It means where senior person has complete authority on his department he can order
them to perform any specific task related to that department. But under ‘line authority’, line manager
cannot order any task to other departments, e.g. marketing manager can assign targets to marketing
staff but cannot order anything to production department’s staff.
Advantages:
 Area of responsibility is clear and each and every worker knows who his or her immediate
boss is. So less chances of miscommunication and ambiguity is there.
 Workers remain highly target oriented and business can achieve is overall goal by using them
more efficiently.
 It is also easy for manager to control and communicate because his workload and area of
planning is clearly mentioned.

Disadvantages:
 Managers have to make sole decisions and consultative services are not they’re which can
increase workload and stress level for the manager.
 New idea or suggestions from other managers are discouraged even though they can be of
help to manager.
Staff Authority: It is situation where manager posse’s line authority but he can also suggest or
express his opinion about different things to other department. But it is just a consultative authority
because it depends on the content of other department, manager whether to accept or not accept the
suggestion. It means under staff authority marketing manager cannot order anything to production
department but he can suggest or express his view.
Advantages:
 Mangers can make decisions after a thorough consultative process, which will make the
decision process which will ask the decision process more efficient and effective, especially
where multi skilling is required for decision making.
 New ideas can be there which can provide new dimensions and innovative opportunities to
different departments.
Disadvantages:
 Under interference can cause conflict of interests between different managers.
 It can also increase the cost of decision making as to modify the decision because has to occur
cost.
 Chances of miscommunication are there.
Functional authority: Where manager of a specific department has authority on all other
departments due to his unique expertise, which is used by the entire department. Therefore,
managers of other departments have to follow the instruction of that specific manager i.e. Manager of
IT can suggest or order other departments about the usage of software or network that is being
constructed by the IT Manager.
Advantages:
 Manager can avoid the problem of different systems by taking the decision from expert in that
specific area
 Different departments can avoid extra overhead by taking the decisions from that specific
expert. Now they don’t have to hire different staff for that specific job.
Disadvantage:
 There can be chance of miscommunication because function al manager is expert in a specific

field and he has to deal with other departments, which have different requirements.

LEADERSHIP
Leader is a person who knows where he wants to go, gets up and goes. It means leader is person with
clear vision that what he wants to do and what can be the consequences of that decision. And he
makes his decision quickly and executes and communicates these decisions instantly.
Leader is a person who identifies the problems before they become emergencies. It means that the
leader can easily and accurately forces the situation and makes decisions, which can be more
beneficial for the performance of business.
Qualities of a Good Leader:
 Leader must have a vision

 Communication skills by which he can convey his decisions and can motivate his
followers
 Qualification, experience, and specialization in his respective field.
 Personality traits (character, risk being initiative taking, charismatic personality)
 He must be a troubleshooter
 Leader must be an innovative person.
Types of Leaders:
 Autocratic or Authoritative
 Democratic
 Laissez-faire or charismatic
Autocratic:
A leadership style where a leader makes his own decision without any discussions or consultancy
with his subordinates. Autocratic leaders believe in ‘just do it’ approach and they normally think
that their decision making skills are far more superior to others so they don’t bother about discussion,
arguments, or consultation. They normally pass on the orders and expect that subordinates will follow
their orders without any hesitation or arguments. That’s why they are also known as authoritative
leaders.
SITUATIONS WHERE THEY CAN BE SUCCESSFUL:
 Where workers are highly skilled and trait

 Work is of highly technical nature.
 Where area of responsibility is clearly defined.
 Time is the main essence for decision-making.
 Where formal hierarchy is involved and procedures and steps are involved.
WHERE THEY ARE NOT SUCCESSFUL:
 Work environment is highly innovative.

 Multi-skilling is required or pooling of expertise is required for better decision-making.
 Work is highly labour oriented and human elements cannot be eliminated.

DEMOCRATIC
Where leaders believe in consultative decision-making and normally encourage subordinates to

participate in discussion and to express their views but democratic leaders make their own decision in
the end.
Subordinates of democratic leaders are free to express their ideas and even they can participate in
discussion groups for decision believes in delegation. Democratic leaders do not transfer their
authority to the subordinates and normally take all the credit for decision making.
SITUATION IN WHICH DEMOCRATIC LEADERS ARE SUCCESSFUL:
 Multi skilling and pooling of expertise is required.

 Where business activity is highly diversified so leader must consult and discuss so that
every angle can be covered easily.
 Work is highly technical but innovation is required.
SITUATION WHERE THEY ARE NOT SUCCESSFUL: -
 Where quick decision making is required a time is the main element of decision making.
 Where workers are unskilled.
 Where strict procedure and hierarchy id involved.
LAISSEZ- FAIRE OR CHARISMATIC: -
Leadership style where leader highly believes in delegation and he always prefers to put new
challenges for subordinates and encourages them to make their own decisions. Charismatic leaders a
charisma around them with their magnetic personality and normally subordinates are highly fond of
these leaders and they can motivate work force very easily. They are known to be people oriented
leaders.
SITUATION WHERE CHARISMATIC LEADERS ARE SUCCESSFUL: -

Where
 Work is highly labour oriented.
 Work environment is highly of innovative nature.
 Span of control is broad.
SITUATION WHERE THESE LEADERS ARE NOT SUCCESSFUL: -
 Where work is highly technical but work force is highly qualified and trained.
 Where strategic decision-making is required.

Motivation
Having a motivated workforce is vital for most businesses, since it can lead to higher rates of
productivity, better quality output, and low rates of absenteeism and labour turnover. The main factors
which affect the motivation of workers are pay levels, job security, promotional prospects, and be
given responsibilities, working conditions, fringe benefits, participation in decision-making and
working in a team.
Abraham Maslow’s ‘Hierarchy of Needs’ can be seen in the diagram below:
SELF-ACTUALIZATION
SELF ESTEEM NEEDS (STATUS)
SOCIAL NEEDS (AFFILIATION)
SECURITY NEEDS (PSYCHOLOGICAL)
BASIC NEEDS (PHYSICAL)
We first need to satisfy the basic requirements of continued existence (i.e. physiological needs). Once
these needs are satisfied, then we seek to satisfy the higher level needs.
Until a lower order need is satisfied, you cannot progress onto a higher level need. Hence, once the
lower level needs is satisfied, then further motivation for the employee can only come by giving them
greater scope for using skill, initiative, and creativity.
Most people reach the safety and social categories; some reach the ego category, yet very few reach
the self-fulfillment category (and those that do reach it will not remain at it for very long). As a result
of this progression, the size of each of the sections in Maslow’s hierarchy diminishes the higher they
get, as fewer and fewer people reach them.
Applying this theory to employees, physiological needs include pay and working conditions, safety
needs include Health & Safety protection and pension schemes, social needs include the need to work
in a team and mix with others, and ego needs may include a company car, job title, or size of office.
Self-fulfillment needs will depend on the individual employee, whether he has achieved his full
potential or not.

Hertzberg’s two-factor theory (hygiene / motivators)
Frederick Herzberg carried out several studies of management and motivation and he attempted to
identify the factors that motivate employees. His most famous theory is called the ‘Two-Factor
Theory’, in which he distinguished between what he called Motivators (which actually give an
employee positive satisfaction) and Hygiene / Maintenance factors (which do not give positive
satisfaction, but their absence will cause dissatisfaction).
Herzberg studied 200 engineers and accountants, who represented a cross-section of Pittsburgh
industry. They were asked about events they had experienced at work, which had either resulted in a
marked improvement or a marked reduction in their job satisfaction. The motivators are concerned
with the content of the job and include a sense of achievement, being given responsibility, using
initiative and creativity, and being involved in decision-making. In other words, these motivators
equate with the ego and self-fulfillment categories in Maslow’s Hierarchy.
The Hygiene / Maintenance factors are concerned with the context of the job and include such items as
pay, working conditions, supervision, company policy, bureaucracy (“red tape”) and interpersonal
relations. For managers, the implications of Hertzberg’s work are that it is necessary to provide strong
motivational factors, whilst at the same time ensuring that the negative, hygiene factors are minimized.
Herzberg's findings revealed that certain characteristics of a job are consistently related to job
satisfaction, while different factors are associated with job dissatisfaction. These are:
Factors for Satisfaction Factors for Dissatisfaction

Company policies
Achievement
Supervision
Recognition
Relationship with supervisor and peers
The work itself
Work conditions
Responsibility
Salary
Advancement
Status
Growth
Security
Step One: Eliminate Job Dissatisfaction
To get rid of them, you need to:
 Fix poor and obstructive company policies.

 Provide effective, supportive and non-intrusive supervision.
 Create and support a culture of respect and dignity for all team members.
 Ensure that wages are competitive.
 Build job status by providing meaningful work for all positions.
 Provide job security.
All of these actions help you eliminate job dissatisfaction in your organization. And there's no point
trying to motivate people until these issues are out of the way!
You can't stop there, though. Remember, just because someone is not dissatisfied, it doesn't mean he
or she is satisfied either! Now you have to turn your attention to building job satisfaction.
Step Two: Create Conditions for Job Satisfaction
To create satisfaction, Herzberg says you need to address the motivating factors associated with
work. He called this "job enrichment." His premise was that every job should be examined to
determine how it could be made better and more satisfying to the person doing the work. Things to
consider include:
 Providing opportunities for achievement.

 Recognizing people's contributions.
 Creating work that is rewarding and that matches people's skills and abilities.
 Giving as much responsibility to each team member as possible.
 Providing opportunities to advance in the company through internal promotions.
 Offering training and development opportunities, so that people can pursue the positions they
want within the company.
Theory X’ ‘Theory Y’:
Douglas McGregor developed what he termed ‘Theory X’ and ‘Theory Y’ management styles. A
Theory X manager is very authoritarian, assuming that employees need constant supervision, they will
avoid performing their jobs if they can, they do not seek responsibility, they prefer to be told what to
do, and they are really only interested in job security. A Theory Y manager, on the other hand, assumes
that employees wish to be given praise and recognition for their achievements, they like to be given
responsibility at work, and they wish to use their imagination, creativity, and initiative.
Theory X
This assumes that employees are naturally unmotivated and dislike working, and this encourages an
authoritarian style of management. According to this view, management must actively intervene to
get things done. This style of management assumes that workers:
 Dislike working.
 Avoid responsibility and need to be directed.
 Have to be controlled, forced, and threatened to deliver what's needed.
 Need to be supervised at every step, with controls put in place.
 Need to be enticed to produce results; otherwise they have no ambition or incentive to work.
X-Type organizations tend to be top heavy, with managers and supervisors required at every step to
control workers. There is little delegation of authority and control remains firmly centralized.
McGregor recognized that X-Type workers are in fact usually the minority, and yet in mass
organizations, such as large scale production environment, X Theory management may be required
and can be unavoidable.
Theory Y
This expounds a participative style of management that is de-centralized. It assumes that employees
are happy to work, are self-motivated and creative, and enjoy working with greater responsibility. It
assumes that workers:
 Take responsibility and are motivated to fulfill the goals they are given.
 Seek and accept responsibility and do not need much direction.
 Consider work as a natural part of life and solve work problems imaginatively.
Comparing Theory X and Theory Y
 Motivation
Theory X assumes that people dislike work; they want to avoid it and do not want to take
responsibility. Theory Y assumes that people are self-motivated, and thrive on responsibility.
 Management Style and Control
In a Theory X organization, management is authoritarian, and centralized control is retained,

whilst in Theory Y, the management style is participative: Management involves employees
in decision making, but retains power to implement decisions.
 Work Organization
Theory X employees tend to have specialized and often repetitive work. In Theory Y, the
work tends to be organized around wider areas of skill or knowledge, and employees are
encouraged to develop their expertise and make suggestions and improvements.
 Rewards and Appraisals
Theory X organizations work on a ‘carrot and stick’ basis, and performance appraisal is part
of the overall mechanisms of control and remuneration. In Theory Y organizations, appraisal
is also regular and important, but is usually a separate mechanism from organizational
controls. Theory Y organizations also give employees frequent opportunities for promotion.
 Application
Although the Theory X management style is widely accepted as inferior to others, it has its
place in large-scale production operation and unskilled production line work. Many of the
principles of Theory Y are widely adopted by types of organization that value and encourage
participation. Theory Y-style management is suited to knowledge work and professional
services. Professional service organizations naturally evolve Theory Y-type practices by the
nature of their work; Even highly structured knowledge work, such as call center operations,
can benefit from its principles to encourage knowledge sharing and continuous improvement.
Scientific Management: ( Frederick Taylor)
This method was developed in the USA in the early part of the 20th century by Frederick Taylor,
building on the earlier work of Henri Fayol. Taylor also believed that a high division of labour was
needed to produce more output, and he introduced a piece-rate style of payment for the workforce
(this meant that the workers received an amount of money per ‘piece’ that they produced, thereby
linking their pay to their productivity).
Taylor also worked very closely with Henry Ford in developing the world’s first moving production-
line for the model ‘T’ Ford car. This method of management paid close attention to ‘time and motion’
studies, where each worker is timed when performing a task, and then this provides the basis for the
worker’s level of output per day (e.g. if it took a worker 2 minutes to perform a task, then this could be
done 30 times per hour, and 240 times in an 8-hour day).
If the worker completed more than his designated number of tasks per day, then he would be eligible
for a monetary bonus. Taylor believed that efficiency and discipline were the two greatest features of a
good manager and a good workforce, but what he failed to recognize was the high level of alienation
and low levels of morale and motivation that this system produces in the workforce.
How to motivate workforce (motivation in practice)
FINANCIAL REWARDS
Time-rate (‘flat rate’) schemes: This payment method involves the employee receiving a basic rate
of pay per time period that he works (e.g. $5 per hour, $50 per day, and $400 per week). The pay is
not related to output or productivity. Any time that the employee works above the agreed number of
hours per week may make him eligible for overtime payments, often at ‘time and a half’ (e.g. $7.50
per hour instead of $5 per hour).
Piece-rate schemes: This payment method involves the employee receiving an amount of money per
unit (or per ‘piece’) that he produces. Therefore his pay is directly linked to his productivity level.
However, it is possible that in order to boost his earnings, an employee may reduce the quality and
craftsmanship per unit, so that he can produce more output in a given period of time.
Commission: This is a common method of payment for salesmen (e.g. insurance, double-glazing,
and telesales). The employee receives a very small percentage (say 0.5%) of the value of the goods
that he manages to sell in a period of time.
Performance-related pay (PRP): This is a method of giving pay rises on an individual basis, related
to the employee achieving a number of targets over the past year. This is common with managerial
and professional workers.
Profit sharing: This involves each employee receiving a share of the profit of the business each year,
effectively representing an annual pay rise. It aims to increase the levels of effort, motivation, and
productivity of each employee, since their annual pay-award will be related to the profitability of the
business. However, if the business makes low profits (or even a loss) then this is likely to have a
detrimental effect on the level of motivation of the employees.
Share ownership: A common form of payment in many PLCs is what is termed ‘share options’.
This basically involves each employee receiving a part of each month’s salary in the form of shares
(usually at a discounted price). This forms a profitable savings-plan for the employee, and he can sell
them after a given period of time. This should motivate the employees to work harder and increase
their efforts, since the share price will rise as the company becomes more profitable, therefore
increasing the capital gain on their shares.
Many of these different methods of pay are likely to be supplemented by fringe benefits (or ‘perks’)
such as private health schemes, pension schemes, subsidized meals, discounts on holidays and travel,
cheap mortgages and loans, company cars and discounts when buying the company’s products. The
total package of pay plus fringe benefits is known as the remuneration package.
NON-FINANCIAL REWARDS
There is no universal rule for motivating employees, and there are many methods which are used by
different managers to achieve the goal of a motivated and satisfied workforce. These include:
Delegation: This occurs when managers pass a degree of authority down the hierarchy to their
subordinates.
Empowerment: This involves a manager giving his subordinates a degree of power over their work
(i.e. it enables the subordinates to be fairly autonomous and to decide for themselves the best way to
approach a problem).
Job enlargement: This involves increasing the number of tasks, which are involved in performing a
particular job, in order to motivate and multi-skill, the employees.
Job enrichment: This is a method of motivating employees by giving them more responsibilities and
the opportunity to use their initiative.
Job rotation: This involves the employees performing a number of different tasks in turn, in order to
increase the variety of their job and, therefore, lead to higher levels of motivation.
Quality circles: This is a group of workers that meets at regular intervals in order to identify any
problems with quality within production, consider alternative solutions to these problems, and then
recommends to management the solution that they believe will be the most successful.
Team working: This is the opposite production technique to an assembly-line which uses an extreme
division of labor. Team working involves a number of employees combining to produce a product,
with each employee specializing in a few tasks. Cell production is an example of team working.
Worker participation: This refers to the participation of workers in the decision-making process,
asking them for their ideas and suggestions.
Works council: This is a type of worker participation and it consists of regular discussions between
managers and representatives of the workforce over such issues as how the business can improve its
processes and procedures (in production or marketing, for example).
When a poor level of motivation exists in a workforce, then the management should:
a) Develop a strong corporate culture and team spirit.
b) Ensure that pay levels are fair.
c) Design more challenging jobs.
d) Introduce decision-making at lower levels in the organisation.
e) Give praise and recognition to employees for their efforts and achievements.
f) Ensure that communication flows are effective and that the relevant messages get to the
relevant personnel.
Communication

Communication can be simply defined as the flow of information from one person to another.
Effective communications are, therefore, vital to the success of the business, since the delegation of
work, the feedback of information, and the controlling of the business all rely on accurate, quick, and
effective communication flows. Good communication will reduce conflict and will prevent any
misunderstandings of what is required by employees.
Importance of effective communication: Communication plays a fundamental role in all facets of

business. It is therefore very important that both internal communications within your organization as
well as the communication skills of your employees are effective. The following six reasons will
explain why effective communication should be a focus in your business:
Builds and maintains relationships: Relationships are built and can be maintained by positive
encounters with others. Communication will be key to this process. without effective skills, it
will be difficult to properly construct and foster productive relationships.
Facilitates innovation: When employees feel comfortable in openly communicating new ideas, co-
operation and innovation will be at an all-time high, if staff is unable to convey their ideas due
to limited communication skills, it is likely that the idea will not be implemented to its full
potential
Builds an effective team: If open communication within a workplace is encouraged, a more cohesive
and effective team will emerge. Good communication within a team also tends to boost
employee morale. When employees feel that they are well informed of the company’s direction
and vision, they will feel more secure within their role. Regular internal communication can
also lead to an improved work ethic if staff are reminded of achievements and feel that they are
working towards a common goal.
Managing employees: When managers are effective communicators, they are more able to inform
staff adequately of their responsibilities and what is expected from them. Good communication
skills also helps managers to provide constructive feedback to their staff, build better
relationships, and understand personal goals that staff may wish to work towards.
Contributes to growth of the company: A lack of communication can lead to the collapse of any
organization, without proper marketing collateral and communication internally and externally,
most organizations will struggle to survive. Communication can also lead to productivity and
helps to avoid unnecessary delays in the implementation of policies.
Ensures transparency: When regularly communicating both internally and externally, organizations
remain more transparent. This is important in building trust in your brand, in your services and
also internally when it comes to the trust that employees have in higher management.
Formal Vs informal communication
Formal communication refers to the official channels of communication, which exist in a business,
such as information being passed through ‘line’ and ‘staff’ relationships (e.g. between superiors and
subordinates, or between people on the same level). These information flows will be concerned with
the content of the jobs and may be in one of several forms, spoken, written, or electronic for example.
Informal communication refers to the unofficial channels of communication that exist in a business
(often spoken as opposed to written communication). This is often referred to as the ‘grapevine’. This
can be concerned with the content of the jobs (e.g. two employees commenting on the poor

performance of a task by their superior), or it can be discussing non work-related matters (e.g.
arranging a staff social function).
It could also refer, for example, to the anonymous passing of information to the media relating to
unethical business practices. Communications can also be classified in terms of direction, vertical or
horizontal. Vertical communication can be top-down (e.g. directions and instructions given from
superior to sub-ordinate) or it can be bottom-up (e.g. feedback from sub-ordinate to superior).
Horizontal communication refers to contacts and flows of information between people at the same
level in the business. Where there is no facility for feedback, (often under an authoritarian
management style) then this is referred to as one-way communication.
There is a danger here; however, that the message will be misunderstood or poorly performed, since
the employee performing the task is unable to ask his superior for assistance or clarity. It is a widely
held view among many businesses today that communication must be multi-directional (i.e. top-
down, bottom-up and horizontal) in order to involve employees and make them feel valued by the
business (e.g. implementing systems of quality circles or works councils). This will help to improve
their job satisfaction and level of motivation, as well as encouraging lower rates of absenteeism and
labour turnover.
Quantitative communication involves the transmission and interpretation of data and numerical
information (e.g. sales figures or financial data).
Qualitative communication involves the use of language, either spoken or written. However, these
messages are often complicated by the use of non-verbal communication (e.g. body language),
which can often confuse the recipient of the message and lead to the misinterpretation of the
information.
Channels of Communication
The basic communication process involves the transmitter (the sender) encoding a message (i.e.
putting the message and the information into a form that can be easily understood). The transmitter
then chooses the communication channel that he wishes to use in order to send it to the receiver (the
target for the message). On receipt of the message, the receiver will decode it (i.e. interpret what the
message is conveying) and act upon it as necessary. There are a number of communication channels
that the transmitter of the message can use to send the message to the receiver. The choice of
communication channel will usually depend on the type of stakeholder that the message is being sent
to (i.e. whether the receiver is an employee, a customer, or a supplier).
The main communication channels are:
Face-to-face contact (e.g. a meeting), Telephonic,-mailed Facsimile (‘fax’), Letter Memorandum

Video-conferencing Advertising, Videotape, Notices and In-house publications.
Whichever communication channel is chosen, the message will have the same objectives, to be
simple, fast, and efficient. However, if a business believes that it needs to improve the
communication channels that it uses, then the following criteria should be considered:
a) Encourage the use of simple language
b) Shorten the communication chain

c) Encourage feedback
d) Use a variety of media to convey a message
e) Make employees aware of communication problems
Communication Breakdown
This is often referred to as ‘noise’ and simply means anything that will distract the recipient of the
message or cause either a failure to receive the message or a misinterpretation of the message. There
are a number of factors which can cause communication breakdown:
 Too much technical language (‘jargon’) is used

 Poor presentation and use of grammar
 Too much information being sent (‘information overload’)
 Geographical and time problems (e.g. communications between different countries in
different time-zones)
 Length of the communication channel
 Employees already being overworked and ignoring the message, Technology breakdown (e.g.
computers ‘crashing’)
This last point has become a growing problem over the last 10 years and is likely to continue to grow,
as an increasing number of businesses rely on computers and information technology systems for
their communications (as well as for their financial, production and personnel records).
Added to this is the increasing amount of business being conducted using electronic mail (e-mail) and
the Internet (it is estimated that by 2005, any businesses which are not using the Internet to trade and
interact with customers are likely to lose any competitive edge that they may have).
So it is clear to see that the ‘information-age’ and the ‘digital-age’ are going to be a major influence
on how business is conducted in the future. Any business which does not employ computer-literate
staff and does not use Internet-trading is likely to suffer falling levels of sales and profits as a result.
However, there are many problems inherent in what is termed ‘the electronic office’ – that is, a work
environment that is highly computerized and relies heavily on software and communications
equipment.
The main problems can be summarized in the list below:
 Much time is often required to train staff in the use of the new equipment and
software
 Computer fraud (e.g. ‘hacking’ into the computer-held information and
changing the data or embezzling the business funds)
 Huge initial capital outlay required in order to purchase the equipment and
software
 Equipment and software may become obsolete within a few years
 Resistance from employees and from trade unions to the new working
practices

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People in Organization

The main functions of management are:

 Planning: setting clear objectives.

 Directing: decision-making and giving instructions to others.

 Coordinating: Bringing the various parts of the business together.

 Senior management (setting long-term plans and strategies, appraising middle

 Middle management (establishing departmental strategies, appraising departmental staff).

 Supervisory management (monitoring the regular and routine day-to-day tasks).

An insight to Business Studies 1

d) The channels of communication used.

A ‘staff’ relationship exists where there is no direct authority. Instead, it is a relationship in an

Manager maintenance Manager Production Manager Quality Control Manager Purchase

An insight to Business Studies 2

Disadvantages of functional structure:

Entrepreneurial Structure (Small Businesses)

An insight to Business Studies 3

An insight to Business Studies 4

If the Organizational Structure is not appropriate

 Decision making can be slow.

Advantages of Broad Span of Control: -

 It is very cost effective method of organization

Disadvantages of Broad Span of Control: -

 More chances of mistakes, errors and fraud

Advantages of Narrow Span of Control: -

 Less chance of mistakes, errors and frauds

An insight to Business Studies 5

Disadvantages of Narrow Span of Control: -

Why managers Hesitate to Delegate

 Work is highly cadmic but workforce is not properly trained.

An insight to Business Studies 6

 Decisions are made by experienced people with an overview of the company.

 Ensures policies are consistent throughout the company.

 Ensures quick decisions can be made without consultation.

Disadvantages (mainly advantages of decentralization)

 It risks demoralizing branch managers who may feel mistrusted or powerless.

 Reduces the stress and burdens of senior management

An insight to Business Studies 7

An insight to Business Studies 8

 Under interference can cause conflict of interests between different managers.

 Chances of miscommunication are there.

 There can be chance of miscommunication because function al manager is expert in a specific

An insight to Business Studies 9

Qualities of a Good Leader:

 Leader must have a vision

SITUATIONS WHERE THEY CAN BE SUCCESSFUL:

 Where workers are highly skilled and trait

WHERE THEY ARE NOT SUCCESSFUL:

 Work environment is highly innovative.

An insight to Business Studies 10

Where leaders believe in consultative decision-making and normally encourage subordinates to

SITUATION IN WHICH DEMOCRATIC LEADERS ARE SUCCESSFUL:

 Multi skilling and pooling of expertise is required.

SITUATION WHERE THEY ARE NOT SUCCESSFUL: -

LAISSEZ- FAIRE OR CHARISMATIC: -

SITUATION WHERE CHARISMATIC LEADERS ARE SUCCESSFUL: -

SITUATION WHERE THESE LEADERS ARE NOT SUCCESSFUL: -

An insight to Business Studies 11

Abraham Maslow’s ‘Hierarchy of Needs’ can be seen in the diagram below: