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Accountant in Business
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FIA FAB
ACCA Paper F1
Accountant in Business
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First edition 2011, Fourth edition March 2015 All rights reserved. No part of this publication may be
ISBN 9781 4727 3542 3 reproduced, stored in a retrieval system or transmitted, in
any form or by any means, electronic, mechanical,
e ISBN 9781 4727 2875 3 photocopying, recording or otherwise, without the prior
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British Library
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Preface Contents
Welcome to BPP Learning Media's FIA FAB/ACCA F1 Passcards.

They save you time. Important topics are summarised for you.
They incorporate diagrams to kick start your memory.
They follow the overall structure of the BPP Learning Media Interactive Texts, but BPP Learning Media's
new Passcards are not just a condensed book. Each card has been separately designed for clear
presentation. Topics are self contained and can be g rasped visually.
Passcards are just the right size for pockets, briefcases and bags.
Passcards focus on the exam you will be facing.
Run through the complete set of Passcards as often as you can during your final revision period. The day
before the exam, try to go through the Passcards again! You will then be well on your way to completing your
exam successfully.
Good luck!
Page iii
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Preface Contents
Page Page
1 Business organisations and their 10 Identifying and preventing fraud 83
stakeholders 1 11 Leading and managing people 93
2 The business environment 5 12 Recruitment and selection 107
3 The macroeconomic environment 17
13 Diversity and equal opportunities 123
4 Microeconomic factors 29
14 Individuals, groups and teams 131
5 Business organisation, structure
and strategy 43 15 Motivating individuals and groups 139
6 Organisational culture and committees 51 16 Training and development 151
7 Corporate governance and social 17 Performance appraisal 163
responsibility 57 18 Personal effectiveness and
8 The role of accounting 65 communication 173
9 Control, security and audit 75 19 Ethical considerations 189
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1: Business organisations and their

stakeholders
Topic List This chapter explains why organisations are formed and
considers some of the different types of organisation.
Organisations are influenced by stakeholders. The
Types of business organisation second part of this chapter identifies different stakeholder
Stakeholders groups, and considers how management may respond to
these groups.
Types of business Stakeholders

organisation
Organisation
'A social arrangement which pursues collective goals, which controls its own performance and which has a
boundary separating it from its environment.'
Points of difference
They enable people to be more
PRODUCTIVE: Ownership public or private sector
Control owners, workers or government
Overcoming individual limitations Activities
Saving time Profit orientation or not
Accumulating and sharing knowledge Legal status limited company/partnership
Enabling synergy Size small or multinational
Enabling specialisation Sources of finance
Technology usage
Other organisation types to consider are co-oper ative societies, mutual associations and non-governmental
organisations (NGOs).

organisation
Stakeholders
Those individuals or groups that have an interest in what the organisation does .
Internal External Connected

Contractual Contractual
relationships Employees Community Shareholders relationships
Management Government Customers
Pressure groups Suppliers
Financiers
Each of these groups has its own particular interests to defend, such as:
Jobs (employees)
Loan security (financiers) Different interests and aims can lead to conflict
Tax revenues (governments)
Page 3 1: Business organisations and their stakeholders


organisation
Mendelow suggests that stakeholders may be positioned on a matr ix.

LEVEL OF INTEREST
Low High
High C D
POWER
Low A B
Key players are to be found in segment D Those in segment B should be kept informed
Those in segment C should be kept satisfied Minimal effort should be expended on segment A
2: The business environment
Topic List
An organisation has many interactions with its
environment, and general environmental trends can be
Analysing the environment usefully summarised in the PEST model. The PEST
model is here drawn out into its component par ts.
Employment protection The chapter concludes with the competitive forces which
Data protection can shape the organisation, and the value chain within it.
Health and safety protection
Social, cultural and technological
trends
Porter
Analysing the Employment Data Health and Social, cultural and Porter
environment protection protection safety protection technological trends
All organisations must take account of

the environment in which they operate.
POLITICS TECHNOLOGY
COMPETING
ORGANISATIONS
SUPPLIERS GOODS TO
MATERIALS CUSTOMERS
ORGANISATION POLLUTION
LABOUR WAGE TO
LABOUR
CAPITAL PROFIT TO
INVESTORS
ECONOMY SOCIETY
(& CULTURE)
GENERAL
ENVIRONMENT
Legal factors affecting all companies

Factor Example
General legal framework: Basic ways of doing business, negligence proceedings
contract, tort, agency
Criminal law Theft, insider dealing, bribery, deception
Company law Directors and their duties, reporting requirements, takeover proceedings, shareholders' rights,
insolvency
Employment law Trade Union recognition, Social Chapter provisions, minimum wage, unfair dismissal,
redundancy, maternity, Equal Opportunities
Health and Safety Fire precautions, safety procedures
Data protection Use of information about employees and customers
Marketing and sales Laws to protect consumers (eg refunds and replacement, 'cooling off' per iod after credit
agreements), what is or isn't allowed in advertising
Environment Pollution control, waste disposal
Tax law Corporation tax payment, Collection of income tax (PAYE) and National Insurance
contributions, sales tax (VAT)
Page 7 2: The business environment

There are several ways in which the government can affect the economic structure of an industry, by
encouraging or stifling:
Role is felt in:

Capacity expansion
Demand for goods and services Product standards
Divestment strategies Environmental protection
Emerging industries Monetary policy
Entry barriers R&D
Competition Regional policy
Labour costs
Political change complicates the planning activities of man y firms, and this is par ticularly felt in international
trade higher level of political risk.
Much legislation has been aimed at this area.
Legislation
Retirement
Resignation Companies must be very careful when
Dismissal wrongful handling these matters.
unfair
Disciplinary procedures
Redundancy Note that you will not be examined on specific
Equal opportunities legislation and exam questions will not be
country specific.

The main legislation in the UK is the Data Protection Act 1998 co vered here as an example of 'typical' data
protection legislation.
Data Protection Principles
1 Personal data shall be processed fairly and lawfully
2 Obtained only for specified and lawful purposes
3 Adequate, relevant and not excessive
4 Accurate and up-to-date
5 Not kept for longer than necessary
6 Processed in accordance with the r ights of data subjects
7 Appropriate measures shall be taken against unauthorised use
8 Shall not be transferred to a country where data protection rights are not upheld Compensation
Correction of data
The Act also establishes rights for data subjects
Access to data held
Sue (damages)
Employers and employees have duties and obligations.

Employee duties
Although laws differ in different countries, the main points
and principles are often similar. Take reasonable care
Allow employer to carry out duties
Employer duties
Not interfere with machinery
Inform employer of dangers
All work practices must be safe Use all equipment properly
Environment must be safe implement
Plant/machinery maintained and Health and safety policy
Training promote
Communication of policies
Risk assessments and controls Statement of principles
Share information Detail of safety procedures
Identify those most at risk Compliance with the law
Employ competent advisers Detailed equipment instructions
Training requirements

Population affects an organisation's supply of labour and hence its human resources policies . Cultural trends will
also have an impact on a business and demand for its products/services.
Factors to consider
Changing age structure Buying patterns

Women participating Income and wealth
Older workers Health and diet
Family life cycle Equal opportunities
Social structures/class Environmentalism
Technology has often resulted in reduced staff reduced spans of control;

reduced layers: 'flatter' organisations
Information systems such as intranets Centralised systems

can help to foster unity and coherency Decentralised systems
Effects of IT on organisations
Routine processing is quicker For the employee it can lead to information

Digital information is easily sorted overload, and changes in the nature of
Employee skills base changing work, but it also fosters close business
Continued change to keep up relationships regardless of geographical
Customer service enhanced location, and more flexible working
Information as a 'commodity' arrangements.
Email, voicemail, video-conferencing
Outsourcing of operations to specialists

The value chain

The value chain model is one way of analysing what a fir m does and how it organises and performs its
activities in order to add value.
FIRM INFRASTRUCTURE
ACTIVITIES
SUPPORT
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
MA
RG
PROCUREMENT
RG IN
MA
N I
INBOUND OPERATIONS OUTBOUND MARKETING SERVICE
LOGISTICS LOGISTICS & SALES
PRIMARY ACTIVITIES
The margin is what the customer pays over and above the costs to the fir m.
Activity Comment
Inbound logistics Receiving, handling and storing inputs to the production system: warehousing,
transport, inventory control and so on.
Operations Convert resource inputs into a final product. Resource inputs are not only
materials. People are a resource especially in ser vice industries.
Outbound logistics Storing the product and its distr ibution to customers: packaging, testing, delivery
and so on.
Marketing and sales Informing customers about the product, persuading them to b uy it, and enabling
them to do so: advertising, promotion and so on.
After sales service Installing products, repairing them, upgrading them, providing spare parts and so
forth.
Procurement Acquire the resource inputs to the pr imary activities (eg purchase of mater ials,
subcomponents equipment).
Technology development Product design, improving processes and/or resource utilisation.
Human resource management Recruiting, training, developing and rewarding people.
Firm infrastructure Planning, finance, quality control: Porter believes they are crucially important to an
organisation's strategic capability in all primary activities.

Porter's five forces model Potential

entrants
Threat of
new entrants
Bargaining Bargaining
power of Industry competitors power of
suppliers customers
Suppliers Customers
Rivalry among
existing firms
Threat of
substitute products
or service
Substitute
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3: The macroeconomic environment
Topic List Macroecomonics is a branch of economics which

considers the economy as a whole.
Government policies and objectives This chapter presents an overview of the goals of
macroeconomic policy. Macroeconomic policy objectives
The business cycle relate to economic growth, inflation, unemployment and
National income and economic growth the balance of payments, looking at the complete
national economy.
Inflation and unemployment
Fiscal and monetary policy
The balance of payments
Government policies The business National income Inflation and Fiscal and The balance of
and objectives cycle and economic growth unemployment monetary policy payments
There is a circular flow of income in the economy.

Expenditure, output and income will all have the same total value.
Income (Y)
Households Firms
Consumption (C)
Total expenditure (E)
Saving (S) Financial Investment spending (I)

sector
Taxation (T) Government Government spending (G)

sector
Import demand (M) Foreign Export demand (X)

sector
All modern governments are expected to manage their national economies to some e xtent.
Objectives of economic Government influences over company decisions

policy
Decision Comment
To achieve economic Output capacity Grants or tax incentives to invest
growth an increase in
national income Competition Forbid or allow takeovers/mergers
Outlaw anti-competitive practices
To control price inflation
Opening markets to new entrants (eg gas)
To achieve full employment
Monopolies Break them up; regulate them
To achieve a balance
between exports and Sales demand Government policy affects demand
imports (known as the Health and safety Legislation, regulations
balance of payments)
Employment Equal opportunities legislation
Consumers Product safety standards
Tax Sales tax procedures, income tax, accounting control
Page 19 3: The macroeconomic environment

Market demand
G Overall economic O
Cost of finance
policy
O Taxation R
Protection vs Free Trade G
V
Grants, incentives, sponsorship A
E Industry policy Regulation (eg investor protection, N
company law)
R I
Environment and Entry barriers, capacity
N infrastructure S
Distribution
policy A
M Workplace regulation, employment law
Social policy Labour supply, skills, education
T
E
I
Trade promotion, export credits
N O
Foreign policy EU and GATT obligations
T Export promotion to allies,aid recipients
N
The business cycle is the continual sequence of rapid growth in national income, followed by a slow-down in
growth and then a fall in national income. After this recession comes growth again, which peaks, followed again
by recession...
Four main phases Output Actual

output
1 Recession 4
Trend in
2 Depression 1 output
3 3
Recovery
4 Boom 2
Governments will seek to stabilise

the system and avoid wide
fluctuations. Time

Equilibrium national income

This is where the demand for goods and services is in balance with the available supply, and demand is
exactly sufficient to encourage firms to produce at the level of output where resources are fully emplo yed.
Inflationary gap
Occurs when resources are already fully employed, so that any increase in demand will only ser ve to increase
prices.
Deflationary gap
Occurs when there is unemployment of resources, so that any change in demand will affect output. Prices are
fairly constant, but actual national income is below full employment national income.
Stagflation
A combination of high unemployment and high inflation.
Economic growth can be measured by increases in the real gross national product (GNP) per head of the
population
Actual economic growth is the annual % increase in national output, which typically fluctuates with the tr ade
cycle
Factors
Growth in potential New investment Technological
Growth in demand
output (capacity) Natural resources progress
Labour Terms of
These should move in step, but they will depend on: Capital international trade
Advantages of growth Disadvantages of growth
Use of natural resources

Higher income per head Creation of pollution
High levels of consumption
Structural unemployment
Better standard of living
Welfare provision Needs higher levels of saving to be able to
invest more cut in consumption

Inflation is the name given to an increase in pr ice levels.
Causes Why is it a problem?
Demand pull factors Redistribution of income and wealth

Cost push factors Balance of payments effects
Import cost factors Uncertainty of the value of money
Expectations create it Price uncertainty
Increase in the money supply Resource cost of changing prices
Harmful to growth and investment
Goods and services are grouped into a single price index in order to measure how the real value of money is
changing. Based upon a chosen basket of items, the resulting consumer price index can be used for various
purposes.
RPI RPIX (excluding mortgage payments)
CPI RPIY (excluding sales tax as well)
The rate of unemployment can be calculated as:

Number of unemployed
100%
Total workforce Government options
Consequences Spend money directly on jobs

Encouraging private sector growth
Loss of output Encouraging training
Loss of human capital Offering grant assistance
Inequalities in income distribution Encouraging labour mobility
Social costs Restricting trade union negotiating strength
Increased burden of welfare payments Abolishing minimum wage regulations
Categories
Real wage unemployment Structural changed industry conditions

Frictional * 'matching' period Technological skills, redundancy
Seasonal * yearly patterns Cyclical following the trade cycle
* short-term only

Fiscal policy aims to manage aggregate demand in the economy. (Aggregate demand is the total demand for
goods and services in the economy.)
Exercised through A Expenditure planning
B Revenue raising (especially taxation)
C Borrowing when A e xceeds B ('PSNCR' in the UK)
Options
x1 Increase expenditure and reduce taxes = stimulated demand, higher PSNCR
2 Reduce expenditure and increase taxes = reduced demand, reduced PSNCR
3 Increase expenditure and finance with higher taxes
4 Reduce expenditure and use these savings to reduce taxes. Direct or indirect
Revenue raiser Redistribute income
and wealth Aims for:
Discourages certain
activities Protection from TAXATION Flexibility
To cover social costs foreign competition Efficiency
of some products Stabilising effect Non-distorting effects
Monetary policy uses money supply, interest rates, exchange rates or credit controls to influence agg regate
demand and control inflation (reducing economic uncer tainty, stimulating investment and output).
Money supply Interest rates Exchange rates Credit controls
Increase in money 'The price of money' Affects price of a Restrictions on

supply will raise country's exports bank lending to
Assumes a
prices and incomes reduce demand
relationship between Depends upon
interest rates and domestic rate of
expenditure inflation and interest
rates
Effective and rapid
mechanism

The UK balance of payments consists of the following elements

C A Trade in goods ('balance of trade')
U C
Trade in services
R C
Income from overseas investment/employment
R O
E U Transfers (payments/receipts to/from overseas bodies such as the EU)
N N Capital amount, eg public sector capital flows; loans
T T Financial account, eg investment in overseas facilities
The deficit or surplus on the current account is often ref erred to as the 'balance of payments', even though it is
not the full picture.
Rectify via: DEFICIT SURPLUS
Importing more than it is exporting Exporting more than importing
Devaluing the currency
Restrict imports, eg via tariffs
Higher borrowings from abroad Invest abroad
Domestic deflation to reduce Selling assets, eg shares Add to official reserves
demand
4: Microeconomic factors
Topic List
In this chapter we look at how the price of a product and
the amount of it demanded and supplied are deter mined
The market through the interaction of demand and supply. This is
Demand another chapter on fundamentals that must be
understood properly.
Elasticity of demand
Also pay attention to the factors other than price that
Supply affect demand and supply, and the difference between
Elasticity of supply movements along a curve, as opposed to a shift in the
curve. These are fruitful sources of exam questions.
The price mechanism
Maximum and minimum prices
The market Demand Elasticity of Supply Elasticity of The price Maximum and
demand supply mechanism minimum prices
A market Consumers are rational

Potential buyers and potential sellers come together They prefer more to less.
for the purpose of exchange. They will substitute one good for another if the
price is right.
In economics, sellers are referred to as firms. Buyers
of consumer goods and services are known as They attempt to maximise total utility from a
limited income.
households.
Marginal utility from a good diminishes as
Utility consumption of it increases.
Quantities purchased will be adjusted until
is the pleasure or benefit or satisfaction derived from their marginal utilities are equal. If this is not
the consumption of a good. Marginal utility is the so, it means that the consumer w ould actually
extra utility derived from the consumption of one prefer to consume more of one good and less
additional unit. of another.
The demand curve Relates quantity demanded

Substitutes
$ to price payable are goods that are alternatives (eg tea and coffee).
Slopes down because A rise in the price of a good is likely to produce an
marginal utility declines as increase in demand for its substitutes.
D
consumption increases
Complements
Q
are goods that are bought and used together (eg tea
Demand is influenced by and milk). A rise in the price of a good is likely to
produce a fall in demand for its complement.
Price of the good If demand for a good rises when household
Price of other goods (substitution effect) income rises, it is a normal good (eg holidays).
Income (income effect) If demand falls, it is an inferior good (eg coach
Taste and fashion travel, which could be substituted for rail or air
Expectation of price changes travel).
Page 31 4: Microeconomic factors

A movement along the demand curve shows how demand responds to a change in price and nothing else!
Any change in the other factors that affect demand cause a shift in the position of the demand cur ve.
A leftward shift may be caused by A rightward shift may be caused by

$
A fall in household income (including A rise in household income
an increase in direct taxes) (including a reduction in direct
A fall in the price of substitutes taxes)
A rise in the price of complements A rise in the price of substitutes
A change in taste away from the A fall in the price of complements
0 Q
good A change in taste towards the good
Original
An expected fall in price demand curve An expected rise in price
An expectation of a fall in price will lead consumers to put off their purchases in the hope of benefiting from the lo wer
price later. An expected price rise will lead consumers to buy early and stockpile in order to avoid paying a higher
price later.
Price elasticity of demand (PED)

A measure of the change in demand for a good in response to a change in its price. When demand is elastic
a small change in price produces a large change in demand. When the demand is inelastic, a large change in
price produces only a small change in demand.
percentage change in quantity demanded Price and quantity may be values at a point
PED = or averages over an arc.
percentage change in price
Price PED > 1 means that demand is elastic. Price PED < 1 means that demand is inelastic.
PB An increase in price from PA to PB An increase in price from PA to PB
X
PA
leads to a fall in total expenditure: leads to a rise in total expenditure:
Y Area Y is greater Area X is greater
than area X. PB than area Y.
X
PA
D Y D
Quantity Quantity
Notice that elasticity varies along a straight line demand curve!
Price PED = 0 Price PED =

Demand is perfectly inelastic and Demand is unlimited at the
remains constant at any price. current price and zero at a
D D higher price.
Quantity Quantity
When PED = 1, demand responds proportionally to any change in price and total expenditure is constant, whatever the price.
This is known as unit elasticity.
PED is affected by
Availability of substitutes Time horizon Luxury vs necessity Percentage of income
The most important influence. Easy Elasticity is low in the Demand for goods which are If expenditure on a
availability of substitutes makes demand short term. Over the necessary for everyday life tends to good only
more elastic: price rises lead to longer term provision of be relatively inelastic while demand constitutes a small
substitution. substitutes and for luxury goods is elastic. proportion of a
The definition of the market can also awareness of them Goods which are habit-forming tend consumers' income,
affect PED (eg demand for a particular increases. to be inelastic (eg cigarettes; alcohol) demand for it is
brand of bread will be more elastic than likely to be inelastic.
demand for bread overall).
Income elasticity of demand (IED) Cross elasticity of demand (CED)

is a measure of the change in demand f or a good in is a measure of the change in demand f or a good in
response to a change household income. Demand response to a change in the pr ice of another good.
for normal goods increases as household income
rises. If demand for a good falls when household
income rises, the good is an inferior good. % change in quantity of good A demanded
CED =
% change in price of good B
% change in quantity demanded If CED is positive, the goods are substitutes (eg a
IED = fall in the price of B will cause a fall in demand for A).
% change in household income
If CED is negative, the goods are complements (eg a
Demand for a good is income elastic if its IED > 1
fall in the price of B will cause a r ise in demand for A).
and income inelastic if IED < 1. Inferior goods have
a negative income elasticity of demand.
A change in household income, or in the price of another good, shifts the demand curve to the left or r ight.

The supply curve Factors influencing supply

$ A shift of the supply cur ve to the $
S S S1
right could be caused by any of
the factors below.
Expectation of a future fall in
price, to obtain a better pr ice
Q now
Shows the quantity of a good which Q
A fall in the price of a substitute in supply
suppliers would want to produce at a
A rise in the price of a good in joint supply
given price.
Technological improvements
As with demand, a shift in pr ice will cause Fall in the cost of factors of production
a movement along the supply curve, but a Introduction of a subsidy
change in the other factors will cause a The opposite effects will move
shift in the supply curve. the curve to the left.
Remember: a firm's supply curve is its marginal cost curve (above its average variable costs in the short term).
Price elasticity of supply

The elasticity of supply of a good indicates the responsiveness of supply to the change in price. It is a
measure of firms' ability to adjust the quantity of goods the y supply.
% change in quantity supplied
Elasticity of supply =
% change in price
Perfectly inelastic supply Unit elastic supply Perfectly elastic supply
Price s Price s Price
(Supply curve passes
($) ($) through origin) ($)
s s
s1
s
0 s 0 s1 0
Quantity supplied Quantity supplied Quantity supplied

Factors affecting elasticity of supply
Existence of inventories of all kinds of goods and their per ishability

Ease of adjusting labour inputs up or do wn; availability of labour
Spare capacity
Availability of raw materials and components
Barriers to entry make supply inelastic
Time scale
Elasticities vary with time

During the market period only existing inventories and levels of output are available. Supply is very
inelastic.
Over the short run, quantities can be adjusted by working overtime or short time. Supply is quite elastic.
Over the long run plant can be built or shut down. Supply is very elastic.

The price mechanism Functions of the price mechanism

Price S Market prices and their movements act as signals to producers,
enabling them to produce what is most needed.
P When a firm operates efficiently, responding to market signals
and controlling its costs, it receives a reward in the form of profit.
D The actions of firms in responding to the profit oppor tunities
allocate resources to their best use.
Q Quantity
Price
The price mechanism brings supply and
demand together at the equilibrium price, P. Consumer surplus: some S
This is also the market clearing price since would have paid more than
quantity Q is both supplied so demanded and the market price.
there is neither surplus nor shortage.
At prices above P, there will be excess supply. Producer surplus: some D
At prices below P, there will be excess would have sold at less than
the market price. Quantity
demand.
Some governments attempt to overcome market forces by regulating prices.

A maximum (ceiling) price might be used to combat inflation or to mak e basic goods affordable.
A minimum (flow) price might be used to secure the incomes of f avoured producers, such as farmers.
Price
S A maximum price set below the equilibrium price P
produces a shortage quantity AB, since at price M,
Z quantity B is demanded, but only quantity A is
P supplied. However, quantity A could be fully utilised b y
purchasers who are prepared to pay price Z, so a
M black market may be created to divert production to
these consumers at this price.
D
A Q B Quantity

Price
S
A minimum price set above the equilibrium price P
M produces a surplus quantity AB, since at price M,
quantity A is demanded, but quantity B is supplied.
P This leads to excess supply, as with the EU
Common Agricultural Policy. Governments may
introduce production quotas, to limit production.
Alternatively, they may purchase the excess, putting
D
it into store, or dumping it overseas, or producers
A Q B Quantity might sell at less than the official minim um price.
Minimum wage
Minimum wages set by law are intended to ensure that the lo west paid workers are not exploited. If a
minimum wage is set above the equilibrium price, it is likely to cause unemployment. However, where
there is effectively a single purchaser (monopsonist) of labour a minim um wage may increase
employment. When such employers hold wages down they generally have vacancies: a minimum wage
makes it easier for them to recruit.
5: Business organisation, structure and

strategy
Topic List This chapter identifies the various influences upon

organisational structure: hierarchy, strategy,
departmentation and centralisation.
Informal organisation
Organisational structure
Levels of strategy in the organisation
Centralisation and decentralisation
Informal Organisational Levels of strategy Centralisation and

organisation structure in the organisation decentralisation
The informal organisation exists alongside the formal one. It is loosely structured, flexible and spontaneous, with
constantly fluctuating membership and relationships.
Aspects of the informal organisation + Satisfying to members

Can distract energy/attention from task objectives
Relationships, social networks and cliques + Can cut through red-tape, inefficiency
Informal ways of doing things, customs etc. Can 'cut corners' safety, quality risks
Informal channels of communication + Can bypass lengthy channels, communication
via networks blockages
+ Wider sharing of information/ideas for problem-
solving
The 'grapevine' Inaccuracy may undermine management
communication
The 'grapevine' or 'bush telegraph' is the informal
information network. It is typically very fast and Managers can harness the power of the informal
inaccurate, circulating gossip and rumour. It exists organisation by: gathering information from it; using it
even where the formal communication system of to disseminate information; encouraging positive goals
the organisation is adequate. for networking (eg problem-solving or innovation).

Mintzberg believes that all organisations can be analysed into fiv e components.
Strategic
Apex
Methods of
departmentation
re
ctu
tr u
Support
nos
Functional Middle Staff
h
Geographic Line
Tec
Product/brand
Customer
Operating Core
Page 45 5: Business organisation, structure and strategy


Further structural concepts

1 Entrepreneurial Dominated by a single entrepreneur or management team
2 Functional Structured by function, for example Production, Finance, Marketing
3 Matrix Cross-functional teams
4 Divisional A corporate centre and a number of strategic business units (SBUs)
5 Boundaryless Eliminate barriers that separate hierarchy and functions. Examples include modular
(different components outsourced to different suppliers), virtual (dispersed physically
but together on the internet) and hollow (all non-core activities outsourced)
6 Outsourcing Contracting out specific activities to an external vendor
7 Offshoring Sending work to a different country
8 Shared services Establishing a service centre to provide a support function across an organisation
SPAN OF TALL V SCALAR

CONTROL FLAT CHAIN
Number of subordinates Tall Flat Chain of command


Levels of strategy CORPORATE STRATEGY
What businesses are we (or want to be) in?

How do we enter or exit?
BUSINESS BUSINESS BUSINESS

STRATEGY STRATEGY STRATEGY
Strategies relevant to a particular area
Strategic SBU SBU

Business
Unit (SBU)
FUNCTIONAL STRATEGIES
R&D OPERATIONS MARKETING HRM IT/IS FINANCE

Products Capacity Orientation Recruitment Systems Sources
Processes Process technology Marketing mix Selection Technology Uses
Design Work flows Product planning HRD Management
Development Quality Marketing information Appraisal
Testing Outsourcing Segmentation Reward
Services
STRATEGIES INVOLVING MANY FUNCTIONS (EG CHANGE MANAGEMENT,

TOTAL QUALITY, RE-ENGINEERING)
This diagram reflects the Anthony hierarchy Strategic management (ie corporate) 'direction setting'
Tactical management (business) 'day to day
Operational management (functional) management'


A centralised organisation is one in which author ity is concentrated in one place.
Advantages of centralisation Advantages of decentralisation
Easy co-ordination of decisions Avoids heavy workloads

Wider view can be taken Improves motivation of junior managers
Different interests can be balanced Greater awareness of local issues
Quality of decisions higher (in theor y) Greater speed of decision-making
Cheaper to run Develops the skills of junior managers
Crisis decisions taken quickly Controls and direct accountability are clearer
Standardised policies and procedures Use of communication technology allows local
decision making, with HO input if required
6: Organisational culture and committees
Topic List The concept of culture is impor tant when thinking about
how organisations work. Organisation culture is, broadly,
the distinctive way an organisation does things. Particular
Organisational departments and structures suit particular cultures, and these are
functions reinforced by informal networks.
Organisation culture Committees are also considered they are one of the
main mechanisms for organisational consultation and
Culture and structure communication.
Committees
Organisational Organisation Culture and Committees

departments and functions culture structure
Research & Purchasing Production

Development Quantity, quality, Creating outputs from
Product and price, delivery inputs, with added
Finance process value
raising money; working capital
management; recording and controlling; Service
providing information; strategic planning; operations
reporting to stakeholders; 'financial Specific nature and dimensions
management'; 'management of finance'. FUNCTIONS such as issues of intangibility,
inseparability and reliability.
No physical product
Financial Management
Treasury
accounting accounting
Human Marketing
Administrative
resources Marketing mix: 4Ps
Usually at head
Effective use of people as Product; Place; Promotion;
office
an asset Price.

Organisation culture Underlying attitudes to (for example):

Organisation culture is the complex body of shared The customer, quality
beliefs, attitudes and values in an organisation. Risk, learning, mistakes
Work, the organisation, management
Aspects of culture Overtly expressed beliefs (slogans, mottos,
standing jokes and so on)
Beliefs and values
Customs: norms, acceptable ways of behaving, To create or change a culture
'unwritten rules'
Artefacts: buildings, decor, dress rules, display Model desired behaviours/attitudes from the top
of 'trophies', style of relationships, types of Express desired values (eg in mottos, literature)
people employed Practise leadership: create an inspiring vision
Rituals: formal repeated behaviours, Recruit and select people who will fit the ne w culture
ceremonies, celebrations Appraise, reward and promote according to cultural
Symbols: signs of status and success, criteria: encourage people to 'buy in or get out'
corporate logos, badges of identity and so on Symbolise the values in visible expressions of 'style'
Page 53 6: Organisational culture and committees


Charles Handy ('Gods of management'): four 'ideal' cultural types (after Roger Harrison)
Zeus Power culture Role culture Apollo
The organisation is controlled by a Classical, rational organisation:

key central figure, owner or founder. bureaucracy. Stable, slow-changing,
Power is direct, personal, informal. formalised, impersonal. Authority
Suits small organisations where based on position and function.
people get on well.
Athena Task culture Person culture Dionysus

Management is directed at outputs:
problems solved, projects completed.
Team-based, horizontally-structured,
The purpose of the organisation is to
serve the interests of the individuals
who make it up: management is
flexible, valuing expertise to get
the job done.
directed at facilitating, administering.

It is possible for different cultures to prevail within the same organisation, so a contingency approach is
often required.
Handy matched his cultural types with Anthony's classification of managerial activity:
Strategic management direction setting power culture
Tactical management mobilising resources task culture
Operational management routine activities role culture
The Hofstede model describes four main dimensions of difference between national cultures.
Power distance Uncertainty avoidance Individuality vs Masculinity vs

collectivity femininity
Page 55 6: Organisational culture and committees


Committees are a key part of organisational communication processes.

Purpose Types Possible disadvantages
New ideas Executive

Communication Standing Too large sometimes
Participation and problem- Ad hoc Time consuming
solving Sub-committees Expensive
Combining abilities Joint committees Compromises made
Co-ordination Management committees
Representation of interests
Giving advice Committees work best when
Recommendations There are well defined areas of The Secretary circulates
authority minutes and action points
Supported by: The Chair is an effective leader The benefits justify the cost
The Committee Chair and The committee itself is not too large There is plenty of time to
Secretary The members have the necessary make decisions
experience
7: Corporate governance and social

responsibility
Topic List This chapter covers the main areas of cor porate
governance, the role of the board in comm unicating with
shareholders and corporate social responsibility.
Principles of corporate governance
Developments in corporate
governance
Role of the board
Governance reporting and corporate
social responsibility
Ethics, law, governance and social
responsibility
Principles of Developments in Role of Governance reporting and Ethics, law, governance

corporate governance corporate governance the board corporate social responsibility and social responsibility
There are different views associated with the ownership and management of organisations:
STEWARDSHIP AGENCY STAKEHOLDER

THEORY THEORY THEORY
managers are stewards of managers seek to look after management has a duty of
the assets their own interests care to stakeholders
Governance principles
Minimise risk via Establish clear accountability Balance required:

compliance Maintain independence Corporate
Strategic
Adherence to strategic Accurate/timely reporting governance vs
'performance'
objectives Encourage owner 'conformance'
Fulfil stakeholder involvement
responsibilities Promote integrity

Corporate governance is the system by which organisations are directed and controlled b y senior officers.
Supervision
and
management Driving forces
Framework for
Risk ethical and
reduction Internationalisation/globalisation
effective dealings Treatment of investors
ADVANTAGES Financial reporting issues
Cultural significance
Apply the spirit as well High profile scandals
Accountability as the letter of the law
Backed up by: Accounting standards

Codes of professional conduct
Commissions on standards of
behaviour
Page 59 7: Corporate governance and social responsibility


Features of poor corporate governance
Domination by a single individual Lack of independent scrutiny

Lack of involvement of board Lack of contact with shareholders
Lack of adequate control function Emphasis on short term profitability
Lack of supervision Misleading accounts and information

If the board is to act effectively, its role must be defined carefully.
Role of the board
Responsible for taking major policy and strategic decisions

Mix of skills and relevant expertise
Regular performance assessment and increased accountability
Formal procedures administered by a nomination committee
Balance between executive management and independent non-executive directors
Role of Chair and chief executive to be held by two different people (not mandatory in the UK)
Remuneration set by a remuneration committee
Regular review of risk management and internal control
Audit committees to liaise with external audit and review accounts/controls


Annual reports must convey a fair and balanced view of the organisation, stating whether the organisation has
complied with governance regulations and codes:
Narrative statement on how principles have been applied
Statement on compliance throughout accounting per iod
Strategies for social responsibility
Proactive full responsibility Defence minimising or avoiding obligations

Reactive unresolved until others find out! Accommodation taking responsibility, when
encouraged
Summary
Corporate governance requirements and social responsibility
may be seen as additional r ules and guidance for companies
and individuals. They bridge the gap between what the law
requires and what society expects.

The relationship between law, governance, social responsibility and ethics
Law Corporate governance Social responsibility Ethics

Rules individuals and Publicly listed No regulation. Values and principles.
companies must follow. companies only are Individuals and Individuals and
regulated. Others are companies have a free companies are expected
The minimum level of
encouraged to follow choice. Some social to follow.
behaviour society allows.
best practice. pressure to act in a Adopting an ethical
socially responsible position is down to free
manner. choice.
More regulation, less freedom of choice. Less regulation, more freedom of choice.


Law
Societys Pressure for
ethics social responsibility
EXTERNAL Corporate governance PRESSURES

INTERNAL (decisions of directors) PRESSURES
Business needs to
Directors
appear socially
ethics
Needs of responsibility
shareholders
8: The role of accounting
This chapter introduces some basic ideas about

Topic List accounts and accounting information and its purpose.
The operation of financial systems is also considered.
The purposes of accounting information
Nature, principles and scope of
accounting
The regulatory system
Control over transactions
The main financial systems
Computerised accounting and
databases
The purposes of Nature, principles and The regulatory Control over The main Computerised
accounting information scope of accounting system transactions financial systems accounting and databases
Accounting is a way of recording, analysing and summar ising the transactions of a business. The accounting
function also provides information and advice to other depar tments.
Influences on the accounting

system
Size Formalised and procedural, to comply
Type of organisation with wide range of regulations
Organisation structure
Good accounting information Users

Managers Employees
Relevance Objectivity Shareholders Analysts and
Comprehensibility Timeliness Trade contacts advisers
Reliability Comparability Finance providers Government
Completeness HM Revenue & The public
Customs
FINANCE DIRECTOR
TREASURER FINANCIAL CONTROLLER MANAGEMENT ACCOUNTANT
CASHIER FINANCIAL ACCOUNTANTS COST ACCOUNTANTS
Non-current asset register Cost accounting

Receivables ledger inventory reporting and valuation
Debt collection materials costing
Credit control labour costing/payroll
Payables ledger
expense and overheads costing
Wages and salaries (payroll)
Financial accounts (general job costing (contract costing
ledger, quarterly accounts etc) process costing)
Statutory accounts budgetary control reports
Sales tax (VAT) returns (eg variance analysis)
Taxation Management accounting
budget co-ordination
analysis and investigations
project appraisal
Page 67 8: The role of accounting

Financial accounting
The method for reporting the results and financial position of a b usiness, which must then be audited.
Management (or cost) accounting

Management information system which analyses data to provide information as a basis for managerial action.
Note the distinction between:

Internal
Reporting to
information for
external parties
vs planning and
(financial)
control
(management)
These are both distinct from financial management, which deals with raising finance and controlling financial
resources (such as borrowings, dividends, capital expenditure, credit policies).
Factors which have shaped financial accounting:
Factors which have shaped financial accounting:

Company law
Accounting concepts and individual judgement (eg on v aluations or R&D)
Accounting standards (for comparability)
The European Union
Other international influences (eg IASB and global accounting standards)
Generally accepted accounting practice (GAAP)
'True and fair view'

Common Purchasing raw materials or goods

Human resources staff and their w elfare
Rules and procedures
will govern each, eg
functions Finance transactions, cash balances authorisation policies
Sales and marketing orders and advertising for the purchase of
General administration wide ranging, eg secretarial support non-current assets
Transactions SALES PURCHASING
Order Purchase order
CUSTOMERS Sales order Purchase order

SUPPLIERS
Making sales
Invoice Invoice
Payment
Making purchases
Payment
RECEIVABLES PAYABLES
LEDGER LEDGER
Paying expenses
Paying employees Transaction data Transaction data
Purchasing non-current assets GENERAL

LEDGER
Accounting data
Dependent upon effective MANAGEMENT

INFORMATION
SYSTEM
systems and procedures

PAYROLL PURCHASES SALES CASH

Key controls: Key controls: Key controls: Cash and petty cash
must be regularly and
Documentation/ Authorisation Authorisation fully recorded,
authorisation (buying) (selling) reconciled but funds
Calculation of Custody (goods Custody (goods transfer is generally by:
wages/salaries inwards) outwards)
Company cheque
Payment of wages/ Accounting Accounting
salaries (recording) (recording) Bank transfer
Internet transfer
Authorisation of
deductions Standing order
Direct debit
Inputs
Processing each system has these
Outputs

The most important point to remember is that the pr inciples of computerised accounting are the same as those
of manual accounting. The same terms are used (day book, ledgers, double entry, trial balance etc). Information
is expressed via codes.
An accounting package consists of several accounting modules (eg receivables ledger).
Manual systems inferior to computers Possible modules

in some areas: Each module may
Invoicing be integrated with
Productivity Ease of alteration Inventory the others, so that
Speed Quality Sales all modules are
Purchases updated by one data
Error rate Bulk
General ledger entry, eg sales and
Accessibility Payroll inventory modules
Cash book both updated by the
Job costing despatch of an
Non-current asset register invoice to a
Report generator customer
Decision
support
system
General
Spreadsheet
ledger
facilities
module
Executive
information
system
Receivables Payables Payroll Inventory Non-current

module module module module assets
Job costing
module

A database is a pool of data, which can be used b y any number of applications. Its use is not restricted to the
accounts department.
Main virtues
Input data
Common data to share
No duplication of files
No inconsistent data
Database
User management Database
queries system
Needs to:
Be shared
Application
programs Be up to date
Be relevant for all users
Be capable of evolving
Sales Branch and Staff
applications personnel payroll
Other Note also the use of spreadsheets
applications*
statistics etc statistics etc analysis etc essentially an electronic piece of paper
* The range of applications which make use of a database will vary widely, depending on
which provides an easy way of
what data is held in the database files. performing numerical calculations.
9: Control, security and audit
Topic List
This chapter discusses the main elements of inter nal
Internal control systems control systems that organisations operate. Internal and
external audit are a large par t of such systems, as are
Internal control environment and
issues related to computerised information.
procedures
Internal audit and internal control
External audit
IT systems security and safety
Building controls into an information
system
Internal Internal control Internal audit and External IT systems Building controls into
control systems environment and procedures internal control audit security and safety an information system
Internal controls
Help organisations to counter risks, maintain the quality of repor ting and comply with laws and regulations.
They consist of actions taken by management to enhance the likelihood that established objectives and goals
will be achieved.
INTERNAL CONTROL SYSTEM Supported by:
Information and communication

processes
Control Control Monitoring
environment procedures
Overall context Detailed controls
Limitations include: potential for human error; collusion; management override; dealing with non-routine
transactions.
The control environment S egregation of duties

This is the overall attitude, awareness and actions of P hysical
directors and management regarding internal controls
and their importance. It is reflected in the philosophy A uthorisation and approval
and operating system of the organisation.
M anagement
Classification of control S upervision
procedures and/or
O rganisation
Administration and accounting
Prevent, detect and correct A rithmetical and accounting
Discretionary and non-discretionary
P ersonnel
Voluntary and mandated
Manual and automated Remember that internal controls should not be confused with
General and application internal checks, which have a more restricted definition as
Financial and non-financial checks on day-to-day transactions.
Page 77 9: Control, security and audit

Characteristics of a good internal control

system
Clearly defined organisation structure

Adequate internal checks
Acknowledgement of work done
Physical security
Formal documentation
Pre-review
System for authorising transactions
Post-review
Authorisation, custody and re-ordering procedures
Personnel with necessary capabilities/qualifications
Internal audit department
Internal audit
Independent, internal appraisal activity examining and evaluating the adequacy and effectiveness of other
controls. Its two main features are independence and appraisal.
Objectives Types
Review of the accounting and inter nal control systems Operational

Examination of financial and operating information Systems
Review of economy, efficiency and effectiveness Transactions
Review of compliance Social
Review of asset safeguards Management investigations
Review of implementation of corporate objectives
Identification of risks, and risk management
Special investigations into any aspect of the organisation
The internal auditor is accountable to the highest executive level in the organisation, preferably the audit
committee of the Board of Directors.
External audit
is the periodic examination of the books of account and records of an entity carr ied out by an independent third
party to ensure that they have been properly maintained, are accurate and comply with established concepts,
principles, accounting standards, legal requirements and give a true and fair view of the financial state of the entity.
Internal audit External audit

Reason Internal audit is an activity designed to add External audit is an exercise to enable auditors to
value and improve an organisation's operations. express an opinion on the financial statements.
Reporting to Internal audit reports to the board of directors, The external auditors report to the shareholders, or
or others charged with governance, such as the members, of a company on the stewardship of the
audit committee. directors.
Relating to Internal audit's work relates to the operations of External audit's work relates to the financial
the organisation. statements. They are concerned with the financial
records that underlie these.
Relationship Internal auditors are very often employees of External auditors are independent of the company
with the the organisation, although sometimes the and its management. They are appointed by the
company internal audit function is outsourced. shareholders.
Internal audit has a much wider scope than external audit.
Security covers the protection of data from accidental or deliber ate threats, and the protection of an information
system from such threats.
Aspects of security Physical threats Physical access

controls
Prevention Fire
Detection PINs
Water
Deterrence need Door locks
Weather
Recovery for Card entry systems
Terrorism
Correction Logs
Accidents
Threat avoidance Sabotage
Computer theft

Such controls can be classified as:
CONTINGENCY
SECURITY INTEGRITY
CONTROLS
Accidental/deliberate Data Systems Unscheduled

threats interruptions that
require disaster
Data will maintain its integrity if recovery plans
complete and not corrupted. Input,
processing and output must all be
controlled, including the use of back
ups and archives, and creation of
passwords
10: Identifying and preventing fraud
Topic List This chapter considers the various types of fraud, its
prevention and detection. The consequences of fraud can
be very serious for both the organisation and its
What is fraud? direction.
Potential for fraud
Implications of fraud
Systems for detecting and preventing
fraud
Responsibility for detecting and
preventing fraud
Money laundering
What is Potential Implications Systems for detecting Responsibility for detecting Money
fraud? for fraud of fraud and preventing fraud and preventing fraud laundering
Fraud
Deprivation by deceit
There are two main categories:

Removal of funds or assets from Intentional misrepresentation of the
a business financial position
Theft of cash
Theft of inventory Overvaluation of inventory
or Fictitious sales
Payroll fraud
Teeming and lading Manipulation of year end events
Fictitious customers Understating expenses
Collusion with customers Manipulation of depreciation figures
Bogus supply of goods
Paying for goods not received
Manipulation of cash book
Misuse of assets
High fraud risk:

Prerequisites:
Lack of integrity Unusual
Dishonesty transactions Factors crop up time and
Excessive pressures time again as potential
Motivation Lack of audit fraud situations
Poor control evidence
systems
Opportunity
These pre-conditions
must exist in order to
make fraud a External factors Internal factors
possibility.
General environment New personnel
Industry features New systems
Technology New operations
Economic changes Restructuring
Page 85 10: Identifying and preventing fraud

Profits deviating from Turnover increasing Secretive Expensive Long

industry norms rapidly behaviour lifestyle hours
Business
risks Personnel
risks
Market Complex group Large Low Autocratic

opinion structure organisation morale Lack of segregation style
of duties
Computer fraud
The computer is frequently the vehicle through which fraud is carried out.
Lack of Computer Risk User-friendly and

training hackers awareness flexible systems
The precise ways in which the firm is affected depends on the type of fr aud being carried out.
Profits are lower Artificially enhanced:
Removal of funds
or assets Business has fewer Intentional Distributions too high
assets misrepresentation Retained profits low
Net asset position Shortfalls in working capital
weakened Incorrect decisions
Returns to
Stakeholders misled
shareholders fall Results understated:
Reduced working Returns may be reduced
capital
Share price falls
Cannot operate Loan finance restricted
effectively Negative publicity
Company collapses Legal consequences
in serious cases

Managing the risk of fraud is a key part of managing business risks in general. There must be a willingness to
enforce controls.
General prevention Managers and staff need to be aware of their responsibilities. There
policies 1
may even be a fraud officer.
Emphasising ethics
Fraud detection is helped by having information readily available,
Recruitment procedures 2
and encouraging employees to report any suspicions
Personnel controls 'whistleblowing'
Training and awareness
Segregation of duties Internal audit staff must ensure that systems and controls are
Appropriate 3
thoroughly reviewed. External audit staff must assess the risk of
documentation fraud having a material impact.
Limitation controls
Physical security Investigation procedures include establishing the extent of the
Authorisation policies 4
loss, how it occurred, who was implicated and the role of the
Standard procedures control system.
Computer security
It is the responsibility of the directors to take such steps as are reasonable to prevent and detect fraud.
Directors External auditors
Ensure that: Express an opinion as to tr ue and fair view

Assets are safeguarded Design procedures so as to have a reasonable
Activities are honest expectation of detecting fraud
Financial information is reliable Document findings and report to management
Also: Arrange for reporting to an appropriate authority
Deter fraudulent conduct if serious enough
Detect any that occurs Qualify audit report if necessary

Money laundering
The rules on money laundering in the UK are
found mainly in the FSA SYSC Handbook. Similar The term given to attempts to make the proceeds of
crime appear respectable. There are five main offences:
regulations exist in other juristictions.
Acquisition, possession or use of such proceeds
Accountants and other professionals have a Assisting another to retain such proceeds
duty to report money laundering. Failure in Concealing such proceeds
relation to that duty is a criminal off ence
Failure to report knowledge/suspicion of ML
which may result in a prison term of up to
five years. Tipping off (warning a suspected launderer)
There are three phases in the process of mone y laundering:

Placement the actual disposal of the proceeds of initial illegal activity Laundering
Layering the transfer of monies to conceal the or iginal source
Integration having been layered, the money has the appearance of legitimate funds
Companies need to take action to be aware of anti-money laundering regulations.
Vienna Convention 1988 Financial Action Task Force (FATF)

This was the first international agreement to FATF is a inter-government body made up of over
stop the international effects of money 30 member states and international organisations. It
laundering. Nations agreed to make it illegal. aims to:
Key issues Develop and promote policies to combat ML
Mutual assistance Prevent proceeds being used in future cr iminal
Extradition activity
FATF has developed 40 recommendations, the first
of which is that all countr ies should take steps to
The nature of money laundering makes it ideal ratify and implement the Vienna Convention.
to carry out internationally, transferring money The Council of Europe also makes
between countries. This can make it difficult to recommendations re ML which are similar to FATFs.
police. It is also why it is important that it is
illegal in as many countries as possible. The International Monetary Fund recommends the
FATF standards and promotes itself as a f orum for
sharing information.
Notes
11: Leading and managing people
Topic List This chapter attempts an overview of the manager's task,

and traces the development of management theory away
from universal principles towards contingency
The purpose and process of approaches and a focus on areas such as leadership
management and other skills.
Writers on management
Management and supervision
What is leadership?
Leadership skills and styles
The purpose and Writers on Management What is Leadership

process of management management and supervision leadership? skills and styles
Management Key roles

'Getting things done through other people'
1 Set objectives Work planning
Resource allocation
2 Monitor progress and results Prioritising
3 Communicate corporate values Projects and project management
4 Stewardship
5 Looking after stakeholders
via:
Physical power
Authority: the 'right' to do something
Resource power
Accountability: accountability for actions
Position power
Responsibility: obligation to perform Expert power
Delegation: giving subordinate authority Referent power
Power: the ability to do something Negative power
Project management Role of the project manager
A project is: 'an undertaking that has a beginning Outline planning: strategy, procedures, targets
and an end and is carried out to meet established
Detailed planning: identifying tasks, resources
goals within cost, schedule and quality
requirements; network analysis for scheduling
objectives'. (Haynes)
Team-building: establishing project identity
Note: Not a continuous, ongoing activity multi-functional (or multi-organisational) if required
But: Team management has many of Communication: briefing team members, feeding
these aspects back on progress, reporting, leading meetings
Co-ordination: integrating schedules and work
Examples flows
Monitoring and control: identifying and
A construction project (planning completion) correcting departures from plan
Design/development of a new IT system Problem solving: interpersonal, task,
Installation of new equipment contingency
Launch of a new product
Deliver consultancy report to a client Quality control: juggling time/cost and quality
targets
Page 95 11: Leading and managing people


Frederick Taylor: Scientific management Henri Fayol: Classical management

'All knowledge which had hitherto been kept in the 'Universality of management principles'
heads of workmen should be gathered and Five Functions of Management
recorded by management. Every single subject
1 Planning: Selecting objectives, and the
becomes the question for scientific investigation, for
strategies, policies and plans to achieve them
reduction to law.'
2 Organising: Grouping tasks into jobs and
Scientific management techniques functions; allocating authority to perform them
Commanding: Instructing subordinates to
Work study techniques used to deter mine 3 perform allocated tasks
efficient methods and standard times
4 Co-ordinating: Integrating objectives and
Jobs broken down into single specialised work flows, harmonising different interests
operations
Workers trained and offered monetary incentives 5 Controlling: Monitoring, measuring, feeding
to accept new methods and output norms back and correcting deviation from plan
Elton Mayo: Human relations

'Although significant technological advances were made ... the serious weakness of the scientific approach to
management was that it de-humanised the organisation member, who became ... an impersonal cog in the
machine of production.' (Hicks)
Mayo: managerial training 'must include knowledge of relevant Peter Drucker

technical skills, of the systematic ordering of operations, and of
The prime function of a business
the organisation of co-operation'.
manager is economic performance.
1 People are motivated by 'belonging' needs which are satisfied

by social relationships at work
The 'Hawthorne Studies'
2 Group dynamics and other human factors have a key influence
on work performance demonstrated the power of the
human factor particularly in
Later (neo-human relations) writers (Maslow, Herzberg,
3 McGregor) suggested that people are motivated by 'higher'
work groups
psychological needs for growth, responsibility, challenge and

fulfilment

Henry Mintzberg: Managerial roles

Managers are not reflective, systematic planners: managerial work, in practice, is disjointed and discontinuous, and
involves verbal/informal communication, intuition and judgement.
INTERPERSONAL Figure head A ceremonial role, representing the organisation

1 ROLES Leader Motivating, commanding, inspiring, developing staff
Liaison Maintaining contacts outside the vertical chain of command
INFORMATIONAL Monitor Scanning for information from internal and external networks
2 ROLES Spokesperson Providing information to interested parties on behalf of the
organisation
Disseminator Sharing information via networks with those who need it
DECISIONAL Entrepreneur Initiating projects, mobilising resources to meet oppor tunities
3 ROLES Disturbance Responding to pressures and problems that affect performance
handler
Resource Mobilising and allocating limited resources to teams/objectives
allocator
Negotiator Integrating different interests through bargaining processes

Strategic decision-making
Non-routine, uncertain, un-detailed Top 3
management Interface
Tactical decision-making Middle management between managerial
and non managerial
Operational decision-making
Routine, predictable, detailed
THE SUPERVISOR staff
Workers
Manager Doer 4
1 Planning 2 of own operational Gatekeeper
Organising at work tasks
lowest Filter of information
Commanding
level downwards (briefings)
Co-ordinating
and upwards (reports)
Controlling


Leadership
'The activity of influencing people to str ive willingly for group objectives.'
Management Leadership
Can be exercised over tasks, time, projects, Can only be exercised over people
resources vs
Is an interpersonal process
Is an organisational process
Is based on power/influence
Is based on authority
Depends on 'followership': conferred from below
Depends in legitimacy: delegated from above
Secures commitment/extra levels of
Secures compliance/standard levels of performance
performance
Involves influencing, persuading, enthusing:
Involves structure, analysis, control activities: creating/communicating vision for change
planned inputs predictable outputs
Leadership skills are in demand because of the increasing need f or committed performance, enabling flexibility,
innovation, responsiveness and competitive advantage.

Trait theories ('leaders are born, not made') have been discredited.
Style theories describe the various preferences or behavioural styles of managers.
Contingency theory sees effective leadership as being dependent on circumstances.
The Ashridge model TELLS

(autocratic)
SELLS
(persuasive)
CONSULTS
(consultative)
JOINS
(democratic)
It is important to be realistic about
TELLS + Quick decisions
the value of style (or any) theory. + Efficient for programmed work
Managers may not be flexible Discourages feedback, initiative, commitment, satisfaction
enough to adopt new styles SELLS + Decisions explained to subordinates
Employees dislike apparent + Possibly more commitment but not m uch
inconsistency Communication still largely one-way
No one style is 'best' CONSULTS + Involvement fosters commitment

+ Team input to decisions, though ma y not be helpful
+ Consensus decisions, though tak e longer
JOINS + High commitment/satisfaction for subordinates
+



Blake and Mouton (The Ohio State Leadership

Studies) proposed a two-dimensional model of
leadership, based on High 9
1.9 9.9
Concern for task/production 8
Concern for people
7
(Note: these are not opposite ends of a continuum:
Concern for people

managers may score high or low on either dimension 6
or both)
5 5.5
The managerial grid 4
1.1 Impoverished management
3
1.9 'Country club' management
9.1 Task management 2
9.9 Team management 1 1.1 9.1
5.5 Middle of the road (or dampened pendulum)
Low
Questionnaires are used to plot a manager's 'position' 1 2 3 4 5 6 7 8 9
for self-insight and development purposes Low Concern for production High
Fiedler
Two types Psychologically distant
of leader: (formal, reserved, task-focused)
Psychologically close
(informal, relationship-focused)
The work Leader/group relationship
situation: Task structure/definition
Power of the leader
The situation is favourable when:
Leader is liked/trusted and has high power and
Task is clearly defined
Highly favourable/unfavourable situation: distant
style works best.
Moderately favourable situation: close style
works best.


John Adair's situational leadership model (action-centered leadership) is less concerned with leadership style than
leadership functions. These must be seen in a context of task, group and individual needs. The total situation dictates
the relative priority to be given to each of these needs.
Task roles
Initiating
Information-seeking
Diagnosing
Opinion-seeking
Evaluating
Decision-making
Group maintenance roles Individual maintenance roles

Task
Encouraging needs Goal-setting
Peace-keeping Feedback
Clarifying Group In- Recognition
needs dividual
Standard-setting needs Counselling
Training
Total
situation
Warren Bennis puts forward some specific differences between the role of the manager and the role of the
leader.
'Administers and maintains' 'Innovates and inspires trust'
Systems Short Focus on Long

Manager Leader
control term view people term view
'Does things right' 'Does the right thing' through:

Management of attention
Heifetz 'dispersed' leadership
Management of meaning
social relations Management of trust
equates to a Management of self
'leadership acceptance
influence' circumstances
Leaders can 'emerge' from the prevailing organisational culture

Notes
12: Recruitment and selection
Topic List Recruitment and selection are core activities in Human

Resource Management, broadly aimed at ensur ing that
the organisation has the human resources that it needs .
Recruitment and selection This chapter examines the processes involved.
The recruitment process
Advertising vacancies
A systematic approach to selection
Selection methods and testing
Evaluating recruitment practices
Recruitment The recruitment Advertising A systematic approach Selection methods Evaluating recruitment
and selection process vacancies to selection and testing practices
Recruitment
The definition and communication of HR requirements in order to obtain applicants .
Selection
The process of choosing the most suitable applicants for employment.
Stages
1 Define requirements
2 Attract applicants
3 Select the appropriate candidate
Employees represent a scarce and cr ucial resource which must be obtained, retained, developed and mobilised
for organisational success.
Senior managers Who is responsible for Recruitment

recruitment? consultants
are responsible for human
resource planning at the strategic + Specialist skills, knowledge
level: they identify staffing needs
in relation to objectives
The HR function + Wide-ranging contacts
+ Objective (outside) viewpoint
may have centralised authority (to avoid 'cloning')
for recruitment. It will develop Anonymity of recruiter (avoid
+
policies, ensure compliance competitor interest)
Line managers and administer procedures
Time to get to know
organisation and requirements
are increasingly involved in 'Outsider' decision-making
defining vacancies, liaising with
may be resented
HR specialists, interviewing
Inhibits internal recruitment
candidates and making selection
decisions Cost
Page 109 12: Recruitment and selection

The Recruitment Process Job requisition

(replacement or new position)
Check need for replacement -

is the engagement authorised?
Obtain authority or
No adopt alternative
Yes (such as overtime,
reorganisation)
Does a job description
and personnel
specification exist?
Review and Analyse job:

update prepare description/
Yes No specification
Are the terms/conditions
of employment agreed?
No Agree terms
Yes and conditions
Is there a
suitable supply of
internal candidates?
Place Yes No Evaluate
internal alternative
advertisement media
Prepare and
publish
information
Determine
selection
methods
Select
candidate

Job analysis
This determines the requirements for a job, which are then set out in a job descr iption. Job analysis
concentrates on what job holders are expected to do.
What information is needed?
Purpose of the job Note too that more attention is being paid
Content of the job to outlining and developing competences:
Accountabilities Behavioural/personal
Performance criteria Work-based
Responsibility
Organisational factors reporting lines
Developmental factors promotion paths
Environmental factors working conditions
Job description
Uses of job descriptions
A job description is a written statement of facts
which are important in a job regarding tasks, In recruitment, to formulate requirements and to
responsibilities, conditions and organisational/ match jobs to candidates' capacities
operational relationships.
In job evaluation, to establish wage rates
In appraisal, training and development to identify
Content competence gaps or potential
Job title In organisation design and change management,
Reporting relationships to appraise job design and HR needs
Job summary
Key accountabilities/tasks However...
Principal operational contacts
Unusual working conditions They only suit predictable, repetitive work
Employment terms and conditions They go out of date as jobs change
Date job description prepared They can be taken too literally/rigidly
Flexible working redefines 'jobs' as 'roles'
Job descriptions have a 'use by' date!
Person specification
A person specification sets out the education,
Seven point plan
qualifications, training, experience, personal
Professor Alec Rodger
attributes and competence a job holder requires to
perform the job satisfactorily.
Physical attributes
Essential Attainments (including qualifications)
Desirable General intelligence
attributes, organised by
Contra-indicated Special aptitudes
(un-desirable) Interests
Disposition (manner, temperament)
Note that while a job descr iption sets out the Background circumstances
content of the job, the person specification
re-formulates the information as a profile of
the satisfactory/ideal job holder.
An effective job advertisement: Media for job ads
Includes job, person and organisation factors In-house noticeboard, journal, intranet
Is concise, but gives sufficient information to Professional/specialist journals/newspapers
attract interest and allow self-selection Newspapers: national, local, free
Radio/TV/cinema: national, local
Is designed to attract suitable candidates
Job centres and other registers
Is honest about the job and organisation, to Careers offices: school, universities
manage expectations The internet: registers, own website
Clearly states the requirements (and rewards)
of the vacancy Type of job?
Specifies how, when and to whom to apply Type/number of users? Relevant circulation?
Is presented in line with cor porate style Frequency of ad required?
Is formatted for, and transmitted by, Geographical coverage required?
appropriate advertising media
Organisational image?
Cost of right mix of above?

INTERVIEWS
Inform rejects Inform rejects
SCREEN short PROVISIONAL TAKE UP CONFIRMED

list CONTRACT
APPLICATIONS OFFER REFERENCES OFFER
Inform reserves Inform reserves
TESTS
(OR OTHER)
Interviews are the most commonly used selection method although the y are notoriously unreliable for
predicting job performance!
Purposes of interviews Limitations of interviews
1 Finding the best person for the job: direct

assessment of the candidate They are limited in length/scope
They are artificial situations, which distort
Giving candidates the information they candidates' 'normal' behaviour
2 require to make a decision They are limited in relevance: not able to assess
the full range of required attributes
Giving a positive impression of the
3 organisation
Interviewers often make errors of perception
and judgement: bias, stereotyping etc
Interviewers are often insufficiently trained
Ensuring that all applicants are (and feel they
4 have been) treated fairly (as required by law)
and/or prepared to direct discussion effectively,
probe for answers and so on.
Interviewers often fail to give sufficient, honest
or relevant information to the candidate

Effective interviewing Using appropriate questioning styles

Pacing and controlling discussion
Use consistent, specific, relevant criteria, as set
Building (and standing back from)
out in the job description, personnel specification
rapport/empathy
Minimise stressful dynamics
Active listening to surface and subtext
Directly monitor job-relevant communication,
Avoiding direct and indirect discrimination
interpersonal and problem-solving skills
Bias should be controlled by interviewer
awareness training and (where possible)
?
checking with other interviewers (panels, boards) Open: Who? What? How? Why?
Train interviewers in effective techniques Closed: Did you ...? (Answer: yes or no)
Allocate sufficient time and resources Probing: But what in particular ...?
Give candidates opportunity to seek information Multiple: How ... and why ...?
Evaluate process in the light of successful Problem solving: How would you ...?
candidates' performance Leading: Don't you ...? Surely you ...?
Other selection methods include:
Work sampling Perusal of the candidate's

portfolio, or setting work 'Assessment centres' use role plays,
exercises case study analysis, leaderless group
discussion, business games and other
Group selection Suitable for in-depth techniques to allow expert analysts to
assessment of management appraise a range of problem-solving
candidates and interpersonal skills which emerge
Reference checks To confirm details and get in the group.
third-party view of candidate's
employability
References should confirm facts, but
also reveal opinions. Referees may be
cautious, or biased: references have
very low 'predictive validity'.

It is very difficult to exclude cultural and

Selection tests even gender bias from tests.
But:
Types Designed to measure
Proficiency Ability to perform Not all jobs are amenable to proficiency testing:
specific tasks (eg typing) eg management
Tests are subject to practice/coaching effects:
Aptitude Potential to exercise or
style (or content) of questions becomes familiar
learn skills (eg numeracy)
Intelligence is difficult to define: IQ must be
Intelligence IQ, usually: mental supplemented by EI (emotional intelligence),
agility, verbal reasoning creativity etc
Personality Traits and types (eg Personality test results are subject to 'faking': the
introvert/extrovert) desirable answer is often obvious
Case studies Ability to perform in Suffer from time/ability constraints
Role plays simulated job tasks and All tests require expert administration and result
'In-tray' exercises situations interpretation
Recruitment and selection can be

evaluated by:
Using attitude surveys and feedback

questionnaires Examples
To assess candidates' experience and perceptions Number of candidates attracted by different media
of the organisation Number of suitable (shortlisted) candidates
Monitoring the job performance and attracted
development of recruits Number of women/ethnic minorities applying
To assess accuracy of predictions made during Number of women/ethnic minorities selected
recruitment/selection Cost per short-listed or successful candidate
Monitoring the composition of and c hange in Cost-effectiveness of each medium used
the workforce
Average time taken to process each application
To assess the effectiveness of equal opportunity
Post-selection performance of candidates
measures, the turnover of recruits and so on.
Proportion of recruits still employed two years later
Monitoring specific performance indicators

Notes
13: Diversity and equal opportunities
Topic List Social, demographic and policy changes have steadily

increased the diversity of the labour pool (more w orking
women; older workforce). The law protects the rights of
Discrimination at work various previously disadvantaged groups to equal
opportunity; managing workforce diversity is a key issue
Equal pay and equal opportunity for HR policy and practice, and management in general.
The practical implications
Diversity
Discrimination Equal pay and The practical Diversity

at work equal opportunity implications
Equal opportunities
An approach to the management of people at w ork, based on equal access and fair treatment irrespective of
gender, race, ethnicity, age, disability, sexual orientation or religion.
Where can
discrimination Discrimination on basis of gender, race or disability are enshrined in law.
occur? Others (eg age) rely upon models of 'good pr actice'.
Business arguments in favour of equal opportunities
Access to jobs
Training
Promotion Ethical Good Compliance Wider Image
Pay and HR with pool of and
Benefits fair practice legislation labour reputation
Need to redress inequalities


Some countries have regulations which state that: men and women have the right to equal pay for work of equal
value.
Sex Race
Example of a Sex Discrimination Act Example of a Race Relations Act
Prohibits discrimination on grounds of sex/marital Outlaws certain types of discrimination on
status grounds of colour, race or nationality.
Advertisements
Larger public organisations (150+ employees)
Recruitment and selection
must have detailed plans for achieving racial
Access to training
equality.
Promotion
Selection for redundancy
Dismissal
Page 125 13: Diversity and equal opportunities


Direct discimination occurs when one interested group is treated less favourably than another.
Indirect discimination occurs when certain requirements or conditions are imposed, with which a
substantial proportion of the interested group could not comply.
Victimisation occurs when a person is penalised for giving information or taking action in
pursuit of a claim of discr imination.
(In addition, harassment is the use of threatening, intimidator y, offensive or abusive language or behaviour.)
Under both sex and race discrimination law, there may be certain exemptions ('genuine occupational
qualifications') in which discrimination of a sort may be permitted, eg physiology, decency or legal restrictions.
Disability Covering access to:

is defined as physical or mental impairment that
has a substantial/long term adverse effect on ability Employment opportunities
to carry out normal activities. Interview
Selection
Training
Promotion
Dismissal
Age
Some countries have Age Regulations which prohibit unjustified age discrimination in employment and
vocational training; support later retirement and retirement planning; remove upper age limits for unfair
dismissal and redundancy rights.


Implementing equal opportunity policy Examples

Use ethnic languages in job ads
1 Secure support from the top management:
create senior accountabilities Offer family-friendly working hours/contracts:
term-time hours, part-time working etc
2 Set up a representative working party to
produce a draft Code of Practice
Alter premises/equipment to accommodate
wheelchair users, partially-sighted/deaf workers
Extend 'spouse' benefits to same-sex partners
3 Formulate action plans and allocate resources
to publicise/implement policy Fast-track school leavers and post managerial
vacancies internally -> more opportunities at
lower levels
4 Implement monitoring and review of minority
staff entering/progressing/leaving Awareness training for management
Workplace childcare or childcare allowances
Plan and implement positive action initiatives
5 to facilitate minority access to opportunities
Encourage networking of minority business
people

Diversity
The concept of diversity recognises that 'equal oppor tunity' categories (gender, race, age) are only crude,
irrelevant classifications. Effective managers seek to recognise more job-relevant, complex ways in which
people differ: personality, working style, needs and expectations. Managers need to facilitate the unique
contribution that each person not each 'categor y' of person brings to the team.
Managing co-operative working in diverse teams
Tolerance of individual differences
Support for:
Communicating effectively with an ethnically
Communication diverse workforce
Education/training
Career development Managing workers with diverse family structures
and responsibilities
Recruitment/selection
Work/life balance Managing the adjustments to be made by an
ageing workforce
to reflect diversity.
Managing diverse career paths and aspirations
Confronting educational/qualification issues in an
international workforce

Key steps in implementing a diversity policy
1 Analyse the business environment 5 Ensure top management support
2 Identify the business benefits of diversity 6 Involve staff at all levels
3 Introduce diversity into corporate strategy Communicate, communicate,

7
communicate!
4 Include it in core HR systems Understand the company's needs and
8
resources
9 Evaluate
14: Individuals, groups and teams
Topic List Managers need to understand the behaviour of

individuals at work in order to motivate, control and
develop performance. The basic building block of the
Individuals organisation is the team or work group: you need to
Groups and teams understand how effective teams are formed, built and
managed. Teamwork involves both getting the job done
Team member roles and keeping the team together.
Team development
Building a team
Successful teams
Individuals Groups and Team member Team Building Successful

teams roles development a team teams
Personality Perception
is the total pattern of characteristic ways of thinking, is the psychological process by which stimuli (in-coming
feeling and behaving that constitute an individual's sensory data) are selected and organised into patter ns
distinctive method of relating to the environment. which are meaningful to the individual.
Key managerial issues Compatibility? Key material issues Misunderstanding?
Different personality types may suit different work People see things differently: there is potential for
misunderstanding, which can lead to conflict
Different personality types may suit particular
structures, systems and cultures of work People can confuse the 'map' for the 'territory':
perceptions can be entrenched, even though they are
Different personality types may have different only viewpoints
orientations to/needs from work
Common clashes of perception include: 'us and them'
Different personality types may 'clash' (management/staff) and unintended racial/sexual
harassment
Recruit and select carefully. Manage conflict. Practise and facilitate 'seeing the other side'.
Contingency approach to HRM Define terms and problems collaboratively.
Recognise 'grey areas'
Attitude Roles
is a mental state exerting a directive or dynamic are the parts people act out in different contexts,
influence upon the individual's response to all objects according to the tasks and relationships required b y
and situations with which it is related. those contexts. The people who relate to a person in a
particular role are called a 'role set'.
Key managerial issues Key managerial issues
Attitudes to work may be positive or negative Managers (and others) need to behave appropriately
Attitudes to work-related issues (management, for their role set, giving appropriate role signs
co-workers, conditions etc) may affect Managers need to make roles (responsibilities,
co-operation, motivation, commitment and so on norms of behaviour) clear to avoid role
Attitudes are brought to work: these may be ambiguity/stress
helpful (or unhelpful) eg in regard to politics , Conflicting demands (role incompatibility/conflict)
race, gender should be avoided
Control conflict: reinforce co-operation. Facilitate work/life boundaries. Clarify role
Discipline unhelpful/unlawful attitudes. expectations and relationships. Identify
Reinforce (reward, recognise) positive positive role models
attitudes
Page 133 14: Individuals, groups and teams

Group A sense of identity: boundaries

any collection of people who see themselves as a Loyalty and conformity to group norms
group. Purpose and leadership
Teamworking
Team
+ Satisfaction of interpersonal relations
is a group formally organised for the purpose of
+ Satisfaction of participation
performing a task
+ Pooling of skills, knowledge, experience
+ Efficient sharing of resources
+ Encouraging communication/co-ordination Examples
+ Enables flexibility, speed of response Brainstorming teams for ideas generation
Multi-disciplinary teams for skills sharing
Group norms restrict flair (and output)
Group maintenance distracts from task Management or quality teams for decision-
making and problem-solving
Groups take slower decisions than individuals
Groups take riskier decisions than individuals Multi-skilled teams for flexible working

Team roles: Belbin

1 Co-ordinator: presides over team activity.
(Balanced, disciplined, good at working 5
Resource-investigator: accesses new
contacts and resources. (Extrovert networker;
through others.) not an originator.)
Shaper: spurs the team on to action. Implementer: translates ideas into practice,
2 (Dominant, Extrovert, passionate about the 6 plans. (Not a leader, but an essential
task.) organiser.)
3
Plant: provides the team with ideas,
proposals. (Introverted but creatively
7 Team-worker: holds the team together,
supports members. (Empathetic, diplomatic.)
intelligent.)
Monitor-evaluator: dissects and criticises
8 Completer-finisher: chivvies the team to
attend to details/deadlines/follow-up.
4 ideas: spots potential problems. (Analytically
intelligent.)
Belbin added a ninth role: the functional specialist (where required). Roles need to be balanced and (ideally)
evenly distributed for an effective team.

Stages of team development:Tuckman

The group is coming together. Individuals try to find out about each other and the
1 Forming aims and norms of the group.
Aims, procedures and roles (including leadership) begin to be hammered out
2 Storming
through more or less open conflict.
The group begins to settle down, reaching agreements on work-sharing, roles and
3 Norming
norms. Group decision-making begins.
The group is ready to set to w ork on its task: the process of formation no longer
4 Performing
absorbs attention. The focus shifts to results.
A long-standing, steadily-performing group may get cosy and complacent, and lose
+ Dorming
its focus on the task (added to Tuckman's model).

Cohesion Reinforce the group's sense of identity

Team building ('Sticking together') Reinforce team solidarity (loyalty, trust)
Reinforce commitment to shared
Limit groupthink by objectives
but
Actively seeking outside ideas Dangers of ultra-cohesive teams
Welcoming self-criticism within group Desire for consensus squashes
divergent views complacent, risky
Consciously evaluating conflicting evidence
and options decision making
Shared responsibility risky
decision-making
'Groupthink' (Janis) Energy focused on group at expense

of task
Hostility to outsiders disintegration


Objectives (indicators) of effective team-working

Measures:
Effective job performance: meeting task
1 objectives, standards, targets Quantitative: standards, targets
Qualitative: external/internal customer satisfaction
Team member satisfaction with
2 relationships, process and performance
Quantitative: turnover, absenteeism
Qualitative: communication, expressed attitudes
Effective and efficient team functioning:
3 co-operation, balanced roles, consensus etc
Quantitative: discipline/grievance incidents
Qualitative: interest in decisions, motivation in
leader's absence
Effective and efficient task functioning:
4 ideas generation, problem-solving, steady Quantitative: output/productivity, workflow,
work flow etc accidents
Fulfilment of the team's role in the Qualitative: ideas generated, seeking causes not
5 organisation: reflecting values, commitment symptoms
to goals, projecting image etc
15: Motivating individuals and groups
Topic List Managers and leaders need to understand motivation if

they are to get their staff to perf orm well. It is also about
offering employees the financial and non-financial
Overview of motivation rewards that will give them satisfaction. This chapter
examines the key motivational theories.
Content theories
Process theories
Choosing an approach
Rewards and incentives
Pay as a motivator
Overview of Content Process Choosing an Rewards and Pay as a

motivation theories theories approach incentives motivator
Motivation
1 'A decision-making process through which the individual
chooses desired outcomes and sets in motion the beha viour
appropriate to acquiring them.' (Huczynski & Buchanan) Extrinsic rewards
for work, eg pay,
benefits
2 The social process by which the behaviour of an individual is
influenced by rewards, incentives and sanctions applied by
others.
Intrinsic rewards
Motives in work, eg
'Learned influences on human behaviour that lead us to pursue responsibility,
particular goals because they are socially valued.' challenge, interest
(Huczynski & Buchanan)

Maslow's hierarchy of needs Content theories ask: 'What (needs or goals) motivate individuals?' They
suggest that behaviour is driven by the desire to satisfy cer tain needs or
People are motivated by: achieve certain outcomes.
Self-
actualisation
Esteem needs
In order of priority
Love/social needs
Safety needs
Empirically verified
Note: Not Predictive
Physiological needs
Culturally universal
Page 141 15: Motivating individuals and groups


Frederick Herzberg:Two factor theory

1 2
Need: to avoid unpleasantness Need: personal growth, fulfilment
Control Policies, administration Responsibility

The only way
dissatisfaction Pay Challenge, interest
to offer job
but cannot Adequate working conditions Achievement
satisfaction:
offer lasting Quality of supervision Growth in the job
factors in the
satisfaction job itself
Hygiene factors Motivator factors

Victor Vroom: Expectancy theory Process theories ask: 'how can individuals be motivated?' They explore
the process through which outcomes become desir able and are
pursued by individuals
E
Expectancy
V = F Valence Force of motivation
The strength of the individual's The value that the individual places The strength of the individual's
expectation that behaving in a on the outcome (whether positive/ motivation to behave in the given
certain way will result in a given desired or negative/ undesired). way (and the likelihood that he will
outcome. do so).


The way managers attempt to motivate their teams, and the kind of rewards they offer them, will depend to an
extent on the managers' assumptions about w orkers and their orientations.
Douglas McGregor:Theory X and Theory Y

Theory X The average person dislikes work and responsibility. Managerial objectives of a
Workers must be coerced, controlled and directed in reward system
order to make them perform adequately.
Attract and retain staff
Note: Two extreme
Increase the predictability of
assumptions not employee behaviour
'types' of people
Increase employees' willingness to
change
The expenditure of effort in work is natural and not
inherently disliked. People are capable of exercising To motivate (provide incentives for)
responsibility and self-direction, being motivated by effective performance
Theory Y the desire for growth/achievement Be equitable

Reward
A token (monetary or otherwise) given to an individual or team in recognition of some contr ibution or success.
Incentive
The offer or promise of a reward, designed to motivate the individual or team to behave in such a way as to
earn it.
The job itself can be used as a motiv ator. A well-designed job should provide five 'core dimensions'.
Skill Task
variety identity
JOB
SATISFACTION
Constructive feedback:
Motivational Task
significance
Developmental
Autonomy


Job satisfaction (which Herzberg considered the basis of all motiv ator factors) arises from
Skill variety Task identity/meaning Task significance/importance
Autonomy or discretion Feedback on performance
Herzberg noted that the 'micro-designed' jobs

Job enlargement
favoured by scientific management are repetitive, A 'horizontal' extension of the job by increasing the
meaningless, unimportant, programmed and number of operations or tasks: reducing the cycle of
devoid of feedback! He suggested three ways of repetition, adding variety. (However, adding more
redesigning jobs for job satisfaction. low-skill, meaningless tasks may not be a long-term
source of satisfaction.)
Job rotation Job enrichment

Transferring the worker sequentially or A 'vertical' extension of the job by adding responsibility,
cyclically from one job to another, to allow breadth and challenge: giving feedback, removing
task variety. (Sometimes used as a form of controls. (Job enrichment is equivalent to
training/development.) 'empowerment' on the level of individual job design.)
In line with the idea of job enr ichment, various related concepts have been put forward as potential motivators
(or sources of job satisfaction), including:
Certainty Participation must be perceived as genuine
Consistency Participation must be persevered with
Participation/involvement Clarity The objectives of participation must be clear
Capacity Employees must have the information/ability
required
Commitment Management must believe in participation
(Peters & Waterman) Employees can be 'switched on' to

Organisation culture extraordinary loyalty and effort if:
The 'cause' is perceived to be great: 'reaffirming the heroic
dimension of work' eg quality, customer, innovation
People are treated as 'winners', valued contributors: 'good
news swapping' and positive reinforcements


Pay is an important motivator Pay is a limited motivator
Money is a means of satisfying many needs Pay cannot (by itself) satisfy 'higher order'
(Maslow) needs
Herzberg recognised pay's importance in Pay is a 'hygiene' factor: it cannot offer job
satisfying needs and symbolising/comparing satisfaction
individual worth People tend to want equitable and sufficient
People need money to live pay not maximised earnings (at any 'cost')
Some people have an 'instrumental' orientation
to work: they put up with deprivations to earn
money
Remember that pay can be a powerful short-term motivator.

Pay levels/structures may be Payment by results (PBR)

determined by:
is related to output (in ter ms of units produced or
time taken).
Job evaluation: a systematic process of
analysing job content (not job holder
performance) to determine the 'value' of the job. Performance-related pay (PRP)
Negotiation/collective agreements on pay
Perceived fairness (equity) is related to results achieved (in terms of defined
standards for key tasks, fulfilment of objectives etc).
Market rates of pay
Individual performance in the job

Notes
16: Training and development
Topic List
Employees are resources to be developed, not just costs
The learning process to be controlled. How people learn, and how they should
be trained, is very relevant to organisational performance
Development and training and should be approached systematically. At the core of
Training needs and methods this topic is the need to ensure that tr ainee learning is
applied in the work context. Development constitutes a
Responsibility for training and wider topic, and involves more than merely improving job
development performance.
Evaluating training programmes
Development
The learning Development Training needs Responsibility for Evaluating training Development
process and training and methods training and development programmes
Behaviourist theory Learning styles

Stimulus Response negative reinforcement
Theorists prefer to understand principles
Stimulus Different Reflectors prefer to think things through first
response positive reinforcement Activists prefer to try things, 'hands on'
Stimulus Repeat successful response Pragmatists prefer to work with real tasks/problems
(Honey & Mumford)
Cognitive theory
Plan Learning cycle
Select new goal Attempt behaviour
Act
Assess results
Apply Analyse
Learning theory suggests that motivation, objectives,
feedback, positive/negative reinforcement are key to Abstract
effective training (Kolb)
Learning organisation
is one that facilitates the acquisition and sharing of knowledge, and the learning of all its members, in order
continuously and strategically to transform itself in response to a r apidly changing and uncertain environment.
Learning organisations:
Keep plans and decisions flexible Seek out learning opportunities

Insist on data rather than guesswork Develop HR policies to suppor t flexibility
Encourage experimentation and questioning Develop management styles to suppor t flexibility
Regard risks and failures as learning tools Focus training on 'learning how to learn'
Gather information from all possible sources
Share information through formal/informal
networks
Page 153 16: Training and development

In order to achieve its goals, an organisation requires a skilled w orkforce.
Training Development Education

Planned programmes and instruction Growth of a person's ability and Knowledge acquired gradually,
which enable people to achieve a potential through the provision of through a process of learning
higher level of knowledge, skills and learning. and instruction.
competence.
Development planning
1 Identify necessary skills
2 Draw up development
strategy
3 Implement
Benefits of training
for the organisation for the trainee
Increased skills/knowledge: enhanced job Enhanced competence sense of achievement,

performance self-esteem, security of greater employability
Attraction and retention of quality labour Satisfaction from greater contribution to business
Improvement of skill base: adding value to success, quality etc
the human assets of the business Opportunities for career development and increased
Enhanced workforce flexibility rewards
Enhanced managerial succession Opportunities to extend own skills, interests
Better quality and customer service, for
competitive advantage
Note: Training is not a substitute for effective selection,
Fewer errors, complaints, accidents organisation and supervision! Not all problems are
Less need for detailed supervision and amenable to training. Training must also be effectively
managerial interventions planned, designed and managed.

A systematic approach to training

Stage One: training needs analysis
Job requirements Human resource audit

Job analysis, specifications, People's current skills:
description
Organisational objectives Testing
Role/skill analysis Observation
Employee surveys Self assessment
Competence definition Appraisal
Environmental changes Performance criteria/standards

New technology
New legislation
New standards 'Learning gap' or training needs
Stage Two: planning and

implementing training Formulate training objectives
(SMART)
Select and develop methods/media

of training
Validate: ie has it worked?
Implement training
Feedback to trainees
Post-training test or appraisal of

performance
Evaluate whole process:

was it worth doing?

Off-the-job training methods include: Off-the-job methods
Training room instruction In-house training facilities + Allow experimentation without risk,
Lectures/taught classes or external training pressure of work
Case study analysis providers accessed via + Away from interruptions, distractions
training leave, day of work
Role plays release, evening classes + Can allow for own-pace study
Simulations/in-tray exercises etc + Suit theoretical learners
Visits and tours Off-site training events May not relate directly to task or job

Outdoor training context
Distance or open learning Flexible, use-anywhere Less immediate motivation and
Computer/video-based training packages feedback for learning
learning Does not suit all learners
Can create anticlimax on return to
Training technologies include video, interactive video, work
online and various computer based training methods.
On-the-job training methods include: On-the-job methods
'Shadowing' a colleague Observation/imitation

Job instruction Demonstration/explanation
+ Relevant to job skills
Coaching Guidance, advice, teaching + 'Fit' with job context
Job rotation Gaining work experience
+ Establish work relationships
Temporary promotion Gaining management experience
'Assistant to' positions Shadowing managerial work + Suit active/pragmatic learning styles
Committee/project work Exposure to other functions
Apprenticeships Mix of off- and on-the job Depend on training skills of fellow
workers/supervisors
Induction training Risk, pressure, distraction of 'real' work
context
is the introduction of new recruits to the job, work place and
work group. It begins an on-going process of development. May train unhelpful methods/culture
Requires tolerance of error
Orientation to workplace:
Introduction to work, superior and team
Briefing on policies, rules
Plan mentoring, initial training and so on
Develop own Central concern with

skills developing people
Trainee HR department
Fewer automatic New skills Managing Needs of individual

promotion paths always needed careers and organisation
Line managers Training managers Feedback and

evaluation
Identifying Coaching/ Reports to
training needs feedback HR director Programme
design
Assessing Identifying learning opportunities Liaison Needs
competences and organising programmes analysis
Responsibility for training therefore lies with the individual, in collabor ation with managers and HR professionals.
Validation of training Evaluation of training

is measuring the results of the programme against is analysing the costs of the prog ramme against its
its objectives: has it been effective in achieving its benefits: has it been worthwhile?
goals?
Validation Evaluation
Appraise the work performance of trainees for Test post-training knowledge/skills for
general or specific improvement comparison with pre-training tests
Assess the effect of training on team and Survey the satisfaction of trainees, via
organisation performance, for integrated feedback forms, attitude survey or appraisal
improvement
Analyse indicators of 'knock-on' effects: labour
Monitor the on-going development of trainees turnover, disciplinary actions, suggestions etc
for influence on promotability/succession

'Development' is a wider concept than tr aining, although training provides learning and educational experiences
for development.
Skill/competence development Employability development
Acquiring job-relevant knowledge, skills etc Acquiring a portfolio of experience/competence
through education and training. that enhances mobility/value in the labour market.
Career development
DEVELOPMENT
Identifying career aspirations and planning
progression through:
TRAINING
Gathering different experiences
Using mentors and role models EDUCATION
Accepting opportunities and challenges
Personal development
Seeking wider learning experiences, to meet
self-actualisation needs and goals.
17: Performance appraisal
Topic List Appraisal is one of the control systems of the organisation

improving organisational efficiency by ensuring that
individuals within it are performing to the best of their
Performance management and ability and potential. It should be a forward looking,
assessment problem-solving, collaborative process, set firmly within
with organisational context and regularly evaluated.
The purpose of performance appraisal
The process of performance appraisal
Barriers to effective appraisal
How effective is the appraisal scheme?
Performance management The purpose of The process of Barriers to How effective is the
and assessment performance appraisal performance appraisal effective appraisal appraisal scheme?
Key features of performance measurement

Aspect Comment
Agreed framework of goals, standards The manager and the employee agree about a standard of
and competence requirements performance, goals and the skills needed.
Performance management is a process Managing people's performance is an ongoing activity, involving
continual monitoring and assessment, discussion and adjustment.
Shared understanding The goals of the individual, unit and organisation as a whole need to
be integrated: everyone needs to be 'on the same page' of the
business plan.
Approach to managing and Managing performance is not just about plans, systems or
developing people resources: it is an interpersonal process of influencing,
empowering, giving feedback and problem-solving.
Achievement The aim is to enable people to realise their potential and maximise
their contribution to the organisation's success.
The general purpose of appraisal is to improve the performance of the organisation.

Purposes of performance appraisal
Why have a formal system?
Establishing key results which a job holder needs to
achieve for effective working Ongoing informal feedback on performance is
Identifying improvement/training needs an important part of management, but:
Identifying performance deserving merit pay awards Managers may obtain only random
Identifying areas in which work methods, technology impressions based on most recent/obvious
and other factors could better support performance incidents
Identifying candidates for promotion/succession Negative aspects may get more attention
Assessing organisational competences to aid HR than positive
planning Feedback may be sporadic, subjective,
Encouraging communication about performance hasty and inconsistent in applying cr iteria
Creating a culture of openness to feedback, Formal appraisal makes both appraiser and
problem-solving and continuous improvement appraisee accountable for their judgements,
responses and follow-up actions.
Page 165 17: Performance appraisal
Performance appraisal control system

Corporate Work systems
objectives and conditions
HR plan Employee
performance
Identification Assessment Jointly

of Performance (report) Review agreed, Follow-up
criteria for monitoring by (interview) concrete action
assessment manager conclusion
Job requirements
Job analysis
Appraisal techniques refer to what is appraised and how it is appraised/reported.
Overall assessment Behavioural incident analysis

requires the assessor to write an appraisal in compares employee behaviour in critical incidents
narrative form. Can be unfocused, and depends to classifications of successful/unsuccessful
on managers' writing skills. behaviours in such situations. Job-relevant, though
complex to develop.
Guided assessment Grading (or rating scales)

adds guidelines on attributes/performance score workers according to the extent/level to which
elements to be assessed, and how they are to they possess attributes. Graphic scales:
be defined. eg Poor Fair Good
There has been a trend towards more systematic, job relevant techniques such as:
Competence assessment: based on competency definitions and standards developed for the job or
occupation
Results-based assessment: measuring performance against specific objectives and targets (eg MBO,
performance management)
Alternative or multi-source feedback

Self appraisal (by the appraisee)
Traditional performance 1 + Removes judgement, fosters self-insight
appraisal: Inevitably subjective
Appraisal by the worker's immediate Upward appraisal (by subordinates)
superior 2 + Meaningful feedback on management style
+ First-hand knowledge Inevitably defensive

Peer and/or customer appraisal
+ Authority to act 3 + Meaningful feedback on internal/external
Perceived as top-down customer care
Peer feedback may be defensive
May damage working
relationship 360 Feedback (any or all of above)
4
+ Well rounded picture of performance
Appraisal interviews
Prepare 'Tell and sell'
1 Time/venue Review feedback reports Deliver assessment and 'sell' (gain
Interview acceptance of) improvement plan.
(Requires human relations skills to
2 Listen Be fair Collaborate criticise and motivate constructively.)
Plan 'Tell and listen'
3 Gain commitment Agree Summarise Deliver assessment and invite response.
(More opportunity for counselling.)
Report
'Problem-solving'
4 Finish appraisal report, with agreed
conclusions Invite employee to identify and discuss
work problems, areas for improvement.
Follow up (Replaces judgement with collaborative
5 Take agreed action Monitor progress creative thinking and proactive
development.)
(Maier)
Common problems with appraisal (or the way it is managed) include the following.
Appraisal = confrontation Used for showdown, 'clearing the air': no developmental outcomes
Appraisal = judgement Defensive on both sides; awkward negative feedback; suspicion of bias
Appraisal = chat No clear purpose or objectives; waste of time; not taken seriously
Appraisal = bureaucracy Regarded as a form-filling exercise: no positive outcomes expected
Appraisal = unfinished business Used to deal with the most recent or ongoing issues only
Appraisal = annual event
'In the current climate, to review performance once a year is
ludicrously relaxed and undisciplined. Most targets ... become
irrelevant and out of date within months or e ven weeks.'
(Lockett)
Hence the emergence of a performance management approach.

1 Is appraisal perceived as
fair, relevant and important?
Monitor appraiser/appraisee
attitudes, using surveys, feedback
forms, interviews
Performance improvement? Monitor individual/unit results

Monitor training provision and
Has appraisal been Employee training?
2 effective in achieving
outcomes
Management succession? Monitor promotions, succession plans
Employee commitment? Monitor HR indicators such as staff

turnover, absenteeism, discipline
Is appraisal an efficient, Cost-benefit analysis

3 cost-effective use of (Note: qualitative + quantitative
managerial time/effort? benefits)

Notes
18: Personal effectiveness and

communication
Topic List This chapter draws together a range of material that

relates to how people do their jobs. Beginning with a
discussion of personal development plans, it moves
Personal development plan through 'personal effectiveness' topics and on to a study
of communication. It is only via communication that
Time management people know what is to be done, by whom and how.
The role of IT
Coaching, mentoring and counselling
Communication
Personal Time The role Coaching, mentoring Communication

development plan management of IT and counselling
Personal development plan (PDP)

A clear action plan incorporating a wide set of developmental opportunities.
Systematic approach:
1 Select an area for development
Improving Improving skills
performance and competences
2 Set a learning objective
OBJECTIVES OF 3 Research and evaluate relevant resources

A PDP Planning
career path
4 Formulate action plan
Pursuing Acquiring
personal growth skills 5 Secure agreement if need be
6 Implement

Time management
The process of allocating time to tasks in the most eff ective manner.
Goal setting Action planning Prioritising depending on:

('SMART') (How?) (Importance) Consequences
Dependency
Urgency
PRINCIPLES OF
Deadlines
TIME MANAGEMENT
Focus Urgency Organisation

(One thing at a time) (Do it now!) (of your work)
How, when and by whom should the work be done?

Work planning is another skill: allocating tasks; sequencing tasks; scheduling
Page 175 18: Personal effectiveness and communication


Deciding on a communication tool

Depends upon the characteristics of the message.
Processing of
Common tools Specific technologies routine data
include can be done in
Conversation Report Electronic, digital transmission bigger volume,
Meeting Email at greater
Electronic data interchange (EDI)
speed and with
Presentation Video Mobile telephones (including greater
Telephone conferencing 'smartphones') accuracy.
Fax Social media Voice messaging systems
Memo Computer bulletin boards
Letter Social media post (eg Twitter) Managers have
more
information!

Coaching Mentoring
occurs when a trainee is put under the guidance of is a long term relationship in which a more
an experienced employee ('expert'). experienced person fosters personal and
career development.
1 Establish learning targets
Features:
2 Plan a systematic programme Not usually an immediate superior
Covers a wide range of functions
3 Identify opportunities
4 Take strengths/limitations into account Career Psychosocial

functions functions
5 Exchange feedback
Coaching focuses on achieving specific objectives.


Counselling
Counselling can be defined as 'a purposeful relationship in which one person helps another to help himself .
It is a way of relating and responding to another person so that the person is helped to explore his thoughts,
feelings and behaviour with the aim of reaching a clearer understanding ... of himself or of a problem, or of the
one in relation to the other.' (Rees)
Organisational uses The counselling Situations for

process counselling
Preventing under-performance Problem recognition Appraisal Discipline
Retaining staff loyalty Problem expression/exploration Grievance Change
Solving work problems Empowering solution-finding Redundancy Retirement
Developing staff Resourcing solutions Personal/performance problems
Controlling conflict
Traumatic events

Communication How is communication used?

Communication involves the transmission or
exchange of information and the provision of Giving instructions
feedback. It is required for planning, co-ordination Giving or receiving information
and control. Exchanging ideas
Announcing plans
Comparing results against budget
Rules or procedures
Information about the organisation
How does it flow? Circle

Vertically between ranks Chain Communication
Horizontally/laterally between peers patterns
Diagonally between departments 'Y'
Wheel (also called the star)


The communication process
Noise (interference)
Information, Understanding of
ideas, attitudes Coded Decoded message and
Desired action message Medium message meaning and/or
action required
SENDER RECEIVER
Distortion Channel Distortion
Feedback
(understood?)
Communication should be: Concise Complete Correct Courteous Clear (Gowers)

Good communication is important in organisations
because:
Organisational objectives depend on: Downward flow
Exchange of information for planning, control, Horizontal

co-ordination, problem-solving etc flow
Giving orders and instructions to initiate activity Upward
flow
Establishment and maintenance of working
relationships
Gathering and exchange of feedback for control, Diagonal flow
improvement, learning and customer care
Communication of marketing and public
relations messages Information flows within the organisation
'Good' communication is effective and efficient in
achieving its purpose.


Interpersonal behaviour
is behaviour between people. It includes:
Interaction between people: two way processes such as communicating, persuading, negotiating etc
An individual's behaviour in relation to other people: assertiveness, empathy etc
Assertiveness
Interpersonal skills include:
Clear, honest, direct communication which respects
the rights of self and other: not passive, not
Rapport-building: establishing relationships aggressive.
Persuasion/influence
Assertiveness Assertiveness
Negotiation
Conflict resolution Asking clearly and openly for what you want
Empathy: understanding others Saying 'no' without being defensive
Oral/non-verbal communication Receiving feedback/criticism objectively
Appropriate roles and relationships Giving criticism constructively
Note: Non-verbal cues may emphasise, confirm or

undermine verbal messages.
Non-verbal communication How to be an effective non-verbal
communicator
Posture: way of sitting/standing
Be aware of the variety of non-verbal cues
Proximity: nearness to people
Be aware of their different uses and meanings.
Appearance: grooming, 'style'
Gestures Be aware of your own non-verbal behaviours.
Use them to provide (or seek) feedback, project a
Facial expressions desired image, reinforce spoken messages etc.
Eye contact
Be aware of the non-verbal behaviours of others.
Physical contact: eg handshake Interpret them to gather feedback, recognise
Non-verbal sounds: eg sigh underlying messages/responses/feelings etc
Movements: eg pacing, nodding
Be prepared to adjust your communication and
Behaviours: eg yawning response strategies.
Silence
Be aware of cultural differences.


Barriers to communication Methods of improving

communication
Poor communication skills of sender/receiver
Failure to give/seek feedback Encourage, facilitate and reward communication
Differences in language (including jargon) using all HR systems and cultural methods
Personal differences ('social noise') Model good practice from the top
Conflict: politics or hostility ('emotional noise') Create opportunities for multi-directional
Inappropriate amount/accuracy/format of communication (especially upwards)
information Give training in communication skills
Active/implied discouragement: eg organisations Give awareness training in difference/perceptions
not giving opportunities for upward communication Manage interpersonal conflict
Lack of trust in the source Break down artificial functional/status barriers
Poor communication media/channels ('technical Adapt communication systems, tools and
noise') technologies for greater efficiency/effectiveness
Poor environment, making oral communication Use the informal communication system to
inaudible ('physical noise') reinforce networking, information-sharing culture
Oral communication Oral communication skills include

Appropriate language and usage
Clear, audible, expressive, delivery
Face to face (eg meetings, interviews)
Effective active, critical or empathetic listening
Particularly good for:
Generating new ideas How to be an effective listener
Sharing information sensitively
Real-time checking/questioning Be prepared to listen
Interpersonal interactions Be interested: listen actively
Remote (eg by telephone) Be patient: wait your turn
Particularly good for: Keep an open mind: avoid prejudice
Use your critical faculties
Personal communication over
Concentrate: don't get distracted/side-tracked
distance
Give feedback: encourage, ask, confirm
Swift communication in real time Use non-verbal cues


Factors in the choice of media Oral media

Telephone/teleconferencing
Time required to prepare/send the message (and Interviews/discussions
time differences with the message destination) Meetings/committees/briefings
Complexity: need for illustration/real-time Presentations
explanation?
Confirmation: need written record (eg for legal
purposes)? Written media
Interactivity: need for real-time responses, questions? Forms Memoranda
Confidentiality: need for security? Notices/posters Emails
Journals/bulletins/ Reports
Dissemination: need for large simultaneous manuals/handbooks Websites
audience? Letters Social media
Sensitivity: personal tact/support/empathy?
Cost of all the above: most effective medium at Note: The 'medium' is the vehicle (eg letter, email,
justifiable expense poster): the 'channel' is the route (eg post, inter net,
notice board)
Written communication Example

REPORT FORMAT
Correct grammar/syntax/punctuation
Choice of vocabulary to suit recipient REPORT TITLE
Choice of structure to suit recipient and I INTRODUCTION

purpose of communication Or 'Executive Summary', 'Terms of
Suitable time and style to suit pur pose of Reference' or 'Background'
communication II ANALYSIS
Legibility! Appropriately headed sections with
Appropriate use of visual aids body of report
Attention to conventions of format and house III CONCLUSIONS

style (where appropriate) Or 'Recommendations' or 'Summary'

Notes
19: Ethical considerations
Topic List Ethics has an important focus in the FAB/F1 syllabus.

Organisations are embedded in society and m ust
respond to public concerns about ethical behaviour and
A framework of rules social responsibility. The ACCA has its own ethical code
for members.
Management accountability
The ethical environment
Ethics in organisations
Accountants and ethics
A framework Management The ethical Ethics in Accountants

of rules accountability environment organisations and ethics
Behaviour in society is required by the law, rules and regulations, and ethics.
Act ethically
Meet the expectations of

society
Meet legal obligations
Illegal
Acting ethically involves doing what is 'right', even if the right thing to do is not required under la w and may
exceed what society expects from a 'typical' organisation.
Fairness Take into account all stakeholders with legitimate interests

Transparency Openness, disclosure in financial statements, press releases, websites
Independence Need for independent non-executive directors who can monitor without
conflicts of interest
Probity Truth-telling/not misleading
Responsibility Management responsible for organisation, means of corrective action and
penalising mismanagement
Accountability Directors and companies answerable for consequences of actions to
shareholders, professionals to values, public sector to stakeholders
Reputation Jeopardised by poor risk management/corporate governance, may impact
commercially
Judgement Taking decisions that enhance organisation's prosper ity
Integrity Straightforward dealing and completeness, basis of trust
Page 191 19: Ethical considerations


An organisation's managers are collectively responsible for the conduct of an organisation's affairs: they have a
fiduciary responsibility (duty of faithful service).
How far do external pressures modify business objectives?
Stakeholder view
A business depends upon appropriate relationships with all groups who have an
interest in what the organisation does. Each stakeholder group has its own objectives
so that a compromise is required.
Consensus theory
Objectives emerge as a consensus of the diff ering views of shareholders, managers,
employees, customers, suppliers and society at large but they are not all selected or
controlled by management.

1 Ethics can be regarded as a set of mor al principles to guide behaviour, based upon concepts
of duty and consequences
absolute outcomes:
moral 'the end justifies
rules the means'
2 Other considerations are based upon rights to be respected, and virtues to be cultivated: firmness,
fairness, objectivity, charity, forethought, loyalty ...
3 Social attitudes are also significant: work/life balance; 'green' concerns; minorities
Translated into business objectives:
Employees Customers Suppliers Society
Minimum wage Product quality Regular orders Pollution control

Job security/satisfaction Pricing Timely payment Sustainability
Working conditions Safety Charity work
Product quality


Lack of objective standards Objective standards

Non-cognitivism no possibility of acquiring Cognitivism objective, universal principles exist and
objective knowledge of moral principles. can be known, ethics can be regarded as absolute.
Moral relativism right and wrong are culturally
determined. Deontological ethics
Kant stated that acts can be judged in adv ance by
Teleological Consequentalist ethics moral criteria:
Moral judgements based on outcomes or Do what others should be doing
consequences. Utilitarianism means acting Treat people as autonomous beings and not as
for the greatest good to the greatest number. means to an end
Act as if acting in accordance with univ ersal laws
Egoism
An act is ethically justified if decision-makers Pluralism
pursue short-term desires or long-term interests Different views may exist but it should be possible to
(justification for free market). reach a consensus; morality is a social phenomenon.

Organisations will have either a compliance-based, or integrity-based, approach.
Other influences
Personal ethics of employees

Professional ethics (eg ACCA)
Organisational culture
Organisational systems (eg mission statements)


Why should accountants behave The accountant:

ethically? IFAC international body with its own
Laws and regulation code of ethics. ACCA's is aligned:
F
Upholding of professional standards and qualities
u
(personal/professional) Integrity
n
Protection of the public interest d
a Objectivity
m
e Professional competence
n Confidentiality
Enshrined in a 'Code of Ethics' or 'Code of Conduct' t
a Professional behaviour
Codes can be or Principles and l
s
rules-based to frameworks to
account for every guide behaviour via: reliability, responsibility, timeliness,
possible situation courtesy, respect
T Self-interest Professional safeguards

H Self-review
R

Entry requirements
Training requirements
E Advocacy
CPD requirements
A Familiarity
Professional standards
T

Professional monitoring
S Intimidation External review
Importance of independence Safeguards in practice

Independence promotes:
Reliability of financial information Peer review
Credibility of financial information Independent consultation
Value for money of audit Partner/staff rotation
Credibility of profession Discussion/disclosure to audit committee
Reperformance by another firm




Advocacy threat Familiarity threat
Where accountants take client's part, act as their Family relationships between client and firm
advocate or will only earn fees from client if Personal relationships between client and firm
successful outcome is achieved (contingent fees). Long association with client
Examples include provision of legal service and
Recent service with client
corporate finance advice.
Future employment with client
Conflicts of interest Intimidation threat
These can arise from accountants acting for clients Close business relationships
with whom they are in dispute, eg over quality of Family relationships
work. It can also arise through disputes between two Personal relationships
clients for whom accountants are acting.
Staff employed by client
Litigation
Notes
Notes
Notes
Notes

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ACCA APPROVED

Passcards for exams from

FI31PC15.indd 1 23/03/2015 12:39

Your learning materials, published by BPP Learning

Welcome to BPP Learning Media's FIA FAB/ACCA F1 Passcards.

1: Business organisations and their

Types of business Stakeholders

Types of business Stakeholders

Internal External Connected

Page 3 1: Business organisations and their stakeholders

Types of business Stakeholders

Mendelow suggests that stakeholders may be positioned on a matr ix.

2: The business environment

All organisations must take account of

Legal factors affecting all companies

Page 7 2: The business environment

Role is felt in:

Much legislation has been aimed at this area.

Page 9 2: The business environment

Employers and employees have duties and obligations.

Page 11 2: The business environment

Changing age structure Buying patterns

Technology has often resulted in reduced staff reduced spans of control;

Information systems such as intranets Centralised systems

Routine processing is quicker For the employee it can lead to information

Page 13 2: The business environment

The value chain

Page 15 2: The business environment

Porter's five forces model Potential

3: The macroeconomic environment

Topic List Macroecomonics is a branch of economics which

There is a circular flow of income in the economy.

Saving (S) Financial Investment spending (I)

Taxation (T) Government Government spending (G)

Import demand (M) Foreign Export demand (X)

Objectives of economic Government influences over company decisions

Page 19 3: The macroeconomic environment

Four main phases Output Actual

Governments will seek to stabilise

Page 21 3: The macroeconomic environment

Equilibrium national income

Advantages of growth Disadvantages of growth

Use of natural resources

Page 23 3: The macroeconomic environment

Inflation is the name given to an increase in pr ice levels.

Causes Why is it a problem?

Demand pull factors Redistribution of income and wealth

The rate of unemployment can be calculated as:

Consequences Spend money directly on jobs

Real wage unemployment Structural changed industry conditions

Page 25 3: The macroeconomic environment

Money supply Interest rates Exchange rates Credit controls

Increase in money 'The price of money' Affects price of a Restrictions on

Page 27 3: The macroeconomic environment

The UK balance of payments consists of the following elements

A market Consumers are rational

The demand curve Relates quantity demanded

Page 31 4: Microeconomic factors

A leftward shift may be caused by A rightward shift may be caused by

Price elasticity of demand (PED)

Price PED = 0 Price PED =

Income elasticity of demand (IED) Cross elasticity of demand (CED)

Page 35 4: Microeconomic factors