Management of Business Textbook

MANAGEMENT
OF BUSINESS
FOR CAPE®
EXAMINATIONS JEROME
PITTERSON
CAPE is a registered trade mark of the

Caribbean Examinations Council (CXC®).
MANAGEMENT OF BUSINESS for CAPE®
EXAMINATIONS is an independent
publication and has not been authorised,
sponsored, or otherwise approved by CXC.
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Author’s acknowledgement: I want to thank God for the knowledge
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successfully. Sincere gratitude is also extended to my family, for their
support and inspiration throughout this process, and to the students I
have taught for their encouraging words and who are waiting to see
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Extract from Functions of the bank by Caribbean Development Bank ©
Caribbean Development Bank. Reprinted by permission of the Bank.
Extract from ‘Costing’ by T. Lucey © 2000, Cengage Learning EMEA
Ltd. Reproduced by permission of Cengage Learning EMEA Ltd.
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10 9 8 7 6 5 4 3 2 1
private sector 15 The public sector 23 Privatisation 26
Multiple Choice Questions 27 Extended Essay Questions
28
Contents 2 Business Objectives 29 Nature, role and importance of

objectives 29 Business ethics and social responsibility 32
Obligations of the firm to stakeholders 34 Good corporate
governance 34 Importance of business ethics and integrity
34 Code of ethics 34 Government’s response to social
irresponsibility 35 Multiple Choice Questions 35 Extended
List of figures and tables Essay Questions 36
7 Introduction 10
3 Decision Making 37 Essential features of information
UNIT 1 MANAGEMENT PRINCIPLES AND
37 Significance of qualitative versus quantitative
PROCESSES 11
decision making 37 The stages of decision making 38
MODULE 1 BUSINESS AND ITS ENVIRONMENT 12 Factors affecting decision making 39 Multiple Choice
Questions 45 Extended Essay Questions 46
1 Economic and Legal Structures 12 Types of economic
activity 12 Economic sectors and legal structures 14 The 4 Caribbean Business Environment
and Globalisation 47 The nature and structure of team management to the organisation 101 Conflict
Caribbean management 101 Multiple Choice Questions 106 Extended
business organisations 47 Caribbean business culture 48 Essay Questions 106
The growth of multinational corporations
10 Management of Change 107 Factors that may cause
in the Caribbean 49 The impact of trade liberalisation and
change in the organisation 107 Differences between
globalisation 50
leading and managing change 108 Resistance to change
3 108 Strategies for managing change 110 The importance
of communication in the
management process 111 Multiple Choice Questions 112
Extended Essay Questions 112
11 Communication in Business 113 Types of

communication 113 The communication process 113
Channels of communication 114 Factors influencing the
choice of channel used 116 Lines of communication 117
Barriers to effective communication 119 Reducing barriers
Protectionism 54 Other barriers to trade 55 Multiple to communication 120 Multiple Choice Questions 122
Choice Questions 56 Extended Essay Questions 57 Extended Essay Questions 123
MODULE 2 THE MANAGEMENT OF PEOPLE 58 12 Human Resource Management 124 The role and
5 The Functions and Theories of Management 58 The importance of human
need for and nature of organisations 58 The major resource management 124 The functions of human
management theories 58 The functions of management 64 resource management 124 Labour–management relations
The roles of management 65 Multiple Choice Questions 131 Laws affecting health and safety in the workplace 134
67 Extended Essay Questions 67 Multiple Choice Questions 135 Extended Essay Questions
136
6 The Organisation and its Structure 68 Classification of
organisations 68 Factors influencing the classification of MODULE 3 BUSINESS FINANCE AND
organisations 72 Characteristics of the formal ACCOUNTING 137
organisational structure 73 Centralisation and 13 The Need for Capital and Sources of Finance 137
decentralisation 75 Multiple Choice Questions 76 The need for capital 137 Sources of finance 140 Criteria
Extended Essay Questions 76 for seeking finance 140 How to choose from these sources
7 The Theory and Application of Motivation 77 Factors of funds? 143 Money and capital markets and international
that stimulate and influence motivation 77 Theories of financial institutions 143 The money and capital markets
motivation 78 Financial and non-financial motivational 145 Multiple Choice Questions 147 Extended Essay
strategies 80 Implications for managers 85 Multiple Choice Questions 147
8 Leadership 88 Leadership theories 88 Theory X and 14 Accounting Information and

Theory Y 88 The Trait Theory 89 Leadership skills 90 Financial Statements 148 Why do we need accounting
Leadership styles 92 Factors influencing the choice of records? 148 Internal users of accounting information 148
leadership style 94 Leadership roles 95 Informal External users of accounting information 149 Getting
leadership 95 Multiple Choice Questions 96 Extended started with accounting 149 Components of financial
Essay Questions 97 statements 152 Multiple Choice Questions 158
9 Team Management and Conflict 98 The nature of 15 Financial Statements Analysis 159 Financial analysis
teams 98 159 Importance of financial analysis 159 Ratio analysis
CONTENTS
4 159 Types of ratio 160 Multiple Choice Questions 166
Stages of team development 99 Types of formal group 99 16 Budgetary Accounting 167 Projections 167 The
Characteristics of effective teams 99 Team or group budgeting process 167 Categorisations of budgets 168
cohesiveness 100 Evaluation of team work 101 Benefits of
Operational budgets 168 Types of budget 168 Budgetary Methods of measuring productivity 243 Methods of
control 170 Multiple Choice Questions 172 improving productivity 243 Multiple Choice Questions 246
17 Investment Appraisal 173 Investment 173 Investment
CONTENTS
appraisal 173 Analytical methods of appraisal 173 5
Limitations of investment appraisal 178 Comparison of
methods of appraisal 178 Multiple Choice Questions 179 25 Project Management 247 Critical Path Analysis (CPA)
247 Decision trees 250 Multiple Choice Questions 253
END OF UNIT ASSESSMENT 180 UNIT 2
MODULE 2 FUNDAMENTALS OF MARKETING 254
APPLICATIONS IN MANAGEMENT 184
26 The Concept of Marketing 254 The core marketing
MODULE 1 PRODUCTION AND OPERATIONS
concepts 254 Multiple Choice Questions 260 Extended
MANAGEMENT 185
Essay Question 260
18 The Nature of Production 185 The production process
27 The Marketing Environment 261 The
185 Factors of production 185 What to produce? 186
micro-environment 261 The macro-environment 262
Production methods 186 Factors that influence the method
Multiple Choice Questions 265 Extended Essay Questions
of production used 190 When to produce? 191 Location of
265
production 191 Multiple Choice Questions 195 Extended
Essay Questions 195 28 Marketing Research 266 Importance of conducting
marketing research 266 Importance of developing a
19 Forecasting Techniques 196 Forecasting techniques
research plan 266 Stages of marketing research 266
196
Limitations of market research 272 Multiple Choice
Qualitative forecasting techniques 196 Quantitative 29 Principles of Segmentation 276 Market segmentation
forecasting techniques 199 Multiple Choice Questions 202 276 Criteria for effective segmentation 278 Bases of
Extended Essay Question 203 segmentation 278 Consumer buying behaviour 281 The
consumer decision-making process
20 Production Design Strategies and (the buying process) 281 Factors influencing buying
Capacity Planning 204 Product design planning 204 behaviour 283 Multiple Choice Questions 284 Extended
Product design strategies 204 Capacity planning 206 Essay Questions 284
Capacity utilisation 207 Options available to increase
capacity 208 Economies and diseconomies of scale 208 30 Product Management 285 The concept of product
Diseconomies of scale 210 Business layout 210 Multiple 285 Dimensions of the product mix 286 Product line and
Choice Questions 215 Extended Essay Questions 215 extension 286 The Boston Matrix 286 New product
development process 289 The product lifecycle 290
21 Costing 216 Direct costs 216 Indirect costs 216 Fixed Branding and packaging 292 Characteristics of services
costs 216 Variable costs 216 Fixed costs per unit 217 293 Multiple Choice Questions 296 Extended Essay
Semi-variable cost 217 Approaches to costing 217 Questions 297
Including stock 219 Application of marginal costing 220
’Make or buy’ decisions 221 Multiple Choice Questions 31 Pricing Decision 298 Introduction to pricing 298
223 Extended Essay Question 223 Factors influencing pricing decisions 299 Pricing
strategies 302
22 Inventory Management 224 Importance of inventory CONTENTS
224 Importance of inventory control 224 Inventory control
6
management 225 Multiple Choice Questions 228
Extended Essay Question 229 Multiple Choice Questions 305 Extended Essay Questions
306
23 Lean Production and Quality Management 230
Importance of quality 230 Dimensions of quality 230 32 Distribution Management 307 The role of distribution
Techniques for improving quality 231 Multiple Choice in the organisation 307 Factors influencing distribution
Questions 239 Extended Essay Questions 240 decisions 307 Types of distribution channel 308
Introduction to logistics strategy 309 Types of distribution
24 Productivity 241 Factors that affect productivity 241 strategy 310 Multiple Choice Questions 311 Extended
Essay Questions 311 your research 364 Introduction 365 Literature review 366
Writing your methodology 367 Presentation of data 368
33 Promotion Strategy 312 The concept and objectives
Analysis of data 369 Interpretation of results 370
of promotion 312 Tools of promotion 312 Multiple Choice
Conclusion and recommendation 370 References and
citations 370 Appendices 370 Note to teachers 370
34 Internet Marketing 320 Development of internet
Glossary 372 Answers to Multiple Choice Questions
marketing 320 Opportunities created by internet marketing
321 Challenges associated with internet marketing 322 384 Index 386
The importance of e-commerce to
7
business organisations 322 Challenges created by
e-commerce 323 Multiple Choice Questions 325 Extended
Essay Question 325
MODULE 3 SMALL BUSINESS MANAGEMENT 326
35 The Nature and Characteristics

of Entrepreneurship 326 Corporate entrepreneurship
(‘intrapreneurship’) 326 Social entrepreneurship 326
Characteristics of successful entrepreneurs 327 Benefits of
entrepreneurship 328 Drawbacks of entrepreneurship 329 Figures
Multiple Choice Questions 330 Extended Essay Question
330
36 Economic Systems and Business Growth 331 The

economy problem 331 Types of economic system 331
Criteria for measuring size and growth of businesses 334 A List of figures and
comparison of small firms and large firms 335 Strategies
for growth 338 Multiple Choice Questions 343 Extended
Essay Questions 343
37 Major Challenges and Opportunities Faced by
tables
Small Businesses 344 Identifying successful business
opportunities 344 Sourcing capital (finance) 344 Figure 17.1 NPV graph 178
Selection of business types 345 Determining a location

345 Globalisation and trade liberalisation 345 E-commerce
345 Intellectual property 346 Multiple Choice Questions
Figure 1.1 An example of industry in the
347 Extended Essay Question 348
primary sector 12 Figure 1.2 An example of
38 Types and Nature of Assistance Available to Small industry in the
Firms 349 Government agencies 349 Non-government secondary sector 13 Figure 1.3 An example of
agencies 350 Financial institutions 350 Types of industry in the
assistance offered to small businesses 351 Extended tertiary sector 14 Figure 1.4 Private-sector
Essay Question 352 organisations 15 Figure 1.5 A sole-trader business 16
Figure 1.6 A public limited company 19 Figure 1.7 A
39 Preparation of a Business Plan for cooperative business 20 Figure 1.8 A franchise 21 Figure
a Small Business 353 Feasibility study 353 The business 1.9 Public-sector organisations 24
plan 353 Elements of a business plan 354 Multiple Choice
Questions 359 Extended Essay Question 359 Figure 2.1 The hierarchy of objectives 31 Figure 2.2
Scotiabank 33
END OF UNIT ASSESSMENT 360
Figure 3.1 The stages of decision making 38
40 Internal Assessment 364 Choosing an appropriate
topic or title for Figure 4.1 Business culture factors 48 Figure 4.2 Digicel
headquarters, Kingston 51 Stages in developing a research plan 267
Figure 5.1 A basic system 62 Figure 5.2 The three levels of Figure 29.1 Market coverage strategies 277 Figure 29.2 The
management 64 consumer decision-making process 282
LIST OF FIGURES AND TABLES
Figure 6.1 Functional organisational structure 68 Figure 6.2 8
Product organisational structure 69 Figure 6.3 Geographical
organisational structure 69 Figure 6.4 Matrix organisational Figure 30.1 The Four Ps 285 Figure 30.2 Attributes of the
structure 70 Figure 6.5 Team organisational structure 71 product 285 Figure 30.3 Dimensions of the product mix
Figure 6.6 Network organisational structure 71 Figure 6.7 286 Figure 30.4 The Boston Matrix 287 Figure 30.5 New
Virtual organisational structure 71 Figure 6.8 Narrow span of product development process 289 Figure 30.6 The
control 73 Figure 6.9 Wide span of control 74 four-stage product lifecycle 290 Figure 30.7 The five-stage
product lifecycle 291 Figure 30.8 Extending the product
Figure 7.1 Maslow’s Hierarchy of Needs 78 Figure 10.1
lifecycle 291 Figure 30.9 Secondary packaging 293
Managing change 110
Figure 31.1 Price ceiling 301 Figure 31.2 Price flooring
Figure 11.1 The communication process 113 Figure 11.2 301 Figure 31.3 Penetration pricing and price
The flow of communication 118 skimming compared 304
Figure 12.1 The recruitment plan 125 Figure 14.1 The Figure 32.1 Types of distribution channel 308 Figure 32.2
One-channel intermediary 309 Figure 32.3 Two-channel
double entry system 150 Figure 16.1 The budgetary
intermediary 309
process 168
Figure 36.1 Market share illustrated in a pie chart 335
Figure 18.1 The production process 185 Figure 18.2 An Figure 36.2 Diseconomies of scale 337 Figure 36.3 An
example of job production 186 Figure 18.3 An example of example of conglomerate integration 339
batch production 187 Figure 18.4 An example of flow
Figure 40.1 Examples of statistical tools 369
production 189
Figure 19.1 Examples of common trends 199 Figure 19.2 A

scatter diagram 201 Tables
Table 1.1 Benefits and problems associated with a
Figure 20.1 Diseconomies of scale 210 Figure 20.2 Process
change in legal structure 23
layout 211 Figure 20.3 Product layout 212 Figure 20.4
Fixed-position layout 213 Figure 20.5 Cellular layout 214 Table 2.1 The firm’s social responsibilities
Figure 21.1 Fixed costs 217 Figure 21.2 Variable costs 217 to stakeholders 34
Figure 21.3 Fixed costs per unit 217 Figure 21.4 Table 3.1 The decision-making process 39 Table 3.2
Semi-variable costs 217 Figure 21.5 A breakeven chart 221 Possible impact of factors on a firm’s decision making 44
Figure 22.1 Stock control levels 225 Figure 22.2 Simpson Table 5.1 Contributions of classical theories to modern
Lumber Yard stock control graph 226 Figure 22.3 A typical organisations 61 Table 5.2 Contributions of modern
economic order quantity graph 227 Figure 22.4 Economic theories to modern organisations 63 Table 5.3 Mintzberg’s
order quantity graph for Questions 6–8 228 ten roles for top management 65
Figure 25.1 The sections of a node 247 Figure 25.2 Lines Table 8.1 An evaluation of different leadership styles 93
representing activity 247 Figure 25.3 Network diagram 248
Figure 25.4 New network diagram 248 Figure 25.5 Three Table 9.1 An evaluation of conflict
possible situations in CPA 249 Figure 25.6 New diagram, management strategies 104
using dummy activity 249 Figure 25.7 Network diagram 249 Table 11.1 An evaluation of communication methods 117
Figure 25.8 A decision tree 250 Figure 25.9 The revised Table 11.2 Methods of overcoming barriers
decision tree 251 Figure 25.10 A more complex decision to communication 121
tree 252 Figure 25.11 Network diagram for Questions 1–3
253 Table 13.1 Advantages and disadvantages of sources of
capital 141
Figure 26.1 Core marketing concepts 254 Figure 28.1
Table 14.1 Transactions illustrating the double entry
system 151 Table 14.2 Cash inflows and outflows 156 annual cash inflows for three projects 174 Table 17.3
Initial capital outlays and annual cash inflows for two
Table 15.1 Net profit figures for analysis 159 Table 15.2
projects 175 Table 17.4 Forecasted data for Projects A and
Data for calculating investment
B 175 Table 17.5 An extract of discount factors for $1 176
or shareholders’ ratios 162 Table 15.3 Data for
Table 17.6 Investment information for
calculating efficiency and activity ratios 163
DGF Company Ltd 177 Table 17.7 Information
Table 17.1 KEP Industry initial capital outlays and annual for NPV/DCF analysis 177 Table 17.8 Comparison of
cash inflows 174 Table 17.2 initial capital outlays and methods of appraisal 178
LIST OF FIGURES AND TABLES
9
Table 19.1 Data for calculating simple

moving averages 200
Table 19.2 Data for Future Sales Ltd sales forecasts 200
Table 19.3 Data for least squares
regression calculation 201
Table 19.4 Data for Questions 5 and 6 203
Table 21.1 Calculating operating profit under

marginal costing 218
Table 21.2 Calculating operating profit under
absorption costing 218
Table 21.3 Production costs for Great Juices Ltd 222
Table 25.1 Getting ready for school 248

Table 25.2 Getting ready for school (revised timings) 248
Table 25.3 Information for critical path exercise 249
Table 25.4 Information for critical path example 249
Table 25.5 Activities by A Fisher Ltd 250
Table 25.6 Expected values 251
Table 25.7 Data from James Duncan’s
market research 252
Table 26.1 Overview of business concepts 259
Table 28.1 An evaluation of marketing

research techniques 272
Table 30.1 Possible responses from marketers

to characteristics of services 295
Table 31.1 Information for calculating price

elasticity of demand 299
Table 31.2 Degrees of elasticity 300
Table 33.1 Overview of types of advertising media 314
Table 36.1 The impact of economic systems

on business decision making 333
Table 40.1 Module content related to SBA topics 365

10
Introduction
This textbook is geared towards students studying CAPE®
Management of Business Units 1 and 2, including private
candidates. The text is divided into two units and gives
comprehensive coverage of the CAPE® Management of
Business syllabus, providing students with a wide
knowledge base of business concepts. Students will be
furnished with the information needed to do well in their
CAPE® examinations and the book forms a basis for higher
studies. The text also incorporates some ‘hard to find and
explain’ concepts and so it is also an excellent resource for
teachers.
The text breaks down accounting information so that

students without accounting knowledge from CSEC® level
will be able to understand the concepts of Module 3, Unit 1.
However, it also offers challenging exercises for those with
a strong accounting background.
The book gives a number of definitions, examples from

different territories and practice exercises to assess
students’ understanding of the concepts. Each chapter is
summarised at the end and also incorporates multiple
choice questions, case studies which help students to think
critically, and extended essay-type questions.
The text also contains photographs, artwork and diagrams

to cater for visual learners, as well as worked examples of
accounting questions and tables to break down information
for ease of understanding, studying and remembering.
11
Unit 1
MANAGEMENT PRINCIPLES
AND
PROCESSES
12
1 Economic and Legal Structures
Module 1 Business and its

Environment
LEARNING OBJECTIVES: These are discussed below.
At the end of this chapter students should be able

Primary sector
to: Identify the different types of business activity The primary sector incorporates all the extractive
Distinguish among the different types of business industries, including mining (for example, bauxite), fishing,
activity forestry and farming. In most cases, the products of the
Distinguish between the private and public primary sector are the raw materials that are used for
sectors Describe the different private- and secondary production. For example, bauxite is used for
public-sector businesses manufacturing aluminium and lumber is used in the
Outline how each of the businesses is formed building of furniture and houses. The primary sector also
Discuss the benefits and drawbacks of each type includes the fishing and agricultural industries.
of business Some Caribbean countries are heavily dependent on the
Identify examples of each type of business primary level of activity in order to earn foreign exchange.
Currently, some countries export large amounts of our raw
materials in their natural state instead of exploring the
products that could be produced by using those same
Types of economic activity resources. This means that the secondary level of activity is
T
perhaps not explored as much as it could be. Dependence
on the primary sector presents the country with the
he Caribbean business environment can be divided following advantages and disadvantages:
into three types of economic or business activity.

Figure 1.1: An example of industry in the primary sector
Advantages of reliance on the primary sector

The country is able to supply raw materials to firms for conversion
The country can gain a comparative advantage over others in producing certain goods
Creation of jobs
Generation of export revenues.
Disadvantages of reliance on the primary sector Depletion of natural resources, especially

because of exploitation
Potential to earn more revenue if raw materials were to be converted into finished products
A decrease in the demand for finished products will decrease the demand for primary products and so
reduce revenue.
Secondary sector
The secondary sector involves the changing of raw materials into finished goods. It incorporates the
manufacturing and
ECONOMIC AND LEGAL STRUCTURES
CHAPTER 1 | 13
construction industries. Examples of secondary business activities include the manufacture of chemicals
and of baked products, and the construction of houses, roadways and bridges. The Caribbean has a
number of businesses that take the raw materials produced in the region and convert them to finished
products – for example, Trinidad Cement Ltd and Grace Kennedy Jamaica.
While the trading of primary products is important, secondary sector products are usually in higher
demand. A dynamic manufacturing firm can take one primary product and create a number of
secondary products which will generate greater revenues for itself. For example, a firm could use
bananas to make banana chips, banana milk shakes, banana bread, banana-flavoured soft drinks,
banana porridge mix and banana fritters. The struggle for some Caribbean countries is that they are not
able to make the best use of their primary products by converting them into secondary products.
Involvement in secondary production offers the following benefits and disadvantages:
Advantages of involvement in the secondary sector Reduction in the importation of goods that
are produced using the same raw materials from the Caribbean Earn foreign exchange from the
products that are exported
One primary product can be used to create a number of secondary products
Creation of jobs in different areas other than the extractive industry
Possible increase in investment in the manufacturing sector
Improvement in the country’s Gross Domestic Product and so possibly its standard of living.
Disadvantages of involvement in the secondary sector The profit motive of manufacturing firms
could lead to depletion of some primary products
A number of manufacturing companies are often multinationals which repatriate their profits instead of
reinvesting in the host country
Some of the raw materials used in the secondary sector have to be imported and this uses up the
foreign exchange earnings of the country.
Tertiary sector
The tertiary sector does not produce goods, but instead provides services. Over the last decade the
Caribbean business environment has become more service oriented. Some of these services include
tourism, financial services,
Figure 1.2: An example of industry in the secondary sector transportation and management services. In recent
MODULE 1 | UNIT 1 | BUSINESS AND ITS ENVIRONMENT
14
Figure 1.3: An example of industry in the tertiary sector
times, the tertiary sector has become one of the main The sector does not depend heavily on primary products
contributors to Caribbean countries’ Gross Domestic and so would not deplete the countries’ natural
Product, with tourism being the most popular. We have resources
seen improvements in the banking sector, transportation, As mentioned, the sector contributes to the Gross
insurance, telecommunications, courier services and money Domestic Product of countries
services, among others. Less pollution generated when compared with the
The tertiary sector offers the following benefits and primary and secondary sectors.
disadvantages to Caribbean countries:
Disadvantages of involvement in the tertiary
Advantages of involvement in the tertiary sector sector Services as a whole are very volatile and so
Generates foreign exchange, especially from tourism may not be sustainable
Creation of jobs, especially because the sector is It may require high training costs to ensure that the
mostly labour intensive service being offered is the same regardless of
location decision on each question. In order to make these
Services such as tourism can impact on a country’s decisions, different business organisations have been
culture and values and may even lead to a change in created. Each organisation may react in different ways to
people’s social behaviour. these questions. The organisations can be classified into
private-sector and public-sector organisations.
Each of these organisations within the private or public
Economic sectors and legal structures The sector carries a particular legal structure. It is the legal
big economic problem lies in the fact that the resources of structure that determines the following:
this world, though plentiful, are not sufficient to meet How profits or losses are shared
humans’ unlimited wants. This condition is known as The firm’s tax obligation
scarcity and, as a result, businesses, government and
households have to make choices. The three main
economic questions that are usually asked in any economy
are: CASE STUDY
What to produce?
How to produce? Switching the economic focus
For whom to produce? ECONOMIC AND LEGAL STRUCTURES
CHAPTER 1 | 15
Governments and firms must make the necessary
Isle J is a territory in the Caribbean region that has a rich history and cultural background. Once colonised by different
devel oped countries, its main focus was on producing agricultural products. Its rich and fertile lands allowed crops
such as bananas and sugar to flourish for a number of years. As the population grew, farmers diversified their
cultivation and are now producing a number of agricultural products.
As the isle developed, the number of investors also increased and Isle J started to experience a growth in
manufacturing industry. A number of different manufacturing companies were established. This included companies
that converted agricultural products, such as cocoa beans, coffee, oranges and bananas, into finished goods. With
the proliferation of investments both locally and abroad, the mining sector also came to the fore, with the main
products being bauxite, gypsum and limestone.
Since the latter part of the 20th century there has been an evident change in the country’s economic focus. While
the previ ously mentioned economic activities are still present, greater focus is now being placed on the service
industry. Some of the main services being offered in Isle J include tourism, banking, insurance, transportation and
telecommunications. This trend in the service industry has dampened the once vibrant manufacturing sector to some
extent. However, a number of manufacturers have been pressing on with production.
Questions
1. With the use of examples, name the types of economic activities that take place in Isle J. (6 marks) 2. Describe three
(3) benefits that Isle J could derive from its dependence on the primary sector. (6 marks) 3. A noted economist in Isle J
has stated that ‘The tertiary sector is the way forward in the 21st century for the
country’. Discuss your view of this statement, stating whether such a decision would benefit or cost Isle J. (13 marks)
Total 25
marks
Continuity of existence.
Choosing the most appropriate legal structure for a
Ease of formation business depends heavily on the aim of the business
Funding owner. For example, a person who wants to start a
Who bears the legal liabilities business and keep full control will start a sole
proprietorship, while another person who wants financial
support for start-up from a number of people is likely to
start a company or a The private sector
partnership. At the same time, a sole proprietorship The private sector consists of businesses that are owned
business may not be suitable for a very large multinational by individuals or groups of individuals with the main aim of
firm because of its size and the geographical area it making profits. These businesses differ in size and structure
decides to span.
Private-sector
organisations
proprietor Partnership Limited

Sole
companies Franchising Cooperative Joint ventures
Figure 1.4: Private-sector organisations Private Public Financial Retail Producer/ worker
16
and range from sole proprietorship to large companies. Main features of a sole-trader business
The following are the different types of private-sector Simplicity of formation
organisations. The owner is in control of the business
Requires little start-up capital
Sole trader or proprietor The owner and the business are one (they are the
This is the oldest and probably the most common form of same legal entity)
business organisation. It ranges from the street-side vendor Lack of continuity.
to large businesses, for example a doctor’s private The sole trader raises finance from different sources,
practice. A sole trader refers to a business owned and however, these options may be limited. A person wanting
operated by one individual. This person manages the to start a sole-trader business may opt to use his/her own
business, makes all the decisions and enjoys all the profits personal savings, obtain bank loans or borrow from family
or bears all the losses. While there is only one owner, and friends. The sole trader may also find that it is difficult
he/she may employ other people to carry out different to acquire a loan from lending institutions because of the
functions for which those people would be paid. risks involved or the lack of collateral available. In some
A sole trader is the simplest business to form as there cases, even when such a loan is granted, it comes with
are few or no legal requirements. The business is generally very high interest rates.
unregistered. However, in Jamaica and other Caribbean
countries the sole trader is required to register the business Advantages of a sole-trader business
or trading name. In addition, depending on the product It is easy to form, as there are few or no legal
being traded, the sole trader may be required to apply for requirements
different licences. For example, a person running a bar or Decisions can be made quickly
pub is required to obtain a spirit licence; likewise, someone The owner enjoys all the profits
selling food must obtain a food handler’s permit.
Figure 1.5: A sole-trader business
The partnership is governed by the agreement that was
drafted at its outset, known as a partnership deed. This is a
With the exception of tax returns, business affairs are legal document which amounts to a binding contract among
private the partners. The document stipulates how profits or losses
Can be most suitable where capital is scarce. should be shared; the rights of each partner; rules for taking
in new partners or dissolution of the partnership; and the
Disadvantages of a sole-trader business capital to be contributed by each partner, among other
things. While preparing a partnership deed is advisable, it
The owner has unlimited liability, i.e. he/she stands to
is not required by law and so some partnerships do exist
lose personal assets if the business fails
without one. In such case, the partnership is governed by
Difficulty in sourcing finance the Partnership Acts of 1890 and 1907. The Partnership Act
The business dies with the owner, hence there is a 1890 stipulates that:
lack of continuity Profits and losses should be shared equally
It may be difficult to achieve economies of scale Each partner may take part in the management of the
There may be great demand on the owner’s time and business
attention. No partner should receive a salary for working in the
business
Partnership
No partner is entitled to any interest on his/her capital.
A partnership is defined as a business where two to While the Partnership Act 1907 did not disturb the rules set
twenty people work together towards a common goal of down in the previous Act, it added the new concept of a
making profits. The partners are often the main source of
limited partnership. This Act stipulated the following: A
finance even though the business can source funding from
limited partnership shall not consist of more than twenty
financial institutions. Like sole proprietorship, a partnership
people, and must consist of one or more people, called
is not required to be registered. However, it is required to
‘general partners’, who shall be liable for all debts and
register its trading name.
obligations of the firm, and one or more people to be called
‘limited partners’ … The members of a limited liability partnership have
A limited partner shall not, during the continuance of such liability to contribute to its assets in the event of
the partnership, either directly or indirectly, draw out or its being wound up as is provided for by virtue of this
receive any part of his contribution Act.
CHAPTER 1 | 17 The partnership must submit the required documents to
the Registrar of Companies, who will regulate the
A limited partner shall not take part in the management partnership.
of the partnership business, and shall not have power to 18
bind the firm.
Sometimes a partner may invest capital in the business
but does not want to take any active part in how it is run. ACTIVITY
Such a partner is referred to as a ‘sleeping partner’. 1. Identify five (5) firms within your country that are
partnerships.
Main features of partnership 2. What are three (3) benefits of organising a
Unlimited liability on partners (except for a limited business as a partnership rather than a sole
partner) trader?
Two or more members
Profits/losses are shared
Few legal requirements Limited companies
No separation between business and partners.
This is a business unit that is regarded by law as an
Partnerships are prevalent in, but not limited to,
artificial person, distinct and separate from its members,
accounting and law firms throughout the Caribbean. These
i.e. its owners. There are certain legal requirements that
include Price-Waterhouse-Coopers, Deloitte & Touche,
must be met before a company is incorporated and starts
George Walton Payne & Co, and Fitzwilliam Stone,
trading. These are stipulated in a Companies Act. Two
Furness
documents must be drawn up: a memorandum of
Smith & Morgan.
association and articles of association. In Jamaica, under
the Companies Act 2004, the articles of incorporation
Advantages of partnerships
include these two documents. The Act also stipulates that
They are easy to form, as there are few or no ‘One or more people may form a company by signing and
legal requirements
sending articles of incorporation to the Registrar’. In some
Each partner contributes to the capital of the other countries, however, individuals who want to form a
business Responsibilities may be shared among the
company must submit both documents to the Companies
partners It allows for division of labour, as partners
Office.
may have specialised skills
The memorandum of association should outline: The
There is privacy of affairs, as it is not compulsory to name of the company, including the abbreviation
publish the partnership’s accounts.
‘Ltd’ or ‘plc’
The address of the registered office of the
Disadvantages of partnerships
company The objects of the company and the
Partners have unlimited liability, except for a limited scope of its
partner
operations
Decision making may be tedious and slow Details of the company’s capital, i.e. both authorised
There might be conflict among partners and issued share capital.
There is a lack of continuity – that is, once a partner This list is not exhaustive, as other clauses may be
leaves the partnership it has to be dissolved. included, depending on the type of company.
The problem of limited liability may have led to the The articles of association outline the internal running of
enactment of the Limited Liability Partnership Act 2000. the company and should include:
This Act states that a partnership may be formed where all The number of directors, the procedures for their
of its partners have limited liability. According to the Act: appointment and their powers
A limited liability partnership is a body corporate (with The rights of the shareholders
legal personality separate from that of its members) Procedures for meetings
which is formed by being incorporated under this Act
Tenure of the directors before re-election Involve two to fifty people.
The process for transferring shares.
Having submitted the above documents and having Advantages of private limited companies
satisfied the requirements of the Companies Office, the Each shareholder has limited liability
company will be issued with a certificate of incorporation. Continuity of existence
This certificate gives the company the right to trade. There is greater capital potential, as shares can be sold
to family members
Finance and management Lower possibility of loss of control to outsiders The
A company’s main source of funding is from the shares company has a legal identity separate from that of its
that it issues (equity capital). However, the company may owners.
also be financed by debt capital (loans). The shares are
issued to shareholders who become the owners of the Disadvantages of private limited companies
company Raising of capital may be hampered since shares
cannot be traded publicly
Profits have to be shared among a larger group of people
upon purchase. The number of shares will determine the
level of control of each shareholder. Shareholders may not
necessarily be the managers of the company, but at an A copy of the audited financial statement must be
annual general meeting (AGM) may vote for directors to submitted to the Companies Office (so a lesser degree
carry out that role. These directors sit on a board which is of privacy than for partnerships and sole traders)
headed by a chairperson. The board of directors is Transfer of shares is limited by the approval of existing
accountable to the shareholders and may be dismissed or members
voted out if its performance is below par. The company Legal requirements may be time consuming and costly
also has a secretary, who is entrusted with the to implement.
responsibility of maintaining a register of shareholders,
notifying them of AGMs and preparing the company’s Public limited companies
annual reports. This type of limited company is usually larger than a private
limited company. The abbreviation ‘plc’ is usually found at
Types of company the end of its name. Public companies may be listed on a
There are two main types of company: private limited country’s stock exchange, where they can raise capital. In
companies and public limited companies. addition, the company may advertise its shares to
prospective investors in a document called a prospectus.
Private limited companies Some well-known public limited companies in CARICOM
This is an incorporated business venture which is separate include Grace Kennedy, Cable and Wireless and Trinidad
and distinct from its owners. Such a company is usually Cement Ltd.
small in size and family owned. Its membership is limited to Like private companies, public limited companies must
50 individuals and its shares cannot be sold publicly – that be registered with the Companies Office and issued with a
is, on the stock exchange. Some well-known private limited certificate of incorporation indicating that trading can begin.
companies in CARICOM include Digicel Group Ltd, Sugar Public limited companies differ from private limited
Company of Jamaica Ltd, Barbados Shipping & Trading companies in the following ways:
Co Ltd, ADM Import & Export Distributors Ltd, Columbus Shares can be advertised to the general public in
Communication Ltd and Advantage General Insurance Co order to raise capital
Ltd. ECONOMIC AND LEGAL STRUCTURES
CHAPTER 1 | 19
Main features of private limited companies

Shares can be bought and sold on the stock
Usually small and owned by family members or
exchange This type of company usually indicates its
friends The name of the company must be registered
status by including ‘plc’ in its name
Shares cannot be traded on the stock exchange
Must disclose their accounts at the end of the financial
Shareholders cannot sell their shares without the
period.
agreement of the other shareholders
Limited liability Main features of public limited companies
Must be registered with the Companies Office offer shareholders greater liquidity, as shares can be
Separate legal identity from that of its owners transferred on the stock market
Can raise capital through the sale of shares to the To gain prestige or status.
public Managed by a board of directors elected by
shareholders Limited liability for its owners.
Advantages of public limited companies
Some companies are incorporated as private limited Shareholders have limited liability – each shareholder
is only liable to the amount he/she has invested in the
companies but later choose to go public as they expand.
business
Private companies may go public for the following reasons:
To raise more capital so as to facilitate expansion To Continuity of existence
Figure 1.6: A public limited company: the headquarters of telecoms company Cable and Wireless, Barbados
20
Easier to raise capital on a large scale

Freedom to transfer shares via the stock exchange Better credit rating, therefore it is easier to secure
loans Benefits from economies of scale due to size and lower production costs.
Disadvantages of public limited companies

Many legal requirements which may be costly and time consuming to implement
There is a risk of takeover bids, as shares can easily be purchased on the stock exchange
Published accounts can be viewed by the public, including competitors
Can become large, impersonal and difficult to manage. Some public limited companies also own other
companies. This can be in the form of holding companies, conglomerates and associate companies.
Holding companies
Public limited companies can also act as holding companies. A holding company is one that purchases
enough shares of other companies so that it can control the decisions that are made by the board of
directors and the policies that are implemented. For the most part, the holding company is formed to
take over controlling interest in other companies. Having controlling interest in more than one company
can minimise the risk of failure for the holding company. These companies can also benefit from
economies of scale brought about by large-scale production and increased size.
Conglomerates
Some companies expand
over time and take over or
purchase controlling interests
in other unrelated companies.
By doing so, a conglomerate
uses this opportunity to
produce different products
and cater to different markets.
One such company in the
Caribbean is Grace Kennedy
Group Ltd, which consists of
a bank, a foreign exchange
business, a hardware business,
manufacturing businesses and
a supermarket, among others.
Figure 1.7: A cooperative business:

a credit union, Belize
Is there a difference between a holding company and a conglomerate?
Essentially there is very little difference between these. A holding company is not usually involved in the
day-to-day operations of the companies it controls (which are called subsidiaries). Each subsidiary also
retains legal separation but is controlled by the holding company. It must be pointed out that a holding
company can become a conglomerate if it expands and takes over a controlling interest in unrelated
firms – that is, businesses with which it has nothing in common. As a result, the company would have a
diversified range of business activities, which helps to minimise the risk of failing completely if just one
of its markets fails.
Associate companies
An associate company is one that controls between 20 and 50 per cent of the shares in another
company.
Cooperatives
A cooperative is a form of business that consists of a group of people who have come together to
perform a business venture that is more efficient being done collectively rather than individually. This
form of business is common throughout the Caribbean and there are several types, four of which will be
discussed later in this section.
This form of business is expected to be registered with a Registrar of Cooperative Societies. It is owned
and controlled by its members, who exercise their control by using their votes at annual general
meetings. The business is financed
by the members who purchase shares. The cooperative may also seek funding from banks and other
lending institutions.
Main features of cooperatives

Democratic organisations – each member has a say Profits are distributed to their members equitably
Each member has one vote
Membership of a cooperative is voluntary.
Types of cooperatives
Consumer cooperative
This type of cooperative is owned by its customers, who receive mutual benefits. It is organised to
provide each member with items that are needed – at reduced prices. Each member contributes funds
to purchase the items in bulk. The items are then sold at a reduced price to the members.
Producer cooperative
These are usually found in the agriculture sector. Farmers may be assisted in areas of production,
purchasing and marketing. The members come together and share marketing and production facilities
for the benefit of all. This move will allow them to benefit from economies of scale through bulk buying
of supplies such as fertilisers, which in turn lowers their production costs.
Workers’ cooperative
A workers’ cooperative is owned, controlled and operated by its members. The cooperative provides its
members with employment and they are able to influence the operation of the business. Each
member contributes through
the purchasing of shares and
also benefits from a share of the
profits.
Financial cooperative
Like any type of cooperative,
this is also controlled and
operated by its members.
The main aim of financial
cooperatives is to provide its
members with different financial
services at competitive rates.
These services may include
banking, investment and even
insurance. The most popular
form of financial cooperative is
a credit union. A credit union’s
resources can be accessed only
CHAPTER 1 | 21
by its members – that is, those people with accounts at the credit union.
Advantages of cooperatives
Members have limited liability
Profit is shared among members
Members have equal say in the operation of the business
Economies of scale
Opportunity to earn interest on investment.
Disadvantages of cooperatives
Profits may be minimal or even non-existent
There is a possibility of conflict among members Longer decision-making process
Capital deficiency may impede growth.
Franchises
A franchise is a system whereby an already established and successful business (the franchisor) enters
into a contractual arrangement with semi-independent business owners (the franchisee) to operate
under the franchisor’s trade name. The franchisee may also be given permission to sell the franchisor’s
products and use its business format and system. This privilege is often granted in exchange for a fee
and royalties being paid to the franchisor. There are a number of franchise businesses in CARICOM,
including Kentucky Fried Chicken, Burger King, Subway and McDonald’s. The
Figure 1.8: A franchise

MODULE 1 | UNIT 1 | BUSINESS AND ITS ENVIRONMENT There must be strict adherence to the standards
22
outlined by the franchisor
The franchisee may not be able to deviate from the
franchise arrangement may take different forms, including
product line of the franchisor
those outlined below:
Market saturation may lead to failure of the business.
Pure franchise – this a type of franchise in which the
franchisor sells the franchisee the complete Joint ventures
business format and system
A joint venture is a business that is jointly owned by two
Product distribution franchise (or dealer franchise) –
or more parties or firms in order to undertake an economic
here, the franchisee is given a licence to sell products
activity. Both parties continue their original operations
under the franchisor’s name and trade mark through a
separately but pool their resources to carry out the purpose
selective and limited distribution network
of the venture. There should be an agreement to contribute
Trade name franchise – this is where the franchisee
capital to the entity, and to share revenues, expenses and
purchases the right to use the franchisor’s trade
the control of the business. While a joint venture is similar
name.
to a partnership, it is usually formed for a short time, with a
Advantages of franchise limited or specific purpose.
For example, in 2001, PriceSmart Inc announced its
The franchisee receives management training
joint venture arrangement with Restaurant of Jamaica to
and support
establish a store in Jamaica. In 2008, Production Services
Brand name appeal, since the brand is already
Network (PSN) formed a joint venture with Kenson
established
Production Services Ltd, based in Trinidad.
Advertisement by the franchisor will also benefit the
The reasons for firms entering into a joint venture
franchisee
arrangement may include:
The quality of the product is maintained in order to
protect the reputation of the franchisor
The products and business format are tested and
proven Availability of financial assistance to the Fostering expansion by utilising another company's
franchisee. resources
To make use of other firms’ established distribution
Disadvantages of franchise channels and dealership
The franchisee must pay a fee and royalties to the Diversification of the product line
franchisor To gain access to advanced technology and expertise
To share costs and risk involved with the establishment
of the venture. tedious Loss of independence.
The parties involved in the joint venture should draft a
written agreement, including, but not limited to, the Changing the legal structure
following matters: Even though a firm may have been established with one
Objectives of the venture type of legal structure, over time this may change. From
Parties involved in the venture time to time a firm may opt to change its legal structure.
Amount of funding each party will contribute This is often motivated by either growth of the firm or a
Responsibilities of each party desire to secure more funding, among other things. So, a
Management of the venture. sole trader may convert to a partnership because the
owner is in need of additional funds. Likewise, a
Advantages of joint ventures partnership may decide to convert to a limited company in
Parties share assets which leads to fixed costs order to minimise the risks from continuing with unlimited
being spread over production, therefore lowering liability.
costs of production While there are benefits to be derived from changing the
Fosters specialisation since labour and management legal structure of a business, it can also bring about certain
are shared between parties problems. Table 1.1 evaluates the benefits and problems
Easily dissolved associated with changing from one legal structure to
There is greater access to resources, another.
including technology
Firms benefits from expansion.
Disadvantages of joint ventures CASE STUDY

Parties may have disagreements
Differences in culture and strategies may lead to poor Tanya Taylor’s choice of business
integration ECONOMIC AND LEGAL STRUCTURES
CHAPTER 1 | 23
Decision-making process may be long and
Having received her law degree and completed her training, Tanya Taylor was recently accepted to the Bar
Association. Tanya is now optimistic, with a number of grand ideas to implement when she starts her own firm
practising corporate law. She has managed to gather some funds which she thought would be sufficient for start-up.
However, as Tanya started doing the neces sary paperwork she realised that she would have a shortfall in start-up
capital if she needs to pay the rent, buy office furniture and pay utility bills and her secretary.
This situation is now causing Tanya to think twice about starting a business and she is beginning to think she will
probably just continue working for her current employer. While she is trying to figure out her next move, Kayan, a
friend from law school, calls her to see how she is doing after graduation. Tanya relays her situation to her and Kayan
decides to pool some funds to lend to Tanya at the end of the month.
A week later, Kayan calls to say that another friend is interested in the business and suggests that instead of
lending Tanya the money they would want to come on board and start the business together. The idea sounds good
to Tanya and so she agrees.
Questions
1. What type of business was Tanya going to establish initially? (1 mark) 2. What would have been three (3) advantages
and three (3) disadvantages of starting that type of business? (12 marks) 3. Based on the fact that her friends are
coming on board, which type of business would be the most suitable,
bearing in mind the service that they are offering? Give three (3) reasons for your choice. (8 marks) 4. Outline one (1)
benefit and one (1) drawback to Tanya if she had opted to take the loan instead of going into business with her friends.
(4 marks) Total 25 marks
Table 1.1: Benefits and problems associated with a change in legal structure
Change in legal structure Benefits associated with the Problems associated with the
change change
Sole trader to partnership Possibility of greater financing Profits will now have to be shared
Less work for each person More people make the
Greater pool of ideas decision-making process longer
One bad decision by one
partner may affect all
More legal documents required,
e.g. a partnership deed
Partnership to private limited Limited liability Greater legal requirements

company Continuity of existence even if an Longer decision-making process
owner dies or leaves The company may be required to
Possibility of greater financing submit its accounts to the
The business and its owners Companies Office
are no longer one, as it is a
separate legal entity
Private limited company to public Greater financing Accounts of the company

limited company Can sell shares to the public must be published
There is a risk of takeover bids
which will result in loss of
ownership
Can become too large and suffer
from diseconomies of scale
Loss of privacy
The public sector

The public sector includes businesses that are owned and controlled by the government or local authorities of a country.
The main purpose of these businesses is to provide some form of benefit to society and not to make profits.
24
private-sector enterprise may be nationalised for a number

Public-sector
of reasons, including the following:
organisations To save an essential enterprise that is in danger of
closure. The closure of such an enterprise may have
lasting implications for the citizens and the economy
of the country. For example, the Guyana Sugar
corporationsNationalised
Public in Jamaica were nationalised in the
departmentsLocal
industriesStatutory 1970s.
authorities
boardsGovernment Corporation and the sugar companies
Figure 1.9: Public-sector organisations financing for these corporations come from government
funds acquired mainly through taxation. Unlike private
Public corporations sector organisations, public corporations are not aimed at
making profits but rather at providing an efficient public
Public corporations are owned and controlled by the
service at the lowest possible price.
government. They are usually formed by an Act of
Parliament as a separate legal entity. The capital outlay and
profits from nationalised firms are revenue for the
Main features of public corporations government and can be ploughed back into the
Funding comes mostly from grants country’s funds.
Main aim is not to make profits
Annual accounting records are sent to the Auditor Advantages of state corporations and
General nationalised industries The products and services
Managed by directors appointed by the state. offered are usually lower in price than those of other
Public corporations are controlled by a Minister of firms
Government who will appoint a board of directors to deal They increase employment opportunities
with the day-to-day operations. The business has unlimited Essential services that may be very expensive may
liability and the state has to bear its debts. State be undertaken by the government
corporations are often found in areas of transportation, Products are standardised and uniform
telecommunication, postal services and utilities companies, Struggling firms can be taken over by government
e.g. electricity and water. Resources are used in ways to benefit the
Some possible objectives of public corporations community.
are: To create employment for citizens
To provide goods or services that are needed in Disadvantages of state corporations and
the country nationalised industries Where state-owned
To keep prices affordable to all companies are monopolies, there is little choice for
Profits are usually ploughed back into the country consumers
through infrastructural developments and other Large debts may cause a burden on
government spending. taxpayers Some state-run enterprises suffer
from gross
Nationalised industries inefficiencies
Nationalised industries are enterprises that have been Politics may interfere with the running of these
taken over by the government from private-sector businesses.
organisations. In order to nationalise an industry, the
government will purchase the majority of the company’s
shares. The government will then appoint a board of Statutory boards
directors which will deal with the management of the These are controlled by the state but operate with a board
company. A of directors partially appointed by central government.
The government may want to provide certain goods and Each board is answerable to a particular ministry in the
services that would not otherwise be produced by the government. Each entity is given specific responsibility for
private sector or might be limited in their production. some aspect of the country. These are common in
This is evident in most Caribbean territories’ transport CARICOM in areas of housing, water, scientific research,
services and the provision of roadways. agriculture and transport. Examples of statutory boards
Where consumers’ interests are in danger of being are the Jamaica Tourist Board and the Statistical Institute
violated through the formation of monopolies, the of Jamaica. Most statutory boards are similar to public
government may nationalise the industry in an attempt corporations in terms of formation, structure of
to prevent this from happening. There is a common management and objectives.
view that public monopolies will be better able to cater
for consumers’ interests than private monopolies.
Government departments
Nationalising certain industries may offer social benefits These are divisions or ministries of the government that
to the citizens of the country. A public transportation facilitate interaction with local authorities and nationalised
sector may be able to offer subsidised fares for the industries. Each department is headed by a Minister who
disabled, elderly people, children and public-sector is appointed by the Prime Minister. These departments
workers. These benefits may not be possible with are created to carry out various services, such as:
private-sector ownership. Implementation of government policies
The nationalisation of certain resources and industries Monitoring operations within the country and ensuring
ensures that profits remain in the country. Unlike the that there is compliance with the law
case of multinationals which repatriate profits, the Performing the duties and responsibilities stipulated
by the state. Cross, Food for the Poor and The Jamaica Cancer
These departments are non-profit organisations and Society.
are funded from the tax revenue of the country – for The legal requirements for the formation of charities
example, the Auditor General’s Department. may not be overbearing but these organisations must be
established based on the framework outlined by the
Local authority and municipal undertakings relevant Companies Office. In Jamaica, for example, the
This type of public-sector organisation deals with the charity must be registered with the Companies Office of
affairs of government at the local or community level. The Jamaica. It must register its name and also submit
functions, powers and duties of local authorities are articles of incorporation to the office. In Barbados, the
determined by an Act of Parliament. Local authorities are charity has to abide by the stipulations as mentioned in
controlled and managed by councillors who are elected by the country’s Charities Act. Other Caribbean countries
the local citizens. These councillors form the council which may have their own requirements for formation of
is headed by a mayor. They make and implement policy charitable organisations. These organisations are often
decisions on the management of the town or city. Some of exempt from certain statutory obligations such as paying
their responsibilities include: taxes or duties on imports. The exemptions may vary,
Construction and maintenance of drains depending on the territory in which the charity is located.
Cleaning of gullies
Garbage disposal Non-governmental organisations
Water supply These organisations are commonly referred to as ‘NGOs’
Maintenance of parks and markets. and are not influenced by government. NGOs are
Local authorities and municipal undertakings are non-profit making, voluntary citizens' groups which are
financed by grants from central government, rents, council
formed at local, national or international level by
taxes, business rates and trading activities. individuals or institutions with common interests. They
are usually formed to:
Advantages of local authority and municipal Provide humanitarian functions
undertakings Relevant issues at the local level Lobby governments on behalf of citizens
can be addressed Citizens can be more involved in Offer aid and relief, especially in time of disaster
decisions that affect them Address issues such as education and health care.
CHAPTER 1 | 25 Different NGOs may also provide a number of other
services. However, NGOs are not formed by
governments; neither do they answer to the government
Promote democracy.
of a country. Some examples of NGOs are the United
Disadvantages of local authority and municipal Nations, Jamaicans for Justice, Barbados Nursing
Association, and Trinidad and
undertakings Some projects may be stalled or
shelved when there is a change in government 26
Politics may interfere with the management of
certain projects. Tobago Association of Psychologists. Further information
on NGOs across the Caribbean can be sourced from the
Not-for-profit organisations Caribbean NGO Database.
Charities
There are a number of charity organisations in the
Caribbean and around the world. These businesses are ACTIVITY
formed for the main purpose of helping the less fortunate Discuss the potential problems that may arise
or disadvantaged in society. While these charities are run if a business changes from:
based on business principles, they rely heavily on Sole trader to partnership
donations from the business community, governments Partnership to limited company.
and international organisations. Some of these
organisations also raise finance from hosting benefit
concerts or plays or may even sell memorabilia. Some
Privatisation
examples of such charities in the Caribbean are The Red
In recent times, governments in the Caribbean and
around the world have been divesting and handing over To generate much-needed income to fund projects
ownership of a number of public corporations. For or take off budget shortfall
example, in 2001 the Jamaica Public Service was sold, To improve efficiency in these businesses which
which is one of many companies in Jamaica that have may benefit consumers
been privatised. Privatisation is the change of It can no longer afford to finance and operate
ownership of a firm from state (government) to private these entities
individuals. Privatisation may take different forms, To share ownership of resources and
including: encourage competition.
Direct sale of nationalised industries or public Privatisation offers benefits to the country and the
corporations to individuals in the private sector government but it also has some disadvantages.
Removal of barriers that prevent public corporations
from competing. This is referred to as ‘deregulation’ Disadvantages of privatisation
and has happened in, for example, the May cause private monopolies to develop, which
telecommunications industry may exploit consumers
Income generated from the sale of nationalised
industries is a one-off receipt and cannot be
repeated if future needs arise
CASE STUDY If private firms are not regulated then there
might be degradation of the environment
Privatisation through
overproduction
Private individuals’ main aim is to make profits and if
Contracting out services that would otherwise be this is not realised then the privatised business might
rendered by the public sector, such as cleaning services. be closed down.
The government may privatise public corporations for
different reasons, such as:
The Jamaica Public Service Company (JPS) was incorporated in 1923 as a privately owned company. JPS was
established at a time when several communities had their own electric companies, however, it quickly took over and
bought out these companies. It was eventually given the licence to operate as the sole supplier of electricity in
Jamaica in 1966.
The ownership of JPS changed in 1970 as the government took over the controlling interest in the company. For
the next 31 years, the government would have to make the necessary capital injections and take steps to improve
the efficiency of the company. With its equipment becoming old and the firm being a strain on the public purse,
coupled with regular power outages, the decision was taken by government to privatise the company in 2001. The
government sold 80 per cent of ownership to Mirant while retaining almost 20 per cent. This move was said to benefit
not only the company but its customers.
Questions
1. Discuss four (4) possible reasons why a company such as JPS was nationalised in 1970. (12 marks) 2. What is
meant by the term ‘privatisation’? (1 mark) 3. Outline three (3) benefits and three (3) drawbacks of privatising a
publicly owned company such as JPS. (12 marks) Total 25 marks
CHAPTER 1 | 27
CHAPTER SUMMARY
individuals or group of local authorities of a country
The three types of business individuals with the main aim of The public sector includes
activity are primary, secondary making profits public corporations,
and tertiary The private sector includes sole government departments and
traders, partnerships, franchises, local authorities
Organisations are classified limited companies, cooperatives
as private or public sector and joint ventures Privatisation is the change of
ownership of a firm from state
The private sector consists of The public sector includes (government) to private
businesses that are owned by businesses that are owned and individuals.
controlled by the government or
5. A company that controls other companies but is not
involved in their day-to-day operations is known as:
a. Holding company
b. Public company
c. Associate company
MULTIPLE CHOICE QUESTIONS d. Conglomerate
1. A firm offering management services to its customers 6. Burger King in the Caribbean would best be described
would be regarded as what level of business activity?
as a: a. Sole trader
a. Primary
b. Public corporation
b. Tertiary
c. Franchise
c. Temporary
d. Cooperative
d. Secondary
7. The process of government taking over enterprises that
2. Which of the following would NOT be regarded as a were in the private sector is known as:
private sector organisation?
a. Globalisation
a. Franchise
b. Privatisation
b. Public limited company
c. Nationalisation
c. Public corporation
d. Liberalisation
d. Partnership
8. The following are reasons for nationalisation EXCEPT
3. Which business organisation has as a feature separate which one?
legal identity?
a. To offer social benefits
a. Sole trader
b. To crowd out investors
b. Company
c. To protect consumers
c. Partnership
d. To provide certain goods and services
d. Franchise MODULE 1 | UNIT 1 | BUSINESS AND ITS ENVIRONMENT
28
4. ALL of the following are included in the articles
of association, EXCEPT which one? 9. Which of the following is NOT a type of
a. The rights of the shareholders cooperative? a. Worker cooperative
b. Procedures for meetings b. Owner cooperative
c. The process for transferring shares c. Producer cooperative
d. Details of the company’s capital d. Consumer cooperative
for the following reasons EXCEPT which one?
a. To generate much-needed income
b. To improve efficiency
Extended Essay Questions
c. To lay off workers
d. To encourage competition
10. The government may privatise public corporations
Question one Total 25 marks a. Explain the three (3) levels of business activities. (6 marks) b. Briefly explain how the
Caribbean’s dependence on primary products such as bauxite, oil and agricultural produce could
become troublesome in the future. (4 marks) In recent times, a number of Caribbean businesses that were once
owned by the state have been sold to private businesses and individuals.
c. i. Discuss three (3) possible reasons for this decision by Caribbean governments. (9 marks) ii. Outline three (3)
disadvantages of privatising these firms. (6 marks) Question two Total 25 marks a. Identify two (2) features of a sole
trader and three (3) features of a partnership. (5 marks)
b. Billy Barns has been the sole owner of his dairy farm for the last 25 years. Under his leadership the farm has grown
significantly and he has expanded his operations into making dairy products such as cheese, boxed and bottled milk,
etc. Now that his children have grown and are old enough to make business decisions, Billy is considering changing
his type of business organisation to a private limited company called Barns Dairy Ltd. Before doing so, however, he
has come to you, a management consultant, for advice.
Citing at least five (5) points, discuss how Billy would be better off setting up as a private limited company when
compared with his current legal structure. (20 marks)
29
Business Objectives
2
LEARNING OBJECTIVES:
At the end of this chapter students should be able
N o matter what we do in life, we ought to have an
idea of where we want to reach and how we plan to get

to: Explain the nature, role and importance of there. We all have objectives. For you, it may be to get at
objectives Differentiate between the types of Grade One in your Management of Business Unit 1 exam
objectives or to achieve all distinctions in your CAPE subjects. With
Write meaningful and relevant objectives this in mind, objectives can therefore be defined as specific
Outline the hierarchy of objectives targets of performance. They are an organisation’s
Discuss the ethical and social responsibility of performance targets – that is, the results and
businesses outcomes it wants to achieve in a particular time frame. An
objective should contain the action to be performed, the
condition under which it will be performed and a time frame
in which it should be performed. However, there are times
Nature, role and importance of objectives when all three components might not be present in an
objective. In such a case we refer to it as a ‘partial
What are objectives?
objective’. These partial objectives should contain the time. With this in mind, objectives must specify not only
action to be performed and a time frame in which the action what is to be achieved but also a time frame for its
should be performed. achievement.
Well-written objectives should have the following MODULE 1 | UNIT 1 | BUSINESS AND ITS ENVIRONMENT
30
characteristics, which form the acronym ‘SMART’: Specific
– objectives should be quantifiable and precise: for
example, ‘To increase retail sales by 15 per cent’. This
ACTIVITY
objective is precise and states exactly what management
Below is a list of objectives. You are required to
wants to accomplish. Compare it with this example: ‘To
state whether or not each objective is written
achieve healthy growth in sales’ (this is not meaningful as
properly, explaining your answers.
‘healthy growth’ is too wide and can easily be
a. A mobile phone service provider has a target
misconstrued). Broad and ambiguous objectives can lead
of ‘reducing customers’ complaints from 6 per
to chaos as their interpretations
cent to 3 per cent within the next 12 months’
may vary among employees. The targets of the
b. A cricket team wants ‘to improve performance
business must be clearly stated without any ambiguity
in the future’
and must be properly communicated to all employees
c. A wellness centre and spa sets an
of the organisation.
objective of becoming ‘the best in the
Measurable – managers should be able to plot the
market’
organisation’s progress toward its objectives. This
d. A hardware firm has the objective of
requires a well-defined reference point from which to
‘increasing sales revenue by 5 per cent this
start and a scale for measuring progress – for example,
year’
‘To increase retail sales by 15 per cent by the end of this
e. A local tinned food manufacturing business
financial year’. With this objective, the managers can
desires to ‘increase market share from 15 per
measure the business progress over the 12-month
cent to 60 per cent within the next four years’.
period until the financial year has ended. They can take
the necessary action, if needed, from early on to prevent
a shortfall in their sales target for the year.
Attainable (or Achievable) – while the objectives should
Importance of objectives
encourage people to work harder, achieving them must It is important that we realise that being successful will
be within their reach. This is to say that the objectives never mean that there may not be failures, since success
should be not so extreme that they are impossible for can be judged by our ability to achieve the objectives
the firm to attain. When writing objectives, firms must that were established.
take into consideration their ability to achieve them For a business to become successful, it needs to
within the expected time frame. While being achievable, outline measurable and achievable objectives. As
objectives must also be challenging. This will motivate mentioned above, they must be ‘SMART’. This will give
and encourage employees to work hard and propel the the employers, employ ees and clients or customers a
business forward. Workers may consider work boring if clear vision of where the business is going and how it
they are not challenged in their bid to reach the plans to get there. The impor tance of objectives is
expected targets of the business. The more challenging outlined below:
objectives are, the higher the performance will be. Objectives act as a guide for employees and the
Relevant (or Realistic) – many businesses have failed employer to follow in order to propel the
because they set unrealistic and irrelevant objectives, business forward and thus attain its goal
especially in their earlier years. As a result, a large They give employees a sense of direction as to
amount of money is spent irrelevantly, perhaps to take where the business is going
on investments or a large advertising campaign which Objectives are also used as a tool to analyse the
could have been delayed until the company is performance of the business and its employees
established. The objectives must be relevant for the firm over a period of time
given its market share, resource base and employees’ They are important in the decision-making process,
capabilities. as they provide a guide and framework for
Timely – earlier we stated that the business should management to make decisions. They are used to
track the achievement of its objectives over a period of help management to explore different courses of
action or try different Example: ‘To become the dominant firm in the
business strategies automobile industry within six years’ time.’ This dominant
Objectives function as a yardstick for tracking an position is the general or overall target which most firms
organisation’s performance and progress. For would plan to achieve at some point in their existence.
example, having an objective to reach a desired profit The firm may also want to achieve a growth target – for
by year end will mean that the firm can track its example, ‘To expand and set up physical business
monthly profit to ascertain whether it is still in line with locations in at least three Caribbean countries by year
the objective ten’. However, in order to achieve the general objective,
the specific and more medium- and short-term targets
must first be achieved.
Objectives can also be used to set targets for
individual departments as the firm aims to achieve
its corporate objectives. Hierarchy of objectives
Objectives can be broken down into different categories,
Types of objective
as seen in Figure 2.1. As we ascend on the hierarchy, the
Objectives can be broken down into short-term, medium objectives become broader and more general.
term and long-term objectives, based on the time frame in At the pinnacle of the hierarchy is the business’s aim.
which they should be achieved. These are outlined below. An aim or vision is where the business wants to go in
the future. It is a statement of purpose – for example, the
Short-term objectives business aims to expand its market share across the
These are sometimes referred to as ‘specific objectives’. Caribbean. The vision of the firm is often broad, with very
These are outcomes that a business wants to accomplish few specifics as to when it will be achieved. The vision
within a short period of time – usually a year to 18 gives an idea of the firm’s plans for development and is
months. The period of time set for the accomplishment of also used as a tool for marketing, especially for potential
these objectives may vary across businesses. These investors. The vision statement of a firm must be able to
objectives are the most critical for newly established motivate workers by giving them drive to accomplish
businesses, and can be broken down, in terms of their beyond what is happening at present. While the terms
achievement, on a monthly, quarterly or yearly basis. An ‘goal’ and ‘vision’ are sometimes used interchangeably,
example would be ‘To earn at least 5 per cent profit after the vision outlines the firm’s goal which is said to be a
the first year of trading or to earn revenue of $1m in year desired future outcome that the organisation attempts to
one’. realise.
The overall aim of the organisation should form the
Medium-term objectives firm’s mission statement and objectives.
Medium-term objectives are usually less general than
long-term objectives. They form the basis on which short Mission statement
term objectives are written and the stepping stone for the This is a statement which outlines the main aim of a
achievement of long-term objectives. Medium-term business or company. A mission statement gives a clear
objectives are usually written for a period of one to four outline of the business’s aspirations and values. It enables
years. An example of such an objective would be ‘To all the stakeholders (employees, managers, customers
increase the firm’s product line in two years’ time’. and suppliers) to understand the underlying reasons for
the actions that are taken by the business. While the
Long-term objectives firm’s vision outlines where it hopes to be in the future,
These are sometimes referred to as ‘general objectives’. the mission statement usually says what the firm sets out
Long term objectives are often developed from the firm’s to do during its operation.
mission statement and describe where the organisation A good mission statement carries a number of
wants to be at some point in the future, usually five years elements which will give a clear indication of the strength
or more later. These can be more general, but should and effectiveness of such a mission. A well-written
give the reader an indication of the overall direction of the mission statement should:
business. Some business owners find it advantageous to
look to the five to ten-year mark as well as to clearly
define where they would like to steer their business. Aims / Vision
BUSINESS OBJECTIVES any of the above elements are present.
CHAPTER 2 | 31
2. Write a brief mission statement for a business of
your choice. The business should be given a
Give a clear indication of the purpose of the
name and mention must be made of the product
organisation
being sold.
Outline the legitimacy of the organisation
Clearly describe the organisation’s values, objectives
or targets and reason for existence
From the mission statement the organisation will
Be customer focused or oriented and at the same
construct objectives which will clearly outline the plan of
time catering to the needs of the employees and
action that it will take in order to fulfil its overall mission.
other stakeholders
These objectives must be stated in a form that is
Outline the products that are being offered and its
measurable and attainable – that is, that management
desire to maintain these
must be able to ascertain whether the firm is achieving
State the firm’s commitment to the fulfilment and
them. Failure to achieve the lower-level objectives
satisfaction of customers’ needs
usually results in failure to achieve the mission or vision
Signal how it will maintain a competitive edge over
of the firm.
its rival organisations.
Corporate objectives
Having established its vision and mission, it is
ACTIVITIES
essential for a business to develop its corporate
1. Find a copy of your school’s or a business’s
mission statement and analyse it to see whether
the organisation as a whole defined as specific, realistic and
measurable aims which an organisation
Mission Middle management,
major division, function
plans to achieve within a given period of
Corporate objectives
Strategic objectives Lower management
time. These objectives are usually
Tactical objectives (departments and written as long
individuals)
Operational objectives
term objectives with a time frame of five
objectives. These will give an
years or more.
understanding of how the business
Figure 2.1: The hierarchy of objectives Both corporate and strategic objectives,
plans to achieve its vision and mission.
The basic purpose of the which will be discussed below, are often
organisation especially for Vision and mission statements are broad set by top or senior
the external audience and general, therefore the corporate
objectives help to narrow the focus.
Corporate objectives can therefore be
Senior management,
MODULE 1 | UNIT 1 | BUSINESS AND ITS ENVIRONMENT improvement or competitiveness and outline how the firm
32
plans to accomplish its corporate objectives. Some
examples of strategic objectives are:
management. An example would be ‘To increase profits by
To be ranked in the top five of the best hotel
40 per cent in all divisions within the next five years’. Other
accommodation in the country in terms of market share
corporate objectives could focus on maximising sales
by three years’ time
revenue, growth or expansion; the expected return on
To concentrate on innovation as the way to satisfy our
investment; or even the firm’s broader corporate social
customers in order to gain 20 per cent increase in
responsibility.
sales by two years’ time.
Strategic objectives
Tactical objectives
Some firms do not have a separation of their corporate
Strategic objectives are sometimes called tactical
and strategic objectives. However, strategic objectives
objectives. They are performance targets established by
are usually medium to long term and relate to outcomes
middle management (department heads) for achieving
that strengthen an organisation’s overall business position
specific organisational outcomes. They are plans designed
and competitive vitality. They refer to an organisation’s
to help execute the major strategic objectives and to
articulated aims or responses to address major change,
accomplish a specific part of the organisation’s strategy.
Tactical objectives are usually short- to medium-term ‘SMART’. Explain the acronym as it relates to writing
targets which the firm is expected to achieve within a year objectives. (10 marks) 4. List the four (4) levels of
or close to a year. An example would be ‘To improve objectives that JK Foods may want to develop and
productivity by 6 per cent this year or to increase sales give one (1) example of each that it could use. (8
revenue by 10 per cent for this financial year’. marks) Total 25 marks
Operational objectives
Operational objectives are short-term organisational
objectives necessary to achieve longer-term tactical and Business ethics and social responsibility The
strategic objectives. They are usually managed by lower Caribbean business environment is changing and more
level management such as supervisory personnel who are Caribbean governments are becoming aware of the
concerned with immediate results. They are detailed damage that is being done to our environment and society
costed and timed plans of what the organisation will do to by some of our factories and business organisations. It is
meet each tactical or strategic objective. For example: an more commonplace to hear about protecting our coral reefs
insurance company may have an objective to introduce at and marine life; prevention of land slippage through
least five more clients to the business each month. reforestation exercises; reducing the depletion of the ozone
layer through a reduction in emissions from our factories
and motor vehicles, among other things. Governments have
CASE STUDY
not only embarked on massive environmental protection
campaigns; they have encouraged, and at times forced,
Lack of direction at JK Foods
organisations to do likewise.
‘To become the best processed food company in the
This has encouraged many businesses to change their
whole wide world’ is the objective that is being used JK
strategies to include objectives of an ethical and/or social
Foods. This has been its only objective since the firm
nature. This can also be attributed to adverse or bad
was established two years ago. The company has
publicity that is being faced by these businesses which is
suffered huge losses in the past two years. The board
perceived as damaging to stakeholders and the wider
of directors has become concerned and has called a
world.
special meeting to identify strategies to improve the
company’s performance.
The decision coming out of the special meeting is ACTIVITY
formally to set some realistic targets to work with. Even Identify a business within your country that has been
though cash is limited, the directors decided to engage taken to task in recent times for doing something that
the services of a management consultant to help in the is socially or ethically irresponsible.
process. Upon his arrival at the company, Tom Greaves
was alarmed that it had been established without any
proper vision, mission and achievable targets. He Changes in legislation at local, national and international
explained to the directors that the way forward would levels can also be attributed to this move by businesses.
involve an overhaul of the business’s vision, mission Organisations such as the National Environmental
and objectives. He pointed out that the current Protection Agency (NEPA) in Jamaica have filed lawsuits
objective is not ‘SMART’ and will have to be changed. against companies against whom it has evidence of
Everyone is committed to the cause, and the work to damage being
turn the company around will begin soon.
CASE STUDY
Questions BUSINESS OBJECTIVES
CHAPTER 2 | 33
1. Outline two (2) things that are wrong with the
objective being used by JK Foods. (4 marks) 2. State
done to the environment. At least one hotel was brought
three (3) reasons why having a proper mission
before the courts for alleged breach of the environmental
statement is important to JK Foods. (3 marks) 3. Tom
laws in Jamaica. A proposal by the bauxite companies in
Greaves suggested that objectives should be
Jamaica to mine in the Cockpit Country in the parish of
Trelawny was turned down by the government because of taken pride in creating value for our shareholders, fulfilling our
environmental concerns. Consumers and other customers’ unique financial needs, providing employees with
stakeholders are reacting positively to businesses that act rewarding careers, and supporting the well-being of our
in a socially responsible way. There have been lobby communities.’ To this end, Scotiabank established the
groups encouraging consumers to refuse to purchase Scotiabank Jamaica Foundation (SJF) in 1996, with an
products that were tested on animals or products injection of $100 million.
containing CFCs. As part of its mandate, the Scotiabank Jamaica Foundation ‘is
In addition, some businesses have dedicated a portion guided by the principles to assist in alleviating poverty,
of their yearly budget to the minimisation of pollution and deprivation, distress among economically and socially
the improvement of their social responsibility. This is a disadvantaged individuals and their dependents: and to
practice of firms to act in a manner so that their actions do undertake research into these problems, along with methods
not negatively affect society or the environment. Some of addressing them’. To this end, the bank has spent large
examples of these include: sums
Producers who use recycled materials in the
manufacture of their products. Some producers have
also encouraged consumers to recycle their packaging,
for example the repurchasing of plastic drinks bottles for
recycling.
Scotiabank’s commitment to corporate social

responsibility The thrust of corporate social responsibility Figure 2.2:
(CSR) has always been the hallmark of Scotiabank’s business Scotiabank
strategy. This is evident in the following statement: ‘We have
of money to assist in the areas of education, health and community projects, among other things. Another hallmark of
Scotiabank’s commitment to CSR is its ‘Bright Future Program’ which was launched in 2008. As part of this program
Scotiabank seeks to create opportunities to touch the lives of children across the Caribbean. The program
endeavours to provide hope to youths through supporting education, the arts and culture, the environment and the
underprivileged and abused. It has contributed to International Women’s Day, Read Across Jamaica Day and the
Bustamante Hospital for Children.
Questions
1. What is meant by the term ‘corporate social responsibility’? (2 marks) 2. What are some of the areas where
Scotiabank’s CSR was evident? (4 marks) 3. Name two (2) benefits that Scotiabank could receive from its
involvement in CSR. (4 marks) Total 10 marks
34 Consumer Ensure that they get value for their
s money Fair and truthful
advertisements
Obligations of the firm to stakeholders The Ensure that products are safe and
firm’s social responsibilities can span four stakeholders of are of the highest standards
the business in different ways. These are summarised in Offer after-sales service
Table 2.1.
Employees Foster participation of employees in
Stakeholde The firm’s responsibilities to the decision making
rs stakeholder Provide proper working conditions
Fair treatment of all employees
Maintain proper communication lines,
especially where employees will be
affected by a change or decision
generate a profit, the firm must also prove itself as being
Provide opportunities for social
gatherings, whether through family aware of the environmental impact of its operations and
days, parties, etc. take steps to lessen that impact.
A firm with poor corporate governance may find it
Shareholder Give fair returns on shareholders’ difficult to attract potential investors. It could also lead to
s investment
financial collapse, failure of privatisation attempts and an
Keep them informed of the
business’s performance increase in corruption.
Provide a forum through which
they can express views and give
suggestions Importance of business ethics and integrity
Protect their investment
Presently, in most territories, there are some laws
Community Ensure that waste is properly preventing businesses from damaging the environment.
disposed of Reduce pollution, However, some actions cannot be prevented by the
including that from air and noise enactment of laws. Therefore businesses are also
Lessen displacement caused by the encouraged to act ethically in their operations.
building of factories or roadways Ethics defines what is right or wrong – or what is moral.
Give back to the community in It refers to the principles or guidelines that help to inform
which it operates
individuals or groups of individuals of how they should
behave. This definition is largely dependent on the norms
of society and what is accepted over time. Business ethics
Table 2.1: The firm’s social responsibilities to stakeholders refers to the morals or set of standards that are used to
guide a business on how it should conduct its affairs. This
Good corporate governance usually includes written and unwritten codes on how
Corporate governance is often defined as a set of rules, businesses should behave. Some common ethical issues
practices and processes which guide the way a business is within CARICOM include:
operated. The aim of corporate governance is to balance The testing of products on animals
the interest of the stakeholders of the company – that is, The use of child labour
the firm must cater for the needs and interest of its How employees deal with customers
stakeholders as much as is possible. For this to be Truthful versus deceptive advertisements.
achieved, though, the board of directors should ensure
that meaningful and healthy relationships are created with
shareholders and other stakeholders. A firm which has Code of ethics
good corporate governance will find it easier to achieve its This is a document issued by the firm, outlining the set of
objectives. guidelines that will be used to govern the behaviour of
In many companies we find that the owners management and employees. This code is often based on
(shareholders) are not necessarily the people who are in a set of pre-established standards or principles and usually
control on a day-to-day basis. Instead, these shareholders includes:
often employ paid managers and professionals to operate The firm’s corporate social responsibility statement
the firm. The sad reality is that sometimes board members The relationship that the firm has with its customers
may not always act in the best interest of the and suppliers
shareholders. Good corporate governance is therefore Environment requirements and unanswered questions
needed to ensure that the interests Rules on relating to the maintenance of integrity.
of shareholders are catered for – it ensures that the rights of Government’s response to social
shareholders are not infringed; that they, along with other irresponsibility
stakeholders, are treated fairly and equitably; and promotes
The following steps can be taken by governments to deal
disclosure and transparency on the part of management.
with businesses that are being socially irresponsible and
Today, most firms are operating within a competitive unethical:
global environment and, as such, being a good corporate
Impose taxes to offset the cost to the environment
citizen is of the utmost importance. While aiming to
(social cost)
Pass legislation limiting noise and other forms of
pollution Short-term objectives are specific and outline what
Refuse to give contracts to companies that are unethical the firm wants to achieve in a short period of time
or socially irresponsible
Impose stiff penalties. The hierarchy of objectives outlines the firm’s vision;
mission statement; and corporate, strategic, tactical
and operational objectives
CASE STUDY
Ethics define what is right or wrong, or what is moral
A ‘toxic nightmare’
Over 100,000 people on Covory Isle woke up to what is A number of firms are becoming more aware of
now dubbed a ‘toxic nightmare’. This happened after a their corporate social responsibilities and some
cash-rich and powerful multinational chemical have taken steps to become more socially
producing firm (Chemi-Prod Inc) dumped waste along responsible.
the coast of the small island. The situation infuriated
the residents, who called in the relevant authority to
look into the situation.
Upon investigation it was found that an entire MULTIPLE CHOICE QUESTIONS
shipment of highly toxic waste was illegally disposed of
along the coast. Further inquiry revealed that the 1. ALL of the following EXCEPT one outline the importance
company was faced with a transportation cost that had of objectives. Which is it?
quadrupled since the agreement was made with the a. They give the employees a sense of direction as to
company TranSecure. Rather than face this cost, where the business is going
Chemi-Prod Inc instructed its staff to dump the waste in b. They function as a yardstick for tracking an
the most secretive and least costly way. organisation’s performance and progress
Since the revelation, Chemi-Prod Inc has faced
c. They may be limited and take a long time to be
numer ous criticisms and threats of lawsuit by
environmental agencies and other pressure groups. If achieved d. They are used in the decision-making
the lawsuits were to be successful, the firm could be process
asked to pay out billions of dollars to settle claims.
2. It is said that objectives should be SMART. Which one of
the following is NOT a part of this acronym?
Questions
a. Timely
1. Describe what made Chemi-Prod Inc’s behaviour
b. Separable
unethical. (5 marks) 2. Discuss two (2) ways in which
this behaviour could affect the performance of c. Measurable
Chemi-Prod Inc in the long run. (6 marks) 3. Why is it d. Realistic
important for firms to behave 36
ethically? (4 marks) Total 15 marks
BUSINESS OBJECTIVES 3. A sixth-form student’s objective reads: ‘To achieve grade
CHAPTER 2 | 35
1 in all my CAPE examinations’. Which type of objective
is this? a. Medium-term
CHAPTER SUMMARY b. Long-term
c. Short-term
Objectives that are well written should be SMART d. None of the above
– that is: Specific, Measurable, Attainable,
Realistic and Timely 4. Middle management deals with which of the
following objectives?
Long-term objectives are general and give the a. Corporate
overall direction of the firm in the future
b. Tactical
c. Strategic Question one Total 25 marks a. Outline five (5) reasons
d. Operational why objectives are important to businesses. (5 marks)
b. Opportunistic Joe has decided to start a small
5. A/An __________ defines the organisation’s purpose business selling cane juice extracted from sugar cane
and direction. on his farm. Joe possesses very little knowledge of
a. Aim what is required in setting up his business and the
b. Objective objectives that he should establish before trading
c. Goal starts. With the use of possible examples, discuss four
(4) categories (levels) of objectives that Joe should
d. Mission
seek to achieve in his cane juice business. (20 marks)
6. ‘To sign up ten more people for health insurance in Question two Total 25 marks a. Define the term
each quarter this year’ represents a/an __________ ‘business ethics’. (2 marks) b. Discuss the importance of
a. Corporate objective social obligations that a firm has to the following
b. Tactical objective stakeholders:
i. Customers
c. Operational objective
ii. Shareholders
d. Strategic objective iii. Community
iv. Employees. (16 marks) c. Messy M Ltd is a
7. A firm is responsible to its shareholders in the following
manufacturing company located on a small island with
ways EXCEPT one. Which is it?
only a few rivers which supply the population with clean
a. To give fair returns on shareholders’ investment water. While the company has created job
b. To keep them informed of the business’s opportunities, foreign exchange earnings and a myriad
performance c. To sell them more shares of household chemicals, it is very irresponsible in how
it disposes of its waste products. Messy Ltd has been
d. To protect their investment
disposing of its waste upstream in the Long River. It
8. Which of the following would NOT be included in a has also been confirmed that some of its products are
discussion on ethical issues? being tested on the local animals and employees are
a. Testing of products on animals often asked to work for long hours without much
remuneration.
b. Deceptive advertisement
i. Discuss the ethical issues that are mentioned in
c. Evading taxes the scenario above. (3 marks) ii. Explain two (2) steps
d. The use of child labour that government could take to deal with the issues.
(4 marks)

37
Decision Making
3making
Discuss the essential features of the information
used to make decisions
LEARNING OBJECTIVES: Discuss the different stages of the
At the end of this chapter students should be decision-making process
able to: Understand the nature of decision Identify the factors that affect decision making
Differentiate between qualitative and while maintaining its accuracy and relevance
quantitative decision making Accuracy – information collected must be accurate so
that it can be relied upon by the manager. Misleading
information may impede the decision being made and
L
results in undue cost to the firm
Relevance – the information collected must be
iving in a world with limited resources forces busi appropriate for the situation or decision being made. It
must be up to date, as outdated information is useless
nesses and individuals to make choices. We have to Timeliness – information must be available to managers
make different choices each day. Any decision that and other decision makers on time. It should be
is taken will result in some benefits or costs to the decision obtained in a timely manner, since failure to do so may
maker. We decide which clothes to buy, or where to go for a lead to bad decisions.
family vacation or which subjects and career path to pursue.
These decisions are influenced by a number of factors,
including preference and financial standing. Significance of qualitative versus
Businesses have to make decisions on a daily basis too. quantitative decision making
Decisions have to be made on which product to invest in, Since decisions are made by a firm on a daily basis, it must
which supplier to buy from, who to employ and how to raise ensure that the decisions that are made were carefully
capital, among other things. This chapter will deal with the thought about. Managers making decisions can consult
process of decision making, the stages in the decision different resources or people to assist in the
making process and the factors that affect decision making. decision-making process. The sources that are consulted
Decision making is the act of choosing between two or may influence the decisions that are made. There are two
more alternatives. Decisions are made at three basic levels forms of decisions that firms make which are based on the
in most organisations: resources that are consulted. These are qualitative and
Strategic level – long-term decisions that entail high quantitative decision making.
risks and are usually made by top management. MODULE 1 | UNIT 1 | BUSINESS AND ITS ENVIRONMENT
38
Strategic decisions influence the direction, overall policy
and performance of the business (for example, building
A qualitative decision is one that is made based on
a new plant or entering a new market)
non-quantifiable information. These decisions often entail
Tactical level – short- to medium-term decisions that are
people’s value judgements and opinions. Firms
usually made at the middle management level. They
embarking on qualitative decision making may make use
carry fewer risks and would involve decisions such as
of the ‘SWOT’ analysis (Strengths, Weaknesses,
what price to charge, which supplier to purchase from
Opportunities and Threats) and ‘PEST’ analysis
and who to employ or make redundant
(Political, Economic, Social and Technological factors).
Operational level – short-term decisions that deal with
These decisions tend to be very subjective since they
the administration of the firm’s strategic and tactical
are not based on statistical data.
decisions. They involve few risks and can be made
In contrast, a quantitative decision is one based on
quickly. At this level, decisions such as which credit
statistical data. Unlike qualitative decisions, quantitative
limit can be offered to a customer or on the ordering of
decisions rely on historical data that can be quantified
stationery are made.
and analysed to make generalisations and draw
conclusions. Quantitative decisions could be based on
information gathered from sources such as market
Essential features of information research, historical sales figures and accounting
In order to make effective decisions it is vital that firms
information.
gather sufficient information to aid in the decision-making
Even though the two forms of decision making are
process. However, any information collected must have
essentially different, a number of firms may employ both
four essential features which can be summarised using the
of them. In so doing, decisions that are made may be
acronym ‘CART’, broken down into:
based on a mixture of qualitative and quantitative
Cost effectiveness – the cost of gathering the
decision making.
information should not outweigh its benefits. The
information should be gathered in the least costly way
collated and analysed in order to have some value based
on the problem defined in the first stage. ‘Secondary
The stages of decision making data’ represents information collected from other
The decision-making process can be broken down into sources, such as newspapers, textbooks, internet
various stages shown in Figure 3.1. sources or other work of a similar nature that was
compiled for previous research. This form of data will be
Definition of problem or opportunity reprocessed and reused in an attempt to solve the
The first step of the decision-making process is to identify problem identified or to clarify the opportunities identified.
the problem to be solved or the objective to be achieved.
The problem may be identified by thoroughly searching Developing alternatives
through the firm’s annual reports or financial statements After collecting sufficient data, the next step is to develop
or from customers’ feedback, among other sources. a list of possible actions that can be taken. These options
When the problem is identified, it is imperative that it is may be developed individually, by teams or through
clearly defined so as to prevent the business from going analysis of similar situations in comparable
in the wrong direction. Problems that are unambiguous organisations. These alternatives should be geared
will save toward solving the problem or achieving the objective
outlined above. Having formulated the possible
alternatives, the manager can then move to the other
Definition of stages.
problem or
opportunity
Data collection
Developing
alternatives
Analysing
alternatives
Selecting and
Figure 3.1: The stages of decision making implementing
the alternative
Evaluation
time and possibly cost. For example, a firm may want to

ascertain why its sales revenue has fallen over the past
two years. The firm could also outline the objective(s) it Analysing the alternatives
wants to achieve at the end of this process. Using the list of alternatives, management should analyse
A dynamic firm is one that is able to turn its problems the practicality and appropriateness of each alternative.
or the problems of others into an opportunity to provide An alternative may be deemed impractical because of:
goods or a service. Therefore this stage could also Lack of financial resources
include the identification of opportunities that are Lack of expertise to implement the
available. alternative Legal restrictions
Ethical and social responsibility implications
Data collection Technological constraints
Having identified the problem, the firm must now decide Insufficient information.
how and from what sources the data will be collected. To assess the appropriateness of an alternative, the
The data needed may be collected from primary and/ or decision maker should consider its adequacy to address
secondary sources. ‘Primary data’ refers to original the problem. The decision maker should also consider
the costs or benefits of choosing each alternative. This
information collected specifically in response to the
should include the possible impact that each option will
problem. This may be collected through observation,
have on the defined problem and the entire organisation.
interviews and questionnaires. Primary data must be
Selecting and implementing the alternative options instead of one. Once selected, the option(s)
Here, the decision maker selects the best course of action should be implemented in the least costly way feasible. It
to solve the problem. As we examine this stage, you will is also possible that management may encounter
realise that many situations do not lend themselves to unforeseen problems and face resistance to change from
mathematical or quantitative analysis but instead are employees.
subjective. However, there are some situations where
sufficient quantitative data is present to aid in the Evaluation
selection of a particular alternative. The manager may
The final stage is the evaluation of the option(s) that were
also select and use a combination of
implemented above. Here, the decision maker needs to
Stages of Solutions evaluate the outcome of the decision taken. These results
are then compared with the original objectives or problem
de
cision to ascertain whether they were achieved or solved. The
making results are often presented in a report. Having assessed
the report, it may be necessary to modify the course of
Definition of Assessing the decline in sales of
the problem Company X for the period 2009–10
action or to start the process of decision making over
again.
Data Primary data may be collected Examine the example given in Table 3.1.
collection through market research, e.g.
consumer survey or suggestion
slips
Secondary data may be garnered from
Factors affecting decision making
economic surveys carried out by A number of factors affect decisions that we make on a
government agencies on daily basis. Like us, a business faces constraints on its
macroeconomic variables, market decision making. The downturn in the world economy
analysis or reports from other during the period 2007–09 has had a negative impact on
businesses
many businesses worldwide. In addition to this,
Developing The firm can list the different steps that government decisions, technological advancements,
alternatives be taken to improve sales, e.g. socio-cultural factors and human constraints also
can
influence decision making in business.
sales promo
tion, advertisement,
product modification and rebranding Government, political and legal
The government is responsible for passing various laws
Analysing Assess the options in the previous
alternatives stage in terms of effectiveness and and requirements and establishing frameworks that will
appropriateness. The cost of affect decision making. Since political parties have
implementing each option should also different philosophies and goals, a change in
be ascertained administration may also pose a problem for some
businesses. The macroeconomic policies that will be
Selecting The company would select the most
and effective and cost-efficient option from pursued might differ and this will have some influence on
implement the list and implement the decision businesses. The legal environment of the Caribbean is
ing becoming even more pressing, with the signing of a
regional treaty to form the Caribbean Single Market and
Evaluation The company needs to assess whether
Economy (CSME). One clause of the agreement seeks
the op- to harmonise laws relating to commerce. Once this clause
tion chosen has improved its
becomes fully enforced, all firms within the CSME will be
sales figures. If not, then it may need
to modify the option or choose another subjected to the same laws. Based on what those laws
are – or will be – some Caribbean firms may have to
change the way they do business.
In the Caribbean there are currently a number of laws
Table 3.1: The decision-making process
DECISION MAKING
governing the behaviour and operation of businesses.
CHAPTER 3 | 39 These include:
Employment laws which govern contracts, recruitment,
termination of employment, redundancy, health and resolution and minimum wage payments. Businesses
safety in the workplace, unionisation, dispute must be
40
CASE STUDY
Decision crisis in J & K Fast Food

J & K Fast Food is a partnership between two close friends. The business was established some nine years ago and
has performed fairly well financially. For its tenth anniversary, the two partners are thinking of making a number of
changes, including convert ing to a private limited company, offering more products and either expanding or changing
its location. The two partners are unsure of how things will work out and both have some reservations.
In a discussion about the change, the following issues were raised:
How will changing the business from a partnership to a company benefit each partner?
What are the new products that will be offered?
Should the firm expand at its current location or relocate?
What profit margin is expected after the conversion?
The issues raised in the meeting are now having an adverse effect on the two partners who are indecisive in all
the areas mentioned above. They have agreed to compromise on all of the decisions except the one on expanding or
relocating. If not dealt with quickly and effectively, this deadlock could see the death of the firm instead of a tenth
anniversary celebration.
A close friend of both partners heard of the pending crisis and suggested that before they make any decisions they
should search for the necessary information that would make the decision easier. He suggested that they should also
use the steps of the decision-making process to iron out the question of expansion or relocation.
Questions
1. Define the term ‘quantitative decisions’. (1 mark) 2. What are the three (3) levels of decisions that are often made
in firms? (3 marks) 3. J&K’s friend mentioned seeking information to assist with the decision. Give the four (4)
characteristics that
this information should have. (8 marks) 4. Using the decision-making process, discuss how the two partners could
come to a consensus on whether to expand at their current location or to relocate. (18 marks) Total 30 marks
are protected and governed by the Rent Board. The
Sale of Goods Act is also important, as it stipulates the
aware of these laws when making decisions since conditions under which goods are sold.
they have serious implications for them. Environmental laws. With the emphasis that is being
Laws to promote competition in business. Governments placed on global warming in recent times, firms now
have enacted laws revoking previous monopoly licences have to be more careful about their impact on the
and liberating some of these markets in order to foster environment. Governments are also becoming more
competition. These laws may also prevent mergers and vigilant in the enforcement of environmental protection
limit uncompetitive practices among firms. For example, laws. For example, firms in the food services industry
the Jamaican telecommunications market was have to be mindful of offseason fishing and other firms
liberalised in 2001 to allow other firms to enter the have to limit their pollution of the air, water or land.
industry. A number of other Caribbean territories have
also liberated their telecommunication markets.
Consumer rights which protect consumers from
ACTIVITY
exploitation and unfair practice in business. In Jamaica, Conduct research in your country to find other
consumers may obtain redress from the Consumer organisations that protect you as a consumer.
Affairs Commission, the Bureau of Standards and the
Fair Trading Commission, while landlords and tenants
Social and cultural
As was discussed in Chapter 2, a number of firms are in manufacture that has reduced wastage and improved
becoming more socially responsible. With some yield; and there are a number of social networks that
governments passing environmental and animal protection bring together people from all over the world. Decision
laws and the impact makers need to be aware of the pros and cons of
technology and capitalise on the opportunities it brings
while being mindful of its threats.
DECISION MAKING
of global warming being felt around the world, CHAPTER 3 | 41
businesses must now be more aware of these factors in
their decision making. They must also be aware of the The world has become a global marketplace and
culture of the market in which they are entering or firms are faced with competition from all over the world.
operating. ‘Culture’ is defined as a combination of E-commerce has grown considerably and firms in the
beliefs, values, rituals and practices that shape one’s Caribbean may have to compete with others in Europe
behaviour over time. Culture plays a critical role in some or Asia. The banking sector is one such industry that
markets in terms of food, dress and music. In business, has made strides in incorporating and utilising
the decision maker must be aware of this and guide improvement in technology in the delivery of its
his/her decision likewise. services. E-banking has given customers freedom to
Social and cultural factors may also be extended to pay bills, transfer funds and check account balances,
include the structure of the population. Decision makers among other things. Likewise, technology has improved
need to be conscious of the following factors in society: significantly in the area of communication in the
Changing family structure – there are a number of Caribbean region. With the liberalisation of most
single-parent households in many Caribbean Caribbean territories’ telecommunication industries,
territories and the number keeps growing. communication has improved significantly. Decision
Management must be mindful of this trend, in makers must assess how the changes in technology
addition to the existence of nuclear and extended will affect decisions made.
families, and try to ascertain how any decision The proliferation of social networks in recent times has
made will affect each structure. The decision maker provided firms with a new medium to promote their
must be aware of families’ range of income, and the products and gain customer feedback. This also
products that they demand. He/she must be mindful changes the way in which firms do business. Today,
that the family structure can affect the level of more people are looking for comfort and high-quality
poverty or give an indication of how the firm should service. With the increase in the number of customers
price its product. using credit cards when compared with, say, five years
Improvement in education – Caribbean territories are ago, there are more online shoppers for whom firms
now open to a number of tertiary institutions and the must be able to provide. At present, many people are
number of people achieving higher education has moving away from spending actual cash by paying their
grown remarkably. These people will question a firm’s bills online and buying some products online where
decision and action before purchasing their products. they are available. At the rate at which technology is
Population age and working habits – the age of the improving, Caribbean firms may have to change their
population is influenced by the life expectancy rate, way of doing business so as to be able to cater for the
which has increased over the years as a result of needs of their customers.
healthier lifestyle and developments in medicine. With
investment opportunities increasing, some people are Economic
retiring earlier and this is compounded by the fact that Economics is a social science which deals with study of
they are generally living longer. Decision makers human behaviour and how scarce resources are
have to bear these factors in mind as they make allocated to satisfy human beings’ unlimited wants. We
decisions that will affect this group of people. all make economic decisions on a daily basis and these
decisions may be influenced by different forces in the
Technological economy. The government has to make
We would all agree that technology has evolved rapidly macroeconomic decisions which will impact on the
in the past two decades. Computers have been reduced business community. These macroeconomic policies
in size significantly; the internet has opened up a myriad may aid or discourage business and decision makers
of opportunities; there is new and improved technology must be aware of this. Macroeconomics deals with
economic aggregates – in other words, it is the study of Cyclical – this is caused by the recessional phase
the economy as a whole. Macroeconomics policies of the business cycle. When total demand falls,
include such things as inflation, the unemployment rate, firms tend to employ fewer people and the
interest rates, exchange rates, economic growth and unemployment rate will increase
the balance of payments. Now let’s examine each of Structural – this is caused by changes in technology
these policies in more detail. or the structure of the organisation. As a result,
some skills are no longer needed or people lack
Inflation rate sufficient skills to secure employment
Inflation is a continuous or sustained increase in the Seasonal – unemployment that is as a result of the
general price level in an economy. High inflation rates off-season period of production. This is evident in
may cause an increase in production cost for firms. It the agricultural industry in the Caribbean, as some
will also mean that workers are laid off when the crop season ends
MODULE 1 | UNIT 1 | BUSINESS AND ITS ENVIRONMENT and then re employed when it starts again.
42
revenue will lose its value as inflation rates get higher.

In addition, the purchasing power of consumers will Interest rate
decrease as they will not be able to purchase the Interest rate is the amount that borrowers pay to
same amount of goods and services with the same lenders per dollar of the money borrowed. In other
income as before. Inflation is calculated as: words, interest is the price paid for the use of money or
t-1 × 100 for the use of capital. The level of interest rates is very
CPI t – CPI CPI t – 1 important to management. Very high interest rates will
Where t = present year and t–1 = previous year.
impede growth, as the cost of borrowing money will be
too high. Firms will not be able to borrow to invest and,
There are two main causes of inflation:
without additional investment, businesses will not grow.
Demand pull inflation – this is commonly referred to
The government’s macroeconomic policy on interest
as ‘too much money chasing too few goods’. It
rate may hinder or enhance the business environment
occurs where aggregate (total) demand is
and decision makers must be aware of this. Interest
increasing while the available output of goods or
rates may vary for a number of reasons, such as the
services is limited. The excess demand will cause
length of the loan, the risk involved and administrative
the general price level to increase
charges.
Cost push inflation – occurs when the price of inputs
into production increases and causes producers to Exchange rate
increase the price to consumers. This type of
The main trading currency for most Caribbean countries
inflation is influenced by three main factors,
is the US dollar. However, most countries, with the
including wage push factor, import price push and exception of the Eastern Caribbean states, have their
profit push. own currency. This means that, in order to get the US
dollar to trade, their currency must be converted. The
Unemployment rate rate at which one country’s currency trades for another
The unemployment rate measures the percentage of is known as the exchange rate. The exchange rate for
the population between the ages of 18 and 65 that are these countries ranges from low to high, depending on
currently not working but actively seeking employment. the territory in question. High exchange rates may hurt
This is calculated as: businesses which import most of their inputs into
Unemployed × 100 production. Low exchange rates hurt exporters who will
Labour force receive lower return on their products when revenue is
Labour force consists of Employed + Unemployed people. converted in their local currency. Countries in the
Caribbean use one of the two main types of exchange
There are four main types of unemployment, rate systems. For example, Barbados has a fixed
namely: Frictional – this type of unemployment is as exchange rate system, while Jamaica has a managed
a result of the search process when people are floating exchange rate system.
between jobs. For the period of time that they are A fixed exchange rate system is one where the
out of a job or waiting to find another job, they are government fixes the external value of its currency in
referred to as being ‘frictional unemployed’ relation to other currencies – for example, at $2
Barbados to $1 United States (BD$2:US$1). The rate is and is evident in the growing number of natural
maintained by the Central Bank which intervenes in the disasters being faced within the Caribbean region. The
foreign exchange market by supplying US dollars when degradation of the environment has serious implications
there is a shortage and purchasing excess currency for the region’s agricultural industry and has the
when there is a surplus. The opposite of this is a potential to create food shortages whenever a major
floating exchange rate system where the value of the disaster hits. We have seen where many firms and
currency is determined freely by the interaction of individuals have bought into the
demand and supply of the dollar.
Where a floating exchange rate system is being used
by the government, the currency may depreciate or CASE STUDY
appreciate in value. A depreciation of the dollar occurs
when there is fall in the demand for a country’s Turbulent times for Yummy Fast Food Ltd
currency, which leads to a reduction in the value of the DECISION MAKING
CHAPTER 3 | 43
dollar in terms of other currencies. Conversely, an
appreciation of the dollar occurs where there is a
‘Go Green’ campaign by using eco-friendly packaging
decrease in the supply of the dollar, which leads to a
or recycled materials in production.
reduction in the value of the dollar in terms of other
currencies.
Human and natural constraints
The human element in business may pose different
challenges. The fact is that we are all different in
Ecological factors
thought, ability and attitude. The decision maker should
Ecology is the study of living organisms and their be aware of the following factors:
environment. Ecological or environmental factors deal The skill level of employees, which may foster or
with how businesses treat the environment in which hinder the implementation of certain decisions
they operate. Businesses are being urged to be more The years of experience of both management and
socially responsible and laws have been enacted to staff People have different attitudes to risk and
monitor their behaviour. For example, there are laws change. Some employees may not like change,
prohibiting firms from dumping their wastes while some might be more cautious than others in
inappropriately, cutting down large numbers of trees terms of risk taking Size and composition of the
and damaging coastlines. Decision makers must be labour force is also vital The level of motivation of the
aware of the implications of making decisions that are workforce. We will examine this further in Module 2.
bad for our environment. As was discussed earlier,
‘Natural factors’ refers to the natural resources that
firms must become more socially responsible.
are used as inputs into production. These include land,
As many countries grapple with the effects of global labour, capital and entrepreneurship. A firm
warming, they must implement environmental laws to
experiencing a shortage of these resources will find it
protect themselves from further degradation. What was
difficult to produce its product in large quantities.
once a concept on paper has quickly become a reality
Yummy Fast Food Ltd has recently converted from a partnership to a private limited company. The changeover for the
most part was smooth and things have started to return to normal. However, within the last year things within the
country and the CARICOM region have started to change rapidly.
The present struggles started with a downturn in the global economy which is now being dubbed ‘the recession of
the new millennium’. Since the recession started, the company has been losing money and profits have been falling.
Unemployment rates and inflation rates have skyrocketed and the government has implemented a high interest rate
policy in an attempt to curtail inflation. The government has also increased taxes in a bid to finance the Budget. To
exacerbate the issue further, citizens are becoming uneasy and frustrated to the point where demonstrations and
riots have started as the Opposition put pressure on the ruling party.
If this situation continues for a prolonged period, the company may have to leave not just the country but possibly
the Caribbean region. The directors are therefore keeping a close watch on the situation.
Questions
1. Identify two (2) factors from the case that may affect the decision making of Yummy Fast Food Ltd. (2 marks) 2.
Discuss how the economic factors mentioned in the case could affect decisions at Yummy Fast Food Ltd. (12 marks)
3. How could the political instability of the country affect the company’s decision to expand its operations? (6 marks)
Total 20 marks
44
Table 3.2 summarises the possible impact of these factors on a firm’s decisions.
Factors affecting decision Positive impact on businesses Negative impact on businesses
making
Governmental, legal and Governments can provide the legal Laws such as those on minimum
political framework within which businesses wage could have an adverse
operate, which could work in the effect on firms’ revenues
business’s favour Political instability may result in the
Businesses can be protected from loss of productive time
unfair competition Government taxing policies could
Government policies can create also deter firms from operating in
business opportunities in some the region and could lead to
areas, e.g. through liberalisation of reduced revenue
the market or industry Infant Government monetary policy
industries can receive protection framework could make it difficult to
from external competition do business in the region, e.g. high
interest rate
Social and cultural Social networking can be used as a If an age gap exists then firms
good marketing tool to reach a larger could experience a slowdown in
group and wider cross-section of production as more experienced
people employees retire
The age differences in the A shift in the family structure could
population can be used as an result in more absenteeism,
opportunity for especially when children become
segmentation, i.e. creating different sick
products to meet the needs of If the product being sold by the firm is
each age group viewed as offensive because of some
Once the firm learns the culture of belief in the market country’s culture
the country, it can produce then it may not be supported there
products that are in tune with
people’s belief system
Technological This has paved the way for doing Technology comes with a cost to
business online (e-commerce) the firm and this may be very
Each firm can market and sell its expensive
product globally, thus having access The use of internet technology has
to the global market brought new competition to regional
New and improved technology can firms
increase productivity and hence the Technology may cause
output of the firm information to become available
Technological advancement in and of to unscrupulous users Employees
itself creates business opportunities can feel alienated by
Decisions made in the firm can technology. This could lead to low
easily be transmitted using levels of motivation and productivity
e-mail or video conferencing,
etc.
Economic Low interest rates can be good for Economic instability can reduce
firms wanting to borrow for business confidence, thus affecting
investment investment decisions
The business needs to know High inflation rate can result in
information on inflation and increasing input cost for the firm
exchange rate in order to forecast If the economy moves into a
or plan for the future better The firm recession, the firm could see
can decide to locate in a country significant falls in sales and profits.
whose economy is growing in order This may lead to it closing down
to maximise profits
A firm may decide to market its
products where it can gain high
returns on
investment
Ecological Decisions that are made with the The firm must be aware of the legal
environment in mind show the implications of polluting the
firm’s corporate social environment
responsibility
Table 3.2: Possible impact of factors on a firm’s decision making

d. Consumerism
3. Cost push inflation is influenced by ALL of the

CHAPTER SUMMARY following EXCEPT which one?
a. Profit motive
Decisions are generally made at the strategic, tactical b. Increased demand
and operational levels in a business
c. Increased wages
The four essential features of good information d. Import prices

are: accuracy, timeliness, relevance and
4 The type of unemployment which is associated with
cost-effectiveness
recession in an economy is known as:
a. Frictional
b. Seasonal
c. Cyclical
d. Structural
DECISION MAKING
MULTIPLE CHOICE QUESTIONS CHAPTER 3 | 45
1. Information should have four main features. Which of

the following is NOT one of them?
a. Realistic
b. Accurate The stages in the decision-making process are:
c. Cost effective
definition of problem, data collection, development of
alternatives, analysis of alternatives, selection and
d. Relevant
implementation, and evaluation
2. A continuous or sustained increase in the general price
level in an economy is referred to as: Decisions made within a firm may be affected by
factors such as: technological, governmental, social
a. Inflation
and cultural, economic, ecological, and human and
b. Deflation natural constraints.
c. Stagflation
7. Which of the following would NOT be a legal factor
affecting decision making?
5. Decisions are often made at all the following levels
a. Sale of Goods Act
EXCEPT which one?
b. Unemployment rates
a. Shop floor
c. Consumer protection agencies
b. Tactical
d. Bureau of Standards policies
c. Operational
d. Strategic 8. An increase in the number of single-parent families
across the region is an example of which of the
6. Which stage of the decision-making process involves an following factors affecting decision making?
assessment of the decisions taken and the level of
a. Technological
success by matching objectives to outcome?
b. Economical
a. Definition of the problem
c. Social
b. Developing alternatives
d. Human constraint
c. Evaluation
d. Analysing alternatives
46

Question one Total 25 marks Mrs Doubtful has decided to expand her business and is about to purchase two delivery
trucks. Since there are a number of trucks available for sale, she has approached you to assist with the decision.
Advise Mrs Doubtful on the following five (5) steps involved in the decision-making process and how they would apply
to the decision she has to make.
a. Definition of the problem
b. Data collection sources
c. Analysis and evaluation
d. Formulation of alternative strategies
e. Implementation (25 marks) Question two Total 25 marks Good Food Ltd is a fairly new restaurant in your country. The
management of the restaurant makes a number of decisions daily that will impact on the firm and its main stakeholders.
Discuss how the following factors may affect a firm in its decision making. a. Economic
b. Government, legal and political
c. Technological
d. Ecological
e. Socio-cultural (25 marks)
47
Caribbean Business Environment

4
and Globalisation
social problems such as crime and violence. Where
crime escalates, investors are deterred from the country
and so fewer jobs will be provided and economic growth
LEARNING OBJECTIVES: will be suppressed
At the end of this chapter students should be able While some countries, such as Barbados, are doing
to: Understand the nature and structure of well, others are struggling with below-average literacy
Caribbean business organisations rates. Some of these countries have poor education
Discuss the role of culture in organisations’ facilities and also suffer from overcrowding. This will
behaviour Assess the growth of multinational impact on the future workforce who will not be
corporations in Caribbean countries employable or marketable. Poor literacy impedes
Discuss the impact of globalisation and trade development, as citizens might be underproductive
liberalisation A large percentage of these countries depend on the
Discuss the pros and cons of protectionism and agricultural sector to earn foreign exchange. However,
barriers to trade some of their farmers are undercapitalised and are still
using old techniques which are not bringing about
sufficient yields to compete on the international scene.
Produce is at times expensive and limited. To compound
The nature and structure of Caribbean the issue, imported produce has found its way into the
business organisations market, stifling some of the small farmers who cannot
compete with the lower prices. The agricultural sector is
T he Caribbean territories are characterised by mostly
small developing economies. These economies tend

also susceptible to natural disasters which damage a
number of farms regularly. This has been highlighted as
one of the factors that caused Jamaica Producers Group
Ltd to abandon banana exports, resulting in the loss of
to be open, with little protection against more devel oped jobs
countries dumping unwanted goods on them. The Some businesses face the challenge of operating with
economies are mostly mixed and businesses range from outdated technology. As a result, productivity is low and
local firms to multinationals. In recent times some of these the cost of production is very high. Since at times it is
economies have been making strides to foster economic difficult to secure funding, these technologies cannot be
growth and increase foreign direct investments. If this move replaced as soon as there is an improvement. Some of
is successful it may bring about improvements in standards these businesses have a poor capital structure and
of living and the economic outlook for these countries. depend largely on human effort, therefore limiting the
However, some of the Caribbean countries’ efforts have size of their operations
been hampered by the downturn in the world’s economy in As mentioned earlier, most Caribbean economies are
the latter part of the first decade of the 21st century. Bearing characterised as small and open. As a result,
in mind the above factors, businesses in these Caribbean businesses face competition from international
territories are faced with many challenges. Some have companies. With the popularity of the internet which
been hit so badly that they have thrown in the towel; others provides easy access to these markets, Caribbean
have downsized; and others have merged with other firms businesses are faced with competition from both home
in an attempt to survive. When we discuss organisational and abroad.
charts in Module 2 we will look at the structures of most of 48
these businesses.
The environment in which these businesses operate also
Caribbean business culture
poses many challenges:
We are all influenced in some way by our culture and the
Most territories are still struggling with high rates of
business place is no different. Business culture is
unemployment. Where a significant percentage of a
defined as the beliefs, attitudes and values of the
country’s citizens is unemployed, businesses
employees in an organisation. Managers must be aware
cannot
of the culture that exists in their organisations. This is
make sufficient revenue as people do not have money
very important since culture will influence the pattern of
to spend. Some sociologists believe that there is a
behaviour, attitudes to change, motivation, morale and
correlation between high unemployment rates and
performance of the staff. Good corporate culture may Networking employees are more likely to be influenced
also promote or demote the business and its ability to by their colleagues and hence influence the culture of the
attract qualified and experienced employees. organisation.
The culture of any organisation is formed over time
and is usually influenced by a number of factors shown Leadership style
in Figure 4.1. The style of leadership and the personalities of the
Now we will examine each factor in more detail: leaders themselves may influence the organisation’s
culture. A leader who encourages participation among
Environment employees and management will have a warm and
The environment in which the organisation operates will hospitable culture compared with one who does the
affect its culture. Caribbean businesses operate in an opposite. The leader’s personality may help to motivate
environment that has a rich history embedded in the the workers and influence their norms, attitudes and
coloni sation of the region. This past could affect the way beliefs.
business managers and employees react to different
situations. Some managers still practise a very Employees’ attitudes
autocratic style of leadership, from the time of the Employees’ norms, beliefs and attitudes will transcend
plantation system, instead of the more accepted into the culture of the organisation itself. Most of the time,
democratic style. the employees are the ones who are in direct contact with
Our economic environment is generally mixed and the customers and, if disillusioned, may send the wrong
businesses have adopted a culture of ascertaining the signal. The culture of management may be infused into
needs and wants of their customers while aiming to the employees and the way they behave in the
maximise their profits. This profit motive may organisation.
overshadow matters such as environment preservation,
ethical practices and the rights of consumers. Daily procedures
The procedures that have to be followed on a daily basis
may influence the culture of the organisation. Some
businesses are very bureaucratic, with a lot of checks
and balances. This contributes to an office which is paper
Leaders dominated. With such strict guidelines, workers in these
organisations tend to be less spontaneous and are not
Employees allowed to be autonomous in the decisions they make.
From the above, it is clear that a positive and strong
Environment
business culture is very important. The reasons for this
Business
culture are outlined below:
A strong and positive business culture helps to
improve the loyalty of employees and
customers The firm’s culture can motivate the
Daily
workers and improve their productivity
When each employee understands the culture of
the organisation, they are able to communicate
Communication networks and understand instructions clearly, minimising
These have grown extensively over the past decade and conflicts.
this has influenced the culture of many organisations. Business culture is good but does have a number of
Networking is seen in staff magazines, social gatherings,
staff involvement in decision making and informal groups.
below: There may be conflicts of
Communication Figure 4.1: Business culture factors culture, especially for multinational
networks procedures
criticisms. Some of these are outlined corporations (MNCs). These
CARIBBEAN BUSINESS ENVIRONMENT AND GLOBALISATION
CHAPTER 4 | 49
inception of CARICOM, the Caribbean region has
MNCs enter the overseas market with their own benefited from a common external tariff (CET). This
culture, which may conflict with the local culture means that countries within the free trade area trade
Some businesses are very large and so it is difficult without tariffs but all products coming into the region
for a unique culture to be communicated. In a single are subjected to a common tariff. Multinationals can
business, there may be a variety of beliefs, norms take advantage of this by setting up operations in any
and attitudes. of the member countries of CARICOM and enjoy free
trade within the region while being protected from
competition outside the region
The growth of multinational corporations Government policy. In order to foster economic growth
and investments, governments may pursue fiscal and
in the Caribbean monetary policies that encourage the growth of
As we discussed earlier, the Caribbean economies are
multinationals. This move may also help to increase
mostly open and more susceptible to the impact of
industrialisation, as some technology will spill over into
globalisation than developed countries. These economies
existing local firms. In order to encourage investment in
provide large international companies with a good
the local markets, the government may offer tax
opportunity to expand into different markets. These
holidays and provide the necessary land space or
companies are referred as multinationals. A multinational
or transnational corporation is one that owns and controls infrastructure needed by these firms
other business operations outside of the country in which it To avoid local laws. Some MNCs move some of their
is situated. The parent company usually operates out of operations out of their home country in order to avoid
one country but operates other branches (subsidiaries) or laws affecting them – for example, countries with anti
factories in other countries. The branches are subjected to trust laws which encourage competition by preventing
the laws governing each particular country. Examples of monopolies and mergers
multinationals in the Caribbean would include C&W Ltd. Most Caribbean countries have some form of restriction
Multinationals in the Caribbean have increased steadily on imported goods. MNCs enter the local market so as
over the years and, in some cases, have captured a to avoid these import restrictions. Locating within the
significant portion of the total market share. But what are region would give them open access to the market
the causes of this increase? without having to pay to export their products to these
To be close to their markets. Multinationals can cut cost territories. For more information on import restrictions,
and gather more accurate data if they are operating see the section on protectionism.
near to their markets. Such a company would be able to The growth of multinationals in the region has provided
understand the culture of the market and its consumers’ the host countries with a number of benefits. However,
buying behaviour. A company operating out of Europe there are also drawbacks. In this section, we will examine
might find it easier and cheaper to open a branch in the and discuss some of the benefits and drawbacks of MNCs
Caribbean rather than trying to export its products there on the country in which they are located.
Lower production cost in those countries. Locating in
the Caribbean may present multinationals with lower Advantages of MNCs to the host country
production costs. Some territories offer cheap labour Gain foreign exchange as a result of the initial
since the supply of labour is greater compared with its investment and exportation of products from these
demand. In other words, the number of people seeking companies. The Caribbean countries’ main trade
jobs is greater than the number of vacancies available. currency is the US dollar. Once these companies
In such cases wages tend to be lower than in places export their products the country will gain foreign
where the opposite exists. In addition, the minimum exchange which will help to improve the balance of
wage in most Caribbean territories is relatively lower payment position
than in developed countries. Multinationals may also Improvement in the country’s Gross Domestic Product
come to the Caribbean to make use of the natural (GDP). GDP is the value of all final goods and services
resources found there. If they can manage to get raw produced within a country over a one-year period. With
materials at source, it is likely that they will be cheaper – more output being produced by these MNCs, the GDP of
for example, bauxite companies trading in Jamaica and the country will increase, all other things being equal
oil companies in Trinidad and Tobago MODULE 1 | UNIT 1 | BUSINESS AND ITS ENVIRONMENT
50
To be shielded by tariff-protected markets. Since the
might be done to curtail it. Large plants may emit
The country will experience a reduction in waste
unemployment. Most MNCs will employ some
citizens of the country in which they are located.
When this occurs, some people who are in the atmosphere, depleting our ozone layer. Some
unemployed will be able to find jobs. As more MNCs may also contribute to land and water pollution
people find employment, their standard of living if waste is not disposed of properly
should also improve Some local competing firms may be forced out of
Local firms that provide auxiliary services to large business as they try to compete with these
companies will also benefit from increased business – multinationals. Local firms are at times
for example, cleaning services. The construction undercapitalised and have inferior technology and
sector may benefit from the construction of buildings equipment to these multinationals. As a result, they
or plants. If the investment is in the hotel and tourism are not able to compete effectively.
sector, the local agricultural sector may also benefit
by supplying its produce to it
The country will receive increased revenue from The impact of trade liberalisation and
taxation. This will include taxes on the company’s globalisation
profit (corporation tax); increased value added Have you ever heard the statement that ‘the world is a
(consumption) tax from increased sales; and personal
single global marketplace’? Well, that is exactly what it is
income tax from employees
now. Our markets are no longer dominated by local
There may be an improvement in technology as the products, but have been infiltrated by products from all
multinationals will introduce new and improved
over the globe. Today, if you walk into a supermarket or a
technology which may spill over in the economy.
department store or even the corner shop in your
With the introduction of new technologies, local firms
community, you will realise that the products available
may be forced to improve their own in order to
are made in a number of countries. We can be in the
remain competitive. As a result, there could be a
Caribbean and do business with a company in Europe
general increase in output and quality of products
and have a product couriered to the customer very
Consumers benefit from increased variety as they quickly. All of this is made possible through trade
can now choose from a wider range of products.
liberalisation and globalisation.
Disadvantages of MNCs to the host country Trade liberalisation

Multinational corporations are known to repatriate Trade liberalisation is the removal of barriers to trade
most, if not all, of their profits. If this is done the host and giving free access to the market. This access may
country will not benefit from profits being reinvested in be limited to certain products or it may be a total lifting of
it. Therefore these firms would be using their the barriers to trade. These barriers are explained in the
resources to generate revenue but the country will next section.
not enjoy great benefits as a result
The emphasis on trade liberalisation started in the
If stringent laws are not in place to protect Caribbean with the formation of the Caribbean Free Trade
employees, the local workforce can sometimes be Association (CARIFTA) in 1965. The association’s main
exploited. They may be asked to work long hours aims were to increase, liberalise and diversify trade
but receive less than equitable remuneration among the member states.
Motivated by profit, multinationals may deplete local In 1973 CARICOM was established, with the aim of
non-renewable resources. In an attempt to maintain
improving on CARIFTA. One of its objectives was to
production and profits, MNCs may overproduce.
include economic integration in the region, along with
Countries such as Jamaica and Guyana have seen
each member implementing a common external tariff
tonnes of bauxite being mined each year. This
(CET). Trade among the member states would be free
mineral can take thousands of years to form but over
while the region was protected by the CET.
time the supplies have dwindled considerably.
Today, CARICOM has grown into the Caribbean Single
Trinidad has seen a reduction in its oil reserve as
Market and Economy (CSME). The CSME finally came
more and more barrels are extracted year after year
into being in 2006, having been proposed and agreed
Multinationals may cause increased pollution and little
upon from 1989. The CSME is designed to represent a
single economic space where people, goods, services network, best service and best value’, the company quickly
and capital can move freely within the member states. gained a foothold in the Jamaican market. To this end, its
Article Six of the revised Treaty of Chaguaramas which success in its first year was above target and it has
established the CSME has outlined the following continued to grow since then.
objectives: This same strategy would see Digicel becoming one of the
larger multinational corporations in the Caribbean. From just
its Jamaican establishment, Digicel is to date operating in 31
markets worldwide, including 26 in the Caribbean and
CASE STUDY Central America and five in the Pacific. The company is said
to employ
Changing the mobile service landscape
CARIBBEAN BUSINESS ENVIRONMENT AND
CHAPTER 4 |
GLOBALISATION
51
When the Jamaican Government decided to liberalise the

telecommunication industry in 2001, investor Denis O’Brien
seized the opportunity to make what is now seen as a very
successful investment. In April 2001, Digicel Jamaica was
launched with less than five per cent mobile phone Figure 4.2: Digicel headquarters, Kingston
penetration. With its three-pillar business strategy of ‘best
over 5,000 people, with over 1,000 retail stores, and boasts a customer base of approximately 13 million. Digicel has
made huge contributions to the mobile landscape, as the monopoly of Cable and Wireless, its main rival, was not
sufficient to cover all the demand in the region. This gave the company a good platform to work from and very soon
many individuals had access to mobile services. The contribution of this multinational corporation is also seen in its
corporate social responsibility work which it does through the Digicel Foundation. The foundation is guided by its
mission statement which says: Digicel Foundation is a non-profit organisation that distributes and utilises funds on a
charitable basis for the sole purpose of building communities and community spirit in Jamaica.
Questions
1. What is a multinational corporation? (2 marks) 2. What evidence is there in the case to prove that Digicel is a MNC?
(5 marks) 3. Discuss three (3) possible benefits and costs to the host country from Digicel’s operations in the Caribbean.
(18 marks) Total 25 marks
eliminating foreign exchange controls and establishing a
common currency. This also includes the integration of
improved standards of living and work the regional capital market (for example, establishing a
full employment of labour and other factors of regional stock market)
production Movement of labour – this will allow skilled labour to
accelerated, coordinated and sustained travel and work in any of the member states. It will
economic development and convergence facilitate the harmonisation of social services (education
expansion of trade and economic relations with third and health services) and transfer of social security
states benefits (pension benefits)
enhanced levels of international competitiveness Movement of goods and services – which is
organisation for increased production and productivity. achieved through the removal of all trade barriers
The CSME Agreement had the following key elements: among member states and setting regional
Movement of capital – which will be achieved by standards for the goods being traded
Right of establishment – this element allows business tariff for any particular product to all its suppliers.
people from any member state to establish and own
businesses in another member state without Globalisation
restrictions A common external tariff gives each Globalisation entails the increased connectivity and
member state the right to apply the same rate of tariff interdependence of the world economy. The growth of
on all imports that are not coming from a member globalisation is seen in the growing integration of the
state world’s market. This has been amplified in the past two
MODULE 1 | UNIT 1 | BUSINESS AND ITS ENVIRONMENT decades by advancements in technology. Globalisation
52
has opened access to markets all around the world so
that it truly has become ‘a single marketplace’. The
A common trade policy allows for joint negotiation
growth of globalisation is being driven by the following
on matters relating to internal and international
factors:
trade and a coordinated external trade policy
Reduction of transportation costs – this has
Free circulation – goods that are imported from
led to easier access to markets as the
non member states are allowed to be circulated
available modes of
within the region duty free since the relevant
taxes would have been collected at the first point
of entry
Harmonisation of laws – laws in the region are to transportation have increased. Businesses can
be carefully coordinated to reflect ‘oneness’. make and receive shipments within a day by using
These laws include intellectual property rights courier services. Local consumers can purchase
and company laws Monetary policy measures – products from abroad and easily ship them to their
there should be a country of origin Technological advancement –
coordination of exchange rate and interest rate improvements in internet technology and
policies. Fiscal policy measures include the communication networks have also contributed to
coordination of indirect taxes and budget deficits. the growth in globalisation. It is much easier to
The concept of trade liberalisation has also taken communicate with the world and this fosters the
the spotlight in the world economy. This was evident growth of businesses and business opportunities.
with the establishment of the General Agreement on Communication in the Caribbean has evolved
Tariffs and Trade (GATT) in 1947. Its main objective rapidly over the last decade or so. Most people now
includes the regulation of trade among about 150 have access to cellular internet technology.
countries. It sought to ‘significantly reduce tariffs and Companies have laid underwater fibre-optic cables
other trade barriers and eliminate preferences, on a to improve efficiency and speed. All this has
reciprocal and mutually advantageous basis’. GATT contributed to the growth of globalisation
was later replaced by the World Trade Organization Trade liberalisation – as discussed earlier, the
(WTO) in 1995. liberalisation of trade has opened a number of
The essential functions of the WTO are: markets that were once heavily protected. This is
Administering and implementing the multilateral evident in CSME where business people can locate
trade agreements that collectively make up the in any member state without restrictions
WTO Deregulation of business and financial markets – in
Acting as a forum for multilateral trade recent years, governments have removed
negotiations Seeking to resolve trade disputes restrictions and regulations in certain industries,
Reviewing national trade policies giving them more leverage. A number of
Cooperating with other international public-sector businesses have been privatised,
institutions involved in global economic increasing competition and the need to expand
policy making. abroad. Deregulation has led to the abolition of
The WTO embraces the two main operational capital controls in many countries, making it easier
principles of the original GATT: to acquire capital overseas. Developing countries
Reciprocity – arranging for countries to receive will also benefit from increased foreign direct
foreign tariff reductions in return for tariff cuts of investment as money flows more freely across
their own The ‘Most Favoured Nation’ Rule – national boundaries Change in the tastes and
requiring that a country should apply its lowest preferences of consumers – consumers’ interest in
foreign products has increased significantly over businesses to shut down. When this occurs,
the years. More people are now demanding workers will be made redundant and the country’s
international products and new market unemployment rate will increase. This can cause a
opportunities are opening up. reduction in standards of living and suppress
economic growth
The impact of globalisation Depletion of local resources – if international
The impact on the economy demand increases significantly, local resources
Increased unemployment – unfortunately, the impact may be over utilised to meet such demand,
of globalisation is not always good. Increased increasing their depletion. Most of these
competition may cause some small vulnerable resources are non-renewable
CHAPTER 4 | 53
Some governments may find that multinationals have
and so a rapid depletion may be disastrous for grown so large that they are no longer able to control
the nation in the future them. These businesses may avoid taxes and
Opportunity for economic growth – with trade contravene labour laws.
liberalisation and the opening up of the world market, In order to reap the full benefits of globalisation or to
local companies can increase trade. The increase in ensure that multinationals operate in accordance with the
trade will earn more foreign exchange for the country country’s laws, the government has to play the following
and profits for the businesses. This money can be roles:
ploughed back into the local industry, causing growth. In Facilitating or creating the right environment. Amid the
addition, the local industry can benefit from foreign negative impact of globalisation, it can be beneficial to
direct investments as international businesses seek to the country and as such the government has a
enter our local markets key role to play. The country’s business environment
Opening up the markets of countries will also open up can either impede or foster the establishment of
an opportunity for the underground economy. This may multinationals or the transaction of trade by global
include the drugs trade and money laundering. Unless organisations. The country’s business environment
local authorities are able to curtail this problem, it can must be one that is inviting, with proper infrastructure
spiral into an increase in criminal offences of all natures such as road networks and communication technology.
Earlier in the chapter we discussed that the Caribbean The government should also work on lowering crime
economies are usually small and open. This makes and violence which can be a deterrent for potential
them vulnerable to global or external shocks and investors. The government could also improve the
globalisation increases their vulnerability. The possible ease with which business can be conducted within the
impact of global or external shocks was made evident country – that is, removing or reducing ‘red tape’
with the contraction of the global economy in 2008–09. Developing the necessary legal framework. The
The recession, which started in the United States, government also has the responsibility for developing
affected all Caribbean countries, sending their laws and regulations to monitor these overseas-based
economies into turmoil. companies. It has to ensure that its consumers are
protected from unfair trading practices and that they
The role of government are not exploited. The legal requirements for formation
International policies may impede central governments’ must also be clearly outlined, as these can be different
ability to control the economy. Caribbean governments from those in other countries.
may have to adhere to the policies outlined by
institutions such as the World Bank, the World Trade Consumer behaviour
Organization and the International Monetary Fund Consumers within the domestic economy will also benefit
(IMF), and therefore lose their power to pursue their from globalisation. Some of these benefits are outlined
own macroeconomic policies below:
With the negative impact of globalisation on some Variety of choices – consumers benefit from a greater
Caribbean countries, governments now need to develop variety of goods and services to choose from. Since the
policies and find the necessary resources to combat growth of globalisation, consumers can acquire products
these negative impacts. This may put strain on the that were not previously available to them. These can
already cash-strapped local economy now be accessed via e-commerce. Some of these
goods may help to improve customers’ standard of small domestic firms which are not able to compete
living Most of the time, consumers are on the receiving with large multinationals. The Caribbean is
end of increased competition. They benefit from characterised by small entities that are sometimes
increases in product quality and after-sales service as undercapitalised and therefore they may not be
companies try to outdo each other. They also benefit competitive
from lower prices if companies are involved in price Economies of scale – domestic firms can also expand
wars. Increased competition also forces businesses to into the global market. As they do so, large-scale
become more efficient as they seek to create brand production brings about economies of scale. Their
loyalty fixed costs can be spread over a larger amount of
Employment – some consumers also benefit from output which leads to a reduction in unit cost and a
employment in multinational corporations and other lower price. These firms may also benefit from
firms that were established through Foreign Direct purchasing economies as they conduct bulk buying
Investment (FDI) Technology advancement – businesses gain access
Changes in taste and preference – as the market opens to improved technology which can be used to
to international influences, local consumers might increase output and productivity. Advanced
gravitate towards foreign products. This could influence technology will also allow the firm to reduce its costs
what they eat and how they dress, among other things of production as older technology is often inefficient
Quality – some MNCs have the tendency to provide a and causes wastage Choice of location –
higher-quality product to their consumers in their globalisation opens a number of markets that were
homeland. However, in the absence of stringent laws previously inaccessible and as a result firms can now
or quality standards in the regional countries, they may choose to locate in different countries. Doing so may
produce sub-standard products. To this end, consumers provide businesses with other opportunities such as
MODULE 1 | UNIT 1 | BUSINESS AND ITS ENVIRONMENT labour cost saving and increased sales
54
The internet is a main driver of globalisation and this
provides businesses with numerous opportunities.
must ensure that they do not settle for mediocrity
With
but remain adamant that quality be maintained by
these MNCs. Without valiant efforts by consumers,
the firm may produce and sell sub-standard
products the internet through e-commerce, the business
can advertise, sell or purchase online
Responsibility – consumers have a responsibility to
ensure that their rights are not infringed by MNCs. Pricing policy – globalisation can also affect the prices
charged by domestic businesses. Where international
Consumers must be aware of the fact that some
firms are able to sell their products at a lower price
MNCs may run away from more stringent laws in
than domestic firms the latter may be forced to lower
their home countries and as such may not provide
their prices. This could mean serious losses or
the best service to their host countries. With this in
reduced profits for local firms
mind, consumers should hold them responsible for
providing quality service. Quality assurance – this is a guarantee to maintain an
agreed or established set of quality standards.
Domestic businesses Regional businesses that desire to sell their products
in foreign countries may have to seek certification to
The impact of globalisation is felt by businesses
prove that these products meet international
worldwide. The impact might be different among these
standards. Two international standards by which the
businesses, though. Below are some of the possible
firm may be certified include the British Standards
ways in which businesses might be affected by
Institution (BSI) and the International Organization for
globalisation:
Standardization (ISO). Having certification from these
Competition – businesses are likely to face increased
bodies gives a business a stamp of quality that will
competition from foreign firms. As barriers are
make it easier for it to trade on the international
reduced and businesses are deregulated, they can
market. This topic is dealt with further in Unit 2.
enter markets that were once difficult to get into.
Globalisation also paved the way for new and
innovative firms to enter markets and compete with
existing firms. This may be detrimental for some
Protectionism
As explained above, the impact of trade liberalisation and protectionism unemployment may be reduced
globalisation is evident in different spheres of the Protect infant industries by giving them a space to
business environment. In order to protect the interests of grow and settle in the market with little or no
Caribbean businesses, some governments have competition Rectify balance of payment disequilibria –
embarked on protectionism. This refers to attempts by that is, where the value of imports exceeds the value
the government of a country to restrict the importation of of exports. Protectionism will reduce the amount of
goods and services. Protections may be placed on the imported goods and reduce or rectify the disequilibria.
importation of goods and services in order to: The following are the types of protection that are
Prevent the dumping of the surplus of foreign goods commonly used by Caribbean governments:
into the local market. These are usually low priced Tariff is a tax on imported goods. The tax can be a
and will compete against local firms fixed amount per unit or can be calculated as a
Since some firms would have to shut down if they percentage of the value of the imports. Since the tax
cannot compete with foreign firms, some workers will cause imported goods to be more expensive, the
would have lost their jobs. However, with amount of
CHAPTER 4 | 55
CASE STUDY
Globalisation and Caribbean sugar

The reality of a changing global environment is becoming more evident in the Caribbean as a number of firms
struggle to stay afloat. This is no different for many businesses in the agricultural sector, including sugar companies.
Sugar companies in the Caribbean have long benefited from preferential arrangements with Europe which to some
extent secure a market for their produce. However, with higher production costs, poor technology and
undercapitalisation, coupled with competition from coun
tries such as Brazil, some of these sugar companies have been adversely affected.
The Jamaican sugar industry has gone through privatisation then had to be repurchased by the government in the
1990s when it accumulated huge losses because of high inflation rates and a revaluation of the Jamaican dollar. The
industry had to depend on capital injection from the government and the preferential agreement from Europe. After
losing that preferential treatment with the signing of the European Partnership Agreement in 2008, it became evident
that the government could not continue to carry this entity on the Budget. It was decided to privatise the industry
once again.
The sugar companies in Barbados are facing similar challenges. The 1990s also saw a threat of closure of at least
one of the factories and poor economies of scale. Globalisation has further worsened the woes of the sugar
companies in the Caribbean as many have suffered from high labour costs, falling world prices and the introduction of
tariffs in the European market.
Questions
1. Define the term ‘globalisation’. (1 mark) 2. Outline three (3) factors that are driving globalisation. (6 marks) 3. Amid
the challenges being faced by the sugar companies in the Caribbean, discuss three (3) benefits to the following: a.
Consumers
b. Businesses
c. The economy. (18 marks) Total 25 marks
product that can be imported at a given time Embargo
is a complete ban on trade between two countries
Export subsidies – the government may grant
goods that are imported should fall. Local firms will be
subsidies to local firms so that their products can be
able to sell more products. This method is often used
sold at a lower price than imports
successfully in the agricultural sector in most
Exchange controls – this is a deliberate restriction of
Caribbean countries
the foreign currency available to citizens. Since most
Quota is a restriction that is placed on the quantity of a
Caribbean countries trade using the US dollar, if it is as:
unavailable or in short supply, people will tend to Rules and regulations
consume fewer imported products. Import licences
Other barriers to trade Voluntary export restraints (VER) which limit the
The government may also use other barriers to trade, such amount of goods that can be exported from a country.
56
CHAPTER SUMMARY
The Caribbean business organisation is formed over removal of barriers to trade and
environment is characterised by time and is giving free access to the
low literacy rates, outdated usually influenced by leaders, market
technology, small and open the environment, Globalisation entails the
nature and high rates of employees, communication increased connectivity and
unemployment and procedures interdependence of the world
economy
‘Business culture’ is defined as A multinational or transnational
the beliefs, attitudes and corporation is one that owns ‘Protectionism’ refers to attempts
values of the employees in an and controls other business by the government of a country to
organisation operations outside the country restrict the importation of goods
in which it is situated and services.
The culture of any
Trade liberalisation is the
form an organisation’s ____
a. Vision
b. Culture
c. Mission
d. Aim
4. Which of the following have led to the growth of MNCs in
the Caribbean?
MULTIPLE CHOICE QUESTIONS i. Lower production cost
1. Caribbean economies are characterised by: ii. Government policy
iii. High profits
a. High employment rate
iv. Repatriation of profits
b. Many trade barriers
a. i and iv
c. High illiteracy rates
b. ii, iii and iv
d. Advanced technology
c. i and ii
2. Business culture is influenced by ALL of the d. i, ii, iii and iv
following EXCEPT:
5. Which of the following are drawbacks to having MNCs in
a. Consumers the Caribbean?
b. The environment
i. Exploitation of workforce
c. Procedures ii. Reduction in unemployment
d. Management iii. Depletion of resources
iv. Closure of local firms
3. The beliefs, attitudes and values of the employees a. i and iii
b. i, iii and iv a. CARICOM
c. ii and iv b. CSME
d. i, ii, iii, and iv c. CARIFTA
d. GATT
6. Trade liberalisation in the Caribbean started with
which organisation?
CHAPTER 4 | 57
9. A tax placed on imported goods and services is called
7. Which of the following is NOT a key element of a/an: a. Exchange control
CSME? a. Right of establishment b. Tariff
b. Movement of labour c. Quota
c. Free circulation d. Embargo
d. Barriers to trade
10. Protectionism is used for ALL of the following
8. Globalisation is being driven by ALL of the following reasons EXCEPT which one?
factors EXCEPT which one? a. To prevent dumping
a. Reduced transport cost b. To protect infant industries
b. Trade liberalisation c. To promote inefficiency
c. Available raw materials d. To fix balance of payment problems
d. Deregulation of markets
Question one Total 25 marks There are a number of multinational corporations (MNCs) within the Caribbean region.
These firms have presented the region with both benefits and drawbacks.
a. State what is meant by a ‘multinational corporation’ and give one (1) example of such a business within the
Caribbean. (5 marks) b. Discuss three (3) benefits and two (2) drawbacks of MNCs to the Caribbean region. (20
marks) Question two Total 25 marks Globalisation has opened many doors for the main stakeholders of the Caribbean.
Its impacts are felt on a day-to-day basis. In fact, the concept of globalisation should be of interest to all.
a. Define the term ‘globalisation’. (1 mark) b. Discuss three (3) factors that give rise to globalisation. (9 marks) c.
Discuss three (3) impacts that globalisation may have on businesses within the Caribbean region. (9 marks) d. Discuss
two (2) impacts that globalisation may have on consumers within the Caribbean region. (6 marks)
58
The Functions and Theories of

5
Management Module 2 The
Management of People
The classical theories
At the end of this chapter students should be
This form of management theory dates from as far back as
able to: Discuss the need for and nature of
the Industrial Revolution when it was adopted to deal with
organisations
the new problems that had emerged. Managers found it
Evaluate the major management theories
difficult at the time to train employees and decrease
Outline the contribution of each theory on dissatisfaction. This led to the development of classical
present-day organisations
theories as they tried to find a proper solution. The work of
Explain the functions of management
three main classical
Discuss the effect that each function has on the theorists will be discussed in this section, namely Frederick
organisation
Taylor, Henri Fayol and Max Weber.
Assess the main roles of management in an organisation
Scientific Management: Frederick W Taylor
(1856–1915) Frederick Taylor is usually regarded as the
father of Scientific Management. During the time of the
The need for and nature of organisations development of this theory most managers had little
contact with the activities of the factory. Instead, foremen
S
were given full control to produce the goods that were in
demand. Workers would generally use the available tools
imply put, an organisation is a group of people
and developed methods that fitted their style of work. This
had become counterproductive and inefficient, and workers
were often dissatisfied. The existing situation sparked the
interest of Taylor, who wanted to improve productivity and
working together to achieve a common or collective
reduce inefficiencies in the US manufacturing sector.
goal. Organisations work to transform inputs (people, raw
He started his study at Midvale Steel Company and
materials, money, etc.) into outputs which are of greater
found out that there was confusion between management
value than the inputs used. In Module 1, we discussed the
and workers on what constituted ‘a day’s work’. He carried
different types of organisations that exist in both the private
out numerous experiments, called work studies, in order to
and public sectors. It was pointed out that, because of
determine the best way to perform a job.
scarcity and out of choice, humans must make decisions
Taylor viewed man as an ‘economic animal’, meaning
regarding what to produce, how to produce and for whom
that he was rational and made economic choices based on
to produce. Therefore there is a need for organisations that
the monetary or material reward to be gained. This view of
will convert inputs into outputs.
the economic man led him to develop payment systems
Each organisation may be different in many ways. This
which linked efforts with the rewards received. This was
difference is sometimes caused by the management theory
done using a piece rate system.
that is being utilised. The next section will outline the main
tenets of these theories while discussing their impact on Taylor’s study outlined ways in which managers could
modern-day organisations. use the principles of his theory to improve productivity. His
theory suggested that work should be broken down into
smaller components or tasks to enable workers to
The major management theories specialise and become competent at those tasks. Taylor
outlined four principles of Scientific Management:
Develop a scientific study of management, with stated His view of the economic man was heavily criticised
rules, laws and principles to replace the outdated ‘rule because humans were likened to machines and
of thumb’ methods would only be satisfied by money.
Workers should be selected scientifically, trained and
developed as opposed to past practices where they Administrative Management: Henri Fayol
were selected randomly and usually untrained (1841–1925) Henri Fayol is also a classical theorist and
Cooperate with workers in order to ensure that work is regarded as the ‘father of modern management’. His
is done in accordance with the prescribed scientific theory of Administrative Management was developed
principles around the same time as Taylor’s but he did not focus on
the workers. Instead, he focused on management from
the upper level
There should be an equal division of tasks and THE FUNCTIONS AND THEORIES OF
CHAPTER 5 |
responsibilities between managers and workers. MANAGEMENT
59
This will allow managers to apply Scientific
Management principles in planning the work that will
be performed by the workers. of administration. He concluded that business activities
are divided into six interdependent groups which
For the most part, these principles had some level of
success. According to research done, they were managers should coordinate so as to achieve the
implemented in many factories and would often increase organisation’s goals:
overall productivity. In addition to his four principles of Technical – including manufacturing, production
management, Taylor used the following elements of and adaptation
Scientific Management to manage his staff effectively: Commercial – including buying and selling
The separation of planning from the actual Financial – sourcing and utilising capital
performance of the task Security – extending to both property and
individuals Accounting – inventory, final accounts
Carefully selecting workers to carry out a task on
and statistics Managerial – including his five
a scientific basis
functions of
Closely observing workers doing the task,
management, which are discussed below.
and documenting findings
Fayol’s five functions of management are outlined as
Carrying out job analysis to ascertain the best way
follows:
of completing a task
Planning – involves the establishment of objectives
Standardisation of the process involved in carrying
and development of strategies to achieve them.
out the task based on the job analysis
Managers should also be able to anticipate future
Assigning foremen to supervise workers, based
events and plan accordingly
on specialisation of functions
Organising – this deals with the delegation of
Fostering a suitable environment to encourage
responsibilities to subordinates in order to get the
cooperation between management and workers
job done
Providing financial incentives to motivate workers
Commanding – giving clear instructions to workers
and pay them based on performance.
and ensuring that the business is operated effectively
This theory enjoyed the following successes:
Coordinating – the manager should ensure that all
Factories that implemented his approach benefited
groups within the organisation are working toward
from increased productivity
a common goal
Some organisations benefited from increased
Controlling – ensuring that activities are being
profits His theory led to the development of fields
done according to plan. The manager monitors the
such as industrial engineering, personnel and
performance of the staff against the prescribed rules
quality control. Some drawbacks of Taylor’s
and procedures.
theory are:
Incidentally, some of the functions Fayol proposed
Identifying the ‘best way’ to do a job often made
became well known and accepted as the main functions
the task monotonous, dampening autonomy and
of management. These will be discussed in more detail
skill variety
later in the chapter.
Some people were opposed to the use of
In addition to the five functions of management, Fayol
stopwatches to assess the work done in a day
outlined 14 principles of management which should help spirit and morale. Unity and harmony should be
the manager to run a business smoothly. These are: promoted in order to strengthen the organisation.
Division of labour – work should be divided into Fayol’s 14 principles of management are still being
smaller tasks to promote specialisation. This should used
increase efficiency, productivity and output in some organisations today. They guide managers on
Authority and responsibility – managers should be how to supervise subordinates and organise their
given the authority and autonomy to carry out their departments or firms.
responsibilities
Discipline – all levels of managers should be Bureaucratic Management: Max Weber
disciplined in order to accomplish their tasks. (1864–1920) Bureaucratic Management was
Discipline will help them to develop obedience, developed by Max Weber, a German sociologist. His
diligence, energy and respect for all work focused mainly on how the organisation was
Unity of command – in order to prevent confusion, structured rather than the practical problems of
subordinates should take command from and report management proposed by Taylor and Fayol. Having
to only one supervisor viewed and analysed the growth of large-scale
MODULE 2 | UNIT 1 | THE MANAGEMENT OF PEOPLE organisations, Weber developed a set of principles for
60
what he dubbed ‘an ideal bureaucracy’.
To Weber, ideal bureaucracy was based on legal
Unity of direction – activities of the same nature authority rather than tradition or charisma. This legal
should be supervised by one manager who will authority
guide subordinates to achieve the same objective
Subordination of individual interest to general
interest – the interest of an individual or group
encompasses rules and controls that govern the
should not override the interest of the enterprise as
organisation. He believed that managers were given the
a whole Remuneration – workers should receive fair
mandate to enforce these rules and controls based upon
payment for work done
the authority given to them by the office in which they
Centralisation – this deals with the way in which serve.
decisions are made. The degree of centralisation in
In his study, Weber pointed out that bureaucracy had
decision making should be based on the
become inevitable because of the growth of businesses,
circumstances being faced by the organisation
advancement in technology and modern legal demand.
Scalar chain – there should be a clear line of
This concept of bureaucracy is evident in governments,
authority from the highest to the lowest level in the
businesses, trade unions, churches and even voluntary
organisation. In other words, there should be an
associations.
organisational hierarchy with a manageable span of
Weber developed six characteristics of
control
bureaucracy: Division of labour – this will lead to an
Order – all resources (people, raw material, tools,
increase in efficiency due to specialisation. By
equipment, etc.) in the organisation should be
dividing labour, authority and responsibility will be
carefully and properly ordered to ensure efficiency
clearly defined Authority hierarchy – the chain of
Equity – employees should be treated fairly and
command should be clearly outlined from the top to
justly. Managers should not discriminate but be
bottom in the organisation. Each employee must be
kind, honest and impartial to every employee
aware of the person to whom he reports. Likewise, a
Stability of tenure of personnel – labour turnover rate
manager must be aware of the people for whom he
is an indication of the effectiveness of management.
is responsible Formal selection – employees should
This rate should be minimised so that each employee
be hired based on their qualifications, education and
can grow and propel the organisation towards
training
achieving its goals
Career orientation – managers were seen as
Initiative – workers should be encouraged to
professionals instead of just owners of units they
generate ideas and develop plans that will benefit
managed. As a result, they were expected to
the organisation. This will also help the employees
pursue ‘careers’ in their respective fields
to develop their personal skills and abilities
Formal rules and controls – the organisation has
Esprit de corps – this means a ‘spirit of cooperation’.
formal rules and controls which must be adhered to
Employees and managers should develop good team
by employees in the performance of their duties subdivisions within the business, with people
Impersonality – rules and controls were applied focusing on the objectives of the unit rather than
impersonally and uniformly across the organisation. the business as a whole
Weber’s theory of bureaucracy faced criticisms, some of Rules and controls may become tedious over time
which are outlined below: and lead to inefficiencies rather than the efficient
The constant dependence on rules and controls may running of the business.
impede the organisation’s ability to change to meet Table 5.1 sets out the various contributions of
the changing environment classical management theories to the running of modern
The delegation of authority may lead to organisations.
THE FUNCTIONS AND THEORIES OF MANAGEMENT
CHAPTER 5 | 61
Classical Contributions
theories
Scientific Some firms still hold money as the only motivator, instead of utilising other incentives such as
Manage recognition, etc. ‘Best practices’ are promoted in different spheres to achieve objectives
ment The selection of workers in a number of organisations is done with stringent procedures to ensure
(FW that the best person is employed
Taylor) Staff appraisal is practised today which is very similar to Taylor’s observation and documentation of
workers Workers, especially in the manufacturing and construction sector, are still being closely
supervised by foremen Firms still place great emphasis on efficiency and profit maximisation
Administrat Fayol’s five functions of management provide a basis for managers in carrying out their
ive roles and responsibilities. These are still being practised by today’s managers
Manageme Specialisation is widely practised in a lot of organisations
nt (Henri Fayol’s principle of scalar chain is seen in many firms’ organisational charts. The chain of
Fayol) command is still practised today
The principle of initiative is pursued by many of today’s firms as workers are given the autonomy
to develop projects and work in teams to improve business activities and performance
Bureaucr The theory of bureaucracy is being used in a number of large organisations

atic The hierarchical structure proposed by Weber is widely used today as managers and subordinates
Managem are clear on who is in control and to whom they should report
ent (Max Organisations and institutions outline rules and regulations to monitor the activities that go on in the
Weber) business Managers are still required to acquire the necessary qualifications in order to be
considered for the job The concept of specialisation is evident in many organisations
Table 5.1: Contributions of classical theories to modern organisations
CASE STUDY
‘Old school’ management at OSM Ltd

When Mr Grumpy took over the reins at OSM Ltd the staff were optimistic that a big change would be coming and a
new style of management would emerge. However, reality set in as soon as Mr Grumpy became settled. Employees
quickly realised that while his was a new face, his management style was old. Being a steward of a deeply
entrenched classical leader, Mr Grumpy has approached this job with the same traits.
Since his arrival he has implemented hectic training programmes, workers are given guidelines on how work is
expected to be done and payment is now being made based on performance. In addition to those changes, workers
feel as though they are being closely monitored and that there are too many supervisors.
The workers are becoming restive and the other managers are now looking at ways in which they can improve the
manage ment of the firm. Some of them are thinking of using either Henri Fayol’s or Max Weber’s approach to
management in a bid to change the way things are done.
Questions
1. Which of the classical theories is being used at OSM Ltd? Give at least two (2) pieces of evidence from the case. (5
marks) 2. Looking at the circumstances, is this the best approach to be implemented? Explain your answer. (4 marks) 3.
Briefly describe the principles of the two (2) other theories that were mentioned in the case. (8 marks) 4. Discuss
whether or not these approaches are the best move for the firm at this time. (8 marks) Total 25 marks
the day and improved their knowledge and
understanding. The study’s findings outlined the
following views:
Human Relations School of behavioural Workers are not motivated only by money but also
theories By the 1920s, while the classical theories were by social and personal factors
successful, other scientists started to look for other Management should analyse employees’ attitudes
solutions to management problems. Together they formed when trying to ascertain their behaviour
the Human Relations School (Behaviour Management Effective supervision helps to maintain
Theory) which focused specifically on the human side of employees’ morale and productivity
management. More emphasis should be placed on informal groups
Their view was that management needs to focus on people and they may have a significant impact on
more than science or techniques, as purported by the employees’ performance.
classical theorists. These theorists, led by Elton Mayo, The Human Relations School consisted of other
studied the reaction of employees to performance incentive theorists who brought forward ideas such as:
schemes, job satisfaction and working conditions. They Maslow (Hierarchy of
concluded that if managers attempt to understand their Needs)
MODULE 2 | UNIT 1 | THE MANAGEMENT OF PEOPLE McGregor (Theory X and
62
Theory Y)
employees’ behaviour better, they can improve Herzberg (Two Factor
productivity. This school got its ‘kick start’ from a major Theory).
study carried out at the Western Electric Company’s
(WEC) Hawthorne plant in Chicago between 1924 and
1932. Job enlargement – workers are given more
than one task to perform at the same level of
The Hawthorne Study: Elton Mayo skill and responsibility
This study was spearheaded by Elton Mayo, a Harvard Job enrichment – the workers’ tasks are
University professor. The main purpose of the research improved upon to make them more interesting
was to determine the effect of working conditions on and satisfying. Workers are also given more
productivity. The study started out by trying to determine responsibility and recognition
the relationship between lighting in the work area and Job rotation – workers get the chance to work
employee productivity. The initial experiment heeded no in different positions throughout the business,
positive result and so Mayo and a colleague (Fitz J doing different tasks before being moved to
Roethlisberger) were hired to find other variables. The another task
new experiment focused on a Relay Assembly Test Group working – this involves placing workers
Room where they studied a group of female employees. in groups to complete a given task.
The women were allowed to supervise themselves, Some criticisms of this theory are:
enjoy less control and form groups. The theorists soon Humans are complex and so predicting behaviour
found out that these privileges boosted the workers’ may be more difficult than presented
morale. They were no longer thinking that they were a There are other factors outside of motivation that
small part of the organisation and that they were not affect workers’ performance
needed as much as others. This led to an improvement The Human Relations School was criticised for
in output as the women had become more motivated to playing down the conflict of interest between
do the work. management and employees.
This study changed the views of many stakeholders of
The system management approach
The system approach is a modern form of management. technological processes
It focuses on the organisation as a system that transforms Output – the goods and services that are produced
inputs into outputs. A system is a set of interdependent Feedback – includes the possible reactions from
parts (subsystems) that relate to each other in the the environment in which the firm operates, for
accomplishment of a purpose or task. The system theory example from consumers or clients.
sees the organisation as having four components or
elements:
Inputs – people, materials, money or information External environment
Transformation – includes managerial or
discussed under ‘Motivation’ process Output
later in the module. The Figure 5.1: A basic system
following methods of People,
motivation were proposed by material, Feedback
These theories will be the Human Relations money and information
further examined and School: Goods and services
Transformation
Inputs
However, for synergy to occur, each subsystem may
have to sacrifice its optimisation for the success of the
A model of a basic system is shown in Figure 5.1. Based whole system. In terms of the business, each
on this, it is clear that the process of inputs, transformation department should not aim solely at achieving its own
and outputs is continuous. The organisation has to ensure objectives but instead work together to achieve the
that it produces products that can be exchanged for the overall objectives of the firm. Therefore the production
resources (profits) needed to obtain new inputs and to department cannot work without the input of, say,
maintain its survival in the market. marketing or finance if the business is to be successful.
System theorists believe that businesses should be Synergy is therefore associated with an open system
analysed in terms of the interaction of their basic Entropy – this refers to the tendency of systems,
components. These components could lead to an especially where they are not properly maintained, to
improvement in the business’s performance. However, in run down and die. The concept of entropy is closely
order to realise this, managers are required to manage the associated with closed systems because of the lack of
interaction of each component rather than their interaction with the external environment. This lack of
independent actions. As a result, the system approach interaction results in no possibility for new inputs and
suggested that management integrates its major functions energy and so the system will eventually die
of planning, organising, staffing, leading, human resource Subsystems – as was alluded to earlier, these
management and controlling. are the individual parts of the entire system and
The system approach stated that most organisations are
(systems) depend on other systems for their inputs and THE FUNCTIONS AND THEORIES OF MANAGEMENT
CHAPTER 5 |
sell their outputs to other systems (consumers). These 63
organisations are affected by market forces within their
environment, along with societal values, legislation, interdependent. Management must realise that a change
shareholders’ demands and so on. to any of these subsystems will result in a change in the
The system approach is concerned with some key entire system. As a result, the firm must not be
concepts which give a clear picture of how a system works. managed as having separate parts but as one unit.
First, a system is divided into two categories:
Closed system – which is one that has very little or no Contingency theory
interaction with its external environment
After analysing the existing management theories, in the
Open system – which is one that has interaction with its late 1950s Joan Woodward and other theorists developed
external environment.
the contingency theory. These theorists believed that there
Another set of concepts important to the system theory was no ‘one best way’ to carry out a task. Instead, its main
are:
approach is one of ‘it all depends’. The theory stipulates
Synergy – this occurs where the total output of the that each situation is affected by different factors and must
system is greater than the sum of all of its inputs.
be treated on its own merit. With this in mind, the
contingency approach is flexible and draws on the style of the organisation is very important to success
concepts of all previous theories in solving a problem. It of its tasks and the nature of its work group.
integrates the findings of all theories in an attempt to deal Table 5.2 (p 63) sets out the various contributions of
with each situation. The effectiveness of such action modern management theories to the running of modern
depends on the size of the organisation, history, the organisations.
environment and the techniques used, among other
factors.
The main ideas of the contingency approach are The functions of management
summarised as follows: The term ‘management’ may be defined as the process of
A universal or ‘one best way’ to manage does not organising the available resources of the business to
exist The organisation should ensure that there is achieve desired results. Since employees do not normally
coordination between its design and subsystems and organise themselves and resources to achieve business
the environment in which it operates objectives, managers are very important. A manager is an
For the organisation to be effective, its subsystems individual who makes decisions about the use of limited
must be in sync resources and the planning, organising, directing and
Modern Contributions
controlling of these resources to achieve the
organisation’s goal.
theo There are three levels of management, especially in
ries
larger organisations (see Figure 5.2):
Human It gave insights to businesses on Top level – has overall responsibility for the business.
motivation and group dynamics This includes positions such as Chief Executive Officer,
Rela which are still practised today
tions President, Chief Operations Officer, Principal, etc.
School The recognition of employees as
Middle level – these managers report to top managers.
valuable resources has changed
the view that they are economic
They are usually responsible for departments or
animals and tools divisions and make tactical plans for how to achieve the
business’s overall objectives. This level includes heads
System The concepts of this theory are of department, Vice Principals, heads of division, etc.
theory being widely used in a number of Low-level or first-line managers – these managers
organisations that practise supervise the workers and the daily operations of the
teamwork. Departments are no business. They have direct responsibility for
longer isolated but are making their
contributions to the development of implementing the plans outlined by middle managers.
certain projects This level includes supervisors, foremen and office
Organisations have placed more managers.
emphasis on all stakeholders. As a A manager has a number of functions that he/she
result, firms are signing quality carries out on a daily basis. Each function is as important
assurance deals with their
as the
suppliers, are becoming more aware
of the needs of their customers and
are becoming increasingly socially
responsible
Contingenc In reality there is no one way of doing

y things, therefore this theory is Top level
theory synonymous with the approach that
many organisations have taken in
employing aspects of the different Middle level
theories in management
Low level
Table 5.2: Contributions of modern theories to modern organisations
MODULE 2 | UNIT 1 | THE MANAGEMENT OF PEOPLE
64
others and may affect the efficiency of the business. These
The appropriateness of the design and management functions assist with the management of the organisation.
The main functions carried out by management are
discussed below: Directing
Directing involves the motivation and leading of employees
Planning in order to attain business objectives. This function is
This function of management relates to setting business mostly carried out by lower-level managers who interact
objectives and establishing the necessary plans to achieve and work with employees on a daily basis while they carry
such objectives. This function is vital as it will outline the out their assigned tasks. Managers are also expected to
direction that the business will be taking in the future. For motivate employees so that they can achieve the
example, if a business’s objective is to increase its annual business’s objectives. They use different strategies to
sales by 20 per cent, the manager has to outline the plan motivate employees, which may include giving incentives,
to achieve this goal. This plan could include increasing recognition etc. Motivation will be discussed further in
advertising or the sales force. With this plan in place the Chapter 8.
manager can work towards achieving the stated objective.
Controlling
Organising In carrying out this function, managers are expected to
In this function the manager organises the human and evaluate and correct activities to ensure that the business
other resources necessary to execute the plan and is on track to attain its objectives. Controlling usually
objectives in the preceding function. It involves the follows the process of measuring performance, comparing
grouping of activities and resources in order to achieve actual performance with the firm’s objectives, highlighting
objectives and the distributing of authority to employees. variances and taking the necessary steps to correct any
The work may be organised in groups or departments or shortfall.
assigned to specific individuals. Lines of authority may also
be established which should help to improve Staffing
communication, improve decision making and prevent the This function of management deals with the recruitment,
duplication of resources.
Figure 5.2: The three levels of management selection, development and compensation of the staff.
65
Managers use this function to build their organisations The roles of management
through the development of their employees. The function
Managers carry out different roles in an organisation.
is of utmost importance since the firm needs employees to
These are organised into three main categories:
carry out its day-to-day activities. It involves management
Decisional role
filling the organisational positions, improving workers’
Informational role and
professionalism and making full use of their human Interpersonal role.
resources. Using these, Henry Mintzberg proposed ten roles for top
THE FUNCTIONS AND THEORIES OF MANAGEMENT
CHAPTER 5 | management (see Table 5.3).
Categories of roles Specific Explanation
Decisional role Entrepreneur The manager should use the

resources of the organisation to
develop new products and projects
or identify areas for the business to
improve or develop
Disturbance handler When unexpected problems arise

the manager should deal with
them immediately. He should
take corrective action to quell
conflicts or crises and overcome
changes in the external
environment
Resource allocator To allocate resources to the
different departments in an
equitable manner. Man-

agers
should also draft budgets for the
different departments
Negotiator Offers representation for the

organisation when bargaining with
trade unions and suppliers or in any
other situation that may arise
Informational role Monitor The manager must monitor the
perfor
mance of the departmental
managers while taking corrective
actions where needed. He should
also be aware of any changes that
are occurring in the internal and
external environments which have
the potential to affect the
organisation
Disseminator The manager should communicate

the firm’s vision and goals to the
employees, along with the possible
take place as a
changes that may
result of the changing busi
ness
environment
Spokesperson This involves being ‘voice’ of the
organisa tion to the general public.
He is responsi
ble for promoting the
firm’s products and sharing any
pertinent information about the firm
Interpersonal role Figurehead The manager performs certain

ceremonial and symbolic duties
including interacting with customers
and visitors and offering
representation on legal matters
Leader This includes directing, hiring,

training and motivating subordinates
Liaison The manager interacts with the

different stakeholders of the firm.
coordinate the tasks
He also should
of managers in differ
ent
departments
Table 5.3: Mintzberg’s ten roles for top management

66
CASE STUDY
A manager’s dream
Joan Phillips has taken over the position of CEO at a reputable manufacturing company in her country. This happened
after the previous manager was relieved of his duties because of a slew of issues affecting the employees,
shareholders and the firm’s profitability. Joan has been charged with the task of turning the company around. She
knew from the very outset that this would have been a difficult task but decided to take up the challenge.
Joan arrived to find a firm where things were done haphazardly, workers had little direction and knew very little
about where the firm was going, and the level of motivation was also very low. The lower-level managers were not
very clear on their roles and about what was expected of them and as a result the firm has not done very well.
As part of the recovery process, Joan decided to meet with all the department managers to improve the situation.
She decided that she would outline the functions of each manager and implement strategies from the Human
Relations School of Management to improve the morale of employees. She believed that this move would bring
about a turnaround for the firm.
Questions
1. Outline how the four methods of motivation proposed by the Human Relations School can be used to improve
motivation in the firm. (8 marks) 2. State one (1) criticism of the Human Relations School. (1 mark) 3. Describe four (4)
functions of management that Joan would want to discuss with the department managers. (16 marks)
Total 25 marks
CHAPTER SUMMARY
a time and motion study. It most organisations (systems)
The three main classical analyses a specific job in an depend on other systems for their
theorists are FW Taylor effort to ascertain inputs and sell their outputs to
(Scientific the most efficient method to use other systems (consumers)
Management); Henri Fayol in terms of time and effort The contingency theory stipulates
(Administrative The Human Relations that each situation is affected by
Management); and Max School changed the different factors and must be
Weber (Bureaucratic perception of treated on its own merit
Management) management in that, unlike the
classical theorists, they focused The main functions of
Taylor viewed man as an on the human side of management include planning,
‘economic animal’, meaning that management. Contributors to organising, directing and
he was rational and made this school include Elton Mayo, controlling
economic choices based on the Frederick Herzberg, Abraham
monetary or material reward to Maslow and Douglas Management carries out three
be gained McGregor main roles in the organisation.
These are decisional,
A work study is a combination of The system approach stated that informational and interpersonal.
1. Which of the following theorists is NOT associated with

the Classical School?
MULTIPLE CHOICE QUESTIONS a. Max Weber
b. Frederick Taylor d. Job rotation
c. Frederick Herzberg
7. The system theory sees the organisation as having
d. Henri Fayol four components. Which of the following is NOT
one of those components?
2. Which of the following theorists viewed man as an
‘economic animal’? a. Management
a. Elton Mayo b. Transformation
b. Frederick Taylor c. Output
c. Frederick Herzberg d. Feedback
d. Henri Fayol 8. Which function of management involves the motivation
3. Which of Fayol’s 14 principles of management states and leading of employees in order to attain business
that ‘Activities of the same nature should be objectives? a. Planning
supervised by one manager who will guide b. Organising
subordinates to achieve the same objective’? c. Directing
a. Unity of command d. Controlling
b. Unity of direction
9. ALL of the following are decisional roles of
c. Equity
management EXCEPT which one?
d. Centralisation
a. Negotiator
4. Which of the following BEST defines Fayol’s principle b. Entrepreneur
of division of labour? c. Disturbance handler
a. Managers should be given the authority and d. Leader
autonomy to carry out their responsibilities
b. Workers should be encouraged to generate 10. The informational role of management includes which
of the following?
ideas and develop plans that will benefit the
organisation a. Figurehead
c. Work should be divided into smaller tasks to b. Liaison
promote specialisation c. Leader
d. Employees should be treated fairly and justly d. Monitor
5. Max Weber is credited for his work on which of the

following theories?
a. Hawthorne Study Extended Essay Questions
b. Bureaucratic Management Question one Total 15 marks Discuss how any five (5)
c. Contingency theory of Henri Fayol’s principles of management can be used
d. Administrative Management to improve an organisation in modern times. (15 marks)
Question two Total 25 marks
6. ‘Workers get the chance to work in different positions
a. Outline five (5) contributions that Taylor’s theory
throughout the business doing different tasks before
of Scientific Management has made to modern-day
being moved to another task.’ This statement BEST
management. (10 marks) b. Explain five (5) of Max
defines: a. Job enlargement
Weber’s characteristics of
b. Job enrichment
THE FUNCTIONS AND THEORIES OF MANAGEMENT bureaucracy. (15 marks)
CHAPTER 5 |
67
c. Job satisfaction
68
The Organisation and its Structure
6
Functional organisational structure
The functional organisational structure is
LEARNING OBJECTIVES: work of Frederick W Taylor who is seen as the ‘father’ of the
At the end of this chapter students should be able to: Scientific Management approach. Figure 6.1 shows a
Discuss the importance of organisational typical functional organisational structure.
structure Outline the different classifications of Some of the features of a functional organisational
organisations Illustrate the different classifications structure are:
of organisations diagrammatically Well-defined communication channels which are
usually downward
Discuss the characteristics of the formal
organisational structure Clearly outlined chain of command and supervisory
roles
Utilises job specialisation and departments have well
defined roles
B efore we delve into the major concepts of this chapter
it is important that the term ‘organisation’ be revis

The structure is less flexible and so it relies heavily on
formal procedures.
Advantages of the functional organisational

ited. In Chapter 5 an ‘organisation’ was defined as a ‘group
structure Promotes co-ordination and control among
of people working together to achieve a common or employees, which can improve effectiveness
collective goal’. Put another way, it is a well-coordinated Specialisation can improve the performance of
social unit of two or more people with a desire to achieve a departments
common goal or collective goals. Based on these defini Operational functions can be delegated to lower-level
tions, we see that the organisation should have some form management.
of structure which will facilitate coordination of the activi ties
carried out by the firm. The structure also helps to guide
Disadvantages of the functional organisational
employees as it relates to their actions and lines of commu structure Coordination and control may become too
nication. The organisational structure is a framework that stringent and lead to low morale
outlines the lines of authority and communication in the The decision-making process may be very
organisation. slow, especially for very centralised structures
The structure may become too rigid, so that it cannot
adapt to the changing environment
Classification of organisations
An organisation can be classified in different ways, with Figure 6.1: Functional organisational structure
each classification being dependent on various factors
such as functions, product and location. The different CEO
classifications are described below.
etc. This is the most widely used Manager
classification
Purchasing
where the organisational structure is
ManagerProduction DepartmentProduction
designed in terms of the functional Human
ManagerFinance Resource
areas of the business – for example,
Manager
marketing, purchasing, accounting, ManagerEngineering
Human
by far, and is usually organisational structure has
DepartmentFinance Department
inexpensive. This type of been credited to the Resource
DepartmentEngineering Department
Purchasing
Where organisations are operating in different countries,
the likely organisational structure will be geographical. The
In the long run, specialisation can lead to a lack of focus geographical organisational structure organises the
on the organisation as a whole. enterprise in terms of regions or countries. However, each
region or country can then be organised in terms of
Product organisational structure function or product. This type of structure is frequently
In situations where businesses have different products, used by multinational corporations which have different
management may decide to separate the activities for each firms in various countries. An illustration of the
product. Each product would have its own management geographical organisational structure is shown in Figure
structure which is answerable to top management. The 6.3.
management structure of the product may be extended to The geographical organisational structure has the
include the major functional areas of production, sales, following features:
finance, etc. An illustration of the product organisational Each region is a profit centre
structure is shown in Figure 6.2.
The product organisational structure has the following Figure 6.3: Geographical organisational structure
important features:
Owner
Allows for delegation of responsibility by top President
management
Each product unit is accountable for profit in that
division
Each product is assigned the main functional
Country 1 Country 2
departments of the organisation.
Advantages of the product organisational

structure Focus is placed on the product’s
performance and level of profitability
Diversification in the product offerings of the firm is to be expensive
encouraged
Promotes positive competition among divisions
Each product division is given more autonomy to Figure 6.2: Product organisational structure Product
achieve divisional and organisational objectives.
Disadvantages of the product organisational

structure Maintaining the different divisions may
prove
THE ORGANISATION AND ITS STRUCTURE
CHAPTER 6 | 69
Marketing Operations Finance Marketing Operations Finance
The success of the product is highly dependent on

the people with direct contact with the product
There is duplication of the functional areas
Competition could become negative, which is not good
General
for the firm as a whole. Manager
Geographical organisational structure

(dairy)Product
(bun)Product
(tinned food)
Production Marketing Finance Production Marketing Finance Production Marketing Finance

70
The different regions are arranged on a functional or functional areas of the firm and horizontal lines which show
the lines of authority across the different divisions, regions
product basis
or departments. A typical matrix structure is shown in
Regions are allowed some amount of autonomy in the
Figure 6.4.
management of their operations.
Advantages of the geographical organisational Advantages of the matrix organisational

structure The firm can respond quickly to local structure Often leads to better use of
environmental change resources
The organisation is presented with local opportunities Flexible and adaptable to the changing environment
which may not otherwise be available Employees are more involved in the operation of the
Promotes delegation of responsibilities firm
Each region has responsibility for profit generation. Improves cooperation and problem-solving
techniques Improves management skill.
Disadvantages of the geographical
organisational structure There is duplication of Disadvantages of the matrix organisational
resources across regions
structure Workers may become confused from
answering to so many authority figures
Poor coordination across regions can hurt the entire
Slow decision-making process
organisation
May lead to a power struggle among managers Teams
Competition for corporate resources may lead to
or divisional goals may override the goals of the
conflict
organisation
Lower level of control by top management could lead to
May increase the cost to the firm in organising its
inefficiency.
activities.
Matrix organisational structure
Team organisational structure
The matrix organisational structure offers a different
Later in this book we will examine the importance of
tactic in organising business operations. It is usually used
teamwork and its impact on the organisation. More and
where the environment is rapidly changing and there is a
more organisations are embarking on a team-based
need for effective coordination to combat the situation.
approach to their operations. The importance of teams is
This structure combines elements of the functional, product
also evident in the school system through group work. This
and possibly geographical organisational structures. The
thrust of teamwork has led to the development of the team
matrix structure depicts two lines of authority. It shows the
organisational structure. The structure seeks to remove
lines of vertical authority which concentrate on the major
departmental boundaries by establishing teams which work
to complete an overall business objective.
General These teams are usually cross-functional and
Manager
are composed of employees from different
functional departments, including production,
sales and finance. Team members are
Purchasing R and D answerable to both their Removes departmental
Production
functional managers and the barrier while facilitating
team leader. A team intradepartmental
organisational structure is relationships Speeds up the
Product X illustrated in Figure 6.5 (p 71). decision-making process
Product
Manager
Team X Adaptable to change in the
Advantages of the team environment and consumers’
organisational structure taste and preference Allows
Product Z
Product Improves employees’ authority to be delegated as
Manager
Team Z
motivation the
Sales and Marketing
Figure 6.4: Matrix organisational structure hierarchy is lessened.
THE network organisational
CHAPTER 6 |
ORGANISATION AND ITS structure Less control
Finance STRUCTURE over what is done, since
71
Manager most workers are
Production Manager
contracted
Advantages of the Can be time consuming,
network organisational especially where there are
Research and Development structure Minimises regular meetings.
administrative costs
Faster decision-making Virtual organisational
process since there is a structure
reduction in hierarchical The virtual
Sales
structure. organisational structure
Manager uses networks to
Marketing Manager Marketing
Consultant Disadvantages of the
Figure 6.5: Team organisational structure linkages enable the company to manufacture and distribute
products without the hindrances of organisational
Disadvantages of the team organisational boundaries or location. This gives companies the ability to
draw on the capabilities of others without having to be
structure This structure may lead to conflicts among
there physically. The virtual organisation relies on a
departments as they compete for scarce resources
centralised database which uses technology such as
There is always a possibility of the problem of dual
videoconferencing and e-mail via the computer to
loyalties
communicate. To this end, the stakeholders within a virtual
A lot of time is spent in meetings
organisation may not meet face to face for a while, if ever
Teams may substitute the firm’s objective for theirs as
at all. Instead, they communicate via the internet to receive
decentralisation occurs.
their assigned tasks and send their reports once their tasks
Network organisational structure are completed.
Since meeting in a physical location is not a usual
This organisational structure links a number of separated
occurrence for the stakeholders, the physical company can
organisations with a desire to achieve a common goal
be small but retrofitted with the capabilities to operate
through their interactions. The network can be in the form
globally. A very successful example of the capability of
of a joint venture agreement or where some of the major
virtual organisations is seen in Amazon.com. An illustration
functions of the firm are subcontracted to other firms. These
of the virtual organisational structure is shown in Figure 6.7.
firms are linked by and to a company which serves as the
The virtual organisation is often characterised by the
headquarters or hub. For example, a large construction firm
following features:
may give subcontracts to other firms that will assist with the
Minimal physical structure
completion of a project. Figure 6.6 shows an example of
Heavy reliance on communication technologies
this type of organisational structure:
create linkages among people, assets and ideas. These
Auditing
Training firm company
institution Marketing agency Legal counsel
Manufacturing company
Manufacturer (law firm)
Design
company
Distributor Logistics
The company company
(central hub) Designer
Human
resource agency Core
company Finance
company
Sales and marketing
Figure 6.7: Virtual organisational structure
Figure 6.6: Network organisational structure

72
Amazon.com: a virtual difference
No boundaries to operation
Work can be done from home
Very few physical assets Elimination of the physical boundaries of the firm.
Heavy reliance on a network of part-time
self-employed workers who are connected
Disadvantages of the virtual organisational
electronically. structure Heavy reliance on external
organisations to provide high-quality goods in large
Advantages of the virtual organisational structure quantities
Access to worldwide expertise in order to provide high Lack of job security as the services of the
quality goods and services employees might be subcontracted
The firm can adapt quickly to changes in the external Close monitoring of external suppliers is required
environment because of its flexibility It can be difficult to build a corporate culture, as
Minimal overhead costs, as products are often employees and employers may be from different
outsourced cultures across the world
Its smaller and flatter structure gives the firm better Communication in the virtual office may be difficult,
control as people are working within different time zones.
CASE STUDY
In hindsight, several years ago, who would have known that Amazon.com would have become one of the largest
online compa nies? The company was established in 1994, with its headquarters in Seattle, Washington, USA. The
company specialises in the online sale of a number of items, including books, electronics, toys, tools and clothing.
The company has expanded its product offering significantly since its inception. Expansion is also seen in the
company’s international retail websites, worldwide network of fulfilment and customer service centres. There are also
a number of Amazon teams across the world providing fast and reliable shipping directly from Amazon retail websites
to customers. Other services provided by Amazon teams worldwide include customer service centres and technical
support.
Driven by technological advancements, Amazon.com now employs over 88 000 people worldwide. In addition,
over 2 million third-party sellers participate in Amazon by offering new, used and collectible selections to Amazon
customers worldwide. To cement its position in the virtual environment further, Amazon.com opened its e-commerce
platform to other retail brands and individual sellers in the year 2000. This has given hundreds of thousands of retail
brands and individual sellers the opportunity to expand their market reach and increase sales drastically.
Questions
1. Explain what a ‘virtual organisation’ is, giving one (1) example other than the one used in the case study. (2 marks) 2.
Give two (2) pieces of evidence from the case to show that Amazon.com is a virtual organisation. (4 marks) 3. State one
(1) reason for why technology is important for the success of Amazon.com. (4 marks) 4. Discuss three (3) benefits and
three (3) drawbacks of Amazon operating solely as a virtual organisation. (18 marks)
Total 28 marks
organisational structure
Hierarchy
Factors influencing the classification of This shows the different levels of authority in the
organisations organisation. The hierarchy in most organisations
Size of the firm – as firms increase in size it may be usually consists of three levels. At the top of the
necessary to upgrade or change their organisational hierarchy there is top-level management which has
structure. For example, an entrepreneurial business responsibility for setting long-term objectives and
may move from an entrepreneurial structure to a policies to chart the way of the firm to success. An
functional example of a top-level management position is Chief
structure. Likewise, larger firms such as multinationals Executive Officer (CEO). Below this level there is the
tend to have geographical or product organisational middle management level, with managers having
structures responsibility for the operational issues of the firm. This
The business cycle – firms may downsize or would include setting the jobs to be performed and the
expand in relation to fluctuation in external way in which they should be done. An example of a
environment. During periods of boom, firms may middle management position is Plant Manager. The
expand their lowest level in the hierarchy is the first-line managers.
They have a supervisory role and should ensure that
the work is done by the staff. An example of a first-line
chain of command and functional areas. However, a management position is Department Manager.
recession may force them to downsize, possibly
closing international branches or cutting Chain of command
management Business strategy and objectives – Chain of command shows the lines of authority in the
the strategies employed by the organisation to organisation. These lines are used to transmit
achieve its objectives may necessitate a specific information and instructions up and down the hierarchy
type of organisational structure. In other words, of the organisation. As was outlined above, the higher
organisational structure should coincide with the level of management, the greater the level of
business strategy. For example, if the authority. Therefore senior management is at the top of
organisation’s objective is to establish entities the chain of command which will continue down the
overseas, then its organisational structure must be organisation so long as there are people (subordinates)
flexible enough to be converted into a geographical receiving directives from someone higher in the chain
one The business environment – there are a than themselves.
number of factors in the business environment that THE ORGANISATION AND ITS STRUCTURE
CHAPTER 6 | 73
might affect the organisation. These include
technological, political, socio-cultural and economic
factors. These factors will affect the type of Span of control
structure utilised by the firm. Span of control refers to the amount of employees that
are directly under the control of one manager or
supervisor. As you might imagine, the greater the
Characteristics of the formal number of people being supervised by one person, the
less effective that supervision will be. Therefore most PEOPLE
Figure 6.9: Wide span of control
organisations have a limit on the size of the span of
control. The span of control is broken down into two
categories, based on the number of subordinates
involved. These are:
Narrow span of control

This is usually the case in organisations that have a
very tall organisational structure – that is, having a
number of managers or supervisors. However, it results
in closer supervision of workers and helps managers to
maintain quality and reduce risks. See Figure 6.8.
Wide span of control

This involves the supervision of a larger number of management down through the organisational
people. Organisations with a wide span of control tend structure. This relationship gives management the
to have a flatter organisational structure, with fewer opportunity to delegate authority, direct and control
levels of authority. A wider span of control enables employees
managers to delegate responsibility to subordinates. Staff relationship – in the organisation, there are
See Figure 6.9 (p 74). people who offer specialist advice to managers.
Some of the factors that may affect the span of These specialists do not have the authority to
control are outlined below: ensure that their suggestions are implemented since
The nature of the work being undertaken – that is, they are not within the hierarchy of the organisation.
more complex tasks warrant greater supervision An example of a staff relationship would be a legal
The ability, competence and skill level of secretary to a CEO of a large company
subordinates The leadership style employed by Line and staff organisation – this is one that
management combines the line authority with the supporting
The structure of the organisation. or specialist roles within the organisation. Both
sets of people work together to achieve the
Line and staff relationship organisation’s overall goals and objectives.
Line relationship – this is one that exists between
senior management and subordinates. It depicts an
Responsibility
organisation where authority or directives flow from This refers to the fact that all people in the organisation
top are obliged to perform the given task to the best of their
ability. One’s responsibility will then give him/her
authority in the organisation to assign tasks to
subordinates and make decisions.
Authority
This is defined as the right or power to give instructions
and make decisions in the organisation. Authority
allows management to direct subordinates to perform
duties. This characteristic of organisation structure is
based on three underlying principles:
Similar positions have the same level of authority
and this authority comes with the position held and
not the individual
Subordinates accept and comply with the authority
Figure 6.8: Narrow span of control of management because of their legitimate power
MODULE 2 | UNIT 1 | THE MANAGEMENT OF
74 The level of authority flows down the hierarchy of
the organisation – that is, top management has
more authority than lower-level management.
Some managers may be reluctant to delegate
some of their responsibility
There could be some reluctance by

subordinates to accept the tasks delegated
If the task assigned is unsuitable, it may
lead to significant losses and inefficiencies.
Centralisation and decentralisation In

centralisation senior management of the organisation
maintains full control of decision making and there is
minimal delegation of responsibility. On the other hand,
in decentralisation the organisation is one where
Accountability decision making involves subordinates and there is
The concepts of responsibility and authority necessitate delegation of responsibility. A decentralised organisation
the concept of accountability. Managers or people who is often separated into divisions, with some amount of
have been given authority and responsibility should be autonomy, however, working towards the fulfilment of
able to justify their actions and the outcome of their the organisation’s goals.
decisions to higher-level management. The concept of
accountability also affects the subordinates who must Advantages of centralisation
be accountable for any task given to them for Facilitates easy control and coordination of
completion. policies Cost minimisation since resources are
not duplicated Decision making is less time
Delegation consuming
The truth is that no one person can complete all the There are less extensive planning and
tasks that are necessary to bring about success of the reporting procedures.
organisation. To this end, managers pass down some of
their powers to subordinates to complete specified Advantages of decentralisation
tasks. ‘Delegation’ may be defined as the tendency of Firms can respond to changes quickly
management to entrust subordinates with responsibility Decisions made can reflect the needs of the market
and authority to carry out a task. There are a number of and customers
factors that would result in a manager delegating May improve the level of motivation of the
responsibility to subordinates. These include:
employees The workload of the firm is spread
To facilitate specialisation
across departments and to different individuals.
Time constraints
To foster a succession plan for managers
To encourage flexibility and adaptability to CASE STUDY
environmental change – for example, a
change in customers’ needs.
The overworked manager
Mr Workwell is the manager of a medium
Benefits of delegation
enterprise with a total of 100 employees
Helps to motivate workers
manufacturing grapefruit juice. To cut costs, the
Firm can utilise the specialist skills of
company is also involved in grapefruit production
employees Sheds some of the workload of
with a 100-acre farm. The business was passed
managers
down to Mr Workwell from his father when he
Increases the time that management has to
retired. After a few years, Mr Workwell started to
focus on issues at the corporate and strategic
realise that he too needed to slow down and
levels.
delegate some of his respon
sibilities. He is now giving the idea some thought.
Drawbacks of delegation
Prior to this point Mr Workwell was the sole
manager of both the farm and the processing plant. The geographical organisational structure is
He had to supervise all 100 employees, control the predominantly utilised by multinational
finances of the firm, hire and dismiss workers, corporations which operate in different
promote his grapefruit juice and take orders from countries
large customers.
THE ORGANISATION AND ITS STRUCTURE Line relationship is one that exists between senior
CHAPTER 6 | 75
management and subordinates
This lifestyle was never sustainable in the long Staff relationship exists where people within
term. While feeling as though he will be shirking organisations offer specialist advice to managers.
the responsibility that was given to him by his 76
father, Mr Workwell has decided to reorganise the
firm. Some of the moves that he is thinking of
MULTIPLE CHOICE QUESTIONS
include appointing a manager for the farm, finance,
production at the factory, marketing and human 1. A well-defined communication channel and clearly
resources. He would continue being the general outlined chain of command are features of which
manager and employees would be formally placed organisational structure?
into the different departments. This, he believes, a. Geographical
would lessen the burden on himself and give
b. Product
others an opportunity to show their prowess and
bring in new ideas. c. Matrix
d. Functional
Questions 2. Which of the following is a disadvantage of the
1. How would you describe the span of control of product organisational structure?
the business prior to the intended changes? (3
a. There is duplication of the functional areas
marks) 2. Based on the information given in the
b. Focus is placed on the product’s performance
case, draw an organisation chart showing what the
and level of profitability
structure
of the business will be after the change. (12 c. Diversification in the product offerings of the
marks) 3. Using the information in the case for firm is encouraged
reference, d. Promotes positive competition among divisions
explain the concept of delegation. (5 marks) 4.
Outline three (3) benefits and two (2) drawbacks to 3. Just for You Ltd is planning on expanding its operation
delegation in this firm. (5 marks) Total 25 marks to the countries within the CSME. Which of the
following structures would be BEST suited for the
business?
a. Team
b. Network
CHAPTER SUMMARY
c. Geographical
For an organisation structure to be effective the d. Matrix

following criteria must be met: flexibility; satisfying
the needs of the firm; encouraging growth and
development; and incorporating organisational Extended Essay Questions
design
Functional organisational structure is designed 4. ALL of the following would affect the type of
in terms of the functional areas of the business organisational structure chosen by the firm EXCEPT
– for example, marketing, purchasing, which one? a. The firm’s suppliers
accounting, etc.
b. The business cycle d. Responsibility
c. Size of the firm
6. If the Marketing Manager gives advice to the
d. Business objective
Production Manager about a possible product
5. The number of employees who are directly under the development, what type of relationship is being
control of one manager or supervisor is referred to displayed?
as: a. Line and staff
a. Span of control b. Line
b. Chain of command c. Staff
c. Hierarchy d. Horizontal
Question one Total 25 marks Mr Confusion from MJ Coolers is thinking of using a product organisational structure but
is seeking your advice. a. Draw a typical product organisational structure. (5 marks) b. Advise Mr Confusion of five (5)
benefits and five (5) drawbacks of using this structure. (20 marks) Question two Total 25 marks a. Explain four (4)
factors that can affect the type of organisational structure used by a firm. (12 marks) b. Differentiate between a line
relationship and a staff relationship. (3 marks) c. Define the term ‘span of control’ and, with the use of diagrams,
differentiate between a ‘narrow’ and a ‘wide’ span of control. (10 marks)
77
The Theory and Application

7 of
Motivation
incentives that are used in businesses
Outline the implications of motivation theories
for managers
At the end of this chapter students should be
W
able to: Discuss the factors that stimulate
and influence
motivation e all make choices in life and the choices we
Outline the main concepts of Maslow’s
Hierarchy of Needs Theory make may be influenced by a number of factors.
Outline the main concepts of Herzberg’s Hygiene As students, there are a number of factors that influence
Theory Compare and contrast the two main the level of work you do in each subject, including
theories of Management of Business. Some of you might be driven by
a desire to do well; a good teacher who encourages you all
motivation
the time; a desire to qualify for the best university; or
Analyse the main financial and non-financial
wanting to ensure that your parents’ money is not wasted. Herzberg and McGregor. Both theories are also discussed
These factors will influence your level of motivation. In this later.
chapter, the concepts of motivation, motivation theories
and incentives will be discussed. Environmental opportunities
The environment in which people work can be a good
source of motivation. If the work environment offers
Factors that stimulate and influence opportunities for personal growth or for promotion, then
motivation people may be motivated. Employees may become
Motivation is generally defined as the ‘will to achieve’. It is de-motivated if their work environment offers neither of
the internal and external forces that arouse a person to these two opportunities. Working in an environment where
carry out a task with enthusiasm. Your level of motivation there is no chance of
may be influenced or stimulated by the following factors: 78
Individual needs promotion or growing will discourage people from giving

We are driven by our needs and the things we do are, very the extra effort to carry out their tasks.
often, influenced by our desire to satisfy these needs. An Other influences on motivation include values,
employee’s basic need for food, clothing and shelter will attitudes, beliefs and goals.
influence how he/she works or operates. For example, a
desire to own a home may motivate a person to work hard
in order to gain the income or level of savings needed to Theories of motivation
acquire that house. Later in the chapter we will examine the The theories of motivation can be classified into two main
work of theorist Abraham Maslow, who shared this view in categories: content theories and process theories.
his Hierarchy of Needs.
Content theories
Self-motivation
These theories focus on the needs of employees and
While some people are motivated by forces in their how these needs motivate them. Theorists in this
environment and what is done by others, others are self category believe that people are driven by their needs.
motivated. Self-motivation speaks to a situation where
These needs will be transformed into internal forces that
someone has the drive or ability to perform a task without
influence their behaviour pattern. Organisations are
the influence of anyone else. People who are self-motivated
therefore encouraged to develop reward systems that
tend to be able to complete a task even in the face of
cater to these needs and employees will be motivated.
adversities or without encouragement from anyone. Such
Content theorists feel that each individual differs in their
people are often optimistic, energetic and driven by their
desire to succeed in the task at hand. ability as well as their ‘will to do’ a task. To this end,
motivation depends on the level or strength of an
Ability to make choices individual’s needs. Two of the most prominent content
One of the greatest desires for humans is having the ability theorists include Abraham Maslow and Frederick
to make certain choices. When this is not the case, people Herzberg.
may feel confined or unhappy with their current situation or
Maslow’s Hierarchy of Needs
environment. In a business operation some employees
desire to have the autonomy to make choices which could The work of Abraham Maslow came about in the
influence the work environment or the way the work is done. mid-1950s. He proposed that:
They want to participate in decision making while knowing An individual’s needs will influence his/her behaviour
that their suggestions will be treated with high regard. The greater the need, the greater will be its influence
These choices may be given to employees by a democratic on the individual’s behaviour.
leader as opposed to an autocratic one. It is often said that Maslow identified a number of needs that will
employees who have a democratic leader are usually influence human behaviour. He summarised his findings
better motivated than those with an autocratic leader. in the Hierarchy of Needs as shown in Figure 7.1.
These different leadership styles will be discussed later in According to Maslow, each level of needs must be
this book. The idea of allowing employees to have some acquired or fulfilled before the individual can move on to
level of autonomy is supported by the work of theorists a higher need. Therefore lower-level needs must be
fulfilled in order for the higher-level needs to be
accomplished. These needs are expanded below: contributions of employees through promotions, award
ceremonies and bonuses, etc. An example of this is seen
Physiological needs where they publish photographs of their outstanding
These are the basic needs in life, including food, water, employees in newspapers. In other businesses, a
clothing and shelter. Employees desire the means to photograph of an ‘employee of the month’ is posted at
acquire these basic needs by working in an organisation. the reception area to recognise that person’s effort.
A sufficient salary should be able to take of these needs.
Therefore, if the salary earned cannot sufficiently Self-actualisation needs
provide these needs, the individual will not be motivated. This is the highest category of need. It is where
With these needs in mind, some organisations provide employees feel a sense of self-fulfilment. The employee
subsidised lunches, housing solutions and concessions desires to reach his/her full potential while increasing the
on motor vehicle purchases, among other rewards. level of
competence at the task being completed. Managers can

help employees to fulfil this need by providing additional
training for employees, whether on the job or off the job.
Self
actualisation
Some organisations provide scholarships for employees
who desire to do higher studies.
Esteem needs
Belongingness needs Implications of Maslow’s theory for

Safety needs
management Management needs to
Physiological needs
understand the needs that motivate the
employees and use them to their advantage
Figure 7.1: Maslow’s Hierarchy of Needs Motivation is sometimes tied to the leadership style
of the manager
Safety or security needs
Management should provide a safe working
Individuals desire to be in a safe and secure physical and environment Opportunities should be given for people
emotional environment. These needs include job security, to reach their full potential
stability, freedom from fear or threat, being treated fairly Managers should pay an appropriate salary to
and avoidance of pain. Management should provide workers. This will allow them to afford the basic
security guards, ensure that the environment is not easily needs in life By rewarding employees, managers can
accessible to unscrupulous people and protect workers build long lasting motivated relationships.
from harmful substances such as toxic fumes.
Two-factor theory
Belongingness or social needs In the late 1950s, Frederick Herzberg developed what he
Employees want to feel accepted by their peers, to be called a two-factor theory of motivation. After conducting
loved, to have lasting friendships and to be a part of interviews with a number of employees, he concluded that
groups. They yearn to socialise with their co-workers and there are some factors that will lead to job satisfaction and
have good relationships with both peers and supervisors. others that will cause job dissatisfaction. The factors that
Managers should cater for this need by having social lead to job satisfaction were called ‘motivators’ and those
events at work, promoting group work and encouraging that cause job dissatisfaction ‘hygiene factors’.
interaction among employees and between management
and employees. Motivators
These factors include:
Esteem needs An attraction to the work itself
These needs include a desire to have a positive Recognition from both management and
self-image, status, recognition and appreciation by colleagues Being given responsibility for tasks
others. Workers want to be recognised and credited for A sense of achievement
any contribution given to the organisation. Organisations Opportunities for advancement and personal growth.
can provide for these needs by recognising the Herzberg suggests that where there is a presence of
motivators on the job, workers will be motivated. However, responsibility.
the lack of motivators will not lead to dissatisfaction but
workers will be neutral towards their work. Instead, it is Process theories
the hygiene factors that will prevent dissatisfaction. Process theories essentially argue that people’s thought
processes will influence their behaviour. They change the
Hygiene factors focus from people being driven by their needs (content
These factors include: theories) to one where they select behavioural actions to
Working conditions meet their needs. Process theories include Vroom’s
Interpersonal relationships Expectancy Theory and Adams’ Equity Theory.
Pay and job security
The policy of the organisation Vroom’s Expectancy Theory
The quality of management and supervision Victor Vroom’s Expectancy Theory suggests that
Perceived differences with others. employees will be motivated to carry out tasks in order to
THE THEORY AND APPLICATION OF MOTIVATION reach a goal if it is worthwhile to do so. Therefore a
CHAPTER 7 |
79 person's motivation can be linked to the anticipated
worth that is placed on a goal and the probability of that
These factors will attract people to the job and help goal being achieved. The Expectancy Theory proposes
them to keep the job. The presence of these factors will three variables:
not bring about satisfaction, as this is only achieved The effort of the individual – this assess the
through motivators. However, their absence will mean individual’s expectation that if enough effort is placed
that workers are indeed dissatisfied. on a task it will generate the desired level of
performance. The level of expectation usually
Herzberg’s theory has the following implications for
management: depends on the worker’s ability, experience and the
Managers should be aware that workers can be available resources
satisfied or dissatisfied with the job or even both. For The performance of the individual – the expectation
example, a worker may love the work that he is doing here is that the desired level of performance will bring
but be dissatisfied whenever he receives his pay about the desired outcome. For example, an
cheque The notion is that unless motivators are insurance agent who believes that selling 100 life
present at work, employees will not be motivated. insurance policies will earn him the ‘agent of the
Managers must therefore be aware that improving month’ award. Suffice it to say that the level of
hygiene factors will not lead to motivation but simply expectation will determine the level of motivation –
prevent dissatisfaction In order to improve motivation, that is, a high level of expectation will result in highly
management needs to design the job to provide an motivated workers The attractiveness of the desired
opportunity for growth, recognise employees for work outcome (valence) – this represents the value that is
done and assign placed on the
80
CASE STUDY
‘Chaos at Fun Lovers’ Paradise’

These are the words of the livid union leader, Mr Folkes. He opined that the union will have to be called in to deal with
the unfair treatment and poor working conditions that workers at Fun Lovers’ Paradise amusement park have to
contend with. Workers have complained that they are expected to work under less than favourable conditions. There
is poor lighting in the factory and when it rains heavily the roof leaks. Management has blamed this on tough times
for the firm, indeed, staff have been asked to take a 15 per cent cut in pay and to forgo their Christmas bonus. Some
workers also bemoaned the fact that they have been doing the same boring tasks for the last five years and there is
no more zest in them to carry on. Mr Folkes stated that management usually just post information on the notice board
at the front entrance and there is little or no opportunity to communicate with them. He said that even if workers gave
suggestions they were not even considered. Productivity levels have plummeted and profits are dwindling as a result.
If management does not make a decisive move to improve the morale of the workers then Fun Lovers’ Paradise may
be no more. Now the patrons are watching the situation with bated breath, as the firm is one of the largest local
attractions for both children and adults.
Questions
1. Give evidence from the case to show that the workers are de-motivated. (3 marks) 2. Discuss how the occurrences at
Fun Lovers’ Paradise represent a deviation from Maslow’s Hierarchy of Needs. (10 marks) 3. Briefly explain Herzberg’s
theory and discuss how it could be used to improve motivation at Fun Lovers’ Paradise. (12 marks) Total 25 marks
CARICOM states have a standard work week of 40 hours.
In some cases workers are paid for working over the
specified amount of hours for the week. The excess hours
outcome by the individual. For the employees’ level of
work for the week is termed ‘overtime’. The payment
motivation to be high, the outcome must be desirable
received for overtime work done is usually over and above
and highly valued.
the ordinary hourly rate. For example, regular hours work
Adams’ Equity Theory may be paid at $50 per hour but overtime is paid at ‘time
and a half’ per extra hour worked – that is $75 per hour. If a
John Adams’ Equity Theory suggests that inequities will
worker works for 45 hours for the week, his weekly pay
exist if people believe that the rewards they receive for a
would be calculated as:
completed task are unequal to those received by other
people. If employees perceive that the rewards received for
Regular pay: 40 hr × $50 = $2,000
a task are the same as the rewards for other people
Overtime pay: 5 hr × $75 = $ 375
carrying out a similar task, they will see themselves as
Total week’s pay = $2,375
being treated fairly and equitably. Where this is not the
case, however, then they attempt to reduce the perceived
inequity by:
Modifying the inputs – for example, the level of effort
exerted to carry out the task
Changing the outcomes – for example, lobbying for
better wages and working conditions
Resigning from the post
Mentally distorting their perception.
Financial and non-financial motivational

strategies
Financial strategies
Earlier in this chapter it was discussed that theorists such
as Herzberg believe that money is not source of motivation.
However, in a number of organisations today, money is still
being used to motivate employees. Financial strategies can
be divided into payment schemes and incentive schemes.
Each of these is examined below.
Payment schemes
Time rates
This type of payment is used for workers who are paid for
the amount of hours they spend at work. At the end of the
week, fortnight or month, workers will be given their total
wages or salary. The rate paid is usually a fixed amount and
is based on a standard working week. For example, most

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MANAGEMENT

CAPE is a registered trade mark of the

Contents 2 Business Objectives 29 Nature, role and importance of

11 Communication in Business 113 Types of

8 Leadership 88 Leadership theories 88 Theory X and 14 Accounting Information and

MODULE 3 SMALL BUSINESS MANAGEMENT 326

35 The Nature and Characteristics

36 Economic Systems and Business Growth 331 The

37 Major Challenges and Opportunities Faced by

Selection of business types 345 Determining a location

Figure 19.1 Examples of common trends 199 Figure 19.2 A

Table 19.1 Data for calculating simple

Table 21.1 Calculating operating profit under

Table 25.1 Getting ready for school 248

Table 26.1 Overview of business concepts 259

Table 28.1 An evaluation of marketing

Table 30.1 Possible responses from marketers

Table 31.1 Information for calculating price

Table 33.1 Overview of types of advertising media 314

Table 36.1 The impact of economic systems

Table 40.1 Module content related to SBA topics 365

The text breaks down accounting information so that

The book gives a number of definitions, examples from

The text also contains photographs, artwork and diagrams

1 Economic and Legal Structures

Module 1 Business and its

At the end of this chapter students should be able

into three types of economic or business activity.

Advantages of reliance on the primary sector

Disadvantages of reliance on the primary sector Depletion of natural resources, especially

Figure 1.3: An example of industry in the tertiary sector

proprietor Partnership Limited

Main features of private limited companies

Easier to raise capital on a large scale

Disadvantages of public limited companies

Figure 1.7: A cooperative business:

Main features of cooperatives

Figure 1.8: A franchise

Disadvantages of joint ventures CASE STUDY

Partnership to private limited Limited liability Greater legal requirements

Private limited company to public Greater financing Accounts of the company

The public sector

private-sector enterprise may be nationalised for a number

idea of where we want to reach and how we plan to get

Scotiabank’s commitment to corporate social

Extended Essay Questions

time and possibly cost. For example, a firm may want to

Decision crisis in J & K Fast Food

revenue will lose its value as inflation rates get higher.

Table 3.2: Possible impact of factors on a firm’s decision making

3. Cost push inflation is influenced by ALL of the

The four essential features of good information d. Import prices

1. Information should have four main features. Which of

Extended Essay Questions

Caribbean Business Environment

T he Caribbean territories are characterised by mostly

small developing economies. These economies tend

Disadvantages of MNCs to the host country Trade liberalisation

When the Jamaican Government decided to liberalise the