MANAGEMENT FOR TECHNICIANS

BY

D. N. NDORO; (FTC;AeTD,china;CDipAF,uk;MBA,zou)

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CONTENTS PAGE

CHAPTER 1 COMMUNICATIONS 3

CHAPTER 2 MANAGEMENT THEORIES 14

CHAPTER 3 ORGANISATIONS 21

CHAPTER 4 MANAGEMENT DUTIES 22

CHAPTER 5 STAKEHOLDERS 28

CHAPTER 6 MANAGEMENT FUNCTIONS 31

CHAPTER 7 ECONOMICS 55

CHAPTER 8 ACCOUNTING 63

CHAPTER 1
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COMMUNICATION
Communication is the interchange of information, ideas, facts and emotions by two or more
persons. It establishes relationships and makes organising possible.

A great deal of communication can take place without any words at all.

The raised eyebrow, the curled lip, the frown and the glare all say a great deal; so also can
more obvious physical gestures, e.g. the pat on the back or arm around the shoulders and
posture changes. Body language is about:

 eye contact – looking people in the eye with a relaxed and friendly gaze
 facial expressions
 posture and distance.

In the organisation communication may take the form of:

 giving or receiving information and instructions
 exchanging ideas
 announcing plans and strategies
 laying down rules or procedures
 comparing actual results against a plan
 manuals, organisation charts and job descriptions (communication about the structure
of the organisation and individual roles).

Communication process

The process of communication can be modelled as shown in the following diagram:

The stages of the communications process

The communication process involves the following stages/elements:

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Sender (encoder) – initiates the communication process. To encode is to put the message
into words or images.

Message – the information that the sender wants to transmit

Channel (the words channel and medium are often used interchangeably) – is the means of
communication. It can be thought of as a sense, e.g. smelling, tasting, feeling, hearing and
seeing. Sometimes it is preferable to think of the channel as the method over which the
message will be transmitted: telecommunications, newspaper, radio, letter, poster or other
media.

Receiver (decoder) – the person or group for whom the communication effort is intended.
The receiver decodes or interprets the meaning of the message. Thus, in the feedback loop,
the receiver becomes the sender and the sender becomes the receiver.

Noise – anything that interferes with the communication or makes it difficult to understand.
Noise can arise from many sources, e.g. factors as diverse as loud machinery, technical noise
(a poor telephone connection), smudges on a printed page, status differentials between
sender and receiver, distractions of pressure at work or emotional upsets.

Feedback – ensures that mutual understanding has taken place in a communication and
makes the communication a two-way process. It indicates to the sender that the message
has been successfully received, understood and interpreted

Ensuring information will be received and understood

It is critical to understand the communication process, appreciate and be aware of the

potential sources of errors and constantly counteract these tendencies by making a
conscientious effort to make sure there is a minimal loss of meaning in your message.

Various steps may be taken in order to ensure effective communication. These include:

Selecting the appropriate channel – the choice of medium used depends on factors such as
urgency, permanency, complexity, sensitivity and cost.

Adopting feedback – the ‘two-way’ nature of communication is ensured, so that the receiver
seeks clarity and the sender seeks acknowledgement.

Using more than one communication network – sometimes it is possible to use the informal
communication network to reinforce the message sent, e.g. the friendship network.

Restricting the number of communication ‘links in the chain’ – the shorter the distance
between sender and recipient of a message, the fewer the ‘breakdown’ points in the
communication process; allowing messages to be conveyed more directly to the recipients
encourages this aspect.

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Ensuring clarity – sensitivity to the needs of the recipient of the message (relating to
experience, awareness, intelligence, perception, etc.) reinforces the intention to produce a
clear message.

The effectiveness of an organisation depends to a large extent on the effectiveness of

communication by its managers and employees. Information is exchanged in two ways,
formally and informally.

Formal communications help to provide management structure, so that individuals know

what is expected of them and know how they have actually performed. For example, an
organisation needs plans, procedures, policies and performance reports, official planning
documents and the formal communication of management decisions.

Information is communicated informally by means of face-to-face conversations, telephone

conversations, emails and text messages. Informal communications are a feature of co-
operation between individuals. People need to communicate in a way that promotes
constructive working relationships.

Formal communication channels

In organisations formal communication channels are normally established as part of the

organisation’s structure. Work-flow is an important factor that shapes the formal pathway
or channel for the sending and receiving of communications. Communication flow may be
downwards, from superior to subordinate, upwards from subordinate to superior, or lateral
between equals

Downward communication provides a basis for giving specific job instructions, policy
decisions, guidance and resolution of queries. Such information can help clarify operational
goals, provide a sense of direction and give subordinates data related to their performance.
It also helps link levels of the hierarchy by providing a basis for co-ordinated activity. Too
much emphasis on downward communication can create problems. People will become
reluctant to come forward with their suggestions and problems and may be averse to taking
on new responsibilities. There is also a risk of management getting out of touch with their
subordinates. For these reasons it is important to stress upward communication

Upward communication provides management with feedback from employees on results

achieved and problems encountered. It creates a channel from which management can
guage organisational climate and deal with problem areas, such as grievances or low
productivity, before they become major issues.

Lateral or horizontal communication channels refer to communication between people or

groups at the same level in the organisation. Four of the most important reasons for lateral
communication are:

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1 Task co-ordination – department heads may meet periodically to discuss how each
department is contributing to organisational objectives.

2 Problem solving – members of a department may meet to discuss how they will handle a
threatened budget cut.

3 Information sharing – members of one department may meet with the members of
another department to explain some new information or study.

4 Conflict resolution – members of one department may meet to discuss a problem, e.g.
duplication of activities in the department and some other department.

Co-ordination between departments depends on this form of contact, e.g. line and staff
positions rely heavily on advice passing laterally. Managers also communicate with sources
outside the organisation, e.g. suppliers and customers.

Informal communication channels

While the organisational structure will have a designated, formal communications network,
it is inevitable and not necessarily bad that in almost all organisations there will be a
number of informal communication channels.

Informal communication:

 can move in any direction

 skips authority levels
 is as likely to satisfy social needs as it is to facilitate task accomplishments.

A grapevine is the network of social relations that arises spontaneously as people associate
with one another. Grapevine activity, or ‘bush telegraph’ as it is sometimes known, is likely
to flourish in many common situations such as when:

 there is a lack of information about a situation and people try to fill in the gaps as best
they can
 there is insecurity in the situation
 there is a personal interest in a situation, e.g. when a friend is disciplined by a supervisor
people may well gossip about it
 there is personal animosity in a situation and people seek to gain advantage by the
spreading of rumours
 there is new information which people wish to spread quickly.

The grapevine is sometimes used deliberately by management to give out information that
it would not wish to transmit formally. It may wish to prepare staff for the formal
announcement of some bad news.

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Rumour is another type of informal communication. This is a message transmitted over the
grapevine and is not based on official information. As a rumour it may be true or false or
have elements of both.

Gossip, together with rumour, is often communicated by the grapevine: gossip is idle talk,
often of little consequence, but it can be hurtful if malicious and about particular people.
However, it can be a morale booster, a socialising force which spells out group norms, and it
can be beneficial to the individual as a means of sharing employment worries.

Ineffective communication

Ineffective communication includes poor, or inadequate control, as well as faulty co-

ordination.

Lack of downward communication is likely to result in:

 poor awareness of corporate objectives at lower management levels
 poor understanding of working instructions and responsibilities
 poor morale of junior managers because they are not consulted about changes which
affect them or their working conditions.

Lack of upward communication, including ‘feedback’, has the following undesirable

consequences for management:

 early warning of troubled areas is not received

 benefit of creative ability in subordinates is lost
 participation of subordinates is limited
 need for change is not appreciated because management is isolated from the operation
areas
 control becomes difficult
 introduction of change is difficult.

Lack of lateral communication often leads to:

 divisions in management teams
 lack of co-ordination
 rivalry between sections and departments
 lack of advice and involvement by staff specialists.

The importance of good communication to employees and managers

Communication is a process that links various parts of the systems. Without a formal
communication system, managers would not be able to fulfil their role.

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Effective communication is essential so that:

 Instructions and guidelines are properly understood.

 Individuals know what they are expected to do.
 There is better co-ordination between people and groups in the organisation – all the
systems for administration, purchasing, production and marketing can be synchronised
to perform the right actions at the right times and co-operate in accomplishing the
organisation’s goals.
 Managers are able to plan and control operations more effectively.
 Individuals are more willing to work together in teams or groups, because they are being
told what is happening and where their contribution fits in.
 Forming, swapping and testing of ideas is encouraged.
 Secrecy, misunderstanding and mistrust are eliminated. Open communication increases
trust.
 Interpersonal relations can be developed and maintained between subordinates,
supervisors, peers, customers and suppliers.
 Arguments and conflicts in the work place are reduced.

Barriers to effective communication

Poor communication can be the result of barriers to and breakdowns in communication,

which should always be analysed to prevent continuing occurrence.

A barrier to communication is anything that stops information from:

 getting to its intended recipient(s)
 being understood by the recipients and
 being acted on in the way intended.
Barriers to communication may be due to:
 the personal background of the individuals communicating, e.g. natural reserve and
status barriers can result in reluctance to pass information upwards for fear of incurring
criticism
 language differences or the use of technical or professional jargon
 difference in education levels
 noise, i.e. the message is confused by extraneous matters
 conflict within the organisation and between individuals
 overload, i.e. too much information being communicated
 distance between communicators
 simple misunderstanding as to content or context
 distortion of information by the receiver.

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Overcoming barriers to communication

When there are significant barriers to communication, it is important to:

 identify what those barriers are, and
 consider ways of dealing with the problem.
Some general rules to ensure communication is effective are:
 avoid communication overload
 ensure the right information gets to the right person at the right time
 agree and confirm priorities and deadlines for receipt of information
 keep communication simple – it is also helpful to remain sensitive to the various
alternative interpretations possible for a message.
 Messages can often be restated in different terms
 develop empathy with ‘listeners’
 confirm, by repeating back, what has been said
 confirm that the information you have given has been understood
 avoid inconsistent verbal/non-verbal communication – the keys to eliminating
inconsistencies in communication are being aware of them and not attempting to send
false messages. Gestures, clothes, posture, facial expression and other powerful non-
verbal communications should concur with the message.

Possible barriers to communication are as follows.

(a) The persons communicating might come from very different backgrounds, in terms of
work experience and expertise, or socially. Substantial age differences, and lifestyles, can
also create barriers to communication.

When individuals communicating with each other come from different backgrounds, they
should be encouraged by management to show consideration for the other person. When
an engineer communicates with an accountant, the engineer must be wary of using
engineering jargon without explaining it, just as accountants must be careful of using
accounting and finance terms that non-accountants are unlikely to know. A highly-educated
person, when communicating with someone less educated, should choose his words
carefully, so that his message is clear and understandable.

(b) The message might be distorted in transmission, e.g. if it has to be transmitted to several
people before it reaches the end user.

Communication flows should be organised so that there are as few links in the
communication chain as possible between the sender of the message and its eventual
recipient. Lateral communications should replace unnecessary upward and downward
communication flows. Electronic communication systems should contribute towards this
aim.

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(c) In a multi-national organisation employees might have to overcome a language barrier to
communicate with each other.

Language difficulties can be reduced in two ways. First, employees should be given language
training as appropriate in another language. Secondly, the organisation should select an
official language for all its meetings at a certain level of management and above. In many
global corporations, English is the official language.

(d) If there is information overload, an individual might be given too much information, and
be unable to understand the message.

Information overload can be reduced by improvements in reporting systems. For long

reports, there should be a much briefer summary containing all the essential points and
recommendations. Control reports should use reporting by exception, and draw attention to
performance of an unusual or unexpected nature (such as large variances). Narrative can be
summarised into tables and diagrams.

(e) Where there is conflict within the organisation, and two individuals or departments are
hostile towards each other, communications from one to the other will be treated with
suspicion or disbelief.

Attempts to resolve conflict between individuals or departments should be made by the

management in charge of them both. A solution to the problem of conflict is partly an
improvement in communications. Management should arrange for more direct contact
between individuals in different departments, and should use their interpersonal skills to try
to overcome misunderstandings and disagreements.

Communication patterns

When we look beyond two-person communication to the linkages among work groups,
departmental or organisational members, we are concerned with communication networks,
which are systems of communication lines linking various senders and receivers.

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Five major types have been studied in depth: wheel or star, circle,

all-channels or network, chain and ‘Y’.

Wheel pattern of communication, one person at the centre communicates directly with
everyone else in the group, and the other group members communicate only with the
individual at the centre and not with each other.

A wheel pattern might occur when there is a dominant or authoritarian leader who retains
all decision-making powers.

circle pattern of communication, each individual communicates with two other people, and
eventually the communication links come back to the point at which they started. For
example, if four people communicate with each other:

A might communicate with B and D

B might communicate with A and C

C might communicate with B and D

D might communicate with C and A

This type of communication pattern might be typical of some informal communication links,
so that information gets passed on from one person to another, and eventually arrives back
at the original source.

􀁺 Centralised networks (Y, chain and wheel) where the flow is centralised or directed
through specific members.

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Chain communication pattern, all members cannot communicate with the leader of the
group.So, the members might not get the exact message sent by the leader but an altered
version of it. The leader won’t even be aware what distorted message others lower in the
command got.

Feedbacks can also be distorted.

Y pattern of communication is more complicated as there are different sub-groups within a

group. In the center is a leader who manages these sub-groups There are 3 subgroups being
controlled by a single leader. There are 3 members in each sub-group.

There is a chain of command within the sub-group. The lowest level of each sub-group
communicates with the members senior to them. They communicate it with their seniors.
Then, that member communicates it with the leader.

The message sent by the leader also communicates from top-to-bottom approach.

The sub-groups cannot communicate with each other. They need to pass the information
through the leader to send any message to other sub-groups.

Network or All channel is a communication pattern in which anyone can communicate with
anyone else as per their needs and requirements. In network, communication differs due to
physical proximity and organizational structures too.

􀁺 Decentralised networks (all-channels and circle) where the communication flow can
originate at any point and does not have to be directed through certain central group
members.

strengths

􀁺 In the centralised networks (chain, wheel and ‘Y’), group members have to go through a
person located in the central position in the network in order to communicate with others.
This leads to unequal access to information in the group.

􀁺 In decentralised networks (circle and all-channels) information can flow freely between
members without having to go through a central person.

weaknesses:

􀁺 The wheel is always the quickest way to reach a conclusion, and the circle the slowest.

􀁺 For complex problems, the all-channel is the most likely process to reach the best
decision.

􀁺 The level of satisfaction for individuals is lowest in the circle, fairly high in the all-channel,
mixed in the wheel, with the central figures usually expressing greater satisfaction, and the
rest feeling isolated.

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􀁺 Under time pressure the all-channels system either restructures, to become a wheel, or
disintegrates.

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CHAPTER 2

MANAGEMENT THEORIES
The theories of management are broadly categorized as either classical approaches or
contemporary approaches. At a certain point in time, each of these theories was held to be
the answer to the production attainment of the goals of an organisation.

THE CLASSICAL APPROACHES

The classical approaches extend from the late nineteenth century to the 1920s, with many
of these developed simultaneous. The different approaches include scientific management
(1900), Bureaucracy (1910) Administrative (1916), Human Relations (1930) and Quantitative
Management (1945).

The driving force of the industrial revolution was the steam engine. The engine provided
cheaper and more efficient power for ships, trains and factories, revolutionizing commerce
and industry. A spirit of innovation led in the invention of failures led to the invention of
factories and factories led to the need of organisations. Instead of being on their farms,
employees mere now at the factories where there was need to coordinate their effort.

New problems emerged. Production was labour intensive and yet labour was a problem.
The labour force consisted largely of agrarian workers and the shift from a small workshop;
a farm or family operated concern to a large manufacturing concern was a drastic change
for these people. They were not used to the regularized hours, monotony of factory work,
and a managerial hierarchy of authority. Training was essential but difficult as most workers
were illiterate.

Discipline and motivation were also major problems. Accustomed to the craft traditions of
independence and the agrarian self-sufficiency, workers had to develop habits of industry,
such as punctuality and regular attendance at work. Motivation took the form of close
inspection, the offering of positive inducements (the carrot), or negative sanctions (the
stick).

SCIENTIFIC MANAGEMENT SCHOOL

Frederick W Taylor (a mechanical engineer) became interested in ways of improving

productivity by studying the work individual worker performed to discover exactly how they
performed their tasks.

· Taylor believed that there was one best way to perform any task.

· He analysed each aspect of each task and measured everything measurable.

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· Unnecessary physical movements that showed production down was identified an
eliminated and exact sequence of activities was determined.

· A standard time for the accomplishment of each task could be determined.

· This allowed the description of performance objective quantitative such as the number of
units that a worker should produce per shift (this is known as time motion study.)

· Taylor’s scientific approach to analyzing a task addressed the problem of that time: how to
judge if an employee had put in a fair day’s work.

· He believed that money-motivated workers. Knowing what amounted to a fair day’s work,
he supported the individual piecework system as the basis for pay.

· If workers met a specified production standard they were paid a standard wage rate.
Workers producing more than the set standard were paid a higher rate for all the units
produced, not just those exceeding the standard.

Scientific management focused on ways to improve the performance of individual

workers.

Frederick Taylor inspired the following:

a) Frank and Lillian Gilbreth who focused on work simplification as an answer to the
productivity question. Himself being a bricklayer, Frank Gilbreth studied the motions of
bricklayers and determined that many of the body movements of bricklayers (bending,
reaching, stooping, and traveling) could be combined or eliminated. He changed an
eighteen-step process into a five-step process and increased productivity by 200%.

b) Henri L Gantt’s main concern was productivity of shop floor level. His contribution to
scientific management is a chart showing the relationship between works planned and
completed on one axis and time elapsed on the other. Principles of efficiency were
established during this period by using the most scientific methods to determine the most
efficient way to do things.

Limitations of scientific management:

· Workers cannot be viewed simply as parts of a smoothly running machine; they are human
beings with ambitions, fears, hopes and other emotions and search for meaning in their
work.

· Assumptions about the motivations of employees are stated too simplistically in these
approaches. Money is not the only motivator of workers; other motivators are challenges to
work or recognition for performance.

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· This approach creates the possibility of exploitation of labor and therefore possibility of
strikes by workers.

· Can lead to ignorance of the relationship between the organisation and its changing
external environment as the focus remains on internal issues, namely the workers and their
productivity.

THE PROCESS / ADMINISTRATIVE APPROACH

The process approach to management grew out of the need to find guidelines for managing
complex organisations such as factories. As output increased and operations grew in these
organization, more complex than merely of workers were increasingly encountered.
Planning and the organisation of people in workplaces became the focus of consideration.

The process approach to management focused on managing the total organization.

Henry Fayol (MD of a large French coal mining company is the founder member of this
approach. His interest was on the administrative side of operations describing the practice
of management as distinct from finance, production, marketing and other typical; functions.
He argued that management was a common activity to all human undertaking in business,
government, sports clubs, schools and even homes. He concluded that there were five basic
functions of administration: planning organizing, commanding coordinating, and controlling.
Planning called for formulating of goals; organizing focused on the effective coordination of
resources to achieve set goals; commanding was the art of leading people, coordinating
activities of groups of people ensured smooth functioning organisation, and controlling
involved seeing that everything was done according to the plan and that the set goals were
indeed attained.

FAYOL FOURTEEN POINTS

· Division of labour: specialization increases output by making employees more efficient.

· Authority and responsibility: authority management the right to guide orders. Along with
authority goes responsibility.

· Discipline: employees must respect rules that govern organisation

· Unit of command: an employee must receive commands from one superior only.

· Unity of direction: all operations with the same goals should have one manager and one
plan only.

· Subordination of individual interest to the common good: the interests of individuals or

groups should not take precedence over the interest of the organisation.

· Remuneration: rewards for work should be fair to the worker and employer.

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· Centralization: the proper degree of centralization versus decentralization must be found.

· Hierarchy: the line of authority in an organisation should run in order of rank from top
management to the lowest level of the organisation.

· Order: resources should be in the right place at the right time.

· Equity: managers should be fair to their employees

· Stability of staff: a low staff turnover rate enhances the attainment of goals.

· Initiative: subordinates should be given the freedom to conceive and carry out their plans
even though some mistakes may results.

· Team spirit: this will give an organisation a sense of unity.

THE BUREAUCRATIC APPROACH

Max Weber, German sociologist reasoned that any goal-oriented organisation comprising
thousands of individuals would require the carefully controlled regulation of its activities; he
developed this approach that stressed the need for a strictly defined hierarchy government
by clearly defined regulations and authority.

This approach is based on legal authority that stems from rules and other controls that
govern an organisation in its pursuit of specific goals One major limitation is that the
bureaucratic rigidify results in managers being compensated for doing what they are told to
do – not for thinking. Managers are often rewarded for complying with old, sometime even
outdated, rules whereas contemporary management practices require managers
continuously to improve on current practice.

HUMAN RELATIONS MOVEMENT

On 29 October 1929, the USA stock market crashed and caused many problems. The
Depression of the 1930s and major changes in political, economic, social and technological
environments caused managers to challenge other approaches and their relevance in the
environment. (Unemployed soared as business failed, incomes dropped, homes were lost
and family wiped savings were wiped out. There was initial work sharing, by reducing the
number of work hours per employee per week rather than laying them of out of economic
necessity women became socially accepted to work outside their hours.

Management became more oriented to human relations than behavioral science. The
Hawthorne studies conducted at Western Electric Company from 1924-1933, investigated
the relationship between the level of lighting in the workplace and worker productivity. As

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lighting improved, so did productivity; conversely, as lighting conditions were made worse,
there was still a tendency for productivity to improve.

Researcher Mayo et al, decided that managements concern for well-being of their
subordinates and sympathetic supervision enhanced the workers performance employees
were more motivated by social needs than economic needs.

Maslow a behavioral scientist suggested that humans have five levels of need

· Physical need: the most basic need, e.g. food and water
· The most advanced need is self-actualization or personal fulfilment.
· Maslow argued that people would try to satisfy their lower order needs before
attempting to satisfy their higher order needs.

McGregor discussed two assumptions, theory X and Theory Y, like opposite views on
people’s commitment to work. Theory X managers assume that workers must be constantly
motivated by force, money or praise since work is distasteful to workers.

Theory Y managers, assume that people relish work and approach work as an opportunity to
develop their talents.

The major contribution of the human relations approach to management was the fact that
this approach viewed workers as human beings not as machines.

Limitations to these approaches is the notion that a happy worker is a productive; a two
simplistic belief.

THE QUANTITATIVE MANAGEMENT THEORY

The focus of quantitative management theory is mathematical models, statistics and other
models, and their use in management decision-making. This approach was introduced by
the British to solve complex military problems during WWI. This school believes that
management is about crunching numbers and focuses on management science
(development of mathematical models to assist managers in decision making) and OR (an
applied form of management science that helps managers develop techniques to produce
their products and services more efficiently.

THE CLASSICAL SCHOOL

Both Taylor and Fayol shared the belief that individuals must subordinate themselves to the needs
of the organisation. In return the organisation was obliged to provide job security and good
remuneration.

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Taylor and Fayol believed in ‘one best way’, the optimum way to:

– organise the firm

– to do the individual job
– emphasis on the task to be done rather that the person doing it.
– some of the main features of their approach were as follows:
– belief in one controlling central authority
– specialisation of tasks
– fair pay and good working conditions, decided by management
– clear lines of command.

The implications of scientific management are as follows:

􀁺 Workers should be set high targets, but should be well rewarded

for achieving them.

􀁺 Working methods should be analysed ‘scientifically’, including the

timing of work.

􀁺 Management should plan and control all the workers’ efforts, leaving little discretion for individual
control over working methods.

While there may be areas where these principles are still relevant, most modern theorists would
argue that a more progressive approach is needed where:

􀁺 It is recognised that there is not always a ‘best’ way of doing a particular job.

􀁺 Employees can often have considerable insight into a job and can make important suggestions for
improvements.

􀁺 Many workers can be motivated by other methods than tight control and financial reward.

THE HUMAN RELATIONS SCHOOL

This began through the work of G Elton Mayo (1880-1949) who, with others, conducted a series of
experiments at the Hawthorne plant of the General Electric Company in Chicago during the years
1927-32.

Mayo sought to evaluate the effects of the changes in physical working conditions, which, according
to scientific management, should cause significant variations in productivity. Thus lighting, noise
levels, etc. were adjusted and resulting output changes noted.

The researchers concluded that group relationships and management worker communication were
far more important in determining employee behaviour than were physical conditions and the
working practices imposed by management. Also, wage levels were not the dominant motivating
factor for most workers.

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Further research established the following propositions of the human relations school.

􀁺 Employee behaviour depends primarily on the social and organisational circumstances of work.

􀁺 Leadership style, group cohesion and job satisfaction are major determinants of the outputs of the
working group.

􀁺 Employees work better if they are given a wide range of tasks to complete.

􀁺 Standards set internally by a working group influence employee attitudes and perspectives more
than standards set by management.

Illustration of the usefulness of the human relations approach

The school explicitly recognised the role of interpersonal relations in determining workplace
behaviour, and it demonstrated that factors other than pay can motivate workers. However, the
approach possibly overestimates the commitment, motivation and desire to participate in decision
making of many employees.

Modern writers

Contributions made by modern writers on management include:

􀁺 Behaviouralism – concerned with the personal adjustment of the individual within the work
organisation and the effects of group relationships and leadership styles (see chapter 25).

􀁺 Contingency approach (‘no one best approach’) – contingency theorists do not ignore the lessons
learnt from earlier theorists, but adapt them to suit particular circumstances.

Systems approach –

􀁺 Expresses a manger's role as being a co-ordinator of the elements of a system, of which people are
only one part.

􀁺 The systems approach takes the view that an organisation is a social system, consisting of
individuals who co-operate together within a formal framework, drawing resources from their
environment and putting back into that environment the products they produce or the services they
offer.

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CHAPTER 3

ORGANISATIONS
What is an organisation?
It is a deliberate arrangement of people to accomplish some specific purpose.

Characteristic of an organisation.

(1) distinct purpose – this purpose is typically expressed in terms of a goal or set of goals that
the organisation hopes to accomplish.

(2) people – one person working alone is not an organisation and it takes people to perform the
work that is necessary for the organisation to achieve its goals.

(3) deliberate structure – so that their members can do their work.

The changing Organisation

Traditional organisation/Mechanistic structure New organisation/Organic structure

 Stable  Dynamic
 Inflexible  Flexible
 Job focused  Skills focused
 Work defined by job position  Work is defined in terms of task to be
 Individual oriented done
 Permanent jobs  Team oriented
 Command oriented  Temporary jobs
 Managers always make decisions  Involvement oriented
 Rule oriented  Employee participation in decision
 Relatively homogeneous work force making
 Work days defined as 8 – 4.30 hours  Customer oriented
 Hierarchical relationships  Diverse work force
 Work at organisational facility during  Working days have no boundaries
specific hours  Lateral and network relationship
 Work anywhere anytime

21
CHAPTER 4

MANAGEMENT DUTIES
Who are managers

A manager is an organisational member who integrates coordinates the work of others.

Classification of managers.

First line managers are the lowest level of managers also called supervisors or foreman.

Middle managetr – all levels of management between the supervisory level and top level of the
organisation

Top managers – managers at the top or near the top of the organisation who are responsible for
making organisation wide decisions and establishing the policies and strategies that affect the entire
organisation eg CEO, MD Chairman of the Board.

What is management?

Refers to the process of coordinating and integrating work activities so that they are completed
efficiently and effectively with and through people.

The process represents on going functions in planning organising leading and controlling.

Efficiency is the relationship between inputs and outputs the goal of which is to minimise resource
costs that is doing things right.

Effectiveness - which is goal attainment that is doing the right things.

Whereas efficiency is concerned with the means of getting things done, effectiveness is concerned
with the ends, or attainment of organisational goals.

Efficiency means resource usage, moving from high waste to low waste. Management strives for low
waste (high efficiency)

Effectiveness is the end perspective goal attainment moving from low attainment to high attainment.
Management striving for high goal attainment (high effectiveness)

What do managers do?

According to Henry Fayol

Management functions – manager’s work activities planning, organising, leading, and

controlling.

Planning – includes defining goals, establishing strategy and developing subplans to coordinate
activities.

22
Organising – determining what needs to be done, how it will be done and who is to do it. Forming
the organisational structure

Leading – includes motivating subordinates, directing others, selecting the most effective
communication channels and resolving conflicts

Controlling monitoring activities to ensure that they are being accomplished as planned and
correcting any insignificant deviations.

These functions lead to achieving the organisation’s stated purpose.

Management Roles according to Mintzberg

Mintzberg identified ten different but interrelated roles which managers need if they are to develop
greater effectiveness, and grouped them together under three categories, interpersonal,
informational and decisional.

Interpersonal
Figurehead Symbolic role, manager obliged E.g. receiving visitors
to carry out social, and making
inspirational, legal and presentations.
ceremonial duties.
Leader Manager’s relationship with E.g. seeking to build
subordinates, especially in teamwork and foster
allocating tasks, hiring, training employee
and motivating staff. commitment.
Liaison The development of a network E.g. lunches with
of contacts outside the chain suppliers or
of command through which customers.
information and favours can
be traded for mutual benefits.
Informational
Monitor The manager collects and sorts E.g. reading reports
out information which is used and interrogating
to build up a general subordinates.
understanding of the
organisation and its
environment as a basis for
decision making.
Disseminator To be a disseminator means to E.g. passing
spread the information widely. privileged
information to
subordinates
Spokesperson Managers transmit information E.g. a sales
to various external groups by presentation to
acting in a PA capacity, prospective
lobbying for the organisation, customers.
informing the public about the
organisation’s performance,
plans and policies.
Decisional

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Entrepreneur Managers should be looking E.g. launching a
continually for problems and new idea or
opportunities when situations introducing
requiring improvement are procedures such as
discovered. a cost reduction
programme.
Disturbance handler A manager has to respond to E.g. strikes.
pressures over which the
department has no control.
Resource allocator Choosing from among E.g. approving expenditure on a
competing demands for project.
resources e.g. money,
equipment, personnel
and management time.
Negotiator Managers take charge when E.g. drawing up contracts with
their organisation must suppliers.
engage in negotiating with
others. In these negotiations,
the manager participates as
figurehead, spokesperson and
resource allocator.

Drucker identified five basic operations in the work of a manager.

Set objectives – determining what they should be and what the goals in each area should be. They
decide what has to be done to reach these objectives and make them effective by communicating
them to the people who are going to perform them.

Organise – analysing the activities, decisions and relations needed. They classify the work, divide it
into manageable activities and further divide the activities into manageable jobs.

They group the units and jobs, and select people for the management of the units and for the jobs to
be done.

Motivate and communicate – making a team out of the people that are responsible for various jobs.

Establish yardsticks – by making measurements available, which are focused on the performance of
the whole organisation and which, at the same time, focus on the work ofthe individual and help
them to do it. Managers analyse, appraise and interpret performance.

Develop people, including themselves.

Management skills
Managers need certain skills to perform the duties and activities associated with being a manager.

According to Robert L Katz managers need three skills

Technical skills - include knowledge of and proficiency in a certain specialised field such as
engineering, computers, finance etc, so that they are able to resolve problems and answer questions

24
that an apprentice asks or may encounter. Technical skills become less important as a manager
moves into higher levels of management.

Human skills – the ability to work well with other people both individually and in a group[. The
human skills remain equally important at all management levels.

Conceptual skills – the ability to think and conceptualise about abstract situations, to see the
organisation as a whole and the relationships among its various subunits and to visualise how the
organisation fits into its environment. Conceptual skills are needed by all managers but become
more important at top management.

Beside the three other management skills needed by managers to perform their duties effectively
are; setting goals, solving problems, time management, verbal communication, interpersonal skills,
working well in groups, managing conflicts.

Managing systems
Another way tom look at the manager’s job is from the perspective of managing systems.

A system is a set of interrelated and interdependent pats arranged in a manner that produces a
unified whole.

Two types- closed system – are not influenced by and do not interact with their environment.

Open system – recognises the dynamic interaction of the system with its environment.

The organisation as an open system.

Environment

Inputs Transformation outputs

- Raw materials - Employees work activities - Products and services

- Human resources ≫ - management activities ≫ - Financial results

- Capital - Technology - Information

-Technology - Operations methods - Human results

- Information

FEEDBACK

Environment

25
The system approach views the manager’s job as linking the organisation to its environment making
the organisation more sensitive and responsive to key constituencies and the community in which it
operates.

KEY FEATURES OF A SYSTEM

􀁺 expresses a manger's role as being a co-ordinator of the elements of a system, of which people are
only one part.

􀁺 The systems approach takes the view that an organisation is a social system, consisting of
individuals who co-operate together within a formal framework, drawing resources from their
environment and putting back into that environment the products they produce or the services they
offer.

Boundary

􀁺 In doing so the input are converted into the final product or service, hopefully with value being
added.

􀁺 An organisation does not exist in a vacuum. It depends on its environment and is part of larger
systems, such as society, the economic system and the industry to which it belongs.

Examples of other systems include an information system, production system and a communication
system.

Managing in different and changing situations

Contingency perspective – a view that the organisation recognises and responds to situational
variables as they arise.

Contingency variables – (i) organisation size – the number of people in an organisation is a major
influence on what managers do. As size increases so do the problems of coordination.

(ii) Routiness of Task technology – to achieve its purpose, an organisation uses technology that is it
engages in the process of transforming inputs into outputs. Routine technologies require
organisational structures, leadership styles and control system that differ from those required by
customised or non-routines technologies.

(iii) Environmental uncertainty – the degree of uncertainty caused by political, technological,

sociocultural and economic changes influence management process. What works best in a stable
and predictable environment may be totally in appropriate in a rapidly changing AND unpredictable
environment.

26
(iv) Individual differences - individuals differ in terms of their desire for growth, autonomy, tolerance
and ambiguity and expectations.

Managerial authority and responsibility

Authority refers to the relationship between the participants in an organisation.

· Authority is the right to give orders and the power to exact obedience (Fayol).
· Authority is the right to do something, or ask someone else to do it and expect it to be done.
· Authority is thus another word for legitimate power.

When analysing the types of authority which a manager or department may have the following
terms are often used:

Line authority – the authority a manger has over a subordinate, down the vertical chain (or line) of
command.

Staff authority – is the authority one manager or department may have in giving specialist advice to
another manager or department, over which there is no line authority. (HR department advising the
accounts manager on interviewing techniques.)

Functional authority – is a hybrid of line and staff authority, whereby a manager setting policies and
procedures for the company as a whole has the authority in certain circumstances, to direct, design
or control activities or procedures of another department. (A finance manager has authority to
require timely budgetary control reports from other departmental/line managers.)

Responsibility is the liability of a person to be called to account for his or her actions.

􀁺 Responsibility expresses the obligation a person has to fulfil a task, which he or she has been given.
A person is said to be responsible for a piece of work when he or she is required to ensure that the
work is done.

􀁺 Responsibility is the obligation to use delegated powers.

􀁺 The important point is that managers and supervisors are ultimately responsible for the actions of
their subordinates; the term ‘accountable’ is often used.

􀁺 It is accountability for the performance of specified duties or the satisfactory achievement of

defined company objectives.

􀁺 Because responsibility is an obligation owed, it cannot be delegated.

􀁺 No superior can escape responsibility for the activities of subordinates, for it is the supervisor who
delegates authority and assigns the duties.

27
CHAPTER 5
STAKEHOLDERS

A stakeholder is a group or individual, who has an interest in what the organisation does or an
expectation of the organisation. It is important that an organisation understands the needs of the
different stakeholders.

Stakeholders can be broadly categorised into three groups: internal, e.g. employees, connected, e.g.
shareholders, external, e.g. government

Internal stakeholders

Internal stakeholders are intimately connected to the organisation, and their objectives are likely to
have a strong influence on how it is run.

Internal stakeholders include:

Stakeholder Need/Expectation Example

employees Pay, working conditions and job if workers are to be given more
security, level of
representation, Opportunities responsibility, they will expect
increased pay.
of promotion,

Management/directors status, pay, bonus, job security, if growth is going to occur, the
level of responsibility, amount managers will want increased
of challenge.
profits, leading to increased
bonuses.

Shareholders Size of annual dividend, steady if a capital is required for

flow of income, possible capital growth, the shareholders will
growth and the continuation of
the business, share price expect a rise in the dividend
fluctuation, stream

Connected and external stakeholders

Connected stakeholders, e.g. shareholders, financiers, customers are stakeholders who are not
internal to the company but whose objectives must be fulfilled if the company is to be successful.
The objective of satisfying shareholders is taken as the prime objective which the management of
the organisation will need to fulfil, however, customer and financiers objectives must be met if the
company is to succeed.

28
Stakeholders Need/Expectation Example

Customers Desirable and quality products, any attempt to for example

competitive prices, new increase the quality and the
products at appropriate time, price, may lead to customer
satisfaction of customers’
dissatisfaction
needs will be achieved through
providing value for money
products and services

Suppliers Consistent orders, sufficient if a decision is made to delay

lead time, pay on time and payment to suppliers to ease
within terms, creation of cash flow, existing suppliers
dependency relationship.
may cease supplying goods

Finance providers ability to repay the finance the firm's ability to

including interest, security of
investment. generate cash

community at large the general public can be a local residents attitude towards
stakeholder, especially if their out of town shopping centres
lives are affected by an

organisation's decisions

Environmental pressure groups the organisation does not harm if an airport wants to build a
the external environment, new runway, the pressure
contribution to local activities, groups may stage a 'sit in'
socially responsible actions.

government company activities are central actions by companies could

to the success of the economy break the law, or damage the
(providing jobs and paying
environment, and governments
taxes). Legislation (e.g. health
and safety) must be met by the therefore control what
company, contribution to
balance of payment organisations can do

trade unions taking an active part in the if a department is to be closed

decision making process the union will want to be

consulted and for there to be a

scheme in place for helping

employees find alternative

29
 employment

The main functions within an organisation

The main departments in a business organisation are as follows

Department Role Key concerns

Research and · 􀁺 Improving existing · Anticipating customer

· products needs
development · 􀁺 Developing new · Generating new ideas
· products · Testing
· Cost
Purchasing · 􀁺 Acquiring the goods · Price and payment terms
· and services · Quality
· necessary for the · inventory levels/delivery
· business schedules
Production · Converting raw · Quality (of materials and
materials into finished goods)
finished goods · Costs
· Wastage/efficiency
· Stock levels/production
· schedules
Direct service · Providing services to · Quality
clients (e.g.accountancy · Time sheets/scheduling
provision firm)

Marketing · Identifying customer · Identifying and anticipating

needs needs – market research.
· Market research · Supplying customer needs
· Product design – product design and
· Pricing development.
· Promotion · Efficiently – distribution.
· Distribution · Profitably – pricing
decisions and promotion
(informing customers about
your product so they buy
it).
Administration · Administrative support 􀁺 Efficiency
· Processing 􀁺 Information processing
· transactions
Finance · Bookkeeping · Accuracy and
· Financial reporting completeness of record
· Financial controls keeping
· Budgeting · Monthly management
· The raising of capital reporting
· Annual financial reporting

30
CHAPTER 6
MANAGEMENT FUNCTIONS

PLANNING DEFINED
 How and when to be done generate policy, program, procedure, budgeting and other related
elements.
 Planning bridges the gap from where we want to go.
 It makes possible for things occur which would otherwise not happen

objectives and importance of planning

 All the managerial acts depend on planning .It provides guide line to all functions.
 Moreover when all the functions are performed it gives a certain result this is compared with the
planned result.
 To ensure that the organizational objectives are being archived.
 Better planning ensures the better utilization of the organization.
 Thus it is not important in the organization point of view.
 But also to the society as a whole.

In an organization planning is important in the following manner:

 To Offset uncertainty and change
 To focus attention on objectives.
 To help in coordination.
 To gain economy in operation.
 To Help in control.

Objectives:
 Objectives or goals are the end which towards the activity is aimed.
 A board objective States the purpose of the entire organization.
 The process of objective setting is directed by management and it is the first step in planning.

 The importance of clearly defines objective is well recognized because clearly defined objective
make clear to every individual in the organization vat they are expect to achieve some new
technique of management such as management by objective and self control are applied only
when objectives are clear and precise.

POLICIES

 Policies are general statements or understanding which provides guidance in decision making of
the subordinate.

31
 Both objectives and policys are lead to guidance for action but they differ .

 Objectives are end points for planning though planning also start from the point Whereas
policies channels along the way to these ends.

STRATEGIES

 Strategies are the complex of plans for bringing the organization from a given posture to a
desired position in thefuture period of time.

 Learned has defined strategy as the pattern of objectives purpose of goals major policies and
plans for achieving this goals.

 Stated in such a way what business the company is in or is to be in such away the kind of
company it is or is to be.

PROCEDURES

 Procedures are plans in that they establish a method for handling future activities.
 Thus they provide to further action. Procedure explains how each of its tasks will take place and
by whom it is to be performed.
 Normally time limits are placed on each step of procedure to ensure that the end result will be
accomplished when desired.
 Once the procedure is established, this can be used over and over again.
 For accomplishing a particular work.
 They exist in the organization as various levels .
 However they are more exacting and numerous at lower levels more exact and useful control is
required.
 Mostly routine jobs are performed at these level which require less direction in decision making.
 Procedure often cut across departmental lines because in most of the cases a particular
procedure involves more than one department.

RULES

 Rules are prescribed guides for conduct or action .

 They are plans as they are a course of action which is chosen from among alteration .
 A rule is a specific guides for action.
 Established authority and utilized in order to inform employees of condition under which
designated actions are to be taken or activities are to be performed.

METHODS
 A method is one step of procedure .
 It can be defined as prescribed manner for performing a given task with adequate consideration
to objective, Facilities available and total expenditure of time, money and effort.

32
 Thus a method specifies how a step procedure is followed .
 By taking complex tasks, breaking them down in to specific procedures,and then developing
comprehensive methods for each step in those procedures, it is possible to place people injobs
for which their skills are considerably lower than that Would have been required otherwise.
 The determination of methods to be employed in any given situation depends upon the
managers experience, knowledge, and creativeness.

PROJECTS

 A project or program is a type of plan which can be thought of in terms of planned actions
integrated into a unity and designed to bring about a stated objective.
 In an organization, there may be various situations where managers have to take decisions
relating to a capital expenditure, capital project, or merely as project.
 Thus project is a scheme for investing recourses which can be analyzed and appraised
reasonably independently.
 Budgets express organizational and departmental objectives in financial and non financial
quantities.
 They anticipate operating result over some future period of time and provide a basis for
measuring performance as plans are translated into accomplishments

DIFFERENT LEVELS OF PLANNING

Strategic planning is characterised by the following:

 Long-term perspective.
 Looks at the whole organisation as well as individual products and markets.
 Sets the direction of the whole organisation and integrates its activities.
 Considers the views of all stakeholders, not just the shareholders' perspective.
 Analyses the organisation's resources and defines resource requirements.
 Relates the organisation to its environments.
 Looks at gaining a sustainable competitive advantage.

Tactical planning is medium-term, looks at the department/ divisional level and specifies how to use
resources.

Operational planning is very short-term, very detailed and is mainly concerned with control.

Strategic plans will have to be translated into medium-term tactical plans, which in turn need to be
converted into detailed performance targets and budgets.

33
ORGANISING
Is the process of creating an organisation structure. The challenge of managers is to design an
organisational structure that allows employees to effectively and efficiently do their work while
accomplishing organisational goals and objectives.

Purpose of organising

 Divides work to be done into specific jobs and departments

 Assigns tasks and responsibilities associated with individual jobs
 Coordinates diverse organisational goals
 Clusters jobs into units
 Establishes relationships among individuals, groups and departments
 Establishes formal lines of authority
 Allocates and deploys organisational resources

ORGANISATIONAL STRUCTURE

The organisations formal framework by which job tasks are divided, grouped and coordinated.

Functional structure

Functional structures are usually found in smaller organisations, or within individual divisions in a
larger organisation with a divisional structure.

 Advantages
 Pooling of expertise, through the grouping of specialised tasks and staff.
 No duplication of functions and economies of scale.
 Senior managers are close to the operation of all functions.
 The facilitation of management and control of functional specialists (suited to centralised
organisations).
 ‘Vertical’ barriers between functions, that may affect work flow (creating coordination problems)
and information flow (creating communication problems).
 Focuses on internal processes/inputs rather than outputs such as quality and customer
satisfaction through a horizontal value chain.
 Struggles to cope with change, growth and diversification.

• Senior management may not have time to address strategic planning issues.

34
Divisional structures

Where the functionally structured business grows by diversification, a functional structure will be
inappropriate, and the divisional structure based on products, services or geographical areas is likely
to be adopted.

Advantages

• Flexibility – divisions can be closed or created to respond to changes in organisational strategy.

• Specialist expertise is built up relating to a particular product or market segment.
• Managers of divisions have a greater personal interest in the strategy for their own division.
• The enabling of performance management (and hence control) of businesses by head office
from a distance.
• High central management costs.
• Duplication of effort with all functions represented within divisions.
• Vertical barriers between divisions that may prevent information sharing and cooperation
between divisions.
• Strategic management can be a complex hierarchical process.

Matrix organisations

The matrix structure is a twodimensional structure combining both a functional and divisional
structure, for example product, service or geographical divisions and functional areas, in order to
capitalise on combinations of expertise that exist in the organisation, but which are stifled by normal
hierarchical structures. Matrix structures:

• organise horizontal groupings of individuals or units into teams that operationally deal with the
strategic matter at hand • are organic with open communications and flexible goals

• may be established as a permanent structure or be temporary to address a particular strategic

commitment, such as an export research group to study international markets in a multiproduct
trading company might establish, or a unique product group for a limited duration contract

35
• can creatively serve the needs of strategic change that otherwise might be constrained by more
traditional structures
• retain functional economies and product, service or geographical coordination
• can improve motivation through:
o people working participatively in teams
o specialists broadening their outlook
o encouraging competition within the organisation
• may lead to problems of dual authority with conflict between functional and product or
geographical managers leading to individual stress arising from threats to occupational identity,
reporting to more than one boss and unclear expectations
• may incur higher administrative costs.

Centralisation v decentralisation

One factor in determining the flexibility of a structure is the level at which decisions are made. In
centralised organisations the upper levels of an organisation’s hierarchy retain the authority to take
most decisions. The choice of organisation will depend to a certain extent on the size of the
organisation and the scale of its activities, such that the functional structure is likely to be
centralised, and the divisional structure is likely to be decentralised.

Decentralisation:

• is more likely in large scale organisations

• gives authority to make specific decisions to units and people at lower levels in the
organisation’s hierarchy

• allows frontline staff to respond flexibly to customer demands without reference upwards to
senior management

• allows local management (of dispersed units) to respond flexibly to local market conditions
without reference upwards to head office.

36
The following organisational structures would be suitable for a multinational company.

• International divisional structure – this structure consists of a centralised parent company in one
country and functions such as sales and marketing, production, distribution and research and
development are established in the various countries where the company has divisions.

• Geographical structure – this structure follows on from the international divisional. In this instance
the company is divided up into regions. The long term strategic plan is formulated by headquarters;
the short term decisions/strategic plan are taken care of in the region. If the region is large, further
subdivision may take place (e.g. by product).

• Product based structure – here, the regions will not be based on geographical area but on
products. The divisions are given responsibility for profits. The regions, although defined by
products, may be split down into more manageable subdivisions by geographical area.

• Matrix structure – this structure aims to balance product needs and geographical needs.
Functional reporting may also be introduced making the structure more complicated.

LEADING

37
Leading is accomplished by communicating, motivating, inspiring, encouraging employees towards a
higher level of productivity and resolving conflicts.

Leadership: a Definition

According to the idea of transformational leadership , an effective leader is a person who does the
following:

1. Creates an inspiring vision of the future. A vision is a realistic, convincing and attractive
depiction of where you want to be in the future. Vision provides direction, sets priorities, and
provides a marker, so that you can tell that you've achieved what you wanted to achieve.

2. Motivates and inspires people to engage with that vision. A compelling vision provides the
foundation for leadership. But it's leaders' ability to motivate and inspire people that helps them
deliver that vision. One of the key ways they do this is through Expectancy Theory . Effective
leaders link together two different expectations:

-The expectation that hard work leads to good results.

-The expectation that good results lead to attractive rewards or incentives.

This motivates people to work hard to achieve success, because they expect to enjoy rewards –
both intrinsic and extrinsic – as a result.

3. Manages delivery of the vision. This is the area of leadership that relates
to management .Leaders must ensure that the work needed to deliver the vision is properly
managed – either by themselves, or by a dedicated manager or team of managers to whom the
leader delegates this responsibility – and they need to ensure that their vision is delivered
successfully.

4. Coaches and builds a team, so that it is more effective at achieving the vision. Individual and
team development are important activities carried out by transformational leaders. To develop a
team, leaders must first understand team dynamics.

 Differences between Being a Leader and a Manager

When you are promoted into a role where you are managing people, you don’t automatically
become a leader. There are important distinctions between managing and leading people. Here are
nine of the most important differences that set leaders apart:

1. Leaders create a vision, managers create goals.

Leaders paint a picture of what they see as possible and inspire and engage their people in turning
that vision into reality. They think beyond what individuals do. They activate people to be part of
something bigger. They know that high-functioning teams can accomplish a lot more working
together than individuals working autonomously. Managers focus on setting, measuring and
achieving goals. They control situations to reach or exceed their objectives.

38
2. Leaders are change agents, managers maintain the status quo.

Leaders are proud disrupters. Innovation is their mantra. They embrace change and know that even
if things are working, there could be a better way forward. And they understand and accept the fact
that changes to the system often create waves. Managers stick with what works, refining systems,
structures and processes to make them better.

3. Leaders are unique, managers copy.

Leaders are willing to be themselves. They are self-aware and work actively to build their unique and
differentiated personal brand. They are comfortable in their own shoes and willing to stand out.
They’re authentic and transparent. Managers mimic the competencies and behaviors they learn
from others and adopt their leadership style rather than defining it.

4. Leaders take risks, managers control risk .

Leaders are willing to try new things even if they may fail miserably. They know that failure is often a
step on the path to success. Managers work to minimize risk. They seek to avoid or control problems
rather than embracing them.

5. Leaders are in it for the long haul, managers think short-term.

Leaders have intentionality. They do what they say they are going to do and stay motivated toward a
big, often very distant goal. They remain motivated without receiving regular rewards. Managers
work on shorter-term goals, seeking more regular acknowledgment or accolades.

6. Leaders grow personally, managers rely on existing, proven skills.

Leaders know if they aren’t learning something new every day, they aren’t standing still, they’re
falling behind. They remain  curious and seek to remain relevant in an ever-changing world of work.
They seek out people and information that will expand their thinking. Managers often double down
on what made them successful, perfecting existing skills and adopting proven behaviors.

7. Leaders build relationships, managers build systems and processes.

Leaders focus on people – all the stakeholders they need to influence in order to realize their vision.
They know who their stakeholders are and spend most of their time with them. They build loyalty
and trust by consistently delivering on their promise. Managers focus on the structures necessary to
set and achieve goals. They focus on the analytical and ensure systems are in place to attain desired
outcomes. They work with individuals and their goals and objectives.

8. Leaders coach, managers direct.

Leaders know that people who work for them have the answers or are able to find them. They see
their people as competent and are optimistic about their potential. They resist the temptation to tell
their people what to do and how to do it. Managers assign tasks and provide guidance on how to
accomplish them.

9. Leaders create fans, managers have employees.

39
Leaders have people who go beyond following them; their followers become their raving fans and
fervent promoters – helping them build their brand and achieve their goals. Their fans help them
increase their visibility and credibility. Managers have staff who follow directions and seek to please
the boss.

DIFFERENCE BETWEEN MALE AND FEMALE LEADERSHIP STYLES

1. Communication Styles

Women tend to have a more cooperative, participatory style of leading. Men tend to have a more
“command and control style,” according to the American Psychological Association. They’re more
task-oriented and directive, while women are more democratic. That’s often the starkest leadership
difference between male and female bosses: Men provide direction for their employees, while
women encourage employees to find their own direction. The cooperative style involves
more conversation and listening, which often takes more time but leads employees to feel more
valued. Both styles are valuable in different contexts. Being highly task-oriented can be highly
beneficial where safety is concerned, for example.

2. Reward Systems

Women often motivate their employees by helping them find self-worth and satisfaction in their
work, which serves as its own reward. This is a core part of the philosophy of transformational
leadership: Help employees find their identity in the work that they do, so it’s more than just a job.
Men are more likely to use the transactional leadership approach of providing incentives for
succeeding and penalties for failing. Of course, either gender can learn to succeed in either of these
leadership styles. Differences in leadership between male and female managers can work in tandem,
too, as transactional leaders can ensure accountability while transformational leaders motivate and
inspire.

3. Self-Branding

Men tend to be good at branding themselves, meaning they let others know about their successes
and strengths. Women are more likely to be modest or silent about their own accomplishments. To
succeed as a leader, women should learn to brand themselves by sharing their achievements and
skills with others. After all, it’s hard for a person to advance as a leader if people don’t notice what
she’s capable of. Branding also brings a leader more respect in her current position. Volunteering for
high-profile projects and finding a respected advocate are other great branding strategies that men
are often more likely to use than women.

Again, it’s not that people of either gender make better leaders. The reality is that differences
between male and female leadership styles can broaden a company’s pool of creativity and
innovation. This enhances the success of any company when both men and women are promoted to
high-level positions. Whichever gender you are, identify the distinct skills you bring and how to use
them to get noticed by potential or current employers. The business of placing women in
leadership needs to become a top priority.

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4. Positive Reinforcement

Typically, female bosses reward good job performance more frequently than their male
counterparts. Contrary to the male bosses who are viewed as more critical in nature, female leaders
take on a nurturing role, coaching their employees and increasing their self-esteem. Women are
more likely to spark creativity and promote personal and professional development among their
employees.

5. Competition

Male leaders represent the notion of rugged individuality and conform to the ideals of masculinity in
the workplace. They are autocratic, focused on directing performance and finding solutions by
considering wins and losses. Their competitive nature can make them appear less hands-on and
approachable, though they often epitomize a calm, cool demeanor. Males are seen as formal
authorities and are often on the top of the corporate ladder in industries dominated by highly
educated women.

6. Democracy

Generally, women are perceived as more democratic leaders. Their styles involve a sharing of
information and promotion of cooperative learning. Women also share the power with their
employees, enabling them to see and believe that their opinions matter. They have strong
interpersonal and relational skills that make them seem empathic and effective to their staffs. They
are expected to smile and be considerate as well as open to negotiation.

Early studies of leadership were based on the assumption that leaders were born and not made.

They tried to pick out the common personality characteristics (or traits) so that they had a basis on
which to recognise actual and potential leaders by knowing their traits and comparing them with the
traits of known leaders.

Lists of leadership qualities were compiled that included.

 Physical traits – drive, energy, appearance.
 Personality traits – adaptability, enthusiasm and self-confidence.
 Social traits – co-operation, tact, courtesy.

The situational approach (Adair)

The situational theory suggests that a leader who recognises the problems and has characteristics or
traits that fit the needs of the situation.

Adair suggests that any leader has to strive to achieve three major goals while at the same time
maintaining a position as an effective leader.

Adair's action – centred leadership model looks at leadership in relation to the needs of the task,
individual and group.

41
 TASK

NEEDS • Setting objectives

• Planning tasks

GROUP INDIVIDUAL • Allocating of responsibilities

NEEDS NEEDS • Setting performance standards

• Communication • Coaching

• Team building • Counselling

• Motivation • Developing

• Discipline • Motivating

The contingency approach (Fiedler)

Contingency theory sees effective leadership as being dependent on a number of variable or

contingent factors. There is no one right way to lead that will fit all situations; rather it is necessary
to lead in a manner that is appropriate to a particular situation.

Fiedler's contingency theory

Fiedler studied the relationship between style of leadership and effectiveness of the work group.
Two styles of leader were identified.

Psychologically distant managers (PDMs).

 Maintain distance from their subordinates by formalising roles and relationships within the
team.
 Are withdrawn and reserved in their interpersonal relationships.
 Prefer formal communication and consultation methods rather than seek informal opinion.
 Judge subordinates on the basis of performance and are primarily task-orientated.
Fiedler found that leaders of the most effective work groups actually tend to be PDMs.
 Psychologically close managers (PCMs)
 Do not seek to formalise roles and relationships.
 Prefer informal contacts to regular formal staff meetings.
 They are more concerned to maintain good human relationships at work to ensure that tasks are
carried out efficiently.

42
Fiedler concluded that a structured (or psychologically distant) style works best when the situation is
either very favourable or very unfavourable to the leader.

On the other hand, a supportive (or psychologically close) style works best when the situation is
moderately favourable to the leader.

He further suggested that group performance would be contingent upon the appropriate matching
of leadership styles and the degree of favourableness of the group situation for the leader.

Fiedler went on to develop his contingency theory in ‘A theory of leadership effectiveness’, in which
he argued that the effectiveness of the workgroup depended on the situation. The leadership
situation is made up of three key variables:

 The relationship between the leader and the group (trust, respect and so on).
 The extent to which the task is defined and structured.
 The power of the leader in relation to the group.

Fiedler suggested that a situation is favourable to the leader when the leader is liked and trusted by
the group, the tasks of the group are clearly defined and the power of the leader to reward and
punish the team, with organisational backing, is high.

Transformational leadership (Bennis)

Some of the values used to distinguish between managers and leaders have also been identified as:

Transactional leaders – see the relationship with their followers in terms of a trade: they give
followers the rewards they want in exchange for service, loyalty and compliance.

Transformational leaders – see their role as inspiring and motivating others to work at levels beyond
mere compliance. Only transformational leadership is said to be able to change team/organisational
cultures and create a new direction.

Bennis is an influential American author on leadership and change. He focuses on the need to inspire
change rather than imposing it. He identifies five ‘avenues of change’:

· Dissent and conflict – top management impose change by means of their position of power, the
result being rancour amongst those affected.
· Trust and truth – management must gain trust, express their vision clearly, and persuade others
to follow.
· Cliques and cabals – cliques have power, money and resources; cabals have ambition, drive and
energy. Unless the cliques can co-opt the cabals, revolution is inevitable.
· External events – forces of society can impose change, e.g. by new government regulation or
through overseas competition.
· Culture or paradigm shift – changing the corporate culture is the most important avenues of
change.

Leadership styles
Blake and Mouton

43
Robert Blake and Jane Mouton carried out research into managerial behaviour and observed two
basic dimensions of leadership: concern for production (or task performance) and concern for
people.

Blake and Mouton's grid for assessing managerial behaviour.

High 1.9 9.9

Concern

For people

5.5

9.1
low 1.1
low Concern for production High

1.1 Management impoverished – this manager only makes minimum effort in either area and will
make the smallest possible effort required to get the job done.

1.9 Country club management – this manager is thoughtful and attentive to the needs of the people,
which leads to a comfortable friendly organisation atmosphere but very little work is actually
achieved.

9.1 Task management – this manager is only concerned with production and arranges work in such a
way that people interference is minimised.

5.5 Middle-of-the-road management – this manager is able to balance the task in hand and
motivate the people to achieve these tasks.

9.9 Team management – this manager integrates the two areas to foster working together and high
production to produce true team leadership.

Tells (autocratic) – the manager makes all the decisions and issues instructions which must be
obeyed without question.

44
 Strengths:
 Quick decisions can be made when required.
 The most efficient type of leadership for highly-programmed work.

Weaknesses:
 Communications are one-way, neglecting feedback and potential for upward communication or
team member input.
 Does not encourage initiative or commitment from subordinates, merely compliance.

Sells (persuasive) – the manager still makes all the decisions, but believes that team members must
be motivated to accept them in order to carry them out properly.
Strengths:
 Team members understand the reason for decisions.
 Team members may be more committed.
 Team members may be able to function slightly better in the absence of instruction.

Weaknesses:

 Communications are still largely one-way.

 Team members are not necessarily motivated to accept the decision.
 It still doesn't encourage initiative or commitment.

Consults (participative) – the manager confers with the team and takes their views into account,
although still retains the final say.
Strengths:
 Involves team members in decisions, encouraging motivation through greater interest and
involvement.
 Consensus may be reached, enhancing the acceptability of the decision to team members.
 The quality of the decision may benefit from the input of those who do the work.
 Encourages upward communication.
Weaknesses:
 May take longer to reach decisions (especially if consensus is sought).
 Team member input may not enhance the quality of the decision.
 Consultation can be a façade for a basic ‘sells’ style.

Joins (democratic) – the leader and the team members make the decision together on the basis of
consensus.
Strengths:
 Can provide high motivation and commitment from team members.
 Empowers a team member to take the initiative (e g. in responding flexibly to customer
demands and problems).
 Shares other advantages of the ‘consults’ style (especially where team members can add value).
Weaknesses:
 May undermine the authority of the manager.

45
 May further lengthen the decision-making process.
 May reduce the quality of the decision because of the politics of decision making.

MOTIVATION

46
Definition – the willingness to exert high levels of effort to reach organisational goals as
conditioned by that effort’s ability to satisfy some individual need.

From the organisation's perspective it is highly desirable to have motivated workers, as they
 work harder
 make fewer mistakes
 generate less waste
 want more feedback
 make more suggestions
 are more likely to be satisfied with their jobs and
 don't waste time.

Together these should result in higher quality, improved productivity and lower costs.

Teams

Motivation is also key to the efficient running of teams. Apart from the benefits outlined above,
motivated employees are also

 more likely to co-operate and

 put team interests first.

Individuals-From an individual's perspective being motivated should result in

 greater job satisfaction

 improved health (less stress)
 improved career prospects and
 finding the job more interesting.

Content Theories Process Theories

􀁺 Ask the question ”What” are 􀁺 Process theories change the

the things that motivate emphasis from needs to the
people? They are also goals and processes by
referred to as “need which workers are motivated.
theories” and assume that
human beings have a set of
needs or desired outcomes
which can be satisfied
through work.
􀁺 Content theories assume that
everyone responds to
motivating factors in the same
way and that there is one
best way to motivate
everybody.

Abraham Maslow's theory suggested that individuals have a hierarchy of personal needs.

47
Self-actualisation / fulfilment

Ego needs

Social needs

Safety/ security needs

Physiological needs

Maslow's theory may be summarised and simplified by saying that everyone wants certain things
throughout life, and these can be placed in five ascending categories, namely:

Basic or physiological needs - The things needed to stay alive:

food, shelter and clothing, sexual satisfaction and other physical requirements.

Safety or security needs - People want protection against unemployment, the consequences of
sickness and retirement as well as being safeguarded against unfair treatment. These needs can be
satisfied by the rules of employment, i.e. pension scheme, sick fund, employment legislation etc

Social needs - The vast majority of people want to be part of a group and it is only through group
activity that this need can be satisfied. Need for affection, belongingness, acceptance and friendship.

Ego needs / Esteem needs- These needs may be expressed as wanting the esteem of other people
and thinking well of oneself. Internal esteem factors such as self-respect, autonomy, and
achievem`ent and external esteem factors such as status, recognition and attention.

Self-fulfilment needs - This is quite simply the need to achieve something worthwhile in life.
Growth, achieving one’s potential, and self-fulfilment, the drive to become what one is capable of
becoming.

Herzberg's theory of motivation

Herzberg's needs based theory identified two sets of factors on the basis that they “motivate” in
different ways.

Hygiene factors avoid dissatisfaction these include

 Policies and procedures for staff treatment
 Suitable level and quality of supervision
 Pleasant physical and working conditions
 Appropriate level of salary and status for the job
 Team working

Hygiene factors are concerned with extrinsic factors these are separate from or external to the job
itself

48
Motivators include
 Sense of achievement
 Recognition of good work
 Increasing levels of responsibility
 Career advancement
 Attraction of the job

The main motivation factors are thus not in the environment but in the intrinsic value and
satisfaction gained from the job itself. Most are nonfinancial in nature.

Herzberg defines three ways that management can attempt to improve staff satisfaction and
motivation

Job enrichment (sometimes called 'vertical job enlargement') – a deliberate, planned process to
improve the responsibility, challenge and creativity of a job. Typical examples include delegation or
problem solving.

Job enlargement - widening the range of jobs, and so developing a job away from narrow
specialisation.

Job rotation - the planned rotating of staff between jobs to alleviate monotony and provide a fresh
job challenge.

McGregor presented two opposite sets of assumptions made by managers about their staff.
These assumptions, which he called Theory X and Theory Y, are implicit in most approaches to
supervision,. These theories are opposite ends of a continuum.

Theory X assumptions:
 people dislike work and responsibility
 people must be coerced to get them to make an effort
 subordinates prefer to be directed, wish to avoid responsibility, have relatively little ambition,
and want security above all.
 Most workers place security above other factors associated with work and will display little
ambition.

Theory Y assumptions:
 physical and mental effort in work is as natural as play or rest
 the average human being does not inherently dislike work, because it can be a source of
satisfaction
 people can exercise self-direction and self-control to achieve objectives to which they are
committed.
 people can learn to enjoy and seek responsibility

Theory X/Y and management styles

 Based on their assumptions, supervisors will adopt a corresponding management style:

49
 If you believe that you have Theory X workers, then you adopt an authoritarian, repressive style
with tight control. Effectively the workforce is a problem that needs to be overcome by
management.
 If you believe that you have Theory Y workers, then you adopt a participative, liberating,
developmental approach. Employees will be viewed as assets who need to be encouraged and
empowered.

The Vroom expectancy model

Vroom believes that people will be motivated to do things to reach a goal if they believe in the worth
of that goal and if they can see that what they do will help them in achieving it.

Vroom's theory may be stated as:

Force = valence x expectancy

where

force = the strength of a person's motivation

valence = the strength of an individual's preference for an outcome

expectancy = the probability of success

POWER
SOURCES OR BASES OF POWER.

John French and Bertram Raven identified five sources or bases of power.

Reward power – is based on one person having the ability to reward another person for carrying out
orders or meeting other requirements.

Coercive power – is based on one person's ability to punish another for not meeting requirements, is
the negative side of reward power.

Expert power – is based on the perception or belief that a person has some relevant expertise or
special knowledge that others do not.

Referent power – is based on one person's desire to identify with or imitate another.

Legitimate power – the power derived from being in a position of authority within the organisational
structure – according to the position they hold within the organisation.

CONTROLLING

50
Definition any action taken by management to enhance the likelihood that established objectives
and goals will be achieved.

Controlling involves ensuring that performance does not deviate from standards. Controlling consists
of three steps, which include (1) establishing performance standards, (2) comparing actual
performance against standards, and (3) taking corrective action when necessary.

Managers at all levels engage in the managerial function of controlling to some degree.

This function of management concerns the manager’s role in taking necessary actions to ensure that
the work-related activities of subordinates are consistent with and contributing toward the
accomplishment of organizational and departmental objectives.

Effective controlling requires the existence of plans, since planning provides the necessary
performance standards or objectives. Controlling also requires a clear understanding of where
responsibility for deviations from standards lies.

Types of control

Feed forward/ preventive – to ensure that undesirable events do not happen.

Concurrent/Detective – to detect and correct undesirable events which have occurred.

Feedback/Directive – to cause or encourage a desirable event to occur.

STEPS IN CONTROL PROCESS

Establishing Standards and Methods for Measuring Performance

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Standards are, by definition, simply the criteria of performance.

They are the selected points in an entire planning program at which performance is measured so
that managers can receive signals about how things are going and thus do not have to watch every
step in the execution of plans.

Measuring the Performance

The measurement of performance against standards should be done on a forward-looking basis so

that deviations may be detected in advance of their occurrence and avoided by appropriate actions.

Determining whether Performance Matches the Standard

It involves comparing measured results with the standards already set.

If performance matches the standard, managers may assume that “everything is under control”. In
such a case the managers do not have to intervene in the organization’s operations.

Taking Corrective Action

This step becomes essential if performance falls short of standards and the analysis indicates that
corrective action is required. The corrective action could involve a change in one or more activities of
the organization’s operations.

Control can also reveal inappropriate standards and in that case, the corrective action could involve
a change in the original standards rather than a change in performance.

Characteristics of an Effective Control System

1.  Accuracy:

Effective controls generate accurate data and information. Accurate information is essential for
effective managerial decisions. Inaccurate controls would divert management efforts and energies
on problems that do not exist or have a low priority and would fail to alert managers to serious
problems that do require attention.

2. Timeliness:

There are many problems that require immediate attention. If information about such problems
does not reach management in a timely manner, then such information may become useless and
damage may occur. Accordingly controls must ensure that information reaches the decision makers
when they need it so that a meaningful response can follow.

3. Flexibility:

The business and economic environment is highly dynamic in nature. Technological changes occur
very fast. A rigid control system would not be suitable for a changing environment. These changes
highlight the need for flexibility in planning as well as in control.

52
Strategic planning must allow for adjustments for unanticipated threats and opportunities. Similarly,
managers must make modifications in controlling methods, techniques and systems as they become
necessary. An effective control system is one that can be updated quickly as the need arises.

4. Acceptability:

Controls should be such that all people who are affected by it are able to understand them fully and
accept them. A control system that is difficult to understand can cause unnecessary mistakes and
frustration and may be resented by workers.

Accordingly, employees must agree that such controls are necessary and appropriate and will not
have any negative effects on their efforts to achieve their personal as well as organizational goals.

5. Integration:

When the controls are consistent with corporate values and culture, they work in harmony with
organizational policies and hence are easier to enforce. These controls become an integrated part of
the organizational environment and thus become effective.

6. Economic feasibility:

The cost of a control system must be balanced against its benefits. The system must be economically
feasible and reasonable to operate. For example, a high security system to safeguard nuclear secrets
may be justified but the same system to safeguard office supplies in a store would not be
economically justified. Accordingly the benefits received must outweigh the cost of implementing a
control system.

7. Strategic placement:

Effective controls should be placed and emphasized at such critical and strategic control points
where failures cannot be tolerated and where time and money costs of failures are greatest.

The objective is to apply controls to the essential aspect of a business where a deviation from the
expected standards will do the greatest harm. These control areas include production, sales, finance
and customer service.

8. Corrective action:

An effective control system not only checks for and identifies deviation but also is programmed to
suggest solutions to correct such a deviation.

9. Emphasis on exception:

A good system of control should work on the exception principle, so that only important deviations
are brought to the attention of management, In other words, management does not have to bother
with activities that are running smoothly. This will ensure that managerial attention is directed

53
towards error and not towards conformity. This would eliminate unnecessary and uneconomic
supervision, marginally beneficial reporting and a waste of managerial time.

CHAPTER 7
ECONOMICS

54
There are 4 definitions of Economics.

(i) Wealth Definition:

Adam Smith defined “Economics as a science which inquired into the nature and cause of wealth

of Nations”.

According to this definition —

• Economics is a science of study of wealth only;

• It deals with production, distribution and consumption;

• This wealth centred definition deals with the causes behind the creation of wealth, and

• It only considers material wealth.

(ii) Welfare definition:

According to Alfred Marshall “Economics is the study of man in the ordinary business of life”. It
examines how a person gets his income and how he invests it. Thus on one side it is a study of
wealth and on the other most important side, it is a study of well being.

Features:

(a) Economics is a study of those activities that are concerned with material welfare of man.

(b) Economics deals with the study of man in ordinary business of life. The study enquires how an
individual gets his income and how he uses it.

(c) Economics is the study of personal and social activities concerned with material aspects of
wellbeing.

(d) Marshall emphasized on definition of material welfare. Herein lies the distinction with Adam
Smith’s definition, which is wealth centric.

(iii) Scarcity definition

This definition was put forward by Robbins. According to him “Economics is a science which studies
human behaviour as a relationship between ends and scarce means which have alternative uses.

Features:

(a) human wants are unlimited

(b) alternative use of scarce resources

(c) efficient use of scarce resources

(d) need for optimisation

(iv) Growth Oriented definition

55
Paul. A. Samuelson definition “Economics is the study of how man and society choose with or
without the use of money to employ the scarce productive resources, which have alternative uses,
to produce various commodities over time and distributing them for consumption, how or in the
future among various person or groups in society.”

Micro Economics

• Micro economics studies the economic behaviour of individual economic units.

• The study of economic behaviour of the households, firms and industries form the subject-matter
of micro economics.

• It examines whether resources are efficiently allocated and spells out the conditions for the
optimal allocation of resources so as to maximize the output and social welfare.

• For example, micro economics is concerned with how the individual consumer distributes his
income among various products and services so as to maximize utility.

• Thus, micro-economics is concerned with the theories of product pricing, factor pricing and
economic welfare.

Macro Economics

• Macro economics deals with the functioning of the economy as a whole.

• For example, macro economics seeks to explain how the economy’s total output of goods and
services and total employment of resources are determined and what explains the fluctuation in the
level of output and employment.

• It deals with the broad economic issues, such as full employment or unemployment, capacity or
under capacity production, a low or high rate of growth, inflation or deflation.

• It is the theory of national income, employment, aggregate consumption, savings and investment,
general price level and economic growth.

Entrepreneurship

Various authors define entrepreneurship differently, but their definitions somewhat amount to the
same meaning.

The following are some of the definitions of entrepreneurship:

Appleby (1989) defines entrepreneurship as the process of bringing together creative and innovative
ideas and coupling these with management and organizational skills in order to combine people,
money and other resources to meet an identified need and thereby create wealth.

Whereas Appleby defines entrepreneurship as such, Stoner & Freeman (1992) view
entrepreneurship as seemingly a discontinuous process of combining resources to produce new
goods and services.

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Law of Demand and Supply

The law of supply states that the quantity of a good supplied (i.e., the amount owners or producers
offer for sale) rises as the market price rises, and falls as the price falls. Conversely, the law of
demand says that the quantity of a good demanded falls as the price rises, and vice versa.

Opportunity Cost

• The concept of opportunity cost occupies a very important place in modern economic analysis.

• Factors of production are scarce in relation to wants.

• When a factor is used in the production of a particular commodity, the society has to forgo other
goods which this factor could have produced.

• This gave birth to the notion of opportunity cost in economics.

• Suppose a particular kind of steel is used in manufacturing war-goods, it clearly implies that the
society has to give up the amount of utensils that could have been produced with the help of this
steel.

• Hence we can say that the opportunity cost of producing war-goods is the amount of utensils
forgone.

• Opportunity cost is the cost of the next-best alternative that has been forgone.

• From the meaning of opportunity cost two important points emerge:

(i) The opportunity cost of anything is only the next-best alternative foregone and not any other

alternative.

(ii) The opportunity cost of a good should be viewed as the next-best alternative good that could be
produced with the same value of the factors which are more or less the same.

Factors of production

The goods and services with the help of which the process of production is carried out, are called
factors of production. Economists talk about four main factors of production : land, labour, capital
and entrepreneurship (or organization). They are also called as the inputs of production. On the
other hand, the goods produced with the help of these inputs, are called as the output.

Labour economics looks at the suppliers of labour services (workers) and the demanders of labour
services (employers), and attempts to understand the resulting pattern of wages, employment, and
income. In economics, labour is a measure of the work done by human beings.

57
Capital

• In a fundamental sense, capital consists of any produced thing that can enhance a person’s power
to perform economically useful work.

• Example, a stone or an arrow is capital for a caveman who can use it as a hunting instrument.

• Capital is an input in the production process.

• It refers to financial resources available for use.

• Capital is different from money.

• Money is used simply to purchase goods and services for consumption. Capital is more durable and
is used to generate wealth through investment.

• Capital is something owned which provides ongoing services.

• Economic capital is used for measuring and reporting market and operational risks across a
financial organization.

NATURAL RESOURCES

The existence or the absence of favourable natural resources can facilitate or retard the process of
economic development. Underdeveloped countries, embarking on programmes of economic
development, “usually have to begin with and concentrate on the development of locally available
natural resources as an initial condition for lifting local levels of living and purchasing power, for
obtaining foreign exchange with which to purchase capital equipment, and for setting in motion the
development process.”

Natural resources include land, water resources, fisheries, mineral resources, forests, marine
resources, climate, rainfall and topography. Some of these resources are known to man. With the
growth of the knowledge about the unknown resources and their use, the natural endowment of a
country is materially altered.

Utility

• Utility, or usefulness, is the ability of something to satisfy needs or wants.

• Utility is an important concept in economics because it represents satisfaction experienced by the

consumer of a good.

• Utility is a representation of preferences over some set of goods and services.

• One cannot directly measure benefit, satisfaction or happiness from a good or service, so instead
economists have devised ways of representing and measuring utility in terms of economic choices
that can be counted.

58
• Economists consider utility to be revealed in people’s willingness to pay different amounts for
different goods.

• Total utility is the aggregate sum of satisfaction or benefit that an individual gains from consuming
a given amount of goods or services in an economy.

• The amount of a person’s total utility corresponds to the person’s level of consumption.

• Usually, the more the person consumes, the larger his or her total utility will be.

• Marginal utility is the additional satisfaction, or amount of utility, gained from each extra unit of
consumption.

• Total utility usually increases as more of a good is consumed.

• Marginal utility usually decreases with each additional increase in the consumption of a good.

• This decrease demonstrates the law of diminishing marginal utility.

Law of Diminishing Marginal Utility

• This Law is a fundamental law of Economics.

• It relates to a man’s behaviour as a consumer.

• The Law states that as a man gets more and more units of a commodity, marginal utility from each
successive unit will go on falling till it becomes zero or negative.

• Marginal utility means the additional utility obtained from one particular unit of a commodity.

• It is expressed in terms of the price that a man is willing to pay for a commodity.

• The basis of the Law is satiability of a particular want.

• Although human wants are unlimited in number yet a particular one can be fulfilled.

INFLATION

• It arises when price level of an economy goes on rising continuously.

• It is open inflation.

• An economy may also suffer from inflation without any apparent rise in prices.

• This is repressed inflation.

• According to classical writers inflation is a situation when too much money chases too few goods.

• It is an imbalance between money supply and Gross Domestic Product.

• As per Keynes inflation is an imbalance between aggregate demand and aggregate supply.

59
• In an economy, if the aggregate demand for goods and services exceeds aggregate supply, then
prices will go on rising.

Gross Domestic Product (GDP)

• the sum total of values of all goods and services produced within the geographical boundary of the
country;

• These are without adding the factor income received from abroad.

Free market economy

Free market economy, economic system in which individuals, rather than government, make the
majority of decisions regarding economic activities and transactions.

Advantages of free market system

-It is the most efficient system for allocation of resources and labors and capitals.

- The system can maximize the well-being of the whole nation and also the national wealth.

- The freedom of economic activities in the free market system will lead to the freedom of the
political freedom.

Disadvantages of free market system

- There is a big possibility of appearance of monopoly economy or oligopoly economy, which are
quite negative on the sound development of industry.

- There is a problem of the shortage of public goods, which become efficient when produced or
operated by the government.

- The free market economy cannot smoothly adjust to the economic cycle of “boom and bust”. -
Problems in environment and corruptions in the economic market.

- The widen gap between the bourgeois and the proletariat, which can hurt the stability of the whole
society.

A command economy is where a central government makes all economic decisions. The government
or a collective owns the land and the means of production.  It doesn't rely on the laws of supply and
demand that operate in a market economy. A command economy also ignores the customs that
guide a traditional economy.  In recent years, many centrally-planned economies began adding
aspects of the market economy. The resultant mixed economy better achieves their goals.

Five Characteristics of a Command Economy

You can identify a modern centrally planned economy by the following five characteristics.

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1. The government creates a central economic plan. The five-year plan sets economic and societal
goals for every sector and region of the country. Shorter-term plans convert the goals into
actionable objectives. 

2. The government allocates all resources according to the central plan. It tries to use the

nation's capital, labor and natural resources in the most efficient way possible. It promises to use
each person's skills and abilities to their highest capacity. It seeks to eliminate unemployment.

3. The central plan sets the priorities for the production of all goods and services. These include
quotas and price controls. Its goal is to supply enough food, housing, and other basics to meet the
needs of everyone in the country.

It also sets national priorities.  These include mobilizing for war or generating robust economic
growth.

4. The government owns monopoly businesses. These are in industries deemed essential to the

goals of the economy. That usually includes finance, utilities, and automotive. There is no domestic
competition in these sectors.

5. The government creates laws, regulations, and directives to enforce the central plan. Businesses

follow the plan's production and hiring targets. They can't respond on their own to free market
forces. (Source: Bon Kristoffer G. Gabnay, Roberto M Remotin, Jr., Edgar Allan M. Uy,
editors. Economics: Its Concepts & Principles. 2007. Rex Book Store: Manila.)

Advantages

Planned economies can quickly mobilize economic resources on a large scale. They can execute
massive projects, create industrial power, and meet social goals. They aren't slowed down by
lawsuits from individuals or environmental impact statements. 

Command economies can wholly transform societies to conform to the government's vision. The
new administration nationalizes private companies. Its previous owners attend "re-education"
classes. Workers receive new jobs based on the government's assessment of their skills. 

Disadvantages

This rapid mobilization often means command economies mow down other societal needs. For
example, the government tells workers what jobs they must fulfill. It discourages them from moving.
The goods it produces aren’t always based on consumer demand. But citizens find a way to fulfill
their needs.

They often develop a shadow economy, or black market. It buys and sells the things the command
economy isn't producing. Leaders' attempts to control this market weakens support for them.

They often produce too much of one thing and not enough of another. It's difficult for the central
planners to get up-to-date information about consumers' needs. Also, prices are set by the central
plan. They no longer measure or control demand. Instead, rationing often becomes necessary.

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Command economies discourage innovation. They reward business leaders for following directives.
This doesn’t allow for taking the risks required to create new solutions.

Command economies struggle to produce the right exports at global market prices. It's challenging
for central planners to meet the needs of the domestic market.

Meeting the needs of international markets is even more complex.

 A mixed economy

is a system that combines characteristics of market, command and traditional economies. It benefits

from the advantages of all three while suffering from few of the disadvantages. 

A mixed economy has three of the following characteristics of a market economy. First, it protects
private property. Second, it allows the free market and the laws of supply and demand to determine
prices. Third, it is driven by the motivation of the self-interest of individuals.

A mixed economy has some characteristics of a command economy in strategic areas. It allows the
federal government to safeguard its people and its market. The government has a large role in
the military, international trade and national transportation.

Ceteris paribus

Is a Latin phrase that means "all other things being equal." Experts use it to explain the theory
behind laws of economics and nature. It means that most of the time, something will occur as a
result of something else. That is, of course, if nothing else changes. 

For example, the law of gravity states that a bathroom scale thrown out the window will fall to the
ground, ceteris paribus. That means gravity will send the bathroom scale down to the ground as long
as nothing else changes.

CHAPTER 8

ACCOUNTING
Accounting is a system of

 Gathering – the bringing together of all financial information that has an effect on a specific
business
 Analysing – determining how the financial information will affect the business
 Recording - inputting the financial information through proper accounting processes
 Reporting the summarising of all financial information for a given period of time so that it
can be read and understood in a more condensed format.

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  Interpreting – preparing an analysis of the summarised reports to allow users to make
informed decisions about the business.

Types of Business Entity

A business can be organised in one of several ways:

Sole trader - a business owned and operated by one person

 The owner will supply the capital for starting the business
 There are no legal formalities other than a licence to trade
 Owner is taxed on business profits in his own hands
 Business is not a distinct legal person
Advantages
 Owner is very independent
 Owner is directly involved with customers and can supervise staff closely
 Decisions can be taken quickly and the business can be adapted to take advantage of
business opportunities
Limitations
 Expansion prospects are hampered by limited access to capital
 Owner is personally liable or has unlimited liability for the debts of the business
 Owner may not be versatile to do everything for the entity
 There is no continuity in the event of death or retirement

Partnership – a legal relationship that exist between two or more people carrying on a business for
the purpose of making a profit

 The maximum legal number of partners is twenty

 Each partner’s profits are taxed in his own hands, similar to a sole trader
Advantages
 New partners bring in additional capital and introduce new ideas
 Partners can specialise in different areas
 Increased capital and division of labour between partners facilitates expansion of the
business
Limitations:
 Partners are jointly and severally liable
 Continuity ends the moment a partner withdraws or dies

Company - a business owned by many people and operated by many (though not necessarily the
same) people

 A company is a distinct and separate legal entity apart from its shareholders
 Shareholders enjoy limited liability
 It is managed by a board of directors
 A company enjoys perpetual succession

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Users of the Financial Statements and their needs
Management need detailed information in order to control their business and plan for the future.
Budgets will be based upon past performance and future plans. These budgets will then be
compared with actual results. Information will also be needed about the profitability of individual
departments and products. Management information must be very up to date and is normally
produced on a monthly basis.

Investors and potential investors are interested in their potential profits and the security of their
investment. Future profits may be estimated from the target company's past performance as shown
in the income statement. The security of their investment will be revealed by the financial strength
and solvency of the company as shown in the balance sheet. The largest and most sophisticated
group of investors are the institutional investors, such as pension funds and unit trusts.

Employees and trade union representatives need to know if an employer can offer secure
employment and possible pay rises. They will also have a keen interest in the salaries and benefits
enjoyed by senior management. Information about divisional profitability will also be useful if a part
of the business is threatened with closure.

Lenders need to know if they will be repaid. This will depend on the solvency of the company, which
should be revealed by the balance sheet. Long-term loans may also be backed by “security” given by
the business over specific assets. The value of these assets will be indicated in the balance sheet.

Government Agencies need to know how the economy is performing in order to plan financial and

industrial policies. The tax authorities also use financial statements as a basis for assessing the
amount of tax payable by a business.

Suppliers need to know if they will be repaid. New suppliers may also require reassurance about the
financial health of a business before agreeing to supply goods.

Customers need to know that a company can continue to supply them into the future. This is
especially true if the customer is dependent on a company for specialised supplies.

Competitors wish to compare their own performance against that of other companies and learn as
much as possible about their rivals in order to help develop strategic plans.

The public may wish to assess the effect of the company on the economy, local environment & local
community .Companies may contribute to their local economy & community through providing
employment and patronising local suppliers. Some companies also run corporate responsibility
programmes through which they support the environment, economy and community by, for
example, supporting recycling schemes.

Financial Statements
There are two elements to the financial statements:

Statement of financial position, showing the financial position of a business at a point in time; and

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Income statement, showing the financial performance of a business over a period of time.

The business entity concept

The business entity concept states that financial accounting information relates only to the activities
of the business entity and not to the activities of its owner. The business entity is treated as separate
from its owners.

The balance sheet equation

ASSETS = OWNER’S EQUITY + LIABILITIES

ASSETS

Assets are resourses controlled by an entity resulting from past events out of which future economic
benefits will flow. There are two categories of assets,

Non-current assets: is an item of value with a lifespan of more than one year eg buildings, vehicles
equipment, financial assets.

Current assets: is an item of value with a lifespan of less than one year, which is easily converted to
cash eg cash at bank and debtors

LIABILITIES

Liabilities are present obligations resulting from past events, the settlement of which leads to
decrease in economic benefits. There are two categories of liabilities:

Non-current liabilities these are obligations of the business which are payable over a period of more
than one year, eg long term bank loans

Current liabilities are obligations by the business which are payable within one year eg Bank over-
draft and creditors

OWNER’S EQUITY

This is the interest of the owner in the business, eg capital contribution and drawings.

Income – Expenses = Net profit

The net profit belongs to the owner of the business and so also falls under owner’s equity.

Income

This consists of receipts by the business for its normal operations, eg sales, fees earned, rent
received and interest received. These increase economic benefit within a current period.

Expenses

Amounts spent by a business during its normal operations eg rent paid, advertising, salaries and
insurance. These decrease economic benefits for the current period.

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REFERENCE

ACCA (2003), finance for nonfinancial managers, Press

IMM (2017), Basic Accounting, Van Schaik

Robbins and Coulter (2010), Management, Prentice Hall International

ZOU (2007), Management MBA Module

Mupambireyi F (2018) M.E. module

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