Business Notes IB HL PDF

UNIT 1 - BUSINESS ORGANIZATION AND ENVIRONMENT 1.1 what is a business? The nature of business (AO1) Business - any organization involved in the production of goods and services Business activity - the process of turning inputs(land, labour, capital, enterprise) into outputs(finished goods and servi...

UNIT 1 - BUSINESS ORGANIZATION AND ENVIRONMENT 1.1 what is a business? The nature of business (AO1) Business - any organization involved in the production of goods and services Business activity - the process of turning inputs(land, labour, capital, enterprise) into outputs(finished goods and services) in order to meet the needs andwants of different customers. Input process output 4 Factors of production Land: is all-natural(renewable & non-renewable) resources of nature such as minerals, coal, oil and timber Labour: human effort(labour) used to produce goods and services. Hence, this is often referred to as human resources. Capital: non-natural (or manufactured) resources used in the production process : machinery, equipment and finance needed for production of goods and services Enterprise: knowledge, skills and experiences of individuals who have the capability to manage the overall production process. People prepared to take the risk of setting up businesses - they are known as entrepreneurs Scarcity - not enough goods and services to meet the wants of the population Opportunity costs - the benefit that could have been gained from an alternative use of the same resource Goods and services differ in four ways. Specifically, services are: Intangible – Unlike goods, services are not physical in their nature.(edu/services…) Inseparable – The service received is attached to the people who deliver the service and the processes used to deliver the service. Perishable – Services do not last but are usually consumed at the time of purchase. Variable – services are heterogeneous, i.e., each customer experience is unique. Business functions -​ Human resources - Manages the workforce and laborers of the company - Deals with recruitment, wages, communication, and motivation of employees -​ Finance and accounts - In charge of managing the organization’s money and assets - Ensures accurate recording and reporting of financial documentation (to comply with legal requirements) -​ Marketing - Ensure that a company’s products sell - Concerned with identifying and satisfying consumers’ needs/wants - In charge of promotions, advertisements, etc. -​ Operations - In charge of business functions and processes that produce the actual goods - Concerned with research & development, delivery, stock management, etc. Specialisation & Division of labour: Specialization - people and businesses concentrate on what they are best at Division of labour - producing is divided into separate tasks and each employee does just one task Businesses produce different types of goods and services Consumer goods - products sold to the general public rather than to other businesses, which are referred to as consumer durables Capital goods(producer goods) - physical products bought by businesses to produce other goods and services. Examples: buildings, computer, machinery. Service - intangible products provided by business such as insurance services and transport Economic sector(AO2) primary sector business activity -the business activity involved with the extraction of natural resources(agriculture farming, quarrying, fishing, oil extraction, hunting, mining) secondary sector business activity - the business activity involved with the manufacturing or constring of finished products (car manufacturing, construction, engineering, food processing, road construction, carpentry) tertiary sector business activity - business activity that involves providing services to customers (banking, cinema, health care, education, insurace, transloration, tourism) Quaternary sector business activity - business activity involving the creating or sharong knowledge and information such as (research and development, business consulting, medical research, ICT, mangamnget information systems ​ Entrepreneurship(AO2) Entrepreneur - an individual who plans, and organizes a business and takes the financial risk of starting up and managing the business Characteristics of successful entrepreneurs -​ Creativity -​ Visionart -​ Self motivated/motivation -​ Leadership -​ Risk management -​ Time management / planner -​ Risk tolerance -​ Risk taker -​ Flexible / open minded -​ Teamwork Challenges and opportunities for starting a business(AO2) Challenges : -​ Lack of finance - lack of sufficient working capital lead to bankruptcies -​ Lack of marketing research - they over estimate the size of the potential market -​ Poor marketing strategies -​ Unestablished customer base -​ Long hours -​ Limited human resources -​ Lack of knowledge, skills and experience Opportunities : -​ Money - ambition to earn profit for themselves -​ Autonomy -​ Challenges - some are driven by personal challegnes - enjoy satisfaction -​ Passion - pursue own passion and turn into a business opportunity -​ Family ties -​ Unfilled market opportunities - entreprenuesr spot unfilled gap so start own business -​ Making a difference -​ Not being able to find employment - become self employed if cant find job 1.2 types of business entities Private and public sector(AO2) Private sector - the part of the economy that is owned and controlled by individuals and companies for profit Public sector - the part of the economy that is controlled by the state of government (education, museums, public parks, emergency service, healthcare, housing) unlimited liability - if an unincorporated business fails, then the owners/shareholders might have to use their own personal wealth to finance any business debts Limited liability - the shareholders in a limited liability company which fails only risk losing the amount they have invested in the company and not any of their person wealth Shareholders - a person or organisation that owns shares in a limited company​ private limited company - limited liability company owned by shareholders that cannot gain share capital from the general public via stock exchange. Shares are sold to private family members and friends or corporate and lawyers​ Advantages of privately held companies Disadvantages of privately held companies -​ The company is incorporated, -​ Privately held companies can only creating a separate legal entity sell their shares to family, friends, between the shareholders and the and employees, with the approval company. of the majority of existing -​ There is better control of a privately shareholders. This can make it rather than publicly held company, difficult to buy and sell shares in as shares in a privately held the company company cannot be bought or sold -​ They are more expensive to operate without the agreement of existing than a sole trader or partnership. shareholders. For example, there are higher legal -​ Significantly more finance can be fees and auditing fees (for checking raised compared with a sole trader and approving of the financial (one owner) or a partnership (up to accounts). 20 owners). -​ A privately held company can -​ Privately held companies have become a target for a takeover by a greater privacy compared to larger company which purchases a publicly held companies; the latter majority stake, although other must make their final accounts owners have to agree to the sale of available to the general public. the company. -​ Shareholders have limited liability, so cannot lose more than what they invest in the company. Owners are protected against any misconduct or misjudgements of those who run the company. -​ Unlike a sole trader or partnership, they can enjoy continuity in the event of the death of a major shareholder. Public limited company - limited liability company owned by shareholders. They can sell share capital from the general public via stock exchange. Shares sold to general public Advantages of publicly held companies Disadvantges of of publicly held companies -​ Additional fiance can be raised -​ There is a lack of privacy because through a share issue(selling more the general public have access to shares in a company) - easy to get the financial accounts of publicly more fiancne on stock exchange held companies. -​ It is also easier for large publicly -​ Publicly held companies are the held companies to borrow money most administratively difficult and from bank loans and mortgages, expensive form of commercial due to their lower level of risk for for-profit business to set up and financial lenders. run. For example, there are high -​ As with privately held companies, costs of complying with the rules the shareholders of publicly held and regulations of the stock market. companies enjoy limited liability. -​ As the general public can buy and -​ Large publicly held companies get sell share freely, there is always a to enjoy the benefits of operating on potential threat that a rival a large scale, such as opportunities company will make a takeover bid. to exploit economies of scale, -​ Large companies can suffer from market share, and market power. diseconomies of scale. Being too -​ As with privately held companies, large can cause inefficiencies in publicly held companies enjoy the company, and hence higher continuity even if a principal or average costs of production. major shareholder leaves the organization or passes away. Companies are owned by shareholders, private / public. Businesses are sole traders and partnership All companies are businesses but not all businesses are companies Control - board of directors Management - ceo AGM AND EGM Private shares are sold privately - lawyers and accountants NOT friends and family Stock exchange Saturation strategy Dividend - a payment out of profits, to shareholders as a reward for their investments Collateral - non-current assets offered as security against borrowing Types of organizations(AO3) Unincorporated business - a business that does not have legal identity separate from its owners, the owners have unlimited liability for business debts Sole traders - a business that is owned and controlled by just one person who takes all of the risk and receives all of the profits(unincorporated business) advantages of sole proprietorships disadvantages of sole proprietorships few legal formalities - easy to set up unlimited liability - responsible if the and tart up cost are usually low, business fails or has debt since its an unincorporated business compared to other types of businesses quick decision making - no other limited source of finance - difficult to owners to consult so sole traders are secure funds beyond personal savings, able to make decisions quickly and growth can also be a problem due to the independently based on their own lack of sources of finance available to sole traders needs and preference -​ May not be able to raise funds to expand business be your own boss - don't take orders workload and stress - May have to from anyone, have flexibility in decision work long hours, do their own making(working hours) and self esteem accounts, marketing, HR. Unlikely to be from being successful equally effective in all the roles, -> added workload and stress -​ May not have business skills to run a business Keeps the profit(profit taking) - only high risk - largest risk of failure due to owner so receives all profit - gives presence of bigger firms -> creates incentives to work hard and become huge threats to the profit and survival successful of smaller businesses -​ Difficult to compete with larger rival companies personalised service - to coustomers, limited economics of scale - cant learner businesses might not have the time exploit(make full use) the benefits of to know customers personally so it’s large scale production so prices might generic and impersonal be less competitive compared to bigger rivals. - tends to reduce the competitiveness and profits for the sole trader  privacy - they get privacy as they do not lack of continuity - running of the have to make their financial records business can be jeopardised if owner is available to the general public - not present. If they go on holiday or is confidentiality sick, business might have problems in continuing Partnerships - for-profit private sector business formed by 2 or more people who will usually share responsibilities for the day to day running of the business, partners usually invest in the business and will share profits.(unincorporated business) Advantages of partnerships disadvantages of partnerships financial strength - better than sole unlimited liability - they are responsible traders as there are more owners to invest for all debts, debt can be repaid by another in the business and quite easy to set up. partner(wholly) or shared among partners. -​ easier to secure external sources of The rare exception is with limited liability finance due to lower risks partners who have been elected to have limited liability speacialistion and division of labour - lack of continuity - problems could arise if unlike sole traders, partnerships can partner leaves the firm or passes away benefit from shared expertise, workload because the partnership deed becalmed and moral support invalid - > need to set up again -​ client base likely to be larger(law) it is possible to accommodate some changes in s deed of partnership, although solicitors will need to spend time and money on drafting a new contract financial privacy - like sole traders, prolonged decision making - compared to partnerships do not have to share their sole traders, decision making will take financial records publicly longer as more owners are involved, which can cause disagreements and conflicts cost effectiveness - more cost effective lack of harmony, disagreements and than sole trades as each partner specialises conflict within partnership is common, but in certain aspects of their business, raising must have trust. labour productivity and operational Each partnership is legally and financially efficiency accountable to all others, so a mistake made by one person can reduce the profits for every partner Some are good for limited companies but some are not meant for sole trades or partnerships because theses unincorporated businesses  -​ Cannot raise capital through the sale of shares -​ Usually only need to finance small capital expenditure projects -​ Are often considered by lenders to be too high risk for large scale borrowing Businesses can use some of their working capital to raise additional funds sources of finance may come from: -​ Cash balances -​ Reducing inventory levels -​ Reducing trade receivables (debtors) Issue shares - no need to pay back money The advantages and disadvantages of limited liability companies advantages of limited liability companies disadvantages of limited liability companies raising finance - can raise capital by selling communication problems - when a shares -> no interest charges and company becomes larger, services and shareholders are paid dividends only if the relationships can become more impersonal company earns a profit to both customers and employees limited liability - easier to attract investors added complexity - sole proprietorship or as the risk are low for them partnerships is cheaper and less complicated than running a limited liability continuity - unlike partnerships and sole compliance cost - complying with the rules traders, the legal difference between the and regulations of being a company add to company and its owners mean it can its running cost. -> cause of stock exchange continue to operate as a separate legal entity, even with a change of owners economic of scale - can benefit (lower unit disclosure of information - financial data cost of production as firm grows) -> must be provided to all shareholders cheaper for a company to borrow money -​ can be time consuming and than it is for sole trades or partnerships as expensive task as auditors have to limited companies are less of a financial be hired risk -​ annual report must be published and distributed -​ Privacy no longer exists compared to sole traders and partners productivity - can hire directors or bureaucracy speacialst managers to run the firm, owners dont need to be directly involved in running the day to day operations -​ output and productivity levels of  limited liability companies are generally higher than found in sole trader and partnerships tax benefits - sole traders and partnerships loss of control - while sole traders and pay income tax on profits. partnerships retain control of their -​ companies pay corporation tax on business, publicly held companies face the their profits potential threat of a takeover by a rival -​ highest income tax rate tends to be company that purchases a majority stake in greater than the rate for corporation the business(as shares are openly available tax for purchase on a public stock exchange) -​ companies benefit from a wider range of allowances and tax deductible cost Social enterprise (AO3) Social enterprise - revenue generated business with social objectives at the core of their operations(private company not gov) -​ Primary drivers to generate social value -​ Achieve measurable social impact alongside financial return -​ Primary drivers to generate financial value Social enterprise UK -​ Have a clear social or environmental mission set out in its governing doc and be controlled in the interest of that mission -​ Be independent of state or government control and earn more than half of its income through trading -​ Reinvest or donate at least half of its profit or supplies towards their mission -​ Be transparent in the way they operate and the impact they have Main benefit of social enterprise ; -​ They use any financial surplus to benefit others in society, beyond personal rewards for shareholders and owners -​ They create employment opportunities, thereby improving the economic and social landscape of local communities -​ They are run in a transparent way, providing tangible benefits in addition to having a clean corporate conscience in the strive to achieve its social mission -​ There are three main types of for-profit social enterprises: (i) private sector companies, (ii) public sector companies and (iii) cooperatives Private and public sector for profit socal enterprises have 3 board aims : triple bottom line -​ Economic - to earn a profit (or surplus) and to reinvest this surplus back in the business for societal benefits. -​ Social - to provide benefits to people in society, such as jobs opportunities in the local community and to support less-advantaged members of society -​ Environmental - to protect the planet, by operating in environmentally friendly and sustainably responsible ways Cooperatives - for-profit social enterprises that are owned and managed by their members Producer cooperatives - cooperatives that join and support each other to process and/or market their products Consumer cooperatives - owned by the customers who buy the goods and/or services from cooperatives for personal use Worker cooperatives - set up, owned and organised by their employee members Features of cooperative: -​ Decision making is usually shared by all members so… -​ Any profit and losses arising from this decision are also shared -​ Membership is voluntary -​ Alotyhough a for-profit business, there is usually some soty of sical improvement goal -​ All members of a cooperative have equal voting rights, irrespective of their role in the business or their level of investment in the cooperative. -​ Members of a cooperative have limited liability, restricted to the amount they invested in the business. Disadvantages : -​ As cooperatives are not profit-driven, it can be difficult to attract investors, financiers and member-shareholders. -​ Similarly, employees and managers of cooperatives may lack the financial motivation to excel, due to the absence of a profit motive -​ Most cooperatives have very limited sources of finance as their capital depends on the amount contributed by their members Non-governmental organizations (NGOs) are private sector not-for-profit social enterprises that operate for the benefit of others rather than primarily aiming to earn a profit, such as Oxfam and Friends ofthe Earth. 1.3 business objectives Vision and mission statement vision statement - is a written document that describes where an organization is going and what it will look like when it gets there. Mission - Outlines the purpose, identity, and focus of an organization's existence to motivate workers and its Internal and external Common business objectives (AO2) Objective - a statement of the specific target to be achieved, it should be SMART Specific - for example, an airline may set an objective about the level of seat occupancy on its plains Measurable - the airline may set an objective of achieving an average 85% seat occupancy across all of its flights Achievable and Agreed - the airline occupancy objective needs to be discussed with the marketing department as it will need to decide on promotional activities to see that the objective is met Realistic and Relevant - the airline seat occupancy objective will need financial resources, perhaps for an advertising campaign, the objective is relevant to the marketing manager, but less relevant to the human resources manager Time specific - the airline may set an objective to achieve average seat occupancy of 85% within the next 18 months ​ Business objectives - the clearly defined and measurable targets of an organization, used to achieve its overall goals To measure and control To motivate To direct -​ Profit -​ Growth -​ Ethical objectives - csr Methods of measuring the growth of a business include: -​ Sales revenue - the monetary value of the products that the business has sold, per time period). -​ Sales volume - the number of products that the business sells, per time period). -​ Profits - the financial surplus that remains after all costs of production have been deducted from a firm's sales revenue). -​ Customers - the more customers that the business has, the larger it tends to be). -​ Number of employees (size of the workforce) - the more people that are hired by the business, the larger it tends to be  -​ Market share - this measures the firm's sales revenue as a proportion of the whole industry's sales revenue Profit (or financial surplus) is the positive difference between a firm's sales revenue and its total costs of production, per time period Advantages and limitations of having ethical objectives and practice Advantages Disadvantages improve corporate image - acting ethically compliance cost - the cost of being socially and in a socially responsible way can help responsible are potentially very high it enhance the corporate image and -​ for exp producing organic reputation of a business agriculture products is far more -​ Conversely, the medal will report explosive than growing and unethical business behaviour which harvesting genetically modified could seriously damage the firms crops due to additional time and corporate image money involved increased customer loyalty - customers are lower profits - if compliance cost cannot be more likely to be loyal to a business that passed onto consumers in the form of does not act immorally. higher prices lol the firms profitability will -​ body shop has established a larger fall customer based worldwide based -​ an ethical decision making involves on its ethical policy of not testing its adopting a less profitable course of products on animals action cost cutting - ethical behaviour can help to stakeholder conflict - not all stakeholders cut certain cost, for exp being are keen on the firm adopting ethical environmentally friendly objectives and objectives esp if this conflict with other strategies can help the firm avoid litigation business objectives such as profit costs( expenses associated with legal maximisation. action taken against a business) that might -​ speculative shareholders / investors otherwise arise from unethical and may be more interested in short irresponsible activities term profits than the firm's long term ethical stance. -​ -so managers may be pressured into pursuing other goals improved stall moral and motivation - the subjective nature of business ethics - ethical behaviour can help a business to views about what is considered right or attract and retain highly motivated stall wrong depends on the belief and principles -​ People are more likely to be proud held by individuals and societies. of the firm they work or if it acts Legislation can help to provide guidelines ethically and within the law. This about what is socially acceptable but even also helps to improve production these are somewhat subjective in nature  and employee loyalty Strategic and tactical objectives (А03) -​ Image and reputation -​ Survival -​ Sales revenue maximisation -​ Market standing -​ Market share Tactics - the actions required to achieve the short term objectives of an organization. Tactical objectives - the short-term and specific goals of a business with definitive timelines for specific functional areas of an organization. Strategies - the actions required to achieve the long term objectives of an organization Strategic objectives - the long-term goals or aims that the whole organization continually strives to achieve corporate social responsibility - a self-regulating business model that helps a company be socially responsible to itself, stakeholders, and the public. Corporate social responsibility (CSR): Core values or marketing tactics? > shareholder value > community > internal - employee / manager / > external - suppliers/ local area > society charitable giving impact - traffic / pollution / jobs / supply chain -​ Equality -​ Equity 1.4 stakeholders Stakeholder - an individual or group which has an interest or involvement in a business because they are affected by its activities and decisions Pressure group - a group of like-minded people that puts pressure on businesses and government to change their policies to reach a predetermined objective Internal stakeholders- members of the organization, namely the employees, managers, directors and shareholders (owners) of the business. External stakeholders - individuals and organizations not part of the business but have a direct interest in its activities and performance. Examples include customers, suppliers and the government. Internal stakeholders = owners and shareholders, managers & directors, employees external stakeholders = financiers, customers, government, competitors, pressure groups, lender, suppliers STAKEHOLDER OBJECTIVE Internal Owners -receive high returns as reward for risking their investment in the business -benefit an increase in share value Managers -job satisfaction and status -receive salary increase and bonuses Employees -job security -receive a fair wage that reflects their contribution to the business’s success External Lenders -receive interest payments when due -have borrowing repaid by the due date Suppliers -receive prompt payment for goods supplied on credit -treated fairly and not be forced to reduce their prices by businesses with strong buying power Customers -receive quality goods and after sales service -charged a fair price which gives value for money Government -paid the correct amount of taxes on time -minimal spending on unemployment benefits Local community -receive benefits for the local economy such as employment and subsidising community facilities -avoid negative impact of business activities such as noise, air and traffic pollution Competitors Fairness of competitive prices, strategic plans of the business 1.5 growth and evolution (AO2) Economic of scale - the average(unit) cost of production decreases as the organisation increases the scale of its operations Automation and full production Bulk buying 1.​ Contribution to total cost & profit - profitability 2.​ Gain market share through price - OFS (offer for sale) 3.​ Branding / promotion 4.​ Grow - increase competition / market share 5.​ Buy / expand r-vc=contribution Fixed cost + profit = contribution Grow or die -​ Competition moves in -​ Economic of scale -​ Government scale -​ Undercut -​ Market share demand Internal economics of scale -​ Occurs inside a firm -​ Within firms control  Different Types of (internal)economies of scale: Purchasing Large firms get discounts for buying in bulk Marketing Larger firms can benefit from lower average cost of marketing as sales increase. As sales double, you do not need to double marketing costs Financial Larger firms are more financially stable and lenders are more willing to lend money. Managerial Larger firms can employ specialist managers to improve efficiency. Technical Larger Firms can introduce more capital-intensive technology *e.g flow production) and advanced technology such as CAD or CIM Specialization Larger firms can afford to hire and train specialist workers, which help to boost output, productivity, and efficiency (thereby cutting average costs of production). Risk-bearing Large businesses can bear greater risks than smaller firms due to a greater product portfolio. Hence, inefficiencies will harm smaller firms to a greater extent. Examples of external economics include ; -​ Technological progress -​ Improved transportation networks -​ Abundance of skilled labour -​ Regional specialization Why economic of scale might benefit customers Lower prices – Reduced cost-per-unit leads to lower prices for the consumer, meaning that overall, consumers will have higher real incomes and easier access to affordable products. Explain why so many small firms continue to survive and thrive, despite their limited ability to access economies of scale? Niche -​ quality -​ geographical markets -​ Niche customer relationship  -​ Niche reputation -​ Price niche -​ Niche product Diseconomic of scale - when an organization becomes inefficient due to the scale of its operations being too large to manage effectively. This results in higher average costs of production. Too big for its own good Niche ??????? -​ Specialization -​ Move to a niche(location) -​ Customer service -​ Meets owners objectives - social enterprise -​ Meet personal goals External diseconomies of scale - occur due to factors beyond its control which cause average costs of production to increase as an industry grows External economies of scale - occur when an organization's average cost falls as the industry grows. Hence, all firms in the industry benefit. Internal diseconomies of scale : -​ Lack of control and coordination -​ Poor working relationships -​ Poor communication skills -​ Lower productive efficiency from outsourcing -​ Bureaucracy -​ Complacency External diseconomic of scale : -​ Higher rents -​ Local market condition for pay and financial reward -​ Traffic congestion -​ Context specific problems -​ Technical Diseconomies of Scale Technical diseconomies occur during the production process. In other words, it costs the firm more to produce more goods or services. For instance, a firm may overcrowd its offices or factories beyond reasonable capacity. Subsequently, this overcrowding may lead to inefficiencies in terms of poor staff morale, and staff getting in each other’s way Effects of Technical Diseconomies -​ Overcrowding When expanding, the firm may increase production beyond reasonable capacity. This may include putting too many barristers behind the bar at the coffee shop. They may get in each other’s way or end up duplicating work. -​ Scalability Although a store may be highly efficient in one location, the firm may expand into another that is not. In turn, the average cost of production increases. Internal and external growth Internal growth - this occurs when a business grows by using its own capabilities and resources to increase the scale of its operations and sales revenue External growth - dealing with outside organizations, such growth usually comes in the form of alliances or mergers with other firms or through the acquisition of other businesses Methods of internal growth : -​ Change price -​ Effective promotions -​ Product innovation(produing improved or better products) -​ Increased distribution -​ Preferential credit for customers -​ Capital expenditure(funds to get physical assets) -​ Staff training & development -​ Providing overall value for money Method of external growth : -​ Mergers and acquisition -​ Takeovers -​ Joint venture -​ Franchising -​ Strategic alliances How is the size of a business measured ; -​ Profit -​ Growth -​ Market share -​ Capital employed -​ Size of workforce -​ Total sales revenue Why owners may want to expand their business -​ Increase in profits -​ Increase in market share -​ Economics of scale -​ Greater power to control the market -​ Protection from the risk of takeover Reasons for staying small as a business dzgxdrhxrhxze 4 main types of integration that occurs in a merger or acquisition Merger - two or more business forming a company Acquisition - occurs when a company buys a controlling interest in another firm with the permission and agreement of its Board of Directors to do so(enough shares) Synergy/synergies - occurs when the whole is greater than the sum of the individual parts when two or more businesses are integrated Horizontal - 2 businesses of the same industry and sector joining together vertical integration - takes place between businesses that are at a different stage or production Forward vertical integration - 2 firms in the same industry, 1 firm buying a business in the NEXT step or production Backward vertical integration - 2 firms in the same industry, 1 firm buys a business one step BEHIND the stage of production Lateral integration - firms that have similar operations but do not directory compete with each other Conglomerate - 2 businesses in completely different industries joining together 1.6 multinational companies multinational company (MNC) - any business organization that has operations in overseas markets, irrespective of whether it produces/sells goods and/or provides services, i.e., MNCs have business operations in two or more countries The positive impacts of MNCs include the following points: Employment opportunities – MNCs can account for a significant number of jobs in the host country. This has huge economic benefits, such as higher incomes, consumption, savings and tax revenues. Overall, this can raise the quality life for citizens in the host country. Support for the workforce – In addition to job creation, MNCs create other opportunities for domestic workers. For example, the wages offered by MNCs are often better than those offered by local firms (even if the wages paid by MNCs are low by international standards). Local workers may also benefit from training and development opportunities. Support for local businesses – MNCs can provide a range of benefits to local businesses, directly or indirectly. For example, they are likely to purchase stocks from domestic suppliers of raw materials, semi-finished goods and finished goods. This provides revenue for local firms and supports domestic industries. In addition, MNCs are also likely to use the services of local firms, such as insurance and distribution. Choice and quality – MNCs offer consumers in host countries more choice and often better quality products. Domestic customers no longer have to rely only on local suppliers and must compete with the prices and quality of the products offered by MNCs. Efficiency gains – Similarly, MNCs create increased competition for local suppliers, forcing the domestic businesses to improve their operational efficiency. This covers aspects of the prices, quality and customer care of local firms. Tax revenues – The host country’s government benefit from profitable multinational companies as they pay corporate taxes. The additional finance can be spent to further improve the economy, such as better infrastructure to further entice foreign direct investment. The negative impacts of MNCs on their host countries include the following: Negative impacts on local businesses – Many local firms, especially smaller ones, may lose customers to the larger foreign multinational companies. A fall in their market share and profit can eventually lead to bankruptcies and some job losses in the economy. The repatriation of profits – Any profits declared at interest and tax payments are accounted for may be repatriated (sent back) to the home country, rather than the funds being used to invest further in the host country. Exploitative business practices – MNCs have been known to be socially irresponsible, especially when operating in less economically developed countries where rules and regulations are less stringent. This has often resulted in workers being exploited (poor pay and working conditions) and business operations that cause damage to the environment (such as air pollution and destruction of natural habitats). For example, Coca-Cola’s bottlers have been accused of causing water shortages in certain parts of India and South America. Loss of cultural identity – The growing presence of multinational companies, and the convergence of habits and tastes brought about by globalization, can cause a depletion of local cultures. MNCs and globalization have been blamed for causing a cultural shift in how people live, especially for the younger generation. What is in a business plan -​ Executive summary (or Abstract) -​ Introduction / Overview – This section contains an introduction to the business, its legal status (type of organization), its vision and mission statements, and intended aims and objectives. -​ Market analysis – swot -​ Product analysis – This important section describes the planned product being offered. For example, authors needs to convince publishers that their idea for a book will be commercially viable. Ideally, the business plan should show the unique or distinctive selling points of the proposed product or idea.  -​ Financial analysis - cashflow -​ Marketing strategy - It should include details of the firm’s marketing mix, e.g., pricing strategies, distribution networks, promotional campaigns, and product strategy. Advantages of creating and using business plans include: -​ The relative strengths and weaknesses of a proposal can be inferred from a business plan. -​ It adds substance to a business idea or proposal, in order to support strategic planning and decision-making. -​ The business plan helps to provide a logical structure to thinking about the business idea or proposition. -​ Entrepreneurs are more likely to succeed if their business strategy is carefully planned. ​ It helps to reassure investors and financiers, especially if the business is seeking external sources of finance to fund its operations. -​ A business plan can have many functions (uses), from trying to secure external sources of finance to measuring the success of the business. -​ It is a means for making all employees aware of the business's strategic plan and direction. -​ It can be used as an objective method to measure actual performance of the business. Takeover - occur when a company purchases a controlling stake (majority of the stocks) in another company without the permission and agreement of the company or its Board of Directors. Joint venture - 2 or more businesses agree to work together on a project and set up a separate business for this purpose Advantages : -​ Synergy -​ Spreading of costs and risk -​ Entry to foreign markets -​ Relatively cheap -​ Competitive advantages -​ Exploitation of local knowledge -​ High success rate strategic alliance - similar to a joint venture in that two or more businesses cooperate in a business venture for mutual benefit. Franchise - a business system where entrepreneurs buys the right to use the name, logo and product of an existing business A franchise is a business system where entrepreneurs buy the right to use the name, logo and product of an existing business and sell the franchisor's goods or services. The franchisor is the original business and it sells the right to use its name and idea. is also a joint venture between a franchisor and a franchisee. The franchisee also pays a royalty payment (similar to commission) based on the sales revenue of the franchisee. Why business remain small -​ Owners choice  -​ Market size -​ Access and availability of capital -​ Market domination Reasons for business failure -​ Poor planning -​ Liquidity problems (cash flow shortages) -​ Poor management skills -​ Lack of objectives -​ Failure to invest in new technologies -​ Lack of finance -​ Poor choice of locations -​ Poor marketing -​ Competition -​ Economic influences 1.6 Multinational companies The impact of MNCs on the host counties(AO3) Operates in more than one country : -​ To widen customer base -​ Cheaper production cost (china) (land and labour) -​ Economics of scale - bulk buying -​ More recognition / loyalty What is impact on host and home country : apple head quarter us (home) - host is hk singapore -​ job creation -​ Higher national income -​ TOT transfer of technology (natural knowledge transferred) -​ Increased competition - higher quality goods Disadvantages of opening Mnc: -​ job loss -​ Repatriation of profits - send profit back -​ Vulnerability - jump countries -​ Social responsibility - scarcity of resources - dont rly care -​ Competitive pressure - forced to reduce price Positivt / negative on host country UNIT 2 - HUMAN RESOURCE MANAGEMENT 2.1 - Introduction to human resource management Human resource management - the management function of deploying and developing people within an organization to meet its business objectives Interrelated roles / functions of HRM: -​ Human resource planning(workforce planning) -​ The recruitment, selection and induction of new employees -​ Training and development of employees -​ Performance management and staff appraisals - if someone good(promote) -​ Reviewing pay and remuneration packages - like pay review -​ Disciplinary, grievance and disciplinary procedures -​ welfare (wellbeing) of employees Human resource planning can be achieved by looking at : -​ historical data and trends - changes of size in workforce over the years, flexible working hours… -​ sale and income levels - higher level of income and spending in the economy = more job creation -​ labor turnover rates - how many employees leave as a percentage of its workforce, the higher the rate, then need to recruit and train -​ the flexibility and workload of employees - highly flexible and skill workforce can cope if there is sudden shortage in staff, if firm where overspecialize and workload is mounting, more appropriate to employ more people -​ demographic changes - government data on changes like changes in number of female workers in the economy or number of graduates can help. Managers to forecast their human resource needs Workforce planning - the process of anticipating and meeting an organzations current and future staffing needs If managers don't make use of their HR, the organization will face problems(the 5Rs)/ the importance of workforce planning : -​ Recruitment - higher cost of recruitment, induction and training -​ resources - increasing amount of resources and management time spent on dealing with personnel problems rather than on a Chinese organization objectives -​ Reservations - lower morale and higher level of uncertainty suffered by existing staff who experience continual change mean that employees are more reserved and less productive  -​ returns - lower levels of productivity, profits and competitiveness -​ reputation - poorer corporate image as the business cannot retain or motivate its staff internal and external factors that influence Human Resources planning : demographic changes can be caused by changes in various factors including ;; -​ net birth rate - difference between birth and death rate per year, countries with a higher net birth rate in the long term have a larger supply of Human Resources -​ net migration rate - different between immigrants and emigrants, if the rate is positive, supply of HR tend to increase -​ retirement age - legal age to stop working and claim money from their pensions. If retirement age raised, it auto increases the number of ppl in the labour force. The later the retirement age the greater available pool of HR -​ Females entering or returning to the workforce - increase will boost supply of HR in the economy. A lot of women work part time so this give businesses and staff greater flexibility in determining working hours (part time work) -​ Increase dependent population - cant spend income freely, how many ppl are dependant on one single person in the family -​ Reduce labour mobility - -​ Changes in consumption patterns - people spend more on needs and wants, also healthcare, can create diff business opportunities -​ Changes in employment patterns - ageing population - a demographic change that tends to occur in high-income countries, with the average age of the population getting higher. Mobility of labour - the extent to which people can move to different locations(geographical mobility, and their flexibility in changing to different jobs(occupational mobility). The more mobile workers(both), the higher the supply of labour tends to be -​ More mobile the better limitations of geographically mobile : -​ friends and family ties tends to be the key certainty for most people’s geographical mobility -​ relocation cost(living expenses) such as remortgaging real estate and consideration of different house prices or the cost of rent -​ Fear of the unknown means that people might prefer ‘home comforts’(familiarity). Uncertainty can be daunting, such as uprooting the family and finding new schools for the children  -​ cost of living in particular places, the higher the cost of living in city districts, can deter people from relocating to these areas, thus limiting the potential supply of labour -​ language and cultural differences limit internal mobility of labour ( immigration of labour) the degree of occupational mobility depends on: -​ tend to be greater with acquired attributes of a worker(skills, qualifications, experience, training) -​ younger people have more occupational mobility as they often change careers. Mature workers have more financial commitments so less willing to take risk by changing careers -​ some workers immobile as they are highly speacialized in their area of expertise, like brain surgeron. So they may find it more different to seek employment opportunities in other industries -​ if employers discriminate against age, race, religion…. This could hinder the occupational mobility o workers. Changes in employment laws. / enforcement of anti discrimination can improve labour mobility why people migrate : -​ pay and remuneration - many MNC attract, like in senior post, offering better pay and remuneration( like relocation allowance, subsidized housing, medical cover, etc) or choose country cause of low tax -​ employment opportunities - unemployment and poverty may promt many workers in low income countries -​ seasonal factors - agriculture, might migrate during off-peak season to find employment in other coutnries -​ domestic instability - lack of security - political -​ higher standard of living - overseas may provide better career prospects for migrant workers and more educational opportunities for their children flexitime - flexible time, a system which requires employers to work for a core period like 9am to 1pm , but the rest of the time is flexible teleworking - coiled by management consultant jack Nile’s in 1973, refer to working away from the office by using electronic forms of communication like the internet and email home working - people working from their own homes - aspect of flextime Advantages disadvantages teleworking and home working  -​ job opportunity especially for those -​ high reliance on the use and living in remote ares reliability of ICT software and -​ suitable for those who have to Care hardware for family members -​ workers partly due to the nature of -​ flexible working hours fleixitime, often exceed their -​ benefit of not having to commute contracted working hours like travel cost, time and stress -​ workers might suffer from social -​ automony in decision making and isolation like boreden choice of how to best organize work -​ there is often less job security and -​ possible income tax allowance for less trade union representation of using personal property for wokers employment purposes -​ employees are likely to face -​ lower cost of technology mean that distractions working at home, like more people can afford to work pets or childnre from home -​ teleworkers and homeowners tend -​ possible income tax allowance for to suffer from a lack o authentic using personal property for training and career development employment purposes opportunities -​ lower cost of technology mean that more people can afford to work from home -​ reduce overhead due to savings on -​ set up cost such as ICT equipment prime locations and office space high -​ flexible and extended working -​ flexitime requires tight control in hours can be offered to customers recruitment processes as not -​ fleible working practices enable everyone has the desire traits such prism to adjust for peak and off as experience, self motivation and peak trade initiative -​ conituity of services from those -​ Management, monitoring and hiring workers with young child re control are more difficult as workers or other dependants are off site -​ flexitime workers have lower -​ technological breakdown can cause absenteeism rates than office major distruptions to flexitime workers workers -​ provide flexibility to deal with -​ flexitime not always possible, like working time directives(laws) that insufficient working space at home govern the maximum hours of work or the lack of security and per time period confidentiality of data held at home Gig economy - labour markets where workers are typically on short term flexible and temporary contracts  Advantages disadvantages -​ allow greater flexibility or workers, -​ No employees or employers in the businesses and consumers as each traditional sense, workers miss out gig is adaptable to their needs at on important aspects inc job security and fringe benefits like the moment in time health insurance and sick pay -​ workers also have the flexibility of -​ Although some countries impose a working for a variety of employers guaranteed minimum wage for gig to suit thier needs rager than workers in certain industries, gig working full time with a single workers do not typically receive a employer regular income. -​ cost are lower for businesses as -​ Gig workers do not have aclear professional career path nor do they they do not have to hire as many have the social support of full time staff or pay employment colleagues and managers in the related benefits to as many people same way as full-time employees -​ it enables contractors and freelance do workers to make extra income, often -​ Independent contractors are quickly with minimal costs expected to record and file their own tax returns based on their gig -​ in theory gig workers are in more income. By contrast, this control of their life balance bureaucratic task is done for employees by their employer: -​ often suffer from burnout due ot working multiple contracts, often at odd hours. Despite the flexibility, the lack of parameters at work means gig workers are often overburdened, tired and stressed. Portfolio workers - those who simultaneously carry out a number of different jobs, often for various contractors, usually on a temporary basis. Someone involved in alot of jobs Resistant to change in the workplace 4 main reasons people are resistance to change : -​ Self interest often takes priority over organizational objectives. People may be more interested in the implications of change for themselves rather than the benefits that change might bring for the organization. -​ Low tolerance Change happens cause people prefer familiarity than fisruptions and uncertainties. A lack of security is sensed when peopl are put out of their comfort zone. There could also be an element of fear from being made redundant, due to the introduction of new production techniques. Employees might also fear the challenges associated with adapting to change, such as not being able to work within an automated environment. -​ Misinformation the purpose of change has not been communicated effectively. Staff often feel that change is not necessary, especially if things are going well - as the saying goes "If it isn't broken, don't fix it". Misunderstandings and uncertainties can also arise due to the anxieties of the unknown caused by misinformation. -​ Different assessments of the situation occur when there are different interpretations of circumstances, i.e. management and staff disagree on the purpose and merits of change. Managers may feel that restructuring of the workplace si necessary, for example, but workers might disagree as they are the experts in their roles and do not see the need for such change. ​six change aproaches model for reducing the impact of change and resistance to change -​ Education and communication This approach aims to inform and educate workers (and other stakeholders) about the change. Early communication and clarification can help stakeholders to see the rationale for change and establish a degree of trust. Perhaps more importantly, this reduces any unsubstantiated claims and rumours about the proposed change. Therefore, clear and timely communication si critical for reducing the impact of change and resistance to change. -​ Participation and involvement This approach links with several motivation theorists such as Maslow and Herzberg (see Chapter 10) who argue that employee involvement in decision-making can motivate and improve morale amongst the workforce. Kotter argued that by involving employees in the change process, perhaps by a series of consultations, formal agreements and giving employees a sense of ownership of the change, they are more likely to accept change instead of resisting it. This helps to get staff agreement as workers have ownership over the decisions being made, including the approved methods to make the change happen effectively. -​ Facilitation and support This approach is paternalistic in style (see Chapter 9) as managers become supportive of staff during difficult times of change, thereby averting potential resistance to change. Managerial support can come in numerous forms, such as planning and timing the change sensitively and effectively. For example, employees may need retraining ot accommodate the new changes. If change involves redundancies, then support systems employment. Counselling employees to deal with their fears and apprehensions si another example. -​ Negotiation and agreement This si the 'carrot' approach whereby managers use incentives to remove or limit resistance to change. This can be done by 'inviting'* workers to accept amendments to their employment contracts to accommodate the new changes, for example. Alternatively, employees who resist change might be offered early retirement or redundancy incentives to leave the organization. At other times, managers may be willing to compromise to provide an incentive for staff to settle for the change. -​ Manipulation and co-option This approach involves bringing a representative of those resisting change into the change process. The purpose, in theory, si to give them representation but in fact the underlying reason is to convert the representatives thinking so that the advantages of change can be communicated ot those resisting change (whatever their reasons might be). These representatives, such as trade union leaders, are quite often given a symbolic role but the reality si that their view wil not affect the desire of management to push for the change. This approach is, of course, seen as rather unethical and can backfire fi those resisting change discover what the management team is really trying to do. -​ Explicit and implicit coercion This is the 'stick' approach to dealing with resistance to change and is typically used as a last resort. Managers can use coercion (intimidation tactics) ot force workers into accepting change, yb threatening disciplinary action, dismissals, job losses, redeployment (transferring employees ot other jobs) or not promoting employees. Due to employment legislation that exists to protect employees, coercion is likely to be carried out implicitly, fi used by managers. 2.2 - Organizational structure -​ Refers to the formal interrelationship and hierarchical arrangement of HR within a business hierarchy ​ Accountability -​ shows who is held responsible (or answerable) for each particular job or task, such as the marketing team being held accountable to the marketing director for their performance. Accountability allows senior managers to have better control over the running of their organizations. Responsibility -​ shows who is in charge of whom and in what role or capacity, such as the operations management director being ni charge of al production workers. Roles and responsibilities can be seen in an organization chart Title Role Responsibility - igcse Chief The CEO represents t h e head of -​implements the decisions of the Executive the Board of Directors (BOD) and board of directors is ultimately responsible for -​making sure resources are available Officer (CEO) implementing corporate strategy in order to meet objectives or Managing -​setting strategy and the success of the business. Director (MD) S/he is accountable to the company's BOD a n d shareholders. Board of Directors, or executives, are - motivating workers in the Directors responsible for hte overall running department of hte business. In a large - reviewing the performance of (BOD) company, there is likely to be a managers director responsible for each key functional area (marketing, human resources, finance and accounts and operations management). Collectively, these executives are part of the senior leadership team that advise and support the CEO. Middle Managers are typically responsible - day to day running of a department management for ateam of people and/or certain - motivating workers of the tasks. They are decision makers department with responsibility for the day-to-day operations of the business. They assist and are accountable to the BOD. Managers take on roles and responsibilities that are delegated to them by the directors. Supervisors They carry out some, but not all, of -​motivating workers in the and team the duties of middle management. department They are involved ni making leaders operational decisions (daily or routine decisions). They are directly responsible for workers in their team Other In alarge organization, these -​To report and feedback to the employees people form the majority of the manager or supervisor workforce. In a school, other -​complete tasks efficiently as set by (Operatives) employees include the majority of supervisors teachers (those not in amanagement position with additional areas of responsibility). Operatives include the office staff(such assecretarial dna administration staff), technicians, caterers for the canteen, caretaker, cleaners and janitors and security staff. SMARTER delegation - effective too!  Specific - Delegated tasks must b e clearly defined s o that subordinates can carry them out effectively. Measurable - Results must be quantifiable to measure the extent to which the delegated tasks have been achieved. Agreed - Both managers and subordinates must agree to the delegated tasks, including deadlines, in order to avoid any potential misunderstandings or conflict. They should also agree on the amount of power and freedom that goes with the assigned work. Realistic - Delegated tasks must be reasonably achievable, otherwise workers will not be dedicated t o completing them. Time-bound -A timeframe must eb set so that the delegated tasks are completed ni a timely manner. Ethical - Tasks must be delegated fairly to prevent dissatisfaction and resentment. Delegating only dull and unchallenging tasks simply demoralises nda demotivates staff. Recorded -Tasks should b e documented to provide guidance and to aid recognition of them being accomplished. This also allows staff ot be acknowledged and credited for their accomplishments Definition Advantages Disadvantages Delegation -​ The manager saves time -​ poor delegation causes the empowerment of a by not having to tackle confusion and a feeling person lower down in the every single task, so can of inadequacy. This organizational structure by focus more on the leads demotivated and passing on control and strategic issues facing less productive staff, decision- making authority the organization. resulting in failure to ot complete a certain task -​ Delegation can motivate achieve the tasks set or role. and develop employees who feel that they are trusted and that their contributions are important. The span of control An advantage of a wide span of a narrow span of control refers to the number of control is that fewer layers are means that there are fewer people who are directly needed in the organizational subordinates who are accountable to a manager. structure. In this example with accountable to a manager (see Hence, the higher up a 18 people, the CEO has two Figure 8.4). Here, the same person is in a hierarchy, assistants who share a (wide) number of people exists as in the wider their span of span of control of fifteen the previous example control tends to be. employees. This helps with cost (eighteen), except that they control as there are fewer have been arranged with managerial positions in the firm. narrower spans of control. tI si A flatter structure also means therefore easier to  that communications between communicate with and control the different levels of the the team. Smaller teams might hierarchy should be more also be more productive as effective (in terms of speed and there is likely to be better team accuracy) spirit and cohesiveness. Larger -​ Very flat teams tend to suffer from communication problems which may cause tension and conflict. However, due to more levels of management in the organizational structure, this configuration tends to be more costly. Manager - The more skilled and experienced the manager, the more likely that s/he has a wider span of control. By contrast, junior managers have a narrower span of control. Organizational culture - Narrower spans of control may be required in cultures that require managers to closely monitor and control their subordinates. By contrast, managers in democratic cultures tend to delegate and empower their subordinates, thereby allowing for a wider span of control. Such cultures prefer the term 'span of support. Subordinates - highly skilled staff are more likely to work in smaller, dynamic teams with their line manager having a relatively wider spam Task - Complex, urgent and important tasks tend to require a narrower span of control as communication will be more important, i.e. ti is often more effective to have smaller teams where both accountability and responsibility can be clearly identified. By contrast, products that can be mass- produced (see Chapter 36) means that less supervision is needed. Hence, the span of control can be widened as workers have relatively simple tasks that can be done with minimal supervision. Levels of hierarchy -​ They show clear lines of -​ Departmentalisation The hierarchy in a authority within the can mean workers are business refers to the organization, this can isolated fromtheir organizational structure improve the coordination official teams (see based on a ranking system and productivity of Chapter 21 for the workers benefits of informal The person directly above -​ Hierarchical structures communications for an na employee on hte next establish deparotment or organization). hierarchical level is known teams to create a sense -​ Hierarchical structures as the line manager. of belonging in the also tend to be rather workplace so can act as a inflexible. This might  form of motivation prove problematic when there are changes ni the external environment that may require flexible structural changes in the organization chain of command -​ -​ refers to the formal line of authority through which communications and orders are passed down in an organization. Businesses that have only a few levels of hierarchy have a short chain of command. By contrast, the chain of command is long in businesses that have many levels in its hierarchical structure Bureaucracy The execution of tasks that are governed by official administratives and formal rules of an organization - mainly not good but have benefits Within an organization this might include: -​ The frequent requirement to fill out excessive or cumbersome paperwork -​ Staff working in multiple departments and therefore having to report to several managers -​ Long offical chain of command -​ Too many committees set up to investigate issues of concern to the organization -​ Managers with duplicate or overlapping roles and responsibility Continuity - the establishment follows official rules and regulation rather Accountaibltiy Centralization - make all -​ Rapid decision making -​ Added stress for senior the big decisions - only -​ Better control staff most senior person -​ Better sense of direction -​ Inflexibiltiy Decentralaization - power -​ Efficiency -​ Possible delay in down, more democratic, decision making involes consultation with -​ Demotivating stakeholders employees How to depend if centralized or decenrtalizeed -​ The size of the organization -​ The scale of importance of the decision -​ The level of risk -​ The corporate culture -​ Management attitudes and competence -​ The use of ICT Delayering - the process of removing one or more levels in the hierarchy to flatten the orgaizational structure Adv: -​ Reduce cost -​ Improve communication Dis -​ Creates anxiety -​ Increase workload - slower decision making Matrix structure - flexible method of organization Adv: -​ Miaxmize skill set in workforce -​ Improve communication -​ Cost effective Dis: -​ Added workload -​ Difficult to coordinate -​ Time consuming Flat - horizontal organizational structure Narrow span of control Tall - vertical organizational structure Organization by product, function or region -​ Product -​ Function  -​ Region Project based organization 2.3 - Leadership and management Scientific and intuitive thinking/ management (HL only) -​ Based on objectivity, facts, and empirical evidence Intuitive thinking/management - decision making and problem solving that are based on instinct and experience, rather than scientific methods such as logic, empirical evidence, and data. Scientific thinking/management - refers to decision making and problem solving based on gathering the necessary information and data to make well-informed choices. Management and leadership (AO2) Leadership - The art of inspiring and motivating other people towards achieving a common organizational aim or vision Management - The art of getting things done through others by setting clear objectives and organising organizational resources. management or leadership: -​ time and devotion -​ Roles and responsibilities -​ Risk taking -​ Vision Leadership styles (A03) An autocratic leader is authoritative, and centralises decision-making without consulting others or listening to their points of view. -​ believes in formal chains of command, where consultation with subordinates in decision-making is non-existent. -​ rely on their own ideas, experiences and instincts when making decisions adv dis -​ It ensures the leader has complete -​ Creativity and innovation are control of the operations. suppressed and discouraged as -​ It speeds up the business employees are not involved in the decision-making process. decision-making process. -​ It provides workers with a clear -​ Similarly, it does not develop the sense of direction and clarity over internal talents of the workforce. their roles, as they understand -​ It can demotivate employees as exactly what is expected. their opinions are not valued. -​ It is appropriate and effective when -​ It does nothing to build an critical and urgent decisions need to intrapreneurial spirit in the be made. workplace (building an organizational culture of future leaders within the organization). -​ Ultimately, these disadvantages can result in a higher labour turnover rate, which is costly to any organization. Democratic leadership refers to the leadership approach that considers the views of others when making decisions. This participative leadership style means that decision-making is decentralized. adv dis -​ Workers feel valued as they are -​ It may result in disagreement and actively encouraged to participate in disharmony; it is not realistic to the decision-making process. please everyone, all of the time. -​ Workers feel motivated as they are -​ It is ineffective when critical empowered. decisions need to be made quickly, -​ The most is made out of the skills, and sometimes workers just need to experiences and creativity of the do what they are told to get their employees. jobs done. -​ Collaboration leads to higher -​ It can be time consuming, especially morale and improved productivity. if managers do not have the time to -​ The organization takes advantage consult everyone, so of the innovative potential of its decision-making is often delayed. employees. -​ Hence, democratic decision-making -​ Getting regular feedback and can be costly. consulting employees also helps -​ These disadvantages can cause the organization to better negative impacts on the daily understand their concerns. operations of the organization. -​ These advantages benefit the organization from higher levels of motivation and staff loyalty. Laissez-faire leadership is an approach based on having minimal direct input into the work of employees -​ allow subordinates to make their own decisions and to complete tasks in their own way.(not lazy, you know u employed someone to do things u cant) adv dis -​ can be motivational as employees -​ Monitoring and coordinating have freedom to carry out tasks in business operations are made more any effective way they wish. difficult and time-consuming, -​ It also encourages individuals to be especially as managerial control(the creative, and thus helps the firm process by which a business can be become more innovative. managed, based on progress -​ It helps to develop an evaluations and the needs that intrapreneurial culture (where employees must have met in order workers take on an entrepreneurial to meet production expectations.) is role), helping the business to gain absent. competitive advantages. -​ Slack (complacency) can arise due  -​ It helps to build drive (Pink’s to a very minimal level of motivation theory) amongst supervision involved. employees because the leader -​ It does not suit all workers as they places implicit trust in the workforce may want or prefer clear guidance by giving them autonomy in and direction; having a large decision-making. amount of freedom to make -​ achieve greater productivity, staff decisions can worry some workers. morale, lower labour turnover and higher profitability. Paternalistic leaders treat their employees as if they were family members, guiding them through a consultation process and acting in the perceived best interest of their subordinates. adv dis -​ It can motivate staff as they feel -​ Decision-making is still centralized, guided and that their interests are so workers can become dissatisfied protected if their views are ignored -​ It can ensure harmonious -​ Communication is mainly top-down, relationships at work as the leader from senior management genuinely values the staff -​ Paternalistic leaders may not -​ It promotes loyalty to the leader always make the best decisions, and the organization which can lead to conflict and -​ It can create a sense of belonging, disagreement. helping to meet workers’ safety and social needs (Maslow’s hierarchy of needs) -​ good for staff morale, motivation and productivity and hence beneficial to the organization (such as lower staff turnover and higher profitability) Situational leadership refers to the approach that considers there is no single leadership style that suits all situations -​ The optimal style depends on situational factors, such as the attitudes, behaviour, and competencies of managers and workers. adv dis -​ It recognises that effective leaders -​ If workers become used to a have to be adaptive, rather than particular leadership style, they  rigid in their leadership style may become disheartened and -​ Situational leadership is possibly unsettled if the leader or manager the most practical of leadership needs changes their style styles as it applies to almost all -​ Most people have a preferred or business organizations natural leadership style, so -​ The dynamic nature of the external changing or adopting a different business environment means that style can be difficult and leaders have to adjust their style to uncharacteristic for them. suit different situations and changes in the market 2.4 - Motivation and demotivation The following motivation theories: -​ Taylor -​ Money is the main motivator -​ productivity could be improved by setting output and efficiency targets related to pay. -​ Financial reward - piece rate - paying employees for each unit produced the more you produce the more you get paid, hence the harder you work ↳increases business productivity and efficiency scientific management - means using differentiated piece rate (sometimes referred to as differentiated compensation) to motivate workers to be more efficient and productive. Such a payment system rewards those who meet or exceed targets Differentiated piecework - an incentive scheme that rewards more productive workers who exceed a predetermined benchmark Division of labour - the process of breaking down different aspects of a job or task and assigning different people to each particular part of the work in order to improve efficiency and output Productivity - measures the level of output per worker. It is an indicator of motivation as employees tend to be more productive with increased levels of motivation. -​ Maslow Physiological needs: These are the most basic needs for survival, such as food, water, sleep, and shelter. Safety needs: These include the need for security, stability, and protection from physical and emotional harm. Love and Belongingness needs: These are the needs for social connection, affection, and a sense of belonging to a group or community. Esteem needs: These include the need for respect, recognition, and a sense of accomplishment. Self-actualization needs: This is the highest level of the hierarchy, which represents the need for personal growth, fulfillment, and the realization of one's full potential. -​ The higher up the hierarchy, the more difficult it is to satisfy the needs associated with that stage, because of the interpersonal and environmental barriers that inevitably frustrate us -​ Herzberg (motivation-hygiene theory) -​ Hygiene Factors are aspects of work that do not motivate and need to be met in order to prevent satisfaction. Essentially, these meet the basic physiological needs of all workers  -​ he existence of hygiene factors suggests that its better to ensure that workers are not demotivated, rather than hypothesizing what might motivate them. -​ Motivators are factors that define the job context. Herzberg defined it as “the will to work, due to enjoyment of the work itself.” -​ motivators are the higher level needs of people that meet their psychological needs. These often lead to achievement, recognition, responsibility and advancement which increases employee satisfaction and motivation. -​ The three main aspects of motivation in this theory include: job enlargement, job enrichment, and job empowerment McClelland's acquired needs theory (HL only) -​ McClelland's theory focuses on the need for achievement, affiliation, and power as primary motivators. By aligning tasks and responsibilities with individuals' motivational needs, firms can enhance employee performance, job satisfaction, and personal development. -​ Those with high n-Ach ought to be given achievable but challenging tasks. Tasks that are too easy are unchallenging whilst those that are too difficult mean there is no sense of real achievement as they are unmanageable.  -​ People with high n-Pow could be given opportunities to manage and lead a team of people. This is important for people who want to get things done and be seen to be important for the organization. -​ Finally, those with n-Aff should be provided with a cooperative and collaborative working environment to gain their best performance. Hence, being part of a group or team is an integrated aspect of motivation. Deci and Ryan's self-determination theory H(L only) -​ emphasizes the intrinsic motivation derived from autonomy, competence, and relatedness. By providing opportunities for autonomy, skill development, and fostering positive relationships, firms can enhance employee motivation, engagement, and well-being. Equity and expectancy theory (HL only) -​ Vroom's expectancy theory suggests that individuals are motivated by their expectations of effort-performance linkage, performance-reward linkage, and valence (value) of rewards. By aligning these factors, firms can increase employee motivation, performance, and goal attainment. -​ Adams' equity theory suggests that employees are motivated by a sense of fairness and equity in the workplace. By ensuring fair treatment, equal opportunities, and transparent reward systems, firms can foster a positive work environment, enhance employee motivation, and reduce turnover. Labour turnover - The amount of people who leave an organization, expressed as a percentage of the workforce, per time period (usually one year). The following types of appraisal: Appraisal - Also known as a performance review, this is the formal procedure of assessing the performance and effectiveness of an employee, in relation to his/her job description. -​ Formative - Type of appraisal that takes place on a continual basis in order to allow workers to improve their performance and effectiveness. -​ Summative - Type of appraisal conducted periodically or at the end of a task or project, so includes an element of making a judgement about whether the appraisee has passed the agreed standards. -​ 360-degree feedback - A type of appraisal system that provides feedback from a range of people who work with or interact with the appraisee, such as their line manager, co-workers, subordinates and even customers. -​ Self-appraisal - A type of appraisal system that involves the individual employee reflecting on and rating his/her own performance against the pre-agreed standards. Methods of recruitment : Internal and external recruitment H(L only) Key term - financial reward Definition wages(time and piece rate) Type of financial reward payment system based on time or output. Wages are paid as time rate (hours) or piece rate (output). Salary (financial reward) rewards workers a fixed annual amount of money but paid in monthly instalments. Commision (financial reward) rewards workers a certain percentage of the sales of each good or service that they are responsible for completing. Performance-related pay (PRP) used to pay people a bonus for reaching or exceeding a set target. Profit-related pay remunerates workers a certain percentage of the annual profits that the business earns. Employee share ownership schemes involves giving workers shares in the company they work for, either free of charge or at a discounted price. Fringe payments Also known as perks, these are financial benefits of a job in excess of the basic pay (wage or salary). Job rotation (non-financial reward) Type of non-financial motivation that involves workers switching between jobs (tasks) for a period of time. Job enlargement (non-financial A type of non-financial motivation that takes reward) place when more tasks or activities are added to a worker’s job description. Job enrichment (non-financial reward) Type of non-financial reward, involving enhancing the experiences of workers, giving workers a wide range of challenging tasks and more responsibility at work. Quality circles (non-financial reward) Team-work (non-financial reward) A form of non-financial motivation, involving the combined efforts of a group of workers to achieve of an organizational goal. Empowerment the delegation of decision-making power to workers, granting them the autonomy and authority to be in charge of their own jobs and to execute their own ideas. Purpose/the opportunity to make a An intrinsic, non-financial type of motivation difference involving people doing genuinely meaningful work, making a difference on a personal,  professional or social level. -​ -​ Types of Definition Adv / dis training Induction Type of training intended for new employees in order to help them acclimatise with the people, policies, and processes of the organization. On the job Type of training that takes place within the organization, so employees are performing tasks at the place of work. Off the job Type of training led by external specialists and takes place away from the place of work. 2.5 - Organizational (corporate) culture HL Organizational culture AO1 Culture - the ideals, customs and routine social behaviours of a particula