Operational – E1

For all Section B and C questions, answer using the following methods

1. Make a plan full of points2. Make each point as a heading and underline3. Make the point4. Explain the point5. Apply the point to the context

If there is no context try to use real life examples

Section A – The global business environment

Chapter 1 – The social, political and economic context

International influences

PEST model

The political risk that organisations are exposed to as a result of a global environment can be examined using the PEST model.

Political – Government (instable government) & Legal (changes in the law)Economic – Monetary or Fiscal policy (inflation, cost of raw materials and exchange rate risk)Social – Cultural (social unrest) & Environmental (earthquakes, pollution)Technical – Technology advancements (lacking technical capabilities, changes in the market place as a result)

Porter’s Diamond

Comparative advantage states that in a global economy, each nation produces the products and services most suited to its own circumstances. Porter’s diamond identifies the four factors that determine a nation’s comparative advantage.

1. Factor conditions – The sources of comparative advantage. This can be - Basic (raw materials, unskilled labour); which are inherent or created with minimal

investment however they can’t be sustained as a source of competitive advantage as they are widely available

- Advanced (IT infrastructure, skilled labour); which provide high order advantages such as differentiated products

2. Related and supporting industries – The industries that enable a new industry to emerge3. Firm strategy, structure and rivalry – Management style and industrial structure4. Demand conditions – Is there enough domestic demand

Economic systems

Nationalism (Protectionism) vs. Liberalisation

Economic protectionism is a nation’s view that it should protect its own economy and industries. Economic liberalization involves working others in a group to benefit all member economies and industries, through allowing the movement of goods, services, labour and capital without tariffs, quotas, subsidies, taxation and other barriers likely to distort exchange.

Advantages of free trade– Encourages most efficient use of

resources– Protectionism promotes international

conflict– Encourages entrepreneurship– Can use resources to gain a

competitive advantage

Disadvantages of free trade– Big multi-nationals can exert

significant power– Protectionism protects emerging

industries and allows them to grow

Newly industrializing and emerging nations

A significant amount of FDI has promoted Industrialization in emerging nations; through acquisitions – where an existing company in the developing nation is acquired, or a Greenfield investments – where new facilities are set up in the developing nation.

Successful emerging nations have adopted the following methods

1. Export of national commodities: selling oil, metals and land to generate income which is invested in domestic infrastructure

2. Import-substitution: using import taxes or tariffs to protect developing industries and remove dependence on foreign imports

3. Export led industrialization: government devaluation of domestic currency to make export cheaper and imports more expensive

The emergence of the BRIC economies is the result of a number of factors including:

– Large pool of labour and consumers – large internal production and demand– Relatively low wage rates – attractive to multinationals looking to relocate and reduce cost– Increasingly educated population – attractive to multinationals as domestically they can set up

efficiency production facilities– Natural resources – raw materials to fund its own growth– Globalisation – increased trade allowing increased external demand

Culture

Hofstede’s national cultures

The culture of a nation embodies its behaviour and has a significant impact on performance. The culture of a nation must be taken into consideration in all aspects of the business, from the product to the employees to the management style, when moving into a new market

Individualism v CollectivismDo people like working together or on there ow

Masculinity v FemininityCompetitive or understanding of the people around you

PowerThe extent those in power are allowed to wield their authority

Uncertain avoidanceThe extent people accept uncertainty before making decisions

Entering a new market

Farmer and Richman emphasized the importance of external factors in the way organisations act in different economies under PEST

Political – different legislation in different economies will restrict how organisations can operateEconomic – availability of education and literacy skills will affect the quality of employeesSociocultural– social factors will affect relations with the organisation (a tradition of antagonism between unions and management will impact the way management deals with trade unions)Technology – availability of infrastructure

Staff makeup

When setting up in a new country, it is important to decide the right mix of expatriates and locals

Factors favoring expatriate staff– Poor educational opportunities in the

market may require import of skilled managers

– Better communication with the corporate center

– Locals may struggle to assimilate into the corporate culture

Factors favoring the use of local staff– Local staff are cheaper due to the

saved relocation costs– An expatriate may fail to adjust

themselves into the local culture (leading to poor management)

– Local staff have a grater knowledge of how local business is conducted

Offshoring and outsourcing

Transnational vertical integration is relocation of production facilities to countries where production costs are lowOffshoring is arranging for a task to be completed by its own employees in a foreign countryOutsourcing is arranging for another organisation to take responsibility for delivering an output (i.e. recruitment)

Cox suggests that:

1. Core competences (important processes) are fundamental to a firm’s competitive advantage and shouldn’t be outsourced. The more a process can achieve competitive advantage the more it becomes a core competence.

2. Complementary competences should only be given to a trusted outsourcer with whom the company has a relationship. This is because they tend to be technical complex (i.e. IT)

3. Residual competences can be outsources as a basic transaction (i.e. cleaning)

The advantages and disadvantages of offshoring and outsourcing include:

Advantages Disadvantages

– Saving money (able to afford more qualified workforce)

– Allows specialization (by concentrating on one area)

– Investment by host government– Accessing relevant experience– Freedom to focus on core

competences– Delegate risks

For outsourcing only– Economies of scale– Removes uncertainty about cost

– Risks associated with exchange rates

– Language barriers and cultural differences

– Exercising control over a distance

– Time zone

For outsourcing only– Loss of control– Risk of confidential

information leaking

Additional

The European Union (EU) is an example of a common market

Chapter 2: Corporate governance and regulation

Stakeholders

Type of stakeholder

A stakeholder is a person or group with an interest in an organisation. They can be:

Internal – employees within the organisationConnected – shareholders, banks, customers, suppliers or anyone directly linked External – the immediate community, governments and competitors.

Mendelow’s Stakeholder mapping

Mendelow advises on how certain stakeholders should be treated based on their power and interest

Power influenceLowHigh

Level of interestLowMinimal effort (general population outside of area)Keep satisfied (government, HMRC)

HighKeep informed (employees, suppliers, competitors)Key player (Shareholders, CEO, Unions)

Corporate governance

Combined code

The combined code is a system of corporate governance which consists of:

1. Separate the CEO and chairman to prevent any individual dominating the board; which can otherwise lead to the CEO operating in his own interests rather than that of the company

2. All board members should be trained to improve their effectiveness3. All board members should feel and be able to use independent thought and judgment4. Non-executive directors should represent shareholders and question board decisions5. Non-executive directors should form a remuneration committee to fix remuneration packages

for directors and an audit committee to deal with auditors

Benefits of corporate governance

Improved perception– Encourages investment– Customers happier to

purchase– More efficacious

marketing– Allows premium prices

Increased performance– More efficient (reducing

waste leads to leaner business operations)

– More accountable

Risk reduction– The chance of fraud and

getting into financial difficulties is minimized

Benefits of NEDS

Non-executive directors provide the following five benefits:

They bring a wide range of experience and knowledge that allows them to challenge the boards decisions

They review the performance of executive directors and reward them with considered remuneration

They review the financial information produces and ensure that they alongside other controls are secure and accurate

Selection and appoint new board members

Act as reassurance for existing and potential shareholders ensuring that their investment is being protected

Corporate governance issues

Some of the corporate governance issues that corporations face include:

Board structureThere should be a clear division of those that run the board and that run the company.

– No one person has the ability and time to do both

– NEDS ensure the board is acting in best interests of shareholders

RemunerationShould be enough to attract, retain and motivate directors but not be overpaying

– Directors shouldn’t be involved with setting their own remuneration

Control functionThere should be a comprehensive system of internal control within a company to protect its operations. There should be an audit committee that is independent and that reviews the operations and controls

Macroeconomic policy

Government objectives

Governments have a macroeconomic policy based on

Balance of tradeImports vs. Exports (always wanting a balance)

Economic growthDemand within the economy and the amount that is produced in the economy

InflationManaging inflation (preventing those on fixed incomes i.e. pension are not affected)

EmploymentHigh employment to maximize resources, increase spending and maximize taxation

The government can influence factors that create competitive advantages and encourage foreign investment. The three main areas that a government can influence an economy are:

1. The macroeconomic environment (fiscal and monetary policy)2. Legal and market regulation3. Corporate governance and social responsibility

Monetary policy

The government tries to match demand and supply of money through controlling the supply of money using interest rates

Low interest rate– Discourages saving; encourages

High interest rate– Encourages saving; discourages

spending– Supply will increases to meet

demand– Otherwise, prices will inflate

spending– Output shrinks to match demand– Otherwise, prices will deflate

Fiscal policy

This is the government’s decision on taxation and spending, there are two considerations:

1. Type of taxation:

Direct Taxation (income, corporate tax)– Levied on earnings or profits– Reduces inflation as it reduces

demand– It is viewed as progressive (higher

earnings paying more), simple and easy to understand

– Unpopular as it reduces income– Expensive to administer and requires

complex laws and regulations

Indirect taxation (VAT, import duties, demerit goods tax)

– Levied on spending or expenditure– More popular as there is choice to

when it is incurred– Generally cheaper to administer– It is viewed as regressive, unfair and

difficult to understand– Increases inflation as it increases the

cost of goods

2. Proportion of tax on individuals and companies

Individuals– Stops growth as people will not have

enough disposable income to spend on goods and services which will also reduce company profits and tax from corporation tax

Companies– The country may become less

attractive a place for foreign companies to set up business. This will affect goods available as well as growth and unemployment levels

Market regulation

Regulation and legislative bodies

Market regulation covers the size, price and employment conditions of a market. Industry regulators balance customer and industry needs by imposing price caps, performance standards, minimum wages and reducing barriers to entry. The cost of regulation includes:

1. Enforcements costs – direct costs (setting up and running agencies) and indirect costs (regulated businesses confirming to regulations)

2. Regulatory capture –becoming controlled by regulators to the point that they work in the regulator’s rather than customer’s interests

3. Unintended consequences – businesses will tend to move away from regulated industries

Self-regulation is a proactive approach where the organisation indicates that it understands the risks it faces and is taking steps to mitigate against them, reducing the perceived need for regulation. These steps tend to be less stringent than the measures a regulator would impose.

Deregulation on the other hand is the removal or weakening of current statutory regulation.

Advantages:– Encourages greater competition

leading to greater efficiency– Reduces profit margin so

organisations produce at a more socially optimal level

Disadvantages– Lower quantity or quality of products– Reduces economies of scale (as

there is no longer larger firms)– Dominant monopolies may emerge

Corporate social responsibility

Carrol & Bucholtz Drivers of CSR in developed countries

Describes the range of obligations that an organisation in a developed country feels towards its external stakeholders:

1. Economic responsibilities – Providing a return to shareholders, remuneration to staff and value for money to customers

2. Legal responsibilities – Expected to follow legislation3. Ethical responsibilities – Exceeding legal responsibilities to act in a fair and just way4. Philanthropic responsibilities – Exceeding ethical responsibilities and offering opportunities to

improve society

Drivers of CSR in developing economies

CSR in developing countries is driven by different forces:

1. Culture – Religion and other traditions create high expectations of CSR within businesses2. Socio-economic priorities – CSR duties conflicting with development (i.e. reducing pollution

stunting economic progress)3. Governance gaps – CSR can plug gaps in countries where services are not provided centrally

(i.e. health, education)4. Market access – Companies from developing nations must match high CSR expectations in

developed markets if they want to enter5. Multinational companies – Multinationals strive for CSR consistency in all aspects and locations

of its business

Code of ethics

A code of ethics would prevent future cases of unethical behavior as follows

1. Sets expectations – about what is permitted and what isn’t2. Provides a process to follow in cases of a breach – acts as a deterrent3. Increases the profile of ethics – indicates business priority4. Provides a basis for training – ensures employees fully buy in and understand the ethics5. Provides a basis for ongoing discussion – encourages new ideas to be added

Additional

Private sector organisations aim for profitability while public sector organisations aim for an efficient use of resources

Balance of payments can be impacted by:

– Availability, price and quality of goods produced by local producers– Greater inflation leads to greater costs which will impact local prices– Weaker currency makes exports cheap and imports expensive– Trade agreements– Taxes, tariffs, and trade measures

Section B – Information Systems

Chapter 3: The role of information systems

Information systems and technology

Information Systems

New systems change the way employees and processes work and the way goods and services are produced or provided. Some

Decision Support Systems (DSS)Combines data and models to assist management in making decisions on issues that are subject to high levels of uncertainty

– Flexible– User-friendly– Have greater analytical

power– Allows managers to

consider alternatives

Transaction Processing System (TPS)Used in routine tasks where data items or transactions are processed so that operations can continue. Used for budgeting, billing, personnel records and other activities that involve capturing and storing large volumes of data

Management Information System (MIS)Coverts data into reports that enable middle managers to make effective decisions for planning, directing and controlling activities (transforms TPS data into summary files)

– Reports on existing operations

– Little analytical capability

– Relatively inflexible– Decision-making

support

Expert System (ES) Databases of actions to approach specific circumstances. Allows non-specialists to generate complex outputs (used in loan applications)

– Checks the facts– Performs calculations to

decide feasibility of applicants credit

Executive Information Systems (EIS)Uses internal and external sources to create reports that help senior managers make decisions on high level issues

– User-friendly dashboards– Drilldown functionality– Competitor analysis– Performance

measurement– Decision-making support

Organisational level

Each organisation level has a unique IS/IT requirement

StrategicPurpose: Assist long term planningTime focus: Long termCoverage: Whole organisationUncertainty & subjectivity: HighAccuracy: Less critical

EIS

TacticalPurpose: Assist monitor and controlTime focus: Short to medium termCoverage: DepartmentUncertainty & subjectivity: ModerateAccuracy: Moderate

MIS

OperationalPurpose: Assist day-to-day activitiesTime focus: ImmediateCoverage: Specific activitiesUncertainty & subjectivity: LowAccuracy: High level

TPS

Advantages and disadvantages of IS systems

The cost and benefits of database system include

Advantages– Avoidance of unnecessary duplication of

data– Serves the organisation as a whole– Encourages management to analyse data– Consistency– Independent of other user platforms so

provides greater flexibility

Disadvantages– Problems associated with data security

and privacy– There may be disputes over who owns

the data– Becomes over-reliant on a single system

in case of software/hardware failure– Cost of set-up and maintenance can be

high

Emerging Trends

Some emerging trends of IS/IT in organisations include:

Enterprise-wide systems

Designed to coordinate all business functions, resources and information so that each business area is provided with a system that fulfills its needs, but shares a common database that all functions within the organisation use. Enterprise resource planning software includes cloud computing.

Knowledge Management Systems (KMS)

KMS’s store, organize and disseminate knowledge; this includes the Internet and intranet, which allows staff to have access to the latest information.

Customer-relationship managements (CRM)

Meeting customer needs more effectively using IT. The more a company tailors its approach to a customer’s needs, the more competitive advantage it will gain. This can be achieved using IT by analysing a user’s buying habits (Amazon) and showing personalized preferences.

Controls

Work from home

Communication advancements allow people to no longer be locked to a physical location:

Advantages– Convenience– Reduced costs– Open to a larger pool of candidates

Disadvantages– Lack of productivity– Lack of staff interaction– Lack of employee control

Privacy of information

Information needs to be kept secure; otherwise it faces the consequences of:

1. Legal duty to maintain information security under data protection acts2. Reputational damage if personal data is leaked3. Source of competitive advantage (e.g. source of Coca Cola’s secret formula)4. External effects (e.g. if takeover news was leaked, share price would rise)

Controls to manage this risk include:

Application controls– Designed to ensure data is inputted

and processed properly

General controls– Personnel checks (recruitment

checks),– Access controls (passwords, data

encryption),– Equipment controls (physical

hardware protection)

Chapter 4: Systems implementation and business strategy

Competitive advantage

Ward and Griffiths’ IS and competitive advantage

A system is likely to be of competitive advantage for firms if it provides cost savings and productivity gains that are not available to its competitors. This can be achieved by:

1. Linking the organisation to customers or suppliers2. Creating effective integration of information systems in a value-adding process3. Enabling the organisation to develop, produce, market or distribute new products or services4. Giving senior management information to help develop and implement strategy

All of which can be achieved through

– Integration of systems– Cost and quality– Fewer errors– Capacity for growth– Speed of access to information– Speed and accuracy of data entry

– Comparative efficiency– Improved management reporting– Customer experience– Control of staff– Improved look and feel– Customer management

Porter’s Five Forces

Analyses the effect of IS on industry

New entrantsCan provide a barrier to entry like economies of scale but can leap over entry barriers i.e. internet banking making branch banking redundant

SuppliersCan increase competition by allowing for easy comparison of prices

BuyersCan raise switching costs i.e. word not being functional on macs, or provide analysis of customers which allows products to be tailored

SubstitutesCan be the substitute (E-commerce for high-street shopping)

Competition & rivalryCan be used to compete, as well as encouraging further IS development

The System’s Development Lifecycle (SDLC)

The 5 steps of system development are:

1. Planning and feasibility – PEST study and cost-benefit analysis to ensure that the costs of the new system do not exceed benefits

2. Analysis – This determines the systems purpose and the features and procedures required in it3. Design – The component parts of the system, are decided upon and purchased4. Development – Writing the software and integrating it with hardware5. Implementation – It is used in the day to day work and reviewed for its performance

At the analysis stage, if the software does not fit its business processes, the firm must either

Customize the software to match the process

– Less disruption to the firm– Large financial cost if changes are

complex– Additional customization may lead

to glitches

Change the process to match the software

– Negative impact on morale and efficiency of staff as it requires a major change in the way they work

Implementation

Preparation

The implementation stage covers five areas

1. File conversion – Converting existing files into a format suitable for the new system 2. Hard and software installation – site preparation and installation3. Training of staff – to use the new systems through briefings, courses and on-the-job learning4. Documentation – creating manuals for procedures5. Testing – Realistic tests (using real data examples), Contrived testing (using data representing

unusual events), Volume test (uses large volumes of data), Acceptance testing (testing by users)

Changeover

The four main methods of systems changeover and their benefits are:

Direct– Faster and cheaper than parallel– Implemented before staff can object– Overcomes reluctance to let old systems

go

– Risky as it can disrupt operations and can be costly if it fails

Parallel– Safe, built-in safety– Provides a way of verifying results

– Perceived lack of confidence in systems– More expensive as more staff is required

Pilot– Less risky than direct changeover– Less costly than complete parallel

running

– Can take a long time to achieve total changeover

– Not as safe as complete parallel running

Phased– Less risky than a single changeover– Problems in one area are isolated– Staff will adapt easily

– Total changeover may take a while– Interface between systems make this

impractical Important roles

Important roles in the implementation of a system include:

Leading figures – Visible behaviour and making sufficient resources availableProject manager – Ensuring the project is kept on trackSteering group – Winning over staff who are initially against the changeStaff – Their acceptance will determine the systems fate (should be made to feel they are included)HR – Should ensure staff receive sufficient training Managers – Ensuring that communication is clearly and in a timed manner to staff

Change management

Torrington and Weightman identified four types of change experience and their reactions

1. Imposition – Initiated and driven by someone else will create resistance2. Adaption – A change in behaviour as a result of changes by others will create uncertainty3. Growth – A response to changes will create delight4. Creativity – The individuals instigates and controls the change process will result in excitement

Managing resistance

Kotter and Schlesinger identified sixth methods of dealing with resistance

1. Education and communication – explaining that the change is necessary2. Participation and involvement – involving employees in the change3. Facilitation and support – training and counseling to overcome anxiety4. Negotiation and agreement – compensating those who lose to5. Manipulation and cooperation – presenting partial or misleading information or buying off

individuals at the heart of the resistance6. Explicit and implicit coercion – threat of force to push through the change

Daft’s considerations

When introducing change it is important for managers to consider the pace, manner and scope of change. Daft identified the parameters required and barriers to successful change

Parameters:– The need for change is identified– Compatibility with business strategy

Resource availability (human and capital)

– Implementation approach– Resistance

Barriers:– Excessive focus on costs– Failure to highlight benefits– Lack of coordinate and cooperation– Fear of loss

Post-implementation review

Maintenance

Three factors that contribute to the need for maintenance:

Corrective maintenanceAn action in response to a problem

Adaptive maintenanceAn action in response to changes in the environment

Perfective maintenanceAn action that improves or extends the facilities available

Evaluating success

Evaluation of the implementation of a system can occur through

Cost benefit reviewAnalyses the actual and benefits costs in developing and implementing the system (benefits tend to be difficult to quantify)

Performance reviewExamines whether the system is performing as expected and covers issues such as output, security, error rates and system efficiency

Post-implementation reviewAsses whether the system’s targeted performance criteria have been met

Additional

Decentralization means to moves services, such as the provision of information systems away from a single, centralised location. This involves each local office being responsible for the provision of

its own service. It provides advantages of

– Reduced bureaucracy– Faster decision-making– Reduced costs– Better service provision– Improved morale of staff– Improved management capability

Section C – Operations management

Chapter 5: Operations management and the organisation

Organisational models

Mintzberg’s organisation form

Suggests that organisations are made up of five parts

Strategic apex – controls the direction of the organisation (Senior managers)

TechnostructureStandardizes work

processes (quality control,

compliance)

Middle lineThe hierarchy that

tr5anslates the business goals into jobs and tasks

(middle managers)

Support staff Provides infrastructure to

the business (catering, HR, legal)

Operating core – represents the primary activities of producing and selling goods

Porter’s value chain

Focuses on how the business processes inputs into outputs; it splits all activities into:

Primary activities: (in order of production)

1. Inbound logistics – receiving, handling and storing inputs

2. Operations – the activity that converts resource inputs into a final product

3. Outbound logistics – storing, testing, packing and distributing the output

4. Sales and marketing – informing, persuading, enabling customers to buy

5. Service – installing, repairing, and upgrading the output

Support activities:

1. Procurement – acquiring resource inputs to the primary activity

2. Technology – using technology to improve processes and the product

3. HR management – recruiting, training, developing and rewarding people

4. Firm infrastructure – planning, finance and quality control, which acts as the organisations strategic capability in primary activities

Supply-chain management

Reck and Long’s evaluation of the purchasing function

The view of the purchasing function has developed over the years:

1. Passive: Purchasing is viewed as clerical with a focus is on efficient transaction processing2. Independent: Purchasing manager is appointed to negotiate best prices3. Supportive: Centralised purchasing department is established to support wider organisational

goals

The purchase function has now developed into full supply-chain management, which is viewed as a strategic function that provides competitive advantage as:

1. Working closely with suppliers establishes long-term relationships (strategic alignment, shorter lead times and integrated IT systems)

2. Reducing the number of suppliers to develop deeper relationships with a select few

Cousins Strategic Supply Wheel

Describes the various aspects of a procurement strategy and states that they are all inter-connected, with a focus on anyone area being at the detriment to another. The areas include;

Sourcing

Sourcing can be done as:

Single-sourcingWith a single partner

Advantages

Facilitates confidentialityStrong relationshipFacilitates better

Multiple-sourceWith multiple partners

Access to wide range of knowledge and expertiseCompetition among

DelegatedAn external organisation sources

Frees up internal staffAllows utilization of external expertise

ParallelSourced through a mix of the above to maximize benefit

Price competition createdSupplier failure will not

communicationPossible source of competitive advantageEconomies of scale

Disadvantages

Vulnerable to disruption in supplyDependent on the supplierSupplier power may decrease

suppliers may drive price downSupply failure by on supplier will cause less disruption

Difficult to develop quality assurance programsSuppliers may show less commitmentEconomies of scale are neglect

Quality control is difficult to maintainLoss of confidentialityCompetitors may use same organisation so unlikely to be source of competitive advantage

halt productionShould create efficiencies

Can be complicated to manageQuality control is difficult to maintain

Benefits of Supply-chain management

Supply-chain management is essential to create and maintain competitive advantage. It provides the following three main benefits:

1. Purchase price – Bulk buying contracts2. Improved quality – Agreeing quality standards3. Ensuring continuity of supply – During periods of limited availability4. Tying the supplier to the organisation – Reducing supply options to competitors5. Confidentiality

Process maps

These are diagrammatic representations of a process. A deployment adds a further dimension to demonstrate the department or individual responsible for each part of the process. Each department is sectioned off into vertical grids, when a flow moves between functions a horizontal line should cross the vertical grid. Apart from moves between functions, sequence activities from top to bottom

Mapping can help an organisation improve efficiency by– Clearly documenting processes and

responsibilities– Document the desired outputs of a process

and ensuring the organisation achieves these

– Communicate steps and decisions to all staff– Eliminates costly mistakes by ensuring processes are understood before changes are made– Identifies areas of bottlenecks – Demonstrates the relationships between the process steps

Sustainability

Sustainability in operations management develops strategies ensure resource use occurs at rate that allows them to be replenished. At the same time pollution is confined to levels that do not exceed the capacity of the environment to absorb them. When determining sustainability considers all aspects of business: factory location, workforce travel, disposal, raw materials transport and raw materials source

The benefits of sustainability include

1. Cost savings – allows more efficient use of resources2. Quality improvement – new operating practices that are part of becoming more efficient may

also improve quality3. Stakeholder support – gains support from the local community4. Marketing edge – products produced sustainability are becoming more desired by customers

and organisations that aim to market themselves as being green

Chapter 6: Quality management

Costs of quality

Product quality

The quality of a product is determined by a number of factors –

1. The product is delivered with specification i.e. time and properly finished2. It delivers benefits to customers i.e. taking customer feedback on3. Service elements are provided i.e. approachability of staff4. Accuracy of administration procedures

The importance of quality to modern organisations is the result of increased competition, increased consumer choice, more knowledgeable customers, access to strategic competitive advantage and brand

Quality related costs

High quality will put both costs down and revenues up. The costs are indicated as –

Prevention costReducing appraisal costs to a minimum(i.e. training, design)

Appraisal costInspecting and testing(i.e. testing, reconciliations)

Internal failure costArising before transfer to customer(i.e. reworking faulty output, rejecting output in inspection)

External failure costArising after transfer to customer(i.e. repairs, replacements, refunds and their delivery)

The increase in revenue comes from improved reputation and no loss of future custom (decreasing external failure costs).

Quality control & Quality assurance

Quality controlA standard is set and procedures are implemented to ensure the standard is met. It focuses on the inspection of products produced rather than the production process – often inferences on the population are drawn from a sample.

Can be costly, time-consuming and accepts or misses faults.

Quality assuranceQuality assurance is a more contemporary system aimed at improving quality through processes rather than controlling the outputs of a process. QA accounts for production, material sourcing, equipment reliability and human training.

Can be difficult to measure, bureaucratic and costly.

Total Quality Management

Total quality management

TQM is a quality assurance culture aimed at continually improving performance throughout the organisation over the long-term. It has seven main principles of PRECEPT

1. Prevention – Advocates investment in prevention and appraisal costs to save on internal and external failure costs

2. Right first time - Failure is not an option; appraisal and prevention costs support this3. Eliminate waste – Work must continue until all waste is eliminated4. Continuous improvement – Quality circles and communication of objectives are required to

ensure the ongoing success of TQM5. Everybody’s concern – Implement a quality culture that has commitment from all staff and

considered in every decision6. Participation – Emphasizes importance of allowing all staff to contribute ideas7. Teamwork & Empowerment – Encouraged to take action if it will assist the organisation

The concept is based on the view internal and external failure costs can be reduced by spending on prevention rather than on inspection.

Managing quality using TQM involves

Internal customers – All parts of Service level agreements – Quality culture – A commitment

an organisation are involved with quality issues and need to work together through the internal customer and internal supplier concept

Empowerment – Allowing staff to have the freedom to decided how to do work and making workers responsible for achieving production targets

Requires a formal agreement which states the standard of service and supply that is provided to an internal customer (however they are criticized for creating barriers to constructive relationships and genuine cooperation)

Continuous improvement – Quality circles and communication of objectives are required to ensure the ongoing success of TQM

from all staff to not only just comply with performance standard but to be proactive about improving their performance and the performance of others

Quality costs – The view that internal and external failure costs can be reduced by spending on prevention rather than on inspection

TQM training

The different groups within the organisation that need to be considered include:

WorkforceEducating to understand the importance of TQM and reassuring about jobs to prevent resistance to change. Engaging queries will be a priority before commencing job-specific training

Senior managersNeed to be trained first as they are responsible for the implement; they ill need to demonstrate commitment

SupervisorsWill require development of problem solving, communication and people management skills through training so that they are able to implement TQM in their teams

Quality committeeOverseeing the process of implementing TQM will require a through grounding in all areas which will require training over a longer period of time

Implementation of a quality management programme

The considerations and problems of implementing a programme like this include:

Considerations

Senior management commitmentDedicated resourcesOrganisation-wide trainingResponsibility-clarificationUse of feedback to improve systems.

Problems

Lack of management buy-inLack of expertiseInterpretationConflictsToo many measures

Contemporary thinkers on quality

Developments of TQM

Some new ideas over quality include

1. Denning – Quality must be the constant purpose of the organisation2. Crosby – Quality involves conforming to the customer’s needs (quality as measured as the price

of non-conformance)3. Juran – Initiate projects to solve problem areas which result in the biggest benefits4. Ouchi – Theory Z combined Japanese and US working practices to focus on participation5. Kaizen – Japanese concept which aims for continuous improvement through small incremental

steps6. Six Sigma – Reduce defects in business processes, achieving this means produce no more than

3.4 defects per million opportunities

Lean production/management

A fully integrated organisation that that minimizes resources required, eliminates non-value adding activities and has an approach of getting the right things to the right place at the right time. It involves the systematic elimination of waste such as overproduction, waiting, transportation, inventory and defective units through:

1. Improving productivity – consider job design to remove unnecessary processes

2. Minimize labour hours wasted – zero waiting time, no delays in production3. Performance measurement – allows focus on weak areas4. Working environment – safe, clean environment5. Flexibility – multi-skilled staff in order to manage activity in high and low demand

5-S practice

Often associated with lean production, the overriding idea is that there is a place for everything and everything goes in its place

StructuriseIntroduce order where possible

SystemiseArrange and identify for ease of use

SanitiseClean daily and be tidy

StandardiseBe consistent in your approach

Self-discipineFollow this approach daily

SERVQUAL

Service organisations differ from manufacturing organisations when considering capacity management, these include:

1. Balancing demand and supply is more difficult as inventories can’t be built up (production and consumption occurs together)

2. Greater interaction – the customer plays an active role in the delivery of the process3. Output is different each time – achieving a consistently high level of output is challenging4. Greater reliance on staff – dependent on the people delivering the service5. Intangible output – difficult to measure quality as there is not physical product

In light of these, SERVQUAL measure quality in service industries using RATER

R-esponsiveness – responding to the customer’s needA-ssurance – an ability to inspire confidenceT-angible factors – physical environment the service is provided (appearance of staff, location)E-mpathy – provision of a caring service (personalized approaches)R-eliability – being dependable and accurate

Tools of quality

Benchmarking

Analysis of performance against similar activity elsewhere can be achieved through

Internal benchmarking – Comparisons with the best in the organisationCompetitive benchmarking – Comparisons against the best in the industryInter-industry benchmarking – Comparisons against the best function in any industry

Quality circles

Interdisciplinary, low-level groups of staff that meet regularly to identify and provide solutions to issues relating to quality.

Benefits– Encourages culture of improvement– Makes valuable savings– Organisational unity between members

of differing functions

Drawbacks– Rejected suggestions may cause

resentment– Could lose focus– Business practicalities –

misunderstanding of program costs ISO accreditation

Provides external verification that an organisation has achieved a set of quality standards –

Benefits1. Improved processes and procedures2. Improved quality of goods3. Improved profitability due to fewer

replacement goods and less re-working of faulty items

4. Reputation as accreditation raises the customer’s explication about the quality of the product

5. Staff morale as employees more aware of the importance of quality will support management more

Costs1. Complex2. Time-consuming3. Expensive4. Doesn’t guarantee output will match a

certain level

Chapter 7 – Capacity management

Capacity management strategies

Theory

Some ways of managing demand and supply include:

Managing demand– Price incentives– Advertisement– Complementary services

Managing supply– Sharing capacity with other shops– Cross training employees– Part-time employment of staff

The three main approaches to this include:

1. Level capacity – where the firm builds an inventory buffer to cope with increases in demand 2. Chase – where the firm adjusts operations in response to demand fluctuations3. Demand management – where the firm tries to influence demand

Capacity control IT systems

There are three main forms of capacity control:

Manufacturing resource planning (MRP)Technique for deciding volume and timing of materials when sales can be forecasted (uses a single database to do so)

Enterprise resource planning (ERP)Integrate all functions of an organisation in a system that meets the needs of all users (planning, purchasing, inventory control and customer service)

Optimized production technology (OPT)Computer-based methods for scheduling production requirements to the known capacity constraints of the operation (used to identify and eliminate bottlenecks)

The costs and benefits of capacity control are:

Advantages Disadvantages

– Reduces inventory levels– Easier to track customer orders– Better customer service– Improved information for decision

making– Reliable order fulfilment times

– Costly to produce– Requires extensive staff training– Can lose human touch within the

organisation and with customers/suppliers

– Restrictive

Inventory control methods

Methods

Some inventory control methods include 1. Continuous inventory systems – uses an Economic Order Quantity (EOQ) to capture a purchase

level that minimizes stock costs2. Periodic inventory systems – checks stock levels at periodic intervals3. ABC system –suggests that 20% of stock makes up 80% of the stock value so only this stock is

closely monitored

Cost of holding inventory– Cost of storage– Risk of obsolescence– Interest – capital is tied up which has

interest paid on it– Insurance – larger the inventory the

greater the premium– Deterioration – stored inventory will

deteriorate

Cost of stock out– Lost profit form sales– Lost future sales from disgruntled

customers– Lost customer goodwill– Extra costs of urgent replenishment

orders

Just-in-time

A chase strategy is where goods are only produced in response to an order, features of the philosophy include:

1. High quality – JIT is often adopted along with a TQM approach2. Speed – Orders are met through production rather than inventory3. Reliability – Production must be reliable and not subject to hold-ups4. Flexibility – Production must be flexible to respond immediately to customer orders 5. Lower costs – High quality production, faster throughput and elimination of errors leads to

lower costs

The JIT philosophy can also be applied to service operations:

1. Reduces queues – they require space for customers to wait and decrease the customer’s perception of the service

2. Flexible workforce – can be moved from one type to another in response to work flow requirements.

Section D – Marketing

Chapter 8 – Marketing and business strategy

Organisational orientations

Orientations

There are four organisational orientations

Product orientationThe consumer is seen as a rational person that examines the specifications of a product without being swayed by brand. The organisation seeks to improve the product

Marketing orientationThe organisation identifies a customer need and then determines a product that meets those needs.

Sales orientationsThe organisation sets to maximize sales regardless if the customer is not naturally inclined to through assertive sales teams

Production orientationThe organisation sets to maximize production efficiency and reduce costs. The focus is on internal

processes rather than external demand

Marketing processes

– Strategic marketing plans

Marketing campaigns should have contain the following components in order to be effective –

1. Set SMART objectives (Specific, Measurable, Achievable, Relevant, Timely goals)2. Internal appraisal and external appraisal (SWOT analysis)3. Gap analysis – analysing the gap between set objectives and what might be realistically

achieved4. Develop clear marketing strategy – markets, products and customers5. Implementation, monitoring and control

Marketing environment 1 – PEST factors

Political factorsConsumer confidence in the future, their spending power and their rights.

EconomicsConsumers effective demand for products and service (uncertainty results in less spending and more saving

SocioculturalDemographic factors that indicate size and purchasing power of customer groupsAcceptability of marketing messages and products

Technological factorsProvides new methods of communication and marketing

Marketing environment 2 – SWOT analysis

Internal appraisal– Strengths

(branding)– Weaknesses

(lack of employee incentives, cost-base, poor customer experience, poor marketing mix, organisational structure)

Resource-based strategies enable the organisation to extend the use of its strengths

External appraisal– Opportunities

(available inherent profit-making potential, ability to exploit and competition

– Threats(threats, affect on the organisation, affect on competitors)

Position-based strategies identify the available opportunities and what needs to be done to exploit them

Research

A problem is defined, the scope of research agreed, techniques for data collection are chosen, data is collected, then interpreted and reported into findings.

Primary researchThis is fresh data that is unique to the gatherer

– Can be a form of competitive advantage

– Face-to-face interviews build a detailed understanding

Secondary researchThis is existing data obtained from existing sources

– Quick and cheap source of large volume data

– Publications often provide analysis and answers to questions that might not have been thought of

– Segmentation

The process of dividing a market into customer groups with similar characteristics – common bases for segmentation include

1. End use (need the product will meet)

2. Demographics (age, gender, income, occupation, education) and geographic location.

Kotler and Lane Keller state that segments need to have the following qualities

1. Measurable – The number of buyers in the segment must be able to be assessed2. Accessible – The segment must be able to be reached with existing media and distribution3. Substantial – The value of the segment must be sufficient to justify the costs of targeting it

– Targeting and positioning

After grouping the market into segments of shared characteristics, the organisation can choose the segment to target with a marketing campaign. There are three main methods of positioning products in the market

Undifferentiated positioningTargets the entire market with a single marketing message

Differentiated positioningTargets several different segments with different messages

Concentrated positioningTargets a single segment with an ideal product

Chapter 9 – Marketing mix and consumer behavior

Marketing mix

Product marketing mix

In order to make a product appeal to the customer an organisation should consider its marketing mix (known as the four P’s). Each P has to be chosen with mind to the segment it has positioned to in order to maximize marketing impact

PromotionAttracting attention through promotion, advertising, internet and personal selling

PlaceThis distribution of the offering; type and number of sales outlets and the use of wholesalers, retailers and internet

ProductMeeting the customer’s needs with regards to physical and psychological factors including quality, packaging, appearance, image, health benefits and performance

PriceOrganisations should consider the 4 C’sCost of manufacture and distributionCustomers and their perception of priceCompetitor pricesCorporate strategy

Additional service marketing mixes

The service marketing mix includes three more headings to make the seven P’s as a result of an absence of a tangible product

PeopleThis refers to the people who provide the service – are they knowledgeable, approachable and professional?

Physical evidenceUsing physical items to attract customers (i.e. the building where the service is, vehicles associated with the service and testimonials from previous customers)

ProcessesEfficient, user-friendly processes make a service more attractive (i.e. efficient booking systems or appropriate queuing systems

Marketing models for products

The Boston Consulting Group (BSG) Matrix

States that a product is either a star, cash cow, dog or question mark

– Star: A strong product although ongoing investment is needed to maintain high market share in an attractive (and therefore competitive), growing market

– Dog: There is little justification for continuing investment in this product

– Cash cow: Lack of growth makes it a little less attractive than a star, but it can be milked to fund question marks and stars

– Question market: The high market growth makes it potentially attractive but low market share means that it requires major investment to realise its potential

The model assists organisations by

1. Ensuring a balance in each category – Dog products need to be offset by products in other categories

2. Spending decisions – Directing funds to ensure products remain stars for as long as possible, while cutting back on spending (marketing) on cash cows are further along in the product lifecycle

3. Product development and termination – Encourages organisations to think about question mark products as they will often require significant investment to compete and whether it will be worth it

Product life cycle

The sales performance of a product is shown on a product life cycle PLC

Introduction: A new product is marketed and sold

– Demand is low while customers find out about it

– Pricing will tend to be enough to recover R&D and launch costs or to stimulate demand but unlikely to generate a profit

– Design changes may be required as the customer becomes better understood

– Requires extensive promotion to raise awareness (or market skimming)

Growth: Demand and competition increases– Increased range of products as

organisations differentiate themselves– Quality standards need to be maintained– Price impact will be much more

important– Economies of scale will reduce cost per

unit, edging the organisation into profit– Marketing is required to develop a brand

Shakeout: Sales growth slows down and weaker providers are shaken out of the market.

Maturity: Leveling demand with organisations relying on repeat purchasing from existing customers

– Market shared by a small number of organisations

– New varieties of product developed to extend the lifecycle

– Organisation likely to compete on price– To remain competitive low costs must be

achieved through productivity improvement

– Marketing should be based on segmenting to different demographics

Decline: Total demand declines– Competitors withdraw from the market– Still excess capacity so remaining

organisations will compete on price– Organisations focus energies on

developing a new product

The model assists organisations by: 1. Ensuring a balance of products – if products are in decline, newer products are needed to

maintain revenue2. Investment decisions – states that introduction stage products require investment whereas

decline products should have none3. Product termination – argues that products in the decline stage should be terminated

Types of marketing

Marketing types

There are five main types of marketing

Direct marketingThe producer interacts directly with the end

Indirect marketingWord of mouth or other activities

Interactive marketingTreating the customer as a unique individual

Experiential marketing: Establishing an

customer to get them to respond to an invitation (telemarketing, advertising)

Viral marketing –Using social networks to spread brand awarenessGuerrilla marketing – unconventional, taking people by surprise (publicity stunts)

by remembering things about them (Customer Relationship Management software)

emotional link between a market segment and brand

Consumer behaviour

The five-stage process of consumer decision-making is:

Problem recognitionRecognises a need which acts as motivation to search for a solution

– Influenced by promotion and marketing activities of a company

Purchase decisionSelection and purchase

– If purchase is not made, the mix needs to be changed (i.e. segmenting the market

Information searchingMarketers provide product information, while customers come up with alternatives

– promotion and product design is influences this

Post-purchase evaluationIf satisfied the customer skips to decision stage otherwise back to problem recognition

– Market research is required to respond to the evaluation

Evaluation of alternativesThe shortlist is evaluated

– whole product mix affects this

Branding

A strong brand helps to create an image of the product that the manufacturer wants to present to the public, its benefits include:

1. Product differentiation – the more similar the products the more branding required to gain a perception of a superior product

2. Product recognition – conveys information about or an image of the product, making stockists more willing to sell the product

3. Premium pricing – reduces the importance of price differentials between goods4. Market segmentation – different brands meet specific needs of categories of users5. Brand extension – other brands can be introduced on the back of articles already known to the

customer6. Customer loyalty – the brand creates a connection with the buyer

Internet

The internet can be used as part of a marketing approach in the following ways

1. E-commerce – enabling orders to be summited and paid for online2. Product information – websites can provide detailed product information3. Corporate information – websites an provide general information about the organisation4. Promotion – the company’s website can be promoted using Google5. Target marketing – micro-site capability for specific target audiences could be established

The advantages that this can provide include

1. Communication is quick allowing rapid responses to customer orders2. Enables quick price and feature comparison3. Can lower costs through reduces need for physical outlets4. Provides the opportunity for global reach even for very small organisations5. Facilitates information collection and developing customer databases for future promotions6. Customer conveniences as it may be accessed from home at any time7. Provides the opportunity to spread its message through viral and guerilla methods

Theories of decision-making

There are three theories about how the decision of consumer purchases is made:

Cognitive paradigmBuying is a rational, decision making process based on objective research

Learned behaviorCustomers make decisions based on past experiences

Habitual decision-making – Customers base their decisions on brand loyalty or satisfying behavior (selecting the first product that meets their need)

Factors influencing the level of consumer involvement

The extent to which a consumer is actively involved in the buying process depends on:

1. Relevance – the more important the purchase the more involvement there will be2. Frequency – less involvement if it’s a repeat purchase3. Freedom – the more alternatives the more involvement4. Influence – less involvement if influenced

Additional

Market skimming sets an initial high price for a product to take advantage of buyers who are prepared to pay for it

Chapter 10 – Developments in marketing

Distribution channels

People and purchasing decisions

When organisations are buyers, the purchaser acts on behalf of an organisation rather than for themselves, the people involved are:

InitiatorsThe people that start the buying process (department requesting stock)

InfluencersInfluence the buying decision by their technical expertise (procurement)

BuyersRaise orders and approve payments

UsersThose who use the purchased items

The different distribution channels are –

1. One level channel – the distribution channel consists of manufacturer, retailer and end consumer

2. Two level channel – where there are several intermediaries in the distribution channel3. Zero level channel – where the manufacturer deals directly with the customer and the place is

likely to be the internet

Not-for-profit

Not-for-profit organisations

Charities are increasingly using marketing to further their objectives – even though shareholder wealth is not the primary objective, the marketing mix can still be applied. The stakeholders within marketing mix consideration are beneficiaries, supporters and regulators. The charity marketing mix is:

ProductThe campaigns that they are involved with

PriceThe price which takes into account governance and generating future income

Processes Ways of collecting (online, postal, direct debts) and distributing funds

PlaceCharity shops, websites, retailers

Partnering

Not-for-profit organisations can participate in two partnering type marketing strategies for their benefit

Partnering with commercial organisations (cause marketing)

Forming close relationships with suitable organisations with the aim of collaborating in running fundraising events. The organisation benefits from being seen as a good corporate citizen (CSR)

Partnering with key individual donors (relationship marketing)

Developing relationships with key donors further by increasing their involvement with the charity, with the aim of increasing revenue from these individuals and the insights they provide

Other marketing developments

Internal marketing

By improving the employee’s ability to relate well with customers and demonstrate a customer orientation, internal marketing can improve customer service and the customer’s perception of the organisation that supports the organization’s external marketing activities. It involves selling customer orientation to employees through development, training, empowerment, performance targets and rewards.

The advantages of doing this include1. Emphasizes that every department adds value to the organisation2. Allows the function to understand the needs of its customers

Social marketing

Marketing can be used to promote social and health issues, this involves encouraging merit goods and discouraging demerit goods

Merit goods – Commodities that society believes should be offered to all (healthcare)Demerit goods – Commodities that society believe damages society overall and thus should be discouraged (tobacco)

Corporate social responsibility

Companies should consider ethical issues when marketing their products and services, this includes;

1. Who they sell to (marketing to children is always seen as unethical as children do not have the ability to make reasoned judgments)

2. Whether advertising is truthful (sponsoring a sport event when your product is fundamentally unhealthy)

3. How dissatisfied customers are managed

The ethical considerations of each marketing type should be considered

Television advertisingCan be seen as wasteful and inappropriatePlays to peoples emotions

Viral marketingOnline presence can be seen as an attempt to engage with young peopleCan be seen to trivialize some matters

Celebrity endorsementThe wrong celebrity can be associated with the company

Section E -

Chapter 11 – Human resources management

Development of HRM

Scientific management

FW Taylor established four principles of scientific management –

Development of a true science of work (a forensic measurement of work activities)

Scientific selection and training of workers to meet targets

Encouragement of the workforce to develop their potential

Constant and intimate cooperation between management and workers

This means finding the best way to perform a task and then providing training and detailed instructions to staff in order to maximize output.

Human resource management

There are a number of HR issues and roles, of which when conducted suitable provides a number of benefits

HRM is an issue of strategic importance and has 4 responsibilities

– Hiring new staff– Relationships and communications– Appraisal and remuneration– Training– Redundancy management

The benefits of good HR approach include– Increased productivity– Reduced staff turnover– Initiative encouragement– Enhanced group learning

Flexible organisations

Handy’s organisational shamrock

Suggests that an organisation should be flexible in terms of expansion and contraction; this shamrock organisation would have:

1. Core of professional workers2. Contractual group of specialists 3. Flexible workforce of temporary and part-time staff.

Atkinson’s flexible organisations

Suggests that organisations should be flexible in three dimensions

Task flexibilityJob classifications are removed to give individuals a wider range of responsibilities and organisational dependency

Numerical flexibilityTemporary, short-term contractors are used to allow organisations to expand and contract capacity as required

Financial flexibilityRewards are tailored to individual performance through performance related pay schemes

Motivating staff

Schein’s types of employees

Identifies how staff can be managed depending on their motivation

Rational economic– Maximization of

personal gain– Cannot be

trusted to manage others

Social– Interaction with

others in the workplace

– Performance can be bettered by improving workplace morale

Self-actualizing– Self-fulfillment– Should be

given challenges and responsibility

Complex– Obligations

between employer and employee

– Need to respect a psychological contract

McGregor’s management views

Douglas McGregor believed that managers had two modes of motivation

Theory X – Managers believe staff have an inherent dislike of work and therefore they must be controlled to improve productivity

Theory Y – Managers believe staff regard work as natural and should be placed in participative environments and given self-direction

Herzberg hygiene factors

Frederick Herzberg differentiates between hygiene factors and motivators:

Hygiene – If absent, will demotivate however presence will not motivate beyond a neutral point (working conditions and relationships) Motivators – Can motivate but only if hygiene factors have already been met (responsibility, recognition and achievement)

Maslow’s hierarchy of needs

Abraham Maslow places human needs in a hierarchy. Only once the most basic need is met will the individual address the other needs.

Self-actualization: fulfillment of personal potentialEsteem needs: for independence, recognition, statusSocial needs: for relationships, affection, belongingSafety needs: for security, order, freedom from threatPhysiological needs: food, shelter

Vroom’s expectancy theory

The theory states that: Valence x Expectancy = Force

Valence = the amount the person desires an outcomeExpectancy = the individuals assessment of how lively a given level of effort will yield a desired resultForce = the amount of effort or motivation present

Encouraging employee contribution

Hack and Oldham’s job characteristics model

Sets out a link between motivation and performance with the characteristics of the job, it measures this based on the extent to which a job displays five core characteristics:

Skill varietyBreadth of job activities and skills required

Task identityA visible outcome of the work

Task significanceThe impact of the job on other people

AutonomyDegree of freedom in executing the work

FeedbackInformation provided on worker performance

If the job design is addressed meaningfully, the employee will experience –

1. Experienced meaningfulness – a feel that their work is worthwhile (based on skill variety, task identity and task significance)

2. Experienced responsibility – a feeling that they are responsible for their work (based on autonomy)

3. Knowledge of results – an awareness of how they are performing (based on feedback)

Job changes

Practical methods changing the above characteristics include –

Job enlargement Job enrichment Job rotation Job redesign

Adding more tasks at a similar level of complexity

Adding more tasks at a more advanced level of complexity

Swapping roles at a similar level to create variety

Ensures a job suits a person in terms of what motivates them

HR strategy

Guest’s HR strategy

David Guests illustrates how HR strategy can generate measurable financial outcomes

HR StrategyHR PracticesHR OutcomesBehavioral outcomesPerformance outcomes

Financial outcomes

Differentiation (innovation)SelectionCommitmentEffort, motivationHigh productivity, quality and innovationProfits

Quality focusAppraisal rewardsQualityCo-operationLess absence, conflict, labor turnover or customer complaintsReturn on investment

Cost reductionJob design involvement, statusFlexibilityCitizenshipLess absence, conflict, labor turnover or customer complaintsReturn on investment

HR Plan

To deliver a HR strategy, an effective plan is needed

Supply forecastThe internal and external supply of labor and specific types of labor

ObjectivesThe organisations manpower strengths and weaknesses, the organisations use of employees, the organisations structural objectives (new technology, products)

Demand forecastThe internal and external demand for labor and specific types of

ActionThe transfer, redeployment, recruitment policy and redundancies

Reconciliation of demand and supply

Shortcomings in any HR plan, whether in recruitment or selection is due to

1. Ineffective processes 2. Lack of support from department managers3. Losses due to wasted training expenditure4. Losses due to wasted recruitment expenditure5. Oss of capable employee

Chapter 12 – Human resources practices

Developing the Human Resource

Human Resource Cycle

A common approach to viewing HR is as a five stage cycle. HR tends to develop the HR plans whereas the line mangers implement them

1. Selection – obtaining people with appropriate skills2. Appraisal – setting individual performance targets in

line with organisational goals3. Training – filling skill gaps and checking the

organisation retain appropriately skills people4. Reward system – to motivate and reward employees

Pre-recruitment

Preparing for recruitment

Before recruitment can take place, three pieces of preparation are required

Job analysisSetting out information on job purpose, content of job, responsibilities, performance criteria and development methods

Job designOutlining competencies that will meet the jobs demands (communication, problem-solving)

Job description Information on job title, department, wages, duties, limits to authority and dates

Recruitment

Recruitment

Recruitment is the process of attracting a pool of suitably qualified applicants. It covers –

1. Advertising a job vacancy2. Preliminary contact with potential candidates

3. Initial screening to create a pool of suitable applicants.

Selection

The process following recruitment that identifies the most suitable applicant, it must be:

1. Reliable (produce consistent results)2. Valid (decisions made on a solid basis)3. Fair4. Cost effective

Some selection methods include:

Interviews:Allows best person for the job to be found and gives candidates an accurate impression of the job

Selection testingPsychometric tests; mix of cognitive (ability, aptitudes) and personality tests (emotional make-up)

Assessment centersGroups of participants undertaking a series of test

Advantages

– Rapport can be built

– Tests can be sensitive– Standardized tests

means everyone is measured equally

– Moderate performance prediction accuracy

– Allows longer to study candidates

– Demonstrates social faculties

– Permits greater diversity of assessment methods

– High performance prediction accuracy

Disadvantages

– Lack of job performance accuracy

– Unreliable– Prone to interviewer

mistakes

– Over-simplifies complex issues

– Cultural specific– Results are only used to

support other selection methods

– Costly and time consuming

– May allow contrived behavior

– Selectors must be experienced

Rewards

Designing reward systems

A good reward system should:

Be able to– Recruit and retain staff– Motivate and reward employees– Recognise non-performance related

factors (skill, competence and job role)– Understandable

Consider– Size of remuneration should relate to

success contribution– Non-financial benefits (promotion and

career development)– Remuneration schemes offered by rival

companies– Total cost of remuneration scheme should

not be so high that its benefits are questioned

– Fairness

There are two main types of reward schemes

Profit sharing schemes

Performance

Advantages– Links success to the

success of the organisation– Little difficulty in paying a

bonus as only paid when profits are made

– Easier for the individual to

Disadvantages– May feel that one’s own

contribution is minimal

– Exact conditions must be made to avoid uncertainty

related pay control their own performance and thus increases motivation

– Removes risk of manipulating profits

– If targets are not achieved staff may be demotivated

Appraisals

Types of appraisal

The overall purpose of an appraisal system is to improve efficiency through:

1. Reward review – Measuring the extent to which an employee deserves a bonus2. Performance review – For planning training and development programs3. Potential review – Aid planning career progression

Appraisal approaches

Appraisals should be a participative, problem-solving process between the manager and appraisee.

Management ledEmployee is assessed by manager according to targets set by manager

Self-appraisalEmployees assesses own performance against criteria, identifies issues resolve with managers guidance

180 degreeFeedback on the appraisee is sought from colleagues

360 degreeAs well as receiving feedback, the appraise gives feedback on the appraiser

Performance should be measured using SMARTS-pecific: Staff know aspects of performance that is relevant to their incentiveM-easurable: Should be transparent so that staff can track their progressA-chievable: Should relate to an aspect of performance that is within the ability of the staff’s controlR-ealistic: If they are unrealistic, staff may decide to ignore them completelyT-imebound: A requirement to achieve targets within a specified time period

Benefits of good appraisal include:– Rewards good performance– Sets motivating challenges– Eliminates shortcomings– Identifies training needs– Provides a forum for exchanging

feedback– Identifies future aspirations (career

management)

Barriers to effective appraisals include:– Confrontation – conflict between involved

parties– Judgment – appraiser takes a one-sided

approach– Bureaucracy – Appraisee sees the

process as a form filing exercise– Annual event – Annual targets may

become redundant after 6 months

Training

Assessment of training needs

Factors to consider regarding training include

1. Strategy – training should meet the individual and organisation need2. Type of training – methods of training should be most effective3. Motivation of employees – better trained employees are more motivated (training cost may

offset against lower absenteeism)4. Productivity – better trained employees are more productive which offsets training cost against

greater productivity5. Resources – training will divert resources away from the organisations core business (cost of

training)

Types of training

There are three main types of training

Formal in-houseConsists of lectures, discussions, exercises, role plays and case studies run by the organisation itself

Formal externalConsists of lectures, discussions, exercises, role plays and case studies run by an external organisation

On-the-job trainingConsists of work shadowing, tolerating mistakes and organizing specific assignments

Advantages

– Can be tailored to specific requirements

– Cost effective if produced in house

– Benefits from specialization of external organisation

– Training is directly relevant to the job

– Training is just-in-time so that specific queries are identified

Disadvantages

– Participants likely to be distracted by on-going work issues

– More likely to cancel due to a lack of cancellation fee

– No benefit unless the individual wants to learn

– If the subject matter doesn’t relate to the job

– Difficult to undergo when real customers are being dealt with

– The person teaching may not have the appropriate training skills

Training evaluation

The effectiveness of training can be evaluated by

1. Reaction – did the trainees like the training?2. Learning – did the trainees understand the key issues arising from the training?3. Behavior – has the trainee’s behavior changed as a consequence of the training?4. Results – what benefits arise from the training?

Managing development

Development focuses on developing skills rather than being trained to perform tasks. HR often plan development for internal succession planning, which enables key roles to be filled through logical progression

Advantages– Can be cheaper than using agencies– Develops career structures– Motivates employees as rewards are

visible– Maintains organisational culture

Disadvantages– Better candidates may be available

externally– The opportunity to progress relies on a

vacant position emerging– Planning requires resources to manage it

Kolb’s learning cycle

Learning is an integral part of both training and development, Kolb’s cycle suggests that people learn through experience –