PRINCIPLES OF BUSINESS



PRINCIPLES OF BUSINESS

PD1:ORGANIZATIONAL PRINCIPLES

SECTION2 :INTERNAL ORGANISATIONAL ENVIRONMENT

FUNCTIONAL AREAS OF A BUSINESS

1. Production

This department deals with the actual manufacturing or conversion of raw materials

to a product for sale. It can include such activities as quality control, purchasing raw

materials, organising production, timing etc.

2. Finance

This area is concerned with the overall accounts of the business. E.g. preparing

` income statements, balance sheets, maintaining cash flows, making payments and

issuing receipts, advising on sources of capital, establishing hire purchase and credit

controls, paying wages and salaries etc.

3. Research & Development

This department carried out various types of research such as product research,

consumer research, financial research as well as feasibility studies. In this

department, new products are developed or improvements are made to currents

ones, as feed back is received from other departments such as the marketing

department.

4. Marketing

The department seeks to identify, anticipate and satisfy the wants/needs of

customers in a manner which is profitable to the organisation. Activities include

marketing research, choosing methods of promotion, setting prices, product distribution, developing new products etc. This department often works closely with the R & D department to design and develop new products.

5. Personnel

This department is concerned with the human element of the organisation. This

includes training and development, recruitment of labour, improving morale,

industrial relations, disciplining workers, administering leave, pension schemes etc.

FUNCTIONS OF MANAGEMENT

Management is the process of combining all the resources of an organisation

(human & physical), towards achieving the various goals of the organisation. Management comprises of all those individuals who collectively carry out the processes necessary to achieve the organisational goals. The functions of management include:

1. Planning:

This function is carried out by top management. It involves the overall formulation

Of policy, aims and objectives of the business. The structure of the organisation is

determined and various duties of other managers are set out. It gives the

organisation focus and is necessary because the firm operates in an uncertain

environment.

2. Directing:

This is the giving of instructions, usually on a daily basis to workers. This is carried

out mainly by lower level managers.

3. Delegating:

Assignments/instructions are transferred from management to subordinates who are

also given power/authority to carry out the instructions. This ensures the sharing of

the work load. Mainly top/middle level management carries out this function.

4. Controlling:

This is the regulation and monitoring of activities for the purpose of achieving

profitable objectives and using corrective measures when the objectives are not

being met. It is carried out mainly by middle/lower level management. Top level management would engage in this function on a long term basis especially by looking at the overall financial position of the business.

5. Organising:

This is ensuring that everything is in place so that the operations can run smoothly

and effectively. It is carried out mainly by middle/lower level management.

6. Coordinating:

The bringing together of all functions of the organisation with the aim of

harmonizing all activities to successfully achieve a common goal. This is the

function of top and middle level management.

7. Motivating:

The process whereby management encourages and provides incentives to employees

To produce at their best so that the goals of the organisation can be met.

RESPONSIBILITIES OF MANAGEMENT

The management of any business has a number of responsibilities to the various stakeholders in the business environment. These include the following:

To Owners/Shareholders:

❖ Achieving profit

❖ Providing information such as annual reports

❖ Protecting assets

❖ Reinvesting some of the profits to ensure growth

❖ Declaring dividends where possible

To Employees:

❖ Fair wages

❖ Good working conditions

❖ Training

❖ Benefits such as sickness, retirement

❖ Provision of procedures to handle grievances

To Customers:

❖ Quality product/services at reasonable prices

❖ Compensation for customers injuries on business compound

❖ Product/Services should be safe

❖ Conduct research to improve quality

❖ Provide adequate labeling and instructions

To Society:

❖ Avoid pollution/destruction of physical environment

❖ Conserve scarce resources e.g. water, fossil fuels

❖ Preserve culture and traditions

To Government:

❖ Pay taxes

❖ Abide by local and international laws which affect the industry

ORGANISATIONAL STRUCTURE

A well planned relationship among the individuals and the functions of the organisation, in accordance with stated goals. It may be formal or informal. The FORMAL structure is the official and accepted channel of communication of the firm. It is shown on the organisational charts, official standards, statements and procedures. Its objective is the achievement of organisational goals. The INFORMAL structure is the unofficial, social interaction which exist among employees.

There are FOUR types of formal organisational structures.

1. Line Structure

It shows the authority within the organisation from top to bottom(chain of

command) and who is responsible for the persons below them

2. Staff Structure

Shows functions which are needed within the organisation but may not be directly

connected to production, distribution etc. It can include functions such as lawyers,

economists, architects etc. depending on the type of business

3. Functional Structure

This shows the specialized functioned within the organisation such as production,

marketing, personnel etc.

4. Committee

A group of persons set up to carry out certain duties, at the end of which the group

may be broken up

ORGANISATIONAL CHART

This diagram shows the structure of the organisation and indicates the links between different functions. It also identifies the span of control and the chain of command within the organisation. The Span of Control refers to how many subordinates report to a manager/supervisor. The Chain of Command shows to whom an employee is to report to

immediately and at each level within the organisation. Organisational charts may be vertical, circular of horizontal.

Diagrams of Organisational Charts

LEADERSHIP

Leadership is the style of management which is used to operate and control the

organisation.

CHARACTERISTICS OF A GOOD LEADER

1. Must be knowledgeable about the business

2. Be fair when dealing with employees

3. Good interpersonal skills with employees

4. The ability to make decisions quickly

5. The ability to motivate workers

6. Be able to resolve conflict

TYPES OF LEADERSHIP

There are FOUR main types of leadership styles

1. Authoritarian

With this style of leadership, employees are told what to do and how it is to be done.

There tends to be little delegation of responsibilities and authority. Only

management controls, rewards and punishes. The advantages are

❖ Decisions can be made quickly

❖ Everyone knows exactly what to do

The disadvantages include:

❖ No one’s opinion is heard

❖ Lack of employee motivation

❖ Individual creativity and initiative is stifled

2. Laissez-faire

Employees are given various tasks and when they are to complete them. It is then

their responsibility to determine how to achieve the objectives. There is minimal

supervision and may only succeed where workers are experienced. It has the

potential to be unstable. The benefits are:

❖ Creativity is encouraged

❖ Individuals can work at their own pace.

The problems include:

❖ Work not being completed on time

❖ Work not done to the required standard

❖ Greater likelihood of confusion

3. Charismatic

This leadership style is mainly based on the leader’s personality and his ability to

motivate others by leading from example. As long as the leader is present, there

individuals will function but when he/she leaves/dies, persons have no one to look to

and work suffers

4. Democratic

The leader seeks to find the middle ground. He/She maintains the necessary

authority to control and at the same time, employees are allowed to express their

views. Participation is encouraged but the leader maintains the power of decision

making. The benefits of this leadership include:

❖ Members assist in decision making, allowing them to feel valuable

❖ Views are listened to

❖ Persons are motivated to participate.

The disadvantages include:

❖ Decision making may be a lengthy process

❖ Stronger members may overpower weaker ones.

IMPORTANCE OF A GOOD LEADER

1. To ensure the smooth running of the business

2. To ensure the viability and profitability of the organisation

3. To ensure that goals are met

4. To reduce or handle conflict which can affect productivity.

CONFLICT

In any organisation, there will always be differences between management and their

employees. The organisation may claim that it provides good wages, working conditions etc. yet employees may complain about issues such as lack of communication, unfair and practices. Sources of conflict at work include:

❖ Unfair practices

❖ Safety and health issues

❖ Union rights

❖ Working conditions

❖ Job security

❖ Recognition of workers

❖ Management/Leadership style of the organisation.

During periods of conflict between employees and management, various strategies are used by both sides in an attempt to get the upper hand.

Employer Strategies

1. Lock Out

Employees may not be allowed to enter the building until the matter has been

resolved. This may cause the organisation to loose money.

2. Scab Labour

This is the use of a skeleton staff, mainly management in an effort to continue

work as normal. Workers may not be paid if they do not attend work. This may

force employees to return to work.

Employee Strategies

1. Strike Action

This is the refusal to do work. It may /may not be sanctioned by the trade unions.

Workers may turn up for work and do nothing or remain on the outside.

2. Work to rule

Workers will only complete the tasks which are clearly set out in their job

descriptions or condition of employment. This may slow down production/service.

3. Sick Out

Employees may call in sick for the day or may get certificates for doctors for

prolonged period( usually more than 2 days)

CONFLICT RESOLUTION STRATEGIES

As a result of various internal conflicts between management and employees, a number of strategies have been employed to resolve such conflict. These include:

1. Arbitration

This is the settlement of a dispute by an outside or neutral person(s). The person is

called an arbitrator or there may be a Broad of Arbitrators.

2. The Chief Labour Officer

This individual may be informed that a situation exists and this individual may then

use his office to try to resolve the conflict through a mutual agreement of the parties.

3. The Minister of Labour

This individual may be called upon in the event that the Chief Labour Officer is

unable to resolve the issue

4. Industrial Court

This is an accepted court of law and the agreement is legally binding on both parties.

GUIDELINES FOR ESTABLISHING GOOD RELATIONS BETWEEN MANAGEMENT AND EMPLOYEES

Good management-worker relationships are important to all organizations. This can be achieved if management takes the following actions:

1. Maintain good communication with workers

Two way communication should be encouraged. This allows for employee views

and problems to be heard. Instructions should be given as clearly as possible to

avoid misunderstanding.

2. Establish grievance procedures

These must be used by both management and employees. This would eliminate

possible industrial action since there would be opportunity for dialogue and

mediation to occur.

3. Practice good leadership

Employees should be guided towards the organizational goals without being treated

harshly. Good leaders should give employees the opportunity to talk and be willing

to then listen. Feedback is also necessary and non-monetary rewards can be

included e.g. giving of praise for a job well done.

4. Seek to motivate employees with compensation and other incentives.

If workers feel that they are being adequately compensated for a job, then this helps

to build trust, loyalty and employees’ self worth.

5. Improve working conditions

Pleasant and clean surroundings help to lift the spirit of workers in an organization.

6. Where possible, jobs should be interesting and challenging.

This allows the workers to use a variety of skills which they possess. Training and

self improvement should also be encouraged.

TEAMWORK

In any organization there may be the element of teamwork which may prove to be of great importance to the overall success. Teamwork is the use of individuals as a group, with different skills to accomplish a particular task or group of tasks. It is designed to encourage production at rates above the minimum required standard. It fosters cooperation and interaction among team members, thus resulting in a pleasant working atmosphere.

Team members should:

1. Listen to others and consider their ideas

2. Be prepared to accept constructive criticism

3. Make suggestions and offer help and support

4. Whenever needed, act as peacemakers

5. Think carefully before speaking, respecting each other

Whenever forming a group, management should consider the following factors:

1. Common goals

2. Interests of members

3. Age

4. Length of time to complete tasks

5. Personalities of team members

Advantages

1. Various views are heard and the best solution can be sought

2. A larger pool of ideas

3. Individuals may feel a greater since of belonging to the organization

4. Tasks may be completed with better results since the best of skills of each team member can be used.

5. Increased productivity

Disadvantages

1. It may take longer to make decisions

2. Some individuals may be ignored

3. Increase in the level of conflict which can lead to reduced productivity

4. Individuals with “powerful” personalities may dominate/take over the group and refuse to listen to others.

5. Good solutions may not be considered especially if they are coming from the “weaker” team members

6. Deadlines may not be adhered to.

COMMUNICATION

This is the movement of information from one point to another which helps towards the understanding and fulfillment of an objective. Effective communication requires a two-way flow of timely information.

Through communication, the different parts of the organization are linked. It also connects it with the outside world (i.e. other firms, individuals, government etc.). If the communication process is not effective, the following may happen:

1. Delays may occur

2. Production may cease

3. Increase in production cost

4. Closure of the organization

5. Increase in level of conflict

Process of Communication

The following elements are needed if communication is to take place.

SENDER: origin of message

MESSAGE: actual information

MEANS OF COMMUNICATION: method used to transfer information

RECEIVER: intended party

E.g. The Human Resource Officer placed a memo on the Office notice board stating that lunch would be changed from 11:30-12:30 to 12:00-1:00. This would only apply to production staff.

Methods of Communication (Internal)

(Under each heading insert different methods of communication)

ORAL WRITTEN VISUAL

Methods of Communication (External)

ORAL WRITTEN VISUAL

Factors Affecting Effective Communication

1. The sender may not be trusted

2. The information may not be timely or accurate.

3. The method of communication may be experiencing technical problems or may not be

appropriate

4. The sender may not understand the message

5. Unresolved conflict between the sender and receiver

Ex. List at least 5 methods/strategies that may be used to improve the effectiveness of communication.

MANAGEMENT INFORMATION SYSTEMS (MIS)

This is any system which has been put in placed within the organisation to provide management with needed to make accurate and timely decisions. It is usually computer based but may also be manual

Benefits of MIS

1. Savings in time

It is easier to access information from a computer than from manually stored files.

2. Savings in money

In the long run it is easier to store files on a computerised system

3. Improvements in production and marketing techniques

4. Improvement in decision making

If management can get accurate information they are better equipped to make

decisions

5. Increase in profit margins

Better operations and decision making leads to increased profits

6. Increased competitiveness

If the needs of the market are better known, then the organisation can position itself

to compete with others firms.

7. There is greater sharing of data among different departments

8. Savings in labour

Less people are neede3d to work if a system is computerised

9. It enhances communication by making information more readily available.

Challenges of MIS

1. Costly of setting up and maintenance

e.g. purchasing equipment, security system, maintenance personnel ( in-house or out

sourced)

2. Training

When introducing a new system, members of staff must be trained on its operations

if it is to work effectively. This is an additional cost to the organisation

3. Human error

There is always the issue of information being input to the system incorrectly. This

in term will affect the accuracy of information filtered through the organisation and

hence decision making.

MOTIVATION

As a part of managing or leading a group of individuals, motivation is the key to achievement of goals. This can take a monetary or non-monetary form.

Monetary Incentives

❖ Increase in salary

❖ Bonus(maybe at year end)

❖ Merit pay( for persons who have excellent work)

❖ Profit-sharing

❖ Employee shares

❖ Commission (percentage of sales made by the employee)

Non-monetary Incentives

❖ Housing Allowance

❖ Health benefits

❖ Pension Schemes

❖ Employee of the Month Programmes

NEEDS SATISFIED THROUGH WORK

❖ Monetary satisfaction

❖ Achievement

❖ Status

❖ Social needs (friendship)

❖ Psychological needs met(personal growth)

❖

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