unit 2: managing a business people in business improving organisational structures chapter 19

Unit 2: Managing a business

People in business

Improving organisational structures

Chapter 19


People in business

Organisational structure and hierarchy: key terms

organisational structure: the relationship between different people and functions

in an organisation — both vertically, from shop-floor workers through supervisors and

managers to directors, and horizontally, between different functions and people at

the same level.

organisation chart: a diagram showing the lines of authority and layers of

hierarchy in an organisation.

organisational hierarchy: the vertical division of authority and accountability in an

organisation.

levels of hierarchy: the number of different supervisory and management levels

between the shop-floor and the chief executive within an organisation


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Traditional organisation structure

A traditional structure which divides the organisation up into four functional areas — production, human

resource management, marketing, finance — each with a number of layers of hierarchy


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Span of control and levels of hierarchy

span of control: the number of subordinates a manager is required to supervise

directly.• If a manager has many subordinates answerable to him or her, the span of

control is said to be wide. • If a manager has relatively few subordinates answerable to him or her, the span

of control is said to be narrow. • Normally, the greater the degree of similarity in what a group of workers do, the

wider the span of control can be. • Traditionally, organisations tended to have very tall hierarchical structures, i.e.

many layers of management, each with a narrow span of control. • More recently, hierarchies have become flatter, meaning that the number of

layers of management has been reduced and each manager has a wider span of

control


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In groups, compare the features of tall structures and narrow spans of control with

those of flat structures and wide spans of control. Assess which is likely to be more

beneficial to worker motivation and to communication, and why.

Span of control and levels of hierarchy exercise


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Drawing an organisation chart

Draw the organisation chart for your school, college or workplace. Ask your tutor or

supervisor for further information that you might need. Consider whether it has a tall

or a flat structure and whether the span of control at different levels of the hierarchy

is narrow or wide. Think of these issues in relation to how the organisation is run and

whether this is the most effective structure.


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Workforce roles

Work roles vary from business to business, but as a business grows they will

generally include directors, managers, supervisors and/or team leaders and

operatives.

Organisation chart of Rockcliffe Ltd


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Workloads are influenced by the nature of the organisation and its management

structure — a large span of control or a lack of delegation can increase workloads.

Job allocations can change as the organisational structure changes, e.g. from a

production manager responsible for the production of all products to the creation of

production managers for each product and an overall production director.

Workloads and job allocations


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Delegation (1)

delegation: the process of passing authority down the hierarchy from a manager to

a subordinate.

responsibility: being accountable for one’s actions.

authority: the ability or power to carry out a task.

accountability: the extent to which a named individual is held responsible for the

success or failure of a particular policy, project or piece of work.

Research has shown that taking a few main factors into account can improve the

success of delegation fourfold. In groups, try to identify what these factors might be.


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Check your ideas against the following list.• Delegation must be based on mutual trust between manager and subordinate.• Subordinates must be appropriately skilled, trained and informed about the particular

task they will be responsible for.• Interesting and challenging tasks should be delegated as well as the more routine. • Responsibility and authority must be delegated.• The limitations of the subordinate’s authority should be made clear too.• Managers must relinquish control to ensure that subordinates feel they are trusted and

that the manager has confidence in them.

Working individually or in groups, and using your own experience and any

resources you have available, identify a list of advantages to a business of

effective delegation. Then try to think of any factors that might limit the extent

to which a business might delegate. Check your ideas against lists the on the

next slide.

Delegation (2)


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Delegation (3)

Advantages of delegation• It frees up time for managers to concentrate on strategic tasks.• It empowers and motivates workers.• Subordinates might have a better knowledge of local conditions and therefore

might make more informed decisions.• Delegation may allow greater flexibility and a quicker response to changes.

Factors limiting delegation• In some small firms, managers delegate very little.• Customer expectations.• Attitudes and approach of management.• Quality of staff.• Crisis situations.• Confidentiality.


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Internal and external communication

communication: the process of exchanging information or ideas between two or

more individuals or groups.

internal communication: exchange of information that takes place within an

organisation (e.g. at departmental meetings, in team briefing sessions and in memos

to staff).

external communication: exchange of information that takes place with

individuals, groups and organisations outside the business (e.g. via advertising

material, telephone calls to suppliers and letters to customers).

Identify examples (other than those listed above) to illustrate why external

communication is vital if a firm is to be successful.


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Process of communication

Working in groups, use the communication process to explain how important issues

have been communicated within your school or college. These could be new school

policies or procedures, or other types of change or development. Try to think of

examples where the process went smoothly and any where the communication was

more problematic.


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One- and two-way communication (1)

one-way communication: communication without any feedback (e.g. putting a notice on a

notice board, or giving instructions in an authoritarian manner that allows no comment or

questions from the listener).

In one-way communication, the communicator can never be sure whether the message has been

understood and therefore whether the communication was effective. One-way communication is

often associated with autocratic management styles.

two-way communication: communication with feedback (e.g. giving instructions in a manner

that allows for questions to be asked or comments to be made, a discussion or a question-and-

answer session).

Two-way communication ensures that any communication has been fully understood and is

therefore more effective. Effective two-way communication is a vital element of democratic

management, effective delegation, empowerment and teamworking.


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Working in groups, try to identify examples of one- and two-way communication that

you have experienced in school, college or the workplace. Think about whether this

was the best form of communication and, if not, how it could have been improved.

One- and two-way communication (2)


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Communication channels (1)

communication channel: the route through which communication occurs.

open channels of communication: where any staff member is welcome to see,

read or hear the discussions and conclusions.

closed channels of communication: where access to the information is restricted

to a named few.

formal channels of communication: communication channels established and

approved by senior management, within which any form of communication is

regarded as formal (e.g. meetings of departmental heads, personnel department

meetings and production team briefing sessions).

informal channels of communication: means of passing information outside the

official channels, often developed by employees themselves (e.g. ‘the grapevine’ and

gossip).


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‘Informal communication channels can both help and hinder formal communications

and for this reason the grapevine is usually recognised by management as extremely

important.’

‘Large amounts of informal communication suggests that formal communication

channels are not operating effectively’.

Discuss the issues involved in each of these statements and decide which you agree

with.

Communication channels (2)


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Vertical and lateral communication

vertical communication: when information is passed up and down the chain of

command.• Downwards communication is also known as top-down communication.• Upwards communication is also known as bottom-up communication.

Identify reasons why upwards communication might benefit a business.

lateral communication: when people at the same level within an organisation pass

information to each other.

Focusing on the marketing, production and finance departments of a firm, why might

lateral communication between staff in these departments be vital for the efficient

running of a business?


People in business

Improving organisational structures

Working in groups, using the resources that are available to you

(e.g. textbooks, internet) and reflecting on the work you have done on organisational

structures so far, investigate:• the main factors that influence the structure of an organisation• how organisational structures can affect business performance

Share your ideas with the rest of the class.


People in business

Chapter 20

Measuring the effectiveness of the workforce


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Labour productivity (1)

labour productivity: a measure of the output per worker in a given time period.

labour productivity = output per period

number of employees per period

Calculate labour productivity per month and the labour cost per unit per month

where output in a given month is 20,000 units and 40 people are employed at a cost

of £1,000 per worker.


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Labour productivity (1)

labour productivity: a measure of the output per worker in a given time period.

labour productivity = output per period

number of employees per period

Calculate labour productivity per month and the labour cost per unit per month

where output in a given month is 20,000 units and 40 people are employed at a cost

of £1,000 per worker.

AnswersLabour productivity per month = 20,000/40 = 500 unitsLabour cost per unit per month = £40,000/20,000 = £2


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Labour productivity (2)Labour productivity may be increased by:

• recruiting suitably skilled and trained employees • providing training to enhance skills and attitudes of existing employees• providing pay and non-financial benefits that improve motivation• improving working practices, technology and capital equipment

What is likely to be the effect of an increase in labour productivity on unit labour

costs?

The following calculations should illustrate these effects.

Starting with the information on the previous slide, improved machinery is

introduced, the number of employees remains the same and output increases to

30,000. What is labour productivity and labour cost per unit now?


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Labour productivity (2)Labour productivity may be increased by:

• recruiting suitably skilled and trained employees • providing training to enhance skills and attitudes of existing employees• providing pay and non-financial benefits that improve motivation• improving working practices, technology and capital equipment

What is likely to be the effect of an increase in labour productivity on unit labour

costs?

The following calculations should illustrate these effects.

Starting with the information on the previous slide, improved machinery is

introduced, the number of employees remains the same and output increases to

30,000. What is labour productivity and labour cost per unit now?

AnswersLabour productivity per month = 30,000/40 = 750 unitsLabour cost per unit per month = £40,000/30,000 = £1.33


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Labour turnover

labour turnover: the proportion of employees leaving a business over a period of

time — usually a year.

labour turnover = number leaving a business over a given period × 100

average number employed over a given period

Calculate the rate of labour turnover where the average number of staff employed in

a firm last year was 250 and the number of employees who left the firm last year

was 10.

Working in groups, try to identify the main causes of high labour turnover and what

the problems of high labour turnover might be for a firm. Compare your ideas to

those on the following two slides


People in business

Labour turnover

labour turnover: the proportion of employees leaving a business over a period of

time — usually a year.

labour turnover = number leaving a business over a given period × 100

average number employed over a given period

Calculate the rate of labour turnover where the average number of staff employed in

a firm last year was 250 and the number of employees who left the firm last year

was 10.

Working in groups, try to identify the main causes of high labour turnover and what

the problems of high labour turnover might be for a firm. Compare your ideas to

those on the following two slides

AnswerRate of labour turnover = (10/250) x 100 = 4%


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Causes of high labour turnover

Internal factors include:• ineffective leadership and management techniques• poor communications• wages and salaries that are lower than those being paid by firms offering

comparable jobs in the area• poor selection procedures that tend to appoint the wrong people to the wrong

jobs• boring and unchallenging jobs that lack career and developmental opportunities• poor working conditions and unpopular working practices• low morale and motivation as a result of the above issues

External factors include an increase in vacancies for more attractive jobs.


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Problems of high labour turnover

• high recruitment and selection costs to replace staff who leave• high induction and training costs • reduced productivity due to the disruption caused by skilled staff leaving • low morale among existing workers due to constantly changing staff

Use the internet to find data about differences in labour turnover:• between the private and public sector• within the private sector, between industries that have the lowest and the

highest rates• between professionals and less skilled workers• between different regions

Discuss the possible reasons for the differences identified.


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How to reduce labour turnover

Working in groups, assume you are management consultants brought into a firm to

advise it on how to reduce labour turnover. Identify three key strategies you would

suggest and share them with the rest of the class. Compare your strategies with the

following list.• monitoring and benchmarking• exit interviews• recruitment and selection• induction and training • reducing turnover of long-term workers

As a class, discuss the following issues• Can labour turnover ever be avoided?• Can labour turnover ever be a good thing for a firm?


People in business

Absenteeism (1)

absenteeism: the proportion of employees not at work on a given day.

average daily absentee rate = number of staff absent on 1 day × 100

total number of staff

What is the average daily absentee rate if 21 people out of a workforce of 300 are

absent on a given day?

If a firm has an average daily absentee rate of 5% and a workforce of 300, what is

the typical number of people absent per day?

average annual absentee rate

= total number of days lost due to absence during the year × 100

total number of days that could be worked x no of employees


People in business

Absenteeism (1)

absenteeism: the proportion of employees not at work on a given day.

average daily absentee rate = number of staff absent on 1 day × 100

total number of staff

What is the average daily absentee rate if 21 people out of a workforce of 300 are

absent on a given day?

If a firm has an average daily absentee rate of 5% and a workforce of 300, what is

the typical number of people absent per day?

average annual absentee rate

= total number of days lost due to absence during the year × 100

total number of days that could be worked x no of employees

AnswersAverage daily absentee rate = (21/300) x 100 = 7%.Typical number of people absent per day = (X/300) x 100 = 5%, so X = (5/100) x 300 = 15


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What is the average annual absentee rate if the total number of days that could be

worked is 250 (5 days × 50 weeks), the total number of employees is 80 and the

number of days lost due to absence is 600?

Absenteeism (2)


People in business

What is the average annual absentee rate if the total number of days that could be

worked is 250 (5 days × 50 weeks), the total number of employees is 80 and the

number of days lost due to absence is 600?

AnswerAverage annual absente rate = [600/(250 x 80)] x 100 = [600/20,000] x 100 = 3%.

Absenteeism (2)


People in business

Causes of absenteeism

In groups, try to identify what you think are likely to be the main causes of

absenteeism. Think about them in two categories: unavoidable and avoidable.

Explore what the impact of high rates of absenteeism is likely to be for business. To

help you in this, consider that in 2007 the average cost of absence for a firm was

£659 per employee per year and there were about 29 million people in employment.


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Strategies to reduce absenteeism

• introducing more flexible working practices • ensuring that jobs are interesting and challenging• improving working conditions and thus reducing dissatisfaction• improving relations between employers and employees• introducing attendance bonuses as an incentive to attend regularly

Working in groups and using the internet and any other resources you have

available, try to establish how effective these strategies have been when introduced

by firms. Share your findings with the class.


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Health and safety absenteeism

rate of absenteeism due to health and safety reasons =

number of working days lost per year due to health and safety reasons × 100

total number of possible working days per year

What is the rate of absenteeism due to health and safety reasons, if over a period of

a year there are 250 actual working days and the number of days lost due to health

and safety reasons is 5?

What are the possible consequences of excessive absenteeism due to health and

safety reasons, and how might such absenteeism be reduced?


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Health and safety absenteeism

rate of absenteeism due to health and safety reasons =

number of working days lost per year due to health and safety reasons × 100

total number of possible working days per year

What is the rate of absenteeism due to health and safety reasons, if over a period of

a year there are 250 actual working days and the number of days lost due to health

and safety reasons is 5?

What are the possible consequences of excessive absenteeism due to health and

safety reasons, and how might such absenteeism be reduced?

AnswerRate of absenteeism due to health and safety reasons = (5/250) x 100 = 2%.


People in business

Measuring the effectiveness of the workforce

Working in groups, take one of the measures of workforce effectiveness already

covered (labour productivity, labour turnover, absenteeism, absenteeism due to

health and safety reasons).

Research the current trends in national data for this measure.

Evaluate the likely impact on business of the trends you identify.

Suggest possible strategies to reduce any negative impact.

Share your findings with the rest of the class.


People in business

Chapter 21

Developing an effective workforce: recruitment,

selection and training


People in business

Recruitment and selection

Study a range of job descriptions

and person specifications to ensure

that you understand their content

and their purpose: for example,

access exemplar copies from

textbooks or the internet, or those

related to part-time jobs you might

hold.

A summary of the recruitment and selection process


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Internal and external recruitment

internal recruitment: filling a job vacancy by selecting someone from within the organisation.

external recruitment: filling a job vacancy by advertising outside the firm.

Advantages of internal recruitment• The employee’s abilities are known already.• Internal promotional opportunities are motivating for the workforce.• The recruitment and selection process is quicker.• A shorter induction period is required.• It is less expensive.• It reduces the risk of employing the wrong person.

Given these advantages, why might a firm choose to recruit people from outside the firm? Try to identify the advantages of external recruitment.


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Advertising media

Working in groups, try to identify as many different advertising media or methods of

recruitment as possible, which might be used to attract the most suitable internal or

external candidates.

Analyse under which circumstances it might be most appropriate to use the media or

methods you identify.

Share your ideas with the rest of the class.

Of those methods identified, which do you think are used by the majority of

organisations?


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Application forms and CVs

• An application form provides information in a standard format. This allows a

business to collect information from job applicants in a systematic way, and to

assess objectively a candidate’s suitability for a job, therefore making it easier to

shortlist candidates for interview. • CVs include similar information (details of the individual, their qualifications, their

experience and why they are suitable for the job), but give candidates the

opportunity to sell themselves in their own way. They do not have the

restrictions of fitting information into boxes like an application form. A CV is

usually accompanied by a letter of application.

Both application forms and CVs can increasingly be submitted online.


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Interviews and other methods of assessment

Interviews are the traditional and still the most popular method of selection, but they

are not necessarily the most effective in indicating how well an individual will

perform in a job. This is because interviewers tend to be swayed by appearance and

personality, and are often overly influenced by first impressions.

Other selection techniques include:• aptitude and attainment tests• psychometric or personality tests• assessment centres

Working in groups, research any one of the four methods of selection noted above:

interview; aptitude and attainment tests; psychometric or personality tests; and

assessment centres. Establish what they are, in which situations they are most

appropriate to use and what their advantages and disadvantages are. Share your

findings with the rest of the class.


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Factors affecting methods of recruitment and selection

Having studied the various aspects of recruitment and selection, try to identify the factors that are likely to affect the methods of recruitment and selection used by a business.

Check your ideas against the following list:• the level of the job within the organisation• the size of the organisation • the resources available to fund the process• the cost of any particular method• the supply of labour • the culture of the firm

Analyse the possible consequences for a business of adopting an effective recruitment and selection method.


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Training

Training involves employees being taught new skills or improving existing skills.

Working in groups, identify the main reasons why a business might need to provide training for its employees (both new and existing). Share your ideas with the rest of the class.

Check them against the following list:• the development and introduction of new products• restructuring of the firm• the development and introduction of new technology• changes to procedure, including improvements to customer service • high labour turnover• low morale• changes in legislation

Continue working in groups to research the main benefits of training to a firm. Share your findings with the class.


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Induction training

induction training: education for new employees, which usually involves learning

about the way the business works rather than about the particular job that the

individual will do.

An effective induction programme is likely to: • reduce labour turnover• improve employees’ understanding of both the corporate culture and the

situation in which the organisation is placed• mean that employees contribute to the organisation more quickly• increase motivation

Many of you have employment — either part time during term time or full time

during the holidays. Share your experiences of the induction training you were given

and how effective you found it in helping you to settle in.


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On-the-job and off-the-job training

on-the-job training: where an employee learns a job by seeing how it is carried out

by an experienced employee.

off-the-job training: all forms of employee education apart from that at the

immediate workplace.

Working in groups, research the types of on-the-job and off-the-job training that

might take place and identify the advantages and disadvantages of both types of

training. Share your findings with the rest of the class.

How might the effectiveness of the following training opportunities be evaluated?• a course on using a computer package or a particular piece of machinery• a management training course• a customer care course

How might the overall effectiveness of training in a business be evaluated?


People in business

Chapter 22

Developing and retaining an effective workforce: motivating employees


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Theories of motivation

motivation: the causes of people’s actions — why people behave as they do.

motivation theory: the study of factors that influence the behaviour of people in the workplace.

• scientific management and F. W. Taylor• the human relations school and Elton Mayo• Abraham Maslow’s hierarchy of human needs• Frederick Herzberg’s motivation and maintenance

Working in groups, select one of the above theories of motivation.

Research the theory and what it says about how workers are motivated.

Summarise your findings on one side of A4.

Present your findings to the rest of the class and respond to any questions.

Provide each member of the class with the summary of your findings.


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Using financial methods to motivate employees

The range of financial methods used to motivate employees includes:• time rates• piece rates• performance-related pay schemes• profit-sharing schemes• share ownership and share options schemes• fringe benefits

Use your textbooks or other resources available to research the precise meaning of

each of these methods and to identify the main advantages and disadvantages of

each.


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Money as a motivator

Money as a motivator can lead to problems for both individuals and organisations:• Rewards fluctuate with the performance of the company and this can cause

uncertainty in financial planning if employees come to depend upon rewards.• If financial incentives are high and based on quantity, quality may be sacrificed,

with serious long-term consequences for organisations. • If rewards are based on individual performance, it can cause conflict between

employees.

Money is obviously important, but most evidence suggests that it is not a major

motivator in the long term. Discuss why this is likely to be the case.


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Non-financial methods of motivating employees

job enlargement: increasing the scope of a job, either by job enrichment or by job

rotation.

job enrichment: jobs are expanded vertically (known as vertical extension) by

giving the worker more responsibility

job rotation: jobs are expanded horizontally (known as horizontal extension) by

giving the worker more tasks, but at the same level of responsibility.

Working in groups, research the above non-financial methods of motivating

employees, identifying the features of each method and their advantages and

disadvantages for business and for employees.


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Empowering employees

empowerment: giving employees the means by which they can exercise power

over their working lives.

Empowerment can be achieved through informal systems or through the more

formal system of autonomous work groups. It involves:• recognising that workers are capable of doing more• making workers feel trusted and confident to carry out jobs and make decisions

without supervision• recognising workers’ achievements• creating an environment where workers wish to contribute and to be involved

What are the likely benefits for a firm of empowering its workers? What are the

possible drawbacks?


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Working in teams

teamworking: a system where production is organised into large units of work and

a group of employees work together in order to meet shared objectives.

Working in groups, identify the benefits of working in teams for the individual

involved and for the business. Share your ideas with the rest of the class.


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Motivation and work

Working in groups and reflecting on your study of motivation, discuss the following

questions: • Will increased job satisfaction always lead to increased productivity? • Is it only factors at work that motivate individuals in a work context?

Summarise your ideas on each question and share them with the rest of the class.


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Organisational structure and motivation

Organisational structure can have a significant influence on the motivational

techniques available to managers and on the level of motivation of employees.

Working in groups, taking each of the following aspects of organisational structure,

try to determine how each might influence motivation. Share your ideas with the rest

of the class.• levels of hierarchy and spans of control• lines of accountability• delegation and empowerment • communication

unit 2: managing a business people in business improving organisational structures chapter 19

Documents

business people

business span of control

business workloads

organisation slide

narrow span of control

hierarchy slide

wider span of control

large span of control