The word ‘business’ is very familiar to us.

We are surrounded by businesses and we

could not imagine our life without the products we buy from them. So what is a
business, or what is business studies? Here’s the very posh definition for it: “the
study of economics and management”
Not clear? Don’t worry, by the end of this chapter, you should be getting a clear
picture of what a business is.

The Economic Problem

Need: a good or service essential for living. Examples include water and food and
shelter.
Want: a good or service that people would like to have, but is not required for living.
Examples include cars and watching movies.
Scarcity is the basic economic problem. It is a situation that exists when there
are unlimited wants and limited resources to produce the goods and
services to satisfy those wants. For example, we have a limited amount of money but
there are a lot of things we would like to buy, using the money.

Opportunity cost
Opportunity cost is the next best alternative forgone by choosing another item.
Due to scarcity, people are often forced to make choices. When choices are made it
leads to an opportunity cost
SCARCITY → CHOICE → OPPORTUNITY COST

Example: the government has a limited amount of money (scarcity) and must decide
on whether to use it to build a road, or construct a hospital (choice). The government
chooses to construct the hospital instead of the road. The opportunity cost here
are the benefits from the road that they have sacrificed (opportunity cost).

Factors of Production
Factors of Production are resources required to produce goods or services. They are
classified into four categories.

 Land: the natural resources that can be obtained from nature. This
includes minerals, forests, oil and gas. The reward for land is rent.
 Labour: the physical and mental efforts put in by the workers in the
production process. The reward for labour is wage/salary
 Capital: the finance, machinery and equipment needed for the
production of goods and services. The reward for capital is interest
received on the capital
 Enterprise: the risk taking ability of the person who brings the
other factors of production together to produce a good or service.
The reward for enterprise is profit from the business.
Specialization
Specialization occurs when a person or organisation concentrates on a
task at which they are best at. Instead of everyone doing every job, the
tasks are divided among people who are skilled and efficient at them.
Advantages:

 Workers are trained to do a particular task and specialise in this,

thus increasing efficiency
 Saves time and energy: production is faster by specialising
 Quicker to train labourers: workers only concentrate on a task,
they do not have to be trained in all aspects of the production
process
 Skill development: workers can develop their skills as they do the
same tasks repeatedly, mastering it.
Disadvantages:

 It can get monotonous/boring for workers, doing the same tasks

repeatedly
 Higher labour turnover as the workers may demand for higher
salaries and company is unable to keep up with their demands
 Over-dependency: if worker(s) responsible for a particular task is
absent, the entire production process may halt since nobody else
may be able to do the task.

Purpose of Business Activity

So we’ve gone through factors of production, the problem of scarcity and
specialization, but what is business?

Business is any organization that uses all the factors of

production (resources) to create goods and services to satisfy
human wants and needs.
Businesses attempt to solve the problem of scarcity, using scarce resources, to
produce and sell those goods and services that consumers need and want.

Added Value
Added value is the difference between the cost of materials bought in
and the selling price of the product.
Which is, the amount of value the business has added to the raw materials by
turning it into finished products. Every business wants to add value to their products
so they may charge a higher price for their products and gain more profits.
For example, logs of wood may not appeal to us as consumers and so we won’t buy
it or would pay a low price for it. But when a carpenter can use these logs to
transform it into a chair we can use, we will buy it at a higher cost because the
carpenter has added value to those logs of wood.
How to increase added value?

 Reducing the cost of production. Added value of a product is

its price less the cost of production. Reducing cost of production will
increase the added value.
 Raising prices. By increasing prices they can raise added value, in
the same way as described above.
But there will be problems that rise from both these measures. To lower cost of
production, cheap labour, raw materials etc. may have to be employed, which will
create poor quality products and only lowers the value of the product. People may
not buy it. And when prices are raised, the high price may result in customer loss, as
they will turn to cheaper products.

In a practical sense, you can add value by:

 Branding
 Adding special features
 Provide premium services etc.
In a practical example, how would you add value to a jewellery store?

 Design an attractive package to put the jewellery items in.

 An attractive shop-window-display.
 Well-dressed and knowledgeable shop assistants.
All of this will help the jewellery store to raise prices above the additional costs
involved.

Businesses can be classified into three sectors:

Primary sector: this involves the use/extraction of natural

resources. Examples include agricultural activities, mining, fishing, wood-
cutting, oil drilling etc.
Secondary sector: this involves the manufacture of goods using the
resources from the primary sector. Examples include auto-mobile
manufacturing, steel industries, cloth production etc.
Tertiary sector: this consist of all the services provided in an economy.
This includes hotels, travel agencies, hair salons, banks etc.
Up until the mid 18th century, the primary sector was the largest sector in
the world, as agriculture was the main profession. After the industrial
revolution, more countries began to become more industrialized and
urban, leading to a rapid increase in the manufacturing sector
(industrialization).
Nowadays, as countries are becoming more developed, the importance of
tertiary sector is increasing, while the primary sector is diminishing. The
secondary sector is also slightly reducing in size (de-industrialization)
compared to the growth of the tertiary sector . This is due to the growing
incomes of consumers which raises their demand for more services like
travel, hotels etc.

Private and Public Sector

Private sector: where private individuals own and run business
ventures. Their aim is to make a profit, and all costs and risks of the
business is undertaken by the individual. Examples, Nike, McDonald’s,
Virgin Airlines etc.
Public sector: where the government owns and runs business
ventures. Their aim is to provide essential public goods and services
(schools, hospitals, police etc.) in order to increase the welfare of their
citizens, they don’t work to earn a profit. It is funded by the taxpaying
citizens’ money, so they work in the interest of these citizens to provide
them with services.
Example: the Indian Railways is a public sector organization owned by the
govt. of India.

In a mixed economy, both the public and private sector exists.

Entrepreneurship
An entrepreneur is a person who organizes, operates and takes
risks for a new business venture. The entrepreneur brings together
the various factors of production to produce goods or services. Check
below to see whether you have what it takes to be a successful
entrepreneur!
 Risk taker
 Creative
 Optimistic
 Self-confident
 Innovative
 Independent
 Effective communicator
 Hard working

Business plan
A business plan is a document containing the business objectives
and important details about the operations, finance and owners
of the new business.
It provides a complete description of a business and its plans for the first
few years; explains what the business does, who will buy the product or
service and why; provides financial forecasts demonstrating overall
viability; indicates the finance available and explains the financial
requirements to start and operate the business.
Some of the content of a regular business plan are:
 Executive summary: brief summary of the key features of the
business and the business plan
 The owner: educational background and what any previous
experience in doing previously
 The business: name and address of the business and detailed
description of the product or service being produced and sold; how
and where it will be produced, who is likely to buy it, and in what
quantities
 The market: describe the market research that has been carried out,
what it has revealed and details of prospective customers and
competitors
 Advertising and promotion: how the business will be advertised to
potential customers and details of estimated costs of marketing
 Premises and equipment: details of planning regulations, costs of
premises and the need for equipment and buildings
 Business organisation: whether the enterprise will take the form of
sole trader, partnership, company or cooperative
 Costs: indication of the cost of producing the product or service, the
prices it proposes to charge for the products
 Finance: how much of the capital will come from savings and how
much will come from borrowings
 Cash flow: forecast income (revenue) and outgoings (expenditures)
over the first year
 Expansion: brief explanation of future plans
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Making a business plan before actually starting the business can be very
helpful. By documenting the various details about the business, the
owners will find it much easier to run it. There is a lesser chance of
losing sight of the mission and vision of the business as the objectives
have been written down. Moreover, having the objectives of the business
set down clearly will help motivate the employees. A new entrepreneur
will find it easier to get a loan or overdraft from the bank if they have
a business plan.

Government support for business startups

According to startup.com, “a startup is a company typically in the early
stages of its development. These entrepreneurial ventures are typically
started by 1-3 founders who focus on capitalizing upon a perceived
market demand by developing a viable product, service, or platform”.
Why do governments want to help new start-ups?
 They provide employment to a lot of people
 They contribute to the growth of the economy
 They can also, if they grow to be successful, contribute to the
exports of the country
 Start-ups often introduce fresh ideas and technologies into
business and industry
How do governments support businesses?
 Organise advice: provide business advice to potential
entrepreneurs, giving them information useful in staring a venture,
including legal and bureaucratic ones
 Provide low cost premises: provide land at low cost or low rent
for new firms
 Provide loans at low interest rates
 Give grants for capital: provide financial aid to new firms for
investment
 Give grants for training: provide financial aid for workforce
training
 Give tax breaks/ holidays: high taxes are a disincentive for new
firms to set up. Governments can thus withdraw or lower taxation
for new firms for a certain period of time

Measuring business size

Businesses come in many sizes. They can be owned by a single individual
or have up to 50 shareholders. They can employ thousands of workers or
have a mere handful. But how can we classify a business as big or small?

Business size can be measured in the following ways:

 Number of employees: larger firms have larger workforce

employed
 Value of output: larger firms are likely to produce more than
smaller ones
 Value of capital employed: larger businesses are likely to employ
much more capital than smaller ones
However, these methods have their limitations and are not always
accurate. Example: When using the ‘number of employees’ method to
compare business size is not accurate as a capital intensive firm ( one
that employs a large amount of capital equipment) can produce large
output by employing very little labour (workers). Similarly, value of capital
employed is not a reliable measure when comparing a capital-intensive
firm with a labour-intensive firm. Output value is also unreliable because
some different types of products are valued differently, and the size of the
firm doesn’t depend on this.

Business growth
Businesses want to grow because growth helps reduce their average costs
in the long-run, help develop increased market share, and helps them
produce and sell to them to new markets.
There are two ways in which a business can grow- internally and
externally.

Internal growth
This occurs when a business expands its existing operations. For
example, when a fast food chain opens a new branch in another country.
This is a slow means of growth but easier to manage than external
growth.
External growth
This is when a business takes over or merges with another business.
It is sometimes called integration as one firm is ‘integrated’ into the
other.
A merger is when the owner of two businesses agree to join their firms
together to make one business.
A takeover occurs when one business buys out the owners of another
business , which then becomes a part of the ‘predator’ business.
External growth can largely be classified into three types:


 Horizontal merger/integration: This is when one firm
merges with or takes over another one in the same
industry at the same stage of production. For
example, when a firm that manufactures furniture merges
with another firm that also manufacturers furniture.
Benefits:
 Reduces number of competitors in the market,
since two firms become one.
 Opportunities of economies of scale.
 Merging will allow the businesses to have a bigger
share of the total market.

 Vertical merger/integration: This is when one firm
merges with or takes over
another firm in the same industry but at a different
stage of production. Therefore, vertical integration can
be of two types:
 Backward vertical integration: When one firm
merges with or takes over another firm in the
same industry but at a stage of production that
is behind the ‘predator’ firm. For example,
when a firm that manufactures furniture merges
with a firm that supplies wood for manufacturing
furniture.
Benefits:
 Merger gives assured supply of essential
components.
 The profit margin of the supplying firm is
now absorbed by the expanded firm.
  The supplying firm can be prevented
from supplying to competitors.
 Forward vertical integration: When one firm
merges with or takes over another firm in the
same industry but at a stage of production
that is ahead of the ‘predator’ firm. For
example, when a firm that manufactures furniture
merges with a furniture retail store.
Benefits:
 Merger gives assured outlet for their
product.
 The profit margin of the retailer is now
absorbed by the expanded firm.
 The retailer can be prevented from
selling the goods of competitors.
 Conglomerate merger/integration: This is when one firm merges
with or takes over a firm in a completely different industry.
This is also known as ‘diversification’. For example, when a firm that
manufactures furniture merges with a firm that produces clothing.
Benefits:
 Conglomerate integration allows businesses to have
activities in more than one country. This allows the firms to
spread its risks.
 There could be a transfer of ideas between the two
businesses even though they are in different industries.
This transfer o ideas could help improve the quality and
demand for the two products.

Drawbacks of growth
 Difficult to control staff: as a business grows, the business
organisation in terms of departments and divisions will grow, along
with the number of employees, making it harder to control, co-
ordinate and communicate with everyone
 Lack of funds: growth requires a lot of capital.
 Lack of expertise: growth is a long and difficult process that will
require people with expertise in the field to manage and coordinate
activities
 Diseconomies of scale: this is the term used to describe how
average costs of a firm tends to increase as it grows beyond a point,
reducing profitability. This is explored more deeply in a later section.

Why businesses stay small

Not all businesses grow.Some stay small, employ a handful of workers and
have little output. Here are the reasons why.
  Type of industry: some firms remain small due to the industry
they operate in. Examples of these are hairdressers, car repairs,
catering, etc, which give personal services and therefore cannot
grow.
 Market size: if the firm operates in areas where the total number
of customers is small, such as in rural areas, there is no need for the
firm to grow and thus stays small.
 Owners’ objectives: not all owners want to increase the size of
their firms and profits. Some of them prefer keeping their
businesses small and having a personal contact with all of their
employees and customers, having flexibility in controlling and
running the business, having more control over decision-
making, and to keep it less stressful.

Why businesses fail

Not all businesses are successful. The main reasons why they fail are:

 Poor management: this is a common cause of business failure for

new firms. The main reason is lack of experience and
planning which could lead to bad decision making. New
entrepreneurs could make mistakes when choosing the location of
the firm, the raw materials to be used for production, etc, all
resulting in failure
 Over-expansion: this could lead to diseconomies of scale and
greatly increase costs, if a firms expands too quickly or over their
optimum level
 Failure to plan for change: the demands of customers keep
changing with change in tastes and fashion. Due to this, firms must
always be ready to change their products to meet the demand of
their customers. Failure to do so could result in losing customers
and loss. They also won’t be ready to quickly keep up with changes
the competitors are making, and changes in laws and
regulations
 Poor financial management: if the owner of the firm does not
manage his finances properly, it could result in cash shortages. This
will mean that the employees cannot be paid and enough goods
cannot be produced. Poor cash flow can therefore also cause
businesses to fail
Why new businesses are at a greater risk of failure
 Less experience: a lack of experience in the market or in business
gets a lot of firms easily pushed out of the market
 New to the market: they may still not understand the nuances
and trends of the market, that existing competitors will have
mastered
  Don’t a lot of sales yet: only by increasing sales, can new firms
grow and find their foothold in the market. At a stage when they’re
not selling much, they are at a greater risk of failing
 Don’t have a lot of money to support the business
yet: financial issues can quickly get the better of new firms if they
aren’t very careful with their cash flows. It is only after they make
considerable sales and start making a profit, can they reinvest in
the business and support it

Business objectives
Business objectives are the aims and targets that a business works
towards to help it run successfully. Although the setting of these
objectives does not always guarantee the business success, it has its
benefits.

 Setting objectives increases motivation as employees and

managers now have clear targets to work towards.
 Decision making will be easier and less time consuming as there
are set targets to base decisions on. i.e., decisions will be taken in
order to achieve business objectives.
 Setting objectives reduces conflicts and helps unite the
business towards reaching the same goal.
 Managers can compare the business’ performance to its
objectives and make any changes in its activities if required.
Objectives vary with different businesses due to size, sector and many
other factors. However, many business in the private sector aim to
achieve the following objectives.

 Survival: new or small firms usually have survival as a primary

objective. Firms in a highly competitive market will also be more
concerned with survival rather than any other objective. To achieve
this, firms could decide to lower prices, which would mean forsaking
other objectives such as profit maximization.
 Profit: this is the income of a business from its activities after
deducting total costs. Private sector firms usually have profit
making as a primary objective. This is because profits are required
for further investment into the business as well as for
the payment of return to the shareholders/owners of the business.
 Growth: once a business has passed its survival stage it will aim for
growth and expansion. This is usually measured by value of sales or
output. Aiming for business growth can be very beneficial. A larger
business can ensure greater job security and salaries for
employees. The business can also benefit from higher market
share and economies of scale.
 Market share: this can be defined as the proportion of total market
sales achieved by one business. Increased market share can bring
 about many benefits to the business such as increased customer
loyalty, setting up of brand image, etc.
 Service to the society: some operations in the private sectors
such as social enterprises do not aim for profits and prefer to set
more economical objectives. They aim to better the society by
providing social, environmental and financial aid. They help
those in need, the underprivileged, the unemployed, the economy
and the government.
A business’ objectives do not remain the same forever. As market
situations change and as the business itself develops, its objectives will
change to reflect its current market and economic position. For example,
a firm facing serious economic recession could change its objective from
profit maximization to short term survival.

Stakeholders
A stakeholder is any person or group that is interested in or
directly affected by the performance or activities of a business.
These stakeholder groups can be external – groups that are outside the
business or they can be internal – those groups that work for or own the
business.
Internal stakeholders:

 Shareholder/ Owners: these are the risk takers of the

business. They invest capital into the business to set up and
expand it. These shareholders are liable to a share of the profits
made by the business.
Objectives:
 Shareholders are entitled to a rate of return on the
capital they have invested into the business and will
therefore have profit maximization as an objective.
 Business growth will also be an important objective as
this will ensure that the value of the shares will increase.
 Workers: these are the people that are employed by the
business and are directly involved in its activities.
Objectives:
 Contract of employment that states all the right and
responsibilities to and of the employees.
 Regular payment for the work done by the employees.
 Workers will want to benefit from job satisfaction as well
as motivation.
 The employees will want job security– the ability to be
able to work without the fear of being dismissed or made
redundant.
 Managers: they are also employees but managers control the
work of others. Managers are in charge of making key business
 decisions.
Objectives:
 Like regular employees, managers too will aim towards
a secure job.
 Higher salaries due to their jobs requiring more skill and
effort.
 Managers will also wish for business growth as a bigger
business means that managers can control a bigger and
well known business.
External Stakeholders:

 Customers: they are a very important part of every business.

They purchase and consume the goods and services that the
business produces/ provides. Successful businesses use market
research to find out customer preferences before producing their
goods.
Objectives:
 Price that reflects the quality of the good.
 The products must be reliable and safe. i.e., there must
not be any false advertisement of the products.
 The products must be well designed and of a perceived
quality.
 Government: the role of the government is to protect the
workers and customers from the business’ activities and
safeguard their interests.
Objectives:
 The government will want the business to grow and survive
as they will bring a lot of benefits to the economy. A
successful business will help increase the total output of
the country, will improve employment as well
as increase government revenue through payment of
taxes.
 They will expect the firms to stay within the rules and
regulations set by the government.
 Banks: these banks provide financial help for the business’
operations’
Objectives:
 The banks will expect the business to be able to repay the
amount that has been lent along with the interest on it. The
bank will thus have business liquidity as its objective.
 Community: this consists of all the stakeholder groups, especially
the third parties that are affected by the business’ activities.
Objectives:
 The business must offer jobs and employ local
employees.
 The production process of the business must in no way
harm the environment.
 Products must be socially responsible and must not pose
any harmful effects from consumption.
Public- sector businesses
Government owned and controlled businesses do not have the same
objectives as those in the private sector.

Objectives:
 Financial: although these businesses do not aim to maximize
profits, they will have to meet the profit target set by the
government. This is so that it can be reinvested into the business
for meeting the needs of the society
 Service: the main aim of this organization is to provide a service to
the community that must meet the quality target set by the
government
 Social: most of these social enterprises are set up in order to aid
the community. This can be by providing employment to citizens,
providing good quality goods and services at an affordable rate, etc.
 They help the economy by contributing to GDP, decreasing
unemployment rate and raising living standards.
This is in total contrast to private sector aims like profit, growth, survival,
market share etc.

Conflicts of stakeholders’ objectives

As all stakeholders have their own aims they would like to achieve, it is
natural that conflicts of stakeholders’ interests could occur. Therefore, if a
business tries to satisfy the objectives of one stakeholder, it might mean
that another stakeholders’ objectives could go unfulfilled.

For example, workers will aim towards earning higher salaries.

Shareholders might not want this to happen as paying higher salaries
could mean that less profit will be left over for payment of return to the
shareholders.
Similarly, the business might want to grow by expanding operations to
build new factories. But this might conflict with the community’s want for
clean and pollution-free localities.

Motivation

People work for several reasons:

Have a better standard of living: by earning incomes they can satisfy their needs
and wants

Be secure: having a job means they can always maintain or grow that standard of
living

Gain experience and status: work allows people to get better at the job they do and
earn a reputable status in society

Have job satisfaction: people also work for the satisfaction of having a job

Motivation is the reason why employees want to work hard and work effectively for
the business. Money is the main motivator, as explained above. Other factors that
may motivate a person to choose to do a particular job may include social needs
(need to communicate and work with others), esteem needs (to feel important,
worthwhile), job satisfaction (to enjoy good work), security (knowing that your job and
pay are secure- that you will not lose your job).

Why motivate workers? Why do firms go to the pain of making sure their workers are
motivated? When workers are well-motivated, they become highly productive and
effective in their work, become absent less often, and less likely to leave the job,
thus increasing the firm’s efficiency and output, leading to higher profits. For
example, in the service sector, if the employee is unhappy at his work, he may act
lazy and rude to customers, leading to low customer satisfaction, more complaints
and ultimately a bad reputation and low profits.

Motivation Theories

F. W. Taylor: Taylor based his ideas on the assumption that workers were motivated
by personal gains, mainly money and that increasing pay would increase productivity
(amount of output produced). Therefore he proposed the piece-rate system, whereby
workers get paid for the number of output they produce. So in order, to gain more
money, workers would produce more. He also suggested a scientific management in
production organisation, to break down labour (essentially division of labour) to
maximise output
However, this theory is not entirely true. There are various other motivators in the
modern workplace, some even more important than money. The piece rate system is
not very practical in situations where output cannot be measured (service industries)
and also will lead to (high) output that doesn’t guarantee high quality.

Maslow’s Hierarchy: Abraham Maslow’s hierarchy of needs shows that employees

are motivated by each level of the hierarchy going from bottom to top. Mangers can
identify which level their workers are on and then take the necessary action to
advance them onto the next level.

Maslow's Heirarchy

One limitation of this theory is that it doesn’t apply to every worker. For some
employees, for example, social needs aren’t important but they would be motivated
by recognition and appreciation for their work from seniors.

Herzberg’s Two-Factor Theory: Frederick Herzberg’s two-factor theory, wherein he

states that people have two sets of needs:

Basic animal needs called ‘hygiene factors’:

status

security

work conditions

company policies and administration

relationship with superiors

relationship with subordinates

salary
Needs that allow the human being to grow psychologically, called the ‘motivators’:

achievement

recognition

personal growth/development

promotion

work itself

According to Herzberg, the hygiene factors need to be satisfied, if not they will act as
de-motivators to the workers. However hygiene factors don’t act as motivators as
their effect quickly wear off. Motivators will truly motivate workers to work more
effectively.

Motivating Factors

Financial Motivators

Wages: often paid weekly. They can be calculated in two ways:

Time-Rate: pay based on the number of hours worked. Although output may
increase, it doesn’t mean that workers will work sincerely use the time to produce
more- they may simply waste time on very few output since their pay is based only
on how long they work. The productive and unproductive worker will get paid the
same amount, irrespective of their output.

Piece-Rate: pay based on the no. of output produced. Same as time-rate, this
doesn’t ensure that quality output is produced. Thus, efficient workers may feel
demotivated as they’re getting the same pay as inefficient workers, despite their
efficiency.

Salary: paid monthly or annually.

Commission: paid to salesperson, based on a percentage of sales they’ve made.
The higher the sales, the more the pay. Although this will encourage salespersons to
sell more products and increase profits, it can be very stressful for them because no
sales made means no pay at all.

Bonus: additional amount paid to workers for good work

Performance-related pay: paid based on performance. An appraisal (assessing the

effectiveness of an employee by senior management through interviews,
observations, comments from colleagues etc.) is used to measure this performance
and a pay is given based on this.

Profit-sharing: a scheme whereby a proportion of the company’s profits is distributed

to workers. Workers will be motivated to work better so that a higher profit is made.

Share ownership: shares in the firm are given to employees so that they can become
part owners of the company. This will increase employees’ loyalty to the company,
as they feel a sense of belonging.

Non-Financial Motivators

Fringe benefits are non-financial rewards given to employees

Company vehicle/car

Free healthcare

Children’s education fees paid for

Free accommodation

Free holidays/trips

Discounts on the firm’s products

Job Satisfaction: the enjoyment derived from the feeling that you’ve done a good job.
Employees have different ideas about what motivates them- it could be pay,
promotional opportunities, team involvement, relationship with superiors, level of
responsibility, chances for training, the working hours, status of the job etc.
Responsibility, recognition and satisfaction are in particular very important.

So, how can companies ensure that they’re workers are satisfied with the job, other
than the motivators mentioned above?

Job Rotation: involves workers swapping around jobs and doing each specific task
for only a limited time and then changing round again. This increases the variety in
the work itself and will also make it easier for managers to move around workers to
do other jobs if somebody is ill or absent. The tasks themselves are not made more
interesting, but the switching of tasks may avoid boredom among workers. This is
very common in factories with a huge production line where workers will move from
retrieving products from the machine to labelling the products to packing the
products to putting the products into huge cartons.

Job Enlargement: where extra tasks of similar level of work are added to a worker’s
job description. These extra tasks will not add greater responsibility or work for the
employee, but make work more interesting. E.g.: a worker hired to stock shelves will
now, as a result of job enlargement, arrange stock on shelves, label stock, fetch
stock etc.

Job Enrichment: involves adding tasks that require more skill and responsibility to a
job. This gives employees a sense of trust from senior management and motivate
them to carry out the extra tasks effectively. Some additional training may also be
given to the employee to do so. E.g.: a receptionist employed to welcome customers
will now, as a result of job enrichment, deal with telephone enquiries, word-process
letters etc.

Team-working: a group of workers is given responsibility for a particular process,

product or development. They can decide as a team how to organize and carry out
the tasks. The workers take part in decision making and take responsibility for the
process. It gives them more control over their work and thus a sense of commitment,
increasing job satisfaction. Working as a group will also add to morale, fulfill social
needs and lead to job satisfaction.

Opportunities for training: providing training will make workers feel that their work is
being valued. Training also provides them opportunities for personal growth and
development, thereby attaining job satisfaction

Opportunities of promotion: providing opportunities for promotion will get workers to

work more efficiently and fill them with a sense of self-actualisation and job
satisfaction
Organizational Structure

Organizational structure refers to the levels of management and

division of responsibilities within a business. They can be represented on
organizational charts (left).

Advantages:
 All employees are aware of which communication channel is used to
reach them with messages
 Everyone knows their position in the business. They know who they are
accountable to and who they are accountable for
 It shows the links and relationship between the different departments
 Gives everyone a sense of belonging as they appear on the
organizational chart

The span of control is the number of subordinates working directly

under a manager in the organizational structure. In the above figure,
the managing director’s span of control is four. The marketing director’s
span of control is the number of marketing managers working under him
(it is not specified how many, in the figure).
The chain of command is the structure of an organization that
allows instructions to be passed on from senior managers to lower
levels of management. In the above figure, there is a short chain of
command since there are only four levels of management shown.
Now, if you look closely,there is a link between the span of control and
chain of command. The wider the span of control the shorter the
chain of command since more people will appear horizontally aligned on
the chart than vertically. A short span of control often leads to long chain
of command. (If you don’t understand, try visualizing it on an
organizational chart).
Advantages of a short chain of command (these are also the
disadvantages of a long chain of command):
 Communication is quicker and more accurate
 Top managers are less remote from lower employees, so employees
will be more motivated and top managers can always stay in touch with
the employees
 Spans of control will be wider, This means managers have more people to
control This is beneficial because it will encourage them to delegate
responsibility (give work to subordinates) and so the subordinates will
be more motivated and feel trusted. However there is the risk that
managers may lose control over the tasks.

Line Managers have authority over people directly below them in the
organizational structure. Traditional marketing/operations/sales managers
are good examples.
Staff Managers are specialists who provide support, information and
assistance to line managers. The IT department manager in most
organisations act as staff managers.
Management
So,, what role do manager really have in an organization? Here are their
five primary roles:

 Planning: setting aims and targets for the organisations/department

to achieve. It will give the department and it’s employees a clear sense of
purpose and direction. Managers should also plan for resources
required to achieve these targets – the number of people required, the
finance needed etc.
 Organizing: managers should then organize the resources. This will
include allocating responsibilities to employees, possibly delegating.
 Coordinating: managers should ensure that each department is
coordinating with one another to achieve the organization’s aims. This
will involve effective communication between departments and managers
and decision making. For example, the sales department will need to tell
the operations dept. how much they should produce in order to reach the
target sales level. The operations dept. will in turn tell the finance dept.
how much money they need for production of those goods. They need to
come together regularly and make decisions that will help achieve each
department’s aims as well as the organization’s.
 Commanding: managers need to guide, lead and supervise their
employees in the tasks they do and make sure they are keeping to their
deadlines and achieving targets.
 Controlling: managers must try to assess and evaluate the
performance of each of their employees. If some employees fail to
achieve their target, the manager must see why it has occurred and what
he can do to correct it- maybe some training will be required or better
equipment.
Delegation is giving a subordinate the authority to perform some
tasks.
Advantages to managers:
 managers cannot do all work by themselves
 managers can measure the efficiency and effectiveness of their
subordinates’ work
However, managers may be reluctant to delegate as they may lose their
control over the work.

Advantages to subordinates:
 the work becomes more interesting and rewarding- increased job
satisfaction
 employees feel more important and feel trusted– increasing loyalty to firm
 can act as a method of training and opportunities for promotions, if they
do a good job.

Leadership Styles
Leaderships styles refer to the different approaches used when
dealing with people when in a position of authority. There are
mainly three styles you need to learn: the autocratic, democratic and
laissez-faire styles.
Autocratic style is where the managers expects to be in charge of the
business and have their orders followed. They do all the decision-
making, not involving employees at all. Communication is thus, mainly
one way- from top to bottom. This is standard in police and armed forces
organizations.
Democratic style is where managers involve employees in the
decision-making and communication is two-way from top to bottom as
well as bottom to top. Information about future plans is openly
communicated and discussed with employees and a final decision is made
by the manager.
Laissez-faire (French phrase for ‘leave to do) style makes the broad
objectives of the business known to employees and leaves them to do
their own decision-making and organize tasks. Communication is
rather difficult since a clear direction is not given. The manger has a very
limited role to play.
Trade Unions
A trade union is a group of workers who have joined together to
ensure their interest are protected. They negotiate with the employer
(firm) for better conditions and treatment and can threaten to take
industrial action if their requests are denied. Industrial action can include
overtime ban (refusing to work overtime), go slow (working at the slowest
speed as is required by the employment contract), strike (refusing to work
at all and protesting instead) etc. Trade unions can also seek to put
forward their views to the media and influence government decisions
relating to employment.
Benefits to workers of joining a trade union:
 strength in number- a sense of belonging and unity
 improved conditions of employment, for example, better pay,
holidays, hours of work etc
 improved working conditions, foe example, health and safety
 improved benefits for workers who are not working, because they’re sick,
retired or made redundant (dismissed not because of any fault of their
own)
 financial support if a member thinks he/she has been unfairly dismissed
or treated
 benefits that have been negotiated for union member such as discounts
on firm’s products, provision of health services.
Disadvantages to workers of joining a trade unions:
 costs money to be member- a membership fee will be required
 may be asked to take industrial action even if they don’t agree with the
union- they may not get paid during a strike, for example.