Types of Business Ownership

Transcription

1 Types of Business Ownership Sole Trader Public Limited Company PLC Business types Partnerships Limited Liability Company LTD

2 Sole traders A sole trader describes any business that is owned and controlled by one person, although they may employ workers. This could be a newsagent's shop, for example. Individuals, who provide a specialist service like hairdressers, plumbers or photographers, are also sole traders. Sole traders do not have a separate legal existence. As a result, the owners are personally liable for the firm's debts, and may have to pay them out of their own pocket. This is called unlimited liability.

3 Advantages Sole traders 1.The firms are usually small, and easy to set up. 2.Generally, only a small amount of capital needs to be invested, which reduces the initial start up cost. 3.The wage bill will usually be low, because there a few or no employees. 4.It is easier to keep overall control, because the owner has a hands on approach to running the business and can make decisions without consulting anyone else. Disadvantages 1.The sole trader has no one to share the responsibility of running the business with. A good hairdresser, for example, may not be very good at handling the accounts. 2.Sole trader often work long hours and find it difficult to take holidays, or time off if they are ill. 3.Developing the business is also limited by the amount of capital personally available. 4.There is also the risk of unlimited liability, where the sole trader can be forces to sell personal assets to cover any business debts.

4 Partnership Partnerships are businesses owned by two or more people. A contract called a Deed of Partnership is normally drawn up. This states the type of partnership it is, how much capital each has contributed, and how profits and losses will be shared. Doctors, dentists and solicitors are typical examples of professionals who may go into partnership together. They can benefit from shared expertise, but like the sole trader, have unlimited liability. A partnership can also have a sleeping partner who invests in the business but has not dealings in the day to day running of the enterprise.

5 Partnership Advantages 1. The main advantage of a partnership over a sole trader is shared responsibility. This allows for specialisation, where one partner's strengths can complement another's. For example, if a hairdresser were in partnership with someone with a business background one could concentrate on providing the salon service, and the other on handling the finances. 2. More people are also contributing capital, which allows for more flexibility in running the business. 3. There is less pressure of time on individual partners. 4. There is someone to consult over business decisions Disadvantages 1. The main disadvantage of a partnership comes from shared responsibility. 2. Disputes can arise over decisions that have to be made, or about the effort one partner is putting into the firm compared with another. 3. The distribution of profits can cause problems. The deed of partnership sets out who should get what, but if one partner feels another is not doing enough, there can be dissatisfaction. 4. A partnership, like a sole trader, has unlimited liability.

6 Limited companies All limited companies are incorporated, which means they can sue or own assets in their own right. Their owners are not personally liable for the firm's debts (limited liability). The ownership of a limited company is divided up into equal parts called shares. Whoever owns one or more of these is called a shareholder. A Public Limited Company (PLC) can sell its shares on the Stock Market, while a Private Limited Company (LTD) cannot. Unlike a sole trader or a partnership, the owners of a Limited Company are not involved in the running of the business, unless they have been elected to the Board of Directors. To become a limited company, applicants have to submit a Memorandum of Association which states the business' name, address and main purpose. It also describes the liability and amount of capital invested. The internal workings of the company including the number of directors, how they are elected and what their roles are described in The Articles. This also describes how profits will be divided. When the Memorandum of Association have been submitted the Registrar of Companies issues a Certificate of Incorporation which allows a limited company to begin trading. A Public Limited Company first has to raise the sufficient capital, through selling its shares to the public. It has to produce a prospectus, which explains how the business is run, and what it intends to do in the future. Once all this has been done, the Registrar issues a Trading Certificate, which allows the newly formed PLC to start trading.

7 Public and private limited companies In general, both types of company must audit their accounts, and have them available for inspection. There are, however, exceptions to this rule for smaller private limited companies. Both types of company must indicate their status in their name, usually by using the abbreviation PLC or LTD. This warns their traders that their liability is limited and that debts cannot be recovered from the personal funds of the company shareholders.

8 PRIVATE LIMITED COMPANIES Advantages Easy and inexpensive to set up. Disadvantages Lack of capital due to no share issue. Ownership and control are closely connected, e.g. Board of Directors are usually the main shareholders. No benefit from economies of scale, e.g. bulk buying, cheaper borrowing. Small and less bureaucratic than PLCs, e.g. decisions can be taken more quickly.

9 PUBLIC LIMITED COMPANIES Advantages Raise large amount of capital from share issue. Disadvantages Become too large resulting in poor labour relations. Benefit from economies of scale, e.g. bulk buying, cheaper borrowing. Conflict of interest between shareholders and the Board of Directors. Produce goods at lower unit cost. Possibility of takeover or merger because shares can be bought by anyone.

10 Why does an organisation want to grow? survival increased profit for owner(s) to be a larger organisation increasing market share Connect

11 Connect

12 Internal Growth Business grows......by hiring more staff and equipment to increase its output.... Have staff work overtime to increase output. Construct

13 Methods of External integrated Horizontal Integration merge or take over the same type of business growth Vertical Forward Integration merging or taking over business to guarantee opportunities to get your good/service to customers Business Conglomerate or Lateral Diversification merging or taking over a business totally different business Construct Vertical Backward Integration merging or taking over businesses to guarantee supplies of your raw materials

14 External Growth Horizontal integration is when two companies at the same stage of the production process merge or take over each other. For example, if Ford Motor Company merged with Toyota Motor Company that would be an example of Horizontal Integration. Construct

15 External Growth Vertical integration occurs when firms at different stages of the production process merge together. There are two types called: Construct Forward vertical integration is when Ford buy out or merge with their customers, which in this case could be a car showroom (eg Arnold Clark). Backward vertical integration would be when a company like Ford buy out or merge with their suppliers. Suppliers to a major automobile manufacturer could be car electrics, glassmakers or in this example a rubber plantation which is used to make tyres for the car wheels.

16 External Growth Diversification or conglomerate integration is when firms in different, unrelated markets merge. This would be the equivalent of Ford and Nokia combining. Construct

17 Industrial Sectors Place the image of the business type in the correct sector Primary sector Secondary sector Tertiary sector Computer Manufacturing Quarrying Fishing Construction Transportation Nursing. is the agriculture (different types of farming) and the extraction of raw materials. is the manufacturing industries where raw materials are turned into finished products.is the commercial services that help industries produce and distribute goods to final consumers.

18 Industrial Sectors Primary Sector is when raw materials are extracted, grown, cut down and harvested. Agriculture wheat, oranges, grapes, trees for wood, raising animals for food or dairy products. Fishing seafood Mining coal, granite, slate, gold, diamonds. Oil extraction from the sea or ground Gas extraction from the ground Tertiary Sector is often called the services sector. Services are intangible they cannot be stored. Distribution and sale of goods produced by Secondary Sector and Primary Sector Financial services accountancy, insurance, banking Legal services Armed forces, Fire brigade Sales Assistant etc. Secondary Sector is the creation of goods from raw materials supplied by the Primary Sector. Goods can be seen or touched Production, Construction or Manufacturing occur. For example car components, steel, paper, clothes, cardboard boxes, supply of energy (gas or electricity), water etc. All the service industries rely on each other so that they can run their business

19 The Chain of Interdependence between Industrial Sectors Primary Production Tertiary Production Secondary Production Tertiary Production The chain of production shows interdependence: Firms rely on other businesses in different sectors for raw materials, component parts, distribution, insurance, banking etc. At each stage value is added to the product. Value added is the difference between the price the consumer is willing to pay and the cost of making a product. Value is added by Production, Convenience and speed, Branding, Quality, Design or a unique selling point

20 Business Keyword Chain of Production Primary Sector Secondary (Manufacturing) Sector Tertiary (or Service) Sector Interdependence Specialisation Added Value Objectives Mission Statement Satisficing Dividend Market Share Private Sector Public Sector Public Corporation Stakeholder Incorporation Unincoporated Co-operative Business Studies Keyword Definition The various production stages through which a product passes before being sold to a consumer. The sector of industry where businesses mine, grow, collect or cut down raw materials. The sector of industry where raw materials are transformed into manufactured goods. The sector of industry where services are created. Where economies, businesses, consumers and workers are linked together through specialisation and trade and are reliant upon each other in order to survive. Where people or businesses concentrate on a narrow range of activities, and by doing so become expert in those tasks. The amount by which the value of a product has risen as a result of a person's or business' part in producing a good or service. States the goals that a company wishes to achieve in a given time. Statement that sums up the objectives of an organisation. Catchy phrase to reflect the business. When a business makes enough profit to enable it to meet its needs, and not make as much profit as possible. A share of the profits of a company received by those who own shares in it. The proportion of the totals sales of a product gained by one company or brand. All businesses and organisations that are not owned or run by the state. Commercial activities carried out by local and central government e.g. education, health. An organisation owned by national government Person or organisation that has a direct interest in the behaviour of a business. Usually a stakeholder benefits if the business is successful. The process that gives an organisation a separate legal existence of its own. A type of business organisation which has unlimited liability An organisation, owned by its members and each member shares its profits and has a say in the way it is run. A Consumer Co-op is set up to provide members with good, honest products at a fair price; a Producer Co-op is a group of producers who join together to market, promote and distribute their products for their mutual benefit; and a Worker Co-op is a group of workers who set up or buy into a business and share in its ownership, management and control. OCR GCSE Part 2 Vocab 1

21 Business Keyword Sole Proprietorship (Sole Trader) Partnership Unlimited Liability Bankrupt Private Limited Company (Ltd) Public Limited Company (plc) Limited Liability Insolvency Entrepreneur Merger Takeover Horizontal Integration Vertical Integration Diversification Conglomerate Grant Infrastructure Capital Economies of Scale Business Studies Keyword Definition A business owned by a single person who has unlimited liability. Enterprise consisting of more than one owner, larger than sole trader, unlimited liability, share responsibilities and risks. A legal obligation on the owners of a business to pay off all debts of the business. When an individual or a business that is not incorporated has more liabilities than assets. That is, if everything owned was sold they would not raise enough money to pay their debts. A company whose shares are not openly traded on a stock exchange. Owners have limited liability. A company whose shares are openly traded on a stock exchange. Owners have limited liability. Owners (shareholders) are not personally responsible for debts of business. Company can be sued in its own right. A limited liability company is said to be insolvent when liabilities are greater than assets Person who starts a business, comes up with a commercial idea, takes the risk. When two companies agree to join together to form a new company. When one business gains control over another business by buying a majority of its shares. Where a business merges with or takes over another business in the same line of business. Where a business joins with another that operates at a different stages in the chain of production. When a business expands by moving into new markets. The new markets will be in goods that are different from those dealt in before. It often means moving into a completely new industry. A company that operates in a number of different, unconnected industries. It will probably be made up of a number of subsidiary companies. The main strength of conglomerates is diversification. Payment of money for a specific purpose, which does not usually have to be paid back. The network of essential public services that support a community and business. It includes roads, factories, schools + hospitals. The funds invested in a business to enable it to buy the assets it needs to carry on business. It is everything used by the owners for the purpose of running the business. A factor that allows the production cost of each item to be lowered as greater numbers are made, e.g. cost benefits from buying in bulk, more efficient use of fixed assets. OCR GCSE Part 2 Vocab 2

22 Business Keyword Sleeping Partner Deed of Partnership Board of Directors Annual General Meeting (AGM) Franchisor Franchise Franchisee Royalty Globalisation Multinational Human Resources Job Description Person Specification Internal Recruitment External Recruitment Recruitment Needs Motivation Productivity Induction On-the-Job Training Off-the-Job Training Business Studies Keyword Definition A member of a partnership who invests money in the firm but plays no part in its running. The legal contract which governs how a partnership will be owned and organised. A committee elected by the shareholders of a limited company. They decide policy and make important decisions about the running of the company The official meeting of ordinary shareholders held by a public limited company. At the meeting the shareholders have the right to propose + vote on issues, approve accounts, approve dividends, and appoint + dismiss directors. The business which gives franchisees the right to sell its product in return for a fixed sum of money or royalty payment. An organisation which allows other businesses to trade using their corporate identity, in return for a royalty payment. The name given to a business or person buying a franchise Payment for the use of someone else's copyright. When firms see the scope of their business as being carried out on a worldwide scale - they see the world as one large market rather than as a number of separate markets. A company that has its head office in one country but has branches or factories in a number of other countries. The management of people so as to make the most of their abilities and skills. A list of the duties and responsibilities that make up a particular job. A list of the experience, qualifications and personal qualities needed for a job. The recruitment of people for a specific job fro within an organisation's existing staff. The recruitment of employees to a business from people outside the business. The process involved in deciding there is a job vacancy through to the appointment of a new employee to fill the vacancy. The goods and services that are essential to human survival. (Food, clothing, shelter) The factors that make a person want to do something. The quantity of goods produced by a worker in a given time. A form of training given to new workers when they first start work at an organisation. Gaining skills by actually undertaking the work. Trained at the workplace. The trainee can be supervised by an experienced colleague or watches and copies another. Where training is carried out away from the workplace, for example at a college. OCR GCSE Part 2 Vocab 3

23 Business Keyword Appraisal Performancerelated Pay Contract of Employment Redundancy Trade Union Pressure Group Industrial Action Industrial Tribunal Communication Internal Communication Formal Communication Informal Communication Organisational Chart Hierarchy Chain of Command Span of Control Delegation Business Studies Keyword Definition A system for evaluating the performance of workers against agreed targets. An extra payment made to employees when agreed targets have been met. It is very like a bonus and is usually paid to salary earners. A legal document that sets out the rights and duties of both the employer and an employee with regard to a job. The dismissal of an employee because their job is no longer needed by their employer. Those made redundant usually receive a payment. An association of workers formed to promote, protect and represent the interests of its members to employers, the government and others. An organisation which exists to influence public opinion about a particular issue and hopes that the government will change its policy e.g. Greenpeace, Trade Unions When a group of workers decides to take action against their employer as a result of a dispute or a grievance. A hearing of a complaint by an employee against an employer on grounds of unfair or constructive dismissal, or due to discrimination. The passing of information between one person or organisation and another. Communications between different parts of an organisaion and between people within the same organisation. The use of the official system of communication within an organisation; or official letters written on behalf of an organisation. Any communication that is not part of the official system of communication. A diagram that shows the internal structure of an organisation. An organisation where responsibility is built up in layers. The upper levels always have more power than the levels below. The route through which instructions are issued by managers. It is the communications route in an organisation. The length of the chain of command will depend on the number of levels there are within a firm. A measure of the number of people over whom a manager has direct control. Passing on responsibility and authority to someone at a lower level in an organisation. OCR GCSE Part 2 Vocab 4

24 Business and People 1 hour exam Total of 60 marks = 25% of overall GCSE How to do well in the exam Business Know your facts almost 50% of the marks in this exam are for the recalling of facts. Get your notes in order Be familiar with the type of question to be asked mock exams will help you. Give full answers the number of lines available on your answer sheet is a good guide. If there are 10 lines and you ve filled in just 2 that won t be sufficient! Read the question carefully and refer to the question in the exam. Always explain your answers PEE: point, explain, example. Types of Business Activity primary, secondary and tertiary sectors Type of Business Activity Definition Examples Primary sector produces or extracts raw materials for other businesses to use fishing, mining, farming Secondary sector manufactures (makes) products with raw materials car manufacturer Tertiary sector provides a service for its customers retail, banking, travel, entertainment, customer service, education, health Interdependence = all businesses depend on other sectors e.g. a farmer grows potatoes, Walkers make crisps, Tesco sell them! This is an example of a chain of production where each businesses specialises in one kind of work (specialisation) and the secondary sector add value to the original raw material (e.g. Walkers add value to the potato this is called added value!) Changes in the three sectors of business activity in the UK what has changed and why? Type of Business Activity Less or more important Reason for change primary sector less raw materials used up (e.g. coal), machines have replaced jobs (e.g. farming) foreign competition can produce cheaper raw materials (e.g. coal) secondary sector Less (the decline of foreign competition means many goods made overseas (cheaper to produce e.g. clothes in Primark!) manufacturing is called machinery has replaced jobs (e.g. car plants) de industrialisation) tertiary sector much more Increase in wealth so more money spent in shops, on travel, entertainment etc Increase in leisure time Customer service is more important so businesses can keep their customers

25 Business Objectives (aims) and private, public and voluntary (not for profit sectors) Objectives (often found Explanation Conflict in mission statements) Profit Maximisation of profit main aim of most businesses in the private sector *Profit v. growth the desire to grow quickly Growth Usually the best way to raise profit and the aim of most businesses in the private sector: could soak up profit (some shareholders will Sales growth not like this!) Increased market share (e.g. Ford having a greater percentage share of the UK car sales) *Profit v. survival profit may have to be put Eliminate competition on hold if a business is struggling to survive Survival Very important for a new business or an established business facing problems *Profit or growth v. service some might Providing a service All businesses will want to provide a service but it is the most important aim for the public sector want to get rich quick at expense of service Sector Definition Examples Objectives Private sector Public sector Voluntary (not for profit) sector businesses owned by private individuals organisations controlled by central and local government Charities and social clubs. Tesco NHS, education, police, fire and local councils + public corporations like the BBC and the Post Office Oxfam Scout/guide groups Usually profit and growth but with new or struggling businesses, main aim is survival Most important aim is service! Raise money, further a cause, provide a service for its members Stakeholders = individuals or groups with an interest in a business. You should be able to think why some or all of the following could be stakeholders in a business and why they often have conflicting interests: 2 Workers Managers Owners Customers Suppliers Government Local community Competitor Interest and pressure groups

26 Type of Business Organisation in the Private Sector Definition Definition Common features Main difference Advantages Disadvantages Unincorporated Sole proprietors and partnerships are easier to set up but have no separate legal identity Sole proprietor Partnership (or trader) One person owns the A min of 2 and a max of 20 business. partners own the business. A deed of partnership states how profit will be shared. Unlimited liability owners are personally liable for all business debts so personal possessions may be lost in insolvency The owner(s) pays income tax is paid on profit Financial information is private stays with the owner(s) A sole proprietor company is owned by one person but a partnership is owned by 2 20 partners *Easy to set up *More capital available *Not much start up capital *More specialist skills available needed *Illness not such a problem *Owner has 100% control *The company s financial info *Owner can keep profit stays private with partners *The company s financial info *Easy to set up stays private *Sleeping partners can contribute capital *Unlimited liability *Possible shortage of capital can t always borrow money *Illness! *Hard work needed *Owner might not be able to sell/pass business on *Shortage of skills *Profit has to be shared among partners *Unlimited liability *Disagreements! *Can still be short of capital Incorporated Incorporation is a legal process which Ltd and PLC businesses must go through. The Registrar of Companies issues a Certificate of Incorporation once companies have registered. Private Limited Company Public Limited Company (PLC) (Ltd) Shares are sold to private These companies sell their shares on the London Stock Exchange to the investors (managers, public they must have an issued share capital of > and are friends, family, wealthy usually the largest companies. Minority shareholders own a small backers). percentage of the shares and major shareholders, known as institutional shareholders, like investment companies, own a large number of shares Limited liability the liability of the owners (shareholders) is limited to the amount of money they have invested in the business (i.e. the shares they bought) Companies are owned by shareholders The business has a separate legal entity from its owners Corporation tax (tax paid by businesses) is paid on any profit Finance can be raised through sale of shares Financial info is available to public A Board of Directors runs the company, made up of directors elected by shareholders at the Annual General Meeting (AGM). The Chair of the Board of Directors is responsible for the way the board operates and the Managing Director runs the overall company. Shares in a PLC are sold to the public on the stock exchange and so PLCs can raise more money than a Private Limited Company *Limited liability *Capital from investors who buy shares in the company * Company has a separate legal identity from owners * Continuity company continues to trade in the event of a death of one of the owners (shareholders) * Financial info has to be made available to public which means competitors can see it! *Incorporation costs money and takes time *Shares cannot be sold to general public so capital might be short *Shareholders will expect a share of the profits in the form of dividends *Limited liability *PLCs can easily raise large sums of finance through sales of shares much more than most Private Limited Companies *Company has a separate legal identity from owners * Continuity company continues to trade in the event of a death of one of the owners (shareholders) * Financial info has to be made available to public in as an annual report so competitors can see it! *Incorporation costs money and takes time *Takeover it is possible for other companies to buy up large numbers of shares and takeover the ownership of the company *Shareholders will expect a share of the profits in the form of dividends

27 There are also some other types of business organisation: Co operatives some independent producers (e.g. dairy farmers) work together and trade as though they are a single larger business (and get a better price) Social Enterprise a business that is run for the benefit of the community. Not all the profits are kept by the owners some are put back into community projects Multinational companies these are usually large PLCs that have a head office in one country with offices/factories in other countries e.g. Sony. With increasing globalisation, there has been a growth in the number of MNCs. Advantages: production can be located in countries where labour costs are low. Disadvantages: communication problems caused by location in different countries. Franchise is not a type of business arrangement but is a marketing arrangement. An existing business (franchisor) sells to another business (the franchisee) the right to use its products, services and logos. A franchise can be organised into any one of the four main forms of business organisation in the private sector. Reasons for Business Failure Poor management No demand for product or service Wrong location Poor cash flow money is not coming in for large parts of the year (e.g. a Xmas decoration shop!) Running costs are too high Too much competition Poor quality of goods or services Not enough profit made Unfavourable exchange rate can affect companies if they are trading outside of the UK Types of Business Growth Merging one business decides to merge (join together) with another Takeover one business buys control of another by buying enough shares in the business to be able to outvote other shareholders Internal expansion a business grows by increasing its production e.g. by building a new factory Integration = when a company merges with or takes over another business. There are different types of integration try to think of advantages & disadvantages for each. 4

28 Type of integration Explanation: one business merges with or takes over another business: Example: a brewery buys Horizontal in the same industry at the same stage of production another brewery Backwards vertical that is a supplier of goods/services for this company a hops farm (hops is used to make beer!) Forwards vertical that provides an outlet for its products or services a pub chain Diversification (or conglomerate) in an unrelated business activity a coffee shop chain Factors Affecting Location of a Business For some companies, location is less important. They are footloose e.g. call centres or internet companies do not need to be in town centres (expensive!) Factor Type of product or service Availability of and access to raw materials The cost of the location Access to and nearness to markets Climate and physical geography Availability of transport links Tradition Cost of labour Central government Local government Explanation/example A shipbuilder will be near the sea so that the finished boat can be launched! A paper mill might be near a forest! The cost of land and buildings varies e.g. costs in central London will be more than in rural Suffolk A Tesco superstore will be near a large centre of population! East Anglia is flat so is suited to growing cereal crops e.g. wheat Many warehouses are located in Rugby as it is near the M1 and the M6 Many Cornish pasties are made in Cornwall! With increasing globalisation, companies often move production overseas where wages are lower and they can reduce costs Central government often encourage businesses to locate in a certain area by providing grants. It has announced that the Regional Development Agencies (RDAs) will close at the end of March Economic development and regeneration will in future be led by Local Enterprise Partnerships in 22 new Enterprise Zones (e.g. Alconbury Airfield) Councils encourage businesses to locate in their area with grants e.g. provision of industrial estates or technology parks on greenfield (sites with no previous business) or brownfield (sites with previous business activity) sites.

29 People Recruitment and Selection (carried out by the Personnel or Human Resources Dept in most companies) Recruitment = process by a company to seek out interested and qualified applicants for a job vacancy Selection = the process of choosing one person from all the applicants to fill the vacancy The main stages: Needs analysis a company decides how many workers it needs to employ, what type and when. A job description (lists the duties a worker must perform) and a person specification (lists the knowledge, experience, qualifications and qualities needed for the job) are drawn up at this stage. Advertising the post: a job advert should get the right people applying! Think what it should contain (duties, requirements, salary etc) and where the advert should appear. Think why some jobs adverts appear in local newspapers but some appear in national newspapers, specialist magazines, job centres or the internet. At this stage, a company decides if it is to use internal recruitment (only staff already in the company apply) or external recruitment (people from outside the business can apply). You should be able to think of advantages and disadvantages of internal and external recruitment! Selecting from the applicants firstly, the organisation draws up a shortlist of applicants to invite to interview from all the people who applied for the jobs. Letters of application, application forms and CVs are used to decide the shortlist. Secondly, there is the final stage of selection: interviews are usually used to decide who will get the job, but references, psychometric tests (testing personality), presentations and tests (e.g. maths, IT) can also be used. There are advantages and disadvantages for all these methods use to decide who should get the job e.g. an interview shows how well applicants present themselves but of course, they can put on a show and deceive! You need to be able to explain why finding the right people to work for a company and then retaining them (retention) are so important. Recruitment agencies and employment agencies are also involved in recruitment and selection. A recruitment agency will, for a fee, do much of the recruitment and selection work for a company. An employment agency, for a fee, provides workers (e.g. office staff) to a company for short periods of time. Motivation the encouragement given to staff to work hard and work well so that they feel good about the company and have high productivity. What motivates workers? Maslow s theory, pay and non pay methods of motivation. Maslow s hierarchy of needs workers have a variety of needs that need to be satisfied in the workplace if they are to be motivated. Starting at the bottom of the pyramid are physiological needs (enough wages to provide food, shelter and the basics) safety needs social needs (e.g. teamwork) self esteem (e.g. worker gets an award) self fulfilment (self fulfilment) (e.g. worker feels that he has achieved his potential) 6

30 Non Pay Methods of Motivation Method Description Comment Fear Fear of being told off or getting the sack makes workers work harder Won t work in the long term as workers may leave or lack motivation Job rotation Different jobs are performed by staff. Often used on production lines to stop boredom Job enlargement Workers given different tasks in addition to the work they already do Provides variety for the workers Job enrichment Workers given more responsibility and so have self esteem Training is often given so workers can cope with new responsibilities Team working Workers placed in teams to perform tasks or take part in social events or team building courses as most workers like the social contact and perform better Workers in groups may be given responsibility for what they do they are empowered (empowerment can also be used for individuals) Award schemes E.g. employer of the month award scheme Meets self esteem needs of a worker Promotion Recognises achievement of worker (self actualisation) Possibility of gaining promotion also encourages workers Leadership A good leader/manager motivates: most workers are more likely to Autocratic leadership the leader decides and workers obey! be motivated by laissez faire or democratic leadership than by Laissez faire leadership the leader decides objectives but autocratic leadership workers are given responsibility for deciding how to achieve them Democratic leadership workers discuss plans with management and contribute to decision making Working environment Good working conditions (e.g. good canteen) will make staff happy to work for a company Pay Methods of Motivation Method of Pay Description Comment Time rate Set sum paid for each hour worked No reward for quality of work done Overtime pay A higher rate of pay to persuade workers to work extra hours Costs company more money but may be cheaper than hiring new staff Salary Worker is paid set sum for the year e.g. teacher Worker may not want to work hard as is not paid more for working longer hours Piece rate Sum of money paid for each item produced Workers may rush their work and produce poor quality Bonus Extra lump sum paid to worker for reaching a target Will not motivate if the target set is too high Profit sharing A share of company profit is paid to workers Not all workers will deserve this! Fringe benefits (perks) Non money rewards (e.g. gym membership) given to staff 100 of vouchers costs a company less than giving 100 take home pay (no tax!) Training You need to know why training is important for the individual and for a business. Remember, the UK needs a highly trained workforce if it is to compete in a global economy. Training needs: workers need training for different reasons. Some might need to acquire technical, personal (e.g. how to communicate better), management or team work skills. New workers need induction training to introduce them to the organisation so that they can settle in (tour of the workplace, meeting new colleagues etc)

31 Some need product knowledge training (e.g. to help them sell products to customers) Some workers starting a new career will need retraining A business will allow personal development of workers that might not be linked directly to work to boost their self esteem (e.g. contribute to evening classes) On the job training Off the job training Definitions/methods Advantages Disadvantages Training carried out in the worker s place of work. Either someone with *Trainee gets individual training *Trainer cannot fully do own job experience helps the trainee when he/she is doing the job or the trainee *Cheaper for company if training shadows another worker and so learns by watching. Coaching can be part of *Trainee is trained in the way of the *Trainee may not produce good on the job training: one worker (the coach) works with another (coachee) in firm quality work the workplace and then makes suggestions as to how the coachee might *Worker might still be working whilst *Not suitable for groups of improve. training workers The trainee completes training away from where he/she normally works, either in a college or training centre, or in another part of the company s site (e.g. in a lecture room). Lectures, demonstrations, role play and team building exercises can all be part of off the job training. *Experts may provide training *Workers often enjoy change of environment *Usually more expensive (e.g. fee for outside trainer) Staff appraisals: at least once a year, an employee (appraisee) will meet with his/her boss (appraiser). Last year s performance and targets will be reviewed and next year s targets (together with any training needed) are decided. This is particularly important where a worker is on performance related pay. Investors in People (IIP) award is a quality assurance scheme for organisations who provide structured opportunities for staff development. Lifelong Learning: a government programme to encourage learning throughout a worker s life so that workers have the necessary skills and qualifications. Employment Laws laws in place to protect workers against unfair treatment. Law Equal Pay Act 1970 Race Relations Act 1976 Sex Discrimination Act 1975 Health and Safety at Work Act 1974 Minimum Wage Act 1997 Employment Rights Act 1996 Disability Discrimination Act 1995 Working Time Directive (WTD) Description Women are paid same as men when they do the same work People cannot be treated differently (discrimination) on grounds of race, colour, nationality or ethnic origin Stops discrimination on gender. Job adverts can only ask for a specific gender in exceptional circumstances (e.g. female PE teacher) Employer is responsible for protecting worker from dangers in the workplace. The law covers training, safety equipment, breaks etc. All companies with more than 5 employees must have a written health and safety policy. Minimum wage set for 16 17, and 22+ to avoid exploitation of workers. A few exceptions e.g. au pair A written contract of work (or a statement of particulars) with job title, hours etc must be given to worker within 2 months of start Employers cannot discriminate against the disabled when recruiting or in the workplace. Premises must provide access, unless it is physically impossible to do so (e.g. install a lift) A European Union (EU) Directive, which creates the right for EU workers to a minimum number of holidays each year, paid breaks, and rest of at least 11 hours in any 24 hours; restricts excessive night work; and makes a default right to work no more than 48 hours per week. 8

32 Employment tribunals courts of law that deal with disputes between workers and the employer. Redundancy workers employment is ended because they are no longer needed by the firm (e.g. if bankrupt, using more machines, restructuring or cutting costs). The employer must pay redundancy money if the employee has worked for > 2 years. A firm may ask its workers if any want voluntary redundancy. Dismissal for gross misconduct (e.g. assaulting a customer!) or for incompetence (not doing the job properly) Trade Unions organisations that protect the interests of workers (e.g. National Union of Teachers) They have strength in numbers (they may represent a lot of workers in a business) and do two main jobs: Act as a pressure group i.e. they seek to influence the UK government (or sometimes the EU) to make laws in the interests of its members, the workers. Protect the interests of its members e.g. working conditions, hours, redundancy, unfair dismissal, safety, discrimination, pay etc. and give expert advice and support (e.g.in legal cases at tribunals). They also seek to secure good pay for their members by negotiating pay deals with a company. There are 3 main types of industrial action: Industrial action Strike Overtime ban Work to rule Description Workers withdraw their labour (refuse to work!). A strike can damage the employer, customers and the workers think why?! Workers only work the hours stated in their contracts and do not work overtime hours. Workers only do tasks that are included in their job descriptions and refuse to do anything else. Industrial relations is the term for dealings between unions and management Single union agreements all workers in a firm are in the same union which may make it easier for management to negotiate and may give workers more strength. ACAS Advisory Conciliation and Arbitration Service is an organisation which helps to settle disputes between workers and employers Communication (within companies) Types of communication One way: message is sent but the sender is not expecting a reply (e.g. a report) Two way: person receiving the message can reply to the sender (e.g. phone call, conversation, ) Internal: between people who work in the same organisation (can be vertical between people on different layers of the hierarchy or horizontal between people at the same level in the organisation). External: between one person in an organisation and one person outside that organisation. Formal: official means of communication e.g. letter, report, appraisal documents Informal: not formal! E.g. conversation at break Methods of communication you need to think of advantages and disadvantages for each method

33 Verbal (e.g. face to face conversation, lectures, telephone) Written (e.g. letters, reports, s) With images (e.g. poster, video clip) There can be barriers to communication factors that stop the receiver understanding fully the message from the sender: Timing message sent at wrong time (e.g. receiver not there!) Clarity if a message isn t clear, it might not be understood fully Attitudes the sender or receiver may not be in the right frame of mind for clear communication to work! Wrong method an urgent doesn t work if s aren t checked all the time! Technical hitch e.g. server is down so s cannot be sent or received ICT (Information and Communications Technology) includes applications on PCs (Word etc), internet, , mobile phone technology etc Advantages of ICT for companies Productivity is higher Quality of presentation is improved Info can be processed and then shared more easily Better communications within a firm and with customers and other businesses Workers can work at home. Meetings can be held by video conferencing ( less travel is good for the environment!). Disadvantages of ICT for companies Training needed ICT equipment can be expensive Technical problems can occur Health and safety issues (repetitive strain injury if using keyboard too much!) Security problems if the firm s system is hacked into Working from home can be good for the worker (e.g. no commuting) but also has some disadvantages (no social contact in workplace). Can you think of other points? 10

34 Organisation Charts you should be able to understand why organisations have organisation charts?! Most are organised by function (department e.g. Finance, Marketing, IT) They show a hierarchy with several layers. Higher layers have more authority and responsibilities (but they also are accountable will be blamed if something goes wrong in their area) There is a chain of command running down the layers. The number of subordinates for whom a manager has responsibility is called a span of control. Staff are delegated responsibility by their Line Managers. Organisation charts only show formal groups, not informal groups. Tall structures have lots of layers so lines of communication & responsibilities are clear and there are plenty of opportunities for promotion. Managers have narrow spans of control so do not have too many workers to look after. Flat structures have fewer layers so communication is quicker, more ideas pass from bottom to top and managers have wider spans of control and so have to trust their workers who feel empowered. De layering (getting rid of layers) leads to flatter structures and can save money (fewer manager salaries have to be paid!)

35 BUSINESS STUDIES GCSE; Revision Guide Unit 2: BUSINESS AND PEOPLE (Exam = 1 hour) Unit 3: PRODUCTION, FINANCE AND THE EXTERNAL BUSINESS ENVIRONMENT (Exam = 1.5 hours Case Study) This revision book is split into the two units. A glossary of key terms for unit 3 is at the end of the booklet. You will also be provided with some model answers for unit 3 at a later date. A copy of the diagnostic that you completed in class has been included for your own use.

36 Unit 2: Business and People TYPES OF BUSINESS ORGANISATIONS Unincorporated business = sole traders and partnerships Incorporated business = limited companies Other types of business organisations = franchises, multinationals, public corporations, charities (not-forprofit organisations), co-operatives Sole traders (sole proprietors) A sole trader describes any business that is owned and controlled by one person - although they may employ workers. Individuals who provide a specialist service like plumbers, hairdressers or photographers are often sole traders. Sole traders do not have a separate legal existence from the business. In the eyes of the law, the business and the owner are the same. As a result, the owner is personally liable for the firm's debts and may have to pay for losses made by the business out of their own pocket. This is called unlimited liability. Advantages It is easy to set up as no formal legal paperwork is required. Generally, only a small amount of capital needs to be invested, which reduces the initial start-up cost. As the only owner, the entrepreneur can make decisions without consulting anyone else. Disadvantages The sole trader has no one to share the responsibility of running the business with. A good hairdresser, for example, may not be very good at handling the accounts. Sole traders often work long hours. They may find it difficult to take holidays or time off if they are ill. They face unlimited liability if the business fails.

37 Partnerships Between 2 and 20 partners In case disagreements between partners occur is is a good idea for a DEED OF PARTNERSHIP to be drawn up. This is a legal document stating the responsibilities of partners, for example, how profits and losses are to be shared; how the business is to operate. Dental surgeries are often partnerships Doctors, dentists and solicitors are typical examples of professionals who may go into partnership together and can benefit from shared expertise. One advantage of partnership is that there is someone to consult on business decisions. The main disadvantage of a partnership comes from shared responsibility. Disputes can arise over decisions that have to be made, or about the effort one partner is putting into the firm compared with another. Like a sole trader, partners have unlimited liability. FRANCHISES An entrepreneur can opt to set up a new independent business and try to win customers. An alternative is to buy into an existing business and acquire the right to use an existing business idea. This is called franchising. A franchise is a joint venture between: A franchisee, who buys the right from a franchisor to copy a business format. And a franchisor, who sells the right to use a business idea in a particular location. Many well-known high street opticians and burger bars are franchises. Opening a franchise is usually less risky than setting up as an independent retailer. The franchisee is adopting a proven business model and selling a well-known product in a new local branch. However, the independent retailer will have less control and will have to pay part of it s profit to the franchisor as a ROYALTY PAYMENT.

38 CO-OPERATIVES A cooperative may also be defined as a business owned and controlled equally by the people who use its services or by the people who work there. Everyone has an equal say in the business no matter how many shares they own. It is therefore very democratic. For worker co ops the profit is split between the workers and this can be very motivating as the profit goes only to workers and not to any other shareholders. PUBLIC CORPORATIONS An organisation owned by the government, eg Post Office, BBC. The main objective would be to provide a good service for customers and NOT to make a profit. MULTINATIONALS Companies that operate in several countries are called multinational corporations (MNCs) The US fast-food chain McDonald's is a large MNC - it has nearly 30,000 restaurants in 119 countries. Advantages enjoyed by multinationals; cheap raw materials cheap labour supply access to markets where the goods are sold friendly government policies

39 Limited companies NB limited companies are in the PRIVATE SECTOR A limited company has special status in the eyes of the law. These types of company are incorporated, which means they have their own legal identity and can sue or own assets in their own right. The ownership of a limited company is divided up into equal parts called shares. Whoever owns one or more of these is called a shareholder. Shareholders receive dividends which are part of the profit Because limited companies have their own legal identity, their owners are not personally liable for the firm's debts. The shareholders have limited liability, which is the major advantage of this type of business. If the business went bankrupt then the shareholder would only lose the money they paid for the shares and not any of their personal possessions. A major disadvantage however, is that financial information can be obtained by anyone. Also to form a limited company can be time consuming. Limited companies pay corporation tax on their profits. There are two main types of limited company: A private limited company (ltd) is often a small business such as an independent retailer in a market town. Shares do not trade on the stock exchange. Shareholders are usually family and friends. Therefore there is no risk of a takeover as all shareholders have to agree if they want to sell their shares. However, because small number of shares are sold less finance can be raised. A public limited company (plc) is usually a large, well-known business. This could be a manufacturer or a chain of retailers with branches in most city centres. Shares trade on the stock exchange so lots of CAPITAL can be raised to invest into the business and help it to grow. However, anyone can buy shares and if another company buys over 50% of the shares they can takeover the control of the company. This is because 1 share = 1 vote. For a ltd company to change to a plc at least 50,000 worth of shares must be sold. Unlike a sole trader or a partnership, the owners (shareholders) of a plc are not necessarily involved in running the business, unless they have been elected to the Board of Directors. TIP Do not confuse PUBLIC CORPORATIONS WITH PUBLIC LIMITED COMPANIES

40 Business Objectives When a sole trader sets up they may have some unstated aims or objectives - for example to survive for the first year. Other businesses may wish to state exactly what they are aiming to do, such as Amazon, the Internet CD and bookseller, who wants to make history and have fun. Objectives give the business a clearly defined target. Plans can then be made to achieve these targets. This can motivate the employees. It also enables the business to measure the progress towards to its stated aims. The main objectives that a business might have are: Survival a short term objective, probably for small business just starting out, or when a new firm enters the market or at a time of crisis. Profit maximisation try to make the most profit possible most like to be the aim of the owners and shareholders. Profit satisficing try to make enough profit to keep the owners comfortable probably the aim of smaller businesses whose owners do not want to work longer hours. Sales growth where the business tries to make as many sales as possible. This may be because the managers believe that the survival of the business depends on being large. Large businesses can also benefit from economies of scale. A business may find that some of their objectives conflict with one and other: Growth versus profit: for example, achieving higher sales in the short term (e.g. by cutting prices) will reduce short-term profit. Short-term versus long-term: for example, a business may decide to accept lower cash flows in the short-term whilst it invests heavily in new products or plant and equipment. Large investors in the Stock Exchange are often accused of looking too much at short-term objectives and company performance rather than investing in a business for the long-term.

41 Alternative Aims and Objectives Not all businesses seek profit or growth. Some organisations have alternative objectives. Examples of other objectives: Ethical and socially responsible objectives organisations like the Co-op or the Body Shop have objectives which are based on their beliefs on how one should treat the environment and people who are less fortunate. Public sector corporations are run to not only generate a profit but provide a service to the public. This service will need to meet the needs of the less well off in society or help improve the ability of the economy to function: e.g. cheap and accessible transport service. Public sector organisations that monitor or control private sector activities have objectives that are to ensure that the business they are monitoring comply with the laws laid down. Charities and voluntary organisations their aims and objectives are led by the beliefs they stand for. Changing Objectives A business may change its objectives over time due to the following reasons: A business may achieve an objective and will need to move onto another one (e.g. survival in the first year may lead to an objective of increasing profit in the second year). The competitive environment might change, with the launch of new products from competitors. Technology might change product designs, so sales and production targets might need to change.

42 Primary Sector, Secondary Sector and Tertiary Sector Primary sector Produces raw materials, involves some sort of extraction e.g. mining, farming, fishing, chopping down trees Secondary Sector This is the manufacturing sector where raw materials are turned into finished goods for sale. E.g. Car factory or paper mill Tertiary Sector This is the retail and service businesses so all shops and people that offer services to others e.g. cleaners, gardeners, dog walkers etc. A service is something you cannot hold or touch e.g. insurance. Decline of primary jobs We are running out of natural resources, our coal and fish stocks are almost gone, so less miners and fishermen We also cannot compete against cheap foreign imports so less farmers We have more leisure time so need more entertainment e.g. cinema jobs Decline of Secondary jobs We cannot compete against foreign imported made goods We are facing a process of de industrialisation as we become a less industrial nation and move toward knowledge work such as web design and money management We are automating manufacture of goods such as robots to make cars, means less jobs for workers. Decline of primary jobs We are running out of natural resources, our coal and fish stocks are almost gone, so less miners and fishermen We also cannot compete against cheap foreign imports so less farmers

43 Location A business's location can make an important difference to its success. Choosing the right location means taking into account a number of factors. The importance of location Being close to main roads can be an advantage for a business Location is the place where a firm decides to site its operations. Location decisions can have a big impact on costs and revenues. A business needs to decide on the best location taking into account factors such as: Customers - is the location convenient for customers? Staff - are there sufficient numbers of local staff with the right skills willing to work at the right wage? Support services - are there services offering specialist advice, training and support? Cost - how much will the premises cost? Those situated in prime locations (such as city centres) are far more expensive to rent than edge-of-town premises. The importance of infrastructure Infrastructure refers to the facilities that support everyday economic activity, eg roads, phone lines and gas pipes.

44 An efficient transport network enables staff to get to work easily. It also allows supplies to be brought in from far afield and permits finished products to be moved to market cheaply and quickly. The impact of location depends on the type of business. For example, it is important for shops and restaurants to be conveniently located for customers. A delivery-only takeaway may prefer to locate in inexpensive premises on the edge of town close to good transport links. Government and location The government offers grants and assistance to businesses that locate in areas with high unemployment. Incentives include: Grants to help with the cost of setting up a business. Grant money does not need to be repaid. Loans, which are repayable over many years at low rates of interest. Tax breaks, for example firms may be made exempt from paying business rates. Overseas location decisions Moving a business can have both advantages and disadvantages Setting up a business overseas involves a number of challenges including: Cultural and language barriers where managers are unfamiliar with local customs. Legal issues where local laws are different. Exchange rate issues. Unexpected changes in the value of sterling can have an impact on prices, costs and profits. Stakeholders What are stakeholders? A stakeholder is anyone with an interest in a business. Stakeholders are individuals, groups or organisations that are affected by the activity of the business. They include: Owners who are interested in how much profit the business makes. Managers who are concerned about their salary. Workers who want to earn high wages and keep their jobs. Customers who want the business to produce quality products at reasonable prices. Suppliers who want the business to continue to buy their products. Lenders who want to be repaid on time and in full.

45 The community which has a stake in the business as employers of local people. Business activity also affects the local environment. For example, noisy nighttime deliveries or a smelly factory would be unpopular with local residents. Internal stakeholders are groups within a business - eg owners and workers. External stakeholders are groups outside a business - e.g. the community. Conflict of Stakeholders Conflict between managers and workers can lead to industrial action. Some workers are members of trade unions, which negotiate with employers over pay and conditions, and may organise strikes. Industrial action is bad for Vandyke Pizzeria because it can stop production, let down customers and lose the business money. Poor communication between internal stakeholders can lead to reduced morale and a loss in productivity or competitiveness. Growth Economies of Scale This is the reduction in unit/ average cost due to an increase in the scale of production of the business. Large firms can borrow more cheaply Large firms can produce a range of products and have a larger market share. This is called DIVERSIFICATION. Large firms can buy materials in bulk and get a discount(money off) Large firms can use better and more efficient machinery

46 Some firms prefer to stay small Because they:- like to give personal service to their customers they are unable to gain the money needed for expansion are sole traders who prefer to keep total control find it difficult to keep control over large enterprises How do firms grow?

47 RECRUITMENT AND SELECTION Firms recruit, select and train staff in different ways with varying degrees of success. Recruiting staff Without the right staff with the right skills, a business cannot make enough products to satisfy customer requirements. This is why organisations draw up workforce plans to identify their future staffing requirements. For example, they may develop plans to recruit a new IT Manager when the current one plans to retire in eight months time. Recruitment is the process by which a business seeks to hire the right person for a vacancy. The firm writes a job description and person specification for the post and then advertises the vacancy in an appropriate place. Job descriptions explain the work to be done and typically set out the job title, location of work and main tasks of the employee. Person specifications list individual qualities of the person required, eg qualifications, experience and skills. Firms can recruit from inside or outside the organisation. Internal recruitment involves appointing existing staff. A known person is recruited. External recruitment involves hiring staff from outside the organisation.

48 The table below shows the advantages of internal and external recruitment Internal External Cheaper and quicker to recruit Outside people bring in new ideas and a wider range of experience Limits the number of potential applicants Longer process People already familiar with the business and how it operates Larger pool of workers from which to find the best candidate Provides opportunities for promotion with in the business can be motivating More expensive process due to advertisements and interviews required Business already knows the strengths and weaknesses of candidates It does not create and internal vacancy which also has to be filled

49 METHODS OF SELECTION Application forms, CVs, references, interviews, presentations, role-play and tests can be used to show if an individual is suitable for the specific job on offer. You need to be aware of the advantages and disadvantages of each; Method of selection advantage disadvantage Application forms a standard form is sent to applicants to complete *Easy to compare as all applicants will answer the same questions. *The business can chose the questions *The candidate may have specific skills that they can not showcase on the form. *Hs the candidate completed the form themselves? CV *Will show the candidates ICT skills *The candidate has more freedom to show off certain qualities. *Difficult to compare. *Questions cannot be directed by the business. Interviews *The business can meet the candidate and see their appearance, communication skills, etc... *Some very suitable candidates may be overcome by nerves and my underperform. The best candidate may therefore not be chosen

50 Media used to advertise jobs; LOCAL NEWSPAPERS Relatively cheap, useful for attracting local people who could easily commute to the business. NATIONAL NEWSPAPERS More expensive, usually to attract specialist workers from a wider area. This is allows for a better selection of candidates. JOB CENTRES Run by the government. Are in the public sector. Free for businesses to advertise. Often used for semi skilled and unskilled jobs. INTERNET Cheap so reduces the firms costs. Useful for attracting people with ICT skills. Training Training is a very important part of the Human Resource Department s work. In some large firms there is very often a separate training department. Ideally, training should involve the worker before they actually start the job, during the first few weeks of employment and throughout their careers. The purpose of training Train new workers for particular jobs Help to improve the efficiency of existing workers Avoid accidents at work Retrain workers so they can cope with new technology Help workers gain promotion to better jobs within the firm INDUCTION: This should be available to all new employees. Basic induction will involve health & safety procedures, location of work-space, staff canteen (if available), procedures for breaks and lunch, meeting with co-workers etc. The purpose of induction is to 'settle' a new employee in and make them feel welcome, as well as giving them information. ON-THE-JOB: This takes place in the work-place, while actually carrying out the job itself. It may involve being coached by an existing member of staff - particularly for promoted positions; or it may involve 'buddying-up' will a similar worker so that they can teach you how to do certain tasks. The great thing about on-the-job is that it is not only CHEAPER for a business, but it also means that any difficulties can be identified and

51 sorted out quickly. OFF-THE-JOB: This takes place either away from the work-place altogether, or within the work-place but away from the job itself. It is quite often provided by 'outside' experts, for example training on a new piece of computer software for the accounts department. It may last only a few days or it may involve a longer commitment from both the employer and the employee - for example, college day release to attend a college course. The great thing about off-the-job is that there are no distractions from work while it is taking place. Because it may be provided by specialists, it is often of high quality. A business may send only ONE of its employees on the course and then they can come back into the business and CASCADE the training to other members of the organisation - i.e teach or show others, making it very cost effective for the business! Unfortunately off-the-job can also be quite expensive if it is necessary to take lots of employees away from their work. Also if a business sends out only one employee and then expects them to come back to train the rest, they could end up with the whole workforce copying the mistakes of the original employee! Motivation Companies can motivate employees to do a better job than they otherwise would. Incentives that can be offered to staff include increased pay or improved working conditions. Motivational theories suggest ways to encourage employees to work harder. What is motivation? Motivation is about the ways a business can encourage staff to give their best. Benefits of motivation; *Increased output caused by extra effort from workers. *Improved quality as staff take a greater pride in their work. *A higher level of staff retention. Workers are keen to stay with the firm and also reluctant to take unnecessary days off work. Managers can influence employee motivation in a variety of ways: Monetary factors: some staff work harder if offered higher pay.

52 Non-monetary factors: other staff respond to incentives that have nothing to do with pay, e.g. improved working conditions or the chance to win promotion. Payment methods Managers can motivate staff by paying a fair wage. Payment methods include: Time rate: staff are paid for the number of hours worked. Overtime: staff are paid extra for working beyond normal hours. Piece rate: staff are paid for the number of items produced. Commission: staff are paid for the number of items they sell. Performance related pay: staff get a bonus for meeting a target set by their manager. Profit sharing: staff receive a part of any profits made by the business. Salary: staff are paid monthly no matter how many hours they work. Fringe benefits: are payments in kind, eg a company car or staff discounts. Non-pay methods of motivation Managers can motivate staff using factors other than pay through: Job rotation: staff are switched between different tasks to reduce monotony. Job enlargement: staff are given more tasks to do of similar difficulty. Job enrichment: staff are given more interesting and challenging tasks. Empowerment: staff are given the authority to make decisions about how they do their job. Putting groups of workers in a team who are responsible together for completing a certain task. Motivational theories Managers can make use of a number of motivational theories to help encourage employees to work harder. Maslow argues that staff can be motivated through means other than pay Maslow suggests there are five hierarchies or levels of need that explain why people work. Staff first want to meet their survival needs by earning a good wage. Safety needs such as job security then become important, followed by social, self-esteem and self-fulfilment needs. Moving staff up a Maslow level is motivational.

53 The five levels of motivation described by Maslow LEADERSHIP STYLES Description Advantages Disadvantages Autocratic Senior managers take all the important decisions with no involvement from workers Quick decision making Effective when employing many low skilled workers No two-way communication so can be de-motivating Creates them and us attitude between managers and workers Democratic Workers allowed to Authority is delegated to Mistakes or errors can make own workers which is be made if workers are decisions. motivating not skilled or experienced enough Useful when complex decisions are required

54 Some businesses run on the basis of majority decisions that need specialist skills Communication Effective communication is important both within an organisation and externally. Effective communication improves business efficiency. What is communication? Communication is about passing messages between people or organisations. Messages between a sender and receiver take place using a medium such as or phone. One-way communication is when the receiver cannot respond to a message. Twoway communication is when the receiver can respond to a message. This allows confirmation the message has been both received and understood. Types of communication There are a number of technical terms you need to learn: Internal communications take place between people within organisations Internal communications happen within the business. External communications take place between the business and outside individuals or organisations. Vertical communications are messages sent between staff belonging to different levels of the organisation hierarchy. Horizontal communications are messages sent between staff on the same level of the organisation hierarchy. Formal communications are official messages sent by an organisation, eg a company memo, fax or report. Informal communications are unofficial messages not formally approved by the business, eg everyday conversation or gossip between staff. A channel of communication is the path taken by a message.

55 VERBAL COMMUNICATIONS Eg face-to-face, voic , video conferencing, telephone The person can check that the message has been understood. The person can emphasise points by their voice or body language No permanent record to refer back to. No evidence. WRITTEN COMMUNICATIONS EG letters, memos, reports, faxes, s A written record exists Can be reread to check understanding Can avoid confrontation It is not possible to gain an instant response. Communication makes a big impact on business efficiency. Effective communication means: Customers enjoy a good relationship with the business, eg complaints are dealt with quickly and effectively. Staff understand their roles and responsibilities, eg tasks and deadlines are understood and met. Staff motivation improves when, for instance, managers listen and respond to suggestions. Barriers to communication 1. Timing the message may be sent at the wrong time 2. Clarity the message may be unclear or the language may be too complex. 3. The wrong method may be used, eg an when an urgent response is necessary.

56 HOW CAN ICT BE USED IN BUSINESS? For word-processing reports and letters professional look Spreadsheets for keeping accounts Databases for records of customers Internet or advertising ADVANTAGES AND DISADVANTAGES OF ICT IN BUSINESS Quality of work improves, information can be shared more easily, more effective communications, productivity improves (eg quicker to type documents than to write them) Internal organisation Organisation charts are diagrams that show the internal structure of the business. They make it easy to identify the specific roles and responsibilities of staff. They also show how different roles relate to one another and the structure of departments within the whole company. An organisational chart showing the structure of a company For example, the Marketing Manager in the Midlands can see at a glance that she is in charge of ten subordinates, and that her line manager is the Director of Marketing. Organisational terms There are a number of technical terms you need to learn:

57 Hierarchy refers to the management levels within an organisation. Line managers are responsible for overseeing the work of other staff. Subordinates report to other staff higher up the hierarchy. Subordinates are accountable to their line manager for their actions. Authority refers to the power managers have to direct subordinates and make decisions. Delegation is when managers entrust tasks or decisions to subordinates. Empowerment sees managers passing authority to make decisions down to subordinates. Empowerment can be motivational. The span of control measures the number of subordinates reporting directly to a manager. The chain of command is the path of authority along which instructions are passed, from the CEO downwards. Lines of communication are the routes messages travel along. Types of organisation The staff structures of a tall organisation and a flat organisation Tall organisations have many levels of hierarchy. The span of control is narrow and there are opportunities for promotion. Lines of communication are long, making the firm unresponsive to change. Flat organisations have few levels of hierarchy. Lines of communication are short, making the firm responsive to change. A wide span of control means that tasks must be delegated and managers can feel overstretched. In centralised organisations, the majority of decisions are taken by senior managers and then passed down the organisational hierarchy. Decentralised organisations delegate authority down the chain of command, thus reducing the speed of decision making.

58 One method of reducing costs is to remove a layer of management in a hierarchy while expecting staff to produce the same level of output. This is called delayering. APPRAISAL The appraisal process should seek to enable appropriate steps to be taken to realise potential, monitor performance and recognise achievement Investors in People Focuses on the people who work in the business Ensuring a good level of training and development for staff Employees who are trained are more likely to be motivated Idea is that if people are improved, then the organisation will improve IIP is externally assessed, key issues include: Resolving people issues Improving skills Developing personal responsibility