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ACCA F1 ACCOUNTANT IN BUSSINESS

Chapter 1The nature and

structure of organizations

Organisations:

An organisation can be defined as:

"A social arrangement which pursues collective goals, which controls its

own performance, and which is a boundary separating it from its

environment"

This is, perhaps, a deceptive! si"pe definition# $robab! the "ost i"portant

%ord is &socia# Organisations consist of peope and %e are a socia ani"as# 'e

have to get on %ith o(r coeag(es) idea! %e %o(d i*e o(r boss, or at east

respect o(r boss# 'e have to get on %ith c(sto"ers) %e have o(r o%n a"bitions)

%e have o(r o%n "otivations#

Ear! "anage"ent theor! tended to negect the socia side of organisations and

"anage"ent and had a rather cod, "iitaristic approach# +odern theories have

changed this considerab!#

Another i"portant aspect of the definition is that of &coective goas# There has

to be an ass("ption that peope %ithin an organisation are (ti"ate! ai"ing at

the sa"e end res(ts, if the! are not, then chaos is i*e! to r(e# One of thef(nctions of "anage"ent is to arrange the b(siness and the peope in it so that

ever!one is p(ing in the sa"e direction, and the coective goas are (ti"ate!

estabished#

!ystem

The definition of an organisation inc(ded the ter"s &bo(ndar!& and

&environ"ent These ter"s co"e fro" s!ste"s theor!#

The environ"ent is %hat the organisation sits or ives in# For ea"pe a b(siness

ives in its nationa or co(ntr! environ"ent and perhaps in the internationaenviron"ent# The bo(ndar! separates the environ"ent fro" the organisationa

s!ste"# Inp(t nor"a! goes into the organisation and o(tp(t co"es o(t of the

organisation) so"e sort of processing ta*es pace %ithin the organisation#

A organisations or s!ste"s can be divided into s(bs!ste"s# For ea"pe, an

organisation %i have a sae and "ar*eting depart"ent, an acco(nting

depart"ent, a "an(fact(ring depart"ent and so on# S(bs!ste"s can then be

f(rther spit do%n into even s"aer s(bs!ste"s# For ea"pe, the acco(nting

depart"ent %i consist of the receivabes edger, the pa!abes edger, the cash

boo*, the no"ina edger and so on#

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.ivisiona, or

+atri#

Entreprene(ria str(ct(res are ver! si"pe) basica! it&s a boss and the %or*ers#

The! are s"a, often fa"i!3o%ned, and are not arge eno(gh to be divided intoseparate depart"ents#

Once a b(siness begins gro%ing it %i nor"a! deveop into a f(nctiona

str(ct(re# This "eans that there are separate depart"ents according to f(nction

3 a saes and "ar*eting depart"ent, an acco(nting depart"ent, a pa!abes

depart"ent, receivabes depart"ent, research and deveop"ent depart"ent

and so on# This can be a ver! efficient str(ct(re as epertise is concentrated in

each depart"ent and there co(d be great econo"ies of scae#

If the b(siness contin(es to gro% it "a! find it %orth%hie to divisionaise# This

"eans spitting the co"pan! (p, perhaps on the basis of prod(ct or geograph!#

For ea"pe !o( "ight have a North A"erican division and a E(ropean division#

/o( "ight have a division %hich "a*es and ses paint and !o( "ight have a

division %hich "a*es and ses phar"ace(ticas# The rationae for spitting a

co"pan! (p into divisions is to achieve speciaisation# If !o( are seing paint and

phar"ace(ticas it is i*e! that the "an(fact(ring is ver! different, the "ar*ets

and co"petition %i be ver! different, as %i the reg(ation of the b(siness#

There is probab! not "(ch point in *eeping it a together as one and the

b(siness is better off being divided (p into different divisions %hich can

speciaise#

+atri organisation is "ore co"pe# A good %a! to thin* of a "atri

organisation is to thin* of a pro6ect tea"# A pro6ect tea" for pro6ect A, for

ea"pe, %i have a pro6ect eader or "anager for pro6ect A# The "e"bers of

the tea" report to that "anager# B(t the "e"bers of the tea" aso have

f(nctiona responsibiities# For ea"pe, there %i be a pro6ect acco(ntant and

so"eone %ho oo*s after the 4(ait! contro aspects of the pro6ect perhaps

so"eone %ho deas %ith the personne invoved in the pro6ect#

These peope, as %e as reporting to the pro6ect "anager, aso have to report to

their f(nctiona heads# Therefore each person can have t%o bosses# Cassica

"anage"ent s(ggested that this %as (nfair# B(t in fact depicting the

organisation as a "atri doesn&t ca(se there to be etra press(re on the peope

%ho %or* for the pro6ect# It is perhaps si"p! a "ore honest representation of

the press(res that the pro6ect "e"bers are (nder#

Mintzberg's structure

+int7berg divides organisations into five parts#

The strategic ape is e4(ivaent to top "anage"ent or the Board of

.irectors#


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The "idde ine is the "idde "anagers, so"eti"es caed the scaar chain#This is the0ierarch! as it passes do%n thro(gh the organisation#

The operating cores are the peope near the botto" %ho for the "ost part do the

da!3to3da! %or*#

S(pport staff %o(d inc(de the acco(nting staff and IT staff#

The techno3str(ct(re# This is perhaps the hardest to (nderstand and is the part

of the organisation responsibe for devising and enforcing standards and

proced(res# It is the techno3str(ct(re that %o(d %rite the 4(ait! contro

"an(a, the e"po!ee handboo*, the heath and safet! "an(a, the finance

"an(a#

The si7e and i"portance of the five parts of the organisation change as %e

change the organisation# In an entreprene(ria organisation there %i be astrategic ape and the operating core# /o( "a! re"e"ber that entreprene(ria

organisation %as a basica! a boss and the %or*ers %ith itte "idde ine and

the organisation %as so s"a that there %as not s(pport staff and no need for

techno3str(ct(re#

One of the "ost interesting adaptations of the basic str(ct(re is %hat +int7berg

caed professiona organi7ation#

0e %as thin*ing of so"ething i*e a arge fir" of acco(ntants and a%!ers# In

these organisations, the "idde ine is "(ch shorter, representing that there is

rea! 4(ite a cose reationship bet%een the partners at the top of the

organisation and the peope doing the a(dit or ega %or* at the botto"# These

peope need to co""(nicate and cooperate ver! cose!# There are of co(rse

"idde "anagers b(t the "idde ine is reative! short#

S(pport staff is sti 4(ite arge# B(t %hat is s(rprising is that the techno3

str(ct(re is ver! s"a# This is perhaps s(rprising beca(se a(ditors and a%!ers

have arge fies of standardised proced(res, for ea"pe, a(dit progra"s to fi

in, and !o( "ight thin* that a(dits and ega %or* %ere high! reg(ated and

standardised# B(t if !o( thin* abo(t it, ever! cient an a(ditor goes to, or ever!

cient co"ing to see a a%!er, %i have sight! different probe"s# 'e are not inthe "ass prod(ction "an(fact(ring ind(str! an!"ore# 'e are deaing %ith

taioring so(tions to cients# So the techno3str(ct(re, s(ch as it is, represented

b! standard for"s is so"e%hat s(perficia# Each cient and each service has to

individ(a! devised and deivered, so the po%er of the techno3str(ct(re is

reative! a#

Levels

Organisations are often regarded as having three eves#

The top eve is the strategic eve# This is basica! the ver! top "anagers andthe board of directors# The! sho(d be oo*ing after the strateg! of the


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organisation, and %henever !o( hear the %ord strateg!, !o( sho(d be thin*ing

of so"ething i*e a five3!ear pan for the %hoe organisation# 'hat %i the

organisation be doing in five !ears; In %hat co(ntries %i it be operating; 'i it

sti be "an(fact(ring or %i it have s%itched to predo"inant! service

provision;

-ight at the botto" of the organisation is the operationa eve# This is the eve

%here the da!3to3da! activities are carried o(t# The ti"e hori7ons are ver! short,

often things are deat %ith in a da!, and panning is often not "(ch onger than a

%ee* or t%o# These peope are predo"inant! deaing %ith or recording

transactions %hich are either happening or have aread! occ(rred: processing

invoices, sending o(t orders, deaing %ith c(sto"er 4(eries, these are a at the

operationa eve#

In bet%een there is the tactica eve, thin* of the tactica eve as being the eve

of a "anager of a depart"ent# T!pica! this person %i have a ti"e hori7on ofabo(t a !ear beca(se this person %i often be concerned %ith "eeting the !ear&s

b(dget# Of co(rse the! have to dea fro" ti"e3to3ti"e %ith da!3to3da! activities,

b(t their partic(ar priorit! %i be to "a*e s(re that the! organi7e their

depart"ent to "eet this !ear&s b(dgets and epectations#

Tall/narrow, wide/flat

Organisations are often described as being ta3narro% or %ide3fat#

In the ta narro% organisation each "anager or s(pervisor oo*s after reative!

fe% peope#

In the %ide fat organisation the span of contro is "(ch %ider# In this diagra"

%e&ve sho%n a span of contro of seven, "eaning that each s(pervisor or

"anager has seven peope reporting direct! to hi" or her#

/o( %i see in a ta narro% str(ct(re there are "an! a!ers and beca(se each

"anager oo*s after on! a fe% peope, there can be ver! cose s(pervision#

Indeed it "ight not be s(pervision) it "ight be coser to re3perfor"ance or

interference#

The ta narro% str(ct(re is so"eti"es described as ver! b(rea(cratic, ver!for"a, strict 6ob descriptions, great i"portance paced on eact! %hat one&s

grade is, and the sort of pa! and benefits and conditions that %o(d go %ith that

grade# The %ide fat organisation is "(ch "ore egaitarian) there is "(ch ess

distance bet%een top and botto" in the organisation and co""(nication

bet%een top and botto" %i be "(ch faster# Beca(se it is "ore egaitarian,

there tends to be ess e"phasis on strict 6ob descriptions and a greater e"phasis

on ho% can %e get the 6ob done, a greater e"phasis on a being a part of a

tea", rather than being a part of a hierarch!#

In the 1

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First of a in the &

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Fo(rth, "otivation: good e"po!ees i*e to "a*e decisions and i*e

r(nning their o%n depart"ents or divisions# If !o( don&t decentraise and

ao% the" to have po%er, the good peope %i eave#

Fina!, training and assess"ent# If !o( never ao% an! 6(nior peope to

"a*e decisions, ho% %i !o( *no% %ho the good ones are and %ho sho(d

be pro"oted in the f(t(re;

The big potentia disadvantage is poor co3ordination, so"eti"es described as

d!sf(nctiona decision3"a*ing# That&s %here one division co(d "a*e a decision

%hich atho(gh good for it "a! har" the organisation as a %hoe# It "ight be, for

ea"pe, that a "an(fact(ring division stops "a*ing a co"ponent %hich is vita

so"e%here ese in the organisation# $oor co3ordination "eans it&s a "essed (p#

Therefore there has to be so"e degree of co3ordination bet%een the vario(s

depart"ents and divisions in an organisation, and this "a! re4(ire the head

office or the board of directors occasiona! to interfere %ith the decentraisationand to i"pose decisions#

ecent trends

There have been so"e recent trends in organisationa str(ct(re#

.o%nsi7ing has been necessar! to *eep costs do%n#

.ea!ering, %e have disc(ssed recent!, "oving to%ards %ider, fatter

organisations, both to save costs and to achieve feibiit!#

O(tso(rcing "eans getting an o(tside fir" to perfor" so"e of !o(r

operations# These operations %i genera! be !o(r s(pport operations#

Therefore, it is reative! co""on to o(tso(rce !o(r IT and perhaps !o(r

receivabes edger# +ost b(sinesses don&t "a*e "one! fro" the

receivabes edger or fro" their IT# These are to the" necessar! evis#

The! "a! "a*e their "one! fro" cever engineering or thin*ing (p cever

adverts if the! are an advertising agenc!# The tho(ght behind o(tso(rcing

is that fir"s sho(d concentrate on %hat the! are good at, their core

activities, and tr! to o(tso(rce ever!thing ese, beca(se those f(nctions

are iabe to be "anage"ent distractions# +anage"ent sho(dconcentrate on %here it adds va(e: %here the organisation can "a*es its

"one!#

!ormal and informal organizations

In st(d!ing this paper, !o( %i often co"e across the concepts of for"a and

infor"a organisations#

The for"a organisation is %hat "anage"ent has deiberate! designed, it&s %hat

"anage"ent *no%s abo(t, and aso it&s often %ritten do%n in so"e "anner#

Therefore "anage"ent *no%s abo(t the organisation chart and *no%s %ho is"anager of the depart"ent, %ho is s(pervisor, and %ho %or*s in it# +anage"ent

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%i have ca(sed proced(res "an(as to have been %ritten to set o(t the proper

%a!s of doing things# Staff appraisas, sho%ing %hich staff "a! be better and

%hich ones have certain %ea*nesses %i aso be caref(! recorded#

0o%ever, an enor"o(s a"o(nt of the organisation is infor"a#

If "anage"ent is (na%are of the infor"a organisation then the! are iabe not

to be abe to "anage ver! %e# So, for ea"pe, if !o( have t%o peope %ho

hate each other b(t nevertheess, according to the organisation chart, are

s(pposed to co3operate, then that depart"ent %i not %or* %e#

Si"iar!, despite o%er "anage"ent iss(ing ne%setters and e3"ais to a their

staff, r("or and gossip gets aro(nd organisations ver! 4(ic*!# It&s often

inacc(rate, b(t that doesn&t "ean it&s not going to be beieved#

A gro(p nor" is another i"portant ea"pe# A gro(p nor" is an arrange"ent

peope co"e to, often so%!, abo(t ho% the! sho(d behave# For ea"pe it"ight be the gro(p nor" that nobod! ever %or*s past > o&coc* on a Frida!#

The! have co"e to this arrange"ent so"e%hat infor"a! b(t an!one ne%

6oining the organisation %i genera! fa in ine) other%ise the! are frightened

the! are not going to fit in# And once certain gro(p nor"s have been adopted b!

a n("ber of peope, it can be ver! diffic(t for "anage"ent to shift those nor"s

to so"ething ese as a of those peope resist together#

+(t(a cover3(p# If !o( "a*e a "ista*e, it sho(d be reported to !o(r "anager,

b(t !o( have a friend in the other depart"ent and !o( and !o(r friend agree to

concea that "ista*e# After a, !o(r friend never *no%s %hen he %i need the

favo(r again one da!#

+anage"ent no%ada!s is genera! fa"iiar %ith the eistence of infor"a

organisations, b(t %i find it diffic(t is to (nderstand the nat(re and detais of

the infor"a organisation# 'hat are peope&s persona a"bitions; 'hat aiances

have been "ade; 'hat persona probe"s or reationships have been for"ed;

'hat %a!s have peope decided to act that co(d be %id! different fro" %hat&s

aid do%n in the proced(res "an(as;

Chapter 5 Infor"ation andinfor"ation technoog!

"nformation

'e no% co"e to oo* at the i"portance of infor"ation technoog! in b(siness#

First %e need to decide %hat is "eant b! the ter" infor"ation# The "ost

nor"a definition is that infor"ation is data %ith "eaning# .ata is the ra% fact

and fig(res# B(t genera! of itsef it isn&t ver! "eaningf(# For ea"pe, a ist ofa o(tstanding invoices in va(e order is not ver! (sef( to a credit controer#


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That data on! beco"es (sef(, if first of a it is sorted b! c(sto"er, and then

perhaps sorted and presented b! the age of the invoice# Then it has beco"e

"eaningf( as the (ser can interpret it and do so"ething %ith it#

One of the i"portant considerations for an infor"ation processing s!ste" is that

it does present the infor"ation in a %a! or in %a!s %hich are (sef( to thevario(s (sers of that infor"ation#

#$at are t$e c$aracteristics of good information % and $ere t$e word

&CC(T)& can be used*

Acc(rate# 0igh 4(ait! infor"ation sho(d be acc(rate) that doesn&t

necessari! "ean acc(rate to the ver! ast cent# It "eans acc(rate eno(gh

for the p(rposes for %hich it is going to be (sed# And for ea"pe the

board of directors "a! be perfect! happ! %ith acco(nts ro(nded to

nearest tho(sand or even the nearest "iion doars#

Co"pete# The infor"ation sho(d be co"pete) it sho(d inc(de

ever!thing that needs to be inc(ded to "a*e proper decisions#

Cost3beneficia# It sho(d be cost beneficia, there is no point in gaining

infor"ation at a h(ge cost, if the benefits derived fro" that %hether

financia or other%ise are "ini"a# 'e are not in the b(siness of

infor"ation for infor"ation&s sa*e# 'e either %ant to "a*e "ore profit or

to r(n an organisation "ore efficient!#

User3targeted# It sho(d be (ser3targeted# The infor"ation sho(d bepresented in a %a! %hich is (sef( to the (ser# For ea"pe senior

"anagers "a! %ant s(""aries) acco(nt staff needs "(ch "ore detaied

infor"ation#

-eevant# It sho(d be reevant# /o( sho(dn&t s(pp! peope %ith "ore

infor"ation than the! need other%ise the! "a! overoo* the i"portant

infor"ation#

A(thoritative# It sho(d be a(thoritative# The so(rce of the infor"ation

sho(d be one %hich can be reied (pon# Those of !o( %ho have (sed the

Internet sho(d be %e a%are of this# /o( p(t a ter" into a search engine,a sorts of "ateria co"es o(t# So"e of it is fro" a(thoritative so(rces,

others fro" a"ate(rs, others fro" charatans#

Ti"e!# It sho(d be ti"e!# Infor"ation sho(d be s(ppied 4(ic*! eno(gh

to hep !o( "a*e a better decision# So"e infor"ation has to be provided

ver! 4(ic*! %ithin seconds, or even fractions of a second in so"e

ind(stria processes# For other p(rposes !o( "ight easi! be abe to %ait

for a %ee* or even t%o %ee*s before the infor"ation is re4(ired to enabe

!o( to "a*e a decision on ti"e#


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Eas!3to3(se# Fina! the infor"ation sho(d be eas! to (se# It sho(d be

%e presented, %e doc("ented# Eas! to (se "ight "ean that it&s "ore

beneficia to see infor"ation in the for" of graphs than in the for" of

tabes#

ole of information tec$nology

Infor"ation technoog! pa!s an enor"o(s roe in the %a! %e %or* no%# For

ea"pe:

Infor"ation and co""(nications# (st thin* of the sort of infor"ation and

co""(nication that is easi! obtained over the Internet, %hether b!

oo*ing (p infor"ation, or %hether no%ada!s b! "a*ing teephone cas

over the Internet thro(gh DOI$ voice over internet protoco technoogies

s(ch as S*!pe# E3"ai can aso be inc(ded (nder ne% co""(nication

channes#

Office a(to"ation# Consider the enor"o(s abo(r3saving that can be

obtained fro" a si"pe spreadsheet, or fro" being abe to oo* (p a

database, or fro" being abe to enter an order %hich then initiates the

dispatch and the invoicing of goods %itho(t f(rther h("an invove"ent#

0o"e3%or*ing# ?ood co""(nication "eans that "an! peope to %or*

fro" ho"e, at east so"e da!s of the %ee*, or if not at ho"e, at east

fro" ocations a%a! fro" the "ain office# For ea"pe, saes personne

can co""(nicate %ith the head office at the end of the da! and trans"it

ne% orders, "a*e in4(iries, and so on#

Types of system

There are so"e fair! %e3defined t!pes of IT s!ste"s and genera! these

describe the historica deveop"ent of IT s!ste"s#

Transaction processing systems

The eariest t!pe of s!ste" %as *no%n as the transaction processing s!ste"#

Essentia! this %as deveoped in the 1

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%as for decisions %hich %ere fair! bac* and %hite, right or %rong# Either

so"eone is above that credit i"it or the! are not, therefore %e either a(thori7e

their order or %e ref(se it#

Decision support systems

In the 1

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Ta*e the strategic eve# This can be represented b! the board of directors over

senior "anagers# The infor"ation re4(ired b! these peope is (s(a! high!

s(""arised, for%ard oo*ing, ad hoc, often eterna#

ummarisation

The! are oo*ing at %hoe divisions or %hoe co"panies, and part of their

s(""arisation %i "ean that the! don&t need the infor"ation in a its acc(rac!#

It "a! be ro(nded to the nearest tho(sand or "iion#

!orward%loo-ing

Second!, it is a ver! i"portant f(nction of top "anagers to oo* for%ard, to pan,

to tr! to see %here the b(siness %i be in one, three or five !ears& ti"e#

Therefore the t!pe of infor"ation needed b! these "anagers %i often be f(t(re

esti"ates of "ar*et si7e, interest rates, co"petition action# This infor"ation is

needed for panning# Top "anagers are not so concerned %ith the retrospectiverecording of %hat&s happened# That is of co(rse i"portant b(t there sho(d be

"ore concern %ith panning for the f(t(re: %hat %i o(r cash fo% b(dgets i"p!

for o(r f(nding re4(ire"ents: .o %e need to borro% "one! or raise "ore share

capita; Sho(d %e thin* no% abo(t b(iding ne% factories;

d $oc

Strategic infor"ation is often ad hoc, in other %ords non3ro(tine# For ea"pe a

one3off report "ight be re4(ired on the co"petition and "ar*et si7e in a

partic(ar co(ntr! %hich the co"pan! "ight be thin*ing of epanding into#

0aving received that report, it "a! never be re4(ired again# Therefore there is a

great need for feibiit! in s(pp!ing the re4(ired infor"ation#

)+ternal

Fina! strategic "anagers have a high need for eterna infor"ation# The! need

to *no% %hat is happening in their environ"ent, their co"petitors and the

technica advances ta*ing pace in their area of b(siness#

At the botto" of the organisation is the operationa eve# An ea"pe ofso"eone at the operationa eve %o(d be an acco(nts cer*# $eope at this eve

are (s(a! deaing %ith ver! detaied infor"ation, the! are recording

transactions %hich had aread! happened, therefore the infor"ation is historica,

it&s retrospective# The infor"ation and the processing are often ro(tine# Ever!

"onth the! do an aged receivabes printo(t or a so%3"oving inventor! printo(t

and fina! the infor"ation is a"ost a%a!s interna# For ea"pe, the! "ight be

co"paring act(a res(ts %ith b(dget res(ts#

In bet%een these t%o etre"es !o( have the tactica eve# B! and arge a

tactica "anager is concerned %ith a !ear&s res(ts# Are %e going to hit b(dget;

Are %e going to sta! %ithin the epense constraints; The! re4(ire so"e sort of

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"i of infor"ation, and so"e aspects of %i be i*e that re4(ired b! the strategic

eve, and so"e "ore i*e that re4(ired b! the operationa eves#

"nternal and e+ternal information

0ere are so"e ea"pes of interna and eterna infor"ation# Be a%are of thever! %ide variet! of infor"ation and infor"ation so(rces that "ight be (sef( to

organisations#

o Interna so(rces

Saes ana!ses

Inventor! reports

.ebtor aging

Attendance records

o Eterna so(rces

Internet

+ar*eting iterat(re

Conferences and co(rses

Co""ercia databases

?overn"ent

Chapter 8 An organisation&s

environ"ent)nvironmental influences % .)T )L0

This paper is caed The Acco(ntant in B(siness# And of co(rse b(sinesses eist

%ithin an environ"ent# It&s therefore (sef( to categori7e the environ"enta

inf(ences that b(sinesses "a! s(ffer# The $ESTE@ "ode oo*s at the

environ"enta inf(ences %hich are ver! arge: "acro3environ"enta# $ESTE@

stands for $oitica, Econo"ic, Socia, Technoogica, and reative! recent!,

Ecoogica and @ega# It&s eas! to see ho% these %i inf(ence ho% a b(siness

gets on#

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.olitical

For ea"pe 6oining the EU, poitica tensions, %ar, aiances can a inf(ence

"an! b(sinesses#

)conomic

It goes %itho(t sa!ing that econo"ic changes can have ver! serio(s inf(ences

on b(siness and (nder econo"ic %i co"e effects s(ch as interest rates,

echange rates, ta rates, and %hether the %ord econo"! see"s to be doing

%e or is in decine#

ocial

Socia changes inc(de %hat&s *no%n as &de"ographic changes&, that is, changes

in the pop(ation# And in "an! 'estern co(ntries, this is characterised b!

reative! fe% !o(ng peope and "ore and "ore od peope in the pop(ation#This can have serio(s i"pications %hen it co"es to recr(it"ent or in cac(ating

the pension or "edica iabiities of b(sinesses#

Tec$nological

Technoogica changes are eas! to (nderstand# /o( on! have to consider %hat

the Internet has done to "an! b(sinesses# Ban*s, for ea"pe, need fe%er

branches, as "ore and "ore peope opt to dea %ith their acco(nts onine# +an!

boo*shops and "(sic shops have been affected b! A"a7on %hich "a*es saes

onine thro(gh a sophisticated %ebsite.

)cological

Ecoogica inf(ences are reative! ne% considerations# These are effective!

green iss(es# So"e b(sinesses are affected "ore than others# Airines for

ea"pe are co"ing (nder increasing press(re beca(se it is cai"ed that 6et

trave "a*es da"aging e"issions high in the at"osphere# +ore and "ore

b(sinesses are pa!ing attention to pac*aging and to %aste disposa#

Legal

@ega is so"eti"es inc(ded (nder poitica inf(ences b(t obvio(s! ne% a%s,

s(ch as cons("er protection, safet! a%s, e"po!"ent protection can have

profo(nd effects on ho% b(sinesses operate#

Competitive forces

$orter&s > Forces "ode is a pop(ar and (sef( fra"e%or* %ith %hich to ana!se

ind(str! attractiveness#

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Ind(str! attractiveness refers to ho% eas! a b(siness %i find it to "a*e

reasonabe profits# And b! reasonabe profits %e "ean profits arge eno(gh to

co"pensate investors for their ris*, and aso to "a*e eno(gh "one! to reinvest

to *eep the co"pan!#

The first of the forces is co"petition or rivar!# This can range fro" perfectco"petition %here seers have no choice as to the seing price that is charged

the! are governed b! the "ar*et price a the %a! thro(gh to "onopo!# A

"onopo! gives seers "(ch "ore choice as to %hat price can be charged,

tho(gh the price %i nor"a! ater de"and# And re"e"ber, 6(st beca(se !o(

have a "onopo! doesn&t "ean !o( %i "a*e profits 3 !o( "ight be the

"onopo! s(ppier of so"ething nobod! %ants# 0o%ever, b! and arge, the

nearer an ind(str! gets to "onopo!, the easier a ti"e its participants %i have#

Therefore, provided it&s ega, it co(d be a (sef( strateg! to ta*e over a riva or

to force it o(t of b(siness b! perhaps o%ering prices te"porari!#

No% %e %i oo* at b(!er press(re# If b(!ers are ver! po%erf(, then the! can

eert press(re on prices, 4(ait! and deiver! ti"es# Seing a"ost a o(tp(t to a

fe% po%erf( b(!ers %i be an (nco"fortabe sit(ation# The "ore b(!ers !o(

have and the harder it is for the" to s%itch bet%een different s(ppiers, the

better# B(sinesses sho(d tr! to b(id in s%itching costs, that is, rea costs or

i"pedi"ents that "ean that b(!ers prefer to sta! %ith eisting s(ppiers#

Si"iar!, on the other side %hen !o( are b(!ing goods fro" s(ppiers, if !o(

have to b(! a specia co"ponent fro" a "onopo! s(ppier, !o( %i be in an

(nco"fortabe position# That s(ppier co(d raise prices and !o( have to pa!# Or

even %orse, that s(ppier co(d be ta*en over b! one of !o(r co"petitors, and

then !o( %i have no s(ppies at a# Idea! a fir" sho(d tr! to "(tiso(rce and

if the! get rea! %orried abo(t ass(rance of s(pp! the! sho(d thin* abo(t

setting (p their o%n s(pp! organisation or perhaps ta*ing over an eisting

s(ppier#

$otentia entrants are sitting on the edge of the ind(str! and "a! be attracted

into it if the! can see that good profits can be "ade# An!thing %hich *eeps o(t

potentia entrants is *no%n as a &barrier to entr! Occasiona!, potentia

entrants are deterred beca(se there is a ega "onopo! %ithin the b(siness#

So"eti"es reg(ations "a*e it hard for potentia entrants to get into a b(siness#For ea"pe, setting (p as a ban* is reative! diffic(t beca(se of the vario(s

reg(ator! a(thorities that have to give their per"ission# The needs for high

capita ependit(re and for *no%3ho% are t%o other i"pedi"ents to potentia

entrants#

S(bstit(te prod(cts arise (s(a! b! the advance of technoog!# Often the

appearance of s(bstit(tes %i s(rprise a b(siness and ta*e it off3g(ard# For

ea"pe, andine teephone co"panies tho(ght that the! %ere a"ost in a

"onopo! position beca(se the cost of digging (p roads and a!ing andines into

ho(ses, apart"ents and b(sinesses, %o(d have been a considerabe barrier to

entr!# 0o%ever, then "obie teephones, ce phone technoog!, %as invented,

and good teephone coverage can be achieved %ith "(ch ess epense# There is


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not "(ch !o( can do to avoid s(bstit(tes# Once technoog! is invented, it can&t

rea! be sent bac*# +ost od ind(stries have to 6oin the ne% ind(stries as %e#

So no% "an! conventiona teephone co"panies aso have "obie phone

net%or*s in an atte"pt to retain their overa "ar*et share in

teeco""(nications#

Chapter 9Organisational culture

Cultural web

'hereas $ESTE@ and $orter&s > forces reate to inf(ences o(tside the b(siness,

%ithin the b(siness its c(t(re is ver! i"portant# Chares 0and! defined the

c(t(re as the %a! %e do things aro(nd here#

/o( %i be a%are of the effect of c(t(re# For ea"pe %henever !o( 6oin a ne%

organisation, %hether schoo or coege or %or*, !o( tend to go caref(! for the

first co(pe of da!s or co(pe of %ee*s (nti !o( see ho% peope behave, and

then !o( tr! to fit in (s(a!#

Starting at the top, symbols and titles# Are !o( an organisation %ith "an!

presidents and vice3presidents; 'here ever!one has a partic(ar tite i"p!ing

that the organisation "ight be rather for"a; 'here s!"bos "ight be those

s(ch as a private dining roo" for top "anagers or reserved par*ing spaces or

partic(ar per*s %hich on! those of a certain grade obtain; So"e organisations

are 4(ite hierarchica i*e that) others tr! to be "(ch "ore egaitarian#

.ower relations*.o top "anagers *eep "ost po%er to the"seves or is it

dispersed; Are !o( tod %hat to do or is it "ore i*e! !o( %i be as*ed to

contrib(te !o(r ideas abo(t %hat sho(d be done;

1rganisational structure*So"e organisations are %hat&s *no%n as &ta

narro%& %ith "an! a!ers, each a!er being caref(! s(pervised b! the

s(pervisor or "anager above# Other organisations are %hat&s *no%n as &fat

%ide& organisations, reative! fe% vertica a!ers and each "anager therefore

having to oo* after a reative! arge n("ber of peope, b(t inevitab! beca(se

the! are oo*ing after "ore peope, peope have to be better at oo*ing after

the"seves#

Control systems*For ea"pe ho% caref(! do !o( have to acco(nt for !o(r

ti"e# So"e organisations, perhaps for biing p(rposes, insist that peope record

%hat the! are doing ever! 15 "in(tes# Other organisations don&t contro

individ(a activities 4(ite so cose! and are "ore interested in the overa

res(ts#

ituals and routines*For ea"pe, in so"e organisations %hen a sae is "ade,

the person %ho has "ade the sae has to stand (p and ring a be# Other peope

then appa(d# To so"e of !o( this "a! see" chidish# B(t those organisations%hich do it pres("ab! thin* it&s %orth%hie in ter"s of "orae3boosting and


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chaenging others %ho have not !et "ade the sae# In so"e organisations !o(

are epected to sociai7e, sa! on a Frida! evening after %or*#

Myt$s and stories*0o% the co"pan! in the past %on a partic(ar contract

%hich %as ver! va(abe, the %a! in %hich a cever presentation %as "ade or

the %a! in %hich the! %or*ed hard against the coc* to ens(re that a 6ob %asfinished on ti"e#

1rganisational assumptions*For ea"pe the ass("ption that %e are the

best, that %e are never beaten, that %e on! prod(ce %or* of the highest 4(ait!#

Types of culture % 2andy's classification

Chares 0and! identified fo(r t!pes of organisationa c(t(re# Each of these

categories %as given the na"e of a ?ree* god# I don&t thin* those na"es are

ver! (sef( b(t !o( o(ght to *no% the" for the ea" an!ho%#

power culture* First, there is the po%er c(t(re Ge(s# In the po%er c(t(re

po%er is concentrated in the hands of essentia! one person, the boss 3 probab!

the person %ho started the co"pan!, or at east the person %hose na"e is

probab! the sa"e as the co"pan!# This person&s %ord is a%# There is ver! itte

deegation, ver! itte decentraisation# A"ost a decisions are "ade b! that

person#

ole culture*It beco"es diffic(t to s(stain a po%er c(t(re as the b(siness

gro%s, there is si"p! too "(ch to *no%, too "(ch to do, and it "a! then

change into a roe c(t(re Apoo# In the roe c(t(re there is effective! a

"anage"ent str(ct(re %ith different peope having different roes# The probe"

%ith the roe c(t(re is that so"eti"es the tite, the 6ob, is regarded as "ore

i"portant than act(a! getting the 6ob done# Often associated %ith roe c(t(re

are ver! strict 6ob specifications and if so"ething isn&t on the specification then

peope %i ref(se to do it even if it h(rts a cient or c(sto"er#

Tas- culture*The tas* c(t(re Athena is %here there is a great e"phasis on

getting the 6ob done and achieving the tas*# $eope do not depend so "(ch on

their 6ob specifications or their partic(ar pace in a hierarch!# -ea!, ever!one

p(s together for the sa*e of the organisation and to pease cients and

c(sto"ers#

.erson culture*A reative! rare t!pe of c(t(re is the person organisation

.ion!s(s# 0ere !o( have peope %ho are essentia! p(rs(ing a private

a"bition in the contet of an organisation# It&s not ver! i"portant in b(siness# An

ea"pe "ight be a s(rgeon in a hospita# The s(rgeon gets enor"o(s 6ob

satisfaction fro" perfor"ing operations and "a*ing peope better# To so"e

etent s(rgeons "ight not be terrib! interested in interacting %ith the rest of

the organisation# The! are there pri"ari! to fi their persona a"bitions and the

rest of the organisation is a"ost an essentia evi#

c$ein % t$ree levels of culture


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Schein (sef(! identified three eves of c(t(re#

rtifacts*The top"ost and the "ost s(perficia eve is that of artifacts# These

are essentia! %hat !o( see, the %a! peope dress, the %a! the! behave, the

str(ct(re of the co"pan! as set o(t in the organisation chart, the %a! in %hich

!o( have to have !o(r epenses approved# These are "ost obvio(s things that!o( see %hen !o( 6oin an organisation b(t in so"e %a!s the east i"portant#

)spoused values*At a sight! deeper eve are espo(sed va(es# These are the

stated goas, strategies, and phiosophies# The "ission state"ent of a co"pan!,

for ea"pe, "a! set o(t %hat the co"pan!&s p(rpose is and ho% it perceives

itsef %ithin the "ar*etpace, ho% it va(es e"po!ees, ho% it tries not to har"

the environ"ent#

(nderlying assumptions*The "ost f(nda"enta eve is the basic

(nder!ing ass("ptions# These are ver! i"portant b(t are often the "ost

diffic(t to identif! and to (nderstand# The! %i often not be stated, b(t there is

an ass("ption abo(t the 4(ait! of %or*, abo(t never "issing deadines, abo(t

o(r %iingness to %or* overti"e even if not aid in order to hit a deadine, the

ass("ption that %e are the best# It can ta*e ti"e before these basic (nder!ing

ass("ptions are (nderstood b! ne% members of organizations*

3ational cultures

0ofstede ea"ined ho% peope fro" different co(ntries are i*e! to deveop

different organisationa c(t(res and ho% nationa c(t(re inf(ences ho% peope

%or* and epect to be "anaged# 0ofstede identified the foo%ing variabes:

.ower/distance*.o peope epect to be tod %hat to do and then do it %itho(t

4(estion; Or do peope co"e fro" a nationa c(t(re %here that approach %o(d

not be epected and probab! not be acceptabe, %here the! epect to have a

"ore participative roe to contrib(te to decisions;

(ncertainty avoidance*So"e nationa c(t(res sh! a%a! fro" ta*ing ris*s)

those peope "a! prefer certaint!# The! don&t co"e fro" a bac*gro(nd %hich

epects peope to ta*e ga"bes and %hich s(pports fai(re# It&s so"eti"es said

that the A"erican b(siness c(t(re is one %here fai(re, and effective! therefore

(ncertaint!, is %e toerated, that there is no disgrace in tr!ing and faiing, andthe on! disgrace is in not tr!ing# It co(d be that this is %hat part! contrib(tes

to the d!na"is" of the A"erican econo"!#

"ndividualism%collectivism* To %hat etent are a peope %ithin the

organisation epected to agree %ith partic(ar decisions and to confor" to %hat

other peope are doing, or are the! epected to go their o%n %a!; To a arge

etent apanese c(t(re epects coectivis"# Ever!one is epected to agree on

%hat&s being done and an individ(a approach is fro%ned (pon# In so"e

co(ntries individ(a approaches are i*e! to be praised and the! have great

respect for the "averic*#


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Masculinity*This oo*s at the etent to %hich socia gender roes are i"portant#

C(t(res %ith high "asc(init! va(e assertiveness, co"petition, "ateria

s(ccess, and being do"inant, %hereas in those c(t(res fe"inine va(es of

"odest!, reaching consens(s, (nderstanding, and reationships are not va(ed

so high!#

C$apter 4 n organization5s

sta-e$olders

ta-e$olders

The ter" sta*ehoder refers to an! person or instit(tion in an! %a! affected b!

organisation# Sta*ehoders can be bro*en do%n into three gro(ps tho(gh this is

not partic(ar! hepf(#

"nternal sta-e$olders are those %ho are definite! inside the organisation# A

good ea"pe %o(d be the e"po!ees, the sharehoders and the "anagers#

Connected sta-e$oldersare o(tside the organisation b(t connected b! %a! of

a contract of so"e sort# ?ood ea"pes here %i be s(ppiers, c(sto"ers, and

enders#

)+ternal sta-e$oldersare entire! o(tside the organisation %ith no contract(a

reationship# The best ea"pe for this is %i be the peope iving nearb! a

factor!# The! are obvio(s! affected, b(t have ver! i"ited contract(a rights

over %hat the factor! does#

'h! is the st(d! of sta*ehoders i"portant; -ea! the reason is that (s(a!

%hat sta*ehoders %ant %i be in confict# Sharehoders %ant higher profits b(t

e"po!ees %ant higher %ages) c(sto"ers %ant better 4(ait! at o%er prices,

sharehoders %ant better profit) c(sto"ers "a! %ant the operation to r(n 59

ho(rs a da!, da!s a %ee* b(t e"po!ees "ight %ant to on! %or* > da!s a

%ee*, ho(rs a da!# If !o(r organisation %as an airport the oca pop(ace %o(d

%ant !o( to r(n fe%er fights and certain! not after abo(t 11 o&coc* at night,

%hereas !o(r c(sto"ers and !o(r sharehoders "a! %ant !o( to r(n services

"ore fre4(ent!#

There is no eas! %a! of resoving these conficts# Basica! it co"es do%n to

"anage"ent tr!ing to get sta*ehoders to co"pro"ise# The! have to tr! and

*eep "ost peope happ! "ost of the ti"e, bearing in "ind, ho%ever, that so"e

sta*ehoders "a! be abe to stop cooperating atogether# For ea"pe %hen

e"po!ees %ant better %ages, the! co(d go on stri*e and (ti"ate! this can

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affect the profits %hich are en6o!ed b! the sharehoders# +anage"ent has to be

a%are that there are conficts and tr! its best to "anage these#

Mendelow

Abo(t the on! too or "ode avaiabe for the ana!sis of sta*ehoders is+endeo%&s "atri#

It sets o(t on one ais the po%er that a sta*ehoder can %ied# And aong the

other ais their interest, b! %hich %e "ean ho% i*e! is it that the sta*ehoder

%i ta*e action# Sta*ehoders %ho have high po%er and high interest are *no%n

as *e! pa!ers# +anage"ent rea! needs to *eep those peope happ!# The!

have the po%er and the! have the %iingness to do so"ething abo(t it if the!

are (pset#

So"e sta*ehoders have high po%er b(t the! are not i*e! to ta*e action even if

"anage"ent does so"ething %hich the! disi*e# The! "a! be (n%iing to ta*e

action beca(se of professiona or ethica reasons# For ea"pe, "edica staff in

hospitas is ver! (ni*e! to ta*e ind(stria action# +anage"ent doesn&t have to

be 4(ite so caref( %ith these peope# 0o%ever the! have to be *ept satisfied,

other%ise the! co(d be provo*ed to ta*e action and t(rn into *e! pa!ers#

$eope %ith o% po%er b(t high interest have to be *ept infor"ed# The! can&t do

"(ch abo(t it the"seves b(t the! "ight be abe to inf(ence *e! pa!ers to ta*e

action on their behaf#

Fina! %e have peope %ith o% po%er and o% interest# +anage"ent can near!

ignore these peope# After a, %hat are the! going to do if the! don&t i*e %hat&s

happening;

C$apter 6 Corporate

governance and et$ical

considerations

Corporate governance

Corporate governance refers to ho% co"panies are directed and controed#

The rea probe" is the separation of o%nership and contro#

Sharehoders o%n the co"pan!, b(t (ness the co"pan! is ver! s"a the! %i

not nor"a! be deaing %ith the da!3to3da! r(nning of the co"pan!# Instead

sharehoders appoint directors to do that# Technica! the directors are the

agents of the sharehoders# The sharehoders are the principas in thisreationship and the directors sho(d act in the best interests of the

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sharehoders# Another %a! of describing this is ste%ardship# The directors are

the ste%ards of the co"pan! assets# The! oo* after the" on behaf of the

sharehoders# B(t ho% do %e *no% if the directors are acting in this %a!;

.irectors have da!3to3da! "anage"ent responsibiities and sharehoders "a!

on! get a set of acco(nts once a !ear and attend an ann(a genera "eetingonce a !ear# It can therefore be ver! diffic(t for the sharehoders to *no%

%hether or not the directors are r(nning the co"pan! in the sharehoders& best

interests# There have been "an! ea"pes of directors ab(sing the tr(st p(t in

the" b! the sharehoders# The! can a%ard the"seves ecessive a"o(nts of

saar! and share options, give the"seves genero(s per*s) the! can "a*e oans

fro" the co"pan! to the"seves) the! can ta*e (nd(e ris*s beca(se, if the ris*

pa!s off the directors& saaries "a! increase, b(t if the ris* doesn&t pa! off it&s

the sharehoders %ho %i ose the "ost, and the directors& positions can re"ain

reative! sec(re#

Corporate governance r(es have recent! been tightened (p so that

sharehoders can better "onitor %hat the directors are doing and ho% their

co"pan! is act(a! perfor"ing#

)lements of corporate governance

+an! of the "odern ee"ents of corporate governance reate to the board#

There has to be a baance of eec(tive and non3eec(tive directors# A baance"eans abo(t haf and haf# Non3eec(tive directors ta*e no part in the da!3to3

da! r(nning of the co"pan! b(t the! do attend board "eetings and have f(

voting po%er at those "eetings# Their f(nction is to %arn, advice and "onitor

%hat the eec(tive directors are doing#

The offices of chair"an and chief eec(tive officer sho(d be hed b! different

peope so that too "(ch po%er is not given to one person#

There has no% to be a remuneration committee# The p(rpose of this

co""ittee is to fi the re"(neration of the directors# It (sed to be that the

directors co(d fi their o%n re"(neration and this %as obvio(s! open to ab(se#The "a6orit! of "e"bers of the re"(neration co""ittee are non3eec(tive

directors#

There aso has to be an appointments committeeoo*ing after the

appoint"ent of ne% directors# There had been an ab(se insofar the directors

%o(d appoint their friends to their co"panies# No% appoint"ents have to be at

ar"&s ength# The! %i be advertised i*e the appoint"ent of an! other

e"po!ee# There %i be intervie%s of potentia candidates and the best one %i

be appointed#

The audit committeeoo*s after the reationship bet%een the a(ditors and the

co"pan!# It (sed to be that a(ditors pri"ari! co""(nicated %ith the financia

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director b(t, of co(rse, the financia director had responsibiit! for the financia

s!ste" and the acco(nts and it %as (nsatisfactor! for the a(ditors to have to

co"pain to the finance director that the! %eren&t getting a the infor"ation

the! re4(ired, or that the set of interna contro %ithin the co"pan! %as

inade4(ate# No% there is an independent a(dit co""ittee, again consisting

pri"ari! of non3eec(tive directors and this co""ittee oo*s after the

appoint"ent, re"(neration and other "atters of co""(nication %ith the

a(ditors#

There is no% a re4(ire"ent that the directors insta a proper s!ste" of internal

control# 0o% ese the directors co(d be said to be proper! "anaging the

co"pan! if the! didn&t have a set of interna contro %hich oo*ed after the

proper recording of transactions and safeg(arded the assets of the co"pan!#

T$ere are two main approac$es to t$e system of corporate governance*

First there is the co"piance3based approach %hich is favo(red b! the US

a(thorities# 0ere the directors and the a(ditors have to sign off a arge

a"o(nt of doc("entation affir"ing that specific aspects of corporate

governance are in pace#

The approach favo(red b! E(ropean 6(risdictions is a principes3based

approach# 0ere !o( don&t sign off detaied affir"ations that partic(ar

aspects of corporate governance %ere in pace# Instead, !o( are oo*ing

"(ch "ore at the spirit of corporate governance#

Combined code of corporate governance

In the U2 the corporate governance r(es do not have the force of a%# Instead

the! are fo(nd in %hat&s caed the Combined Code of Corporate

7overnance, and this is a code %hich is enforced b! the Stoc* Echange# @isted

co"panies are epected to co"p!# If the! don&t co"p!, the reason for non3

co"piance "(st be epained in the ann(a report# And, indeed, the a(dit report

%i refer to %hether or not there is non3co"piance#

Corporate ocial esponsibility

'e stated earier that sharehoders o%n co"panies and the! appoint directors to

r(n the co"panies for the benefit of the sharehoders# That is certain! the ega

position, b(t recent! peope have 4(estioned %hether r(nning co"panies p(re!

for the benefit of sharehoders is a that sho(d be done# This has given rise to

the so"e%hat fashionabe idea of corporate social responsibility#

To %hat etent sho(d the interests of other sta*ehoders be ta*en into acco(nt;

For ea"pe, certain! co"panies sho(d be r(n %ithin the a% and no do(bt

there are a%s reating to "ini"(" %ages, "ai"(" %or*ing %ee*s, andper"itted eves of po(tion# If co"panies adhere to those a%s sho(d the! go

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f(rther; Sho(d the! pa! peope "(ch in ecess of the "ini"("; Sho(d the!

red(ce the ho(rs that peope have to %or*; Sho(d the! tighten (p even f(rther

on the discharges "ade fro" the factor!;

+an! observers arg(e that co"panies sho(d go f(rther than si"p! "eet the

"ini"(" obigations as set b! a%# B(t this can be a diffic(t area# First of a,going f(rther %ith these socia responsibiities nor"a! red(ces the profit of a

co"pan!# $rofit is of itsef a good thing) profit enabes a co"pan! to eist "ore

per"anent!, to p(t "one! into research and deveop"ent, to give "ore stabe

e"po!"ent# And of co(rse, the higher the profit, the higher the taes, and taes

are then spent for the good of societ! as a %hoe# Co"panies sho(d certain!

not be e"barrassed abo(t "a*ing profits#

Second! it can be arg(ed that instead of a co"pan!, sa! "a*ing charitabe

donations, sharehoders if the! get arger dividends can "a*e those donations

the"seves, and f(rther"ore, the! can "a*e those donations to parties the! fee"ost deserving#

Third!, do directors have the ega a(thorit! to "a*e non3essentia pa!"ents;

This is the directors (sing co"pan! assets %hich are (ti"ate! the assets of the

sharehoders# $eope co(d arg(e that the! have no right to give those a%a! or

to spend the" needess!#

B(t ast! %ho decides the beneficiaries; Are the beneficiaries si"p! the pet

charities and interests of the directors; 'hat eact! is a de"ocratic reationship

%hen it co"es to decide %ho benefits fro" the etra donations or the etra

benefits distrib(ted a"ongst non3 sharehoders;

)t$ics 8 importance

There are vaid arg("ents abo(t %hether or not a co"pan! sho(d adopt

corporate socia responsibiit!# B(t %hen it co"es to ethics there is ver! itte

arg("ent, and one doesn&t have to appea to a "ora or ethica stance to see

that co"panies sho(d be ethica# An ethica stance can be 6(stified on a p(re!

econo"ic basis# This rests on the fact that if the co"pan! acts (nethica! or

i""ora!, it %i (s(a! be fo(nd o(t, and %hen it is fo(nd o(t it is (s(a!

p(nished, either thro(gh the operation of the a%, co"pensation, or b! the oss

of good%i and rep(tation# Therefore, an ethica co"pan! red(ces ris*#

Ever!one can "a*e "ista*es b(t if !o( o%n (p to "ista*es then !o( are i"iting

the da"age, and !o( are red(cing the ris* that f(rther da"age %i be done and

the p(nitive da"ages that "a! ater be a%arded against !o(#

If ris* is o%er so too is cost# Ethica organisations often have to spend ess

ens(ring that reg(ations are foo%ed# @o%er ris*s aso "ean that ban*s and

other providers of capita %i be %iing to s(pp! the "one! at o%er rates# In

genera o%er ret(rns are re4(ired beca(se ris* and ret(rn go together#

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If !o(r rep(tation is good, !o( are "ore i*e! to find good, %iing partners %ith

%ho" !o( can co3operate perhaps to for" 6oint vent(res or perhaps 6(st to be

satisfied c(sto"ers#

A good rep(tation %i tend to attract better e"po!ees# No one rea! %ants to

be associated if possibe %ith a co"pan! %hich has a rep(tation %hich is poor#

Fina!, a good rep(tation sho(d increase good%i and increase saes#

Co"panies %hich are regarded as being (nethica tend not to be tr(sted and

certain! not i*ed b! c(sto"ers# C(sto"ers %i a%a!s be tr!ing to find an

aternative#

Therefore for ver! so(nd co""ercia reasons, it pa!s co"panies to be ethica#

"ndividual influences on et$ical be$avior

There are a n("ber of individ(a inf(ences on one&s ethica behavior#

3ational and cultural beliefs*One is inf(enced b! nationa and c(t(ra

beiefs# It&s eas! to see that different c(t(res have different vie%s of %hat is

acceptabe and (nacceptabe) si"iar!, different co(ntries#

)ducation and employment*It&s possibe to arg(e that better3ed(cated

peope and those %ho %or* in %hat "ight be caed &professiona 6obs& have

perhaps a "ore high! deveoped sense of ethica behavior#

.syc$ological factors*So"e peope fear being fo(nd o(t and this is a

"ain reason %h! the! don&t do an!thing %rong# Other peope tend to see*ris*s and if !o( see* ris*s it co(d be arg(ed that !o(r ethica behavior

"ight not be so strict#

.ersonal integrity*So"e peope %o(d never do an!thing %rong, a

co"bination of the %a! the! have been bro(ght (p, parenta and fa"i!

inf(ences# Other peope see" to be abe to co""it even reative! arge

breaches of ethica behavior %itho(t %orr!ing abo(t it at a#

Moral imagination*This refers to the idea that %hat "ight "a*e (s

ethica is being abe to i"agine the effect on the other part! if %e act(nethica!# It&s *ind of %anting to treat other peope in the %a! %e %o(d

i*e to be treated# 'e can i"agine their disco"fort and pain and

disadvantage if %e act (nethica! to%ards the"#

ituational influences on et$ical be$avior

There are aso so"e sit(ationa inf(ences on ethica behavior#

eward mec$anisms*If, for ea"pe, !o( are ver! high! re%arded for

hitting a b(dget, this co(d pers(ade !o( to record infor"ation incorrect!

so that !o( sho% satisfactor! perfor"ance# Indeed, so"e of the ca(ses ofcorporate fai(re, partic(ar! the arge financia scandas that happened

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d(ring the 1

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The first stance sa!s that it is the p(rpose of co"panies to oo* after

sharehoders, and in partic(ar the short3ter" interests of sharehoders# This %i

ao% the" to do a"ost an!thing %hich "ai"i7es short3ter" profits#

The second stance oo*s at the ong3ter" interests of sharehoders# This is "ore

ethica si"p! beca(se in the ong r(n (nethica behavio(r is "ore i*e! to bep(nished# If !o( are fo(nd to have cheated, or !o(r prod(cts har" peope, then

the short3ter" profits "a! be increased, b(t onger3ter" profits %i be

decreased %hen !o( are fo(nd o(t#

Third, "(tipe sta*ehoder obigations# In other %ords, %idening obigations

be!ond 6(st sharehoders to sta*ehoders in genera# So one has to ta*e into

acco(nt e"po!ees, s(ppiers, c(sto"ers, the oca pop(ation, and govern"ent

%hen "a*ing decisions abo(t the co"pan!#

Fina! there is the shape of societ! %here a co"pan! or organisation sets o(t to

f(nda"enta! change the %a! societ! is r(n# So"e co"panies, for ea"pe,

"a! atte"pt to be ver! green and ver! ecoogica! respectabe# B(t it&s diffic(t

to *no% to %hat etent the! sho(d be doing this# Are co"panies and individ(a

organisations the proper bodies to shape societ!; Sho(d that not be

govern"ent; Nevertheess there have been so"e ea"pes of co"panies %hich

have ta*en partic(ar ethica stances and %hich have had a profo(nd inf(ence

on other co"panies in the econo"!#

C$apter ccountancy and

t$e accountancy profession

"nfluence of t$e accountancy profession

The acco(nting profession has the ver! %ide3ranging inf(ence#

!inancial accounting*The acco(ntanc! profession deas %ith ho% ite"s

sho(d be sho%n in the acco(nts# In other %ords, the! estabish the

acco(nting standards#

uditing*Once co"panies get to a partic(ar si7e the! have to be a(dited#

An a(dit is an independent gathering of evidence that ao%s the acco(ntants

to report %hether or not the acco(nts prod(ced b! the co"pan! sho% a tr(e

and fair vie%#

Management accounting# 'ithin co"panies there needs to be

"anage"ent acco(nting# This %i be oo*ing at b(dgets, f(t(re esti"ates

and %i be recording on a "onth3to3"onth basis ho% the co"pan! is doing,

and investigating %h! it "ight not be on trac* to hit the re4(ired profits#


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Consulting*+an! acco(ntants aso provide cons(tanc!# For ea"pe

reating to the IT s!ste", partic(ar! for the acco(nts f(nction, and in setting

(p re"(neration sche"es and s!ste"s of interna contro#

Ta+ation*Acco(ntants have a ver! i"portant roe in heping organisations to

cac(ate their ta iabiities and reporting this to the govern"ent reven(e

a(thorities#

7overnment*'ithin the p(bic sector, that is govern"ent organisations,

acco(ntants are ver! i"portant in trac*ing and recording the ependit(re of

p(bic f(nds that have been raised b! taation#

.rofessional et$ical codes

The Internationa Federation of Acco(ntants is the goba organisation of the

acco(ntanc! profession# It %or*s in over 15= co(ntries and 6(risdictions toprotect the p(bic interest b! enco(raging high34(ait! practices b! the %ord&s

acco(ntants# Thro(gh its independent standard3setting boards, IFAC deveops

internationa standards on ethics, a(diting and ass(rance, ed(cation and p(bic

sector acco(nting standards# It aso iss(es g(idance to s(pport professiona

acco(ntants in b(siness, s"a and "edi(" practices and deveoping nations#

The IFAC Code of Ethics is a good i(stration of a professiona ethica g(ide# The

code states that the acco(ntanc! profession has a responsibiit! to act in the

p(bic interest and it then goes on to estabish detaied g(idance on f(nda"enta

principes and ethics# /o( %i short! see %hat the f(nda"enta principes refer

to#

0aving identified the f(nda"enta principes, the fra"e%or* then re4(ires

acco(ntants to identif!, eva(ate, and address the threats to co"piance,

app!ing safeg(ards to ei"inate the threats or to red(ce the" to an acceptabe

eve# For ea"pe, !o( %i short! see that one of the f(nda"enta principes is

independence# B(t ho% can an a(ditor be independent if the a(ditor receives an

a(dit fee fro" the cient; So there %e have a f(nda"enta principe and %e have

identified a potentia threat to that f(nda"enta principe# The safeg(ard appied

is to p(t a i"it on the a"o(nt of fees co"ing fro" an! one cient so that the

a(ditor %o(d not fee (nd(! threatened if that cient %ere to eave after adisp(te abo(t the acco(nts#

CC Code of )t$ics and Conduct*

The ACCA&s f(nda"enta principes are as foo%s:

"ntegrity*Basica!, this "eans that the "e"bers sho(d be honest and

straightfor%ard# If the! see so"ething is a"iss, the! sho(d sa! so# The!

sho(dn&t tr! to concea, the! sho(dn&t tr! to be a"big(o(s# The! sho(d

state things pain!#


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1b;ectivity*+e"bers sho(d be inf(enced b! the facts and the facts on!#

The! "(st avoid bias, confict of interest, and (nd(e inf(ence#

.rofessional competence and due care*Acco(ntants "(st *eep

the"seves (p to date %ith egisation and recent deveop"ents# The!

sho(dn&t ta*e on %or* %hich the! are not 4(aified for or for %hich the! have

no s*is# The! "(st be diigent, the! "(st be caref(#

Confidentiality* +e"bers, partic(ar! perhaps a(ditors, have access to

infor"ation %hich is high! confidentia and %hich is price3sensitive# That

infor"ation "(st be hed confidentia!# +e"bers sho(d not discose

confidentia infor"ation (ness the! have a ega or professiona d(t! to do

so# An ea"pe of the ega d(t! to discose infor"ation can arise if a "e"ber

thin*s that a cient or the person that the! are %or*ing for is invoved in

"one! a(ndering# +an! co(ntries have ver! strong reg(ations no%ada!s

stating that "one! a(ndering s(spects sho(d be reported to the a(thorities#

.rofessional be$aviour*Acco(ntants sho(d co"p! %ith the a% and the!

sho(d avoid an! action %hich discredits the profession# So, for ea"pe,

%hen the! are tr!ing to advertise their services, the! sho(dn&t sa! that other

"e"bers are bad or poor# The! sho(d confine the"seves to pro"oting %hat

the! are good at# The! sho(dn&t r(bbish other professionas#

(sers of accounting information

The potentia (ses of acco(nting infor"ation inc(de:

+anagers of the co"pan!#

Sharehoders of the co"pan!#

Trade contacts: s(ppiers and

c(sto"ers#

$roviders of finance to the co"pan!#

The Inand -even(e#

E"po!ees of the co"pan!#

Financia ana!sts and advisers#

?overn"ent and their agencies#

The p(bic#

Management accounts and financial accounts


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'e ta* abo(t &acco(nts& b(t rea! %e sho(d ta* abo(t &financia state"ents&

and the financia state"ents co"prise the:

$rofit and oss acco(nt or no%ada!s that %i be caed the inco"e state"ent#

Baance sheet, probab! no%ada!s caed the state"ent of financia position,

Cash fo% state"ent,

Notes to these doc("ents

State"ent of reserves#

The eterna a(ditors oo* at these financia state"ents, do "an! chec*s, and

co"e to a conc(sion abo(t the"#

&Tr(e& "eans that the financia state"ents are "ore or ess arith"etica!acc(rate#

&Fair& is a sight! "ore diffic(t concept and "eans the! are not "iseading#

So"ething can be arith"etica! acc(rate, !et sti give an incorrect

i"pression#

Additiona!, the a(ditors ea"ine the s!ste" of interna contro of the co"pan!

and transactions that happened d(ring the !ear and the! then prod(ce reports

to "anage"ent o(t their acco(nting proced(res# So if the a(ditors find for

ea"pe that invoices are not being priced (p proper!, the! %i report this to

"anage"ent, and "anage"ent can then ta*e action to tr! to ens(re that anderrors or probe"s do not occ(r again in the f(t(re#

T$e regulatory system

In the U2, acco(nts are reg(ated as foo%s:

Company law*This, for ea"pe, insists that co"panies prod(ce acco(nts

ro(gh! ever! !ear# Atho(gh there are certain stat(tor! discos(res set o(t in

co"pan! a%, b! and arge co"pan! a% doesn&t go into h(ge a"o(nts of

detai abo(t eact! ho% different ee"ents of the financia state"ents "(st

be sho%n# That&s rea! too co"pe a "atter to have in a% beca(se fre4(ent

changes and great epertise is needed to decide ho% things sho(d best be

sho%n#

ccounting standards*The detaied reg(ations abo(t discos(re and

presentation are (s(a! fo(nd in the acco(nting standards# The "a6or bodies

of acco(ntants "(st s(bscribe to the acco(nting standards# The s!ste" for

estabishing acco(nting standards is headed (p b! the Financia -eporting

Co(nci and, in partic(ar, the Acco(nting Standards Board iss(e acco(nting

standards# Its standards are caed the financia reporting standards or F-Ss#

In genera, a sets of financia state"ents sho(d co"p! %ith the financiareporting standards#

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(rgent issues tas-force* Fro" ti"e to ti"e (rgent iss(es arise, for

ea"pe, the recent ban*ing crisis co(d potentia! have given rise to iss(es

%hich had to be deat %ith ver! 4(ic*!# -ather than going thro(gh the f(

and perhaps rather so% process of estabishing financia reporting standards

in the nor"a %a!, the Urgent Iss(es Tas* Force can dea %ith these (rgent

"atters 4(ic*!#

!inancial eporting eview .anel*So"eti"es co"panies depart fro" the

financia reporting standards and the Financia -eporting -evie% $ane is

concerned %ith ea"ining and 4(estioning %h! that has ta*en pace#

Occasiona! the! "a! conc(de the depart(re is 6(stified, b(t this tends to be

a reative! rare occ(rrence#

7.

?AA$ stands for ?enera! Accepted Acco(nting $ractice# This is a co""on set of

acco(nting principes, standards and proced(res that co"panies (se to co"pie

their financia state"ents#

A$ is a co"bination of stat(te, acco(nting standards, internationa acco(nting

standards, stoc* echange r(es, and convention# ?AA$ are i"posed on

co"panies so that investors have a "ini"(" eve of consistenc! in the financia

state"ents the! (se %hen ana!sing co"panies for invest"ent p(rposes#

Co"panies are epected to foo% ?AA$ r(es in reporting their financia data

thro(gh their financia state"ents#

C$apter < "nternal control

and t$e implications of

fraud"nternal controls

The ter" &interna contros& refers to the coection of "echanis"s %hereb! an

organisation tries to ens(re that a its transactions are proper! a(thorised and

recorded, and that its assets are safeg(arded# The proper "anage"ent of a

b(siness and indeed no% part of corporate governance re4(ire"ents "eans

that there has to be a good s!ste" of interna contro in pace if directors and

other "anagers are going to eercise their ste%ardship responsibiities correct!#

The s!ste"s of interna contros fa into t%o parts#

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Control environment*This essentia! refers to the c(t(re %ithin the

organisation# So"e organisations p(t a ver! high priorit! on having a good

s!ste" of interna contro in pace %hereas others see these as a n(isance# If the

s!ste" of interna contro is going to be effective there "(st be a good contro

environ"ent, other%ise detaied contros %hich are there in theor! %o(d si"p!

be ignored in practice beca(se peope don&t fee that these are i"portant#

Detailed control processes*For ea"pe

If so"eone %or*s overti"e !o( epect this to be a(thorised b! a "anager#

Once a s(ppier&s invoice has been paid, !o( epect that to be canceed in

so"e %a! to prevent it being paid t%ice#

Before !o( send goods to a ne% c(sto"er !o( sho(d ta*e (p credit

references, perhaps b! %riting to their ban* and then setting a credit i"it#

It sho(d be i"possibe to dispatch goods to that c(sto"er if it p(ts it over

their credit i"it#

There sho(d be a s!ste" of revie%ing receivabes and foo%ing (p so%

pa!"ents to tr! to prevent the occ(rrence of bad debts#

"mplications of fraud

If a good s!ste" of interna contro is not in pace and if corporate governance is

not operating correct! then there is a "(ch higher chance that fra(d %i occ(r,

and this has got serio(s i"pications#

!inancial*The co"pan! "a! find that it hasn&t "ade the profit it tho(ght, it

"a! have ost assets, it "ight have a i4(idit! crisis# +ost fra(d "eans re"oving

assets fro" a co"pan! and of co(rse this %i adverse! affects its perfor"ance#

Misrepresentation*At a higher eve directors so"eti"es co""it fra(d to

"isrepresent ho% the co"pan! is act(a! doing, and there have been severa

high profie events recent! %here financia instit(tions have pretended to be in a

"(ch better sit(ation than the! act(a! %ere#

If the finances of the co"pan! are incorrect! recorded then incorrect decisions

co(d be "ade# The co"pan! "ight decide to epand %hen in fact the cash is

not there or it "a! thin* a partic(ar cost is ver! high, b(t that cost has

artificia! been boosted beca(se of a fra(d# And fina! the

eputation*The rep(tation of the co"pan! co(d be bad! affected, and indeed

"an! co"panies, for reative! "inor fra(ds, prefer to *eep these secret# It

doesn&t oo* good if the directors have to ad"it that so"eone has been

defra(ding the co"pan! over a n("ber of !ears# It rather "a*es peope as*:

%hat have the directors been doing; 0o% co"petent are the!; .o %e %ant to

have deaings %ith that co"pan!;

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Detecting and preventing fraud

$reventing and detecting fra(d depends on the foo%ing:

First, a good internal control system# As %e said before, "a*e s(re that

overti"e pa!"ents are a(thorised, p(rchases are a(thorised, invoices arecanceed, ban* reconciiations are perfor"ed and so on# This "a*es it "(ch

"ore diffic(t that either innocent or deiberate "anip(ation of fig(res can

occ(r# $art of the interna contro s!ste" %i be interna a(dit# This is a tea" of

peope %ithin the organisation %hose f(nction is to go aro(nd the organisation,

chec*ing if the s!ste" of interna contro is effective and being operated as

epected#

Second!, et$ics# It goes %itho(t sa!ing that if ever!one %ithin the co"pan! is

of a high ethica standard, fra(d %i not be co""itted# It&s therefore essentia to

e"phasise the roe of ethics# This is partic(ar! i"portant at the higher eves ofthe co"pan! %here "anagers "ight be ind(ced to "isrepresent fig(res so the

co"pan! appears to be doing %e#

Both contro s!ste"s and ethics depend on training# If training is not given, ho%

%i peope *no% ho% to act appropriate!, either to act in ine %ith the interna

contro s!ste" as set do%n, or ho% to dea %ith ethica die""as 3 %hich can

so"eti"es "ean as*ing for hep and advice#

esponsibility

Fina! in this section %e have to see %ho is responsibe for %hat#

The directors are responsibe for setting (p a s!ste" of interna contro for

ens(ring that the proper infor"ation for "anage"ent contro is provided, and for

prod(cing the financia state"ents#

The eterna a(ditors are responsibe for a(diting the financia state"ents# The!

%i carr! o(t their a(dit proced(res to coect evidence that the financia

state"ents are presenting a tr(e and fair vie%# In the co(rse of that ea"ination

the! "ight re! on the s!ste" of interna contro %hich is in pace, and if this is

inade4(ate, the! %i %rite a report to the directors advising the" abo(t ho% it

co(d be changed#

The eterna a(ditors are not responsibe for setting (p and "aintaining the

s!ste" of interna contro, nor are the! responsibe for providing "anage"ent

infor"ation, nor are the! responsibe for prod(cing financia state"ents#

C$apter = Management

T$e purpose and process of management

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'e no% t(rn to consider the s(b6ect of "anage"ent# There are "an! possibe

definitions and here are t%o:

&7etting t$ings done t$roug$ ot$er people&*+anage"ent i"pies that !o(

are in so"e %a! organising %hat other peope are doing, and indeed the idea of

organising sho(d "a*e (s consider %hat&s "eant b! an organi7ation#

A socia arrange"ent %ith a controed perfor"ance of coective goas# The

i"portant %ords here are socia, controed, and coective#

The %ord socia recognises that %e are not "achines, that %e are peope, that

%e have an i"portant socia or h("an aspect to o(r characters# 'e %i see that

in the ear! theories of "anage"ent, the socia di"ension %as often rather

(nderstated#

The idea of controed is i"portant# Basica! one of the roes of "anage"ent

%i be to set so"e sort of goas or targets and then to tr! to ens(re that peopeachieve that#

Fina!, coective) the idea that in an organisation %e sho(d a be %or*ing

together#

Trait t$eory

+(ch of the disc(ssion of "anage"ent concerns %hat "a*es a good "anager

and %hat activities good "anagers sho(d act(a! (nderta*e#

One of the eariest theories is *no%n as trait theor!# 0ere the hope %as that %eco(d perhaps spot %ho %i be a good "anager thro(gh certain other traits that

the! "ight possess s(ch as inteigence, initiative, sef3ass(rance, even ho% ta

the person %as# This never rea! got ver! far) it %as too s(b6ective# For ea"pe,

ho% %o(d !o( baance inteigence vers(s charis"a; +an! good eaders are ta

b(t then eaders s(ch as Napoeon and "an! others %ere rather s"a and %ere

perhaps overco"pensating#

Trait theor! %as rea! a dead end: it proved to be no good %hatsoever b!

predicting %ho the good "anagers "ight be#

2enri !ayol % Classical Management

One of the eariest "anage"ent theorists %as 0enri Fa!o %ho %as active in the

ear! 1

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Coordinating

Controing

There are perhaps t%o things to note here# First of a, he rea! said nothing

abo(t inspiring or eading or "otivating) "(ch of the socia aspects of"anage"ent %ere "issing# And second!, atho(gh none of (s is i*e! to den!

that panning, organising, co""anding, coordinating, and controing are

i"portant aspects of "anage"ent, dividing the "anage"ent tas*s into these

five f(nctions doesn&t necessari! hep (s to be better "anagers#

'e are (ni*e! to set o(r diaries sa!ing that fro"

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his a"bition %as not to do this 3 his a"bition %as to enabe %or*ers to earn "ore

thro(gh %or*ing in a "ore efficient environ"ent#

.otential benefits arising from Taylorism are:

Increases in prod(ctivit!,

Fair and higher %age aocation based on o(tp(t, and

'or*force care progra"s beca(se if !o( didn&t care for !o(r %or* force,

!o( have to %aste "one! thro(gh additiona recr(it"ent, training, and

inefficiencies#

On the do%nside it had a great capacit! for deh("anising %or*#

2uman relations sc$ool*

Aro(nd 1, Eton +a!o carried o(t a ver! i"portant series of eperi"ents at

the 0a%thorne pant of the 'estern Eectric co"pan!#

In one of these eperi"ents he divided a depart"ent into t%o# 0af of the

%or*ers %ere the contro gro(p, b(t for the other haf he varied the ighting,

so"eti"es "a*ing it better, so"eti"es %orse# 0e then as*ed those %or*ers

%hat ighting the! preferred and %hat s(ggestions the! "ight have for i"proving

it# +(ch to his s(rprise he discovered that %hether or not the ighting %as

increased or decreased, the prod(ctivit! of the peope in the eperi"enta gro(p

%ent (p#

The conc(sion fro" this eperi"ent %as that b! "a*ing these peope fee

specia, b! as*ing their opinions, b! as*ing for s(ggestions, the! %ere "otivated#

The! en6o!ed being treated as individ(as, as peope, rather than si"p! being

tod %hat to do# This ed to %hat %as caed a h("an reations schoo in

recognition that there is "ore to good "anage"ent than si"p! panning,

organi7ing, controing, coordinating, and co""(nicating#

The second part of these st(dies deat %ith gro(ps# +anage"ent had tried to

increase prod(ctivit! b! offering peope higher %ages, and %as s(rprised to

discover that prod(ctivit! did not increase#

'hat +a!o discovered %as that there %as a sophisticated b(t infor"a s!ste"

%hereb! peope agreed %hat the proper eve of prod(ctivit! act(a! %as# These

peope for"ed %hat&s no% *no%n as a gro(p: a n("ber of individ(as %ho

deveop gro(p nor"s, in other %ords, an accepted standard of behavio(r# If !o(

don&t co"p! %ith the nor"s of the gro(p, !o( are i*e! to be ec(ded fro" that

gro(p# Note that "anage"ent did not deiberate! for" gro(ps) these %ere

for"ed b! peope 6(st beca(se the! %or*ed together or reied on each other or

the! beca"e friends# $eope inevitab! i*ed being part of the gro(p and being

associated %ith other peope# These gro(ps have a ver! profo(nd inf(ence on

ho% peope are i*e! to behave#


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tyle t$eories

'e have aread! said that trait theor! has been discredited# 'e no% co"e on to

%hat&s *no%n as st!e theories, in other %ords, a good "anager beco"es a

good "anager beca(se of his st!e of "anage"ent# 'hether or not this

infor"ation heps to be a good "anager is another "atter b(t !o( have to *no%

the na"es and the *e! ter"s that the! %ere associated %ith#

First, $eter .r(c*er %ho stated that "anage"ent has three f(nctions# /o( have

to

+anage a b(siness

+anage other "anagers

+anage the %or*ers and the %or*#

0e bro*e these do%n into five categories of activit!#

Druc-er

.r(c*er said that a "anager&s activities consist of:

Setting ob6ectives,

Organising the gro(p,

+otivating and co""(nicating,

+eas(ring perfor"ance, and

.eveoping peope

There are t%o i"portant additions here to %hat Fa!o s(ggested# First, .r(c*er

said that "otivation is a ver! i"portant part of "anage"ent, and second!,

deveoping peope is i"portant, so the! fee f(fied, that the! are gro%ing, that

the! are gaining ne% s*is, that the! are achieving their "ai"(" potentia#

-ea! the rest of the ist isn&t ver! "(ch ne% on %hat Fa!o s(ggested abo(tpanning, organising, controing, coordinating, and co""(nicating#

Mintzberg % managerial functions

+int7berg divided (p "anageria f(nctions in a sight! different %a! and again

%hether !o( find this (sef( or not is irreevant and !o( "(st be abe to

associate the na"e of +int7berg %ith the ter"s in bod beo%:


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Once again, *no%ing that "anage"ent "ight have these three f(nctions 3

interpersona, infor"ation processing and decisiona 3 doesn&t necessari! hepone be a better "anager#

.ower, aut$ority, responsibility, delegation

There are fo(r i"portant ter"s regarding "anage"ent:

.ower*$o%er is the abiit! to inf(ence peope or events# 'hat gives peope

po%er;

-ationa3ega, that&s the po%er !o(r "anager has# /o( do %hat !o(r

"anager tes !o( beca(se that person is caed "anager and part of !o(rcontract of e"po!"ent i"pies that !o( sho(d do %hat !o(r "anager tes

!o( provided that it&s ega#

Coercive po%er 3 (se of force#

-e%ard po%er 3 offering !o( "ore pa! or pro"otion if !o( do %hat !o( are

tod#

2no%edge po%er 3 the po%er that so"e peope have beca(se the! have

speciaist *no%edge %hich the! reease seective!#

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position, the "idde of the road st!e# -easonab! good %ith peope, reasonab!

good %ith the tas*, b(t of co(rse %hat %e %ant to do is to tr! and shift peope (pto%ards the

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Contingenc! theories sa! that there aren&t an! goden r(es# There is no singe,

proper %a! of "anaging# If !o( as* so"eone, 0o% sho(d I "anage; the

appropriate rep! is, 'e, it dependsK#

It "ight depend for ea"pe on the peope !o( are "anaging, the (rgenc! of the

tas* and the reso(rces !o( have avaiabe# Contingenc! theories "ean that st!eof "anage"ent is contingent or dependent on the sit(ation# /o( %i probab!

find so"e of these "ore interesting and "ore hepf( than others, b(t again that

doesn&t "(ch "atter, the! are a "entioned in the s!ab(s# /o( have to be abe

to tie (p the *e! %ords (sed in each theor! %ith the a(thor of that theor!#

dair % action%centred leaders$ip

Adair is associated %ith action3centred eadership#

'e *no% that Ba*e and +o(ton potted peope&s approach to eadership b!

oo*ing at their concern for individ(as and the concern for the tas*# Adair added

a third variabe L a recognition that there sho(d be a concern for the gro(p#

0o% sha %e "anage; 'e, according to Adair, it depends# On so"e occasions

there "a! be a ver! (rgent tas* and %e have to red(ce o(r concern for

individ(as and the gro(p and concentrate on the tas*# So"eti"es there "a! be

crisis %ithin a gro(p) perhaps their eader has eft, perhaps there is

disagree"ent %ithin it, and then the "anager or eader sho(d pa! "ore

attention to "a*ing s(re that the gro(p operates proper!# Of co(rse, so"eti"es

the proper approach to eadership %i "ean concentrating on an individ(a and

seeing to their needs, perhaps i*e giving advice or training#

2andy's best fit t$eory

2andy's best%fit t$eory identified four variables:

@eader

S(bordinates

Tas*

Environ"ent

0and! said that each of these variabes co(d be %hat he described as &oose& or

&tight

A tight eader is ver! a(tocratic# Tight s(bordinates i*e being tod %hat to do

and %ant to avoid ris*# The! %ant repetitive tas*s) tighter tas*s are ro(tine and

%e (nderstood, reative! si"pe# And a tight environ"ent %o(d be one %here,

perhaps, ti"e is short or there isn&t "(ch reso(rce to go aro(nd#

&@oose& %o(d "ean that the eader is ver! participative or de"ocratic)

s(bordinates %ant to participate and contrib(te to so(tions# The tas*s are nove,

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co"pe, high ris*) the environ"ent is one %hich is "ore genero(s in ti"e and

reso(rces to ao% co"pe tas*s to be deat %ith#

0and! said that provided a fo(r variabes ine (p, either a oose or a tight,

things %i %or* fair! %e# So an a(tocratic "anager in charge of staff %ho %ant

to be tod %hat to do, doing ro(tine, repetitive tas*s in an environ"ent %hich israther constrained %i tend to %or*# 0o%ever, he said that once !o( get a

crossover !o( are in tro(be# If !o( p(t an a(tocratic eader in charge of high!

trained s(bordinates %ho are (sed to contrib(ting to%ards so(tions or probe"s,

and %ho are (sed to participation, and these peope are given ro(tine tas*s %ith

not "(ch ti"e to do the" in, then it&s not going to %or* ver! %e# The

s(bordinates %i not get on %ith their eader) the s(bordinates %i not en6o! the

tas*#

So %hen it co"es to 0o% sha %e "anage;, 0and! is sa!ing it depends on the

sit(ation and the variabes# The best %a! of "anaging is to "a*e s(re theeader, s(bordinates, tas*, and environ"ents a "atch# Note that this is 4(ite

different fro" sa!ing that tight is better than oose or oose is better than tight#

'hat %e are sa!ing is that either %i %or* provided the fo(r variabes "atch#

9ennis

Bennis "a*es a distinction bet%een the ter" "anager and the ter" eader#

A "anager is pri"ari! concerned %ith ad"inistering the stat(s 4(o# In other

%ords, pri"ari! oo*ing after the eisting b(siness so"e%hat in the short ter",

*eeps an e!e on the profit for the co"ing !ear# That&s not to sa! it&s not ani"portant activit!# B(t best to thin* of a "anager as having a ti"e hori7on of

abo(t a !ear#

A eader is "ore concerned %ith innovation, %i be oo*ing at the ong3ter"

f(t(re of the organisation, %i not be so concerned %ith "atters of detaied

contro, b(t %i be foc(sing on peope, inspiring tr(st, as*ing 0o% can %e

i"prove, %here sho(d the b(siness go, %hat sho(d the b(siness do;#

The eader can therefore be regarded as transfor"ationa 3 in other %ords,

concerned %ith doing the right thing) %hereas the "anger is "ore concerned

%ith transactiona eadership 3 in other %ords, doing things right, b(t notnecessari! 4(estioning %hether %hat %e are doing and controing is (sef(#

Bennis s(ggested that great eaders have certain 4(aities# /o( "ight i*e to

co"pare this ist %ith the 4(aities of good "anagers !o( have *no%n or good

%ord eaders and poiticians !o( *no% abo(t#

Integrit! 3 that rea! "eans honest!)

.edication)

+agnani"it! 3 "agnani"it! is i*e generosit!, partic(ar! %hen !o( have%on a batte) h("iit!)

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Openness, so that peope can tr(st !o()

Creativit!, so that !o( can thin* of nove so(tions to diffic(t probe"s#

2eifetz % adaptive leaders$ip

0eifet7 %as responsibe for the idea of adaptive eadership# The principes of this

approach are as foo%s:

+ove bet%een the bacon! and the battefied# In partic(ar, "a*e s(re !o(

"ove to the bacon! %here !o( get a ong vie%, an overvie% of a %hoe

probe"# +a*e s(re !o( don&t concentrate p(re! on fine detai#

Identif! %hat the adaptive chaenge is# This %i be a chaenge for %hich

there is no read! so(tion and %here there "a! be a gap bet%een c(rrent

behavio(r and the behavio(r re4(ired#

Create a hoding environ"ent# That is a safe environ"ent, an environ"ent

%here !o( %i agree to s(pport those %ho are responsibe for p(tting thro(gh

the changes# .on&t i"pose change b(t give it bac* to the peope %itho(t

probe"#

$rotect the voices of eadership fro" beo%# @eaders are not a%a!s the top of

a hierarch!, there co(d be i"portant and inf(entia eadership %e do%n in a

hierarch! and their vie%s and interests "(st aso be ta*en into acco(nt#

-eg(ate the distress

Se4(ence and pace the %or* so that it doesn&t beco"e too over%he"ing#

$a! discipined attention to the iss(es, *eep peope foc(sed, (se confict

positive! and ens(re that peope *eep their e!e on the ba#

!iedler

Fieder s(ggested that eadership effectiveness depends on:

@eadership st!e 3 that&s the eader&s o%n attrib(tes, and the eader can either

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