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Business Studies (Unit 2)

Measuring Workforce Performance
Businesses use three main performance indicators to measure the effectiveness of a workforce
...

Businesses should compare these figures over time to look for trends instead of just examining data from one
year or one day
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Labour Productivity
Productivity is the output per worker over a certain period of time
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Labour Productivity does not always come down to who works the hardest
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Not all businesses can afford top machinery though, so
better maintenance, extra shifts and small changes in Kaizen groups may help
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Motivated workers are also more likely to produce more than un-motivated ones
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The formula for calculating Labour Turnover is:
Staff leaving per year / average number of staff * 100 = % Turnover Rate
If the Labour Turnover rate is increasing, it may be a sign of workforce dissatisfaction
...
There are some examples below…

Internal

External

Poor leadership

More local vacancies

Wages are too low

Better wages

Businesses should make sure they get the right balance of Labour Turnover so that they can enjoy the positive
benefits of losing staff without suffering the negative consequences too
...
It can be
calculated with the following formula…
Average number of staff absent per day / total number of staff * 100 = % Absenteeism
Like with Labour Turnover, businesses should look for trends in Absenteeism instead of focusing on one day
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It is often
presented as a diagram and shows who is in charge of whom
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However, as a business grows more people become
involved, so there is a need for a formal structure which shows the roles and responsibilities of each employee
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The Span of Control refers to the number of people directly under the supervision of one manager
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In the wider diagram the Span of Control is at least 5
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The more levels
of hierarchy in the longer for messages to get through – this could delay decisions
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The growth of a business and the
implementation of new layers may have a negative effect on Communication Flows
...

-

Vertical communication within the structure becomes slower and less effective
There may be a need for departmental meetings with notes taken – making a business bureaucratic

Centralisation and Decentralisation describes how decision-making power and authority is distributed within
an organisation
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Delegation is when an organisation passes authority down the hierarchy
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Delegation may also provide managers with more time
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There are three concepts
closely associated with Workforce Roles…
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Responsibility
Carrying the burden of blame for an error even if the task was performed by someone else

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Authority
Having the power to carry out a decision or perform a task

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Accountability
The extent to which an individual is held responsible for their decisions and actions

Directors – those who deal with setting overall aims and objectives
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Line Managers – These are the people immediately above someone else in an organisational structure
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They do not usually have
the power to hire or fire staff, but may pass on recommendation to higher levels in the structure
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Therefore, it becomes more and
more important to make sure that everybody is clear about their role and to who they are answerable to
...

Below are some possible problems which may arise from a poor organisational structure…
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There may be mistakes due to poor communication (eg: replicated tasks)
There may be a poor quality of performance due to things being overlooked
Different functions and departments may fail to work together successfully

In the past it was very common to find tall and narrow hierarchical structures, however in the present
businesses prefer to go with a flatter structure
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It involves defining the job, attracting
suitable candidates and selecting those best suited to fill it
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2
...

4
...

6
...
These can consist of a one-to-one interview or to a panel
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It can be done by
redeploying or promoting a worker from elsewhere in the organisation
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Various methods of
external recruitment can be used…
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Media Advertising
Job Centres/Recruitment Agencies

Advantages

Disadvantages

There is a wider range of candidates to choose from

Can be expensive and time-consuming

The candidate may already have the skills required
so there would be no need for training

It can have a demotivating effect on current workers
who did not get the promotion

Training
Training is work-related education where employees learn new skills or develop skills they already possess
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This should help them become fully-productive faster
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Off-the-job Training
This training allows the trainee to concentrate on learning instead of having to work at the same time

Motivation
Taylor

Mayo

Maslow

Herzberg

Taylor
(Money is a motivator and workers should be constantly supervised)
The work of Taylor shaped the views of managers on motivation for most of the twentieth century and
remains influential today
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Taylor’s ideas to improve efficiency became known as Scientific Management
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He set out a number of recommendations…
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Managers should study the tasks being carried out by workers and identify the quickest way of
completing each one
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This led Mayo to call for more
humane treatment of employees at work
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This suggested that managers who communicated with
workers/showed an interest in them would be rewarded with higher productivity
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He believed
that motivation stems from the desire to have
the needs of each level of the hierarchy met
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It is then the next level in the hierarchy that people try to satisfy
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Boosting esteem and developing talents will be
crucial, but without decent pay and job security they were worthless

Opponents of Maslow have found his theory unconvincing on several grounds…
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Businesses may find that their workers place little value on gaining praise or developing their skills
Workers may be satisfied with their wages at work and get the other needs from outside of work

Herzberg
(Motivators and Hygiene factors)
Herzberg’s results from an experiment shows that six factors, including achievement and recognition, were
frequently mentioned as causing satisfaction at work
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He used this research to develop the Two-factor Theory of motivation (motivators and hygiene factors)
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Advantages

Disadvantages

There is hardly any supervision as employees know
they won’t be paid for bad work

Employees may rush work to get paid more

There is usually higher productivity

There is no incentive for good quality

Fast workers are rewarded with more money

Workers may only work hard if they need the money
(for example: near Christmas or summer holidays)

Performance-Related Pay
These are rewards for employees who produce particularly high-quality work
...
It is seen as a reward rather than an incentive
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These financial payments are designed to persuade workers into doing something (perhaps something that
they don’t really want to do) but will do as the reward is too good to refuse
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The aim for most employees is to create jobs with maximum scope for motivation
...
Nowadays, Herzberg has influenced Job
Design which is associated with employee involvement, job enrichment and job enlargement
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However, it can be difficult to enrich some jobs
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Empowerment
This is the delegation of power which gives workers the authority to manage large-scale projects
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They can be
functional (eg: customer service team, shop-floor team, etc) or geographical (eg: IKEA Nottingham, Derby, etc)
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Many of the workers have the same skills, so job rotation is possible
They’re working together which gets things done faster
It can form the basis of a Kaizen Group

Job Design with Organisational Structure
In tall, hierarchical structures the opportunity for empowerment is restricted as most of these jobs are heavily
supervised
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In flatter structures with wider spans of control, it may be necessary to delegate tasks and enrich and
empower staff, as management may not be able to oversee all events
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Design – Products must meet the needs of customers
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Supply Chain – In the manufacturing process the heart of the operation will be in the factory, where a
collection of materials and components are turned into a finished product
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Almost all suppliers do most of the
operational work, so organisations need to coordinate all their suppliers and the quality of their work
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Within the Operations department the key
requirement will be to find software that will satisfactorily manage the day-to-day processes
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Effective
Customer Service should meet or surpass expectations that customers have of the business
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Quality management should always be an ever-rising target and is a highly-competitive issue
...
When a business is able to establish a
reputation for good quality they will usually encounter the following advantages…
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Higher levels of repeat-purchases
Able to charge premium prices due to quality and the brands reputation
New products are easier to get onto shelves

If the competition in a market is fierce, quality should be even more important
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The business considers
quality in every stage of a product’s design
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A quality control inspector checks that units
meet minimum acceptable standards (usually every 100th unit)
Quality Assurance – This is a system that assures customers that detailed processes are put in place to ensure
the quality of their products
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Working with Suppliers
Suppliers are other businesses that provide products or services to a firm
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There are 6 key factors to consider
when choosing a supplier…
Cost – Cheaper costs usually mean higher profit-margins so finding a cheap supplier is important to any firm
Quality – There may often be a difference between the prices that a supplier charges and with the quality of
their goods
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These suppliers may ruin reputation
Reliability – If a supplier fails to deliver products on time a business may consider them unreliable as this could
delay a manufacturing process or lead to a disgruntled customer
Frequency – Depending on the type of business, frequent deliveries are needed from suppliers
Flexibility – Businesses will need to consider whether suppliers can deal with surprise orders
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Payment Terms – Most business transactions are on credit (buy now, pay later) rather than in cash
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Technology in Operations Management
Few businesses have the favour of being able to ignore technological changes, as they may discover that the
products or services that they offer, and the processes used to create them, may no longer satisfy customers
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Technological
change can affect raw materials and components used to create products, the production process its self, or
the software that supports the sale and delivery of products
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This may cause conflict
between the management and workforce

Automated Stock Control
This is where a database records the stock levels of each product and can automatically reorder products

Advantages

Disadvantages

It is a quick and easy way of keeping track

It can lead to job-losses

It knows what is and isn’t selling

It can reorder successful products automatically

Computer-Aided Design
This system allows designs to be saved, changed and re-worked without having to start from scratch
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Information may be gathered
from warranty cards, loyalty cards, buying databases from marketing companies, etc
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Making Operational Decisions
Operations Management is the function of business that turns plans into delivered goods or services
...
Operational Targets…
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They can give a business something to work towards
They can be used to measure performance
Achieving targets is an indicator of successful Operations Management

Operational Targets usually include…
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Maintaining High-Quality
Producing products as quickly as possible can lead to mistakes and wastage

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Reducing Unit Cost
Unit Costs are the average cost per unit of output
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How to cut Unit Costs…
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Cut Variable Costs and Fixed Costs
Increase sales without increasing Fixed Costs
Increase Capacity Utilisation

Most businesses do not operate at full capacity because it does not allow for…
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Maintenance or repair of equipment
Unexpected large orders

Capacity Utilisation can be calculated by Current Output/Maximum Possible Output * 100 = %

How to increase Capacity Utilisation

How to decrease Capacity Utilisation

Cut Selling Prices

Make redundancies

Increase demand

Sell machinery

Create a Unique Selling Point

Downgrade factory size

Matching Production to Demand
It is important that businesses match production to demand
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Customers will also be disappointed and it may damage reputation
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What causes demand to fluctuate?
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The economy
Trends and fashions
Seasonal demand

Methods of helping a business cope with varying levels of demand may include…

Method

Limitations

Overtime

Staff are paid more, thus increasing costs
...
Temporary
workers may also lack loyalty and commitment

Sub-Contracting

Quality Assurance becomes harder to monitor, so
standards have to be agreed

Managing Stocks Efficiently
Materials and finished goods may be held back

Held goods may go out of date or go out of fashion

Rationalisation
This is cutting-back of production capacity in order to
match lower demand-levels
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Also, if capacity is cut permanently and then
increases in the future, capacity shortages will occur

Effective Marketing
Effective Marketing is when firms achieve sales and profit targets by attracting customers and convincing them
to make repeat purchases
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Use an effective Marketing Mix

2
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They may
consider factors such as lifestyles, ages and genders of customers (Market Segmentation)
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Use Market-Orientated Marketing

This where businesses make decisions revolving around what is best for the customer, rather than what is best
for the business
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Develop a Coherent Brand Image

Firms that market their products well use an integrated Marketing Mix that creates an attractive brand image
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To achieve this, products should be…
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Properly priced
Distributed well
Promoted properly to the Target Market

Marketing well must be a long-term goal, not a short term way of exploiting customers to gain more profit
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These products are produced for one type of customer
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Advantages of Mass Marketing

Disadvantages of Mass Marketing

It can produce a high volume of sales, therefore only
a small Contribution Per Unit is needed

There may be lots of substitute products available,
so Mass Marketing can be Price Elastic

Advantages of Niche Marketing

Disadvantages of Niche Marketing

They can be sold by specialist retailers on the
internet

The market may not be big enough to be profitable

Small Niche Operators usually lack Economies of
Scale, so they cannot compete on price
In the past, large businesses stuck to Mass-Market products and ignored small gaps in the market
...
Therefore, small businesses are coming under threat from larger companies that
have begun to target their niches
...

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Product – The business must offer products to the Target Market which suits their needs
Price – Prices shouldn’t be too high, but the lowest price doesn’t always win the customers
Place – Distribution to customers must be perfect
Promotion – Advertising on TV, Radio, the Internet, etc
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The Product is the key factor in most cases…
No amount of Marketing will make a poor product succeed! Market Branding is very important, so careful
promotion in creating the brand and having it available at the right time and place is essential
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In the development stage, money also needs to be invested into
Product Development
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Technology…
Product Development must move with technology
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Placement decisions are
also important because more customers are choosing to shop online
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Product – Is the business still producing what the customer wants? What are competitors doing?
Price – Do different economic circumstances mean that prices need changing? What are competitors doing?
Place – Are new Markets available to sell the product in? Where do competitors sell?
Promotion – Is the money that the business is spending promotion actually reaching the Target Market?

Analysis with the Marketing Mix…
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The Mix depends on the budget available, the competitive situation and the objectives
Although the product is likely to be the most important aspect of the Mix, every case is different
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This is where
the entrepreneurial skills of managers and owners are important
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Product Differentiation and USP’s will also increase
popularity
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Changes in customer tastes and
technological advances will wipe away the difference in products

Marketing Mix - Product Life Cycle

A Product Life Cycle is the theory that all products will follow a similar pattern over time – development,
introduction, growth, maturity, sometimes Market saturation, and finally decline
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Many products are rejected at the Development stage (eg: Dragons Den turn down hundreds of ideas)
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The Product Life Cycle and Capacity – An Operational Management Issue…
When planning the launch of new products, managers must bear in mind the capacity of the business
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The Product Life Cycle and Cash Flow – A Financial Issue…
In the Development stage Cash Flow will most probably be negative, especially in smaller businesses
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Introduction Stage – Cash will slowly start to come in
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Growth Stage – A Breakeven Point should hopefully have been achieved by this point, and Cash Flow should
be positive
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Modifying the Product slightly
New flavour? New shape? This could help increase the product’s Life Cycle

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Targeting a new segment of the Market
Overseas? Teenagers? Aiming the product at a different Target Market should also extend the Cycle

Is a Sales Decline inevitable?
While this may be true for products that go out of fashion or are constantly upgraded, for others it may be
down to poor marketing
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It is extremely difficult to predict when changes to the Life Cycle will happen
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Marketing Mix – Product Portfolio Analysis
The Product Portfolio Analysis examines the existing position of products and allows a business to plan what to
do next
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The Boston Matrix shows the Market Share of each product and the growth of the markets in which they
operate
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Cash Cows – These are high shares of slowly growing markets (these products generate high profits as
sales are high)

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Question Marks – These are low shares of fast growing
markets (the market is growing fast and the product could
provide high returns if it can gain more market share)

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Stars – These are high shares of fast growing markets (it is
doing well and must be protected from substitute products)

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Dogs – These are low shares of slowly growing markets
(although the market is small, it holds some appeal to the
business)

The purpose of Product Portfolio Analysis…

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Building the product
Businesses can invest in promotion and distribution to support the product (Question Marks and Stars)
Holding the product
Businesses can maintain promotion and distribution to keep their position (Stars and maybe Cows)

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Milking the product
Businesses can take the profits from Cash Cows to support other products

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Divesting the product
This is when businesses discontinue products (Dogs and Question Marks)

The decisions above depend on the analysis of the products in the first place
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However, if the majority are Question Marks, this is when difficult and risky decisions have to be made
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Bear in mind though that these models do not tell the marketing manager what to do
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Also, remember that Life Cycles are becoming
shorter and shorter due to technology and the levels of competition in most markets
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Structure

Makes jobs more interesting or varied so they are more rewarding
Where a price is set deliberately below costs in order to attract customers
The set of marketing tools that businesses use to pursue marketing objectives
Promotion of a product at the point-of-sale, usually in a retail environment
Profit that remains after all operating costs are taken away from sales revenue
...
of Demand
Price Leader
Price Skimming

Price Taker
Pricing Strategies
Pricing Tactics

The period of time that a supplier allows for an invoice to be settled
Setting low prices in order to achieve a large market share
A description which identifies the skills and experience that are likely to be held by
a successful applicant for a job vacancy
The responsiveness of demand to a change in the price of a product
A business whose prices are followed by rivals
A strategy where high prices are charged for new products in order to take
advantage of customers prepared to pay for it
A business that has no option but to charge the leading market price
The overall strategic approach to pricing over the medium-to-long term
Short-term pricing decisions and approaches

Product Lifecycle

A theory which predicts the stages a product goes through from introduction to
withdrawal from a market

Product Portfolio

The collection of products and brands owned by a business

Profitability
Promotional Mix
Psychological Pricing

Public Relations
Quality

The ability of a business to generate profits from its activities
The approaches used to promote a product (advertising, direct selling, etc
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Where a product meets a customer’s requirements

Quality Assurance

Organising every process to get the product 'right first time' and prevent mistakes

Quality Control

Inspection of products to ensure adequate production standards have been
achieved
Cutting prices in order to increase productivity and efficiency (eg: selling
machinery)
A measure of the return made by investing in a business or business project ((Net
profit / Capital Invested) x 100 = %)

Rationalisation
Return on Capital

Sale and Leaseback

Sales Promotion
Selection

A method of raising finance involving a business selling major assets (eg: property)
and then leasing the same asset back from the new owner
Point of sale material or other incentives designed to stimulate purchases
Deciding which applicant a business should accept for a job

Span of Control

The number of employees who’re directly under the supervision of one manager

Spare Capacity

When a business is able to produce more with existing resources (excess capacity)

Stock Control

The processes and controls used by a business to ensure that it has sufficient (but
not too much) stock for its purposes

Stocks

Raw materials goods held for resale
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Q Management
Unit Cost

Attitudes to quality where the aims are zero defects and total customer
satisfaction
The average production cost per unit

Variance

A feature of a product that makes it stand out from competition

Workforce Role

The tasks involved in a particular level or type of job

Workload

The amount of work assigned to a particular worker



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