Business Studies Notes

NEED FOR AND NATURE OF BUSINESS ACTIVITY
1. Micro Environments
The micro environment refers to the internal factors that will influence the performance of the
business. These include aspects such as:
The different business functions;
The resources available to the business; and
The business policy.
All the' elements of the micro environment are directly controlled by management.
Business Functions:
There are eight main functions in a business. The entrepreneur must know how to manage all
aspects of the business, but if he does not know how to do everything himself, he can employ
other people to help in the business. The functions in the business are as follows: Purchasing,
Production, Personnel/Human resources (HR), Administration, Marketing, Public relations (PR),
Financial, General management,
Resources:
human resources (employees), financial resources (capital) or physical resources such as raw
material or equipment used in the business in order to produce goods and services.
The business policy:
The business policy refers to a framework drafted by the business to describe its vision, mission,
goals and objectives as well as policies and procedures to guide behaviour within the business.
1. The vision of the business can be defined as a "road map" to the future of the business. This
"map" is drawn by looking at the history of the business, the current situation of the business and
the ideal position the business would like to achieve in future.
BUSINESS STUDIES NOTES BY MR T. SIBANDA Page 1

2. The mission of the business is a refinement of the vision and specifies the core business
function and the reason why the business exists. (Hint: Have you ever heard someone say: "I am
on a mission today?" That refers to the things the person would like to do that day. The mission
of the business can therefore be described as the basic "things" the business does / the task of the
business). .
3. Goals and objectives: Goals are the long-term accomplishments that the business wants to
achieve while objectives describe the short-term tasks which must be achieved to assist the
business in reaching the long-term goals.
4. The organisational culture can be described as the values and beliefs that are shared within
the business. People's attitudes and behaviour will be guided by the culture in the organisation. If
the culture is positive, cooperation and achievement will be the mutual goal, while a negative
culture could lead to conflict and employees undermining one another.
5. Structure: The organisational structure refers to the way in which labour, authority,
responsibility and other resources are organised to ensure all components will work together to
form a system in which business objectives can be met.
Market Environment
The market environment consists of elements immediately outside the business; therefore
management has very little control over the market environment.
1. The market environment will consist of suppliers selling the required quality and quantity
products to the business at a fair price at the time when they are needed. These products will
then be delivered to the place where they are needed. Alternatively the supplier does not have to
sell a product, but can also deliver a service to the business.
2. Consumers are the potential buyers of the product. When the product is marketed to the
consumer, it is important to keep in mind what the needs and demands of the consumer are as
well as the buying power of the consumers in the target market.

3. Competitors are other businesses that sell the same, similar or substitute products to the same
target market. It is not only existing competitors that will influence the business's actions, but
also potential new entrants to the market. The higher the level of competition, the better the
quality of product that has to be delivered to the consumer and the lower the business has to keep
the price in order to make it attractive to the customer.
4. A business may decide to form a strategic alliance with another business in order to
potentially expand the target market. An example of such an alliance is the agreement between
Edcon and Medicross that patients may use their Edgars cards to pay for doctors' consultations at
Medicross. This ensures that people who do not have cash or medical aid facilities to pay for the
doctor can use their Edgars credit facility to obtain the services they need. This enlarges the
potential customer base for sales transactions for both Medicross and Edgars.
5. Agents or brokers act as intermediaries between the business and the consumer and therefore
they also form part of the market environment. In fact all members of the distribution channel
can be seen as intermediaries between the manufacturer and the consumer. The wholesaler acts
as a link between the producer and retailer, while the retailer interacts with the consumer as the
last link in the distribution channel.
6. Non-Government Organisations (NGOs) are usually non-profit organisations that focus on

environmental, social or educational issues. One such organisation is Junior Achievement (JA)
which uses sponsorships from businesses to provide entrepreneurial education to both the youth
and adults.
7. Industry regulators also form part of the business' market environment as they control and
guide the actions of businesses to ensure consumers are not exploited. Examples of such
regulators include the Financial Services Board and the Ombudsman for Insurance.
Macro Environment

Developments on the national and international scene, technological advances, economic
influences, political pressures and social factors all impact on the business from the macro
environment.
P - Political environment S--social

L--legal
E - Economics E--economical
P--political
S - Social factors T--technology
T - Technology
L - Legislation
E - Environmental factors
Extended PESTLE or P*E*STLE
P - Physical
E - Ethical
On the political front developments may impact on the businesses of the countr y. Do we need a
better example than our neighbour to the north, Zimbabwe, to see what the impact of politics
can be on consumers, businesses and the economy in general?
Factors in the economic sphere that are impacting on the business include aspects such as
inflation, fluctuating exchange rates (imports and exports), interest rates, unemployment,
globalisation and the state of the world economy. In late 2008 the world entered a period of
recession which caught up with South Africa in the second quarter of 2009. This means that
people in the country are experiencing economic hardship and as a result the general standard of
living will be lower due to the reduced purchasing power.
Businesses also feel the pressure on their bottom line (profit) as employees demand higher
wages while consumers spend less.

Socio-economic issues form part of the macro- or external environment, and especially in the
South African context they influence the day-to-day management of the business. It is important
to be aware of these issues and how they affect the business.
Technology is constantly changing at a rapid pace and this leads to both opportunities and
challenges for the business. Think about the impact of technology such as the advancement in
computers and the Internet and how this has impacted on the world of business. New production
processes also mean faster and mostly more accurate production, but may lead to socio-
economic problems such as job losses and unemployment as a result of retrenchments.
Legislation (the laws of the country) could have a huge influence on the corporate world should
Govern-ment decide to introduce new laws. In this regard we may think about labour laws such
as Employment Equity or the Credit Agreement Act that stipulates conditions for allowing credit
to consumers.
Environmental factors such as pollution (noise, water and air), bio-fuels, recycling and nature
conservation may also have an impact on the business.
Physical factors relate to the immediate environment of the business. Is it situated in a

mountainous area where access is difficult; next to the coast where the weather may affect the
products; etc?
Ethical factors are becoming increasingly important as businesses are held responsible for the
morality of their decisions and the effect that those decisions have on their employees, clients
and other stakeholders.
5.1 Business aims and Activities
Private sector aims

The aim of a business in the private sector is to survive by making a profit. This may be a sole
trader working alone, like a newsagent, or thousands of shareholders in a large Public Limited
Company.
Businesses gain a larger market-share [a percentage of overall sales in an industry] by increasing

the sales of their products against competitors. This may involve reducing prices. To win the
loyalty of customers and encourage repeat sales [Customers returning to buy the product from
the same business], businesses need to be reliable and provide a quality service to their
customers.
Private sector activities
The activities of industry can be divided into stages - primary, secondary and tertiary production.
These stages form the chain of production and provide consumers with the finished goods.
a) Primary production
This involves acquiring raw materials. For example, metals and coal have to be mined; oil
drilled from the ground; rubber tapped from trees; foodstuffs farmed, and fish trawled. This is
sometimes known as extractive production.
b) Secondary production
Is the manufacturing and assembly process. This involves converting raw materials into
components, eg making plastics from oil, and assembling the product, eg building houses,
bridges and roads.
c)Tertiary production
This refers to the commercial services that support the production and distribution process, eg
insurance, transport, advertising, warehousing and retail, teaching and health care.

Interdependence of the stages of production
a) Each stage of production depends on what happens in e other stage on what happens in the
other stages.
b) Through specialization and exchange workers, industries and countries become dependent on
each other.
NB. Specialisation causes interdepence
Direct production
Refers to the work of people who are producing for themselves e.g subsistence farming
Indirect production
Occurs when others help to produce goods and services that meet a person need.
Limited companies
All limited companies are incorporated [ firm with separate legal existence], which means they
can sue or own assets in their own right. Their owners are not personally liable for the firm's
debts their losses are limited to the amount they invested in the business (limited liability). The

ownership of a limited company is divided up into equal parts called shares. Whoever owns one
or more of these is called a shareholder.
A public limited company (PLC) can sell its shares on the Stock Market, while a private limited
company (Ltd) cannot. Unlike a sole trader or a partnership, the owners of a limited company are
not involved in the running of the business, unless they have been elected to the Board of
Directors.
Public and Private Limited Companies
In general, both types of company must audit [an independent check no the accounts of the
company] their accounts, and have them available for inspection. There are, however, exceptions
to this rule for smaller private limited companies. Both types of company must indicate their
status in their name, usually by using the abbreviation PLC or Ltd. This lets traders know that
their liability is limited and that debts cannot be recovered from the personal funds of the
company shareholders.
Private Limited Companies
Advantages Disadvantages
Easy and inexpensive to set up. Lack of capital due to no share issue.
Ownership and control are closely connected, No benefit from economies of scale, e.g. bulk
eg Board of Directors are usually the main buying, cheaper borrowing.
shareholders.
Small and less bureaucratic than PLCs, eg
decisions can be taken more quickly.
Public Limited Companies
Advantages Disadvantages
Raise large amount of capital from share issue. Become too large resulting in poor labour

relations .
Benefit from economies of scale, eg bulk Conflict of interest between shareholders and
buying, cheaper borrowing. the Board of Directors.
Produce goods at lower unit cost. Possibility of takeover or merger because
shares can be bought by anyone.
Sole traders
A sole trader describes any business that is owned and controlled by one person, although they
may employ workers, eg a newsagent's shop. Individuals who provide a specialist service like
hairdressers, plumbers or photographers, are also sole traders. Sole traders do not have a separate
legal existence from their owner. As a result, the owners are personally liable for the firm's
debts, and may have to pay them out of their own pocket. This is called unlimited liability.
Advantages
1. The firms are usually small, and easy to set up.
2. Generally, only a small amount of capital needs to be invested, which reduces the initial start-
up cost.
3. The wage bill will usually be low, because there a few or no employees.
4. It is easier to keep overall control, because the owner has a hands-on approach to running the
business and can make decisions without consulting anyone else.
Disadvantages
1. The sole trader has no one to share the responsibility of running the business with. A good
hairdresser, for example, may not be very good at handling the accounts.

2. Sole traders often work long hours and find it difficult to take holidays, or time off if they are
ill.
3. Developing the business is also limited by the amount of capital personally available.
4. There is also the risk of unlimited liability, where the sole trader can be forced to sell personal
assets to cover any business debts.
Partnerships
Partnerships are businesses owned by two or more people. A contract called a deed of
partnership is normally drawn up. This states the type of partnership it is, how much capital each
party has contributed, and how profits and losses will be shared. Doctors, dentists and solicitors
are typical examples of professionals who may go into partnership together. They can benefit
from shared expertise, but like the sole trader, have unlimited liability. A partnership can also
have a sleeping partner who invests in the business but does not have dealings in the day to day
running of the enterprise.
Advantages
1. The main advantage of a partnership over a sole trader is shared responsibility. This allows
for specialization, where one partner's strengths can complement another's. For example, if a
hairdresser were in partnership with someone with a business background, one could concentrate
on providing the salon service, and the other on handling the finances.
2. More people are also contributing capital, which allows for more flexibility in running the
business.
3. There is less time pressure on individual partners.
4. There is someone to consult over business decisions
Disadvantages
1. The main disadvantage of a partnership comes from shared responsibility.

2. Disputes can arise over decisions that have to be made, or about the effort one partner is
putting into the firm compared with another.
3. The distribution of profits can cause problems. The deed of partnership sets out who should
get what, but if one partner feels another is not doing enough, there can be dissatisfaction.
4. A partnership, like a sole trader, has unlimited liability.
Public ownership
Public ownership refers to any service or industry owned by the state, for example:
ZINWA
Health ZESA
ZETDC
Public transport
Central government controls these organisations. Their main aim is to provide essential services
for the whole population. They are not profit making, and the general public pays for these
services through taxation. Some services are the responsibility of local government, such as
refuse collection and the maintenance of parks.
There are arguments for and against public ownership.
First look at the advantages:
- Usually protected, reducing unemployment.
- Key supplies, eg water and energy, can be guaranteed and controlled.

- Health, education, housing and transport are guaranteed for everyone.
The main argument for public ownership is that the whole population benefits rather than just
those who can afford to pay privately. Before the creation of the National Health Service, for
example, you had to pay to see a doctor. Today we pay through taxation, but those who earn
less, pay less and the unemployed are provided for.
Now look at the disadvantages of public ownership.
- Providing these services means higher costs, and higher taxes.
- Large non-profit making organisations suffer from diseconomies of scale
ment interference - Politicians' interference can negatively affect the efficiency of an

organisation
Large public sector organisations are bureaucratic. They also often have a monopoly, and
without competition, workers can become unmotivated and inefficient.
During the 1980s, the government decided to privatised most of the nationalised industries in the
belief that the added competition, and profit motive, would improve efficiency, and provide a
better value-for-money service for the consumer. Examples are:
ZEDCO
Public services such as transport and refuse collection have been contracted out to private
companies or deregulated by local councils for example National Waste Collection, BCC.
Economic Systems
An economic system is a way a society sets about allocating (deciding) which goods to produce

and in which quantities. Different countries have different methods of tackling the economic
problem. There are three main types of economic systems.
Market Economies
A market or capitalist economy is an economy where resources are allocated by prices without
government intervention. The USA and Hong Kong are examples of market economies where
firms decide on types and quantities of goods to be made in response to consumer needs. An
increase in the price of one good encourages consumers to switch resources into the production
of that commodity. Consumers decide on the type and quantity of goods to be bought. A
decrease in the price of one good encourages consumers to switch to buying that commodity.
People on high incomes are able to buy more goods and services than are the less well off.
Command Economies
In a command-planned or socialist economy the government owns most resources and decides
on the type and quantity of a good to be made. The USSR and North Korea are examples of
command economies. The government sets output targets for each district and factory and
allocates the necessary resources. Incomes are often more evenly spread out than in other types
of economy.
Mixed Economies
In a mixed economy, privately owned firms generally produce goods and provide services while
the government organizes the manufacture of essential goods and provision of essential services
such as education, health care, energy and communication. The Zimbabwean economy is a good
example of a mixed economy because it has both privately owned firms and parastatals (that
produce goods and services that are perceived to be of strategic importance to the economy)
WHAT IS INTERNATIONAL
BUSINESS?
Because international business is a relatively new discipline and is extremely dynamic, you will
find that the definitions of a number of terms vary among users. To avoid confusion due to the
range of different definitions of terms in international busi-ness, in this text we will employ the
definitions listed below, which are generally accepted by managers:

1. International business is business whose activities are carried out across national borders.
This definition includes not only international trade and foreign manufacturing but also the
growing ser-vice industry in areas such as transportation, tourism, advertising, construction,
retailing, wholesaling, and mass communications.
2. Foreign business denotes the operations of a company outside its home or domestic market;
many refer to this as business conducted within a foreign country. This term sometimes is used
inter-changeably with international business by some writers, although that will not be the
practice in this book.
3. A multidomestic company (MDC) is an organization with multicountry affiliates, each of

which formulates its own business strategy based on perceived market differences.
4. A global company (GC) is an organization that attempts to standardize and integrate

operations worldwide in most or all functional areas.
5. An international company (IC) is a global or multi-domestic company. Although we

primarily use the terms global, multidomestic,and international firms or companies, at times we
may use multinational enterprise (MNE)or multinational company (MNC)interchangeably with
international company (IC), inasmuch as both terms are employed in the literature and in
practice.
Although you may find those who consider multinational corporation to be synonymous with
multinational enterprise and transnational corporation, the United Nations and the govern-ments
of many developing nations use transnational instead of multinational to describe any firm doing
business in more than one country. The specialized agency, the United Nations Conference on
Trade and Development (UNCTAD), for example, employs the following definition: “A
transnational corporation is generally regarded as an enterprise comprising entities in more than
one country which operate under a system of decision making that permits coherent policies and
a common strategy. The entities are so linked, by ownership or otherwise, that one or more of

them may be able to exercise a significant influence over the others and, in particular, to share
knowledge, resources and responsibilities with the others.”
More recently, some academic writers have employed the term trans-national for a company
that combines the characteristics of global and multinational firms:
(1) trying to achieve economies of scale through global integration of its functional areas and at
the same time (2) being highly responsive to different local environments (a newer name is
multicultural multinational).
WHAT IS DIFFERENT ABOUT INTERNATIONAL BUSINESS?
International business differs from domestic business in that a firm operating across borders
must deal with the forces of three kinds of environments—domestic, foreign, and international.
In contrast, a firm whose business activities are carried out within the borders of one country
needs to be concerned essentially with only the domestic environment. However, no domestic
firm is entirely free from foreign or international environmental forces because the possibility of
having to face competition from foreign imports or from foreign competitors that set up
operations in its own market is always present. Let us first examine these forces and then see
how they operate in the three environments.
Influence of External and Internal Environmental Forces
The term environment as used here means all the forces influencing the life and development of
the firm. The forces themselves can be classified as external or internal. The external forces are
commonly called uncontrollable forces. Man-agement has no direct control over them,
although it can exert influence–such as lobbying for a change in a law and heavily promoting a
new product that requires a change in a cultural attitude. External forces consist of the following:
1. Competitive: kinds and numbers of competitors, their locations, and their activities.
2. Distributive: national and international agencies available for distributing goods and services.

3. Economic: variables (such as gross national product [GNP], unit labor cost, and personal
consumption expenditure) that influence a firm’s ability to do business.
4. Socioeconomic: characteristics and distribution of the human population.
5. Financial: variables such as interest rates, inflation rates, and taxation.
6. Legal: the many foreign and domestic laws governing how international firms must operate.
7. Physical: elements of nature such as topography, climate, and natural resources.
8. Political: elements of nations’ political climates such as nation-alism, forms of government,

and international organizations.
9. Socio cultural: elements of culture (such as attitudes, beliefs, and opinions) important to
international managers.
10. Labor: composition, skills, and attitudes of labor.
11. Technological: the technical skills and equipment that affect how resources are converted to
products.
The elements over which management does have some control are the internal forces, such as
the factors of production (capital, raw materials, and people) and the activities of the
organization (personnel, finance, production, and marketing). These are the controllable forces
management must administer in order to adapt to changes in the uncontrollable environmental
variables. Look at how one change in the political forces—the expansion of the European Union
(EU) in 2007—affected all the controllable forces of firms worldwide that do business in or with
the 27 EU member-nations. Suddenly these firms had to examine their business practices and
change those affected by this new expansion. For example, some European concerns and foreign
subsidiaries in the EU relocated parts of their operations to other nations in the Union to exploit
the lower wages there. Some American and Asian companies set up production in one of the

member-countries to supply this giant free trade area. By doing this, they avoid paying import
duties on products coming from their home countries
The Domestic Environment
The domestic environment is all the uncontrollable forces originating in the home country that
influence the life and development of the firm. Obviously, these are the forces with which
managers are most familiar. Being domestic forces, however, does not preclude their affecting
foreign operations.
For example, if the home coun-try is suffering from a shortage of foreign currency, the govern-
ment may place restrictions on overseas investment to reduce its outflow. As a result, managers
of multinationals find that they cannot expand overseas facilities as they would like to do. In
another instance from real life, a labor union striking the home-based plants learned that man-
agement was supplying parts from its foreign subsidiaries. The strikers contacted the foreign
unions, which pledged not to work overtime to supply what the struck plants could not. The
impact of this domestic environmental force was felt overseas as well as at home..
The Foreign Environment
The forces in the foreign environment are the same as those in the domestic environment
except that they occur outside the firm’s home country. However, they operate differently for
several reasons, including those provided here. Forces Have Different Values Even though the
kinds of forces in the two environments are identical, their values often differ widely, and at
times they are completely opposed to each other. A classic example of diametrically opposed
political-force values and the bewilderment they create for multinational managers involves the
American export embargo on shipments of most goods to Cuba. This embargo meant that Cuba
could not buy buses from a U.S. manufacturer. To circumvent the embargo, the Cuban
government ordered the buses from the American firm’s Argentine subsidiary. When word came
from the firm’s American headquarters that the order should not be filled because of the
American embargo, an abundance of unskilled labor in many developing countries may lead to

the use of a lower level of technology than would be employed in the more industrialized
nations. In other words, given a choice between installing costly, specialized machinery needing
few workers and installing less expensive, general-purpose machinery requiring a larger labor
force, management will frequently choose the latter when faced with high interest rates and a
large pool of available workers. Another example is the interaction between physical and socio
cultural forces. Barriers to the free movement of a nation’s people, such as mountain ranges and
deserts, help maintain pockets of distinct cultures within a country, and this has an effect on
decision making.
The International Environment
The international environment consists of the interactions (1) between the domestic
environmental forces and the foreign environmental forces and (2) between the foreign
environmental forces of two countries when an affiliate in one country does business with
customers in another. This agrees with the definition of international business: business that
involves the crossing of national borders.
For example, personnel at the headquarters of a multi domestic or global company work in the
international environment if they are involved in any way with another nation, whereas those in
a foreign subsidiary do not unless they too are engaged in international business through
exporting or the management of other affiliates. In other words, a sales manager of Nokia’s
China operations does not work in the international environment if he or she sells cellular
phones only in China. If Nokia’s China operations export cell phones to Thailand, then the sales
manager is affected by forces of both the domestic environment of China and the foreign
environment of Thailand and there-fore is working in the international environment.
International organizations whose actions affect the international environment are also properly
part of it. These organizations include (1) worldwide bodies (e.g., World Bank), (2) regional
economic reference to one’s own cultural values when judging behaviors of others in a new and
different environment some managers will ascribe to others their own preferences and reactions.
Thus, a foreign production manager, facing a backlog of orders, may offer her workers extra pay

for overtime. When they fail to show up, the manager is perplexed: “Back home they always
want to earn more money.” This manager has failed to understand that the workers prefer time
off to more money. This unconscious reference to the manager’s own cultural values, called the
self-reference criterion, is probably the biggest cause of international business blunders.
Successful managers are careful to examine a problem in terms of the local cultural traits as well
as their own.
What Is Globalization?
The most common definition and the one used in international business is that of economic
globalization —the tendency toward an international integration of goods, technology,
information, labor, and capital, or the process of making this integration happen. The term
globalization was first coined by Theodore Levitt in a Harvard Business Review article in which
he maintained that new technologies had “proletarianized” communication, transport, and travel,
creating worldwide markets for standardized consumer products at lower prices. He maintained
that the future belonged to global corporations that did not cater to local differences in taste but,
instead, adopted strategies that operated “as if the entire world (or major regions of it) were a
single entity; [such an organization] sells the same things in the same way everywhere.”
Understand the five kinds of drivers, all based on change, which are leading firms to
internationalize their operations.
The Drivers Of Globalization
Five major kinds of drivers, all based on change, are leading international firms to globalize their
operations: (1) political, (2) technological, (3) market, (4) cost, and (5) competitive. Political
There is a trend toward the unification and social-ization of the global community. Preferential
trading arrangements, such as the North American Free Trade Agreement and the European
Union, that group several nations into a single market have presented firms with significant
marketing opportunities. Many firms have moved swiftly to gain access to the combined markets
of these trading partners, either through exporting or by producing in the area.

Two other aspects of this trend are contributing to the globalization of business operations: (1)
the progressive reduction of barriers to trade and foreign investment by most governments,
which is hastening the opening of new markets by international firms that are both exporting to
them and building production facilities in them, and (2) the privatization of much of the industry
in formerly communist nations and the opening of their economies to global competition.
Technological Advances in computers and communications technology are permitting an
increased flow of ideas and information across borders, enabling customers to learn about
foreign goods. Cable and satellite TV systems in Europe and Asia, for example, allow an
advertiser to reach numerous countries simultaneously, thus creating regional and sometimes
global demand. Global communications networks enable manufacturing personnel to coordinate
production and design functions worldwide so that plants in many parts of the world may be
working on the same product. The Internet and network computing enable small companies to
compete globally because they make possible the rapid flow of information regardless of the
physical location of the buyer and seller. Internet video-conferencing allows sellers to
demonstrate their products to prospective buyers all over the world without the need to travel. It
also permits international companies to hold cor-porate meetings between managers from
headquarters and overseas subsidiaries without expensive, time-consuming travel. In addition,
communicating by e-mail on the Internet is faster and more reliable than using postal mail and
much less expensive than using a fax machine. Both Internet uses have given home office
managers greater confidence in their ability to direct overseas operations.
Market As companies globalize, they also become global customers. When Nokia announced its
intention to set up a cell phone assembly plant in Chennai, India, suppliers of key components
quickly confirmed that they would also establish plants adjacent to Nokia’s facilities in order to
avoid having a competitor capture the business. Likewise, for years, advertising agencies
established offices in foreign markets when their major clients entered those markets to avoid
having a competitor steal the accounts. Finding the home market saturated also sends companies
into foreign markets. According to a recent Dow Jones survey of the world’s largest companies,
84 percent of the respondents expect that international markets will generate most of their

growth in the next five years. Indeed, the United States has only about 5 percent of the world’s
population, so the vast proportion of most companies’ potential customers are located elsewhere.
Cost Economies of scale to reduce unit costs are a common management goal. One means of
achieving them is to globalize product lines to reduce development, production, and inventory
costs. Management can also move production or other parts of the company’s value chain to
countries where costs are lower. Dramatic reductions in the cost of generating and transmitting
information due to innovations in comput-ing and telecommunications, as well as the decline in
trans-portation costs, have facilitated this trend toward relocating activities worldwide.
Competitive Competition continues to increase in intensity. New firms, many from newly
industrialized and developing countries, have entered world markets in automobiles, computers,
and electronics, for example. Another competitive driving force for globalization is the fact that
companies are defending their home markets from competitors by entering the competitors’
home markets to distract them. Many firms that would not have entered a single country because
it lacked sufficient market size have established plants in the comparatively larger trading groups
(European Union, Association of Southeast Asian Nation [ASEAN], Mercosur). It is one thing to
be shut out of Belgium, but it is another to be excluded from all Europe.
The result of this rush to globalization has been an explosive growth in international business.
Many of the issues associated with globalization are highly complex, and there is no single
measure of globalization or of integration within the world economy. Each element of global
integration can have different effects. Following are some of the arguments for and against the
globalization process and its outcomes.
Arguments Supporting Globalization
Free Trade Enhances Socioeconomic Development That free trade is the best strategy for
advancing the world’s economic development is one of the few propositions on which almost all
economists agree, not only because it is theoretically compelling but also because it has been
demonstrated in practice.

Free Trade Promotes More and Better Jobs
Expanded trade is also linked with the creation of more and better jobs. Over the past two
decades—a period of immense technological change and growth in trade—around 40 million ore
jobs were created than were destroyed in the United States. It is true that when a country opens
to trade, just as when new technologies are developed, some of its sectors may not be
competitive. Companies may go out of business, and some jobs will be lost. But trade creates
new jobs, and these tend to be better than the old ones. The key is not to block change but,
instead, to manage the costs of trade adjustment and to support the transition of workers to more
competitive employment.
Concerns with Globalization
Globalization Has Produced Uneven Results across Nations and People In stark contrast to
the positive picture presented by supporters of globalization, opponents describe the painful
impact of foreign investment and trade liberalization on the people of the world. Far from every-
one has been a winner, they say. The promise of export-led growth has failed to materialize in
several places. For example, most of Latin America has failed to replicate Asia’s success despite
efforts to liberalize, privatize, and deregulate its econ-omies, with results ranging from
disappointment in Mexico to catastrophe in Argentina.
Globalization Has Had Deleterious Effects on Labor and Labor Standards The issue of the
impact of globalization on labor standards has become an oft-mentioned concern of workers in
the United States and other nations. With trade liberalization through the World Trade
Organization and increased mobility of capital, measures to keep a country’s industries within its
borders have been reduced, and companies have an easier time divesting their interests in one
country and moving to another. Workers in developed countries frequently voice concerns that
their jobs will migrate to developing nations where there are lower standards, and thus lower
costs, leading to the infamous “race to the bottom,” where developed nations with more rigorous
labor standards become disadvantaged.

Globalization Has Contributed to a Decline in Environmental and Health Conditions
Regarding concerns of antiglobalization forces that globalization con-tributes to declining
environmental standards, former presi-dent Zedillo of Mexico stated, “Economic integration
tends to favor, not worsen the environment. Since trade favors economic growth, it brings about
at least part of the necessary means to preserve the environment. The better off people are, the
more they demand a clean environment. Furthermore, it is not uncommon that employment
opportunities in export activities encourage people to give up highly polluting marginal
occupations.”
5.2 MANAGING HUMAN RESOURCES
- The need for and nature of organisational structure
Organization is defined as a unit within a company or an entity within which many activities are
managed as a whole. All activities within an organization share common goals. Organizing is
the process of creating an organization’s structure that is a framework expressed by its degree of
complexity, formalization and centralization. Degree of complexity refers the amount of
differentiation in the organization and shows the difficulty to coordinate the people and their
activities. Directing the behavior of all the people in an organization, certain rules and policies
are to be formalized. Centralization is the process by which the activities of an organization,
particularly those regarding decision-making, become concentrated within a particular location
and/or group. Decentralization is any of various means of more widely distributing decision-
making to bring it closer to the point of service. Organization Design is a process for integrating
people, information, and technology toward the successful achievement of organizational
outcomes. It seeks to optimize human achievement. When a manager develops or changes an
organization structure, he/she is engaged in organization design.
DEPARTMENTALIZATION
Organizations can be divided into various departments with individuals who specialize in a
given area such as marketing, finance, sales, and so forth. Having each unit to perform

specialized jobs is known as departmentalization. Departmentalization is done according to five
major categories which form the structure of organizations
• Product, which requires each department to be responsible for the product being manufactured
• Geographic, which divides the organization based on the location of stores and offices
• Customer, which separates departments by customer type
• Functional, which breaks departments into specialty areas;
Approaches to organizational structures:
FUNCTIONAL
In this structure, we have the three line functions of manufacturing, sales and finance
represented. They are all shown to be at the same level because the positions are all Vice-
Presidents. If the company wanted to have a Vice-President of Human Resources for instance,
they could choose to do that because Human Resources would represent another function in the

organization. If they do, then that position would show up as a fourth box on the same level as
the other boxes.
In this structure, we would read into it that the manufacturing process all happens under one
roof, in one location. The company looks like they make all of the products in one location. For
our manufacturing company example, this would be quite unusual.
Advantages of the functional structure
Easy to understand
Can be used in any sized organization
Responsibilities are clearly defined
Can be expanded to include other functional areas (legal, HR, PR, etc)
Disadvantages of the functional structure
Won’t be able to figure out which products are profitable, since they are all lumped together. If
the manufacturing is in one location, transportation and distribution costs could be high to get
the product to the customer.
Divisional Structures (By Product)
In the product structure, each area then specializes in their particular product. Everyone who
reported to the Vice-President of Toys, for instance would be involved in some aspect of toys –
their manufacture, quality control, sales, marketing, etc. This would be a good option for our
fictional manufacturing company of toys and other goods.
Advantages of the product structure
Employees in each division are specialists – they know their product from manufacturing to
sales to accounting for it.
Easy to see which product is profitable since each area will likely be set up as a profit centre.

Can set up the different products in different geographic areas.
Disadvantages of the product structure
Can only work in a large organization. Using this example, there will be a manufacturing
department for the toy department, another one for the furniture department and yet another for
the clothes department. Must have a large organization to sustain this.
Employees cannot easily move from one department to another since those departments are
specialized and operate almost as completely separate divisions.
This structure allows the organization to specialize their operations in a different way. In our
example, they do make different products – the high end and the mass market products and they
also sell them to different customers (retail outlet and distributor).
Advantages of the customer structure
Customer-oriented structure. Most customer-focused structure to choose.
Can change the product to suit the customer.
Again, can see which line is profitable since they are set up as profit centres.
Can set up divisions in different geographic areas.

Disadvantages of the customer structure
Need to have more than one product line, usually quite different products.
Geography based Structure
With this structure, the organization specializes by setting up operations in the different
geographic areas in which it does business.
Advantages of a geographic structure
Also a customer focused structure.
Custom tailor the product to different requirements of the customer in various countries.
Closer geographically to your customer
Disadvantage of a geographic structure

Can only work in a fairly large organization – need a “critical mass” in order for it to work.
Need for superb communication and co-ordination on the part of the President or CEO, since the
operations are literally spread out.
MATRIX ORGANIZATIONAL STRUCTURE
Some organizations find that none of the afore-mentioned structures meet their needs. One
approach that attempts to overcome the inadequacies is the matrix structure, which is the
combination of two or more different structures. Functional departmentalization commonly is
combined with product groups on a project basis. For example, a product group wants to develop
a new addition to its line; for this project, it obtains personnel from functional departments such
as research, engineering, production, and marketing. These personnel then work under the
manager of the product group for the duration of the project, which can vary greatly. These
personnel are responsible to two managers. Fig below shows such type of organization.
One advantage of a matrix structure is that it facilitates the use of highly specialized staff and
equipment.
The disadvantages of a matrix organization arise from the dual reporting structure. The
organization's top management must take particular care to establish proper procedures for the

development of projects and to keep communication channels clear so that potential conflicts do
not arise. Top management is responsible for arbitrating such conflicts, but in practice power
struggles between the functional and product manager can prevent successful implementation of
matrix structural arrangements. Besides the product/function matrix, other bases can be related
in a matrix. Large multinational corporations that use a matrix structure most commonly
combine product groups with geographic units. Product managers have global responsibility for
the development, manufacturing, and distribution of their own product or service line,while
managers of geographic regions have responsibility for the success of the business in their
regions.
FEATURES OF A FORMAL ORGANIZATION
Unity Of Command
It refers to the principle that a subordinate should have one and only one superior to whom he or
she is directly responsible. That is no person should report to two or more superior.
Authority And Responsibility
Organizational structure involves the designation of jobs within an organization and the
relationships among those jobs. There are so many ways to structure jobs within an organization,
but two of the most important forms are simple line structures and line and staff structures. In a
line organization, top management has complete control and the chain of command (the
authority entitles a manager to direct the work of a subordinate) is clear and simple. The chain of
command is shown in Fig below and explained more on the following section. For an example,
small business in which the top manager may be the owner is positioned at the top of the
organizational structure and has clear "lines" of distinction between him and his subordinates.

The
chain of command diagram
The line and staff organization combines the line organization with staff departments. These
staff departments support and advise line departments. Most medium and large sized firms
comprise line and staff type organizational structures. The distinguishing characteristic between
simple line organizations and line and staff organizations is the multiple layers of management
within line and staff organizations. Several advantages and disadvantages are present within a
line and staff organization. An advantage of a line and staff organization is
• The availability of technical specialists
• Staff experts in specific areas are incorporated into the formal chain of command.
The main disadvantage is conflict between line and staff personnel.
Line and Staff Positions

The primary and secondary positions exist within a line and staff organization. Some positions
are primary to the company's mission, whereas others are secondary in the form of support and
indirect contribution. Although positions within a line and staff organization can be
differentiated in several ways, the simplest approach classifies them as being either line or staff.
Fig below illustrates the line and staff positions.
A line position is directly involved in the day to day operations of the organization, such as
producing or selling a product. Line positions are occupied by line personnel and line managers.
Line personnel carry out the primary activities of a business and are considered essential to the
basic functioning of the organization. Line managers make the majority of the decisions and
direct line personnel to achieve company goals. Line manager is a marketing executive, for an
example.
Although a marketing executive does not actually produce the product, he or she directly
contributes to the firm's overall objectives through market forecasting and generating product
demand. Staff positions serve the organization by indirectly supporting line functions. Staff
positions consist of staff personnel and staff managers. Staff personnel use their technical
expertise to assist line personnel and aid top management in various business activities. Staff
managers provide support, advice and knowledge to other individuals in the chain of command.

Although staff managers are not part of the chain of command related to direct production of
products, they do have authority over personnel. An example of a staff manager is a legal
adviser. He or she does not actively engage in profit-making activities, but does provide legal
support to those who do. Therefore staff positions whether personnel or managers engage in
activities that are supportive to line personnel.
Line and Staff Authority
Authority within a line-and-staff organization can be differentiated. Three types of authority are
present: line, staff, and functional. Line authority is the right to carry out assignments and exact
performance from other individuals.
Line Authority
Line authority flows down the chain of command. For example, line authority gives a production
supervisor the right to direct an employee to operate a particular machine and it gives the vice
president of finance the right to request a certain report from a department head. Therefore, line
authority gives an individual a certain degree of power relating to the performance of an
organizational task. The line authority does not ensure effective performance and is not restricted
to line personnel. The head of a staff department has line authority over his or her employees by
virtue of authority relationships between the department head and his or her directly-reporting
employees.
Staff Authority
Staff authority is the right to advise line authority. For an example, human resource department
employees help other departments by selecting and developing a qualified workforce. A quality
control manager aids a production manager by determining the acceptable quality level of
products or services at a manufacturing company by initiating quality programs and carrying out
statistical analysis to ensure compliance with quality standards. Therefore, staff authority gives
staff personnel the right to offer advice in an effort to improve line operations.

Organization Chart
In a business of more than one person, unless the business has equal partners then there are
managers and subordinates. Subordinates are workers controlled by the manager. A hierarchy
describes the structure of the management from the top of the company i.e., the managing
director through to the shop floor worker who reports to their foreman in a business. The
hierarchy of a business is usually best understood by drawing an organization chart showing
which levels of management and employees report to whom.
Span of Control
A span of control is the number of people who report to one manager in a hierarchy. That is how
many subordinates a manager can effectively and efficiently supervise. The more people under
the control of one manager are the wider of the span of control and it leads to ineffective and
dangerous span of control. The Less people under the control of one manager are the narrower
span of control and it leads to effectiveness.
The advantages of a narrow span of control are:
• Manager could communicate quickly with the employees under them and control them more
easily
• Feedback from the workers will be more effective
• Less management skill required

The advantages of wide span of control are:
• There are less layers of management to pass an information so the information reaches more
employees faster
• It costs less money to run a wider span of control because a business does not need to employ
as many managers
The width of the span of control depends on:
The advantages of wide span of control are:
• There are less layers of management to pass an information so the information reaches more
employees faster
• It costs less money to run a wider span of control because a business does not need to employ
as many managers

The width of the span of control depends on:
THE TYPE OF PRODUCT
Products which are easy to make or deliver will need less supervision and so can have a wider
span of control
Skills Of Managers And Workers
A more skillful workforce can operate with a wider span of control because they will need less
supervision. Based on decision making organization is classified in to tall or flat organization. A
tall organization (Fig 2.4) has a larger number of managers with a narrow span of control whilst
a flat organization (Fig 2.3) has few managers with a wide span of control. A tall organization
can suffer from having too many managers and decisions can take a long time to reach the
bottom of the hierarchy. But, a tall organization can provide good opportunities for promotion
and the manager does not have to spend so much time managing the staff
Chain of command
It is the line on which orders and decisions are passed down from top to bottom of the hierarchy.
In a hierarchy the chain of command means that a production manager may be higher up the
hierarchy but will not be able to tell a marketing person what to do.
The advantages of hierarchies are:
• Helps to create a clear communication line between the top and bottom of the business and this
improves co-ordination and motivation
• Create teams and motivation is advantage of working in teams.
The disadvantages of hierarchies are:
• Departments work for themselves and not the greater good of the business.
• Departments do not see the whole picture in making decisions.

• Hierarchies can be inflexible and difficult to adjust,
2.1.5 Centralization
Organizations with a centralized structure have several layers of management that control the
organization by maintaining a high level of authority. With a centralized structure, line and staff
employees have limited authority to carry something out without prior approval. This
organizational structure tends to focus on top-down management, whereby executives at the top
communicate by telling middle managers. Then middle managers tell first-level managers who
then tell the staff what to do and how to do. Since this organizational structure tends to be fairly
bureaucratic, employees have little freedom. Centralized organizations are known for decreased
span of control which has a limited number of employees report to a manager. And manager
then reports to the next management level.
2.1.6 Decentralization
Because of more management cost in a centralized organization, many organizations continue to

downsize into a more decentralized structure. Decentralization seeks to eliminate the
unnecessary levels of management and to place authority in the hands of first line managers and
staff. Thus it widens the span of control, with more employees reporting to one manager.
Because more employees are reporting to a single manager than before, the managers are forced
to delegate more work and to hold the employees more accountable. Downsizing has also helped
to change the flow of communication, so that top management hears staff concerns and
complaints in a more direct manner and management has a more hands-on approach. The hands-
on approach involves less bureaucracy which means there is a faster response to situations that
demand immediate attention. This structure also takes advantage of bottom-up communication,
with staff issues being addressed in a timely manner

Formal and informal organizations
Organizations are broadly classified into two namely formal and informal. A formal
organization is a stable set of a description of the organization structure and the rules like
policies, regulations and procedures that make up an organization. The army and large
corporations are structured very formally for an instance.
The informal organization is a concept in management practice that denotes the network,
unrelated to the firm’s formal authority structure. It is the aggregate of personal and social
relationships that arise spontaneously as people associate with one another environment.
The informal organization can make the formal organization more effective by providing support
to management, stability to the environment and useful communication channels. To begin with
a simple example, this kind of relationship may exist entirely within a given institution as when
a board or council elite group may have an informal, private existence, as well as its public,
official, institutionalized existence. When the councilors of corporation , for example, meets
informally at the mayor’s home or gathers for a dinner at the hotel, this organization becomes an
informal organization. The relationship between formal and informal becomes easier to
understand while introducing an influential figure, not memberof the institutional group, who
come in to the lunch, dinner, or gathering of friends and play a part in policy making, the
interrelationship begins to be more complex. Here we can say that informal groups representing
combinations of formal.
COMMUNICATION
Formally, we define communication as the process by which a person, group, or organization

(the sender) transmits some type of information (the message) to another person, group, or
organization.
PURPOSE OF COMMUNICATION
1. For instruction:

The instructive function unvarying and importantly deals with the commanding nature. It is more
or less of directive nature. Under this, the communicator transmits with necessary directives and
guidance to the next level, so as to enable them to accomplish his particular tasks. In this,
instructions basically flow from top to the lower level.
2. For integration:
It is consolidated function under which integration of activities is endeavoured. The integration

function of communication mainly involves to bring about inter-relationship among the various
functions of the business organization. It helps in the unification of different management
functions.
3. For information:
The purposes or function of communication in an organization is to inform the individual or

group about the particular task or company policies and procedures etc. Top management
informs policies to the lower level through the middle level. In turn, the lower level informs the
top level the reaction through the middle level. Information can flow vertically, horizontally and
diagonally across the organization. Becoming informed or inform others is the main purpose of
communication.
4. For evaluation:
Examination of activities to form an idea or judgement of the worth of task is achieved through
communication. Communication is a tool to appraise the individual or team, their contribution to
the organization. Evaluating one’s own inputs or other’s outputs or some ideological scheme
demands an adequate and effective communication process.
5. For direction:
Communication is necessary to issue directions by the top management or manager to the lower
level. Employee can perform better when he is directed by his senior. Directing others may be

communicated either orally or in writing. An order may be common order, request order or
implied order.
6. For teaching:
The importance of personal safety on the job has been greatly recognized. A complete
communication process is required to teach and educate workers about personal safety on the
jobs. This communication helps the workers to avert accidents, risk etc. and avoid cost,
procedures etc.
7. For influencing:
A complete communication process is necessary in influencing others or being influenced. The

individual having potential to influence others can easily persuade others. It implies the
provision of feedback which tells the effect of communication.
8. For image building:
A business enterprise cannot isolate from the rest of the society. There is interrelationship and
interdependence between the society and an enterprise operating in the society. Goodwill and
confidence are necessarily created among the public. It can be done by the communication with
the different media, which has to project the image of the firm in the society. Through an
effective external communication system, an enterprise has to inform the society about its goals,
activities, progress and social responsibility.
9. For employees orientation:
When a new employee enter into the organization at that time he or she will be unknown to the
organization programs, policies, culture etc. Communication helps to make people acquainted
with the co-employees, superior and withthe policies, objectives, rules and regulations of the
organization.
10. Other:

Effective decision-making is possible when required and adequate information is supplied to the
decision-maker. Effective communication helps the process of decision-making. In general,
everyone in the organization has to provide with necessary information so as to enable to
discharge tasks effectively and efficiently.
THE COMMUNICATION PROCESS
The process of communication consists of the steps summarized here. It begins when a sender
has an idea that he or she wishes to send to a receiver.
Encoding.
The communication process begins when one party has an idea that it wishes to send to another
(either party may be an individual, a group, or an entire organization). It is the sender's mission
to transform the idea into a form that can be sent to and understood by the receiver. This is what
happens in the process of encoding – translating an idea into a form, such as written or spoken
language, that can be recognized by a receiver. We encode information when we select the
words we use to send an e-mail message or when we speak to someone in person.
Communication Channels.
After a message is encoded, it is ready to be transmitted over one or more channels of

communication to reach the desired receiver. There are many different pathways through which

information travels, including telephone lines, radio and television signals, fiber-optic cables,
mail routes, and even the airwaves that carry our voices.
Thanks to modern technology, people can choose from a wide variety of communication
channels to send both visual and oral information. Whichever channel used, the communicator's
goal is the same: to send the encoded message accurately to the desired receiver.
Decoding.
Once a message is received, the recipient begins the process of decoding – that is, converting the
message back to the sender’s original form. This can involve many different processes, such as
comprehending spoken and written words or interpreting facial expressions (omit). To the extent
that a sender's message is accurately reconstructed by the receiver, the ideas understood will be
the ones intended.
As one might imagine, the process of comprehending and interpreting information

communicated by others can be highly complex and thus likely prone to errors. This would be
the case if, for example, we were conducting business in a foreign country and were unfamiliar
with the language spoken by the client. However, it is not uncommon for misunderstandings to
occur even when communicating within one’s own native language. It is likely that any English
speaker can easily recall a time when they misconstrued someone’s intentions because of their
words, or lack thereof.
Feedback.
Once a message has been decoded, the process of communication can continue if the receiver
responds with a message to the sender. In other words, the person receiving the mes-sage now
becomes the sender of a new message. This new message is then encoded and transmitted along
a communication channel to the intended recipient, who then decodes it. This part of the
communication process is known as feedback – providing information about the impact of
messages on receivers. Receiving feedback allows senders to determine whether their messages
have been correctly understood. Of course, once received, feedback can trigger another idea

from the sender, initiating yet another cycle of communication and triggering yet another round
of feedback .
Noise.
Despite its apparent simplicity, it probably comes as no surprise that the communication process
rarely operates as flawlessly as the feedback loop describes. As we will see, there are many
potential barriers to effective communication. Noise refers to the factors that distort the clarity of
messages that are encoded, transmitted, and decoded in the communication process. Whether
noise results from unclear wording, a listener's inattentiveness, or static along a telephone line,
ineffective communication is inevitably the result.
ELEMENTS OF THE COMMUNICATION PROCESS
Sender
A person who initiates a message and encodes it.
Message
The information itself encoded into symbols
Channel
The means by which information is transmitted
Receiver
The person who gets the message and decodes it.
Feedback
This is the response given by the receiver after decoding the message. This is the basic response
of what is heard, read and seen. Information is feedback to the sender indicating to what a degree
the message has been understood.

METHODS OF COMMUNICATION
(1) Verbal /Oral communication
Verbal/ Oral communications are the messages that come through words, phrases and idioms
from the mouth of the speaker. His appearance, mannerism, body language and the way he
throws his voice can make significant difference in impacting the audience, their attitude and
performance.
This method includes the following methods,;
-One to one talks between the sender and the receiver.
-Telephone conversation
-Video conferencing, where a group of people in different places are able to see and hear each
other through a video link
-Meetings which could involve a few people or hundreds
Advantages of Verbal Communication
 Information can be given out quickly eg in big meetings, it is an efficient way of speaking
to a large number of people
 There is an opportunity for immediate feedback and two-way communication
 The message is often reinforced by seeing the speaker. The body language of the speaker
eg their facial expressions, can help to put message across effectively
 It is a very convenient form of expression and presentation.
 It is almost instantaneous, quick and least expensive.
Disadvantages of Verbal Communication
 In a big meeting there is no way of telling whether everyday is listening or has understood
the message

 It can take longer to use the verbal methods when feedback occurs than to use written
form of communication
 When an accurate and permanent record of the message is required, such as a warning to a
worker, verbal method is not appropriate
 It must be understood that communicator has to depend on the language that has been
designed, developed and propagated by humans. As a result, it suffers from a lot of
limitations despite the fact that some languages of the world are very developed and
command a vast vocabulary.
(ii) Written Communication
Written forms of communication include
 Letters used for either internal or external communication. They should follow a set
structure.
 Memos written messages used only internally. Many businesses use computers to send
these through internal electronic system
 Reports detailed documents about particular issue or problem. There are often produced
by experts working in the business. They can be sent to managers to read before a
meeting to discuss issues. Very often these reports are detailed that they could not be
understood an employee.
 Notices pinned on boards. These are used to display information which is open to
everyone. How ever there is no certainty that they are read.
 Faxes (facsimile messages) written messages sent to other offices by electronic means via
telephone lines
 Email and other forms of electronic communication using information technology. These
have revolutionized communications in recent years. Written messages can be sent
between two or more people with computing facilities. Printouts of messages can be
obtained if a hard copy is required.
 Intranet gives easy messaging to all works in a business with access to computers

 The internet allows easy and effective communication with customers of suppliers
Advantages of Written Communication
 There is hard evidence of the message which can be referred to in the future. This
should help to reduce disagreements between the sender and the receiver about the
contents of the message.
 It is essential for certain messages involving complicated details which might be
misunderstood if e.g a telephone message were given. Also , the law in many
countries requires certain safety in messages to be written and displayed in offices
and factories. It is not sufficient to tell the people about safety measures they could
be forgotten
 A written message can be copied and sent to many people. They could be more
efficient than telephoning all of those people to give them the same message verbally
 Electronic communication is a quick and cheap way to reach a large number of people
Disadvantages of written communication
 Direct feedback is not always possible, unless electronic communication is used. This
can however, lead to too many e-mail messages being created (info over load) with
written messages in other forms, two-way communication is difficult.
 It is not easy to check that the messages has been received and acted upon as with verbal
message
 The language used might be difficult for some receivers to understand. If the written
message is too long it maybe confusing and lose the interest of the reader.
 There is no opportunity for body language to be used to reinforce

This requires preparation and can be thought out properly before committing in writing. It takes
time and is expensive. However, it is more accurate and is the norm for technical, legal and most
diplomatic communications.
With increase in the size of organizations, their complexity and dynamism, many a times
written communication is the only way to communicate. With technological advancement in our
ability to send / receive emails, fax messages, short messaging service (SMS) on mobile phones,
instant messaging etc, written messages have become very common and popular.
Ability to send online reports across continents has won the race against time and distance. It is
significantly influencing the way people shall do business in the twenty-first century.
TYPES OF BARRIERS TO COMMUNICATION
Communication capability is a personal skill. Barriers to effective communication within

organizations happen at the following three levels:
sonal barriers to communication
PERSONAL BARRIERS TO COMMUNICATION
These barriers can be at individual employee level, senior or subordinate levels:
(1) Barriers at the individual level
These are the obstructions caused in the process of sending and receiving messages during the
encoding or decoding of ideas, words and phrases. In most languages, a word has different
meanings, depending upon the context in which it is used. Each word has many synonyms but

which one is the most suitable in the given situation, is always an issue. These are known as
semantic barriers and may take the following forms:
(i) Badly expressed message Lack of clarity, Lack of precision ,Poorly chosen words and
phrases, Careless omissions, Lack of coherence ,Poor organization of ideas, Use of jargons,
Inadequate vocabulary, Awkward sentence structure
(ii) Assumptions not clarified
Messages are normally based on some assumptions that, if not communicated to the receiver,
may lead to incomplete message or wrong interpretation of the message.
(iii) Faulty translation
Messages must use words and phrases that receiver is familiar with so that he can understand
and respond to them. This calls for a great mastery and flexibility in the use of language on the
part of the sender. In the absence of suitable choice of vocabulary, the message may not invoke
the desired response from the receiver.
(iv) Use of specialist language
Each specialist uses a lingua that is peculiar to that profession. For example, MBAs use a
different language that an engineer and a technician uses a different language that an ordinary
workman. Illiterates use a different language that the educated. Similarly, city dwellers use
different words and phrases than village folks. These act as roadblocks for effective
communication among them.
(2) Barriers at the levels of seniors
These could be:
(i) Attitude of the seniors

If attitude of the seniors is not helpful either owing to lack of awareness or because of personal
agenda, messages will not flow freely to or from them unlike what should happen in a well-
lubricated organization structure.
(ii) Insistence on proper channel of communication
Some seniors like to stay within the confines of the lines of communication as depicted in a
formal organization chart. They do not like bypassing these lines of communication and think
that these would amount to thwarting of their authority
(iii) Fear of challenge to their authority
Some seniors tend to hoard information going down / up as it may disclose their weaknesses.
They may also think if they do not share the information, they would become more important.
(iv) Lack of confidence in the subordinates
Some seniors perceive their subordinates to be less competent and do not like the information
going downwards for the risk of its leakage and misuse.
(v) Ignoring communication
Some seniors ignore the information from their subordinates deliberately in order to maintain
their importance. This can create a barrier in the minds of subordinates who may loathe to
provide information to seniors.
(vi) Lack of time
Some seniors are overburdened with work and consequently have no time to provide information
downwards, upwards or horizontally.
(vii) Lack of awareness

Some seniors do not appreciate the critical importance and significance of maintaining a smooth
flow of information in all directions within and outside of the organization. This also acts as a
blocker of flow of communication in the organization.
(3) Barriers at the level of subordinates
These are:
(i) Unwillingness to communicate
As a rule if an employee feels giving information may be embarrassing, he would not divulge it
or would delay its flow as much as possible. They often modify the information so as to protect
their interests. Wrong information can be very misleading too. Wrong information is worse than
no information.
(ii) Lack of proper incentive
Lack of motivation comes in the way of flow of information up or down the lines of command
and control. Similarly, if good suggestions from subordinates are ignored or do not evoke
enough response or attention, it has a snowballing effect in the organization. Subordinates do not
feel enthused about giving suggestions for improvement of products, processes and systems.
This has been the main reason for dismal failure of suggestion schemes in USA, Europe and
India.
2.4 GROUP BARRIERS TO COMMUNICATIONS
These are interpersonal barriers to communication. These occur at the level of interaction within
a group of employees – members of a section, department or team having members from
different specialist functions of the organization.
A few major barriers to communication are:
(1) Premature evaluation of the sender

This happens when the looks, dress or initial introduction to the subject in not impressive or up
to the preconceived standard and receivers have done premature evaluation of the sender. This
can also happen when the credibility of the sender of message is low. Such barriers stop transfer
of information as senders beget a sense of futility. Such barriers can be overcome by:
acceptable to them
(2) Inattentive listening
If the receiver is preoccupied with some thing else and is concerned with other issues, he may
fail to react to the message, talk, bulletin, notice or circular. Since the receiver is not able to give
sufficient attention, the message may fail to register in his mind.
(3) Loss during transmission of message
A message that has to pass through several layers of organization structure or many stages
before it reaches the target may lose its accuracy. For oral messages, it is estimated that
accuracy is lost at every stage of its transmission or relaying. Even in written messages, loss
occurs because of differences in interpretation, meanings and translation.
(4) Loss of retention
Retaining messages in the memory is a difficult process. It applies to both oral and written
essages that are circulated. However, if a copy of the written message is available, persons can
refer to it again and again. It is said that people remember:
(5) Undue reliance on written words
Senders often place undue importance to written message. In spite of the message being well
drafted and presented, it may fail to make the necessary impact because of lack of trust and

confidence between the parties. Messages, apart from being very good, should be consonant with
the organizations‟ purpose and employees‟ own interest.
(6) Distrust of the communicator
If the person who is sending the message is prone to frequently countermanding, it leads to
delayed responses from recipients. Besides, they may not act enthusiastically, perhaps, because
they are waiting for amendment to the original message!
(7) Failure to communicate
Arising from lethargy or any other reason, managers may fail to inform the concerned person(s).
In such cases, even a subsequent message may not invoke the right response because of the
missing link
2.5 ORGANIZATIONAL BARRIERS TO COMMUNICATION
Organization structures of firms are designed to support company‟s objectives. Besides,

organizations prescribe systems – a set of policies, procedures and norms of behaviour (code of
conduct) to reinforce achievement of corporate objectives. These are further supplemented by a
comprehensive system of performance appraisals, rewards and punishment. A few major
organizational barriers are:
(1) Organizational policy
Policies underpin strategy and facilitate their implementation. Organizational policy should
support flow of information in all directions – external and internal communication covering
downward, upwards and horizontal communications. If flow of communication is not supported
by firms‟ policy, it will not be smooth and adequate for the healthy functioning of the
organization.
(2) Organizational rules and regulations

Some rules and regulations of the firm may come in the way of free flow of communication and
may require provision of proper channels of communication. Such rules and procedures may
inhibit the flow of communication and need to be updated to bring them in line with the
demands of strategies and their accomplishment.
(3) Status relationship
Greater the difference in the level of status of the functionaries, greater is the possibility of
breakdown of communication between them. If a person has to be frequently interacting with
senior personnel, his job gradation needs to be reviewed.
(4) Complexity of organization structure
Tall organizations comprising of many layers of organization structure, delay flow of messages
from sender to the receiver. It increases the risk of distortion of the message en route. In such
firms, usually upwards communication suffers very badly.
(5) Organizational facilities
Firms must provide facilities for meeting and conference rooms, complaint / suggestion schemes
etc. They should encourage open door policies by senior managers and executives. Companies
should also organize gatherings for social, cultural and sport activities as they also contribute to
better flow of information at both informal and formal levels.
2.6 GATEWAY TO EFFECTIVE COMMUNICATIONS
Developing a deep understanding of the various barriers to communication must lead the
management to devising ways and means of overcoming these barriers. Besides, every
communicator must take specific steps to improve conditions and eliminate roadblocks to
effective communication.
1 Clarifying ideas before communication
2 Knowing purpose of communication

3 Understanding physical and human environments of communication
4 Consulting others in planning communication
5 Contents and overtones of communication
6 Value of communication to the receiver
7 Follow up action
8 Importance of communication
9 Actions congruent with communication
10 Good listening
LINES OF COMMUNICATION
Formal And Informal Communication
Compare the following two situations: (1) The CEO of a large conglomerate announces plans for
new products to a group of stockholders. (2) One day in the lunchroom two administrative
assistants share the latest stories about someone who has been terminated. Although both
examples are typical of the kind of communication that occurs in organizations, they differ in a
very important way. Specifically, the first example describes a situation in which someone is
sharing official information with others who need to know this information. This is referred to as
formal communication. The second situation, however, involves the sharing of unofficial
information about what's going on in the organization. This is referred to as informal
communication. As you might imagine, both formal and informal communications occur
commonly in organizations. For this reason, we will describe both types of communication here.
Formal Communication: Messages Directed Through Organizational Structure
Organizations are often described in ways that dictate who may and may not communicate with
whom. The formally prescribed pattern of interrelationships existing between the various units

of an organization is referred to as organizational structure. An organization's structure is
commonly described by using a diagram known as an organization chart. Such diagrams provide
a graphic representation of an organization's structure, an outline of the planned, formal
connections between its various units. An organization chart revealing the structure of a small
part of a fictitious organization, and an overview of the types of communication expected to
occur within it, is shown below
The organizational chart indicates the formal pattern of communication within an organization
that is, which individuals are required to communicate with each other. The types of messages
that tend to be communicated across different levels are identified here. When looking at an
organization chart you immediately notice several boxes connected by lines. Each box represents
a particular job, as indicated by the job titles noted. The lines connecting the boxes show the
formal lines of communication between the individuals performing those jobs—that is, who is
supposed to communicate with whom. This particular organization chart is typical of most in
that it shows that people communicate formally with those immediately above them and below
them, as well as those at their own levels. Formal communication between people several levels
apart is far less likely to occur. However, such highly restricted arrangements are giving way to
more open forms of organizational structure in many of today's organizations.

As you might imagine, the nature of formal communication that occurs differs according to
people's positions in an organization. Even a quick look at the diagram above shows that
information flows in three different directions—upward, downward, and sideways. What type of
communication typically travels in each direction?
Downward Communication.
To answer this question, suppose that you are a supervisor. How would you characterize the
formal communication that occurs between you and your subordinates—that is, communication
down the organization chart? Typically, downward communication consists of instructions,
directions and orders—generally, messages that tell subordinates what they should be doing. We
would also expect to find feedback on past performance flowing in a downward direction. A
sales manager, for example, may tell the members of her sales force what products they should
be promoting. As formal information slowly trickles down from one level of an organization to
the next level (occurs when information is said to "go through channels''), it becomes less
accurate. This is especially true when that information is spoken. In such cases, it is not unusual
for at least part of the message to be distorted and/or omitted as it works its way down from one
person to the next. (Anyone who has ever played the game of "telephone" has experienced this
firsthand.) To avoid these problems, many companies have introduced programs in which they
communicate formal information to large numbers of people at different levels all at one time.
Upward Communication.
When information flows from lower levels to higher levels within an organization, such as
messages from subordinates to their supervisors, it is known as upward communication.
Typically, such messages involve information that managers need to do their jobs, such as data
required to complete projects. This may include suggestions for improvement, status reports,
reactions to work-related issues, and new ideas. Although upward communication is the logical
opposite of downward communication, there are some important differences between them.
These arise because of the difference in status between the communicating parties. For example,
i t has been established that upward communication occurs far less frequently than downward

communication. In fact, one classic study found that 70 percent of assembly-line workers
initiated communication with their super-visors less than once a month. And, when people do
communicate upward, their conversations tend to be far shorter than the ones they have with
others at their own level.
Even more importantly, when upward communication does occur, the information transmitted is
frequently inaccurate. Given that employees are interested in "putting their best foot forward"
when communicating with their bosses, they have a tendency to highlight their accomplishments
and to downplay their mistakes. As a result, negative information tends to be ignored or
disguised. This tendency for people to purposely avoid communicating bad news to their
supervisors is known as the MUM effect. We need to be concerned about this phenomenon
because supervisors can only make good decisions when they have good information available
to them. And, when subordinates are either withholding or distorting information so as to avoid
looking bad, the accuracy of the information communicated is bound to suffer.
Horizontal Communication.
Within organizations, messages don't only flow up and down the organization chart, but
sideways as well. Horizontal communication is the term used to identify messages that flow
laterally, at the same organizational level. Messages of this type are characterized by efforts at
coordination, attempts to work together. Consider, for example, how a vice president of
marketing would have to coordinate his or her efforts with people in other departments when
launching an advertising campaign for a new product. This would require the coordination of
information with experts from manufacturing and production (to see when the products will be
available) as well as those from research and development (to see what features people really
want).
Unlike vertical communication, in which the parties are at different organizational levels,
horizontal communication involves people at the same level. Therefore, it tends to be easier and
friendlier. It also tends to be more casual in tone and occur more readily given that there are
fewer social barriers between the parties. This is not to say that horizontal communication is

without its potential pitfalls. Indeed, people in different departments sometimes feel that they are
competing against each other for valued organizational resources, leading them to show
resentment toward one another. And when an antagonistic, competitive orientation replaces a
friendly, cooperative one, work is bound to suffer.
Informal Communication: Beyond the Organization Chart
It's probably obvious that a great deal of communication in organizations goes far beyond
sending formal messages up, down, or across organization charts. To get a complete picture of
organizational communication we also must pay attention to informal communication
information shared without any formally imposed obligations or restrictions.
When people communicate informally they are not bound by their organizational positions.
Anyone can tell anything to anyone else. Although it would clearly be inappropriate for a mail
room clerk to share his thoughts with a vice president about matters of corporate policy, both
parties may be perfectly at ease exchanging funny stories. The difference lies in the fact that the
funny stories are unofficial in nature, and are communicated informally—that is, without
following the formal constraints imposed by the organization chart.
It is easy to imagine how important the flow of informal information may be within
organizations. People transmit information to those with whom they come into contact, thereby
providing conduits through which all sorts of messages can travel. Research has shown that such
informal connections may explain the very important organizational phenomenon of turnover.
For example, studying informal communication patterns in a fast food restaurant, scientists
observed that the people who left their jobs tended to be ones who kept in touch with individuals
who left earlier to take new positions. This makes sense if you think about it: After all, people

who communicate informally with their workmates about better job opportunities in other
companies are likely to be the ones who take advantage of such opportunities.
When anyone can tell something informally to anyone else, it results in a very rapid flow of
information along what is commonly called “the grapevine.” This term refers to the pathways
along which unofficial information travels. In contrast to formal organizational messages, which
might take several days to reach their destinations, information traveling along the
organizational grapevine tends to flow very rapidly. In fact, it is not unusual for some messages
to reach everyone in a large organization in a matter of a few hours. We already explained that
this is the case because informal communication crosses organizational boundaries and is open
to everyone. There is another reason as well. Namely, informal information tends to be
communicated orally, and oral messages not only reach more people, but do so more quickly
than written messages. As we noted earlier, however, oral messages run the risk of becoming
inaccurate as they flow between people. Because of the possible confusion grapevines can cause,
some people have sought to eliminate them. However, they are not necessarily bad. In fact,
informally socializing with our co-workers can help make work groups more cohesive, and also
may provide excellent opportunities for the pleasant social contacts that make life at work
enjoyable. Regardless of whether they're helpful or harmful, the grapevine must be considered
an inevitable fact of organizational life.
Rumors: The Downside of Informal Communication.
Although the information communicated along the grapevine may be accurate in some respects,
it may be inaccurate in others. In extreme cases information may be transmitted that is without
any basis in fact and is unverifiable. Such messages are known as rumors. Typically, rumors are
based on speculation, someone's overactive imagination, and wishful thinking, rather than on
facts.
Rumors race like wildfire through organizations because the information they contain is usually
very interesting and vague. This ambiguity leaves messages open to embellishment as they pass
orally from one person to the next. Before you know it, almost everyone in the organization has

heard the rumor, and its inaccurate message comes to betaken as fact ("Everyone knows it, so it
must be true"). Hence, even if there may have been, at one point, some truth to a rumor, the
message quickly grows untrue. The question arises: What can be done to counter the effects of
rumors? You may be tempted to consider directly refuting a rumor. This approach works best
whenever a rumor is highly implausible and is challenged immediately by an independent
source. What worked best at countering the rumor, research showed, was reminding people
about other things they already believed about a company. Not surprisingly, advertising
campaigns (including public relations efforts by politicians rumored to be involved in various
scandals) frequently devote more time to redirecting the public's attention away from negative
thoughts and toward positive ones that they already have.
MOTIVATION THEORIES AND CONCEPTS
The Encarta dictionary says that motivate means “give somebody incentive” or “make somebody
willing”. This is a tall order for the leader/manager. The good leader/manager is one who can
marshal the energies and enthusiasm of the employees so that they work in the desired direction
and towards the goals of the leader and the organization. What the leader/manager wants is a
group of employees who are productive and interested in contributing to the work.
Intrinsic and extrinsic motivation
One of the first distinctions to be made, which is a concept which also arises in some of the
following motivation theories, is the distinction between intrinsic and extrinsic motivation. As
the terms intrinsic and extrinsic suggest, intrinsic motivation is that motivation that comes from
a source inside the individual, while extrinsic motivation is that motivation that comes from a
source outside the individual.
We would describe someone as being intrinsically motivated if they derive their satisfaction
from the knowledge of a job well done. Or they could derive a satisfaction from the challenge of

the job. An extrinsically motivated person is one who wants something given to them as a
reward. This reward for instance could be a cash reward, a prize of some sort or a medal.
This is not to say that the person who is intrinsically motivated does not also want or search for
rewards. It’s just that the externally granted reward will not motivate them if that is the only
reward they get. The main source of their motivation comes from the internal source.
What is important to understand here is that the good leader/manager must understand what it is
that motivates the employee and motivate them by keeping the employees’ needs in mind
Content Theories Of Motivation

Process Theories Of Motivation

Maslow
Maslow’s hierarchy of needs
The most famous classification of needs is the one formulated by Maslow (1954). He suggested
that there are five major need categories which apply to people in general, starting from the
fundamental physiological needs and leading through a hierarchy of safety, social and esteem
needs to the need for self-fulfillment, the highest need of all. Maslow‘s hierarchy is as follows:

1. Physiological– the need for oxygen, food, water and sex.
2. Safety– the need for protection against danger and the deprivation of physiological needs.
3. Social– the need for love, affection and acceptance as belonging to a group.
4. Esteem– the need to have a stable, firmly based, high evaluation of oneself (self-esteem) and
to have the respect of others (prestige). These needs may be classified into two subsidiary sets:
first, the desire for achievement, for adequacy, for confidence in the face of the world, and for
independence and freedom, and, second, the desire for reputation or status defined as respect or
esteem from other people, and manifested by recognition, attention, importance, or appreciation.
5. Self-fulfillment (self-actualization)– the need to develop potentialities and skills, to become

what one believes one is capable of becoming.
Maslow’s theory of motivation states that when a lower need is satisfied, the next highest
becomes dominant and the individual’s attention is turned to satisfying this higher need. The
need for self-fulfillment, however, can never be satisfied. He said that ‘man is a wanting
animal’; only an unsatisfied need can motivate behavior and the dominant need is the prime
motivator of behaviour. Psychological development takes place as people move up the hierarchy
of needs, but this is not necessarily a straightforward progression. The lower needs still exist,
even if temporarily dormant as motivators, and individuals constantly return to previously
satisfied needs.
One of the implications of Maslow’s theory is that the higher-order needs for esteem and self-
fulfillment provide the greatest impetus to motivation – they grow in strength when they are
satisfied, while the lower needs decline in strength on satisfaction. But the jobs people do will
not necessarily satisfy their needs, especially when they are routine or deskilled.
Maslow’s needs hierarchy has an intuitive appeal and has been very influential. But it has not
been verified by empirical research and it has been criticized for its apparent rigidity. Different
people may have different priorities and it is difficult to accept that people’s needs progress

steadily up the hierarchy. In fact, Maslow himself expressed doubts about the validity of a
strictly ordered hierarchy.
Herzberg’s Two-Factor Concept
Frederick Herzberg’ s Two-Factor Concept, originally published by the Harvard Business

Review in 1968, and republished in the 1991 edition, focuses exclusively on the corporate
environment. First, Herzberg wrote that anything resulting in short-term stimulation (decreasing
hours; increasing wages and benefits) should be avoided, because these end up becoming only
outside pushes. Employees, in order to be successfully motivated, should want to perform.
Anything that is a push is not viewed as a reward by the employee; rather, it is considered a
right.
Herzberg thus developed a dual way to look at motivation: satisfiers, which come from the
ability to achieve and grow, and dissatisfiers, which come from man’s animal nature. He
emphasized that satisfiers and dissatisfiers are separate and distinct from one another (p. 29).
Unlike Maslow, Herzberg did not advocate a continuum of needs. Instead, he proposed that
managers must deal with satisfiers and dissatisfiers separately. Dissatisfiers must be eliminated
from the workplace before the satisfiers are implemented, otherwise workers will overlook the
satisfiers. Included under each category are:
Satisfiers: achievement, recognition, the work itself, responsibility, advancement, growth
Dissatisfiers: administration, supervision, work conditions, salary, status, security, relationships,

etc.
When shown on a graph, it is evident that the dissatisfiers out-number the satisfiers by a three-
to-two ratio. Therefore, eliminating all the potential dissatisfiers, while not changing any of the
satisfiers, results in a worker that is performing at a level of 60% efficiency, rather than the
original 25%. Plugging this new information into Figure below, the thrust of Herzberg’s theory
is evident:

In order to satisfy employees based on his list, Herzberg suggested vertical enrichment of the
job, which means increasing employees’ participation and involvement (Davidmann, 1989).
Herzberg found that those with enriching jobs liked their jobs better and experienced lower
absenteeism.
MASLOW MEETS HERZBERG
Each of these theories is simple and straightforward (Bowey, 1997). They each reject money as a
motivator, focusing instead on self-fulfillment (Maslow) and enrichment (Herzberg). Combining
the theories together, we get the following figure:
In both theories, money (basic need; dissatisfier) is important only up to the point where basic
needs are satisfied[,] then job satisfaction [self-actualization; job enrichment] becomes more

important (Davidmann, 1989, unpaginated). A smart manager, then, will focus first on the basic
needs of his/her staff, then will progress to the higher-order needs.
Problems Inherent In These Theories
Because they are so simple, both Herzberg’s and Maslow’s theories try to put employees in neat
categories of motivation. But, a motivator for one person may not be a motivator for a co-worker
(Bowey, 1997). People are motivated by different things. What drives one person to excel may
have no effect at all on another’s efforts. Unfortunately, managers tend to recognize people for
the strengths they value in themselves (Nelson, Good, Hill, 1997, p. 51). Therefore, the perfect
theory would call for each employee having a reward system tailored to their specific needs.
This, however, would be a managers nightmare (Bowey, unpaginated).
Conclusion: Recommendations To Apply The Theories Practically
Managers, then, need to assess the personality, needs, and valence of each worker. Valence
refers to the motivating power of a specific outcome of behavior [which] varies from individual
to individual (Stoner, Freeman, Gilbert, 1995, p. 456). Valence can be demonstrated in a simple
example: If a worker values money and prestige, a transfer to a higher-paying job in a new
location would have high valence. However, if that worker valued friends and family, that
transfer would have low valence. (Stoner, et al) By being aware of different personalities on
staff, managers can assure they meet individual needs. Allowing the employees several options,
and letting them choose for themselves, also accomplishes this goal.
Mc Gregor Theory X and Y
Douglas McGregor (1906-1964) postulated management ideas as contained in “Theory X” and

“Theory Y”. Using human behavior research, he noted that the way an organization runs
depends on the beliefs of its managers.
“Theory X” gives a negative view of human behavior and management that he considered to
have dominated management theory from Fayol onwards – especially Taylorism. It also assumes

that most people are basically immature, need direction and control, and are incapable of taking
responsibility. They are viewed as lazy, dislike work and need a mixture of financial
inducements and threat of loss of their job to make them work (‘carrot and stick’ mentality).
“Theory Y”, the opposite of “Theory X”, argues that people want to fulfill themselves by
seeking self-respect, self-development, and self-fulfillment at work as in life in general. The six
basic assumptions for ‘Theory Y’ are: work is as natural as play or rest – the average human
being does not inherently dislike work, whether work is a source of pleasure or a punishment (to
be avoided) depends on nature of the work and its management. Second, effort at work need not
depend on threat of punishment – if committed to objectives then self-direction and self-control
rather than external controls. Third, commitment to objectives is a function of the rewards
associated with their achievement. Satisfaction of ego and self-actualization needs can be
directed towards the objectives of the organization. Fourth, the average human being learns,
under proper conditions, not only to accept but to seek responsibility. Fifth, high degrees of
imagination, ingenuity and creativity are not restricted to a narrow group but are widely
distributed in the population. Lastly, under the conditions of modern industrial life, the
intellectual potentials of the average human being are being only partly utilized.
Equity Theory: The Importance Of Being Fair
There can be little doubt about the importance of money as a motivator on the job. However, it
would be overly simplistic and misleading to say that people only want to earn as much money
as possible. Even the highest-paid executives, sports figures, and celebrities sometimes complain
about their pay despite their multi-million-dollar salaries. Are they being greedy? Not
necessarily. Often, the issue is not the actual amount of pay received, but rather, pay fairness, or
equity. Organizational scientists have been actively interested in the difficult task of explaining

exactly what constitutes fairness on the job, and how people respond when they believe they
have been unfairly treated. The major concept addressing these issues is known as equity theory.
Balancing Outcomes and Inputs
Equity theory proposes that people are motivated to maintain fair, or equitable, relationships
between themselves and others, and to avoid those relationships that are unfair, or inequitable.
To make judgments of equity, people compare themselves to others by focusing on two
variables: outcomes—what we get out of our jobs (e.g., pay, fringe benefits, prestige, etc.)—and
inputs—the contributions made (e.g., time worked, effort exerted, units produced). It helps to
think of these judgments as ratios—that is, the outcomes received relative to the inputs
contributed (e.g., $1,000 per week in exchange for working 40 hours). It is important to note that
equity theory deals with outcomes and inputs as they are perceived by people, not necessarily by
objective standards. As you might imagine, well-intentioned people sometimes disagree about
what constitutes equitable treatment.
According to equity theory, people make equity judgments by comparing their own
outcome/input ratios to the outcome/input ratios of others. This so-called "other" may be
someone else in one's work group, another employee in the organization, an individual working
in the same field, or even oneself at an earlier point in time – in short, almost anyone against
whom we compare ourselves. These comparisons can result in one of three different states:
overpayment inequity, underpayment inequity, or equitable payment. Let's consider an example.
Imagine that Andy and Bill work together as copywriters in an advertising firm. Both men have
equal amounts of experience, training and education, and work equally long and hard at their
jobs. In other words, their input is equivalent. But, suppose Andy is paid an annual salary of
$60,000 while Bill is paid only $50,000. In this case, Andy's ratio of outcomes/input is higher
than Bill's, creating a state of over payment inequity for Andy (since the ratio of his
outcomes/input is higher), but underpayment inequity for Bill (since the ratio of his
outcomes/input is lower). According to equity theory Andy, realizing that he is paid more than
an equally qualified person doing the same work, will feel guilty in response to his

overpayment. By contrast, Bill, realizing that he is paid less than an equally qualified person for
doing the same work, will feel angry in response to his underpayment. Guilt and anger are
negative emotional states that people are motivated to change. As a result, they will seek to
create a state of equitable payment, in which their outcome/input ratios are equal, leading both of
them to feel satisfied.
How can inequitable states be turned into equitable ones? The answer lies in adjusting the
balance of outcomes and/or input. Among people who are underpaid, equity can be created by
raising one's outcomes and/or lowering. Likewise, those who are overpaid may either raise their
inputs or lower their outcomes. In both cases, either act ion would effectively make the two
outcome/input ratios equivalent. For example, the underpaid person, Bill, might lower his inputs
such as by slacking off, arriving at work late, leaving early, taking longer breaks, doing less
work, or lowering the quality of his work – or, in an extreme case, quit his job. He also may
attempt to improve his outcome, such as by asking for a raise, or even taking home company
property, such as tools or office supplies. In contrast, the overpaid person, Andy, may do the
exact opposite—raise his input or reduce his outcome. For example, he might put forth much
more effort, work longer hours, and try to make a greater contribution to the company. He also
might lower his outcome, such as by working while on a paid vacation, or by not taking
advantage of fringe benefits the company offers. These are all specific behavioral reactions to
inequitable conditions—that is, actions people may take to turn inequitable states into equitable
ones. However, people may be unwilling to do some of the things necessary to respond with
typical behaviors toward inequities. In particular, they may be reluctant to steal from their
employers, or unwilling to restrict their productivity, for fear of getting caught "goofing off." In
such cases, people may attempt to resolve inequity cognitively, by changing the way they think
about the situation. As noted earlier, because equity theory deals with perceptions, inequitable
states may be redressed by altering one's thinking about their own, and others', outcomes and
input. For example, underpaid people may rationalize that others' input is really higher than
their own (e.g., "I suppose she really is more qualified than me"), thereby convincing themselves
that those individual's higher outcomes are justified. Similarly, overpaid people may convince

themselves that they really are better, and deserve their relatively higher pay. So, by changing
the way they see things, people can come to perceive inequitable situations as equitable, thereby
effectively relieving their feelings of guilt and anger, and transforming them into feelings of
satisfaction.
Responding to Inequities on the Job
There is a great deal of evidence to suggest that people are motivated to redress inequities at
work, and that they respond much as equity theory suggests. Consider two examples from the
world of sports. Research has shown that professional basketball players who are underpaid (i.e.,
ones who are paid less than others who perform as well or better) score fewer points than those
who are equitably paid. Similarly, among baseball players, those paid less than others who play
comparably well tend to change teams or even leave the sport when they are unsuccessful at
negotiating higher pay. Cast in terms of equity theory, the underpaid players may be said to have
lowered their inputs.
We also know that underpaid workers attempt to raise their outcomes. For example, in an
organization studied by the author, workers at two manufacturing plants suffered an
underpayment created by the introduction of a temporary pay cut of 15 percent. During the 10-
week period under which workers received lower pay, company officials noticed that theft of
company property increased dramatically, approximately 250 percent. However, in another
factory in which comparable work was done by workers paid at their normal rates, the theft rate
remained low. This pattern suggests that employees may have stolen property from their
company in order to compensate for their reduced pay. Consistent with this possibility, it was
found that when the normal rate of pay was reinstated in the two factories, the theft rate returned
to its normal, low level. These findings suggest that companies that seek to save money by
lowering pay may merely be encouraging their employees to find other ways of making up for
what they believe they are due.
Expectancy Theory: Believing You Can Get What You Want

Beyond seeking fair treatment on the job, people are also motivated by the expectation that they
will achieve certain desired rewards by working hard. If you've ever put in long hours studying
in the hopes of receiving an "A" in one of your classes, then you understand expectancy theory.
This is one of the basic ideas behind the popularity of pay systems known as merit pay plans, or
pay-for-performance plans, which formally establish links between job performance and
rewards.
However, a recent survey found that only 25 percent of employees see a clear link between good
job performance and their rate of pay. Clearly, companies are not doing enough to affect
motivation. To get an understanding of why companies are failing to significantly increase
motivation, let's take a closer look at expectancy theory.
Three Components of Motivation
Expectancy theory claims that people will be motivated to exert effort on the job when they
believe that doing so will help them achieve the things they want. It assumes that people are
rational beings who think about what they have to do to be rewarded and how much the reward
means to them before they perform their jobs. Specifically, expectancy theory views motivation
as the result of three different types of beliefs that people have. These are: expectancy—the
belief that one's effort will affect performance, instrumentality—the belief that one's
performance will be rewarded, and valence—the perceived value of the expected rewards. For
a summary of these components and their role in the overall theory,
Expectancy. Sometimes people believe that putting forth a great deal of effort will help them get
a lot accomplished. However, in other cases, people do not expect that their efforts will have
much effect on how well they do. For example, an employee operating a faulty piece of
equipment may have a very low expectancy. Someone working under such conditions probably
would not continue to exert much effort. After all, there is no good reason to go on trying to fill a
bucket riddled with holes. Accordingly, good managers will do things that help their
subordinates believe that their hard work will lead them to do their jobs better. With this in
mind, training employees to do their jobs better can be very effective in helping enhance

expectancy beliefs. Indeed, a large part of working more effectively involves making sure that
one's efforts will pay off.
Some companies have taken a more direct approach by soliciting and following their employees'
suggestions about ways to improve their work efficiency. For example, United Electric Controls
(a manufacturer of industrial temperature and pressure controls located in Watertown,
Massachusetts) routinely asks its employees for ways it can help them do their jobs more
effectively. Since instituting this approach, not only have individual employees become more
productive, but the company as well. In fact, important indicators revealed that the company's
performance improved dramatically after it began following its employees' suggestions (For
instance, on-time deliveries rose from 65 percent to 95 percent).
Instrumentality. Even if an employee performs at a high level, his or her motivation may suffer
if that performance is not appropriately rewarded – that is,if the performance is not perceived as
instrumental in bringing about the rewards. So, for example, an extremely productive employee
may be poorly motivated if he or she has already reached the top level of pay given by the
company. Recognizing this possibility, several organizations have crafted pay systems that
explicitly link desired performance to rewards.
Consider, for example, the newly instituted pay plan for IBM's 30,000 sales representatives.
Previously, most of the pay these reps received was based on flat salary; their compensation was
not linked to how well they did. Now, however, their pay is carefully tied to two factors that are
essential to the company's success– profitability and customer satisfaction. So, instead of
receiving commissions on the amount of the sale, as so many salespeople do, 60 percent of
IBMers' commissions are tied to the company's profit on that sale. As a result, the more the
company makes the more the reps make. And, to make sure that the reps don't push only high-
profit items that customers might not need, the remaining 40 percent of their commissions are
based on customer satisfaction. Checking on this, customers are regularly surveyed about the
extent to which their sales representatives helped them meet their business objectives. The better
the reps have done in this regard, the greater their commissions. Since introducing this plan,

IBM has been effective in reversing its unprofitable trend. Although there are certainly many
factors that may have assisted in this turnaround, experts are confident that the practice of clearly
linking desired performance to individual rewards is a key factor.
Overview Of Expectancy Theory
Expectancy theory claims that motivation is the combined result of the three components
identified here – expectancy, instrumentality, and valence of reward. It also recognizes that
motivation is only one of several determinants of job performance.
Valence. Thus far, we have been assuming something that needs to be made explicit—namely,
that the rewards the organization offers in exchange for desired performance are, in fact,
desirable. In other words, using terminology from expectancy theory, they should have a positive
valence. This is no trivial point if you consider that rewards are not equally desirable to
everyone. For example, whereas a bonus of $500 may not be seen like much of a reward to a
multimillionaire CEO, it may be quite valuable to a minimum-wage employee struggling to
make ends meet. Valence is not just a matter of the amount of reward received, but what that
reward means to the person receiving it. These days, with a highly diverse workforce, it would
be erroneous to assume that employees are equally attracted to the same rewards. Some, like
single, young employees for example, might recognize the incentive value of a pay raise ,

whereas others, such as those raising a family, might prefer additional vacation days, improved
insurance benefits, and day-care or eldercare facilities. So, how can an organization find out
what its employees want? Some companies have found a simple answer—ask them.
Many more companies have taken a completely individualized approach, introducing cafeteria-
style benefit plans—incentive systems which allow employees to select their fringe benefits
from a menu of available alternatives. Given that fringe benefits represent almost 40 percent of
payroll costs, more and more companies are recognizing the value of administering them
flexibly.
The Role of Motivation in Performance
Thus far, we have discussed the three components of motivation identified by expectancy theory.
However, expectancy theory views motivation as just one of several determinants of job
performance. Motivation combines with a person's skills and abilities, role perceptions, and
opportunities to influence job performance.
It's no secret that the unique characteristics, special skills, and abilities of some people
predispose them to perform their jobs better than others. For example, a tall, strong, well
coordinated person is likely to make a better professional basketball player than a very short,
weak, uncoordinated one—even if the shorter person is highly motivated to succeed.
Recognizing this, it would be a mistake to assume that someone performing below par is poorly
motivated. Instead, some poor performers may be very highly motivated, but lacking the
knowledge or skills needed to succeed. With this in mind, companies often make big
investments in training employees so as to ensure that they have what it takes to succeed,
regardless of their levels of motivation.
Expectancy theory also recognizes that job performance will be influenced by people's role
perceptions—that is, what they believe is expected of them on the job. To the extent that there
are uncertainties about what one's job duties may be, performance is prone to suffer. For
example, a shop foreman who believes his primary job duty is to teach new employees how to

use the equipment may find that his performance is downgraded by a supervisor who believes he
should be spending more time doing routine paperwork instead. In this case the foreman's
performance wouldn't suffer due to any deficit in motivation, but because of misunderstandings
regarding what the job entails.
Finally, expectancy theory recognizes the role of opportunities to perform one's job. Even the
best employees may perform at low levels if their opportunities are limited. This may occur, for
example, if there is an economic downturn in a salesperson's territory, or if the company's
available inventory is insufficient to meet sales demand.
In conclusion, expectancy has done a good job of sensitizing managers to several key
determinants of motivation, variables that are frequently controllable. Beyond this, the theory
clarifies the important role that motivation plays in determining job performance.
LEADERSHIP THEORIES AND CONCEPTS
What is your leadership style? Do you use a number of different styles? Your leadership style is
the manner and approach of providing direction, implementing plans, and motivating people.
How well your group accomplishes its goals and maintains itself will be determined by your
leadership style. In the early years of leadership studies, theorists believed that certain character
types made great leaders and that people were born with these characteristics. They called this
the “trait theory.” However, the theorists found out that it is incredibly difficult to identify one
character type as being more successful at leadership than others. Researchers then studied
leaders’ personalities and their behavior patterns as they dealt with groups. Several theories of
leadership style were proposed during the 1970s to help leaders match style to situation (Sharpe
2000).
Throughout published literature, researchers have grouped the theories into three categories: the
autocratic versus democratic leadership, task versus maintenance leadership, and leadership role
typologies. A number of leadership experts have developed their own names and roles to
describe various leadership styles.

Most recently, a number of leadership researchers have broken new ground by describing
leadership styles for the five stages of radical change (Reardon 1998). In today’s fast-paced
world, this research explores how individual and group leadership style limitations can be dealt
with to ensure radical change success.
Autocratic Versus Democratic Leadership Styles
Leaders carry out their roles in a wide variety of styles, e.g., autocratic, democratic, and laissez-
faire (hands- off ). Often, the leadership style depends on the situation, including the life cycle of
the organization. The following will give you a brief overview of key styles, including the ones
mentioned above.
1. Autocratic Leadership
Characteristics:
■ Telling others what to do; dominating team members.
■ Using unilateralism to achieve a singular objective.
■ Limiting discussion on ideas and new ways of doing things.
■ Group does not experience teamwork and workers are not involved in decision making.
■ Most people are familiar with this style and easily adopt it.
■ Studies show that productivity is highest under this leadership style while the manager is
present, but productivity slumps in the absence of the manager.
Effective when . . .
■ time is limited and a call arises for urgent leadership.
■ individuals/group lack skill and knowledge.

■ the group does not know each other.
■ a new employee is just learning the job and is in a new environment; the leader is competent
and a good coach; the employee is motivated to learn a new skill.
Ineffective when . . .
■ developing a strong sense of team is the goal.
■ the group members have some degree of skill/knowledge.
■ the group wants an element of spontaneity in its work.
Democratic Leadership
Characteristics:
■ Involving group members in planning and carrying out activities.
■ Asking before telling, valuing group discussion and input, empowering.
■ Promoting a sense of teamwork, encouraging participation and wise delegation, but never
losing sight of responsibilities as a leader.
■ A sign of strength employees will respect.
■ Studies show that productivity is high under democratic leadership—not as high as in an

autocratic situation, but the productivity does not drop when the leader is absent.
■ the situation allows sufficient time.
■ the group members have some degree of skill or knowledge.
■ the leader knows the problem well, but wants to create a team where the employees take
ownership of the project; the group is motivated and/or a sense of team exists to gain more
commitment.

■ the employees know their jobs and want to become part of the team.
■ the group is unmotivated.
■ group members lack skill and knowledge.
■ a high degree of conflict is present.
Laissez-Faire Leadership
Characteristics:
■ Noninterference in the affairs of others.
■ Giving little or no direction to group/individuals and exercising little control over the group.
■ Offering opinion only when requested.
■ A person does not seem to be in charge.
■ Allowing the employees to make the decision.
■ This has the lowest level of productivity of all styles of leadership.
■ a high degree of skill and motivation is shown in your group or when an employee is able to
analyze the situation and determine what needs to be done, as well as how to do it.
■ a sense of team exists.
■ the routine is familiar to participants; by handing over ownership, a leader can empower his
group to achieve their goals.
■ the situation might call for the leader to be at other places doing other things.

■ a low sense of team/ interdependence exists.
■ group members have a low degree of skill and knowledge.
■ the group expects to be told what to do.
A good leader uses all three styles, depending on what forces are involved between the
followers, the leader, and the situation.
Leader Task/Relationship Behavior
More recently “task” and “relationship” behavior have become two important components of
leadership styles, particularly in community and volunteer organizations (Sharpe 2000).
Task behavior is oriented toward goals, accomplishments, and organization processes. Leaders
believe they get results by consistently keeping people busy and urging them to work.
Relationship behavior is oriented toward creating the social climate of emotional and
psychological support in the relationship with group members. These leaders build teamwork,
help members with their problems, and provide psychological support. There is evidence that
leaders who are considerate and build strong relationships with their team members are higher
performers and are more satisfied with their jobs.
Task and relationship behaviors need not be an either/or style—they can be combined in varying
degrees.
For example, a leader who exhibits high relationship behavior does not necessarily become less
structured.
Identifying Your Leadership Style
Assessing your own strengths and styles can enhance personal leadership skills. The goal of the
effective leader is to have leadership flexibility, but this does not mean permissiveness.

Good leaders know how to involve people by structuring their ideas toward task
accomplishment. An effective leader must also be adept at assessing the situation and choosing
the most appropriate leadership role to meet the needs of the situation (Klein 1986).
A leader who learns how to involve other people, listens to their ideas, and structures to lead to a
common goal will have learned the skills and the advantages of being a flexible activator. Rigid,
passive, or unstructured leadership results in organizational problems. The leader who knows
when to involve, when to abdicate, and when to control is able to “read” a leadership situation
and meet its particular needs (Walker 2002)
The Basic Dimensional Model
The Basic Dimensional Model (Lefton 2003) has been developed to help people identify their
leadership style. It is illustrated by two dimensions, which are shown as intersecting lines. Each
line is a continuum of behavior. One dimension represents dominance at one end and submission
at the other. The second dimension represents hostility at one end and warmth at the other.
Research has shown that four characteristics are most important in explaining how people
interact:
■ Dominance: Defined as exercising control or influence, being assertive, and putting one’s idea
forward; also as striving to influence how others think, feel, and behave. Dominant people take
charge and move others to act. They are mostly concerned with getting things (tasks) done.
■ Submission: Defined as following the lead of others. People who are submissive tend to be
passive, more reluctant to speak out, and
The Basic Dimension Model (Plot your numbers in each quadrant)

have little regard or interest in influencing others.
■ Hostility: Defined as self- centeredness with a lack of regard for others. Hostile behavior is
not sensitive to other’s needs, feelings, or ideas.
■ Warmth: Defined as concern for others with an open-minded approach.
These characteristics are utilized to assist people in identifying their leadership styles, and
because the four behaviors fall into four quadrants in the model, there are four types of leaders:
Q1 = dominant–hostile (Autocratic)
Q2 = submissive–hostile (Unassertive)
Q3 = submissive–warm (Easygoing)
Q4 = dominant–warm (Collaborative)

The Q1 leader uses power and control as a basic managing tool and is more concerned with ends
than means.
Results matter.
The Q2 leader is pessimistic about people and seeks to maintain rather than change. This type of
leader acts as a conduit within the hierarchy.
The Q3 leader is generally undemanding and dislikes thinking of himself or herself as “the
boss.” This type of leader often rewards too easily and has difficulty readily giving negative
feedback. The Q4 leader’s goal is to obtain optimal productivity from everyone. This type of
leader acknowledges people’s strengths and weaknesses and builds on the potential of the team.
Leadership Styles: Continously Changing
The “information age” has led us into a faster-paced society with radical change occurring
around us. The key component of successful leadership now and in the next century is proactive
and effective responsiveness to change. Leaders who can do these things are referred to as
“strategic leaders” (Reardon 1998).
A new set of leadership styles was derived from work on the Leadership Style Inventory (LSI)
developed by Rowe, Reardon, and Bennis (1995).
The inventory identifies differences in style used by leaders that are based on the following
questions: How adaptive are leaders when dealing with the issues they face? How do leaders
communicate with, persuade, and energize constituents in the process of change (Reardon
1998)?
The LSI identifies four basic styles: commanding, logical, inspirational, and supportive. It also
describes combinations of basic styles called patterns. These patterns help to describe the
complexity behind leader behavior and competence for radical change.
1. Commanding leadership style:

■ Focus on performance.
■ Short-term goal orientation.
■ Highly productive and results oriented.
■ Learn through own successes and failures.
2. Logical leadership style:
■ Insistence on covering all alternatives.
■ Long-term goal orientation.
■ Use of analysis and questioning.
■ Learn by reasoning through things.
■ Effective when the goal is strategy development.
3. Inspirational leadership style:
■ Development of meaningful visions for the future from focusing on radically new ideas.
■ Learn by experimentation.
■ High level of concern for assuring cohesiveness of members of the organization.
■ Encouragement of others to follow the vision.
■ Satisfaction of curiosity by finding radically new solutions.
4. Supportive leadership style:
■ Concern with consensus.
■ Emphasis on openness.
■ Operate more as facilitators than directors.

■ Learn by observing outcomes and how others react to decisions.
Human Resource Management (HRM) is the management function deals with recruitment,
placement, training and development of organizational members. This is also dealing with
performance issues and ensuring your personnel and management practices conform to various
regulations. Activities also include managing your approach to employee benefits and
compensation, employee records and personnel policies. The HRM function and Human
Resource Development (career development, organizational development and so on) have
undergone many changes over the past years. In past, large organizations looked to the Personnel
Department, mostly to manage the paperwork around hiring and paying people. More recently,
organizations consider the HR Department as playing a major role in staffing, training and
helping to manage people so that people and the organization are performing at maximum
capability in a highly fulfilling manner. In this chapter, two types of Human Resource processes
is included for the view of its importance.
THE HRM PROCESS
The fig below shows the HRM process includes the following activities:
1. Human Resource Planning
2. Recruitment
3. Selection
4. Socialization
5. Training and development
6. Performance appraisal
7. Promotions, Transfers and Separations

All the above activities are explained elaborately in the following sections.
The Human Resource Management Process
ASTD MODEL FOR HRM
In recent years there has been relative agreement among HRM specialists as to what constitutes
the field of HRM.The model shown in fig 3.2 that provided the focus was developed by the
American Society for Training and Development (ASTD). In its study, ASTD identified nine
human resource areas:
1. Training & Development
2. Organization and Development
3. Organization/ Job Design
4. Human Resource Planning

5. Selection and Staffing
6. Personnel Research and Information systems
7. Compensation/Benefits
8. Employee Assistance
9. Union/Labor Relations
These nine areas have been termed spokes of the wheel in that each area impacts on the human
resource outputs: quality of work life, productivity, and readiness for change. Fig below is a
representation of this model, and the focus of each spoke.
Quality of Work Life
Quality of work life is a multifaceted concept. The premise of quality of work life is having a
work environment where an employee’s activities become more important. This means
implementing procedures or policies that make the work less routine and more rewarding for the
employee. These procedures or policies include autonomy, recognition, belonging, progress and
development, and external rewards. Autonomy deals with the amount of freedom that employees
can exercise in their job. Recognition involves being valued by others in the company.
Belonging refers to being part of the organization.

Ref: De Cenzo and Robbins (2005)
: ASTD Model for HRM
Progress and development refer to the internal rewards available from the organization;
challenge, and accomplishment. External rewards in the form of salary and benefits but also
include promotion, rank and status.
Productivity

Productivity is the quantity or volume of the major product or service that an organization
provides. Many components constitute the productivity factor; we can condense these HR
AREAS
Outputs:
• Quality of life
• Productivity
• Readiness for change
TRAINING & DEVELOPMENT
Focus: Identifying, assessing and- through planned learning
– helping develop the key competencies which enable individuals to perform current or future
job.
ORGANIZATION DEVELOPMENT
Focus: assuring healthy inter and intra- unit relationships and helping groups initiate and manage
change.
ORGANIZATION / JOB DESIGN
Focus: defining how tasks, authority and systems will be organized and integrated across
organization units and in individual jobs.
HUMAN RESOURCE PLANNING
Focus: determining the organization’s major human resource needs, strategies and philosophies.
SELECTION & STAFFING
Focus: matching people and their career needs and capabilities with jobs and career paths.
PERSONNEL RESEARCH & INFORMATION SYSTEMS

Focus: assuring a personnel information base.
COMPENSATION/BENEFITS
Focus: assuring compensation and benefits fairness and consistency.
EMPLOYEE ASSURANCE
Focus: providing personal problem solving, counseling to individual employees.
UNION /LABOR RELATIONS
Focus: assuring healthy union/ organization relationships. components into four categories-
capital investment, innovation, learning, and motivation.
Capital investment includes having the best possible machinery available that will help improve
the efficiency of the workers. This machinery or equipment can be in many forms –from roots to
word processors. Innovation is a process whereby new and creative ideas are welcomed, studied
for their feasibility and if feasible, implemented.
Learning looks at training issues. Not only do we want individuals to work effectively but we
want them to be efficient as well. For this, employees must have the proper skills; and in many
cases, these skills have to be taught.
Productivity is contingent on an employee’s motivation. The best trained employee, one who not
only has the ability but has access to the most advanced piece of equipment, will not be
productive if he or she is unwilling to be so. Attitude plays an important role as to whether an
individual has the propensity to work. Accordingly, to increase productivity we must in part
change an employee’s attitude or in academic terms, increase his or her morale.
Readiness for change
Change is a fact of life-in both our private and our work lives. At the work site, we must be
aware that changes will occur. The change might be subtle, such as getting a new boss. Or it
might be a major endeavor, such as an organization installing a computer system for the first

time-automating many of the manual operations. But change rarely comes easily for everyone; in
some cases it is resisted. To reduce the fear associated with change, training is important. From
an organizational perspective, employers must make changes to remain competitive. But it is
also their responsibility to communicate the forthcoming changes to their employees, identify
why the changes are necessary, and lend their total support in ensuring that the change takes
place. Through this process, employers can create a work atmosphere that views change as a
positive and progressive endeavor.
HUMAN RESOURCE PLANNING
Human resource planning is the planning done for the future personnel needs of an organization
taking into account both internal factors in the external environment. Internal factors such as
current and expected skill needs, vacancies and departmental expansions and reductions are
considered. Labor market is considered as the factor in the environment.
Developing a Human Resources Plan
HR plan can serve as information for many purposes such as:
• Identifying HR requirements to better meet business objectives
• Promoting career planning
• Reducing the time and cost of future staffing
• Signaling potential work load and work force adjustment
• Predicting potential shortfalls in the labor force and market availability
• Highlighting retirements and resignations and developing appropriate succession plans
• Identifying seasonal hiring patterns
For making effective planning procedures, some of the basic aspects are required. They are
planning for future needs and objective by deciding what skills of people the organization need

and by setting departmental strategic objectives for the next year and next three years. The
second aspect is planning to balance of future by comparing forecasted supply and future
demand. The organization's future supply and demand for employees to meet the business plans
involves the functions need to be performed and the current functions evolve in the organization.
The structuring the organization also leads to forecast supply through grouping the positions and
levels. Type of competencies or qualifications is required, also used to forecast supply. Fig 3.3
shows the steps for effective human resource planning.
The capabilities and capacities of the organization's current workforce mean that there are
existing employees who can do the work at this time. At the same time analyzing the strengths
and weaknesses of the existing people is significant. The most important factor is the labor
markets in which likely candidates are located to forecast supply. The third aspect is planning for
recruiting and laying off the employees in the organization. This is sometimes called as
downsizing or restructuring the organization. HR manager at many companies helps the laid off
employees to find new job. And the final aspect is planning to develop HR plan. This is to
ensure that the organization has the steady supply of skilled personnel.
RECRUITMENT
Recruitment is the process whereby a firm attracts or finds capable individuals to apply for
employment. Of course, the objective is to find these applicants at the lowest possible cost. This
process begins when new recruitsare sought and ends when applicants have submitted
application forms or resumes. The result is a pool of job-seekers from which the firms can select
the most qualified. Smart companies recruit employees they can retain, and retention depends on
getting the right people in the right job in the first place. Before going to recruitment, the job
analysis to be done (i.e. an analytical study of the tasks to be performed to determine their
essential factors) written into a job description so that the selectors know that the applicants
physical and mental characteristics. It is useful to investigate the desirable qualities and attitudes
Selection is buying an employee (the price being the salary multiplied by probable years of
service) and bad buys can be very expensive. For that reason some firms use external expert

consultants for recruitment and selection. However, the cost of poor selection is such that, even
for the ordinary day to day jobs, those who recruit and select should be well trained to judge the
suitability of applicants.
Sources of Recruitment
• Internal promotion
• Employment Exchanges
• Agencies for the unemployed
• Advertising (often via agents for specialist posts)
Key Steps in Effective HR Planning

The form on which the applicant is to apply (personal appearance, letter of application,
completion of a form) will vary according to the posts vacant and numbers to be recruited. It is
very desirable in many jobs that claim about experience and statements about qualifications are
thoroughly checked. Before letters of appointment are sent any doubts about medical fitness or
capacity should be resolved by requiring applicants to attend a medical examination. For
example, in the case of apprentices, the recruitment is for a contractual period or involves the
firm in training costs. Interviewing can be carried out by manager or panels of interviewers or in
the form of sequential interviews by different experts and can vary from a five minute 'chat' to a
process of several days. Ultimately personal skills in judgment are probably the most important,
but techniques to aid judgment include selection testing for: Aptitude test, General intelligence.
In more senior posts other techniques are: Leaderless groups, Command exercises and Group

problem solving. Training in interviewing and in appraising candidates is clearly essential to
good recruitment. For consistency rating often consists of scoring candidates for experience,
knowledge, physical or mental capabilities, intellectual levels, motivation, prospective potential,
leadership abilities. These are all according to the needs of the post.
Constraints on Recruitment
Firms seek to recruit give guarantees the number of qualified applicants. However there are
often some constraints on the recruitment process. They are:
• Organizational Policies
• Affirmative action Programs
• Recruiter Habits
• Environmental Conditions
• Job Requirements
Organizational Policies
An example of an organizational policy might be a promote from within policy. Such policies
are encountered in unionized firms where the collective agreement stipulates that job openings
must be posted internally prior to seeking applicants from outside the organization. Further, in
many unionized environments, policies may restrict the number of part-time employees working
for the firm. This is clearly a recruitment constraint in so far as it places limitations on the firm.
However, it may well also limit the number of applicants because some very highly qualified
applicants may simply prefer part-time employment.
Affirmative action Plans
Occasionally, firms may adopt affirmative action policies in an effort to attain a workforce that
is more representative of the general public. In efforts to increase workforce diversity, firms may

choose to voluntarily hire persons with specific characteristics. More often, such affirmative
action policies are mandated by law.
Recruiter Habits
Recruiter habits may also constitute a recruitment constraint. For example, past successes may
lead to habits or preferred tendencies in recruitment. One recruiter, who had played cricket, had
considerable success recruiting other cricket enthusiasts. Whereas he had luckily an initial
success, he may seek out cricket players in his recruitment. Obviously, cricket skills are not
necessarily the indicators of job related success. Such recruiter habits do not constitute good
recruitment practices.
Environmental Conditions
The rate of unemployment in an area can have an influence on recruitment. High unemployment
or surplus of labor supply may result in a larger number of skilled applicants for a particular job.
For example firms can take advantage of layoffs in related industries as skilled workers become
available. On the other hand, the recruiting activities of competitors can limit the supply of
qualified applicants. Changes in legislation governing the employment of certain classes of
employees can also constrain recruitment activities. If the degree of qualification necessary to do
a particular job is changed by way of legislation, then the firm's recruitment activities may also
need to change.
Job Requirements
Generally, skilled workers are more difficult to find than unskilled workers. A limited pool of
potential applicants causes firms to use different recruiting techniques. Whereas an
advertisement placed in a newspaper's classified section may serve to attract unskilled workers,
recruitment of skilled workers may require more sophisticated techniques.
Internal Recruitment

Should the recruitment process be started from internally or externally? There is nothing
inherently better about either internal or external recruitment. However, there are some
advantages to internal recruitment.
• Increased morale for employees (one promotion leads to another vacant position and this chain
effect contributes further to increased morale)
• Reward good performance or loyalty.
• Human Resource data is immediately available for any employee recruited internally.
• Organization can save money with no orientation sessions because an internal recruit will be
familiar with the firm. This employee will be familiar with the firm's products, clients,
organizational policies, and corporate culture.
The disadvantages of this recruitment are
• Whereas the firm saves money by eliminating orientation sessions for employees recruited
internally, other training costs may go up. If company policies mandate internal recruitment,
then employees promoted from within may not have all the requisite skills required for the job.
In such cases, employees will have to be trained for their new jobs. This can be a costly process.
• Another unintended negative consequence of internal recruitment might be organizational

politics. This may occur when more than one employee aspires to the job vacancy. Those not
getting the promotion will be disappointed and may be unwilling to grant the new job-holder the
authority required to do the job. Further, the unsuccessful applicants co-workers may also resent
the successful candidate.
External Recruitment
The opposite of internal recruitment is external recruitment. The most obvious advantage of
external recruitment is the availability of a greater pool of applicants. Thus, only those applicants
who have the exact qualifications will apply and be selected. This has consequences for the

organization's training budget. Whereas external recruits will require orientation upon being
hired, they will not require any extra training.
External recruits also bring new ideas and external contacts to the firm hiring them. Also, if
political infighting over a promotion might be a possibility, then external recruitment is one way
of eliminating that occurrence.
Internet Recruiting
Finding well-qualified applicants quickly at the lowest possible cost is a primary goal for
recruiters. Recent trends indicate that, if you're looking for a job in the technical field or to fill a
technical job, you need consider using the Internet. The same may well be true for non technical
jobs in the near future.
Advantages
• Internet more cost-effective
• Access to more people and a broader selection of applicants
• Ability to target the type of people needed
• Access to people with a technical background who know computers
• Convenience and Ease of use
• Quicker response
Disadvantages
• Attraction of the passive job seeker, the person who is not actively searching on the Internet
• An increased volume of applicants
• Not everyone has access to or uses the Internet
SELECTION PROCESS

Selection is the process of making a hire or no hire decision regarding each applicant for a job.
The process typically involves determining the characteristics required for effective job
performance and then measuring applicants on those characteristics. The characteristics required
for effective job performance are typically based on a job analysis.
Recruitment is the process of generating a pool of qualified candidates for a particular job. The
firm must announce the job’s availability to the market and attract qualified candidates to apply.
The firm may seek applicants from inside the organization, outside the organization or both.
Steps in the selection process
Formal application
The figure below shows the steps in the selection process. The purpose of the formal application
indicates applicants desired position and also provides information for interviews. This process
considers the need for the position and examines the possibility of job redesign. Human
Resource Manager must make available up-to-date position description of the job. This process
finds the deficient applicants who applied for the job.
Interview
Selection committee must be constituted by the HR department before conducting interview. In

the selection committee at least one member is trained in Staff Selection. This committee
ensures all information relevant to the selection process to be kept confidential and equal
opportunity issues are drawn to the attention of members. And all members are involved at all
stages of the selection process. The committee also provides feedback system for unsuccessful
applicants. The screening interview in this process is conducted for quick evaluation of
applicants suitability. In this process selection committee asks questions on their experience and
salary expectation. It is also the process of evaluating the qualifications of individuals in an
applicant pool against established position qualifications to determine which applicants in the
pool meet minimum qualifications.

Testing
Firms should endeavor to act on objective data and this is true for compensation management
and performance appraisal and it is certainly true for the selection process where firms wish to
assess the match between job applicants and job requirements.
Selection Process
A way to ensure that selection decisions are based on objective data used employment tests.
Employment tests provide firms with objective data for purposes of comparing applicants. Based
on these data, inability or poor interpersonal qualities of applicants are identified. As the

employment test score is related to actual performance of job, it is necessary to validate the
score. This test bear the resemblance to the job related task a successful applicants must to do.
Reference checks
Reference check is the process of obtaining information from former employers, supervisors, co-
workers or others regarding a candidate’s work performance or behavior. This information is
used by the selection committee along with other information collected during the selection
process to determine the candidate’s suitability for the advertised position, and ultimately to
determine which candidate is best suited for employment. If any applicant had the misbehavior
in the former organization, it is possible to account his behavior. This check identifies the kind
of the applicant and is the applicant is a reliable worker?
Physical exam
In depth selection interview will be conducted before admitting applicant to physical test.
The following steps should be followed to conduct in depth interview:
• Conduct formal job analyses
• Write accurate job descriptions
• Interviewers review job-relatedness of potential question by consulting appropriate job

descriptions
• Interviewers write out all questions before the interviews
• Use panel interviews
• Create rating forms for the interviews
• Anchor interview questions to job behaviors
• Standardize interviews

Physical examination is followed by in depth interview to ensure effective performance of
applicant and protect other employees against diseases. Also this is useful to maintain
employee’s health record and protects firm against unjust worker’s compensation claims.
For this purpose many of the company has its own medical doctor.
Analysis and decision (Job offer)
This is the end of the selection process. At this stage, successful (as well as unsuccessful)
applicants must be notified of the firm's decision. Since money and effort has been spent on all
applicants, the HR department may wish to consider even the unsuccessful applicants for other
openings in the organization.
The applications of unsuccessful applicants are often kept on file and the applications of
successful applicants will be retained in the employees' personnel files. When a job offer is
made, it should include the following information:
• The position offered
• Location of the job
• Salary
• Benefits
• Starting date
• Any papers or information that should be brought on the first day of work
• Date by which the applicant must respond to your job offer, so you can move on to the next
candidate if your first choice doesn't accept.
SOCIALIZATION(Orientation and induction)
Socialization involves orienting new employees in the organization and to the units in which
they will be working. It is important that new employees become familiar with the company’s

policies, procedures, and performance expectations. Socialization can make the difference
between a new worker’s feeling like an outsider and feeling like a member of the team. Most
people are starting a new job with nervous and perhaps concerned about performing up to their
employer's expectations. And also their work is being accepted by other employees. A thorough
orientation program takes time and effort but will increase worker productivity, decrease
confusion, and provide satisfaction for both employer and employee.
Two questions need to be answered in regards to the orientation of a new employee. They are
who will orientate the new employee? And what should be covered during orientation? One
person should be in charge of handling orientation certainly by the HR people. Having just one
individual in charge of orientation ensures a consistent message to new employees. The
orientation of a new employee can involve several people even though one person has overall
responsibility. Information covered will change from organization to organization but a basic
core of material should be discussed with the new employee, including such specific
characteristics of the organization as layout of operation, other employees, history, mission,
goals, and role of the employee. This kind of information provides the big picture of the farm to
the employee. Personnel policies including probationary period, disciplinary actions, work
schedule, safety rules, and use of equipment also need to be covered.
New employees are always interested in their benefits. Items such as pay, vacation, sick leave,
and other benefits should be covered. Discuss specific responsibilities the new employee will be
assigned, how the job relates to other work and safety rules.
Finally, be sure to introduce the new employee to management team, including family members
and other employees. It is helpful to develop an employee handbook so policies and benefits can
be accessible and clear to both employer and employee. Answer all of the immediate questions
that the new employee might have. It is important to develop open, two-way lines of
communication between the employer and employee right from the beginning. Consider the time
spent for orientation as an investment for both you and the employee. The well-defined

expectations will pay dividends and reduce possible misunderstandings between employer and
employee. By orientating the new employee properly, a smooth transition can be made to train.
TRAINING AND DEVELOPMENT
Training program is a process designed to maintain or improve current job performance.

Development process is a process designed to develop skills necessary for further work
activities. Within an organization training and development is necessary in order to:
• Develop workers to undertake higher-grade tasks;
• Provide the conventional training of new and young workers
• Raise efficiency and standards of performance;
• Meet legislative requirements (e.g. health and safety);
• Inform people (induction training, pre-retirement courses, etc.);
From time to time meet special needs arising from technical, legislative and knowledge need
changes. Meeting these needs is achieved through the training loop. The diagnosis of other than
conventional needs is complex and often depends upon the intuition or personal experience of
managers and needs revealed by deficiencies.
Group training is concerned in addition to formal courses there are:
• Lectures and talks by senior or specialist managers
• Discussion group (conference and meeting) activities
• Briefing by senior staffs
• Role-playing exercises and simulation of actual conditions
• Video and computer teaching activities

• Case studies (and discussion) tests, quizzes, games, observation exercises and inspection and
reporting techniques.
Evaluation of the effectiveness of training is done to ensure that it is cost effective, to identify
needs to modify or extend what is being provided, to reveal new needs and redefine priorities
and most of all to ensure that the objectives of the training are being met.
The latter may not be easy to ascertain where results cannot be measured mathematically. In the
case of attitude and behavioral changes sought, leadership abilities, drive and ambition fostered,
etc., achievement is a matter of the judgment of senior staffs. Exact validation might be
impossible but unless on the whole the judgments are favorable the cooperation of managers in
identifying needs, releasing personnel and assisting in training ventures will cease.
Steps in Training
The training process can be broken down into five steps each of these will assist the employer or
trainer in understanding this process.
Prepare : The first step in this process is to prepare the learner. The trainer should put the
learner at ease and explain why the skill to be learned is important. Explain any hazards or
problems that may be involved and how to deal with them. Answer any questions that the learner
may have about the task.
Tell : Explain the task thoroughly. Break it down into key parts or steps. Most employees will
find that learning several smaller tasks and putting those together is easier than trying to learn
one large skill all at once.
Show: Demonstrate for the employee exactly how the task or skill is to be performed. Involve
the employee by asking questions and getting feedback. Have the learner explain the process or
skill back to the trainer.
Do: The learner now has the opportunity to perform the task. The trainer needs to help the
learner develop confidence by at first carefully monitoring the learner, then allowing him/her to

work without supervision. The employee needs to make sure that the employee performs each
step correctly and avoids developing any bad habits.
Review: Provide honest feedback to the learner in terms of encouragement, constructive

criticism and additional comments. This is a great opportunity to praise the employee or correct
his/her progress. [Dr. Bernie Erven]
Management Development Programs
On the job methods
Coaching is the training of an employee by his/her immediate superior. The definition of

coaching is “a process that enables learning and development to occur and thus performance to
improve. To be a successful a Coach requires a knowledge and understanding of process as well
as the variety of styles, skills and techniques that are appropriate to the context in which the
coaching takes place” [Eric Parsloe, 1999].
The coach facilitate the exploration of needs, motivations, desires, skills and thought processes
to assist the individual in making real, lasting change. He/she use questioning techniques to
facilitate subordinate own thought processes in order to identify solutions and actions rather than
takes a wholly directive approach. The other functions of coach are
• Support the junior in setting appropriate goals and methods of assessing progress in relation to
these goals
• Observe, listen and ask questions to understand the subordinate situation
• Creatively apply tools and techniques which may include one to one training, facilitating,
counseling & networking.
• Encourage a commitment to action and the development of lasting personal growth & change.
• Ensure that subordinates develop personal competencies and do not develop unhealthy
dependencies on the coaching or mentoring relationship.

• Evaluate the outcomes of the process, using objective measures wherever possible to ensure
the relationship is
• Encourage to continually improve competencies and to develop new developmental alliances

where necessary to achieve their goals.
• Work within their area of personal competence.
• Possess qualifications and experience in the areas that skills-transfer coaching is offered.
• Manage the relationship to ensure the subordinate receives the appropriate level of service and
that programmes are neither too short, nor too long.
Job rotation involves shifting employees from position to position so that they can broader their
experiences and familiarize themselves with various aspects of firm’s operations. For an
example one day a manager may be working in one part of the factory and the next day he/she
may work in a different part. This avoids the employee becoming bored as with job rotation they
are doing different jobs all the time and learning new skills. Multi skilling is when people have
many skills so they are able to carry out many different jobs. Multi skilling benefits the
employer as if they are short of staff in one area,they can move people across.
In training positions, trainees are given staff post under a manager as ‘assistant to’. This is done
because to create a chance to work with senior manager. In planned work activities, trainees are
given some assignments to improve their ability and also asked them to participate in an
important meeting to get develop skills.
Off the job methods
There are many off the job methods. Two of the most important methods are Class room
instruction: Experts from inside or outside of the organization teach trainee a particular subject.
Analyzing case studies, role playing and business games are the part of the class room
instruction. University-sponsored management development programs: This type of programs is

conducted from a week to three months or more. All IIMs are conducting such type of programs
for managers.
PERFORMANCE APPRAISAL
Performance appraisal may be defined as a structured formal interaction between a subordinate

and supervisor, that usually takes the form of a periodic interview (annual or semi-annual), in
which the work performance of the subordinate is examined and discussed, with a view to
identifying weaknesses and strengths as well as opportunities for improvement and skills
development. Performance appraisal systems began as simple methods of income justification.
That is, appraisal was used to decide whether or not the salary or wage of an individual
employee was justified. The process was firmly linked to material outcomes. If an employee's
performance was found to be less than ideal, a cut in pay would follow. On the other hand, if
their performance was better than the supervisor expected, a pay rise was in order. Little
consideration, if any, was given to the developmental possibilities of appraisal. If was felt that a
cut in pay, ora rise, should provide the only required impetus for an employee to either improve
or continue to perform well. In many organizations - but not all - appraisal results are used,
either directly or indirectly, to help determine reward outcomes. That is, the appraisal results are
used to identify the better performing employees who should get the majority of available merit
pay increases, bonuses, and promotions. These appraisal results are used to identify the poorer
performers who may require some form of counseling or in extreme cases, dismissal or
decreases in pay.
Basic Purposes
Performance appraisal systems contain two basic systems operating in conjunction.
• evaluation system
• feedback system

The main aim of the evaluation system is to identify the performance gap. This gap is the
shortfall that occurs when performance does not meet the standard set by the organization as
acceptable. The main aim of the feedback system is to inform the employee about the quality of
his or her performance.
Appraisal Methods
The three most common appraisal methods in general use are
• Rating scales
• Essay methods
• MBO methods
Rating Scales
The rating scale method offers a high degree of structure for appraisals. Each employee trait or
characteristic is rated on a bipolar scale that usually has several points ranging from poor to
excellent. The traits assessed on these scales include employee attributes such as co-operation,
communications ability, initiative, punctuality and technical skills. The nature and scope of the
traits selected for inclusion is limited only by the imagination of the scale's designer. The one
major provision in selecting traits is that they should be in some way relevant to the appraisee's
job. The traits selected by some organizations have been unwise and have resulted in legal action
on the grounds of discrimination.
Advantages
The advantage of rating scales are
• Structured and standardized.
• Encourages equality in treatment for all appraisees
• Easy to use and understand.

Disadvantages
The disadvantages of rating scales are
• Irrelevant rating-scale traits of appraises
• Assumption that all the true and best indicators of performance are included and all false and
irrelevant indicators are excluded.
• Perceptual Errors
This includes various well-known problems of selective perception as well as problems of

perceived meaning. Selective perception is the human tendency to make private and highly
subjective assessments of what a person is really like and then seek evidence to support that
view. An example is the supervisor who believes that an employee is inherently good (halo
effect) and so ignores evidence that might suggest otherwise. Instead of correcting the
slackening employee, the supervisor covers for them and may even offer excuses for their
declining performance. On the other hand, a supervisor may have formed the impression that an
employee is bad (horns effect). The supervisor becomes unreasonably harsh in their assessment
of the employee, and always ready to criticize and undermine them.
• Problems of perceived meaning
This occurs when appraisers do not share the same opinion about the meaning of the selected
traits and the language used on the rating scales.
• Rating Errors
Essay Method
In the essay method approach, the appraiser prepares a written statement about the employee
being appraised. The statement usually concentrates on describing specific strengths and
weaknesses in job performance. It also suggests courses of action to remedy the identified

problem areas. The statement may be written and edited by the appraiser alone, or it be
composed in collaboration with the appraisee
Advantages
• Less structured than rating scale method.
• Examines relevant attribute of performance.
• freedom of expression
Disadvantages
• Time-consuming
• Difficult to administer.
• Through freedom of expression appraisers can upset and distort.
• Difficult to compare and contrast the results of individuals
MBO (Management By Objectives)
MBO methods of performance appraisal are results-oriented ie, they seek to measure employee
performance by examining the extent to which predetermined work objectives have been met.
Usually the objectives are established jointly by the supervisor and subordinate.
An example of an objective for a Production manager might be: Increase the production volume
to 15000 units by 30 November. Once an objective is agreed, the employee is usually expected
to self-audit; that is, to identify the skills needed to achieve the objective. Typically they do not
rely on others to locate and specify their strengths and weaknesses. They are expected to monitor
their own development and progress.
Advantages
• Concentrates on actual outcomes.

• Employees are judged according to real outcomes and not on their potential for success
• Results can be observed whereas the traits and attributes of must be guessed at or inferred.
• Recognizes the fact that it is difficult to neatly dissect all the complex and varied elements that
go to make up employee performance.
Disadvantages
• Leads to unrealistic expectations about what can and cannot be reasonably accomplished.
• Inflexible objectives to survive by the organization.
Benefits of Appraisal
• Appraisal offers a valuable opportunity to focus on work activities and goals, to identify and
correct existing problems and to encourage better future performance. Thus the performance of
the whole organization is enhanced.
• Performance appraisal can have a profound effect on levels of employee motivation and
satisfaction for better as well as for worse.
• Performance appraisal offers an excellent opportunity perhaps the best that will ever occur -
for a supervisor and subordinate to recognize and agree upon individual training and
development needs.
• Appraisal data can be used to monitor the success of the organization's recruitment and
induction practices.
PROMOTIONS, TRANSFERS AND SEPARTIONS
The movement of personnel within an organization is their promotion, transfer, demotion and
separation. These are the major aspects of human resource management.
PROMOTIONS

Promotion is the shift of an employee from one position to another having more responsible
duties or involving more skill (higher classification). To be promoted, the employee must meet
the qualification required by the new position. Provisions will be made by each institution to
provide opportunities for promotion. Promotions are most significant way to recognize superior
performance. So this is to be fair and based on merit and untainted by favoritism. Even if it is
fair, it creates a number of problems.
1. Employees who bypassed for promotion feel resentful which may affect their morale and
productivity.
2. Discrimination against women, older employees and minority groups in promotion.
TRANSFERS
Transfer is defined as the reassignment of an employee without examination from one position
to another position in the same class or to a position in a similar or related class with the same
salary range. Transfers are used to give people to broader their job experiences as their part of
development. This is mainly done to fill vacancy. Many times inadequately performing
employees may be transferred to other jobs simply because a senior manger is reluctant fire
them. Some employees are refusing transfers because they do not want to move their families.
SEPARATION
Separation means that a person is leaving active duty, but not necessarily leaving the service
entirely.
Resignation:
Employees who voluntarily resign from organization normally expected to give at least one
month prior notice. The notice is to be written and should include the specific reason for the
resignation as well as the proposed separation date.
Dismiss

Before dismissing an employee, employer must be aware of potential allegation of wrongful
dismissal if required, seek legal advice and advise employee of dismissal in private with the help
of witness present and provide copies of documentation, if requested (written warnings,
company policy and performance appraisals)
Lay off
Lay off is the separation from a permanent position because of lack of work or lack of funds, or
because the position has been abolished or reclassified, or because an employee has exhausted
all leave privileges after illness or injury.
FUNDAMENTALS OF MARKETING
 What is Marketing
 Key Concepts of Marketing
 Marketing Management Tasks
 Development of Marketing Management Philosophies
 Changing Aspects of Marketing
What Is Marketing
The process of identifying needs, wants and interests of target markets and delivering the desired
satisfactions more efficiently and effectively than competitors (AMA 1991)
Social and managerial process through which individuals and groups obtain what they need and
want through creating and exchanging products and value with others (Kotler 2003).
The management process responsible for identifying, anticipating and satisfying customer
requirements profitably ( CIM).
Core Concepts of Marketing
 Needs, wants and demand
 Products and Services

 Value and satisfaction
 Exchange and relationships
 Target markets
 Profit
Needs Wants and Demands
Needs ;- state of felt deprivation.
Physiological needs, social needs, individual needs for fulfillment.
Most basic concept underlying marketing
Wants ;- desires taken by human needs as they are shaped by culture and individual personality.
Unlimited wants but limited resources.
Demands ;- wants backed by purchasing power. Given their resources, people demand products
with the benefits that give them the most satisfaction. Desire + Ability + Willingness +
Authority = Demand. Desire – needs/wants ; Ability – have resources for exchange; Willingness
– want to spend the resources ;Have legal capacity to enter into exchanges.
Demand Situations
Negative demand - disliked products bought because there is no option e.g. insurance products
No demand – e.g. new products
Latent demand – need with no product to satisfy it
Declining demand – sales going down
Irregular demand – seasonal, daily variations
Full demand – demand = supply
Overfull demand – supply cannot meet demand
Unwholesome demand – discouraged products by society
What is Marketed

Goods, Services, Events, Experiences, Persons, Places, Properties, Organisations , Information,
Ideas, Value and Satisfaction
Customer Value
It is the difference between the benefits the customer gains from owning and using the product
and the costs of obtaining the product. Benefits can be functional (economic) and emotional.
Costs can be monetary (price), time, energy and psychic costs. To increase customer value a
marketer can increase benefits or lower costs. Perceived value is the key to understanding
customer judgments e.g. Is Omo better than Surf?
Customer Satisfaction
The extent to which a product’s perceived performance matches a buyer’s expectations. Benefits
of customer satisfaction include; (1) repeat purchases, (2) less price sensitivity, (3) positive word
of mouth to friends and thus customer loyalty.
How would you calculate value in consuming a can of coke, joining a health club, donating to
charity?
Exchange Process in Marketing
It is an act of obtaining something desired by offering something in return. Exchanged elements

include: Product exchange, Financial exchange, Information exchange, Social exchange,
Exchange should create value by leaving both parties better of.
Customer Relationships
Relationships - The process of creating, maintaining and enhancing strong, value driven
relationships with customers. (Kotler 2003). Important to create mutually beneficial relationships
because it costs five times as much to attract a new customer as it does to keep a current
customer satisfied. Losing a customer means losing the entire stream of purchases the customer
would make over a life-time of purchases. A happy customer normally tells 2 or 3 other people
but a disappointed customer will normally inform 10 or more people. Key to customer retention
is superior customer value and satisfaction
Types of Markets
 Customer Markets
 Consumer Markets
 Business (industrial) Markets

 Government Markets
 Not for Profit Markets
 Reseller Markets
 International (Global) Markets
Each market has special characteristics that require special understanding by the marketer
Discuss(25marks).
Profit
It is the gain obtained from the exchange process. Can be positive or negative Can be monetary
or non-monetary. To the customer, profit is the value or satisfaction obtained from the ownership
or consumption of a product.
What are the profits of NGOs, Churches, Political parties, Pressure groups e.g.
environmentalists?(25marks)
Role and Importance of Marketing
 Marketing plays a major role in the global economy ; – companies no-longer secure in
domestic markets; growing economies like China, India etc. influencing global marketing.
Trade Agreements (COMESA, SADC, EU), Look East Policy impact etc.
 Marketing plays a role in the socioeconomic system of a country ;– improvement in

standards of living e.g. Facilitating increased demand, consumption and employment.
 Marketing plays a role in organisations; – marketing considerations are an integral part of

all short-term and long term planning in organisations
 Marketing plays a role to individuals – studying marketing makes you better

informed,marketers view you as part of their market, marketing also improves career
aspirations.
Marketing therefore maximises consumption, maximises consumer satisfaction, maximises

choice, maximises quality of life
Marketing Management

The analysis, planning, implementation and control of programmes designed to create, build and
maintain beneficial exchanges with target buyers for the purpose of achieving organisational
goals (Kotler 2003)
The Marketing Management Process
 Tasks of Marketing Management
 Demand management
 Building profitable customer relationships
 Segmentation, positioning and targeting
 Environment management
 Creating excitement
 Marketing planning
 Connecting with customers
 Developing marketing strategies
 Building strong brands
 Delivering and communicating value
 Creating long-term growth
Marketing Management Philosophies
Philosophies look at the weight given to the interests of the organisation, the customers and the
society by the business.
Five orientations under which organisations may conduct their marketing activities namely: The
production concept , the product concept, the selling concept, the marketing concept, the societal
marketing concept
The Production Concept
The philosophy that consumers favour products that are available and highly affordable and that
management should therefore focus on improving production and distribution efficiency.
Useful under two situations

When the demand for a product exceeds supply such that management have to devise ways of
increasing production to meet demand.
When the product’s cost structure is too high and improved productivity is needed to bring it
down.
Problem:- Focus is on the company and not on customers.
The Product Concept
Holds that consumers will favour products that offer the most quality, performance and features.
An organisation should therefore devote its energy to making continuous product improvements.
Concept can lead to marketing myopia.
The Selling Concept
Holds that consumers will not buy enough of the organisation’s products unless it undertakes a
large scale selling and promotion effort.
Typically practised with products with negative demand e.g. insurance policies, politics etc.
Focuses on creating sales transactions rather than on building long-term relationships
It assumes that customers who are forced into buying the product will like it.
However, while a satisfied customer is likely to tell three others, a dissatisfied tells on average
ten others.
The Marketing Concept
It holds that achieving organisational goals depends on determining the needs and wants of
customers and delivering the desired satisfactions more efficiently and effectively than
competitors. Organisation starts with a well defined target market, focuses on customer needs,
coordinates all marketing activities affecting customers and makes profits by creating long term
relationships based on customer value and satisfaction. Common clichés associated with the
concept are;
 “Customer is king”
 “Have it your way” (Burger King)
 “you are the boss” (United Airlines)

 “Putting people first” (British Airways)
 Benefits of Market Orientation
There is responsiveness to changing consumer needs and wants. Organization’s commitment is

to focus on the customer. There is acceptance of the need to be flexible in the products offered to
consumers.
The Societal Marketing Concept
It holds that the organisation should determine the needs and wants of customers and deliver the
desired satisfactions more efficiently and effectively than competitors in a way that maintains or
improves the consumer’s and society's well being. According to the societal marketing concept,
the pure marketing concept overlooks aspects such as environmental problems, resource
shortages, rapid population growth, world-wide economic problems neglected social services.
Calls for a balance between the consumer wants and company profits and society’s long run
welfare.
Considerations of the Societal Marketing Concept and Recent Marketing Challenges and
Developments
Rapid globalization; World economy undergoing transformation e.g. Growth of Chinese

economy, Geographic and cultural distances are shrinking due to technological advancements
(airplanes, computers, email etc). Managers in countries around the world are increasingly
taking a global and not just local view of the company’s industry, competitors and opportunitiess
Changes in information technology and electronic marketing;-Boom in Information

Technology has changed the way business is conducted and has created a new digital age e.g.
telecommunications, transport, internet etc.The era has had a major impact on the ways
companies bring value to their customers e.g. The use of cell phones, iPods/ iPads, websites etc
have made communication easy. Advances in internet shopping is the most dramatic new
technology with the no. of users expected to be over 2 billion by end of 2012. Companies use the
internet to stay in touch with suppliers, customers etc and vice versa.
The Income Gap;- Large part of the world is poor with real purchasing power declining, gap
between rich and poor in developing countries continues to grow.
Ethical and social responsible marketing, Environmental Management Programmes due to;
Climate change, global warming – impact on growth and development – companies compelled
to reduce emissions, Emphasis on green marketing, certain % of sales goes to protection of the

natural environment, Companies are building social responsibility into their company value and
mission statements.
Growth of non-profit marketing;- Organisations like colleges, hospitals, churches etc now use
marketing to compete for customers
The Powerful Customer;- Customer is king ; High expectations from customers on company
goods and services. Customers after value and satisfaction ; Customers now very affluent and
influential
Other issues
- Increasing no. of working women, smaller families, varied lifestyles
- Business firms requiring higher product quality from suppliers, faster delivery, better
service, lower prices etc.
- PLC short and companies required to speed up R&D
- Firms looking for better ways to distribute and promote their products at lower costs
- Development of CRM programmes to foster closer ties with customers
- Deregulation and privatisation of state enterprises by governments
Conclusion
Marketing is thus not about providing products and services, it is essentially about providing
changing benefits to the changing needs and demands of the customer (P Tailor 2000)
THE MARKETING ENVIRONMENT
It is an assessment of the forces outside marketing that affect marketing manager’s ability to
develop and maintain successful relationships with its target customers
Importance of Understanding the Environment
• Degree of dynamism ;- rate of change of factors in the environment.
• Degree of complexity ;- the many and varied factors in the environment and their cross
impact on each other.
• Degree of uncertainty ;- as a result of the dynamism and complexity of the environment,

marketing decisions are made under conditions of risk.

Elements of the Marketing Environment
1. Internal Environment
• Resources – HR skills, management capability, finance, infrastructure, machinery,

information etc
• Structure – flexibility, suitability,
• Culture – shared values, beliefs, norms.
• Policies, procedures and systems – customer management systems, transactional systems,

complaint handling procedures etc.
• Product portfolio – product line breath, depth etc
• Strategies – product, pricing promotion, distribution.
Identify how these can give strengths or weaknesses to an organisation.
Micro-environment
Suppliers : provide the resources needed to produce goods and services. There will be need to
monitor ;- supply availability, price trends, strikes, bottlenecks etc.
Competitors : there will be need to monitor – numbers, strengths and weaknesses, their strategies
etc.
Customers : A key to profitability there will be need to identify target markets and their
changing needs and wants.
Marketing intermediaries : retailers, wholesalers, distributors, brokers, transportation,

warehousing etc. help products reach their intended destination.Need to monitor availability,
cost, efficiency, suitability etc.
Marketing services agencies ;- e.g. marketing research companies, advertising agencies, media
firms, export consulting agencies etc. Important to monitor as they vary in terms of creativity,
quality, service and price
Publics : any group that has an actual or potential interest in/or impact on an organisations ability
to achieve its objectives.Financial publics ;- banks, investment houses, shareholders. Media
publics ;- carry news, features or editorial opinion e.g. newspapers, magazines, radio and TV.

Citizen action publics ;- consumer groups (CCM), environmental groups (Green-peace), women
empowerment groups.
Identify how these micro-environmental factors can give opportunities or threats to an

organisation.
Macro-Environment
• Demographic ;- looks at the human population of an area in terms of size, density,

location, age, gender, race, occupation, family life cycle, household structure.
• Economic ;- looks at factors such as income and its distribution (GDP), spending patterns
(Engel’s Law), cost of living, interest rates, level of taxation, inflation etc.
• Socio-cultural ;- looks at society’s culture, basic values, perceptions, preferences,

behaviours and aspirations. As society changes so does the demand for various products
and services.
• Technological ;- most dramatic force shaping the world today from wonders such as
electricity, computers, cell phones, the internet to horrors such as atomic bombs, nuclear
weapons to mixed blessings such as cars, televisions etc.New technology harms old
technology
• Political ;- laws and government agencies that influence and limit various organisations
and individuals in a given society. Government influence is through legislation which
define and prevent unfair competition , Protect consumers from harmful products
(labeling laws, standards), Protect consumers from unethical marketing practices
(misleading advertising, poor products, discriminatory pricing), Protect the interests of
society (environmental degradation), To protect companies e.g. patent laws, government
subsidies etc.
• Natural Environment ;- looks at the natural resources that are needed as inputs by
marketers or which are affected by marketing activities.Four trends need to be
monitored Shortage of natural raw materials (water, minerals, forest depletions.
Increased cost of energy ;- crude oil prices now over USD 100 per barrel from as low as
USD 25 2009 Increased pollution ;- disposal of chemical and nuclear waste, use of non-
biodegradable materials, gas emissions leading to increased air and land pollution and
thus global warming. Government interventions in natural resource management, that’s
controlling how marketing is carried out.

Identify how the macro-environmental trends are providing both opportunities and threats to
marketers in Zimbabwe.
Conclusion
Every company has to examine its environment to understand the key external developments
that shape marketing opportunities and pose threats as well as internal factors that offer strengths
and weaknesses.
MANAGING CUSTOMERS AND MARKETS
Market Segmentation, Targeting, and Positioning for Competitive Advantage
Objective: explaining how companies segment, target and position for maximum competitive
advantage
Markets
In Economics, a market is a physical place where buyers and sellers gather to exchange goods
and services. In marketing, a market is the set of all actual and potential buyers of a product or
service. A market consists of people with a need/want, ability, willingness and authority to
transact.
Approaches to Markets
Mass marketing: here, the seller mass produces, mass distributes, and mass promotes one
product to all buyers.In the very beginning, Coca-Cola offered just one type of product to
everyone. Mass marketing assumes all customers will like the same offering.
Product-variety marketing: here, the seller produces two or more products that have different
features, styles, qualities, size etc. Later, Coca-Cola offered different brands such as Fanta,
Sprite etc. to offer variety to customers. Product-variety marketing purports that consumers seek
variety and change over time.
Target marketing: here, the seller identifies market segments, selects one or more of them, and
develops products and marketing mixes for each.Today Coca-Cola identifies different segments
such as diet coke, coke lite, Fanta in various flavors etc. to suit different segments. Target
marketing is the most prevalent form of marketing today.
Steps in Target Marketing
1. Market segmentation; dividing a market into distinct groups of buyers with different needs,
characteristics or behaviors who might require separate products or marketing mixes.

2. Market targeting; evaluating each market segment’s attractiveness and selecting one or more
of the market segments to enter.
3. Market positioning; setting a clear, distinctive competitive positioning (difference) for the
product in the minds of the customer and developing a detailed marketing mix.
Bases for Segmenting Consumer Markets
The major variables are;
◦ Geographic segmentation
◦ Demographic segmentation
◦ Psychographic segmentation
◦ Behavioral segmentation
A marketer has to try different segmentation variables to understand the structure of the market
in the best way.
Geographic Segmentation: Companies may divide the market into different geographic units
such as nations, regions, cities, climate… A company must pay attention to the geographical
differences in needs and wants. E.g. McDonald’s serve corn soup in Japan, pasta salads in Rome,
wine in Paris... UCM offers some programs suited to different provinces e.g. Agriculture
(Zambezia, Manica), Tourism (Pemba)
Demographic Segmentation: Companies divide the market into groups based on;
Age and life-cycle: needs and wants change with age, that is why, a company may use different
marketing approaches for different age and life-cycle groups. Levi’s 501 and Pepsi’s “generation
next” are mainly targeted to the young people.
Gender: is mainly used in clothing, cosmetics, and magazines. Ciders such as Spin, Reds, Storm
are targeted to women, whereas Manica, 2M is to men.
Income: is mainly used for cars, houses, clothing, cosmetics, financial services, and travel.
Credit cards are offered as ordinary, gold, platinum cards for different income groups; Holiday
Inn offers upscale hotels “Crowne Plaza”, economy hotels such as “Holiday Express”
Other ;- variables include, family life cycle, occupation, education and religion.
Give examples showing how these other variables can be used to segment the market(25)

Psychographic Segmentation: Companies may divide the market into different groups based
on;
Social class: has a strong effect on preferences in cars, clothes, home furnishings, leisure
activities, store choice…Lamborghini, Rolls Royce and Tiffany are targeted to people of higher
social class.
Lifestyle: person’s pattern of living as expressed in his or her activities, interests and
opinions.Foods with low fat, diet etc. are targeted to buyers who believe in a healthy
lifestyleFerrari targets the free spirited, outgoing, affluent and young at heart.
Personality: mainly used for cosmetics, cigarettes, and liquor. Marlboro is targeted to the macho
man with its macho Cowboy image.
Behavioral Segmentation
Companies may divide buyers into groups based on their attitudes, uses or responses to a
product.
Occasions: buyers can be grouped according to occasions when they buy or use an item. Coca
Cola is for “Always”, gift cards for valentines, birthdays, Christmas…
Benefit sought: buyers can be grouped according to the benefits that they seek from the product.
In the toothpaste market, benefit segments are - economic, medicinal, cosmetic, and taste;
detergent market - cleanliness, cost; chewing gum - healthy teeth, fresh breath, look cool.
Usage rate: markets also can be segmented into light, medium, and heavy user groups. Most beer
and cigarette companies target the heavy users. They maybe a small percentage of the market but
account for a high percentage of the total buying.
Evaluating Market Segments
After segmenting the whole market, the firm has to evaluate these segments and decide how
many and which ones to target. In evaluating different market segments, a firm must look at
three factors:
Segment size and growth; companies try to select the segment with “right size and growth” for
themselves. Large companies prefer to target segments with large current sales, a high growth
rate, and a high profit. Small companies may find these large segments too competitive and may
not have the skills and resources to compete and thus prefer to target smaller segments

Segment structural attractiveness; a segment may have the right size, but not offer attractive
profits if: There are strong and aggressive competitors. There are actual or potential substitute
products which may limit prices and profits
Company objectives and resources; a segment may have the right size with attractiveness but
may not be compatible with the long-run objectives of the company. Company may also not
have resources needed to succeed in the segment
Selecting Market Segments
The company must then decide which and how many segments to serve, in other words, the
company must decide which market-coverage strategy to adopt.There are three market-coverage
strategies:
◦ undifferentiated marketing
◦ differentiated marketing
◦ concentrated marketing
Market-Coverage Strategies
Undifferentiated Marketing
It is a market-coverage strategy in which a firm decides to ignore market segment differences

and goes after the whole market with one product offer. Here, the offer focuses on what is
common in the needs of consumers rather than on what is different. The company designs a
product and a marketing program that appeal to largest number of buyers.It relies on mass
advertising and a superior image in people’s minds. E.g. original Coca-Cola.
Benefits;- Provides cost effectiveness because of its low production, inventory, transportation,
advertising and marketing research costs.
Disadvantages;- Have difficulties in;
Developing a product or brand that satisfies all consumers
Keeping a strong place in the market and making profit because when several firms follow this
strategy heavy competition develops
Differentiated Marketing

It is a most common coverage strategy today in which a firm decides to target several market
segments and designs separate offers for each. E.g. Nike offers athletic shoes for different sports
such as athletics, aerobics, cycling, baseball, basketball, tennis…These companies hope for;
Higher sales through product and market variations, A strong position within each market
segment ,More loyal customers because the firm’s offerings match each segment’s desires better.
Disadvantages
It is an expensive strategy because developing separate marketing plans for the separate
segments requires extra marketing research, sales analysis, promotional planning and channel
management for each segment.
Concentrated Marketing
A market-coverage strategy in which a firm goes after a large share of a single segment. E.g.
Versace fashion house targets the exclusive clothing market Rolce-Royce the high-end car
market. Suitable for a small company to achieve a strong market position in the segment (or
niche) that it serves because of its greater knowledge of the segment’s needs. Involves higher-
than-normal risks because; the target may not respond. Larger competitors may decide to enter
the same market. The market may take a down-turn and company has no alternative to turn to.
Positioning for Competitive Advantage
Once a company has decided which segments to enter, it must decide what “positions” it wants
to occupy in those segments. A product’s position is the place the product has in consumer’s
minds relative to competing products. In other words, a product’s position is the set of
perceptions, impressions, and feelings that consumers hold for the product compared with
competing products. E.g. Toyota is positioned on economy, Mercedes and Cadillac on luxury
and status, Porsche and BMW on performance, Volvo on safety, Tata on price etc.
Positioning Variables
Marketers can position (differentiate) their products on;
Product attributes:
Product features - Volvo provides safety, BA Airlines offers wider seating and free in-flight
telephone use
Product performance - Vestel Washing Machine offers express washing, Omo offers better
whiteness. BMW offers comfort and high perfomance.

Style and design - Porsche offers unique look
Atmosphere - Hard Rock Café is special with its interior design, Edgars with its store ambiance
Service attributes: a product can be differentiated by its speedy, convenient or careful service
delivery e.g. McDonalds’ 4 minute service
Image: a company may establish an image different from competitors e.g. Sony, Motorola
“quality”.
Personnel: a company can hire better people than competitors do e.g. Singapore Airlines is well
known with its beautiful flight attendants, IBM’s people are professional, McDonald’s people
are polite…
Benefits: a product’s benefit can be differentiated e.g. Microsoft software is user friendly,
Mclean offers white teeth, Colgate offers better taste...
Usage occasions: a product’s position can be positioned according to the time of using the
product e.g. Kellogg cereals for breakfast, Red roses for valentine’s day, gift cards for special
occasions.
User category: a product can be positioned for some people e.g. Johnson & Johnson’s baby
shampoo, Black label beer for hard working men…
Price: a product can be differentiated by using its price. The product would be having the
lowest price in the market e.g. Southwest Airlines, Ryan Air, Tata car.
After the company selects the right position for itself, it must communicate and deliver the
chosen position with promotions.
Conclusion
 The market segmentation approach is therefore used to turn heterogeneous markets into
homogeneous markets with similar product needs and then developing a basis for
competing in these markets.
PRODUCT AND OR SERVICES STRATEGY
What is a Product it is a bundle of benefits that can be offered to satisfy a need or want. It can be
tangible (car, computer) or intangible (service, idea)

Elements of a Product
Core product;- the basic-problem solving benefit that the customer is interested in when
buying. E.g. Greys Inn is for accommodation, Elephant Hills for luxury and or status, etc.
Actual/expected product:- the features and capabilities that consumers expect in a product. E.g.
quality, features, design and styling, packaging, brand name etc.
Augmented product:- usually the non-tangible aspects that support the product e.g. training,
warranties, delivery, repair services etc.
Classification of Products
Products are divided into two as;
Consumer products;- bought by final consumers for personal consumption e.g. bread, home
furniture, personal cars etc.
Industrial (Business) products;- bought by other organisations for further processing or for use
in conducting a business e.g. raw materials, machinery, business insurance.
Classification of Consumer Products
Convenience products: are bought frequently with minimum comparison and effort e.g. soap,
candy, newspapers...
Can be further categorised into staples (bread, rice, toothpaste), impulse (chocolate, magazines),
emergency (umbrellas, condoms) They are usually low priced and highly distributed.
Shopping products: are less frequently purchased, are compared carefully on quality, price, style
and suitability e.g. furniture, white goods, clothing, basic cars… Products are less extensively
distributed but given more sales support.
Specialty products: have unique characteristic and brand identification for some consumers who
spend special effort to purchase e.g. specific brands and types of cars, special work of art,
designer perfumes, designer clothing… e.g. Art collectors do not compare the products, they
only invest the time needed to reach the sellers of the paintings they want. Generally high-priced
and exclusively distributed
Unsought products: are not known by the consumers or not normally thought of to be bought e.g.
life insurance, blood donation, tombstones …They require a lot of promotions and marketing
efforts

Important Product Decisions
 Product attribute decisions
 Branding decisions
 Packaging decisions
 Labeling decisions
 Services marketing decisions
 Product Attribute Decisions
Three attributes of importance to customers when selecting a product;
1. Product quality
 Involves a product meeting customer specifications in terms of durability,

reliability, precision, repair and other quality attributes valued by the customer
2. Product features
 Features differentiate a company’s products to those of competitors.
 A company needs to know which features are valued by the customers e.g.
computer features, cell phone features etc.
3. Product design
 Design contributes to a product’s usefulness and appearance.
 A good design can attract attention, improve product performance and give a
product a strong competitive edge
Branding Decisions
What is a Brand? A brand is a name, term, sign, symbol or a combination of them intended to
identify the products of a seller and to differentiate them from those of competitors. It is a sellers
promise to consistently deliver a specific set of features, benefits and services to the buyers e.g.
Volvo “engineered for safety” Brand communicates three meanings;-
Attributes (durability, reliability, quality etc.)
Benefits (savings, status,)

Values and culture (performance, safety, prestige)
Brand Equity ;-Brand equity is the value of a brand. A powerful brand has high brand equity.
Requirements for high brand equity is brand loyalty, name awareness, perceived quality. Top
five global brands (2011) are (1) Google (2) Microsoft (3) Apple (4) IBM (5) Vodafone
Highlight some of the local brands you know that have high brand equity in Zimbabwe
Branding Strategy
There are four brand choices a company can follow as shown diagrammatically below;
Line extension (family branding); using a successful brand name to introduce additional items in
an existing product category under the same brand name, such as new flavours, forms, colours,
added ingredients, or package sizes. E.g. Kellogg, Toyota…
Brand extension; using a successful brand name to launch a new product in a new category.
Rolls Royce –Aircraft engines. It helps the company introduce new product categories more
easily, provides instant recognition and acceptance, decreases advertising costs. May be
dangerous if it fails, because it may tarnish the company’s whole image.
Multi-brands (individual branding); a strategy under which a seller develops two or more brands
in the same product category. E.g. Unilever (soap brands) – lux, sunlight, Dove, Velvet. It offers
a way to establish different features and appeal to different types of buyers, therefore, may
increase the market share of the company.
New brands; introducing new brand names in new product categories with no visible association.
It demands a lot of company resources.
Packaging Decisions
These are the activities of designing and producing the container or wrapper for a product. There
are three packages
The product’s primary container
A secondary package that is thrown away when the product is about to be used
The shipping package to ship and store the product.
Packaging Functions
Protecting the product and maintaining its functional form.

To protect consumers from product tempering e.g. use of plastic sealing.
To offer convenience to shoppers e.g. pasteurised packaging that does not require refrigeration,
small single serving tins to minimise waste…
To promote the product by communicating its features, uses and benefits.
To enhance the image of the product e.g. use of a unique cap design (energy drinks) to make the
product distinctive.
Re-usable packages can be developed to make the product desirable e.g. ice cream containers as
food storage containers.
Labeling Decisions
Labels may range from tags attached to products to graphics that are part of the package.
Labels may:
Identify a brand or product by presenting a unique graphic design
Indicate the grade of the product particularly for tinned fruits
Describe the source of the product, its contents, and major features, how to use the product,
nutritional information, type and style of the product and size and number of servings
Promote (through attractive graphics) the product or brand.
Labels can mislead customers, fail to describe important ingredients or fail to include important
safety warnings.
Laws have been developed to regulate labelling in (1) unit pricing, (2) shelf life, (3) nutritional
value and (4) standard weight and measures.
Do any laws exist in Zimbabwe that regulate product labelling and what are the specific
requirements from these laws?
Services Marketing Decisions
Service industries are quite varied:
governmental services - courts, hospitals, police, fire departments, postal services, schools etc;
private non-profit organizations - museums, colleges, hospitals etc;

business organizations - airlines, hotels, restaurants, advertising, real estate, insurance,
consultancy etc.
Nature and Characteristics of Services
Service intangibility; means that services cannot be seen, tasted, felt, heard or smelled before
they are bought.
Thus, buyers look for “signals” for service quality from the place, people, price, equipment and
communications that they can see.
Service inseparability; means that services cannot be separated from their providers. If a service
employee provides the service, then the employee is part of the service
Service variability; means that the quality of services depends on who provides them, plus,
when, where, and how they are provided. E.g. within a given Holiday Inn Hotel, one
receptionist may be cheerful and efficient, another would be unpleasant and slow. Service
providers’ service quality thus depends on the provider’s energy and frame of mind at the time
of each customer encounter.
Service perishability; means that services cannot be stored for later sale or use. E.g. the demand
for public transportation during the rush-hour.
Service perishability is a serious problem when demand fluctuates. The marketer needs to design
strategies for producing better match between demand and supply. E.g. hotels charge lower rates
in the off-season to attract more guests; restaurants hire part-time employees to serve during
peak periods; tour operators and airline companies have last-minute sales.
Marketing Strategies for Service Firms
Differentiating the service
Involves differentiating the product, delivery and image. The product can provide innovative
features like in-flight movies, advanced seating, frequent-flyer award programs in airlines.
British Airways offers a sleeping compartment and hot showers. The delivery can be
differentiated by having better customer-contact people, developing a superior physical
environment (ambience) or by designing a superior delivery process e.g. home banking. The
image can differentiate the service company through symbols and branding.
Managing the quality of the service

Involves delivering consistently higher quality than the competitors. There is need to minimise
service variability through employee training on customer service and service recovery
techniques. Employees should also be empowered to do whatever is necessary to keep customers
happy
Managing service productivity
Service productivity can be increased by: training the employees better or hiring new and better
employees , industrializing the service with equipment and standardized production as in
McDonald’s (max 4 min. service) , using technology to save time and money
Conclusion
Developing products and brands is a complex and demanding task with no concrete rules to
ensure success. Careful consideration of all issues and maintaining consistency with broad
organisational objectives is necessary for long term success. Next step is to understand how to
develop new products to ensure continued success of the organisation.
NEW PRODUCT DEVELOPMENT AND PRODUCT LIFE CYCLE
What is a New Product
New to the world products – represent new inventions e.g. penicillin, Alexander Bell’s
telephone, Wright brothers airplane, etc.
New to the market – products that take the firm to a category new to it e.g. Sony’s first cell-
phone
Additions to current product lines – product line extensions in the firms current markets e.g.
Coke Lite, Toyota Lexus…
Product improvements/modifications – Colgate, Surf, Cars…
Importance of New Products
Keep up with changes in consumer tastes.
Adapt to new technologies
To stay ahead of competition
To increase the company’s product mix and thus growth and profitability.

Despite the importance of new products, many researches indicate that over 70% of all new
products fail within 2 years of launch. What are the likely reasons for such failures?
New-product Development Process

Stage Tasks to be Undertaken
1. Idea Generation •Systematic search for new ideas
•Identify sources of ideas e.g. internal sources (R&D,
sales people), external sources (customers,
competitors, suppliers, trade magazines, universities,
inventors, research firms etc)
2. Idea Screening •Identify good ideas and drop poor ones.

•Need to consider, market size, development time and
costs, rate of return, type of customers etc.
3. Concept •Turn surviving ideas into concepts by developing a
Development and detailed version of the product idea in meaningful
Testing consumer terms
•Testing involves asking a sample of consumers what
they feel of the product concept before turning it into
actual product.
4. Marketing Strategy •Describe the target market, planned product
Development positioning, the potential sales, market share and profit
goals for the first year.
•Outline the product’s planned price, distribution, and
marketing budget for the first year
•Identify the planned long-run sales, profit goals and
marketing mix strategy for five years after launch.
5

Stage Tasks to be Undertaken
5. Business Analysis •Involves reviewing, (1) projection of sales, (2) costs
and (3) profit for the new product to see whether it
satisfies the company’s objectives
6. Product •Product concept is developed into a physical product
Development and (prototype) to see if the idea can be turned into a
Testing workable product
•Developed prototype is then tested under laboratory
and field conditions to make sure the product performs
safely and as expected.
7. Test Marketing •Testing the product in realistic market conditions
•Company is able to judge product acceptability,
effectiveness of marketing strategy, customer reaction
before going into full production.
8. Commercialisation •Actual introduction of the product into the market-place
•Company may need to spend heavily on marketing
communications in the first year to make customers
aware of the product
•Marketing communications should move the customers
through the adoption process of (1) awareness (2)
interest (3) evaluation, (4) trial (5) adoption.
•The company should also decide when (timing) and
where (location) the product will be introduced. 6
In order to find and develop successful products, the marketers must go through the following
stages;
• Idea generation
• Idea screening
• Concept development and testing
• Marketing strategy Development
• Business analysis
• Product development
• Test marketing
• Commercialization
Product Life-Cycle

After launching a new product, management wants it to enjoy a long and happy life, although it
does not expect the product to sell forever. The product life cycle (PLC) is the course that a
product’s sales and profits take over its lifetime. It has five stages;
1. Product development begins when the company develops a new-product idea. During product
development, sales are zero and the company’s investment costs mount.
2. Introduction is a period of slow sales growth as the product enters in the market. Profits are
nonexistent in this stage because of the heavy expenses of product introduction.
3. Growth is a period of rapid market acceptance and increasing profits.
4.Maturity is a period of slowdown in sales growth because the product has achieved acceptance
by most potential buyers. Profits level off or decline because of increased marketing outlays to
defend the product against competition.
5. Decline is the period when sales fall off and profits drop.
Characteristics of Each Stage
Sales and
profits ($)
Sales
Profits
Time
Product Introduction Growth Maturity Decline

Losses/ develop-
investment
ment stage

Characteristics of Each Stage
Introduction Growth Maturity Decline
Sales Low Rising Peak Declining
Costs high costs of Average due Low due Low as

promotion and to reduced economies of companies
distribution need for scale reduce
promotion budgets on
the product
Profits Negative due Rising as Peak and start Declining as
to low sales & sales climb. to decline due sales fall
high costs to competition
Customers innovators Early Middle and late Laggards
adopters majority
Competitors Very few Rising as Intense Declining due
new ones because of to low profits
enter the overcapacity
market but number also 9
start to decline
Marketing Strategies at Introductory Stage

Product •Offer one basic version of the product as the market
Strategy is not ready for different models as yet.
Pricing •Skimming strategy;- company targets the ‘cream’ of

Strategy the buyers (buyers with high income) so the price set
for the new product is high
•Penetration Strategy:- company sets relatively low
prices to capture as many buyers as possible quickly
Promotion •Advertising focuses on creating product awareness
strategy •Heavy sales promotions (coupons, discounts etc.)
used to stimulate trial purchases
Distribution Selective distribution in outlets with high market

strategy presence.
10

Marketing Strategies at Growth Stage
Product •Increase production to meet growing sales

Strategy •Introduce new product features to expand the market
Pricing • Pricing strategy used at introduction stage remains

Strategy more or less the same.
Promotion •Advertising focuses on creating desire, interest and

strategy purchase.
•Promotion spending however, reduced to take
advantage of heavy consumer demand.
Distribution •Intensive distribution by increasing number of
strategy distribution channels used.
•Enter new market segments
11
Marketing Strategies at Maturity Stage

Product •Diversify brands and models
Strategy •Change product features, quality or style to attract
new users. E.g. Nokia adds new improved features to
its phone models.
•Offering new and improved services to buyers
•Repositioning the brand to appeal to a different
segment e.g. Johnson and Johnson
Pricing •Cut prices to attract new users and competitor
Strategy customers
Promotion •Modifying the advertising campaigns to encourage re-
strategy buys
•Use of heavy sales promotions e.g. competitions,
frequency programs etc.
Distribution •Move into larger market channels for intensive
strategy distribution
12

Marketing Strategies at Decline Stage
Product •Maintain the product without changing it in the hope that

Strategy competitors will exit the market.
•Harvest the product by reducing costs (advertising, sales
force) hoping to improve sales margins
•Divest the product either by liquidation or selling it off to
another company
•Reposition the product to extend its useful life e.g. Morris
Mini and VW Beetle repositioned as trendy but classic cars
and sales are growing.
Pricing •Reduce prices further to maintain some sales levels or for
Strategy stocking out
Promotion •Reduce to the level needed to retain loyal customers

strategy
Distribution •Use selective distribution by phasing out unprofitable
strategy outlets.
13
But all products do not follow the PLC in the same way.Some products are introduced and die
quickly (fads); others stay in the maturity stage for a long time e.g. Colgate, Coca Cola. Some
enter the decline stage and are then cycled back into the growth stage through strong promotion
or repositioning.
PRICING STRATEGIES
Importance of Pricing
It is the marketing mix element that actually produces revenue
It is the key to market positioning
It is the only variable that the marketer can change quickly to respond to demand changes or
competitor actions.
Factors to Consider When Setting Prices
A company’s pricing decisions are affected by;
 Internal company factors
 External environmental factors

Internal Factors Affecting Pricing Decisions
Company objectives
1. Survival;- price set to cover costs with little consideration for profit e.g. during a recession
2. Current profit maximisation;- price set to produce maximum current profit, cash flow and rate
of return with little consideration for long run performance.
Price skimming can be part of the profit maximisation strategy
3. Market share leadership;- company prices as low as possible to increase market share and
thus benefit from economies of scale
4. Product-quality leadership;- high price will be charged to cover the costs of R&D.
5. Overall market targeting strategy and positioning. If a car manufacturer decides to produce a
sports car that promotes status, then the company must charge a high price. If a clothing
manufacturer decides to target the low income end of the market, it must charge low prices.
6. Marketing mix strategy . A marketer must consider the total marketing mix when setting
prices as there is need for consistency in the mix elements.
7. Costs:- Costs set the floor for the price that the company can charge for its product. The
company wants to charge a price that both covers all its costs for producing, distributing, and
selling the product and provides a fair profit. A company’s costs are two types: fixed and
variable. Fixed costs (also known as overheads) are those that do not vary with production or
sales level e.g. rent, interest, executive salaries. Variable costs vary directly with the level of
production e.g. costs of material and supplies. Total costs are the sum of the fixed and variable
costs for any given level of production
External Factors Affecting Pricing
1.Nature of the market
2. Nature of demand
3. Competition
4. General Environmental Factors
Pricing in Different Types of Markets
Economists recognize four types of markets which require different pricing methods.

Pure competition; the market consists of many buyers and sellers trading in a uniform
commodity such as wheat, copper… Price is thus given by the market.
Monopolistic competition; the market consists of many buyers and sellers who trade over a
range of prices than a single market price. A range of prices occurs when buyers see differences
in sellers’ products and are willing to pay different prices for them. Sellers try to develop
differentiated offers (with advertising, branding…) for different customer segments.
Oligopolistic competition; the market consists of a few sellers who are highly sensitive to each
other’s pricing and marketing strategies. Each seller is alert to competitors’ strategies and
moves. If mCel decreases its rates by 10 percent, users will quickly switch from Vodacom.
Vodacom may respond by also lowering its prices or increasing its services. Oligopolies tend to
collude to avoid price wars.
Pure monopoly, the market consists of one seller. It could be a government monopoly, a private
regulated monopoly, or a private non-regulated monopoly.
A government monopoly may have three objectives.
It might set a price below cost because the product is important for the buyers who cannot afford
to pay full cost.
Or the price might be set either to cover costs or to produce good revenue.
It can be set quite high to slow down consumption.
In a regulated monopoly, the government permits the company to set rates, but the rates should
yield a “fair return” not profit maximisation.
In a non-regulated monopoly, the company is free to set a price at what the market will bear.
But they may not charge the highest price for a number of reasons:
Not to attract competition.
To penetrate the market faster with a low price.
To prevent government regulation.
Provide examples of companies that are a government monopoly, regulated monopoly and non-
regulated monopoly in Mozambique
Pricing in Different Demand Situations

Each price that the company might charge will lead to a different level of demand.
In the normal case, demand and price are inversely related: the higher the price, the lower the
demand.
In the case of prestige goods, the demand curve sometimes slopes upward e.g. one perfume
company found that by raising its price, it sold more perfume rather than less.
Impact of Competition on Pricing
Whereas costs set the pricing floor, competitor actions set the pricing ceiling.
A company must know the price and quality of each competitor’s product and price its own
product relative to competition.
It must also know how competitors are likely to react to its own pricing strategy e.g. tiger
competitors, laid back competitors and selective competitors.
General Environmental Factors
Some other factors that must be considered when pricing;
Economic conditions; such as boom or recession, inflation, and interest rates affect pricing
because they affect
The costs of production
Consumer perceptions of the product’s price and value.
Government; laws that affect pricing must be known so that the company makes sure that their
pricing policies are defendable.
Social concerns; the company’s sales, market share, profit goals must be viewed in light of
societal considerations.
Price-Adjustment Strategies
Companies adjust their prices according to the differences in customers and changing situations.
There are several price adjustment strategies;
 Discount and allowance pricing
 Segmented pricing
 Psychological pricing

 Geographic pricing
 International pricing
 Discount and Allowance Pricing
 Discount is a straight reduction in price on purchases during a stated period of time. There
are different types of discounts;
cash discount; is a price reduction to buyers who pay their bills promptly.
quantity discount; is a price reduction to buyers who purchase in large volume.
functional discount (trade discount); is offered by the seller to trade channel members who
perform certain functions like selling, storing, assorting.
seasonal discount; is a price reduction to buyers who purchase merchandise or services out of
season.
Segmented Pricing:-Adjusting the basic prices to allow for differences in customers, products,
and locations. In this approach, the company sells a product or service at two or more prices.
There are different segmented pricing forms;
Customer-segment pricing; different customers pay different prices for the same product or
service e.g. museums charge students and senior citizens lower.
Location pricing; a company charges different prices for different locations, even though the cost
of offering each location is the same e.g. theatres vary their seat prices, universities charge
higher tuition for foreign students, airline tickets vary by category.
Time pricing; a firm varies its price by the season, the month, the day, and even the hour e.g.
mobile phone companies offer lower “off-peak” charges.
Psychological Pricing:-The difference between $300 and $299.95 is just five cents but the
psychological difference can be much greater. Some consumers will see the $299.95 as a price in
the $200 range rather than the $300 range.
Geographic Pricing:- Deciding how to price products for customers located in different parts of
the country or world. Here, the company must decide whether or not to charge the distant
customers higher to cover its shipping costs.
FOB-origin pricing (free-on-board); the customer is responsible for paying for the shipping
separately.

CIF pricing (Cost, Insurance, Freight) ; Price charged will include insurance and shipping to the
customer location.
Uniform delivery pricing; the company charges the same price plus the average shipping cost,
regardless of the customer’s location.
Zone pricing; the company sets up two or more zones. All customers within a given zone pay a
single total price; the more distant the zone, the higher the price.
Basing-point pricing; the seller selects a given city as a “basing point” and charges all customers
the shipping cost from that city to the customer location.
Freight (cargo)-absorption pricing; the seller absorbs (covers) all or part of the actual freight
(shipping) charges to get some desired customers.
International Pricing :- Companies that market their products internationally must decide what
prices to charge in different countries.
The company can either set a uniform price or adjust prices to reflect local market conditions.
Factors that influence price adjustment are;
economic conditions
competitive situations
laws and regulations
Examples
Costs e.g. a pair of Levis is sold for $30 in the US, but $63 in Tokyo and $88 in Paris.
Selling strategies and market conditions e.g. a Gucci handbag is $60 in Milan but $240 in the
US.
Conclusion
Pricing is a very delicate and sensitive issue to customers and must be handled with care. A good
pricing strategy can, however lead to organisational success.
THE MARKETING MIX :PROMOTIONAL (COMMUNICATIONS) STRATEGY
What is Promotion?

Any form of communication used to inform, persuade and remind people of an organization's
goals, goods, services, image, community involvement or impact on society.
Communicating with individuals, groups or organizations to directly or indirectly facilitate

exchanges by informing and persuading one or more of the audiences to accept the
organization’s products
The Basic role is COMMUNICATE
The roles of promotion
Create or increase Awareness
Create interest
Cultivate desire
Motivating purchasing action (induce behaviour)
Create, enhance & restore corporate image
Encourage brand loyalty & discourage brand switching
Educate consumers & other stakeholders
Inform consumers & other stakeholders about products, prices, courses of action, changes,
community activities
Positioning & Influence attitudes
Forms of Promotional Strategies
• Advertising
• Sales promotions
• Publicity and public relations
• Personal selling
• Direct marketing
1. Advertising
It is any paid form of non-personal communication about organization and its products that is
transmitted to the target market through the mass media.

Key issues to attend to include:
Advertising objectives – Inform, Persuade, Remind.
Media Choice - Press, radio, TV, Billboards, Signs
Creativity - Words, pictures, characters, layout
Agency selection - internal v.s. external creation
Advertising budget
Advertising objectives
1. Inform
Telling the market about a new product
Suggesting new product uses
Explaining how the product works
Correcting false impressions
Building company image
2. To persuade
It is building brand preference
Encouraging brand switching
Persuading buyers to purchase now
3. To remind
It is reminding buyers where to buy the product
Maintaining a top of the mind awareness
Reminding the buyers that the product may be needed in future
Types of Advertising Media
Print ;- newspapers, magazines, directories.
Electronic ;- TV, radio, cinema, videotapes/DVDs,

Out-door ;- billboards, posters, display signs, fliers
Direct mail ;- letters, brochures, catalogues, price lists, calendars, coupons, newsletters,
postcards.
Internet ;- websites, e-mails
What are the advantages and disadvantages associated with each media form?
Sales Promotions
It refers to short-term direct inducements offering added value or incentives for distributors,
sales persons or final consumers to boost immediate sales.
Public Relations & Publicity
PR - All activities designed to build and maintain good relationships with the business’
stakeholders.
Publicity - Any non-personal communication in news story form regarding an organization and
its products transmitted through the mass media at no charge
Functions of PR and Publicity
Press relations ; presenting news and information about the organisation in the most positive
light.
Product publicity ; sponsoring efforts to publicise specific products
Corporate communication ; enhancing the image of the organisation through internal and
external communications
Lobbying ;- dealing with legislators and government officials to promote or defeat legislation
and regulation.
Counseling ;- advising management about public issues and company positions and image
during good times and during a crisis.
Personal Selling
It is communicating with the target market through personal interaction in an exchange situation.
It involves use of the company’s own sales personnel (sales reps, account executives, key
account managers, sales consultants, sales engineers etc. Key issues to be addressed include

Understanding the role of the sales force
Managing the sales force.
The Role of the Sales Force
Identifying and qualifying prospects
Presentation and demonstration of a company’s offering (product)
Negotiations
Closing a sale
Follow-up and maintenance to ensure customer satisfaction
Developing relationships.
5. Direct marketing
Direct dealing with customers in all the elements of the marketing mix without use of
middlemen.
Includes use of: Internet, E-mail, direct mail, Home shopping networks (TV), catalogs,
telemarketing, electronic dispensing and kiosks
What are the advantages and disadvantages of direct marketing to consumers as well as to
marketers?
The Integrated Marketing Communication
The coordination of all promotional elements, evaluating where & when each will be most
appropriate.
Ensures use of all communication tools some being the key ones for any activity and others
assuming a supportive role.
All tools must project the same message (Consistency) and reinforce each other in the market
Steps in Developing Integrated Marketing Communication
Identify the target audience – will affect the marketer’s decisions on what will be said, how it
will be said, when it will be said, where it will be said and who will say it.
Determine the response sought (objectives) ;- based on the hierarchy of effects model.

Develop the IMC budget;- how much will be spent in the communication.
Design an effective message;- ideal message should get attention, hold interest, arouse desire
and obtain action (AIDA)
Select media to use ;- decide on personal communication channels (sales reps, consultants) vs.
non-personal channels (newspapers, radio)
Select the message source ;- who will deliver the message e.g. celebrities, doctors, models etc.
Collect feedback ;- assess effect of the message on target audience.
Conclusion
As highlighted the marketing communications mix consists of five major modes of

communication: advertising, sales promotions, public relations and publicity, personal selling
and direct marketing.
Managing and coordinating the entire communications process calls for integrated marketing
communications (IMC), that combines the various communications mix to provide clarity,
consistency and maximum impact through the seamless integration of discrete messages.
DISTRIBUTION (PLACE) STRATEGY
What is Place / Distribution?
All activities that focus on making sure the product is available to the customer at the right place,
at the right time in the right way. An order fulfillment function of the marketing mix comprising
the distribution channels and physical distribution (Logistics)
The Role of Distribution
Order fulfilment
Market coverage
Customer service
Demonstration of capability & Reliability
Fulfilling the work of promotion
Relationship and reputation building
Ensure consistent availability

Convenience
Customer satisfaction
Logistics efficiency – Transport, procurement, inventory management, order processing.
Distribution Channels
The route that a product follows from the manufacturer to the final intended consumer.
OR
Channel levels
Direct distribution;- zero channel level
Indirect Distribution ;- one, two, three or multi-level.
Qn. What factors should be considered in deciding whether to go direct or indirect?

What are Middlemen/Channels of Distribution
A set of interdependent organisations involved in the process of making a product or service

available to users (Kotler2003)
A group of individuals and organisations that direct the flow of products from producers to
customers (Pride and Ferrell et al 2005)
The Functions of Middlemen (Distributors)
Buying, Selling, Sorting, Assorting, Financing, Storage, Grading , Transportation, Research &
Marketing Intelligence, Risk-taking
Types of Middlemen
Retailers ;- involved in selling goods and services directly to the final consumer for their
personal use e.g. specialty stores, department stores, supermarkets, convenience stores,
hypermarkets…
Wholesalers ;- involved in selling goods in greater bulk to other middlemen who buy for resale.
Brokers ;- a middleman who does not take title to the goods and whose function is to bring
buyers and sellers together and assist in negotiation e.g. insurance brokers.

Agents ;- a middleman who represents buyers and sellers on a more permanent basis than a
broker but, performs only a few functions and does not take title to the goods.
Levels of Market Coverage
Intensive distribution – the use of all available outlets for distributing the product.
Selective distribution – the use of only a limited number of outlets available in an area to
distribute a product.
Exclusive distribution – the use of only one outlet in a relatively large geographic area to
distribute a product.
Qn ; What factors determine whether a company will use intensive, selective or exclusive
distribution in selling its products?
Which specific organisations to use?
Capability
Number of outlets & location
Reputation & Image
Accessibility
Resources
Compatibility – technology, culture, policies, stock mgmt,
Business terms
Market share & performance
Co-operation
The Marketing Logistics Network
Marketing Logistics ;- a system of efficiently and effectively making and getting products and
services to customers. Involves the process of planning, implementing and controlling the cost
effective flow and storage of materials, in-process inventory, finished goods and related
information from point of origin to point of consumption for the purpose of conforming to
customer requirements. Process also referred to nowadays as Supply Chain Management.
Focus will be on Physical Distribution decisions

Physical Distribution;- A set of activities consisting of order processing, materials handling,
inventory management and transportation used in the movement of products from producers to
consumers and users.
Objectives of Physical Distribution
To manage the costs of physical distribution to acceptable levels so as to ensure profitability.
To ensure effective customer service by ensuring product availability, promptness and quality.
The process calls for cost/service trade-off, that is; the trade off in costs involved when deciding
on the service level to be offered to customers.
TASKS OF PHYSICAL DISTRIBUTION
Order processing
Materials handling
Warehousing
Inventory management
Transportation
Tasks of Physical Distribution
Order Processing ;- the receipt and transmission of sales order information.
Involves three main tasks;-
Order entry – the placement of purchase orders from customers or sales people by mail,
telephone or on-line
Order handling – checking customer credit, verifying product availability and preparing products
for transportation
Order delivery – selecting the transport mode most suitable for a desired level of customer
service
NB. Companies now use EDI systems to facilitate efficient order processing.
Materials Handling ;- physical handling of the product and involves the coordination of
packaging, loading and movement systems taking into account the need for both cost reduction
and customer requirements.

Warehousing ;- the design and operation of facilities for storing and moving goods.
Warehouse functions
Receiving goods
Identification coding of goods for ease of identity
Sorting goods
Dispatching goods to storage
Holding of the goods
Marshaling the shipment by checking for order completeness and omissions
Dispatching the shipment
Inventory Management ;- the development and maintenance of sufficient assortments of

products to meet customer needs. Decision involves balancing between stock-outs and inventory
holding costs.
Inventory costs
Carrying (holding) costs ;- include payments for storage space, materials handling, insurance,
taxes and losses from spoilage of goods and pilferage.
Replenishment costs ;- costs of purchase, handling charges, expenditure for order processing etc.
Stock-out costs ;- sales lost when demand exceeds supply on hand and the costs associated with
back-ordering.
Inventory management techniques ;- include Economic Order Quantity (EOQ) and Just in
Time (JIT).
What are the characteristics of each of these techniques and their advantages and
disadvantages?
Transportation ;- adds time and place utility to a product by moving it from where it is made to
where it is needed.
Transport modes include; cars, railways, inland waterways (ships, boats), airways and pipelines.
What factors determine which mode of transport would be ideal for a particular product at a
particular period in time?

Conclusion
Distribution management involves coordinating the activities of the whole supply chain to
deliver maximum value to customers It involves managing distribution channels (middlemen) as
well as the physical distribution interface. Physical distribution functions account for about one-
third of all marketing costs and have a significant impact on customer satisfaction. Therefore,
effective marketers are actively involved in the design and control of the distribution strategy so
as to meet customer changing needs and preferences.
• INDUSTRY AND COMPETITOR ANALYSIS
Levels of Competition
Brand Competition - All companies offering similar products, to similar target markets,
utilizing similar technology and exhibiting similar degrees of vertical integration - e.g. Toyota
vs. Nissan vs. Mazda, OK vs. TM vs. Spar, Econet vs Netone vs Telecel, CBZ Bank vs.
Standard Bank vs. Barclays Bank vs. ABC Bank
Industry Competition - All companies operating in the same product group - e.g. bank vs.
building society, Toyota vs. BMW etc.
Form Competition - All companies supplying products that satisfy the same need (substitutes) -
rail vs. road vs. air transport
Generic Competition - All companies competing for the same spending power - e.g. Estate
Agent vs. Car dealer
NB – Focus will be on the first three levels of competition.
Industry Analysis
An industry is a group of firms that offer a product or class of products that are close substitutes
for one another (includes form competition in this case). An audit or assessment of an industry
sector is done to determine: Competition structure (monopoly, oligopoly, Perfect competition,
monopolistic competition. Competitive forces (Porter’s 5 forces), Strategic groups, Number of
players, Barriers to entry & exit,
Techniques for Analysing Industry Competitiveness
Porter’s Five Forces Model

Strategic Group Analysis
Porter’s 5 forces Model
A framework for analyzing an industry & factors that shape competition and determine
competitiveness of an organization in an industry.
The Forces:
Threat of new entrants,
Threat of Substitutes,
Existing Rivalry,
Power of suppliers
Power of Customers
Strategic Group Analysis
A strategic group is a group of firms following the same strategy in a given target market.
The firm’s in a strategic group provide direct competition to each other.
A firm must thus always monitor the activities of those competitors in its strategic group more
closely than those outside the group.
Strategic groups are identified by the key competitive variables in that industry which can
include ;
Product quality
After sales service
Price
Number of product lines etc.
Exercise Identify the strategic groups for the restaurant industry in Beira
Market Level Competitor Analysis
It is an audit of all present and potential industry rivals who intend to satisfy the same needs in
the market.

COMPETITION is the rivalry among sellers trying to increase sales, profits, or market
share while addressing the same set of customers.
What needs to be known about competitors
who they are, where they are, how many they are, what is their business, their target markets,
their suppliers, their objectives, their strategies, their strengths & resources, their weaknesses,
their likely response patterns
Sources of Competitor information
Reports, Trade shows, Industry experts, Media, Employees, Customers, Competitors,

Distributors, Suppliers, Government
Getting Competitor Information
Research, Competitive intelligence, Observation, Ghost Shopping, ‘Poaching’ competitor

employees, Direct inquiries (customers, suppliers, competitor employees), Social interactions,
False interviews, Reverse engineering
How Competitors Compete (Market positions)
Leaders, Challengers, Followers, Nichers
How these strive to survive in the market can be resembled to a war situation where each party is
fighting for supremacy and survival - hence the term ‘Marketing Warfare’
Market Leader Strategies
Market leader is the firm with the largest market share in the relevant product market. Generally
leads other firms in price changes, new product introductions, distribution coverage etc. e.g.
Microsoft (software), Mcel (cellular networks), Vumba (bottled water), Coca-Cola (soft drinks),
BIM (banks) To maintain leadership, market leaders can use two strategies
Expanding total market share
Protecting its current market share through marketing warfare.
Expanding Total Market Share:- Can be done through two action programmes :
Identifying new product users – involves attracting new buyers through;
Market penetration strategy

Market development strategy:- Identifying new uses e.g. Vaseline Petroleum Jelly started out
as a lubricant in machine shops, but has evolved to become a skin ointment, a healing agent, a
hair dressing etc.
Marketing Warfare
Defensive Strategies for Leaders
• Position defense;- involves building a superior brand power, making the brand almost
impregnable e.g. Intel, Microsoft, Coca-cola etc.
• Flank defense;- involves erecting outposts to protect a weak front or serve as an invasion
base for counter attacks. E.g. developing new products to counter possible competitor
moves.(4G)
• Pre-emptive Defense;- best form of defense is attack. Can be through;
• Making small sustained attacks on challengers to keep them off-balance
• Grand market development to cover all market segments
• Send out signals of a ruthless retaliation if attacked.
• Marketing Warfare
Defensive Strategies for Leaders
• Counter-offensive defense;- involves quick retaliation after an attack.
• An effective counter attack is to invade the attacker’s main territory so that it has to
pull back some troops (resources) to defend the territory.
• Mobile defense;- leader stretches market coverage by moving into new areas through
market broadening and market diversification to avoid relying on one segment or market.
• Contraction defense;- strategic withdrawal from weaker territories and re-assigning

resources to stronger territories. Occurs when the market leader recognises that he can no
longer defend all his territories effectively.
Read the case examples of Proctor and Gamble as well as Caterpillar (p.263-264) for examples
of their specific use of some of these strategies.
Competitive Strategies for Challengers

• Looks at strategies used by second or third placed firms who aspire for the leadership
position e.g. PepsiCo, Avis, Vodacom etc.
• The aim is to topple the leader.
 Challenger must decide whether;- To attack the market leader – high risk but
potentially high pay-off strategy e.g. Xerox over 3M, then Canon over Xerox. To
attack firms of its own size and small local regional firms.
General Attack Strategies
• Frontal attack;- head to head attack on the opponent’s product, promotion, price and
distribution.
Assumes the attacker has adequate resources to attack as well as deal with the retaliation from
the opponent’s defense strategies
Flank attack;- involves attacking an opponent’s weak fronts. E.g. geographic areas or segments
where the opponent is under-performing
Encirclement attack;- involves launching a grand offensive on several fronts to weaken the
opponent. Aim is to attack the various segments and strategies used by the opponent from all
angles e.g. Komatsu against Caterpillar.
Bypass attack;- indirect assault as it involves by-passing the enemy (market leader) and setting
up bases in easier territories. Can be achieved through;
Diversifying into unrelated products or new geographic markets
Guerrilla attack;- involves waging small intermittent attacks to harass and demoralise the
opponent and eventually secure permanent footholds. E.g. intense promotional blitzes, price cuts
Competitive Strategies for Followers
The aim is to avoid the risks and costs of challenging and leading.
Strategy is achieved by the follower imitating the leaders products and services.
Four follower strategies can be distinguished
Counterfeiter – duplicates the leaders product and sells it on the black market or through
disreputable dealers e.g. DVDs, CDs, watches

Cloner – emulates the leader’s products, packaging and name with slight variations e.g.
computers
Imitator – copies some things from the leader but maintains differentiation in terms of
packaging, advertising, pricing etc. e.g. car manufacturers.
Adopter – takes the leaders products and improves on them or adapts them to suit local
conditions e.g. Japanese firms
Competitive Strategies for Nichers
The aim is to avoid direct competition with bigger firms & to concentrate on smaller markets &
limited products
Requirements for effective niching are;-
Deep Market understanding
Focus
Specialization
Advantage
The nicher gets to know the customers so well that it meets their needs better than the big firms
selling to this niche casually.
Disadvantage
a niche might dry up or it can be invaded by larger well resourced firms.
A niching firm must thus continuously develop new niches thus the need for multiple niching
than single niching.
Conclusion
To develop an effective marketing strategy, a company must study its competitors.
Companies need to identify competitors’ strategies, objectives, strengths, weaknesses and

reaction patterns.
All this means is that the firm must be able to design an effective competitive intelligence
system so that managers are able to receive timely information about competitors.
MARKETING STRATEGY

SWOT analysis,, Competitor analysis
Elements of Strategic Marketing
1. Defining the Company Vision and Mission
2. Setting Company Objectives
3. Situational Analysis
4. Developing Marketing Strategies
5. Implementing the marketing programmes
6. Monitoring and control
Vision Statements;- A vision describes what a company is to become in the long term future
(Thompson and Strickland 1997). Represents the dream of the company. It indicates the
strategic intent of the organisation, such as industry leadership on a national or global scale, to
overtake market leaders, pioneer new technological discoveries etc.
Mission Statements;- It is a statement of the organisation’s purpose i.e. the reason why it exists.
It shows the following ;- Definition of the business, Its distinctive competence, Indications of its
future direction
Setting Company Objectives:- Involves turning the mission into achievable targets. Shows
what the company wants to achieve E.g. Increasing sales, increasing market share, reducing
costs, etc.
Environment/ Situational Analysis
Involves carrying out a Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis
Threats; negative impacts from the external environment that could decrease the company’s
sales and profits e.g. competitor actions, economic changes, political instability etc.
Opportunities positive impacts from the external environment that a company could use to
increase its sales and profits e.g. economic growth, new market, improved technology etc.
Opportunities and threats are derived from the external analysis

Strengths; strong internal aspects of the company relative to its competitors. E.g. resource
capabilities, strong management, skilled workforce etc.
Weaknesses; weak internal aspects of the company relative to its competitors e.g. poor
structure, lack of systems, poor management.
Strengths and weaknesses are derived from internal analysis.
Developing Marketing Strategies
Strategies look at the ways and means of achieving the objectives namely; growth strategies
the segmentation, targeting and positioning strategies, competition strategies.
MARKETING MIX STRATEGIES.
a)Growthstrategies
Product/Market Expansion Grid (Ansoffs Matrix)
Market penetration; the idea is to make more sales to present customers without changing the
products.
To increase sales, the company can cut prices, increase advertising or use more distributors.
Market development; is the idea of identifying and developing new markets for a company’s
current products.
To increase the market share, the company may try to attract some other people to use the
product or try some other places.
Product development; is the idea of offering modified or new products to current markets.
The company may offer new lines or brands of its products.
Diversification; is the idea of starting up or buying businesses outside of its current products
and markets.
Diversification is a corporate level decision rather than a marketing level decision which will be
discussed in detail in the Strategic Management Module.
Designing the Business Portfolio
The business portfolio is the collection of businesses and products that make up the
company Portfolio analysis is a major activity in strategic Marketing whereby
management evaluates the products and businesses that make up the company

Techniques to be Analyzed
The BCG Growth Share Matrix
General Electric Nine Cell Planning Grid
BCG Growth/Share Matrix
Involves plotting a company’s businesses according to;-
Market Growth Rate;- which provides an indicator of the relative attractiveness of the markets
served by each business unit in the company’s portfolio
Relative Market Share;- ratio of a business’s market share divided by the market share of the
largest competitor in that market.
BCG Matrix
BCG Cell Characteristics
Stars;- businesses in rapidly growing markets with large market shares. Require a lot of
investment to maintain their dominant position.
Cash Cows;- high market share businesses in maturing, low growth markets. Generate excess
cash that can be used to support other businesses.
Question Marks;- have good prospects because of their high growth rate but present
questionable profit potential because of low market share. They are generally cash guzzlers to
try and build market share.
Dogs;- have low market share and low market growth. These are businesses in saturated mature
markets with intense competition and low profit margins. They are good candidates for
divestiture and liquidation.
Strategies for the BCG Matrix
Build
Hold
Harvest
Divest
Student Work

What are the advantages and disadvantages associated with the two models?
Strategy and Competitive Advantage
Competitive strategy is about being different. It means deliberately choosing to perform

activities differently or to perform different activities than rivals to deliver a unique mix of value
(Michael E. Porter 1985)
PORTER’S GENERIC COMPETITIVE STRATEGIES
According to Michael Porter, a company has two sources of competitive advantage;-
 Cost advantage
 Differentiation advantage
The company can also compete on two competitive scopes in respect to the market;-
Can serve a broad target of customers
Can serve a narrow customer segment
Porter’s Generic Competitive Strategies
Combination of the competitive advantage used and the competitive scope results in five
competitive strategies
Cost leadership strategy ;- appealing to a broad spectrum of customers based on being the
overall low cost provider of the service
Differentiation Strategy ;- seeking to differentiate the company’s products/service from

competitors in ways that will appeal to a broad spectrum of customers
Cost Focus strategy ;- concentrating on a narrow customer segment and outcompeting rivals by
serving the niche customers at a lower cost than competitors
Focused differentiation strategy ;- concentrating on a narrow buyer segment and outcompeting

rivals by offering the niche customers customised attributes that meet their requirements better
than competitor products
Best cost provider strategy ;- giving customers value for money by providing good to excellent
product attributes at a lower cost that competitors. Idea is to have lower (best) costs and prices
while offering products with comparable upscale attributes.

Target Marketing Strategies
Involves three steps;
Market Segmentation
Market Targeting
Market Positioning
In this process the company:
Identifies the total market
Divides it into smaller segments
Selects the most promising segments
Decides on how it wants to position itself in these segments
Strategies for Dealing with Competition
A company needs to do a competitor analysis so as to design effective competitive strategies.
Issues to know about competitors include:
Who they are
Where they are
How many there are
What is their business
Their target markets
Their suppliers
Their objectives
Their strategies
Their strengths
Their weaknesses
Their response patterns

Marketing Mix Strategies
Marketing mix is the controllable marketing tools (known as the 4Ps) - product, price, place, and
promotion - that the company uses to achieve its objectives.
5. Implementing the Marketing Programmes
Budgets; project the profit-and-loss statement.
It shows both the forecasted revenues (number units to be sold  average net price) and expenses
(cost of production, distribution, etc.). The difference between revenues and expenses gives the
projected profit.
The budget is the basis for materials buying, personnel planning, production scheduling etc.
6. Monitoring and Control
Controls; outline the controls that will be used to monitor progress.
The management review the results each period and compare them with the goals and budgets.
If the businesses or products do not meet with the goals, corrective actions must be taken.
Conclusion
The marketing plan is the most important output of the marketing process.
It involves analysing marketing opportunities, developing marketing strategies, planning

marketing programmes, organising, implementing and controlling the marketing effort.

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NEED FOR AND NATURE OF BUSINESS ACTIVITY

The different business functions;

The resources available to the business; and

The business policy.

The business policy:

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6. Non-Government Organisations (NGOs) are usually non-profit organisations that focus on

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P - Political environment S--social

Extended PESTLE or P*E*STLE

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conservation may also have an impact on the business.

Physical factors relate to the immediate environment of the business. Is it situated in a

5.1 Business aims and Activities

Private sector aims

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Businesses gain a larger market-share [a percentage of overall sales in an industry] by increasing

Private sector activities

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NB. Specialisation causes interdepence

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Public and Private Limited Companies

Private Limited Companies

Public Limited Companies

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1. The firms are usually small, and easy to set up.

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3. There is less time pressure on individual partners.

4. There is someone to consult over business decisions

1. The main disadvantage of a partnership comes from shared responsibility.

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putting into the firm compared with another.

4. A partnership, like a sole trader, has unlimited liability.

There are arguments for and against public ownership.

First look at the advantages:

- Usually protected, reducing unemployment.

- Key supplies, eg water and energy, can be guaranteed and controlled.

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Now look at the disadvantages of public ownership.

- Providing these services means higher costs, and higher taxes.

- Large non-profit making organisations suffer from diseconomies of scale

ment interference - Politicians' interference can negatively affect the efficiency of an

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3. A multidomestic company (MDC) is an organization with multicountry affiliates, each of

4. A global company (GC) is an organization that attempts to standardize and integrate

5. An international company (IC) is a global or multi-domestic company. Although we

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WHAT IS DIFFERENT ABOUT INTERNATIONAL BUSINESS?

Influence of External and Internal Environmental Forces

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4. Socioeconomic: characteristics and distribution of the human population.

5. Financial: variables such as interest rates, inflation rates, and taxation.

7. Physical: elements of nature such as topography, climate, and natural resources.

8. Political: elements of nations’ political climates such as nation-alism, forms of government,

10. Labor: composition, skills, and attitudes of labor.

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The Domestic Environment

Extended PESTLE or PESTLE