Role of human resource management (AO2)

Human resource management (HRM) ensures that an organization has the right
people in the right roles with the right support, as well as a positive working
environment. This leads to higher productivity, improved efficiency and competitive
advantages.
HRM plays a vital role in the smooth running of any business
Human resource management involves numerous roles or functions, which include:

 Recruitment - hiring the right number of appropriately qualified and suitable

workers at the right times to fill job vacancies.
 Induction - training for new employees to get acclimatised with the norms and
operations of the organization.
 Retention - retaining/keeping workers at the organization by meeting the needs of
employees.
 Appraisals - the formal procedure of assessing the performance and effectiveness
of employees in relation to their job description as well as holding workers
accountable for their performance/conduct at work.
 Absenteeism - dealing with issues that arise when employees are unable to attend
work (see Case Study 1).
 Dismissal - letting go of workers no longer needed, often due to underperformance
or misconduct in the workplace.
 Redundancies - letting go of workers if/when their jobs are no longer needed,
perhaps due to a prolonged economic recession.
 Training and development - improving the competencies, productivity, and skills of
workers.
Internal and external factors that influence human resource planning
(AO2)

Human resource planning (or workforce planning) is an ongoing function of

the HR department of a business.
Workforce planning involves anticipating and addressing the organization’s current
and future human resource needs. This can be short-term or long-term, depending
on the needs of the organization. Short-term workforce planning is used to address
the immediate needs of the organization, such as replacing workers who will go on
maternity leave. It also includes plans for covering absent employees due to
sickness. Long-term workforce planning is used to support the strategic plan of the
organization, e.g., the expansion of the business in new locations and different
countries.
HR planning is a process that identifies current and future HR needs to ensure that
staffing is sufficient, qualified and competent enough to achieve the business’s
objectives.
internal and external factors that influence human resource planning. These
include coverage of the following factors:
Internal factors that influence human resource planning (AO2)

 Strategic direction of the organization – For example, if growth is a priority, the

organization will plan to recruit more workers and internally promote some
employees to senior positions.
 Organizational structure – A clear organizational structure helps workforce
planning. For example, the HR manager can identify vacant positions and jobs that
are redundant, thus can plan how best to address these gaps in the firm.
 Finances of the organization – Effective workforce planning cannot happen without
sufficient funding being available. Growth enables the firm to gain more revenue,
which will provide it with the finances to hire and pay for more workers. Training
and professional development opportunities for workers also require finance.

 Motivation in the workplace – The level of motivation in an organization is an

important internal factor affecting workforce planning. The higher the level of
motivation, the more productive workers tend to be, and the lower the labour
turnover rate. The human resources department needs to keep records of why
people leave the organization in order to retain their employees.
 Corporate culture of the organization – The culture of the organization affects
how the HR department operates. In turn, this influences its approach to HR
matters such as working hours, flexitime, teamworking, appraisals, job sharing
(where two employees share a single job), training and professional development
opportunities, dismissal and redundancies, outsourcing, and the internal promotion
of staff.
External factors that influence human resource planning (AO2)
1. Demographic change
Demographic change refers to variations in the structure of the population that
influence human resource planning. This might include developments and trends in
the population, such as:

 The average age of the population

 Distribution of the population by ethnicity
 Gender distribution
 Average household income
 Official retirement age in the country.

2. Change in labor mobility

Labor mobility measures the extent to which workers have the ability and
willingness to move between geographical locations and/or occupations for their
employment. Increasing and maintaining labor mobility ensures a more efficient
allocation of human resources.
 There are two types of labor mobility: occupational mobility and geographical
mobility.
(i) Occupational mobility
Occupational mobility refers to the ability and willingness of employees to do
another job or pursue a different career. Occupational mobility can be improved if
employees have the necessary qualifications, experience and skills to move from
one job to another. Occupational immobility occurs due to impediments such as
rules and regulations.
(ii) Geographical mobility
Geographical mobility refers to the ability and willingness of employees to
relocate to another location or country for work reasons. Some jobs require their
employees to travel long distances for work purposes, such as delivery truck (lorry)
drivers, pilots, and sales executives.
Geographical immobility occurs due to the unwillingness of workers to move to
another area. Such impediments to geographical mobility include: family ties to a
geographic location, relocation costs, lower wages and salaries, fewer benefits,
higher property prices, or higher costs of living in the new location.
Labor mobility can be improved by offering workers improved pay and benefits.
Workers can improve their own labor mobility by partaking in training and
development programs. However, this can be expensive for the business.

3. Immigration
Migrant workers are people who move to other locations or countries in search of
job opportunities. For example, many people from rural areas move to the cities in
search of employment opportunities as well as better-paid jobs.
The influx of migrant workers from overseas can provide many business
opportunities, such as:

 Easing of skills shortages - Hiring skilled migrants has two advantages to a

business. First, they take on the jobs that cannot be filled by domestic workers,
perhaps due to a lack of willingness or skills (ability). Secondly, since a skills
shortage is prevented, the pool of migrant workers helps to keep wage costs down.
 Flexible work structures - Businesses are able to open for longer hours due to
workforce flexibility. Migrants add to the supply of staff willing to work part-time or
shift work. This is good news for businesses which have outlets that open 24-hours
a day.
 Marketing opportunities - Migrant workers are likely to have different habits and
tastes from the mass population. This can provide niche marketing opportunities.
 Personnel opportunities - The supply of migrant workers allows a business to
employ a more flexible and dynamic workforce. They may bring new ideas,
experiences and ways of thinking. Skilled migrants can pose a threat to less-skilled
workers in the country. This form of competition can raise the standard of skills in
an economy as domestic workers update their skills to retain their own jobs.
 Net social benefits - The majority of migrants are of working age. This means they
are likely to pay income tax (good news for the government and the general
public). It also means that they have income to spend on goods and services (good
news for marketers).
Recruiting migrant workers (and part-time staff) can certainly help businesses to
meet their short term human resource needs, such as during peak trading times of
the year. Businesses also gain if they can hire experienced and highly qualified
migrant professionals (referred to as‘expats’) on a permanent basis. However, many
migrants lack the necessary skills and qualifications needed to secure high-paying
jobs, so often end up working in low-waged occupations.
4. Flexi-time is a form of flexible work practice that enables employees to work a
set number of core hours per week, often at the office during peak periods of the
day and/or week. The employees then have the flexibility to choose when they work
during the rest of the week; so long as their work gets completed.
Flexitime enables parents to have a job while raising young children
However, flexitime suffers from similar disadvantages to teleworking, such as the
potential lack of accountability and productivity. There are also costs implications if
managers have to check and approve the hours flexitime staff claim to have
worked.

5. The gig economy

The gig economy (on-demand economy) refers to labor markets in which
workers are given short-term or one-off contracts, such as freelance work, rather
than long-term or permanent jobs. Gig workers (platform workers) are on-call,
independent contractors who enter into formal agreements with on-demand
businesses to provide certain services to the firm's customers. Gig workers are paid
for each individual job (or "gig") they do.

 Accountants
 Babysitting and child minding services
 Cleaners
 Food delivery (e.g., Uber Eats, Deliveroo)
 Gardeners and landscapers
 Mechanics (car repairs and maintenance)

 Painters and decorators

 Personal shopper
 Website designers
 Advantages of the gig economy

 Workers enjoy freedom and flexibility as they can choose which jobs they want, as
well as when and how long to work for. This is ideal for people who prefer part-time
employment.
 There is the potential to earn a significant amount of income as gig workers often
work for multiple businesses on a job-by-job basis.
 The flexibility also enables some people to have a better work-life balance, such as
working parents of young children.
 Businesses can gain from reduced costs of production as they do not need to hire
so many full-time workers (along with the pay and benefits associated with full-time
employment) and office space.
 The lower costs of production for businesses mean they can provide more price-
competitive goods and services to customers.

Disadvantages of the gig economy

 A gig economy reduces the need for full-time workers in the traditional economy,
possibly limiting people's potential for career development.
 Gig workers do not have fixed employment contracts, so may lack job security and
a stable income. This could mean that without sufficient jobs/projects, gig workers
are not guaranteed to earn even the national minimum wage. There is also
pressure for gig workers to continually look for the next job especially as
competition for gigs has increased.
 As self-employed people, gig workers have set-up costs of their own.
 The lack of a full-time employment contract also means gig workers may miss out
on employee rights and benefits, such as paid sick leave, holiday pay, redundancy
pay, and maternity leave. They also often miss out on the social aspects of
traditional work with colleagues, managers, and customers .
Reasons for resistance to change in the workplace (AO2)
These four main reasons for the resistance to change were identified by Kotter and
Schlesinger.

1. Self-interest
This occurs when employees place their own interests above those of the
organization. This reason for the resistance to change occurs from a perceived
threat to a person's job security, status/rank, and financial position.
Employees are often more interested in and/or worried about the implications of
change for themselves, rather than the possible benefits to the organization as a
whole. Hence, there is resistance to change as they may feel it is unnecessary
and/or requires too much effort on their part. This reason is particularly strong if
employees do not feel committed (loyal) to the organization.

2. Low tolerance
People tend to like stability and normality (or inertia) in their personal and
professional lives. Change often entails new policies and procedures or new ways of
doing things in the workplace. However, humans need an element of security,
predictability, and stability in their lives, including work. Hence, people often have a
low tolerance of change or are fearful of it; either way, these people are naturally
resistant to change.
3. Misinformation and misunderstandings
If the reasons for change are not clearly and effectively communicated to the
workforce, a lack of understanding arises, which creates misunderstandings and
hence resistance to change. Misinformation causes the purpose and potential
benefits of change not to be clearly communicated. Hence, workers may feel that
change is unnecessary or there are no good reasons for change, especially if the
business is not in a crisis or faced with adverse conditions.

4. Interpretation of circumstances (different assessment of the situation)

Different people can have different interpretations or views of a given situation.

Employees and employers may disagree on the rationale for and the benefits of
change. Workers may believe that senior managers do not know what they are
doing or why they are doing it and they may feel that the business is not acting in
their best interest. Indeed, they may feel that they have better solutions and would
change things in different ways.
Different assessments or perceptions of change can create conflict and hence cause
resistance to change. Again, if the purpose of change are not communicated clearly
to the workforce, then misunderstandings can arise, leading to opposition to
change.
Note: This reason for the resistance to change is different from "self-interest"
because the restraining force in this case is based on competing interpretations or
assessments of what is best for the business and its stakeholders.

Human resource strategies for reducing the impact of change and

resistance to change (AO3

Change management refers to processes and techniques used to plan, implement

and evaluate changes in business operations. Business organizations are dynamic in
nature and are always subject to the forces of change.
Strategies for dealing with resistance to change include the following six methods,

1. Education and communication

This approach to change management aims to inform and educate staff (and other
stakeholders) about the change beforehand. Early communication and clarification
can help stakeholders to see the rationale for change and establish trust. Perhaps
more importantly, this approach reduces any unsubstantiated claims and rumours
about the proposed change. Hence, this helps to limit misinformation and
misunderstanding (one category of Kotter and Schlesinger's reasons for
resistance to change).
2. Participation and involvement
Allowing workers to be involved in decision-making gives them ownership in the
process and a greater incentive to ensure change is successfully implemented. It
can also help to prevent misunderstandings and misinterpretations of the purpose
of change. However, this approach is likely to be rather time consuming.
3. Facilitation and support
This approach to change management is about providing authentic support so that
people have the skills and resources they need to cope with change. This approach
is paternalistic in style as managers become supportive of staff during difficult
times, thereby averting potential resistance to change and helping people to accept
change instead.
Facilitation and support can come in numerous forms, such as retraining of staff to
enable them to cope with the new changes or counselling workers to deal with their
fears and anxieties.
4. Negotiation and agreement
This is the ‘carrot’ approach whereby managers use bargaining incentives to
remove or limit resistance to change (unlike the ‘stick’ approach, below).
Alternatively, staff who resist change might be offered early retirement or
redundancy incentives to leave the organization.
At other times, managers may be willing to compromise to provide incentives for
employees to settle for the change. Negotiations with workers could mean slightly
different and possibly better changes than originally intended.

5. Manipulation and co-option

This approach involves bringing a representative of those resisting change into the
change process. The purpose is to give these key influential people representation
in the negotiations process, but the underlying reason is to convert the
representative’s thinking so that the advantages of change can be communicated
to those resisting change.
These representatives, such as labour union leaders, are usually given a symbolic
role but the reality is that their view will not affect the desire of management to
push for the change. This approach is, of course, seen as unethical and can backfire
if those resisting change discover what the management are really trying to do.
6. Explicit and implicit coercion

Managers can use coercion (bullying tactics) to force staff into accepting change, by
threatening disciplinary action, dismissals, job losses, redeployment (transferring
employees to other jobs), or not promoting employees. In other words, they force
the change through even if employees may not agree with the change.
Ultimately, senior managers need to deal with change in a way that is purposeful,
positive, and promising. Essentially, this will help to gain the support from their
employees.
Key term Definition

The employer’s decision to terminate a worker’s employment

Dismissal contract, usually due to the worker’s incompetence and/or a breach
of their employment contract.

A form of flexible work practice that enables employees to work a

Flexitime set number of core hours each week, often at the office during
peak periods of the day and/or week.

Geographical The ability and willingness of employees to relocate to another

mobility location or country for work reasons.

Labour markets in which people are on short-term, impromptu,

Gig economy temporary contracts. This includes freelance worker and
independent contractors.

Also referred to as work from home (WFH), this is an aspect of

Homeworking flexitime that involves people using their homes to conduct their
jobs.

HRM is a broad term used to describe the overall management of an

Human resource
management organization's workforce, e.g. attracting, selecting, training,
assessing, rewarding and retaining workers.

Also known as workforce planning, this is the management

Human resource
planning process of anticipating the organization’s current and future human
resource needs.

Measures the extent to which workers have the ability and

Labour mobility willingness to move between geographical locations and/or
occupations for their employment.

Migrant workers People who move to other countries in search of better job
opportunities.
 This measures the difference between the number of people from
Net migration abroad who enter a country (immigration) and the number of people
who leave (emigration), usually for employment purposes.

Occupational The ability and willingness of employees to do another job or pursue

mobility a different career.

Portfolio workers People who carry out several different jobs, often for different
contractors, at the same time and usually on a temporary basis.

Occurs when an organization no longer has a job for the employee

Redundancy or when the employer can no longer afford to hire the employee,
i.e., the job ceases to exist.

Flexible working practice that involves employees being away from

Teleworking the office as they rely on the use of telecommunications
technologies, e.g. Internet and mobile technologies.

Workforce The total number of employees in a business organization at any

particular point in time.

Also known as human resource planning, this refers to the

Workforce planning ongoing process through which the current and future human
resource needs of a business are identified and anticipated.

Unit 2.2 - Terminology for understanding organizational

structures (AO2)

The organizational structure of a business shows the interrelationships and

hierarchical arrangements within the firm. In order for employees to achieve the
organization’s goals collectively, human resources need to be formally organized. The
way in which people are organized determines who each employee reports to, and the
breadth and depth of the authority each person has (if any).

1. Delegation (AO2)

Delegation occurs when a line manager entrusts and empowers a subordinate with
authority to successfully complete a particular task, project or role. It involves passing
on control and authority but holding subordinates accountable for their actions.
 Although authority and decision making are passed on, the responsibility for the
outcome remains with the line manager because they are ultimately in charge.

Advantages of delegation
 Delegation can motivate employees, as they feel valued and empowered.
 Delegation can improve the quality and speed of decision-making,
 Effective delegation helps to reduce the workload of senior managers, especially if work
is delegated to highly competent employees.
 Delegation helps to improves the skills and qualities of employees throughout the
business, so helps to prepares them for more senior roles within the organization. This
helps to boost employee morale as well as staff retention.

Limitations of delegation
 Delegation usually comes with additional pay or remuneration
 Delegation often requires the business to invest in prior training and development of
employees to ensure they have the necessary skills and qualifications to carry out the
delegated tasks. This can be both time consuming and expensive for the business.
 It should also be noted that delegation does not motivate everyone - not all workers are
willing and/or able to take on extra workload or accountability.

2. Span of control (AO2)

The span of control refers to how many workers are directly accountable to (or under
the authority of) a particular line manager, i.e. the number of workers who report
directly to a particular manager.

Managers have a narrow span of control in organizations that prefer to have a tighter
(closer) control on decision-making. It enables managers to keep closer control over the
activities and operations of the employees for whom they are directly responsible for.
By contrast, delegation is inevitable when the span of control is wide.
A wide span of control means a line manager has responsibility for many
subordinates. A narrow span of control can present challenges for managers in terms of
communication and control unless they are able to delegate effectively to members of
their team. Naturally, workers have a greater degree of independence if there is a wide
span of control as it is not possible for an individual line manager to monitor the work
and progress of each and every subordinate in the team. However, a wide span of
control can help to reduce costs (as there are fewer levels of management in the
organizational hierarchy) but this requires strong leadership.
Whether a business decides to adopt a wide or narrow span of control
depends on three main interralated factors:

 Employee competencies - This refers to the skills, qualifications, training, and

experience of employees. Workers who are highly competent are more likely to be
given greater authority and flexibility to make decisions and to organize their own
 work. Hence, the employer is more able and willing to use wider spans of control and
delegation.
 Managerial competencies - This refers to the attitudes and beliefs of of managers, and
hence their management styles. Some managers believe that a workforce is most
efficient if employees are given greater freedom to make decisions and they are more
likely to
delegate authority to junior employees, enabling the use of wide spans of control
 The business context - This refers to the nature of the organization and the market(s) in
which it operates as well as the activities under consideration. Large, multinational
companies (MNCs) will need to be structured differently from small sole traders or
partnerships. MNCs will have wider spans of control as senior managers will be
responsible for larger teams, possibly across multiple geographical locations. In the
case of sole traders and small partnerships, the business owners may maintain
narrower spans of control.

3. Levels of the hierarchy (AO2)

The term levels of hierarchy refers to the number of layers of formal authority. It is
represented in an organizational chart. Each horizontal level in the hierarchy shows the
level of seniority in the organization. In the example below, there are five levels in the
organizational hierarchy.

The hierarchical structures in an organization show where workers fit within the firm,
showing their level of seniority. The organizational hierarchy also indicates lines of
communication, decision-making authority, accountabilities and responsibilities.
A tall structure (or vertical structure) has a large number of levels of hierarchy, so
the span of control is likely to be narrow. This means that there are many people
between the person at the top of the organization (the CEO or Managing Director) and
those at the bottom of the hierarchical structure. Hence, decision-making tends to be
centralized and relatively quick. Tall structures can benefit from the advantages of
delegation (see above) but can be costly due to the large number of managerial
structures in the organization.
By contrast, a wider span of control means the organization has a flat
structure (or horizontal structure). This means there are only a few levels or layers
in the organizational hierarchy. Decision-making is therefore decentralized and
therefore takes a relatively longer time. Flatter strucutures tend to benefit from
improved and speedier communications as there are fewer layers in the hierarchy.
However, they do not create many promotional opportunities for employees and can
overburden those in managerial positions.

4. Chain of command (AO2)

The chain of command refers to the formal lines of authority in an organization. It can
be seen via an organizational chart, which shows the formal path through which
commands and decisions are communicated from senior managers to subordinates and
operatives lower down in the organizational hierarchy.
The chain of command is typically represented by vertical lines of authority, from top to
bottom. This shows that commands (instructions or directions) and decisions are passed
down the organizational hierarchy. It also reveals how communications flow throughout
the organization.
In the example below, the marketing team would receive communications (commands
and decisions) from the director of marketing. If the chief executive officer (CEO)*
wanted to communicate with the finance staff about a particular issue, the message
would pass through the chain of command, via the finance director to the marketing
manager, and finally to the finance staff.

Larger businesses and those with tall (vertical) hierarchical structures tend to have
longer chains of command, and vice versa. However, long chains of command can
create challenges for operational efficiency and miscommunications. In any case,
having clear and formal chains of command help to improve communications within an
organization, ensuring that directions and decisions are more likely to be understood
and acted by subordinates. Businesses with flatter structures (fewer levels in the
organizational hierarchy) have shorter chains of command. However, it is not always
practical or beneficial for businesses to reduce the number of layers in its organizational
structure.

5. Bureaucracy (AO2)
Bureaucracy refers to administrative systems within an organization. This includes the
formal policies and procedures of the business. A bureaucratic organization is one that
has a lot of formal rules, regulations and procedures. There is a lack of flexibility as the
organization is set in the way it does things.
Typically, bureaucratic organizations involve a lot of paperwork to get tasks approved
and accomplished. Auditing is also commonplace in order to show that rules, policies
and procedures have been correctly followed. It is associated with clear hierarchical
structures with employees fulfilling specific roles and being held accountable for their
areas of responsibility. Hence, bureaucracy helps managers to ensure they have control
of their business and its operations.
Bureaucracy is associated with organizations that are large and well-established, i.e.
ones which have been in operation for many years. They are also more likely to have
tall hierarchical structures, with a many layers of management. Hence, authority and
decision-making tend to be centralized.
However, there are disadvantages. Bureaucratic organizations are inflexible, so are
slow in responding to changes in the external business environment. Also, as people
have to adhere to fixed rules, regulations and policies, creativity and innovation are
essentially discouraged. Nevertheless, the main limitation or criticism is that
bureaucracy (with all its detailed and complex rules and procedures) slows down
decision making and causes operational inefficiencies.

6. Centralization (AO2)
Centralization refers to the situation in organizations where decision-making is
predominantly made by a small group of senior managers at the top of the
organizational hierarchy. For example, in a tall organizational structure, with many levels
in the organizational hierarchy, decision-making tends to be centralized.

Centralized organization and decision-making

Centralization is typically associated with organizations that have narrow spans of
control. Leadership and management are likely to be autocratic or paternalistic
Centralized decision-making ensures decision-making is swift and that the group of
senior managers can maintain better command and control. In particular, centralization
should ensure that everyone in the organization pursues the business objectives set by
senior executives and directors.
However, as delegation rarely happens in centralized organizations, morale and
productivity may be lower than otherwise. In addition, such structures are very rigid
(inflexible), which can be demotivating for employees, who cannot express their
opinions or suggestions. It also means that centralization is unsuitable for industries
that rely on creativity and autonomous decision-making,
7. Decentralization (AO2)
Decentralization refers to the situation in organizations where decision-making
authority is delegated throughout, rather from a central authoritative group. It is,
essentially, the opposite of centralization. In a decentralized organization, decision-
making authority is delegated to middle and junior level managers, although (as with all
organizations) strategic decision-making is made by the group of senior managers.

Decentralized organization and decision-making

A decentralized organization tends to have a flatter hierarchical structure, with fewer
levels in the organizational hierarchy. Managers tend to have wider spans of control,
meaning that subordinates have greater autonomy as decision-making is delegated.
Unlike centralized structures which tend to have a ‘top-down’ approach (autocratic or
paternalistic management and leadership styles), a decentralized organization is usually
more democratic.
Decentralization can help to improve morale and productivity as workers feel valued
and empowered. Decision-making is more flexible, and can usually be made a lot
quicker. It also reduces the workload on senior executives and directors, freeing up their
time to focus on strategic (rather than operational or tactical) matters.
However, decentralization means it is more difficult for senior managers to know about
all of the decisions that are made, especially in large organizations with multiple
locations. This makes it more challenging for them to maintain overall control of
the organization and to ensure employees maintain clear focus on business objectives.

8. Delayering (AO2)
Delayering occurs when an organization removes one or more layers in its hierarchical
structure, i.e. it reduces the number of layers of management to make the organization
flatter.
The intention is twofold: (i) to cut costs, and (ii) to remove or reduce bureaucratic
inefficiencies in the organization. Delayering removes levels in the organizational
hierarchy so can result in substantial reductions in wage costs for the business.
Delayering also widens spans of control, and can help to improve communications in the
workplace as there are shorter chains of command. For many firms, delayering has been
attractive due to the growth in flexible working practices, which has meant less of a
need to have traditional, hierarchical organizational structures.
However, delayering adds to the workload of the existing workforce, especially those
who have responsibility for a larger team (due to the wider span of control associated
with delayering). This can cause anxiety, stress, resentment and conflict, so must be
handled carefully by the management team. The management team also need to be
sensitive to those who lose out from delayering as their security needs may be
threatened, causing demotivation and lower labour productivity. In addition, delegation
can cause a loss of institutional knowledge and internal expertise as employees in
former managerial positions no longer contribute to the decision making process in the
same ways as before.

9. Matrix structure (AO2)

A matrix structure is a flexible organizational structure based on the specific needs of

a particular business to meet the changing needs of the organization.
A matrix structure involves organizing or assigning individuals to multiple roles, so they
are placed in multiple reporting lines. This type of organizational structure is typically
used to promote cross-functional collaboration. Individuals may report to multiple
managers, and be part of multiple teams. For example, a teacher of IB DP Business
Management might also be on the TOK team, a pastoral leader, or even on the Senior
Leadership Team. This type of structure allows for more efficient decision-making and
faster response times due to improved communications. However, it can also lead to
confusion and conflict due to the complex reporting lines and people holding multiple
roles.
 Matrix structures are a type of task-oriented organizational structure is designed to
allow firms to be responsive to changes in market demand for goods and services as
well as changing needs of a business. As a flexible organizational structure, it can be
used by any type of business in many different situations. Using experts from across the
organization in a matrix structure can help to generate new and creative ideas, as well
as improve productivity. The flexibility enables organizations to overcome limitations
associated with traditional or hierarchical organizational structures.
However, matrix structures can isolate team members who work outside of their
departments and ‘comfort zone’. Sub-cultures are formed which might unsettle some
employees. There might also be conflicting interests, as employees report to two or
more managers (their designated line manager and project managers in the matrix
structure), so have to deal with uncertainties about prioritising different tasks. Conflict
can result between managers and employees if there are divided loyalties, resulting in
lower morale and productivity. Furthermore, matrix structures are complex so can be
expensive to execute.
Similarly, some employees may feel demoralized due to the increased workload and
pressures, especially if they are involved in numerous assignments happening at the
same time. Finally, additional resources and finance are required to fund the different
teams in a matrix structure.

Key terms
 Bureaucracy refers to administrative systems within an organization. This includes the
formal policies and procedures of the business.
 Centralization refers to the situation in organizations where decision-making is
predominantly made by a small group of senior managers at the top of the
organizational hierarchy.
 The chain of command refers to the formal lines of authority in an organization.
 Decentralization refers to the situation in organizations where decision-making
authority is delegated throughout, rather from a central authoritative group.
 Delayering occurs when an organization removes one or more layers in its hierarchical
structure, i.e. it reduces the number of layers of management to make it flatter.
 Delegation occurs when a line manager entrusts and empowers a subordinate
with authority to successfully complete a particular task, project or role.
 A flat structure has few levels in the organizational hierarchy.
 Hierarchical structures in an organization show where each worker fits within the
firm, showing his/her level of seniority.
 Levels of hierarchy refers to the number of layers of formal authority. It is
represented in an organizational chart.
 A matrix structure is a form of flexible organizational structure that uses teams of
employees with suitable skills and qualifications drawn from different departments or
divisions of the business.
 The organizational chart is a diagrammatic representation of an organization’s
formal organizational structure.
 The organizational structure of a business shows the interrelationships and
hierarchical arrangements within the firm.
 The span of control refers to how many workers are directly accountable to (or under
the authority of) a particular line manager.
 A tall structure has many levels of hierarchy, so the span of control is likely to be
narrow.

Types of organization charts (AO2, AO4)

An organizational chart is a diagrammatic representation of an organization’s formal

structure of its personnel. This shows the various roles of responsibilities of people
within the organization.

1 - Flat (or horizontal) organization charts (AO2, AO4)

A flat organizational structure

A flat organization (also known as a horizontal structure) has only a few layers of
management. Hence, there is a wide span of control, i.e. line managers have a lot of
decision-making authority. Such an organization also has a short chain of command,
which can improve communication in the firm. A flat structure is typically found in start-
up firms, small businesses and in organizations that value creativity and flexible working
practices.
However, a large and wide span of control in flat organizations can make it more difficult
to have control of workers because managers with their wide span of control have to
supervise a large number of employees.
The organizational culture in horizontal structures is typically open and somewhat
informal. As an organization grows, the structure becomes more formally structured and
tall (or vertical) over time.

2 - Tall (or vertical) organization charts (AO2, AO4)

A tall organizational structure
A tall organization (also known as a vertical structure) has many layers in its
organizational hierarchy. At the top of the hierarchy is the chief executive officer (CEO)
or managing director (MD). Senior managers at the top of the hierarchy have more
authority and responsibility than those below them. At the bottom of the hierarchical
organizational structure are the low-ranked employees with minimal experience and
responsibilities.
Hierarchical organizations are highly formal, inflexible, and bureaucratic in structure,
with clear lines of seniority and long chains of command. Managers may have a narrow
span of control due to the large number of layers in thr organizational structure. The
organizational structure is well established and rigid, so changes do not happen
frequently or easily.
Hierarchical structures help senior managers and decision-makers to have better control
of command of the business. They are suitable if jobs or tasks are routine and not too
challenging, especially as there are clear lines of accountability. However, vertical
structures are bureaucratic, so there may be a rather impersonal nature to the
organization.
Vertical structures can be motivational for employees as there are opportunities for
promotion, i.e. to move up the ‘career ladder’ (or vertical hierarchical structure).
However, drawbacks of tall organizations include the long chains of command (so
decision-making may be slow) and potential for miscommunications (due to the number
of layers in the hierarchy).

3.a - Organization by product (AO2, AO4)

Organization by product means structuring a workforce according to the goods or

services sold. Each department focuses on a different product within the organization’s
overall product portfolio. For example, a major publisher might organize its workers
according to the types of books it publishes
It is suitable for large organizations with a broad product portfolio
An example of organization by product for a large car manufacturer:
Organization by product enables specialisation as workers focus on a specific market
segment related to the product. This helps to ensure the business meets the needs of
its customers more effectively, such as improved product knowledge and marketing
activities. It can also encourage healthy internal competition between departments to
produce ever-more appealing products.
A drawback of organization by product is the duplication of work done by each
department, such as different marketing and sales personnel in the various
departments. Organization by product is associated with decentralized decision-making,
so it can be difficult for the senior executives to maintain overall control of the various
separate divisions of the business.

3.b - Organization by function (AO2, AO4)

Organization by function means structuring a workforce according business
functions, i.e. specialised roles or tasks. Typically, this will involve staff working together
but from different departments, such as marketing, human resources, production
(operations), and finance. Each department has a manager or director who is in charge
of the assigned functional area of the business. Departmental staff report to the
respective manager or director, who has overall responsibility for the functional area (a
department or division of the overall business).
It is an ideal organizational structure for organizations that focus on one product or a
small number of related goods or services.
The main advantage of organization by function is that roles and tasks are carried out
by experts and specialists. Hence, productivity and output are both higher. However,
departments tend to work in isolation by focusing only on their area of responsibility.
Organization by function:

3.c - Organization by region (AO2, AO4)

 Organization by region for the IBO
Organization by region means structuring a workforce according to different
geographical areas based on where the firm’s operations are. It is suitable for large
businesses with operations in different geographical locations, such as global
multinational companies. This form of organization enables businesses to focus better
on the specific needs and wants of their customers in markets in indifferent
geographical regions of the country or the world.
The organization’s regional offices operates individually, within the policies and values
of the business as a whole. Each location is overseen and managed by a regional
director or executive.
This type of organization is suitable for large businesses that operate across the globe.
Whilst most multinational companies have their headquarters in a single location,
having regional offices helps the organization to adapt to regional differences in
demand and exploit local knowledge, despite the benefits of globalization. However,
the main drawback of organization by region is the difficulty in controlling a
decentralised organization that operates across numerous regions of the country or the
world.

The choice of organizational structure (such as centralized, decentralized, hierarchical

or bureaucratic) depends on several factors, such as:

 The corporate culture – organizations such as Google rely on creativity and

autonomy, so a flatter structure might be more suitable.
 The size of the workforce – the larger the number of workers in an organization, the
more formal it needs to be in order to maintain order and control. Businesses with
more employees, such as Walmart, usually require taller structures as more levels of
managers are needed.
 The skills, qualifications, experiences, and talents of the workforce – organizations
such as fast-food restaurant will have more formal structures and protocols, whereas
organizations that rely on innovations, such as Apple or Tesla, will have more
adaptive and flexible structures.

Key terms
 A flat organization (also known as a horizontal structure) has only a few layers of
management in its organizational structure.
 Hierarchical organizational structures are tall/vertical, with many levels in terms of
ranks.
 An organizational chart is a diagrammatic representation of an organization’s formal
organizational structure.
 A tall organization (also known as a vertical structure) has many layers in its
organizational hierarchy.
 Organization by function means structuring a workforce according business
functions, i.e. specialised roles or tasks.
 Organization by product means structuring a workforce according to the goods or
services sold.
 Organization by region means structuring a workforce according to different
geographical areas based on where the firm’s operations are.

Appropriateness of different organizational structures

given a change in external factors (AO3)
Businesses operate in dynamic and evolving environments. In the ever-more
competitive corporate world, organizations have to continually review their practices
and change/adapt accordingly to remain relevant and attractive in the market.
Managers might question the appropriateness of organizational structures given
changes in external factors. These may be planned (such as a merger or joint venture)
or unplanned (such as a hostile takeover or outbreak of an infectious pandemic).
External factors that might prompt a change in an institution's organizational structure
include technological advances, the intensity of competition, and changes to the growth
and evolution of businesses.

2.3 Leadership and

management
2.3 Leadership and management

Management and leadership

Definition of management
it is the process of achieving organizational objectives by using the limited resources
that an organization has. Hence, managers are, perhaps, the people with the most
influence in the degree of success of a business organization.
In general, management can be categorised into three levels:

 Senior management are the highest-ranking managers who set and oversee the
long-term plans and strategies of the organization. They are ultimately held
responsible for the results of the business.
 Middle management are managers who establish departmental goals and
strategies and are responsible for the staff within their respective divisions.
  Supervisory management (or junior management) are the lower-ranking
managers who monitor the regular and routine day-to-day tasks of the organization.

Roles and functions of management

 Planning – Managers must set targets that are SMART (specific, measurable,
agreed, realistic and time constrained). Short term plans (known as tactical plans)
are set by junior management, whereas long term plans (known as strategic
plans) are set by the senior management team.
 Organizing – Planning without any action is unproductive and therefore managers
devise plans to meet the organization’s goals. These plans can relate to the short,
medium or long term objectives of the organization. Mangers also organize the
various factors of production (land, labour and capital resources) in the production
process.
 Commanding – Managers have the authority to give instructions to their
subordinates to carry out various tasks. They have the ability and authority to make
decisions but are also held responsible for the outcome of the tasks and projects
they lead.
 Coordinating – Managers ensure that all employees have a common approach to
achieving the different goals in the different sections of the organization. Hence,
effective coordination helps to bring all the various objectives together in order to
achieve the main aims of the organization.
 Controlling – Managers are in charge of ensuring that the performance of individual
employees meets the standards and requirements of the organization. This helps to
ensure the smooth operation of different business activities. For example, budgetary
control requires managers to monitor and control the finances that they are
responsible for.

Leadership is about influencing other people to achieve a vision or goal.

Styles of Leadership and Management

Autocratic leadership (AO3)

This is a strict and rigid management style that involves only managers making all the
decisions in an organization.

Advantages of autocratic leadership

 It ensures the leader has complete control of the operations.
 It speeds up the business decision-making process.
 It provides workers with a clear sense of direction and clarity over their roles, as they
understand exactly what is expected.
 It is appropriate and effective when critical and urgent decisions need to be made.
 Disadvantages of autocratic leadership
 Creativity and innovation are suppressed and discouraged as employees are not
involved in the decision-making process.
 Similarly, it does not develop internal talents of the workforce.
 It can demotivate employees as their opinions are not valued.
 It does nothing to build an intrapreneurial spirit in the workplace (building an
organizational culture of future leaders within the organization)

Paternalistic leadership (AO3)

Paternalistic managers act rather like parents - they take actions that they believe are in
the best interest of the subordinate Such managers can be somewhat autocratic in that
they do not necessarily consult the subordinate,

Advantages of paternalistic leadership

 It can motivate staff as they feel guided and that their interests are protected
 It can ensure harmonious relationships at work as the leader genuinely values the staff
 It promotes loyalty to the leader and the organization
 It can create a sense of belonging, helping to meet workers’ safety and social needs
(Maslow’s hierarchy of needs)

Disadvantages of paternalistic leadership

 Decision-making is still centralized, so workers can become dissatisfied if their views
are ignored
 Communication is mainly top-down, from senior management
 Paternalistic leaders may not always make the best decisions, which can lead to conflict
and disagreement.

Democratic leadership (AO3)

Democratic managers are those who prefer to discuss and involve employees in
decision making. Such managers prefer to consult staff before making any firm
decisions.

Advantages of democratic leadership

 Workers feel valued as they are actively encouraged to participate in the decision-
making process.
 Workers feel motivated as they are empowered.
 The most is made out of the skills, experiences and creativity of the employees.
 Collaboration leads to higher morale and improved productivity.
 The organization takes advantage of the innovative potential of its employees.
 Getting regular feedback and consulting employees also helps the organization to
better understand their concerns.

Disadvantages of a democratic leadership

 It may result in disagreement and disharmony; it is not realistic to please everyone, all
of the time.
 It is ineffective when critical decisions need to be made quickly, and sometimes
workers just need to do what they are told to get their jobs done.
 It can be time consuming, especially if managers do not have the time to consult
everyone, so decision-making is often delayed.
 Hence, democratic decision-making can be costly.

Laissez-faire leadership (AO3)

Laissez-faire managers are those who prefer to have minimal involvement in the day-to-
day work of their employees.
Laissez-faire leadership is the opposite of autocratic leadership,

Advantages of laissez-faire leadership

 A laissez-faire leadership style can be motivational as employees have freedom to carry
out tasks in any effective way they wish.
 It also encourages individuals to be creative, and thus helps the firm become more
innovative.
 It helps to develop an intrapreneurial culture (where workers take on an entrepreneurial
role) in the organization, helping the business to gain competitive advantages.
 It helps to build drive

Disadvantages of laissez-faire leadership

 Monitoring and coordination of business operations are made more difficult and time-
consuming, especially as there is an absence of managerial control.
 Slack (complacency) can arise due to a very minimal level of supervision involved.
 It does not suit all workers as they may want or prefer clear guidance and direction;
having a large amount of freedom to make decisions can worry some workers.

Situational leadership (AO3)

different situations require different management styles, i.e. there is no “one size fits
all” model of management that is effective. Instead, Fiedler argued that the most
preferred style depends on the situation and various factors.
 Advantages of situational leadership
 It recognises that effective leaders have to be adaptive, rather than rigid in their
leadership style
 Situational leadership is possibly the most practical of leadership styles as it applies to
almost all business organizations
 The dynamic nature of the external business environment means that leaders have to
adjust their style to suit different situations and changes in the market.

Disadvantages of situational leadership

 If workers become used to a particular leadership style, they may become disheartened
and unsettled if the leader or manager needs changes their style
 Most people have a preferred or natural leadership style, so changing or adopting a
different style can be difficult and uncharacteristic for them.

Factors influencing management style

Factors that affect the management style that is adopted at any particular point in time
include:

 The task(s) being performed – Successful managers are able to use a laissez-faire
approach when employees are faced with simple, routine tasks that carry no or very
little risk. By contrast, major projects that affect the whole organization (such as a
takeover or relocation) will require a more authoritarian and hands-on approach.
 The subordinates – Effective managers will adjust their style based on the number of
staff they are dealing with and the temperament of their staff. The skills and
experiences of the employees will also be a key factor.
 Organizational culture – Management teams that promote innovative thinking and
collaborative teamworking, such as Google, will adopt a different management style
from organizations that are more systematic and carry out monotonous tasks, such
as sports shoes manufacturers in Vietnam.
 The managers themselves – People adopt different management styles based on
their individual preference. The preferred style is likely to be affected by factors
such as: experience, emotions, habits, values, attitudes and personal motivation.
 Time constraints – Highly urgent projects that have a tight deadline may well require
a different management style to small-scale projects that are less imminent.
Table 1 - The differences between managers and leaders

Management activities (roles and Leadership activities (roles and

responsibilities) responsibilities)

Getting things done right Doing the right things

Task orientated Seeing the bigger picture and strategic

 thinking

Focusing only on the most important

Managing day to day issues and problems
things

Fixing things Communicating a purpose and vision

Looking after the basics (routine tasks) Taking risks

Planning Motivating, inspiring, and influencing

Delegating Challenging the status quo

Scheduling Managing talent

Reporting Developing staff/personnel

Coordinating Giving direction

Checking Building trust

Gives directions (tells) Asks strategic questions (sells)

Has official subordinates Has inspired followers

Reacts to change Creates change

The various roles of leaders and senior management can be remembered by DOC
PROBS, which stands for:

 Directing
 Organizing
 Coordinating
 Planning
 Reporting
 Objectives (setting goals and holding people accountable for their efforts towards
achieving these)
 Budgeting, and
 Staffing.

 Unit 2.3 - Glossary of key terms: Leadership and management



Key term Definition

Autocratic Management style that involves centralised and

management autonomous decision-making, without input from others
(leadership) in the organization.

Democratic
Management style that actively involves the participation
management
of employees in the decision-making process.
(leadership)

Laissez-faire
leadership A hands-off approach to leadership by devolving decision-
(management) making power to the workforce.

Paternalistic Management style that involves treating workers as

management family members, so managers make decisions believed to
(leadership) be in the best interest of the workforce

A relatively long approach to management based on

Scientific
objectivity, facts, and empirical evidence. This approach
thinking
to management and leadership follows a formal and
(management)
prescribed procedure.

Leadership style that requires leaders to change and

Situational
adapt their approach in response to different situations
leadership
and circumstances.

Peter Drucker’s framework for setting organizational

SMART
objectives, which must be specific, measurable,
objectives
achievable, realistic, and timely.

2.4 Motivation and demotivation

Taylor's scientific management theory of motivation (AO3)
he argued for a command and control approach whereby workers follow the orders given to
them. He believed in measuring, monitoring and controlling efficiency and productivity
levels in the workplace.
Taylor argued that the main reason why people work is money He believed that there
should be a higher financial reward for more hard-working and productive workers. In this
case, scientific management means using differentiated piece rate (differentiated
compensation) to motivate workers to be more efficient and productive. Such a payment
system rewards those who meet or exceed targets.

Maslow’s hierarchy of needs (AO3)

He discusses how people are motivated by different levels or categories of needs.

According to Maslow (1943), needs are people’s unfulfilled physiological and/or
psychological desires. The model suggests that only when one level of needs is met is it
then possible for the next level to be addressed. Maslow split these needs into two
different categories:
 Lower order needs (or deficiency needs): physiological, safety, and social
(love and belonging) needs. These needs must be met to prevent dissatisfaction
or unhappiness.
 Higher order needs (or growth needs): esteem and self-actualization needs.
Meeting these needs help to provide a person with a genuine sense of being
complete, contented and overjoyed.
The five levels of needs in Maslow’s model are explained below. Maslow stated
that a particular need that is satisfied will no longer motivate people’s
behaviour or productivity. He also states that a need higher up in the hierarchy
cannot be met until the preceding lower-level need is satisfied.
 Physiological needs (also known as basic needs) are the requirements for
human survival. These are the combination of people’s physical and biological
needs, irrespective of age, race, social-economic status, and other factors.
Physiological needs are so significant to people that they must be met first.
Improved financial reward systems and working conditions can help people to
meet these basic needs.
 Safety needs (also known as security needs) are the requirements that make
people feel safe, such as job security. In the every day sense, physiological needs
are the essential things that all human beings must have in order to survive, such
as food, clothing and shelter. These physiological needs appear at the bottom of
Maslow’s hierarchy of needs. In a business context, this means the assurance
(confidence) given to employees that they will keep their current job for the
foreseeable future. Factors affecting job security include a worker's performance,
financial success of the business, employment legislation and the current
 economic climate. However, firms can address safety needs, to some extent, by
using contracts of employment.
 Social needs (also known as love and belonging needs) refer to the
requirements about being accepted by others. Hence, this refers to the social
needs of people. In the workplace, social needs can be met by creating
opportunities for team working and having social facilities or functions. A
mentoring or coaching system can also help to improve working relationships.
 Esteem needs refer to the desire of people to feel respected, having value and
having self-respect. Intrinsically, self-esteem exists when people are able to feel
good about themselves, as they feel valued by others. Extrinsically, esteem
needs can be met by genuine recognition, acknowledgement, trust and respect
from others.
 Self-actualization occurs when people become the very best that they can be,
i.e., fulfilling their full potential Being the highest level in Maslow’s hierarchy of
needs, self-actualization exists a person is able to fulfil their true potential.
However, critics of Maslow’s theory of motivation argue that people are not
necessarily motivated in the same way, so the levels of needs do not apply to
everyone in all contexts

Herzberg’s two factor theory (motivation-hygiene theory) (AO3)

Herzberg argued that in order to create any motivation in the workplace, it was essential to
first remove the factors that cause dissatisfaction. He named these influences hygiene
factors (also known as maintenance factors or job dissatisfiers). These are lower level
needs of people in order to meet their physiological needs.
Importantly, improving hygiene factors simply prevents dissatisfaction but does not boost
morale or motivation in the workplace. Herzberg considered wages and salaries as hygiene
factors because all workers expect pay (wages and salaries) for their input in the
production process. It takes more than just wages and salaries to keep workers satisfied in
the workplace.
Working conditions (or the working environment) refers to the physical and intangible
conditions of the workplace, such as the physical work environment of factories or the
hours of work for office workers. A good working environment is important for the physical,
mental and emotional health of the workforce. According to Herzberg, the working
environment is a hygiene factor that must be addressed to prevent dissatisfaction at work.
A pleasant and well-resourced workplace will help employees to feel more comfortable at
work, thereby boosting their morale.
Motivators (also known as growth factors) are the factors that define the job context.
Herzberg defined motivation as “the will to work, due to enjoyment of the work
itself”. Unlike F.W. Taylor, F. Herzberg suggested that satisfaction in the workplace does not
come from extrinsic factors (such as pay or salaries) because these become the norm as
an expectation. Instead, these are higher level needs of people in order to meet their
psychological needs.
Herzberg argued that the work itself (the nature of the job) provides workers with
opportunities for psychological growth. Motivation occurs by enhancing motivators, such as
recognition, responsibilities, and opportunities for personal advancement.

Herzberg’s two-factor (motivation-hygiene) theory:

Hygiene factors Motivators

Company policies Achievement

 Conditions of employment Advancement

Job security Challenging work

Pay (wages and salaries) Decision making

Relationship with colleagues Nature of the job

Relationship with
Opportunities to improve
management

Status Personal growth

Supervision Purpose

Treatment at work Recognition (of achievement)

Working environment Responsibility

2.4 motivation and demotivation:

Types of financial rewards (AO2)

Financial rewards are the set of pay structures and monetary payments within an
organization. Managers need to consider financial rewards in a balanced way – they need
to ensure the payments are sufficient to attract and retain staff, but not excessive (which
would harm the liquidity position of the organization).
Salary (AO2)

A salary is a type of financial payment rewarding staff a fixed annual amount of money,
but paid monthly. Hence, salaried workers do not receive any payments for working
overtime. For example, the vast majority of teachers are paid salaries, so are rewarded a
fixed amount each month, irrespective of how many hours they work.
During some months, they have more commitments (such as overseas school trips, mock
exam marking or parents consultation evenings), but they will have fewer lessons to teach
at other times (during the examination periods, for example). However, these salaried
teachers are paid the same amount each month during the year.
Salaries provide stability (a sense of security) for the workers. However, salaried workers
may feel aggrieved during busier periods when extra work is not remunerated with extra
pay.
Wages (time and piece rates) (AO2)

Wages are a type of financial reward payment system based on time or output. Wages are
paid as time rate (hours) or piece rate (output). Time-based payment systems reward
workers based on their time input in the production process, e.g. $10 per hour. Many
countries impose a national minimum wage - the lowest hourly pay, as stipulated by the
law, that employers can remunerate their workers.
Piece rate payment systems reward workers with wages based on their output or
productivity, e.g. $9 per exam paper marked by an examiner. F.W. Taylor advocated the use
of differentiated piece rate to reward workers who are more productive, e.g. workers
might be paid $3 per unit produced up to 100 units of output but then receive $4 per unit
for each item made thereafter. Although piece rate can improve staff motivation, it can
create unnecessary conflict and competition between employees.

Commission (AO2)

Commission is commonly used to reward real estate agents

Commission is a type of financial payment system that rewards workers a certain
percentage of the sales of each good or service that they are responsible for completing.
Thus, commission is used to encourage workers to sell more products. It is a common
financial payment system used to motivate sales staff to increase their productivity, such
as retails sales staff, real estate (property) agents, car sales personnel, stockbrokers,
and insurance brokers.
However, commission can be harmful to team cohesiveness if it encourages unhealthy
competition between colleagues and can cause a hostile culture in the workplace. For
those who qualify for commission, most businesses will also pay their workers a base
salary.

Profit-related pay (AO2)

Profit-related pay is a type of financial reward system which remunerates workers a
certain percentage of the annual profits that the business earns. It is rewarded on top of an
employee’s normal pay (wages or salaries). In many organizations, profit-related pay is
given if employees meet profit targets set for that year. For example, businesses in the
Philippines back in the 1970s pioneered the tradition of paying workers a 13th month
bonus - extra pay that is typically equal to one month's salary if, in general, the business
meets its annual profit target.
Profit-related pay creates incentives for workers to be more productive, and to work
cohesively in order to meet the profit targets. It can also be used to create employee
loyalty, as senior staff may earn a higher percentage or amount of the profits.
However, this financial reward system can be costly to a business, as profits are shared
with employees. In addition, it can be rather demotivating if workers narrowly miss their
profit targets (especially if these were unrealistically high in the first instance).
Employee share ownership schemes (AO2)

An employee share ownership scheme is a type of financial payment system that

involves giving workers shares in the company they work for. This comes in two main
forms:
 The company gives employees a number of shares, freely without any charge.
 Employees are offered the opportunity to purchase shares at a discounted price.
Share ownership schemes result in the employees becoming shareholders in the company,
so they have a direct financial stake in the business. This makes employees part-owners of
the company and creates incentives for them to earn a profit for the organization. This is
because the greater the profits earned by the company, the larger the dividends payments
will be for them as shareholders of the business. In addition, shareholders can benefit from
capital gain if higher levels of profit result in the company’s share price going up.
Share ownership is also used as recognition of the value the employees have to the
company. They may be given for performance and/or employee loyalty. However, share
ownership schemes can be expensive for the company and dilute ownership (as there are
more shareholders in the company).
Fringe payments (AO2)
Fringe payments (also known as fringe benefits or perks) are financial benefits of a job
in excess of the basic pay (wage or salary). Examples of fringe benefits include:
 maternity and paternity leave*
 meal allowances
 medical (healthcare) insurance
 pension contributions
 staff discounts

Fringe benefits are considered to be financial benefits because such methods would cost
money for the employer. Employees would ordinarily have to pay for many of these items
too if they were not provided by the employer. Essentially, fringe benefits are paid for by
the business (so are considered to be costs to the organization).
Some businesses uses gratuity pay as a form of fringe benefits. This refers to the use of
financial rewards for workers who complete a substantial employment contract or in
recognition of an employee's long-term service.
Businesses provide fringe benefits as a form of financial motivation. However, there are
also tax benefits as some fringe benefits are exempt from tax. Businesses such as Google
offer a wide variety of attractive fringe benefits, which helps to build a better corporate
image as caring employers.

Types of non-financial rewards (AO2)

This section of the syllabus looks at various methods of non-financial motivation in the
workplace. Non-financial motivation is based on intrinsic motivation, i.e., motivation that
comes from within and is driven by personal satisfaction, passion, and a sense of
accomplishment. This contrasts with financial rewards, or extrinsic motivation, which
refers to motivation driven by external and tangible rewards like pay, bonuses, or perks.
While tangible rewards can provide short-term motivation, fostering intrinsic motivation
through meaningful work and a sense of purpose is often more sustainable and fulfilling for
teachers. These are specified in the guide as follows:
 Job enrichment
 Job rotation
 Job enlargement
 Empowerment
 Purpose/the opportunity to make a difference
 Teamwork
Job enrichment (AO2)
Job enrichment is about enhancing the experiences of workers, giving workers a wide
range of challenging tasks and more responsibility at work. This entails more training,
upskilling and encouraging workers to take part in decision-making. Workers are involved
in a wider variety of tasks, which require new skills.
Job enrichment helps to build employee confidence, competence and a sense of
achievement in the workplace. Hence, employers gain from a more motivated and skilled
workforce. However, job enrichment has cost implications for businesses - namely the
costs of training, developing and upskilling workers.
Advantages of job enrichment Disadvantages of job enrichment

Gives employees additional challenges to Employees may feel pressured by taking on

enhance their self-worth and esteem additional roles and responsibilities

There may be disputes about appropriate

Encourages employees to be more
remuneration (financial and non-financial)
proactive and productive
for the extra responsibilities

It is not appropriate for many job roles or

Extra tasks could lead to future promotion
unskilled workers

In can be costly to create incentives for

Employees feel recognised, especially if
employees to embrace job enrichment,
appropriately rewarded
e.g., training costs

Job rotation (AO2)

Job rotation is an operational management technique and form of non-financial
motivation that involves workers switching between jobs (tasks) for a period of time. For
example, a supermarket employee might operate the tills at the checkouts for a couple of
hours, before switching to stacking shelves and then working in the bakery or delicatessen
departments.
Job rotation is considered to be a type of non-financial motivation system as it broadens
the range of job roles, activities or tasks that a worker gets involved with. It helps to spread
the range of skills and expertise within the business. Job rotation creates greater variety of
work for staff, so their job is less monotonous and repetitive. On the contrary, workers are
more flexible and adaptable.
However, a potential drawback of job rotation is that labour productivity might fall,
especially if workers have to perform too many jobs. In addition, there is the greater
demand for staff training, which can be both time consuming and expensive.

Advantages of job rotation Disadvantages of job rotation

Can help to reduce boredom and monotony Increased burden as workers need to learn
from overspecialization and take on additional roles

Upskilling of staff helps to make it easier to Higher training costs to ensure employees
cover for absent colleagues are upskilled

Some employees see this as merely adding

It enables the employer to benefit from a
to their workload, especially without
more widely trained workforce
remuneration
Recap your understanding of job rotation and job enrichment by watching this short video.
The video transcript can be read by clicking in the icon below.
Job enlargement (AO2)
Job enlargement
Job enlargement is a type of non-financial motivation that takes place when more tasks
or activities are added to a worker’s job description. These tasks are usually of a similar
level of skill, which is why job enlargement is sometimes referred to as horizontal
loading. Job enlargement gives workers greater variety in their jobs, thereby reducing the
boredom associated with the nature of repetitive tasks.
Note: although job rotation and job enlargement are used to prevent boredom, they are not
necessarily enriching experiences for workers.

Advantages of job enlargement Disadvantages of job enlargement

Can reduce productivity as workers may

Ccan help to prevent boredom with
be less efficient at completing a whole
repetitive tasks
task

Increased workloads may become

Uskilled workers gain a variety of skills
unmanageable or unsustainable for some
which helps to increase productivity
workers

Workers gain additional skills and Some workers may see this as a way to
experiences, which can improve their career get them to perform more tasks but for
prospects the same pay
Recap your understanding of job rotation and job enlargement by watching this short
video.
The video transcript can be read by clicking in the icon below.
Empowerment (AO2)

Empowerment is the delegation of decision-making power to workers, thereby helping to

boost their morale. It involves granting workers the autonomy and authority to be in
charge of their own jobs and to execute their own ideas. It is a type of non-financial reward
system because it involves giving workers more responsibility and independence to do
their jobs. By contrast, employees are not empowered if they have to follow strict and
countless instructions and procedures set by the company.
Empowerment can have positive impacts on motivation as it encourages independent
decision making (autonomy under Deci & Ryan's motivation theory), and being able to take
ownership and responsibility for the outcome of their work. It shows that line managers
have trust in their subordinates, which can help to boost employee morale and job
satisfaction. Empowerment also enables senior managers to focus their energies on
strategic planning.
Successful empowerment in the workplace requires effective:
 Delegation - The act of line managers entrusting and empowering employees
with authority to successfully complete a particular task, project or job role.
 Autonomy - The ability to make informed decisions in an independent or self-
governing way.
 Employee participation - This means that workers are given responsibilities and
autonomy to do their jobs.
 Continuous professional development (CPD) - Training and learning activities to
enhance the professional practice and capabilities of employees.

.
Purpose (the opportunity to make a difference) (AO2)
Purpose is an intrinsic, non-financial type of motivation because people believe they do
genuinely meaningful work. Non-financial motivation often involves to having opportunities
to make a difference, be it on a personal, professional or social level. Having the personal
drive to make a positive difference is not due to financial incentives, but driven by intrinsic
motivation and working for a good cause. Examples include:
 Doctors, nurses, and other healthcare professionals
 Firefighters
 Police officers
 Teachers and teaching assistants
 Psychiatrists and counsellors
 Charity workers and volunteers.
People in these professions do not necessarily work because of the pay itself, but the
purpose associated with the profession.

Teamwork (AO2)

Teamwork refers to the combined efforts of a group of workers to achieve of an

organizational goal. As a form of non-financial motivation, teamwork can be a rewarding
experience as employees can support each other to achieve a common objective. Being
able to work with others can help to meet social needs (Maslow) and help to build trust,
cohesion and cooperation. Hence, effective teamwork helps to improve job satisfaction,
morale and productivity in the workplace.

For the organization, teamwork helps to maximise group dynamics, as different workers
have different skills, talents, experiences and expertise. Hence, the business benefits from
greater flexibility and improved outcomes. In essence, teamwork divides the input but
multiplies the outcomes.
However, teamworking can also create problems:
 Rivalry between team members can be counter-productive
 Conflict can arise when there are disagreements
 Teamworking does not necessarily suit or motivate everyone.
Types of training (AO2)

Training is the process of instructing and teaching (or mentoring) employees how to
perform certain tasks in their job. It also enables workers to develop their level of skills and
expertise in order to develop their competence in the workplace and to meet the needs of
the organization.
Training is important as it represents an investment in one of the organization’s most
valuable assets. An organization that invests in its people can also benefit from gaining a
positive corporate image. Having a good reputation also helps to attract good quality
employees, thereby helping with workforce planning.

The generic objectives of training include:

 Enabling new or less experienced employees to reach the level of experienced
employees
 Ensuring there is a broad base of skills and expertise available to the
organization to meet the firm’s current and future HR needs
 Developing a knowledgeable, competent and committed workforce
 Building a workforce that can deliver high quality products and services, thus
meeting the needs of customers.

By contrast, businesses that do not invest sufficiently in training their workers suffer from:
 Substandard output
  Lower productivity
 Lower morale from disgruntled staff
 Health and safety concerns
 Higher recruitment costs
 Lower profitability

The interrelated generic benefits of training employees include:

 Increases productivity of the employees as they are trained and upskilled
 Boosts employee morale as they feel valued
 Reduces staff absenteeism
 Reduces labour turnover
 Keeps employees up to date, especially in fast-changing environments and
markets
 Professional growth as training and development help to improve the skills and
knowledge of employees and managers
 Enhanced safeguarding of employees and their welfare through health and safety
training
 Reduces the cost of production in the long run as staff are more knowledgeable,
productive, and motivated.

The main drawbacks or disadvantages of each type of training are covered in the sections
below.

The three types of training specified in the IB DP Business Management syllabus are:
 Induction training
 On the job training
 Off the job training.

Induction (AO2)

Induction, as a type of training, is intended for new employees in order to help them
acclimatise with the people, policies and processes of the organization. This might include
a tour of the campus, meeting key personnel in the organization, and a series of induction
sessions to get accustomed with work practices and expectations in the business.
Induction can also be used to support colleagues who take on a new role within the
organization, such as an internal promotion.

Induction often includes mentoring as part of the training process. Mentoring involves
pairing, or attaching, an employee (the trainee or mentee) with a more experienced
colleague (the mentor) who acts as a coach, trainer or advisor. The mentor provides advice
and support to the less experienced workers in matters related to their roles and
responsibilities at work. The trainee carries out his or her job, but seeks guidance from the
mentor should problems arise.

Advantages of induction training

 Induction helps to welcome and settle new colleagues, thereby improving their
morale (first impressions count).
 It can increase employee commitment and job satisfaction.
 Helps new workers to understands the organization’s values and culture, thereby
enabling the recruits to integrate quickly.
  Appropriate induction training helps new recruits to become productive as fast as
possible.

Disadvantages of induction training

 Induction training takes time and effort to plan and execute successfully.
 New staff can become overwhelmed with the vast amount of new information
they need to retain.
 Managers leading the induction are unable to get their own work done, so this
can overburden line managers too.
On the job training (AO2)
On the job training takes place within the organization so employee are performing work
tasks. Hence, employees do not leave the workplace. Most schools, for example, have
regular continuous professional development (CPD) training opportunities for their teachers
in order to upskill teachers for the latest developments in the curriculum, for example.

Advantages of on the job training

 It is cheaper than using off the job training as in-house (internal) specialists are
used rather than hiring a venue and/or external specialists to provide the
training.
 Training is focused and personalised, as it is targeted to the specific needs of the
employees and organization. Hence, on the job training is directly relevant to the
needs of the organization, whereas off the job training can sometimes be less
purposeful.
 There are fewer disruptions for the organization as the employers are at work, so
can get on with their at least parts of their jobs.
 It can improve professional dialogue between colleagues and create better
professional working relationships.
 For the individual worker, it can increase their level of morale and motivation, as
they are more skilled and gain increased job satisfaction.

Disadvantages of on the job training

 Even though the employees are at work, on the job training can still be disruptive
- while the staff are being trained at learning new skills, their workflow is
interrupted.
 In-house training is often unfeasible as employees may lack the necessary
expertise to run the training.
 Trainees and mentees might take short cuts as they learn the bad working habits
of their trainer or mentor.
 Mentors and trainers cannot get their own work done during the time they deliver
training to other staff. In addition, its take time to plan and deliver training that is
purposeful and effective.
 As with any form of training, there is no guarantee that the employees will
continue to work at the organization once they have been upskilled.

Off the job training (AO2)

Off the job training is training led by external specialists and takes place away from the
place of work. The location or venue is specifically chosen as it caters for the required
training.
Advances in Internet technologies have created more opportunities for employees to
participate in off the job training. For example, online courses and webinars enable
employees to enrol in courses to improve their skills and formal qualifications without the
complexities of making arrangements for travel and accommodation.

Advantages of off the job training

 As the training takes place off-site, off the job training minimises distractions.
This enables workers to focus on their training and learning.
 The training is conducted by specialists and experts, so is likely to be
professionally organized. In addition, the expertise may simply not be available
within the organization.
 It caters for a very wide range of skills and qualifications, such as first aid
training, health and safety, and well-being.

Disadvantage of off the job training

 Off the job training is not always directly related to the job context, so employees
may find this less valuable.
 It is more expensive than on the job training. For example, employers may to pay
for training course fees, travel expenses, insurance and meal allowances.
 There is lost productivity whilst the employees are away from work in order to
attend the training.
 Like on the job training, there is no guarantee that workers who gain new skills
and higher qualifications will decide to stay at the organization, as they may be
more attractive to another employer who is prepared to pay more to hire these
workers.

2.6 Communication
What is Communication?
Communication is the exchange of information between people or organizations.
It involves:
Sender: The person or entity initiating the message.
Message: The information being conveyed.
Medium: The method used to transmit the message (e.g., email, meeting).
Receiver: The person or group intended to receive the message.
Feedback: The response from the receiver, confirming receipt and understanding.

Formal Communication: Structured and Official

Formal communication follows predefined channels and is used for transmitting official
information.
It is often documented and follows a chain of command.
Characteristics of Formal Communication
Structured: Follows a clear format or protocol.
Documented: Often recorded for future reference.
Hierarchical: Follows the organizational structure.
Methods of Formal Communication
Reports: Detailed documents analyzing specific topics.
Meetings: Structured gatherings to discuss and decide on issues.
Official Emails: Professional correspondence for formal matters.
Presentations: Visual and verbal communication to convey information.
Advantages
Clarity: Structured formats reduce ambiguity.
Accountability: Documentation provides a record of decisions.
Consistency: Ensures uniformity in messaging.
Disadvantages
Slow Process: Approval chains can delay communication.
Rigid: Less adaptable to changing situations.
Impersonal: May lack emotional connection.

Informal Communication: Flexible and Spontaneous

Informal communication occurs naturally within an organization without predefined
rules or official channels.
It is often spontaneous, fostering collaboration and quick information exchange.

Characteristics of Informal Communication

Unstructured: Does not follow a fixed format or protocol.
Instantaneous: Allows for quick decision-making and problem-solving.
Relationship-Oriented: Strengthens team dynamics and workplace culture.
Methods of Informal Communication
Casual Conversations: Everyday discussions between employees.
Instant Messaging: Quick, informal digital communication.
Social Gatherings: Interactions during breaks or company events.
Word of Mouth: Spreading information organically within a team.

Advantages
Speed: Information spreads quickly.
Relationship Building: Fosters trust and collaboration.
Flexibility: Adapts to changing situations.
Disadvantages
Inaccuracy: Information may be distorted or incomplete.
Lack of Documentation: No formal record of discussions.
Potential for Misunderstanding: Informal channels can lead to rumors.
Impact on Efficiency and Morale
Formal communication ensures accuracy and consistency, but it can be slow and
impersonal.
Informal communication fosters collaboration and creativity but may lead to
misunderstandings.
Barriers to Communication
1. Imagine a team working on a critical project.
2. The deadline is approaching, but miscommunication leads to duplicated
efforts, missed tasks, and frustration.
What Are Barriers to Communication?
Definition
Barriers to communication Barriers to communication are obstacles that prevent the
effective exchange of information.
They can occur at any stage of the communication process, leading
to misunderstandings, delays, or conflicts.
Types of Barriers to Communication
1. Physical Barriers
Physical barriers arise from the environment or infrastructure.
1. Poor infrastructure: Noisy workspaces or lack of meeting rooms.
 2. Remote work challenges: Difficulty in coordinating across time zones or
unreliable internet connections.
2. Emotional Barriers
Emotional barriers stem from feelings such as fear, distrust, or resistance.
1. Fear of criticism: Employees may hesitate to share ideas.
2. Distrust: Lack of confidence in leadership can hinder open communication.
Technological barriers occur when tools or systems fail to support effective
communication.
1. Outdated systems: Reliance on obsolete technology.
2. Lack of access: Employees without proper tools struggle to stay connected.
4. Organizational Barriers
Organizational barriers arise from the structure or culture of a business.
1. Hierarchical structures: Information gets lost in long chains of command.
2. Excessive bureaucracy: Slow decision-making processes hinder timely
communication.
Impact of Barriers to Communication
1. Reduced efficiency: Tasks take longer to complete due to misunderstandings
or delays.
2. Lower morale: Employees feel frustrated or disconnected, leading to
decreased motivation.
3. Poor decision-making: Incomplete or inaccurate information results in
suboptimal choices.
4. Increased conflict: Miscommunication can escalate tensions between teams
or individuals.
Strategies to Overcome Communication Barriers
1. Addressing Physical Barriers
1. Invest in infrastructure: Create quiet workspaces and equip remote
teams with reliable tools.
2. Leverage technology: Use video conferencing and collaboration platforms to
bridge physical gaps.
2. Bridging Language and Cultural Differences
1. Provide language training: Offer courses to improve fluency in a common
language.
2. Foster cultural awareness: Conduct workshops to help employees understand
and respect diverse perspectives.
3. Overcoming Emotional Barriers
1. Build trust: Encourage open dialogue and create a safe environment for
feedback.
2. Promote empathy: Train leaders to listen actively and address employee
concerns.
4. Tackling Technological Barriers
1. Upgrade systems: Invest in modern communication tools that meet the needs
of your workforce.
2. Provide training: Ensure employees are proficient in using new technologies.
5. Reducing Organizational Barriers
1. Flatten hierarchies: Encourage direct communication between different levels
of the organization.
2. Streamline processes: Minimize bureaucracy to enable faster decision-
making.