PRODUCTION MANAGEMENT SKILLS

Production refers to the activity aimed at bringing a physical change in a good or

service (product) so as to make it useful. It is an activity that results in the creation
of goods and services for the satisfaction of human wants.
Production management is the process of planning for production and ensuring
your production plans are put into efficient operation.

A product may be defined as a set of tangible, intangible and associated attributes

capable of being exchanged for value with ability to satisfy consumer of business
needs.

The product concept

To clearly understand a product, one needs to view the product from three different
levels ie the actual product, the core product and the augmented product.

Actual product. This is the physical product defined by its design, packaging, quality
and brand name.
Core product. This refers to the benefit of a product that actually satisfies the
customers need.

Augmented product. This refers to the additional consumer service and benefit built
around the actual and core products.

TYPES OF PRODUCTS

Products are classified in various ways and they are normally divided into tangible
and intangible products.

Intangible products (non – material goods). These refer to the services that can
be used to satisfy human wants. Examples of intangible goods include the services
offered by a teacher, a doctor, a lawyer etc, transport, banking services and others.

Tangible products. These are products which are physical and can be seen. Tangible
products are divided into durable goods and non – durable goods.

 Non – durable goods. These are products designed to last a relatively short
period of time. They are goods whose capacity to satisfy human wants ends after
giving use. Examples of such goods are perishable items like milk, bread and
vegetables.
Durable goods. These are products designed to last a relatively long period of
time. They are goods capable of giving longer service, durable goods are usually
physical and reusable in nature and they normally depreciate over time. Examples
of durable products include refrigerators, furniture, cars, radios, televisions etc.
Durable goods are further sub divided into two ie consumer goods and producer /
industrial goods.

Consumer goods. These are goods that are consumed / used by consumers as
final users. Consumer goods are meant for immediate consumption and they
include goods such as home applications like refrigerators, goods bought on a
daily routine such as sugar, bread, salt, clothes, shoes, jewelry and services etc.
 Producer / industrial goods. These are goods that are used as inputs for further
processing or for use in doing a business activity. They help the producer to
produce consumers’ goods. Examples of producer goods include raw materials
used in the production process capital items like industrial machinery and
equipment, vehicles for use in business like delivery vans and supplies like office
stationery.
Elements of a product

Elements of a product refer to the attributes / features or characteristics which make

a product different from others. They are the techniques used by entrepreneurs to
make their products unique. Every entrepreneur should strive to make his/ her
product different from others so as for him / her to be able to market it. This can be
done through various ways normally referred to as elements of a product and they
include the following
Branding. This refers to process of making a product different or distinct from others
by giving it a name that will be known and remembered by customers. It is a name
intended to identify products of an entrepreneur and to differentiate them from those
of other competitors. For instance, branding makes Close up to be different from
Delident although they are all tooth paste.

Product design / shape / model. Design includes the style of the product, its
shape, safety, simplicity and economy. Entrepreneur should always strive to design
their products to look different from those of the competitors so as to make them
appealing to customers. For instance cameras, cars, computers, mobile phones etc
come in different types. However, each has been designed differently to appeal to
customer needs.

Packaging. This involves defining what the package should be for a particular
product. One should consider the nature of packaging materials to ensure that the
design of the product conforms to the planned packaging materials. Packaging helps
to promote or protect the product.

Labeling. Usually, products are labeled with a view of identifying a particular brand.
Entrepreneurs should strive to label their products differently for easy identification
purpose. Labeling can be done through bar coding, use of unique colours, logos, trade
mark, symbols

Product distribution. This involves making the product conveniently more available
by a firm than its competitors

Methods of sales promotion. Entrepreneurs use unique techniques to promote

their sales e.g unique pricing of products.

Technology used in production. Entrepreneurs normally use unique methods of

production that come up with quality output than their competitors

Blending. This involves combining varieties or grades to obtain a mixture of a

particular character, quality or consistency e.g blended tea leaves, tobacco etc

FACTORS CONSIDERED WHEN DESIGNING / DEVELOPING A PRODUCT

 Development of a product in relation to customer’s needs. The entrepreneur /

producer uses product attributes like shape, colour texture , brand name ,
durability , quality etc. that are appealing to his / her customers
 Availability of raw materials to be used for making products. The entrepreneur
designs a product that can easily be made using readily available raw materials
and costs that will leave him / her with a profit.
 Compare your products with competitors’ products. You should decide whether to
produce exactly the same products as of your competitors or producing a different
and better product than those of competitors
 Government policy on product design. The entrepreneur should design a product
that meets the set regulatory bodies like Uganda National Bureau of Standards
 (UNBS), National Environmental Management Authority (NEMA) and other
government policies
 Nature of potential market. An entrepreneur should consider the type of
customers to whom he expects to sell the products like their age, gender and
income bracket etc
 Duration / life span / shelf life of the product. An entrepreneur should consider a
life span of his products so that the materials used in making it can fit in the
desired time of the product before its consumption
 Quality should also be considered right from the production process up to the sale
of the product as consumers will always run for a product with a better quality
 Technological skills required for products, this normally applies in the production
process, as entrepreneur should ensure that the skills required in designing a
product are applied well so as to achieve the required finished product
 Features of the competing products. This activity requires the entrepreneur to
identify the products of potential competitors, analyze their strengths and
weakness that are likely to cause impact on his / her intended product. This
analysis enables the entrepreneur to develop a product better than those of his /
her competitors

CAPACITY PLANNING AND DESIGN.

Refers to the factors and operational ingredients needed to produce the targeted
number of units of a product / service. These factors included
 The physical capacity needed
 Equipment and tools required
 The amount of labour demanded
 The time projected to produce the total number of products or services
 The amount of raw materials and suppliers needed
PRODUCTION PROCESS
This is how the business intends to produce the desired goods and services. It
involves carrying out the following activities
Market research. This involves funding out the potential customers opinions about
the product to enable the present and future decision making

Developing a product idea, this involves planning the shape, size, colour etc of the
product to be produced

Translating a product idea into a product design

Sourcing raw materials, an entrepreneur obtains the raw materials necessary for
production of a particular product

Carrying out actual production while observing the quality standards, this
involves transforming the raw materials into finished products

Packaging the product, this involves wrapping the product produced and
compressing it to protect it against pilferage, pouring and contamination
Branding the product, this involves labeling the products as well as including
distinguishing features from similar products of other producers

Storing the product, the product is then stored in good place with good storage
conditions that do not tamper with the product’s quality

Distributing the product, this involves offering the product for sale to customers.
It includes all activities that enable the product to reach the final consumer

Making a follow up with customers to find out how the product is performing in
the market

Making any improvement desired. After obtaining feedback on quality from the
customers, an entrepreneur makes improvement of the product.

FACTORS AFFECTING PRODUCTION DECISION

Facilities and organisations. Efficient production facilities like equipment promote

more production while inefficient ones discourage production.

Sale potential. High turnover encourages high production levels while low sales
discourage production.

Production cost. High production costs limit production while moderate production
costs encourage production.

Sales promotion and growth. Increased in business market share encourages

more production while declining number of customers limits production.

Money requirements. Existence of money to buy the required inputs encourages

production while absence of such limits production

Labour requirements. Existence of labour with required skills encourages

production while absence of such limits production.

Supply sources. Reliable suppliers promote quick production while unreliable ones
discourage quick production.

Transportation. Good transportation encourages production while undeveloped

transport network discourage production.

Acceptance by community. A community that buys goods produced by the

business encourages high production while unsupportive communities towards
business products discourage production.

Legal requirements. Tight production requirements by government on business

limit output while friendly measures promote production.

PURCHASING SKILLS
Purchasing means production supplied with required goods and services at the right
time and at the right price from the right supplier. Purchasing is done in accordance
with the requirements of a business either for the production and operational process
or trading.

PRINCIPLES OF PURCHASING

The main principles of effective procurement / sourcing of raw materials in businesses

include

Right quality. The person purchasing should be able to determine the right quality
of materials needed. The quality of any raw materials comprises of the features,
which are relevant to its ability to meet a given need.

Right quantity. The right quantity of purchases to be made depends on the level of
stock an entrepreneur wants to maintain, availability of finance purchases and other
costs, the consumption rate of the raw materials in terms of time and quantity.

Right price. This is not necessarily lowest price but should be the lowest price
consistent with the quality specifications to leave the entrepreneur with a profit.

Right time, proper timing of purchase is important to avoid excessive stock and
stock out problems. The entrepreneur should consider the lead time, the minimum
stock in the store room, the place of buying materials and the mode of transport.

Right place. Raw materials should be received and stored near the factory as
possible in order to minimize the cost and time involved in issuing and carrying them
to the factory.

Right source. A source refers to the supplier or vendors of materials. Selection of

right source is essential for getting the materials of right quality and quantity at the
right place and the right time.

PROCEDURES FOR PURCHASING GOODS/ RAW MATERIALS AND EQUIPMENT

Determining the business needs. This is done through conducting market surveys
in order to know who the business customers are as well as establishing their wants.
This enables the business to know how much to stock, the materials and equipment
it needs to produce goods for sale to customers.

Identifying potential suppliers. This involves finding out the different suppliers to
sell the materials needed by the business. This can be done by asking friends,
contacting media or business support organisation.

Contacting suppliers. The entrepreneur contacts different suppliers either by

visiting their offices personally or using cost- effective means of communication. The
aim is to get information regarding the kinds of goods, raw materials or equipment
each supplier can provide.
Selecting the best suppliers. The entrepreneur compares the quotations received
from various suppliers and selects one with the most favourable terms and conditions
in terms of price, discounts, credit, reliability etc.

Ordering for goods. Having chosen the best supplier the buyer then places an order
requesting for the supply of a particular item. An order can be filled by filling a pre-
printed form. Writing an order letter or by verbal ordering where the buyer goes to
the supplier and orders for a commodity by a word of mouth.

Checking the goods as soon as they are received. This involves checking the
delivery note to ensure that it corresponds with the ordered goods. Goods which got
damaged during the transportation are isolated and excluded.

Checking the invoice for accuracy by comparing it with the delivery note.

Making payments either by cash or cheque and a receipt should be issued to

acknowledge receipt of cash by the supplier. The entrepreneur / buyer should ensure
that a receipt is issued to acknowledge receipt of cash by the supplier.

PURCHASING OF RAW MATERIALS

Raw materials refer to basic materials from which products are made through a
transformation process. Raw materials may be natural or artificial. Examples of
natural raw materials include cotton for cloth, timber for furniture and clay for bricks.
Artificial raw materials include plastics, nylon and tar.

FACTORS CONSIDERED WHEN SELECTING THE RIGHT SUPPLIER OF RAW

MATERIALS

Terms and conditions of payment. Suppliers have got different terms and
conditions of payments. For example some can supply goods only on cash basis;
others can deliver / allow credit terms while others can allow the buyer to get goods
on hire purchase or differed payment. Some suppliers can also offer discounts such
as cash and trade discount. The entrepreneur therefore selects a supplier whose
terms and conditions are favourable to him / her.

The lead time. This how long it will take to order and receive goods needed.
Entrepreneurs usually choose a supplier of raw materials whose lead time is short so
as to avoid stock outs of raw materials and loss of customers to other competitors.

Distance from the supplier and mode of transport to be used. An entrepreneur

selects a supplier who is not too far or where the transport system is efficient and
effective to avoid delivery delays.

Communication with the supplier of raw materials. Most entrepreneurs select

suppliers whom they can communicate to easily so that whenever raw materials are
required, the supplier can and easily be accessed.
Quality of materials supplied. An entrepreneur selects a supplier who persistently
offers items of good quality approved by the National Bureau of Standards in order
to come up with qualitative finished goods.

The price at which the supplier is selling the product. This is normally done
through comparing suppliers. Entrepreneurs will always move in for low cost suppliers
of quality goods.

The ability of the supplier to supply the requirement of the business. The
entrepreneur selects a supplier who has the capacity to supply enough and sufficient
quantities whenever required.

Taxes and regulatory procedures in the purchase and delivery of goods.

Normally, taxes make products more costly (they increase the cost of the product).
For that matter therefore it is always very important for the entrepreneurs to look for
the source of goods / suppliers who are located in a country where regulatory
procedures are not so tight or where taxes are low or not levied.

Consistency and reliability of a supplier. This involves looking at the lead time
and the supplier’s ability to supply goods required whenever they are required for.

Quantity required by the entrepreneur. Entrepreneur select suppliers basing on

the level of stock of raw materials they want to maintain as well as their consumption
of materials per production cycle.

Amount of waste from the production process. Businesses prefer to use raw
materials that produce fewer wastes to those that produce many waste.

PROCESS OF ORDERING FOR GOODS AND SERVICES OR ACITIVITIES

INVOLVED IN ORDERING SUPPLIES

Identifying the goods and services required. Here the business from its needs
is able to identify the required goods and services.

Sending inquires to possible suppliers. This is done together with accompanying

documents like drawings and specifications which enable the supplier to quote.

Receiving a quotation which is the response to inquiries. This will be

accompanied by the price list, catalogue samples, quality delivery and other terms of
the supplier

N.B a quotation refers to a document which is prepared by the potential supplier and
sent to the buyers stating information about most of things which have been inquired
for in a letter of inquiry e.g prices, lead time, delivery terms etc.

Placing an order to the supplier whose quotation has been accepted. A copy
of the order is always retained for reference purposes.

N.B. a purchase order is a document requesting to be supplied with the goods already
quoted
Receiving goods delivery note. This refers to the document that accompanies the
goods supplied. The purchaser signs the document after delivery.

Receiving the dispatch note. This is normally given at the time when goods are
being dispatched. It is expected to be sent separately and is expected to reach the
purchaser before the arrival of the goods. It is therefore informs the purchaser that
the goods have been dispatch and are on the way. This gives him a chance to prepare
his store room in advance or make arrangement for sale of the old stock.

Receiving an invoice. This is a demand note. Once the delivery note has been
received, checked and signed by the purchaser. The supplier is expected to prepare
an invoice which indicates the balance due. The invoice actually shows that goods
have been delivered on credit.

N.B. the following should be observed when receiving goods and services purchased

 Check quality and quantity against order

 Check delivery document against order
 Check for any damage
 Reject deliveries that do not conform to the order
PURCHASING PLAN

A small entrepreneur has to appreciate the critical importance of purchasing.

Purchasing is not merely a matter of buying. It proves to be a linking element
between the major function

When purchasing the following should be needed

 Determine the proper quality of each item needed

 Establish and follow quality standards
 Ensure on time delivery of items needed
 Purchase at the right value of the quality of items bought
SELCTION OF RAW MATERIALS
FACTORS TO BE CONSIDERED WHEN SELECTING RAW MATERIALS FOR A
MANUFACTURING FIRM
Source of raw materials, ie from where the raw materials for the business can be
acquired from. An entrepreneur selects a reliable, nearby and cost effective source
so as not to affect the profitability of the firm.

Cost of raw materials. An entrepreneur selects raw materials that are relatively
cheap and affordable since high cost materials will reduce the profits of the business.

Quality of raw materials ie the raw materials should be of good quality in order to
produce quality products that are needed by customers.

Terms and conditions for purchase, ie an entrepreneur selects favourable terms

to the business like whether they involve cash or credit for instance most
entrepreneurs would wish to select raw materials where suppliers offer it on credit
and even discounts due to bulk purchase.
The lead time, ie how long it takes for the supplier to deliver the raw materials
ordered for, entrepreneurs tend to select reliable suppliers who can deliver raw
materials within the shortest time possible.

The amount of raw materials needed or used per production cycle ie the
amount of raw materials should correspond with the amount of goods to be produced
per production cycle.

Availability and reliability. A manufacturer selects raw materials that are available
whenever he/she needs them.

Risk of damages, businesses use raw materials that are less likely to get damages.

Amount of waste, businesses prefer materials that produce little waste.

Amount of raw materials to be maintained in inventory, this depends on the

business policy and the rate at which the goods produced are bought. For goods that
are bought immediately an entrepreneur stores more raw materials to enable
continuous production and for slow moving goods fewer raw materials are maintained
in sock.

CONCEPT OF INVENTORY

Inventory refers to good/ stock that are held by a firm for eventual sale

Or inventory refers to the stock of goods held in the business at a given period of
time

TYPES OF INVENTORY

Raw materials: these are goods used in the course of production to produce other
goods for consumption. They are goods which have been received by the business
but not yet committed to the production process.

Work in progress / process (semi – finished goods): these are goods which are
still in the production but are not yet completed.

Finished goods: these are goods which have been completed and gone through the
production process waiting for sale to customers.

Goods under repair: these are goods that may be damaged during the process of
production or distribution and need repair.

Office supplies: these are materials which are used to support the production
process for instance stationery, cleaning materials like soap or detergents.

NEED FOR INVENTORY

It is necessary to hold some inventory both for a manufacturer as well as a trader so

that production and sales can continue uninterrupted. The specific benefits of holding
inventory may include.
 To avoid loss of sale, By holding inventory, a business firm can avoid sales losses,
which may occur because goods are not available when demanded by customers.
To reduce ordering costs, cost of placing orders e.g typing, mailing etc can be
reduced in a firm. A firm places a few large orders instead of several small orders.
To achieve efficient production run. Holding enough inventory protects against
shortage of raw materials that may either delay or halt production due to no
availability of materials.
COSTS OF HOLDING INVENTORY

Several costs and risks are involved in maintaining inventory. They may include

Material costs. This includes the costs of purchasing the goods, transportation and
handling charges less any discount allowed by the supplier of goods.
Ordering costs. It comprises of cost of placing orders for purchase of raw materials
and components. The fewer the orders, the lower the costs.
Carrying costs. These are composed of expenses for storing the goods e.g
insurance, cost of funds tied up in inventory, spoilage costs, decline in price of
goods etc.
INVENTORY CONTROL/ MANAGEMENT

Inventory control refers to the system which ensures that the right quantity and
quality of the inventory required is supplied at the required time without unnecessary
investment in inventory. It includes control of raw materials; semi-finished and
finished goods, office supplies and goods under repair.

Reasons for proper management of inventories in business / objectives on

inventory management

To maintain adequate so as to avoid production stoppage, loss of customers and

revenue to competitors.
To avoid excessive investment in inventory ie to avoid tying up a lot of working
capital in investment.
To reduce stock losses while in stores through theft, expiry of products, damages,
unauthorized use, pilferage etc.
To relieve management on excessive supervision of inventory.
To minimize storage costs in terms of rent.
To encourage proper accountability for the goods which have been purchased as
issued
To allow flexibility in production scheduling as well as marketing. This is possible
through ensuring that inventories are available whenever required for production
or for sale
To ensure efficient use of raw materials
To ensure timely replacement of raw materials for production of products for sale.
Inventory management helps and entrepreneur to ensure that inventories are
available whenever required for production or for sale
 To meet demand fluctuation and avoid expensive and embarrassing stock out.
through ensuring that inventories are available whenever required for production
or for sale.
Tools for inventory management

Re-order level. It refers to the minimum level below which the stock should not fall
before fresh (new) orders are placed. This technique reminds the entrepreneur to
place fresh / new orders because the stock is running out.

Lead time. This refers to the time it takes from when one places and order for goods
and when the ordered goods are received.

Working capital. This is the amount of money used to buy stock for a given business
or to meet daily financial operating needs of the business. Working capital helps the
entrepreneur to meet the day to day operations. In case an entrepreneur has a small
working capital then he/she has to place small but many repetitive orders.

THE CONCEPT OF STORE MANAGEMENT

Store refers to places where stock of raw materials or goods are kept before they are
sold or dispatched to business which ordered for them

Stores are important because they help to protect the stock of raw materials or goods
from getting spoilt, damages or stolen. It is therefore important that a business
manages its stores properly so as to avoid losses through theft, damages,
unauthorized use, expiry etc

Tools for effective store management

Stock cards. These are cards used for recording stock received and issued in the
store. Stock cards normally show amounts of goods available in store, the date when
goods have been issued.

Stock requisition and issue form, a stock requisition and issue form refers to a
document that shows details of goods being requested for the corresponding need,
the issues under this technique, the person in need of goods fills it and gets if
authorized by the responsible person / store that against receiving the form issue
them.

Physical and stock counting. This refers to the counting of stock physically to find
out what is available in store and cross check to what is expected to be there as per
the stock cards.

Stock reconciliation. This refers to the process of updating and balancing all the
records regarding what is in the store so as to give a true record and then checked
to what is physically in the store. This technique helps the entrepreneur to decide
whether to order for more goods or not.
Stock taking. This refers to the actual counting of the stock available in the store.
Under this technique, the entrepreneur counts his stock one by one so as to ascertain
the actual number.

Labour requirements / employees

Labour is the human effort, physical or mental engaged in the production of goods or
service in return for payment

Types of labour

Skilled labour. These are workers with special skills, knowledge or (usually
acquired) ability in their work and can produce best production.
 Semi – skilled labour, these are workers who possess particular skills in their area
and can perform a job in that particular area but with close supervision.
Un - skilled labour. These are workers who possess no special training and the
work done involves the performance of simple duties which require less previous
experience.
Labour planning involves the determination of the number of workers, skills and
wages or salaries of the labour force

Reasons why labour is needed

To increase production of goods and services.

To manage the business operation.
To promote good public image of the business.
To combine with other factors of production to aid production.
To facilitate exploitation of would be idle resources.
To increase government revenue through payment of tax.
Factors to consider when determining the number and type of employees to
work in an enterprise

Number of jobs available. This may vary with the size of the business such that
the smaller the size of the business, the less the jobs available, and hence the smaller
the number of employees. On the other hand, the more the jobs that are available,
the higher the number of employees that are needed.

Family member supporting the business. Presence of family members supporting

the business necessitates recruitment of few workers and vice versa.

Cost of hiring labour in relation to business output and profits. High costs
involved in hiring labour reduce business profits and consequently few people are
employed in business and vice versa.

The level of demand for products. High demand for products leads to massive
recruitment of workers to increase output and low demand lead to employment of
few workers.
The level of technology used in business. High technology leads to employment
of fewer workers since most of the works done by machines while low levels of
technology used in production leads to employment of many workers in the business.

Types of skills required for some particular business / industries and work they do
in relation to the production process for example carpentry skills for carpentry
business, negotiation and communication skills for marketing etc

Factors considered when recruiting workers in an organisation

Before embarking on recruitment of workers, one should put into consideration the
following factors.

Age of the employee. Employers always employ people above 18 years more than
those below the age of 18 years as this would be taken as child labour according to
the law.

Cost of employee. Labour whose cost is relatively low and affordable are purchased
more than those which are very expensive.

Gender / sex of the employee. Most entrepreneurs employ more men than women
maintaining that women have a lot of responsibilities and they need to balance
between domestic and workplace duties which make them inefficient at work than
men.

Number of workers needed. For a bigger business the number of workers should
be relatively big as compared to a smaller business that requires less labour.

Working experience of the employee. Employers always recruit more workers

with the required experience to perform the job so as to increase output as compared
to those with little no work experience.

Type of skills required ie ability of the workers. Employees who possess the
skills required in production are recruited more than the semi-skilled and the un –
skilled.

Health conditions of the employee. Employees normally employ workers with

good health status as they are in position to be at work compared to workers with
poor health associated with high levels of absenteeism from work.

Size of the business. The smaller the size of the business, the less the jobs available
and hence the smaller the number of employees. On the other hand, the more the
jobs that are available, the higher the number of employees that are needed.

Marital status of the employee. Most employers prefer people who are single
because they will be committed to work and are flexible to married people with a lot
of responsibilities and at times inflexible.

Languages spoken by the employees. Some businesses require people who can
speak variety of languages for instance radio and television stations and journalists.
This is because of the nature of the business that consists of customers with varied
languages.

BUSINESS LOCATION AND PREMISES

Businesses location: This refers to setting up a particular business in a given area. A
number of entrepreneurs consider the areas where costs of production are low
and easy access to customers when determining a business location.

Business premises: These are composed of buildings, workshops or ware houses

from which the business operations are carried out.
Factors considered when choosing a business site and premises

Market factor: A business should be located nearer to the market or customers

so as to save transport costs for both the business and customers. This is also
important in a case where products are bulky and costly to transport or where
competitors are nearer to market and in a situation where goods are
perishable and there are no means of preserving them before they reach the
market.

Raw material source: A business should be located nearer to the source of raw
materials, this is so when raw materials are bulky and perishable. The costs of
transport are hence reduced and reduces the risk of the raw materials getting
spoilt.

Accessibility to transport and communication network, a business should be set

up in an area where there are good roads in order to facilitate a smooth flow
of its raw materials, products and customers, the area should also be equipped
with communication services like telephone, internet which also facilitates
communication with customers, suppliers, bankers, etc.

Availability of premises to be purchased or leased, premises required by the

business to operate from should be available in terms of renting , purchasing
or leasing the premises, this should be highly considered as it affects the
over al capital of the business, so the associated costs should be in line with
the planned costs to avoid problems of insufficient working capital.

Availability of human resource, A business should be located in a n area where

the required labour is available, for instance if there is a need for skilled labour,
its supply should be at reasonable wage rates or salary scale.

Availability of power, this should be highly considered when choosing where

to locate a business, this is because some businesses require a lot of power
like an industry, so they should be located near the power source to reduce
the costs of extending it up to the premises and to reduce the costs of using
other sources of power like generators which is expensive.

Government policy on location of business, the government may direct the

location of some enterprises in a particular region, this is done for different
reasons like balanced industrial growth, in the country, like to-day they are
promoting industrial growth in Northern Uganda, So any business to be set
up should ensure that it does so in line with the government policies.
Availability of water, this is an important factor as a component and a raw
material in the production of some goods like soda, brick making etc, so if
a business is to use water as a raw material, it should be located where it
can be cheaply sources and reliable.

Availability of security, all entrepreneur s would wish to set up their businesses

in areas which are secure in order to avoid losses. That’s why most business
men fear to set up enterprises in northern parts of Uganda due to the political
instabilities in the area.

Availability of business support services, there are some business support

services that are very important in business like banks that provide extra funds
to facilitate smooth operations, like insurance companies that protect the
business against risks, etc. So such support services should be highly
considered i.e if they are existing in a given locality (area) before one
chooses a given site.

PRODUCTION MACHINERY, EQUIPMENT AND FACILITIES

To attain and maintain the quality of products and control capacity of production,
there is need for an entrepreneur to select machinery, equipment and tools which
can operate efficiently and effectively.

Machinery refers to a group of machines in general that gets work done. A

machine on the other hand refers to device in which each part works together
with the other to perform some function for example a sewing machine, recording
and counting machine, vending machine, washing machine etc.
Equipments are things needed to do some work, so machines, which are specific
for particular functions are also referred to as equipment. Examples of equipments
include office computers, cash counters, calculators, typewriters etc.
Tools. A tool is any instrument or apparatus like axe, hammer, spade etc. which
is held in the hands for doing some work. However, tools can be equipments
although not all tools are equipments.
FACTORS CONSIDERED WHEN SELECTING MACHINERY, EQUIPMENT AND
TOOLS

Capacity of machines and equipment ie how many units it can produce within a
given time, this is compared with the demand it has got to meet, leaving other factors
constant an entrepreneur selects machinery with higher production capacity in order
to meet his/her demands.

The initial cost of machinery and equipment. An entrepreneur selects machinery

whose costs are relatively low and affordable in order to reduce the costs ie to be
cost effective.

Ease of maintenance and repair. This involves spare parts and repair services,
one would select machinery whose spare parts and repair services are available and
cheaper, with a view to reduce the operating costs.
Flexibility for adjustment in relation to customer’s changing tastes and preference,
an entrepreneur selects machinery that can easily adjust to the changing needs of
customers.

Availability of other complementary machines and equipment; an

entrepreneur would select machinery that is easily compatible or that can easily
complement with the existing or other machinery, in order to facilitate consistence
and continuous production.

Productivity and efficiency of machinery and equipment. Ie machinery that can

produce quality products (efficiently). An entrepreneur selects machinery that can
produce efficiently in order to increase productivity and profitability of the business.

Useful life of machinery and equipment, an entrepreneur selects, machinery/

equipment that is long lasting or durable in order to reduce unnecessary costs of
buying or replacing other machinery

Guarantee given by manufacturers. Guarantee given by the manufacturer in

terms of efficient, durability, maintainace and safety devices encourages businesses
to select that kind of machinery compared to those without guarantee

Users – friendly of the machinery

Ways of ensuring proper machine handling, use and safety in an enterprise

By switching off machines in case of any break down.

By ensuring that machines are thoroughly checked before switching them off.
By following instructional labels and guidelines on the use of machines.
By making sure that machines are well maintained and have no broken or unstable
parts.
By using machines for work they designed for.
By ensuring close monitoring and supervision of workers and the production
process.
By cleaning off the machines frequently and oiling all hand lubricating points daily
to minimize wear.
By training of workers on the usage and maintainace of machinery.
By attaching proper guards or warning labels to dangerous moving parts of
machines and power transmission equipment.
By providing safety devices to workers like hand gloves, helmets, gum boots,
masks, overall etc.
By using mechanical devices for feeding machines so as to avoid hazards and
increase production.
By using trained and experienced labour force so as to avoid machine accidents.
By installing warning devices which can alert in case of any likely danger.
By making use of the closest power point when plugging in the market.
By avoiding messing up with machines if they are still plugged in or still running.
TECHNOLOGY FOR SMALL ENTERPRISE

Technology refers to the know – how design and intellectual input of doing things

Technology is constantly changing the demands of consumers. Business use new

technologies to produce new products and services.

Appropriate technology. This is the technology for use in small business and is
determined by a number of characteristics.

Simple; for technology to be considered appropriate, it must be simple to

operate. The user of such technology must be able to apply without encountering
problems
Effectiveness; effectiveness of technology is judged by how well it fits in with
the objectives of the user
Availability; some technology may be appropriate for certain purposes but not
available locally. Information technology for example may be the most
appropriate for certain task but it may not be readily available locally
Flexible; as time changes so do the requirements of technology. Appropriate
technology must be flexible enough to adapt to changing time in the future
Durable; technology that is durable requires less maintenance and repairs
Efficient; technology should be efficient in its utilization of local resources
Cost effective. The cost of technology should be justified by the benefits
achieved. The overall benefits should be greater than the cost of the technology

TECHNOLOGY IN PRODUCTION
Technology refers to the know –how, design and intellectual input of doing things.
Technology means the practice of any or all the applied sciences that have practical
value and or industrial use.
TYPES OF TECHNOLOGY
Indigenous technology. This is the art developed within a country and passed over
the years from generation to generation often with no development of improvement.
Advanced technology. This is technology that has been developed from modern
scientific principles. It is classified as adapted technology which is obtained from other
countries, transferred technology which is extracted from advanced countries and
appropriate technology which is relevant to the needs of the community

FACTORS INFLUENCING THE CHOICE OF TECHNOLOGY

Technological requirements, industrial projects especially processing
industries have a minimum economic size determined by the technological factor
e.g a cement plant should have a capacity of at least 300 tons per day
Input constraints: developing countries have constraints in obtaining certain
inputs such as power fluctuations, scarcity of basic raw materials and inadequate
foreign exchange thus select technology to use accordingly
Investment control: the relationship between capacity and investment control
should be considered since investment cost per unit of capacity decreases as the
plant capacity increases
 Market conditions: a higher capacity is preferable for a product with a stronger
market and a smaller capacity is used where the market is uncertain
Resources of the business: the availability of resources such as management,
financial resources etc, the business capacity design since they determine the
capacity of obtaining a specific type of plant
Government policy on technology: the capacity level may be constrained by
government policy which may require a license and approval of operation
Availability of spare parts: entrepreneur prefer technology whose spare parts
are readily available to that whose spare parts are scarce
Skilled man power requirement: the technology to be used depends on the
availability of skilled man power to operate it, availability of cheaper man power
make the technology good

PRODUCTION CONTROL
The term production control implies the existence of a product plan. It is therefore
the means to monitor the execution of production plan in order to achieve its
objectives
There are various production – related factors, which are quite important and
therefore, must be carefully considered in entrepreneur’s production process. These
aspects are discussed below

a) QUALITY CONTROL. No business enterprise can be successful without providing a

product of the right quality as demanded by customers

Advantages of quality control

 It helps in improving the brand image of the enterprise

 It facilitates standardization
 It helps to reduce costs
 It enables the enterprise to determine its cost prices at competitive levels in
advance of production
 It enables the enterprise to comply with standards prescribed by responsible
supervisory authorities like Uganda National Bureau Of Standards
b) TECHNOLOGY AND TECHNICAL SKIILs FOR THE PRODUCTION PROCESS. This
modern era, technology is changing very fast and there are enterprises with superior
often have an edge over their competitors

c) PRODUCTION PROCESS. This aim of every manufacturing enterprise is to increase

productivity; this means that whatever is spent on production should generate the
maximum output possible

WAYS OF REDUCING THE OVERALL COSTS OF PRODUCTION IN BUSINESS

Ensuring use of efficient and effective methods of production. This may be

achieved through thoroughly studying the production methods to be employed in
the production process to ensure that they efficient and effective. This is because
inefficient methods of production usually lead to increased costs of production.
Use of cheap but quality raw materials. Entrepreneurs should always buy their
supplies or raw materials from the cheapest sources so as to minimize their
production costs.
Fixing time standards for all operation. Time standards for all operation should be
fixed ie minimum and maximum time should be noted and the time for the process
standardized. This helps to avoid wastage of time as well as minimizing production
cost.
Use of appropriate technology in production. The entrepreneur should ensure use
of machines and tools which make work easier and lessen labour force so as to
minimize labour costs and other costs that may arise from use of inappropriate
technology.
Ensuring close and constant supervision and monitoring of workers and the
production process to ensure that work is going on well as planned. This helps to
avoid relax times, movements and repetitive operations.
Training and developing of employees (workers) to perform efficiently as per the
set targets should be encouraged. This helps to equip workers with the necessary
skills for production of goods and services and it enables workers to perform tasks
in the shortest time possible.
Employing skilled and experienced labour force. The producer / entrepreneur
should ensure use of workers with the required skills to perform the production of
the intended product. This helps to minimize costs arising from damages as a
result of using inexperienced and unskilled workers.
Spelling out duties and responsibilities for each employee (worker) to minimize
conflicts, duplication of services, and lack of co-ordination and wastage of
services. This also helps to minimize production costs.
Studying the lead time i.e the time lag between placing of orders and receiving of
the raw materials and other supplies should be established to ensure that raw
materials and other supplies are received in time and do not disrupt the production
process. This avoids unnecessary delays in the production process.
Awarding tenders for supplies and raw materials to competent, reliable and
affordable suppliers so as to avoid disruptions, losses and unnecessary delays in
the production process.
Laying off redundant workers. The business can lay off some redundant workers
or employ part time workers to cut down the costs of maintaining employees at
the station throughout the year.
Proper handling and storage of both raw materials, finished and semi-finished
products. This helps to minimize damages, wastage and losses.
Buying raw materials and other supplies in bulk so as to take advantage of trade
discounts and at the same time ensure adequate provision of both raw materials,
finished and semi-finished products.
Encouraging specialization and division of labour. This helps to promote efficiency
in production which leads to increased output and thus reduced costs of
production.
 Motivating workers by ensuring good working conditions. Providing a conducive
working environment motivates workers to be more productive leading to
increased output hence reducing on the costs of production.
Using cheap means of transport for both raw materials and finished products so
as to minimize the costs of production in terms of transport.
Use of alternative cheap sources of energy like solar, bio gas so as to minimize
power costs.
Lobbying the government support through business associations like Uganda
Manufacturers Association, Uganda small scale Association etc for low tax rates,
tax holidays etc which can help to minimize costs of production.
COSTING IN PRODUCTION

Meaning of costs of production. These are expenses incurred when producing

goods and services.

Elements of costing
This is an analysis of the various items which together from the selling price of a
manufactured article sold by a small manufacturing unit at a price.

Methods of costing business product.

Job costing. This involves determining costs for each work order or job.
Contract costing. This involves determining costs for big jobs spread over a
specified period of time.
Batch costing. This is used in determining costs for identical goods in a factory.
Process costing. this is used in determining costs of production at each
production stage,
Operation costing. This is used in determining production costs in repetitive /
mass production.
Unit costing / output costing. This is used in costing single and identical
products like cement.
Operating costing. This is used in costing services like transport.
Multiple costing. This involves determining production costs for the same
product using more than one method of costing.

Types of costs.
The costs incurred by a business are different and can be broadly categorized into
two major groups’ i.e direct costs and indirect or overhead costs.

Direct costs / prime cost. These are costs that are directly linked to the level of
production of goods and services. The amount of direct costs incurred varies with the
level or volume of production of a product or service. For instance, when the volume
of production rises, the total direct costs incurred rise. In a producing business, direct
costs consist of costs incurred towards purchasing direct materials (raw materials
and labour).
 Direct materials costs. Direct material costs refer to those materials that can
be physically identified and traced to a particular product as part of the finished
product. Examples of direct materials include wood/ timber that is used in the
manufacture of furniture, cotton for cloth etc; direct costs constitute the largest
share of business’ working capital requirements.
Direct labour costs (direct wages). Direct labour consists of the labour that
can be specifically identified or traced with the production of a particular product.
 Examples of direct labour include wages of the workers who are directly involved
in the operation of machines engaged in the production process and those who
assemble parts into the finished product. For example, in a carpentry workshop,
the wages paid to carpenters, machinists and finishers constitute direct labour for
a furniture making business.
Direct expenses. These are expenses that are directly linked with the production
of a particular product. For example cost of hiring machinery to produce a
particular product, fuel / energy for running the machine etc. however, most items
failing under this category tend to be indirect expenses.
Note: all direct costs of a product are referred to as prime costs.

For example, in the case of a small carpentry workshop, the following would be the
prime or direct costs.
Item Cost (shs)
Direct materials – timber 600,000
Direct labour – wage of machine and joinery staff 150,000
Direct expenses – fuel / transport 20,000
Prime costs 770,000

INDIRECT COSTS / WORK COSTS / OVERHEAD COSTS

Indirect costs are costs that cannot easily be traced to a particular product. Over a
given range, indirect costs do not vary with the level or volume of production.

Note. Indirect costs may also be referred to as overheads.

Indirect materials. These are materials that are not traceable to a particular
product for example glue threads. Sandpaper, lubricant, cotton wastage, but get
used up in course of general production. Using the example of a small carpentry
workshop, indirect material costs would include glue m varnish, nails etc.
 Indirect labour. It consists of supportive labour of a product for instance manager,
administrators, watchmen, gatekeepers, secretaries, tea girls etc. their services
are applicable to all sections of a business and cannot be attached or traceable to
any particular product. Their cost does not vary with the volume of production. A
gatekeeper will remain working regardless of the level of business’ production.
Indirect expenses. These are a type of business expenses that are not linked to a
specific product or a given range of production level. They do not vary within
production range. Examples of indirect expenses include factory rent, factory
insurance, repair of machinery, electricity, telephone and office expenses etc.

Note. Indirect expenses which are also known as overhead expenses.

Selling and distribution overheads. These are indirect cost incurred during the
selling and distribution of goods and services. Examples of selling and distribution
overheads include.
 Advertising
 Sales promotion
 Delivery expenses / carriage outwards
 Salary of foremen
 Cost of samples given to potential buyers
 Free gifts
 Displays and exhibition materials
 Printing and stationary (for receipts , price lists, catalogues, invoices etc)
 Packing cases
  Insurance for ware house, delivery vans etc.

Administrative overheads. These are indirect costs incurred by the business during
the formulation of policy, direct control, management and supervision of its affairs,
examples include
 Printing and stationery for administration
 Administrative salaries and allowances
 Postage and stationery
 Telephone expenses
 Legal and accountancy charges
 Heating and lighting
 Depreciation of office equipment
 General expenses etc
Calculating the total costs of a business
The format below will be followed when calculating the total of the business.
Item Shs shs
Direct materials Xxx
Direct labour Xxx
Direct expenses Xxx xxxx
Total prime / direct costs
Add indirect costs / over heads
Indirect materials Xxx
Indirect labour Xxx
Indirect expenses Xxx xxxx
Total indirect / overhead costs
Total production costs
Add selling and administration overheads Xxx
Add administration overheads Xxx
Total administration, selling & distribution xxxx
costs
Total business costs xxxx

If we are to consider the previous example of a carpentry workshop, the total

costs could be summarized as below;

Item Shs shs

Direct materials 500,000
Direct labour 150,000
Direct expenses 40,000
Direct prime costs 690,000
Indirect materials 100,000
Indirect labour 150,000
Indirect expenses 60,000
Total production costs 310,000
Selling and distribution overheads 150,000
Administration expenses 200,000
Total administration and distribution 350,000
expenses
Total business costs 1,350,000
WAYS OF MINIMIZING COSTS AND MAXIMIZING PROFITS

An entrepreneur can minimize costs in the following ways

 Paying labour a low wage

 Making labour work for long hours
 Reducing fringe benefits for labour e.g transport and medical allowances
 Buying raw materials from the cheapest source
 Avoiding unnecessary costs ie un planned expenditures
 Employing few workers
Maximizing profits
 Reducing credit sales
 Carrying out sales promotion
 Increasing the price of the product
 Employing few workers
Internal control systems of a business

This involves the control over business operations in various areas to achieve the set
goals

Areas under which business control may be exercised

Purchasing
Quality control
Employee morale
Financial analysis
Cost controls
Sales pricing
Purchasing

This can be controlled by buying from at least two suppliers to check on prices, cater
for a shortage in case one is affected by strikes, fire etc. purchasing is built to enjoy
discounts and improve relationship with the suppliers.

Quality control

Refers to the process which attempts to minimize or eliminate differences in

production quality or it refers to the organizational techniques and activities that are
used to fulfill requirements for quality

Measures to ensure quality control

Reducing the price of slow selling goods to get rid of them and keep faster
selling items on the selves
Surveying customers from time to determine if they are satisfied with the level
of product quality and service.
Discussing merchandise returns with customers to determine the source of
their discontent.
Note. Check others in the previous topic covered
Employee morale

This involves keeping the employees attitude towards work positive such that they
promote the company product.

Ways of improving employee morale.

Check the ways of motivating employees under personnel management or human

resource management.

Financial analysis

It involves analyzing the costs and the sales (price) to ensure that the business costs
are lower than the revenue hence operating at a profit.

Cost control

This involves reducing the costs of production in order to operate at a profit.

Ways of controlling costs

Check for ways of reducing costs in the previous notes

Sales control

These are the total collections (revenue) from the selling of products produced

Ways of controlling sales

Selling sales quotas

Checking on the effect of seasonal variation on sales
Examining the ways of smoothing out the sales to achieve better utilization of
the facilities throughout the year
Learning how to advertise the business efficiently and correctly
Pricing

This is the process of establishing the exact price to be charged on customers

It involves

Setting prices high enough to provide gross margin that allows for a reasonable
profit.
Ensuring that the prices are in line with competition so that one does not loose
sales on one extreme or go block to the other
Marketing down the end of season merchandise to get rid of them.
Reasons/ objectives for setting internal control systems (ICS) in a business

To maintain costs and maximize profits

Maintain stable supplies for stable production
Motivate employees for better productivity
To control fraud among employees
Ensure continuous production
 Meeting demand fluctuations among customers
To control / maintain quality of the product that are produced
Establish right prices affordable by the customers
Enable the use of right employees in right jobs
To ensure the safety of assets / inventory of the business
To ease the operation of the business policy
For easy monitoring and supervision of the business activities
Develop a good relationship with customers / public
To ensure proper management of business finance
To increase and maintain business periodical sales
For ensuring consistent business cash flows through regulating outflows.
Work place management

A work place refers to a place where production of goods and services are done like
a kitchen, store etc.

Objectives of managing a work place

To properly handle and store materials as some need careful handling and
storage
To facilitate easy movement of workers at the workplace
To avoid accidents and dangers that are caused by workers and machines
To control hazardous substances involved in the production process of
chemicals from affecting others.
To suite the condition of production
To create conditions favourable for workers so as to increase productivity
Elements of a workplace

 Material handling and storage

 Work station
 Machine handling and storage
 Control of hazardous substance
 Lighting facilities
 Premises
 Work organisation
 Welfare facilities

The Material handling and storage. This involves proper handling and storage of
materials in right places.
Reasons for proper material handling and storage
To reduce material damage and losses due to theft
To reduce time wastage during production
To reduce accidents that would be caused to workers
To gain space for further production and easy
To reduce costs related to over/under stocking
This can be maintained and handled in the following ways.
i. By removing things that are not frequently used out of work place
 ii. By providing convenient storage racks for tools and equipments for easy
retrieval
iii. By training the store keepers the proper handling methods of raw materials.
iv. By providing caterpillars, movable racks, cranes for easy moving of heavy
loads.
v. By removing expired or out dated materials out of workplace.
vi. By storing materials out of the workplace.
vii. By storing materials in easy accessible places especially if they are heavy.
viii. By using coolers or refrigerators in case materials require cool conditions.
ix. By using stores ledgers, bin cards for numbering materials for easy retrieval.

b) Work stations. These are places where actual production of goods and services
is done. Work stations should be designed in the following ways.
Putting machine switches and other tools within easy reach of workers
Using lifts and other mechanical measures to reduce the effort required by
workers
Providing a stable work surface at each work station
Using cramps for holding things tightly and vices with two saws for holding
things firmly
Adjusting the height of equipment to avoid bending postures or high hand
positions which strain workers
Providing chairs or benches of correct height with steady back rest to promote
efficiency of workers
Provision of enough space within workstation which enables smooth production
process to take place.
Machine handling and safety
Ways of ensuring proper machine handling and safety
Attaching proper guards to dangerous moving parts of machines and power
transmission equipment
Using safety devices which prevent running of machines while the workers’
lives are in danger
Redesigning situations which interfere visibility, production and maintenance
aeration
Making sure that the machines are well maintained by regularly servicing them
Reducing and following instructions about the use of machines before using
them.
Putting precautions for instructions manually
Painting machines to avoid rusting which affects its use
Covering machines when not in use like computers to avoid dust effects
Employing skilled employees to avoid accidents caused by machines
Through close monitoring and supervision of employees
Through proper storage of machines as they need care when handling them
Switching off machines in case of any breakdown and reporting it immediately
to competent personnel
Checking machines to find out whether they are in good order before they are
switched on for use.
Avoiding use of the machines for something they are not designed for
respecting machine capacity.
Ensuring proper connection of machines to avoid short power circuits and
damaging machines.
KIBOBO TRANSPORTERS
P.O BOX 222, Kampala
TEL: 0752-99-88-77
ROUTINE MAINTENANCE SCHEDULE OF MACHINES

Date of Type of Description of Person in Venue of Date of next remarks

service machine work charge service service
7/11/18 2 trucks Changing oil technician Business 2/12/18
premises
9/12/18 2 trucks Over Technician Business 2/01/18
hauling premises

Prepared by approved by
Sign: …………………………….
Name: Namubiru Edith ………………………………
Title : transport manager ………………………………

Control of hazardous substances

Refer to dangerous materials to workers e.g broken glasses, chemicals,
contaminated food.
Reasons for controlling hazardous substances
To minimize losses in business
To improve or enhance quality
To improve health complaints among workers
Need to promote efficiency/ productivity of workers
To minimize or control pollution
To avoid accidents
To maintain good relationship within the society
Ways of controlling hazardous substances in an enterprise.
Substituting hazardous substances or chemicals with less hazardous ones
Keeping hazardous substances in covered containers
Providing adequate and appropriate types of protective equipment
By ensuring proper disposal of hazardous substances
By training workers on proper use and maintenance of protective
substance
By providing adequate emergency, health and safety facilities
Through reading and understanding instructions on the hazardous
substances before using them
Ensuring proper lighting facilities or ventilation
Providing warning labels on hazardous substance or areas to minimize
accidents.
Developing general rules on safe working habits and publicizing them e.g
washing hands with soap, changing clothes and cleaning the environment
Through maintenance of health and safety records or statistics
LIGHTING FACILITIES
By adding skylights and keeping windows clean to let in natural light.
By painting ceilings white and walls for concentration and reflection of light.
By providing artificial lighting which is adequate for the type of work.
By reducing obstructions and eye strains through repositioning g of Lamps
or bulbs
By providing ventilations and ensuring their cleanliness.
 Providing local lighting or adjustable lights
Switching off in case there is no need of light
By replacing bulbs when they are fault.
WELFARE FACILITIES
This helps to enhance health, morale and productivity through work related welfare
facilities
This can be managed in these following Ways.
By providing adequate and safe drinking water in all workplaces to the workers.
Proving regularly cleaned sanitary facilities close to the workplace including
soap for washing hands and separate toilets for both sexes.
Providing a separate comfortable hygienic place for meals of the workers while
at work.
Availing storage space for person clothing, bicycles or private changing rooms
to workers as they report for work.
Availing resting time (breaks) and resting place to help workers get
refreshment at work.
Providing recreational facilities to the workers within the workplace to help
workers spend their leisure time
Providing first aid equipments
Providing special clothing e.g company uniform
Providing working incentives which keep the mind awake like music during
production.
PREMISES MANAGEMENT (WORKPLACE LAYOUT)
This can be managed in the following ways.
By providing a sign post for business premises to direct visitors and other
people involved in the workplace.
By providing a clean environment for business premises.
Through improving room temperature of the premises by covering the walls
and roofs with insulating materials
By carrying away sources of heat and noise through constructing noise proof
walls.
By providing fire extinguishers to protect premises against fire accidents.
By providing two ways out of every room for easy way out in case of any
accident
By minimizing the steps in the passages with in the premises. This can interfere
with the movement of wheel barrows which carry heavy loads.
By eliminating lose wire connection which can cause accidents.
Providing walk ways and freeways at the workplace.
Clearing passage and providing marking barriers to keep them clear and allow
free movement of workers
Eliminating regular wiring connections to reduce risks
Ensuring that the layout and the working conditions are in good order to suite
the nature of the product and productivity of the business
By ensuring safety and security of assets of the business
Providing good storage facilities for raw materials, work in progress and
finished good during production
Ensuring enough work space for workers during the production process.
Ensuring stability of the work surface for quality products to be produced
Providing proper furniture to the employees to use during production with
stable back rest
Allowing for furniture development plans where expansion can take place.
Work organisation
It helps to optimize production and job satisfaction through better work organisation

Ways of ensuring proper work organisation

Eliminating some tasks by using machines
Keeping workers alert and reducing fatigue through frequent changes in task,
opportunities to change posture, short breaks music etc.
Using quality circles or group work to improve productivity and quality of the
workers
Through re-arranging layout and order of operations to improve production
flow, efficiency and productivity
Dividing labour and separating tasks so that each worker knows what is
supposed to do and when.
Avoiding monopoly by using shifts for workers during production process.
Keeping records for worker’s performance and those who are better being
rewarded e.g by promotion.
Factors considered when designing a workplace
Cleanliness / sanitation / hygiene. A well designed workplace should ensure a
clean environment
Ventilation ( heat production)
Storage facilities
Safety / security
Emergency facilities / fire extinguishers
Work place
Stability of the work surface
Nature of the furniture
Sign post
Installation of power requirements
Machine requirements
Future workplace development plant
Nature of the products
Inventory management
STRUCTURING TIME FOR INCREASED PRODUCTIVITY

Making productive use of hidden time: Hidden time is the time that was
previously mismanaged, consumed with distractions or used for other tasks. This
should be used to accomplish priority tasks.

Using energy high and lows: this involves improving the schedules of work
depending on the time where performance is high

Ensuring that work is started faster by accomplishing the first tasks earlier to
avoid interfering with actual work time
TIME MANAGEMENT / CONTROL

Time management is a technique for allocating of the managers’ own time through
setting goals, assigning priorities, identifying and eliminating time wasters and using
managerial techniques to reach goals efficiently

EFFECTIVE TIME MANAGEMENT / CONTROL

Spending time planning and organizing, use time to think and plan for the time
well spent.

Setting goals, setting clear goals which give people a sense of direction. Set goals
which are specific, measurable, realistic and achievable

Prioritizing time to concentrate on work / items which have a greatest reward.

Using a to do list: the to do list is the last thing constructed the previous day or
first thing in the morning such people may combine to do list with a calendar or
schedule.

Being flexible: allowing time for interruptions, distractions and unplanned

emergencies, when interrupted begin with the most important thing.

Considering biological prime time. Prime time is the time of the day where high
performance is expected of an individual. If it is effective to use this prime for major
activities.

Doing the right thing right: doing the right thing is effectiveness and doing things
right is efficiency, focus on effectiveness and concentrate on efficiency.

Eliminating the urgent: urgent tasks should be dealt with first so that time is set
for important priorities.

Practicing the art of intelligent neglect: eliminating from life tasks which have
no long term consequences

Avoiding being a perfectionist: believe that errors and mistakes are to humans

Conquering procrastination: trying the “Swiss / Cheese” of Allan taken of

breaking the task into smaller tasks and doing just one smaller task and doing just
one smaller task and setting time for the bigger

Learning to say no: after getting convinced about the importance of priorities, say
no to the unimportant ones

Rewarding him/her: an entrepreneur has to celebrate achievement of his/ her

success in achieving goals
TIME MANAGEMENT TECHNIQUES

Identifying goals: this involves understanding what is required to be accomplished

each month, week or day, list your goals in order of importance.

Ensuring self-motivation: entrepreneurs should motivate themselves to produce

high output in work which they have to do in a specific time frame.

Establishing a dead line: more work can be done if specific deadlines for achieving
certain tasks are set.

Taking notes: recording thought and ideas and note down such things as names,
telephone numbers, appointments and things to do.

Being goal oriented: concentrating on activities which lead to significant results,

be selective in your work activities and try not to do everything.

Working in blocks of time: do major tasks in blocks of time during the period of
the day you feel more effective.

Asking questions before working: for example what, who, how and why?

Being action oriented: outline your specific course of active and do it.

Being reflective: reflective thinking is the act of learning from one’s past, present
and potential future activities.

Planning the next day’s activities at the end of each day

Questioning yourself on time usage, in order to manage time properly.

HOW DO ENTREPRENEURS WASTE TIME

 Talking with people about personal matters unconnected with work

 Having unnecessary or extra-long group meetings
 Allowing too many interruptions
 Being disorganized or on specific targets
 Engaging in little or no delegation
 Being indecisive ie failure to make decisions on the side of entrepreneur
 Being late or absent
 Misusing time reminders
Effects / disadvantages / costs of wasting time

It leads to the delays in production

It lowers sales volume hence reducing revenue
It leads to poor or late service delivery
Puts the business / firm at a competitive disadvantage ie the firm can easily
be out competed
It leads to consumer dissatisfaction
It worsens employee – employer relationship
 It destroys team work
Reduces the profit of the firm
Lowers productivity of the firm
Delays or prolongs decision making process.
It makes strategic planning difficult.
PACKAGING

Packaging refers to the process of wrapping, crafting or compressing goods to protect

them from spoilage, breaking, theft, contamination etc during the process of transit,
storage and use.

Importance of packaging

Packaging protects the contents there in from rough handling and external
conditions like poor weather.
It facilitates easy handling and transportation of goods to the markets especially
liquids, cereals etc.
Through packaging goods can be preserved like food products, chemicals that can
be protected against external conditions and germs like through putting them in
tins.
Well packed goods may attract a number of customers and facilitates easy selling
as a customer can easily identify the product through its appearance and they end
up buying them.
Products are normally packed in relatively small sizes, which are easy to display
in retail stores, easy to price and hence being affordable to different / many
customers.
It is easy to distribute / deliver packed products to the markets; it can facilitate
mail order services which are convenience, fast and hence increasing profitability
through increased sales of the product.
Packed goods are usually accompanied with instruction labels which serve as a
guide to inform / teach customers about the content and usage of the product
there in.
Self-service is possible with packaged goods; this saves time, attracts more
customers and increases the sales of the business.
TYPES OF PACKAGING

 Bottling / Canning. This involves putting in bottles and cans

 Putting in bags (like paper bags, polythene bags etc)
 Putting in plastic containers
 Putting in boxes
 Tinning / putting in tins
Different types of packaging materials

 Metal – aluminum , tin plate, steel

 Plastic polythene papers, jerry cans, bottles etc
 Wood –wood , packing cases etc
 Glass for example bottle
  Laminators – aluminum foils, films etc
 Polyesters
 Hessians / jute for bags
Note. The nature of goods determines the types of packaging to use. For instance,
oil, wine and other liquid products are put in bottles, tins or cartons,

FACTORS CONSIDERED WHEN CHOOSING THE TYPE OF PACKAGING

MATERIALS TO USE

Sources of packaging materials and suppliers, the source where the materials
are got should be reliable in terms of quality and suppliers must be willing and able
to supply whenever a need arises in order to avoid changing materials for the
products over and again.

Availability of the packaging materials required, an entrepreneur selects a

material that is available or that can be got in the required quantities to allow
constant production and distribution of the goods.

The unit cost of packaging materials required per production cycles and
inventory levels to be maintained, the unit cost should be relatively low and one
should only acquire these materials that are needed depending on the volume and
type of materials in stores.

The cost of packaging in relation to the value of the good being packaged,
one should select a material which is not expensive to package, Cheap and lowly
priced commodities, as it affects the profitability of the business.

Types of goods to be packaged, like liquids, gases, solids, should be considered

e.g one is not expected to choose wood boxes to package oil or petroleum products,
instead jerry cans are preferred.

The purpose of packaging, there are some goods that are packaged purposely to
store them for a long time, one should choose along lasting materials like wooden
boxes instead of glasses that are delicate, then others like food stuffs that are to be
consumed in a short period of time, might be packaged in polythene bags or paper
bags.

Means of transport to be used, this greatly affects the packaging materials e.g
products that are to be moved via the roads (using trucks) should use a strong
packaging materials for proper protection like wooden boxes.

The nature of goods to be packaged determines the materials like oil, wine and
other liquid products are put in bottles or tins, cotton and other bulky products can
be put in bales, while fragile goods like fruits, glasses are packed in paper boxes.

The government policies may also be considered , the government may decide
to ban certain materials for packaging, so one is not excepted to use such materials,
for example the government of Uganda recently banned the importation and use of
certain types of polythene bags.
Note. For packaging of a product to be successful, an entrepreneur must ensure that
it is easy to use, open, of practical size and has instructions which can be easily
followed and understood.

QUALITY MANAGEMENT

Quality refers to the ability of a good or service to meet/ satisfy a customer

requirements or wants.

ATTRIBUTES THAT DEFINE QUALITY OF A PRODUCT

1. Performance. It refers to the basic or primary operating characteristics of a

product. E.g in case of a TV performance may mean sound, clarity etc
2. Features. These are the secondary operative characteristics of a product. They
supplement the basic functions of a product e.g DVD player on a computer.
3. Durability. This attribute measures the product life. Durability is the amount of
use one gets from a product before it breaks down, the longer the life of a product
the more the quality.
4. Reliability / Guarantee (expiry date) the longer the expiry date the more the
reliability of the product.
5. Conformance. This refers to the degree to which a product design and operating
characteristics meet the set standards like weight for example bread is sold in
different weights like 500gms or 1kg.
6. Serviceability. It refers to the speed competence and ease of repair a given
product. Consumers not only mind about a product breaking down but also the
time before the service is restored , the timeliness with which service appointment
are kept, the nature of dealing with service personnel etc.
7. Perceived quality. This is how consumers view things. Consumers have different
tastes and therefore, perceive quality of products differently. In such
circumstances, things like images, advertising, brand names and misconceptions
about quality are critical in perceived quality.
Common terms used in relation to quality

Quality policy: this refers to the overall intentions and direction of a business or an
organisation with regard to quality as prescribed by the top management. Quality
policy is normally expressed and developed by the top management and is
communicated to the subordinates / workers. In most cases, quality policy is
expressed in the mission statement.

Quality planning: it refers to the establishment of what the business or an

enterprise is planning to do so as to achieve quality.

Or

Quality planning refers to establishment of measures of what an enterprise is going

to do so as to achieve quality.
Quality control: this refers to the activities and operational techniques that are used
to fulfill the requirements of quality.

Quality system: it refers to organisational structure, procedures, process and

resources needed to implement quality management.

Quality assurance: it refers to all the plans and systematic activities which are to
be implemented within the quality system so as to achieve quality.

CONSUMER’S PERCEPTION ABOUT QUALITY

Due to differences in tastes and preferences, consumers usually perceive quality

differently. This however, results into various inference / misconceptions about the
quality by consumer.

CONSUMERS MISCONCEPTION ABOUT QUALITY

Misconception about price: it is always assumed that the higher the price, the
higher the quality. However, this may not be the case.

Misconception about the brand name: consumers usually assume that some
products are superior to others basing on their brand names. This is because a brand
name tends to give a product either a good or bad reputation. For example one may
prefer a DVD player branded “Toshiba” because of the brand name to that of Sony.

Consumers’ point of view: consumers perceive quality of product differently. This

is due to differences in consumers’ tastes and preferences. Such differences results
into various misconception about quality of goods and services.

Misconception about durability/ guarantee. Here, different consumers assume

that quality products are those ones that take long time to get expired or break down.

Misconceptions about the origin of goods and services: consumers tend to

assume that quality products are produced from specific countries or places e.g in
Uganda people assume that cars from Germany are of high quality than from other
countries.

Misconception about the size of the product: consumer considers quality

products as those that can serve the purpose while in large quantities.

FACTORS THAT INFLUENCE THE GENERAL QUALITY STANDARDS OF AN

ENTERPRISE

Selection of raw materials that are used as inputs in production. The use of
low quality raw materials usually results into poor quality products while use of good
quality raw materials yields quality products. Therefore, it is always important to use
good quality raw materials so as to have a good quality product.
Cleanliness of the environment under which the product is being developed.
A clean environment under which a good is produced or a service is offered helps in
the production of quality products compared to unclean environment.

Packaging. The way of packaging may affect its quality in various ways for example,
packaging can lead to contamination. It can also bring about damage or it can lead
to product expiry if the product is kept long time. Therefore, the entrepreneur
considers the packaging materials to ensure that the design of the product conforms
to the planned packaging materials.

Technical specifications regarding quality and quantity. This affects the quality
of products in a way that if there is change in the technical specifications like in the
mixing of ingredients or size of the product, the quality and quantity are affected. For
example in a bakery, if there is alteration in the mixing of ingredients and size, the
quality of bread will be affected.

Storage of raw materials and finished goods. Improper storage of raw materials
and finished goods results into low quality products while proper storage of raw
materials and finished goods promotes production of quality products. Therefore, the
producer should consider proper storage of raw materials and finished products.

Limits of deviations from set standards ie there is always set standards and
specification for quality that should be maintained. The more the deviation from
them, the more the quality of the product will be affected

Machinery used in production. Quality of products produced is greatly affected by

the type of machines used in production process. This means that use of unsuitable
machines in production process leads to low quality output and vice versa. Therefore
an entrepreneur / producer should determine the machines required for production,
the technical aspects of producing the product and proper installation of machines.

Availability of necessary skills for the production of products. This refers to

Labour with the required skills to perform the production of the intended product.
Usually the use of skilled labour leads to quality products and vice versa.

Product design and development. Wrong and improper product designs lead to
low quality of the product while right product designs as demanded by customers
lead to quality output.

QUALITY CONTROL IN A BUSINESS

Quality refers to various activities and operational techniques employed by an

entrepreneur to achieve and maintain quality of a product or services.

Quality refers to the measures under taken by an entrepreneur to ensure that high
quality products are produced

Why is necessary to observe quality in a business

 To improve the brand image of the business. Quality control helps to improve the
brand image of a business while helps the business to expand its market share.
To reduce costs of production. This results from the minimizing wastage of raw
materials when producing good quality products.
 To create consumers’ loyalty. Quality control helps the entrepreneur to maintain
his customers as the entrepreneur has to design and develop a product that
conforms the needs of the customers.
To facilitate standardization of the business products ie through production of
uniform products or service.
To comply with the quality standards prescribed by the relevant authority e.g
UNBS in Uganda.
 To produce quality products. Quality control leads to production of high quality
products which improve the image and reputation of the entrepreneurs’ business.
To compete with other competitors in the same line of business through improving
on the quality of the output.
To determine product costs and price at competitive levels in advance of
production.
To achieve business objectives concerning quality specification.
To maintain business customers through improved quality.
WAYS / MEASURES OF ENSURING QUALITY OF A PRODUCT

o Ensuring selection and use of better quality raw materials. The entrepreneur
ensure use of good quality raw materials so as to produce quality products.
o Monitoring and supervision of the production process. To ensure that the goods
produced conform to the set standards.
o Ensuring proper packaging of the product. The entrepreneur ensure use of suitable
materials in line with the product design.
o Selecting appropriate production machines and ensuring proper installation of
such machines and equipment.
o Carrying out market research before developing the product and even in the
process of making the product so as to understand the needs of the customers
o Employing labour with the required skills to perform the production of the intended
product.
o Ensuring proper sale and distribution of the product. This requires the
entrepreneur to select a suitable channel of distribution for his production.
o Ensuring a clean environment under which the product is to be produced.
o Considering the technical specifications regarding quality and quantity of the
product to be produced like mixing ingredients or produced chemicals, size of the
product etc.
o Ensuring good / right product design and branding of goods as demanded by the
customers.
o Ensuring proper storage of both raw materials and finished products.
o Motivating employees to keep their morale high towards quality production.
Importance of quality control in business.

Quality control helps to improve the brand image of a business while helps the
business to expand its market share
It helps to reduce costs of production. This results from the minimizing wastage
of raw materials when producing good quality products
Quality control helps the entrepreneur to maintain his customers as the
entrepreneur has to design and develop a product that conforms the needs of the
customers
It facilitates standardization of the business products through which production of
uniform products or service
It helps the entrepreneur to comply with the quality standards prescribed by the
relevant authority e.g UNBS in Uganda
 Quality control leads to production of high quality products which improve the
image and reputation of the entrepreneurs’ business.
It helps entrepreneur to compete with other competitors in the same line of
business through improving on the quality of the output.
It enables entrepreneur to determine product costs and price at competitive levels
in advance of production.
It enables entrepreneur to achieve business objectives concerning quality
specification.
Quality and production management

Quality control involves activities at all phases of the production process ie product
design, purchase of raw materials, marketing / marketing research, production
machines and their installation, production of the product, Storage of materials and
finished products, packing, sale and distribution. In the process of producing a
product, the quality of the end – product is influenced by activities in each phase of
the production process.

Phases and activities in the production process that have an impact on

quality

Marketing and market research for the product. This involves collecting and
analyzing information relating to markets so as to find out opinions of potential
customers about the product that the entrepreneur intends to produce.

Product design and development. This stage involves planning the shape, fashion,
size and colour of products to be produced.

Purchase of production raw materials. Poor quality raw materials lead to

purchase to poor quality products and vice versa.

Production of the product. This stage involves transforming of the raw materials
through the use of inputs like machines into finished products.

Packaging and storage of the product. This involves wrapping and compressing
of the products produced in various packing materials so as to protect them from
spoilage and damage and for easy transportation. After packing the products are then
stored.

Selling and distribution of the product. This involves selecting of an appropriate

channel of distribution and an effective mode of transportation to enable the
entrepreneur’s products reach the final consumer.

Installation of the product at the user’s premises. After distribution of the

product. The entrepreneur or salesperson installs the product at the client’s premises.
Installation may be free or at a small charge. However, this only applies to those
products which require installation like machinery and equipment.

Technical assessment and servicing of the product. This is the last stage in the
product life cycle. It involves the activities carried out to ensure that the customer
is satisfied with the good or service and the entire business enterprise. It includes
after sales activities like checking and ensuring product smooth performance and
maintenance / servicing.

THE PRODUCT LIFE CYCLE (PLC)

Product life cycle refers to the combination of various activities that influence the
quality of a given business product. The product life cycle merely views and enterprise
from the angle of production management. Other angles to view and analyze an
enterprise are human resource management and financial management.

STAGES OF PRODUCT LIFE CYCLE

Summarizing major events during product life cycle stage. This provides a summary
of the major differences between the stages in the product life cycle with respect to
sales, costs, profits, types of customers and the nature of competition

Sales

Time
Introduction Growth Maturity Decline Withdrawal
a) Introduction stage

The market size and growth is slight. It is possible that substantial research and
development costs have been incurred in getting the product to this stage. In addition
marketing cost may be high in order to test the market undergo launch promotion
and setup distribution on channels

It is highly unlike that companies will make profits on products at the introduction
stage. Products of this stage have to be carefully monitored to ensure that they start
to grow otherwise the best option may be to withdraw, low sales and high unit cost

Characteristics of the introduction stage

 Sales generally are low and somehow slow to take off. Customers are
characterized as innovators
 Production costs tend to be high on a per unit because the firm has yet to
experience any significant economies of scale
 Marketing cost required for creating awareness, interest and trial and for
introducing the product into distribution channels are high
 Because of low sales and high unit costs, profits tend to be negative or very
low
 Competitors tend to be few in number indeed there may be only major player
in the market place the innovating firm
 No profits
b) Growth stage

It is characterized by rapid growth in sales and profits. Profits a rise due to an increase
in output, economies of scale and possibly better prices. At this stage, it is cheaper
for the business to invest in increasing market shares as well as enjoying the overall
growth of the market

CHARACTERISTICS OF GROWTH STAGE

 Sales increase rapidly. This increase is due to consumers’ rapidly spreading

positive word of much about the product
 Declining cost on per unit basis because sales leads to longer production runs
and therefore economies of scale in production
 Decline unit costs and rapidly increasing profits due to increasing sales
 Customers are mainly majority. It is the early adoption specifically that is
responsible for stimulating the WOM effect
 Competition continues to grow throughout this stage as competitors recognize
profits, potentials in the market e.g enter the market with their own session of
the products
c) Maturity stage

It is in this stage that competition is intense as companies fight to maintain their

market share. Here both marketing and financial become key activities. Marketing
expenses have to be monitored carefully, since any significant moves are likely to be
copied by competitors. The maturity stage is the time when most profit is earned by
the market as a whole.

Any expenditure on research and development is likely to be restricted to product

modification and improvement and perhaps to improve production efficiency and
quality

CHARACTERISTICS OF MATURITY STAGE

Sales continue to grow during early stage (post) of maturity but at a much slower
rate than experienced during the growth phase. At some point, sales reach the
peak. This peak may last for extended periods of time
Costs continue to rise during maturity because of market situation and continually
intensifying competition
Competition, where this slowing of sales is combined with this stage, the result is
that profits will have reach their highest level and must from this point on decline
The only remaining customers to enter the market will be late, the late majority
and the laggards. These customer groups are by far the most risk averse and
most hesitant to adopt new products
Competition is mostly intense. The intensity of competitive in fighting drives the
changes in costs and profitability
d) Decline stage

The market is shrinking / reducing the overall amount of profit that can be shared
amongst the remaining competitors. At this stage, great care has to be taken to
manage the product carefully; it may be possible to take out some production cost
to transfer production to a cheaper market. Ultimately depending on whether the
product remains profitable, a company may decline to end the product

Characteristics of the decline stage

 Sales continue to deteriorate in addition unless major changes in strategy or

market conditions occur, sales aren’t likely to be recovered costs because
competition is still spent on promotion particularly sales aimed at providing
customers with price concessions
Profits continue to decline with little hope of recovery
Customers again are primarily laggards
There are generally a significant number of competitors still in the industry at the
beginning of decline. However as decline progress marginal competitors remaining
thus decline leads to the large more entrenched competitors with significant
market shares
e) Withdrawal stage

There is a down turn in the market e.g more innovative products are introduced or
customers tastes change. There is intense price cutting and many more products are
withdrawn from the market. Profits can be improved by reducing marketing
expenditure and cost cutting
Benefits of product life cycle in enterprise

 It helps the entrepreneur in product decision making

 It helps the product designers and service providers, government agents and
individuals to make choice
 It leads to increased productivity
 It reduces wastage of products and raw materials
 It minimizes product costs through the re – use of the original data
 It enhances the entrepreneur ability to quickly identify potential sales
opportunities and renew contribution

Problems with product life cycle (critics of product life cycle)

 In reality very few products follow such a prescriptive cycle. The length of each
stage varies enormously. The decisions of marketers can change the stage e.g
from maturity to decline by price cutting, not all products pass through this stage.
Some go from introduction to decline, it’s not easy to tell which stage the product
is in
 it doesn’t any way predict the length of each phase and it can’t be used to forecast
sales with any accuracy
The model is self-filling e.g if a marketer decides that a product is approaching its
decline phase and stops actively marketing it. The product sales will almost
inevitable decline. This might not have happened had it been managed as if it was
still in its maturity stage
 It’s possible that by improving a product aggressively on an ongoing basis growth
can continue for a long time. The model doesn’t consider them
Successful marketer need to draw on a wide range of data and on analysis to help
them decide which phase a product is in and whether that phase can be explained
TOTAL QUALITY MANAGEMENT

This is the method designed to prevent errors such as poor quality products from
happening. It’s a way of managing an organisation so that every job, every process
is carried out right from first time of every time.

FEATURES / ELEMENTS OF TOTAL QUALITY MANAGEMENT

Quality chains, it emphasizes the linkage between suppliers and customers. The
chain remains intact if the supplier satisfies the customers. Failure to accomplish this
make delays in the next stage of production.

Company policy and accountability. Total quality stresses the role of the
individual and aims to make anyone accountable for their own performance.

Control. Customers’ needs will only be satisfied if the business has control of the
factor that affect a product’s quality. These may be human, administrative or
technical factors.
Monitoring process, monitoring the business process enables possible
improvements to be made thereby leading to total quality management. An
entrepreneur has to develop methods to achieve this.

Team work, total quality management stresses that team work is the best effective
way of solving problems in an organisation. The main advantages are

A greater range of skills, knowledge and experience can be used to solve the
problem.
 Employees’ morale is often improved.
Problems across departments are better dealt with.
A greater variety of problems can be tackled.
 Team “deals’ are more likely to be used than individual ones.
Total quality management strongly favours team work throughout the business. It
builds trust and morale, improves communication and cooperation and develops
interdependence.

Consumers’ views. Firms have to be committed to their customers by responding

to all their needs as per the quality standards customers except. This leads to total
quality management

Zero defect policy, this is aimed at ensuring that every product manufactured is
free from defects. Companies that guarantee zero defects in customers order builds
a good reputation and lead to new clients and improved sales

Advantages of total quality management

A greater range of skills, knowledge and experience can be achieved to solve a

problem
 Employees’ morale is often improved
Problems across departments are better dealt with
A greater society of problems can be tackled from individual ones
Total quality management favours team work throughout the business. It builds
trust and morale improves communication, co-operation and develops
interdependence
BENEFITS OF TOTAL QUALITY MANAGEMENT

It focuses dearly on the needs of clients or customers and relationship between

suppliers and customers.
It helps to achieve quality in all aspects of business not just product or service
quality.
Enable entrepreneur to critically analyze all the processes to remove waste and
inefficiencies
It helps to find improvements and develop measurement of performance
It develops effective procedures from communication and acknowledgement of
work
It develops a team approach to a problem solving
It helps entrepreneur to utilize human resources better
 It reduces product development time

CRITICS / PROBLEMS OF TOTAL QUALITY MANAGEMENT

It involves taking developmental costs of the new system

Total quality management only works if there is commitment from the entire
business or organisation
Involves a great deal of bureaucracy and documentation and regular audits are
needed. This may be a problem for entrepreneurs or small firms
Stress is placed on the process and not on the product
Some workers and unions regard total quality management as management by
stress and a way of de-unionizing work place
It delegate the determination of quality to quality experts because total quality
management is a complicated entity beyond the comprehension of the coverage
employee
QUALITY BUSINESS MANAGEMENT TASKS

In small enterprise, management also carries out special activities designed as

functions. The basic management functions in a small enterprise are shown below:

Planning: planning is management task which involves the establishment of goals

and objectives of a business and determination of how they will be achieved.

Advantages

 It gives and entrepreneur direction and course of activities

 Helps the entrepreneur to set and achieve goals
 Enables the entrepreneur to allocate time from the different activities
 Enables the entrepreneur to make proper utilization of resources
 Enables the entrepreneur to evaluate alternatives and achieve the best
alternative to benefit the business
Organizing: refers to the identification of what activities are to be done, grouping
their activities into sections (departments) and designing or delegating the activities
to particular individuals to carry them out.

Staffing: it involves the process of recruiting, training, developing, compensating

and evaluating employees who identify tasks.

Leading: leading involves motivation and guiding employees about the process and
methods of work in the organisation. It requires leading by example and ensuring
open communication.

Controlling: controlling in small enterprise deals with monitoring the goods

purchased and sold. Money received and paid out, stock and other property of the
business. This ensures the smooth running of the business and achievement of the
set goals and objectives.
Communication: it is the process of passing information with suppliers, workers,
customers, for successful performance.

Motivation: it’s the process of encouraging people to give their best towards the
achievement and get employees to willingly pursue biasness objectives.

Budgeting: a budget is a document showing expected income and expenditure of

an enterprise of a given period of time. This is used as guide in monitoring and
controlling the implementation of the planned business activities.

Need for budgeting in an enterprise.

 To price business products appropriately in order to make the desired profits.

 To calculate the cost of goods in advance.
 To prioritize expenditure of business funds.
 To encourage workers to work harder so as to achieve the set targets.
 To be able to compare actual performance with targeted one.
 To facilitate future planning of the business basing on set objectives.
 To motivate workers by involving them in setting targets to be achieved.
 To enable top management to communicate its expectations to workers for
proper understanding.
Benefits of budgeting

 It provides managers with a way to cost their financial implications

 It provides specific goals and objectives that serve as a yard stick for
evaluating performance
 It reveals potential problems before they occur
 It coordinates the activities of the entire business by integrating the plans and
objectives of various department

MARKETING MANAGEMENT

Is the performance of activities that are necessary to get the goods or services from
the producer to the customers resulting into customer satisfaction and realization of
profits on the part of the entrepreneur

Marketing involves identifying, anticipating and satisfying customer’s needs

effectively and profitably.

Objectives of marketing
To recover the cash earlier enough
To penetrate the market especially for a new product
For product line promotion
To satisfy customers and the entrepreneurs by realizing a better profit
For functional satisfaction
To achieve the four utilities ie possession, time, form, and place utilities
Offering a total consumption system
Increments of satisfaction
 Facilitating exchange
Conditions of exchange

There are at least two parties

Each party has something of value to the other party
Each party is capable of communication and delivery
Each party is free to accept or reject the exchange offer
Each party believes it is appropriate or desirable to deal with the other party.
SELLING FUNCTION

Selling is a two – way communication between the buyer and seller. The purpose of
this personal contact is to enable the entrepreneur (or his sales person) persuade the
buyer to accept a product at a stated price.

In selling, a customer may be told how the product will help meet his/her needs, its
price, how to use it, and why it would be good to but it.

Differences between selling and marketing

 Marketing focuses on customer’s needs while selling focuses on seller’s needs

In marketing, a customer enjoys supreme importance while in selling product
enjoys supreme importance.
In marketing, there is an integrated approach to achieve long term goals while in
selling there is a fragmented approach to achieve immediate gains.
 In marketing, an entrepreneur converts customer’s needs into a product while in
selling he converts product into cash.
In marketing there is caveat venditor (let the seller be aware) while in selling
there is caveat emptor (let the buyer be aware).
In marketing profits are realized through customer satisfaction while in selling
profits are realized through sales volume.
Marketing aims at external market orientation while selling aims at internal
business orientation.
Marketing is based on customer approach while selling is based on product
approach.
Marketing is a series of activities an entrepreneur does to find out who his
customers are and what they need or want while selling is a two- way
communication between the buyer and seller aimed at persuading the buyer to
buy the product.

TERMINOLOGIES ASSOCIATED WITH MARKETING

Market
A market is an arrangement that enables buyers and sellers to come in contact with
each other with the main aim of exchanging goods or services.

Or

A market refers to all people / institutions in a specific geographical area that need
products and are able and willing to pay for them.
Market share

It refers to the section or portion of the total market which is controlled or served by
one firm or entrepreneur.

Marketing ethics, Are those standards, values, moral principle or guidelines which
control or govern the behavior of the marketing product in the market

Market fit, is the extent or degree to which a new product of the firm is likely to
attract or appeal to its existing customers

TARGET MARKET POPULATION

This refers to various groups of people or customers where an entrepreneur intends

to sell his/her products.

It is where likely buyers of one’s products will be sourced. It includes women, men,
students, rural and urban people, rich and poor, adolescents (youth) etc.

FACTORS THAT DETERMINE A TARGET MARKET POPULATION

Level of income. Customers with high income levels form a bigger target market
due to their high demand for a products on the other hand, low income customers
tend to have low demand for the products hence forming a small target market
A consumption habit, customers whose consumption habit involves spending huge
amounts of money to buy a product forms a bigger target market for business.
On the other hand, customers who usually spend less on a given products forms
a small a small market.
Level of competition, Availability of many substitute products leads to a small
target market population due to division of customer consumers for similar
products. On the other hand less competition i.e. few substitute goods increase
the target market population
Market share. Existence of money potential buyers in a given area increases the
target market population. However, limited number of potential buyers in a given
area forms a target market for a business
Age and sex composition. A target market for a product is high if a population is
made of potential customers of a given age or sex. However the target market for
a product is small if the number of customers for a given age or sex is small
Market trends / patterns. Positive market trends can bring a big target market
area etc. however negative market patterns like increase in population in a given
market area etc. however negative market patterns like a depression,
unemployment etc. form a smaller target market for the business
Size of the population. A big population size increases the target market
population unlike a small population size that lowers it
Government policy of taxation and subsidization. Increased subsidization
especially for the consumers increases the level of their income and eventually
the purchasing power hence increase in target market population. However,
increase in government taxation lower the level of disposable income of the
population which eventually lowers the TMP
The level / degree of advertisement. Persuasive and repetitive advertising of
products increases the size of the target market population since the consumers
 are influenced to buy and continue buying the product. On the other hand reduced
advertisement

THE MARKETING MIX

This refers to a set of the controllable variables a company puts together to satisfy
the target customers.

ELEMENTS OF MARKETING MIX

Product. This is a good/service offered by a business to satisfy customers’ needs.

The product should be designed in an appropriate way to ensure that it meets desired
needs of customers.

Place. This is concerned with how and where the seller can make product available
to customers. It involves the entrepreneur selecting the best channel of distribution
to ensure that goods are in the right place when required.

Price. This is the monetary value of the product. The price charged by an
entrepreneur for his/her products should be affordable to attract customers but also
high enough to earn profits.

Promotion. This refers to any activity used in informing and attracting customers to
buy a product for the first time and to buy more of it.

Positioning. This involves the targeting of a particular segment of potential market

to whom the entrepreneur aims to sell his/her product. It reflects the emphasis and
entrepreneur puts on a product for a particular segment of customers purposely to
attain them or maintain their loyalty.

Packaging. Wrapping of products in attractive packages to add value

Planning. Process of deciding what, when, how to produce

Physical evidence. Lay out, official company documents, staff uniforms etc.

Process. The way we offer services to our customers

People. The kind of people we employ, their competences, attitude and commitment

PRICING OF GOODS AND SERVICES

This refers to the activity that involves attaching of monetary values to goods and
services at which the entrepreneur is to offer his products. Pricing is an important
activity in an enterprise as it influences the profit of the entrepreneur and it also
determines the consumer’s purchasing power ie his ability to acquire particular goods
and services.
Methods used by the entrepreneurs when pricing their products

Penetration pricing. This is where by a low price is combined with persuasive

advertising aimed at capturing a large percentage of the market.
Target pricing. This is where a firm pre-determines a target level of profits and
then charges a price to generate the target profits.
Skimming method. This is the price policy suitable for the top quality versions.
It is set to target a distinct class of customers.
Price discrimination. This involves charging different prices in different markets
for the same good for different reasons associated rather than costs of production.
Auctioning. Here the highest bidders take the product. Prices are determined
depending on who offers a highest price.
Demand oriented pricing. This is the method of setting price basing on the
level of demand for the product. A high price may be charged where there is high
demand and low price is charged where demand is low
Bargaining. This is where the prices are determined after a further discussion
between the customer and the seller and there after they reach final agreement.
Government pricing policy. This is where the government dictates prices
especially essential products; it fixes the price at which sellers should sell their
products.
Cost oriented method. This is a form of pricing determined by the cost of
production incurred by the entrepreneur. The higher the costs of production, the
higher the price and vice versa.
The fashion oriented pricing. This is where prices are determined basing on
the prevailing fashion or modal. If the fashion is attractive, a high price is set
while low price will be set if the fashion is low.
Competition oriented pricing. This is a form of pricing which is determined
mainly by the other business competitors for the same products.
Limit pricing. This is where the existing firms collectively chose to charge lower
prices than the prevailing price on the market in order to discourage the new
entrants.
 Through forces of demand and supply. This is the method of pricing where
the set price is based on customer’s demand and supply of the product in market.
The Objectives for pricing the products

 To target the return on investment

 To target the market share
 To discourage the new entrants
 To maximize the short run profits
 To determine the distribution of goods and services
 To stimulate the growth of the business
 To establish the market
 To maintain price leadership arrangement
Factors affecting price decisions of a product / factors considered when
determining price of a product.

The nature of customers. Customers with low incomes are always charged with
a low price compared to high income earners.
The government policy. The government at times influences price decisions by
setting up minimum and maximum price levels.
The cost of production. High costs of production for produced products
encourages entrepreneurs to charge high prices while low costs make them to
charge low prices e.g cost for raw materials.
The level of competition. High competition encourages entrepreneurs to charge
fair prices to their customers and vice versa.
The main objective of an enterprise. Enterprises whose main objective is profit
maximization always charge high prices for their products and where the objective
is sales maximization, the entrepreneur always charges fair and low prices to
increase on the sales of the business
The quality of the products. High quality products are always charged with a
high price value compared to low quality products.
The level of demand for the products. Products with high demand encourage
entrepreneurs to charge customers a high price compared to products with low
demand.
The seasonal factor .Some products are always charged highly during some
seasons .E.g scholastic materials like books, bags are always charged highly when
students are going back to school.
MARKETING SURVEY / RESEARCH

Market research is systematic process of collecting and analyzing information relating

to markets and opinions of the public about the products of a firm to enable present
and future decision making.

It is the process of collecting and analyzing information relating to demand of a good

or service in order to identify market opportunities and problems.

AIMS / OBJECTIVES OF CARRYING OUT MARKET RESEARCH OF A PRODUCT

To find out the type and nature of product preference by consumers at a given
period of time.
To find out the quality of products consumers desire to buy.
To determine the quantity / volume of products to be on market ie how much is
likely to be bought now and in future.
To find out consumers reactions on the prevailing prices.
To increase sales/ turnover of the firm.
To determine the best channel of distribution of goods and services for possible
area where the distribution channel is most appropriate.
To find out the effectiveness of advertising and sales promotion on the sales of a
particular product.
 To assess the level of competition with vital forms e.g crown bottlers may carry
out market research to determine its market share and how its products are
competing with those of century bottling company.
To know where to locate your business.
To find out where and when the customers want the good or service.
To guide entrepreneur in making decisions whether to expand or improve on the
current product.
METHODS / TOOLS OF MARKET RESEARCH

Observation method. This is where the entrepreneur watches the behaviour and
attitudes of the public towards his product and products of competitors. It involves
making an informal survey by observing business activities in the community. It
reveals the need for the particular business.

Experimental method. This is where an entrepreneur sells his products within a

small selected area before selling on large scale. If the product is liked within a small
selected area, then the entrepreneur can distribute nationwide.

Interviewing method. Under this method, the entrepreneur asks oral questions
either face to face or by telephone to obtain response of people towards his products.
It is a formal discussion which can identify the short comings of the business.

Telephone surveys. Under this method, an entrepreneur calls different groups of

customers to obtain information about aspects of the product to establish the market
stand.

Questionnaire method. Under this method, an entrepreneur carefully design

questions which are printed on paper then sent to possible respondents to give
answers. It is a formal survey which obtains market information.

Personal contacts. This involves making an informal survey by talking to family

members and friends. These provide information about the best business to set up
and the best products to be purchases in the locality.

Brain storming. This is a technique used to solve a problem by generating as many

ideas as possible. It begins with a question from a leader and another person in a
group gives the answer and then any one adds to it or changes it.

Surfing / use of the internet. This is where information is gathered through surfing
from different websites from the internet.

SWOT analysis. This method involves collecting data by a business through

gathering information about its strength, weaknesses, as well as information about
opportunities and threats from the outside environment.

Steps taken in carrying out market research / survey

Defining the research problem ie setting objectives to be achieved.

 Designing / planning the research ie the strategy to be employed when collecting
data.
Collecting information. This involves gathering relevant information needed to
make rational marketing decisions using the selected technique.
Presenting the research report. This involves writing a final report about the
research findings and making recommendations after analyzing data.
Sources of data for conducting market research

Competitors / competition. This is where data is collected by monitoring the

activities of competitors in the same line of business. This may provide important
information about customers demand that were over looked and they may be
capturing part of the market by offering something unique.

Customers. The entrepreneur should talk to customers to get their feelings and ask
them where improvement can be made. Encouraging and collecting customers’
comments is an effective form of research which involves asking customers to explain
how the product could be improved to satisfy their needs.

Employees (workers). This is one of the best sources of information about

customers’ feelings, likes and dislikes, usually employees work more directly with the
customers and hear their complaints that may not reach the owner. They are in most
cases aware of the items customers request for that the business does not offer.

Company records and files. Examining company records and files can be very
informative e.g looking at the sales records, complaints, receipts or any other records
can show an entrepreneur where his customers live and work, what their preference
is, amount purchased etc.

Importance of carrying out market research

Market research helps an entrepreneur to assess / check the effectiveness of his

advertising and promotional activities.
It helps an entrepreneur to find out the responses of customers to new product
developments that he has introduced in the market.
 It helps an entrepreneur to identify problems in the current product or service so
as to fulfill the customers’ demands.
It helps an entrepreneur to find out his market share ie the number of customers
he is serving in the market.
It helps an entrepreneur to find out who his customers are, where they live, what
the customers want and when they want, their buying patterns etc.
It helps an entrepreneur to collect information which can be used as a basis for
decision making.
It helps an entrepreneur to identify his / her competitors, their activities and
strategies and device various ways of out competing them.
Problems faced when conducting market research of a given product

Language difference. Given that Uganda lacks a national language, researchers

sometimes miss the information they desire to get due to inability to communicate
in the languages understood by the different respondents / consumers.
Inadequate financial resources. It is very expensive to carry out market
assessment. Small firms with limited capital may not be able to undertake it and
this greatly affects their planning.
Inadequate skills to handle data collection due to limited man power to effectively
and efficiently handle market assessment. This leads to inaccurate interpretation
of information from the public.
Inadequate communication facilities. Accessibility of some areas of the country is
difficult due to poor road network. Therefore, information from such areas cannot
easily be got by researchers.
Change in demographic factor like population, sex, age etc which affects the
findings.
Inadequate co-operation from the customers or public. Some people refuse to
answer the questions; others give wrong answers while some chase away the
researchers. All these distort research findings and conclusion.
Insecurity / hostility in some areas which hinder effective data collection.
Competitors, who subrogate effective data collection.
There is also a possibility of getting information from a biased sample / source.

MARKETING TECHNIQUES USED IN BUSINESS

These refer to the tools that may be employed by an entrepreneur so as to carry out
his marketing effectively. These include the following:

Marketing decision making. This involves making right decisions on how to market
and distribute the product. This gives an entrepreneur an opportunity to take action
on a given situation.

Effective communication. This enables the entrepreneur to satisfactorily pass a

message to the target buyers about products available for sale. It can be conveyed
through media like radio, sign posts, newspapers etc either orally or in written.

Negotiations. This is the bargaining situation of a better deal. It enables an

entrepreneur to reach an amicable understanding with the customer on a deal.

Display. This is when items are made known to potential buyers by strategically
putting them in certain positions so that everybody can be able to see them e.g
through attractive windows display.

Offering discounts / price reductions. This is the lowering of the price of a given
product aimed at encouraging customers to buy them.
Offering credit. This is where an entrepreneur allows buyers to take goods and
make payment for them at a later date. This can attract buyers who do not have
immediate cash to customers to buy them.

Quality improvement. It helps an entrepreneur to meet the needs of the market

and therefore accord bigger market share.

Distribution. This is the method where an entrepreneur makes the product available
at places where customers can easily buy them. E.g by using distribution trucks,
opening up distribution centres in different towns.

Personal selling. Is a situation where a team of sales persons are employed to sell
directly to customers so to increase the sales of a business.

MARKETING STRATEGY

Includes identifying customer groups (target customers) which a small business can
serve better than its large competitors. The business can tailor its product offers,
prices, distribution, promotional efforts and services towards a particular market
segment.

Tools for effective marketing strategy

Most business owners rely on two or three marketing strategies to attract new
business. However, there are several ways to attract new business to your door.

Networking. Networking is perhaps the most commonly used approach by small

business owners. This involves cultivating relationships with other people in the
business.

Referrals. This is also effective in generating business ideas. It ensures that a pro-
active approach is taken rather than a passive one. Ask your satisfied clients to refer
other potential customers to you

Cold calling. This involves stating with a conversation with a good opening to
capture other person’s attention

Newsletters. This involves keeping your name in front of your customers and
prospects. Provide valuable information to customers to act as advertising
information / smart marketing.

Giving free information to interested prospectus. Offer information that will help
your target market with their problems.

Offering guarantee. Assume it is for better and offer guarantee especially when
charging suppliers after being dissatisfied with the current suppliers.

Advertising. Focus on customers’ problems than product features then make the
advertisement great by concentrating on the problem you can solve.
POTENTIAL CUSTOMERS

Potential customers are a group of people sharing common needs and characteristics
that a business decides to serve

Characteristics of potential customers

Age. This is important where the product is aimed at a specific age group. For
example, toys for children, as general rule people at different ages have different
requirements for different reasons.

Sex. Some products by nature are designed for a particular sex whoever do not
advise because some customers may buy for others. For example a man may buy a
dress for his girlfriend or daughter.

Location. Customers can be defined by where they live, work and where they go. A
small restaurant may cater for workers in nearby offices.

Occupation / employment. Analyse the social class or occupational group the

product is targeting. Peoples’ occupations determine their tastes / attitudes.

Income. Not many businesses appeal to ranges of income. If your business is going
to focus on high price quality products, your customers will be in high income bracket.

Leisure activities. The leisure industry is an ever growing one. Define customers
according to their leisure activities.

Usage. Identify segments based on the way the product is used by the customers,
on a simple level, heavy use / medium use, low use, skilled use / unskilled use.

MARKET SEGMENTATION

Is the dividing the market into groups of individual markets with similar wants and
needs.

Objectives of market segmentation

To accurately and profitably meet the needs of selected customers.

To boast sales and cut advertising costs by targeting customers with a high like
hood of product purchases.
To enable positioning of each branch within the portfolio against a distinct set of
customer needs.
 To match customers’ needs in a better way. Creating separate offers for each
segment makes sense and provides customers with better solutions.
To enhance profits for the business. Customers have different disposable income
and are therefore different in how sensitive they are to price. Segmenting markets
enables business to raise average prices and finally enhance profits.
To increase opportunities for growth. Market segmentation boasts sales for
example if introduced to lower priced products.
 To retain more customers. Customers circumstances change for example they
grow older, have families, change jobs through promotions and change buying
patterns. Marketing goods which appeal to different customers at different stages
enables the business to retain customers than changing to competing products.
 To target marketing communications. Businesses need to deliver their marketing
message to a relevant customer’s audience.
To gain share of the market segment. It enables businesses to achieve
competitive production and reduce marketing costs. Small firms are able to
compete with bigger firms.
Basis for market segmentation

There is a large collection of possible segmentation bases. Some of these are briefly
described below

Demographics. Consumers can be grouped on the basis of characteristics such as

age or household composition (family size).

Socio-economic characteristics. Similarly, characteristics such as income,

occupation and education can be used to derive segments that are easy to reach.
Such segments are indicators of behaviour like lifestyle, price sensitivity and brand
preference.

Product usage. Potential to use the firm’s product is behaviour based segmentation.
Potential could be determined by asking questions about disposition to use (such as
awareness, used in the past, would consider using) in a survey and respondents
grouped accordingly.

Psychographic. Personality, attitudes, opinions and life styles are often used as
segmentation bases. These characteristics have some relationship to behaviour and
provide insight into how to communicate with chosen segments.

Generation. Generation refers to people born in the same period of time. Such
people share much in common. Not only of a similar age, nut they experienced similar
economic, cultural and political influences in their formative years.

Benefit sought. Some people are price sensitive, others seek quality or service.
Some people are brand loyal, while others frequently switch brands. It is possible to
group consumers on the basis of these factors.

Geography. There are two reasons why people who live in the same area may share
similar characteristics. First, some areas have more expensive properties than others
and so people with similar socio-economic characteristics may cluster together,
second they have similar transport and shopping options, it is easy to reach particular
areas by using local newspaper, cinema, outdoor and selective direct mail but mass
media is less effective.

Geo-demographic. This combines demographic and geography. This identifies

groups of small geographic areas which have similar demographic profile
Discussion. The segmentation basis depends on the decision to be done. For pricing
decisions the segmentation should be price sensitive, advertising decision include
benefit sought, media use or psychographic or a combination of these

Criteria for selecting segmentation basis

Internal homogeneity / eternal heterogeneity. This means that potential

customers within a segment should have similar responses to the marketing mix
variable of interest but a different response to members of other segments

Parsimony. This is the degree to which the segmentation makes every potential
customer a unique target. That is, the segmentation should identify a small set of
grouping of substantial size

Accessibility. This is the degree to which marketers can reach segments separately
using observable characteristics of the segments

CUSTOMER CARE

Refers to the practice that enable an organisation to deliver services or products in a

way that allows the customer to access them in a most efficient, fair cost effective
and humanly satisfying and pleasurable manner possible

THE MANIFESTATIONS OF GOOD CUSTOMER CARE

 By being honest to customers ie being trustworthy while handling business

transactions with customer and suppliers, financiers and competitors.
 By handling customers objections and complaints well for instance
underweight, over priced products, wrong size, contaminated products etc.
 Offering prompt and excellent services to customers ie serving them whenever
they show interest or demand for goods or services.
 By being available to meet customers’ demands and assist them all the time.
 By listening to customers suggestions and opinions
 By giving basic knowledge to customers about how the product can be used.
 By being pleasant to customers when serving them.
 Offering technical and after sales services like packaging, transport, free gifts
etc.
 Improving on the quality of the products regularly depending on the market
demands.
 Offering occasional price reductions or discount to customers.
 By giving credit facilities to customers when they don’t have ready cash.
 Being clear when communicating to customers.
Indicators of good customer care in the business

Increase in the sales thus increase in profits

Decrease in advertising costs/ rates
Increase in number of customers
Repeat purchase by customers
 After sales service available
Suggestion boxes
Discounts allowed
Honesty to the customers
BENEFITS OF GOOD CUSTOMER CARE IN ENTERPRISE

 It improves on the business’ image before the public.

It promotes good relationship between the business and its customers.
It promotes high sale since more customers are attracted.
It acts as a marketing technique to expand the market.
 It creates a plat form to handle customers’ complaints.
It helps business to out compete its business competitors.
It helps customers from being exploited like buying poor quality goods.
It helps to retain business customers and attract the new ones.
It promotes repeated purchases from the business customers.

PROMOTION OF GOOD CUSTOMER RELATIONS IN A BUSINESS

Customer relations are the ways a business deals with customers

The following are the ways through which good Human Relations can be
promoted in a business.

 Proper handling of customer’s complaints and quarries. Customers complaints

should be handled with care so as to promote good relations between employees
and employers
The entrepreneur and employees should always show genuine respect to
individual customers. This can be done by communicating to employees or
customers in a friendly manner
The entrepreneur and staff should be honest when handling the business
transactions. There is need for an entrepreneur and staff to be trust worthy and
avoid over charging customers and providing them with substandard goods /
services
Through provision of services promptly to customers. Time management is very
important when serving customers so as to encourage them keep on purchasing
from the same business
Politeness and good business language of the entrepreneur. An entrepreneur
needs to handle his customers very well and encourage them to keep on buying
goods or services from his business
Customer care. A customer is a king to the business and therefore there is need
for an entrepreneur to care for them with required respect
 Quality improvement of products. An entrepreneur should be able to supply better
quality products that can fully satisfy customers’ needs
Provision of credit facilities to trustworthy customers. There is need for an
entrepreneur to extend credit facilities to trust worthy customers in order to
attract them and to promote sales of the business
 Offering gifts and samples in the business. Giving gifts and free samples to
customers will attract them and maintain good relations between the entrepreneur
and the customer
Offering discounts and after sales services to customers. Customers who buy
goods in large quantities should be given discount and after sales services to
promote relations between the entrepreneur and the customer
Customer satisfaction survey

This is a study conducted to find out whether customers are satisfied with product or
not.

Ways of establishing whether the customers are satisfied

Face to face interaction ie asking how, what, they think about the product
Calling them on phone
Mailing them on phone
Emailing them a customer satisfaction guide
Emailing them an invitation to take a customer satisfaction survey
Measures / ways of ensuring customer satisfaction
Offering or selling good quality products
Timely response to customers’ concerns or being responsible
Good packaging of the products
Charging fair prices or giving discounts
Ensuring constant supply of the products
Being honesty or fair or transparent to customers
Providing sufficient information about the use of business products or services
Being courteous or sincere
Being kind cheerful and able to control ones temper
Offering a variety of products or services.
Ensuring constant supply of the products

PRODUCT PROMOTION

Promotion of goods and service refers to the process of informing, persuading and
influencing the customer’s decision in buying of a good or service.

Objectives /aims / purpose of promotion

Entrepreneurs normally undertake a variety of promotional activities so as

to communicate with customers but with five major objectives ie

 To increase and stabilize sales

 To increase and expand market share
 Increase business profits
 To inform the public about available products
 To constantly remind consumers of the availability of his products
 To out compete other firms ie fight competition in the market
 To retain the existing market
  To introduce new products or designs
 To inform new customers about the availability of the entrepreneur’s products
 To promote publicity of all enterprise and also acquire good will
 To create direct contact between the business men and the customers
Promotional mix. This refers to the combination of various activities / methods
under taken by an entrepreneur to promote his products. It’s a combination of
methods used to achieve the objectives of promotion

Methods of promotion / attracting customers

 Sales promotion.
 Advertising.
 Personal selling.
 Publicity.
SALES PROMOTION

Refers to various activities undertaken by an entrepreneur to increase the sales of

goods and services. It involves ways or behaviour that any entrepreneur uses to
influence people to buy more of his goods or services so as to maintain profits

Objectives of sales promotions

 To inform or remind the public of the products available for sale

 To target a particular segment of the market to whom the products are to be
sold
 To stabilize sales/retain market for the products
 To increase the sales of the entrepreneur by attracting new customers and
retaining old ones
 To bridge the gap between the entrepreneur and the customers
 To out compete rival brands or to meet the challenge of competition
 To introduce new brands to market. This can be done by distributional samples
 To maintain sales of seasonal products
Ways / methods / techniques / tools used by entrepreneur to promote sales

The various methods through which a business person can communicate with his/her
customers to promote sales include the following

Giving free sample. These are distributed to attract customers to try out a new
product and thereby creating new customers. Sometimes these samples may be
distributed among selected persons in order to popularize the product e.g when
century Bottling Company (Coca-Cola) was introducing the 500ml and 1 liter bottle,
people in Kampala were given free soda (samples).

Through premium or bonus offer. This is where a product is accompanied by an

extra pack of product(s), in order to induce consumers to buy a particular product.
This is very common today with toothpaste products like the big sized collegate herbal
which is packed with a tooth brush. It is also useful for encouraging and rewarding
existing customers.
Through exchange schemes. This refers to exchange of an old product for a new
one at a price less than the original price of that product. It is useful for drawing
attention to product improvement. It is common with those shops that sell phones
and their accessories in Kampala.

Through price – off offer. Under this offer, products are sold at a price lower than
the original price. It boasts sales in off peak seasons and during introducing a new
product in the market.

Through use of coupons. These are issued by manufacturers either in the packet
of a product or through an advertisement printed in newspaper or magazine through
mail. These coupons are presented to the retailers while buying the product and the
holders buy at a discount.

Through trade fairs and exhibitions. These may be organized at local, regional,
national and international levels to introduce new products, demonstrate the products
and to explain the special features and usefulness of the products. Goods are
displayed and demonstrated and their scale is conducted at a reasonable discount
e.g UMA trade fairs at Lugogo show ground.

Through trading stamps. These stamps are distributed among customers

according to the value of their purchase. Customers collect these stamps of sufficient
value within a particular period in order to get some benefits

Through scratch and win offer. Some companies use scratch and win scheme to
induce the customers to buy a particular product. A customer scratches a marked
area on the package of the product and gets benefits according to the message
written there.

Through money back offer. Customers are given assurance that full value of the
product will be returned to them, if they are not satisfied with the product. It creates
customers confidence regarding the product’s quality especially when introducing a
new product.

Selling goods on credit. This attracts customers who cannot pay promptly. It is
offered to customers well known to the business to avoid bad debts.

Through window display. This involves putting the products near glass windows
such that passerby, observe them and if possible buy by impulse.

Offering cash and trade discount. This is offered to those customers who buy
goods in large quantities and those who buy on credit and pay promptly in an agreed
period of time.

Giving donations. Donations can be given by way of contributing money or goods

to charitable organisations or to disabled children’s homes. This is done to attract
publicity for the enterprise and its product.
Organizing competition or games. Business may offer products to winners of a
game in order to attract them buy particular products.

Creating the right attitudes in employees. Training employees to be friendly to

customers and knowledgeable about the products / services they are selling increases
sales.

Maintaining links with others. Proper communication with other people like
current and potential customers, whole sales, agents, retailers keeps the right people
well informed about the business.

Offering after sales services. These include delivery, maintainace, repairs,

installation, servicing etc from a bigger impact on the business image and customer
royalty as long as they are not affecting the profit margin of the business.

Giving out free gifts. Producers may offer free gifts to their customers to encourage
them buy more. Such gifts may be enclosed in the packages of goods or may be
given directly to the buyers. For example, if you buy fuel worth 5,000 shs and above,
from Jovena petrol stations, you are given Sackets of OMO.

Carrying out Intensive advertising of products in newspapers, radio, television,

posters, sign posts, Music, banners, bill boards, electronic display (neon signs),
calendars, brochures etc.

Using nonproductive value methods like providing free and convenient parking
space, sales guides to customers etc, these also help to promote a firm’s product and
they are mainly used by supermarkets.

Note.

Non product value method of sales promotion do not involve financial benefits to the
customer and do not involve financial loss to the entrepreneur. For example free and
convenient parking space, guiding customers on how to use the product

Product value methods of sales promotion involve a financial benefit to the customer
and a financial loss to the entrepreneur, for example reducing the price of the articles,
offering delivery services

Importance of carrying out sales promotion in business

It leads to increased sales. This is because promotion of goods and services

increases market for the entrepreneur which leads to increased profits
It helps the business to become popular and also acquire good will result of the
various promotional activities that may be undertaken by the firm
 It informs new customers about the availability of the entrepreneur’s product. This
is makes the goods and service of the entrepreneur to become known to the public
It helps the business man to regain market share so that he does not lose some
of the customers to other business men or competitors
 It’s used to persuade the customers to buy the products of an entrepreneur
instead of buying those from their producers. This is because many customers got
to know such products through sales promotion
It helps the entrepreneur to introduce new product designs. Some adverts are
aimed at informing the public about the new styles, fashions, and tastes of a
product. This is especially done through the giving of samples and gifts
Helps an entrepreneur to constantly remind customers of the availability of the
products hence increasing sales in areas of low or declining demands
 It creates direct contact between business man and customers such that other
middlemen aren’t able to increase prices which may lower demand for the given
firm’s products
It promotes publicity of an enterprise of an enterprise thereby helping the
businessmen to out compete his competitors hence making a lot of profits in the
business

Sales promotion strategies

A sales promotion strategy is an activity / technique that is designed to help in the

boasting of sales of products or services.

Examples of sales promotion strategies

Free sample campaign

Advertising campaign
Public relations activities e.g sponsoring sports
Free gift campaign
Trading stamp campaign
Demonstrations / trade shows
Prize trading competition
Temporary price reduction
Door to door sales
Tele- marketing
Personal sales letter and e-mails.
Types of sales promotion strategies

There are three types of sales promotion strategies

A push strategy. This involves pushing distributors and retailers to sell your
products or services to the customers to buy by offering various kinds of
promotion and personal selling efforts. E.g buy-back guarantees, free trails etc.
A pull sales promotion strategy. This involves getting the consumer to buy or
purchase the product or service directly from the company itself. If focuses more
on the seller than the consumer. E.g coupons, samples, refunds, loyalty programs
etc
Combination of pull and push sales promotion strategies. These involve the
combination of the push and pull strategies. It focuses on both the distributors as
 well as the consumers. If offers customer’s initiative side by side with the dealer
discounts.
ADVERTISING

Refers to the spreading of information about one’s products to the customers.

Or, is a system through which information about the existing goods and services is
brought to the knowledge or awareness of the public / customers.

TYPES / FORMS OF ADVERTISING

Informative. It is a type that aims at creating awareness, reminding the customers

about existing goods and services, facts like the nature of the product, where it’s
found, the price, its use, the quality, terms of sale are very important. E.g advertising
for a job opportunity, when also advertising for cigarette a phase like “Cigarette may
be harmful to your health” is informative advertisement.

Persuasive. This is also called competitive advertising. It is type which aims at

inducing or convincing consumers to buy the producer’s products and leave out other
producers’ product. It is common for branded products and goods which are close
substitutes e.g drinks. It tends to be misleading in most cases and hence at times
undesirable common phrases are used such as “simply the best”, “our product is
second to none”.

General / mass advertising. This is where producers in the same industry combine
and advertise as one person instead of each of them advertising his/her own brand
they form a trade association whose aim is to advertise members’ products. Such
association also undertakes other services in the interest of members like
negotiations with government e.g UMA

Direct advertising. This is where the adverts appeals to a specific group of people
e.g a radio programme in a particular language, local language newspapers,
advertising of fair and lovely products for ladies

Indirect advertising. This is one that does not appeal to a specific of group. It’s for
whoever comes across it. E.g posters inviting people for a music show, aids
awareness posters appeal to general public regardless of class, age, level of education

Institutional advertising. This one that attempts to promote the recognition and
goodwill towards the firm or industry. Like when Uganda Christian University
advertises all the other campuses benefit and are recognised.

Aims / purpose / objective of advertising.

To stimulate buying by encouraging people to buy products being advertised even

if they did not intend to buy.
 To arouse interest for example most adverts especially on television and
magazines are aimed at increasing people’s interest towards the goods or services
of the producer.
 To create desire through indicating the benefits and satisfaction one is likely to
gain from using a particular good or service for instance “Colgate makes you
stronger”.
To convey / pass on information to the public about product for example its
quality, price, use, where it can be found etc.
To introduce new products or designs, new styles, fashions and taste of a product
by creating customer interest for it. For example a new brand Samsung cellular
phone, a new model of Mercedes Benz car.
 To inspire / create confidence in consumers in using a good or service for example
“you have Got what you want” for Pilsner larger” people who think differently” for
club beer.
 to attract new customers through advertising a product by giving its good qualities
attracts customers for instance “Pau clere for smooth skin”
To sustain customers by advertising products repeatedly with an aim of keeping
the already existing customers in the market. For example MTN, UTL, Century
Bottling Company, etc continuously advertise so as to maintain their market
share.

Guidelines for preparing an advertising media

do not cluster the whole space with words or picture

the advertisement should be easy to recognize and should stand out like including
the logo of the business
the head line should emphasize benefits of the customers from the product
the content should be simple and easy to understand
It should include important information about the business e.g location, telephone
contact and services offered.
One must be honesty in the advertisement must deliver what his or her promises
The name of the business must be in line with the type of the business
The selection of certain things used to attract customers like colours should be
emphasized.
ADVERTISING MEDIA

It refers to the several channels / methods through which advertising message are
conveyed to the public. An advertising medium refers to channel through which
advertising is delivered to the prospective customers

Types advertising media

Newspapers. These are printed on papers in black and white or coloured and they
are used to advertise various business products showing even the illustrations

Advantages of newspaper advertising

Messages can reach a huge number of people in a given geographical area

There is flexibility in deciding on the advert size and placement within the
newspaper
 The advert can be large enough as necessary to communicate as much story as
possible
Exposure to the advert is not limited since readers can go back to the message
again and again if so desired
Free help is always possible in creating and producing advertising copy
Disadvantages of newspaper

Newspapers are usually read once and stay shortly in the readers minds
The print quality of the newspapers is not the best especially for photographs
The page size of the newspaper is fairly large and small advertisements can look
tinny
 Competition is high within the same newspaper which requires making it
attractive to capture the reader’s attention
Advertising space is expensive in a newspaper
Poor photo reproduction limits creativity
It is a highly visible medium thus competitors can quickly react to your prices
Some readers prefer online versions of the publication to the print version
Magazines

These are in form of booklets which bear advertising message. They are on quality
papers, with more colours published weekly or monthly

Advantages

It leads to high reader involvement since more attention is paid to the advert
Better quality permits better colour reproduction and full colour adverts
The smaller page permits even small adverts to stand out
Allows better targeting of audience since one can select a magazine publication
that cater for audience or that specialize in the topic of interest of the audience
Disadvantages

The long lead time requires planning a week or months in advance

The slower lead time heightens the risk of your advert getting overtaken by
events
There is limited flexibility in terms of advert placement and format
Space and advert layout costs are higher
Radio

This is where the programmes are broadcasted in local languages spoken in the
country so that adverts can reach all groups of people

Advantages

 All classes of people, literate and illiterate equally benefit by listening to

adverts in their language
 Detailed explanations through repeated advert a clear view about the product
 The radio also provides entertainment in form of music combined with advert
giving an impression about the products being advertised
  Radio programmes are on air the whole day giving enough time to broadcast
adverts in all major languages
 It covers a wider geographical area because it has a wider coverage
 Many people can afford a radio
Disadvantages

 Radio adverts and announcements are expensive

 It may be difficult to broadcast in all languages. Therefore too many
programmes on radio to provide time for commercial news / adverts
Television

Television as a medium can be used to show film display about the product advertised

Advantages

 It reaches many people at the same time at one moment

 It offers entertainment in form of music and films
 Provides details about the goods concerning the direction and application of
such goods
 It can serve both literate and illiterate people
 Messages can be perceived both visually and audually
 It can serve a large geographical area

Disadvantages

 Few people have access to the television. It is only rich – ones can afford TV
set
 It is very expensive to sponsor programmes on TV
 There is language problem especially in a country with many advertising
languages like Uganda with so many local languages
 It may not adequately sever blind
 Sometimes the information given to use is not enough
Outdoor advertising

Outdoor advertising is also a very popular form of advertising which makes use of
several tools and techniques to attract the customers outdoors. The most common
examples of outdoor advertising are bill boards, Kiosks, banners, posters, neon
signs and also general events and trade shows organized by the company

a) Trade fair and exhibition. This is where a group of traders gather to display
their different products to buyers e.g UMA Lugogo show ground for trade
fairs. The aim is to bring products in contact with wholesalers and
customers
Advantages

 There is close contact between manufacturers and buyers

 Normally they sell at reduced prices
 Occasionally they demonstrate the operation of some of their products
  Many buyers normally turn up both locally and internationally increasing the
turn over (sales)
Disadvantages

 They are not permanent like shops, they occur once in a given season
 They are costly to arrange if they are to succeed
 They are limited especially to urban centres thus rural areas may not benefit
from them
 The blind cannot benefits from trade fairs and exhibitions

b) Posters. These are designed carefully by producers to convey the message for the
goods. These can be located on the walls of pus parks, schools, railway stations,
sports grounds etc
Advantages

 Posters are most effective and economical way of advertising

 All are wide spread i.e. their coverage is big
 The cost of display is very low
 They are displayed 24 hours a day
Disadvantages

 The blind cannot benefit from them

 Illiterate people may not benefit from them
 They can vandalized or destroyed by rain and people

c) Neon signs. These van be installed on major buildings where writing on them
advertise for commodities
d) Sign posts. These are majorly informative, however, they also persuade people to
buy e.g Mukwano products
e) Banner. Is a cloth with writing is put up advertising the occasion, they are commonly
used by musicians and other artists. They advertise conference and events
f) Window display. The goods are well organized in clear glass windows of shops. The
buyers are able to inspect the goods on display, compare their labeled price and make
a choice
Advantages

 Windows display leads to window shopping which influences the buyers mind
to buy the commodity
 The buyers are able to see what they buy
 It is not costly to arrange the goods on display in the shop
Disadvantages

 The blind never benefit from this form of advertising

 Sometimes goods on display are different from what is being sold
Direct mail. It involves direct communication by the producer to the general public
through mail
Business directory. This involves businesses listing or selected classification puts
in the book with an assumption that if people need the product / service they look at
the classification and contact the manufacturer

Internet advertising. This is online advertising. It offers the possibility of reaching

potential customers 24 hours a day, seven days a week. The promotional message
can be delivered with the click of a mouse at customer’s home on work place

Importance of advertising to an entrepreneur

 It increases firm’s sales due to increased demand for goods and services. When
more adverts are carried out people will demand for more goods leading to mass
production hence increased profits
It helps an entrepreneur to introduce a new product or design into the market.
Some adverts are aimed at informing the public about the new styles, fashions
and tastes of a product
It facilitates large scale production. This is because it results into increased
demand which annually results in large scale production and its associated
advantages
Due to increased production, Advertising stimulates research and development
activities this is so because competing producers on how to find ways on how to
improve their product so as to out compete their competitors with sales for
research in productions
It persuades the customers to buy those products of an entrepreneur instead of
buying those from other producers. This is because many customers get to know
such products
It promotes sales of goods and services of entrepreneurs by informing people
about them and asking them to buy the advertised
 It helps the entrepreneurs’ business to become popular and also acquire good will.
This is because it helps to build reputation and image of the advertisement and
creates customers’ loyalty
It helps the entrepreneur to constantly remind consumers of the availability of his
products hence increasing sale in areas of low or declining demand
 It informs new customers about the availability of entrepreneurs’ products. This
makes the goods and services of the entrepreneur to become known to the public
It helps the business to retain its market share so that it does not lose some of
the customers to the other business men / competitors
 It creates direct contact between the business man and the customers such that
other middlemen are not able to increase prices, which may lower demand of a
given firm’s products
Disadvantages of advertising

unsuccessful advertisement lead to wastage of resources

It increases the operational costs of a business ie it is expensive.
It leads to closure of weak or high cost firms in the market.
It leads to movement from one producer to another without increase in total
demand in the market.
Components of an advertising media

The appeal; this refers to the underlying idea that captures the attention of the
message receiver.
Value proposition. This is the reason for customers to be interested in a product.
Slogan. This is a word or phrase that is repeated across several different messages
and different media e.g where quality matters, gives you wings to fly etc.
Business name
Business location
Product offered
Contact
Illustration of the product where possible
Benefits of the product to the customer.

FACTORS FOR CONSIDERING WHEN SELECTING AN ADVERTISING MEDIUM

The cost of the medium. Expensive products are better advertised through
expensive media like the television, newspapers and magazines whereas cheaper
goods are advertised through cheap means like radios and posters.

Target consumers have to be considered. It will be useless to advertise a product

in newspapers and magazines when your group is composed of illiterates and local
people who cannot even read nor access the magazines and newspapers, you rather
use radio, then if you are targeting rich people and literates, and you can then use
television and newspapers.

Age group of target market has to be considered, different age groups have
different media like if you are targeting youths, better use televisions, magazines,
whereas if you are targeting adults, use radios and newspapers since they listen to
radios more than televisions.

Speed and urgency of the information should be considered, where an

entrepreneur needs to access his market very fast, he selects media like the radio,
television etc than magazines that are out weekly, monthly etc

Geographical area to be covered. One selects an appropriate medium that can

reach the geographical area he/she is targeting, newspapers, radios and televisions
cover a wider area while outdoor advertising and window display that target
customers in a small area like a trading center.

Medium used by competitors, one is expected to use a medium that is better off
than the competitors’ in terms of market coverage, urgency, reliability etc but this
should be done in consideration of the cost of the medium in comparison with
expected returns

Availability of the medium, for instance however much as one would wish to use
neon signs as a medium of advertising in areas where there is no electricity / power,
it would not be possible, like in remote areas thus one should consider media forms
that are available and affordable.

Nature of the commodity to be advertised should be considered, like there are

some commodities that can best be advertised by showing their fashions, models,
colour and forms like cars, machines etc, so such items cannot be advertised over
the radios instead of a television is appropriate as it will portray all the necessary
features to the potential market.

Number of people reached by the medium, newspapers reach more people than
magazines and while radio does it better than the television.

Economic status of the target group. Traders use television, newspapers or

magazines while advertising to the rich while the radio and outdoor advertising
appeals mostly to the ordinary people.

Preparing advertising message for goods and services (elements of

advertising media)

Most advertising messages share common components within the messages including

a) The appeal. This refers to the underlying idea that captures the attention of a
message receiver. Appeals can be into categories as motional, fearful, humorous
and sexual.
b) Value proposition. The advertising message often contains a reasons for
customers to be interested in the product which often means the advert will
emphasize the benefits obtained from using the product.
c) Slogan. To help position the product in customer’s mind and distinguish it from
competitors’ offerings, advertisement will contain a word or phrase that is
repeated a cross several different message and different media outlets e.g
“everywhere you go” for MTN.
d) Awareness value. The advertisement should bring the awareness for the product
or service.
e) Problem solving. The advertisement should provide the information regarding
the use and utility benefit of the product that may remain in the minds of
customers.
f) Recall value. The advertisement should be so effective that the product should
stick to the memory of customers.
g) Sincerity. An advertisement must gain the confidence of the customers. It should
avoid bold claims and the product should deliver the results as per claims made
by the company.
h) Enlightening / educative value. A good advertisement should educate the
general public about uses of the product
i) Instinctive value. A good advertisement must possess natural value so that
customers are induced, persuaded and motivated to think well of a product and
take to its use.
j) Strong fee offer. Good words which contain a strong offer should be used which
tell the reader the next step in the buying process and encouraging him to take it
now
k) Clear illustration. Good adverts do not use abstract concepts which puzzle the
reader on what is being sold.

PUBLICITY. Is the movement of information with the aim of increasing public

awareness of a business product. It is the communication through significant unpaid
presentations about the organisation in the impersonal media.

DISTRIBUTION CHANNELS

A distribution channel refers to the arrangement or path through which products

move from the producer to the final consumers. The distribution channel consists of
a set of business entities (middlemen) who participate in the distribution of goods
and services as a link between the manufacturer and the consumer.

Features / characteristics of an effective distribution channel

- Maximizes the sales of an entrepreneur

- Maximizes profits for the producer / entrepreneur
- Maximizes the cost of distribution of the product and the general costs involved.
- Convenient to operate by the entrepreneur / producer and the customer.
- Capture a big market share i.e captures many customers.
- Does not affect the quality of the final product
- Minimizes the risks involved in distributing the product.

TYPES OF DISTRIBUTION CHANNELS

Distribution channel are classified according to the number of middlemen involved.

There are mainly three types of distribution channels ie the short/direct channel,
medium channel and the long channel.

Direct distribution / manufacturer to consumer channel. This channel is also

known as direct – selling or short channel distribution. It is a method where an
entrepreneur makes and sells his products directly to customers. This channel, a
producer or trader may sell directly or through his or her own retail stores through
mail or door to door selling

Retail distribution / manufacturer to retailer to customer. This is known as the

medium channel. This is where the manufacturer sells to large scale retailers who in
return sell to the final consumers. It is common in the distribution of most goods
hence increasing the firm’s total sales and profitability

Wholesale distribution / manufacturer to wholesalers to retailers to

customers. This is the traditional and normal channel of distribution. In this channel,
manufacturer sell products to wholesalers usually in bulk who in turn sell to retailers
in relatively small quantities who finally sell them to final consumers in affordable
quantities

Other types of distribution channels.

Manufacturer to agents to wholesalers to retailers to consumer. In this

channel, the producer / manufacturer distributes his/her products to agents in
different places who then sell to the wholesalers who sell to the retailers and finally
retailers sell to the final consumers

Manufacturer to agents to retailers to consumer. In this channel the

manufacturer distributes his/her products to her agents who then sell them to
retailers and retailers finally sell to the customers

Manufacturer to agents to consumer. This is channel the manufacturer distributes

his/her products through appointed agents found in different parts of the country or
world who in turn sell to consumers

Factors that should be considered when choosing a distribution channel for

goods and services

The nature of the product. Durable goods are distributed through a long
channel because they cannot easily be damaged; bulky goods are sold directly to
the consumers to reduce the transport costs. Also perishable products are sold
directly to consumers.
The location of potential customers. Where customers are near and within the
reach of your business, a direct or short channel will be preferred. This helps an
entrepreneur in identifying customer needs easily and reducing the distribution
costs and the reverse is true where customers are far from your business
The level of competition. High levels of competition in the market require the
use of a shorter distribution channel in order to ensure that goods are delivered
in time so as to out compete the other firms. On the other hand, low levels of
competition in the market allow the entrepreneur to use medium or longer
channel.
The nature of the business. A manufacturer who is financially strong with
marketing experience can afford to use direct selling to customers. Similarly if a
manufacturer wants to have control over distribution and promotion of the
products he uses direct selling. On the other hand a firm dealing in a single product
and where the manufacturer is not financially strong, he may opt to use a long
channel of distribution.
The cost of distribution. Where the cost of distribution is high, and the producer
has low level of finance, he/she prefers selling directly to the final consumers. On
the other hand where the cost of distribution is low and the product is not
perishable, the manufacturer can use a long channel of distribution.
 The manufacturer’s distribution policy. Different manufacturers have
different policies as to their distribution of goods and services. Where the
distribution policy of enterprise is to directly reach customers, then a direct
 channel of selling to consumers is suitable. The business can use a longer channel
of distribution if the distribution policy requires using middlemen.
The value of goods. Highly valuable products and does not need a lot of
handling, the short distribution channel should be used. On the other hand if the
product is of low value a longer distribution channel may be used to minimize the
costs.
The availability of middle men. When the desired middlemen are not available
the direct selling may be necessary, while if the available middlemen are desirable
and able to handle the goods, a long and medium channel which involves
middlemen should be used.
The availability of storage facilities. For the cases where the storage facilities
are available at the manufactures premises, a direct channel is always used but if
the producer lacks storage facilities along channel is used.
The reliability of the channel. A producer should choose a channel which is
reliable and has a good image that will not alter the quality of the products. In
case middlemen dilute products, then the producer may sell directly to consumers.
The level of frequency in using the product. Products which are used
frequently to customers are always sold through retail outlets and other middle
men.
Nature and size of the market where good are to be sold. When the market
is small / narrow, the manufacturer uses direct selling (short channel). If the
market is big and with geographically scattered customers, a long channel is
better.
Method of delivery. Where a manufacturer owns delivery trucks he/she can use
short channel. On the other hand, an entrepreneur who has no proper distribution
means can use a longer channel involving middlemen.
Scale of production. Small scale producers who lack sufficient capital to handle
the marketing task of their output sell their products through middlemen while
large scale producers tend to have enough capital to handle the marketing costs
and therefore can delivery to the customers.
Amount of goods to be brought by consumer. Producers whose customers
buy on large scale sell directly. On the other hand, sell through middlemen who
are able and willing to provide all the relevant services to the customers enable
the entrepreneur to sell through them.

MIDDLEMEN IN THE CHANNEL OF DISTRIBUTION

Middlemen refer to wholesaler, retailers and agents that serve as intermediaries
between the manufacturer (producer) and his customers/ clients.

There are two type of middlemen ie the merchant who buys goods and the agent
middlemen.

Merchant middlemen. These are middlemen who buy goods and handle them
as their property before reselling. They include retailers and wholesalers.
Agent middlemen. An agent middleman is a person who employed by another
person to represent him in dealing with third party. An agent hold goods on behalf
 of the seller (principal) and the goods never become his. Examples of agents
include the factor agents, brokers, del-credere agents etc.

RETAILERS.

A retailer is a trader who buys goods in large quantities and sells them to the
consumer in small affordable quantities. A retailer is the last link in the chain of
distribution of goods between the producers to the final consumer.

Roles / functions of a retailer in the chain of the distribution

 Selling goods directly to customers

 Breaking the bulk through selling goods in small quantities.
 Offering storage facilities for the goods until they are picked by the final
consumers
 Offering transport facilities for himself when buying gods from the wholesaler
or producer thereby saving him the burden of transport
 He anticipates demand of consumers and informs the wholesalers who in turn
informs the producer.
 He offers a variety since he buys goods from different producers.
 He at times offers credit to trust worth customers.
 He acts as a financier of a wholesaler by paying him promptly.
 He carries out advertising on behalf of the wholesaler and producer
 He offers after sales services to the final consumers
WHOLESALERS

A wholesaler is a trader who buys goods from the manufacturer and sells them to the
retailers or final consumer in smaller quantities.

Role/functions of the wholesaler in the chain of distribution

 Providing a link between the producer and the retailer.

 keeping prices stable by ensuring a steady supply
 Transporting goods from the producer to his warehouse and then to the
retailer’s shop.
 Providing the manufacturer with ready working capital by paying for the goods
bought promptly.
 Breaking bulk by selling goods in small quantities that retailers can afford.
 Providing storage facilities for the goods bought from the manufacturer by
keeping them in his warehouse.
 Preparing goods for sale by grading, pre-packaging and pricing goods which
reduces the retailers’ workload and enables him/ her to serve customer faster.
 Providing consumer with steady supplies throughout the year by holding large
stocks and releasing them regularly.
 Advising the retailer on a range of goods to be held, prices to be charged,
services to be offered etc.
DISADVANTAGES OF MIDDLEMEN IN THE CHANNEL OF DISTRIBUTION.

Middlemen tend to overcharge their customers and they do this because they
want to make a lot of profits.
Some middlemen tend to dilute some products so that they get more units in
order to make large profits. This is especially common with liquid items like
milk, juice etc which leads to poor quality products.
Hiding of commodities. Some middlemen create artificial shortages by hiding
of certain goods in order to sell them when their prices have increased. This
means consumers to pay higher prices especially for essential goods like sugar,
soap, paraffin, salt etc.
Sale of defective goods. Some middlemen sell defective and expired products
to the customers which may be harmful to their customers especially food
stuffs.
Their profit margins of wholesalers as middlemen tend to be too high as
compared to those of the manufacturers and retailers in most cases. This
forces to charge high prices hence exploitation of customers through charging
higher prices.
Wholesalers exploit manufacturers if do not buy goods from them in time. This
leads to over production that can result into losses to the producers. Similarly,
wholesaler can refuse to supply goods to some retailers due to minor reasons.
This means they can spoil the business of the manufacturers and retailers.
Sometimes, wholesalers provide incorrect information to the manufacturers
regarding the market situations. This may lead to over or under production by
the producer.

Terms and conditions for selling goods and services

Terms and conditions are areas, which agreed upon by the seller and the buyer to
access, use and own the seller’s products

Cash basis. This is where immediate payment for goods and services is made, it is
simplest and most preferred way of selling by businesses where goods and services
are sold on cash basis, cash receipts should be issued to the buyer or seller.

Advantages of selling goods on cash basis.

It ensures enough working capital for the business.

It saves the business from extra paper work costs involved during credit
transaction.
It creates low risks for bad debts.
It ensures constant supply of the business stock.
It reduces administrative expenses that are associated with credit sales and debt
management such as hiring edit officers.
It allows selling to buyers from unknown customers.
It facilitates the sale of small items.
 It enables flexibility in the business since capital/finances are always available.
Extra expenses like legal expenses experienced when handling bad debtors are
saved from the entrepreneur.
It enables an entrepreneur to have ready cash to pay his creditors promptly and
obtain cash transaction.
Disadvantages of selling goods on cash basis

It is convenient to only a limited number of customers with ready cash.

It is difficult to operate on cash basis in a very competitive market.
It leads to low sales.
It is a risky form when selling expensive items like industrial machinery.
Selling on credit. This involves a seller giving out his/her goods, or providing
service to a customer but payment is to be made a future date

Reasons for carrying out credit selling

To promote more sales and high rate of turn over

To attract more customers who may come to enjoy credit services
To ensure good relationship between the business and its customers
To reduce stock losses resulting from expiry of goods. This is because stock which
is about to expire can be given on credit basis
To promote repeated purchases from the business customers
To enable the business customers who lacks ready cash to acquire expensive
goods.
To ensure enough market for the business products
To create an alternative technique for marketing business products
To increase on the profits made by the entrepreneur on sales. This is because
goods sold on credit are always charge highly
To create a chance for selling very expensive goods like industrial machinery
To ensure enough market for the business products
Circumstances/conditions under which goods may be sold on credit

When goods are about to expire.

When sales are low and there is a need to attract more customers.
When an entrepreneur has enough working capital
When an entrepreneur can also purchase on credit
When there are set standards as regards to credit recovery
When a credit customer has presented a collateral security
When goods are getting out of fashion or expired
In case there is a need to out compete other business competitors.
When the entrepreneur expects prices to fall in the near future
If the supply exceeds demand. I.e deflationary tendencies
When the entrepreneur has got the means to know about the credit worthiness of
the customer. E.g the customer may get recommendations from other traders or
suppliers.
When an entrepreneur has insured himself against losses which may result from
bad debts
 When goods are very expensive and it is hard to be sold on cash basis
When the credit customer is well known
When the entrepreneur is operating on a large scale
In case of dead stock
THE COSTS / DISADVANTAGES OF CREDIT SELLING

 It’s administratively expensive.

It may make the business to run out of working capital.
It may spoil the relationship between the business and its customers
At times poor quality goods are sold to customers.
It creates high chances of bad debts.
It limits customers from making their own choices.
The business may run out of stock in case credit customers take long to pay.
The system is disadvantageous especially during inflationary tendencies where
money value is not stable.
Hinders the business expansion
High recovery costs leading to cash problems.
FACTORS CONSIDERED WHEN SELLING GOODS ON CREDIT

The condition and financial status of the borrower

The collateral security possessed by the customer.
The period for making payments
Whether the customer is daily customer or irregular customer
WAYS OF MANAGING CREDIT SALES.

By ensuring proper documenting of all credit sales made.

By setting up short credit periods for the business debtors
By continuously reminding the business debtors their due dates for clearing their
dates.
By extending discounts to business debtors who clear their debts in time. This will
encourage them to make prompt payment.
By giving reminder notes to business debtors to remind them the due dates for
clearing their debts
By extending credit facilities to only well-known debtors with a good historical
back ground.
Asking for collateral security with a high value
WAYS OF ENSURING PROPER CASH MANAGEMENT.

By ensuring proper counting and checking of the cash received to ensure that it
is correct ie that it is the required amount
By recording of all cash sales made.
By locking of all the cash received in safe drawers all the time for security reasons
By reconciling all the sales made per day with physical cash collected.
By banking all the cash received intact on a daily basis
By employing skilled personnel to handle business cash
By carrying out proper accountability of cash expenditure
By limiting unnecessary withdrawing of cash to reduce cash expenditures.
 By properly documenting all the cash documents for easy reference. E.g cash
receipt.

PERSONAL SELLING

This is where a team of sales persons are employed to sell goods directly to
consumers. It involves sending sales persons to suit customers in their home land
offices and discuss with them about the existing products sold by them

QUALITIES OF A GOOD SALES PERSON

Attractive personality ie the capacity to attract and influence customers

He should have enough knowledge about the firm and products of the business
and their qualities the target customers, competitors as well as the selling
techniques
He should be honest and sincere ie should be one who talks the truth, does not
steal or cheat
He should be persuasive to encourage buyers to buy more products from him /her
 Should be polite to the buyer ie should care for other peoples’ feelings
He should possess good communication skills. Ie having the ability to approach a
person since customers have different characteristics
He should be smartly and decently dressed. This makes him to be more
presentable.
 He should be hard working and fulfill the customer’s needs.
CIRCUMSTANCES UNDER WHICH PERSONAL SELLING MAY BE NEEDED

When the product is still new on the market

When the competition is high
When there is a need to extend after sales services to potential customers
When goods are very expensive
Where the market consist of few customers who can easily be accessible
When the firm is financially capable of hiring a large number of sales persons
When demonstration is needed
When goods needs minimum handling
REASONS OBJECTIVES FOR PERSONAL SELLING

To increase sales
To out compete other business competitors
To expand the market share
To save customers from being exploited by the middle men in form of high prices.
To attract new business customers
To identify and collect the customers opinions and suggestions towards a given
product
To create a chance for bargaining by the business potential buyers
To improve the relationship between the business and its customers. This is
because it involves direct contact
 To create a room for carrying out bulk or heavy purchases to customers
To create confidence and mutual trust between the sales person and the
customers
To create a chance for business potential customers to ask questions and clear
their doubts about the business products
To create a chance for giving after sales services to customers to customers. E.g
demonstration
Procedures /steps of carrying out effective personal selling

Presale preparation. This involves recruiting, training and motivating the sales
person. At this stage the sales persons acquires knowledge about the firm,
products of the business and other qualities, the target customers, competitors
as well as the selling techniques.
Prospecting. This stage involves understanding the market properly ie analyzing
/ knowing their prospective buyers, their needs and their purchasing power. This
can be done through asking the already existing customers for their names,
locations, needs etc and other potential customers who could want to benefit from
the product.
 Pre-approach. It involves identifying the customers’ habits, preferences, income
levels, attitudes etc so as to be able to select the right sales appeal before
approaching them.
The approach. This is the first meeting face to face with the customers. The sales
persons must introduce himself and the product of the firm in a polite and dignified
manner.
Presentation. This involves gaining customers attention by the sales man. It
involves giving a brief description about the product in the question, to the
customers, mentioning and explaining briefly the unique features that may not be
self-evident. The sales person tells the prospective customer the price, terms and
conditions of payment or delivery.
Demonstration. Here the sales person displays how the product works. It is done
to maintain the customers interest customers and a rousing his desire. Here the
sales person is required to explain the utility and unique qualities of the product
so that the prospective customers realize the need for the goods and services to
satisfy his wants.
 Handling objections. This involves clearing all the customers’ doubts and
objections amicably by the sales man. At this stage the sales person should
endeavor to convince the customers that he is making the best use of his money
by buying the product. However the sales person should avoid proving that his
products are superior to those of the competitors.
 Closing the sale. This is the climax of personal selling. The sales person should
carefully guide the customer in making the choice without imposing any view on
him/her. Therefore the sales person shouldn’t force the transaction / deal but
rather allow the customer to make the final decision. For successful closing some
adjustments in price and other things may sometimes be necessary. In closing
the sale, the item bought should be packed properly and handled over to customer
who has bought an article.
 Post sale follow up. These are activities undertaken by the sales person to
ensure that customer is satisfied with the goods and services from the business.
Post sale follow up therefore includes after sales activities like free installation of
the products, checking and ensuring its smooth performance Maintainace and
ensuring after sales services. These activities help the entrepreneur to secure
repeat sales evaluate the effectiveness of the sales persons.
Importance of personal selling to an enterprise

It enables the entrepreneur through the sales persons to deal directly with
customers. This allows the customers on how the product works
 It provides a two – way communication channel that helps entrepreneur to meet
his customers’ requirements (needs) as regards prices, quality, and services
offered as well as increasing sales for his products
Personal selling enables the entrepreneur to negotiate specific needs to different
customers as regards prices, quality etc
 It helps to gain quick feedback about the entrepreneur’s goods and services as
well as suggestions for improvement
It helps in winning customers confidence about goods and services
Disadvantages
In addition, the free gifts and samples given to customers make it more expensive
 Some salesmen don’t give out samples to customers. They tend to use them for
their own consumption and in the end, the products are not known to the public.
Travelling salesmen face a lot of risks and problems like road accidents, highway
robbery and bad weather conditions.
Personal selling cannot effectively be carried out where many products are
involved since this will call for employment of very many salesmen.
It is expensive; this is because sales men are always paid commissions.
It may make the final cost of the product high.
Some sales men are not honesty enough.
It has a very limited coverage and it appeals to very few individuals at time.
It requires enough capital which most businesses lack.
Some customers are not friendly and this makes it difficult to be approached.
It needs special skills and techniques to be conducted successfully.
Some attendants in show rooms may be rude and unfriendly to customers.

HUMAN RESOURCE MANAGEMENT (HRM)/ MANAGING PERSONNEL

HRM is the part of management which deals with effective control and use of workers
to do all the activities involved in an enterprise. It is the art of influencing people to
so all activities required in an enterprise.

Nature of personal management

It includes the function of employment, development and compensation. These

functions are performed primarily by the personnel management in consultation
with other departments.
It is an extension to general management. It is concerned with promoting and
stimulating competent work force to make their fullest contribution to the concern.
 It exists to advise and assist the line managers in personnel matters. Therefore,
personnel department is a staff department of an organisation.
Personnel management lays emphasize on action rather than making lengthy
schedules, plans and work methods. The problems and grievances of people at
work can be solved more effectively through rationale personnel policies.
It is based on human orientation. It tries to help the workers to develop their
potential fully to the concern.
It is also motivates the employees through its effective incentive plans so that the
employees provide fullest co-operation.
 It deals with human resources of a concern. In context to human resources, it
manages both individual as well as blue – collar workers.
Role of personal manager.

Personal manager is the head of personnel department. He performs both managerial

and operative functions of management. His role can be summarized as;

Providing assistance to top management. The top management are the people
who decide and frame the primary policies of the concern. All kinds of policies
related to personnel or workforce can be framed out effectively by the personnel
manager.
Advising the line manager as a staff specialist. Personnel manager acts like a staff
advisor and assists the line manager in dealing with various personnel matters.
Counseling personnel manager attends problems and grievances of employees
and guides them. He tries to solve them in best of his capacity.
Linking top management and workers. Personnel manager acts as a mediator
between management and workers.
Representing the organisation. Since he is in direct contact with the employees,
he is required to act as representative of organisation in committees appointed by
government. He represents company in training programmes.

ELEMENTS OF HUMAN RESOURCE MANAGEMENT

Man power planning: this is concerned with assessment of the man power of an
enterprise in terms of both quality and quantity.

Recruitment: refers to the process of attracting and identifying a suitable worker

for a given job. It can be done through advertisement.

Selection: this is a process an enterprise or entrepreneur follow so as to pick out

the moist suitable candidates for a particular job.

Placement: this involves assigning workers tasks to be done in an enterprise.

Induction training: this involves introducing a new worker to the enterprise so as

to build confidence and sense of co-operation.

Human resource development: this is concerned with improving the skills of

workers like through further training, study tours etc

Determination of employees’ remunerations, terms of employment and

working conditions: this involves assessment of monetary and non-monetary
rewards payable to workers.
Motivation: this involves encouraging or stimulating workers to work hard in order
to achieve desired goals of an organisation / enterprise.

Communication: this involves putting in place formal and informal communication

requirements and procedures for the enterprise. It involves making consultation
between employers and employees.

Termination: this concern with laying off a worker due to some reasons such as
inefficiency, indiscipline etc.

Importance of Human Resource management

 It enables an organisation to get competent workers with the right skills and
knowledge. This promotes productivity and better production.
 It enables an organisation to be efficient and effective in order to achieve its goals
and objectives. This is because workers are informed of production standards and
other expectations of the organization.
 It helps to minimize damage of machines and equipments by the fact that
machines and pieces of equipment are operated by technically competent
workers, damages are controlled.
 It helps to minimize costs of production, within an organisation. This may come
about as a result of employing skilled and experienced workers to minimize
wastage of time and resources.
 It helps an organization to achieve its targets of profits maximization since the
needs of the workers are well catered for.
 It helps in staff training and development. This is done through organizing various
training programmes and seminars by the personnel department which improves
workers skills.
 It promotes good staff relations through development of co-operation between
the employer and the staff.
 It promotes good image of the business to the public through the good skills
exhibited by the personnel manager.
 It helps in evaluating the performance of employees in all departments of an
enterprise through performance appraisal.
TYPES OF PERSONNEL IN AN ORGANISATION

Production personnel: this personnel is responsible for transforming of raw

materials into finished goods and providing services depending on the nature of the
business.

Marketing and selling personnel: this is responsible for marketing, selling and
distribution of goods produced by an organisation.

Transport personnel: this one is responsible for transporting raw materials from
suppliers to the organisation and finished goods to market centres.

Security personnel: this is responsible for safeguarding the environment of the

business and ensuring that the stock and assets of the business are not tampered
with.

Financial personnel: This is responsible for keeping and counting business funds
and all the money received or paid out in an organisation.
Entrepreneur (the owner): this carries out overall supervision within this
organisation, makes clear the job available and the required skills and knowledge of
the required workers.

RECRUITMENT PROCESS

It refers to identification of vacant post, advertisement, short listings, and

interviewing in order to get the best candidates. It involves attracting qualified
applicants for jobs in an enterprise.

SOURCES OF RECRUITING EMPLOYEES

Internal sourcing methods

This is where an organisation recruits workers from within itself, internal recruitment
takes the following forms (sources).

Through transfers: A transfer of workers from one job to another within the same
enterprise is a source of recruitment. This is usually done to meet the demand of
workers in the enterprise or business.

Through promotion: this refers to the appointing a worker to a position of a greater

and high authority. This is an internal source of recruitment that brings change in the
duties and authority of the worker.

Present employees/ employees’ referrals: this is where an entrepreneur asks

employees to recommend their friends and relatives to fill vacant posts in an
organization.

Demotions. This is a form of internal recruitment where employees who may have
been proved ineffective in performing their tasks may be transferred to fill lower
positions as compared to their current positions. This method is commonly used in
security organisations like the police, army and the private security organisations like
Saracen.

External sources

This is where employees are got from outside the organisation, such sources include
the following.

Unsolicited applicants /walk ins: small businesses receive many un-solicited

applications from qualified and un qualified individuals. The former should be kept in
file for future reference. Good business practice suggests that all applicants be
treated courteously whether or not they are offered jobs.

Advertisement: this involves looking around for the type of person by making the
vacancy known to the public by the use of media like newspapers, television, radio
stations etc.

Visiting institutions of higher learning and technical institutions: these are

sources for certain types of employees, especially if prior work experience is not a
major factor in the job specification. Schools are also excellent sources for part time
employees.

Private employment agencies: these are organisations which specialize in

recruitment of workers for different employers. The entrepreneur or employer
provides them with job description for the vacancies to be filled together with the
applicable terms and conditions in so that they look for and recruit the appropriate
candidates for the employer. This is done in from the employees or employer for a
highly qualified applicants exchange for a fee.

Head hunting / talent spotting: this involves looking around for the type of person
that would suit the specification of the job. This is normally done by Human Resource
Manager who inquiries from friends, giving them the description of the type of person
he needs.

Field trips: this is where an entrepreneur goes out to different places spotting the
right type of personnel needed for existing job.

Internet (surfing). This is where information about certain jobs is entered into the
computer and those looking for jobs feed data also in the system. The computer then
will match the jobs with people. However, computer networks are used by multi –
national companies.

FACTORS CONSIDERED WHEN RECRUITING EMPLOYEES IN AN

ORGANISATION / ENTERPRISE

Types of skills required: this is a very important factor; the recruited personnel
should possess the required skills. This depends on the nature of the organisation;
people with required skills will help a firm to achieve the set goals.

Employees’ working experience: in every business, experience matters a lot; it

is assumed that employees, who have enough experience in doing a particular
activity, perform efficiently, so an organisation would look for those with enough
experience, depending on the available work to be done.

Cost of the employee is considered when recruiting employees: cheap labour

is always wanted by employers to minimize on the wage bill of workers. This enables
employers to maximize profits.

Age of employee is greatly considered when recruiting employees: in most

cases, employers do want to use minors in the business (people below 18 years).
This is because in case of any problems, they cannot be blamed too much by the law.
Actually, this would be taken as a case of child labour. Therefore employers always
employ people who are above 18 years and at the same time those who are not too
old.

Nature of the job to be done: employees to be recruited should vary with the type
and nature of work to be done, for instance if the need for employees is in the
marketing department, one would not except to recruit accountants or doctors;
instead he has to look for personnel who follow in that category (marketing).

Health conditions of the employee: most firms (mainly profit making firms) would
not want to recruit employees with a lot of medical problems e.g those with chronicle
disease. This is because it will affect the business in terms of reduced working days,
increased medical allowance.

Sex of an employee: this also depends upon the nature of work to be done. some
jobs are fit for a particular sex, for instance those who work in heavy machinery in
factories loading and offloading of commodities etc are fit for men while others like
receptionists, secretary etc are fit for ladies. So depending on a particular work, one
should recruit a particular sex, which is fit for the job.

Language: it is also important as this is the only way for effective communication in
an organisation that’s why today firms need educated people who have common
language to facilitate easy communication or want employees who speak many
different languages.

Marital status is another vital factor always taken into consideration when
recruiting employees: some employers prefer workers who are single because they
will be committed to work and are easily flexible than the married people who always
tend to have a sense of maturity are not easily flexible. For example, it becomes very
hard for married people to move to other work stations, leaving behind their families.

Size of the business: some businesses are small and need few workers and at times
large businesses need many workers. At recruitment therefore, the number of
employees depends on the size of the enterprise.

Procedures followed when recruiting business employees

i. Identifying the vacant posts / man power .
ii. Advertising the posts.
iii. Receiving applications.
iv. Cross checking the applicants and handling inquires.
v. Short listing candidates
vi. Conducting interviews.
vii. Selecting suitable workers.
viii. Appointing successful workers in their jobs.
ix. Giving induction training to newly recruited workers.

CAUSES OF DIFFERENCES IN WAGES OF WORKERS IN AN ENTERPRISE

Differences in the nature of job performed: more difficult or demanding jobs earn
high wages and salaries compared to simple jobs.
Differences in level of education and training: workers with high level of education
and skills would normally be paid higher wages and salaries compared to those
with low level of education.
Differences in productivity of labour: more productive employees in terms of
output are paid higher wages than those whose productivities are low.
Differences in cost of living: some entrepreneurs fix wage rate depending on cost
of living of workers, in places with high cost of living workers earn higher wages
than those working in places with low costs of living.
 Differences in entrepreneur’s capacity to pay: entrepreneurs enjoying higher
profits can afford to pay higher wages than those firms earning low profits or
operating on losses.
Demand and supply for labour: where the demand for labour in relation to supply
is higher, the wage rate tends to be high and where the supply is higher than their
demand, the wage rate tends to be low.
Differences in working conditions: jobs with poor working conditions such as high
levels of risks should be paid highly compared to less risky jobs.
 Differences in trade union’s bargaining power: a stronger and more powerful trade
union will secure higher wages for their members and weak unions may only afford
to negotiate a bare minimum wage for their members.
 Differences in level experience / expertise: highly experienced workers tend to be
paid higher wage rates than less experienced.
Government policy on wages: the government may set up minimum wage rate.
If these minimum wage rates are high, wages and salaries will also be low.
Difference in the nature of employment: workers on contract receive high
payment compared to those on temporary or permanent basis/
Difference in workers bargaining power.
Difference in efficiency of the worker.

SILENT FEATURES OF MAN POWER PLANNING

Man power planning involves forecasting of the future man power needed so that
adequate and timely management can be made to meet the man power needs in the
business

The major purpose of man power planning is to determine the types of workers and
the right number required for effective accomplishment of the tasks and goals of the
enterprise

Human resource planning is continuous process since the demand and supply of the
labour change frequently. It leads to development of policies, programmes and
procedures for the acquisition and development of the man power employed by the
enterprise

It involves both qualitative (determination of number of workers needed) and

quantitative (determination of appropriate skills for various jobs) planning

OBJECTIVES OF MAN POWER PLANNING

To forecast or predict type of skills required in future

To determine the number and type of the workers required
To promote the development of the existing personnel
To ensure optimum use of present man power
To ensure proper control measures of an enterprise so that the man power is
available when it is needed
BENEFITS OF SUCCESSFUL MAN POWER PLANNING

It enables the management to reduce labour cost since imbalance due to the
shortage in surpluses in demand can be controlled before it becomes un
manageable
It helps in identifying gaps that need to be filled so that the suitable training
programmes can be designed so as to build particular skills required in the future
It helps in formulation management and succession plans since it provides enough
time to the employer to identify and help managers to be promoted
It provides a sound basis for the development of workers so as to ensure optimum
use of the available talents
At national level it guides the government in employment creation in education
reforms and in transfer of workers in the country
It helps in diversification of business to undertake new projects and expansion
programmes aimed at increasing earnings
ORGANISATIONAL CHART

This is a diagram that shows the organisational structure of a firm showing the overall
top management shown in different departments of the firm. The organisational chart
shows the different departments and the job functions and the personnel with in
those units

USES OF AN ORGANISATIONAL CHART

It acts as a visual aid for staff training during induction session

It specifies duties and responsibilities of different personnel in an organisation
It shows the hierarchy of authority within the organization
It is used as a reference whenever transfers and promotions are to be done in an
enterprise
It facilitates smooth flow of information communication in an enterprise
It helps an entrepreneur to identify vacant posts in an enterprise
It helps an entrepreneur to coordinate with different department
It ensures an entrepreneur to determine the man power requirements of the
business
It gives the organizational structure of the enterprise
It shows the reporting relations in an enterprise
It is used as a reference point whenever transfers and promotions are to be done
in an organization
It creates a platform for delegation of authority between superiors and
subordinates
It enables the successfulness of performance appraisal basing on employees
duties and responsibilities
It instills discipline among employees and manager as it specifies the level of
administration and subordination
 Illustration

Share holders
Owners of the company

Managing directors
Responsible for controlling the
implementation of company’s goals

General Manager
The overall controller of their
departments

Financial Production Marketing Purchasing Human resource

manager manager manager manager manager

Assistant Assistant Assistant Assistant Assistant Human

financial production marketing purchasing Resource
manager manager manager manager manager

Supporting staff

REASONS WHY AN ENTREPRENEUR MAY RECRUIT WORKERS

 To recruit the right people with the required skills and abilities. When workers with
skills and abilities are recruited there are high chances of increasing productivity
in the enterprise.
 To minimize damages to machines and equipment by using technical competent
persons. When competent workers are recruited, damages which can increase
costs on machines and equipment can be minimized.
To minimize costs in an enterprise. Recruitment or workers helps to avoid wastage
of resources and time thus increase in efficiency and effectiveness.
To replace workers who are retiring, dismissed and die. Recruitment helps an
enterprise to fill the gaps caused by the workers moving out.
To get workers for future use in case an enterprise expands. Workers may be
recruited to be kept for future programs e.g when more branches are open.
To increase productivity and output in an enterprise. Recruitment of workers
improves performance leading to high productivity and output.
To cater for advancement in skills required to perform certain tasks. Some
workers may be recruited due to more development in an enterprise e.g advanced
technology.
To be groomed by the business. Workers may be recruited when they are under
qualified or not experienced hoping to be groomed to become better workers.
To fill the gaps costed as a result restructuring within the enterprise. Unqualified
or not experienced staff members may be restructured in order to recruit skilled
workers.
To increase man power required for efficient and effective in achieving the set
target of the business. Recruitment enables an enterprise to increase labour force
so as to achieve its set standards and targets.
Competencies excepted of an applicant during an interview

Consistence
Qualifications / education
Confidence
Courtesy
Time management
Decency / smartness
Respect
Intelligence
Experience
Team work
Controlling emotions
Good communication
Creativity and innovativeness
Concentration
Self – motivation
Knowledge
Flexibility
Attentiveness / listening

PERSONAL REQUIREMENT OF THE BUSINESS

Personal resource requirement of the business implies determination of the staff,

their skills and experience or specific requirements required by the business in its
operation

JOB ANALYSIS
This refers to the systematic collection and recording of information concerning the
jobs to be performed in an organisation. It involves rewarding of information that
concerns the purpose of the job and major duties and conditions to be performed. It
also involves knowledge; skills and abilities needed to perform the job effectively and
efficiently for example the job of an accountant would require knowledge of
accounting duties

Job analysis therefore involves the following activities

identifying the purpose of the job
Identifying duties and responsibilities of a job / position.
Stating the terms and conditions of the job.
Identifying the knowledge, skills, experience and abilities required to perform the
job effectively and efficiently.
Identifying the reporting relationships i.e to whom to report.
Identifying of the qualifications one should have to perform the job.
Identifying the personnel qualities and behaviour one should possess for example
age.
Identifying of physical and mental characteristics one should have to perform the
job.

Steps followed when carrying out job analysis

Collecting the relevant data ie information about the job

Selecting the representative positions
Collecting job analysis data i.e information is related with the future of the job
with required qualifications
Developing job specification
Developing a job specification
JOB DESCRIPTION

This is a broad statement of the purpose, scope, duties and responsibilities of a

particular job to be done. Job description should be written or prepared under the
following headings

 type of the job

 Location of the job / department.
 main duties and responsibilities of the job / position
 supervision given and reporting line
 the limit of jobholder’s authority
 job relationship to other jobs or departments
 any office equipment to be used on the job like computer
 some terms and conditions of employment
 Job circumstances ie whether pleasant / unpleasant, demanding or
undemanding etc.
 STEP BY STEP RESTAURANT
AND TAKE AWAY
P.O BOX 041, TEL 0777777777
Dealers in all types of foods like local dishes, meat, chicken and soft drinks
We are looking for a hardworking, dynamic and self-motivated person to join
our working team
JOB DESCRIPTION
JOB TITTLE: Sales Manager
DUTIES AND RESPONSIBILITIES
Identifying suitable advertising media
Selecting appropriate way of increasing sales
Motivating the sales team
Receiving customer orders

Reporting to: Human Resource Manager

Working conditions: Normal working conditions

JOB SPECIFICATION
It refers to a detailed statement of the physical and mental activities involved in doing
the job. It defines the desired human requirements needed for a given job e.g
knowledge, experience, skills, physical requirements like health etc
Job specification is expressed in terms of what the workers does what knowledge
he/she uses in doing it and the judgment he/she make

Such requirements may include.

identifying the level of education and training one should have attained in order
to perform a particular job
Specifying the knowledge, skills and experience that one should possess.
Identifying the personal characteristics that one should have to perform the job
such as age, sex, integrity etc.
identifying the physical requirements
age range
health and appearance (not commonly considered)
 KAJONJOH ENTREPRISES LTD
P.O BOX 2121 MUKONO
TEL: 0414-332 442
Dealers in all Household items like utensils, consumables and confectioneries
Job specification for an accountant

Qualification

A first class degree in commerce or any Business related degree course from a reputable institution
ACCA or CPA (Uganda) at least two stages is an added advantage

Experience: A minimum of 3 years working in recognized institution / firm

Other requirements and skills

Good communication and interpersonal skills

Computer literate, with knowledge of MS- office, Pastel, Tally or Quick books
Self-motivated and minimum supervision

Health status: should be normal without any chronic diseases

Marital status: should be married
Importance of job specification
Age: between 25-45 years
 It can be used in communication programmes for recruiting workers
Modeof It enables the employer’s management to set standards of performance
application
 It provides useful information for under taking lob evaluation , recruitment,
A hand written application with a C.V and all the relevant documents
replacement and training performance appraisal and wage and salary
Two referees plus their current addresses
administration
Should send an application to the above address, not later than 2 weeks from the date of
 It is used at executive levels of improving standards and productivity of
this advertisement
organisation
 ItOnly short listed
enables applicantsto
the employee will be contacted
know the scope of her job in terms of activities and
responsibilities involved
JOB GRADING / JOB EVALUAT

Job grading

This refers to the process of determining the relative value of every job in the
organisation in order to price the jobs in terms of wages and salaries. It is what is
expected to be the output for a given job and one should perform as excepted

The main objectives for carrying out job grading.

 To determine the relative value for each job.

 To provide factual information to be used when settling salary disputes.
 To provide a basis for negotiations between employers and employees since salary
grievances are reduced
 To ensure good relationship between employers and employees since salary
disputes.
 To provide adequate information used when designing job analysis.
 To motivate employees this improves their morale.
 To promote hand working among employees.
Methods of payment

Salary: this is a fixed periodic payment within a given time to workers. It is a fixed
period payment to workers after a long period of time. It is commonly paid to
non-manual either monthly basis or other wise
Characteristics of salaries

It is confidential to the employee earning

It is progressive in nature therefore it should be increased after a given period of
time. But not remaining static or constant
It is considered personal to the workers earning
It has no additional payments like bonus, overtime
2. Wages: this is the payment to manual workers and it’s usually expressed as a rate
per hour. It is a method of payment used by entrepreneurs to their temporary
workers in enterprise. It is normally paid after a short period of time e.g daily basis,
hourly or weekly

Wages have different structures and they include

a. Overtime pay. This is paid to the worker who works or serves over and above
the normal working time.
b. Shift pay. This refers to an allowance or payment given to workers who alternate
as they perform their duties. Sometimes employees work during unusual hours
and this allowance is given to them as way of compensating them for their hard
work inconvenience and hardships.
c. Cost of living allowance. This refers to payment given to workers in response
to an increase in the general price level. It is a payment given to employees who
work in places where there are high costs of living e.g in urban areas like Kampala.
d. Piece rate payment. This refers to the payment where a worker is paid doing a
given piece of worker. This is applicable where work to be done is measurable and
payment rates are usually agreed upon before work is done.
e. Time rate. This refers to method of payment based on the amount of time
worked. It is a type of payment arrangement where remuneration is given
according to the time one take doing the job.
f. Contract based payment. This refers to a mode of payment where a given
worker takes on a piece of work to be done which should be completed in agreed
time for agreed amount of money.
g. Special wage addiction. This is a situation where the worker is paid during
abnormal working conditions for example in insecure places.
h. Bonus scheme payment. This refers to extra reward given to the worker over
or above his regular pay and it is normally given to workers who perform their
duties exceptionally well.
i. Standard pay. This refers to the payment given to workers as a fixed pay in a
given period, this may be monthly, weekly, this is irrespective of the amount of
work done.
j. Policy allowance. This is usually paid to workers whose services are very scarce.
The intention of this payment is to motivate and encourage the workers to serve
for the organisation.
Factors considered when determining payments for workers in an
enterprise.

Level of competition for workers among different employers. High levels

of competition for workers force employers to pay their workers higher wages so
 as to motivate and retain them. On the other hand, absence of competition for
workers among different employers leads to relatively low wages paid to
employees.
Level of education and training that a person undertakes. Workers who
have high levels of education are paid higher wages because of the extra period
of training incurred. On the other hand, low wages are paid to those workers with
low levels of education.
Cost of living. employees who work in areas where cost of living is high for
example in urban areas are paid higher wages than those who work in areas where
the cost of living is relatively low for instance in rural areas.
Experience and skills for a particular job. Higher wages are paid to employees
with experience and the required skills relating to a particular job. On the other
hand, workers lacking experience and the required skills to perform a particular
job are paid less.
Amount of work (duties and responsibilities) being done. employees with
more tasks to perform than others should be paid highly because of the extra
assigned duties while those with less duties and responsibilities should be paid
according to the amount of work being done ie they should earn less.
Nature of employment opportunities. Permanent workers with guaranteed job
security are paid relatively low wages than those doing work which is on a contract
basis. This is because the job security for contract jobs is usually for a limited
fixed period which is agreed.
Strength and bargaining power of workers. Workers with a lot of bargaining
power and whose services are highly demanded by the organisation are paid
higher wages. On the other hand, employers who take advantage of workers with
low bargaining power through paying them less provided they are helping to
achieve its goals.
Demand for the services being rendered by the worker. There are workers
whose services may be highly demanded than those being offered by the others.
In such situations, such workers are paid higher wages than those offering
services that the organisation / business would still continue to operate even
without such employees.
Nature of work being done. Workers who perform mental / knowledge-based
type of work are paid higher wages / salaries for example accountants than those
who perform physical type of work like cleaning.
Risk involved in the work being done. Workers who do risky jobs like the night
watchmen should be paid higher than those doing less risky jobs like office or
toilet cleaning.
Profitability of the business/ employer. Business or organisation which make
a lot of profits motivate their workers by paying them higher wages. On the other
hand, workers in businesses with low profits being made are paid relatively lower
wages.

JOB PERFORMANCE STANDARDS

These refer to acceptable competency aspects required for a given job. It is minimum
expected from output from the job

Sourcing. This involves identifying the sources of the required personnel. Source may
include the organisation itself (internal sourcing), compiling organisation (other
organs of the same industry) newspapers, journals, colleges and institutions
Selection. This involves evaluating and choosing among different candidates it
involves the following steps

Receiving application forms

Initial screening of the short listed candidates
Reference to check the truthfulness of the candidate
Physical examination
Job letter (accompanied with an appointment letter)
However the selection exercise is always accompanied by a recruitment programme

Example of recruitment programme

Identifying the vacant post and the value in the enterprise

Advertising the vacant post
Receiving application and handling inquires about the advertised posts
Cross checking applications against job specification
Establishing interview panel, rooms and questions
Short listing the candidates
Contacting successful candidate for the interview
Conducting interview
Analyzing the interview results and selection of the suitable candidates
Appointing the successful candidates
Carrying out induction training for the successful candidates

JOB INDUCTION OR ORIENTATION

This is the process by which a newly recruited employee is introduced to a job and
various aspects are given. An induction training or programme include the following

Issuing an appointment and discuss the content there

Introducing the worker to the board of directors, shareholders and other heads of
departments
Introducing the worker to other supporting staff
Carrying out tour or survey around the business premises
Proving him with all the necessary resources and introducing him to his office
Welcoming part with the boards of directors and getting ready to report to work
Factors considered when preparing induction of new employees

Knowledge and job ie one should have the necessary knowledge about the job
which employees are to be inducted
Having a current employee serve as a mentor ie there is need to give a new
employee a mentor to guide him on the job
Setting/ preparing a sample job break down. This spells out the contents of the
job to be done in terms of job content.
Setting a training time table. This shows the activity / time
Work area. This involves arranging the venue for induction by providing facilities
required.
 Evaluating new employee’s work on a daily basis. This helps to know their
performance to guide them well where they are to work.
Employee special needs. In case of this provide special facilities for them during
induction.
Advantages of induction of new employees

It leads to increased productivity. Adequate training increases skills which

improves both the quality as well as quantity of the product due to increase in
level of performance
 It improves employees’ morale. Training improves needed skills which build up
confidence and satisfaction of the employees
It decreases supervision. A trained employee supervises himself. He accept
responsibility and experts more freedom and autonomy and less supervision
PERFORMANCE APPRAISAL

This refers to the continuous process of assessing and providing employees’ feedback
about how well or how poorly they are doing their work for the organisation

It refers to the continuous process of evaluating workers process against the

organizations’ job standards

It refers to a judgment of employee performance on the job based on various

considerations than productivity alone. It is sometimes termed as merit attracting
assessment

Reasons to appraise workers performance

To determine the future use of an employee ie whether he/she should remain on
the present job or be transferred, promoted, demoted or dismissed.
To decide whether there is need to increase a worker pay or not basing on ground
of merit
To identify the training needs of employees
To motivate employees to do better in present jobs by allowing them to appraise
their own performance
To judge whether the employee has performed according to the expected
standards of performance or not
To provide performance records needed by financiers donors /creditors so as to
evaluate performance of the enterprise
To enable employees set realistic job targets
To promote good working relationship between employers and employees those
who obtain proper communication.
To re-enforce desired competencies / behaviors among workers
To obtain feedback on performance
To validate selection techniques and human resource policies for equal
opportunities of worker
To monitor and ensure efficiency and effectiveness of workers
Importance of performance appraisal
It helps to determine the future use of an employee ie whether he/she should
remain on the present job or be transferred, promoted, demoted or dismissed.
It helps to judge whether there is need to increase a worker pay or not basing on
ground of merit.
It helps to identify the training needs of employees. This is because after
performance appraisal it is easy to identify areas of performance where there is
need for improvement and appropriate training
It helps to motivate employees to do better in present jobs by allowing them to
appraise their own performance. The employee (appraise) is in position to get
knowledge of results of his performance and recognition of his merit and
opportunity thus discussing the results with the managers or entrepreneur
 It helps to judge whether the employee has performed according to the expected
standards of performance or not. it enables the employer to identify the best
performers in the business enterprise
It provide performance records needed by financiers donors /creditors so as to
evaluate performance of the enterprise
It enables employees set realistic job targets for work to be done. This enables
an entrepreneur to meet business standards and long term goals
It promotes good working relationship between employers and employees those
who obtain proper communication.
It re-enforces desired competencies / behaviours among workers
It helps to obtain feedback on performance
It validates selection techniques and human resource policies for equal
opportunities of workers
It helps to monitor and ensure efficiency and effectiveness of workers. This is
because workers tend to perform carefully bearing in mind that they are to be
appraised
It enables an enterprise to monitor the progress of the employees on the jobs.
This is because the strength and weakness of workers are easily identified through
performance appraisal

Methods of appraising performance

Ranking method. This method requires an entrepreneur to rank his/ her
subordinates in order of merit. Basing on the total skills, knowledge and
experience
Grading. this method requires an entrepreneur or manager to group his
employees in different categories basing on the total performance usually quality
and quantity
Rating scale. This method consists of a list of personal characteristics of factors
against each of which is a scale up to 5 points for the manager to base his
assessment of workers e.g better performance are given excellent and worst
performance are given poor
 Open ended method. This method emphasizes the way the job is performed and
expect the manager or supervisor to write a few sentences about the subordinates’
performance rather in different aspect of the job
Behavior expectation scale. This method requires the manager to select some
aspect of the worker behaviour where appraisal can be based. It is sometimes
termed as behaviorally anchored rating scale (BARS)
An example of performance appraisal

BYONNA TWALA ENTERPRISE

P.O BOX 3333, Kampala, UGANDA
TEL: 0725556677
DATE…………………….

PERFORMANCE APPRAISAL FORM

Name of the employee: ………………………………….
Job title; Accountant
Evaluation period: 1 Month
Method: Rating Scale Method
KEY ASPECTS
Details Excellent Fair Average Poor Points
Quality of work  100
Beating deadline  70
punctuality  50
smartness  100
Social interaction  50
Team player  10
Total 380
Weight of comments

Excellent – 100, Good – 70, Fair - 50, Average – 40, Poor – 10

Comment: quite good employee and deserves a certificate of merit
Recommendation: more improvement should be made on punctuality in order to
enable the organisation achieve its goals and objectives

Prepared by …….. Approved by…….

MOTIVATION

It refers to the process of stimulating labour to take up a desired course of action

Or it refers to the process of encouraging workers so that they may perform efficiently
and effectively in an organisation

METHODS USED WHEN MOTIVATING EMPLOYEES.

Ensuring Timely and adequate remuneration of workers. Workers payment should

be made on time as agreed upon in terms of payment and it should be adequate
to enable them perform their duties efficiently and effectively
Management of discipline in the organisation. The discipline among the workers,
managers and entrepreneurs should be well unforced basing on rules and
regulations in order to have effective working culture
Rewarding good results. Giving rewards to specific good result on the work well
done encourages employees to work hard and get more rewards
By providing fringe benefits to workers like pensions, housing allowance,
maternity leave, sick leave where applicable to workers so that to encourage them
perform better in the organisation
 Through job training. Training of workers helps them to develop express, skills
and acquire more knowledge used to improve performance of the organization e.g
use of tools and equipment
Ensuring good working conditions. Improving working conditions costs a pleasant
working environment which enhances the employees motives to achieve the
desired set objectives and goals of the organisation
Ensuring job security. There is need to ensure workers that they have job security
and therefore an employer should avoid sending away employees at any time he
feels
 By ensuring open communication to all business employees. There is need for
employer and employee to communicate efficiently and effectively through top-
bottom and bottom – top communication with feed back
Through organizing staff parties. There is need to organize parties for staff
members they socialize and share ideas and get encouraged to serve in the
organisation
Through promotion aspects. Workers need to be promoted, if they perform better
so that they are encouraged to perform to their best hoping for more promotions
Through participating in decision making. Allowing employees to participate in
decision making promotes motivation among the employees since they develop
sense of belonging
 By carrying out performance appraisal to evaluate employees’ performance
By sharing and showing concern of workers problems.
By involving employees in profit sharing schemes since they are one of the people
who contribute towards profits
Through giving sponsorships to workers. This enables the workers to acquire more
knowledge and many opportunities in their profession

Reasons for motivation of workers

To stimulate workers to perform their duties positively so as to contribute towards
the achievement of desired objectives and goals of the organization
To promote good human relations through job satisfaction
To improve the productivity of workers through inducing them to work hard which
increase outputs
To create a better image of the firm or business since employees will be given
financial and non-financial rewards
To improve skills of worker s through provision of training programmes like on the
job training
To minimize labour strikes and other forms of labour un rests through regular and
appropriate communication with workers
To retain workers in the business through making them contented by promising
them promotional prospects
To reduce supervision costs
To improve the quality of products
To improve self-esteem of employees
To encourage employees to be open
To attract a competent employee
To ensure timely completion of work and beating deadlines
To encourage the spirit of hard work
To ensure team and spirit of togetherness
Importance of motivation
It stimulates workers to perform their duties positively so as to contribute towards
the achievement of desired objectives and goals of the organization
 It helps to prevent workers from seeking alternative employment opportunities in
other enterprises. If workers are well motivated, they cannot easily move to other
enterprise for jobs
It promotes good human relations through job satisfaction
It improves the productivity of workers through inducing them to work hard which
increase outputs
It creates a better image of the firm or business since employees will be given
financial and non-financial rewards. This attracts more workers to the organisation
It improves skills of workers through provision of training programmes like on the
job training
It minimizes labour strikes and other forms of labour un rests through regular
and appropriate communication with workers
It reduces supervision costs
It helps to increase relations between the employees and employers. When the
workers are encouraged to participate in management in decision making, it
increases labour relations in the organisation
It improves the quality of products this is because workers are well motivated and
their morale is kept up, thus production of quality products and services in an
organisation
It encourages employees to be open
It attracts a competent employee
To ensure timely completion of work and beating deadlines
It encourages the spirit of hard work. when works are motivated they work hard
in order to achieve the set goals of the organisation leading to high productivity
in the long run
It promotes team and spirit of togetherness. When workers are motivated they
work together in order to achieve the set goals of the organisation leading to high
productivity in the long run
Employee – employer relation
For nay organisation to achieve its objectives and goals there is need for good
employee – employer relations
Methods of ensuring good employee – employer relations
Creating favourable working environment. For good relations an entrepreneur or
manager should assist the people who want to perform certain tasks through
positive methods of relationship
Through ensuring proper motivation of workers. An employer should motivate the
workers by giving them prices and fringe benefits when they perform well and
there should be appropriate punishments to minimize indiscipline in the
organisation
Through proper communication. an employer should communicate effectively to
employees the fundamental objectives of the business and basic policies so as to
promote good relations
Promoting economic satisfaction of workers. It is necessary for the employer to
satisfy the needs of the workers especially basic needs so as to provide
opportunity for personal development e.g provision of training facilities
 Providing good relationship. An employer or manager can ensure good relations
with workers by becoming good examples in their actions e.g an employer
shouldn’t be harsh to the workers
Treating workers with dignity and respect. There is need for an employer to
recognize that workers are human beings who need to be accepted and helped in
order to perform better
 Putting in place proper machinery and handling of disputes. An entrepreneur
needs to utilize proper methods, tactful and speedy ways of handling disputes
among the workers so as to improve good relations
Common Causes of indiscipline among employee
Inadequate work rules and regulations within an organisation. Failure to avail and
inform the employees the rules and regulations concerning the organisation may
cause indiscipline among them
Defective culture and habits at work. Some workers may adopt bad habits like
late coming, absenteeism and rudeness which may cause indiscipline among the
workers
Inconsistence in enforcing discipline. When an employer becomes tough on certain
worker and tends to relax on another one like a relative or friend then this may
cause indiscipline
Lack of proper procedures for handling disputes. When there is no clear way of
handling grievances of employees, dissatisfaction may come up leading to
indiscipline
Poor administration or management within an enterprise. Conflicts and quarrels
come up between management and employees there is likely hood of indiscipline
Corruption and favouritism within an organisation. When top management treats
some employees fairly compared to others in an organization then indiscipline
tends to come up
Excessive dictatorship in administering the activities of an organisation. An
employer should not be too much authoritative since it may irritate the workers
thus causing indiscipline
Under what circumstances may an entrepreneur terminate the services of
an employee?

If the employee is unproductive

When there is need to have capital intensive technology than labour intensive /
labour saving, technology
In case of closure of the company or a business
In case there is need to reduce costs of production in term of labour costs
Where the workers contract comes to an end
 When it’s time for retirement of the workers
In case the worker fails to cope up with changes in technology
If the worker is in poor health condition
In case of restructuring
If the government policy is against the line of operation of a certain business
In case of unsuitable qualification
When there is change in management
In case an employee requests to retire
In case of absenteeism
If a worker is a drunkard
In case a worker leaks company secrets
In case a worker is a late comer
When a worker fails to cope with the company culture
In case of corruption and embezzlement (fraud, theft)

Ways in which good human resource management can be used as a tool to

promote the quality of products in an enterprise
Training of workers to equip them with the necessary skills
Motivating workers to encourage them work hard
 Ensuring proper organizational structure
Giving workers detailed instructions
Providing a favorable working environment and working conditions
Carrying out performance appraisal to enable judgment of performing in respect
to quality
Ensuring discipline among workers to help promote unity and peace at work to
enable production of qualitative products
Giving timely and adequate remuneration which make employees satisfied at work
Giving workers appointment letters to work with job security
Involving workers in the decision making process

Labour turn over

Refers to the ratio of the number of employees that leave a company through
attrition, dismissal or resignation during a period to the number of employees on
payroll during the same period

Or refers to the number of employees moving in and out of the business

Causes of the high labour turnover in Uganda

Inadequate wages leading to workers moving to competitors
Sexual harassment of workers by bosses
Low levels of motivation/poor morale
Promotion prospects in other businesses
Recruiting and selecting of wrong employees
 Delayed payment of workers’ salaries
Communication gaps which leads to poor relationship between employees and
employers
Disrespect of employees by bosses
Transfers caused by marriage
Excessive work load to workers

Costs of labour turn over

it leads to additional recruitment costs
Low productivity
Increased costs of training and replacement of workers
 It lowers business’s performance
Loss of know-how and customer good will
Potential loss of sales due to high turnover in the scale force
Damage the morale and productivity to those workers remain in the enterprise
Hiring costs
Higher accident rates
Underutilization of production facilities
High rate of scrap and waste
Over time pay is increased
It lowers reputation of the enterprise which may make the business to lose its
potential customers

Benefits of labour turn over

New employees bring new skills, ideas, enthusiasm and contacts with them
New employees are resistant to changes in most cases
New employees are willing to accept lower pay rates
 New employees are excited about their new jobs and work harder to please
management and clients
Employee turnover allows for flexibility in the way the organisation is to run
It allows management the opportunity to restructure departments and functions

Strategies to minimize employee turn over

Engaging employees. This involves engaging, retaining and optimizing the value
of employees to motivate them to stay in the organisation
 Increasing knowledge accessibility. The extent of the organization’s
collaborativeness and its capacity for making knowledge and ideas widely
available to employees to stay in the organisation. Sharing information should be
made at all levels of management
Optimizing workforce. This can be done through establishing essential
processes for getting work done, providing good working conditions establishing
accountability and many good hiring choices would retain employees in their
organisation
 Empowering of employees. Superiors empowering subordinates by delegating
responsibilities to them leads to subordinates who are more satisfied with their
leader and consider them to be fair and in turn to perform up to the superior’s
expectations
 Ensuring job involvement. This involves an individual’s ego involvement with
work and indicates the extent to which an individual identifies psychologically with
his / her job. Workers who have greater variety of tasks tend to stay in the job
Employee training and development. Staff training and development refers to
the process programs and activities through which or organisation develops,
enhances and improves the skills, competencies and overall performance of its
employees and workers

METHOD OF CALCULATING LABOUR TURNOVER

Separation method. This method takes into account those workers who have left
during a particular period. Its formula is
number of separation
X 100
average number of workers during tℎ e
period

Replacement method. This method takes into account only those workers who have
joined in place of those who have left. The formula
number of replacement
X 100
average number of workers during tℎ e
period

Flux method. This shows the total change in the composition of labour force due to
separations and replacement of workers. Its formula is
number of replacement + number of separation (left)
X 100
average number of workers during tℎ e
period

Additional method. Under this method, number of employees added during a

particular period is taken into consideration for computing the labor turnover. The
method of computing is as follows.
 number of additions
X 100
average number of workers during tℎ e
period
During October 2007, the following information is obtained from the personnel
department of a manufacturing company
Labour force at the beginning of the month 1,900 and at the end of the month 2100.
During the month, 25 people left while 40 persons were discharged. 280 workers
were engaged out of which only 30 were appointed in the vacancy created by the
number of workers separated and the rest on account of expansion scheme. Calculate
the labour turnover by different methods.
Solution
Additional method
number of additions
X 100
average number of workers during the period

1900 + 2100
Average number of workers = = 2,000
2
280
X 100 = 14%
2,000

Separation method
number of separation
X 100
average number of workers during tℎ e period

20+45
X 100 = 3.25%
2,000

Replacement method
number of replacement X 100
average number of workers during tℎ e period
30
X 100 = 1.5%
2,000

Example two.
From the following information, calculate labour turn over using the following
methods
i. Separation method
ii. Replacement method
iii. Flux method
Number of workers at the beginning 800
Number of workers at the end 1,700

During the year, 12 workers left and 89 workers were discharged. The company
recruited 1,000 workers and of these 70 were to fill the vacancies of those leaving,
while the rest were engaged for an expansion scheme
800+1,700
Average number of workers = = 1,250
2
Separation method
number of separation
X 100
average number of workers during tℎ e period
12+89
X 100 = 8.08%
1,250

Replacement method
number of replacement X 100
average number of workers during tℎ e period
70
X 100 = 15.6%
1,260

Idle time
Is a period or duration for which payments are made when an employee is available
for work but is not carrying out any productive work

Idle time can arise because of reasons like

 Machine break down
 Lack of orders
 Unavailability of materials
 Consultation
 Having lunch
 Resting etc
Idle time can be normal or abnormal
Abnormal idle time
Time caused by factors that can be avoided if proper precautions are taken e.g long
time power failure, shortage of raw materials, production stoppage, sudden strikes
and lock outs etc

Idle capacity
This means that plant and machinery is available for utilization but is not fully used
due to normal or abnormal reasons.
How to control idle time
 Strict supervision
 Proper planning
 Proper maintenance of stock
 Time procurement of stock
 Assurance of power supply from own proper plant
 Advance planning for machine utilization

Training of employees
Refers to the process of identifying and developing the necessary knowledge for doing
administratively and meeting complaint conditions.
Type/forms of employee training
Off – the – job training
Induction / orientation training
Mentoring
Performance review training
 Apprenticeship
On – the – job – service / in-housing training

Purpose of training employees in an enterprise

To create a pool of readily available and adequate replacement for personnel who
may leave or move up in the organization
 To enhance the company’s ability and use advances in technology because of a
sufficiently knowledgeable staff
 To build a more efficient, effective and highly motivated team, which enhances
the company’s competitive position and improves employees morale
To enable employees develop a greater sense of self-worth dignity and well-being
as they become more valuable to be firm in society
To optimize the utilization of human resources that further helps the employee to
achieve the organizational goals as well as their individual goal
To provide an opportunity and broad structure for the development of human
resource technical and behavioural skills in an organisation. It also helps the
employee in attaining personal growth
To develop the job knowledge and skills of employees at each level. It helps the
employee in attaining personal growth
To reduce employee turnover since workers will have necessary skills needed for
better performance of the job
To reduce on supervision costs. This is because a trained employee accepts the
responsibility and expect more freedom for less supervision
To build the positive perception and feeling about the organisation. The employees
get these things from leaders, subordinate and the peers
To increase productivity of the employees that help the organisation further to
achieve its long term goals
To increase productivity of workers morale. Training improves needed skills which
build up confidence and satisfaction of the employees
To improve on the relationship between the business and its employees
The following are the importance of the training business employees
it creates a pool of readily available and adequate replacement for personnel who
may leave or move up in the organization
 it helps to enhance the company’s ability and use advances in technology
because of a sufficiently knowledgeable staff
 it helps to build a more efficient, effective and highly motivated team, which
enhances the company’s competitive position and improves employees morale
It enables employees develop a greater sense of self-worth dignity and well-being
as they become more valuable to be firm in society
It helps to optimize the utilization of human resources that further helps the
employee to achieve the organizational goals as well as their individual goal
It helps in providing an opportunity and broad structure for the development of
human resource technical and behavioural skills in an organisation. It also helps
the employee in attaining personal growth
It develops the job knowledge and skills of employees at each level. It helps the
employee in attaining personal growth
It reduces employee turnover since workers will have necessary skills needed for
better performance of the job
It reduces on supervision costs. This is because a trained employee accepts the
responsibility and expect more freedom for less supervision
Builds the positive perception and feeling about the organisation. The employees
get these things from leaders, subordinate and the peers
 Increases productivity of the employees that help the organisation further to
achieve its long term goals
Increases productivity of workers morale. Training improves needed skills which
build up confidence and satisfaction of the employees
Improves on the relationship between the business and its employees
Reasons why most of the small business are reluctant to offer job training
Lack of interest and openness. Many managers prefer to keep information to
themselves and thus hide information from subordinates
Limited time this limits managers to train subordinates
Failure to mind about the future benefits and concentrate on the present benefits
like enjoying present benefits
Broad expertise Managers tend to have broad expertise rather than specialized
skills for training and development activities
Limited funds to finance training requirements
Getting started business owners expect workers to learn on job

Procedure for training business employees

Identifying organizational objectives. The organisation reviews its objectives so
that the training offered is geared towards attaining the set objectives
Assessing the needs to discover the gap that requires training
Setting training objectives. The training objectives are set to guide the training
process for example developing a well-trained person, assisting employees
towards achieving their high potential, motivating and stimulating employee
participation
Selecting the trainees. This involves deciding on who to be trained. This depends
on employees ability to enable the success of the program
Setting training goals. The training goals relate directly to the needs determined
by the assessment. The goals help to transform on employee from the current
performance level to where the firm wants him in future. Workers are motivated
if mode part of the process of setting goals
 Selecting the training methods. The methods to use when training the workers
are selected. This may be on the job which train employees on the job or off – the
job training which is offered to workers in form of conferences, case studies,
lectures etc
Selecting competent trainers. People to conduct the training depend on the type
of training and people receiving the training. On the job training is mostly
conducted by supervisors and off the job training is commonly offered by outside
instructors
Administering the training. The training is then administered for the selected
employees. While training, considerations are made on time, location, facilities,
accessibility, comfort and equipment to use. The training steps are critically
followed during the training
Evaluating the training. This involves assessing the extent to which the desired
changes are accomplished. The newly acquired skills are compared with the skills
defined by goals of the training program. Timely evaluation prevents the training
from straying from its goals.
Factors that limit employees training / challenges of training employees
Limited time. Training needs time which most enterprises do not have
Limited trust of employees
Broad expertise of managers
Limited trust of openness to employees
Unpredictable future business needs
Desire for high profits by business owners
Limited commitment on the side of trainers
Doubt about the value of training
Fear of losing workers
Difficulty in identifying training needs
Limited skilled personnel
COPING WITH COMPETITION

Competition is the battle between businesses to win customer acceptance and loyalty.
Competition is all about value ie creating it, capturing it and retaining it. To be
successful today, your company must be competitor oriented.

TYPES/FORMS OF COMPETITON IN BUSINESS

There are basically four types/forms of competition ie perfect competition,

monopolistic competition, oligopoly and monopoly

Perfect /pure competition. This is the market where there are many sellers and many
buyers dealing in similar / uniform products. There is no government intervention.

Examples of firms facing perfect competition include

 Small bars and restaurants

 Variety stores, convenience stores
 Nail salons, barbers
 Small grocery stores
 Doughnut shops
 Professional services (dentist, doctor, lawyers, accountants, architects)
Features/characteristics or conditions of perfect competition

 Large number of firms. The basic condition of perfect competition is that there
are large numbers of firms in an industry.
 Large number of buyers. In a perfect competitive market, there are very large
numbers of buyers of the product.
 The product is homogeneous. The good produced by all the firms in the
industry is identical (similar).
 No barriers to entry. The firms in a competitive market have complete freedom
of entering into the market or leaving the industry as and which they desire.
 Complete information. The consumers and producers possess information
about the prevailing price of the product in the market.
 Profit maximization. For perfect competition to exist, the sole objective of the
firm must be get maximum profit
 No advertising is required to attract more customers since the products look
alike
 There is perfect mobility of factors of production, factors of production can
freely move from one place to another without any barrier
Monopolistic/ imperfect competition. This is the market where there are many
sellers or producers of differentiated products. A variation may be a difference in
quality, durability, price or utility.

Examples of firms facing imperfect competition include

 Restaurant industry where services differ in quality, quantity, price and

cleanliness
  Google, there used to “pure competition” until Google grew very big and
become dominant
Features of monopolistic competition

The following are the features or characteristics of monopolistic competition

Large number of sellers. There are large numbers of sellers producing

differentiated products. So competition among them is very keen.
 Product differentiation. Every producer tries to keep his product dissimilar than
his rival’s product in order to maintain his separate identity.
Freedom of entry and exit. This feature leads to stiff competition in market. Free
entry into the market enables new firms to come with close substitutes.
Existence of selling cost. Due to product differentiation, very firm has to incur
some additional expenditure in the form of selling cost. This cost includes sales
promotion expenses, advertisement expenses ,salaries of marketing staff etc
Absence of interdependence. Large numbers of firms are different in their size.
Each firm has its own production and marketing policy. So no firm is influenced
by other firm. All are independent
Two dimensional competitions. Monopolistic competition has two types of
competition aspects ie price competition where firms compete with each other on
the basis price and non-price competition where firms compete on basis of brand,
product quality advertisement.
Concept of group. A group means a number of firms producing differentiated
products which are closely related.
Oligopoly. This is the market where there are few put large firms dealing in similar
or differentiated products. It where a limited number of companies compete for
consumer purchases, the quality of the product from one business to another may
be differentiated or the products may be identical.

Examples of firms facing oligopoly competition include

 Banking industry
 Automotive manufacturers
 Petroleum retail companies
 Insurance companies
 Telecommunications companies

Characteristics of oligopoly

Interdependence. The firms under oligopoly are interdependent in making

decision. They are interdependent because the number of competition is few and
any change in price and product, etc any firm will have a direct influence on the
fortune of its rivals, which in turn retaliate by changing their price and output.
Existence of advertising and selling cost. The firms under oligopolistic market
employ aggressive and defensive weapons to gain a greater share in the market
and to maximize sales in view of these firms have to incur a great deal on
 advertisement and other measures of sale promotion. Thus advertising and selling
cost play a great role in the oligopolistic market structure.
Group behaviour. The profit maximization behaviour on his part may not be valid.
The firms under oligopoly are interdependent as they are in a group
Element of monopoly. Under oligopoly with product differentiation each firm
controls a large part of the market by producing differentiated product.
Price rigidity. Under oligopoly there is the existence price rigidity; prices tend to
be rigid and sticky. If any firm makes a price cut it is immediately retaliated by
the rival firms by the same practice of price cut.
Monopoly. This is where there is only one seller dealing in one product with no
close substitutes facing many buyers.

A monopoly firm may be owned by a person, a few numbers of partners or joint

stock companies

Examples of firms facing monopoly competition include

 Hydro services
 Software companies like Microsoft
 Post office services
Features of monopoly

 One seller and large number of buyers. Monopoly is a form of imperfect market
structure where there is only one seller of a product. Under monopoly there are
large numbers of buyers although the seller is one. No buyer’s reaction can
influence the price
No close substitute. Under monopoly a single producer produces single
commodities which have no close substitutes.
Strong barriers to the entry into the industry exist. In a monopoly market there
is strong barrier on the entry of new firms.
Downward sloping demand curve. In case of monopoly one firm constitutes the
whole industry. The entire demand of the consumers for a product goes to the
monopolist. Since the demand curve of the individual consumer slopes
downwards, the monopolist faces a downward sloping demand curve

Ways of competition in business

There are many things one can do to win the competition. These include, pricing,
packaging, quality, added convenience and attitude towards customers

Attractive /unique product pricing. This involves offering similar products for a
cheaper price hence giving one stands a better chance of winning the customer’s
loyalty.
Using attractive packaging. This includes neatness and colour of the products,
wrappers or containers and neatness in packaging.
Improving quality of goods and services. The better the quality, the more the
products would be suitable for the use which it is intended. By improving the
 quality of products, it is possible for the enterprise concerned to attract a larger
share of the market.
Offering convenience services. This includes staying open late or during lunch
when other businesses are closed. One could also think about offering to the
customer something for nothing. This sounds crazy but people love free things.
For instance some commercial banks close at 6:00 pm and even work for long
hours on weekends
Treating customers with respect. People generally choose to go where they are
treated with dignity. Never argue with a customer
Using attractive branding of giving business products unique and differentiated
names to distinguish them from the competing products. For instance, branding
makes close up to be differentiated from Delident although they are all tooth
pastes.
Blending / favouring ie combining varieties or grades to obtain a mixture of a
particular character, quality or consistency e.g blending tea leaves, tobacco etc
Using unique distribution channel that makes the product conveniently more
available by a firm than its competitors.
Factors considered in analysis competition

Following are some of things that should be considered

Description of competitors. This involves identifying and characterizing those

businesses which will be competing with you
Size of competition. Large number of competitors implies stiff competition as
compared to small number of competitors.
Profitability of competitors. High profits by competitors imply high level of
competition while their low profits imply low competition.
Operating methods. Improved forms of selling like advertising and promotions
indicate higher competition than poor methods of selling.
Price charged on similar products. Very low prices of similar products implies
stiff competition as compared to high prices of similar products.
Quality of substitute products. Good quality of substitute products implies high
competition while low quality of substitute products implies low competition.
Hours of business operation. Long hours of operation in business implies high
competition while short hours of operation in business implies low competition.
Quality of customer care. Good customer care implies high competition in the
business while poor customer care implies low competition.
Product added advantage e.g packaging. Where competitors offer more added
services it shows more competition than offering limited services.
Nature of after sales services offered e.g free loading and off- loading, free
repairs etc show higher competition than where these services are not provided.
Methods of product selling and distribution. Improved methods of selling
mean higher competition compared to ordinary methods of selling.
Nature of labour force or personnel used e.g use of skilled personnel signal
high competition and unskilled personnel signal low competition.
Factors affecting competition

FACTORS AFFECTING /ENHANCING COMPETITION

Mobility and accessibility overlap. A business that is near to the customers

has a better or competitive advantage or rival firms or businesses that are far or
are not easily accessed
Product overlap. Product overlap is the selling of products by different kinds of
businesses that are similar or identical to each other. A business that provides a
variety of similar product has a competitive advantage over a rival business that
sells only one type of product.
Product priority. A business that influences customers to spend on its products
first has a competitive advantage over the rival firms or businesses that do not
adequately influence customers to give their products priority.
Level of substitution. A business that conveniently competes with the rival firms
and has the capacity to attract a bigger percentage of the public /customers has
better competitive advantage over rival businesses that cannot easily compete for
the market share.
Terms to note.

1. Competitive cost advantage. It refers to ability of a firm or business to provide

the same service to the customer at a lower cost than its competitor.
2. Competitive advantage. It refers to ability of a business or firm to provide the
same service to a customer in a better way than its competitor’s e.g the ability
to bring new product in the market than competitor e.g like MTN with mobile
money.
3. Sustainable competitive advantage. It refers to advantage that enables
business to survive against its competitors over a long period of time. Or it
refers to advantage that allows the maintenance and improvement of the
enterprise’s competitive to position in the market.

Sustainable competitive advantage

Competitive advantage is an advantage that a firm has over its competitors, allowing
it to generate greater sales or retain more customers that its competitors. It is an
advantage that enables a business to survive against competition over a long period
of time

Ways of maintaining a competitive position in business

The stronger and more efficient operations are, the better your chances are of
surviving competition in all its forms. The following areas are important to competing
successfully

Charging cheaper or affordable prices for the goods or services than those
charged by rival firms
Producing or providing high or better quality goods or services so as to attract
more customers.
 Ensuring good presentation or appearance of different aspects related to business
that attract customers e.g. attractive packaging of product, dressing workers with
nice good quality uniforms.
Ensuring added convenience to the customers like opening the business premises
early in the morning and closing a bit late than the rival firms.
Treating the customers with respect or receiving of customers pleasantly.
Rewarding loyal and regular customers by giving them gifts, inviting them to get
together parties etc.
Offering credit to the loyal, trusted, and credit worthy customers to create
confidence in them so as to continue buying from the business.
Communicating regularly with customers like by communicating to them major
changes in the business availability of new products etc.
Maintaining up to date records of regular, loyal and big customers and recognizing
them when they call or come to the business.
Providing appropriate after sale services like offering delivery service, proper
packaging of products etc
Advertising the product or products especially persuasive advertisement to
influence the customers to buy and continue buying from the business
Motivating the business employees e.g. providing fringe benefits, ensuring job
security, regular and timely payments, ensuring favourable working conditions
etc. to inspire them to perform better rival jobs to overcome the rival firm

MERITS/POSITIVE IMPACTSOFCOMPETITION

Leads to better customer satisfaction. Through competition, producers/sellers

ensure that they produce/provide high quality products/services and do any other
activity that ensures maximum customers satisfaction to attract more customers
Promotes increased efficiency. Competition makes firms or producers develop or
discover more efficient production methods hence ensuring efficient resource use.
Leads to better employee payments/ remuneration. Competition in business
forces employers or businesses to pay their highly skilled workers better salaries
in order to induce them to stay within the business and make them work better
to produce high quality goods or provide high quality services.
Leads to production of a variety of products. Competition makes producers to vary
their products or services in order to make them different from those of rival firms
hence widening consumer choices and increasing their satisfaction.
Consumers enjoy cheaper goods and services. Competition makes
producer/sellers to lower the prices of their goods or services in order to overcome
the rival of firms or businesses hence making consumer enjoy lower prices.
Promotes hard work. Business competition forces entrepreneurs or businesses to
put in more initiations in order to overcome the rival businesses and this leads to
increased production.
More profits for some businesses. Competition makes businesses that enjoy better
competitive advantage to sell more than the rival hence realizing more profits.
Leads to the production of better quality product. Due to competition, firms or
businesses adopt improved methods of production through market research which
improves the standards of living of the customers.
DEMERITS/ NEGATIVE EFFECTS/IMPACTS/COSTS OF BUSINESS
COMPETITION

Makes resources to become more expensive. Competition makes businesses to

compete or struggle to acquire the limited resources e.g. high quality raw
materials, skilled workers hence making such resources costly to acquire.
Reduces the number of customers. Competition from many businesses leads to
the division of customers which eventually reduces the market share for each
business.
Leads to collapse/unemployment. Stiff competition leads to collapse of small or
inefficient businesses hence resulting into unemployment.
Lowers the profit of businesses. Competition makes business to duplicate activities
or services as a way of attracting more customers leading to wastage of limited
or source of resources.
Misleads customers; persuasive advertising due to stiff competition urgently need
or which may be of low benefit to them.
Business competition increases labour turn over or employee which limits
productivity of businesses and promote bad image to the public.

Indicators of an increase in the level of competition

Nb. Do not use high or low when stating the answer

INDICATORS OR MANIFESTATION OF AN INCREASE IN THE LEVEL OF

COMPETITION

- Decrease in the level of sales. A fall in the volume of goods sold is an indication
of increase in the level of completion.
- Increased advertising and sales promotional activities of businesses in order to
retain the old customers or attract the new ones.
- Increased complaints by business customers especially about the quality, quantity
and price of the products
- Increased labour turn over i.e. many employees especially leaving the enterprise
to join the rival firms or businesses.
- Improved quality of the product is an indication of increase in the level of
competition so as to sustain competition
- Reduction in prices of the products by competitors selling similar products in order
to sustain the competitive advantage
- Reduction in the profit margin I.e. reduction in the investment returns realized by
the business.
- Increased hours of operation by the competitors in order to attract customers’
acceptance and loyalty.
- Improved customer care i.e. improved ways of handling the customers to make
them satisfied reflects an increase in the level of competition.
- Demand for wage increase by employees or workers for the service they provide
Sample questions

1 a) Explain the ways / methods / techniques which competition in business can be

over come

b) Describe the factors considered in analyzing competition in business

2 a) State any four types of competition

b) Discuss various effects of competition

Financial markets

Is any market place where buyers and sellers participate in the trade of assets such
as equities, bonds and currencies.

Types of financial markets

1. Money market
2. Capital markets
Money market is a market that deals in short term financial instruments such as
treasury bills, commercial papers, deposits, collateral loans and bills of exchange.

CAPITAL MARKETS

Capital market is a markets deals in long term financial securities such as bonds and
equity shares.

Capital markets deal with the trade of financial products such as share, bonds issued
by the government or private companies, units in collective investment schemes,
debentures etc. these financial products are collectively referred to as securities in
Uganda, the market where these securities are traded is called the Uganda securities
exchange.

Distinction between capital market and money market

Money market is related to short term funds while capital market is related to long
term funds
Money market deals in securities such as treasury bills, commercial papers,
deposits, collateral loans and bills of exchange
 Participants in money market are central banks, non – financial banking
companies while capital market participants are stock brokers, under writers and
individual investors.
Money market is regulated by central bank while capital market is regulated by
capital market authority.
TYPES/INSTRUMENTS USED IN CAPITAL MARKETS

BOND. This is a certificate issued by a company acknowledging that money has been
lent to it and that it will be paid back with an interest at a specified period of time.
When you buy bonds, you are lending the bond issuer money in return for a fixed
rate of return, they are therefore known as a fixed – income investment and therefore
become a creditor of the company

SHARE. This is a unit of ownership of a company, when you buy a share you become
a part owner or a shareholder of the company. An investor will buy stake in business
by buying shares which will automatically entitle him or her to a company’s profits
DEBENTURE. This is a document showing that a company has borrowed a certain
amount of money from a person named on it. The company pays a fixed rate of
interest on this loan

TREASURY BILLS. These are short term government instruments issued regularly
with a maturity period of less than one year

COMMERCIAL PAPER. This is a short term unsecured promissory note issued by a

company or a bank which enjoy fairly high credit rating.

Types of commercial papers

Promissory notes
Cheques
Certificate of deposits
Conditions for issuing commercial papers

Since instrument is not backed by collateral, only companies with credit rating
from recognised credit rating agencies are allowed to issue commercial papers
Commercial papers are usually sold at a discount to its face value and repaid at a
par on maturity
The aggregate amount to be raised by the issue of commercial papers should not
exceed 30% of the working capital
Commercial papers shall not be issued 15 days later than intended date of issue
The minimum current ratio of the company to issue commercial papers should be
1.3
ROLES OF CAPITAL MARKETS IN BUSINESS

 Raising funds through the sale of shares

 Provision of a market where the selling and buying of shares take place in an
organized manner
 Attracting foreign investors who may wish to invest their money in an
organized capital market
 Better standards of living brought about by increased employment
opportunities caused by increased investments
TYPES OF SHARES

There are two types of shares

ORDINARY SHARES. These are the common one that are held by the owners of the
business and they usually do not have a fixed rate of dividends realized from the
business profits.

PREFERENCE SHARES. These are shares where the holders do not have voting rights
but have a right to a fixed rate of dividend before any dividend is paid out to the
ordinary shareholders, they also have the first priority over the business assets over
ordinary shareholders in an event of winding up
Preference share are further categorized

Cumulative preference share. Holders of these shares are entitled to a fixed rate
of interest every year, irrespective of whether the business has made profits or not,
this means that in case the holder misses dividend for a year (may be when the
company has incurred losses), he/she will receive a double share in the following
year (the dividends will continue to accumulate until paid)

Non- cumulative. Holders of such share are entitled to a fixed rate of dividends only
when a company has realized profits

Redeemable preference shares. These shares are bought back (redeemed) by the
company after a stated period of time

Irredeemable preference shares. These are ones that cannot be redeemed /

bought back by the company

Participating preference shares. Holders of such shares are entitled to a share of

the surplus profits remaining after the ordinary share have been paid i.e on addition
to the fixed rate of dividend

Methods of issuing shares

Public offers. A company will invite the public to subscribe for shares, based upon
the information contained in the prospectus, either a fixed price or via a tender
process.
Private placements. New shares are issued to the financial institution and large
private clients rather than making an invitation to the public.
Right issue. Is an offer to the existing shareholders to subscribe for the new shares
at a discount to the current market value, in proportion to the existing
shareholding.
 Bonus share / scrip dividends. A company could issue more shares to the existing
shareholders at no cost on a pro – rate basis to their existing share holding.
Stock split. Takes place when a company divides its existing shares into multiple
that the shareholder will have two shares for every share hold earlier.
TYPES OF DEBENTURES

Naked debentures. These are debentures which are not secured. Ie no property of
the company has been pledged against them. So in case of the bankruptcy of winding
up, these debenture holders will just be regarded as ordinary creditors of the
company

Mortgaged debentures. These are debentures which are secured ie some property of
the company has been pledged against winding up to pay off the mortgaged
debentures

Redeemable debentures. These are debentures which are supposed to be bought

back by the company any time after the specified minimum period. E.g if the period
stated is between 2-4 years, they can be redeemed any time after 2 years but before
4 years elapse

Irredeemable debentures. These are debentures which are never refunded until when
the company is winding up

DIFFERENCES BETWEEN SHARES AND A DEBENTURE

A share is a unit of capital while a debenture is a unit of a loan in a company

 Shareholders earn dividends ie part of the company’s profits whereas debenture
holders earn interest which is an expense that a company has to pay whether it
has realized profits of not
Shares are usually irredeemable while debentures are usually redeemable
 At the time of winding up, the debenture holders get only the face value and a
specific interest even if the company’s assets fetch returns while shareholders in
most cases enjoy much more than the face value of their shares
A shareholder is a member of the company whereas a debenture holder is a mere
creditor to the company
In case of decision making in the company, shareholders have voting rights
whereas debenture holders do not have them

CAPITAL MARKETS AUTHORITY (C.M.A)

C.M.A is a semi-autonomous body that was established by the government (1996) to

oversee the operations of capital markets, it is responsible for promoting, developing
and regulating the capital market industry in Uganda, with the overall objective of
investor protection and market efficiency

ROLE / FUNCTIONS OF CAPITAL MARKET AUTHORITY

It regulates and promotes the development of capital markets in Uganda with

particular emphasis on creation of incentives for longer term investments in
productive ventures
It guarantees and approves the stock exchange operations
It is responsible for approving and giving licenses to brokers or dealers in stock
exchange and investment advisors like Uganda securities exchange
It is responsible for approving all offer of securities to the public
It helps in the protection of the interests of investors
It advises the government on policies concerning the development and operations
of the capital market industry
Provision of avenues for those required additional capital and others who wish to
invest their money.
THE STOCK EXCHANGE

This is a market where the existing stocks and bonds are exchanges smoothly. It is
an organized market where traders of securities meet as dealers / brokers represent
them and acquire or sell securities
The key participants in capital markets/ players in stock exchange

 Brokers – These are licensed financial professionals authorized to buy and sell
shares on behalf of clients. They try to buy at cheapest price possible and then
sell to someone else at a higher price. They receive a commission for their services
The registrar. This is in charge of keeping records of keeping records of quoted
stock and shares.
 Jobbers. These buy and sell shares on their own account at the stock exchange.
Their reward is jobber’s return being the difference between the buying price and
the selling price of the share jobbers are further classified into:
Bulls: are jobbers who buy shares when they are cheap in anticipation that
prices of these shares will rise in the near future and he/she will be able to
sell them at a higher price
Bears: these are ones that sell shares when prices are high on his
expectation that these prices will fall in the near future when he will be able
to buy them again
Stags: these are ones that buy shares of a newly established company in
the hope that prices will rise to be resold. They deal in new issues of a
company
 Investment advisor s – these are licensed individuals that engage in business
of advising their clients about securities on issues of whether it is advisable to
invest, purchase or sell securities.
Share holders. These are individuals or companies that purchase shares in a
company or business and hence own a part of that company with an expectation
of returns afterwards
Capital market Authority (CMA). This is a government established body which
ensures the regulations and development of the capital market industry.

The major functions of stock exchange market

Its provides a facility for raising funds for investment in long term assets
They help in regulation of traded securities
They help in publishing useful information about various businesses necessary for
investors and other companies
They help in monitoring the affairs of the quoted companies
They help in raising capital for businesses
They facilitate company growth through raising more funds for acquisitions of
assets and increase productivity
They help in creation of utility through providing ready market for stocks and
bonds ie investors at any time can easily convert their securities into cash or other
profitable security investments.
They facilitate the diversification of government owned companies, the
privatization process through capital markets involves the floatation of shares and
needs of a secondary market for its success

Examine the role of capital markets to an economy

Enabling businesses raise long term finance through the sale of shares at low
interest rates
Providing a venue where to buy and sell shares by the members of the public
Encouraging the inflow of foreign capital since investors will find it easier to buy
shares in the companies listed in stock exchange
Encouraging full disclosure and sticking to better accounting and management
practices of companies
 Creating more employment opportunities through increase saving and investment
by companies leading to better standards of living.
They provide alternative investment and saving operations through the purchase
of shares and bonds
Individuals are given opportunities to diversify their investments like risk by
investing in various products available on the market
They are source of capital through capital pays and dividend payment

Benefits enjoyed by a share holder

There is possibility of earning dividends in case the company makes profits
Shareholders gain capital in case their shares are sold at higher prices than the
prices they were purchased, this represents profit which is termed as capital gain
Shares may act as a collateral security for the owner, for instance if they wish to
access a loan from financial institutions
Shares are easier to transfer in case the shareholder wishes to leave the company,
they can transfer to another person
The shareholder have voting rights to decide on the issues concerning the
company during the Annual General Meeting
If the company is growing, the value of share will also grow and hence the
shareholders will gain
Disadvantages of investing in shares
 If the company’s profits fall, the dividends will fall and if the company makes a
loss, it may not pay any dividend at all
If the share profits fall, their value lessens
If the company collapse or becomes insolvent, the shares become worthless
If the company goes into liquidation, shareholder are the last to be paid after all
other creditors

Steps involved in the process of buying and selling share

 Visiting the broke / dealer to obtain advice about companies to invest in and
their prices
 Deciding which shares/stock to buy ie making an investment decision
 Placing an order through the broker / dealer
 Receiving a copy of the prospectors and reading it well or seeking advice.
 Filling in the security central depository account opening forms
 Filling client information form / share application form
 Signing a purchase transfer form
 Paying for the number of shares one is willing to buy
 Receiving a share certificate from the registrar to confirm the number of shares
bought.
The process of selling shares
 Finding out how much shares are selling in the market ie use broker or
newspapers and through stock change
 Contracting the leader /broke and place an order at satisfactory price for you.
 Receiving a sale contract note from brokers showing the net proceeds payable
 Collecting the cheque from the dealer/broke
 Following the company’s shares trading on stock exchange
An example of share certificate

GOGOLO DISTRILLERS LIMITED

P.O BOX 3444, Kampala UGANDA
No ………. SHARE CERTIFICATE DATE……….
This is to certify that;
Name …………………………………………..
Address ………………………….
Is a registered holder of ……………….. (No. of shares) ordinary shares of
………………….shillings each, fully paid in the above named company,
subject to the memorandum and articles of association thereof
DATE ………………………………..
TRANSFER No. ………………………………..
No OF SHARES ………………………….
For and on behalf of Gogolo distillers limited
………………………………… ………………………………….
Chairman company seal

Investing in bonds
A bond is essentially a loan an investor makes to the issuer of a bond. The investor
receives regular interest payments on this loan until the bond matures or is called,
at which point the issuer pays you the principal. Certain bonds have special provisions

Bonds are issued by government entities and corporations to raise money for their
endeavors. There are four major types of bonds representing the four major issuers

 Government (treasury), Government Issue treasury bonds to pay for

government activities like paying off the national debt or fighting inflation. The
yield is lowest among bonds but considered low in risk if held until maturity.
Bonds are exempt from state and local taxes

 Municipal: corporations issue bonds to expand, modernize, cover expenses

and finance other activities. The yield and risks are generally higher than
governmental and municipal. They are fully taxable
  Mortgage bonds: banks and other lending institutions pool mortgages and
offer them as securities to investors. These bonds have a yield that exceeds
those of corporate, with comparable maturity. They are also fully taxable
Advantages of investing in bonds
 Bonds are predictable. you know how much interest you can expect to receive,
how often to receive it and when the principal will be repaid
 Bonds are steadier than equity investments (shares) which fluctuate widely in
short term that’s why most investors prefer buying bonds than equity
investments which are more volatile
 People on a fixed income and or in retirement will receive a predictable amount
of regular income from bonds since most bonds pay interest to holders on a
regular basis a part from the zero coupon bonds
 The interest rates paid by bonds typically exceed those paid by banks on
savings accounts especially shorts term bonds

Disadvantages of investing in bonds

 Companies and municipalities can go bankrupt and if they do, your bonds will
lose value and become worthless
 Long term bonds will have your money tied up in low yielding bonds if interest
rate go up
 Unlike stocks, bonds don’t offer the possibility of high long term returns
 Bonds are not immune from price fluctuations. A company can easily default
on the bonds loused, resulting in a total loss principal on the bond holder

INVESTING IN COLLECTIVE INVESTMENT SCHEME

Collective investment schemes are private financial arrangements that provide a
means for mobilization of saving and enable small investors to participate in capital
markets. They pool resources of many small savers, generating a large pool of funds,
which resources are then invested in various assets like shares, bonds, property and
treasury bills with the sale purpose of generating high returns while minimizing risk
through diversification of investment

Advantages of collective investment schemes to investors

Diversification of risk. Investors can secure a much wider diversification of risk,
because these funds are invested in different securities. The greater the
diversification of portfolio, the lower the risk in relation to the return. Those who
invest in CIS are therefore seeking to lower risks in relation to their returns
Giving access to securities investments. By investing in small sum, an investor
through the CIS can achieve a personal portfolio spread over several securities.
Investors can access high priced markets because of the pooled resources which
create a larger fund
 Lowering transaction costs. By investing in CIS, investors incur lower costs than
if they were to buy and sell shares/bonds directly. This is because transaction
costs are generally related and investors benefit from the fund manager’s ability
to deal in large quantities of shares at lower average dealing costs
Exhibiting professional management. Due to the complexity analysis information
regarding individual securities, most individuals do not have the professional skills
to manage their own investment. CIS provide full time professional management
in a direct and simple form and this is especially important where market
information is not widely available
 Protection of investors. CIS have succeeded in developed markets due to an
effective legal and regulatory frame work. People need to have confidence that
their money is protected from fraud, theft and other forms of abuses
Giving an opportunity to easily liquidate them at low prices. It gives an opportunity
to easily liquidate investments by selling your units back to the unit trust manager.
The manager is obliged to buy the units
Some funds allow investors to buy more share in a regular basis even with smaller
monthly installment
Monitoring performance of shares on the market. The net assets value per share
or the bid and offer are reported in the press, internet sited allowing the investors
to continually monitor the performance of his/her investment

N.B
 Portfolio, Refers to funds managed on behalf of the clients at the discretion
of a fund manager
 A trustee, refers to an individual or company that hold the assets of a
collective investment fund on behalf of its clients or investors who are the
beneficiaries of the trust
 A unit trust is an investment scheme that pool savings of the public who share
the same financial interests, which savings are then invested in securities like
bonds, shares etc
 A fund manager is a person / company licensed by the authority to undertake
on behalf of the client, the management of a portfolio of funds
 Trust deed is an agreement between the fund manager and a trustee or any
other authorized corporate director (ACD)
Disadvantages of collective investment schemes
 Loss of control. When you invest in CIS, you are not directly involved in
deciding how your money is invested. As long as the unit fund managers invest
your money in accordance to the prospectus and deed of the scheme, there is
little that you, the unit holder, can do if you happen to disagree with their
investment decisions
 Fees and charges. The funds provided by the fund manager are not for free.
There are fees and charges payable by the unit holders to the CIS
 Opportunity cost ie by putting your money in CIS, you lost the opportunity to
use it elsewhere and there is no guarantee that putting in it CIS, things will be
perfect, thus in such a situation, you would have used money that you would
have used productively somewhere else

Conditions necessary for the operations of CIS

A conducive operating environment with laws that can enforce recovery of the
saving
Availability and conducive banking environment where saving can be kept
Saving culture and environment among the population that can encourage the
members to save
Maximum co-operation among the savers

Challenges facing the capital markets industry in Uganda

Under development capital and money markets to transact the sale and buying of
products
The challenge of fear of risks by players e.g fluctuation in the value of share capital
Inflation that affects the value of shares
Inadequate information by the public about the role of capital market
 Unfriendly government policies e.g unfair taxes
Under developed financial institutions to lend funds for buying financial products
The challenge of high levels of target players who aim at maximizing profits early
Uncertainty to income in form of dividends since a business may or may not make
profits to declare
Unstable economic climate in Uganda that scare away investors who would invest
in capital markets

RAISING LONG TERM FINACE THROUGH CAPITAL MARKETS

When sourcing for long term finance in business, there are many questions that may
arise, these may include
 Should you apply for a bank loan? But the repayment period is quite short
 How about the micro finance institution, the interest rate is quite too high
 So how about capital markets?

Advantages of raising long term finance through capital markets

Raising funds, through the sale of shares on the capital markets, businesses are
enable to raise funds, which is cheaper, easier and faster compared to other
forms like commercial funds
Provision of markets to sell and buy shares, capital markets provide
members of the public or other interested individuals or company to buy shares.
This provides them an alternative method of investing their savings
 Inflow of international capital, foreign investors who may wish to invest in
the country will fund it easier to do through the capital market where they will
buy shares easily, this leads to inflow of international capital which contributes to
the growth of the country’s economy
Better standard of living, increased investment by companies due to the
existence of well-organized capital market will lead to more employment
opportunities being created, more incomes generated and these may result in
more disposable income that people may use for consumption and even more
savings

Avenues of raising long term financing through capital markets

There are two avenues through which a business can raise finance in the capital
markets ie equity financing and debt financing

EQUITY FINANCING
With this type of financing, the business raises finance by issuing shares to the
general public. Those who buy the shares of the company then become part owners
of the company and thus called shareholders. A company must apply first and seek
approval from the capital market Authority before it offers shares to the public

Advantages of equity financing for a business

 On closure of the company, shareholder’s equity contributions will not be paid
back until all the company’s creditors have been paid
 The business assets are not pledged as collateral in order to obtain equity
investments / sell share to the public
 The business / company does not have to make debt and interest payments
to shareholders
 The company is better governed given the international standards accounting
followed by listed companies.
Disadvantages of equity financing
 The company owners may have to relinquish ownership of all proceeds and
may have to share their business profits with other equity investors / share
holders
 Owners will have to be accountable to all shareholders and therefore will be
required to publish annual accounts, organize annual general meetings for all
shareholders and communicate all major assurances in the company to all
share holders

DEBT FINANCING
A business can also raise finance by borrowing from the public and institutions
through capital markets. The examples of debt financing instruments included
 Corporate bonds. Which is an arrangement that enables a company to borrow
money from the public for a long period of time
 Government bonds/ municipal bonds, which is an arrangement that enables
both government and local councils to borrow funds from the public for a long
period of time
 Commercial paper, which is an arrangement that enables a company to borrow
money for a short period of time
Advantages of debt financing
 The company does not have to give up any ownership of the company
 The lender has no control over how to run the company whose bonds he/she
has purchased all that the lender requires of the company is that the loan and
interest should be paid back
 The company is not required to pay the under dividends when it makes a profit
as is the case with the share holders
Disadvantages of debt financing
 The company is required to pay back the principle and interest regardless of
its financial position
 The company must have sufficient cash flow to repay the loan and interest

CORPORATE GOVERNANCE

Meaning of Corporate governance

Corporate governance refers to the system by which companies are directed and
controlled. It is a set of processes, customs, policies, laws and institutions affecting
the way corporation / company is directed, administered or controlled. Boards of
directors are responsible for the governance of their companies. The share holders’
role is to appoint the directors and the auditors and to satisfy themselves that an
appropriate governance structure is in place

Parties to Corporate Governance

There are various parties involved in Corporate Governance and these include the
following:

Board of Directors responsible for governance of the company

Chief executive office
The share holders / investors
Creditors ie suppliers
 Workers / employees
Customers
Responsibilities of Board of Directors in Corporate Governance

 Setting the company’s strategic aims

 Providing the leadership to put them into effect
 Supervising the management of the business and reporting to shareholders on
the stewardship
 Developing directional policies
 Remuneration of staff
Principles of Corporate Governance

In order for an effective relationship to be maintained between the providers of capital

and company managers, high levels of trust must exist between the two groups. For
sufficient levels of trust to occur, the main principles of Corporate Governance need
to be in place. Such principles include the following

o Transparence. This principle means that Directors must make clear to the
providers of capital and other key stakeholders why every material decision has
been made
o Accountability. Directors should be held accountable for their decisions and
account to key shareholders submitting themselves to appropriate scrutiny
o Rights and equitable treatment of share holders. Organisations should
respect the rights of shareholders and help the shareholders to exercise those
rights. They can help shareholders exercise their right by effectively
communicating information that is understandable and accessible and
encouraging shareholders to participate in general meetings
o Fairness /interest of other stakeholders. This principle states that
shareholder should receive equal consideration by the directors and management
with a sense of justice and avoidance of bias or vested interests.
o Role and responsibilities of the board. The board needs a range of skills and
understanding to be able to deal with various business issues and have the ability
to review and challenge management performance.
o Intergrity and ethical behaviour. Organisations should develop a code of
conduct for their directors and executives that promotes ethical and responsible
decision making
o Disclosure and transparence. Organisations should clarify and make publicly
known the roles and responsibilities of board and management to provide
shareholders with a level of accountability
o Responsibility. Directors should carry out their duties with honesty, probity and
integrity
Corporate Governance mechanism and controls

Corporate Governance mechanism and controls are designed to reduce the

inefficiencies that a raise from moral hazards and adverse selection for example to
monitor management behaviours, an independent third party ie external auditor
attests the accuracy of information provided by management to investors. An ideal
control system should regulate both motivation and ability. There are two forms of
corporate Governance Mechanisms and controls ie internal corporate control and
external Corporate Governance controls

Internal corporate governance controls

Internal corporate governance controls monitor activities and then take the corrective
action to accomplish organisational goals. They include the following

o Internal control procedures and internal auditors. Internal control procedures are
policies implemented by an entity’s board of directors, audit committee,
management and other personnel to provide reasonable assurance of the entity
achieving its objectives related to financial reporting, operating efficiency and
compliance with laws and regulations
o Remuneration. Performance based remuneration is designed to relate some
proportion of salary to individual performance. It may be in form of cash or non-
cash payments such as allowances and other benefits
o Monitoring by the board of directors. The board of directors, with its legal authority
to hire fire and compensate top management, safeguards invested capital.
Regular board meetings allow potential problems to be identified, discussed and
avoided
o Balancing of power. This involves separation of power where the president is
required to be a different person from the treasurer. This application of separation
of power is further developed in companies where separate divisions check and
balance each other’s actions
External corporate governance controls

External corporate governance controls encompass the controls external

stakeholders exercise over the organisation. They include the following

 Competition
 Debt covenants
 Demand for and assessment of performance information
 Government regulations
 Managerial labour market
 Media pressure
 Takeovers
Benefits of good corporate governance

The broad benefits of corporate governance include the following

Greater access to capital and lower capital costs. Good corporate governance increase
capital inflows to developing countries from domestic and global capital, equity and
debt and from public securities markets and private capital resources

Improved performance of organisations. Good corporate governance brings better

performance for organisations. Improved governance structures and processes help
to ensure quality decision making, encourage effective planning for senior
management and enhance long term prosperity of companies

Capital and financial market development. Good corporate governance contributes to

the development of public and private capital markets. This results from greater
transparence and financial strength that corporate governance achieves

Greater financial sector stability. Improved corporate governance encourages

stability in the financial markets across the globe. This results from the transparence
and disclosure that corporate governance creates

Adding value to clients’ companies. Companies that practice good corporate

governance enjoy good reputation and image within the market they operate and the
general public

Better image and reputation in the face of government. Corporate governance

enables a business to run its activities without any fear of being prosecuted or closed
by the government, enjoy tax holidays etc

Access to human resources. Good corporate governance attracts people to provide

human resources to the business leading to efficiency and increased production

More bank lending as a result of greater transparence and financial strength that
corporate governance achieves

Protection for all investors, including pension beneficiaries. Through internal

corporate governance controls like monitoring by the board of directors, the board of
directors, with its legal authority to hire fire and compensate to management,
safeguards invested capitated

Systematic problems of corporate governance

o Monitoring costs. In order to influence the directors, the share holders must
combine with others to form a significant voting group which can pose a real
threat of carrying or appointing directors at a general meeting
o Supply of accounting information. Financial accounts form a crucial link in
enabling providers of finance to monitor directors. Imperfections in the
financial reporting process will cause imperfections in the effectiveness of
corporate governance
o Demand for information. A barrier to shareholders using good information
is the cost of processing it, especially to a small shareholder
End