The Institute of Chartered Accountants of Bangladesh

Business and Finance

Chapter-02
Managing a business
(Part-02)

Presented By: Muhammad Mahbub Alam FCA

23rd February,2022
Business functions: The key function of any Business areeinany
business are:
✓Marketing ,including sales and customer services
✓Operations or Production, including R&D and procurement(R&D)
✓Human resource
✓Finance
 Business Function-HRM

Human resource management: The creation, development and maintenance of an

effective workforce, matching the requirements of the business and responding to the
environment.

Hard and soft approaches to HRM have been identified, representing opposite ends of the
spectrum.

✓ The hard approach emphasises the resources element of HRM. Human resources are planned
and developed to meet the wider objectives of the business.

✓ The soft approach emphasises the human element of HRM. It is concerned with employee
relations, the development of individual skills and the welfare of staff.

The functions of HRM

✓ Personnel planning and control.
✓ Job design.
✓ Recruitment and selection.
✓ Training and development.
✓ Performance appraisal.
✓ Disciplining employees.
✓ Remuneration.
✓ Grievances and disputes.
✓ Compliance with legal and other standards.
✓ Employee communication and counselling.
✓ Personnel information and records.
✓ Workforce diversity.
The four Cs model of HRM:
The four C’s model was developed at Harvard as a means of investigating HRM issues in a wider
environmental context rather than merely as a set of functions as listed above. It argues that HRM policies
need to be derived from a critical analysis of:

❖Stakeholder demands, including employees as one legitimate stakeholder group

❖Situational factors (e.g. labour market conditions, management style, technology, ownership, competitive
conditions)
The model suggests that the effectiveness of HRM should be evaluated under four headings:

1. Commitment. Assesses employees' motivation, loyalty and job satisfaction. These factors are likely to
measure an employee's commitment to a business. Measures can include labour turnover (how many people
leave in a period compared with how many on average are employed), absenteeism, exit interviews, and
satisfaction surveys.

2. Competence. Relates to employees' skills, abilities and potential. These may be measured by a skills
inventory and appraisal system. The objective of HRM policies in this area should be to attract, retain, motivate,
train and promote the right people.

3. Congruence. This is a measure of the extent to which management and employees share a common vision
for the business and act consistently to attain that vision. Evidence of congruence can include absence of
grievances, conflicts and strikes, and the state of industrial relations.

4. Cost-effectiveness. Concerns operational efficiency and productivity. Outputs are aimed to be achieved at
the lowest input cost. Labour cost and effectiveness by comparison to competitors may be a measure of HRM
achievement in this area.
Organisational behavior: The study and understanding of individual and group behaviour in
an organisational setting in order to help improve organisational performance and effectiveness.

Organizational behavior is not about human behavior alone, but about how people's behavior
interlinks with the business's formal structure, the tasks to be undertaken, the technology and
processes used, the management process and the external environment.

The organisational iceberg: A useful image for how human behaviour is affected by many
variables and is manifested in organisational behaviour is put forward by Hellriegel, Slocum and
Woodman as the 'organisational iceberg‘.

'One way to recognise why people behave as they do at work is to view an organisation as an
iceberg.What sinks ships isn't always what sailors can see, but what they can't see.'

In other words, as well as the formal aspects of a business which one can see 'above the
waterline' (they are 'overt'), there are many behavioural aspects which one cannot see as such
(they are 'covert', or under the water). It is these covert aspects which tend to cause the most
problems!
Human behavior is the potential and expressed capacity (mentally, physically, and
socially) of human individuals or groups to respond to internal and external stimuli throughout their
life. While specific traits of one's personality, temperament, and genetics may be more consistent,
other behaviors will change as one moves along different stages of their life,

Behavior is also driven, in part, by thoughts and feelings, which provide insight into individual
psyche, revealing such things as attitudes and values. Human behavior is shaped by psychological
traits, as personality types vary from person to person, producing different actions and behavior.
Extraverted people, for instance, are more likely than introverted people to participate in social
activities like parties.

Models of human behavior:

Taylor made three basic assumptions about human behaviour at work:

✓People are rational economic animals concerned with maximising their economic gain
✓People respond as individuals, not groups
✓People can be treated in a standardised fashion, like machines

Taylor's conclusions were as follows:

> Main motivator: high wages

> Manager's job: tell workers what to do
> Workers' jobs: do what they are told and get paid
McGregor's model:
McGregor developed two theories, X and Y. Each one represents a different set of assumptions about how
people are. He did not imply that one or other theory typifies all people. X and Y are two extremes with a
whole spectrum of values between the two.

Theory X:
✓ Individuals dislike work and avoid it where possible
✓ Individuals lack ambition, dislike responsibility and prefer to be led
✓ A system of coercion, control and punishment is needed to achieve business objectives
✓ Above all, the individual desires security
Theory Y:
✓Physical and mental effort in work is as natural as rest or play
✓Commitment to objectives is driven by rewards – self-actualisation is the most important reward
✓External control and threats are not the only way to achieve objectives – self-control and direction
are very important
✓People learn to like responsibility
✓The intellectual potential of the average human is only partially utilised.

Motivation : The degree to which a person wants certain behaviours and chooses to engage in
them. Motivated workers are characterised by:
✓Higher productivity
✓Better quality work with less waste
✓A greater sense of urgency
✓More feedback and suggestions made for improvement
✓More feedback demanded from superiors
Maslow's content theory: the hierarchy of needs:
One way of understanding individual behavior is in terms of the individual's needs. Maslow's
hierarchy of needs is a motivational theory in psychology comprising a five-tier model of
human needs, often depicted as hierarchical levels within a pyramid. ... From the bottom of
the hierarchy upwards, the needs are: physiological, safety, love and belonging, esteem, and self-
actualization.

Self actualization
needs

Status/ego needs

Social needs

Safety/Security needs

Basic/physiological needs
 Maslow's hierarchy of needs
➢ A person will start at the bottom of the hierarchy or pyramid and will initially seek to
satisfy basic needs – food, shelter, clothing etc

➢ Once these needs are satisfied they no longer motivate and the individual concerned
moves up to the next level; safety/security needs

➢ Safety needs could encompass physical safety (e.g. wearing a hard hat on a building
site) and/or protection against unemployment, the consequences of sickness as well as
being safeguarded against unfair treatment

➢ Again, once these needs are satisfied (e.g. by company rules re dismissal, pension policies
etc) they no longer motivate and the person moves up to the next level in the hierarchy
Social needs recognize that people want to belong to a group

➢ Status/ego needs involve the desire to have the respect and esteem of others. This
could be satisfied, for example, by gaining a promotion

➢ Self-actualization needs are concerned with what people think about themselves,
whether they feel that their lives are worthwhile and that they have meaning. For many
this can only be satisfied by ongoing success and new challenges
Herzberg's content theory: hygiene and motivating factors

The two-factor theory (also known as Herzberg's motivation-hygiene theory and dual-factor
theory) states that there are certain factors in the workplace that cause job
satisfaction while a separate set of factors cause dissatisfaction, all of which act
independently of each other.
Group behaviour: Group is a collection of people with the following characteristics:
✓ Common sense of identity

Group: A collection of people with the following characteristics:

✓Common sense of identity
✓Common aim or purpose
✓Existence of group norms (i.e. expected/accepted standards of behaviour)
✓Communication within the group
✓The presence of a leader

The usefulness of groups:

As far as businesses are concerned, groups are used to:

➢Bring together several skills

➢Plan and organise
➢Solve problems/take decisions
➢Distribute information
➢Arbitrate or make awards
➢Co-ordinate between departments

As far as individuals in businesses are concerned, groups are useful to:

➢Satisfy social and status needs (Maslow)

➢Give support,and
➢Provide social contact and personal relationships
Stages of group development : Group is a collection of people with the following characteristics:
✓ Common sense of identity

Psychologist Bruce Tuckman formulated four stages through which groups proceed.

Forming. At this initial stage, the group is no more than a collection of individuals who are
seeking to define the purpose of the group and how it will operate

Storming. Most groups go through this conflict stage. Here, preconceptions are challenged,
and norms of attitude, behaviour etc are challenged and rejected. Members compete for chosen
roles within the group (e.g. leader, comedian). If successful, this stage will have forged a stronger
team with greater knowledge of each other and their objectives

Norming. This stage establishes the norms under which the group will operate. Members
experiment and test group reaction as the norms become established. Typically, the norming stage
will establish how the group will take decisions, behaviour patterns, level of trust and openness,
individuals' roles,and so on

Performing. Once this final stage has been reached the group is capable of operating to full
potential, since the difficulties of adjustment, leadership contests etc should have been resolved

Tuckman suggested that groups are inefficient at the forming and storming stages,
become more efficient at the norming stage but really need to reach the performing
stage for maximum efficiency.
Team roles : Group is a collection of people with the following characteristics:
✓ Common sense of identity

Belbin observed that people adopt one or more of the following eight roles when placed
within a particular type of group context, this is a team.

The leader – co-ordinating (not imposing) and operating through others

The shaper – committed to the task; may be aggressive and challenging; will also
always promote activity
The plant – thoughtful and thought-provoking
The evaluator – analytically criticises others' ideas; brings team down to earth
The resource-investigator – not a new ideas person but tends to pick up others'
ideas and adds to them; is usually a social type of person who often acts as a bridge to
the outside world
The company worker – turns general ideas into specifics; is practical and efficient;
tends to be an administrator handling the scheduling aspects
The team worker – concerned with the relationships within the team; is supportive
and defuses potential conflict situations
The finisher – unpopular, but a necessary individual: the progress chaser ensuring
that timetables are Met
Belbin suggested that an effective team will have each personality type
represented, subject to the following:

➢Only one leader and/or shaper is required

➢Equal numbers of plants and evaluators
➢Equal numbers of company workers and team workers
➢Not too many finishers (probably one is enough)

Belbin later suggested an additional role: The specialist, brought from outside the
team.

Leadership style is the manner and approach of providing direction,

implementing plans, and motivating people. The effectiveness of any given manager
will be influenced by their:
✓Authority: having sufficient rights to control and judge the actions of subordinates
✓Autonomy: giving subordinates necessary and reasonable freedom of action to
carry out their roles
✓Leadership: exercising the power conferred by right in such a way as to win a
willing and positive response from subordinates.
Likert's Leadership Styles
Rensis Likert identified four main styles of leadership, in particular around
decision-making and the degree to which people are involved in the
decision.
> Exploitive authoritative.
> Benevolent authoritative.
> Consultative.
> Participative.
Exploitative-authoritative
✓ Decisions are imposed by managers on subordinates
✓ Subordinates are motivated by threats
✓ Authority is centralised with minimal delegation
✓ There is little communication between superior and subordinate
✓ There is no teamwork (i.e. managers and subordinates do not act as a team)
Benevolent-authoritative
✓ Leadership is by a condescending form of the master
✓ servant relationship
✓ Subordinates are motivated by rewards
✓ There is some degree of delegation of responsibility
✓ There is little communication between superior and subordinate
✓ There is relatively little teamwork
Consultative
✓ Superiors have substantial but not complete trust in their subordinates
✓ Motivation is by rewards and some involvement in objective-setting
✓ There is an increasing degree of delegation
✓ There is some communication between superior and subordinate
✓ There is a moderate amount of teamwork
Participative
✓ Superiors have complete confidence in subordinates
✓ Motivation is by rewards and participation in objective-setting
✓ There is a high degree of delegation
✓ There is much communication between superior and subordinate
✓ There is a substantial amount of teamwork

Likert also identified four characteristics of effective managers:

1.Employee-centred rather than work-oriented
2.Set high standards but are flexible in terms of methods to use to achieve those standards
3.Natural delegators with high levels of trust
4.Encourage participative management
Leadership
Blake & Mouton's managerial grid : The managerial grid put forward by Blake a
A particular manager's leadership style according to where it features on two scales:
concern for people, and concern for getting the task done.

Managers at each of the five points marked can be characterized as follows:

9–9 Participative (team manager). High productivity as a result of the integration of task and
human requirements.
9–1 Authoritarian. People are treated like machines to get the task done.
1–9 Country club. Keep everyone happy, don't worry about the task.
5–5 Average. No-one over-exerting themselves.
1–1 Impoverished. No concern for either people or getting the task done.
Delegation: Delegation involves giving a subordinate responsibility and authority to carry out a given
task, while the manager retains overall responsibility.

Advantages of delegation:
✓ Manager can be relieved of less important activities
✓ It enables decisions to be taken nearer to the point of impact and without the delays caused by
reference upwards
✓ It gives businesses a chance to meet changing conditions more flexibly
✓ It makes the subordinate's job more interesting
✓ It allows for career development and succession planning
✓ It brings together skills and ideas
✓ Team aspect is motivational
✓ It allows performance appraisal

Problems caused by poor delegation:

✓ Too much supervision can waste time and be demotivating for the subordinate
✓ Too little supervision can lead to subordinates feeling abandoned and may result in an inferior outcome
if they are not completely happy with what they are doing
✓ Manager tries to delegate full responsibility, that is s/he uses delegation to 'pass the buck'
✓ Manager only delegates boring work
✓ Manager tries to delegate impossible tasks because s/he cannot do it themselves
✓ Managers may not delegate enough because they fear their status is being undermined, and they want
to stay in control
✓ Subordinates may lack the skills and training required