Introduction To Business And Management

107 Introduction to business and management

Examiner’s report 2007 Zone B General remarks This unit provides a comprehensive introduction to the business organisation, its environment and the associated competing theories and models. It builds a foundation of knowledge of the different theoretical approaches to management, decision making and the main functional areas. Lastly, but most importantly, it aims to develop critical analytical and evaluation skills to identify the links between organisations, management practices and the business environment and to compare and contrast theoretical and empirical contributions. On completing this unit, the candidate should have a good understanding of how management ideas have evolved and be able to evaluate the alternative theories developed. The candidate should also be aware of the business environment and the current trends and issues. The critical analytical approach cannot be stressed enough – it is not sufficient to memorise the details of theories and models; the candidate must also be able to understand and evaluate them. The syllabus for this unit covers a wide range of topics and the examination paper is designed to cover, as much as possible, the whole of this syllabus. When revising the subject, candidates should try to see the links between the different chapters in the subject guide and how they reinforce each other. The first and second chapters in the subject guide deal with the foundations of management theory and the different disciplinary approaches to understanding the business organisation. The later chapters will draw upon these foundations. The third chapter, concerning the manager’s role, directly draws on the material covered in the previous two chapters. When studying strategy and change in Chapter 4, the candidates are encouraged to link to the material in the chapters covering internal elements of the firm and external elements of the business context (Chapters 6 and 7). Chapters 9 and 10, concerned with contemporary issues in business and management, are more ‘stand alone’. It is important for the candidate to have a good general knowledge of the key issues and be aware of relationships between the different topics. A choice of four questions from a total of 10 should give the candidate the opportunity to demonstrate a good knowledge and understanding of a substantial part of the syllabus. The questions all have equal importance, and so candidates should allot equal time and effort to each question. Each question is designed to test the candidate’s knowledge of the concepts, and critical analytical and evaluation skills, and will include an element that will test independent thought. It is important that the candidates complete the essential readings indicated in each chapter, particularly those in the key texts by Mullins (2005) and Daft (2003). It is also a good idea for candidates to make their

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own notes on these readings in order to absorb and understand the ideas presented therein. The Examiner will assume that this reading has been completed when designing the questions. In order to emphasise this point, relevant parts of the subject guide and the key texts will be highlighted in some of the questions. It is not sufficient to use the subject guide only for the study of this unit; the subject guide is a guide to study, not a textbook.

Specific comments on questions Question 1 (a) Briefly explain what you understand by the term ‘ethics’. The reading material related to this question is taken primarily from Daft, Chapter 5. In this first part, the candidate should give an explanation something along the lines of the definitions given in Mullins and Daft. Daft’s definition is: ‘the code of moral principles and values that govern the behaviours of a person or group with respect to what is right or wrong. Sets standards as to what is good or bad in behaviour and decision making’. Mullins’ definition is: ‘study of morality – practices and activities that are considered to be importantly right and wrong, together with the rules that govern those activities and the values to which those activities relate’. (b) Discuss what is meant by the three domains of human action. Illustrate each domain with an example. Briefly, the three domains of human action as explained in Daft are: • codified law – legal standard – values and standards are written into the legal system and are enforceable. • ethics – social standard – no specific laws – standards of conduct are based on shared principles and values about moral conduct in society/company. • free choice – personal standard – answerable to oneself. These domains should be explained in more detail with practical examples used to illustrate. (c) Compare and contrast the utilitarian approach to the moral rights approach in ethical decision making. Reinforce your description and analysis with practical examples. These approaches are again to be found in Chapter 5 in Daft and are also referred to in the subject guide, Chapter 10. Briefly the utilitarian approach is the ethical concept that moral behaviours produce the greatest good for the greatest number. The decision maker is expected to consider the effect of each decision alternative on all parties and select the one which optimises the satisfaction for the greatest number of people. Candidates should avoid calling this the ‘Big Brother’ approach as it is not really appropriate and gives the wrong emphasis. The moral rights approach asserts that human beings have fundamental rights and liberties that cannot be taken away by an individual’s decision. Thus an ethically correct decision is the one that best maintains the rights of those people affected by it. Six moral rights are: 1. The right of free consent – you are to be treated only as you knowingly and freely consent to be treated.

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107 Introduction to business and management

2. The right to privacy – you can do as you please away from work and have control of information about your private life. 3. The right of freedom of conscience – you may refrain from carrying out any order that violates your moral or religious norms. 4. The right of free speech – you can criticise truthfully the ethics or legality of the actions of others. 5. The right to due process – you have the right to an impartial hearing and fair treatment. 6. The right to life and safety – you have the right to live without endangerment or violation of your health and safety. The utilitarian approach has a more collective viewpoint whereas the moral rights approach is more focused on the individual. The explanations of the two approaches should be illustrated with practical examples. Some candidates linked the models to the level of development in a country. For example, it was suggested that the utilitarian approach was more appropriate to the less developed country and the moral rights approach more appropriate to the more developed country. This is misleading. Both models can be appropriate whatever the level of development. (d) Briefly discuss which, in your view, is the best approach for managers to follow. Give clear reasons to justify your view. This part of the question looked for evidence of thought. There is no correct answer. This part required the candidate to argue clearly why they thought a particular approach was the best approach. The answer need not be restricted to the two approaches covered in part (c). Question 2 (a) Explain how the business organisation might be described as an ‘open systems’ model. The candidate should refer to Chapters 3 and 4 in Mullins which are concerned with approaches to organisation and management and the nature of organisations. The open systems model of the business organisation takes resources such as people, finance, raw materials and information from its environment and transforms or converts these and returns them to the environment in various forms of outputs such as goods or services etc. in order to achieve certain goals such as profit, consumer satisfaction etc. Good answers to this part referred to the constituents of the model such as environmental influences, inputs, the transformation or conversion process, outputs, organisational goals, measures of achievement etc. (b) Illustrate the model with a simple example, indicating at least two factors in each component of the model. This part required the candidate to look at a simple example and, for each constituent (i.e. input, transformation, output and environment) describe at least two factors. For example, inputs could be raw materials, technology, staff etc. (c) Consider three external environmental influences that might affect the organisation and discuss how they might trigger change within the organisation. Reinforce your answer with practical examples. The essential element here is the change that is triggered. Some candidates indicated the environmental influences without going on to describe the impact of those influences, i.e. the triggered change. This is not answering the question! There are many influences such as the state of the economy, demographics, advances in technology, customer preferences, and

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Examination papers and Examiners’ reports 2007

government policies etc. – all these would impact on the organisation. This part of the question requires the candidate to think through the probable changes. Good illustrative examples are essential here. Some candidates used PEST to answer this part of the question. If this approach is used, it is important to focus on something fairly specific e.g. in the political environment, change of government, or legal framework, rather than P in general. Question 3 (a) Explain what you understand by the term ‘personality’. Material related to this question can be found in Mullins, Chapter 9 – this is part of the essential reading given in Chapter 2 of the subject guide. Candidates will find definitions of personality in both key texts – ‘an individual’s unique set of characteristics and tendencies which shape a sense of self, and what that person does and the behaviour they exhibit’ (Mullins), or ‘the set of characteristics that underlie a relatively stable pattern of behaviour in response to ideas, objects or people in the environment’ (Daft). The explanation here should reflect the content of the definitions and the discussion should be extended to explain how personality can be described. A good way to do this would be to describe some examples of personality dimensions e.g. extrovert/introvert, stable/unstable, locus of control etc. (b) Discuss four factors that might affect the development of a person’s personality. Factors could include: nature, social, family, cultural influences and life experiences. A good answer will give a brief discussion of the factors with some examples to illustrate the factors’ influence. For instance, how is our behaviour affected by our parents? They will be our role models in our formative years. (c) Discuss four personality characteristics that you consider necessary in an entrepreneur. Justify your choice and use examples to reinforce your answer. Candidates should discuss four characteristics that they think are necessary in an entrepreneur and explain clearly why these traits are important. There are many possible traits that could be discussed – the aim of this part of the question is for the candidate to demonstrate that they have thought about the problem and can justify their answer. For example the following traits could be discussed: strong internal locus of control, need to achieve, high energy level, extrovert, self-confident – however, anything sensible would be allowed as long as the choice is wellargued. Good examples should be used to illustrate choices. Question 4 Contrast approaches to improving organisational performance which are focused on technical and structural requirements with those focused on concern for psychological and social factors. Reinforce your answer with descriptions of the appropriate theories and use of practical examples. This question looks at the basic management theories – see the first two chapters in the subject guide and the essential reading associated with those chapters. See in particular, Figure 3.3, p. 88 in Mullins – this will indicate a possible approach to answering the question. The answer requires a discussion and evaluation of the early management theories. Starting with the classical approach – the main focus here should be scientific management but there should also be reference to bureaucracy and administrative management. The classical approach emphasises

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107 Introduction to business and management

formal structure, technical requirements and sets of principles. Candidates should describe the basic characteristics of the approach and make some attempt at evaluation, using good practical examples. The human relations approach and the neo-human relations approach give more attention to psychological and social factors, individual differences, motivation, leadership etc. Again an accurate description of the basic characteristics of the theories and some evaluative discussion, with examples, is required. This type of question is very common and candidates should be able to produce an accurate, concise and analytical response. Question 5 (a) Briefly explain the following four approaches to international staffing that MNC’s might adopt and the implications they may have for the HRM practices in the organisation: i. ethnocentric approach. ii. polycentric approach. iii. geocentric approach. iv. regiocentric approach. Candidates are referred to Chapter 19 in Mullins – see the section on international dimensions of HRM – and also Chapter 4 in Daft which covers managing in a global environment. The brief descriptions taken from these two sources are given below. A good answer would link these basic definitions to specific HRM practices, e.g. selection of staff, management practices etc. (i) Ethnocentricity – a cultural attitude marked by the tendency to regard one’s own culture as superior to others; the belief that one’s own group or subculture is inherently superior to other groups or cultures. (Daft) Ethnocentric approach – here managerial positions are normally filled by staff from the ‘parent’ country. It is likely that, within this approach, the home country’s approach will be dominant with subsidiaries operating standardised HRM practices. (ii) Polycentric approach – more oriented to the markets of individual foreign host countries. Local managers are more usually appointed from the host country. The approach may be useful when a global strategy is to be implemented on a regional basis. It can also be seen when a subsidiary develops local HRM practices. (iii)Geocentric approach – generally world-oriented and does not favour a specific country. In this approach the managers are recruited from within the company or from outside with no importance attached to their nationality. It could be argued that such managers may possess greater cultural flexibility. (iv)Regiocentric approach – recruitment of managers is undertaken on a regional basis. This is more likely when subsidiaries operate as part of a regional strategy and HRM practices are, in turn, formulated regionally. (b) It is important for MNCs to understand the legal framework of the countries in which they are setting up operations. Discuss three areas of regulation that need to be considered. Illustrate your answer with practical examples. Some candidates seemed not to register the word ‘legal’ and used a PEST structure in the answer – this was the wrong approach. This question is very specific – it focuses on the law and how it might affect an MNC’s operations. See p. 154 in the subject guide. This will give a framework for

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the answer. The areas that can be discussed are: labour law, company law, patent law, trading law, environmental law. The candidate should identify and briefly explain three of these areas and why they are important. In each case the candidate should illustrate with practical examples. It is important to understand one’s own legal environment and how it might differ from other countries. Candidates should, at least, be aware of the laws which exist in their own country. Question 6 (a) Briefly discuss the purposes of management control in a work organisation. The candidate is referred to Chapter 3 of the subject guide where the controlling role of the manager is discussed. The essential reading for this section is Chapter 21 in Mullins which is concerned with organisational control and power. One of the roles the manager has to perform is that of controlling. Within an organisation, control is primarily a process for motivating and inspiring people to perform organisational activities, and monitoring those activities to ensure that they will further the organisation’s goals. One aspect/purpose of control can be seen as a means of giving feedback to the individual about task performance, to give structure to tasks and some idea of how performance will be measured, and how this is linked to reward systems. Most individuals will see the need for control. Look for examples to illustrate these points. At the organisational level, management need to exercise control over the behaviour and actions of staff to ensure a satisfactory level of performance. Managerial control systems are a means of checking progress to determine whether the objectives of the organisation are being achieved. (b) Describe the essential elements in a management control system. Illustrate your answer with practical examples. There are basically five stages in a control system (Mullins p. 835): • planning what is desired • establishing standards of performance • monitoring actual performance • comparing actual achievement against planned target • rectifying and taking corrective action or alternatively see the basic stages on p. 63 of the subject guide. Candidates should give a clear description of the process (not just a list of the stages) and illustrate with practical examples. Question 7 Discuss why it is important to study the internal environment of a business as a whole rather than focusing on individual elements. Illustrate your answer with practical examples. See Chapter 6 in the subject guide which covers the internal environment of the organisation. This will give a good framework for the answer. Details can be obtained from the essential reading for this section – see Chapters 4, 15, 16, 17 and 22 in Mullins. Candidates should start by explaining what the internal environment is. The definition given in the subject guide is – ‘the conditions within which a business operates, the sum total of all the internal factors which can influence the behaviour of the business and how it develops’.

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107 Introduction to business and management

Internal elements include type of business, ownership, strategy, size, structure, technology and culture. Candidates should identify at least four elements and give brief descriptions with examples. For example, when explaining strategy, Porter’s generic strategies could be used as examples. Candidates should then demonstrate the links between the different elements. For example strategy will determine structure, not the reverse – remember the work of Alfred Chandler. Size and structure can also be shown to be linked. Type of business may also be linked to structure and culture (e.g. private and public sector companies can be very different here). Look for examples to illustrate the relationships. Question 8 (a) Briefly explain what is meant by: i. corporate level strategy. ii. business level strategy. iii. functional level strategy. The relevant reading for this question can be found in Daft, Chapter 8, which covers strategy formulation and implementation. Briefly the different levels of strategy are explained below: (i) Corporate level strategy – the level of strategy concerned with the question ‘What business are we in?’ It refers to the organisation as a whole and the combination of business units and products that make it up. (ii) Business level strategy – the level of strategy concerned with the question ‘How do we compete?’ It refers to each business unit or product line within the organisation. (iii)Functional level strategy – the level of strategy concerned with the question ‘How do we support the business level strategy?’ It refers to all the organisation’s major departments. A good answer would give a clear explanation with good illustrative examples. (b) Compare and contrast the generic strategies of differentiation and cost leadership. See the explanation of these approaches in Daft. Brief descriptions are given below, but good answers would elaborate on these points and give practical examples. Differentiation – a type of competitive strategy with which the organisation seeks to distinguish its products or services from those of competitors. Organisation acts in a flexible, loosely knit way, with strong co-ordination among departments. Strong capability in basic rewards. Creative flair. Strong marketing abilities. Rewards employee innovation. Corporate reputation for quality of technological leadership. Cost leadership – a type of competitive strategy with which the organisation aggressively seeks efficient facilities, cuts costs, and employs tight cost controls to be more efficient than competitors. Strong central authority, tight cost controls. Maintains standard operating procedures. Easy to use manufacturing technologies. Efficient procurement and distribution systems. Close supervision, finite employee empowerment.

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(c) Discuss how functional strategies in marketing and human resource management would differ if a business changed from a differentiation to a cost leadership strategy. Illustrate your answer with practical examples where appropriate. This part of the question is asking the candidate to think how two functions in particular are likely to change if the strategy changed from differentiation to cost leadership. Material covered in the previous part will help here. For example, there will be less emphasis on marketing if a cost leadership strategy is adopted. There will be a smaller marketing budget. There will be less emphasis on innovation and more on efficiency – this leads to a reward system less focused on creativity. Management control will be tighter – employees will have less freedom/empowerment. The candidates should provide a comprehensive discussion with good illustrative examples. Question 9 (a) Explain what you understand by the term ‘e-business’. A good framework for the answer here can be found in Chapter 9 of the subject guide, see pp. 201–205. A definition of e-business can be: ‘work an organisation does by using electronic linkages; any business that takes place by digital processes over a computer rather than in a physical space’. This should be elaborated on and illustrative examples used. (b) Discuss the particular benefits that can be experienced by e-businesses. See p. 204 in the subject guide for a list of benefits – these should be explained with illustrative examples. Candidates should highlight at least four benefits. (c) Explore the problems that managers of e-businesses may face. See p. 204 in subject guide. There are several problems given there. Candidates should highlight at least six problems, and discuss them, giving examples. Although the subject guide provides ample material to provide answers, the candidate is also encouraged to demonstrate wider knowledge with alternative points. e-business is central to the present day environment and most candidates should have a comprehensive grasp of the benefits and limitations. Question 10 (a) Briefly explain how a decision tree might aid a manager. See subject guide pp. 77–80 for information on decision trees. Decision trees can be used when there is one decision maker. Decision trees may help a manager clarify the situation when faced with a series of options, each of which leads to certain pay-offs, with different chances of occurring. It helps the manager look at all the possibilities and might indicate where there are gaps in his/her knowledge of the problem. It is a rational approach to solving a problem. Discussions should be restricted to decision trees only, as this is what the question asks for. Some candidates described other approaches to decision making including game theory. They would gain no marks for this. (b) Describe the basic process of constructing a decision tree; clearly defining the individual components and stating any assumptions. The issues involved are best understood in terms of what is called a decision tree which contains the main constituents of the problem. These

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107 Introduction to business and management

are: the decisions, the sources of uncertainty, and the pay-offs, namely, the results of each possible combination of probabilistic outcomes and decisions. The basic idea is to: construct a decision tree, attach some value (pay-off) and probability to the ‘outcomes’ indicated by the decision tree, and estimate the best (expected) outcome. The candidates should illustrate their answer with a basic diagram and should also indicate the conventions in notation. The description of the process must be precise. This shape is called a decision (or action) node: This shape is called a probability node: Lines (arcs) from action nodes are actions available at that node. Lines (arcs) from probability nodes are beliefs by the decision makers about the probability of outcomes. They sum to unity at each node. Outcomes are exclusive. Pay-offs are the monetary values of the actions to the decision maker. The probability nodes are labelled with the respective expected pay-offs (see below). Note – the pay-offs are those which the decision maker attaches. Another decision maker may have different pay-offs. In more advanced theory, pay-offs are often measured in terms of utility. The probabilities may be objective or the subjective estimates of the particular decision maker. The decision maker then calculates the expected pay-off for each action and chooses the action which gives the expected highest return (in theory). Assumptions – the decision maker knows the tree, even if probabilities are subjective. The decision maker knows the pay-offs of each outcome. The decision maker is assumed to be rational. (c) XYZ Ltd, a company which supplies office equipment, has to choose between two contracts, one in the private sector, the other in the public sector. From experience, XYZ Ltd estimates that, if it contracts with the firm in the private sector, its profit will be £3 million, £0.8million, or -£0.4million with probabilities 0.25, 0.40 and 0.35 respectively. If it decides on the contract in the public sector, its profits will be £5million or -£2.5million with respective probabilities of 0.44 and 0.56. Draw a decision tree to represent this dilemma, clearly showing the probabilities and pay-offs. Construct the equations for the expected profit in each case. Probs P ayoffs £

Private

0.25

3.0

0.40

0.8

0.35

-0.4

0.44

5.0

0.56

–2.5

Public

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Expected pay-off in pounds sterling when choosing the private sector contract is: (0.25)(3.0) + (0.40)(0.8) + (0.35)(-0.4) Expected pay-off in pounds sterling when choosing the public sector contract is: (0.44)(5.0) + (0.56)(-2.5) The candidate is not expected to calculate the expected pay-offs. Note: a common mistake was to assign a probability of 0.5 to each of the lines coming from the square decision node and to then include the 0.5 in the final expected pay-off equation. This is not correct. Probabilities should only be assigned to lines coming from the oval probability nodes.

Key steps to improvement These points have been made in previous Examiners’ reports but need to be reiterated here: i. It is important to read all the essential readings in the recommended key texts since the topics covered there are part of the syllabus and are likely to be examined. Remember the subject guide is there to ‘guide’ your reading and learning and is not a textbook. Be sure to explore the key concepts, principles and models in detail. ii. Make sure that you understand the words ‘evaluate’, ‘compare’, ‘contrast’ and what they are asking you to do. These are very often ignored by the candidate when they appear in the question. The examiner puts them there for a purpose. iii. When asked to give a practical example in the context of a theoretical model, make sure you link the theory and practice. Use the theoretical model as the skeleton on which to flesh out the practical illustration. iv. When studying the different topics in the key texts, try to build up a good portfolio of current practical illustrations. Most questions require you to provide good examples from the business context. v. Remember, ‘commonsense’ answers are not sufficient, you must show that you have studied and understood the topics covered in the syllabus and refer to the appropriate theories and models. vi. Last, but by no means least, when attempting the examination, make sure that you understand what each question is asking you to do. There is still a tendency for some candidates to see the topic mentioned and write everything they know on that topic regardless of whether it is relevant to the question asked. Think carefully before you write!

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