9609

Business

Business paper 2 - The

vaguest questions
THE STUFF YOU THINK “OH THAT’S NOT GOING TO COME” BUT
THEN IT DOES.
S.MADZOKERE
Contents
HUMAN RESOURCE MANAGEMENT ............................................................................................... 2
Motivation ....................................................................................................................................... 6
Management ................................................................................................................................. 13
Business finance ............................................................................................................................ 16
Forecasting and managing cash flows........................................................................................... 18
Costs .............................................................................................................................................. 19
Budgets ......................................................................................................................................... 22
The nature of operations .............................................................................................................. 26

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Vaguest questions they can ask:

HUMAN RESOURCE MANAGEMENT

Advantages of high labour turnover

• New ideas brought into the business

• Can help reduce employee numbers, i.e. they leave and we don’t replace them. No redundancy
payments, pressure groups unlikely to give backlash
• Low skilled, low productivity employees replaced with better chosen ones.
• [EVALUATION] For this can be that businesses that hire part-time and temporary workers, like
students, and so are likely to have a high labour turnover, but that’s not going to mean much for
the business as the worker was temporary

Two reasons why a business will need to recruit employees

• Expanding and needs a bigger workforce

• Employees leave and need to be replaced

Benefits of an employment contract

• Disputes can be settled with the details of the contract (eg. Pay, holiday entitlement)
• Employee is clear on what is expected of him, higher motivation

Describe two methods a business might use to attract applicants to a vacant post

• Advertisement → Social Recruiting: Utilize social media platforms to promote job openings.
• Employer Branding: Create a positive image of your organization by showcasing its values,
culture, and mission. Highlight employee testimonials and success stories.

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State two features of an employment contract

• The employee’s work responsibilities and the main tasks to be undertaken

• Whether the contract is permanent or temporary
• Working hours and level of flexibility expected
• Holiday entitlement and other benefits like pensions
• Number of days notice that must be given by the worker (if they wish to leave) or the employer
(if they wish to make the worker redundant)

Benefits of equality policy

• High employee morale and motivation

• Developing good reputation and the ability to recruit top talents based on fairness
• Can measure employee performance by their achievements at work, not by any discriminatory
factor ➔ more accurate employee appraisals

Benefits of diversity policy

• Capturing a bigger market share as consumers are attracted by a diverse sales force
• Employing a more qualified workforce as selection is based on merit not on discrimination
• Increasing creativity because individuals from different backgrounds approach problem solving
in different ways
• Achieving cultural awareness, leading to improved knowledge about foreign markets
• Promoting diverse language skills, which allows businesses to provide products and services
internationally

Define employee appraisal

• Employee appraisal is the process of assessing the effectiveness of an employee against pre-set
objectives.

[Pro tip: this is an important feature of Herzberg’s motivators]

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Impacts of training

Good impact

• More productive, more flexible, and more adaptable

• Good motivation
• Less chances of accidents as trained in health and safety ➔ less time taken off sick

Bad impact

• Expensive
• Well qualified workers leaving for a better paid job once they gain the qualifications (called
poaching)
• Workers may be less productive during the training

Ways a business can encourage intrapreneurship

• Empower employees with the authority and resources they need to introduce innovations
• Give opportunities to mix and work with other skilled employees from different departments
• Assure them that some failure is expected and acceptable
• Encourage them to start with small ideas and innovations, before moving onto the bigger issues

Benefits of increased cooperation between management and the workforce

To the manager

• Developing a strong employer ‘brand’: being viewed as a good employer may make recruitment
easier and attract good applicants; employees are also less likely to leave the business
• Improving employee morale: higher motivation and improve performance, higher labour
productivity
• Improve the business’s corporate image with a range of stakeholders including customers and
investors: this will also improve competitiveness
• Avoiding costs of disputes and negative relationships with employees

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To the workforce

• Financial benefit: Pay will not be lost due to disputes, but also opportunities for improved pay
and conditions
• Job security: The employer is less likely to make jobs redundant, but will look at retraining in the
event of introducing new technology
• Opportunities such as greater participation in decision-making and a feeling of affiliation
• Opportunities to help in moving the business forward through intrapreneurship and subsequent
recognition of new ideas

[Industrial dispute and industrial action are two different things!! Industrial dispute is when they
don’t agree, and industrial action is when they do something about it]

Industrial Dispute means any dispute or differences between employers and employers or
between employers and workmen or between workmen and workmen which is connected with
the employment or non-employment or the terms of employment or with the conditions of
labour of any person.

Industrial action are measures taken by the workforce or trade union to put pressure on
management to settle an industrial dispute in favour of employees

Benefits of collective bargaining

• Employers can negotiate with one trade union official rather than each individual worker →
saves time, and prevents one individual from feeling that the other has obtained better pay
and conditions than others.
• Workers’ problems brought to consideration, two-way communication → increases
motivation and they feel that their problems are heard → secures jobs and can help
raise profits
• Unions can impose discipline on members that plan to take hasty industrial action,
industrial action less likely → production less likely to be disrupted

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Ways employers can resolve an industrial dispute
Negotiations

• Public relations campaign to gain public support

• Threats of redundancies
• Changes of contract, which require workers to work overtime, accept more flexible working, or
agree not to take industrial action
• Lockouts: short term closure of business (production stops and workers don’t get paid)
• Closure → redundancies of all workers (too extreme)

Motivation
Explain two human needs of an employee
Pro tip: it’s very similar to Maslow’s hierarchy of needs.

Human needs are the wants or desires of people, whether at work or in their life in general →
Demotivated if not given.

• Social connection: by working in groups or teams

• Challenge: by providing different work tasks and chance of promotion
• Significance: by praising and recognising performance
• Certainty: by providing employment contracts and some job security

Quick revision of all theories

Abraham Maslow HIERACHY OF NEEDS

Physical needs → Safety needs → Social needs → Esteem needs → Self- actualisation

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Limitations
• Not everyone has the same needs
• In practice it’s difficult to identify the degree to which the need has been met and which level a
worker is on (Is it possible to do this for all workers in a large organisation?)
• Money is necessary to fulfil physical needs, but also can play a role in other levels (High incomes
= high status)
• Self-actualisation is never permanently achieved. Need to constantly offer challenges and
opportunities or regression will occur

Frederick Taylor ECONOMIC MAN.

MONEY MONEY MONEY → Piece rate

Evaluation

• There are other factors also not just money.

• Can get stressed and sick trying to earn more (though this is just disadvantage of piece
rates in general)

Elton Mayo HAWTHORNE EXPERIMENT

➢ Working conditions have little to no effect on productivity (CAN USE IN EVL FOR
OTHER ANSWERS).

Mainly worker participation like:

• Consultation with employee improves motivation
• Working in teams develops team spirit and improves productivity
• Giving workers control over their working lives, such as deciding when to take breaks
• Letting groups establish their own targets

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 Frederick Herzberg TWO FACTOR THEORY

Evaluation

Motivators and Hygiene factors

Motivators

➔ Aspects of a worker’s job that can lead to a positive job satisfaction, such as:
• Achievement
• Recognition
• Meaningful and interesting work
• Responsibility
• Advancement at work

Hygiene factors

➔ Aspects of a workers job that have a potential to cause dissatisfaction such as

• Pay
• Working conditions
• Status
• Over supervision by managers
• These factors will by themselves not lead to higher motivation

To motivate give job enrichment, he says, by giving complete units of work and feedback on
performance.

Douglas McClelland ACHIEVEMENT, AUTHORITY AND AFFILIATION

• Achievement: Self-goals, career structure → result driven
• Authority: good leadership skills → value prestige and personal status
• Affiliation: friendly relationships → team working works

However, they demand too much of their staff in the achievement of targets and prioritise this above the
many and varied needs of their workers.

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 Victor Vroom THE PROCESS THEORY, BASED ON EXPECTANCY
➢ What they expect → and→ performance
❖ Reward satisfy need
❖ Need to expect that they will be rewarded for the work

• Valance: depth of desire for extrinsic reward, like money, or intrinsic reward, like satisfaction
• Expectancy: the degree to which they believe that putting effort will lead to a given level of
performance
• Instrumentality: the confidence of employees that they will actually get what they desire, even
if it has been promised by manager

Describe two factors needed for job enrichment

➔ Job enrichment aims to use the full capabilities of workers by giving them the
opportunity to do more challenging and fulfilling work.

Jobs which…
• Have a variety
• Require high knowledge and skills
• Give workers more autonomy
• Require workers to show responsibility
• Create chances for personal development
• Produce a meaningful unit of work

BUT
• Depends on worker’s mindset, might think it’s just an excuse to make them to more work
• Need to give training for tasks of higher skill- otherwise leading to demotivation. This leads to higher costs

Why is an effective appraisal system essential if Vroom’s motivational theory is to be

successful?
• It must be possible to assess the performance of the workers in order that any increase in effort
and performance can be rewarded
• Good performance → rewards → expectancy of rewards → increase motivation

❖ Only possible if BUSINESS can measure performance.

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Explain two ways employers can encourage employees to participate in the management and
control of the business activity

• Empowerment- the giving of skill, resources, authority and opportunity to employees so that
they can take decisions and be accountable for their work.
• Letting them make some of the decisions regarding their tasks, and let them solve problems by
discussing the issue within the group
• Participation- active encouragement of employees to become involved in decision-making within
an organisation
• Involving in decision making, inviting to meetings, democratic leadership style

Advantages and disadvantages of training and development

Benefits

• Improving and widening the skills of employees can increase productivity and flexibility of the
workforce and its ability to deal with change
• Training and development increase the status of workers and give them access to more
challenging and probably better paid jobs within the business
• Increase opportunities for self-actualisation
• Often important incentives to encourage employees to stay in the business

Drawbacks

• Expensive to train
• Can take employees away from work for a period of time so other employees will need to cover
for them
• Can lead to the employee leaving the business for better paid jobs
• Competitor might benefit from this

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Advantages and disadvantages of team-working
➢ Team working is when the production is organised so that groups of workers undertake
complete units of work

Benefits

• Empowered
• Will not want to let down other team members so absenteeism should fall
• Social and esteem needs met → better motivated → increase productivity and reduces labour
turnover.
• Makes full use of the talents of the workforce, better solutions
• Lead to lower management costs as it is often associated with delayering so fewer middle
managers required.
• Complete units of work will be given to teams (job enrichment).

Drawbacks

• Not everyone is a team player, some are more efficient working alone. Some workers may feel
left out unless there are real efforts to involve all team members
• Teams may develop a set of values or attitudes that conflict with those of the organisation,
particularly if there is a dominant personality in the group

Evaluation

• Depends on whether clear goals are given or not

• How often is performance checked? Supervision?
• Require training which is expensive
• Disruption to production as teams establish themselves

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Advantages and disadvantages of empowerment

Benefits

• Quicker problem solving- workers have more relevant experience than managers in solving work-
related problems. → better solutions → right decisions → better competitiveness/reduce risk of
loses
• High motivation
• High levels of involvement and commitment improve two-way communications and help reduce
labour turnover
• Managers can focus on bigger strategic issues as they are released from more routine issues and
problem solving

Drawbacks

• Lack of experience → higher risk therefore the need to be trained

• Reduced supervision and control may lead to poor decisions
• Lack of coordination between teams
• Some employees may be reluctant to accept more accountability but feel that they have to in
order to keep their job secure.

Advantages and disadvantages of quality circles

❖ QC is a voluntary group of workers who meet regularly to discuss, and try to resolve,
work-related problems and issues.

Benefits

• Workers have hands on experience so they often suggest the best solutions
• The most successful ideas are often adopted, not just in that location, but across the whole
organisation
• Increased efficiency
• Participation from employees. Fits Herzberg’s motivational theory

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Limitations

• Time consuming and reduces time available for production

• Not all employees want to be involved and prefer to just get on with their jobs
• May not have management power to make changes they recommend. If proposals are ignored,
employees will be discouraged and unwilling to participate.

Management

Which role out of Mintzberg’s management function is the most important for a retailing
business? Evaluate your answer.

❖ Three roles:
➔ Interpersonal
• Figurehead: Guiding people
• Leader: Motivating subordinates
• Liaison: Effective communication within and outside the business

➔ Informational
• Monitor: Deciding which information is relevant to the business
• Disseminator: Making sure that relevant information is passed to the appropriate people in a
suitable way
• Spokesperson: communicating that information to external groups

➔ Decisional
• Entrepreneur: Looking for new opportunities to develop the business
• Disturbance handler: Resolving any actual and potential disagreements within the organisation
or with outside agencies
• Resource allocator: Ensuring efficient and effective allocation of all resources
• Negotiator: Representing the organisation in all important negotiations

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Without Interpersonal role:
• low motivation
• High labour turnover
• High recruitment costs

Evaluation
❖ Whether or not this happens depends on the leadership style.
❖ If it’s Laizez-Faire then minimal input from manager is unlikely to decrease motivation,
especially if the workers are skilled and don’t expect assistance or guiding.

Without Informational role:

• Ineffective communication
• More mistakes
• More customer complaints
• Damages reputation

Without Decisional Role:

• The workings of the business will not be effective,
• The business doesn’t develop in a changing market
• Reduces customer satisfaction
• Lower customer loyalty
• Inability to retain customers
• Loss of customer base
• Loss of market share
• Disagreements can lead to disruptions in production
• Can’t satisfy customer demand → customers will switch to competitors
• Reduces competitiveness

Evaluation
❖ This is only true if the market is growing
❖ If the market is shrinking and doesn’t have a lot of competitors, then such decisions may
not be required as the business should focus on other products instead
❖ Therefore, in this case, decisional management may not be as important
❖ Unless the business decides to enter new markets

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Evaluation
{Disagreements can lead to disruptions in production}
❖ This depends on the scale of the disagreement.
❖ It may not be that large-scale, that may not require an industrial action
❖ Moreover, small disagreements can be resolved among workers themselves and so here
decisional management may not be as important

• If can’t properly negotiate:

➔ Loss of opportunities
➔ High opportunity cost
➔ May end up getting short end of the stick- bad decisions
➔ Can’t achieve objectives

Evaluation

❖ Retailing business will need to communicate with suppliers and customers effectively→
informational may be more important
❖ Retailer may need to negotiate discounts and prices with suppliers, so decisional may be
more important
❖ Interpersonal and Informational roles only help in keeping the employees motivated
and keep the workings smooth, but Decisional role is important for the effective working
of the business, and hence may be more important. Without a decision-making role,
the business is likely to remain at a standstill and find it difficult to survive.

Evaluation:
❖ Why do you think that role is more important?
❖ To have that role what type of organisation culture is needed??
❖ What type of leadership is required??
❖ What is the objective of firm??

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Describe two ways in which managers contribute to business success:
• Setting suitable (SMART) objectives → Gives employees a direction
• Allowing employees to work to their full potential
• Through empowerment and encouraging creativity and innovation
• Intrapreneurial culture will improve business performance
• Making good quality decisions
• Quick informed decisions can help the business react to changing market trends

Describe factors that influence which management style is to be used

• Training and experience of workforce and the degree of responsibility that they are willing to
accept
• The amount of time available for consultation and participation
• The attitude of managers or management culture of the business
• The importance of issues under consideration

Business finance

Explain the procedures for different businesses, when the business fails due to a lack of finance

❖ Depends on the form of business ownership:

• Bankruptcy: a sole trader or partnership– the legal procedure for liquidating a business (or
property owned by a sole trader) which cannot fully pay its debts out of its current assets
• Liquidation: the dissolution of a limited company. When the business ceases trading and its
assets are sold for cash to pay suppliers and other creditors
• Administration: Protects the limited company for a time period, giving time for renegotiation of
debts or finding new sources of finance. When administrators manage a business that is unable
to pay its debts with the intention of selling it as a going concern

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Explain two disadvantages of having too much working capital
• Too much money tied up that could be used profitably elsewhere
• High opportunity cost
• Lose on opportunities
• Can reduce competitiveness
• Cannot achieve objectives
• Can be because of too much credit given to customers
• Increases risk of bad debts
• Money being lost
• Investors getting deterred and not investing
• Lack of finance
• Can indicate inefficient inventory management
• Inventory is included in current assets
• Too much inventory tied up to business
• High storage costs

Disadvantages for negative working capital

• Unable to pay short term debts
• Illiquid and ultimately failing
• Need to take overdrafts so increases gearing ratio
• Banks may not lend

Define Authorised share capital

The total amount of shares that a business is allowed to issue

Define rights issue

Existing shareholders are given the right to buy additional shares at a discounted price

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Describe two factors that affect the source of finance
• Why the finance is needed and the time period it is needed for
• Cost of obtaining the finance
• Amount required
• Form of business ownership and the desire to retain control
• Level of existing borrowing
• Flexibility

Forecasting and managing cash flows

Benefits of cash flow forecasting

• Predict when there might be a shortage of cash
• Can be prepared and plans can be made to source additional finance
• Can help set targets
• Like reduced budgets so that outflows don’t exceed inflows
• Can help get finance by showing this to banks
• Under-take ‘what-if’ analysis. Such as cash inflows and outflows after a new product is launched

Two reasons why need to hold cash

• Pay its short-term debts
• Precautionary Motive: To handle emergencies and fluctuations in cash flow.
• Speculative Motive: To take advantage of price movements in markets.
• Future Requirements: To prepare for future needs.

Limitations of cash flow forecasting

• Mistakes can be made preparing it.
• Unexpected costs increases can lead to major inaccuracies.
• Incorrect assumptions can be made in estimating the sales of the business, perhaps based on
poor market research.

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Causes of cash flow problems
• Lack of planning
• Poor credit control
• Credit control: monitoring of debts to ensure that credit periods are not exceeded
• Allowing customers too long to pay debts
• Expanding too rapidly
• Overtrading: expanding a business rapidly without obtaining all of the necessary finance,
resulting in a cash flow shortage
• Unexpected events
• Like breakdown of delivery truck

Costs

Identify two reasons a business would need accurate cost information

• Calculation of profit and loss

• Pricing decisions
• Measuring performance
• Setting budgets
• Resource use
• Making choices (for example which location? Which machinery)

Give two reasons why a business might find it difficult to allocate costs
• Existence of Semi-variable costs (e.g. Electricity)
• For multi-product businesses (How much overheads [office rent rates, depreciation of
machinery, interest on loans] cost for which?)

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Evaluate whether a firm should use full or contribution costing

Full costing → A method of costing in which all indirect costs and direct costs are allocated to
the products, services or divisions of a business.

❖ Full costing will be used for:

• Single product firms
• Pricing decisions
• Whether to continue producing this product
• Can be compared from one time period to another to assess performance - only if same
method of allocating overheads used.

Limitations
• No attempt to allocate based on actual expenditure incurred
• Inappropriate methods of overhead allocation can lead to inconsistencies between department
and products
• Can be risky to use this for making decisions
• The full unit cost will only be accurate if the actual level of output is equal to that used in the
calculation– a fall in output will push up the allocated overhead costs per unit

Contribution costing → Costing method that allocated only direct costs to cost centres and
profit centres, not overhead costs.

➢ Profit = Contribution – Overheads

❖ Contribution costing would be used:

• Deciding whether to take special orders at price below full unit cost
• Fixed overhead paid anyway, but then there’s more contribution to cover it
• Increased profits
• Excess capacity effectively used
• When taking decisions on whether to stop selling a product
• If it makes a positive contribution then it should still be continued as by stopping
that there will be less contribution available to pay overheads and reduce profits
• ‘Make or buy’ decisions
• To decide between production of two competing productions
• When entering a new market

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 ❖ Situations where Contribution costing would not be used

• Contribution costing does not take into consideration that some products may result in a higher
indirect cost– single product firms wont use this as they have to cover fixed costs from that
product only
• For decisions regarding business expansion or developing new products– all costs will have to be
considered
• May lead to managers choosing to maintain a product just because it has a positive contribution.
Maybe a brand new product could make an even greater contribution- lost opportunity
• Qualitative factors are important too, such as the image the product gives to a business

Explain two uses of break-even analysis. (3)

1 Pricing decisions: Break-even analysis can be used to determine the minimum

price that must be charged for a product or service to cover all costs and make a
profit. By calculating the break-even point, businesses can determine the lowest
possible price they can charge for a product or service and still remain profitable.
It can also help businesses to identify areas where they can reduce costs and
increase profits.

2 Investment decisions: Break-even analysis can be used to evaluate the feasibility

of new business ventures or investments. By analysing the break-even point,
businesses can determine the level of sales necessary to recover the initial
investment and start making a profit. This can help businesses to decide whether
to invest in a particular project or to compare different investment options and
choose the one with the highest potential return on investment.

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Other answers include

• Identify the effect of changes in the fixed or variable costs and revenues.
• Identify how changing circumstances will affect the break-even point and margin of
safety to decide whether this is acceptable.
• Explore different scenarios using amended costs and revenues
• Deciding whether to launch a new product.
• Marketing decision: impact of a price increase.
• Operations management decision: purchase of new equipment with lower variable
costs.
• Choosing between two locations for a new factory.

Limitations of break-even analysis

• Assumes all output is sold
• Cost and revenue lines are assumed to be linear- when they might not be
• Fixed costs may increase over time due to increased production levels requiring the purchase of
additional equipment
• Accuracy of break-even charts depends on the accuracy of the cost and revenue information
• Only useful for one product. Very difficult for a multi-product business
• Not all costs can be classified as fixed and variable. Semi-variable costs make this more
complicated
• For new businesses, break even data could be based on forecasts, and this could be inaccurate

Budgets
Benefits of using budgets
• Planning
• Allocating resources
• Setting targets
• Coordination

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 • Controlling and monitoring a business
• Measuring and assessing performance
• Motivate departmental managers to work within their budget
• Help departmental managers understand their role in the achievement of overall business
objectives

Drawbacks of using budgets

• Lack of flexibility
• Focus on short term (e.g 12months)
• Unnecessary spending if underspent their budget
• Training on budgets
• Budgets for new projects is difficult and often inaccurate

Two features of effective budgeting

• Should involve participation (delegated budgets)
• Coordination between departments when establishing budgets is essential
• Budgets are often used to review the performance of each manager controlling a cost or a profit
centre. The managers will be appraised on their effectiveness of reaching targets. Successful and
unsuccessful managers can be identified.

Evaluate best budgeting method

Incremental budgeting → Does not allow for unforeseen events

Zero budgeting

• Gives incentive for managers to defend their work for their own section
• And changing situations such as external environment can be reflected in very different
budget levels each year

HOWEVER this is time consuming.

HOWEVER money may not end up going in the right places.

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Flexible budgeting

• Good as business environment is dynamic

• Motivating for managers as they wont be criticised for adverse variance that is cause by lower
than planned output levels
• Flexible targets are more realistic
• Better variance analysis as it shows changes in efficiency not just changes in output

Give two reasons why a business may conduct variance analysis

• Helps measure profit
• Finding out variances can help
• Set more realistic budget in the future
• Take better decisions in the future
• The performance of each individual may be appraised in an accurate and objective way

Benefits from regular variance analysis

• Identifying potential problems early so that remedial action can be taken
• Allowing managers to concentrate their time and efforts on the major problem areas.

Why favourable variance not good

❖ Favourable bad as:
• Poor and inaccurate budgeting process where cost budgets were set too high
• A favourable direct cost variance caused by output being lower than planned for is not good-
why sales and output low?

❖ Adverse variance:
➢ Can be fixed by:
• Finding cheaper material supplies
• Increasing labour productivity

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Reasons for adverse or favourable variance
❖ Causes of adverse variance
➢ Revenue below budget because either:
• Fewer units sold
• The selling price had to be lowered due to competition
• Actual raw material costs are higher than planned because either
• Output was higher
• Cost per unit of materials increased
• Labour costs are above budget because either
• Wage rates were raised due to shortages of workers
• The labour time taken to complete the work was longer than expected
• Overhead costs are higher than budgeted, perhaps because the annual rent rise was
above the forecast

❖ Causes of favourable variance

➢ Revenue was above budget as
• Higher than expected economic growth
• Or competitor closing down
• Raw material costs were below budgets as either
• Output was below budget
• Or unit cost of materials was below budget
• Labour costs were below budget
• Either lower wager rates
• Or quicker completion of the work
• Overhead costs are lower than budgeted, perhaps because the interest rate on loans
was reduced.

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The nature of operations

Ways operation managers can increase added value

• Efficiency of production
• Keeping costs low as possible to give competitive advantage
• Quality
• Flexibility
• Imp in dynamic business environment

What are the factors that control the amount of value added?
• Design of the product
• The efficiency of operations
• Branding to encourage consumers to pay more for the product than the cost of inputs

❖ Operations makes a contribution to adding value by:

• Reducing the production costs through increased efficiency
• Producing quality goods that meet customer expectations
• Ensuring production is flexible so that changing consumer tastes can be satisfied

Ways a business can raise its productivity

• Improve training of employees to raise skill levels
• But its expensive and time consuming
• Highly qualified workers could leave to join another business
• Improving worker motivation
• Non financial methods can be used as they won’t increase labour costs
➢ Therefore, any increase in labour productivity will lead to low avg costs
• Purchase technologically advanced equipment
➢ BUT high-cost investment is only worthwhile if high output levels will be maintained
➢ Workers will need to be retrained
➢ And job security may be threatened
• More effective management

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Give reasons why raising productivity may not guarantee success
• If product unpopular: it won’t sell no matter how profitably it is made
• Greater effort from workers to improve productivity can lead to demands for higher wages which
increases costs so cancels out the impact of productivity gains
• Workers may resist measures to raise productivity: increase in productivity can lead to job
losses if sales don’t increase too, industrial disputes
• Quality of management determines the success of a policy to increase productivity. If
management involves workforce, then productivity improvements are likely to be greater and
accepted by the workers

Difference between efficiency, as measured by productivity, and effectiveness

• Effectiveness: meeting the objectives of the business by using inputs productively to meet
customers’ needs
• Sustainability of operations: business operations that can be maintained in the long term, for
example, by protecting the environment and not damaging the quality of life for future
generations

Why make operations more sustainable?

• Stricter laws
• Pressure group activity exposes the most environmental damaging businesses and operations
• Need to fulfil senior managers’ commitments on corporate responsibility
• Positive publicity, good for public relations
• Consumers prefer greener and more sustainable products
• More sales is likely

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