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Acca BT Course Notes
Acca BT Course Notes
Course Notes
ACCA
Business and Technology (BT)
From September 2020
Tutor details
ii I n t ro d u c t i on A C C A BT
A C C A BT I n t ro d u c t i on iii
Contents
Page
Introduction i
1 The exam vi
2 Studying Business and Technology vi
1 Macro-economic factors 11
1 Micro-economic factors 15
2 Elasticity of demand 20
3 Perfect competition 23
4 Monopoly 23
5 Social and demographic factors 24
6 Technological factors 24
7 Competitive factors (Porter’s Five forces) 28
8 SWOT Analysis 28
4: Organisational structure 29
1 Organisational culture 37
2 Committees in the business organisation 40
iv I n t ro d u c t i on A C C A BT
1 Leadership 63
2 Management 63
3 Supervision 64
4 Fayol (1849-1926) Classical theory of management 64
5 Frederick Taylor (1856 – 1915) Scientific Management 65
6 Elton Mayo 65
7 Mintzberg – the functions of a manager 66
8 Peter Drucker – the functions of a manager (alternative theory) 66
9 Managerial authority and responsibility 66
10 John Adair – Action-centred leadership 67
11 Fred Fiedler (1922 – 2017) The Fiedler contingency model. 67
12 Warren Bennis (1928 – 2014) seven qualities of a leader 68
13 Heifetz – adaptive leadership 68
14 Kotter 69
15 Ashridge Management College ─ four management styles: 69
16 Blake and Mouton’s Managerial Grid 70
17 Recruitment, selection, diversity etc 71
A C C A BT I n t ro d u c t i on v
1 Competency framework 91
2 Techniques for improving effectiveness at work and their benefits 91
3 Barriers to effective time management 92
4 The role of IT in improving personal effectiveness 92
5 Coaching 92
6 Mentoring 93
7 Counselling 93
8 Features of effective communication 93
9 Verbal or oral communication 95
10 Communication patterns 95
vi I n t ro d u c t i on A C C A BT
1 The exam
Business and Technology (BT) is a two-hour computer-based examination.
The paper is in two sections. Questions will assess all parts of the syllabus and will test knowledge and
some comprehension or application of this knowledge.
The examination will consist of two sections:
Section A contains 30 two mark objective test questions and 16 one mark objective questions
(76 marks in total). There is no partial marking in section A.
Section B contains 6 scenario based multi-task questions; one relating to each area of the
syllabus. Each question is worth 4 marks (24 marks in total). Partial marks are available in
section B.
All questions are compulsory.
The paper has a pass mark of 50%.
Organisations, stakeholders
and the business environment
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(b) Not-for-profit ─ an organisation formed with the intention of providing a service rather than
making a profit e.g. a charity.
(c) Public sector ─ all organisations owned and run by central or local government
e.g. the NHS. These are not necessarily “not for profit” and are not necessarily voluntary.
(d) Non-governmental organisations (NGOs) – an independent voluntary association of people
acting together for some common purpose e.g. The Red Cross.
(e) Co-operative – this is a business owned by its workers who share the profits
e.g. the John Lewis Partnership.
2 Stakeholders
Government Community
Shareholders
Lenders
Customers
Suppliers
Public Authorities
KEY TERMS
An internal stakeholder is an individual or group which affects, or can be affected by,
the organisation’s actions. The categories of internal stakeholder are executive
directors/senior managers and employees. In large organisations the managers may or
may not also own the organisation. In smaller organisations the managers are also likely
to own the organisation.
Connected stakeholders are the organisations shareholders, bankers (providers of debt
finance), customers and suppliers. The examiner says this group includes non-executive
directors.
External stakeholders are any stakeholder, which are not internal or connected, such as
government and the community.
External stakeholders are also known as secondary stakeholders, while internal and
connected shareholders might be classed as primary shareholders. They usually have
some sort of contractual relationship with the company
The impact stakeholders have on an organisation depends upon their levels of power and interest.
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E.g. key customer, active major E.g. Local community, pressure group, local
shareholder, trade unions, secured lender media, local government (may be in box A),
individual shareholders (may be in box D),
supplier, individual customers
B D
Keep satisfied Ignore?
E.g. Central Government, passive major E.g. Individual householders living nearby
shareholder, national media
Risk of them joining up? This may move them
Risk of movement to A above into box C
Low
Stakeholder Objectives
Directors/Senior Managers Maximise remuneration, security of tenure, maximisation of power and
influence
The interaction between different stakeholders will vary depending upon the particular stakeholders
and their objectives.
As can be seen above, different stakeholders will have different objectives and some of these may not
be consistent e.g. maximising the dividend and maximising the directors’ remuneration; the more the
directors are paid, the less that is left to pay out as a dividend.
Cyert and March (the consensus theory of company objectives) argue that objectives emerge as a
consensus of the differing views of the stakeholders of the organisation.
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4 PEST analysis
PEST analysis is concerned with the “environmental” (i.e. outside world) influences on a business.
The acronym stands for the Political/legal, Economic, Social and Technological issues that could affect
the strategic development of a business.
The examiner may refer to PESTEL. This is PEST with Environmental and Legal tacked on the end.
Identifying PEST influences is a useful way of summarising the external environment in which a
business operates. To be effective, the analysis should be followed up by consideration of how a
business can respond to these influences.
Political / Legal Economic Social Technological
Environmental Growth Income distribution, Government
regulation and e.g. change in spending on
protection disposable income research
Taxation (corporate Monetary policy Demographics, age Government and
and consumer) e.g. interest rates, structure of the industry focus on
exchange rates population; gender; technological effort
and money supply family size
International trade Government Labour / social New discoveries and
regulation spending mobility development
Common Law
The UK Legal system was based largely on judge-made law ("common law" or “case-law”) until
around the seventeenth century.
Since that time, new laws and law reform have increasingly been brought about through Acts of
Parliament.
Legislation
If created by Acts of Parliament, the law is “primary” legislation. The Courts cannot overrule primary
legislation.
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Parliamentary sovereignty
Parliament can:
Repeal earlier legislation
Overrule case law
Make new law
Under the Treaty on the Functioning of the EU (TFEU, formerly the Treaty of Rome), Parliament is
obliged to bring UK law into line with the Treaty of Rome and with any directives issued by the
European Union.
The UK is obliged to apply regulations issued by the EU as they have the force of law in member states.
Supranational bodies
A number of supranational organisations and bodies have been created which provide mechanisms
whereby disputes between states may be avoided, discussed or resolved, e.g. through arbitration or
mediation.
Examples include:
The European Union (EU)
The United Nations (UN)
The World Trade Organisation (WTO)
5 Employment law
Law protecting employees built upon the employment contract, which can be oral or written.
The main terms of employment must be supplied to employee within two months of commencing
employment.
Terms should contain the following:
Names of employee and employer
Date of commencement
Job title
Notice period
Whether service with a previous employer forms part of the employee’s continuous period of
employment
Hours of work, including normal working hours
Holidays and holiday pay
Arrangements for sick leave, sick pay
Disciplinary and grievance procedures or reference to where they can be found
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A C C A BT 1: O rg an i s at i o n s, s t ake h ol d e rs an d t h e b u s in e s s e n v iro n me n t 7
'Positive action' means the steps that an employer can take to encourage people
from groups with different needs or with a past track record of disadvantage or
low participation to apply for jobs.
Positive discrimination is the practice or policy of favouring individuals belonging
to groups which suffer discrimination
(c) Termination of contract
(i) Wrongful dismissal
If employer breaches contract, e.g. by dismissing employee without giving
sufficient notice, employee can claim damages for breach.
Damages usually calculated by reference to difference between actual and
contractual notice period.
No minimum period of employment required.
(ii) Unfair dismissal (minimum 24 months’ employment required)
To avoid a claim for unfair dismissal the employer must act “reasonably”.
Reasonableness includes giving reasons for dismissal in writing.
What constitutes fairness will depend on the size and resources of the employer.
Fair reasons for dismissal include:
Lack of capability or qualifications e.g. the loss of a driving licence.
Misconduct, e.g. assault, immorality, habitual drunkenness.
Redundancy, provided reasons for selection are fair.
Following fairly applied grievance or disciplinary procedure.
Failing to carry out a reasonable order from the employer.
Unacceptable reasons for dismissal
If related to trade union activities automatically unfair
Pregnancy automatically unfair
Unfair selection for redundancy
(d) Redundancy
Fair dismissal if employer ceases or intends to cease trading at that location or needs
fewer workers at that location.
Minimum two years’ service since reaching 18 years of age.
Not available if employee unreasonably refuses alternative employment offer from employer.
6 Data protection
The Data Protection Act 2018 regulates how personal information is used and protects individuals
from misuse of personal details. It is the UK’s implementation of the EU General Data Protection
Regulation (GDPR).
The Act protects individuals rather than companies and applies to regulated data. It provides a
common-sense set of rules which prohibit the misuse of personal information without stopping it
being used for legitimate or beneficial purposes.
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Some (but not all) contracts have to be made in writing, e.g. share and land transfers, consumer credit
contracts. Most contracts could be valid even if made orally.
Some contracts may be void (destitute of legal effect) this means no contract exists e.g. contracts in
restraint of trade.
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Some are voidable (one party can avoid the contract) e.g. contracts with minors for the supply of non-
necessaries.
Some are unenforceable (valid contract but one party cannot force the other to complete the
agreement) e.g. because of a lack of written evidence.
Gratuitous promises are enforceable if they are executed via a deed (a formal document that states it
is a deed and where signatures are witnessed by a third party). Otherwise, promises are only
enforceable if supported by consideration from both parties.
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11
1 Macro-economic factors
Macro-economic policy is the field of economics that studies the behaviour of the aggregate (i.e.
whole) economy. Macro-economics examines economy-wide phenomena such as changes in
unemployment, national income, rate of growth, gross domestic product, inflation and price levels.
The main determinants of the level of business activity in the economy are:
Market demand
Cost of finance/interest rates
Exchange rates
The overall level of business activity directly affects the levels of disposable income enjoyed by
individuals, households and business.
Inflation
Inflation causes the following:
Redistribution of wealth e.g. from accounts receivable to accounts payable
Causes particular difficulty for those on fixed incomes
Makes planning for the long term difficult
Causes interest rates to rise, to choke demand, and exchange rates to rise, which in turn sucks
in imports and inhibits exports
Inflation can be “cost-push”, i.e. driven by rising costs, e.g. airline ticket price rises currently
driven by increases in price of aviation fuel, or “demand pull” where resources are insufficient
to meet demand, e.g. almost all commodities at present.
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Unemployment
Unemployment causes the following problems:
Loss of output
Loss of human capital
Social costs e.g. crime
Increasing burden of welfare payments
Unemployment can be:
– Structural (declining industry - long term)
– Seasonal (less demand for workers in winter - short term)
– Frictional (short term disconnect, e.g. new generation of graduates, or workers in one
location and jobs in another)
– Cyclical (due to recession as part of economic cycle – long term)
– Technological (caused by changes in technology e.g. self-service checkouts - long term)
Stagnation
Stagnation is zero or negative economic growth. Stagnation causes:
Lack of investment
Increase in savings
Balance of payments
The balance of payments refers to the balance between exporting and importing of goods and
services. If a country is importing more than it is exporting then more money is flowing out of the
country (for imports) than is flowing in (for exports).
It is made up of the current account and the capital account.
Current account
The current account records how well the UK is doing in terms of its exports of goods and services
relative to its imports. If the UK is to 'pay its way' in the world over the long term, then it needs to
keep earning enough foreign currency from its exports to pay for its imports. If this is not the case, the
account will be in deficit. In summary, the transactions are:
Trade in goods
Trade in services
Income from employment of UK residents by overseas firms
Income from capital investment overseas
Transfers to and from bodies such as the EU
Capital account
The capital account comprises public sector flows into and out of the country, such as government
loans to other countries.
The sum of the balance of payments must be zero (it balances in the way that a trial balance balances).
If we import more than we export we will have to use reserves or borrow to cover the difference and
to make the balance of payments total zero.
When economists do talk about a surplus or deficit in the balance of payments they are referring to a
surplus or deficit in the current account only.
When a country is continually in deficit, it is importing more goods and services than it is exporting.
A C C A BT 2: T h e mac ro - e c o no mi c e n v i ro n men t 13
Government policies
Different governments will put a different emphasis on individual policies and use different measures to
achieve these policies, but in general, governments try to achieve the following macroeconomic targets:
Strengthening business to make the economy more competitive
Zero inflation
Balance imports and exports
Increasing employment opportunities
Ensuring fairness for families and communities
Delivering macroeconomic stability to encourage long term planning and investment
Potential growth is determined by “supply-side” factors, e.g. resources, productivity
Actual growth is determined by growth in output (supply side) and growth in demand (demand
side)
Fiscal policy covers the Government’s spending and taxes. Taxes affect the amount that companies
and individuals have available for spending. So Government spending and taxation decisions have a
major effect on average demand and output.
Monetary policy is the attempt to regulate the supply of money and the terms and availability of cash.
The broad aim of monetary policy is to achieve price stability by influencing the level of demand in the
economy. (It involves manipulating interest rates and exchange rates.)
Quantitative easing is a relatively unconventional monetary policy where government prints more
money that it can spend. This has the effect of increasing the amount of cash in the economy,
hopefully increasing aggregate demand. It is generally a medium term policy.
Budget Deficit
By running a budget deficit the Government is injecting more money into the economy than it is taking
out. This will help boost aggregate demand and reduce unemployment. Therefore, running a deficit is
known as an ‘expansionary’ strategy.
It is often used when a ‘deflationary gap’ exists in the economy. This occurs when the level of
aggregate demand in the economy is insufficient to lead to full employment.
Budget Surplus
By running a budget surplus the Government is taking money out of the economy, reducing aggregate
demand. This is referred to as a ‘contractionary’ policy.
It is often used when an ‘inflationary gap’ exists in the economy. This occurs when aggregate demand
in the economy is higher than the country can supply which leads to high inflation.
A “positive public sector net cash requirement” indicates a deficit in public finances (negative
requirement indicates a surplus).
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15
The micro-economic
environment
1 Micro-economic factors
The market
A “market” can be defined as any mechanism by which potential buyers of a good or service are
brought together with potential sellers of that good or service.
This market could also be for factors of production, such as the labour market dictating the market
wage for a particular group of employees.
Price mechanism
The “price mechanism” is the means by which the decisions of consumers and businesses interact to
determine the allocation of scarce resources between different goods and services. Changes in the
demand or supply send the market price of a good up or down.
Price changes are a signal to consumers and producers to change the quantity bought and sold.
The price mechanism determines what should be produced and who should get it. In this way it can be
said to act as a regulator of demand and an allocator of resources.
Marginal utility
This is the satisfaction gained from consuming one extra unit of a good or service, or the satisfaction
given up from consuming one less. That second cup of coffee never tastes as good as the first.
Rational consumers aim to maximise total utility; this implies that the ratio of marginal utility to
price is equal for each good.
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Demand
If the average price of a Mars Bar was £0.30 each you might be able to make some estimate of how
many you would want and could afford to buy each month. At a lower average price of £0.20 you
might increase your estimate of how many you would purchase.
The Law of Demand simply proposes that as the price of a good falls, the quantity you would be willing
and able to purchase increases, given that everything else remains unchanged.
Demand curve
The demand curve represents the quantities of a good or service that consumers are willing and able
to purchase at various prices.
It is normally drawn as a straight line as this is easier, but in practice, demand curves are normally
curved.
The Law of Demand implies the following with respect to a demand curve (all of these say exactly the
same thing):
The demand curve is downward sloping (i.e. a negative slope)
The demand curve shows an inverse relationship between price and quantity demanded.
At a price of £0.50, the demand for Mars Bars is 100 units. As the price falls to £0.20, the quantity
demanded increases to 400 units – an extension of demand.
A C C A BT 3: T h e mi c ro -e c o n o mi c e n v i ro n me n t 17
If the price increases from £0.20 to £0.50, the quantity demanded decreases by 300 units – a
contraction of demand.
Be careful with these terms! They relate to movements along the demand curve NOT movements of
the demand curve itself!
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Supply
Supply is the quantity of a good or service that a producer is willing and able to supply onto the market
at a given price in a given time period.
Normally as the market price of a commodity rises, producers will expand their supply onto the
market. There are three main reasons why supply curves for most products slope upwards from left to
right giving a positive relationship between the market price and quantity supplied.
When the market price rises (for example, following an increase in consumer demand), it
becomes more profitable for businesses to increase their output.
Higher prices send signals to firms that they can increase their profits by satisfying demand in
the market. When output rises, a firm's costs may rise, therefore a higher price is needed to
justify the extra output and cover these extra costs of production.
Higher prices make it more profitable for other firms to start producing that product so we may
see new firms entering the market, leading to an increase in supply available for consumers to
buy.
For these reasons we find that more is supplied at a higher price than at a lower price.
Supply curve
The supply curve shows a relationship between the price of a good or service and the quantity a
producer is willing and able to sell in the market. If the price of the good reduces (ceteris paribus)
there will be a movement down the supply curve (contraction) and if the price of the good increases
there will be a movement up the supply curve (extension).
In the short term rational suppliers will not supply goods if the marginal cost of production exceeds
the marginal revenue generated from sales.
This means that in the short term the firm’s marginal cost curve becomes its supply curve because
the firm is willing to supply at marginal cost.
But, rational suppliers will not supply goods if the sale price is less than the average variable cost as
they will not make a profit.
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2 Elasticity of demand
Elasticity of demand
When you raise the price of most items, known as normal goods, people will buy less of them. For
example, when one airline raises its price, air passengers may switch to a rival airline.
If the price falls people will buy more of them. For example, the falling price of computers has meant
that increasing numbers of families and businesses have bought them.
Common sense tells us that when prices change, so too will the quantities bought.
A C C A BT 3: T h e mi c ro -e c o n o mi c e n v i ro n me n t 21
This relationship is less strong for inferior goods, these are goods for which demand will fall as
household income rises. For example, people in developing countries switch to motor bikes and cars
from bicycles as their income rises.
However, businesses need to have more precise information than this ─ they need to have a clear
measure of how the quantity demanded will change as a result of a price change.
If a good fell in price by 50%(e.g. from £1 to 50p) and the quantity demanded increased by 100%(e.g.
from 1000 to 2000), we could say that the Point PED is 2.
If a good fell in price by 50%(e.g. from £1 to 50p) and the quantity demanded increased by 25%(e.g.
from 1000 to 1250), we could say that the Point PED is 0.5.
If the PED > 1 the demand for the good is elastic. If the PED < 1 demand is inelastic.
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A C C A BT 3: T h e mi c ro -e c o n o mi c e n v i ro n me n t 23
(2) The time period: in general demand becomes much more elastic in the long run than in the
short run because spending patterns tend to adjust to income changes with a time lag.
3 Perfect competition
No single producer or consumer has the market power to influence prices.
Perfect competition requires the following conditions be fulfilled. In such a market, prices would
normally move instantaneously to economic equilibrium.
Atomicity – An atomistic market is one in which there are a large number of small producers
and consumers, each so small that its actions have no significant impact on others. Firms are
price takers, meaning that the market sets the price that they must choose.
Homogeneity – Goods and services are perfect substitutes; that is, there is no product
differentiation. (All firms sell an identical product at an identical price.)
Perfect and complete information – All firms and consumers know the prices set by all firms.
Equal access – All firms have access to production technologies, and resources are mobile.
Free entry – Any firm may enter or exit the market as it wishes.
Individual buyers and sellers act independently – The market is such that there is no scope for
groups of buyers and/or sellers to come together with a view to changing the market price
(collusion and cartels are not possible under this market structure).
4 Monopoly
Introduction
A monopoly is where only one supplier of a good or service has no closely competing substitutes.
An example would be a rail operator on a particular route.
Another more theoretical example would be created by a series of mergers to leave one monolithic
supplier. Sky were effectively in this position when they “merged” with BSB in the 1990s and became
the sole supplier of live premiership football.
Sky’s position has subsequently been eroded with legislation insisting that the premiership sells
packages of matches to more than one broadcaster such as BT Sport or the BBC.
A natural monopoly occurs where there is a natural factor that makes it inefficient and too costly to
have new market entrants (e.g. water industry). Other types of monopoly tend to be caused by firms
merging together until there is a dominant player.
A monopoly supplier can earn supernormal profits in both the short run and long run. This is because
of the barriers to entry, e.g. economies of scale, high advertising costs, high capital requirements.
The monopolist charges higher prices than a perfectly competitive firm and produces less output, to
keep prices up. Monopolists are price makers.
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6 Technological factors
(a) Organisations can maintain or increase their level of output but with a reduced workforce /
downsizing, through greater automation. NB automation of basic financial processing is
impacting the finance profession in this way.
(b) Improved management information systems allow the removal of layers of
middle management / delayering.
(c) Outsourcing is the contracting out of specified operations to an external organisation. For
outsourcing to work well a close relationship is required, and this can be enhanced through the
use of technology, although it should be noted that there may be quality issues when
outsourcing. In finance functions, costs are often reduced by the combination of outsourcing
and process automation.
(d) Technological developments such as mobile and cloud computing can also dramatically change
the way the finance department is structured and interacts with the rest of the organisation.
Developments such as artificial intelligence and blockchain may impact the way the finance
department works.
A recent and growing trend in computing is the use of the Internet to do things that traditionally were
done using computer hardware owned and maintained in the individual business.
Use of ‘cloud computing’ where the business carries out activity using the Internet reduces the need to
invest in and maintain significant infrastructure.
Other benefits include:
A C C A BT 3: T h e mi c ro -e c o n o mi c e n v i ro n me n t 25
Flexibility (as a result of not having to invest in hardware, IT needs can be flexed more easily to
what is needed at the time)
Disaster recovery (information is stored in the cloud)
Ability to collaborate (when using the cloud, individuals all over the world can contribute to the
same document, rather than running parallel versions leading to greater errors)
Security (the document is accessed by everyone from the same remote place, reducing chances
of loss of physical data in transit or otherwise)
Environmental friendliness (this links with the flexibility note above – as lack of individual
infrastructure reduces carbon footprint and the energy used fluctuates with the actual needs of
the current time)
Competitiveness (use of the cloud can give small business advantages enabling them to
compete with bigger businesses)
This is where software, effectively robots, is used to perform repetitive, rules-based tasks, meaning
that cost is saved on staff performing similar functions, who can also be repurposed to more
sophisticated value-added tasks.
A key impact on the organisation is cost saving.
Process automation can have a negative impact on staff morale (‘robots taking our jobs’)
Must be managed sensitively
May cause redundancies
However, causes staff to be used in less routine ways, so could be motivating for staff
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If you are trying to choose a task which could be changed to process automation in an OT –
think about the level of repetition in the task, whether it is based on rules (eg include the
total on the sales ledger for this customer code) or whether judgement is required.
Artificial intelligence is not designed to replace or even replicate human intelligence but is in effect ‘a
learning machine’. Such systems have been shown to make effective decisions that can be more
effective than human decision-making systems.
‘Decision-making’ is simply the processing of a large amount of data: machines can do this
better than humans can
Decisions may need to be influenced by factors such as empathy or creativity: machines are
currently less good at this than humans (speaking generally, of course!)
Benefits of machine-learning
Machines can process considerably more data in determining a decision than humans can –
hence there is a link with big data and how it can be used effectively
Machines may be able to identify patterns that humans would not (either due to volume of data
– as noted above – or due to the degree of consistency within the pattern)
Machines do not suffer from human characteristics such as bias, tiredness or boredom!
Limitations
Ultimately the machine can only work with input data, which is generated from humans and
may contain bias – but the machine cannot identify/edit that out
On the same basis, the machine may not have access to the appropriate data to make the
decision required
KEY TERM
Blockchain is a continuously growing data record.
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At its simplest level, blockchain is effectively a digital (distributed) ledger which lists transactions in
individual ‘blocks’ and which continues to grow with the addition of subsequent transactions to create
a permanent record. Inherently, removal of a block will show digitally meaning that the digital record
is transparent and accurate.
The most famous use of blockchain is the powering of a digital currency (bit-coin) so that transactions
are recorded, but the currency is digital only – it does not exist in physical terms. However, it can be
used in any area where a permanent, transparent record would be beneficial – for example, voting
records at a country level.
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8 SWOT Analysis
Generally shown as a grid split into four sections:
Strengths Internal and relative to the competition
Weaknesses
29
Organisational structure
Formal structure
The way the organisation is organised by those with responsibility for managing the
organisation. They create the formal structures that enable the organisation to meet its stated
objectives.
Formal structures will be set out on paper in the form of organisational charts.
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3 Span of control
Means the number of people who report directly to one manager in a hierarchy.
The more people under the control of one manager, the wider the span of control.
Fewer people means a narrower span of control.
The advantages of a narrow span of control are:
Managers can communicate quickly with the employees under them
Controlling staff is easier
Feedback of ideas from the workers will be more effective
Less management skill required
A C C A BT 4: O rg an i s at i o n al s t ru c t u re 31
4 Scalar chain
The number of layers of management from the top to the bottom of the organisation.
Tall organisation Flat organisation
5 Centralisation
Senior management make the main decisions and little authority is passed down the organisation.
Advantages
Experienced people with an overview of the company make decisions
Ensures policies are consistent throughout the company
Ensures quick decisions can be made without consultation
Procedures such as ordering and purchasing can be standardised throughout the company,
leading to economies of scale
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6 Decentralisation
Decisions are made by junior management as authority is passed down the organisation, thereby
accepting less uniformity in how things are done.
Advantages
Reduces the stress and burdens of senior management
Empowers local managers, encouraging them to be more innovative and motivated
Subordinates may have a better knowledge of local conditions
Middle management are groomed to take over higher positions
Disadvantages
Reduction in uniformity may unsettle customers who expect every Sainsbury’s to look the same
and every Big Mac to contain just one slice of gherkin
Head office can see the big picture, therefore its instructions may prove more profitable than
local manager’s intuition
Summary
Certain functions within a business will always be centralised because of their importance, e.g. legal,
banking, audit.
Decision to allocate budget is likely to be centralised as it affects the whole organisation.
Decision to distribute profits is also taken centrally.
Some delegation is necessary in all firms because the amount of work a senior manager can physically
do is finite.
Even if authority is delegated to a subordinate it is usual for the manager to retain overall responsibility.
A C C A BT 4: O rg an i s at i o n al s t ru c t u re 33
Mintzberg’s organigram
Mintzberg described organisational forms using an organigram as follows:
The five components of an organisation need to be in the appropriate balance for the strategy,
environment and culture that they face.
The five components are:
(1) Strategic apex – is the source of direction for the organisation (e.g. board of directors).
They seek to control. This gives a Simple or Entrepreneurial structure.
(2) Middle line – are the middle managers that convert direction into tasks and procedures.
They seek autonomy. This gives rise to what is called a Divisional structure.
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(3) Operating core – are those that provide the outputs of the organisation. They seek autonomy
and mutual working. This gives rise to what is called a Professional Bureaucracy.
(4) Technostructure – advise the operating core. They seek to standardise through procedures and
checking (e.g. quality control, compliance). This gives rise to what is called a Machine
Bureaucracy.
(5) Support staff – support the operating core. They seek their expertise to be recognised as vital
(e.g. finance, administration). This gives rise to what is called an Adhocracy.
Margin
Firm Infrastructure
Technology Development
Support
activities Human Resource Management
Procurement
Primary activities
Primary activities
Taking a manufacturing company as an illustration, the “primary activities” are those directly related
with the input of materials through to the after sales service of the finished goods.
Inbound logistics. Those activities involved with the physical receipt and storage of inputs. It
includes warehousing, transport and stock control.
Operations. The conversion of inputs into finished goods in the factory, including assembly and
packaging.
Outbound logistics. The safe storage and final distribution of the product to customers.
Marketing and sales. The advertising and promotion of products.
(After-sales) service. Includes customer support and repair services.
Operations management is concerned with all primary activities except marketing and sales.
Support activities
These are the functions which improve the efficiency and effectiveness of the primary activities.
Procurement. Purchase of materials, spare parts, machines etc.
Human resource management. Recruitment, development and retention of staff
Technology development. Research and development, design.
Firm infrastructure. General management, legal, finance and accounting.
A C C A BT 4: O rg an i s at i o n al s t ru c t u re 35
9 Marketing
KEY TERM
Marketing is the management process which identifies, anticipates and supplies customer
requirements efficiently and profitably (Chartered Institute of Marketing).
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37
1 Organisational culture
Mullins describes culture as the collection of traditions, values, policies, beliefs and attitudes that
constitute a pervasive context for everything we do and think in an organisation.
Schwartz & Davies talk about a pattern of beliefs and expectations shared by the organisation’s
members, and which produce norms which powerfully shape the behaviour of individual and groups in
the organisation.
An organisation’s culture is shaped by a wide range of factors including:
The founder
History
Leadership and management style
The environment
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(3) The third level: Beneath values and beliefs lie assumptions; foundational ideas that are no
longer consciously recognised or questioned by the culture, but which ‘programme’ its ways of
thinking and behaving.
Handy described the person at the centre of this “web” as the god “Zeus”
This person controls the whole organisation
Power Cultures have few rules and little bureaucracy
Swift decisions are made
Dissent is discouraged
There are succession problems when the spider dies or retires
(2) Role Culture
In a role culture, the columns shown above represent a very hierarchical structure of an
organisation, with precise job descriptions and clearly delegated authority
Power derives from a person's position
Controlled by well-established rules and procedures, role descriptions and authority
definitions
(3) Task Culture
A C C A BT 5: O rg an i s at i o n al cu l t u re and c o mmi tt e e s 39
Can be exploitative (e.g. If it doesn’t get done between 9 and 5, it gets done between 5
and 9)
Can be stressful
(4) Person Culture
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A Low Uncertainty Avoidance ranking indicates the country has less concern about ambiguity
and uncertainty and has more tolerance for a variety of opinions. This is reflected in a society
that is less rule-oriented, more readily accepts change, and takes more and greater risks.
Long-Term Orientation. Focuses on the degree the society embraces, or does not embrace, long-term
devotion to traditional, forward thinking values.
High Long-Term Orientation ranking indicates the country prescribes to the values of long-term
commitments and respect for tradition. This is thought to support a strong work ethic where
long-term rewards are expected as a result of today's hard work. However, business may take
longer to develop in this society, particularly for an "outsider".
Low Long-Term Orientation ranking indicates the country does not reinforce the concept of
long-term, traditional orientation. In this culture, change occurs more rapidly as long-term
traditions and commitments do not become impediments to change.
Types of committee
The main types of committee used by business organisations are as follows:
Executive directors
Remuneration
Audit
Nominations
Health and safety
Social
IT steering group
A C C A BT 5: O rg an i s at i o n al cu l t u re and c o mmi tt e e s 41
Chair
Take control
Allocate an appropriate amount of time to each item on the agenda
Encourage contributions from all members
Prevent side tracking
Ensure agenda is clear
Ensure all members understand implications of decisions
Communicate, if appropriate, with outside world
Secretary
Know, and be able to advise on, terms of reference
Advise members of deadline for submitting agenda items and committee papers
Agree agenda and minutes with Chair
Contact members to advise them of date, time, agenda, papers to be read
Liaise with Chair just before meeting
Sit next to Chair
Ensure meeting is quorate (have sufficient participants to validly transact business) throughout
Write up minutes, using a consistent and concise style and referencing, clear layout, action
points and persons responsible clearly set out, state date of next meeting
Send to members promptly and set out deadline for comments on minutes, remind members of
date, time and location of next meeting
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43
The shareholders are the legal owners of a company and they may also be directors of the same
company and consequently be involved in the control and management. This situation is very common
in private companies.
The shareholders can appoint non-shareholders to manage and control the company on their behalf.
This situation is very common in public companies.
Corporate governance is the system by which companies are directed and controlled. It provides the
structures and processes to ensure companies are managed in the interests of their owners.
The aims of good governance are:
The management of risk
To create a framework from which a business will be able to pursue its strategy and objectives
Clear roles and responsibilities, particularly splitting the roles of Chairman and Chief Executive
Clear lines of communication with shareholders, e.g. communicate strategic plan
Good control systems
Strong, experienced, knowledgeable, independent non-executive directors
An involved board supervising the activities of the executives
The maximisation of profit is an aim of corporate governance
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All UK listed companies must comply with the UK Corporate Governance Code (or explain why they
are not complying) and other organisations are encouraged to do so as well.
The UK Corporate Governance Code covers the following:
An effective board provides entrepreneurial leadership, and ensures that effective controls are
in place to manage risks. To do this, the board needs to be balanced in terms of the
representation of executive, non-executive, and independent non-executive directors.
Clear division of responsibilities between Chair and Chief Executive avoids concentrations of
power and encourages balanced decision-making.
In order to fulfil their roles effectively, all directors need appropriate skills and knowledge,
which should be regularly evaluated and updated.
All directors should submit themselves for re-election every year.
Director’s remuneration should be sufficient but not excessive, with an element being linked to
individual and corporate performance. The procedure for setting remuneration should be
formal and transparent. Notice periods should be set at 12 months or less.
Independent non-executive directors are independent of the management and from any other
relationship that could affect the exercise of impartial judgement. For example, their fee should
be based on the amount of time they commit to the organisation – it should not be linked to
profits.
For key areas involving conflicts of interest, the board should establish sub-committees, made up of
non-execs only, which will report and make proposals to the main board for its approval covering:
Nomination, (who should be on the board)
Remuneration and
Audit
The board must interact effectively with shareholders. Transparency, accountability and timely
provision of good quality information are important in promoting informed dialogue.
Annual reports must convey a fair and balanced view of the organisations performance and should
state:
Whether the organisation has complied with governance regulations and codes
Details of all directors that have served during the year
That the directors have reviewed the effectiveness of internal controls and risk management
The organisation is a going concern
The relationships with stakeholders
Directors of a listed company must produce an operating and financial review
Agency theory
Agency theory assumes that agents, including directors, will act in their own best interests. This means
that organisations must align the interests of the agent with those of the organisation to get the best
performance out of the agent.
A C C A BT 6: G o v e rn an c e an d s o ci al re s p on s i b il i t y 45
(2) A reactive strategy where the organisation only takes responsibility once an external entity
prompts them to do so e.g. if a fault is discovered, the product is not recalled until the public,
government or a consumer group finds out about it.
(3) A defence strategy where the organisation minimises or attempts to avoid any additional
obligations arising from a particular problem e.g. when selling the product, the organisation
stipulates that if a fault is discovered after purchase the product cannot be returned.
(4) An accommodation strategy where the organisation responds differently each time by taking
account (accommodating) of the stakeholders’ view.
Financial Reporting Council Monitors and enforces legal and compliance standards of the accounting
profession.
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47
Systems, controls
and compliance
48 7: Sys t e ms , c o n t ro ls an d c o mp l i an c e A C C A BT
Maximising profit
Availability of allowances and grants
Possible synergies, e.g. tv wo products sharing one production line
Budgetary control
Variance analysis
Exit costs, e.g. de-commissioning, redundancy
Sensitivity analysis, e.g. what is the impact of a 10% fall in volume?
The original role of the accounting function was to record financial information.
The overall role of the modern accounting department is helping the organisation to achieve its
financial objectives. The focus is on providing useful information to users.
The functions of the accounting department are as follows:
Invoicing and collection of debts – sales ledger
Authorisation of capital and revenue expenditure
Purchasing/procurement – purchase ledger
Treasury/cash management
Payroll
Budgeting and control
VAT returns
The accounting function contributes to the formulation of the financial objectives. By setting financial
targets or budgets, it then implements these objectives and controls performance using techniques
such as variance analysis.
An accountant has three main responsibilities:
(1) Collect financial records e.g. receipts, invoices, cheques, and statements.
(2) Maintain the bookkeeping and construct accounts.
(3) Analyse and interpret the information.
A C C A BT 7: Sys t e ms , c o n t ro ls an d c o mp l i a n c e 49
Accountancy is a specialist area with its own technical language. As a result, accountants will have to
interpret their findings into a meaningful format. Other managers can then understand the
information and will then be able to work together to plan and set budgets for the year.
2 Financial accounting
Financial accounting is concerned at one level with bookkeeping, i.e. recording daily financial activities,
and at a more advanced level with preparation of the final accounts e.g. the income statement and
Statement of financial position.
Working capital consists of inventories, accounts receivable, cash and accounts payable. The
management of working capital is vital for the long-term success of any business. Too much working
capital is inefficient and so stops investment; too little and the business will not be able to meet its
liabilities and will thus fail. This function is normally performed by the finance function.
3 Management accounting
Management accounting is concerned with providing managers with management information such as
information about costs, and forecasts of future costs and revenues.
Management accountants record the current costs and revenues and then analyses the
information using various accounting ratios and formulae. The purpose of this analysis is to
identify trends by comparing the results with previous years and budget.
Any trend, whether positive or negative, could affect the planning for the next year. This
information is then reported up through the organisation to aid decision making.
Budgets are prepared to translate the organisations objectives into a financial plan. The actual
performance is then compared to this budget and control action is taken when deviations are
identified.
4 Treasury function
The treasury department in a company is essentially in charge of the cash flow management of the
company. The Treasurer should report to the Finance Director.
Organisations have to pay tax and in order to ensure that the correct amount of tax is paid at
the correct times, the finance or treasury function will calculate the amounts and also put in
place plans to minimise the total tax liabilities.
Growing businesses will need to raise finance. There are a number of different potential sources
(national and international money and capital markets, banks, governments and venture
capital) and each will need to be evaluated to identify which is the most suitable at that
particular time and for that particular purpose. This function is normally performed by the
treasury function.
All business involves risk and by taking risks, returns can be earned. However there is no point
taking more risk than is necessary and so the risks need to be managed in order to ensure that
they are minimised. Two common business risks are interest rate and foreign currency risk and
these are managed by the treasury function using derivatives such as futures and options.
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External audit
The external auditor is independent of the company and provides an independent examination and
statement of opinion on the truth and fairness of the financial statements. The external auditor is
appointed by the shareholders (although this may be on the basis of a recommendation from the
board of directors).
The main function of the external auditor is to report to the shareholders by expressing an opinion on
whether an entity's financial statements are free of material misstatements. In an unqualified report,
the auditor states that the financial statements present a true and fair view of the organisation’s
position and performance. A qualified report is issued when the financial statements do not fully give a
true and fair view. Normally, external auditors review the entity's information technology control
procedures when assessing its overall internal controls.
A C C A BT 7: Sys t e ms , c o n t ro ls an d c o mp l i a n c e 51
Filing accounts
All limited companies must send their accounts to the Registrar of Companies at Companies House.
The time normally allowed for delivering accounts to Companies House is:
For a private company, nine months from the ARD;
For a public company, six months from the ARD.
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A C C A BT 7: Sys t e ms , c o n t ro ls an d c o mp l i a n c e 53
9 IT software applications
(a) Spreadsheet applications (“spreadsheets”) are computer programs that let you create and
manipulate data electronically.
In a spreadsheet, each value sits in a cell. You can define what type of data is in each cell and
how different cells depend on one another.
The relationships between cells are called formulas, and the names of the cells are called labels.
Once you have defined the cells and the formulas for linking them together, you can enter your
data. You can then modify selected values to see how all the other values change accordingly.
This enables you to study various ‘what-if’ scenarios.
There are a number of spreadsheet applications on the market, e.g. Lotus 1-2-3 and Excel. The
more powerful spreadsheet applications support graphics features that enable production of
charts and graphs from the data.
Most spreadsheet applications are multidimensional, meaning one spreadsheet can be linked to
another. A three-dimensional spreadsheet, for example, is like a stack of spreadsheets all
connected by formulas. A change made in one spreadsheet automatically affects other
spreadsheets.
(b) Database systems
A collection of information organised in such a way that a computer program can quickly select
desired pieces of data, i.e. an electronic filing system.
Traditional databases organised by fields, records and files. A field is a single piece of
information; a record is one complete set of fields; and a file is a collection of records.
An alternative concept in database design is known as Hypertext. In a Hypertext database, any
object, whether it is a piece of text, a picture, or a film, can be linked to any other object.
Hypertext databases are particularly useful for organising large amounts of disparate
information, but they are not designed for numerical analysis.
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To access information from a database, you need a database management system (DBMS). This
is a collection of programs that enables you to enter, organise, and select data in a database.
An Executive Information System (EIS) takes raw data from the underlying records and
summarises them into more useful information for the directors of the company.
Manual system Automated system
Cost accounting system Core financial system
Separate records Relational database
Errors impact one document Errors can be magnified due to relationships
Human error more likely Easier to catch errors
Duplicate information must be entered on Information automatically filled in
several documents
Individual has to start a process Process starts automatically
Lag time between processing and seeing Real time processing and output generation
outputs
Paper files Electronic records
Physical security, e.g. locked doors, signatures Electronic security, e.g. passwords, codes,
on documents firewalls
Simple to run Operatives have to be trained
Risk of damage by fire or flood Risk of system crash, power failure, inadequate
back up
55
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Internal auditors will not just focus on financial controls but all operational controls. Their remit
extends to all controls and they may carry out management audits, efficiency audits and value for
money audits to ensure that controls are working well for the company in all aspects.
External auditors may make use of work of the internal audit department which is relevant to the
external auditors’ objectives, but only if they are satisfied the work is of appropriate quality.
Organisation The organisation’s structure is set out in an organisation chart that clearly sets
out reporting lines
Authorisation All transactions and documents should be signed, by the appropriate person,
e.g. purchase orders, credit notes, cheques, variations in credit limits etc
Personnel The organisation should have robust recruitment and training procedures in
place. It should also provide adequate rewards to its employees
Segregation of duties Where possible duties should be segregated, e.g. One employee raises sales
invoices, another opens the post and banks cheques received
Physical Locks on office doors, passwords on computers, assets tagged etc
Arithmetic Correctly added up, VAT correctly calculated
Supervisory All employees should be supervised, both physically, management by
wandering about, and via a performance review
Management Management should review all information that they receive. Management
vigilance is an important control. Perform reconciliations, document procedures,
and communicate importance of controls. Regularly review procedures
An internal check is defined as the check on day-to-day transactions whereby the work of one person
is proved independently or is complementary to the work of another; the objective being the
prevention or early detection of errors or fraud. An internal check involves dividing work between
individuals or departments. For example, one person banks cheques while another performs a bank
reconciliation.
If an organisation had no internal financial controls it will fail in the same way that driving a car
without holding the steering wheel will result in the car crashing. So internal financial controls are vital
to continued business success.
An internal financial control is any action taken by management to enhance the likelihood that
established objectives and goals will be achieved. Management plans, organises and directs the
performance of sufficient actions to provide reasonable assurance that objectives and goals will be
achieved. Thus, control is the result of proper planning, organising and directing by management.
(Institute of Internal Auditors).
A C C A BT 8: Co n t ro l , se c u ri t y an d a u d i t 57
In business and accounting, information technology controls (or IT controls) are specific activities
performed by persons or systems designed to ensure that business objectives are met.
They are a subset of an organisation's internal control.
IT controls are often described in two categories: IT general controls (ITGC) and IT application controls.
ITGC include controls over the IT environment (examples - locked room/appropriate heat conditions),
computer operations (example – virus protection), access to programs and data (examples –
passwords/audit trail records of access), program development and program changes.
IT application controls refer to transaction processing controls, sometimes called "input-processing-
output" controls.
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Fictitious customers
Collusion with customers or suppliers
Common examples of ‘the intentional misrepresentation of the financial position of the organisation’
are as follows:
Over valuation of inventory
Not writing off irrecoverable debts
Fictitious sales
Manipulation of year end events
Understating expenses
Manipulating depreciation
The implications of fraud for the organisation are as follows:
Loss of assets
Poor morale
Loss of reputation for organisation
Paranoia
Increased security costs in future
Loss of privacy for staff
Restriction of privileges for staff
The role and duties of individual managers in the fraud detection and prevention process.
Vigilance
Collective responsibility
Communication to staff
Risk assessment
Cost-benefit analysis
Create culture and environment in which fraud is discouraged
Implement strong system of internal controls
Arrange regular audits of controls
Adopt zero tolerance approach to fraud
The board of directors is ultimately responsible for the prevention and detection of fraud in an
organisation. In order to do this, directors must:
Instil good culture/expectations/reduce motivation to commit fraud (prevention)
Establish good internal controls (prevention and detection)
Monitor controls (prevention and detection)
2 Money laundering
Money laundering is the process of making the proceeds of crime appear legitimate. For example,
manufacturing and selling Class A drugs and using the cash to buy an executive home in Surrey.
The process usually comprises three distinct phases:
(1) Placement – the initial disposal of the proceeds of criminal activity into an apparently legitimate
business activity or property.
(2) Layering – the transfer of money from business to business, or place to place, in order to
conceal its initial source.
(3) Integration – the culmination of the previous procedures through which the money takes on
the appearance of coming from a legitimate source.
A C C A BT 9: I d e n t if yi n g and p re v e nt i n g f rau d 61
There are three offences under the Proceeds of Crime Act 2002.
Laundering: acquisition, possession or use of the proceeds of crime, tax evasion, or fraud, or
assisting another to retain proceeds. Penalty, up to 14 years in prison and/or a fine.
Failure to report: Failure to make a “Suspicious Activity Report” (SAR), on a SAR form, disclosing
knowledge or suspicion of money laundering. Report must be made to National Crime Agency
(NCA). Penalty, up to five years in prison and/or a fine.
Tipping off: Telling subject of a report that SAR has been submitted or warning him that
suspicions have been aroused. Penalty, up to five years in prison and/or a fine.
Please note tax avoidance is legal when using careful tax planning to reduce tax liability BUT tax
evasion is illegal as this is the deliberate misrepresentation of the true state of tax affairs to the tax
authorities to reduce tax liability.
The UK government has recently enacted legislation making it a corporate crime to fail to prevent the
criminal facilitation of tax evasion. This reinforces the requirement for companies to have strong
controls and to monitor them. Such corporate activity would be a defence against this new crime.
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10
1 Leadership
Leadership involves:
Asking what and why
Focusing on people
Doing the right things
Developing people
Inspiring trust
Having a longer-term perspective
Challenging the status-quo
Having an eye on the horizon
Originating
Being your own person
2 Management
Management involves:
Showing originality
Asking how and when
Focusing on systems
Doing things right
Maintaining
Relying on control
Having a short-term perspective
Accepting the status-quo
Having an eye on the bottom line
Imitating
Emulating the classic good soldier
3 Supervision
Supervision involves:
The interface between managers and workers
The lowest level of management
Working “on the front line”
Working closely with sub-ordinates
“Doing” as well as managing
6 Elton Mayo
Elton Mayo was the founder of the Human Relations Movement and of Industrial Sociology. He carried
out research at the Hawthorne Works of the Western Electric Company in Chicago.
He took a group of six women and segregated them. They altered conditions of work in a number of
ways over a five-year period, and observed the effects on production and the morale of the group.
Over the period, changes such as new payment systems, rest breaks of different sorts and lengths,
varying the length of the working day, and offering food and refreshments were tried.
In almost all cases, productivity improved.
At the end of the experiment, Mayo felt that he had proven his point and closed it down, returning the
women to their original conditions, a six-day week, with long hours and no rest breaks or
refreshments.
Surprisingly, productivity in the group rose to the highest levels yet.
Mayo concluded that:
The women had felt important because they had been singled out.
The women had developed good relationships with each other and had been allowed to set
their own work patterns.
The creation of relationships had made for a much more pleasant working environment.
Authority: right to exercise power, or make decisions, to ask someone to do something and expect it
to be done.
Responsibility: the obligation to do something. A manager may delegate authority but that manager
retains overall responsibility for the completion of the task.
“You cannot delegate responsibility”
Group
Task Individual
Adair is a ‘contingency theorist’ (“it depends”). He states that the most important task of a manager
will depend on the situation the manager faces. For example, in the short term, the need to complete
a task may take priority while at other times the needs of the group or an individual may come to the
fore.
Effective leadership depends on identifying the priority at a particular time and taking action to deal
with the priority.
People who are task-motivated, on the other hand, tend to rate their least preferred co-workers in a
more negative manner.
According to Fiedler, there is no ideal leader. Both low-LPC (task-oriented) and high-LPC (relationship-
oriented) leaders can be effective if their leadership orientation fits the situation.
Task-oriented leadership would be advisable in a crisis. The task-oriented leader who gets things
accomplished proves to be the most successful. If the leader is considerate (relationship-oriented),
he or she may waste time in the crisis worrying about people’s feelings.
The considerate style of leadership is appropriate in a professional environment e.g. when
Leader-member relations are good,
The task is unstructured, and
Position power is weak.
Situations like this exist with research scientists, or surgeons, who do not like superiors to structure
the task for them. They prefer to follow their own creative leads in order to solve problems. In a
situation like this a considerate style of leadership is preferred over the task-oriented.
The ideal state would be a manager who is liked and respected by his or her team and who has the
power to decide the rewards of the team.
14 Kotter
Kotter distinguishes between ‘management’ and ‘leadership’, arguing that they involve two distinct
sets of action.
Management is about coping with complexity: its functions are to do with logic, structure, analysis
and control, and are aimed at producing order, consistency and predictability.
Leadership is about coping with change: its activities include creating a sense of direction,
communicating strategy, and energising, inspiring and motivating others to translate the vision into
action.
Management can be exercised over resources, activities, projects and other non-personal things.
Leadership can only be exercised over people.
9 1.9 9.9
high
8
7 middle
Concern for people
of the
6 road
5 5.5
4
3
task
impoverished
2 manager
Low
1 1.1 9.1
1 2 3 4 5 6 7 8 9
Low Concern for task High
Issues
High concern for staff is not necessarily ideal
Difficult to place managers accurately on the grid
There are other environmental influences on managers, e.g. industry, organisation culture, state
of economy, nature of task and character of the staff
Behaviour may be difficult to change
May be useful to assign managers with different and complementary strengths to a team.
Stages:
Investigate need for new post/replacement, look at opportunities for reorganisation
Check authority to recruit
Check the budget exists to recruit, including cost of recruitment
Consider legislation and company policy on equal opportunities
Determine overall job purpose and write / update job description
Identify selection criteria
Form and brief the recruitment team, ensure they have the right skills and training to enable
them to recruit the right staff.
Recruitment
Prepare particulars of the job / key duties / reporting responsibilities = “job description”
Obtain approval for any non-standard procedure, e.g. appointment without first advertising the
job
Decide how to find applicants, e.g. register of available employees, letters, CV, application
forms, etc
Check the register of potential employees
Prepare advert
Arrange internal advertising (intranet, notice boards, email etc)
Arrange external advertising (newspaper, trade journals, tube, radio, website, recruitment
consultant etc) Ensure cost is within budget
Monitor recruitment process
Selection
Ensure clear procedures for note-taking and record keeping, paying particular attention to data
protection legislation
Produce a shortlist of candidates
Request references
Organise and conduct interviews or other selection methods as appropriate
Make selection decision
Inform candidates of outcomes
Recruitment consultants
Design adverts
Attract applicants
Filter applications by reviewing CVs or conducting first interviews
Brief the client’s HR department
Application forms:
Advantages: Disadvantages:
Standardised Difficult to assess personal qualities
Can collect factual information Inflexible
Cheap Does not allow follow up questions
Interviews:
Interviews involve a series of “open” and “closed” questions. “Closed” questions (those that can only
be answered with a “yes” or “no”) should be avoided, as should “leading questions” such as “surely
you’d agree that Gordon Brown was a poor Prime Minister?”.
Advantages: Disadvantages:
Direct face-to-face and so non-verbal Only as good as the interviewer
communication can also be used and assessed
Allows the establishment of rapport Rapport can cause a loss of objectivity
Flexible Assessment is subjective
Assess interpersonal and communication skills
Selection testing:
Advantages: Disadvantages:
Can assess proficiency, intelligence, aptitude or The correlation between the test and ability to
personality do the job is not always strong
Identify behavioural preferences Interpretation of test results requires skill
Standardised Tests will often contain bias
Identify character traits
Consultants:
Advantages: Disadvantages:
Specialists Expensive
Access to wider pool of candidates Don’t understand our business
Saves time Best candidates may be diverted to other clients
Independent view of candidates May only care about earning a fee
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A team will have joint objectives and accountability and will be established by an organisation in order
to undertake either a one-off or on-going task.
Practical implications
Individuals can perform more than one role, therefore a team need not be as many as nine people, but
perhaps there should be at least three or four with a balance across the roles noted above.
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Other expressions are mourning (Permanent break up of group), dorming (group has become
complacent about task), adjourning (Finished one task, waiting for next to get going).
Effective team Ineffective team
Absenteeism Low High
Accident rates Low High
Commitment to objectives High Low
Communication within team Free and open Mistrust
Feedback Constructive criticism Undermining
Ideas Shared Kept secret
Individual targets Achieved Not achieved
Interest in decision Active Passive
Job satisfaction High Low
Labour turnover Low High
Motivation High Low
Opinions Consensus Imposed
Output and productivity High Low
Problem solving Causes addressed Only looks at symptoms
Quality of output High Low
Stoppages Low High
Understanding of roles High Low
Understanding of team’s role High Low
To build the team and improve team effectiveness, the organisation can:
Design reward systems that recognise team rather than individual success
Clearly setting the objectives of the team
Selecting appropriate team members
Providing the necessary resources
KEY TERMS
Intrinsic motivation. This is evident when people engage in an activity for its own sake,
without some obvious external incentive present. A hobby is a typical example.
Extrinsic motivation. Refers to motivation that comes from outside an individual. The
motivating factors are external. These rewards provide satisfaction and pleasure that
the task itself may not provide.
A C C A BT 11: I n d i v i d u al s, g ro u ps a n d t e ams 79
An extrinsically motivated person will work on a task even when they have little interest in it because
of the anticipated satisfaction they will get from some reward.
For example:
Tangible rewards such as increased pay, or promotion, or the avoidance of sanctions.
Intangible rewards such as praise or public commendation.
Self-actualisation
Physiological needs
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Hygiene needs are cyclical in nature and come back to a starting point. This leads to the "What have
you done for me lately?" syndrome.
The focus of Herzberg’s theory is on the content of the job, it assumes we are all broadly similar in
what motivates us.
Herzberg suggested three ways of improving job design to make jobs more interesting to the
individual:
(1) Job enrichment: planned, deliberate action to build greater responsibility, breadth and
challenge of work into the job.
(2) Job enlargement: widen job by increasing the number of operations in which an individual is
involved.
(3) Job rotation: planned transfer of individuals from one job to another to increase task variety.
Volvo Trucks introduced ‘cell working’ in 1970’s with a team producing a whole truck rather than the
traditional production line approach. This did not improve productivity, but quality and job satisfaction
both improved significantly.
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12
Activists (Do)
Immerse themselves fully in new experiences
Enjoy here and now
Open minded, enthusiastic, flexible
Act first, consider consequences later
Seek to centre activity around themselves
Reflectors (Review)
Stand back and observe
Cautious, take a back seat
Collect and analyse data, slow to reach conclusions
Use information from past, present and immediate observations to maintain a big picture
perspective.
Theorists (Conclude)
Think through problems logically, value rationality and objectivity
Assimilate disparate facts into coherent theories
Disciplined, aiming to fit things into rational order
Prefer assumptions, principles, theories, models and systems thinking
Pragmatists (Plan)
Keen to put ideas, theories and techniques into practice
Search for new ideas and experiment
Act quickly and confidently on ideas, gets straight to the point
Are impatient with endless discussion
Learning styles
Kolb explains that different people naturally prefer a certain single different learning style. Various
factors influence a person's preferred style:
We internally decide whether we wish to do or watch, and at the same time we decide whether to
think or feel. Our learning style is a product of these two choice decisions:
(1) How to approach a task (grasping experience) preferring to (a) watch or (b) do; and,
(2) Emotional response to the experience (transforming experience) preferring to think or feel.
The combination of these two choices produces a preferred learning style.
DOING WATCHING
Active Experimentation Reflective Observation
(AE) (RO)
FEELING
ACCOMMODATING
Concrete Experience DIVERGING (CE/RO)
(CE/AE)
(CE)
THINKING
Abstract CONVERGING (AC/AE) ASSIMILATING (AC/RO)
Conceptualisation (AC)
The main purpose of any performance appraisal system is to improve the efficiency of the organisation
by ensuring that the individuals within it are performing to the best of their ability and developing
their potential for improvement. This is achieved by:
Reward review. Measuring the extent to which an employee is deserving of performance
related bonuses or pay increases
Performance review. Planning and following-up training and development programmes,
identifying training needs and validating training methods
Potential review. An aid to planning career development and succession by attempting to
predict the level and type of work the individual will be capable of in the future
There are three requirements for an appraisal process:
(1) The formulation of desired traits and standards against which individuals can be consistently
and objectively assessed.
(2) Managers should utilise a standard framework to record assessments.
(3) Getting the appraiser and appraisee together so that both contribute to the assessment and
plans for improvement and development.
A systematic appraisal system would then include the following stages:
(a) Identification of the criteria for assessment
(b) The preparation by the appraisee’s manager of an appraisal report
(c) An appraisal interview for an exchange of views about the appraisal report
(d) Review of the assessment by the assessor’s own superior, so that the appraisee does not feel
subject to one person’s prejudices
(e) The preparation and implementation of action plans to achieve improvements and changes
agreed
(f) Follow-up to monitor the progress of the action plan
Benefits of performance appraisal to:
Organisation: Employee:
Get to know employees Understand organisation goals
Identify issues that need addressing Get to know supervisor
Improved communication Learn how organisation rates them
Receive feedback Give feedback to supervisor
Explain organisational goals Discuss development and rewards
A common approach to assessing performance is to use a numerical rating system whereby managers
are asked to score an individual against a number of objectives/attributes. Employees may also be
allowed the opportunity to assess the manager at the same time. This is known as a 360 degree
appraisal.
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Personal effectiveness
and communication
1 Competency framework
Competence is the ability to do the job.
Competence can be:
Behavioural, for example the ability to work within a team,
Occupational, for example an accountant should be able to produce a set of accounts, or
Generic, which apply to everyone in the organisation.
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5 Coaching
Experienced person teaches “pupil” how to do something better or well
Part of the development process
To be successful:
(i) Consider strengths and weaknesses of pupil and coach
(ii) Set clear goals or targets
(iii) Set milestones
(iv) Set aside specific time for coaching sessions
(v) Find opportunities to put new skill or knowledge into practice
(vi) Plan regular feedback sessions
A C C A BT 13: P e rs o n al ef f e c ti v e n e s s an d c o mmu ni c at i o n 93
6 Mentoring
Long term relationship
Experienced employee “looks after” new colleague or protégé
Mentor may be a peer of new colleague
Role involves advice and help on wide range of topics, many of which will only be indirectly
work related, e.g.
(i) How to dress, what to say, and to whom
(ii) Acceptable time to arrive and leave
(iii) How many smoke breaks one can get away with
(iv) Guidance on complying with other “unwritten rules”
(v) Introducing protégé to other employees (social and work)
(vi) Help with negotiating the political and administrative minefield
(vii) On the job training
(viii) Identifying permissible short cuts and “work-arounds”
7 Counselling
Non-directive exploration of another person’s issues
Counsellor must be skilled, particularly at listening
Review current situation by encouraging employee to talk
Assist the employee by helping them to decide on a desired outcome
Help the employee to get to the desired outcome by:
(i) Advising, e.g. considering a range of outcomes
(ii) Helping employee to develop strategies to achieve desired result
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Noise Noise
Message
Sender Receiver
Has idea of Communication Hears mostly
what to say what they want to
medium
and how to hear
say it e.g. face to face
writing, phone
Feedback
The sender is the initiator of the communication.
The message is the information being communicated.
The receiver is the recipient of the information.
Feedback is the communication response from the receiver as a result of receiving the message.
Noise is distraction or interference in the environment in which the communication is being sent.
In order to communicate information the sender needs to encode and the recipient decode the
message. During these processes distortion can occur, normally due to the language and/or medium
being used.
Formal communication is that required by an organisation to plan, co-ordinate and control activities.
Such communication will be resourced and supported by the organisation.
Informal communication supplements the formal system, and is referred to as the grapevine.
Ineffective communication can result in:
Managers making incorrect decisions
Interdepartmental co-ordination breaking down
Individual motivation and effectiveness declining
Effective communication is where information is received:
By the people who need it
At the time it is required
In the right way
Accurately and completely
Cost-effectively
The process of transmitting information from an individual (or group) to another is a very complex
process with many potential barriers.
Some of the "meaning" is lost in simple transmission of a message from the sender to the receiver.
This is most obvious in cross-cultural situations where language is an issue. But it is also common
among people of the same culture.
Social psychologists estimate that there is usually a 40-60% loss of meaning in the transmission of
messages from sender to receiver.
It is important to understand that a major part of communication is non-verbal. The non-verbal part
includes such things as body language and tone.
A C C A BT 13: P e rs o n al ef f e c ti v e n e s s an d c o mmu ni c at i o n 95
Many sources of noise or interference can enter into the communication process, even when people
know each other well and should understand the sources of error, e.g.:
Language: The choice of words or language in which a sender encodes a message will influence
the quality of communication
Misreading body language, tone and other non-verbal forms of communication
Noisy transmission (unreliable messages, inconsistency)
Receiver distortion: selective hearing, ignoring non-verbal cues
Power struggles
Managers hesitate to be open
Assumptions, e.g. assuming others see a situation the same as you or have the same feelings as
you
Distrusted source, erroneous translation, value judgement, state of mind of two people
Interpersonal relationships: how we perceive communication is affected by the past experience
with the individual
Organisational relationship: for example, communication from a superior may be perceived
differently than that from a subordinate or peer
Cultural differences: effective communication requires deciphering of the basic values, motives,
aspirations, and assumptions that operate across geographical lines
Non-verbal communication:
A large percentage (studies suggest over 90%) of the meaning derived from communication comes
from the non-verbal cues that the other person gives. Often a person says one thing but
communicates something totally different through vocal intonation and body language.
10 Communication patterns
A communication pattern describes the channels of communication between people. Leavitt identified
four such patterns for written communication between a five-member team:
(1) The circle. Each member of a group can communicate with only two people.
A B
E C
D
(2) The chain. Similar to the circle however there is a break in the circle resulting in two ends
A B C D E
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(3) The ’Y’. Similar to the chain however there are now three ends. The individual at the centre
takes on a vital role.
D E
A
(4) The wheel, or star. Similar to the ‘Y’, however there are now four ends. Again, the individual at
the centre takes on a vital role.
A B
E D
(5) “All channel”. This is an informal model where everyone communicates with everyone else.
A B
E C
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Professional ethics
KEY TERMS
Grease money. Payments to secure something we are legally entitled to.
Bribery. Payments to secure something we are not legally entitled to.
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3 Conceptual framework
The ACCA advocates a conceptual framework to guide ethical behaviour rather than prescriptive rules
as it is impossible to legislate for every situation the accountant may encounter.
Continual personal improvement and life-long learning are at the heart of ACCA membership and are a
condition of membership. All members have an obligation to ensure they are competent.
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Respect: There should be a culture of respect within the organisation for example to allow different
viewpoints, or to ensure everyone observes the need for meetings to start on time
Trust: The organisation should ensure it is in a position to be trusted by its stakeholders
Empowerment: Empower staff to allow them to behave ethically in all situations.
Safeguards
Safeguards need to reduce the threat. For example, training can reduce the threat, as the accountant
would be aware of possible threats and seek to avoid them. However, this may not be enough in
isolation for many threats, as the threat of loss of integrity still exists (if the accountant chooses to
ignore the training…)
Education, training and experience requirements for entry to ACCA membership
CPD requirements (so that the accountant continues to train and understand developing
threats)
Corporate governance regulations
Professional standards
Professional monitoring and disciplinary procedures
External review by a third party of material produced by the professional accountant
Reporting systems such that other parties are aware of the possible threat (ie disclosure/whistle
blowing)
Obtaining advice from suitable parties, such as ACCA or a solicitor
Sometimes (although usually as a last resort) it may be necessary to resign to adequately
safeguard against a threat to the fundamental principles.
A C C A BT 14: P ro f e s s i o n al e t hi c s 101
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103
The table below shows where topics covered in these course notes are included within the Study
Text. The Study Text provides useful background reading however, please note that we do not think
that you need to read the study text to pass this exam. These course notes should provide all you
need to obtain a pass.
Course Notes Covered in Study Text
Chapter 1: Organisations, stakeholders and the
business environment Chapter 1: The business organisation
1 Different types of organisation
Chapter 5 Stakeholders in business organisations
2 Stakeholders
3 Mendelow’s matrix for prioritising stakeholders
4 PEST analysis Chapter 6: External analysis – political and legal
5 Employment law factors
6 Data protection
7 Health and Safety at Work Act 1974
8 Basics of contract law
Chapter 2: The macro-economic environment Chapter 7: External analysis – economic factors
1 Macro-economic factors
Chapter 3: The micro-economic environment Chapter 7: External analysis – economic factors
1 Micro-economic factors
2 Elasticity of demand
3 Perfect competition
4 Monopoly Chapter 8: External analysis – environmental and
5 Social and demographic factors technological factors
6 Technological factors
7 Competitive factors (Porter’s Five forces)
Chapter 9: Competitive factors
8 SWOT Analysis
Chapter 10: Leading and managing individuals and Chapter 21: Motivating individuals and groups
teams
1 Leadership
2 Management
3 Supervision
4 Fayol (1849-1926) Classical theory of
management
5 Frederick Taylor (1856 – 1915) Scientific
Management
6 Elton Mayo
7 Mintzberg – the functions of a manager
8 Peter Drucker – the functions of a manager
(alternative theory)
9 Managerial authority and responsibility
10 John Adair – Action-centred leadership
11 Fred Fiedler (1922 – 2017) The Fiedler
contingency model
12 Warren Bennis (1928 – 2014) seven qualities of a
leader
13 Heifetz – adaptive leadership
14 Kotter
15 Ashridge Management College ─ four
management styles
16 Blake and Mouton’s Managerial Grid
17 Recruitment, selection, diversity etc Chapter 19: Recruitment and selection of
employees
Chapter 11: Individuals, groups and teams Chapter 20: Individual, group and team behaviour
1 Individual and group behaviour in business
organisations
2 Team formation, development and management
3 Bruce Wayne Tuckman
4 Motivating individuals and groups
5 Maslow’s hierarchy of needs (a content theorist)
6 Herzberg’s two factor theory (a content theorist)
7 Douglas McGregor's X-Y Theory (a process
theorist)
8 Viktor Vroom (a process theorist) – expectancy
theory
Chapter 12: Training and development and Chapter 22: Learning and training at work
performance appraisal
1 Training and learning at work
2 Honey and Mumford
3 Kolb learning styles
4 Role of the human resources department and
individual managers in the learning process
Chapter 23: Review and appraisal of individual
5 Review and appraisal of individual performance performance
Chapter 13: Personal effectiveness and Chapter 24: Personal effectiveness at work
communication
1 Competency framework
2 Techniques for improving effectiveness at work
and their benefits
3 Barriers to effective time management
4 The role of IT in improving personal effectiveness
5 Coaching
6 Mentoring
7 Counselling
8 Features of effective communication Chapter 25: Communicating in business
9 Verbal or oral communication
10 Communication patterns
Chapter 14: Professional ethics Chapter 10: Professional ethics in accounting and
1 Ethics and accountants: business
2 Fundamental Principles of the IFAC code (CIPOP)
3 Conceptual framework
4 Personal qualities required of an accountant:
(CTR3)
5 Professional qualities required: (SASI)
6 Organisational values promoting ethical
behaviour
7 Ethical conflicts and dilemmas
8 Conflict resolution (Ethical dilemmas)