F1 BT Study Notes

BUSINESS
AND
TECHNOLOGIES
E-LEARN MATERIAL
HS Quek ACCA
PART
1
THE BUSINESS ORGANISATION,

ITS STAKEHOLDERS AND THE
EXTERNAL ENVIRONMENT
Study Check List
In this study session, you shall learn about

ü The purpose and type of business organization
ü Stakeholders in business organization
ü Political and legal, Social and demographic, and Technology factors
ü Macro and Micro economic factors
ü Environmental factors
ü Competitive factors
Page | 1
What is Organization?
Business activities are often conduct through organization.

Organization simply refers to an arrangement where people come
together to achieve common goals with system and procedures.
Therefore, organization is often said to carry three components
Three Component of Organization
Organization
People Purpose Structure
‘Organizations are social arrangements for the controlled

performance of collective goals’ Buchanan and Huczynski
Page | 2
Purpose of Organization
Pooling people in an organization allow them to focus on their

specialized activities. While one person running a business require
the entrepreneur to take on different functional role, organization
allow different personnel to take on different role allowing them
to study and build in-depth knowledge and skill of the specific
function.
Besides, bringing people together enable sharing of knowledge

and skill among one another allowing them to achieve and
complete task beyond initial capabilities
The term ‘synergy’ is often associated with purpose of

organization.
Synergy refers to the concept where collective output of
organization is greater than sum of total input by individual on
their own.
In its simplest meaning, synergy reflects 1+1=3
Page | 3
Difference of Organization
Organizations can be different from one another in various

different aspect. Some of the factors is listed below.
Differences between Organization
Factors Description
Component Input, conversion of output
Ownership Private owned, publicly owned, government owned
Departmental Whether the organization comes with research and development department,
Function purchasing department, sales department, finance department etc
Size Depending on their trade volume or level of asset
Objective Whether to maximize profit, serve members or others
Example
Furniture Manufacturer Audit Firm
Input: Wood, Cotton, Labour Input: Labour hour of audit team
Conversion: Production process

VS Conversion: Auditing process
Output: Ready to sell sofa Output: Audit report

Page | 4

Difference of Organization
Organizations can be also differed from one another from the

industry. Below is the list of some common industry which
organization may operates in:
List of Industries
Aerospace Agriculture Computer
Construction Education Entertainment
Food and
Healthcare Manufacturing
Beverage
Pharmaceutica
Mining Transport
l
Page | 5
Commercial Organization
Commercial organization is often known as profit-seeking

organization which primarily aim to maximize owners’ wealth
Type of Commercial Organization
Commercial
Organization
Sole Proprietorship Partnership Limited Companies
Ordinary
Private Limited
Partnership
Limited
Liabilities Public Limited
Partnership
Page | 6
Knowing the Terminologies
About Sole Proprietorship and Partnership
Sole Proprietorship
A type of business which is run and owned by a sole proprietor
(the owner). The owner shall personally be liable for debt of the
business as owner and business share the same legal identity.
Partnership
Run and owned by more than one individual i.e., the partners. The
partners personally liable for debt of partnership in ordinary
partnership.
However, limited liabilities partnership has separated legal entity
from its partners therefore liabilities from the partnership to the
partner is limited.
Similarities
Sole proprietorship and ordinary partnership share common
Sole proprietorship and ordinary partnership share common
characteristic where business does not carry a separate legal entity.
characteristic where business does not carry a separate legal entity.

Page | 7
About Limited Companies
Limited Companies
Limited companies carry a separate legal entity, business itself is
known as a separate legal person. Therefore, ‘limited’ refers to its
characteristic of limited liabilities to be borne by owners. Owners
are only liable to the business debt’s up to the amount invested.
Private Limited vs Public Limited

The term ‘private’ and ‘public’ refers to availability of shares to
public. ‘Private’ Limited Companies refers to those which shares
are not publicly available; ‘Public’ Limited Companies refers to
those which shares are offered to general public via stock
exchange listing.
Comparison

Limited companies differ from sole proprietorship and ordinary
partnership discussed in previous page as it carries separate legal
entity which implies limited liabilities of the owner.
Page | 8
Not-for-Profit Organization
Not for Profit Organization

Non-profit organization does not primarily aim to maximize profit,
often set-up to satisfy particularly need of public such as charity
organization to help the unfortunate. It is also known as non-
commercial organization or non-business organization.
Comparison
In the case where revenue exceeded expenditure, non-profit
organization shall use the surplus to further pursue its purpose.
However, profit organization may use the surplus to distribute to
its owner such as issuance of dividend
Page | 9
Public Sector
Public Sector
Those controlled by government, often to provide basic
government service to public, such as schools, hospital and police
station.
Comparison
Public sectors refer to organization owned by government where
private sector are those owned by private parties.
Comparison

Performance Measurement
Commercial organization often measure its performance through
its return gained such as return on capital employed, gross profit
margin and return on investment.
However, organization such as government owned and non-profit

is concern with value of resources spent whether it is economic,
efficient and effective i.e., value for money (VFM)
Page | 10

Other Type of Organization
Non-Governmental
Organization which is independent from government and does
not aim to maximize profit. Non-governmental organization (NGO)
is often tied to environment, political and social objective.
Example
World Wide Fund (also known as World Wildlife Fund) is a
renowned worldwide NGO aim to preserve wilderness and
reduce impact by human on the environment.
Cooperatives
Organization formed voluntarily by its member to serve common
objective of its member. It is controlled and owned by its member
democratically.
Comparison

Voting rights of cooperative is equal among members where for
limited companies depends on percentage of shareholding.
Page | 11
Summary
In this session we learn about the overall concept of
‘organization’
Summary
Organization
Definition and Component of

Organization
Purpose of Organization Differences between Type of Organization

Organization
Specialization Component Commercial
Ownership Not-for-Profit
Synergy
Departmental Public Sector
Share of knowledge function
and skill Non-
Governmental
Size
Cooperative
Objective
Industry
Page | 12
Test Your Understanding
Question 1
Which of the following is likely a public organization?
A. A manufacturer listed on stock exchange market

B. School
C. Convenience store
D. Law firm
Question 2
A private limited organization is ‘limited’ due to
A. Maximum restriction of annual turnover

B. Limitation of share transaction
C. Limited liabilities due to separate legal entity
D. Limitation on drawing from company each year
Question 3
The output of people working together is greater than the sum of output produced by each
separate individual.
The above statement is associated with concept of
A. Synergy
B. Specialization
C. Competitive Advantage
D. Economies of scale
Page | 13
What is Stakeholder?
Business activities of organization can often affect and be affected

by different people. These people are known as ‘stakeholders’
The term ‘stakeholder’ often describes individual or group who

has interest in an organization, can be affected or can affect
organization’s activities.
Example
Stakeholder of a manufacturer can be:
Management, employees, customer, supplier, banker, government,

local resident etc.
Bi-directional Nature

Relationship between stakeholders and organization can be
directional in nature. Example: management can easily influence
organization via its strategy development and implementation;
organization can influence management team through
remuneration.
Page | 14
Categorizing Stakeholder
Stakeholders can be categorized as follow:
Categorizing Stakeholders
Relationship Contractual
Relationship
Internal Connected External
Stakeholders Stakeholders Stakeholders Primary Secondary
Stakeholders Stakeholders
About Internal Stakeholders
Internal stakeholders are those within the organization such as

management and employees.
Page | 15
Categorizing Stakeholder
About Connected Stakeholders
Those outside but with contractual relationship with organization

such as shareholders, customers, supplier and banker.
About External Stakeholders
Those outside and with no contractual relationship with

organization, however affecting or able to affect organization’s
activities.
About Primary and Secondary Stakeholders
Primary Stakeholders
Stakeholders who have contractual relationship with organization,
therefore include both internal and connected stakeholders
Secondary Stakeholders
Stakeholders who have no contractual relationship with
organization, therefore include external stakeholders.
Page | 16
Stakeholders’ Expectation
Understanding stakeholders’ need can be crucial to business

success as dissatisfaction of major stakeholders may cause
negative impact to business’ activities. Such as failure to satisfy
quality expectation of customer causing significant switch away.
Stakeholders’ Expectation
Stakeholders Expectation
Manager Fair pay, job security, authority at work
Employee Fair pay, health and safe working environment, job security
Shareholder Sustainable and consistent growth and return of business
Customer Provision of satisfactory product or service at the right price
Supplier Ability to pay for goods received on time, fair dealing
Bank Ability to repay finance provided and interest
Government Provision of job opportunities and provision of correct tax
payment
Local Resident Positive impact from organization on their daily life
Trade Union Take part in decision making
Pressure Group Organization’s activities should not harm the environment
Page | 17
Stakeholders’ Conflict
Expectation from different stakeholders’ group can be conflicting

with each other. Conflicting between stakeholders is unavoidable
in organization, management is required to manage such conflict
by understanding such conflict, weighing to decide importance of
the stakeholders in conflict and decide needs or expectation to
satisfy.
Example
Shareholders and Customer
Customer demand for greater value of money with higher quality

of product or level price charged, shareholders demand for greater
level of profit in business.
Management and Supplier
Management wish to have longer working capital cycle; supplier

wish us to pay more promptly
Management and Employees
Management wish to have cost save to achieve target such as

return on capital employed; employee wish to have higher pay to
enjoy better lifestyle
Page | 18
Mendelow Stakeholders’
Mapping
Mendelow stakholders’ mapping suggest categorizing

stakeholders group based on their strength of power and interest
to influence and developed a strategy for each quadrant of
stakeholders
Mendelow Stakeholders Mapping
High Keep satisfied Key player

Power
Low Minimal effort Keep informed
Low High
Level of Interest
However, stakeholders may also switch from one quadrant to

another quadrant such due to changes of interest or power. Thus,
continuous assessment of stakeholders is required.
Page | 19
Summary
In this session we learn about the overall concept of ‘stakeholder’
and their significance to organization
Summary
Stakeholders
Definition Organization
Stakeholders Expectation
Categorizing Stakeholders
Internal, connected, Mendelow Stakaholders Mapping

external
Key player
Primary, secondary
Keep satisfied
Stakeholders Conflict
Keep informed
Unavoidable in nature
Conflict management Minimal Effort

required
Page | 20
Question 1
Sales director in organization is likely
A. Key Player
B. Minimum Effort
C. Keep Informed
D. Keep Satisfied
Question 2
Trade customer of an organization fall under the category of
A. Internal stakeholders
B. Connected stakeholders
C. External stakeholders
Question 3
Stakeholders of a furniture manufacturer includes:
A. Customer
B. Government
C. Pressure group
D. All above
Page | 21
External Environment
Every business organization subject to influences from its external

environment. Therefore, management is required to understand
the environmental factors in order to respond appropriately.
Environmental Factors
External
Environment
Political Economic Socio- Technological Competitive Physical

& Legal al cultural
Example
Business organization can be influenced by:
Law of the country as it determines the necessary compliance cost;

value, preference, like and dislike of the people to better
understand and satisfy consumer; advancement of technologies
as it influences the business process whether it is possible to
automate.
Page | 22
PEST Analysis
PEST Analysis categorize external environment factors into

political and legal, economical, socio-cultural and technological.
About Political and Legal Factors
It concerns with how government, political and legal system of a

country affecting an organization.
Under this heading, we will learn different level and method of
political system influencing organization.
‘Political system’ is often known as a group of formal legal

institutions which form the ‘government’, including the rules
established to govern them such as law.
Page | 23
Political and Legal Factors
Organization is required by society to comply with rules and norm

set by political system. However, it involved more than just
compliance with law by National Parliament. Various level of
political system is reflected below:
Political System
Political System
Supra-National National Regional
Influence the country

Influence several itself Influencing a certain
countries (e.g. (Set by Parliament region / state
European Union through legislation and (Set by local
Legislation) Courts through case council)
law)
Therefore, an organization is required to understand and ensure

compliance of its operations with rules and legislation from
regional to supra-national level avoid the exposure to negative
monetary and reputational impact.
Page | 24
A political system or government may influence organization in

two distinctive way:
Governmental Influence
Governmental Influence
Governmental Policy Law and Legislation
Healthcare Employment Protection
Health and Safety

Education
Environment
International Trading Consumer Protection
Infrastructure
Data Protection
Economical
Page | 25
‘Governmental Policy’ refers to principles which guide decisions of

relevant subject matter towards bettering community.
Example
Government may produce policy in below areas:
A. Education
Influence the availability of educated workforce in market
B. Healthcare
Directly impact organization which operates in healthcare
and supplementary industry
C. Economical
Government can influence and regulate economy activities
level. (It will be further discussed in next session – Macro-
economy)
D. Infrastructure
Availability and advancement of infrastructure in a nation
often directly influence business process of organization.
E. International Trade
Import policy of a country reflect level of protection given to
local seller, e.g., whether there is import quota to limit the
import volume.
Page | 26
Organization as part of society is required to also comply with law

and regulation, non-compliance is likely to result in monetary and
reputational loss. Several legislations applicable to most
organization is discussed under this heading.
About Employment Protection Legislation
Employment Protection Legislation aims to protect employees

from unfair treatment such as dismissal from employer.

Fair Dismissal
Employee can be dismissed ‘fairly’ under following reason such
as:
o Misconduct at work
o Incompetent in position (lack of skill, health condition,
educational background etc.)
o Redundancy
o Legal issues (contravention with enactment)
Page | 27

Constructive Dismissal
Attempt and action of employer to create hostile working
environment intended to cause resignation of employees.

Wrongful Dismissal
Dismissal of employee without compliance with employment
contract or employment law. (Example: Dismissal of employees
without notice of period as required in employment contract)

Unfair Dismissal
Dismissal of employee without a ‘fair’ reason. (Example:
Dismissal on the ground of pregnancy or participation in trade
union)

Redundancy
Dismissal of employees as the position is no longer required such
as downsizing.
Redundancy is required to be carried out ‘fairly’. Selection of
employees to redundant should not be based on characteristic
such as age, gender, religion, race and disabilities.
Rights of employees to obtain proper notice period,
compensation and consultation in respect of redundancy should
also be respected.
Page | 28
About Health and Safety Environment
Health and Safety Legislation emphasize on the responsibilities

of both employer and employees for health and safety in
workplace.
Health and Safety in Workplace
Responsiblity
Employer Employee
Provide a safe and healthy Take reasonable of self

working environment to employee
Not to put others at risk
Continuously identify, assess and
address risk to health and safety Co-operate with employers such
as adherence to control system
Communicate with employees on and feedback of risk identified
the risk and provision of training
Report to employer in event of
and supervision at work
injuiry or damage at work
Provide safe and approrpiate
equipment at work
Page | 29
About Consumer Protection
Consumer Protection Legislation aim to protect consumers from

being victim to unethical business.

Transaction between seller and consumer is often evidenced
with a valid contract. A contract can be written, verbal or even
implied and would consist of below features:
o Agreement (Offer and acceptance)
o Consideration (Payment or rewards in return)
o Intention to Create Legal Relationship (Clear intention to
legally bind the contract)
o Capacity (reaching minimum age to enter contract)
o Legality (contract formed for legal dealing)
Consumers Right Act (UK)
Key Principles
Purchase of Goods Provision of Service
Seller has ownership of goods intended to sell Consumer is entitled to

Goods provided must fit for purpose, at satisfactory provision of service with:
quality (No faultiness / damage) and as per described Reasonable skill and care
Consumer has rights to reject goods (exclude digital) Reasonable duration
not satisfied above criteria Reasonable price
Consume to provide business with one opportunity to
replace and repair goods not satisfied above acriteria
Page | 30
About Data Protection
Data Protection Legislation aim to protect individual whose

personal data held by organization so that such personal data
will not be misused or mishandled. Such individual is often
known as ‘Data Subject’
Principles of Data Protection

Legislation
Data user is required to comply
Data subject shall have rights
with principles of data protection
over their personal data to:
legislation as listed below.
Personal data collected shall be:
Processed fairly and lawfully Be informed how data will be used
Obtained and processed for specified Access their data

lawful purpose
Adequate, relevant and not excessive Correct outdated / inaccurate data
for its purpose
Have data held erased
Accurate and kept up to date
Not be kept for any longer than Request data processing to stop
necessary
Have portable data (export / transfer
Processed in accordance with rights of for different use)
data subject
Object how data is being used
Kept safely and secured
Refuse to subject to automated
Not transferred outout European processing decision
Economic Area
Page | 31
Summary – Political Factors
In this session we learn obtained a brief understanding of legal
authority, government policy and legislation which influence
most organization
Summary
Influence from Government
In what level How

Supre- Governmental Law and Legislation
National Regional
national Policy
Employment
Healthcare Protection
Health and Safety

Education Environment
International Consumer
Trading Protection
Infrastructure
Data Protection
Economical
Page | 32
Question 1
Health and safety at workplace fall under responsibility of
A. Employer
B. Employees
C. Both
D. Neither
Question 2
A female sales personnel with satisfactory performance have recently been terminated after
manager discovered her pregnancy status
The above statement is most associated with
A. Constructive dismissal
B. Wrongful dismissal
C. Unfair dismissal
D. Redundancy
Question 3
Which of the following does not represent rights of data subject?
A. To access personal data held by organization

B. To be informed how will the date be used
C. Correct incorrect data
D. Visit premise of which personnel data is held when demanded
Page | 33
Economic Factor
Economic factors influencing an organization will be studied at
two distinctive level of Macro-Economic and Micro-Economic
Comparison

Macro-Economic studies economy as a whole, therefore study the
broader decision making of a nation or even global. Example: how
the government regulate economy condition of a country
Micro-Economic studies economy of a certain market, i.e.,

focusing on how individual and firms of a market interactives and
make decisions. Example: how much of demand and supply is
available at a certain price level for specific product.
Economy at nation level influence business decision such as

investment, spending and borrowing, e.g., when economy is
depressed business may decide to reserve cash rather than
investment.
Where economy at market level influence decision such as
marketing and production, e.g., in market where consumers are
sensitive to price business may offer higher discount to get more
sales volume.
Page | 34
Macroeconomic Factor
In Business and Technologies, we obtain understanding over the
basic concept associated in the studies of macro-economic.
Macroeconomic Policy is the method or tools of which
government use to influence economy condition as a whole (i.e.,
not for specific market) towards a certain objective. Such
objective is known as Macroeconomic Objective.
Macroeconomic Objective
Macroeconomic
Objectives
Equilibrium in
High employment Balance of Low inflation Economic Growth
payment
Page | 35
Macroeconomic Factor
Activity level of an economy is often determined by looking at
gross domestic product of a nation.

Gross Domestic Product (GDP) refers to the total of all finished
goods and service provided by a country in its monetary value
for a period.
GDP = Consumption + Investment + Government Spending + Export - Import
Understanding each component of GDP
GDP
Consumption Investment Government Export - Import

Spending
Refers to both
Refers to volume of Refers to level of Refers to
private
goods or services investment made international trade
consumption and
consumed by end by organization or in and out a
investment by
user household country
government
Page | 36
Factors influencing each component of GDP
GDP
Government
Consumption Investment Export - Import
Spending
Confidence level in Currency

Income Level Fiscal Policy
economy Exchange Rate
Availability and Availability of

Tax Rate
cost of finance resources
Portion of Saving
Example
Consumption
o When individual has low income / high portion of saving, the available money
to spend would be lesser thus purchase lesser goods and service.
o When tax rate is high, higher portion of income is remitted to tax authority thus
lesser money for purchase of goods and service.
Investment
o When business has no confidence over economy condition in upcoming

period / it is more expensive or difficult to obtain finance, it will likely
reduce the investment
Government Spending
o Government may have high spending if it wishes to expand activity level
Export / Import
o If currency of home country weakens, it will be attractive for other country to

buy from it, therefore export will increase.
o If country possesses resources others does not, will likely encourage export

Page | 37

Business Trade Cycle
It is also important to recognize that activity level of a country
fluctuate due to exposure to continuous changing environment.
About Business Trade Cycle
Business trade cycle illustrated the fluctuation of economy activity

level over long term growth of an economy.

Boom Long term growth
GDP (peak)
Recession
(Downward)
Recovery
Boom
(Upward)
(peak)
Recession
Depression
(Downward)
(Bottom)
Time
Page | 38
Student may attempt to understand each phase by reference to

the movement in graph.

‘Recession’ refers to the time where economy of a nation
significantly deteriorates when economy activities experience
contraction. -downward-
‘Depression’ refers to the stage where economy activities
remain significantly for a long period, reflecting economy
condition at bottom of graph for a period. -bottom-
‘Recovery’ refers to the phase where economy recover from
‘depression’ as economy activities expands, and consumers’
confidence rise. Therefore, upward line in the graph. -upward-
‘Boom’ refers to the peak of economy. It occurs when upward
trend from ‘recovery’ reaches its maximum growth and have
difficulty to grow further therefore marking the begin of
‘Recession’ i.e., downward trend of the economy. -top-
Page | 39
Stagnation and Stagflation

Stagnation
It refers to the phase of economy where growth being ‘stagnant’.
Stagnation refers to period where economy of a nation faces slow
or no growth with high unemployment.
Stagflation
Stagflation refers to worse scenario where ‘stagnation’ faced
with ‘inflation’. It refers to a period of which a nation faces slow
or no economy growth with high unemployment and high
inflation.

Comparison
Stagnation
Stagflation
o Slow / no economy growth o Slow / no economy growth

VS
o High unemployment o High unemployment
o High inflation
Page | 40
Inflation
Inflation causes loss of money value; the same dollar notes only
capable to buy lesser amount of goods / service in time of inflation.

‘Inflation’ refers to the rise in price of goods and service
Causes of Inflation
Inflation
Demand Pull Cost Push Expectation
When society expect the

When demand quantity When cost of supplier
goods and service to inflate
exceeded supply quantity, increase giving them no
in future, therefore taking
causing goods shortage choice but to increase
action which facilitate the
therefore price increase selling price
inflaiton
Example of Expectation effect on Inflation
If consumer expect house price to increase significantly in near future, they will likely
rush to make purchase before the expected inflation. Therefore, current demand may
rise beyond supply causing demand-pull inflation. In fact, it is their expectation
which lead to such inflation.
Page | 41

Inflation
Consequences of Inflation
Consequence of Inflation
Redistribution of
Standard of Living Export and Import Encourage Barter
Wealth
It benefits those Due to uncertainty

In time of inflation,
It weaken the who owe as value money worth in
exportation can be
purchasing power of debt fall; it coming future,
expensive therefore
of people harms those who people may be
weaken;
particularly those are owed by others reluctant to use the
as the amount importation can be currency therefore
on fixed and low cheaper therefore
income receivable has prefer to barter
strengthen
lesser money worth trade
Page | 42
Unemployment
Unemployment implies level of unproductive worker therefore
limiting GDP of a nation.

‘Unemployment’ generally refers to scenario where labor which
are able and willing to work, unable to find a job.
Type of Unemployment
Type of Unemployment
Real Wage Frictional Seasional Structural Cyclincal

Unemployment Unemployment Unemployment Unemployment Unemployment
Due to
permanent
Temporary
Expected or structual Unemployment
unemployment Short term
required wages industry due to
due to mis- unemployment
rise above change where economy
match between result from position is no
market, condition e.g.
candidate and seasonal longer required.
therefore vacancy e.g. during business
supplier cannot variation of Include those cycle of
timing of business e.g.
afford to keep due to recession or
graduation and farmer in winter
all employees automation depression
hiring
(technological
unemployment)
Page | 43
Unemployment
Consequences of Unemployment
Consequences of Unemployment
Increase
Unproductive Greater division
Loss of Skill Social Cost government
Labor of income
spending
Causing suffer
Difficulty for
Unable to in society,
country to
maintain skill Issues such as Increase in The poor
increase or
through crime and society welfare become
maintain
continuous family payment poorer.
national breakdown
produce working
may occur.
Government may attempt to reduce unemployment in society

through action such as directly creating more job vacancy
(government job), simulating production in private sector which
in return create more opening job, provision of governmental
assistance such as free or subsidized training to increase
employability of labour or finance relocation of labour to facilitate
job matching.
Page | 44
International Payment
Disequilibrium
Balance of payment is said to be ‘equilibrium’ when money
coming into the country is similar with the money going out of the
country i.e., export = import

‘Balance of Payment’ refers to record which consist of all
transactions between a country and the of other countries. In
balance of payment, those transactions which lead to money
leaving the country is recorded as ‘debit’ and those transactions
which lead to money entering the country is recorded as ‘credit’
Recording International Transaction – Type of Account
Balance of Payment - Account Type
Current Account Capital Account Financial Account
Recording of international Sub-category of capital

Recording goods and capital transfer e.g. account which concern with
service in and out a country investment in country and recording financial
loan to other country instrument and investment
Page | 45
International Payment
Disequilibrium

‘International Payment Disequilibrium’ generally refers to
scenario balance of payment of a nation being unequal, either
due to ‘surplus’ condition where exportation exceed importation
or ‘deficit’ condition where importation exceed importation.
Governmental Action to Reverse Deficit Payment
Governmental Action
Influence exchange rate Action at Custom Promote Domestic Goods
Weaken the currency

Use of tariff and custom
exchange so that imported
procedures to increase cost Reduce society's reliance of
goods becomes more
of import, or import quota importeed goods
expensive at the same time
to limit import volume
stimulate export
Page | 46
Macroeconomic Policy
Macroeconomic policy aims to regulate economy condition of a
country in order to provide a stable condition suitable for
sustainable economy growth. Three major type of policy is
illustrated as below:
Type of Macroeconomic Policy
Type of Macroeconomic Policy
Demand-side Policy Supply-side Policy
Fiscal Policy Monetary Policy
Comparison
‘Demand-side Policy’ aim to regulate economy activities by
influencing aggregate demand. It
‘
is associated with the ‘Keynesian’
economic which believe economy activities are driven by demand.
‘Supply-side Policy’ aim to regulate economy activities by influence

aggregate supply in a country.
Page | 47
Fiscal Policy
Fiscal policy aims to influence aggregate demand in a country
utilizing government revenue and public spending.
Fiscal Policy
Fiscal Policy
Government Revenue Public Spending
Taxation
e.g. investment in infrastructure, healthcare,
(representing major source of government tourism, provision of grant
income)
On annual basis, government budget will be prepared and

demonstrating the anticipated government revenue and
expenditure for the upcoming year.
In event where government revenue exceeded expenditure, a
‘surplus’ budget will be available; where government expenditure
exceeded revenue, a ‘deficit’ budget will be available.
Page | 48
Fiscal Policy
In the case where government runs a ‘deficit’ budget, government
borrowing is necessary to fund the extra expenditure. This
borrowing requirement is also known as ‘Public Sector Net Cash
Requirement’ (PSNCR). In contrast, government will have a
negative PSNCR or ‘Public Sector Debt Repayment’ (PSDR)when
it runs on ‘surplus’ budget

‘Expansionary Policy’ aims to stimulate economy activities by
generating more aggregate demand, closing a deflationary gap.
‘Contractionary Policy’ aims to slow down economies activities
by discouraging aggregate demand of public, closing an
inflationary gap.
Comparison
Expansionary Policy Contractionary Policy
o Runs on budget deficit VS o Runs on budget surplus

(Increase expenditure, reduce (reduce expenditure, increase
taxation) taxation)
o Reduce taxation o Increase taxation
(More money with consumer to (Less money with consumer to
purchase goods or service) purchase goods or service)
o Increase public expenditure o Reduce public expenditure
(Create more job opportunities in (Higher unemployment)
economy)
Page | 49
Taxation
Taxation refers to amount of tax levied by tax authorities on the
people (both consumer and business).
Purpose of Tax
Purpose of Tax
Reduce Redistribution of
Government Price product at Protect local
undesirable income and
Revenue social cost supplier
activities wealth
Tax act as Intention of
major income government to Higher price on Import duty and Tax higher on
for government reduce activities cigarette which taxes to the rich and
to carrying out such as cause additional increase import lower on the
their function gambling, expenditure on cost make it poor to reduce
and invest in alcohol and healthcare less appealing the disparity.
public tobacco.
Type of Tax
Type of Tax (In relation to income level)
Proportional Progessive Regressive

Take larger portion of low
Same percentage to all The higher the income, the income earner, smaller
regardless of income level higher the tax rate portion of high income
earner
Page | 50
Monetary Policy
Monetary policy aims to influence aggregate demand through
tools of money supply, interest rate and exchange rate.
Monetary Policy Tools
Tools
Money Supply Interest Rate Exchange Rate

‘Money Supply’ refers to amount of money available in an
economy at certain point of time. Greater amount of money in
economy shall boost economy activities.
‘Interest Rate’ refers to the rate of which a financial institution
charge to its lender for the amount borrowed. A higher interest
rate discourages business activities as cost of borrowing raised.
‘Exchange Rate’ refers to the value or worth of a country’s
currency compared to another currency. Exchange rate influence
level of import and export, rise of export generate higher level of
business activities locally.

Page | 51
Monetary Policy
Money supply, interest rate and exchange rate of a country are
interrelated, each factor influence one another.

Example
Rise in interest rate increase the worth of currency, as holding money in such
currency able to yield higher interest, in return generate a stronger currency
exchange.
Rise in money supply in market reduce the interest rate as larger supply reduce
the price of borrowing. Opposite way, the lower interest rate offered by bank will
demotivate saving therefore increase the money in hand of people.
Comparison

Expansionary Policy Contractionary Policy
o Increase money supply o Reduce money supply
o Reduce interest rate o Increase interest rate
VS
o Weaken exchange rate o Strengthen exchange rate
(Encourage higher level of export) (Discourage export)

Page | 52
Supply-Side Policy
Supply-side policy aims to stimulate economy activities by
creating suitable environment for business to produce more.
Example of Government Attempt
Introduction of lower tax rate to motivate business with higher margin
Regulation in industries to reduce compliance cost
Increase investment in infrastructure to ease business process such as transportation
Increase investment in training to ease business recruiting skilled labor
Provide incentive which assist business process e.g. grant / additional tax benefit for
development in certain industry
Page | 53
Summary – Macroeconomic
In this session we learn obtained a brief understanding of
terminologies and concept associated with economy of a country
Summary
Macroeconomic
Macroeconomic Objective
Gross Domestic Product
Stagnation and Stagflation
Inflation
Unemployment
International Payment Disequilibrium
Fiscal Policy
Taxation
Monetary Policy
Supply-side Policy
Page | 54
Question 1
Which of the following is correct if a country intends to stimulate growth in economy activities
through Fiscal Policy?
A. Increase Tax Rate

B. Increase government spending
C. Increase Interest Rate
D. Increase money supply
Question 2
Which of the following does not represent macro-economy objective?
A. Low unemployment
B. Growth in economy
C. High inflation
D. Balance between import and export
Question 3
Country A is experiencing slow growth in economy causing high unemployment in the country.
The above is associated with
A. Stagnation
B. Stagflation
Question 4
Government may take action below to reduce deficit payment, excludes
A. Promote local manufactured goods

B. Reduce import quota
C. Increase import duty
D. Strengthen home currency
Page | 55
Microeconomic Factors
Microeconomic studies how individual firm and consumer behaves
in a certain segment of economy.
About Demand and Supply
‘Demand’ refers to desire, willingness and ability of consumer to

purchase goods or services at a specific price; quantity demanded
refers to amount of goods or services consumer desire, willing
and able to buy at specific price.
‘Supply’ refers to total amount of goods or services available to

consumer at a specific price; quantity supplied refers to amount
of goods or services supplier willing to supply at specific selling
price.
Page | 56
Demand Curve
According to law of demand, when price of a product increase, its
quantity demanded shall fall.
Demand Curve
Point A At point A, when price (y-axis)

is high quantity demanded (x-
Price
axis) is low
At point B, when price (y-axis)

Point B is low quantity demanded (x-
axis) is high
Quantity
Page | 57
Supply Curve
According to law of supply, when price of a product increase, its
quantity supplied will also increase.
Supply Curve
Point A At point A, when price (y-axis)

is high quantity demanded (x-
Price
axis) is also high
At point B, when price (y-axis)

is low quantity demanded (x-
axis) is also low
Point B
Quantity
Page | 58
Change in Quantity Demanded
Change in quantity demanded can be viewed in two ways
based on its demand curve:
(i) Movement along the curve
(ii) Shift of curve
Changes of quantity demanded along demand curve
Point A
Increase of quantity from
point A to point B was
due to reduce in price.
Price
(or vice versa)

Point B
Quantity
Page | 59
Shift of Demand Curve
At a certain point of price,
demand curve may shift
rightward / outward / upward,
therefore quantity supplied
increased from Point A to Point
Price
B.
Point C Point A Point B

At a certain point of price,
demand curve may shift
leftward / inward /
downward, therefore quantity
demanded reduced from Point
A to Point C.
Quantity
Factors causing Shift of Demand Curve
Shift of Demand Curve
Price of Price of Population Consumer Advertisement Consumers'

Income Level substitute complement expectation on
Size Preference Level
goods goods price change
Example of Demand Curve Shift
If we look at demand curve of Product A, one of the reasons it may shift was due to price
of substitute product. Says, if substitute product, Product B price fall, more consumers
may switch over to buy Product B therefore demand curve of A shift leftwards.
Page | 60
Change in Quantity Supplied
Change in quantity supplied can be viewed in two ways based
on its supply curve:
(iii) Movement along the curve
(iv) Shift of curve
Supply Curve
Point A
Reduce of quantity from
Price
point A to point B was

due to reduce in price.
(or vice versa)
Point B
Quantity
Page | 61
Shift in Supply Curve
At a certain point of price, supply
curve may shift rightward /
downward, therefore quantity
supplied increased from Point A
to Point B.
Price
At a certain point of price, supply

Point C Point A Point B curve may shift leftward /
upward, therefore quantity
supplied reduced from Point A to
Point C.
Quantity
Factors causing Shift of Supply Curve
Shift of Supply Curve
Change in Production Cost Tax Rate Technology Advancement
Example of Supply Curve Shift
When production cost or tax rate on income or raw material increased, the return yield
by supplier reduced. Therefore, it is less attractive for supplier to supply, supply curve
shift left. In contrast, when there is available technology to ease and reduce cost,
suppliers are able to earn better return. Thus, suppliers are motivated to supply more,
supply curve shift right.
Page | 62

Price Elasticity of Demand
PED measure how responsive is the quantity demanded when
price changed, answering to the question when product price
increase will the quantity demanded fall significantly?

Price elasticity of demand (PED) can be calculated using formula:

Percentage of changes in quantity demanded
Percentage of changes in price

Where answer is 1, demand is said to have ‘unity elastic’
Where answer is less than 1, demand is said to be relatively ‘inelastic’
Where answer exceed 1, demand is said to be relatively ‘elastic’
(Negative sign is often ignored)
Comparison
Inelastic Demand Elastic Demand
o Where demand does not change o Where demand likely change

significantly even when price VS significantly when price changed
changed o Type of goods: Luxury goods
o Type of goods: Necessity o May opt to increase revenue by
o May opt to increase selling price offering sales promotion
to boost revenue (achieve higher volume)

Page | 63
Cross Elasticity of Demand
Cross Elasticity of Demand (CED) measure how responsive is
the quantity demanded of one product when price of another
product changed, it explains the relationship between different
products.

CED can be calculated using formula:

Percentage of changes in quantity demanded of Product A
Percentage of changes in price of Product B

Where answer is 0, Product A and Product B are unrelated
Where answer is negative, Product A and Product B are complementary

Where answer is positive, Product A and Product B are substitutes
Comparison
Positive CED Negative CED
o When Product A and B are o When Product A and B are

substitute in nature, Price of VS complementary in nature, Price
Product B increased may lead of Product B increased may
to demand of B fall as customer lead to demand of B fall causing
switch over to A causing demand of A to also fall. Thus, a
demand of A to rise. Thus, a negative CED.
positive CED.

Page | 64
Income Elasticity of Demand
Income Elasticity of Demand (IED) measure how responsive is
the quantity demanded of one product when income level
changed.

A product is said to have positive IED changes of income level
and quantity demanded move in same direction.

Comparison
Positive IED Negative IED
o When income rise, consumer has o When income rise, consumer has
higher spending power thus likely VS higher spending power thus less
to purchase more. likely to low quality goods.
o Type of goods: normal / premium o Type of goods: inferior

Type of Goods
Type of Goods
Necessity Luxury Goods Inferior Goods Premium Goods
Elastic PED
Inelastic PED Negative IED Positive IED
(tempted to buy
(Need to buy (Switch away when (Demand when
when price
regardless of price) income raised) income raised)
attractive)
Page | 65
Price
Equilibrium represents a specific point of price of which amount
of goods consumer willing to buy equals to amount of goods
supplier willing to supplies.
Equilibrium
If price is set at point A, the
amount of goods supplier
willing to provide (D) exceed
the amount consumer willing to
C D buy (C). Therefore, the distance
A between C and D represent
surplus of goods.
Price
Equilibrium If price is set at point B, the

amount of goods supplier
willing to provide (E) is far
lesser than the amount
B consumer willing to buy (F).
E F
Therefore, the distance
between E and F represent
shortage of goods.
Quantity
Page | 66
Economic Behavior of Cost
According to economist, cost behave differently in short term

and long term.

Short Term View
Production cost is assumed to consist of a portion of fixed and variable cost.
With a portion of cost being ‘fixed’ for short term, only variable cost and
revenue which varies according to output.

Long Term View
There is no fixed factor in long term as cost on land, machines and labor are
required to adjust according to required production level based on
expected environmental changes therefore variable in nature.
Page | 67
Type of Market
Market can be categorize based on its characteristic.
Type of Market
Type of Market
Perfect Market Imperfect Market
Monopoly Oligopoly Monopolistic Competition
About Perfect Market
Market with has perfect competition comes with these

characteristics:
o Firms are price taker (at equilibrium)
o Low exit and entrance barrier
o Many buyers and sellers
o Selling identical products
o Complete information available
It reflects a market where no player appears stronger than others,
competition is equal among the players.
Page | 68
About Imperfect Market
Imperfect market is those which does not satisfy the characteristic

of perfect market.

Monopoly
Refers to market where there is only one dominant player. Therefore, such
power has power to decide price level of the product.
Monopoly market is often formed due to government legislation or high
barrier for others to enter the market due to cost structure or intellectual
property protection of the product.

Oligopoly
Market with few major players which shares significant influence. Each
player gas significant power to influence the price level.
Market with only TWO major players is known as Duopoly.

Monopolistic Competition
Market with many sellers competing with each other by offering similar but
differentiated products. Such as boutiques which sells fashion items but
differentiated by offering different ambience. services and brand.
Similar with perfect market, monopolistic competition market offers low
barrier of entry. However, the players have certain degree of says over
price setting however not total control as products offered between
competitors are close substitutes.
Page | 69
Summary – Microeconomic
In this session we learn obtained a brief understanding over
concept of demand, supply, price, cost behavior and market type.
Summary
Microeconomic
Elasticity of Cost
Demand Supply Price Market
Demand Behaviour
PED Equilibrium Short Perfect

Law of Law of
Demand Term
Demand
CED Shortage Monopoly
Long
Change Change Surplus Term Oligopoly
IED
along along
curve curve Monopolistic
Competition
Shift of Shift of
curve curve
Page | 70
Question 1
An increase in demand of car is likely to cause petrol price to
A. Increase
B. Decrease
Question 2
Increase in tax rate is likely to cause demand curve shift ______, therefore ______ in supply
quantity
A. Upward; increase
B. Upward; reduce
C. Downward; increase
D. Downward; reduce
Question 3
Luxury goods such as sport car and branded bag is likely to have _______ price elasticity of
demand
A. Elastic
B. Inelastic
Question 4
A market which many sellers are selling similar goods yet differentiated goods is known as
A. Perfect market
B. Monopoly
C. Oligopoly
D. Monopolistic Competition
Page | 71
Social and Demographic Factors
Social and demographic factors look at how the characteristic of
a population and their respective taste, attitude and value
influence organization.

The term ‘demographic’ simply refers to the study of population
based on their characteristic such as age, gender, health,
education and income level including the size of such population.

Demographic is important as it reflects the composition and size

of a society which in return define organisation’s stakeholders
such as market consumer and labour force.
Example
Population Size
A relatively small population may cause lesser demand of company product due to
smaller market; it may also cause difficulty for organization to fulfill its labor
requirement locally. Consideration may be placed on relocating or recruiting foreign
labor.
Population Age
Younger population likely to offer organization with lower skilled however cheaper
and flexible labor. In such population, preference of consumer is likely different with
aged population due to differences in tastes, attitudes and values at different age
level.
Page | 72

Page | 73
Social Trend
Society tends to change over time, such changes is also known
as ‘trend’. Important social trend include:

Social Structure
Social structure refers to the relations among a group of people with similar
characteristic. It is therefore associated with concept of social class which
simply refers to a group of people which share common socioeconomic
status.

Taste, Attitudes, Values
Taste simply describes the preference of a social class; attitudes look at the
view of social class whether they like or dislike certain thing; while values
define what is important to such social group including the acceptable norm
or behavior among such group.

Organization is required to understand and monitor the social

trend to understand how business may adapt to or tap on such
trend.
For instant, organization may opt to build premium quality image
of product when intend to sell to social class of high-income
earner. Alternatively, social group which concern over
environmental issues are likely attracted by environmentally
friendly product thus provide opportunity for organization to tap
on such value trend when developing product and marketing plan.
Page | 74
Governmental Measure
Government often introduce measure to solve or reduce certain
socio-demographical issues.
Governmental Measure
Social and Demographic Issue
Fast
Aged Low Birth Deteriorating Labour Young
Growing
Population Rate Health Shortage Population
population
Provide tax
Policy to benefit for Loosen Encourage
limit child parents Banning immigratio or
Increase
birth (e.g., (e.g., tobacco n law to subsidize
retirement
China one- Singapore advertiseme ease to build
age
child offer tax nt foreign affordable
policy) rebate for labour house
parents)
Page | 75
Summary – Social and
Demographic
In this session we learn obtained a brief understanding on how
demographic and social trend influence organization and
governmental measure against relevant social issues.
Summary
Social and Demographic
Demographic Social Trends Governmental Measure
Age Social Structure
Gender Taste, Attitudes, Values
Health
Education
Income Level
Population Size
Page | 76
Question 1
A larger population is unlikely to cause
A. Larger market for product

B. Difficulty to recruit
C. Both
D. None of the above
Question 2
________ defines what is important to a social group
A. Social trend
B. Taste
C. Attitudes
D. Values
Question 3
________ is the study of population based on characteristic
A. Population size
B. Social Trend
C. Demographic
D. Non-of the above
Page | 77
Technological Factors
Technological factors of PEST analysis studies how development
or advancement of technology influence organization.
Technological Influence
Technological Influence
Product Development Business Process Organization Structure Other Influence
Improvement Change how

or Downsizing E-market place
organization
development carry out Delayering
of latest activities Outsourcing Social Media
technology (e.g. social Advertisement
product media Electronic
marketing and Banking
automated
production)
Virtual Team
Example
Mobile phone company is required to constantly develop product with new

technology; production company replace labor work with machine for long term cost
benefit; marketing over social media to attract vast users promptly; virtual
organization to gather employees from different location through advanced
communication technologies.

Page | 78

Delayering, Downsizing and
Outsourcing

Delayering
Technology advancement has ease communication and information
processing therefore increase the span of control of manager. In return,
organizations may reduce its hierarchy level by remove its middle
management.
Downsizing
Technology advancement has encouraged greater automation in business
process, reducing the needs of labor. Therefore, organization may have
overall reduced in size or number of employees.
Outsourcing
Outsourcing simply refers to contracting certain function of business to
outsider.

Outsourcing
Outsourcing
Advantage Disadvantage
Tap on expertise of supplier Loss of skill (difficult to start again later)
Able to focus on core activities Quality concern (controlled by supplier)
Pay only when service needed Risk of information leak
Flexible staff arrangement Slow communication (go through third party)
Page | 79
Summary – Technological
advancement and development of technology influence
organization.
Summary
Technological
Influence on Product Influence on Process Influence on rganization Structure
Delayering
Downsizing
Outsourcing
Page | 80
Question 1
Due to advancement of technologies, many organizations has become flatter in structure as middle
level management is removed.
The above statement is best associated with
A. Downsizing
B. Delayering
C. Outsourcing
D. Offshoring
Question 2
The rise of video conferencing save travelling time and cost of business as virtual conference can be
hold anytime and anywhere
The convenience of virtual conference is most associated with development of ______ factors
A. Political
B. Economical
C. Social
D. Technological
Question 3
Advantage of technology advancement does NOT include
A. Automated process to reduce labor cost

B. Ease of communication
C. Achieving competitive advantage by offering latest technology to client
D. Higher obsolete risk of products
Page | 81
Environmental Factors
Organization can generally influence physical environment
through extensive use of resources and production of waste.
How Organization Cause Harm to Environment
Footprint of Organization
Use or depletion of Destroying habitants of animal and

Pollution Resources plants
Air pollution
Sound pollution
Light pollution
Land pollution
In return, environmental factors can also influence how an

organization operates in a few ways.
How Environment Influence on Organization
Influence on Organization
Climate Changes Natural Disaster Lack of Reputation Risk Compliance Risk

Resources
Page | 82
Reducing Footprint
How can organization reduce its impact on environment
Organizational Action
Redesign product Redesign process Reduce, Reuse, Implement waste

(environmental
(energy efficiency) Recycle management system
friendly)
About Sustainability
Sustainability refers to the use of resources without compromising

needs of future generation.
Adopting sustainability in business require business to manage its
environmental footprint which benefits different stakeholders
Example
Customers enjoy environmentally friendly product
Investors enjoy greater return in investment

(e.g., reduced use of raw material reduce the production cost)
Residents enjoy greater environment to live with

(e.g., better quality of air and water)
Page | 83
Summary – Environmental
organization influence environment and vice versa.
Summary
Environmental
Organization influence Environment influence Sustainability

Environment Organization
Benefit
Page | 84
Question 1
Sustainable development is associated with concept of
A. Creating sustainable competitive advantage in organization

B. Developing organization to create sustainable long-term value
C. Developing organization in a manner which does not sacrifice the rights of future generation
D. Creating sustainable operational process to generate additional value
Question 2
Which of the following action does not help to reduce environmental footprint?
A. Regular maintenance of machine

B. Implementing procedures to produce document in extra physical copies to ease approval
process
C. Implement waste management system
D. Reuse and recycle materials
Page | 85
SWOT
SWOT analysis aims to analyze both internal and external
environment of an organization.
SWOT Analysis
Internal Strength Weakness
External Opportunity Threat
Favorable Unfavorable
Strength, weakness, opportunity and threat of organization can be

analyzed by conducting external analysis such as PEST and FIVE
FORCES and internal analysis such as VALUE CHAIN ANALYSIS
Example
Condition Int / Ext Fav/ Unfav Category

Strong Cash Flow Internal Favorable Strength
Outdated computer system Internal Unfavorable Weakness
Higher duty rate on raw material External Unfavorable Threats
Customer preference over your product External Favorable Opportunity

Page | 86

Competitive Advantage
Competitive advantage refers to an advantage of organization to
compete over competitors.
Porter Generic Strategies
Competitive Advantage
Cost leadership Differentiation Focus
Unique offer compare to Focus on satisfying certain

Have lowest operation cost
competitor market segments
Porter’s Generic Strategies identified three ways of which

organization can win over its competitors.
Comparison
Cost Leadership, obtain advantage by: Differentiation, obtain advantage by:
o Offer similar price but earn higher o Charge premium price for
margin additional features / reliable
o Offer lower price to achieve brand
higher sales volume o Stronger customer loyalty
Focus, obtain advantage by:
o Satisfy needs better (tailored for segment)

o Charge premium price
Page | 87
Porter’s Value Chain
Porter’s value chain suggested chain of connected activity in
organization to create value leading to competitive advantage.
Porter’s Value Chain Analysis

Firm Infrastructure
Human Resource Management
Technology Development

Procurement Margin
Inbound Outbound Marketing

Operation Service
Logistic Logistic and Sales

Primary Activities (In Orange Box)
o Inbound logistic concern with receiving and handling incoming
materials.
o Operations convert raw material into finished goods
o Outbound logistic concern with handing and distributing finished
goods
o Marketing and sales concern with communicating and persuading
customer on purchase decision
o Service refers to provision of service after point of sales to maintain
product value e.g., training, installation, warranty
Primary activities often reflect physical movement of goods such as
receiving raw material, creating product, sending to customer, and even
those activities after sales.
Page | 88

Supporting Activities (In purple box)
o Firm-infrastructure concern with managerial know-how
o Human resource management concern with management of
personnel in organization from recruitment to rewarding and
developing
o Procurement concern with acquiring / purchasing service or goods
needed by organization
o Technology development concern with research and development
and use of information technology in organization
Supporting activities support and facilitate the carry out of primary
activities. E.g., recruiting right sales personnel to support marketing and
sales activities.
Value network concept associated with value creation through

exchanging tangible and intangible resources (e.g., product,
service and information) within and between organizations
Alternatively, it can be as networking within a value chain and
between value chain of an organization with value chain of other
organization
Page | 89
Porter’s Five Forces
Porter’s Five Forces suggested five competitive forces which
shapes an industry.
Porter’s Five Forces
Threat of New
Entrant

Bargaining Power of Competitive Bargaining Power of
Buyer Rivalry Supplier
Threat of
Substitutes
The strength or intensity of these five forces shall then determine

the profit potential and therefore attractiveness of the industry.
Page | 90

What are the five forces?
Threats of new entrant look at how easy or difficult for new player to join
the industry, it is often described by barrier of entry. A high barrier of entry
would reflect difficulty for new player to enter, thus low threats of new
entrant.
Factors that influence the barrier include whether high capital investment
is required, the size of existing player and the strength of supplier and
customer loyalty.
Threats of substitute look at availability of similar product which satisfy

the same customer needs. A high threat of substitute limits the profit
potential of a product as customer can easily switch to competitor in time
of price adjustment.
High Bargaining Power of Buyer would imply greater pressure being

placed on a business to provide better quality product and lower price to
buyer, therefore limit the return from such product
Bargaining power of buyer is likely high when there is only few but large
customer, products are identical, low switching cost (can easily switch to
competitor) and buyer sell at low margin (motivated to force price
downward)
Bargaining Power of Supplier refers to the level of pressure organization
have that supplier may increase price or lower quality.
Bargaining power of supplier will be high when there is only few but large
supplier, buyers are fragmented, products are differentiated and switching
cost is high.
Competitive rivalry refers to the overall intensity of competition in the
industry. Intensive rivalry limits profit potential of an industry.
Industry rivalry is intensive when players are of similar size, fixed cost of
operation is high, slow industry growth, high exit barrier and product
offered is identical.
Page | 91
Summary – Other Analysis
In this session we learn obtained a brief understanding on other
internal and external analysis to evaluate position of organization.
Summary
Analysis
Porter's Generic Porter's Value Porter's Five

SWOT
Strategies Chain Forces
Threat of new
Strength Cost leadership Primary Activities
entrant
Weakness Differentiation Secondary Threat of substitute
Activities
Bargaining power
Opportunities Focus Value Network
of buyer
Bargaining power
Threats
of supplier
Competitive Rivalry
Page | 92
Question 1
A company manufactures and sells standardized office desk similar quality with competitor, however
due to the production efficiency the company is able to derive comparatively higher margin.
Which of the Porter’s Generic Strategies does the company adopt?
A. Focus
B. Differentiation
C. Cost Leadership
D. Focus differentiation
Question 2
A family-owned milk distributor company import most of its milk from New Zealand. A recent update
from tax department has indicates increase in import duty rate levied on dairy product.
The increase of import duty rate indicates a
A. Strength
B. Weakness
C. Opportunities
D. Threats
Question 3
Bob is in-charge to source and purchase raw materials for production process of organization.
According to Porter’s Value Chain Analysis, Bob is engaged in ________ activities.
A. Inbound Logistic
B. Operation
C. Procurement
D. Human Resource Management
Page | 93
PART
2
BUSINESS ORGANISATION
STRUCTURE, FUNCTIONS AND
GOVERNANCE
Study Check List

ü Formal and information organization
ü Business organization structure and design
ü Organizational Culture in Business
ü Committee in business organization
ü Corporate governance and corporate social responsibility
Page | 94
Formal Organization
Formal organization come with clearly defined policy, procedures,
structure, line of reporting and responsibility. It is structured
clearly in a manner which facilitate organization to achieve its
business objective.
Therefore, different business may have different way of
structuring. (to be discuss in later session)
Arrangement of formal organization can be seen in an
‘organization chart’.
Organization Chart
Name
Director
Name Name
Manager Manager
Name Name Name Name

Worker Worker Worker Worker
Organization charts illustrate structure of formal organization and provide

information on:
o Reporting line (e.g. worker report to manager)

o Authority Level (Those higher in chart will have higher authority)
o Relationship between different employees
o Role of each employees and how it fit in organization
Page | 95
Informal Organization
Every formal organization come with information organization.
Informal organization reflects how the organization actually
worked in practice; it is a network based on social relationship
of individuals in organization. For instance, a lunch group is
formed because of common food preference and topic of interest.
It provides greater motivation and communication between
different employees in organization due to social bonding.
Comparison
Formal Organization come with Informal Organization come with
characteristic of: characteristic of:
o Often remain constant o Constantly evolve

o Top-down o Grass root
o Person = Role o Person = Individual
o Hierarchical o Great motivation
o Clear line of authority o Anyone can be part of it
o Follow policy and procedures o Built on trust and reciprocity
o Easily understood o Need inside knowledge to understand
However, an excessively strong informal organization is not

desired in organization as it may cause trouble such as intensive
opposition to change, quick and vast spread of ‘rumors’ through
grapevine and conformity of workforce due to social needs.
Page | 96
Component of Organization
According to Henry Mintzberg, organization is formed by five
components.
Mintzberg’s Organization Component
Strategic Apex
Tecno- Support
Structure Middle Staff
Line
Operating Core
Each of the component carries different responsibility in an organization, such as:
o Strategic apex provide direction to organization and manage its environment

o Middle line convert plan by strategic apex into operational plan to be followed by
operating core
o Techno-structure concern with come out with the best way of doing a job
o Support staff provides supporting service such as administration, canteen and legal
advisor
o Operating core are those workers that is involve in producing goods or providing
service

Mintzberg theory highlight the separation between the role of ‘directing’
(strategic apex) and the role ‘managing’ resources and implementation
of plan (middle line).
Page | 97
Organizational Structure
An effective organizational structure allows clear communication
of roles and responsibility with employees and facilitate
achievement of business objective. Few common ways of
structuring an organization are discussed as follow:

Entrepreneurial
Decision making responsibility fall on the entrepreneur (often being owner of
business). The structure is often adopted by small company in early startup.
As major decisions are made directly by the entrepreneur, decisions (including those
responding to environment) can be made promptly. However, heavy reliance on
entrepreneur may expose organization to risk of wrong decision (no scrutinization
against decision) and inability to cope with workload in the case of organization
growth.

Functional
Organization group employees according to its specialization or function. For
instance, those in-charge of finance role shall grouped together in a department. It is
suitable for small company that has outgrown from entrepreneurial structure.
Gathering similar function in one place avoid duplication of role therefore likely to
achieve cost saving through economies of scale. Clearly career progression path is
available to employee in relevant department. Besides, it encourages in-depth study
and development of specialized skill.
However, manager from respective department may place greater emphasize on

departmental interest rather than interest of company as a whole. Slower decision
making compared to entrepreneurial structure as communication is required down
the command chain.
Page | 98

Matrix
Matrix structures require employees reporting to two different managers.
Matrix nature of structure require extensive communication between functional and

divisional (e.g. project) therefore encourage exchange of information and
teamworking. It however can be time consuming for meeting between functional and
divisional structure. Dual reporting nature may also cause confusion in employees in
the case of conflicting command.
Matrix Structure

Department
Manager A

Project Staff 1
Manager X

Divisional
Organization which group employees together based on division. Division can be
based on geographical location (e.g. Asia Division, Europe Division, America Division),
product type (e.g. fashion division, real property division, plantation division) and
customer type (e.g. government division, retail division, corporate division).
Divisional Structure

Autonomous and self Respond promptly Duplication of Role May focus only on
supporting and flexibly to local
divisional interest
needs
(suitable for growth)
Page | 99

Boundaryless Organization
Boundaryless organization refers to those organizations with its boundary removed.
Three key types of boundaryless organizations are discussed.
Virtual Organization Hollow Organization Modular Organization
Manufacturer which outsource

Organization exist based on Carry out core-activities in- components of product to other
network of contract with others house; Outsource non-core
organization, then carry out
(individual and organization) activities to other organization assembly work in-house
Page | 100
Knowing Terminologies
About Ownership, Direction and Management
Ownership of company is associated with shareholding; owners

of company is known as shareholders.
When organization is small, owners are usually the manager of
business. However, when business grow separation of
ownership and control occur. Therefore, organization is owned
and managed by different group of people.
Direction concern with the role of giving direction and leading

organization towards sustainable success
Management ensures business objective set by directors are
being achieved through effective and efficient use of resources.

Direction
Role of direction is taken by board of directors of company, involve responsibility to:
o Set direction (purpose, vision, mission, value)

o Understand and monitor (stakeholders and business environment)
o Monitor internal control system and risk management system
o Monitor management team implement strategy effectively and efficiently
Page | 101
About Scalar Chain and Span of Control
Scalar chain refers to the level of hierarchy along the reporting

line. Longer scalar chain will likely slower communication.
Ease of communication and information processing has causes
delayering which reduce level of hierarchy in organization.
Span of control refers to the number of subordinates directly

report to a manager.
Factors Influence Span of Control
Factors Influencing
Span of Control
Subordinate skill and Clarify of work and

Pace of work / change experience Complexity of work responsibility
Width of span of control depends on level of supervision required for each

subordinate, the lesser supervision required, the more subordinates a manager can
monitor thus wider span of control
For instance, if work has high complexity very likely employees require more
supervision from manager thus span of control is narrow.
Page | 102
About Centralized and Decentralized
In centralized organization, majority decision making power

remain with top management. In contrast, decentralized
organization delegate decision making authority throughout
organization.
Centralized and Decentralized
Centralized Decentralized
Advantage Disadvantage Advantage Disadvantage
Top managment able Inconsistent treatment
Greater control and Top management
coordinated decision overladed with work to focus on strategic to employees and
decision customer
Standardadized and Lack of understanding Prompt and flexible to Loss of control by top
Uniform decision and slow over local respond locally management
condition
Discourage input from Motivate lower level May increase cost

Quick Decision (Duplication of role in
employees management
each devision)
Better Quality
Train for future
Decision (Made by management
Top Management)
Page | 103
About Tall and Flat Organization
Tall organization operates on strong top-down and command

and control basis. It often come with clear roles and
responsibility for each employees and therefore clear career
progression. However, the tall nature cause difficulty for top
management and floor level worker to communicate and also
expensive in nature.
Tall and Flat Organization
Many levels
but narrow
Few level
and wide
Tall Flat
Organization Organization
Page | 104
Flat organization operates on self-directed and self-managed
employees. It allows greater flexibility in roles and responsibility;
authority is delegated throughout organization therefore
providing greater motivation to employees. The flat nature also
encourages close communication between management and
floor worker. However, limited level may imply difficulty for
upward career progression; delegation of authority may cause
management to loss control over certain aspect of operation
Comparison (Characteristic)
Tall Organization Flat Organization
o Long scalar chain o Short scalar chain

o Narrow span of control o Wide span of control
o Centralized o Decentralized
Page | 105
About Offshoring and Shared Service
Offshoring involves relocating certain function of organization to

other country.
Offshoring
Offshoring
Lower cost Subject to country risk
Greater pool of labour force Language barrier
Diffilcutly to control (remove location)
Comparison (Definition)
Outsourcing Offshoring
Sub-contract function to third party Relocate function to other country
Page | 106
Shared service approach attempts to consolidate common
business function (those used by many part of business) in one
place.
Department that often being ‘shared’ include but not limited to
accounting, human resources and information technology.
Shared Service Approach
Shared Service Approach
How it work? Advantage Disadvantage
As cost center, only provide Greater cost saving and High initial cost (set up large
service does charge efficiency scale department)
Act as separate business and General service provision

charge for service provided Improve overall service (likely not tailored for division)
Page | 107
About Strategic, Tactical and Operational Level
According to Anthony hierarchy, organization activities can be

analyzed into strategic, tactical and operational level.
Three level of organization activities
Long term planning for whole

organization
(Set value, purpose and mission, Strategic
overall planning, external environment
and stakeholders’ analysis) Midterm planning for
individual business unit
(Convert plan set at
Tactical
strategic level into
operational objective and
arrange use of resources
Day-to-day decision for effectively and efficiently)
operational function
(Implement short term

Operational
operation plan and achieve
objective set by tactical level)
Page | 108
Main Departments
About Research and Development Department
Research and development function is in-charge to improve

existing or develop new product, service or business process.
About Purchasing Department
Purchasing department concern with acquiring necessary goods

and service in the right time and value for organization.
Purchasing mix outline the factors to consider when making
purchase decision.
Purchasing Mix
Factors to Consider
Quantity Quality Price Delivery
Page | 109
About Production Department
Production department is in-charge to convert raw material and

other resources into finished goods.
About Direct Service Provision
Provision of service directly to client. (e.g., barber, auditor, doctor)

Service is differentiated from goods due to its characteristic.
Characteristic of Service
Characteristic of Service
Intangibility Variability Inseperability Perishability Ownership
Does not have Provided and Cannot be Lack of

Inconsistent
physical Consumed at stored for later ownership
output
substance the same time consumption transfer
Page | 110
About Administration
Support function in an organization, involve in function such as

processing and organizing resources, decision making,
information.
About Finance and Account
Finance and account department is usually responsible over

recording of financial transaction, producing financial reports,
implementing and maintaining financial control, setting and
maintaining budget, arrangement of capital and etc.
Detailed function of finance and account department will be
discussed in later sessions.
Page | 111
Marketing Departments
What is Marketing?
Marketing is the process to identify, anticipate and satisfy

customer needs and wants in efficient and profitably manner.
Marketing is essential in order for business to sell their respective
service or goods.
What is Marketing Mix?
Kotler outlined in marketing mix framework; few controllable

factors of which organization can manipulate to influence
consumers decision. Thus, to make consumer purchase goods
or service, business may opt to make changes in each or some
of the ‘P’.
Page | 112
Marketing Mix
Marketing Mix
Physical
Product Price Promotion Place Process People
Evidence
Only for service provider
Kotler identifies 4P’s which business may manipulate in influencing consumers’

purchase decision
o Product: concern with product offered, including packaging, warranty,

quality, services associated, brand, design etc.
o Price: concern with price level, discount level and terms associated with
payment
o Promotion: concern with communicating product to consumer (e.g.,
advertisement, sales promotion, maintaining public relation)
o Place: concern with how to place product to consumer (e.g., directly through
e-commerce marketplace or go through intermediary such as retailer)
For services providers, additional 3P’s would also be relevant
o Physical Evidence: physical component of service provider (e.g. business

card, premise layout etc). It influences impression to consumer.
o People: concern service provider and receptionist (e.g. their appearance,
attire, skill, experience etc.)
o Process: concern with delivery of service whether lead to customer
satisfaction (e.g., capacity, speed, timing, convenience etc.)
Page | 113
Marketing and Strategic Plan
Marketing process of organization is closely related to strategic

planning of organization, as analysis, choices and
implementation at strategic level is required to facilitate
marketing function of an organization.
Marketing at Strategic Level

E.g. brand, reputation,
competition analysis,
market research
Strategic
Analysis
Strategy
Strategic Choices
Implementation
E.g. set target, executive E.g. decision which

plan, monitor market to target, which
implementation, controlling product to sell, which
performance plan to execute
Page | 114
Summary – Structure
In this session we learn obtained a brief understanding on type,
component, structure (including associated terminologies) and
function in organization.
Summary
Organization
Type Component Structure Concept Departments
Ownership, Research and

Formal Strategic Apex Entrepreneurial Management, Development
Direction
Informal Middle Line Functional Scalar Chain Purchasing
and Span of
Operating Core Divisional Control Production
Techno- Centralized and Direct Service

Matrix Decentralized
Structure Provision
Support Staff Boundaryless Administration

Tall and Flat
Finance and
Account
Offshoring and
Outsourcing Marketing
Shared Service
Strategic,
Tactical,
Operational
Page | 115
Question 1
Which of the following statement relates to informal organization is INCORRECT?
A. It exists in every formal organization

B. Dynamic change of structure
C. Reflected by organization chart
D. May involve by anyone in organization
Question 2
Which of the following structure allow quickest decision making?
A. Entrepreneurial
B. Functional
C. Divisional
D. Matrix
Question 3
Organization A has complex transaction and tasks in organization, the management has centralized
decision making
The above statement is likely describing
A. Tall Organization
B. Flat Organization
Question 4
Organization may opt to influence buying decision of client by running higher level of advertisement
to create greater publicity and brand awareness.
The above statement is associated with which ‘P’ of marketing mix
A. Product
B. Price
C. Place
D. Promotion
Page | 116
Organizational Culture
According to Charles Handy, culture is defined ‘the way we do
things around here’
In general, it refers to the shared belief, value and norm of a
group of people, e.g., behavior of student from a classroom; the
belief of a family.

Organizational Culture refers to the shared value, belief,
assumption which guide behavior and practice of workforce in
organization. It differs from one another i.e., employees from
different organization are likely to behave differently. Factors
which shape different organization culture is shown below.
Factors Shaping Organizational Culture
Factors
History Founder, previous leader, previous failed / success story
Ownership Family-owned? institutional shareholders? Many small
shareholders?
Technology How advanced is the technology in product and business process?
Age Age of both organization and workforce
Size Number of employees, location, turnover
Diversity Do they have single or many product / locations?

For instance, organization with aged workforce and organization with young
workforce will likely have different value and way of doing things

Page | 117
Contribution by Writer
Theory by Edgar Schein
Organization culture is far beyond what we can observe. Schein

visualized the concept of organization culture by relating to an
iceberg which is bigger than the tip that we can see on the
surface of ocean.
Three level of Culture (Edgar Schein)
Cultural attributes that is observable

(e.g., norm, dress code, mannerism, office Artefact
layout and design)
Value stated by the company

Espoused (e.g., business strategy,
Value philosophy, goal, vision)
Those unconsciously held by

the people in organization
Basic Assumption
(e.g., their taken-for-granted
belief, value, assumption)
Page | 118
Theory by Charles Handy
Charles Handy popularized cultural model which defines four

cultural stereotypes in organization by assigning distinctive name
of Greek God for each cultural.
Four Cultural Stereotypes
Characteristic of Cultural
Stereotypes
Power Culture Role Culture Task Culture Person Culture

(Zeus) (Apollo) (Anthena) (Dionysus)
Focus on getting task

Power and control Power defined by done / achiving desired People superior to
radiant out from central position / hierarchy business
result
(central being the one
or few leaders) Organization with clear
Individual gathered to Important to retain key
authority, responsibility solve problem personnel
and rules
Fast decision making by
central leader Typically tall in nature Often used in project Often seen in
(thus slow decision team that serve specific professional services
making) task
Minimum rules and
procedures required
Bureaucratic
Organization
Act as separate business
and charge for service
provided
Page | 119
Theory by Geert Hofstede
Hofstede research on cultural difference between different

culture and developed six national cultural indices. Four key
indices are illustrated below.
National Cultural Indices
Index
Uncertainty Avoidance
Power Distance (PD) Individualism (UA) Masculinity
High PD: Society accept Individualism: Greater High UA: Society which Masculinity: Society
inequalities of power. emphasize on self, avoid uncertainty, prefer which male role and
Suitable for centralized, therefore concern on clear rules and female role are clealry
command and individual task and goal procedures established distinct.
controlled organization.
Low PD: Society Low UA: Greater

Collectivism: Greater
demand equality of emphasize on group, acceptance of Femininity: Less distinct
power. Suitable for uncertainty. Prefer between male value and
therefore concern on
decentralized group task and goal freedom, lesser rules female avalue
organization and ready for risk.
Page | 120
Summary – Organization
Culture
In this session we learn obtained a brief understanding on
organization culture.
Summary
Definition
3 Level of Culture Cultural Stereotypes National Culture

Factors shaping Culture (Schein) (Handy) (Hofstede)
History Artefact Power Culture Power Distance
Ownership Espoused Value Role Culture Individualism
Technology Basic Assumption Task Culture Uncertainty Avoidance
Age Person Culture Masculinity
Size
Diversity
Page | 121
Question 1
Organization culture can be observable such as the dress code of employees and layout of office.
The above statement is associated with which level of culture?
A. Artefact
B. Espoused Value
C. Assumption
Question 2
In organization A, powers and controls is determined by hierarchical level and position.
The above statement is best associated with which culture stereotype?
A. Power culture
B. Role culture
C. Task culture
D. Person culture
Question 3
People from Country A has preference over clear rules and responsibilities and dislike changes and
risk.
The above statement is reflecting
A. Low power distance

B. Low individualism
C. High uncertainty avoidance
D. Low uncertainty avoidance
Page | 122
Committee
In context of business organization, committee refers to an

arrangement where:
o Group of people
o Given authority and responsibility to perform task
o Adhering to formal procedures
Committee in Business Organization
Committee
Purpose Advantage Disadvantage
Generating new idea Blurred responsibility

(e.g. brainstorm session) Pool of talent for task (may cause low quality input)
Better coordination of work Compromised decision
(different department but in Delay decision to reduce risk (decision made through
of rushing poor decision
one committee) major consensus)
Collective responsibility Costly
Make, implement decision (encourage input) (slow in decision making)
Monitor / oversee task / Decision consider interest of Ineffective
procedures different stakeholders (low commitment from
members or risk of
Represent interest of different dominated by few / single
stakeholders member)
Page | 123
Type and Role of Committee
Different type of committees can be formed to service different

function or task need.
Type of Organization
Standing Committee Ad-hoc Committee Subcommittee Joint Committee
Permanent in nature, Temporary in nature, Appointed by larger Form by members from

form part of formed to solve short committee to deal with more than 1 committee
organization structure term problem specific area of task / organization / party
Functions of two important role in committee is illustrated below:
Comparison (Main task and responsibility)

Committee Chair mainly act as a Committee Secretary mainly provide
leader to the committee, therefore administrative assistance to chair including
includes to set agenda for meeting, to fix and book time, date and revenue for
maintain discipline in meeting, meeting, preparing and distributing
encompass and conclude the conduct documents, making notes to prepare
of meeting, authorizing document etc. minutes, advice chair on procedures etc.

Page | 124
Summary – Committee
In this session we learn obtained a brief understanding on the
definition, purpose, advantage, disadvantages and type of
committee. We also obtain brief understanding over key role of
chair and secretary in committee.
Summary
Committee in Business Organization
Basic Concept Type Key Role
Definition Standing Chair
Purpose Ad-hoc Secretary
Advantage Sub
Disadvantage Joint
Page | 125
Question 1
Due to recent frequent production breakdown, the organization set up a committee to investigate
the reason behind the frequent breakdown. The committee was disbanded after investigation was
completed.
Which of the committee type is reflected by above scenario?
A. Standing Committee
B. Ad-hoc Committee
C. Sub Committee
D. Joint Committee
Question 2
Which of the following does not represent common characteristic of a committee in workplace?
A. Shared responsibility in decision making

B. Given sufficient authority to carry out task
C. Go through formal process of discussion
D. Lead by the most senior member
Question 3
Which of the following does not represent task under committee chair’s responsibility?
A. Decide agenda for committee meeting

B. Sign on meeting minutes
C. Arrange venue and time of meeting
D. Maintain discipline in committee meeting
Page | 126
Agency Theory
Agency theory outlines the relationship between agent and
principal, including the potential problem and solution.
Agent being a person or entity that is given authority and

therefore able to make decision on behalf of principal.
In context of business organization, agency theory often used to

describe relationship between shareholders and directors.
Shareholders employ directors to run company on behalf of
shareholders, therefore directors are accountable to
shareholders.
Agency in context of Business Organization

Employ and require agent
to work on behalf
Accountable
Shareholder Directors
(Being principal) (Being agent)
Agent is required and expected to work in the best interest of principal.
Page | 127
Corporate Governance
Corporate governance is often described as the system or
mechanism of which companies are directed and controlled.
Development of Corporate Governance
Growth of companies may lead to separation of ownership and

control, a scenario which company is run (directors) and owned
(shareholders) by two separate group of people.
The separation potentially cause problem such as conflict of
interest, where directors and shareholders have different interest.
Therefore, risk arise where directors may run companies
pursuing their personal interest rather than interest of
shareholders and other stakeholders**.
Therefore, corporate governance is a system introduced to
reduce such ‘agency problem’.
**Stakeholders’ theory recognizes the importance of taking

care relationship with stakeholders such as customer, supplier,
government, banker etc. (not just the shareholders)
Page | 128
Objective of Corporate Governance
Corporate governance aims to ensure companies are run in best

interest of shareholders and stakeholders.
Importance / Benefits
Other importance / benefit
Check and balance mechanism Effective corporate governance Often part of stock exchange
improve decision quality enhance investors' confidence listing requirement
Best Practice of Corporate Governance
Recommendation for effective corporate governance is referred

as ‘best practice’. Few categories of best practices are illustrated
below:
Best Practice
Best Practice of Corporate Governance
Non-executive Remuneration Audit Nomination
Public Oversight
Director Committee Committee Committee
Page | 129
Best Practice – Non-executive Director
Unitary board comprise of two type of directors, namely

‘executive directors’ and ‘non-executive directors.
Comparison Non-executive directors are

those with no managerial
Executive director are directors who are responsibility, they do not involve
employed in full time basis involve in routine in day-to-day operation.
managerial functions. (e.g., chief executive However, they participate in
office, chief operating office, finance director decision making in strategic level
etc.) by attending board meeting.

Role of Non-Executive Directors (NEDs)
Key Role of NEDs
Monitor sufficiency Appoint, removing,

and effectiveness of succession planning Scrutinize
Challenge and
risk management and determine performance of
propose trategy
and financial control remuneration of executive directors
system executive directors
Page | 130
Best Practice of Non-Executive Directors
(NEDs)
Best Practice of NEDs
Independence One of the NED chosen to be

Constitute at least half of the chairman
board
(To have effective check and (Chairman should not be CEO
balance mechanism) - avoid too much power one
Not employee of company
one person)
No significant interest in
company
Fixed fees
No close relationship with

executive directors
Does not involve in operation
of business
Best Practice – Remuneration Committee
Remuneration committee comprise of only non-executive

director, responsible to decide on remuneration of executive
director. Including to set overall remuneration policy and
individual pay package for each executive director.
It is important that remuneration committee only consist of

independent NEDs as no director should involve in setting their
own remuneration.
Page | 131
Best Practice – Audit Committee
Audit committee comprise of only non-executive director, it

consists of at least three independent NEDs with at least one
with recent and relevant financial expertise. Key role of audit
committee is illustrated below:
Key Role of Audit Committee
Key Role of Audit Committee
Monitor integrity Recommendation Monitor and Monitor and

of financial Review internal to board (which Liaise with Liaise with
control and risk External Auditor Internal Auditor
statement and EA to appoint,
management (including their (including their
other financial re-appoint and
system independence, effectiveness,
announcement remove)
effectiveness, work plan,
decide audit access to
fees) reporting
channel)

Best Practice – Nomination Committee
Nomination committee consist of only non-executive director,

responsible to monitor and recommend appointment of directors
to board to ensure effective and balanced composition.
Page | 132
Factors to consider when deciding balanced board
Factors to consider
Appropriate mix
Mix of of EDs and Succession
Appropriate size Diversity
appropriate skill Planning
NEDs
Best Practice – Public Oversight
Public oversight involves public to understand and monitor the

governance system of organization. It is often done by reviewing
annual report (including financial statement) published by
companies (often available in relevant regulatory body in the
country, respective company’s website and stock exchange
listing site)
Information such as composition of board, committee,
remuneration of directors can be obtained in annual report.
Public oversight boards are also available in certain countries

to monitor the practice of companies whether in compliances
with rules and regulation, representing public interest.
Page | 133
Summary – Corporate
Governance
In this session we obtained a brief understanding on the
corporate governance, including the agency theory which raise
the need of corporate governance, objective, benefit and key
best practice.
Summary
Corporate Governance
Basic Concept Best Practice
Definition Non-executive Directors
Agency Theory Remuneration Committee
Objective Audit Committee
Benefit Nomination Committee
Public Oversight
Page | 134
Question 1
Which of the following statements relating to corporate government is INCORRECT?
A. System of which organizations are directed and controlled

B. Compulsory compliance from all organization is required
C. Aim to ensure organization activities are conducted in best interest of stakeholders
Question 2
Which of the following does NOT represent best practice relates to ‘non-executive directors?
A. Should not have significant interest in organization

B. Should not have close relationship with executive directors
C. Should constitute at least half of the board
D. Should involve in operational task to get familiar with organization’s operation
Question 3
_________ Committee is responsible to provides an overall review over financial statements and
financial information released by the organization.
A. Remuneration
B. Nomination
C. Audit
D. Task
Page | 135
Corporate Social Responsibility
Corporate social responsibility refers to the concept where
business organization should be accountable to stakeholders
(rather than only to shareholders) including to contribute
towards economic development and betterment of stakeholders’
life quality. Alternatively, responsibility of corporate can also be
categorized as below:
Type of Responsibility
Responsibility
Financial (Economic) Environment (Physical Environment) Social (Stakeholders)
Corporate social responsibility concern with being

accountable to stakeholders by considering their interest and
needs. Therefore, organization has to first understand:
o Who are the stakeholders group?
o Importance / priority of each stakeholders group
(e.g., conducting Mendelow Stakeholders’ Mapping)
o Need of each group
These would include all internal, connect and external
stakeholders.
Page | 136
Nature – Corporate Social Responsibility
Corporate social responsibilities go beyond the legal requirement.

In fact, it represents minimum requirement of society. Four level
of corporate social responsibilities are illustrated below:
Four levels of Corporate Social Responsibility
Philanthropic Responsibility
‘Be a good corporate citizen’ P
(Positively contribute to society)
Ethical Responsibility
‘Be ethical’
E (Right action and avoid
causing harm)
Legal Responsibility
‘Obey the law’ L
(To follow letter and
spirit of law)
Economic Responsibility
‘Be profitable’
E (Earn reasonable return
is important as a
foundation for above
level)
Page | 137
Benefit – Corporate Social Responsibility
Despite not mandated by law, organization particularly in recent

business environment opt to commit corporate social
responsibility due to the benefit illustrated below:
Benefit / Importance of Corporate Social Responsibility
Benefit
Cost saving in long term (e.g., Compliance reduce penalty

Enhanced reputation (as adoption of reduce, recycle, and tax (Corporate social
ethical business) reuse as corporate responsibility include obey the
environmental responsibility) law)
Attract investor
Attract consumer
Attract talents (workforce)
Page | 138
Summary – Corporate Social
Responsibility
In this session we obtained a brief understanding on the concept
of corporate social responsibility, including its definition, type,
level and benefit.
Summary
Corporate Social Responsibility - Basic Concept
Understanding Level of
Definition Type stakeholders Nature Responsibility Benefit
Financial Who Economical Reputation
Environment Priority Legal Cost Saving
Social Needs Ethical Compliance
Philanthrophic
Page | 139
Question 1
Which of the following represent minimum expectation from society on organization?
A. Philanthropic Responsibility
B. Ethical Responsibility
C. Legal Responsibility
D. Economic Responsibility
Question 2
Corporate social responsibility is voluntary in nature as it requires organization to incur additional

cost for benefit of public
The above statement is
A. True
B. False
Question 3
Which of the following type of corporate responsibility concern with bettering life quality of society?
A. Financial
B. Environmental
C. Social
E. None of the above
Page | 140
PART
3

ACCOUNTING AND REPORTING

SYSTEMS AND TECHNOLOGY:
COMPLIANCE, CONTORL AND
SECURITY
Study Check List

ü The relationship between accounting and other business functions
ü Accounting and finance functions within business organizations
ü Principles of law and regulation governing accounting and auditing
ü The sources and purpose of internal and external financial information, provided
by business
ü Financial systems, procedures and related IT applications
ü Internal controls, authorization, security of data and compliance within business
ü Fraud and fraudulent behavior and their prevention in business, including money
laundering
Page | 141
ü The impact of Financial Technology (Fintech) on accounting systems
Relationship between
Accounting and Other
Functions
Accounting and finance function deal with the recording of
financial transaction and managing of fund (to learn in next
session), therefore often play significant role to others
department.
Influencing Other Department
Account / finance department will:
Production Purchasing Marketing Direct Service Provision

Negotiate with supplier for best Provide info on sales Provide info to
Obtain data of determine price
production (time credit terms value, volume and
return (Marketing to charge
taken, kg of customer
material used etc) Provide info on acceptable price department can use
range for purchase to determine its
performance and Provide info to
Obtain info such as Obtain info on expected position) estimate cost
expected purchase cost to prepare budget incurred
production volume Obtain info on
to prepare budget Provide info on available expected sales volume
inventory quantity (for purchase and value to prepare
decision) budget
Liaison for
inventory level Obtain info on purchase Provide and monitor
(sufficient but not transaction (data recording) budget of marketing
excessive) department
Making payment for puchase
made Provide cost
Advice on capital information
investment (determine
(purchase of Advice on settlement discount
acceptance appropriateness of
equipment) sales discount / price
setting) Page | 142
Accounting and Finance
Functions
Accounting and finance function in a business can be broadly
categorize into three function leading by finance director or
chief finance officer
Accounting and Finance Function
Finance Director / Chief Finance Officer
Accouting Finance
Financial Accounting Management Accounting Treasury
Accounting refers to the process of recording, summarizing,

analyzing and reporting financial transaction of business.
The initial recording process of accounting is also known as
‘book-keeping’.
Finance function concern with handling of finance

Page | 143
Accounting
Comparison
Accounting
Financial Accounting Management Accounting
Report to assist internal user for planning,

Report on financial performance and position
controlling and decision making of
of an organization mainly for external user
organization
Therefore, recording of same business transaction (bookkeeping)

can be analysed to serve two distinctive purpose
Example
Recording of Sales Transaction
Financial Accounting Management Accounting
Used to generate revenue report for

Used to generate and appear in Statement management to decide whether paying year-
of Profit or Loss as ‘Revenue’
end bonus for sales personnel
Page | 144
About Financial Accounting
Financial accounting concern with recording, summarizing,

analyzing and reporting to reflects financial position of business
at specific point of time and financial performance of business
for a historical period. (i.e., to record and process for the purpose
of releasing financial statement)
Accounting Process
Occurrence Transfer from

of Record in book of Process to
Transaction book of prime entry produce
(Proof by prime entry to ledger (T- financial
source of (daybook) account) statement
document)
Different type of financial statements will be discussed in later session.
Example
Sales Produce
Transaction Record in Dr Receivable income
(Produced sales Cr Sales statement
sales invoice) daybook (sales)
Page | 145
About Management Accounting
Management accounting concern with recording, summarizing,

analyzing and reporting to facilitate planning, decision making
and control of management.

Planning
Planning involved setting objective desired to achieve and
finding out what are the alternative plan to achieve the objective
Decision Making
Making decision refers to the process of choose the appropriate
action plan based on available information and subsequently
implementing such decision
Controlling
Controlling involve measuring actual result achieved, compare
between actual and expected outcome and take corrective action

Example
All three management activities required information input, for
instance, to prepare sales budget required information on
current sales level; to decide on whether to make a component
in-house or to outsource require cost information on both option;
to monitor and evaluate performance of employees required
information on their target and past performance
Page | 146
Comparison
Financial Accounting Factors Management Accounting

For reflects financial position For planning, controlling and
Purpose
and performance of business decision making.
Mandatory for companies Voluntarily
Report format according to Reports Report format decide by
law and accounting standard management
Cover historical, current, future,
Cover historical and financial
Scope financial and non-financial
information
information
Often more frequent
(daily, weekly, monthly etc)
Annual report Frequency So that management can take
action and make decision more
promptly
Mainly external user User Internal user
About Treasury Function
Key Treasury Function
Key Treasury Role
Calculate and Evaluate and obtain Manage working Treasury and risk
mitigate tax liabilities finance capital management
Page | 147
Three terms associated with minimizing tax liabilities are
illustrated below:

Tax Evasion
Illegally reduce tax liabilities such as overstate expenses and
understate taxable income
Tax Avoidance
Legally reduce tax liabilities, however, disobey spirit of law, i.e.,
through loophole or lack of provision in law.
Tax Mitigation
Legally reduce tax liabilities and obeying spirit of law, e.g.,
tapping on tax incentive or benefit offered by tax authority.
Management of working capital involve maintaining right level of

current asset and liabilities, including receivable, payable, cash
and inventory.

Inventory Level
High inventory level provides more immediate options for
consumer and reduce the risk to loss revenue due to stock out.
However, low inventory level allow organization to have lower
inventory holding cost such as warehouse space and insurance
cost. It also reduces the risk of holding excessive obsolete goods.

Page | 148

Receivable Level
High receivable level better attract client however expose
business to excessive bad debt risk. (i.e., the risk of not able to
recover debt from client)
Low receivable level on opposite hand allow business to have
better cash flow.

Payable Level
High payable balance allow business to have better cash flow
(cash are hold in hand for lower before paying to supplier).
However, it may cause dissatisfaction of supplier therefore
business may loss privilege, credit term or discount given by
supplier.
In contrast, low payable level increase supplier satisfaction but
tighten business cash flow.

Cash Level
High cash level help ensure payment of bill and creditor made on
time allowing better satisfaction of suppliers and service
providers.
However, it may reflect opportunity cost as the sum of cash can
earn certain level of return if being invested.
Page | 149
Treasury function is also responsible to maintain good
relationship with bankers and raise finance when necessary.
Generally, two types of finance are available:
Comparison
Debt Finance Equity Finance
o Borrowing a cash which VS o Raise fund by selling

requirement repayment shares of company
with interest in later date o Dividend to shareholders
o Mostly common seen debt are not compulsory
finance would be bank loan o However, dividend is also
and overdraft not deductible for tax
o Interest payment are purpose
deductible for tax purpose o Raise equity finance dilute
(reduced tax payable) the shareholdings of owner
o Does not affect shareholding

structure
Treasury function also in charge of risk management including

the risk associated with fluctuation of foreign exchange rate and
interest rate and consideration over use of hedging to minimize
such risk.
Page | 150
External & Internal Auditor
Despite relevant to finance and accounting, external and
internal audit function are required to be independent from
accounting and finance function of a business in order to
discharge their duties effectively.

External Audit
A periodical examination of accounting records and books by an
independent third party, in order to express an independent
opinion over truth and fairness of financial statement prepared.

Internal Audit
An independent appraisal activity intended to improve and add
value to operations of organization through evaluation and
recommendation over control, risk management and governance
system of organization.
Comparison

External auditors evaluate and Internal auditors evaluate

express conclusion (based on VS effectiveness and efficiency of
collected proofs) whether financial operations and provide ways to
statement is true and fair, thereby improve (acting for benefit of
enhance confidence of external business itself)
users.
Page | 151
External Audit Process
External Audit Process
Draft and Signing Engagement Letter
Both parties sign written contract to set out details of audit engagement including
responsibilities of each parties (external auditor and management), scope, fees etc
Audit Planning
Plan how to conduct the audit, including to understand the business, assess risk of
business, decide scope, timing and direction of audit.
Evaluating Financial Reporting System

Obtain understanding, record, test (conducting 'test of control' or 'compliance test' and
feedback (on weakness deficiency) on internal control system relating to financial
reporting of business (e.g. sales system, purchase system, inventory system etc)
Substantiating figures and disclosure in Financial Statement

Conduct substantive testing (a type of audit work) to confirm whether figures and notes
in financial statement (e.g. sales, asset, equity, expenses) whether contain any material
misstatement
Review and Finalization

Perform overall review on audit work including confirm whether compliance with audit
standing, of audit evidence etc. Issue audit report consist of opinion over financial
statement (e.g. true and fair)
Page | 152
Internal Audit Task
Common Task for Internal Auditor
Task Description
Evaluate sufficiency and effectiveness of process to identify,
Risk
assess and manage risk, and to provide recommendation to
Management
improve
Review current mean of safeguarding asset to determine whether
Asset
sufficient and effective, and to provide recommendation to
Safeguard
improve
Project / Review and monitor whether project or action plan carried out as
Action Plan desired (e.g., against goal, objective etc)
Value for Review economic, efficiency and effectiveness (3E’s) of different
Money function in business
Operational Review operation of department to determine whether resources
Audit being used effectively and efficiently
Review internal control system of business to determine whether
System Audit
sufficient and effective
Compliance Review whether operation and running of business in compliance
Audit with law and regulations
Investigate unusual activity / event (product faulty issues, fraud
Investigation
in payroll etc)
Probity Review accounting entries / record of business to determine
Audit whether any errors or omission which indicate likely fraud

However, internal audit department often faced problem of independence as they
are often part of organization. Therefore, may be reluctant to express objective
opinion.

Page | 153
Comparison
External Audit Factors Internal Audit

To evaluate and provide
Provide independent opinion recommendation, assisting
to enhance confidence of user Purpose management to discharge
in financial statement responsibility
(improve business)
Mandatory for companies Voluntarily
Report format according to Reports Report format decide by audit
law and professional standard committee / board of director
Appoint by Audit committee / board of
Shareholders
& Report to director
Outsider Status Employee (can be outsourced)
Required Qualification Not required
Focus on financial Statement Both operational and financial
(defined by law and auditing Scope (decide by audit committee /
standard) board of director)
Page | 154
Financial Information
Report / information produced is viewed based on separation
of two accounting function
Financial Information
Financial Information / Report
Financial Accouting Management Accounting
Statement of profit of loss Cost schedule
Statement of financial position Budget
Statement of cash flow Variance Report
Sustainability and Integrated Reporting
Statement of Profit or Loss
Statement of Profit or Loss provide information on sales, cost

and expenses on a business for a historical period. Of which
profit level of business can be derived:
o Sales – Cost = Gross Profit
o Gross Profit – Expenses = Net Profit
Page | 155
Statement of Financial Position
Statement of Financial Position reflects the resources owned and

owed by business at a specific historical point of time.
It consists of amount at specific point of time over:
o Asset = Resources owned by business
o Liabilities = Obligation of repayment at a later date (owed
by business to third party)
o Equity = Stake of owners in business
Statement of Cash Flow
Statement of Cash Flow illustrate the cash inflow and outflow of

business (i.e., receipts and payments) for a historical period.
It is based on the concept where profit ≠ cash. Therefore, the
statement aids the understanding of user whether business has
sufficient cash flow and where did the business spend the cash.
Page | 156
Users of Financial Statement
Financial statements are used by various users for different

purpose as reflected below:
Users of Financial Statement
Users
Shareholders Supplier Banker Customer Employees Government
Concern over Concern over Concern

Concern over Concern over ability to sustainability Concern over
performance creditworthines security of job whether
repay loan of supply business in
of investment s and interest source and pay
compliance
with law
Page | 157
Sustainability and Integrated Report
Sustainability report reflects the capacity to be endured by

reflecting to stakeholders how organization contribute
economically, socially and environmentally.
Integrated report involve concept to integrate financial and other
aspect of reporting to convey how organization create value in short,
medium and long term. It includes to report on financial position and
performance, corporate social responsibility and governance,
sustainability (mentioned above) etc.
Cost Schedule
A cost schedule identify cost involved to produce unit of product

such as direct material, labor and overhead cost, the total of
which provide information over a ‘standard cost’ of a product.
Use of Cost Schedule

Function
Price Setting Make decision Planning and

(Desired Profit + Make decision (Discontinue of
(Make of Buy) Controlling
Cost) product) Performance
(put in budget)
Page | 158
Budget
Budget refers to the planning of business for a defined upcoming

period which is expressed in monetary term.
Importance of Budget
Importance
Setting of budget
Planning allow communicate with As benchmark of Layout responsibility
manager to better managers on the performance and authority of
coordinate and expected evaluation managers
arrange resources performance, which
may be motivating
Variance Report
It consists of comparison between actual performance achieved

and the budget to identify whether any favorable or unfavorable
difference, allowing management to improve future performance.
Page | 159
Relevant Law and
Regulation
Companies are required to accountable to relevant authority in
the country, including to
o Maintain and retain their accounting records and books
for a minimum period to facilitate inspection by different
authority.
o Submit financial statements to relevant authority body of
the country (such as SSM in Malaysia), allowing external
bodies who are interested to access and view for different
purpose.
o Submit tax return to tax authority of the country (such as
LHDN and RMC in Malaysia) including both tax on
income and also tax on goods and services.
Page | 160
Company Act
Company legislation generally required:
Requirement of National Legislation
Company Legislations
Maintain adequate Accounting Record Prepare Financial Statement
Sufficient to show and explain

transaction (daily - income & Directors to prepare and approve
financial statement
expenditure)
Director ensure financial statement

Sufficient to reflects financial position in accordance with law and
at any time (accurately)
accounting standard
Sufficient to allow directors ensure Director ensure financial statement

compliance with legal requirement reflect true and fair view
Record of inventory balance, Failure: criminal offence, remove

inventory count, inventory sold and from company registration / stock
purhased exchange listing
Failure: criminal Offence
Page | 161
Accountancy Profession – Accounting Standard
Accountancy profession has its own set of professional

standards which is separated from national legislation. Therefore,
companies also have to ensure compliance with accounting or
financial reporting standard applicable in relevant country, e.g.,
application of International Financial Reporting Standard (IFRS)
when preparing financial statement.
Bodies involved in Developing Accounting Standard

Developing IFRS
IASB (International IFRS IC

IFRS AC
IFRS Foundation Accounting Standards (Interpretations
(Advisory Council)
Board) Committee)
Overall responsibility Responsible to Responsible to

Review issues relate to
(ie. to govern each develop and publish conotribute, advice on
IFRS and provide
bodies with proper accounting standard decision, priority and
(IAS / IFRS) official guidance
work plan and perspecitive on
budget) project work by IASB)

Page | 162

International Accounting Standards Board (IASB)
Board responsible to develop IFRS transparently
(Transparent meeting and outcome of meeting publicly available)
Objectives include:
o Develop ONE set of high quality, understandable
enforceable and global financial reporting standard, for
public interest
o Promote rigorous application of the mentioned set of
standards (to bring convergence to financial reporting)

Regulation by Profession
Developing IFRS
Regulating Method Disciplinary Action
Available reporting Include knowledge as Require continuous

channel (followed by part of education professional Fine / barred from
developent pracitce / membership
investigation) requirement
(professionals being
up to date)
Page | 163
Summary – Accounting and
Finance
In this session we obtained a brief understanding on accounting
and finance function, including its importance to other
department, relevant reporting, audit function and regulation for
companies and accountancy profession itself.
Summary
Accounting and Finance Function
Relationship with Financial Law and

others Functions Information Regulation
Statement of Profit or
Purchasing Financial Accounting Company Act
Loss
Production Management Accounting Statement of Financial Accounting Standard

Position
Marketing Treasury Statement of Cash Flow
Sustainability / Integrity
Service Provision External Audit Report
Internal Audit Cost Schedule
Budget
Variance Analysis
Page | 164
Question 1
Department A is responsible to record and prepare information such as budget and variance
analysis. Department A is likely involved in the function of
A. Financial accounting
B. Management accounting
C. Treasury
D. External Audit
Question 2
Which of the following statements relating to external and internal auditor is NOT correct?
A. External auditor is required to be an external third party

B. Establishment of internal audit function is mandatory for all organization
C. External auditor’s work scope goes around those relevant to financial statement
D. Internal auditor’s is not required to be qualified with professional membership
Question 3
A company reduce its tax liabilities by understanding its income level
The statement is associated with
A. Tax Evasion
B. Tax Avoidance
C. Tax Mitigation
D. Tax Return
Page | 165
Systems
What is system?
A mechanism or network made of interrelated things to achieve

common objective. For instance, an accounting system would be
made of the hardware, software, policy, procedures and the
people who operates it to ensure accurate and complete record
of financial transaction.

Policy being a guideline for decision making; procedure refers
to the step-by-step to perform a certain task.
For instance, in a retail boutique, refund policy would help
worker to decide whether refund can be made (e.g., whether tag
is still on); refund procedures would show worker what is the
step-by-step action to process the refund.

Page | 166

Designing a System
Establish Establish the Consider

overall Determine relationship what can go
objective the the required between wrong
system output and input and
input to (implement
(what the output control to
achieve the
system desire objective (i.e. the reduce such
to achieve) process) risk)
What are the main financial systems?
In BT, we look at four categories of system as below:
Main Financial System in Business
Main Financial System
Purchase and Sales Payroll Credit Control Cash and Working

Invoicing Capital Management
Page | 167
Sales System / Cycle
Receive
payment
Received Order Deliver Goods to Issue Sales Record Sales in
from Customer Customer Invoice System Follow up
outstanding
payment
Task Description
After received order from customer
Credit check (to verify creditworthiness of new credit customer /
Received
credit limit of existing customer) and inventory check
Order from
(verification on availability of inventory) is required
Customer
Approval shall be obtained from department manager (sales
manager) as permission to proceed the order.
Warehouse department / despatch department to produce goods
Delivering
despatch notes and arrange goods to despatch.
Goods to
Upon delivery of goods, signatory of customer should be obtained
Customer
as ‘proof of delivery’
Issue Sales A sales invoice will be produced after verified the validity of price
Invoice and discount, and sent to customer
Record in The sales transaction will therefore be recorded in system (very
System often the accounting software) based on sales invoice.
Payment received in cash and cheque shall be banked-in
immediately and record in account
Receive Opening of mail and handling of cheques shall involve two
Payment employees (reduce the risk of employees misappropriating)
Record by two different employees (one to update GL, one to
update receivable ledger)
Credit control function shall be in charge to follow up late / non-
payment, their responsibility includes to:
o Perform credit check on new customer (to assess
Follow up creditworthiness and decide whether appropriate and if
non- appropriate how much credit should be given)
payment o Regularly update customer credit list
o Monitor and follow up on outstanding debt
o Take further action to recover outstanding debt when
necessary (send reminder letter, initiate legal action etc)
Page | 168

Purchase System / Cycle
Receive Receive Record

Items goods from invoice from Purchase in Make
requested Placing order payment
supplier supplier System
Task Description
Employees from relevant department will raise a ‘purchase
requisition note’ to request for purchase. (e.g., storage
Items department to request for purchase of raw material when its
requested running low)
Department manager will have to approve such requisition
before being forward to purchase department.
Purchase department to start sourcing for best order, considering
the price, quantity, quality and delivery offered by supplier.
Several quotations will be received, purchase department to
Placing
choose the optimum quote and place order.
Order
Order should be placed to supplier in ‘approved vendor list’
Purchase manager to sign as approval on ‘purchase order’ (PO)
before forwarded to supplier.
Goods shall be received, and warehouse / storage department
Receive
shall be verifying the quality and quantity of goods whether
Goods from
consistent with order placed and thereon issuing a ‘goods
Supplier
received notes’ to reflect inward goods.
Receive
Account / billing department to receive ‘purchase invoice’ (PI)
invoice
from supplier and verifying details whether consistent with
from
‘purchase order’ and ‘goods received notes’ (GRN).
Supplier
Record
Purchase in Recording of purchase based on purchase invoice in account.
System
Payment voucher shall be raised to initiate payment to supplier
when invoices are due, supporting document which evidence the
Make transaction of PO, PI and GRN shall be attached.
Payment A senior staff (e.g., finance controller) shall be verifying and
approving the payment.
Large payment shall require two signatories
Page | 169
Payroll System / Cycle

Work carried out Input collected Calculating wage Obtain approval Make Payment
Task Description
Work carried out by valid employees
Record such as timesheet, clock card, attendance record required
Work
Overtime work filled up in overtime sheet.
Carried Out
Both timesheet and overtime sheet required approval from
department manager
Collect input for wage calculation – hours (from timesheet,
Input attendance record) and rate per hour
collected Collect input for salary worker – salary per month & overtime
approved
Calculate pay (wage / salary) based on input collected
Gross Salary – Statutory Deductions (e.g. tax) = Net Pay
Calculating
Higher accuracy (if automated calculation using computer
Wage
software), however manual verification on sampling basis
required.
Obtain
Wage / salary calculated subject to approval of managerial staff
approval
Payment through bank / cheque required authorization and
verification.
Make
Payment through cash require additional staff as witness (two
Payment
person to distribute), verification of employees identify and
signature of recipient as ‘proof of receipt’.
Page | 170
Inventory Cycle

Raw Material in
conversion to Completion of Finished Goods
Acquisition of Handling and
Finished production Distributed to
Raw Material Storing Raw
Products (Finished Customer
(Purchase) Material
(Work-in- Goods) (Sales)
Progress)
Task Description
When raw material level reach ‘re-order level’ (i.e., the level of
Acquisition
which replenishment is required), a purchase requisition shall be
of Raw
raised (refer purchase cycle); or when there is a need for certain
Material
material, requisition shall be initiated
Handling Raw material received from supplier will be kept in store until
and Storing production department require such material, an ‘material
Raw requisition notes’ will be issued to request sending of raw
Material material from store to production factory.
Raw
Raw material will then be used / put into the production process
Material in
in arriving finished goods.
Conversion
During the production process, these materials are known as
to Finished
‘work-in-progress’ (as they are partially processed)
Products
Completion Upon completion of production, finished goods will go through
of quality check to confirm whether desired quality is met and sent
Production to warehouse.
Finished
Finished goods will then be distributed to customer after
Goods
authorization is obtained to process sales order. (refer sales
Distributed
cycle)
to Customer
Every financial year end, inventory (including raw material,
Inventory work-in-progress and finished goods) will be physically counted
Valuation to detect discrepancies between record in system and physical
quantity.
Page | 171
Cash Cycle

Task Description
Cash
Refer sales cycle
Receipts
Cash
Refer purchase and payroll cycle
Payment
Most organization maintain a small amount of cash (coins and
notes) in premise to cope with small purchases (such as food,
stationary, petrol) without issuance of cheque or initiating bank
transfer.
The setup of petty cash will require withdrawal of cash (as initial
cash)
Employees who want to claim from petty cash required to fill up a
‘petty cash voucher’ detailing the amount, reason and
authorization of claim, attached with supporting document (e.g.,
receipt from bookstore)
Maintaining
Petty cash will be replenished back to the initial cash amount
Petty Cash
based on the petty cash voucher (i.e., amount claimed by
employees) on regular basis (usually monthly)
E.g., Initial cash is set as $2,000
Says if employees made miscellaneous purchase and claimed
$1,650 (balance petty cash = 2,000 – 1,650 = 350)
The replenishment of petty cash shall amount to $1,650 (same as
the claims made as per petty cash voucher)
Bringing the cash balance back to $2,000 (balance of $350 +
replenishment of $1,650)

Page | 172
Application
Database Management System
‘Database’ refers to the collection of organized information and

data. Database management system (DBMS) store, control,
ensure security and allow retrieval of such database. It
represents centralized system to manage database by handling
storage and retrieval of data to and from different application.
Advantage and Disadvantage of DBMS
DBMS
Advantages Disadvantages
Significant
Provide consistent Ease maintenance Require significant technology risk (in
information for and update process invesmtent initially
the case of system
decision making (one time update, (sufficiency facility to corruption, database
(Single source of one system to handle all
of whole orgnaisation
information) maintain) information)
will be affected)
Page | 173
Spreadsheet Application
Spreadsheets represent electronic table to store data (both

numerical and alphabetic) in cells arranged in rows and column.
It is useful to store, analyze and organize data with its available
built in ‘formula’, analysis tools and graphical chart.
Function: Bookkeeping, preparation of various report, conduct of
‘what-if’ analysis etc.
Accounting Package
An accounting package is made of several module (each module

deals with specific function such as inventory, payroll, VAT etc.)
Module can be purchased separately (usually contain more
specific and specialized function) or purchase as a whole
package suite (come with general function of different module)

Large organization often customized their own system i.e.,
bespoke system rather than use those generally made and
available in the market. (off-the-shelf system)
Page | 174
Type of System
Automated and Manual System
Input
Automated system and manual system both require input of data
into the system itself. However, manual system usually required
full knowledge over subject matter for input; automated system
is usually more convenient in input i.e., one time input to pre-set
format.
Process and Output

Automated system comes with computerized processing, which
is faster, higher accuracy and come with greater varieties,
therefore great choices of report available by one click; manual
system require manual transfer of data into required format
therefore time consuming and higher risk of human error.
Page | 175
Comparison
Manual System Automated / Computerized
Does not require significant initial Computerized nature allows

investment handle of higher volume /
(only pen and book) complexity at shorter time
Suitable for computer illiterate Lesser human error
Advantage
employee Greater variety to format /
Simple and flexible to correct process data, therefore greater
errors made options of report.
(use correction tape or liquid)
Likely to contain higher human Require significant initial
error (e.g., calculation / transfer investment (purchase of
error) software, hardware, training)
Production of report is time Correction of error may be more
Disadvantages
consuming (require manual lengthy and less flexible
transfer and re-format) Subject to technology risk (e.g.
Slower processing (particularly if corruption of file due to failure
higher complexity and volume) of hardware)
Page | 176
Summary – Financial System
and Application
In this session we obtained a brief understanding on main
financial system and application in organization.
Summary
Financial System and Application
Basic Concept Main Financial System Application Type of System
Definition of System Sales and Credit Control Database Management Manual System
System
Definition of Policy Purchase Automated System
Spreadsheet Application
Definition of Procedures Payroll
Accounting Pacakge
Designing system Inventory
Cash
Page | 177
Question 1
Which of the following does not represent part of sales system?
A. Processing incoming orders

B. Making payment for incoming invoices
C. Dispatching goods according to orders received
D. Credit control to follow up on outstanding payment
Question 2
‘Inventory’ function in an accounting software represents
A. System
B. Suite
C. Application
D. Module
Question 3
Which of the follow does NOT represent output of purchase system?
A. Monthly purchase analysis

B. Purchase report by supplier
C. Purchase invoices
D. Purchase report by items
Page | 178
Internal Control in Business
Internal control is the process established to ensure objective
and goal of organization can be achieved.
Purpose of Internal Control
Purpose of Internal Control
Ensure Ensure Ensure Ensure Prevent,

accuracy and efficiency and adherence to adherence to Ensure asset detect and
effectiveness rules and policy and is correct fraud
completeness
of record of operation regulation procedures safeguarded and error

Internal control is particularly important for businesses which
handle client’s money (such as bank) as these businesses has the
responsibility to ensure clients’ fund are properly safeguarded
from potential misappropriation. Failure of which may causes
organization to face lawsuit or customer switch away due to loss
of confidence.

‘Internal check’ is a part of internal control which refers to
arrange of work which work of one employee will be verified
against work of other employees to reduce to risk of fraud and
error.
Page | 179
Role and Responsibility
Directors of organization has main responsibility over internal
control system of organization.
Internal auditor appraises the design and operation of internal
control and make meaningful recommendation, assisting director
to ensure sufficiency and effectiveness of internal control in
organization.
External auditor’s primary responsibility involves establishing
audit opinion over financial statements; therefore, they are
concern with how the control over financial reporting process
may affect financial statement.
Audit committee provide additional oversight over internal
control, particularly those relates to financial reporting process.
Role and Responsibility over Internal Control
Role and Responsibilities
Board of Director Internal Auditor External Auditor Audit Committee
Primary responsibility Evaluate sufficiency Evaluate efficiency Provide overall review

to design, implement and effectiveness of and effectiveness of and monitor internal
and maintain sufficient internal control and financial control and and financial control
and effective internal provide value-added feedback to
control recommendation management on
deficiency and
recommendation
Page | 180
Component of Internal Control
Internal control can be categorized into five components:
Component of Internal Control
Attitude of management
(including the importance
Control Environment of internal control) which
set tones of organization
towards control
Process of which
organization find out and
address risk (i.e.
Risk Assessment Process
anticipating and
responding to what can
go wrong)
Communication and
process of information
Components Information and
including policy,
Communication
procedures, technologies
involved.
Procedures and policies in

Control Activities respond to those risk
identified
Monitoring and evaluating

effectiveness and
adequacy of internal
Monitoring of Control control, including taking
necessary action to
improve.
Page | 181
Control Activities
Common type of control activities include:
Type of Control Activities
Control
Description
Activities
Controls operated by management directly, such as

Management
performance management of subordinates.
Control of which permission (authorization) is required from

personnel with sufficiency authority (such authority often come
Authorization
with limitation) before proceeding
e.g., purchase manager may authorize purchase up to $10,000
Physical Control through restricting access to asset or premise which

asset is stored
Splitting cycle or system into various task to different people to

Segregation
minimize the risk of fraud and error as the personnel can be
of Duties
verifying one another.
Arithmetic
Control to confirm mathematical accuracy in recording and
and
processing of business transaction
Accounting
Control through managing human capital e.g., education

Human
background as criteria of recruitment and selection, provision
Resources
of relevant and effective training and development program.
Page | 182
Categorizing Controls
There are many ways to categorize control, common ones
include:
Categorizing Control
Categorzing Control (1)
Preventive Detective Corrective
To prevent fraud and error from To recognize when fraud and To minimize the impact of fraud
happening error happened and error
Administration Accounting
To ensure efficiency and effectiveness of To ensure asset safeguarded and reliable

operationa and adherence to policies financial record
Mandatory Voluntary
Madatory to applyto prevent non-compliance Management to decide whether to apply

with law and regulation based on their own judgment
Page | 183
Categorizing Control
Manual Automated
Control applied manually by employees / Control programmed in system and applied

management automatically
Discretionary Non-discretionary
Control operated automatically by system

Control applied at discretion and cannot be overriden
While advancement of technology help organization in implementing control (e.g.,

non-discretionary and automated control), sufficient effective control is also
required to ensure effective and efficient run of IT system, particularly considering
the increased significance of IT system in today’s business organization. These
controls can be categorized as:
IT Control
General IT Control Application Control
Control for specific application (e.g. payroll,

Control for overall IT infrastructure, including sales, purchase) to ensure accurate and
hardware, software, policy and procedures, to
complete data being input, process, output and
provide a strong IT control environment. stored.
Page | 184
Summary – Internal Control
In this session we obtained a brief understanding on internal
control in business.
Summary
Internal Control
Role and Categorizing

Basic Concept Responsibility Component Control IT Control
Preventive,
Definition Board of Control Detective, General
Director Environment
Corrective
Risk
Assessment Administration,
Purpose Internal Auditor Accounting Application
Process
Handling Information and Mandatory,

External Auditor
clients' money Communication Voluntary
Audit Control Manual,

Internal check Committee Activities Automated
Discretionary,
Monitoring of Non-
Control
discretioanry
Page | 185
Question 1
Which of the following does NOT represent strong internal control?
A. Assign an experienced sales supervisor to process order received, issue sales invoice, record
sales invoice and record payment
B. Purchase requisition shall subject to approval of store manager
C. Issuance of cheque above $50,000 require signatory from two managerial level staff
D. Sales invoices key in by sales ledger clerk is verified by sales supervisor
Question 2
Attitude of management in respect of internal control is crucial as it set tone over the importance of
internal control in organization.
The above statement is associated with internal control component of
A. Control Environment
B. Control Activities
C. Risk Assessment
D. Monitoring of Control
Question 3
Company A perform inventory count on annual basis in order to confirm whether inventory level in
system is consistent with inventory level in warehouse.
The above represent _______ control.
A. Detective
B. Preventive
C. Corrective
Page | 186
Fraud and Error
What is Fraud?
Intentional misappropriation of business asset or

misrepresentation of information.
(e.g., stealing inventory from warehouse for personal use)
What is Error?
Unintentional act of mistake in organization

(e.g., carelessly key in wrong payroll amount)
Implication of Fraud
Occurrence of fraud in organization may implied the following:

o Monetary loss in organization
o Weak Internal control in organization
o Reputational loss (loss of credibility)
Page | 187
About Fraud Triangle
Fraud triangle outlines the three factors which present when

fraud occur.
Fraud Triangle
Three Conditions of Fraud
Motivation Opportunity Dishonesty
Weakness and loopholes in

weakness and controls Rationalization of fraud
The benefit or avoidance of conduct, such as disnonest
suffer which motivate the providing opportunity to
commit fraud with lower personality of fraudster or
commit of fraud culture in organization
chance of being detected
Type of Fraud
Type of Fraud
Type of Fraud
Misappropriation of Asset Fraudulent Reporting
Organization's asset being stolen, embezzled or Intentional misrepresentation of financial

misuse by employees or third party statement to deceive or mislead users
(e.g. overstate profit to convince investor of
good performance)
Page | 188
Role and Responsibility - Directors
Primary responsibility to prevent and detect fraud in organization

fall on board of directors, refer below:
Directors’ Role and Responsibility
Responsibility includes:
Demonstration of
Ensure adequate and Embed honesty and good leadership Provision of training
effective internal ethical culture in and development to
(example of ethical
control and risk organization educate employees
conduct)
management system
to prevent and detect
fraud
Role and Responsibility – Others
Other Role and Responsibility

Responsibility to prevent and detect fraud
Audit Committee Employees
Provide oversight over sufficiency and

effectiveness of internal control and risk Conduct honestly and ethically and report when
suspicious or known of fraudulent activity
managment system
Page | 189
Money Laundering
What is Money Laundering?
Money laundering refers to the process of concealing true origin

of illegal proceed (such as proceed from criminal activities) to
appear legitimate.
Three Stages of Money Laundering
Three Stages of Money Laundering
Placement Layering Intregrating
• Stage where • A series of • Re-inject the

illegal money complicated fund into
being placed transactions to economy
into legitmate conceal the • E.g., purchase
financial true origin of of asset,
system fund investment in
• E.g., bank in • E.g., transfer business.
of dirty money fund to
into bank different
account country and
shell
companies
Page | 190
Three Offence in Money Laundering Legislation
Offences
Three Offences
Money Laundering Failure to Report Tipping Off
Involve in placement / layering Failure to report on suspicion Providing hint on upcoming /

/ integration process or known money laundering likelihood of investigation
Preventing and Detecting Money Laundering
Action or Measure to Prevent and Detect ML
Hiring Money
Laundering Reporting Process reporting from employees,
ensure employees sufficiently trained
Officer (MLRO)
Verify identity of client before deal with,

Client Identification &
maintain documentation on client's
Record Keeping
identity and transaction
Identifying suspicious Indicator includes, unusual business

Actions / Measure activitiy, unusually large deposit of cash,
transaction
frequent conversion of currency.
Employees to report to MLRO, MLRO to

Reporting report to relevant authority if reasonable
suspicion
Provide training to educate employees

Educate employees on how to report, how to identify and
deal with suspicious transaction.
Page | 191
Summary – Fraud
In this session we obtained a brief understanding on fraud in
organization, including money laundering.
Summary
Fraud
Basic Concept Fraud Triangle Tyoe of Fraud Roles and Money

Responsibilities Laundering
Definition of Motivation Misapprorpiation

Fraud of Asset Directors Definition
Opportunity
Definition of Fraudulent Three Stages
Error Audit
Reporting Committee,
Dishonesty Employees
Three Offences
Implication of
Fraud
Action to
Prevent and
Detect
Page | 192
Question 1
Which of the following scenario reflects occurrence of fraud in organization?
A. A purchase clerk obtain signature from purchasing manager before sending the purchase
order to supplier
B. A sales ledger clerk has key in invoice of $1,000 as $1,100 in sales ledger by mistake
C. Two finance clerks collude to misappropriate cash received from a trade customer
Question 2
Audit member A has discovered suspicious activities in client’s transaction and report to the audit
partner. Audit partner decides to keep silence as he is afraid to lose significant revenue from the
audit client.
The above scenario is most associated with which money laundering offence?
A. Involve in money laundering process

B. Failure to report
C. Tipping off
D. No money laundering offence
Question 3
Primary responsibility to prevent and detect fraud and error in an organization falls on
A. Board of director
B. Internal Audit Department
C. External Auditor
D. Audit Committee
Page | 193
Cloud Computing
What is Cloud Computing?
Cloud computing simply refers to delivery of computing service

via internet, storing such service on cloud storage. Cloud storage
will then be provided and maintain by their respective provider,
such as Microsoft being provider ‘OneDrive’ cloud storage.

One example of cloud computing would be ‘Cloud computing
accounting software’ which refers to accounting software hosted
on cloud storage, providing convenience to user as it can be
access anywhere with a device and internet connection.
Advantages of Cloud Computing
Allow collaboration Allow use of

Offer flexiblity (easily (access by many software without Maintainance of
access) significant storage by provider
user simultaneously)
investment
Reduce hardware
Can be easily shared Convenience risk (data available Acting as additional
(via link) (subscribe when backup to
on cloud even when
needed) organization
hardware destroyed)
Page | 194
Artificial Intelligence
What is Artificial Intelligence?
Artificial intelligence being creation of ‘smart’ machine which

possesses ‘intelligence’ and work like human such as ability to
plan, learn and solve problem.

Artificial intelligence learns by analyzing large volume of data,
utilizing pattern detected to forecast and recommend, this
learning process is also known as ‘machine learning’
Such intelligence in machine will likely reduce workload of

accountant due to its ability handle greater variety of work and
make repetitive judgment, allowing professional to focus on
strategic decision. It includes task of detecting exceptional
entries in system, forecasting upcoming expenses etc.
Page | 195
Big Data and Data Analytics
What is Big Data?
Big Data simply refers to large collection of data which carries

below characteristic:
Characteristic of Big Data
4V's
Volume Variety Velocity Veracity
Accuracy of data
Significant in volume Significant variaty in Fast pace of data flow (may contain noise
data type & sources
and bias)
‘Big data analytics’ is required to process those data collected to

understand the underlying pattern or correlation and provide
meaningful insight to user.
Contribution of Big Data and Analytics in Accountancy
Input to improve Improve handling Ease risk

internal control Input to improve of audit data assessment
(including those reliability of (Comprehensive process of auditor
relevant to budget and analytic allow (significant
financial planning testing of whole fluctuation can be
reporting) population) easily detected)
Page | 196
Blockchain Technologies
What is Blockchain Technology?
Blockchain refers to decentralized, distributed and publicly

available recorded database, which is protected by disallowing
change of record without changing the linked blocks and consent
from the network.
It can be simply viewed as ‘block of database’ which is ‘chained’
together.

Blockchain technology allow strong security over record as
modification or additional of data required consent from other
participants within the network.
Additional block of database also require modification in order
to adapt to cryptographic hash generated by preceding block.
Imagine it as puzzle, to put on the next piece (i.e., store the next
block of database), you are required to make sure the shape
match the previous piece. (i.e., match with previous block of
database)
It provides convenience for organization to provide transparent

financial record without concern of unauthorized modification,
reducing time and resources needed over maintaining integrity
of record.
Page | 197
Cyber Security
Cyber security refers to the protection of data, devices, software

and network from misappropriation or damage, known as cyber-
attacks. Cyber-attacks threaten data of organization by:
Key Risk of Cyber-attacks
Malivious Software such Phishing, of which Pharmning, of which

as worms, viruses, trojan emails are crafted to lure users are directed to a
that causes corruption of user into harmful action ingenuine website,
system or grant access such as downloading therefore data keyed-in
to unauthrorized person malware will be collected by
fraudster
Denial of service, of
which large traffic are Keylogging, fraudster
instructed to. a certain obtain data by capturing
website causing it to be key stoke made by user
inoperable.
Action or Measure to Enhance Cyber Security
Subscription to reliable
Provide training to educate Maintain robust risk
and updated software
employees on cyber management system to
which provide network
threats and security, to assess and address cyber
security and protection
raise their awareness risk reguarly.
from malware
Use of username and
Implementing new policy Regularly audit devices to
password to restrict
and procedures (e.g. confirm whether any
access from unauthorized
external media drive not unauthorized software or
user (bear in mind
allowed) changes to device
fraudster can be internal)
Page | 198
Summary – Technology
In this session we obtained a brief understanding on financial
technologies which contributes to accountancy profession, cyber
threats associated and possible action to maintain cyber security.
Summary
Technology
Type Cyber Security
Cloud Computing Definition
Artificial Intelligence Potential Risk
Big Data and Analytics Action or measure in response to risk
Blockchain Technology
Page | 199
Question 1
Technology which ‘smart’ machine which devices possesses intelligence of human to solve problem
refers to
A. Cloud Computing
B. Artificial Intelligence
C. Big Data
D. Blockchain Technology
Question 2
Big data have accuracy concern it may contain bias and noise
The above statement is best associated with ________ characteristic of big data
A. Volume
B. Variety
C. Velocity
D. Veracity
Page | 200
PART
4

LEADING AND MANAGING
INDIVIDUALS AND TEAMS
Study Check List

ü Leadership, management and supervision
ü Recruitment and selection of employees
ü Individual and group behaviour in business organisations
ü Team formation, development and management
ü Motivating individuals and groups
ü Learning and training at work
ü Review and appraisal of individual performance.
Page | 201
What is leadership?
Leadership is people focused, refers to the quality of individual

to influence others, leading and motivating them towards a
desired direction.
What is management?
Management is more of task focused role, concern with ensuring

task and plan executed effectively and efficiently.
What is Supervision?
Supervision is a role to oversee work carried out by employees

to ensure it has been performed in the right way. It represents a
lower level of management activities. (Part of management)

Page | 202
Management Theory
Scientific Theory of Management by F.W. Taylor
Scientific theory of management aim at analyzing tasks to

improve it scientifically based on time and motion involved.

Key concept includes:
o Breaking work into smaller task to scientifically study for the ‘one
best way’ to carry out each task
o Scientifically select employees for specific task
o Employees to carry out following the ‘one best way’
o Motivate employees by offering additional remuneration
Classical Theory of Management by Henri Fayol
Fayol suggested five roles of management:
Managerial Role by Fayol

Management Activities
Planning Organizing Commanding Coordinating Controlling
Arrangement of Harmonizing Measure actual

To set objective resources and Give clear between performance and
and decide on work, including instruction to different work compare with
action to achieve to divide and carry out task and section to desired outcome,
assign task and ensure work take necessary
responsibility towards action to
and ensure common goal improve
sufficient
resources

Page | 203
Human Relation School by Elton Mayo
The theory recognizes importance of psychological and social

needs of worker.

Key concept includes:
o Relation between manager and subordinate or groups is more likely
to influence behavior of employees (compare to policy and
procedures at work)
o To increase output, more concern should be placed on job
satisfaction level of employees
o Employees are likely to derive higher satisfaction thus better
performance when empowered to perform
Function of Manager by Peter Drucker
Drucker suggested five fundamental functions of manager

focusing on economic performance.
Five Basic Function of Manager

Motivating
Objective Setting Organizing Work Job Measurement Develop People
Employees
Compare and
To set objective Arrangement of Develop both
Provide necessary analyze between
and gloal for each work, including to employees and
motivation actual performance
area, decide on divide and assign manager (e.g.
(including financial and established
action to achieve, task and objective, training,
and intrinsic
communicate with responsibility for communicate with development,
employees each employees reward) coaching etc)
employees
Page | 204
Function of Manager by Henry Mintzberg
Mintzberg suggested three types of managerial roles:
Five Basic Function of Manager
Figurehead Represent organization
Lead employees (motivate, set

Interpersonal Leader
example, train etc)
Networking with others (outside
Liaison
chain of command)
Receive and evaluate information
Monitor
received
Distribute right inform to right
Managerial Informational Disseminator
person at right timing
Roles
Spokeperson Present organization to others
Introduce new idea, concept,

Entrepreneur
manage change
Disturbance
Respond to disturbance
Handler
Decisional
Resources Determine appropriate use of
Allocator scarce resources
Bargaining in event of conflict
Negotiator (both internal and external)
Page | 205
What is authority?
Authority refers to the right to give order and exact opinion in

organization.
What is responsibility?
Responsibility refers to the obligation to satisfy objective or task

given.
What is delegation?
Delegation refers to the process where authority is distributed to

employees to allow achieve of result through empowering.
It encourages input from employees and quicker respond to
situation as employees has authority to decide. Also increase the
job satisfaction level of subordinate due to participation and
reduce stress of manager due to lower workload.
However, delegator still hold the ultimate accountability of task,
responsible and answerable towards success or failure of task.
Page | 206
What is power?
Power refers to the ability to influence others leading to change

of behavior or attitude.
In organization, power does not necessary derive from position.
Few types of power are illustrated below:
Different Type of Power
Ability to influence others Ability to influence others Ability to influence others

due to hierarchical position due to control of resources due to expert / specialized
(Legitimate / Position (Resource Power) skill or knowledge
Power) (Expert power)
Ability to influence others Ability to influence others

Ability to influence others
due to use of physical due to ability to decide
due to legal ownership
force reward
(Legal Power)
(Physical power) (Reward Power)

Ability to influence others due to personal qualities
due to ability to decide
due to ability to disrupt of which followers wish to
punishment
(Negative Power) imitate
(Coercive Power)
(Referent Power)
Page | 207
Leadership Style Theory
Theory by Ashridge Management College
Ashridge Management College suggested four main

management style:
Four Main Management Styles
Management to make decision and

Management to make decision and
inform employees, attempt to
employees to accept
persuade employees such decision
(Autocratic / Tell Style)
(Persuasive / Sell Style)
Management make decision but Management and employees

listen to employees' input before together make decision through
making decision consensus
(Participative / Consults Style) (Democratic / Join Style)
Page | 208
Managerial Grid by Blake and Mouton
Blake and Mouton analyzed leadership style based on two

aspect, concern for task and concern for people.
Managerial Grid
(1,9) (9,9)
Concern for (5,5)

People
(1,1) (9,1)
Concern for Task

Main style include:
o Impoverished (1,1 low concern for people, low concern for task)
o Country Club (1,9 high concern for people, low concern for task)
o Middle of the road (5,5 moderate concern for both people and task)
o Task Management (9,1 low concern for people, high concern for task)
o Team Management (9,9 high concern for both people and task)
Management may assess current position of managers and provide
necessary training and development to move manager towards team
management style

Page | 209
Contingency Theory
Contingency theory recognize different situation faced by
managers and leaders therefore suggested adapting suitable
approach based on respective context in organization.
Action-Centered Leadership by John Adair
Adair suggest that an effective leader should balance between

three focus: individual needs, group needs and task needs.
Three Needs
Group Needs
•Ensure communication
•Build team spirit
•Motivate, lead and
monitor team
•Develop and train team
Individual Needs
•Set and develop Task Needs
objective for •Set objective and
individual decide action plan
•Maximize potenetial •Assign task and
of individual (identify responsibility
strength and •Monitor control and
weakness) implement
•Provide necessary improvement plan
reward for motivation
Page | 210
Fielder’s Contingency Model
Fielder suggested that an effective leadership required the right

match between situation and style.
Leadership Style
Psychologically Distant Manager (PDM) Psychologically Close Manager (PCM)

Manager distanced from subordinate, Manager maintain close relationship with
therefore communication through formal subordinate, prefer informal
channel communication
Focus on task rather than person Focus on people rather than task
Situation (Favorableness)
Situation is referred as ‘favorable’ when:
Mutual respect, high confidence

Routine, standardzed High power inherent
and trust between managers and
and simple task with manager
subordinates

A PDM would be effective in the event where situation is very favorable or
unfavorable.
A PCM would be effective in the event where situation is moderately
favorable or unfavorable.
Page | 211
Theory by Warren Bennis
Bennis outline two type of leaders.

Transactional leaders view their relationship with subordinate as
transaction of which rewards is offered in return of work performance by
subordinates.
Transformational leaders view their role as inspiring, motivating and
leading subordinates towards the desired outcome.
According to Bennis, only transformational leaders are able to lead
subordinates through change.
Theory by John Kotter
Kotter suggest five actions to lead subordinate through changes:
Five action to reduce resistance:
Participation and Education and Facilitation and Manipulation and Negotiation and
Involvement Communication Support Cooptation Agreement
Allow employees to Equip employees Help employees to Provide only Bargaining with
with necessary go through difficulty favorable resister to achieve
involve or contribute
to decision making knowledge (such as and anxiety during information to compromised
reason of change) change ressistor solution

Page | 212
Adaptive Leadership by Ronald Heifetz
Key concepts include:

o Leadership does not equal to having authority
o Term of ‘dispersed leadership’ of leadership may emerge from
anyone in organization can be leader if they have the ability to
influence, even without authority given by organization
o ‘Adaptive problem’ which reflects problem cannot be solved with
existing resources, indicating need of change.
Role of adaptive leader in time of change
Help employee to face reality Mobilize employee to make change
Encourage employee to tackle through challenge

(Rather than providing them with solution)
Page | 213
Summary – Leadership,
Management and Supervision
In this session we obtained a brief understanding on different
terminologies and theories associated with leadership,
management and supervision.
Summary
Leadership, Management and Supervision
Terminologies Theory
Leadership Management Leadership
Scientific Theory Style Contingency

Management
Ashridge Action Centered
Classical Theory Management Leadership
Supervision
College
Fielder's
Human Relation Contingency
Authority School Managerial Grid Model
Drucker - Bennis Leadership

Delegation Managers' Role Theory
Mintzberg - Kotter - Action to

Power Manager's Role Resister
Heifetz - Adaptive
Leadership
Page | 214
Question 1
Mintzberg Manager’s Role Theory suggested three managerial roles of
A. Individual Needs, Team Needs, Task Needs

B. Scientific, Human Relation, Modern
C. Leadership, management, supervision
D. Interpersonal, informational, decisional
Question 2
Managers and leaders are different as managers seen relationship with subordinates as
transactional where leaders inspire, motivates and lead subordinate through changes to achieved
desired outcome.
The above statement is best associated with theory by
A. Ronald Heifetz
B. Warren Bennis
C. F.W Taylor
D. John Adair
Question 3
Manager A place high importance on productivity of department constantly pushed employees for
greater performance, however employees’ needs are ignored by manager causing high
dissatisfaction level among employees.
The above is reflecting manager’s style of:
A. Impoverished
B. Country Club
C. Task Management
D. Middle of the Road
Page | 215
Recruitment and Selection
About Recruitment and Selection
Recruitment is the process to attract candidates for identified job

vacancy.
Selection is the process to screen and select the right candidates
for the required vacancy.

Importance of Effective Recruitment and Selection
Employees represent crucial asset for organization to achieve its business

objective, therefore an effective recruitment and selection process is
important to ensure the right candidates is recruited.
Failure to do so may causes:
o Low staff motivation and morale
o Reduce quality of work (e.g., hiring unfit sales personnel may cause
potential customer to lose confidence organization’s brand)
o High staff turnover
o Cost on replacement staff (cost and time to go through recruitment
and selection, training)

Recruitment and Selection Process

Interview Perform Test
Identify vacancy
Screening candidates Obtain and contact

Perform Job Analysis reference
Fill up application form
Draft Job Description
Attract candidates to
Draft Person Specification submit their application
Page | 216
Process
Identifying Vacancy
Organization shall consider whether existing human capital is

sufficient to meet its business objective (both current and future)
Example, if organization expect to have significant grow in near
future, do they need additional employees to support such
growth?
When there are employees leaving organization, the organization
should also consider whether replacement is necessary or
merely to restructure to existing employees.
Performing Job Analysis
Performing job analysis help organization to collect information

about a job position.

Job analysis is the process to collect and analyze information about a job
position which provide meaningful input to produce job description, person
specification, identify training needs, facilitate job evaluation and
performance management in organization.
Page | 217
Drafting Job Description
Job description is a document which define a ‘job’ including the

purpose, task, line of reporting and accountability of job.

Job description is important in order to:
o Draft vacancy advertisement

o Draft person specification (information about job will be used to
extrapolate the required attributes on candidates)
o Provide information to draft contract upon confirmation of
recruitment
Drafting Person Specification
Person specification set out the attributes required on candidates

in order to effectively perform job, including education,
personalities, qualification etc.
Person specification is important to:

o Describe candidate who best-fit the position
o Draft job advertisement
o As criteria to perform candidates screening
o As basis to decide future training (after hired)
Page | 218
Framework for Person Specification
Seven-Point Plan (Rodger) Five-Point Grading (Munro-Fraser)
Physical make-up Impact on others

Attainment Acquired qualifications
Intelligence Innate abilities
Special Aptitudes Motivation
Interests Adjustment
Disposition
Circumstances
Attracting Candidates
Organization may obtain suitable candidates internally (from

existing employees) and externally.
Internal Sources of Candidates can be arranged through

o Job rotation
o Promotion
o Temporary / permanent secondment
External Sources of Candidates can be attracted from:
o Universities and other educational institution
o Recruitment Agent
o Employment / recruitment. Center
o Advertisement in newspaper, press, internet, radio or TV
Page | 219
Application Form and Curricula Vitae (CVs)
Application form is often used as a screening tools to filter

suitable candidates.

Application form is a document to request relevant information from
applicant in a standardized format which may carry various design for
different job position.
It allows collection of consistent information, so that information collected
focus on interest area and subsequent comparison can be easier.
Curricula Vitae (CV) is a document design by applicant to include their

information such as personal details, education background, work
experience etc. It Is often more suitable for managerial position where
candidates may carry varied work experience from one another.
Interview
An effective interview help organization to select the right

candidates for its desired position at the same time allowing
candidates to obtain better understanding about the
organization and job position. It refers to interaction through
conversation between interviewer and interviewee allowing both
parties to obtain more information.
Page | 220
Type of Interview
Type of Interview
Individual Interview Panel Interview Group Interview Assessment Center
One-to-one interview Individual interview Interviewing a group To be discussed later

with more than one of candidates
Greater opportunity interviewer
to obtain more and
deeper Spark competition
Multiple perspective between candidates
understanding over to reduce bias
candidates, easier and assess
to build rapport with interpersonal skill
candidates and Overwhelming to between candidates
attract them to job candidates / causes
confusion Require more
Costing (time- interviewer in order
consuming), the to observe every
sole interviewer can candidates, may not
be biased or apply be suitable for every
candidates
ineffective interview
technique

Assessment Center
Assessment center refers to a selection technique with

characteristic below:
o Group of candidates
o Involve applying a series of selection method
o Involve more than one trained assessor
o Usually done in one day
o Example of assessment flow:
Introduction à selection test à Interview à Exercise à
Closing
Page | 221
Other Selection Method
Other selection method includes:

o Selection test
o Work Sampling
o Job Simulation
o Peer Rating

Selection Test involve testing knowledge, skill or personality of candidates,
different types of tests are available, such as:
o Intelligence test to assess how smart are the candidates
o Aptitude test to assess natural abilities of candidates
o Attainment test to assess current knowledge and proficiency of
candidates
o Personality test to measure attitudes and personality of candidates
o Medical test to assess physical fitness / healthiness of candidates
It reduces biasness in selection as test result can be used as basis while
providing meaningful information for subsequent training, development
and career progression.
However, it can be costly to design and interpret test result while these test
answer may be falsified by candidates (e.g., not reflecting actual response
of candidates)

Work sampling refer candidates to carry out task in agreed time, assessor
to evaluate work done.
Job simulation involves exercise which simulate actual work situation.
Peer rating is often seen in assessment center where group of candidates
give rating to each other.
Page | 222
Roles and Responsibilities
Senior Manager
Senior managers are responsible to:

o Determine human resources requirement to meet both long-term
and short-term objective
o Identify vacancies (senior position)
o Conduct interview and appoint candidates
o Carry out job analysis (to create job description)
Line Manager
Line managers manage employees and report to senior managers. They

are responsible to:
o Identify vacancies (junior position)
o Conduct interview and appoint candidates
o Carry out job analysis (to create job description)
Human Resources Department
HR department has overall responsibility to manage human capital,

therefore they are responsible in overall recruitment and selection process.
Recruitment and selection have recently become decentralized in nature
where often selection decision is made by respective department which
require it rather than HR department.
Page | 223
Equal Opportunities
Concept of Equal Opportunity
Equal opportunities refer to the requirement (often legal) of which

employees should be treated fairly (not discriminated) when decides on:
o Recruitment and selection
o Terms and conditions in employment (including remuneration)
o Promotion
o Training and development
o Termination
These decisions should always base on ability, experience and potential
rather than age, disability, sex, religion and beliefs or race of employees.
Type of Discrimination
Type of Discrimination
Direct Indirect Positive

Discrimination Discrimination Victimization Harassment Discrimination
Treating Rules / Bad treatment Intimidating, Unfairly good

employees with procedures / to those offensive, treatment to
certain policies which employees who abusive actions minority group /
protected disadvantage reported on (physical / those with
characteristic certain group of discrimination verbal / non- protected
less favorably people verbal) characteristic
Example: Example: Example: Example:

Offering Requiring all Comment on Selection solely
promotion employees to body of worker based on
opportunities work on Sunday disability of
only to male may create employees
exmployees disadvantage to
employees with
certain religion

Page | 224
Diversity and
Implementing Policy
Concept of Diversity
Diversity in workplace involve hiring individuals with different background

and characteristics, in order to:
o Access greater pool of talent (able to recruit the best candidates)
o Greater innovation (multiple perspective given from different
background)
o Obtain better understanding of diverse consumer and market
Effectively implement Equal Opportunities Policy require:

o Allow participation of interested parties
o Assign specific manager to responsible in ensuring overall
implementation of policy
o Ensure sufficient and effective communication with ALL employees
(consider arrangement of training session)
o Develop practical action plan to implement policy
o Regularly monitor the adherence and effectiveness of policy

Effectively implement Diversity Policy require:
o Demonstration of commitment and support from board
o Sufficient communication to employees (provision of training)
o Sufficient communication from employees (promote open culture,
welcome feedback)
o Regularly monitor the adherence and effectiveness of policy
o Managing needs of diverse work force (e.g., building access for
disabled employees, flexible working hours for female employees)
Page | 225
Summary – Recruitment and
Selection
In this session we obtained a brief understanding on recruitment
and selection process and technique in organization including
concept of equal opportunity and diversity in workplace.
Summary
Stages in R&S Selection Roles and Equal Opportunity

Basic Concept Process Technique Responsibility and Diversity
Identifying Application
Definition Vacancy Form and CV Senior Manager Concept
Performing Job Implementing

Importance Analysis Interview Line Manager Policy
Drafting Job Assessment Human

Overall Process Description Center Resources
Department
Drafting Person
Specification Selection Test
Attracting
Candidates Work Sampling
Selection Job Simulation
Peer Rating
Page | 226
Question 1
Which of the following does NOT represent a recruitment activity?
A. Drafting job description

B. Drafting job advertisement
C. Posting job advertisement
D. Screening candidates
Question 2
A candidate is invited to an interview session where few candidates are interviewed at the same
time.
Above scenario reflects interview type of
A. Individual interview
B. Panel Interview
C. Group Interview
D. Assessment Center
Question 3
Recent promotion in finance department has been offered to Oscar, despite superior performance
of Kate at work as the promotion was only open to male employees
The above scenario reflects:
A. Direct discrimination
B. Indirect discrimination
C. Victimization
D. Harassment
Page | 227
Individual Behavior
Individual behavior is affected by:
o Abilities / competence (e.g., skilled employees and
unskilled employees may work differently)
o Motivation level (it determines the drive force for
employees to pursue work objective)
o Personality (characteristic and traits of individual)
o Perception (how employees interpret message)
Role Theory
Role theory suggest individual behave based on people’s expectation,

component in the theory includes:
Role Theory
Role Set Role Definition Role Conflict Role Sign Role Ambiguity
People who Expectation on

Factor which
respond / individual from Conflict between indicate identity Uncertain on
interact with different role set multiple role what role to play
of role
individual combined
Page | 228
Group Behavior
A number of people gathered for common interest is known as
‘group’. It can be categorized into:
o Formal group
o Information Group
Comparison
Formal Group VS Informal Group
Work group formed usually to Group formed due to personal

perform certain assigned task or relationship or common interest
goal relevant to business objective. between individuals.
Characteristic of Group
Characteristic of Group
Group Identity Group norm and Communication

(e.g. name, logo) behaviour Leadership channel Group loyalty
Comparison (Contribution by Individual and Group)

Individual Group
Contribution based on own set VS Contribution based on mix set of

of skills, own point of view, skills, multiple perspective based on
limited to its own expertise. various expertise, in a flexible
manner.
Page | 229
Group and Team
Team refers to a group of individual work together to achieve
common goal.
Comparison
Group Team
Group simply refers to VS Where team is often systematically

individuals who gathered for structured and organized based on
common interest. skill and expertise to achieve desired
goal.
Type of Team
Type of Team
Multi-Disciplinary Multi-skilled Self-Managed Virtual
Purpose of forming team is to encourage greater level of

participation by employees, so that:
o Greater quality and understanding of decision or plan
o Greater contribution to problem solving
o Greater ownership towards decision made
o Greater willingness to subject to performance evaluation
Page | 230
Belbin Team’s Roles Theory
Belbin suggested 9 character or role that should present in a
balanced and effective team.
Belbin’s Team Roles
Belbin's Team Roles
Action Oriented People Oriented Thought Oriented
Shaper Coordinator Plant
Implementer Team Worker Specialist
Completer-Finisher Resource Investigor Monitor-Evaluator
Role Description
Shaper Task driven and acting driving force for action
Implementer Administrator or organizer which turns idea into action

Completer- Eyes for details, chase on progress, polish and scrutinize work to
Finisher perfection
Coordinator Lead, presides and coordinates activities in team
Team Worker Quietly contribute by maintaining harmony of team
Resource Extrovert who social and provide useful information through

Investigator networking
Plant Introvert who provides creative and imaginative idea
Specialist Provide expert knowledge and skill
Monitor-
Analytically examine and evaluate ideas proposed
Evaluator
Page | 231
Tuckman’s Theory of Team
Development
Tuckman suggested five distinctive stage which team often need
to go through, until the disband of team upon completion of task
or achievement of goal.
Team Development
Forming
The stage which members are first gathered, unfamiliar with one another and unclear on
task.
Storming
The stage which members voice out and contribute on own ideas and perspective giving
rise to arguement and conflict due to differences
Norming
Team is settling down with established and agreed behaviour, roles and responsibility.
Perfoming
Members perform at full potential, resolving problem and conflicts, performing its tasks
Dorming
Members becomes complacent, 'Groupthink' occur where priorities may placed on group
harmony rather than the task itself
Page | 232
Team Effectiveness
Team refers to a group of individual work together to achieve
common goal.
Comparison
Effective Team Effective Team
o Relax and harmony environment o Tensed / hostile environment

o Discussion relevant to objective o Irrelevant discussion in meeting /
with high participation by dominated by few members
VS
members o Confusing / conflicting task and
o Objective and task clearly objective
understood and committed by o Avoid conflict
employees o Decision based on simple
o Open communication, welcoming majorities (minimum required)
constructive conflict o Avoid evaluating own
o General consensus to arrive performance
decision
o Performance evaluation of self
Building Effective Team (9 Building Blocks)
Clear objective and

Appropriate leadership Co-operation and conflict
agreed goals
Openness and
Individual development Regular Review
confrontation
Sound working and

Sound inter-group
decision-making Support and trust
relations
procedures
Page | 233
Summary – Individual, Group
and Team
In this session we obtained a brief understanding on individual,
group and team in organization.
Summary
Individual, Group and Team
Individual Behavior Group Behavior Team
Factors affecting Behavior Definition Definition
Comparison
Role Theory Formal and Informal
(Group and Team)
Characteristic Type
Comparison
(Individual and Group) Purpose
Belbin Team's Role
Tuckman Team's Development
Comparison
(Effective and Ineffective Team)
9 Building Blocks
Page | 234
Question 1
Employee A has just been promoted to position of ‘Sales Manager', he is uncertain on the
additional roles associated with the ‘manager’ position.
The above scenario is most associated with
A. Role identity
B. Role set
C. Role conflict
D. Role ambiguity
Question 2
Team member A is responsibility to divide task and responsibility between different members; Team
member B often provide creative and imaginative ideas in discussion; Team member C often bring
downs such creative ideas by analyzing the problem and providing judgment based on fact.
Which of the following role does each member represent according to Belbin Team’s Role?
A. A: Coordinator; B: Implementer; C: Monitor Evaluator

B. A: President; B: Plant; C: Monitor Evaluator
C. A: Coordinator; B: Plant; C: Monitor Evaluator
D. A: Coordinator; B: Plant; C: Completer/Finisher
Question 3
The member of team starts to share their own opinion and feelings with team members and
therefore face high level of conflicts due to differences
According to Tuckman’s Team Development Theory, the team members are experiencing stage of
A. Forming
B. Storming
C. Norming
D. Performing
Page | 235
Motivation
Motivation is the driving force which initiate, guide and maintain

behavior of individual and teams towards goal.
It is important to:
o Organization (motivated workforce allow organization to
enjoy better productivity and work output)
o Individual Employees (derive higher level of satisfaction at
home)
o Teams (Greater teamwork, commitment and work quality)
Comparison – Motivation Theory
Content Theory Process Theory
Content theory concern with ‘what’ Process theory concern with ‘how’
motivates people, therefore relates VS people is motivated to take action, it
to want and needs which motivate relates to the process of which
people people decide their behavior.
Motivation Theory
Type of Theory
Content Theory Process Theory
Maslow Hierarchy of Herzberg Two-factors McGregor Theory X Vroom's Expectancy

Needs Theory and Theory Y Theory
Page | 236
Content Theory
About Maslow Hierarchy of Needs
Maslow suggested five level of needs which motivate human to

pursue in hierarchical order. A person will move on to pursue
higher level needs when current level is sufficiently satisfied.
Motivation Theory
Self
Actualization
Esteem Needs
Love / Belonging Needds
Safety Needs
Physiological Needs
Needs Description
Physiological Basic needs such as food, water, shelter
Safety Safety and security
Love /
Family, friendship, intimacy
Belonging
Esteem Status, recognition, achievement, respect from others

Self-
Achieving full potential of one-self
Actualization
Page | 237
About Herzberg’s Two-Factor Theory
Herzberg suggested two motivational factors:

o Hygiene Factors (Its presence does not motivate
employees; its absence will demotivate employees)
o Motivator (Able to motivate employees)
Comparison
Hygiene Factor Motivator
Surrounding factors of job, such as Relate to the job itself, including the
pay, supervision provided, VS sense of satisfaction / achievement
environment, policies and from job, learning and growth,
procedures at work advancement, recognition
Job Design to increase satisfaction level
Job Design
Job Enrichment Job Enlargement

Job Rotation
(Vertical expansion - greater (Horiozontal expansion -
(Rotate between different
responsibility and authority is widen job scope of same
given) hierarchical level) position)
Page | 238
About McGregor Theory X and Theory Y
McGregor suggested two aspects of human behavior at work,

namely:
o Theory X
o Theory Y
Comparison
Theory X Theory Y
o Dislike work o View work as natural part of

o Avoid greater responsibility VS life
o Resist change o Accept and seek for
o To be controlled, directed and responsibility
threated to act towards o Self-direction and self-control
organization’s objective towards organization’s
o Lack of ambition objective
o Motivated by money and o Ambitious
security o Require participative
o Require dictatorial management style
management style
Page | 239
Process Theory
About Vroom’s Expectancy Theory
Vroom suggest that people shall put in extra effort if they are
attracted to the reward / outcome and if they believe what their
effort will likely lead to reward.
Expectancy Theory
Force = Valence x Expectancy
Component Description
Force Motivational Forces
Valence How much an employee’s want or need the reward or outcome
Expectancy How likely is the employee going to achieve the desired outcome
For instance, an employee which are interested in the bonus upon achieving
sales target is unlikely motivated if they do not think they are able to
achieve. (High Valence x 0 Expectancy = 0 Force)
Page | 240
Reward
Reward is often given in recognition of service provided,

achievement or effort. Comparison between two distinctive type
of rewards is shown as below.
Comparison – Reward
Extrinsic Reward Intrinsic Reward
External reward which relies on Feeling from performance of job

decision of others (e.g., employer) VS including sense of achievement,
satisfaction, growth, participation,
Includes pay and work environment responsibility etc.
Designing reward system
Consideration Type
Sufficient to attract, retain and Bonus (Can be individual /

motivate group)
Fair (Equal Opportunity) Profit Sharing
Performance based
Not excessive Commission (Motivate better
performance)
Overtime (Motivate longer

hours)
Piecework (Motivates hgiher

output)
Page | 241
Summary – Motivation
In this session we obtained a brief understanding on motivation
and reward in workforce, including the theoretical framework
associated.
Summary
Motivation and Reward
Basic Concept Content Theory Process Theory Reward
Definition of Maslow Hierarchy of Vroom's Expectancy

motivation Needs Theory Intrinsic and Extrinsic
Importance of
motivation Herzberg Two-Factor Factors to Consider
McGregor Theory X Type

and Y
Page | 242
Question 1
Process theory defines the factors that motivate behavior people.
State whether the above statement is true or false
A. True
B. False
Question 2
According to Vroom Expectancy theory where force = valence x expectancy, which of the following
statements relating to ‘valence’ is correct
A. It defines the extent people values the reward or result

B. It defines the belief of people that their effort will lead to achieve of result
C. It defines strength of motivation force
D. It defines the mechanism of which people are motivated towards desired goal
Question 3
Employee A has below characteristic:
• Lack of ambition
• Dislike additional task and responsibility
• Does not achieve work target unless being monitored closely
The employee is associated with the concept of:
A. Hygiene Factors
B. Motivators
C. Theory X
D. Theory Y
Page | 243
Learning and Development
Learning and development is crucial in organization as it helps:
o Motivate employees (growth and learning)
o Achieve greater performance (enhanced skill and knowledge to
carry out task)
o Allow continuous performance improvement
o Achieve competitive advantage
o Meet business objective

Learning refers to the change in knowledge, behavior or attitudes due to
experience.
Development simply refers to the process of changing, growing or
becoming more advanced.
Page | 244
Learning Style and Process
Honey and Mumford suggested four distinctive learning style; Kolb’s
experiential learning cycle identified four stage of learning process.
Honey and Mumford – Learning Style

Learn by experimenting and
Activist experiencing, including working with
Activitst Theorist others.
Learn through principle, theories,
Theorist model and concepts with systematic
thinking
Learn by observing and reflecting from
Reflector different perspective, attentive to
details.
Reflector Pragmatist Learn by practical application, keen on
Pragmatist obvious connection between subject
matter and actual work environment.
Kolb’s Experiential Learning Cycle

Active Concrete Concrete Doing / Feeling / Having an
Experimentation experience Experience experience
Reflective Review / reflect on the
Observation experience earlier
Abstract Form conclusion or learn
Abstract Reflective Conceptualization from experience
Conceptualization Observation
Active Experimenting / testing what
Experimentation has been concluded / learnt
Page | 245
Roles and Responsibilities
Human resources department has overall responsibility to
manage human capital in organization, thus has overall
responsibility over learning and development in workforce.

Responsibility of human resource department including:
o Identify training needs of organization based on current and future
business objective
o Communicate with employees on learning and development
available
o Coordinate, develop and research on program
o Design career pathway and progression for employees
o Evaluate program effectiveness
o Design policy of appraisal
Individual managers are more familiar with employees of

respective department including their behavior at work,
performance and work involved.

Responsibility of individual manager including:
o Identify training needs of relevant department
o Observe and monitor work behavior and performance of employee
o Identify opportunity and provide on-the-job training such as
coaching and mentoring
Page | 246
Training and Development
Process
The overall training and development process can be view in five

stages as illustrated below.
Training and Development Process
Identifying Needs
Setting Objective
Program Design
Program Delivery
Evaluation
Page | 247
Identifying Training Needs
Training needs can be identified in various ways.
Identifying Training Needs
Method to Identify Training Needs
Formal Review report Obtain Observe Performance

Training (daily report, feedback from employees evaluation
Needs incident employees behavior at
Analysis report, (interview, work
accident questionnaire,
record) surveys)

Formal Training Needs Analysis involve:
1. Determine current level of skill, knowledge and attitude (SKA) in
workforce
2. Determine desired level of skill, knowledge and attitude.
3. Identify the learning gaps by comparing the current and desired
level of skill, knowledge and attitudes. The learning gaps identified
may indicate needs of training and development.
Find out current Find out desired Find the learning

SKA SKA gaps
Page | 248
Setting Objectives
Objective of training and development program should be stated,

i.e., what kind of outcome or result are we expected out of the
program?
Program Design and Delivery
Different types of program design are available, it can be

categorized into two major types of follows:
o On-the-job training
o Off-the-job training
Comparison
On-the Job Training Off-the-Job Training

A hands-on learning process where Trainee are trained away from
trainee learns by performing and VS workplace for a period.
practicing job in workplace.
Example: day release, distance
It takes place in trainee’s actual work learning, evening classes, self-study
environment
Example: demonstration, instruction,

coaching, job rotation
Page | 249
Evaluating Training and Development
Evaluating the training and development program is crucial to

identify whether such arrangement is cost effective and able to
achieve the initial training objective.
Hamblin’s Five Evaluation Level
•Trainee Reaction
Level 1 •What do the trainee think about the program?
•Trainee Learning
Level 2 •Did the program influence knowledge, skill and attitudes of trainee?
•Change in Job
Level 3 •Did the program influence change of behavior at work?
•Impact on Organization Goals

Level 4 •How does organization benefit from the program?
•Ultimate Value
Level 5 •Whether training and development has wider contribution (e.g. other stakeholders)
Page | 250
What is ‘Training’?
Training refers to a learning process to mainly enhance

knowledge, skill and attitude of employee in order to carry out a
particular job.
What is ‘Development’?
Development is a continuous learning process concern with long

term growth of employees, helping employees to handle future
responsibilities such as managerial responsibility.
What is ‘Education’?
Education is broader aspect of learning process, referring to

activities to develop knowledge and skill for an individual, not
only for current or future job.
Page | 251
Benefit
Benefit of effective training and development can be seen from
two perspectives:
Benefit to Employees include:

o Improvised working method
o Greater job satisfaction
o Greater motivation
o Greater employability in labor market

Benefit to Employer include:
o Achieving and maintaining competitive advantage
o Easier to implement and manage change
o Greater reputation as recruiter
o Greater productivity and effectiveness
o Greater motivation in workforce reduces turnover and absenteeism
rate
o Holding greater expertise
o Leading to flexible human capital arrangement (if multi-skilled)
o Ease succession planning (employees are developed for managerial
capacity)
Page | 252
Summary – Learning and
Development
In this session we obtained a brief understanding on learning
and development in workplace, including associated theoretical
framework, terminologies and process.
Summary
Learning and Development
Learning Training and Benefit of

Basic Style and Role and Development Knowing Effective
Concept Responsibilities Terminologies
Process Process Program
Definition of Honey and Human Training To Employees

Identifying
Learning Mumford's Resource Needs
Learning Department
Definition of Style Development
Development To Employers
Individual Setting
Kolb's Manager Objective Education
Importance Experiential
Learning
Cycle Program
Design &
Delivery
Evaluation
Page | 253
Question 1
Benefits of training and development to employer does NOT include
A. Greater productivity by employees

B. Greater reputation to labor market as recruiter
C. Greater employability of employees
D. Greater arrangement of succession planning
Question 2
A process to teach and equip employees with particular skills and knowledge necessary for current
job position
The above is best describing
A. Training
B. Development
C. Assessment
D. Management
Question 3
Caleb finds the recent classroom style training session boring and expresses his preference to join
group discussion and hands-on training session
Caleb reflects learning style of
A. Theorist
B. Activist
C. Pragmatist
D. Reflector
Page | 254
Performance Assessment
Performance assessment is the process of which employees’

work is evaluated, in order to provide feedback for improvement.
Benefit of Performance Assessment
Improve communication between appraiser (often manager) with

appraisee
Constructive feedback help employee to improve future work
performance
To identify needs of training and development

Benefits
To assess effectiveness of recruitment & selection, training and
development
Provide information for human capital and succession planning
Ensure goal congruence between appraisee and organization
Page | 255
Performance Appraisal

Performance Appraisal is part of the performance management system of
organization concern with rating or evaluating performance of employees.
It often involve action to face-to-face meet with employees and discuss on
work life.
Performance appraisal includes more than the appraisal

interview itself, few stages of appraisal is illustrated below.
Performance Appraisal Process
Identify Preparation of Delivery of

Assessment Appraisal Appraisal
Criteria Report Interview
Review
Monitor Action Develop Action
Appraisal
Plan Plan
Carried Out

Performance Appraisal is important in organization as it helps to:
o Monitor employees’ performance
o Motivate employees to achieve better
o Strengthen relationship and communication between appraiser
and appraisee
Page | 256
Type of Appraisal
Direction of Appraisal
Appraisal can be carried out in different direction including:
o Top-down (manager assess subordinates)

o Bottom-Up (subordinates appraise manager)
o 360 Degree (Appraisal from all direction)
o Self-Appraisal (Allow employees to understand self-better)
Different Approach to Appraiser Interview (Maier)
Maier suggested three approaches to appraiser interview:
o Tell and Sell

o Tell and Listen
o Problem Solving

Tell and sell happens where appraiser judge and provide feedback to
employees, attempt to persuade appraisee to accept these judgement.
Appraisee is not given opportunity to explain.
Tell and listen happens opportunities are given to appraisee to explain. For
instance, appraisee gets to talk about its difficulty and reason why target
not being achieved.
Problem solving focus on solving problem faced by employees at work.
Appraisal shall encourage appraisee to talk about its problem faced,
encouraging them to generate solution to the problems while guide them
with advice and suggestion.
Page | 257
Benefit of Effective Appraisal
Benefit of effective performance appraisal can be seen from two
perspectives:
Benefit to Employees include:

o Raise opportunity on further career profession
o Raise opportunity to training and development (allow employees to
grow)
o Allow employees to obtain feedback on work, therefore able to
improve its work behavior and performance
o May obtain additional financial reward (performance-based
incentive or bonus)
o Opportunity to feedback to appraisee on work problem
Benefit to Employer include:

o Opportunity to understand problem or difficulty faced by
employees to ease implementation of right improvement plan
o Opportunity to demonstrate employers’ appreciation over effort
and hard work of employees
o Improve communication between managers and subordinates
o Provide useful information on succession planning
Page | 258
Effective Appraisal
Lockett suggested six barrier that reduce effectiveness of
appraisal.
Barrier to Effective Appraisal
Confrontation Appraisal involve biased or destructive

feedback, disagreement
One-sided appraisal (Management provide

Judgement judgement)
Chat Appraisal taken as conversation

Barrier
Appraisal taken as part of formfilling
Bureaucracy requirement
Unfurnished Appraisal being used to merely discuss recent

Business issue
Appraisal taken as part of ceremony in

Annual Event
organization to close current period
Action / Measure to Overcome Barriers
Higher frequency of Establish clear link to

Allow input from
appraisal (rather than 1 organization objective
employees (Participation)
year 1 time practice) (relevance)
Collect feedback from Formalize the appraisal

appraisee (what do they Follow up on action plan process (official record on
(continuous monitoring)
think about the appraisal) agreed action plan)
Page | 259
Summary – Performance
Assessment
In this session we obtained a brief understanding on
performance assessment in workplace.
Summary
Performance Assessment
Performance Interview Effective

Basic Concept Direction
Appraisal Approach Appraisal
Definition Definition Top-Down Tell and Sell Benefits
Benefits Process Bottom-Up Tell and Listen Barrier
Importance 360 Degree Problem Action to

Solving Overcome
Self
Page | 260
Question 1
In an appraisal interview, employee A is encouraged to share difficulties faced at work and solution
had in mind. Manager as appraiser shall provides opinion over suggested solutions.
The above scenario represents interview approach of:
A. Tell and Sell

B. Tell and Listen
C. Problem Solving
D. 360 Degree
Question 2
Benefit of performance appraisal to employees does NOT include
A. Opportunity to growth
B. Opportunity to provide feedback
C. Opportunity to obtain additional financial rewards
D. Opportunity to demonstrate appreciation over employees’ effort and hard work
Question 3
Which of the following statements is correct with regards to performance appraisal in organization?
A. Performance appraisal process helps organization to identify training needs

B. Appraiser should set assessment criteria and objective as they are usually more experienced
compared to appraisee
C. Performance appraisal should avoid discussing poor performance of employees as it
possesses threats to relationship and trust between appraiser and appraisee
D. Performance appraisal should only be conduct once a year as it helps to sum up work and
incidents during the past year.
Page | 261
PART
5

PERSONAL EFFECTIVENESS AND

COMMUNICATION
Study Check List

ü Personal Effectiveness Techniques
ü Consequences of ineffectiveness at work
ü Competence frameworks and personal development
ü Sources of conflicts and techniques for conflict resolution and referral
ü Communicating in busines
Page | 262
Time Management
Time management is a process to plan and organize time by
dividing and decide time to specific activities. Effective time
management is crucial in organization due to reasons below.
Benefit of Effective Time Management
Make best use of limited resources of 'time'
Focus more on prioritized task
Benefits, employees get to Achieve more in lesser time (if well planned)
Derive greater motivation (with productive work)
Reduce stress (sufficient time to complete task)
Page | 263
Barriers to Effective Time
Management
Barrier to effective time management includes:
Barriers to Effective Time Management
Procrastination Lack of priority

Excessive Interruptions
(constantly delay until (Time spent on
(Phone call, colleague)
unavoidable) unimportant task)
Unnecessary Meeting Poor Physical Set up

Failure to delegate / (Spend time to retrieve
Overloaded work (Time spent without
meaningful discussion) paper / tools frequently
used)
Action / Measure to Overcome Barriers
Set intermediary goals

Prioritize task Arrange specific time to
(to avoid delaying task handle interruptions
(To be discussed later) to deadline)
Divert unimportant but Utilizing information

Decide and set agenda urgent matters technology
before meeting
(e.g. phone call) (To be discussed later)
Page | 264
Prioritizing Task
Stephen Covey’s time management matrix suggest prioritizing

based on urgency and importance of task.
Stephen Covey Time Management Matrix
Quality Time
Fire Fighting
Important (To dealt with before
(Require immediate attention)
becoming Fire Fighting)
Distraction Time Wasting

Not Important
(To divert) (To minimize)
Urgent Not Urgent
A task is considered ‘important’ if completion of which may lead to achieving

goal; a task is considered ‘urgent’ if it require immediate attention.
Information System in Personal Effectiveness
Information technology tools include:

o Electronic mail – allow cheap, instant and vast distribution of information
o Smart device – allow access of information, time management tools anytime
anywhere
o Video conferencing – reduce travel time of meeting
o Office Automation – such as words processing, spreadsheet to ease
processing and storing of information
o Intranet – allow ease of access, storing and distribute information within
internal network
Page | 265
Consequences of
Ineffectiveness in Workplace
Consequences of ineffectiveness includes:
Consequences of Ineffectiveness
Unable to finish
Late
task within Indecision Forgotten Task
appointment
deadline
Poor quality of Poor

Poor Thinking Poor motivation
output communication
Page | 266
Competency Framework
Competency framework outline competencies required for
successful performance in a particular job position.

Competence is often defined as the skill or ability to do something
successfully or effectively and efficiently.
A regularly updated competency framework defines the required

updated skill and abilities to excel in job position; a regular assessment
over skills and abilities of employees against competency framework allow
organization to identify whether there are any learning gaps.

Continuous Professional Development (CPD) is the process of

tracking and documenting the skill, knowledge and experience
gained beyond the initial training. It is associated with concept
where professional skill and knowledge should be continuously
developed and updated.

Regularly updating professional skill and knowledge is important as it:
o Ensure relevant knowledge and skill

o Allow updated information from industries
o Reduce risk of low-quality work / error / mistake
Page | 267
Coaching, Mentoring and
Counselling
Coaching, mentoring and counselling are three different methods
to help increase personal effectiveness of employees, they are
often defined as below:

Coaching involves a coach asking questions and structuring route for
employees to learn and develop and therefore improving performance by
determine goal and identify routine to achieve the goals.

Mentoring refers a relationship where an experience employees guide and
advice a less experienced employees by sharing their wisdom and resources
allowing professional and personal development of employees.

Counselling allows employees to discuss and talk about the problem
including their feelings in confidential environment to promote self-
understanding and acceptance of employees
Page | 268
Personal Development Plan
Personal development plan is an action plan for individual to
identify their development opportunities therefore a guideline for
individual growth.
Formulating Personal Development Plan
•Analyze Current Situation

•Identify own strength, weakness, required level of knowledge, experience (from
Step 1 competency framework), identify the gaps
•Set Goal (Refer below for Characteristic of Effective Goal)

Step 2 •Based on the gaps identified, established goal (what we wish to achieve?)
•Develop Action Plan

•Find out the best way to achieve goal
Step 3
Characteristic of Effective Goal
Specific Measurable Attainable Relevant Time-bound
Page | 269
Implementing Personal Development Plan
Once plan has been set out, the next stage would involve taking
action, practice when implementing includes:
o Regularly monitor the progress
o Provision of feedback (by superior)

Constructive feedback provides information on how a task can be done
better, allowing employees to do better the next time.
Positive feedback provide recognition over hard work or achievement of
employees enhancing employees’ confidence (e.g., praise or compliment)
Reviewing Personal Development Plan
Practice when reviewing or evaluating personal development

plan includes:
o Allocate sufficient time for reviewing
o Assess and record activities done against activity planned
in personal development plan
o Determine how the development achieved help in
achieving desired goal
o Consider whether need to revise or set new goal
o Develop action plans
Page | 270
Conflict

Conflict simply refers to clashes arises from differences, disagreement or
incompatibility between one another
Sources of Conflict
Conflict may arise due to following reasons:
Sources of Conflict
Personal Departmental Scarce

Unjust treatment Role Conflict
Differences Interest Resources
Conflict between Inter-

Poor
organization and dependence of Poor leadership
communication
individual goal Work
Comparison of Consequences of Conflicts
Positive / Constructive Conflict cause: Negative / Destructive Conflict cause:
o Better performance in organization o Reduce group cohesion

o Bring in innovation and creativity o Promote hostile / negative work
o Recognize need of change environment
o Reduce productivity
Page | 271
Managing Conflicts
Robert Maddux’s Conflict Model
Conflict Model suggested five actions to resolve conflict based

on assertiveness and cooperativeness.
Robert Maddux’s Conflict Model
High Competing Collaborating
Compromising
Assertive-
ness
Low Avoiding Accommodating
Low High
Cooperativeness
Accommodating involve allowing opposite party’s interest to be satisfy at

expenses of own interest
Avoiding involve withdrawing from conflicts, holding feelings.
Collaborating involve developing a solution which satisfy both party with

mutual respect and trust
Competing involve parties which stand strong, resulting in one party who win
and another party not able to satisfy their interest
Compromising involves a lose-lose situation where both parties have their

own give and take.
Page | 272
Summary – Personal
Effectiveness
In this session we obtained a brief understanding on concept
relevant personal effectiveness of workforce, including time
management, competency framework, personal development
plan and conflict management in workplace.
Summary
Personal Effectiveness
Increasing Personal
Time Competency Personal Development Conflict
Management Framework
Effectiveness Plan
Definition Definition Coaching Definition Definition

Benefit Concept of Mentoring
Formulating Sources of
Competence
Barriers Counselling Conflict
Implement and
Concept of CPD Monitoring
Action to Consequences of
Overtime Conflicts
Reviewing
Information Managing
System Conflict
Consequence of
ineffectiveness
Page | 273
Question 1
Which of the following reflects task with high priority?
A. Task which requires immediate attention

B. Task which is directly assigned by supervisor
C. Task which relates to achievement of business objective
D. Task which cannot be handled by alternative employees
Question 2
In conflict management, which of the following creates a win-win situation between opposition
parties?
A. Compete
B. Compromise
C. Collaborate
D. Accommodate
Question 3
Leaders in organization should attempt to eliminate ALL conflicts at workplace as it impair

relationship between individual
State whether the above statement is true or false
A. True
B. False
Page | 274
Communication Method
Communication method in workplace can be categorized as
below:
o Written communication
o Verbal communication
o Non-verbal communication

Written communication involve communication in written words such as
emails, memorandum, letters, policies and procedures in organization.
Often used in formal event and when future reference is required.

Verbal communication involve spoken communication including face-
to-face discussion, videoconferencing, telephone. Often used when
intend to increase personal touch in communication and require
immediate response from receiver.

Non-Verbal Communication include body language, gestures, postures,
tone which indicate and provide message. Usually used as complimentary
message to re-enforce verbal message
Page | 275
Communication Channel
Communication in organization can be categorized in two
manners:
o Formal Communication
o Informal Communication
Formal and Informal Communication
Communication
Formal Informal
Vertical Horizontal Laterial

(Along (Different (Different Grapevine
reporting department department (Any direction
line) but same and and authority
authority different level)
level) authority
level)
Top-Down Bottom-Up Gossips Rumors
(Manager (Subordinat (small talk
to give e to (Information
which may hurt not made
briefing, feedback relationship
instruction, and report official yet)
between
work to on work employees) (May be fake)
subordinate done to
s) manager)
Page | 276
Information Needs
Each level of management in organization requires different
type of information.

Strategic Management is required to make decision which influence the
whole organization, often future related, subjective, long term and complex
in nature.
Therefore, required information that is often forward looking, external, ad-
hoc and unscheduled in nature.

Tactical Management is required to make decision which influence the
significant portion of organization such as a business unit, often in near and
medium term in order to implement strategic plan.
Therefore, required information to help allocating resources in effective
and efficient manner, both internal and external nature, short to medium
term, and fairly detailed information.

Operational Management make decision ono controlling operational or
day-to-day routine activities which is repetitive and short term in nature,
concern with following rules and procedures set by tactical management.
Therefore, required information, which is detailed, internal, short term and
routine in nature to help carrying out operational task.

Page | 277
Qualities of Good Information
Obtaining and communicating quality information is crucial for
business activities such as planning, controlling and decision
making. Eight qualities are often considered when measuring
the quality of information.
Qualities of Good Information
Accurate Fair, free from bias, free from error
Complete Include all relevant information
Cost-Beneficial Benefit of information exceed cost to obtain it
Suitable for user

User-targeted
e.g., sufficient details, right format and simplicity level
Good Information
Relevant Right information to right person
Authoritative Obtained from reliable source
Timely Obtained and provided when required
Easy to use Right style, structure, avoiding use of jargon
Page | 278
Simple Communication Model
Simple communication model illustrated how message is sent
from a sender to a receiver.
Simple Communication Model
Noise Noise
Sender Encode Transmit Decode Receiver
Feedback
Term Description
Encode Process which converts thought of sender into message
Transmit Medium to transmit message between sender and receiver through channel
Decode Process which receiver interpret message into thought
Forces which disrupt communication.

Physical Noise – noisy environment (e.g., discussion beside loud machine)
Noise Psychological Noise – senders and receivers’ ability to express or
understand message (e.g., language barrier between sender and receiver,
emotional feeling of receiver when interpreting message)
Feedback Confirmation from receiver that message has been received.
Page | 279
Effective Communication
An effective communication come with below characteristic:
Attributes of Effective Communication
Clarity Complete Concise Concrete
Consideration Correct Courtery
Effective communication is crucial in workplace as failure of

which may causes difficulty as follow:
Consequences of Ineffective Communication
Distrust and
Difficulty to Poor Poor customer
confusion in
lead productivity service
communication
Increased labor Increased Poor

turnover absenteeism communication
Page | 280
Barrier to Communication
Common barriers to effective communication in workplace
include:
Barrier to Effective Communication
Inappropriate choice of
medium (e.g. urgent Differences between
Language Barrier sender and receiver
message through email)
Emotional barrier in Poor location of

decoding or encoding Conflicting verbal and communication (subject
non-verbal message
message to noise)
Overloaded information Withholding information

(cause confusion and Bias in encoding or (only report on good
decoding
loss of focus) news)
Few actions that may reduce barriers are suggested as below:
Action to Reduce Barrier
Sender to seek and Receiver to ask relevant Selection of appropriate

interpret feedback to question drawing out timing, location and
confirm understanding required information medium for communication
Communicate in concise Communicate one thing at

Reduce use of jargon
manner a time
Page | 281
Communication Pattern
Communication patterns reflect how communication and
information flows in organization.
Chain Pattern
Term Description
Circle Pattern Leader communicates with the
person next to him / her,
Circle
message will reach the leader
Pattern
again after travel throughout
the group.
Leader communicates only

with person next to him,
Chain message does not go back to
Pattern leader. Therefore, unsure
whether the last person
receive the right information
Similar with chain however the

‘Y’ member is first separated into
three group. Members can
Pattern
only communicate with
another group through leader.
Y Pattern
Page | 282
Wheel Pattern Network Pattern
Term Description
Leader act as central of communication, all members can
directly communicate with the leaders but not each other.
Wheel Pattern
Therefore, quick distribution of information and
communication.
Everyone can communicate with anyone as per required by

Network Pattern job or task, the extensive communication may however lead to
slower decision making.
Page | 283
Summary – Communication
In this session we obtained a brief understanding on
communication and information in organization.
Summary
Communication in Organization
Simple
Communication Communication Information Quality of Good Effective Communication
Communication
Method Channel Needs Information Communication Pattern
Model
Accurate Sender
Written Vertical Strategic Attributes Circle
Complete
Encode
Verbal Horizontal Tactical Chain
Cost-Beneficial Consequences
Transmit if Ineffective
Non- User-targeted
Lateral Operation Y
Verbal
Relevant Decode
Barriers
Grapevine Wheel
Authoritatieve Receiver
Action to
Timely Overcome Network
Feedback
Easy to Use
Noise
Page | 284
Question 1
The employees in an organization report their activities and receive instruction from leader directly,
each of them is able to communicate directly with leader. Information such as market updates
obtained from employees is first communicated to the leader, then the leader to distribute such
information to rest of the team.
The above scenario is reflecting ______ communication pattern
A. Circle
B. Chain
C. Wheel
D. Y
Question 2
Which of the following scenario reflects lateral communication?
A. Purchase supervisor reports to purchase manager on recent purchase activities

B. Sales manager provides latest market trends to sales personnel
C. Internal audit executive obtains information on internal control in human resources
department from Human Resources Manager
D. Purchase manager and sales manager discuss on recent trend and preference of consumer
Question 3
Employees from sales department meet every Monday to provide latest status of sales lead to
manager and discuss on latest trend and information from the industry.
In the above meeting, role of employees in communication is likely
A. Sales personnel being sender; sales manager being receiver

B. Sales manager being sender; sales personnel being receiver
C. Sales manager and sales personnel being both sender and receiver
Page | 285
PART
6
PROFESSIONAL ETHICS IN
ACCOUNTING AND BUSINESS
Study Check List

ü Fundamental principles of ethical behaviour
ü The role of regulatory and professional bodies in promoting ethical and

professional standards in the accountancy profession
ü Corporate codes of ethics
ü Ethical conflicts and dilemmas
Page | 286
Ethics and Business Ethics
Ethics is the study of rules, standards and principles that
determine right and wrong behavior of public, business ethics
concern with study of such concept in business context.

Business Ethics is the study of right and wrong business conducts in time
of ethical dilemmas situation.
Importance of Business Ethics to Organization
Reduce business risk

Enhance Reputation of Business
(Reduce trouble from legal non- Attract and retain key employees
(As ethical organization)
compliance or pressure group)
Importance of Ethics to Employees
Greater productivity and

teamwork at work
Improve decision making Greater satisfaction at work
(making right choice) (Doing the right things) (alignment of ethical value
between individual and
organization)
Page | 287
Profession
Professionals differ from laymen due to the criteria of profession
as follow:
Criteria of Profession
Acquired skill through initial training Adherence to common

Mastery of skill and subsequent lifelong continuous code of ethics and
development conducts
An association body to maintain

(control on admission, education requirement, Act in Public Interest
disciplinary action, establish code)
Professional is obligated to act in public interest, including professional

accountant. Acting in ‘Public Interest’ involve considering interest of
general public / public at large when making judgment and decision.
Page | 288
Professional Code of Ethics
IFAC in collaboration with IESBA develop code of ethics for the
accountancy profession. The code suggested five fundamental principles
which describe the expected standard of professional accountant.
Five Fundamental Principles

To respect confidentiality of information acquired as
result of professional service
To not use these confidential information for
Confidentiality
personal advantage
To not disclose these confidential information
without consent
To be straightward and honest

Integrity
Not to mislead
Fundamental Objectivity Not to be biase or allow conflict of interest or undue

Principles influence of others
To comply with relevant laws and regulation

Professional Behavior
To avoid any action that will discredit the profession
To maintain sufficient and updated professional

knowledge and skill
Professional Competence
and Due Care Ensure provision of competent service
Act diligently and according to relevant professional

service
Purpose of Professional Code of Ethics and Conducts include to:

o Outline the minimum standard of behavior for professional
o Set out expectation from society on professional
o To promote ethical decision making by professional
Page | 289
Organizational Value
Six organizational values help to ease and facilitate ethical
behavior including adherence of fundamental principles.
Six Organizational Value

Willingness to provide information to
Openness
shareholders
Being trustworthy with different

Trust stakeholders
Honesty Being honest in dealing
Organizational Value
Respect Treating steakeholders with dignity
Delegating employees with authority

Empowerment and freedom to make decision
To be responsible for action and

Accountability
answerable for consequences
Page | 290
Corporate Code of Ethics
Corporate code of ethics is a document of organization to guide
employees. It may vary from one business to another.
A common corporate code of ethics come with:

o Introduction
(Clear and inspirational, reflect commitment by top management)
o Value Statement
(Purpose and value of organization, which guide expected behavior of
employees)
o Laws and Regulation
(Commitment to compliance)
o Guide for Conduct
(For different stakeholders / different issues)
Common issues including equal opportunities in workface,
environmental-friendly behavior, fair dealing with suppliers, product
safety to customer, action to take in case of bribery offered
o Implementation
(To demonstrate how organization plan to implement and monitor)
Benefits of Corporate Code of Ethics
As a guide to employees
Help to reinforce As a communication tool to
(when face with ethical
organizational value inform expected behavior
dillema)
Employees feel more

Encourage better compliance Greater public reputation motivated and proud
to legislation (demonstrate ethical value
(associated with ethical
and behaviour of business) business)
Page | 291
Ethical Conflicts and Dilemma
Ethical conflicts arise when a person behave ignoring ethics or

when there is different perspective on acceptable behaviour.
Ethical conflicts occur when there is behavior conflicting with ethical value
(i.e., unethical at no doubt)
o Accepting / offering bribery
o Bully / harassment at work

Ethical dilemma refers to situation where choices between

options is difficult because moral principles are conflicting or
neither of option are absolutely acceptable.
Ethical conflicts occur when there is conflicting value or moral principles,

where both options appear conflicting but acceptable causing difficulty to
choose between one.
E.g., when accountant being ask by employers to publish misleading
information, it can be difficult to choose whether to act for public interest
and professional value (i.e., not to publish mislead information) or act for
organization’s interest (publish misleading information)

Page | 292
Ethical Threats
Five types of ethical threats as shown below represent potential

event which may cause difficulty to behave ethically.
Five Ethical Threats
Occur due to promotion clients' position by professional

accountant causing subsequent objectivity compromised
Avocacy
E.g. Auditor promoting shares of client or representing
client in dispute or lawsuit
Occur when too close with clients, which may compromise

professional judgment in virtue of friendship
Familiarty
E.g., The same audit partner in-charge of audit of same
client for 10 years
Occur when professional accountant are threatened /

forced / intimidated from acting objectively
Ethical Intimidation
Threats
E.g., Client's management threaten to remove auditor if
not able to issue a favorable audit opinion
The professional accountant may failed to act objectively

due to significant interest in clients' organization
Self Interest
E.g. Audit partner which hold significant shares in clients'
organization may be reluctant to reveal bad news of client
due to convern over share price
Exist because professional accountant is required to

review work done by himself / herself
Self Review
E.g., the same audit team who prepare financial statement
perform audit on the financial statement
Page | 293
Safeguard
Safeguard is required to reduce ethical threats to acceptable
level.
Safeguard
Safeguard
By Organization By Audit Firm By Professional
Implement sufficient and effective Implement partners' rotation (does Include ethical knowledge as part
internal control not stay with same client for long) of training requirement (e.g. part of
education syllabus)
Separation of team (avoid same Monitoring of members, channel for

Implement disciplinary action
team review own work) reporting and disciplinary action
Implement policies and procedures Establishing and requiring

Setting up Audit Committee (e.g. no acceptance of gift from adherence of code of ethics and
client) conducts
Educate employees to enhance

Regularly monitoring of threats
their ethical awareness
Pre-screening procedures
(Consider whether can reduce
threats before accept job)
Professional body may take disciplinary action in event of unethical

behavior or failure to comply with code of ethics, possible outcome includes:
o Fine
o Barred from practice
o Barred from membership
Page | 294
Reporting
Discovering unethical or illegal behavior shall require reporting
to:
o Relevant personnel in organization (Person In-Charge)
o Relevant professional body (If conduct by professional)
o Relevant authorities of the country or profession
Professional accountant may obtain additional advice from legal
advisor or professional body.
Page | 295
Summary – Ethics
In this session we obtained a brief understanding on ethics in
context of business and professional.
Summary
Ethics
Professional Corporate Ethical

Organization Ethical
Basic Concept Profession Code of Code of Conflicts and Reporting
Value Threats
Ethics Ethics Dilemma
Definition of Fundamental
Criteria Definition Definition 5 Threats
Ethics Principle
Definition of
Sample
Business Pubic Interest Purpose Content Safeguard
Scenario
Ethics
Importance
to Benefit
Organization
Importance
to Employees
Page | 296
Question 1
Fundamental principle of ‘objectivity’ is often defined as
A. To be honest, straightforward and fair in dealing

B. To not disclose information obtained during professional service unless obligated to do so
C. To be avoid bias, conflict of interest and undue influence in provision of professional service
D. To act diligently and according to professional standard in provision of professional service
Question 2
Which of the following does NOT represent safeguard implemented by audit firm to reduce ethical
threats?
A. Introduce policies to regulate behavior of audit team members

B. Use of separate team to conduct different service to audit client
C. Suspension of audit team member from professional membership
D. Rotate audit partners from audit task regularly
Question 3
Which of the following does NOT represent advantage of establishing corporate code of ethics?
A. Improve reputation as ethical business

B. Improve motivation level of employees
C. Eliminate risk of non-compliance
D. Helps employees to decide action in line with corporate value when faced with ethical issues
Page | 297

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BUSINESS

THE BUSINESS ORGANISATION,

Study Check List

In this study session, you shall learn about

ü Stakeholders in business organization

ü Political and legal, Social and demographic, and Technology factors

ü Macro and Micro economic factors

Business activities are often conduct through organization.

Three Component of Organization

People Purpose Structure

‘Organizations are social arrangements for the controlled

Pooling people in an organization allow them to focus on their

Besides, bringing people together enable sharing of knowledge

The term ‘synergy’ is often associated with purpose of

Organizations can be different from one another in various

Differences between Organization

Furniture Manufacturer Audit Firm

Input: Wood, Cotton, Labour Input: Labour hour of audit team

Conversion: Production process

Output: Ready to sell sofa Output: Audit report

Organizations can be also differed from one another from the

Aerospace Agriculture Computer

Construction Education Entertainment

Commercial organization is often known as profit-seeking

Type of Commercial Organization

Sole Proprietorship Partnership Limited Companies

Private Limited vs Public Limited

Not for Profit Organization

However, organization such as government owned and non-profit

Definition and Component of

Purpose of Organization Differences between Type of Organization

Specialization Component Commercial

Which of the following is likely a public organization?

A. A manufacturer listed on stock exchange market

A private limited organization is ‘limited’ due to

A. Maximum restriction of annual turnover

The above statement is associated with concept of

Business activities of organization can often affect and be affected

The term ‘stakeholder’ often describes individual or group who

Management, employees, customer, supplier, banker, government,

Stakeholders can be categorized as follow:

About Internal Stakeholders

Internal stakeholders are those within the organization such as

Those outside but with contractual relationship with organization

About External Stakeholders

Those outside and with no contractual relationship with

About Primary and Secondary Stakeholders

Understanding stakeholders’ need can be crucial to business

Expectation from different stakeholders’ group can be conflicting

Customer demand for greater value of money with higher quality

Management and Supplier

Management wish to have longer working capital cycle; supplier

Management and Employees

Management wish to have cost save to achieve target such as

Mendelow stakholders’ mapping suggest categorizing

Mendelow Stakeholders Mapping

High Keep satisfied Key player

Low Minimal effort Keep informed

However, stakeholders may also switch from one quadrant to

Internal, connected, Mendelow Stakaholders Mapping

Conflict management Minimal Effort

Sales director in organization is likely

Trade customer of an organization fall under the category of