CHAPTER 1

Business and its environment

 Questions

1) ‘Multinational companies are parasite to host nations’, Discuss (5)

2) Evaluate any three criterias to measure the size of the firm (6)

3) Contrast a command and a free market economy (4)

4) Explain any two factors of production (4)

5) State any 3 economic objectives of a business in your country. (3)

6) Present arguments for and against privatization of state enterprises (6)

7) What role does small firms play to the economy of your country (5)

8) How useful is a sole trader as a form of business organization (6)

9) Discuss the factors that affect the success of a business in your country (25)

10) Evaluate the impact of technological development to businesses in your

country (25)

11) Explain any two elements of the business economic environment (4)

12) Evaluate the impact of interest rate to a producer (3)

13) State any three ethical constraints to a business in your country (3)
14) Explain any 5 criterias used to measure the size of the firm
(10)

15) What are the differences between small and large firms (4)

16) State any 4 characteristics of small firms in your country (6)

17) Explain any 3 problems faced by a small firm in your country (6)

18) State any three reasons why small firms continue to survive despite the
problems they face (3)

19) Explain how government attempt to assist small firms in your country (15)

20) How might government threaten survival of small firms (4)

21) How important are small firms in your country (15)

22) Define nationalization (2)

23) Present arguments for and against nationalization of privately owned firms (6)

24) Distinguish between nationalization and privatization (4)

25) Of what importance is privatization to stakeholders in the economy of your

country (15)

26) Explain any two forms of privatization (4)

27) Explain any five forms of de-integration (10)

28) Define the following terms a) de-merger (2)

b) Divestment (2)

c) Management buyout (2)

29) How useful is management buy in to an organization (2)

30) Distinguish between divestment and de-merger (2)

31) How useful is sub –contraction to a firm in the construction industry (6)
32) Assess the usefulness of merger to a service industry (6)

33) Distinguish between merger and take over (3)

34) What is the motive behind horizontal integration (3)

35) Explain any three forms of privatization (6)

36) What is the importance of small firms in Zimbabwe (6)

b) Explain the difficulties faced by small firms in Zimbabwe (6)

c) Explain any 4 criterias used to measure the size of the firm (8)

37) List any 5 stakeholders that might wish to measure the size of the firm (5)

b) Compare and contrast stakeholders and shareholders using examples (3)

38) Explain why transnational corporations are parasitic to host nations (8)

39) Explain any four business objectives (8)

40) Explain the causes of over trading (6)

41) Define the term over trading (1)

42) Evaluate the usefulness of transnational companies to the economy of

Zimbabwe (25)

43) Evaluate the impact of technological and economic constraints to businesses

in Zimbabwe. (25)

44) State any two strengths of an organization in the manufacturing industry (2)

45) Explain any two ethical constraints which affect businesses in your country
(4)

46) Evaluate the impact of interest rate to a TV manufacturer (4)

47) State any two legal constraints which affect businesses in your country (2)

48) Distinguish the macro and micro constraints using examples (3)
49) Explain any two economic elements which affect businesses in your country
(4)

50) Discuss the usefulness of fluctuation in exchange rate to a business in your

country (4)

51) How might an ageing population affect the manufacturer of consumer goods?
(5)

52) Evaluate the impact of internal and external constraints to a Zimbabwean

business (25)

53) Evaluate the impact of technological improvement to a car manufacturing

industry (25)

54) Evaluate the usefulness of the following to the success of a business in your
country

a) Social constraints (5)

b) Economic constraints (10)

c) Political constraints (5)

55) Explain any two ethical constraints which affect businesses in your country
(4)

(56) State any 3 classification of organizations (3)

(57) Explain any 3 factors of production (6)

(58) How useful is a sole trader as a form of a business (4)

(59) ‘All business main aim is to maximize profits’. Discuss (5)

(60) Define the term overtrading (2)

(61) What are the signs of overtrading (3)

(62) How useful is privatization to the economy of your country (6)

(63) Show the main interest of the following stakeholders in a business

 a) Government (2)

b) Employees (2)

c) Customers (2)

(64) How does taxation affect a manufacturing firm (4)

(65) Explain the effect of any three macro elements of the business environment
to the business in your country (6)

(66) Explain any two economic environment aspects that affect businesses in
your country (4)

(67) ‘The market economy is one of the economic systems’

a) State any other two (2)

b) Which one best describe your country? Justify (3)

(68) What is inflation (2)

b) What are the effects of inflation to an economy (4)

(69) State any 4 forms of de-integration (4)

b) Define the following terms

i) Divestment (2)

ii) De-merger (2)

iii) Contracting out (2)

(69) What are the reasons for delayering (3)

(70) Why do small firms continue survive despite the stiff competition from large
firms (4)

(71) How useful are small firms to the economy of your country (6)
(72) Contrast market and command economy (4)

(73) Why do TNC s locate in other countries (4)

(74) How can government control the activities of TNC (3)

(75) Distinguish between private and public corporations of the economy (3)

(76) How can government protect infant industries (3)

(77) What role does government play in the economy of the country (3)

(78) Explain any three forms of protectionism (6)

(79) Define the following terms

a) Economy (2)

b) Corporate aim (2)

80) (a) What are the reason for de –investment in Zimbabwe (5)

(b) What are its possible consequences (6)

81) How useful is a partnership as a form of business (4)

82) What factors determine the location of a firm (4)

83) Does privatization necessarily benefit stakeholders in the economy of your

country? (25)

84) Discuss the impact of technological improvement to the car manufacturer (25)

85) Evaluate the relevance of small businesses in the economy of your country
(25)

86) Evaluate the different criterias used to measure the size of the firm (25)

87) Evaluate the impact of social and economic constraints to the Zimbabwean
organizations (25)
88) How useful are TNCs to the economy of your country (25)

89) What problems are encountered by small firms (10)

b) How can government attempt to assist small firms (15)

90) ‘All businesses main aim is to maximize profits’ Discuss (25)

91) Evaluate the usefulness of government economic policies to Zimbabwean

organization (15)

ANSWERS

1) Multinational companies are parasitic to host nations’. discuss (5)

Multinational companies refer to organizations with its headquarters in the parent

country but operate through subsidiaries in more than one country. Multinational
companies are parasitic to the host country because they lead to closure of local firms,
exploit local labor and some may end up involved in the political issues of the host
country.
However, besides MNCs being parasitic to the host country they create employment to
the host country and may increase government revenue through the payment of taxes.
Therefore, MNCs are parasitic to host countries because the disadvantages outweigh
the advantages

2) Evaluate any 3 criterias used to measure size of the firm (6)

The size of the firm can be measured using the number of employees, sales turnover
and capital employed. Number of employees, a firm employing only a few workers is
considered small. A business employing thousands of workers may be considered
large. However, it should be remembered that some firms are not labor intensive but
capital intensive for example an automated chemical plant may employ only 45
employees but have turnover of over 5 million

Sales turnover, the larger the sales turnover, the bigger the business is considered to
be, however, this is only useful when comparing firms in the same industry. Some sell
high valued items while others sell low valued products. Thus large firms with many
workers might sell low valued goods and sales revenue will be low, at the same time a
small firm with few employees might sell very few expensive products e.g. computers
and its sales revenue will be high

Capital employed, this refers to the total value of long term finance used in the
business generally, the greater the enterprise the greater the value of capital for long
term investment. However, comparisons between firms in different industries may give a
rather misleading picture since capital required is different depending on the type of
industry.

3) What are the differences between a command and a market economy?

(4)

Command economy is when resources are controlled and owned by the government
whereas free market is when resources are controlled and owned by private individuals.
In command economy, firms produce goods for the benefit of the public whereas in free
market economy, firms produce for sale and to make profit. In command economy
prices are set by the government whilst in free market economy, prices are determined
by market forces of demand and supply. In command economy, government is the
leading partner whereas in a free market economy there is little or no government
intervention. In command economy firms produce goods for the benefit of the public or
the government set prices whereas in free market economy firms operate to make profit

4) Explain any two factors of production (4)

Land – this include all renewable and non –renewable resources of nature such as
coal, crude oil and timber. Reward for land is rent. This is where production takes place
e.g. in water, in the air, in the atmosphere or on the ground.

Labor – manual and skilled labor make up the workforce of the business and these are
people who provide services for the company. Reward for labor is wages or salary.

5) State any 3 economic objectives of a business in your country (3)

Profit maximization, increasing market share

Maximizing short term sales revenue

Maximizing shareholder value and wealth maximization.

6) Present argument for and against privatization of state enterprises (6)

Privatization refers to the process of switching production of goods and services from
the public to the private sector. It can also be defined as the transfer of state controlled
firms and assets into private hands.

Arguments for

The profit motive of the private sector business will lead to much greater

efficiency than when a business is supported and subsidized by the government.

Decision making in state owned bodies may be slow and bureaucratic. Private business
will have access to private capital markets and this will lead to increased investment in
these industries. Moreover, revenue, efficiency and quality will be enhanced due to
privatization of state owned institutions thus leading to economic growth.

Arguments against

The state should take decision about essential strategic industries. These decisions can
be based on society’s need not just the interest of shareholders. With competing
privately run business it will be much more difficult to achieve a coherent and coordinate
policy for the benefit of the whole country e.g. railway, electricity. Many strategic
industries could be operated as private monopolies if privatized and they could exploit
consumers with high prices.

7) What role does small firms play to the economy of the country?
(5)

Small firms refer to enterprises that operate at a small scale and are managed by the
owners in a more personalized way. Small firms play a pivotal role to the economy of
the country. They lead to employment creation. Each one of them will not employ many
people but collectively they employ a significant proportion of the working population.
More so, small firms create competition for large firms leading to improved quality,
efficiency and low prices. Small firms widen tax base for the government and contribute
to the national output (GDP).

8) How useful is a sole trader as a form of business organization?

(6)

Sole trader refers to a business in which one person provides the permanent finance
and in return has full control of the business. Sole trader, as a form of business
organization is easy to set up, the owner is able to keep all the profits, long operating
hours can result in increased revenue as profits are maximized. They can receive
assistance from the government and decisions are made quickly without consulting
anyone. However, generation of new ideas relating to business is very limited and such
type of business lack expertise. Moreover, a sole trader is a kind of a business that
affects the owner because it dies with owner (no continuity if the owner dies) and he or
she lacks diversified skills.

11) Explain any two elements of the business economic environment.

(4)

a) Inflation – it is the persistent increase in average price of goods and services.

Inflation cause the real value of debt owed by the companies to fall. Since the value of
the money is falling, a debt is repaid using the money with less value than the original
loan. In general, value of liabilities will fall. However rapid inflation leads to high interest
rate. Highly geared companies will be unable to raise cash for interest payments

b) Exchange rate- it is the price of one currency in terms of another. Appreciation and
depreciation of local currency affect business growth. Appreciation is a rise in the
external value of a currency as measured by its exchange rate against other currencies.
Businesses with an appreciated currency will be able to purchase raw materials from
other countries at low prices and sell them at a higher price.

12) Evaluate the impact of interest rates to a TV producer.

(3)

Interest rate refers to the cost of borrowing, particularly a bank loan. A rise in interest
rate cause a television producer not to borrow too much from the bank and thus
sometimes reduces capital base and it can also lower demand as potential customers
find it difficult to borrow. However, a decrease in interest rate may cause the TV
producer to enjoy larger share of profits as demand will be stimulated, potential
customers will be willing to borrow in such circumstances so they can use borrowed
funds to purchase TVs. More so, the producer can increase capacity as borrowing will
be cheaper while demand is high.

13) State any three ethical constraints to businesses in your country.

(3)

Corruption and tribalism

Discrimination, nepotism and injustice.

14) Discuss any 5 criteria’s used to measure the size of the business.
(10)

A business can be measured its size using various methods:

Number of employees – generally the more employees found at a company, the

bigger it is considered to be. However, some companies are capital intensive and
maybe big whilst employing few workers to operate machinery.

Sales turnover- the larger the sales turnover, the bigger the company is considered to
be and the lower the sales turnover, the smaller the company is considered too.
However, sales turnover cannot be used to evaluate business sizes in different
industries.

Capital employed- this is the total value of long term finance used in the business. The
greater the enterprise, the greater the value of capital needed for long term investment.
It is a good measure of size of business especially when comparing business within the
same industry.

Market share- large organizations usually have a high market share and small
organizations usually have a low market share. However, market share is sometimes
determined by the number of companies in one industry.

Profits – big companies usually produce high profit and small business usually yield low
profit. However, the level of profits may be misleading. A large company may have
problems and make a small profit at a certain period of time.
Therefore, a single criterion might not be effective in measuring the size of the firm but
there is a need to combine a number of criterias so that the strengths of one counts on
the weaknesses of the other.

15) What are the differences between small firms and large firms?
(2)

Small firms are owned and operated by one person or a few people whilst large firms
may have a number of investors but operated via directors. Small firms usually employ
few employees and are less capital intensive whereas large firms employ a large
number of workers and are usually capital intensive. In small firms there is no
separation of ownership and control but in large firms there is high separation of
ownership and control.

16) State any four characteristics of small firms.

(4)

They employ a small number of workers

They have a relatively small market share

They are managed by owners

They are independent of large groups

17) Explain any three problems faced by small firms in your country.
(6)

Problems in raising both short term and long term finance due to lack of collateral
security which makes it a challenge when sourcing funds. Lack of management
expertise because the owner performs all functions. This result in poor quality decision
being made in certain circumstances for example, finance decisions can be poor
relating to management of funds already in business. They do not enjoy economies of
scale since they usually buy goods in small quantities?

18) State any three reasons why small firms continue to survive despite the
problems they face.
(3)

They operate in joint ventures

They offer specialist services e.g. accountants and lawyers

They offer personalized service to their customers

They serve the niche market

19) How might government threaten the survival of small firms?

(4)

Heavy taxation, Price controls, import controls

Setting of minimum wages

Corruption from government officials

20) Define nationalization –it is the process whereby privately owned firms are
converted into state controlled firms. It is the transformation of privately controlled firms
into the hands of the state or the nation.

21) Present arguments for and against nationalization of privately owned firms.
(6)

Arguments for

It enables the government to plan large sections of the economy for the public interests
and profits belong to the nation. Moreover, the government can benefit from the
economies of scale by operating as a large unit. It reduced unnecessary wasteful of
resources.

Arguments against
There is lack of competition and it is difficult to assess organizational efficiency.
Resources may be wasted due to poor quality services. It creates dependency
syndrome whereby most of the firms will be depending on the nation for funding.

22) Distinguish between nationalization and privatization.

(4)

Nationalization involves converting privately owned firms into government hands whilst
privatization involves converting government owned firms into private hands.
Nationalization involves fulltime government ownership whereas companies under
privatization are owned by different individuals. Nationalized firms are managed with a
social objective rather than profit; privatized firm operate on profit basis. Loss making
services provision can exist in nationalized firms while in privatized firms they are
completely disengaged.

23) Explain any two forms of privatization.

(2)

a) denationalization- involves the selling of government enterprises to the private

sector to maximize profit

b) deregulation –it involves removal of certain laws in relation to operation of such that
business will be run on commercial basis.

c) Contracting out – it involves allowing private organizations to bid for supply of other
services

24) Explain any 5 forms of de-integration.

(10)

De-integration is a process whereby an organization reduces its activities rather than

expanding in order to raise finance. Five forms of de integration are explained below:

a) Divestment – involves the selling of a subsidiary or part of a company. It is done

in order to get rid of the parts of the organization which are no longer profitable
 b) Contracting out - it is the hiring out of services mainly non-core activities such
as catering, cleaning and transport in the government so that the organization will
be able to concentrate on major activities
c) Management buyout – it is the process whereby the organization gives the
opportunity to workers and management in to buy shares or equity so that they
will be part and parcel of the shareholders
d) Management buy in- it is the process whereby the organization gives an
opportunity to outside members to buy shares from the organization
e) De-merger - it is the creation of 2 companies out of one existing company

25) Define the following terms

a) De-merger (2)

Refers to the creation of two companies out of one existing company

b) Divestment (2)

Refers to the selling of a subsidiary or part of the company

c) Management buyout (2)

Refers to the process whereby the organization gives an opportunity to workers and
management to buy shares so that they will be part and parcel of the shareholders

26) How useful is management buy in to an organization (2)

MBI is the process whereby the organization gives shares to outside members to buy
share from the organization. It helps the organization to maximize its profits and brings
in new ideas into the business. However, it may result in the lack of control of the
business

27) Distinguish between divestment and de-merger (2)

Divestment involves selling of a subsidiary / part of the company whereas de-merger

involves creation of two companies out of one company
28) How useful is sub contraction to a firm in the construction industry (6)

Sub contraction refers to the hiring out of the services mainly non-core activities such as
cleaning to the government so that the organization will be able to concentrate on the
major activities. It is more important for construction industry to subcontract some of its
activities because it will be able to maximize sales as well as profits.it also improves
efficiency and thus producing goods of high quality.

29) Asses the usefulness of merger to a service industry (6)

Merger is the process whereby two different companies combine their assets and
become one. It helps the service industry to maximize profit since competition would
have been reduced. Merger also helps the service industry to improve its efficiency
since better assets will have been combined. Merging makes a business more
competitive, if it has expanded. However, conflicts may arise relating to service
provision and organizational culture. Management might compete for power in the
merger hence concentration can be diverted.

30) What is the motive behind horizontal integration (3)

To eliminate competition

To gain market share

To fight against a takeover bid

To offset the weakness of one firm

31) Distinguish between a merger and a takeover (3)

A merger is when two companies come together into agreement to become one
company whereas a takeover is when two companies become one without any
agreement. There is no need to buy another company’s share on a merger but on a
takeover a bigger company buys more shares of the company and become the
controller

All two owners of the companies will become the controllers of the company whilst on a
takeover the person with more shares control the company.
32) Distinguish between vertical and horizontal integration using examples (3)

Vertical integration is when two or more organizations in different industries come

together e.g. Hot speck Timber Company can come together with Masimba construction
whilst horizontal integration is when two companies in the same industry come together
e.g. Bakers Inn and Lobels bread

Vertical integration is mainly done to avoid purchasing raw materials from the supplier
whilst horizontal integration is done to reduce competition

33) State any 3 forms of privatization (3)

De-nationalization, deregulation, contracting out

34) a) What is the importance of small firms in Zimbabwe (5)

Employment is created

They contribute to the national output G.D.P

They create competition for large firms thus leading to production of high quality
products

They widen the tax base of the government

They produce a wide range of product thus increasing customers’ choice

b) Explain the difficulties faced by small firm in Zimbabwe.

(5)

Problems in raising both long term and short term capital due to lack of collateral
security

Lack of management expertise since the owner performs all the duties

Difficulty in finding suitable and reasonable priced premises

Marketing risk arising from a limited product range

They do not enjoy economies of scale. NB/ Students should fully explain the points
above.
c) State any 4 criterias used to measure the size of the firm.
(4)

Number of employees, sales turnover, capital employed and market share and market
capitalization.

35) List any 5 Stakeholders that might wish to measure the size of the firm. (5)

Customers, suppliers, employees, local community, government and shareholders.

b) Compare and contrast stakeholders and shareholders listing examples

A stakeholder is anyone with interest in the business and is affected by the business
both positively and negatively e.g. customers, suppliers and shareholders whereas a
shareholder is someone with equity or shares in the company. A shareholder can also
be defined as an investor. A shareholder is a stakeholder because activities that take
place in the business affect him both positively and negatively.

36) State reasons why transnational corporations are parasitic to host nation (4)

Over –exploitation of natural resources when undertaking production

Social and cultural destruction especially in product provisions

Loss of control over the economy

They create competition for the local firm and this may result in the death of infant
industry. Over exploitation of labor by giving poor salaries.

37) Explain any 4 business objectives (8)

a) Profit maximization – profit is necessary to persuade owners and investors to take

risk. Firms seek to widen the gap between total sales revenue and costs.

b) Growth – managers will be motivated by the desire to see the business achieves its
full potential from which they gain higher salaries and fringe benefits. A firm can grow by
increasing its capacity.

c) Increasing market share- increasing market share indicates that the marketing mix
of the business is proving to be more effective than that of its competitors
d) survival- the high failure rate of new businesses means that to survive for the first
two years of trading is an important aim. In competitive environments for survival to be
attained a business can sell only to break even so as to enjoy existence (survival)

38) Explain the causes of over trading.

(6)

Competition fighting- A firm can rapidly expand so as to fight competition, but if the
extent of growth is beyond its control this will result in overtrading.

Ineffective working Capital-This can be inadequate to sustain business activities

Temporary outburst of marketing opportunities- Opportunities which a business is

made aware of, if not available overtrading may result.

Over optimistic views about the future- The firm can increase production with the
hope of an increase in demand and this may result in overtrading, if production exceed
demand.

39) Define the term over trading (2)

It is when the organization undergoes a rapid expansion without adequate finance to

support the growth.

40) State any two strengths of an organization in the manufacturing industry (3)

Large capital base

Highly valued goodwill

Attraction of expertise (workforce)

41) Explain any two ethical constraints which affect business in your country (4)

Corruption – unequal allocation of resources affects business operations. Smuggling of

goods which are illegal, affects other businesses negatively because those goods will
be sold at cheaper price thus reducing sales volume of other companies
Discrimination- this encompasses racial, tribal and sexual discrimination

Nepotism – which is the favoring of relatives or personal friend when conducting

business. This usually affect efficiency and it usually exist in tender awarding

42) Evaluate the impact of interest rate to a TV manufacturer (4)

Interest rate refers to the cost of borrowing from financial institutions. High interest rate
reduces the capital base of the TV manufacturer since he/she will avoid borrowing more
due to high interest rate. However, low interest rate increases the capital base of the TV
manufacturer because it will be easy for the manufacturer to pay back the interest as
well as loans. However, higher interest as well as the loans. Moreover, higher interest
rate increases the gearing of a company which is not healthy for the operation of the
business. Furthermore, higher interest rate may increase the cost of production thereby
raising prices.

43) State any 2 legal constrains which affect business in your country (2)

Price control, employment laws and environmental protection laws.

44) Distinguish between macro and micro constraints using examples (3)

Macro constraints are long term external problems that business cannot control for
example political and economic constraints whereas micro constraints are internal
problems that a business can control e.g. turnover of managers and employees

Macro is external environment whilst micro is the business internal environment. Macro
is beyond the firms control whereas micro is within the firm’s control

45) State 2 economic elements which affect business in your country (4)

Inflation, interest rates, exchange rate and import restrictions.

46) Discuss the usefulness of fluctuation in the exchange rate to business in the
country.
(4)
Fluctuation in exchange rate means changes in the value of the local currency
compared to other currencies. When the local currency appreciates its value, local
business will be able to purchase raw materials overseas at cheap prices and export
finished goods at high prices. However, when the local currency depreciates its value,
business people will be exporting goods at very cheap prices thus reducing their profits

47) How might an ageing population affect the manufacturer of consumer goods
(4)

The ageing population affect the producer of consumer goods in two ways. Positively, it
increases the sales volume of the producer of consumer goods due to the payment of
pensions. Negatively, old aged people prefer very cheap products and have a few
source of income which discourage them from buying expensive grocery shops. Tastes
and preferences can alter leading to the need to change the product so as to suit the
ageing population needs.

Assess the effectiveness of a fluctuating exchange rate to a manufacturing

business (25).

The external environment in which the organization operates in not static but highly
dynamic and competitive. In order to survive the international market, there is need for
effective strategies. Evaluation of exchange rate fluctuations is of paramount
importance to a manufacturing business which exports and imports goods and services.

Exchange rate was defined by management scholars as the value of a country’s

currency. Therefore, it is the value of a currency in relation to a foreign currency or
group of foreign currencies, for example, if the exchange rate of the US$ to ZAR is $1:
R10 this means that one US dollar is equivalent to ten South African rands. An
exchange rate can depreciate or appreciate due to changes in the demand and supply
of a country’s currency which can be beneficial to a manufacturing business such as
Delta Beverages.

If the manufacturing company imports foreign raw materials and other components from
foreign countries, it will gain from an appreciation of the country’s currency. This is
because it becomes cheaper to import raw materials there by reducing the cost of
producing goods and services. Therefore, the manufacturing firm such as delta
beverages may end up charging lower prices for their products giving it a competitive
edge.

An appreciation of a country’s exchange rate will also mean that the manufacturer of
goods such as Olivine will gain since it becomes more profitable to sell goods in the
international market. This means that the firm’s retained profits will be high thus
providing room for further investment.

Appreciation of a country’s currency may also bring about a favorable economic

environment to a manufacturing firm. This is because appreciation of a country’s
currency externally may reduce imported inflation making it easier for a firm to
implement right strategies. Therefore, a reduction in inflation may mean that the
consumer’s disposable income has also increased. As a result, most manufacturing
firms will expand since they will be higher purchases which will also yield higher profits.

Manufacturing firms that sell in the domestic market will gain a competitive advantage
from an exchange rate depreciation since they will experience less price competition
from importers. Prices of imported goods and services are likely to rise on the domestic
market. So, the manufacturing firm will gain a competitive advantage on the domestic
market hence increasing its market share.

However, fluctuations of exchange rate are not always favorable to a manufacturing

firm. These changes may lead to a downfall of many manufacturing businesses, for
instance, the closing down of David Whitehead Textiles due to uncertainties of
exchange rates in Zimbabwe.

When there is an exchange rate appreciation, businesses that sells goods and services
to the domestic market will benefit as appreciation will make imports cheaper. This
means that it will make domestic producers less competitive in their own market.
Therefore, consumers of manufactured goods might switch to imported goods because
of cost advantages they have over home produced goods.

This manufacturing company can also lose from an appreciation of exchange rate when
importing goods and services since the demand of the domestically produced goods
might fall because of higher costs of the products in terms of the foreign currency. So,
this may lead to a downfall of many manufacturing organizations.

Home based manufacturing businesses are likely to gain from the depreciation of
exchange rates. When they depend heavily on imported supply of raw materials. These
costs will rise the firms’ prices automatically hence reducing its competitiveness in the
market. Therefore, customers will switch to imported goods which may result in low
profits.

Therefore, on my point of view, businesses can develop strategies to cope with

exchange rate fluctuations. A manufacturing business would try to balance the value of
exports and imports. For instance, if the value of the US dollar rises, the manufacturing
firm lowers its import prices in US dollar to leave the foreign currency prices the same.

In conclusion, fluctuating or changes in the exchange rate of a country is beneficial to a

manufacturing organization such as Delta since its advantages outweigh its
disadvantages therefore it is of paramount importance.

Discuss the likely effects of changes in technology to businesses in your country

(25).
In business, innovation is the commercial exploitation of an invention. An invention is
not usually in the form that consumers will buy but it might be a creative process which
use human and scientific resources to solve problems and generate better efficiency.

Technology means the use of tools machines and signs in an industrial context.
Technological change is affecting all businesses and departments within businesses in
Zimbabwe for example Delta Beverages, Zimbabwe.

A change in technology results in labor costs being reduced in an organization as

machines replace many workers. A job that was being done by many people can now
be done by one person operating one machine.

Companies like delta beverages which were using computer aided manufacturing
increase their productivity. The variable cost per unit was lower than in non-
computerized processes. More can be produced with less as result businesses can gain
higher profits. In addition, fewer of the environment’s resources can be used up.

Technology also improves the quality of the products. This is because machines are
more precise and consistent than humans, for example, computerized welders in car
factories like the Willow vale Mazda motor industry can maintain a consistent and high
quality word indefinitely once they have been programmed. This will help to improve the
quality of cars they produce.

Introducing new technology often results in time being saved and fewer materials being
used. For example, technology has created printing machines which waste less paper
when printing books or magazines. The ways in which resources are used by the new
technology makes them available for use by the future generation.

Statistics on accidents at work show that the working environment is safer as a result of
new technology. Mining and manufacturing industries in particular has benefited.
Modern equipment has made work easier and tolerable. For example, forklift trucks
mean that workers no longer need to work by hand. These improvements also help to
remove worker dissatisfaction.
Many products have come on the market in recent years due to technological
improvement. New products mean wider consumer choice and possibly high living
standards. With new technology on the production department, this means that firms
can take corporate social responsibility into account as these machines limit pollution of
air and water sources.

Technology has improved business communication, for example a company in

Zimbabwe can now be able to communicate with its branches all over the country using
video conferencing. Faster means of communication has resulted in businesses being
able to meet the need of their consumers in time.

Technology has also resulted in higher incomes. If a firm enjoys greater profits it can
afford to pay higher dividends to shareholders and higher wages to employees.

However, the introduction of technology can also cause problems for businesses.
Development, installation and maintenance can often prove costly. Also, businesses
may have to lay off and retrain staff leading to redundancy payments and retraining
costs. Production may be changed from batch to flow production. Job description may
be changed and in some cases a larger and smaller plant will be needed.

New technology destroys or disrupts labor relations. Trade unions resist the introduction
of some technology because of the threat to their members of losing jobs.

Technology creates jobs which require new technical skills but replace manual jobs.
These new jobs cannot be done by the existing workforce unless it can be retrained
which is often costly to businesses.

New technology can be affected by information and technology problems for example
computer software can become infected by viruses. A computer virus is a program
written to deliberately damage or destroy software and files. This will result in firms
losing their important business files.

Breakdowns in an automated production or automated system can lead to the whole

process being halted. This will result in shortage of products on the market resulting in
firm losing their market share and suffer from revenue loss.
In conclusion technology is of great importance to an organization if it is to gain a
competitive edge. As the benefit of using new technology outweighs its disadvantages
new technology is being used by firms to enable it to reach its corporate objectives and
goals.

Evaluate the benefits of privatization to the stakeholders in the economy of your

country (25)

Efficiency and productivity is essential for the success of an organization in a business

environment that is usually prone to internal and external forces that may hinder
progress of an organization. This can be achieved mainly by privatizing firms.

Management scholars defines privatization as a way of switching production of goods

and services from the public to the private sector. Therefore, privatization is the process
of transferring state owned enterprises or public corporations or parastatals to the
private sector. For example, in Zimbabwe, there are companies that have been
successfully privatized which include the cotton company of Zimbabwe, Dairy board
Zimbabwe and Zimbabwe Insurance Company.

Privatization benefits a customer as a stakeholder in that it increases competition and

efficiency. With more competitors on the market, producers will be forced to provide
better and cheaper goods and services. This will give consumers a variety of goods to
choose from. However, privatization leads to the formation of private monopolies when
firms merge. This will result in exploitation and manipulation of consumers by charging
exorbitant prices.

Government also benefits because, sale of nationalized industries can raise finance for
government which it can spend on other state projects. The government through
taxation can also be able to provide unemployment benefits to their citizens when it
taxes privately owned firms. However, through privatization, government may end up
losing strategic industries leading to loss of control in the economy. This might lead to
hyperinflation due to a general price rise of basic commodities.
Privatization also benefit employees since It puts responsibility of success firmly in the
hands of the managers and staff who work in the organization. This can lead to strong
motivation as they have direct involvement in the work that they do. There will be higher
sense of empowerment. However, privatization results in private monopolies emanating
which normally exploits both human and non-human resources by offering them
remuneration packages that are poor. This will lead to low living standards and
continuous industrial actions that disturb the economy.

Creditors also benefit through privatization. This is because, there is going to be

increased demand for loans and lines of credit. Private firms usually inject more capital
into the business as they are profit- oriented. This will lead to increased demand for
loans. Due to high return made by firms, creditors will benefit from interest from their
loans. Private firms have collateral security that if they could not pay back the loan they
can easily sell its assets to pay it back. However, private firms can easily go bankrupt
compared to nationalized firms. This will lead to creditors losing a lot of money normally
when the liquidation process does not yield any return.

The society can also benefit when industries privatize. There is creation of employment
and development of infrastructure in the operational area. Goods and services are
provided at cheap prices as these firms will be trying to fight competition. This process
can also lead to improved standards of living. However, this process can also be done
at the expense of the society. Private firms do not take into account the social corporate
responsibility which entails that society should be considered in production. They can
achieve their productivity at the expense of negative externalities in the form of
pollution, for example, industries have been discharging wastes in Mukuvisi River which
empty its contents in Lake Chivero which is a source of drinking water for Harare
residents.

Privatization also benefit investors because they can be able to invest in efficient firms
that will in the long run give them higher returns on their investment. However, investors
can also be short changed by private firms. They can window dress their accounts in
order to impress their investors but they can be operating on a loss making basis.
In conclusion, privatization benefits the stakeholders but rather than privatizing firms the
government can just commercialize. This is when the firms are partly owned by the
government and partly by the government sector (a feature of command or socialist
economy). This will enable the government to regulate and prevent any form of
manipulation of stakeholders, for example poor salaries and high prices and poor quality
products.

‘Transnational companies are parasitic to the host nation so they should be

discouraged’. Discuss. (25)

In business and all commercial activities, the interdependence of activities from different
sectors is vital in the sense that there will be diversification of services and goods
provided for the consumers, thus the relevance of exports and imports is of utmost
importance.

According to management scholars, transnational companies are those companies with

many branches in different countries but their headquarters are situated in the parent
country. Transnational companies can also be called multinational companies since
they can operate regionally, nationally or internationally. They bring about some
negative externalities to the host nation in different ways as discussed below.

Transnational companies tend to operate in countries with high rate of unemployment

such as developing countries. The high level of unemployment mean that a lot of people
will be seeking jobs. This is most likely to drive the wage rate down leading to
exploitation of cheap labor by multinational companies. This will later on cause civil
unrest and industrial disputes. Safety at workplace is often foregone by these
companies so as to reduce their operational costs.

Transnational companies often bring obsolete technology into the host nation as they
treat these countries as dumping grounds, for example, in Zimbabwe, we are always
lacking behind in terms of technology as a result international companies such as Japan
car manufacturing company frequently brings used vehicles which emit high levels of
greenhouse gases. These cars will be sold at low prices. This brings about too many
problems to Zimbabwe as too many cars will cause air pollution which can lead to the
destruction of the ozone layer by the poisonous gases such as Sulphur dioxide being
emitted into the air and acid rains which destroy the flora, fauna and the aquatic life.

Multinational companies tend to utilize all resources they see lying idle and once they
are exhausted they leave the area under developed. Taking for instance, Murray’s, a
mining company based in Australia, Germany, Sweden, South-Africa and also Egypt,
carried out operations in Murambinda and when the area was no longer productive they
relocated back to south Africa. The area is now facing the problem of land degradation
due to the trenches that were dug there. This causes environmental problems to the
host nation.

Transnational companies often bring their skilled personnel to always occupy top
positions in the host nation. They also train the locals using outdated equipment which
is usually less efficient. This will also cause problems to the host nation as our country
we want local empowerment since it is hard to develop if the local people do not occupy
top positions. Moreover, most of the transnational companies end up indulging in the
politics of the local country and they also result in culture decadence.

However, transnational companies also bring about some advantages to the host nation
in a number of ways as discussed below.

They bring in many goods and services from their countries thus increasing consumer
choices thereby improving the living standards. There will be great diversification of
goods in the market and consumers will have a variety of goods to choose from. This
tend to raise the living standards of the local as they now have access to internationally
accepted goods and services, for example in Zimbabwe, multinational companies such
as Shoprite and OK International have their branches in different cities of Zimbabwe
and goods and services provided in Europe are the same provided in Zimbabwe.

Transnational companies often engage in intensive training for locals for productivity to
be high as they bring specialized machinery from their host country. On the job training
is often done in many countries. In Zimbabwe for instance, Willow vale Mazda Motor
industries often train apprenticeships to the locals while they are on the job.

They often bring foreign currency to the host nation as they will be exchanging their
money to the host nation’s currency. This is a merit to the host nation as the foreign
currency is much needed and will be used in many sectors of the government.

Transnational companies often make the host nation known to the rest of the world and
lead to many tourist being attracted to the host nation. They also provide a passage for
many people to gain access to the host nation. For instance, Fly Emirates have their
planes landing at the Harare international airport leaving for major destinations such as
the United Kingdom and Germany.

The entry of the companies will also lead to increased competition for the locals. This
will lead to the reduction of prices of goods and services as there will be many
competitors in the market. Some prices of goods are similar to those offered in other
countries so multinational companies often do not engage in price discrimination, for
example, the coca cola company, the price per bottle offered in Zimbabwe is the same
as that offered in South Africa, and thus, this lowers inflation.

Conclusively, multinational companies are not parasitic to the host nation as they bring
about many endless merits to the host nation and above all they help develop the host
nation.
Explain the role of small firms in your country (10)

Small firms are regarded as organizations that employ a smaller proportion of capital
and often operate on a small scale compared to big companies. They play a pivotal role
in Zimbabwe as they assist in the filling of segments of markets left out by big
companies.

Small firms help customers by breaking bulk goods into smaller units that are affordable
to consumers. Small firms sell goods in smaller quantities as compared to big
companies.

They fill in the gap which is left out by the mass market that is they serve the niche
market. They identify where in the market there is a gap and where customers are not
being served quite well. They set their retails and shops there and provide the need of
the niche market.

Most small firms for example kiosks open for flexible hours and are situated near
customers’ houses. Customers are able to purchase goods without needing to travel
longer distances as well as purchasing goods even at late ours or early in the, morning.

By providing and selling goods at a relatively cheaper and affordable price they help in
the reduction of prices of goods offered by big firms. Big firms willing up reducing their
prices so as to fight competition in the market with small firms. The result of this will be
the reduction of inflation levels.

Some small firms also increase the country’s gross domestic product as well as income
generation of the government of our country. Some small firms pay taxes for their
operations and this increase revenue for the government due to corporate tax and also
indirect taxes.

Small firms help in the country by completely finalizing the distribution channel of goods
and services. This is so because they bring goods and services direct to the final
consumers for use and consumption. They help in the satisfaction of human needs and
wants as far as goods and services’ allocation in the market is concerned.

Therefore, one single factor alone cannot completely show the relevance of small firms
in our country but a fusion of these ideas fully elaborate the significance.

How would the government of your country solve the problems faced by small
firms (15)?

The government in particular of Zimbabwe can mitigate problems faced by small firms in
our country in number of ways. This is so because the government forms the back bone
of small business operations as it controls everything in terms of exchange rate,
inflations levels, prices of goods, standards of goods, imposing taxes and legal
documents/

The government of Zimbabwe can help solve the problems of lack of sufficient capital
by small firms. Small firms operate on a smaller scale mainly because the capital
injected in the business at start is relatively smaller. However, the government can help
solve these problems by giving grants to small firms that is financial help to small firms
for them to improve working capital in their firms.

The government can also put higher import restrictions so as to discourage foreign
goods in our country just for the sake of trying to protect the infant industries. It can also
issue out embargoes which is the discouragement of foreign trade within our country
with neighboring ones. On doing this, locals are encouraged to purchase more goods
from small firms thus ensuring their survival.

Government can also provide professional courses in business management to train the
managers of the small firms. By doing so the individuals will be well versed with the
business activities and the environment thus they will have goods planning and sharp
focusing. An example of such a degree is leadership and business management offered
at Great Zimbabwe University.

The government of Zimbabwe can also assist small firms in our country by reducing the
level of taxes imposed. Taking for instance, it can reduce the value added tax as this
will add the excise duty just for the small firms to improve their net profit margin. If these
taxes are very high this means that their retained income will be eroded away.

The government can also assist small firms by providing them with loans. This will be
long term borrowing of money from the banks just for them to fight changes in the
business environment they will be maybe facing a lump or depression. By securing
these funds, small firms area able to ensure their continuity and survival.

There are also some small firms registered by the government and usually suffer from
the consequences of unlimited liabilities and legal documents required are too
demanding and too long. The government can therefore assist small firms by
encouraging them to form partnerships so as to curb the risk of losing their private
properties in the event of going bankrupt.

Therefore, small firms can be assisted by the government of Zimbabwe as it provides

with financial help as well as advices and solutions to their problems.

Evaluate the significance of small firms in the economy of your country. (25)

There is no universal definition for small firms but they are described as the business
saving less than 25% of its market share. Furthermore, small firms can be defined as
firms with a small number of workforce and an informal organogram.

Small firms are important to the economy of Zimbabwe since they reduce the rate of
unemployment although small firms do not employ large number of workers.

More so small firms might subcontract with MNCs and supply with raw materials and
this increase or brings foreign currency hence contributing to the growth of the
economy.

In addition, small firms aid monopoly practice and by this the large firms might not
charge high profits hence customer protection and this leads to efficiency of firms
thereby contributing to the growth of the economy.
Furthermore, small firms increase the gross domestic product (GDP) of the country and
this lead to the growth of the economy of Zimbabwe.

Moreover, JIT uplifts the standard of living since there is higher provision of quality
goods due to stiff competition posed by small firms to large firms.

Furthermore, small firms contribute to the growth of the economy by saving the niche
market that is neglected by large firms.

More so small firms are able to utilize the all available resources and this might lead to
the growth of the economy of Zimbabwe.

In addition, small firms also lead to production of better quality and cheap goods since it
pose competition to large firms.

However small firms lack ability to innovate and this can lead to closure of firms thereby
deploying few workers that they employ.

More so small firms lack effective research and development which is very important to
the success of the business and by this it leads to firm failure.

In addition, small firms have limited ability to expand which might reduce the foreign
currency thereby reducing the growth of the economy of the country.

Furthermore, small firms suffer competition from large firms and this lead to closure of
small firms and this might reduce the growth of the economy.

Moreover, small firms do not necessarily reduce the risk of unemployment since it only
employs few workers from 1-6 per firm.

Conclusively small firms are of greater importance on the growth of the economy since
it contributes a lot a lot on the growth of economy of Zimbabwe.
Evaluate the impact of social and legal constraint to Zimbabwean organizations
(25)

Business organizations can be seen as a system of converting inputs to create output.

Social and legal constraints play a fundamental role to Zimbabwean organizations.
According to some management scholars, constraints are factors that hinder or prevent
organizations from attaining its objectives. Therefore, a constraint is a factor that have
both negative and positive impact on the success of Zimbabwean organization like
Delta.

Social factors have contributed a lot to Zimbabwean organizations because of their

impact on the pool of available labor and on the purchasing behavior of people in
society. A growing population is beneficial to firms in increasing the size of potential
market and in terms of increasing the available supply of labor. However, slow
population growth will act as a constraint on the firm both in terms of market and
available supply of labor.

Better provision of educational facilities is increasing literacy and leading to more skilled
and adaptable workforce and this will in turn lead to an increase in productivity and
efficiency. An ageing population can cause a change in patterns of demand as a greater
number of grey customers (old people) demand different types of goods from those
demanded by teenagers. In this case a firm operating in an environment that has old
people must produce what is being favored most by consumers in order to maximize
their profits. Market research will be important for a business that consider the demand
for the portfolio of products could change due to aging population.
Lifestyle refers ways in which people live and spend their money. Zimbabwean
organizations must first consider the way in which people live before starting their
operations. Lifestyle is of significance to a business because there is need to move
hand in hand with what is most needed for example trends in fashion. Changes maybe
favorable or unfavorable.

Culture is another factor which means the customs, belief, values and achievement of a
society that are handed down through generations. It a is socially transmitted and
learned behavior that have profound impact on what we buy. Therefore, the firm must
be aware of the culture of a society as a product that is acceptable in one culture might
be unacceptable in another.

Changes in fashion and tastes can be both unfavorable and favorable to the customers.
Therefore, if changes are unfavorable to the customers, losses are bound to be made
and however if changes are favorable firms will maximize their profits as well as sales.

Legal constraints have also contributed to the organizations in Zimbabwe.

Organizations work within a legal framework that resolve disputes and regulates
behavior for the benefit of the community. Legal factors protect businesses from unfair
competition and take over by hostile companies. Legal factors allow for orderly conduct
of business providing a degree of certainty and stability. In this case business will be
trading and operating fairly on the market.

More so legal factors aim to protect workers from discomfort and physical injury at work.
Providing a healthy and safe environment in which work is now a legal requirement in
most countries.

Nearly all governments pass laws to control the relationship between employees and
employers. Their main aim is to prevent exploitation of workers by powerful employers
and prevent loss of industrial output and rational income from excessive use of trade
unions.
However, legal factors add to a business cost. These costs will include employment of
more staff to avoid working for long hours for existing workers. Higher wages costs if
less than minimum wages are being paid before the law was introduced

Furthermore, where business activities cause an offence they are subject to regulation
and licensing leading to reduced profits. This regulation places a constraint on business,
limiting what it can do or compelling a firm to undertake action they would otherwise not
perform.

In conclusion, caution has to be taken by organization when dealing with these

constraints in order to address their possible negative impact.

Discuss the arguments for government to continue ownership of public

organizations (10)

Certain important goods and services are provided by the state run organizations as it is
argued that they are too significant to be left to the private business. These include
health and education services, defense and public law and order. Also another reason
for government continued ownership of public organizations is to provide goods that
cannot be charged for by the private sector. These include public streets lights.

The government continued ownership of public enterprise can also be known as

nationalization, it enables that the state needs to provide social services which the
private sector may not be willing to provide simply because the provision of such
services are non-profitable or not profitable.

Government continued ownership of public enterprise cab enable an organization to be

managed in such a way that they can provide service and public goods which benefit all
classes of the society regardless of color or gender. Profits generated belong to the
nation and will be used to finance other sectors of the economy. For example, profits
generated from a sector; like tourism can be used to finance other sectors of the
economy like agriculture or health.
However, public ownership of enterprises by the government have been criticized on
the ground that poor quality products are produced due to lack of competition which will
cause a breeding ground for inefficiency.

There is also a greater possibility of resources being wasted as goods are produced
without considering the market process of demand and supply. This will lower the living
standards since people will not be exposed to a range of products. Some public
institutes rely on the government for financial assistance, policy direction and this may
create dependence syndrome. In other words, this will increase government
expenditure and reduce government revenue.

In conclusion, a government continued ownership of public enterprises must be

reduced in order to open up firms through the use of privatization.

Why might management set growth as an objective? (10)

There are many benefits that are enjoyed from being large. These benefits include
economies of scale and have made management to set growth as business objectives.

An objective is something that is set to be achieved. Growth is one of the long term
objectives of a business. Management may not want to remain small for a various
reason like loss of control, avoiding too many risk and also preventing workloads from
being too heavy. Growth can either be internal or external.

Internal growth is the expansion of the business by means of opening new branches or
shops. It can also be known as organic growth. It can also be defined as the expansion
of business by utilizing its retained or accumulated earning over time.

External growth is business expansion achieved by means of merging with or taking

over another business from either the same or different industries. It can also be called
integration since it involves bringing together two or more firms.

The management seeks to achieve growth as an objective because of a number of

possible reasons which include increase in profits, increase market share, increase in
economies of scale, power and status and this reduces risk of being taken over.
Profit maximization is the main aim of the owner and the directors. The management
might set growth as an objective because expanding the business either internally or
externally can achieve higher sales in one way becoming more profitable.

Growth can enable a business to enjoy economies of scale. Economies of scale are
advantages enjoyed from being large. This will give a business a higher market profile
and greater bargaining power with both suppliers by buying at a lower price and
retailers.

Also, growth can enable an organization to have increased market share. This will be
obtained by means of large volume being purchased and also consumer loyalty. This
will give a business a higher market profile.

There are also power and status of the owner and directors being increased. For
example, the opportunities to influence. The community project and government policy
will increase if the business is controlled by management is large and well known.

Also growth reduces the risk of being a takeover target. A large business may become
too large to target for a potential predator company due to strong finance and
background. Management can also set growth as an objective for a better return in form
of wage increment and also a strong job security.

In conclusion, management set growth as an objective because other objectives such

as profit, sales maximization and corporate social responsibility can be attained by
growing large.

Discuss how and why government might seek to influence growth in your
country (15).

The macroeconomic policies of the government may have an adversely or positively

effect on the growth of many businesses. In this case the government must set these
policies with caution to prevent withdrawal of firms from the industries. The government
can influence the growth of businesses in our country but alter its monetary policy by
decreasing its interest rate and this may result in a positive impact on a business.
The government may reduce interest rates to increase the purchasing power on
consumers. This will increase the consumer spending and reduce savings. Sales will
increase there by increasing the profitability of a business

Moreover, due to a decrease in expenses and rise in revenue it is quite possible that the
business will try to increase its operations. These will enable a business to gain a strong
background so that it may integrate with other companies.

A merger of two or more firms will increase government revenue through the payment of
taxes. These funds would be used by government to finance some sectors of the
economy thereby encouraging economic growth.

More so the government should maintain a favorable fiscal policy. The fiscal policy of a
government is concerned with taxes which are a source of government revenue. In this
case the government can influence the growth of businesses by lowering the tax rate. If
the taxes are reduced, then the profit of business may rise as lower taxes will now be
paid by businesses. Disposable income will go up leading to high sales.

The government might influence the growth in our country because due to high sales,
the business will increase its capacity and pursue sales revenue maximization thus also
profit maximization. This will reduce staff redundancy as the business will have enough
funds to cater for the welfare of its employees. This will help the government to solve
one of its macro-economic objectives of reducing the level of unemployment.

In conclusion, the government might seek to influence business growth in a country by

maintaining favorable policies which in turn will increase the level of economic growth,
increase employment opportunities, it enables a firm to be competitive on the
international market and also there will be consumer sovereignty.
Evaluate the impact of internal and external and external factors that are likely to
influence the success of a business’s organization of your choice (25)
Business organizations can be seen as resources conversion system in which inputs
are combined together to create outputs. There are many factors that influence the
success of a business organization like Delta. These may be internal factors including
labor capital, material and land, whilst there are also external factors which include
political economic, legal and social
The availability of faster and skilled labor can lead or influence the success of a
business. skilled workers know what is expected from them and contribute immensely to
the success of the organization. Their expertise is combined to bring out quality
products that has high quality thereby influencing the success of the organization.
However, if the organization do not treat these skilled employees with caution it might
lead to the meltdown of the organization. Fair remuneration packages and good
leadership style are also required in order to keep and maintain the skilled labor force.
The availability of capital can also influence the success of the organization like Delta.
With enough capital, the firm can invest in high return investment projects increasing the
success of the organization. However, mismanagement of capital might result in cash
flow problems and failure to payback debts resulting in liquidation of the organization.
The external factors also contribute to the success of an organization. Legal factors or
the legal framework within which the business operates in resolve disputes and
regulates behavior for the benefit of the community. It also protects the business from
unfair competition and take overs by hostile companies. However, where business
activities cause an offence or nuisance, they are subject to regulation and licensing.
This legislation places a constraint on the business, limiting what it can do or compelling
firms to undertake action they would not perform. Consequently, the legal environment
adds to the cost of operations.
Furthermore, the economic variables have an impact on both the supply of resources
and the demand from customers. These factors include rate of growth of output and
income level of employment, rate of inflation, the exchange rate and balance of
payment. Government policies on interest rates and taxation will determine the success
of a firm to attain its objectives. For example, high taxes increase the cost of production
and high interest rate reduces domestic investment as the cost of borrowing would be
high.
In addition, political factors have a great impact as they consist of state and trends in
politics. The state acts to regulate, encourage and guide the private sector of the
economy. This takes the form of cash subsidies or tax concession to encourage
desirable trends. These factors lead to a positive influence on organizational success.
However, uncertainty in political environment has a direct impact on business
organizations. Investors will not invest in a politically unstable environment due to
uncertainty of policies resulting in lower investment.
More so technological changes also provide both opportunities and threats. It results in
change in the process of production and in size and type of work force required. It also
economizes on the number of staff, but place a greater emphasis on the skills and
quality of staff. However, technology have an implication for the type of workers
required and therefore the way they should managed.
Furthermore, social factors have an impact on the business. Changes in society are not
confined to changes in the size and age composition of the population. Life style values
and beliefs, religious background of society and socio- economic classes are also
subject to change. These are significance to business organization because they impact
on the pool of available labor and on the purchasing behavior of people in the society.
However, business operations that affect the society negatively might lead to firm
closing. The greater the pollution that is emitted to the environment putting the health of
the society at risk. The result will be high cost of production through pollution tax.
In conclusion, many factors play a pivotal role towards the success of the business
organization. Examples are political, economic, technological, availability of capital.
These contribute immensely to the success of an organization. However, caution has to
be taken by entrepreneurs in dealing with these effects in order to address their
possible negative impact
 CHAPTER 2

Human Resources management

 QUESTIONS

1) Define the term human resources management (2)

2) State any 4 functions of human resources management (4)

3) Differentiate personnel management and human resource management (4)

4) How useful is human resource department to a timber manufacturing firm.

(6)

5) Justify the need for a human resource department to a timber

manufacturing firm (5)

6) What is the difference between recruitment and selection (3)

7) Define the following terms

a) Recruitment (2)

b) Selection (2)
8) Explain any two internal and two external sources of recruitment.
(4)

9) Differentiate internal and external recruitment using examples.

(3)

10) Explain any three factors which affect recruitment.

(6)

11) Define the term job analysis.

(2)

12) Explain why job analysis is of great importance when recruiting a new
accountant (2)

13) Why would a firm prefer to use internal recruitment than external
recruitment when recruiting a new accountant (2)

14) How useful is external recruitment to a cement manufacturing firm (4)

15) Assess the usefulness of internal recruitment when recruiting a new

accountant (4)

16) How useful are employment agencies in recruiting employees.

(4)

17) Give two reasons why most of the organizations are now using
employment agencies in recruitment (2)

18) Draw up a job analysis for a typical secretary. (6)

19) Differentiate job specification and job description. (3)

20) Evaluate the usefulness of job analysis to a firm in the manufacturing

sector (6)
21) Explain any three factors that influence selection process (6)

22) Explain the selection process of an organization of your choice (25)

23) Define the term shortlisting in selection (2)

24) Explain any three types of tests used in selection of employees (6)

25) How useful are interviews in selection of an employee for a job (6)

26) Explain any two types of interviews (4)

27) Give reasons why medical examinations are important when recruiting
new employees (4)

28) What are the contents of a medical examination (4)

29) How useful is the contract of employment when recruiting new employee
(6)

30) Justify the need for induction training to a manufacturing firm (4)

31) Distinguish training and development (2)

32) How useful is training to a manufacturing firm (4)

33) Explain any two methods of training (4)

34) Give any two on the job and any two off the job training methods (4)

35) Define the term training (2)

36) What is a training program (2)

37) Evaluate the usefulness of on the job training to a manufacturing firm (4)

38) Under what circumstances might a firm adopt on the job and off the job
training (4)
39) Define the term performance appraisal (2)

40) How useful is performance appraisal to a firm in the service industry (6)

41) Distinguish between performance appraisal and performance

management (2)

42) What are the problems associated with performance appraisal (3)

43) Define the term job evaluation (2)

44) Is job evaluation necessary to a manufacturing firm (6)

45) Assess the usefulness of human resource (manpower) planning to a service

sector (6)

46) Define the term collective bargaining. (2)

47) Assess the usefulness of collective bargaining to an organization in the

manufacturing sector (6)

48) Justify the need for collective bargaining to an organization (4)

49) What is a strike (2)

50) State any three organized and three unorganized forms of industrial
action (6)

51) Define the term labor turnover (2)

52) Explain the causes and effect of labor turnover (5)

53) How might management attempt to reduce the level of labor turnover (5)

54) State any three causes of strike (3)

55) State any three costs of strike (3)

56) Define the term industrial relations (2)

57) What are the indicators of poor industrial relations (4)

58) How would you attempt to overcome poor industrial relations (4)

59) What effect does worker involvement and participation have to an

organization (6)

60) Show how and why management might encourage effective worker
participation in an organization (25)

61) What role does the following play to an organization?

a) Health and safety (4)

b) Trade unions (4)

c) Workers’ committee (4)

62) A newly appointed personnel manager has announced that there are poor
industrial relations in an organization.

a) What symptoms might he have observed (10)

b) If you were a personnel manager how would you attempt to ensure good
industrial relations (15)

63) Evaluate the methods which can be used by an organization to assess the
effectiveness of a personnel manager (25)

64) How might a firm gain from employing a personnel manager (25)

65) Explain the reasons why organizational change is inevitable (4)

66) State any four causes of change (4)

67) Explain any two methods of change (4)

68) Why do worker resist change (4)

69) Why may fear lead to resistance to change (4)

70) Explain any three strategies that a firm might employ to manage
resistance to change (6)

71) How do workers resist change (4)

72) Evaluate the different methods which can be used by an organization to

effectively manage resistance to change (25)

73) Define the term conflict (2)

74) State any four causes of conflict (4)

75) Why is organizational conflict inevitable (4)

76) How useful is conflict in an organization (6)

77) How might a firm attempt to resolve conflict (6)

78) Evaluate the different methods that a firm might use to manage conflict
(25)

79) ‘Organizational conflict is not always detrimental’

What might be the possible benefits of conflict (4)

80) What factors might determine the choice between on the job and off the
job training (6)

81) Give reasons why conflict is inevitable in a large organization (4)

82) Discus how a firm might resolve the pay dispute with the workers (10)
NB Show advantages and disadvantages of negotiation, conciliation and
arbitration etc.

83) Critically examine the schemes managers might use to widen the employee
participation in the workplace (15)

NB include evaluation of scheme like quality circle, MBOs, team working,

working council etc.

84) Evaluate how human resources management might affect success of a

business (25)

85) Discuss how managers should worry about high labor turnover (12)

86) ‘The training of workers is an unnecessary business cost’ To what extent

do you agree with this statement (12)
ANSWER

1) Define the term human resource management (2)

It is the strategic approach to effective management of an organization’s workers

so that they help the business to gain a competitive advantage. It is the
management of people at work.

2) State any 4 functions of human resource department (4)

Recruitment and selection of workers

Training and development of workers

Job evaluation

Conflict management

Motivation of workers

Policy initiation and formation

Man power planning

3) Differentiate personnel management and human resource management (4)

Human resource planning is a modern term whereas personnel management is a

traditional term.

HRM Personnel management

It is a modern term It is a traditional term
Manpower is treated as an asset Manpower is treated as a machine/
tool of work or liability
Decision making is fast Decision making is slow
Grievance are handled through the use Grievance are handled through the
of trade unions workers committee or works’ council

4) How useful is human resources department to a timber manufacturing firm

(6)

Human resource department is of great importance to a timber manufacturing firm

because it helps in recruitment and selection of workers. It also helps in the
motivation of employees to achieve the objectives of the organization. However,
the human resources department may increase its costs to the firm and there is need
for other departments such as finance, marketing and production.

5) Justify the need for human resource department to a timber manufacturing

firm (5)

Human resource department is of great importance to an organization since it helps

in recruiting and selection of new employees. It also works hand in hand with other
departments such as finance and production. The human resource department also
helps the timber manufacturing firm to produce more timber because workers will
be motivated by the human resource department to work hard. Moreover, the
human resource department will be responsible for training, inducting, appraising
and counselling of new employees.

6) What is the difference between recruitment and selection (3)

Recruitment is the process whereby an organization attracts a pool of potential

candidates whereas selection is the process of identifying those candidates who
meet the expected standard of the job. Selection is done just after recruitment.
7) Define the following terms

a) Recruitment (2)

Recruitment is the process of attracting a pool of potential candidates for a job.

b) Selection (2)

Selection is the process of making a choice or identifying those employees that

have been recruited who meet the expected standards of the job

8) Explain any two internal and two external sources of recruitment (4)

Internal sources

Job posting- this is whereby the organization or the management display jobs or
vacancies available in the organization on strategic areas such as notice boards or
websites so that each and every employee with the required qualifications will get
the information and apply for the job.

Promotions- this happens when available employees meet the requirement for a
vacancy that have arisen and will be elevated from a lower position to a higher
position e.g. from a Bookkeeper to an Accountant.

External sources include walk ins, whereby individuals become applicants by

walking into the company. It is formal and less expensive

Another external source is through advertisements. The company can advertise the
available vacancies through newspapers, internet, radio and television

9) Differentiate internal and external recruitment using examples (3)

Internal recruitment is recruiting employees from within the organization whereas
external recruitment is recruiting employees from outside the organization. Internal
recruitment is cheaper since the methods used are cheap, such as promotion,
transfer whereas external recruitment is expensive due to the method used such as
advertisement and professional associations

10) Explain any three factors which affect recruitment (6)

Job analysis it is the systematic examination of the job content and incorporates
job description and job specification

Labor market analysis

Employment laws

Organizational goals

NB students are encouraged to explain these factors

11) Define the term job analysis (2)

It is the systematic examination of the job considering the duties, responsibilities

and the requirements of the job

12) Explain why job analysis is of great importance when recruiting a new
accountant (2)

Job analysis helps the organization to establish pay rate of the new accountant. Pay
is usually determined by the number of duties that the accountant will perform. It
also helps performance appraisal and training and development of the accountant.
It can also be used in induction training of the new accountant

13) Why would a firm prefer to use internal recruitment when recruiting an
accountant than external recruitment (2)
Internal recruitment is easy and very cheap since the organization will be taking an
already existing employee to work as the accountant thereby reducing training
costs. Internal recruitment also saves time since there is no need to put adverts and
interviews. There is no need for induction training because the applicant will
already know the organization and its internal methods

14) How useful is external recruitment to a cement manufacturing firm (4)

Externally recruited employees will bring in new ideas to the cement

manufacturing firm. This helps to keep the manufacturing firm improve its
production. External recruitment also helps the cement manufacturing firm to
choose from a wide range of applicants rather than being limited to a small
number. However external recruitment may be expensive to the organization and
the new employee may not be familiar with the organization so there is need for
induction training which takes more time.

15) Assess the usefulness of internal recruitment when recruiting a new

accountant (4)

There is no need for induction training, easy and very cheap while also saving
time. Whereas it has disadvantages of narrowing the choice, no new ideas are
brought and disputes may arise and demotivation. It also results in in- breeding
leading to lack of innovation

16) How useful are employment agencies in recruiting employees (4)

Benefits

1) Quality and skilled personnel is guaranteed

2) Guarantee of better services

Limitation
Expensive thus increasing labor cost e.g. of agencies are head hunters, CV people
and preserve employment agencies.

17) Give two reasons why most of the organizations are now using
employment agencies in recruitment (2)

i) The organization is assured of employing the right employee for the job

ii) It saves time and is less expensive

18) Draw up a job analysis for a typical secretary (6)

Title Secretary

Duties

Typing of documents

Administrative issues

Attending to clients

Attending calls

Qualifications

A certificate or diploma in secretarial studies. Diploma in office management

Computer literate and 5 years’ experience
19) Differentiate job specification and job description (3)
i) Job description gives a broad statement of purpose, duties and the responsibility
of the holder whereas job specification involves specifying information about the
person such skill, knowledge and ability required

ii) Job description covers aspects such as job title or payable title and resource
available whereas the job specification covers on knowledge experience, physical
characteristics of candidate. Therefore, job specification is person centered and job
description is job centered.

20) Evaluate the usefulness of job analysis to a firm in the manufacturing

sector (6)

Job analysis is useful in that it can be used in man power planning, that is in
choosing the right candidate in future, it also plays a part in the recruitment and
selection process and also assist the firm in undertaking performance appraisal.
However, job analysis is an expensive process and it is time consuming and
complex to conduct

21) Explain any three factors that influence selection process (6)

i) The nature of organization- where the organization have reached an advanced

stage in terms or technology, it may require highly skilled employees

ii) Government – the government require equal employment opportunities

iii) Trade unions. They can detect selection criterion

iv) Number of candidates for a specific job. A large number of qualified

personnel might require a sophisticated process that is qualifications and
experience might be considered and psychometric tests might be used.

23) Define the term shortlisting in selection (2)

It is a process of finding the candidate with minimum qualifications for the job for
further selection.

24) Explain any three types of tests used in selection of employees (6)

a) Achievement test- this test measures the acquired skills or knowledge

b) Vocational test- this test to find out whether the candidates like or dislike the
job

c) Personality test- this measure how the individual interact with others

d) Attainment test- it measure the qualifications of the applicant

e) Aptitude test – this measure the applicant’s speed and accuracy

25) How useful are interviews in selection employee for a job (6)

Interviews are useful because they help the organization to find more about the
applicant’s background. The firm will be able to assess the attitude of the
individual and the applicant’s will have the opportunity to ask more about the
organization. However, interviews can be biased, many abilities cannot be
measured by an interview. Interviews are time consuming and costly to the
organization

26) Explain any two types of interviews (4)

a) Planned interview- questions are prepared in advance and on areas to be

focused on such as experience

b) Stress interview- these are used to assess the attitude of applicant by putting
them under pressure
c) Exit interview – these are done when employee leaves the organization

27) Give reasons why medical examinations are important when recruiting
new employees. (4)

Medical examination is important as it helps the firm in rejecting those whose

physical qualifications are insufficient, it also prevents employment of individual
with contagious diseases such as measles, chicken pox and cholera. The firm can
obtain the record of the physical conditions of the applicant at the time of
employment and it can help to place those who are otherwise employable but
whose physical conditions require an assignment to specific duties.

28) What are the content of a medical examination (5)

Medical history, height, weight, vision, eye sight and blood pressure.

29) How useful is the contract of employment when recruiting new employees
(6)

The contract of employment is a useful tool because it creates a bond between

employees and employer, it shows details of the job such as working conditions,
salary and allowances. It creates a workable relationship between employees and
employers and it shows the responsibilities of employees.

However, the contract is difficult to prepare, time consuming. It may be complex

such that workers may fail to understand it and is not flexible workers they will try
to work to stipulated conditions i.e. no room for new ideas

30) Justify the need for induction training to a manufacturing firm (4)

Induction training introduces new employees to the organization and the

organization to the employees. Induction training is needed such that employees
are integrated into the organization as quickly as possible. It also helps the new
employees to understand their responsibilities. It is needed for employees to learn
the relevant aspects of the mission, culture, policies and methods of working and it
avoids costly mistakes by new employees not knowing procedures and techniques
of the job. Moreover, it reduces isolationism leading to the reduction of labor
turnover.

31) Distinguish training and development (2)

i) Training is the acquisition of knowledge, skills and competence as a result of the

teaching whereas development is concerned with making the employees more
efficient and productive at work

ii) Training provides the workers with skills whereas development maximize the
skills

32) How useful is training to a manufacturing firm (4)

Training aims to increase the knowledge and skills of people doing a particular job.
It is useful as it supports employee progression and promotion. It also increases
marketing effectiveness and it makes employees feel loyal to the organization. It
also results in increasing productivity and quality due to increased skill and
knowledge.

However, it can be costly for example, off the job training means the firm forgoes
working hours and potential output by sending workers for training and workers
that would have acquired better skills can leave the job for better opportunities
33) Explain any two methods of training (4)

i) On the job training- this is a training process whereby employees receive

training while remaining in the work place for example coaching, mentoring and
apprenticeship

ii) Off the job training- this occurs when employees are taken away from their
work to be trained for example lecturing method.

34) Give any two on the job and any two off the job training method (4)

On the job

Projects, coaching, apprenticeship and demonstration.

Off the job

Evening classes, self-study, sponsored courses and lecturing.

35) Define the term training (2)

This is an organized process for increasing the knowledge and skill of people doing
a particular job.

It is a learning process involving acquisition of skills and attitude for the

workforce.

36) What is a training programme (2)

It is an organized procedure by which people learn the knowledge and skill for a
definite purpose

37) Evaluate the usefulness of on the job training to a manufacturing firm (4)
On the job training allows employees to receive training whilst at work. It is cost
effective and easy to organize, training alongside real colleagues can motivate the
trainee and the trainee adds to production. This is also an opportunity for workers
to learn while doing the job

However, the learning environment might not be conducive, bad habits of

employee may be passed on and they can be potential disruption to production.
Moreover, the trainees may produce poor quality products which may tarnish the
image of the firm leading to loss of customers.

38) Under what circumstance might a firm adopt on the job and off the job
training (4)

a) On the job training (2)

When training a few number of employees

When the organization have trainers and training resources

b) Off the job training (2)

When the firm is training a large number of employees

When the firm do not have adequate trainers and training facilities.

39) Define the term performance appraisal (2)

It is a systematic evaluation of employees with respect to their performance of the

job related based on the description and their potential for development.

40) How useful is performance appraisal to a firm in the service industry (6)
Performance appraisal is the systematic evaluation of employee’s performance.it
allows the firm to determine appropriate pay for performance, it also assist the firm
in identifying potential candidates for promotion and it establishes the relative
value of the individual contribution to the company and help evaluate the
individual accomplishments. It can be used to identify training and development
needs

However, in the service industry, performance might be difficult to measure as no

physical output is produced and one positive or negative characteristic about a
person strongly influence all attributes about a person. It is also affected by biases
central tendencies and recency of errors.

41)Distinguish between performance appraisal and performance management

(2)

Performance appraisal Performance management

Systematic evaluation of employee A collective term on how to improve
performance overall performance
Aspects are critically rated Aspects are KRA, balanced score card
and performance appraisal

42) What is the problems associated with performance appraisal (3)

i) Individual threat- many people especially poor performers dislike being

evaluated and this results in high resistance to the process.

ii) Performance may be difficult to measure in the service industries

ii) Recency errors, biases and central tendencies

43) Define the term job evaluation (2)

It is a systematic way of determining the worthiness of a job in relation to other
jobs in the organization

44) Is job evaluation necessary to a manufacturing firm (6)

Job evaluation is relevant to a manufacturing firm as it tries to link pay with the
requirements of the job, it also help in the evaluation of new jobs and it offers a
systematic procedure for determined the relative worth of the job

However, it is very expensive and time consuming, the system still requires a
subjective judgment when comparing the degree of difficulty and the skill for the
job and if workers are not involved then bad feeling can result from the finding

45) Assess the usefulness of human resources/ manpower planning to a service

sector (6)

Man power planning enables the firm to cope with changes in the market,
technology, products and competition, it provides adequate control of measures to
ensure that adequate personnel are available as and when required. It also reviews
the potential short coming of the existing staff

However, more money will be spending in the process, small firms may fail to
come up with HR plan, the firm faces the problem of predicting external events
and its success depends on the skill of the human plan

46) Define the term collective bargaining (2)

It is a negotiation process through which employee and employers by an

agreement, create and adjust the terms and conditions of employment
47) Assess the usefulness of collective bargaining to an organization in the
manufacturing sector (6)

Collective bargaining creates a peaceful relationship between the employee and

employer, it creates a favorable working environment and it brings a sense of
respect and honor. It also brings mutual trust between parties in labor relations.

However, it may result in destructive behavior such as table ponding, it requires

highly skilled negotiators who may not be available and it narrows the
relationships between employers leading to lack of respect

48) Justify the need for collective bargaining to an organization to a firm (4)

49) What is a strike (2)

It is a temporary holding of employee’s service from the employer for the purpose
of getting greater gains

50) State any three organized and three unorganized form of industry action
(6)

Organized

Sit inns, overtime ban and strike action.

Unorganized

Absenteeism, theft, late coming and social loafing.

51) Define the term labor turnover (2)

It is the proportion of staff leaving a business over a period of time or number of

employees entering or leaving the organization.

Formulae = number of employees entering or leaving X 100

 Total number of workers

52) Explain the causes and effect of labor turnover (5)

Labor turnover is caused by relative few training and promotion opportunities as

this encourages workers to leave the current job. It is also a result of poor
motivation, it can be caused by poor working conditions and it could be a result of
personal issues such as pregnancy, illness and migration

Labor turnover has the effect of tarnishing the image of the firm. It increases
training and hiring costs of the firm. Furthermore, it affects the stability of the firm.

53) How might management attempt to reduce the level of labor turnover (5)

Management can reduce the level of labor turnover by increasing pay, it can also
improve the working conditions and put in place effective procedures against
bullying and harassment of employees. They can also offer bonuses and use better
selection procedures. Furthermore, effective induction sessions should be carried
out to new employees.

54) State any three causes of strike (3)

Frictional issues and economic causes

Solidarity issues and basic issues

55) State any four costs of strike (4)

Loss of profits, legal costs

Cost of extra security guards required

Fringe benefits of striking workers

56) Define the term industrial relations (2)

It refers to the relationship that govern employment stakeholders e.g. trade unions,
government, employer and employees

57) What are the indicators of poor industrial relations? (4)

High labor turnover, industrial actions, high level of conflicts.

High rate of wastage, high rate of absenteeism.

58) How would u attempt to overcome poor industrial relations (4)

A firm can overcome poor industrial relations through involving workers in

decision making. It can also offer retention allowances and can make use of
collective bargaining. The firm can also offer motivational benefits e.g. increase
pay, reward performance

59) What effect does worker involvement and participation have to an

organization?
(6)

Worker involvement can pose positive effects to an organization and they include
extension of democracy to workforce, it increases satisfaction and personal
development and there will be improved flow of information. This also allows for
utilization of the knowledge and experience of workforce. Moreover, it boosts
morale of employees in the organization.

However, it can also pose negative effects i.e. conflict of interest may arise, the
process is time consuming and employees can take short term interview. This can
also result in demotivation of some non-members if representation is via unions
60) Show how and why management might encourage worker participation in
an organization (25)

How

Through the following methods

Worker involvement and participation in decision making

Works council, workers’ committees, employee share ownership plans, physical

participation through attending meetings and financial involvement and
management buyout.

The why part (reasons for worker participation)

This increases the level of motivation, improves employee performance and

commitment, improves employee morale and loyalty, improves the
competitiveness of the firm and reduces labor turn over as well as absenteeism

61) What role does the following play to an organization

a) health and safety (4)

This increases the morale of the workforce, it also to reduce costs associated with
injuries or accidents at work and it focuses on making the work place a safer
environment. It also plays a role in improving efficiency, for the ill heath cases that
cause failure and deficiency will be minimized

b) Trade unions (4)

Trade unions aim to improve pay of members, it also works on improving the
working conditions and it also has the role to ensure that its members’ interests are
considered by employers. Trade unions also act as channel of communication
between workers and employers and it supports the training and professional
development of its members. Moreover, trade unions teach employees their rights
and they represent their members in collective bargaining to ensure equity and
justice

(c)Workers’ committee. (4)

The committee represents other employees in some organizational meetings, they

also take other employees’ grievances to the top management. Moreover, they also
attend disciplinary hearings of their members and collective bargaining sessions.
They also take part in determining the selection processes and job evaluation
exercises.

62) Explain the reasons why organizational change is inevitable (4)

Organizational change can be inevitable because of new innovations/ new ideas by

a firm. It is also inevitable because of greater competition i.e. change will be
obvious in order to fight competition and the need for continuous improvement in
quality and productivity always give room to change. Change cannot be avoided as
there are always government regulations that change e.g. restrictions on pollution
can force firms to introduce less polluting machines. Moreover, change is also
inevitable due to technological advancement and changes in consumer tastes and
preferences.
63) State any four causes of change (4)

Technological factors

Political and legal systems

Deficiency in the existing system

Scarcity of certain resources

Population dynamics and change in consumer tastes and preferences

64) Explain any two methods of change (4)

i) Evolutionary change- this takes place over a long period of time. It does not
occur over night or in two days

ii) Revolution/ transformational change – it is change that takes place by use of

force or threats and strike

65) Why do workers resist change (4)

Workers resist change because they have different personal ambitions. They also
resist change because they lack knowledge on the need for the change and it can be
because of insecurity that the new initiative brings about. Workers can resist
change because of fear of the unknown e.g. some workers might fear future losses
of job

66) Why may fear lead to resistance to change (3)

It may lead to resistance to change because people will have threatened that change
will result in loss of jobs, inability to cope and that their work group will destroyed
67) Explain any three strategies that an organization might employ to manage
resistance to change (6)

Firms can use training. This provides the workers with skills knowledge and
information on how the change will work. Firms can also delay the change, this
gives the workers more time to learn and adjust to change i.e. wait for proper
timing. Firms need to clarify intentions i.e. why they need change so that the
workers will not feel insecure

68) How do workers resist change (4)

Workers resist change through regressive behavior, they can also produce menial
work and they can personally withdraw from work. They can also protest the
change and they can make intentional errors and sabotage

69) Define the term conflict (2)

This is an act of disagreement, hostility, contradiction or incompatibility between

individuals and group in an organization

70) State any 4 causes of conflict (4)

Joint decision making

Sharing of scarce resources

Workers interdependence, organizational ambiguities

Different status and unresolved prior conflict

71) Why is organizational conflict inevitable (4)

Conflict is inevitable because individuals tend to have different objectives, they

sometimes have to share scarce resources and it is inevitable due to workers’
interdependence. Organizational ambiguities can also make conflict unavoidable
72) How useful is conflict in an organization (6)

Conflict is useful to an organization in that it can lead to better solutions. It

increases awareness that a problem exists and it also enhances communication.
Conflict encourages creativity and innovation in an organization. Moreover, it
strengthens the organization and brings out hidden agendas.

However, conflict can pose limitations to an organization in that, ideas by the

minors can be suppressed, relationship between staff can become sour and they can
be time wasting if unproductive. Furthermore, if not properly managed it can
cripple the efficiency of the organization.

72) How might a firm attempt to resolve conflict (6)

Confrontation and decoupling of conflicting parties

Compromise and provide a wide variety of resources

Conciliation and arbitration

Stimulation, facilitation, avoidance, mediation.

NB explain these please

Essays

Evaluate the relevance of the following to an organization.

Training (9)

For an organization to make sure that productivity is high there is need to ensure that workers are
well equipped to perform their duties and undertake responsibilities expected of them. Therefore,
there is need for training in order to develop the full abilities of workers.

Training is referred to as work related education aimed to increase workforce skills and
efficiency. Training therefore improves employee and trainee performance at the workplace.
There are methods of training that an organization can benefit from that is induction training, on
the job training and off the job training.

An organization can benefit from induction training which plays an important role in the
organization. This is a process of introducing new recruits to the people that they will be working
with most closely and explaining the internal organizational structure. The organization can
benefit from this process since new recruits will quickly learn what the organization norms and
values therefore they will behave in a way that the organizational culture states.

An organization such as delta beverages can also benefit from on the job training which involves
instructions at the workplace on how a job should be carried out. The organization can be able to
aid the workforce since the recruits will be watching and working closely with existing and
experienced members of staff. It is also relatively cheaper for the organization than sending
recruits on external training courses and the content of the job to be done is controlled by the
business itself.

An organization such as Nokia can benefit from off the job training which is a process whereby
all training is undertaken away from the business for example at a work-related college. The
organization can benefit from this process since defective goods will not be produced because
the training will not be done at the work place so this minimizes the cost incurred in producing
scrapped material.

However, training poses advantages but it is not always beneficial to the organization because of
limiting factors that render it almost useless.
Training is quite expensive and costly to carry out. In the event of off the job training the recruits
are sent to specialist colleges to learn work-related skills and this can lead to huge costs being
spent each time it wants to carry off the job training.

Training can also lead to well qualified staff leaving for better paying jobs once they have gained
qualifications from a business with a good training structure. The organization can suffer from
brain drain since all the experienced staff will continuously leave the organization in search of
greener pastures.

An organization can also suffer from huge losses it would have spent on training the new recruits
in the event that induction training is not carefully and properly implemented. This can result in
the new recruits leaving the job because they will feel that they do not fit well in the
organizations moral guidelines.

In conclusion training is of vital importance to an organization since the cost of not training is
substantial and untrained staff will be less productive and will not be flexible. Therefore, training
needs to be carefully monitored and implemented for it to be effective.

Job Evaluation (9)

Job evaluation is the relative comparison of the worthiness of a particular job in relation to other
jobs in the organization. It is a systematic comparison of jobs in order to place them in the rank
order depending on the demand of the job. An organization is able to benefit from this aspect
since the demand and the worthiness of a particular job noticeable is visible.

The organization can be able to create promotional ladders which can be clearly indicated by a
process of job evaluation. Therefore, the promotion will be at least free and on equitable basis
since the right person will be promoted thus this instills a sense of loyalty and motivation as well
as morale in the workplace who will operate positively towards the achievement of goals.

Worker motivation is also instilled in the workforce due to participation which is achieved
through the involvement of management and employees. The employees and management are
able to coordinate and ensure effective communication. This improves the relationship between
the employees and management and this can benefit the organization in terms of policy
formulation.

The organization can benefit since it can be able to determine a suitable basis for a paying
structure. This will eliminate discrimination and favoritism on the pay system. The organization
can benefit from this since the workers will be treated fairly which will lead them to be loyal and
wanting to expand their knowledge and skills so as to also attain higher job and higher wage rate.

However, job evaluation can also pose a lot of danger to the organization which render it almost
unimportant to the firm.

The process of job evaluation is rather subjective since people have different views on jobs. This
means that the pay structure may not be linked to performance. This will lead to the workers
being demotivated since they are not being paid on adequate basis and this can lead to high labor
turn over and high rate of absenteeism which will in turn have a negative influence on
productivity.

It is rather costly to undertake since there is need for constant updating to take into account
changes in the work content and the organization can therefore incur expenditure since
sometimes it is done by outside evaluators and often require outsourcing.

It is rather complex to carry out job evaluation and also time consuming which can lead to the
disturbance of business operations since the process had to be done thoroughly.

In conclusion job evaluation is rather beneficial to the organization since it removes the
duplication of activities as well as determining the right payments system though the demerits
cannot be ignored as they cause little interference in the importance of job evaluation.

Collective bargaining (8)

Collective bargaining refers to the process of jointly or collectively negotiating work related
issues. It is a process whereby parties in labor relations that is the employees’ representatives and
employers’ representatives and government come together and sit on the bargaining table to
discuss issues pertaining to the work such as salaries wages and benefits.
The organization is able to benefit from this process since it strengthens the relationship between
the management and the employees. This can lead to a reduction in the levels of conflicts since
there are strong relationships in the work force.

Collective bargaining can be relevant since the management is able to know the grievances
which are presented on the bargaining table therefore the parties involved that is the employees
and employers are able to reach an agreement towards the troubling work related issues.

This will reduce industrial disputes since the needs and wants of the work force are discussed
and a favorable decision is made. There will be reduced labor turnover therefore the result will
be increased productivity due to low absenteeism rates at the work place. The organization can
therefore be able to operate at full capacity leading to the meeting of the firm’s objectives and
goals.

It creates a harmonious/ peaceful and workable industrial relations. This will create the sense of
trust between employers and employees. This will lead to the organization’s work force
producing quality products and services since they will now believe that the quality and
efficiency in the organization is their own responsibility.

However collective bargaining has its own share of criticism and failure leading to it not being
relevant to carry out in the organization.

The process of collective bargaining can lead to outrageous behavior in the organization if it is
carried out in the wrong way. Destructive behavior may take place such as table ponding and use
of emotions which may affect the results of the process. This happens mainly because the
negotiating would not be fruitful leading to the straining of the employer, employee relationship.

This process is also time consuming to carry out since there should be ample time created for
both the employer and employee to negotiate work related issues. It is also rather expensive for
the firm in terms of resources since the process is usually formalized which can result in the
halting of other important jobs in the organization just to reach an agreement in the
disagreement.
In conclusion collective bargaining is rather relevant to the organization since it strengthens
relationships between the management and employees when it is only a win-win situation but
when it is a win- lose situation it is useless. Therefore, it is of great relevance to the firm.

Assess the importance of the following to an organization: -

a. Human resource planning (8)

b. Performance appraisal (9)
c. Trade union (8)
(a)Human resource planning is a comparison of the organization’s existing human resources
against its forecast needs with a statement of planned strategies to eliminate any discrepancies. In
many organizations there is need for effective workforce planning so as to increase productivity.
This process involves organizational retention, improvements and disposal of the human
resources of an organization.

The main reason for undertaking human resource planning is to ensure that the organization is
able to attract and retain staff and sufficient members with the appropriate skills to be able to
operate effectively and achieve its objectives. Therefore, it reduces the rate of labor turnover in a
firm. However, making plans in an organization may be time consuming which may delay
original production times. So the firm may end up losing customers hence making losses.

It is also able to ensure that employees receive all the training and development necessary for
effective performance in their current roles and develop the flexibility to be able to undertake
other roles and the need arises. This will increase the productivity of the workforce in an
organization hence the firm will increase its profitability. However, training and development of
staff can be costly to an organization. This means that profit maximizing firms may fail to
achieve their objectives which may result in downsizing, this is when a firm is closing down
some of its operations.

Workforce planning also ensures that equal opportunities for promotion and development are
available to staff. This will stimulate subordinates to behave from a lethargic position to an
energetic one, hence low grievances and also lower high labor turnover to the firm. However,
making promotions may lead to a firm adopting a wrong decision in planning (errors). This may
result in business failures.

(b)Management scholars defined performance appraisal as the evaluation of the worthiness of

employees against preset objectives therefore it is an attempt by the business to find out the
qualities, usefulness or worth of its employees, appraisal is one of the paramount aspects of a
business which helps in the achievement of goals.

When measuring the employee’s performance, it helps the organization to provide for payment
schemes and making promotions. This means that a firm might be able to make job evaluations
by ranking jobs according to their worthiness to a firm hence making the right payment to the
staff which may increase their morale. On the other hand, it may be biased since it involves
human judgment. Since human judgment can involve favoritism, this means that workers will
not be motivated and can result in demonstrations.

The firm can also identify training needs on employees. This means that those who did not
perform very well will be retrained in order to meet the demands of the organization. Therefore,
productivity will increase hence the firm will make large profits. However, training and
development of staff is very expensive. This might increase the cost of production in a firm
which may lead to a firm charging very high prices to the customers. Therefore, the firm may
face penalties from the government when charging high prices such as high tax rates. This may
reduce the expansion of the firm.

Workers need to be recognized at work, so when making appraisals and provide feedback to the
employees, staff morale will increase. This is because feedback is effective to a firm so it will
stimulate staff to behave from a lethargic position to an energetic one hence firm’s goals are
achieved. However, if there is no feedback this will demotivate employees at work hence
productivity will decrease.

Performance appraisal can let individuals know what is expected of them. This will mean that
workers will meet their standards since they know what is required therefore there will be
improvement in the performance of employees hence low absenteeism.
©Trade unions can be defined as organization of employees which include among their functions
that of negotiating on behalf of workers with the objective of regulating condition of
employment. Unions negotiate with employees on pay and working conditions in the process
known as collective bargaining. This shows that they are of paramount importance to the
employees and the firm also since they improve workforce conditions at work. First the firm has
to join the organization for collective bargaining to take place.

Trade unions are able and responsible in solving work agreements. This will reduce individual
industrial action such as one worker going on strike or demonstration. Therefore, workers will
serve the industry effectively with low absenteeism and turnover. This will improve workers and
employers’ relationship hence productivity will increase. However, if grievances are not solved
well, trade unions can cause a rise in industrial disputes which may delay the actual work of the
organization.

They also negotiate with employers on behalf of their members in the work pace. This is known
as collective bargaining. Negotiations include everything from pay rates to conditions of service.
This means that employees will be highly motivated at work and it also improve the status of
employees hence reducing lateness. However, these trade unions can lead to problems to the firm
when bargaining for higher wages which increase the cost of production to a firm.

Evaluate how each of the following might affect the success of a

business.

a) Value analysis (15)

b) Human resource management (10)
Value analysis or value engineering is a concept of production that analyzes all parts to the
design, production and marketing of a firm’s products. It aims to determine any changes of
manufacturing and design which increase value of the product while reducing the cost of
production. Value analysis can be established as a separate department or included within the
quality control division. This shows that it is of great importance since it provides customer
satisfaction through provision of high quality products.
Value analysis reduces costs of production, for example, this may be through the use of cheap
components which are cost effective but being able to maintain the quality of the product.
Overall, costs of production can be reduced. This will result in high consumer utility leading to
higher sales. A firm will therefore accumulate higher profits which provide room for expansion.
However, improvements in quality require very excellent value analysis research experts. Such
experts are costly to employ or hire or are not easy to find, so this might increase costs to the
business hence making losses.

It also helps the business to fight competition in the market. This can be achieved since goods are
provided and produced with unique features which may differentiate the product from others in
the market. This may increase the number of substitutes in the market hence increasing market
share. However, it is affected by other factors which may render it almost useless, for example it
may be difficult to use value analysis in an unstable economic environment where there may be
shortages of raw materials or poor quality of raw materials are available.

Value addition can lead to an increase in sales and profits of a business. This is possible through
the provision or use of effective components and high quality products. Therefore, high profits
will mean that the firm will increase its investments. On the other hand, the process is time
consuming. Value analysis requires a considerable amount of time to do research and come up
with a product that is cost effective. This will delay the actual production time leading to the firm
making low profits.

It also contributes to increased morale and motivation in subordinates. Value analysis is a

collective process which involves participation of many individuals including workers. This will
increase the morale of the employees at work hence increasing productivity. However, it may act
as a demotivating factor as it may lead to an increase in workload of firm’s employees. This may
also result in low productivity.

In conclusion, a single production strategy is not effective, however there is need of an interplay
or a combination of two or more strategies so that the strength of the other outweighs the
weaknesses of the other.

(b)Human resources management is one of the most important aspects in a business in

Zimbabwe. It was defined as a process of managing people in an organization in a structural and
thorough manner. This covers the functions such as staffing, (hiring of people), retention of
workers, pay setting, performance management and also taking care of the assets of the company
to round off the activities.

First and foremost, human resources management is responsible for staffing which is hiring of
people. This means that they are responsible for making job description and specification sheets
which enables potential work force to apply for the current vacancy. This may assist business to
employ appropriate staff who are able to perform the current available job. However, making job
descriptions may be time consuming to a firm which may delay the, management of the current
work force. This reduces the productivity of its workers since they might lack monitoring and
inspection.

It is also responsible for the retention of staff in an organization through golden handcuffs. This
means the ability of an organization to retain its employees for example a retention rate of 80%
usually indicates that an organization kept 80% of its employees in a given period of time. So the
human resources manager may practice this by compensating their workers fairly and also other
ways of motivation such as job rotation and job enrichment. This will reduce high labor turnover
hence increasing productivity. However, it may be very expensive to award the workers fairly
which may lead to industrial actions such a strikes and demonstrations.

Performance management is also another component of human resources management. This

means that a worker is evaluated against preset standards or objectives. This may assist the firm
in making payment schemes so as to motivate employees. Since it involves human judgment, it
may be biased which demotivate other employees at work.

In conclusion human resources is of paramount importance to the success of a business since it is

responsible for stuff hiring, performance management and retention of staff although it brings
some demerits such as time consuming but it is of great importance.
Evaluate the benefits to a workforce that might result from job
enrichment (10)

Job enrichment is an attempt to motivate employees by giving them the opportunity to use the
range of their abilities. It is an idea that was developed by Fredric Hertzberg in which he
describes as vertical loading of a job. He also stated that a well enriched job should contain a
task and challenges, feedback, encouragement and communication.

When an employee’s level of responsibility increases and he or she gets the opportunity to try
new task it’s inevitable that he or she will learn new skills. An employee who is responsible for
deciding which internal products to advertise in the company’s internal newsletter might also
come up with advertising test for their products testing products and placement, in a job
enriching situation. However, a primary disadvantage of enrichment is an increase in the
workload of an employee. While some employees are able immediately reprioritize their time,
tasks and some may initially experience difficulties getting adjusted with their new
responsibilities. This increase in work can cause employees to get frustrated, burned out and
lower their overall productivity.

When employees feel like they are trusted with greater responsibility at a company, their level of
motivation increases, as a result, employees may be more productive, better adhere to company
rules and management better and miss less work. However, every employee at a business may
not be eligible to participate in job enrichment. Workers who fail to handle it may feel
disgruntled, bitter towards management and the employees who are part of the job enriching
process.

Employees get bored with the day to day tasks they have to complete. Job enrichment add
variety to employee’s duties which can reduce their work place boredom. Along with reducing
boredom, job enrichment challenge employees to stretch their skills beyond what they are used
to be doing at the company. On the other hand, the employees are given a greater debt of tasks
through job enrichment. They may not be skilled in the new task they are asked to perform. This
may lower productivity.
In conclusion a single motivational strategy is not effective. However, there is need for a fusion
of financial and non-financial motivators so that the strengths of the other overcomes the
weaknesses of the other.

Evaluate the role of human resources department in ensuring the

success of a business (25)

Human resources management is a strategic approach to the effective management of the

organization’s workers so that they can help the business to gain a competitive advantage. It can
also be defined as the management of people at work.

The human resources department recognizes human beings as being the most important and
valuable resources of an organization. According to Robert Owen, the workers are the most vital
machines of the organization which means without the human resources department there is no
business viability.

The department is responsible for the recruitment and selection of employees for an organization.
Scholars define recruitment as the searching for, and obtaining potential job candidates in
sufficient numbers and quality so that the organization can select the most appropriate candidates
to fill its needs. William Gluck defined it as the process by which an enterprise chooses from a
pool of applicants. The best person or persons for the position available will be chosen. This
means that the human resources management might have to carry out some advertising for them
to find the appropriate candidate to fill out the positions available.

On contrary, due to the efforts of acquiring the right candidate the department is entitled to heavy
expenditure on advertising. This shows that the human resources department needs help form the
finance department in order to finance its advertisement.

The department is also responsible for the training of staff members of an organization. On
training, the employee’s ability to perform a specific task will be improving thus he will work
more efficiently and be able to meet deadlines. This is often done internally and externally, that
is off and on the job training.

However, if it is on the job training it means that production of the trainee is being reduced
thereby deviating from the production department’s target, so it means that there is need for
cooperation. It is also prone to mistakes which can alter the face of the output hence training can
hinder business success if it is on the job. Some trained individuals can opt to look for other high
paying jobs upon receiving training hence the business will suffer from brain drain.

The human resources department is also responsible for job analysis. This refers to the acquiring
of a detailed knowledge about jobs within the organization. This is often done so that the
business can attain the right people for the right post. This also serves a basis for establishing
career developing programs and paths for employee.

However, although there is quality staff brought to the firm, it is rather often time consuming.
This valuable time could be used to perform other functions.

The human resources department is also responsible for carrying out performance appraisal. This
refers to the systematic evaluation of individuals’ performance within the organization, on the
level of competency in their line of jobs that they carry out. This enables the business to identify
workers who are under performing and even train them when the need arises. This therefore
ensures the business that efficiency will be at its peak therefore the production process will not
be halt.

However, performance appraisal tends to demotivate the staff at times. This is done because it
can be biased especially if the people carrying it out are only after their own interests. Therefore,
it can lead to an unfair pay structure.

In conclusion, the human resources department in its own does to ensure business success,
therefore, there is need to have a fusion of marketing department, finance department and
production department to ensure total success of the business.

What are the signs and symptoms of poor industrial relations (10)?
Poor industrial relations result mainly when an organization or an industry is not fully satisfying
the needs and wants of its workers which will result in the performance of the workers
deteriorating.

The signs and symptoms observed in poor industrial relations differ from one organization to
another depending on the line of business they are in. Poor industrial relations in industries differ
from those in white collar jobs.

Absenteeism is a sign that shows poor industrial relations. This can be observed in any type of an
organization. This is when workers do not attend or report to their work places as a sign of poor
working conditions or as a sign of showing dissatisfaction on the work place.

High labor turnover can also be a symptom that shows poor industrial relations. This is when
there is a relatively high number of people leaving the organization compared to those entering.
This can be as a result of the organization not fully accommodating the needs of employees. This
will result in poor performance as workers will be leaving the organization at a higher rate.

Picketing can be a result of poor industrial relations. Workers will write their complains on
papers, placards and boards so as to make the organization aware of their welfare. They can even
block the entrance into the organizational premises just to let the management feel for their
concerns.

Civil unrest at the organization, that is demonstrations and strikes can be observed in an
organization with poor industrial relations. Workers will be demonstrating towards an
organization by civilized strikes which involve violence and demolishing of the organization’s
property.

Go slows can also be observed in an organization with poor industrial relations. Workers will be
performing at a slower rate than the rate which is expected by the organization. For example, in
industrial jobs they will be producing less output per required time and in teaching they will be
moving with the syllabus at a decreasing rate.

What attempts can be made by the personnel manager to ensure

good industrial relations? (15)
A personnel manager assesses the welfare of the employees at an organization and tries to find a
suitable situation to make the organization a better place by listening to the complaints, needs
and wants of the work force, and also devising methods of making the employees happy.

To ensure good industrial relations the personnel manager engages in intensive motivation for
the workforce. This is a drive/stimuli leading to one performing from a lethargically position to
an energetic manner in the stipulated way. Different management and classical theorists such as
Abraham Maslow, Herzberg and Fredrick Taylor have put forward theories of worker motivation
thus improving industrial relations.

Physiological needs according to Maslow are basic necessities which need to be provided to the
work force and that is why they are placed at the lower level of the pyramid. They help motivate
the workers thus the workforce will not leave for better jobs as security needs will also be met.
The realization of one’s potential and room for growth must be provided in the organization by
the personnel manager in order to motivate the employees.

A personnel manager can use financial motivational factors to improve industrial relations.
Salary increment for the workforce and issuing out bonuses can also motivate the workforce thus
reducing poor industrial relations within the organization. There will be an increase in the wages
of the employees which will eliminate poor industrial relations.

According to Herzberg’s two factor theory of true motivators and hygiene factors, he stated that
hygiene factors if provided, do not necessarily motivate workers but if they are not provided they
tend to cause dissatisfaction and demotivate the workforce. True motivators are things that cause
satisfaction to the workers such as promotions and appreciation from managers. This theory
states that if these factors are met, they will reduce poor industrial relations in an organization.

Piece rate and time rate can be put in place by the personnel manager. This is when output
produced by a worker is measured with the stipulated time. Workers who meet the dead line and
beat the required time are paid higher wages. The personnel manager will therefore have to
measure the efficiency of the workers as a result, workers will be motivated to work harder in
order to earn a higher wage. This is in accordance with Fredrick Taylor’s theory which states that
workers are an economic man and machines which require oiling in order to perform efficiently.
The personnel manager can ensure effective communication in the organization. This will
reduce lack of coordination in the organization and workers will also know whom to report to.
This will effectively reduce poor industrial relations as workers will have full information with
regards to the organization.

In conclusion, one factor alone cannot be effectively eliminating poor industrial relations thus
there should be an interplay or fusion of several motivational and communication factors.

(a)Explain the factors a human resource manager might consider

when recruiting workers (9).

The appointment of the right person to the right job at the right time is crucial to the success of
an organization and it is a major activity of the human resources department. Recruitment is the
process of attracting a pool of applicants to fill a vacancy. The human resources will consider job
requirements, cost of recruitment, duration or time of delay until a vacancy is filled in order to
commence production.

Human resources department when recruiting workers will consider job requirements. Those
include job specification and description. These documents for instance job description help to
broaden up the duties and responsibility of workers. This enables the management and employee
to have a clear statement of what is expected of the successful applicant whilst job specification
deals with the ideal person sought by the organization with relevant skills and education
Furthermore, the human resources will also consider the costs of recruiting this might be
internally or externally. External recruitment is usually associated with high advertising costs
and interviews that delay the commencement of production. So usually the human resources will
tend to put first priority on internal recruitment which might later be substituted by external
recruitment if the ideal candidate is not identified from within
Moreover, the department of human resources also considers the experience and references
where the job applicants were previously employed. This enables the firm to employ competitive
workers rather than employing fraudulent workers who are incompetent. References will enable
the management to communicate with the previous employers thereby enabling effective
recruitment.

The human resources department will also consider government policies. For example, in
Zimbabwe the government is advocating for equal employment opportunities between men and
women. The management will make sure that there is gender balance when recruiting workers so
that women are not disadvantaged.

In conclusion the human resources manager plays a pivotal role in the success of an organization.
This is achieved through effective recruitment which is a form that encompasses all factors
including costs, job requirements when recruiting ideal candidates.

b) Asses the importance of performance appraisals to a firm in the

service industry (16).

The business environment is a changing environment which requires firms to continue assessing
their workers in order to remain competitive in the market. Performance appraisal is an analysis
of employees, performance in terms of the extent to which they have achieved targets set by the
organization. Appraisals can be used as the basis for paying business, identifying needs and
assessment for later promotion. For example, Kingdom Bank. Performance appraisal allows
subordinates to formally know how their current performance is being rated. This will give the
workers further incentives to increase their capabilities in order to meet set standards.

Furthermore, this technique also helps managers to identify workers who deserves pay rises such
as promotion and salary increment. This can be underpinned under the hierarchy of needs theory
by Abraham Maslow where he talked of the lower order needs, the physiological needs. Salary
increment will result in a worker being able to attain these needs which include, shelter, food,
and clothing. This result in workers being highly motivated.

In addition, performance appraisals also help to personal manager to identify workers who
require additional training and development. The emphasis on quality, competitiveness and
participation coupled with the rapid pace of technology and other changes has resulted in need to
prepare employees for change and to improve the efficiency of the organization.

This process also helps managers to locate areas where prompt and corrective action for example
demotion, separation is required. The technique quickly gives the manager a sight on employees
performing below standard resulting in corrective action being taken.

However, despite the advantages of performance appraisals to an organization this process has its
possible demerits in that the whole program can breed worker resentment if employees feel that
the appraisals criteria were not fair. This might lead to bad industrial relations and an uncordial
relationship between the manager and the workforce which might lead to low productivity and
high labor turnover.

Furthermore, it can be a source of demotivation if a worker is continuously rated negative.

People differ in capabilities and dexterity so one’s performance might be different from
continuously being rated negatively. This leads to demotivation of the workforce resulting in low
output.

The program is also time consuming and tends to be very subjective in nature. Instead of
carrying out essential tasks and decisions the managers will be embroiled in the systematic
analysis of workers resulting in poor performance of the whole organization.

In a nutshell performance appraisal is a useful tool in ensuring efficiency and effectiveness in an

organization it also motivates workers.
 Chapter 3

Communication
Question
1. Define the term communication (2)

2. What role does communication play to a firm in the manufacturing sector (6)

3. Illustrate the communication model (4)

4. Evaluate the usefulness of effective communication to a firm in the service

industry (25)

5. How does a large manufacturing firm like delta attempt to ensure effective
communication (25)

6. Explain any six barriers to effective communication and methods used to

manage these barriers (25)

7. Communication is a glue that binds an organization. Discuss (25)

8. State any three barriers to effective communication that are in line with the

a) Receiver (3)
b) Sender (3)

c) Channel (3)

9) Distinguish:

a) Vertical and horizontal communication (4)

b) One way and two-way communication (4)

c) Upward and downward communication (4)

d) Verbal and non-verbal communication (4)

e) Formal and informal communication (4)

10) Assess the usefulness of the following:

a) Verbal communication (6)

b) Oral communication (6)

c) Vertical communication (6)

d) Horizontal communication (6)

e) Written communication (6)

f) Formal communication (6)

g) Informal communication (6)

h) Grapevine (6)

11) Explain any three human problems associated with the use of computers (6)

12) State any three types of communication networks (3)

13) How useful is all channel network in communication (4)

b) How useful is the chain network in communication (4)

14) Using examples discuss the relevance of informal groups to the success of
the organization (12)
15) Analyze how managers might assess the effectiveness of communication
within a business (12)

16) Evaluate the importance of informal communication to business efficiency

(15)

17) Evaluate how communication between managers and staff might be made
more effective within a school (12)

18) Analyze two possible reasons for communication problem in a factory (2)

19) Evaluate two ways in which communication might be improved in a factory

(10)

20) Communication is the life blood of an organization. Discuss this statement

(25)

21) Define the term diagonal communication (2)

22) Why is it often difficult to achieve effective communication within a large

organization (6)

23) How useful is the use of internet in communication (6)

24) How useful is the use of electronic communication to a large multinational

company (5)

25) Differentiate communication and effective communication (4)

26) With the help of illustration explain the communication model (6)
1) Define the term communication (2)

Communication is the sharing of messages, facts, opinions, ideas and emotions

between sender and receiver through an appropriate desired channel. It can be oral,
visual, printed, electronic, and diagrammatic and body.

2) illustrate the communication model (4)

Message to be sent
Sender/encoder Receiver/decoder
through the
appropriate channel

Feedback
State any three barriers to effective communication that are in line with the

a) Receiver (3)
Attitude of the sender, noise, poor listening skills
b) Sender (3)
Poor encoding skills, poor media selection, attitude
c) Channel (3)
Different perceptions, lack of interest, information filtering

Differentiate communication and effective communication (2)

Communication is just the sharing of messages, facts and opinion without checking
whether the message is properly sent and received whereas effective communication is
when the message to be conveyed is accurately sent and properly received. And also it
is effective when proper feedback is given by the receiver

5) Define the term diagonal communication (2)

The sharing of information among different structural levels within a business.

6) State any three types of network of communication (3)

The chain, circle, wheel, and the Y network

7) Asses the usefulness of the following

a) Verbal communication (6)

Verbal communication refers to communication orally, done face to face.it is useful

when addressing a larger crowd during a meeting or function. Also it can be varied in
terms of language for example to suit the receiver. Verbal communication can be
accompanied by body language which include gestures such as nodding the head and
movement of the hand. This helps the receiver to get the sender’s emphasis on an
important area.

However verbal communication can be affected by noise if the message is being

conveyed at an open area. Body language may affect the message being shared if the
sender is unwilling to properly communicate, in other words if using wrong gestures.

b) Oral communication (6)

Oral communication is fast, easy to understand, facilitate two-way communication

where feedback is given. However oral communication needs careful listening. It is
affected by noise and it can be easily forgotten

c)Vertical communication (6)

Vertical communication in an organization is communication that flows up and down

through the organization’s hierarchical structure. Vertical communication helps to
convey messages to subordinates. Through upward direction of vertical communication
system, the upper management can share their suggestions, complaints and
recommendations to the subordinates.

It also helps to maintain good labor relations. There is a systematic flow of information
under this communication system so that a good relationship can be developed
between superiors and subordinates. There is a chain of command in vertical
communication system hence maintaining organizational discipline among employees.

However, the vertical communication system has its drawbacks to the organization too.
The system delays decision making since it maintains long chain of command
especially in large organizations such as Delta beverages. So many members would be
awaiting to be informed and passed on their ideas.

Downward direction of vertical communication is commanding in nature. So there is no

opportunity of the workers being efficient. Vertical communication is prone to distortion
or loss of important information. This is through lengthy channel of information.

d)horizontal communication (6)

Horizontal communication refers to communication which occurs among people of same
status or people or level groups within the same department or across departments. It
facilitates coordination of activities from various departments since communication is
circulating interdepartmentally. Horizontal communication allows quick transmission of
messages and solves complex problems in the organization. Since same level
employees exchange information in this communication system they create good link
with different areas of expertise. However, this may result in lack of coordination within
the organization thereby affecting teamwork.

d) Written communication (6)

This can be through notice boards, letters, reports and minutes which provides
permanent record. Written communication allows sender to deal with a large audience
quickly since it will be written down. Information exists in recorded form hence making it
easier for reference in the future. Also it can act as a back up to complicated verbal
communication that the audience may fail to understand.

However, written communication has drawbacks that goes along with it. Mostly written
communication has no guarantee of receipt of understanding because it has little room
of feedback, it reduces participation of receiver since most concentration is put on
reading the message dotted down. This mainly affects meeting of organizational
objectives.

f) Formal communication (6)

This is communication that takes place in the organizational set up which is viewed as
official, planned and organized. It allows information to flow in a well-directed path
thereby reducing chances of distortion and filtering of information. Since formal
communication follows the hierarchical order of the organization, each member is
informed formally not by gossip.

Formal communication results in uniformity of activities and duties being carried out in
an organization since each department is told what to do and how to do it. However, it is
not always recommended in an organization to use formal communication.
Formal communication has limited or no room for feedback which may lead to failure in
attaining some business objectives or poor performance of duty assigned. It
demotivates workers since most of the decisions made are done by the top
management.

g) Informal communication (6)

It takes place in an unofficial and unorganized manner between employees in which

information is passed without following the organizational structure. Informal
communication can be useful to an organization in the sense that employees tend to
share their ideas, emotions and petitions among their colleagues hence it’s a
motivational tool.

Managers can use it to implement change. This is done by influencing informal leaders
to persuade their employees to embrace change. However due to the unorganized and
unplanned flow of information, informal communication is prone to distortion and filtering
of important information.

It may lead to lack of coordination amongst workers and managers. This is because
workers will mostly concentrate more on informal groups they are in than the formal
groups created by managers.

h) Grapevine (6)

Grapevine is an informal communication that ignores formal communication and spread

gossip at all levels of the organization. It is a source of social relationships and a morale
booster at work. Grapevine gives vital feedback in the organization. Grapevine helps to
solve social problems and act as an important source of information especially in times
of change. However, it carries incomplete information within organization. Grapevine
can be a base to argument in an organization

8) Distinguish between:

a) Vertical and horizontal communication (4)

Vertical communication occurs when people from different levels of hierarchy

communicate with each other whereas horizontal communication occurs along the
organizational chart between people who are of approximately the same status but
different area of responsibility.

Information in vertical communication flows from the top down or vice versa. As for
horizontal communication system information flows horizontally that is at the same level.
Horizontal communication system allows employees to exchange information thereby
creating a good link with different areas of expertise. Whereas in vertical
communication, employees wait for the information that come from people at the top
who are of different status in the business.

b) One way and two-way communication (4)

One-way communication is communication that does not allows feedback from receiver,
the subordinates just obey with no feedback whereas in two-way communication, there
is room for feedback from receiver of the message.

One-way communication is usually used by autocratic leaders to pass on orders but

two-way communication is used by democratic leaders. Two-way communication is
used as a method of motivating workers since they are allowed to participate whereas
one-way communication demotivates workers because they are not allowed to
participate.

c) Upward and downward communication (4)

In upward communication, the purpose of the system is to provide feedback whereas in

downward communication the purpose is to get plans implemented. Upward
communication is usually non directive hence takes no formality but downward
communication is directive in nature and formal.

The main example of downward communication includes orders, instructions, manuals

and handbooks whereas examples of upward communication include reports, appeals,
grievances and protests.

d)verbal and non-verbal communication (4)

Verbal communication can be varied to suit the needs of the receiver such as language
whereas non-verbal communication cannot be varied or altered once given out. Verbal
communication does not have a permanent record that can be used as a reference in
the near future but non-verbal communication keeps permanent written records for
future reference.

Non-verbal communication can be a barrier to communication when it is being used by

illiterate people because of jargon that might be used but verbal communication can be
used to illiterate people.

e) Formal communication informal communication. (4)

Formal communication uses official channels that are planned and organized according
to organizational structure unlike informal communication which uses unofficial channels
that are un planned and un-organized. Formal communication is oriented towards goals
and tasks of the enterprise whereas informal communication is directed towards goals
and needs satisfaction of individuals.

In formal communication, information flows slowly in a structured system but in informal

communication information flows faster and in an unstructured system.

9) What role does communication play to a firm in the manufacturing sector (6)

Communication facilitates coordination of activities in a firm. Through sharing ideas,

opinion and resources, the firm can work efficiently in each department. If
communication is effective, it helps to solve business problems such as conflict between
departments for example wastage of resources in manufacturing can be solved through
communication.

Communication is also essential in ensuring that the achievement of a firm is obtained.

Some of the objectives mainly targeted are maximization of profit and increase in
market share. Moreover, communication enables a firm to interact with its shareholders
for example creditors and lenders when there is need for out sourcing funds.
In addition, good communication improves the decision made by the firm for example
management by objective, the subordinates are able to give valued information that
management might need to utilize.

Furthermore, communication promotes good relationship between workers and

managers if it is two- way. Workers tend to be motivated most when they get these
feedbacks on suggested ideas from managers

10) Explain any three human problems associated with the use of computers (6)

Due to the high light intensity that computers have, most users tend to suffer from
eyesight problems especially after using the computer for successive days. Another
problem is of computer illiteracy. Most elderly in the modern day do not know how to
operate a computer. This is a disadvantage if one is employed in the firm that uses
computes for its operations.

Computers are highly prone to hacking of important information. A hacker can take one
private documents and use them to black mail the victim.

11) How useful is all channel network in communication (4)

All channel network represents a free flow of communication. Every member is allowed
to communicate freely with all other members in an organization All channel network
provides highest satisfaction since it involves all members in the organization. It is an
unstructured and informal communication network which is mostly preferred by workers
because of its motivational aspects to them.

With its participatory style and more open communication it provides the best solution to
complex problems in an organization. However, all channel network has its negative
impact in an organization.
The system is slow hence decision making tend to consume much time that could have
been utilized in production activities. It tends to disintegrate under time pressure to get
the result when operated in a group.

(12) How useful is the chain network in an organization (4)

Chain network is when one person passes information to another, who then passes it
on the next person. It can be used in a formal organization that strictly follow
hierarchical order of communicating. An example includes the civil service

The network model has a leader/coordinator at the top of the hierarchy who can
oversee communication downward and upward to different areas of the business.
However, those who are at the bottom of the hierarchy may suffer from isolation
because of their position in the business. Their motivation may be less than others if
they feel at the periphery.

13) Why is it often difficult to achieve effective communication within a large

organization (6)

In a large organization it is often difficult to achieve effective communication because of

the following

The medium chosen when communicating might be unappropriated for example

detailed and technical diagrams being explained over the phone.

Excessive use of technical language or jargons make it harder to properly

communicate. Taking for instance an accountant might use jargon that he is only
familiar with when he is communicating to marketing persons.

Also failure at any stage of the communication process can result in some information
being lost. Messages being conveyed to desired channel in the organization. In a large
organization, many people have to be consulted when making decision hence
communication process slow up and might lead to delays in passing of final decisions.

Furthermore, there is high volume of conflict in a large organization because of different

opinion each individual has. Hence as a result effective communication is hindered.
14) How useful is the internet in communication (6)

The internet is an inter-connection of network through the use of the World Wide Web
(www). Moreover, an internet is a network of networks. Firms can use the internet to
advertise their products. Therefore, the product being advertised can be seen worldwide
by potential customers.

The internet can be used to sell goods and services to different sectors of the business
world. Also information gathering on what is new on the market/consumer demand is
accessed quickly and conveniently through online search sites such as Google.
However, the internet can be slow both to connect and use especially in the rainy
season.

It also provides incomplete, trivial and illegal information. On incomplete information for
example, consumer demand, a firm cannot gather enough and adequate information on
what exactly the consumer needs.

15) How useful is electronic communication to a large multinational organization

(6)

Electronic communication brought about cheap efficient long distance communication

hence making it easier for companies like delta to transact business. The telephone and
fax for example make it possible to send one message to many people or business
partners with one original copy.

Electronic mail offers unlimited potential for a personal network and it has a worldwide
source of information. However electronic mail and other related electronic gadgets can
be affected by information overload and may end up deleting important information, it
can also be affected by power cuts hence making some business operations slow.

Moreover, electronic communication can be rather time consuming if employees waste

valuable time surfing on the internet.

16) With the help of illustrations explain the communication model (6)

Message to be sent
Sender/encoder Receiver/ decoder
through appropriate
channel
The model shows the sender who encodes the message and try to establish mutuality
of meaning with the receiver and by choosing an appropriate channel or medium and
symbol for communication. The channel meaning the means by which the information is
transmitted.

Decoding which is the third stage refers to a situation where the receiver tries to deduce
meaning by converting symbols into meaning. Lastly feedback refers to a situation when
the receiver report back to the sender or encoder about the message communicated.

Essay questions

1) Using examples discuss the relevance of informal groups to the success of the
organization (12)

The informal groups are like a padlock that interlock social structures in an organization
that govern how people work together. Through such groups, an organization can
perform to the best of its ability. Informal groups are unplanned, unorganized groups
that spontaneously arise as a result of interaction between workers. Usually people with
similar norms, social behavior and profession form groups in which they share ideas
and opinion on their work fields. So informal group provide social status and satisfaction
that may not be found in a formal group. Members of the informal group share jokes,
play and work together creating a friendship zone which is rarely found in a formal
group. Hence this contributes to personal esteem (self-esteem as described by A.
Maslow’s hierarchy), satisfaction and sense of belonging

However, it is not a guarantee that informal groups are the only ones to provide social
status and satisfaction. Sometimes they actually cause havoc in an organization. Taking
for instance, one member telling other members of the latter’s personal information
without permission. This may gradually disturb the business productivity.

Furthermore, informal groups promote communication among members. Through the

use of grapevine, members are always alert of what the manager intends to do on them
either changing salaries for example or any change that is to be implemented. Many
use grapevines to informally convey certain information about company actions and
rumors.

However, the system of informally communicating in an organization may hinder the

formal communication system. For example, managers may want to implement change
in an organization and then through grapevine, workers get to know it. In most cases
workers tend to revolt against it in spite of the merits this change has to bring in.

Moreover, informal groups provide social control in the organization. They provide social
control by influencing and regulating behavior inside and outside the group. For
example, if a colleague is always late to work and goes about in whatever way he wants
which is prohibited by the organization. Other members may convince him that such
behavior is not acceptable and therefore act accordingly.

However, at the same time informal groups may actually influence each other to break
the organizational rules and regulations. So concluding the above discussion one can
note that informal groups on their own cannot lead to success of an organization but
blending both formal and informal will enhance organizational success.

2) Analyses how managers might assess the effectiveness of communication

within a business (12)
a) Hear the response listeners give you

b) Measure the progress of specific work projects

c) Conduct regular survey of your employees and customers

d) Set benchmarks

e) Watch employee engagement levels

f) Look for strong collaboration

g) Encourage ideas and creativity

Effective communication is a reflective process which shows whether managers and

workers are properly communicating in a way that benefits an organization to a greater
extent. Effective communication is effective if the message is accurately sent, properly
received and understood as well as proper feedback is sent. So managers might assess
the effectiveness of communication within a business by the following

By hearing the responses employees give on a suggested idea or project can show the
level of effectiveness of communication. Usually a positive response that supports
management idea is considered to adhere with good communication. On the other
hand, negative response indicates that there has been poor communication.

Managers can measure the progress of specific work projects that they will have set for
their employees. Good progress in the project acts as a barometer that measure how
effective the communication system used during the instructing employees on what to
do helped. However bad progress of the specified work project may not be as a result of
ineffective communication only but also lack of commitment and resources.

The management can look for strong collaboration within the work groups and teams
that exist. This indicates that people are communicating to each other and agreeing on
how to tackle their daily duties. No communication means automatically that there is no
collaboration. However strong collaboration may be a result of informal groups
dominating in an organization.
Managers can conduct regular survey of employees and customers. On employees they
can set out questions that ask a certain area like productivity of the business. By doing
so managers can get feedback that they can use to improve productivity efficiency.
However, surveys only cannot provide enough information. The use of questionaries’ for
example need to be accompanied by direct interviews with employees of concern in a
particular area.

3) Analyze two possible reasons a for communication problems in the factory (8)

As communication is the life blood of an organization it can be affected by various

negative aspects that may lead to malfunctioning of an organization. It is defined as the
sharing of messages, facts, opinion and emotions between the sender and the receiver.

Two possible reasons for communication problems in the factory are explained below

Failure in any stage of communication process can hinder the operations of a factory.
Firstly, the medium chosen might be inappropriate for example a detailed and technical
diagram being explained over a phone.

Secondly excessive use of technical language or jargon causes communication problem

too. For instance, an accountant using his accounting language to a person who
specializes in marketing create communication breakdown.

Thirdly information overload usually leads to filtering of very important information

whereby the receiver only takes notice of what he perceives as accurate.

The other reason that brings about communication problems in a factory is physical
barrier. Mostly noisy factories are not suitable for communication. For example, a firm
like Econet wireless cannot establish its main offices in workington, Southerton because
it is an industrial area. If it does it will surely suffer from noise.

Geographical distance can limit communication, also having so many branches

scattered around usually reduces the quality of uniformity. So in most cases,
decentralized factories suffer from poor communication. However, all the barriers above
have solutions. There is need to make sure that physical environment is appropriate for
messages to be heard or received in other ways.

Also there is need to ensure that the channel of communication is known by all people
in the organization. If the factory uses all channel or wheel network system, it is better to
notify its subordinates. In conclusion, the factory has to develop a communication
channel that suits each department and the business as a whole.

4)Evaluate two ways in which communication might be improved in a factory (10)

Communication is of great essence in a business hence management vests much effort

in ensuring that it is well done. Communication by definition is the sharing of ideas,
feelings and opinions between sender and the receiver using an appropriate media.

In order to improve communication in a factory, management can ensure that the

message they are conveying is clear, precise and adequately detailed. Communication
is only effective when the receiver shows that he has understood everything and gives
feedback. So any inadequate message with lots of unnecessary information drawbacks
good communication system.

Another way to improve communication is for the management to keep the

communication channel as short as possible. Channels such as all communication
network such as all channel networks are slow and long because each member has to
be consulted. So the factory can use the wheel network which is particularly good and a
bit faster

However not only the above improves communication but also use of simple language
can contribute. There is no need to use jargon when communicating to a person in a
different department as yours. Also there is need to build feedback into communication
channel or process. Feedback usually gives an overview of whether communication is
effective or not.

Lastly the physical environment should be appropriate for the message to be heard or
received in other way, communication best function in less noisy areas.
Conclusively, the fusion of various ways to improve communication such as simple
language trust between sender and receiver can yield a better result.

5) Evaluate how communication between management and staff might be made

more effective within a school (10)

Since communication is like an enzyme that catalyze activities that occur in a business
so does it in a school. Staff and management need to collaborate in order to bring out
good academic results. For there to be effective communication, management has to
involve staff in decision making meetings through the use of two-way communication,
the staff should be allowed to participate.

So the two way will allow the staff to give feedback to whatever is suggested for the
school as a whole. Hence, communication is made more effective. The receiver who in
this case is the staff should develop good listening skills. Most people tend to take only
the information they perceive to be appropriate for them. So instead of doing so, the
staff need to consider everything management says for there to be coordination of
activities.

Management should ensure that channels of communication are known by all the staff
members whether it is all channel network or wheel network. Failure to give such
information may lead to miscommunication. Moreover, both management and staff
should establish trust between themselves (sender and receiver). Staff should trust
information and decision that they receive from management because once they doubt
it, it leads to reluctance of staff.

However, it is mostly common that the people’s opinions differ from time to time. The
staff members may always resist the decision passed on by management. Also
management may not know what is best for students at the school better than staff
which comprises of teachers. Hence, the staff may do their work unwillingly because
they are being deprived and not fairly recognized

Conclusively, it is not always easy to establish effective communication between staff

and management in an organization. So in those areas that they click, let both staff and
management enforce it as their tool of harmony
6) Communication is the life blood of an organization. Discuss this statement (25)

Imagine in a world of business without any communication, how an organization would

sell its products or interact with the outside world. Thanks to communication which is the
blood of the organization and a lubricant of organizational functionality, which enable
interaction and sharing of ideas in and out of the organization. Communication is the
sharing of message, opinion, ideas and emotions between sender and receiver using
appropriate media. The following are the functions of communication in an organization.

It helps in promoting coordination between departments within the organization. The

finance department for example can communicate with the purchasing department on
the current budgetary control to be followed. Hence, the business purchases within their
budget. Communication helps in making quality decisions as subordinates get to share
ideas and opinion. One person cannot make decision for the whole organization so
there is need for different minds from various areas of expertise.

Through communication an organization is able to plan and lead and control the various
activities that are being carried out. The use of two-way communication come into
essence at this stage. This two-way communication allows workers to give feedback on
what management has suggested. Moreover, two-way communication is used as a
motivational tool by managers. This is because workers feel motivated when they get to
participate in decision making and activities that are crucial to the organization
therefore, communication motivates workers.

Furthermore, communication help to solve problems within an organization. Problems

can only be known if members of the organization get the opportunity to share their
feelings and grievances. Once a problem is identified it should be solved immediately
because it is detrimental to an organization. Communication allows interaction of the
organization and its stakeholders such as customers and their rivals in the market.
Customers give an organization information of what they are demanding at a particular
time. So the firm is always aware of what to produce and for whom to produce to.
In addition, communication through the use of internet enables the organization to keep
a step ahead of the dynamic business world through the use of sites like Google.
Google also provides a platform of the latest products demanded by consumers

However, communication can be criticized on the following grounds if not properly

conducted. Communication barriers such as language and communication channels
used drags communication process down. They eventually lead to ineffective
communication.

Moreover, communication is not the only life blood of the organization but there is also
working capital and good leadership style. Conclusively communication with the blend
of good leadership style and a good liquidity position of an organization form a life blood
of an organization.

7) Evaluate the usefulness of effective communication to a firm in the service

industry (25)

Effective communication is essential to any industry and it helps in many ways. In fact,
communication plays a role in product development and employee management.
Virtually effective communication binds business operations. Communication is said to
be effective if the message is accurately sent, properly received and understood as well
as proper feedback is sent.

Effective communication to an industry like Econet Wireless provides a good link

between good communication and motivation as suggested by Herzberg. With two-way
communication, employees are able to participate and give valued information hence
they will be motivated leading to productivity increase.

It allows communicating with other stakeholder for example suppliers are able to supply
Econet with the correct materials or can even negotiate for cheaper materials and
hence reduce business costs and therefore profits increase. Effective communication
helps to solve some business problems for example conflict between departments can
be solved by carrying out meetings. Once the conflicts are resolved the firm will be able
to achieve its overall goals.
With two-way communication quality can quickly respond to any change in the market,
for example if customers want a new type of Econet mobile phone, the firm can be told
quickly via the suggestion boxes and hence sales can increase.

Good communication also helps in promoting coordination between departments ad

might make a decision which can affect the other department. A good example is for the
marketing department. It can gather information which is outdated in the market hence
the whole firm end up dealing with something not beneficial. It improves the decision
made by the firm for example management by objectives, the subordinates are able to
give valued information that management might need.

However, the effective communication process is likely to be drawn back by the

following disadvantages. Message that recipient (receiver) might not understand the
information as presented, which lead to the need for communicator to clarify information
and perhaps delays business decision or process. In addition, no assurance can be
provided as to the receipt of the message interpretation or of the confidentiality of the
message content.

The business message is transmitted from one location to another and as a result,
Econet may not have access to non-verbal cues that facilitate communication. So in a
nutshell, although it is a hard tom implement effective communication, effective
communication promotes positive contribution to the business and is extremely
important.

8) How does a large manufacturing firm like Delta attempt to ensure effective
communication (25)

Effective communication is beneficial to the business no matter the size or type of the
organization. Business communication can take the form of written, face to face or
verbal. Therefore, effective communication can reduce confusion among workers and
keep everybody on the same page. Effective communication refers to communication
that has accurately sent, properly received and understood, as well as implements a
variety of techniques to ensure success of communication.
It can develop the basic fundamental skills of the communication process. The
management can ensure that they question skills that allow them to provide good
feedback. As a manager one can practice and implement these skills on a regular basis.
By so doing, employees will feel that communication channels are open and they have
input in their job roles.

Delta can embrace the issue/system of employee weekly status feedback report in
which employees are given the opportunity to provide summary of their activities of the
week, as well as plan for the weeks ahead. This gives management the status of
projection in progress and it also gives the employee the chance to express any
concerns.

Moreover, a monthly staff meeting allows the management to address issues that affect
Delta as a whole such as change in policies and procedures or to discuss overall
company goals. In these meetings the management can recognize any individual
achievements during the previous month and reward the efforts by bonuses or increase
in salary. Furthermore, effective communication needs to be clear and brief but
comprehensive when conveying a message to the workforce. An ambiguous message
can be interpreted in a different way by different people. People perceive messages
differently so it is wise to carefully choose understandable words.

In addition, Delta can ensure that the channels of communication are known by all in the
organization and are as short as possible. Confusion in the communication process
causes miscommunication so it is better to clearly state how messages are conveyed in
the organization. Also the channel should be as short as possible to prevent slow up in
business decision making since Delta is a big company.

9) Explain any six barriers to effective communication and what are the methods
which can be used to manage these barriers? (25)

Everything has been said before but since nobody listens we have to keep going back
and beginning all over again- Andre Gide. Most barriers to communication area result of
ignorance, noisy, and attitude. The following are the same of the barriers to
communication.
Physical barriers such as noise and geographical distance, can limit communication.
Physical barriers also have to do with poor out dated equipment used when
communicating. Noise from the back ground that is from the sender can destruct the
communication process. Hence the sender conveys a message that the receiver partly
gets and somehow important information is left out.

As for geographical distance, some firms are located in remote areas in such a way that
communicating with the customers and other stakeholders becomes difficult.so the
solution to physical barriers is to make sure the physical environments are appropriate
for messages to be heard or received. Also the firm should be located near to its
customers.

The second is based on attitude of sender and receiver. If the receiver holds any
negative attitude about the sender, he might be unwilling to receive the message or to
act upon it. The sender might have a low opinion of the receiver and thus make no effort
to ensure clarity of the message.so in order to deal with attitude problems both sender
and receiver should not use emotions like anger or sadness when conveying messages.
They should establish trust between them and good communication skills.

The third barrier is language which in most cases people do not consider seriously. The
use of slang, professional jargon and local languages can prevent other communicators
to participate in communication process. As a result, some members feel isolated and
unwanted in the organization. The remedy is to simply use the language that is
understood by everyone and use of simple words that are not ambiguous.

Fourthly, problems with structure design or organizational structure are also a barrier.
Companies can have organizational structures that are not clear which can make
communication difficult. In most cases, those companies with a long hierarchy face
communication problem. The answer to the problem is to keep the communication
channel process in the organization structure as short as possible.

Furthermore the fifth barrier is on information overload. It takes time to process a lot of
information and too many details can overwhelm and destruct the audience from
important topics. So better to keep the information short but adequate. The sender
should ensure that the information he is conveying is sufficient for the receiver to
memorize

In addition, the wrong choice of medium can affect effective communication. For
example, a detailed and technical diagram cannot be explained over the phone. Also if
the medium is outdated and not complying with technology, it is difficult to communicate
with customers that are advanced. As a remedy there is need to use adequate medium
that is updated technologically to convey messages effectively.

10) Evaluate the role of effective communication to a large organization (10)

Effective communication is an essential part of management. It is the process by which

the management tasks of planning, organizing, leading, directing and controlling are
accomplished. Effective communication is a two-way communication in which ideas,
feelings, information and opinions are transferred from the sender to the receiver either
in verbal or non-verbal or in which information has been received. Effective
communicators will adjust their style of language to different situations but this must not
result in talking down to people which will cause resentment. Communication is effective
when it is received and understood in the manner intended by the sender.

The role of effective communication in a large organization like Delta is that it facilitates
the motivation of individuals since feedback is usually required and this triggers
participation. Full employee participation will increase morale. For example, if decisions
are being made within the organization, workers are triggered to participate.

Effective communication is the force or glue that binds people in an organization

together and as a result, it enables members of the organization to share values, beliefs
and norms. In this case every individual will have a sense of belonging. It also ensures
unity of purpose and a sense of direction in an organization. This will be due to the
sense that everyone will have a clear goal of what they are required to do and who to
report to since everything is being communicated to and any queries will be sort out.
Another role of effective communication is that it acts as a source of information for
decision making process. Better decisions are likely to be made since there is use of
discussions between the superior and subordinates. It also allows an organization to
interact not only with its internal staff but also provides a source of information with
external stakeholders of the business such as customers, suppliers, investors and
creditors. This will enable a large business to move hand in hand with its competitors or
rivals.

However, there are barriers to effective communication such as information overload.

Information overload will cause the receiver to forget some bits of the information which
may lead to bad decisions being made. Also grapevine is one of the barriers to effective
communication because information will be incorrectly received since everyone will
have their own interpretation and pass down the line the wrong information with wrong
interpretation.

Furthermore, the use of complex language/ jargon can also be a barrier because the
receiver might fail to understand the meaning of big words used and interpret that
information in his/her own understanding leading to wrong decisions. All in all, effective
communication plays a pivotal role in a large organization because it helps in
coordinating of goals; it gives sense of direction and also unity of purpose.
CHAPTER 4
 Leadership and power

QUESTIONS
1) Define the following terms

a) Power (2)

b) Leadership (2)

2) Differentiate between power and leadership (3)

3) State any three forms of power (3)

4) Outline any three forms of power (3)

5) Explain any three types of power (3)

6) Distinguish between managers and leaders (5)

7) Discuss the trait approach of leadership (9)

8) What are the difference between autocratic and democratic leadership style (5)

9) Explain any two leadership styles (5)

10) What are the characteristic of the following?

a) Autocratic style of leadership (4)

b) Democratic style of leadership (4)

11) Explain what is meant by exploitative- authoritative style in leadership study

(4)

12) Discuss the factors which influence the choice of leadership style (25)

13) Evaluate the influence informal leadership might have on business (12)

14) Is there a single best style of leadership? (4)

1) Define the following terms

a) Power (2)

It is the capacity of an individual to influence a group of people to work towards the

achievement of a common objective.

b) Leadership (2)

It is the capacity of an individual to influence a group of people to work towards the

achievement of a common objective.

2) Differentiate power and leadership (3)

The one who possess power in an organization has the capacity to influence others to
work through assigning duties whereas in leadership the person is able to influence
others to behave in a certain way. Unlike leadership, power is vested in the position of
the individual in an organization. Leadership is an inborn ability whereas power is not
inborn
3) State any three forms of power (3)

Expert, coercive, reward, referent and legitimate power

4) Outline any two forms of power (4)

Expert power – it is the power an individual possess because of special skills he has
attained in the field of expertise. For example, a doctor has expert power over a patient.

Coercive power- this is power based on the fear of the manager because he possesses
power and the right to punish employees or withhold a rise in salary or any reward

Legitimate power- it is the power a person receives as a result of his or her position in a
formal hierarchy of the organization. For example, the chief execute officer has
legitimate power over his subordinates

5) Distinguish between managers and leaders (5)

Most managers focus on systems and structure of the organization but leader focus on
people. Managers mainly rely on control but unlike them leaders inspire trust. A
manager accepts the status quo, while a leader challenges it. Leaders are born
possessing leadership qualities but managers are trained in order to lead.

6) Explain any two leadership style (5)

Autocratic leadership style – this is whereby the leader retains all authority and is
responsible for decision making, the leader tends to use forces, threats and punishment
when implementing orders. This style is therefore applicable in the armed forces. There
is one-way communication hence decision making is quick and centralized

Democratic leadership- in this leadership style, the leader consults his subordinates on
various activities taking place in the organization. There is two-way communication
hence high level of employee involvement in decision making. High quality of products
and services are produced since democratic leadership style is motivational to
employees

7) What are the characteristics of the following?

a) Autocratic style (4)

1) Leader retains all authority

2) One-way communication

3) High labor turnover

4) Low worker morale

b) Democratic style (4)

1) There is division of work

2) They is two-way communication

3) Low labor turn over because working condition are favorable

4) High quality products are produced as a result of good/ high worker morale

8) Explain what is meant by exploitative authoritative style in leadership study (4)

In exploitative- authoritative style, the manager makes all work related decisions that is
what is to be done, by whom and when the work is to be completed. Subordinates are
expected to listen carefully, obey explicitly and execute tasks faithfully as their
performance standards are closely monitored.

Managers use threats, forces and punishment to subordinates if they do not attain set
standards. Also managers who use this leadership style believe that workers have
nothing to contribute to quality of goods in the organization.

9) Discuss the trait approach to leadership (9)

The trait approach state that leaders are born not made, traits refer to inborn
characteristics of a person such as intelligence, self-confidence and personality.
Leaders are born with traits hence this approach emphasized that leadership skills
cannot be instilled in a person.

Leaders such as Margaret Thatcher and Nelson Mandela are good examples of leaders
who possessed inborn traits. Both had self-confidence, creativity and they were
determined. However, it did not consider the role of environment of which it plays a
crucial role in shaping leadership traits
In practical terms some leaders can be trained, for example institutions of higher
learning and colleges train individual in areas like management, finance and accounting.
This therefore means leadership skills are a result of nature and nurture.

10) What are the differences between autocratic and democratic leadership style
(6)

In autocratic leadership style, the leader is the sole decision maker that is he makes
decisions on his own, whereas in democratic leadership style, the leader makes
decision in consultation with subordinates. Autocratic style has one-way communication
meaning there is no room for feedback but as for democratic style there is two- way
communication hence feedback is accommodated.

Democratic leadership style is associated with people oriented objectives that also
instills good managers and worker relations unlike autocratic leadership style which only
focuses on task oriented objectives. In autocratic style there is implicit obedience of
orders and instructions but democratic style has the interchange of ideas and
recognition of human values.

The motivational technique for autocratic leadership is fear and punishment whereas in
democratic leadership style it is rewards and involvement. Unlike in autocratic
leadership, there is high level of team work in democratic leadership.

Essays

1) Discuss the factors which influence the choice of leadership style (25)

Every organization has its own leadership style which management thinks best suits
them. The leadership style is adopted hoping that the organization functions in a well-
mannered and organized way. Leadership can be defined as the ability of an individual
to influence a group of people to work towards the achievement of a common objective.
So there are a number of factors to be considered when choosing a leadership style
that include the following. The demand of the job or nature of the job. The task
requirement influences the leadership style to be adopted in a given situation.
Jobs that require precise instructions such as operations and in armed forces for
example require autocratic leadership style. However, there is need for change in
leadership style if the job has been partially completed poorly or properly. So a firm can
change from autocratic to democratic if need arises.

Another aspect to be considered is the organizational culture. Culture refers to values,

beliefs, norms and ways in which people in an organization do their things. So if the
organization was formed using autocratic style of leadership, it may use it through the
business life. However, since the business sector is a high dynamic, there is need to
change the leadership style to the suit current situation.

Moreover, subordinate characteristics, expectations and behavior can also determine

the choice of leadership style. The characteristics of subordinates will influence the
leadership style

When employees are well trained, prefer to plan and organize their work then a
democratic leadership style may be used. In some situations, leaders are expected to
use autocratic leadership style if employees are lazy and unwilling to cooperate.

However, the characteristics of the subordinates may change from time to time making
it difficult to establish a permanent leadership style. Peer-colleague-work mate
expectation is another factor influencing the choice of the leadership style. The
colleagues of managers play an important role in influencing the style of leadership.
Managers adopt a style of leadership similar to that of their peers and friends who are
usually in the same business sector.

However, this approach of choosing leadership style is not advisable as each business
has a different organizational culture from the other. Also the nature of business greatly
differs and requires specific leadership style.

Furthermore, leader’s past experience and the expectations can also be taken into
consideration. A manager’s values and background may affect his choice of leadership.
However, this does not mean he cannot change his style to suit what he thinks is
appropriate.
2) Evaluate the influence informal leadership might have on a business (12)

Formal leadership style is not only a leadership style that can lead to the success of a
business but also informal leadership can contribute. Leadership may be formal in the
sense that one person dominates a group because of his personality, position, special
knowledge and hence the organization must identify such informal leaders.

So the firm can use informal leaders to influence other members to accept change.
Suppose there is resistance to change, the informal leaders can use their special
characteristics to persuade others to accept change. The informal leaders can also help
solve some personal problems experienced by the workers for example family problems
which formal leaders may fail to address.

They also help in satisfaction of social needs by organizing parties and social outings.
This will improve morale of workers. However, workers can misuse informal leaders to
demand unrealistic incentives for example higher wages when the firm is facing serious
financial problems. Sometimes informal leaders might work against the firm and he or
she might influence workers to work against the firm.

Informal leadership style may lead to reduction in production since in most cases
workers tend to be reluctant under this leadership style. Conclusively, both formal and
informal leadership styles need to be adopted in an organization.

3) Is there a single best style of leadership?

(10)

Since the business sector is dynamic changing almost every financial year, one can
note that there is no single best style of leadership. (No size fits all).

There is no one best way to manage people instead, managers/ leaders develop their
style according to the degree of expertise their workers have. For those organizations
that has highly skilled workers that are committed and focused, management can adopt
democratic leadership style in which they give less supervision to its workers. If the
workers are reluctant, not committed and not focused managers tend to engage into
autocratic style of leadership.
Style of leadership can be based on current situation the business is facing. In a state of
emergency like fire outbreak there is need for decision making to be centralized hence
business need to take autocratic leadership style. Hence the contingency approach by
Fredrick Taylor which state that different circumstances create different appropriate
style of leadership, is satisfied

CHAPTER 5

Motivation
Questions
1) What is meant by the term motivation (2)
2) Why was F.W Taylor regarded as the father of scientific management (4)
3) How useful are motivational theories to Zimbabwean organizations (4)
4) Explain the meaning of the term Hawthorne effect (2)
5) Can workers be solely motivated by financial incentives? (15)
6) Evaluate the relevance of motivational theories to modern day organizations in
Zimbabwe (25)
7) With reference to Taylor and Herzberg, evaluate the usefulness of financial
incentives in motivating staff (25)
8) Discuss how a firm can use work study and other motivational tools to
efficiently motivate its staff (25)
9) To what extent do you agree with the statement that workers are only
motivated by financial incentives (25)
10) Evaluate the usefulness of the following to an organization in motivation
a) Job rotation (5)
b) Job enlargement (5)
c) Job enrichment (5)
d) Management by objective (5)
e) Team work (5)
f) Workers’ participation (5)
11) Comment on Herzberg two factor theory (4)
12) Give reasons why Herzberg distinguished between hygiene and motivational
factors (3)
13) Give the needs and expectations of the workforce at workplace (4)
14) Distinguish between intrinsic and extrinsic motivators
15) Using examples explain the following terms
a) Intrinsic motivators (3)
b) Extrinsic motivators (3)
16) Explain the contribution made by Taylor to motivation (4)
17) What are the contributions by Herzberg to motivation (4)
18) Explain what Abraham Maslow meant with self-actualization and explain why
he put it at the top of his pyramid (4)
19) Illustrate Abraham Maslow’s hierarchy of needs (4)
20) Abraham Maslow’s theory of motivation is outdated and has no contemporary
place in this modern era of management. Discuss (25)
21) Define the following terms using examples
a) Physiological needs (4)
b) Security needs (4)
c) Social needs (4)
d) esteem needs (4)
22) Distinguish content theories and process theories (3)
23) How can a cellphone manufacturing firm uses Maslow theory to motivate its
staff (4)
24) State any two financial and any two non-financial incentives (4)
25) How might a firm benefit from having a well-motivated workforce (4)
26) Asses the usefulness of the following to an organization
a) piece rate (4)
b) Time rate (4)
c) Performance related pay (4)
27) Explain how a firm can motivate its workers financially (4)
28) Justify the need for motivation to an organization (4)
29) State any four aspects of job design (4)
30) Define the following terms
a) Job design (2)
b) Job redesign (2)
c) Autonomous work group (2)
31) Evaluate the relevance of F.W Taylor theory to Zimbabwean firms (25)
32) Explain David McClelland 3 needs theory (6)
33) Explain the concept of management by objective and evaluate its worth (25)
34) Evaluate the relevance of management theories to modern day management
(25)
35) What are the causes of high labor turnover (12)
36) Discuss the methods which a firm might employ to curb labor turnover (13)
37) What application do you consider McGregor’s theory X and Y in the work
situation (5)
 Answers

1) What is meant by the term motivation (2)

It is a process of initiating and directing behavior of others. It also refers to a set of
processes that arouses, direct and maintain behavior of individuals towards attaining
some goals
2) Why was F.W Taylor regarded as the father of scientific management (4)
Taylor is known as the father of the scientific management because his ideas about
management grew out of his wide ranging experiments that he conducted e.g. the pig
iron handling experiments and the metal cutting experiments. He was convinced that
there is a science for doing each job and he made efforts to replace primitive rules of
thumb methods by modern scientific methods based on investigations, analysis and
measurement. He developed a true science for element of a worker’s job to replace the
rule of thumb
3) How useful are motivational theories (4)
Motivational theories provide the practicing managers with guidelines as to how they
should work in different situations for example Herzberg two factor theory gives
management guidelines as to what satisfies and dissatisfies workers. Motivational
theories are useful in achieving efficiency and effectiveness without going through costly
trial and error method and future horizons of knowledge can be expanded for examples
F.W Taylor stresses on specialization, piece rate system and training.
However, some theories are more theoretical than they are practical. Some of the
theories are difficult to use in real life situations. Intellectuals with widely varying
backgrounds have made contributions which cause confusion
4) Explain the meaning of the term Hawthorne effect (3)
The Hawthorne effect stresses the importance of variables such as temperature, rest
hours, wage rate, illumination and working hours on performance through a number of
experiments using a control group and a test group
It tries to explain that workers are motivated if they believe that management is
concerned with their welfare despite challenges which may be faced e.g. poor
illumination
5) Can workers be solely motivated by financial incentives (6)
Financial incentives can motivate workers as the use of piece rate system can improve
the productivity of workers as they will be paid based on output. Workers will be
motivated as the more their effort, the more they get paid. Financial incentives also
motivate as they provide security of income e.g. the salaries keep the workers going in
expectance of a pay at the month end. Moreover, financial incentives can motivate
workers due to issues of bonuses according to Fredrick Taylor, workers are economic
men with an extra incentive effort will improved
However financial incentives need to be backed by non-financial incentives. Firms can
use job rotation to reduce boredom and for workers to gain skills and experience, this
also motivates a worker. Quality circles, where workers get to participate in decision
making of their work also motivate workers and the firm can use team working that
gives greater discretion in planning to workers. Therefore, workers can be effectively
motivated by a combination of both financial and non-financial incentives.
6) Evaluate the usefulness of the following to an organization in motivation
a) Job rotation (5)
It is a systematic and planned movement of employees from one job to another
periodically within the same organization and at the same level. This process tends to
reduce boredom of doing the same job over and over again. Workers also gain skills
and experience in a variety of jobs and it is part of training. In case of emergence, a
worker from one department can cover for an absent worker in another department and
it promotes a spirit of team work within the organization. Moreover, job rotation reduces
labor turnover and conflicts.
However, gains in productivity may be offset by a fall in output as workers learn new
jobs and take time to settle in. Motivation is not a guarantee, if workers are switched
from one boring job to another and some workers do not like uncertainties from that job
changes
b) Job enlargement (5)
Job enlargement involves combining series of tasks into a new broader job gives
challenge and variety to the workers. This encourages employees’ satisfaction in their
work as they get to complete the entire process. Boredom is also eliminated as the
worker will be working on varied tasks and job enlargement is more efficient if the
workers are organized in groups
However, this means, simply giving a worker more of the same job, efficiency is
reduced, since the worker has to complete the whole task himself i.e. increase the work
load and over burdening to workers. Furthermore, doing the same thing is boring,
stressful and monotonous leading to high level of absenteeism, demotivation and labor
turn over.
c) Job enrichment (5)
It attempts to give employees responsibility by vertical extending their roles in the
production process. It can also be called vertical work loading. It incorporates
achievement, recognition and other high level motivators. The workers feel part and
parcel of the organization and their effort is rewarded. It gives employees a challenge to
develop their unused skills and employees will also be provided with varied tasks, which
may lead to future promotions
However, some workers may feel that they are not able to do extra tasks. Others might
also demand more wages for increases in work and it might be a source of demotivation
if challenging tasks are given to workers. Moreover, challenging tasks may be stressful
to workers leading to health problems and even reduces the lifespan of an employee’s
leading to death of key employees.
d) Management by objective (5)
This is a management technique which includes setting out a strategic plan,
implementation and evaluation with subordinates’ participation and the objectives
should be SMART that is specific, measurable, attainable, reliable and time bound.
Each manager has a clear vision of the vital areas of work and standards required,
individuals will also be aware of organizational goals and greater participation improves
employee morale and communication
However, it takes time to be effective, it can lead to more paperwork than the actual
action and workers may be frustrated if unattainable standards are set.
e) Team work (5)
This allows for workers to work as a group as suggested by George Elton Mayo and
workers are given greater discretion in planning and decision making. This improves
communication between managers and employees. Quality can be improved due to
sharing of duties and workers will develop relationships with colleagues and team spirit
which may improve motivation
 However, conflict between team members may resent the responsibility and delegation
to teams results in loss specialization among workers
f) Workers’ participation (5)
This is the inclusion of employees in the decision making process. This allows for
extension of democracy into the workplace. The skills and experience of the workers is
utilized and this also results in improved information flow. There is development of a
consensus and improved industrial relations.
However, workers can lack technical knowledge required, conflict of interests may arise
if representation is via unions and workers who are not members will lose out
11) Comment on Herzberg two factor theory (4)
Herzberg concentrated on worker’s satisfaction at work and thus distinguish between
intrinsic and extrinsic factors. According to Herzberg intrinsic factors or motivational
factors results in direct and positive satisfaction if they are present at work and they
include autonomy, sense of achievement and accountability but a decrease in these
factors will not cause dissatisfaction. Extrinsic or hygiene factors do not give satisfaction
or motivation to workers but their absence gives dissatisfaction and they include
supervision, pay structures and working environment
12) give reasons why Herzberg distinguished between hygiene and motivational
factors (3)
Herzberg distinguished between the hygiene and motivational factors, this is because
he wanted to show the impact of both extrinsic and intrinsic rewards to the motivation of
employees. Moreover, he wanted to make it clear that for an employee to be effectively
motivated, management should combine both the financial and non-financial incentives.
13) Give the needs and expectations of the workers at workplace (4)
Needs of the workers are: job security, fair remuneration and safety.
Expectations of the workers are: career growth, promotions, long term employment
contracts and favorable leadership style
14) Distinguish between intrinsic and extrinsic motivators
Intrinsic motivators are factors that motivate and give positive satisfaction to workers
whereas extrinsic motivators are non- motivators but their absence may cause
dissatisfaction. Example of intrinsic factors include achievement recognition,
advancement and work itself whereas examples of extrinsic factors include personal
life, status, salary, job security and technical supervision
15) Using examples explain the following terms
a) Intrinsic motivators (3)
Intrinsic motivators are factors that motivate and give positive satisfaction to employees.
An increase in the factor will satisfy the employees and help improve performance but a
decrease in the factor will not cause dissatisfaction for example recognition,
achievement and job interest
b) Extrinsic motivators (3)
These are factors which can be used to maintain a reasonable level of satisfaction
among employees and these factors do not motivate or provide satisfaction but their
absence will dissatisfy workers, examples include status, job security and technical
supervision.
16) Explain the contributions made by Taylor to motivation (4)
Fredrick Taylor’s theory of scientific management emphasizes fairness in pay since it
supported the piece rate system. It also implies about division of work, thus
specialization will increase productivity and quality. Taylor supported an autocratic
leadership style where managers take all work related decisions, this allows for quicker
decision making and useful in jobs where strict orders are to be followed. In addition to
that, workers should be given appropriate training and tools so that they can work
efficiently
17) What are the contributions of Herzberg to motivation (4)
The theory has made significant contribution towards improving mangers understanding
of human behavior. The theory is simple and based on empirical data. It also offers
specific actions for mangers to improve motivation and performance and it has
exercised tremendous impact in stimulating thoughts, research and expectation in the
area of work motivation. Moreover, he considers the combination of both financial and
non-financial incentives in the effective motivation of the workforce.
18) Explain what Abraham Maslow meant by self-actualization and explain why he
put it at the top of the pyramid
Self-actualization entails the ability to achieve the best that one can do and they are
realized when a worker is given a leadership position or hierarchy because that is a
point where a worker feels a sense of fulfillment i.e. worker feels that tasks are
successfully accomplished and the lower order needs will already have been met. It was
put at the top of his pyramid because it is the highest level on the human needs and is
unattainable.
19) Illustrate Abraham Maslow hierarchy of needs (4)
20) Define the following terms using examples
a) Physiological needs (4)
These are basic needs of workers which fall under lower order in the hierarchy of needs
for example food, water, clothing and wages at work. They are biological needs required
to preserve human life and employees cannot live without these needs for they are
basic necessities.
b) Security needs (4)
These are needs which include job security, good and safe working environment and
other important necessities such as medical aid, job security and pensions. These can
be satisfied by offering contracts, medical aid, protective clothing and e.tc
c) esteem needs (4)
These are needs for achievement and are intended to boost an individual morale.
Achievement can be in the form of promotion, coming up with a new idea which the
company adopts and developed into something solid
22) Distinguish content theories and process theories (3)
Content theories focus on what motivate people, thus a need that must be satisfied
whereas process theories are concerned with the thought processes that influence
behavior. Content theories include Maslow’s hierarchy of needs, Herzberg two factor
theory and David McClelland theory whereas process theories include expectancy and
equity theories

23) How can a cellphone manufacturing firm, uses Maslow theory to motivate its
staff (4)
A cellphone manufacturing firm can use Maslow’s hierarchy of needs to motivate its
staff through the following:
Offering life time employment contracts
Provision of protective clothing, lunch, breakfast, housing and transport allowances
Create teams with in the organization through quality circles
Training and elevate employees to higher level positions
Job rotation, vertical work loading and job enlargement.

24) State any two financial and any two non-financial incentives (4)
Financial incentives
Salary, measured day work, bonuses and profit sharing.
Non-financial incentives
Job rotation, job enlargement, job enrichment, empowerment and team working
25) How might a firm benefit from having a well-motivated workforce (4)
A motivated workforce results in better productivity as the commitment by workers
increase. It leads to lower costs of production and also enables a firm to sell at lower
prices. Firms benefit from lower levels of absenteeism from workers and this can result
in improved industrial relations with trade unions. Moreover, labor turnover, conflicts and
industrial disputes are also reduced.
26) Asses the usefulness of the following to an organization
a) Piece rate system (4)
Workers’ pay is based on the number of output produced. The more you produce, the
more you get paid. It encourages greater, effective and faster working of employees.
This encourages workers to devise important methods. Labor costs for each worker are
determined in advance and this helps to set a price for the product. Piece rate system
motivates workers as more pay is offered and these increase employees’ efforts
However, it is only applicable if output can be measured and is standardized. Workers
can be injured at work since they stress themselves to the extremes and it encourages
workers to cut corners and this reduces the quality of the product
b) Time rate (4)
Payment to workers is calculated by multiplying the number of hours worked and the
rate per hour. This is less harmful to quality as more time can be used to fine tune a
product. It is less harmful to the health of employees and it is simple to understand.
However, it does not increase incentives for increased effort and it requires greater
supervision of the workforce to avoid unnecessary time wasting. The worker can slow
the pace of doing work so that she can work more hours and get more pay

c) Performance related pay (4)

This method gives workers extra pay for achieving or meeting a target. This helps in
improving productivity as every worker would work towards attaining the target.
Rewarded workers will have motivated to keep up the good work and it results in the
generation of better ideas of production to speed the process
However, if the targets are too high they can demotivate the workers and quality can be
compromised as workers rush towards targets.
27) Explain how a firm can motivate its workers financially (4)
A firm can motivate its workers financially using the piece rate system, this allows
workers to be paid according to output produced and motivates as more effort is needed
for more pay.
A firm can also use salary which is a fixed amount of pay given usually at the end of a
month. Workers are also given security over income and this can motivate as illustrated
by Abraham Maslow security needs. A firm can also use bonus, that is a financial
reward over and above the normal pay, this motivates according to F.W Taylor who
stated that a worker is motivated by more money.
In addition, a firm can motivate its workers financially by use of performance related pay
i.e. workers are given extra pay for achieving a target.
28) Justify the need for motivation to an organization (4)
There is a strong need for motivation to an organization, this is because motivation
enables the firm to: increase productivity, improve quality, achieve objectives, attain
competitiveness, reduce labor turnover, reduce absenteeism and improve performance.
29) State any four aspects of job design (4)
Job enlargement / horizontal work loading
Job rotation and autonomy
Job enrichment / vertical work loading
30) Define the following terms
a) Job design (3)
This is the application of motivational tools to the structure of work in order to enhance
satisfaction and productivity for example job enlargement and job rotation
b) Job redesign (2)
It is designing a job that has been designed for the second time
c) Autonomous work group (2)
This refers to an experienced group of workers that is given greater discretion in
planning and making of decisions
31) Explain David McClelland’s 3 needs theory (6)
David McClelland was concerned with that differences between individual and their
understanding of common factors in motivation. He was concerned with 3 needs
The need for achievement is a key factor in human motivation and is developed by
environmental factors such as potential influence, education, values of society. People
seek tasks that are challenging but within their mastering and want feedback on
performance
He said workers have the need for affiliation. A person with higher need for affiliation
seeks friendship, relationship and is motivated towards interacting with others. Workers
have the need to be liked and accepted by others
The need for power deals with degree of control a person desires over his or her
situation and the desire to have impact and to be influential in an organization
32) Graphically illustrate the geographical structure (6)
33) Discuss the need of motivation to an organization (4)
Motivation is needed for higher efficiency i.e. motivated workers put more effort and
energy into the business. Motivation allows employees to put optimum use of resources
i.e. a motivated worker is inspired to make best possible use of resources. It results in
better industrial relations and reduce labor turnover. However, the cost of motivating the
worker can be higher than the cost of a demotivated worker e.g. training costs, more
pay e.tc

Essay questions
Abraham Maslow’s theory of motivation is outdated and has no contemporary
place in this modern era of management. Discuss (25)
Abraham H Maslow, an eminent American psychologist developed a general theory of
motivation known as the hierarchy of needs. The salient features of the theory are as
follows. The urge to fulfill needs is a prime factor in motivation of people at work, human
beings strive to fulfill a wide range of needs. Human needs form a particular structure or
hierarchy. Lower level needs must be satisfied before higher level needs and as soon
as a need is satisfied another need emerges. Maslow stated that a satisfied need is no
longer a motivator i.e. It ceases to influence human behavior and various needs are
inter- dependent
Abraham Maslow arranged human needs into five classes and developed a need
pyramid. Psychological or physiological needs are at the base of the hierarchy and
these are the biological needs required to preserve human life. Safety and security
needs proceed after psychological needs, once psychological needs are satisfied a
person wants protection from physical danger and economic security. Social needs are
also needed whereby workers seek affiliation and a sense of belonging. After social
needs are satisfied, esteem needs emerge i.e. the need for respect, status,
achievement and recognition. At the apex of the hierarchy are self-actualization needs
i.e. needs for realizing one’s full potential. The pyramid is illustrated as below

Abraham Maslow’s theory of motivation has no contemporary place in this modern era
of management because the needs are not the only determinants of the individual
behavior in the modern era. People seek objects and engage in behavior that are in no
way connected with gratification of needs. There are other motivating factors like
perception expectations and experiences
In addition, the theory gives an over simplification of human needs in motivation. Need
recognition and fulfillment do not always follow a specific sequence or hierarchy as
suggested by Maslow. Need classification is somewhat artificial and arbitrary as human
needs cannot be classified into neat watertight compartments in reality. Therefore, the
theory may not have a universal validity.
Moreover, the hierarchy of needs is outdated and does not always stay fixed in the
contemporary modern era. Different people have many different orders. For example, in
case of creative people like singers, painters e.tc self-actualization need may become a
dominantly motivating force even before the lower order needs are satisfied. Similarly,
the need priority of the same individual may change over time. As a result, a manager
cannot keep up with a continuously revolving set of needs. Thus, Abraham Maslow’s
theory presents a somewhat static picture of the need structure.
In addition, there is no definite evidence that once a need is satisfied it loses its
motivating force. Human behavior is the outcome of several needs acting
simultaneously. The same needs may not lead to the same response in all individuals.
There is a lack of direct cause and effect relationship between the needs and behavior
However, the theory can be relevance in the contemporary world as it helps to identify
and classify all the needs that are essential for a worker Abraham Maslow was able to
classify.
Human needs that are psychological needs, safety and security needs, social needs
esteem needs and self-actualization. These provide the modern era with the idea that
individual face or seek different needs
In addition, it helps firms to identify which needs have been satisfied and which ones
are not. This gives the firm a clear platform to focus on the needs that are not yet
satisfied as well as maintaining the satisfied needs
Moreover, once a need is identified and its characteristics are analyzed, management
can look for ways to satisfy a need. For example, social needs can be satisfied by
arranging parties or building sport clubs. Firms can also increase promotional
prospects, delegation and use of annual achievement certificates for the higher order
needs
In addition, Maslow help firms identify the order in which needs must be satisfied, that is
a higher need cannot be satisfied unless a lower need is satisfied. For example, it will
not motivate a worker if a safety and security needs are provided for example
employment contract, protective clothing when physiological, needs are not satisfied
e.g. wages and food
In conclusion, Abraham Maslow’s theory has a common sense appeal for managers. It
is still relevant because needs are important for understanding human behavior. The
theory provides a convenient conceptual framework for the study of motivation and it
also explain why people in organizations behave the way they behave.
Suppose a firm wants to expand its operations. Discuss how a firm could try to
make sure that larger workforce is committed and well-motivated (10)
Motivation is a general inspirational process which gets the members of the team to pull
weight effectively, to give their loyalty to the group, to carry out properly the task that
they have accepted and generally play an effective part in the job that the group has
undertaken. It is a process of initiating and directing behavior of other. For effective
running of an expanding organization commitment and motivation of the staff is crucial.
The firm can make use of team working to maintain the commitment and motivation of
its staff. This is when workers are organized into a group that decide between them,
how work is to be distributed and how to solve the problem that arise. This can be of
help to a large firm as workers will develop relationships and team spirit that is essential
if people are to work together.
The firm in addition can use job enrichment. It can attempt to give employees a greater
responsibility by vertically extending their roles in the production process. This is
applicable as the firm will be in the production process. This motivates the workers as
they feel part of the organization and by providing them with varied tasks the prospects
for promotion increases

In addition, the firm can use attractive pay schemes for example piece rate system.
According to F.W. Taylor, it is clear that a man is a rational economic animal meaning
that money motivates workers, hence a favorable pay system can increase commitment
and motivation for example the piece rate system drives workers to improve production
as they are paid depending on output. The use of salaries also provides workers with
security of pay
However, if the firm is expanding its operations, it may be difficult as staff numbers
increase. In the case of team working the group become less efficient due to increase in
number of the working group.
In addition, use of job enrichment and job enlargement might demotivate workers
because some workers might feel they are not able to do extra work. The firm has to
properly monitor job enrichment and enlargement since it overloads the workers.
Moreover, a firm has to face the increased costs if it is to try and use attractive pay
structure. More wages add to the costs of the firm and bonuses draw extra funds out of
the business.
In conclusion, the firm can use job enrichment, attractive pay system and team working
to make sure that workers are committed and well-motivated. Caution need to be taken
with the methods used since the business is al large operation.
Evaluate the relevance of motivational theories to modern day organizations in
Zimbabwe (25)
Motivation is the process of steering a person’s inner drives and actions towards certain
goals and committing his energies to achieve these goals. Motivational theories,
process theories and contemporary theories. Some of the popular motivational theories
include Abraham Maslow’s need priority model, Herzberg two factor theory, McGregor
theory X and Y and Vroom’s expectancy valence theory
Motivational theories are crucial to modern day firms as they help firms define the
subordinates or workers that they have. According to Douglas McGregor theory X and
theory Y, firms get to know different sets of workers. McGregor in theory X define some
workers as individuals who dislike work and will try to avoid it when necessary. A firm
can take proper action given the knowledge on the behavior of the people it is working
with, for example if workers are avoiding work, the firm can make use of strong
supervision techniques.
In addition, motivational theories improve relationships between managers and
workers. Motivational theories seek to find the best practices to make the workplace
friendly. For example, Fredrick. Taylor’s theory of scientific management outline what is
expected from the firm for example more wages, specialization to prevent boredom and
training of workers and what the workers must do i.e. workers should follow orders from
managers. This improve relationships as both managers and workers are aware of how
they should treat each other
Moreover, the theories assist firms in solving problems or finding solutions to some
problems at work. Motivational theories help the firms to identify the causes of problems
and then go to solve them. For example, Herzberg two factors theory clarified
motivator’s satisfiers and dissatisfies, with all knowledge firms can devise a plan to
improve conditions. For example, in the case that workers have low pay and job
insecurity, the firm can avoid dissatisfaction by increasing pay and effecting contracts to
workers.
In addition, the theories assist firms in determining the best practices to make workers
effective. The theories provide information of how workers can be made effective. for
example, Abraham Maslow’s theory of needs educate firms that a higher order need
cannot satisfy unless a lower need is satisfied, this help firms in that some think that,
only giving workers more and more pay motivate them, but Maslow clarifies that
workers have other needs that need to be satisfied for example esteem needs, and
security needs. With the information, firms can practice increased delegation, awards,
and contracts and pay depending on the need that has unsatisfied
Motivational theories result in utilization of worker’s skill and knowledge to full limit. For
example, Elton Mayo in his human relations model stated that individuals need
empowerment, workers require decent treatment and that informal groups should be
recognized. All these factors increase participation of workers and their unused skills
can be exploited this way. F.W Taylor also emphasized on division of work, workers will
be working on the task they know best and greater productivity is guaranteed
However, most of these motivational theories are more theoretical than they are
practical. Some of the contributions have no solid impact in the business world of today.
For example, the use of Abraham Maslow hierarchy of needs makes more sense on
paper but in reality it is difficult to implement e.g. the idea of classifying needs might be
wrong as workers tend to have a range of varying needs, others do not even follow
some hierarchy
Motivational theories tend to over simplify people. It tends to over generalize people as
being one way or another. For example, McGregor theory puts people into extremes i.e.
theory X and Y. The theory overlooks the complex nature of human beings. No
enterprise may man belong exclusively either to theory X or Y
Moreover, the theories can confuse managers. Each theory has its own implications
different from others and sometimes the theories tend to contradict each other. For
example, Fredrick Taylor theory’s states that workers are motivated by money whereas
Herzberg two factor theory states that factors such as money / salary do not motivate
workers but are rather maintenance factors
In conclusion, motivational theories are of relevance to Zimbabwean organizations as
they help define subordinates, improve relationships between managers and workers,
assist in the problem solving, utilization of workers’ skills and help firms in determining
the best practices for effective performance. However deeper analysis of all the theories
is required for it to be of great relevance
With reference to Taylor and Herzberg’s motivational theories, evaluate the
importance of financial incentives as a way of improving the productivity of shop
floor workers (25)
Motivation encompasses an inducement to make people behave in the way that
initiators of these inducement want them to. Motivation affects productivity which is
output produced out of the inputs implemented by each worker and the case in which
work procedures are carried out. The importance of financial incentives eliminates
demotivation of workers which will be working sluggishly and taking more time to
complete a task than necessary
Various theories have been put forward to elaborate the importance of financial
incentives. Researchers into factors that motivate individuals have been carried out by
Fredrick W. Taylor who set out a theory of scientific management. Taylor had a simple
view of what motivated workers at work as money. He felt that workers should receive a
fair days pay for a fair days’ work and pay should be linked to output through piece rate
which is a payment of workers for each unit produced. This can motivate shop floor
workers in the event that if they exceed the target of selling many products per required
standard they would receive a bonus
Taylor found the best way to do each job and designed incentive to motivate workers.
This led to the scientific principle of work study which led to the birth of the aspect of
both method study and work measurement. Method study involves identifying all
specific activities in a job, analyzing them and finding the best suitable way to do the
job. once the best method has been found, work measurement can be used to find the
effort needed to carry out the task at an acceptable standard. This results in design for
incentive schemes. This can motivate the shop floor workers in the event that they do a
particular job in an easier way and complete it per preset organizational standards
which will lead to them receiving fair wages as they meet the deadlines. This therefore
increase productivity since targets are met time at the same time motivating the
workforce
Another theory to explain importance of finance as a way of improving is the two factor
theory of Herzberg. In 1906 he attempted to find out what motivated people at work thus
financial incentives in the form of hygiene factors could improve the productivity of the
workforce. He noted that improving hygiene factors should remove dissatisfaction. This
induced the salary that workers receive annually or monthly. Shop floor workers can
therefore be propelled efficiently by just receiving a fair salary at the end of each
working period
However, in contrast not only financial incentives may improve workers’ productivity as
underpinned by Taylor and Herzberg in their theories. Their theories are also
characterized by strong criticisms on the importance of only financial incentives in
motivating the workforce as non-financial motivators also play a pivotal in improving
workers’ productivity.
Herzberg in his two factor theory noted that hygiene factors such as salary and pay, if
they are improved they remove dissatisfaction but they do not necessarily motivate or
enhance productivity. Thus, he noted also that true motivators such as a sense of
achievement and chances of promotion could motivate the workers since their existence
causes satisfaction and their disappearance cause dissatisfaction at workforce.
Therefore, this draws us to the conclusion that not only financial incentives motivate the
shop floor workers since recognition of effort and fruitful relationship with higher level of
the hierarchy such as the management enhance worker productivity
The work of Herzberg and Taylor is also prone to criticism on the importance of financial
incentives as they motivate shop floor workers. Taylor viewed, people work more as
machines with financial needs than as human in a social setting. Taylor overlooked that
people also work for no reason other than money. Thus, there are non-financial factors
such as sense of achievement, having achievement recognized and positive
relationship that suggest that workers are not after money at the workplace. Therefore,
shop floor workers can opt to achieve these factors and if met this will increase
productivity of the shop floor workers
In conclusion the works of the father of scientific management Taylor and Herzberg play
a pivotal role in viewing the fact financial incentives improve productivity though there is
a need for a symbolic fusion of both the non- financial motivators and financial
incentives to ensure high level of productivity since shop floor workers differ in their
needs thus this interplay can ensure that weaknesses of another is countered by
strengths of another

How useful the result of a work-study programme in motivating to workers (15)

Workers are some economic men who constantly need to be paid or rewarded were the
words of Taylor, thus he emphasized the need for motivation. Adam Stacey and his
equity theory went on to note that workers are happiest in relationship where give and
take are about equal. This shows that for effective and efficient performance of workers,
motivation is the corner stone.
Motivation was defined by management scholars as the inducement to make people
behave in a way that initiators of these investors want to. It is therefore a drive or stimuli
that accelerates or propel workers to behave from a lethargically position to an
energetic position towards the achievement of organizational goals. Work study
therefore plays a key role in motivating workers.
Work study refers to a series of analytical techniques to find the best and most efficient
ways of using labor, machines and materials. Effective implementation of work study
and motivation of workers as the endless effort of Taylor have formed the basis of work
study. He noted that workers are the most vital machines in the success of the
organization
Carrying out work measurement is an aspect of work that can motivate workers. This is
a technique which is used to establish the time that a worker carries out a job at a given
performance at an acceptable standard. This is in an effort to design a suitable payment
scheme. If a worker is able to produce many units of output as per the organization set
standards, he is able to receive the incentives. Therefore, workers are motivated to
work harder to receive extra money.
Method study is also an aspect of wok study which can be used to motivate workers.
This is the process of recording and analyzing existing and proposed methods of doing
work to develop an effective and efficient way and easier method of completing a task.
This can motivate workers because they will not have to strain themselves because
work which is hard to exploit will be replaced by easier methods, for example, in the
Grain Marketing Board of Zimbabwe, workers do not necessarily have to carry huge
sack on their back when loading and off-loading since there has been an introduction to
conveyer belts and forklifts which make the work easier as possible.
Works study on its own cannot effectively motivate workers as there are other theories
propounded, which help explain what motivates workers.
Herzberg two factor theory of true motivators which give workers job satisfaction such
as recognition for effort done and hygiene factors which cause workers to be
dissatisfied when not provided but did not cause satisfaction such as pay and working
conditions can also motivate workers. This theory motivates workers if there is a fusion
or interplay of both motivators and hygiene factors.
Adams equity theory of motivation suggests that people are happiest with relationships
where give and take is equal. He noted that if one person was getting too little from the
relationship he or she is going to be unhappy and the one getting the larger share will
feel rather guilty about the imbalance. In business it suggests that in return for input that
is skill, or effort a worker implements, he or she should receive an outcome that is pay,
status and fringe benefits. This would therefore create a ratio of input and output and
equity will be achieved when the ratios are the same for everyone at the workplace.
This will lead to workers being motivated as a sense of balance in the organization is
felt.

In conclusion, work study plays a crucial role in business. It is important in business

organization which is seen as resources conversion system in which input are combined
together create output. Workers accelerate the organization success.

Chapter 6
 MANAGEMENT

QUESTIONS
1) Define the following terms
a) Management (2)
b) Span of control (2)
c) Functional structure (2)
 d) Matrix structure (2)
2) What factors influence the choice of the span of management (6)
3) What is a narrow span of control (2)?
4) Distinguish a wide and narrow span of control (4)
5) How useful is a wide span of control to a firm in the manufacturing sector
(4)?
6) Explain why it is favorable for employees to work in organizations with a
wide span of control (4)
7) Under what circumstance might a firm adopt a wide span of control (4)
8) Distinguish a span of control and chain of command (4)
9) What is meant by the following terms
a) epirit DE corpse (2)
b) Stability of tenure (2)
10) Differentiate responsibility and authority (4)
11) Explain any three levels/ types of authority (6)
12) Define the following terms
a) Line of authority (2)
b) Staff authority (2)
13) Explain the term labor turnover (2)
14) Define the term delegation (2)
15) Why do managers delegate work to their subordinates (4)
16) Explain why manager find it difficult to delegate work their subordinates
(6)
17) What is meant by the term accountability (2)
18) How useful is specialization to a firm in the clothing industry (6)
19) Explain the term division of labor (2)
20) Define the following terms
a) centralization (2)
b) decentralization (2)
21) Explain the concept of management by objectives (5)
22) Define the term management by walking around (2)
23) Why do business plan (2)
24) Differentiate management by objective and management walking around (3)
25) Explain any three managerial function (6)
26) With the help of diagram of a typical functional structure explain the following
a) Span of control
b) Chain of command (7)
27) How useful is centralization to a firm in the manufacturing sector (5)
28) What are advantages and disadvantages of decentralization? (6)
29) Explain the divisional structure (5)
30) How applicable is McGregor theory X and Y in the work situation (4)
31) Is functional structure always a good structure (6)
32) Distinguish a functional and matrix structure (4)
33) Illustrate a divisional structure (5)
34) What are the advantages and disadvantages of a matrix structure (6)

ANSWERS

1) Define the following terms

a) Management (2)
It is the art of getting things done through people (according to Mary Parker Follet). It
depicts attainment of organizational objectives in an efficient and effective manner by
planning, organizing, leading and controlling of organizational resources
b) Span of control (2)
It is the number of subordinates a manger can effectively supervise. It determines the
level of authority and the shape of the organization.
c) Functional structure (2)
This is where an organization is divided into separate unit based role, such as
accounting, marketing, research and development and distribution. It is structured
according to functions
d) Matrix structure (2)
Is one in which a team of specialists from different departments of the organization
come together to work on a special project, under the supervision of a project manager.

2) What factors might influence the choice of the span of management (6)
- Experience and personality of the manager
-nature of the business, a more risk business calls for a narrow span of control, on the
other hand a less risk business normally calls for a wide span of control
-skills and attitude of the employees; highly skilled professional employees might
flourish a business by adopting to a wide span of control as they are assumed to have
adequate knowledge for the completion of the task
- Tradition and culture of the organization; a business with a tradition of democratic
management and worker empowerment, may operate on a wide span of control to
enable execution of tasks to match with culture of the organization
- the amount of time available, where there is sufficient time to complete task, a narrow
span of control can be used unlike in a situation where there is urgency which calls for a
wider span of control so as to cope up with the stipulated time.
- Level of technology. The more advanced the technology, organization can make use
of the wide span of control as technology is highly associated efficiency and
effectiveness

3) What is a narrow span of control (2)

It is where there are many mid and top level managers who each supervise a small
number of employees reporting back to them
4) Distinguish between a wide and narrow span of control (4)
-narrow span of control leads to a tall organizational structure whereas a wide span of
control result in a flat organizational structure with fewer layers
- A wide span of control imposes greater responsibility to a manager in terms of
supervision, unlike in a narrow span of control where a manager supervises a small
number of employees in a manufacturing organization
-in a narrow span of control the leader or manager supervises a small number of
subordinates but wider span of control, the manager supervises a large number of
subordinates
5) How useful is a wide span of control to a firm in the manufacturing sector (4)
Decision making process is fastened because a wide span of control is characterized by
a flat organizational structure where there are fewer managers supervising a large
number of employees. Possibility for more upward growth of employees, this is because
there are close relationships that do exist between workers and managers. However,
greater levels of management mean greater operational costs, moreover, lower and
less motivated staff require strict close supervision
6) Explain why it is favorable for employees to work in organization with a wide
span of control (4)
-close relationships between manager and employees, this enables employees to
acquire some of the manager skills hence there is a possibility for more upward growth
of employees. Short decision making process enables employees to fully execute tasks
assigned in an efficient and effective manner.
7) Under what circumstance might a firm adopt a wide span of control (4)
Where the time period in which decisions are to be made is limited, in such situations
short decision making process is necessary. Where a firm need to expand its operations
in future by internally recruiting its lower level employees, as there is greater supervision
attention, possibility for upward growth of employees is fostered. In organizations with
highly skilled and motivational staff.
8) Distinguish between a span of control and chain of command (4)
Span of control implies to the number of subordinates a manager can effectively
supervise whereas a chain of command is a line of authority through which orders and
responsibilities are delegated. Chain of command is a plan that satisfies who reports to
who in the organization, unlike span of control which brings attention to the complexity
of interrelationships in the organization.
9) What is meant by the following terms?
a)espirit DE-corpse (2)
Involves placing each members of staff into small teams of employees, thus team work
in execution of task for attainment of the organizational goals
b) Stability of tenure (2)
It is the proportion of staff leaving a business over a period of time? It is calculated as

Number of staff leaving over period of time X 100

Average number of staff
Labor turnover should be stable according to Fayo
10) Differentiate responsibility and authority (4)
Authority is the right to exercise power (the right to command) whereas responsibility
refers to individual obligation to carry out assigned duties.
Authority implies ability to carry out a task, it is power management has to exercise
when making decisions and running business unlike responsibility which relates to
duties one is assigned to do, thus it involves accountability
11) Explain any three levels/ types of authority (6)
a) Line authority- is direct authority as it involves the right to give orders and have
decisions implemented. All supervisors have line authority over their subordinates in
their respective departments. The flow of line authority is always downwards
b) Staff authority – can also be seen as auxiliary authority in that it does not provide
the right to command. It normally relates to advisory or supportive authority
c) Functional authority- is the right to give orders in a department other than one’s
own, the relationship arise when a specialist is allowed to take over a limited defined
function
12) Define the following terms
a) Line of authority-refer to question 11(a)
b) Staff authority-refer to 11(b)
13) Explain the term labor turnover (2)
Is the proportion of staff leaving a business over a period of time?
It is calculated as = number of staff leaving an organization X 100
Average number of staff
14) Define the term delegation (2)
It is a process by which managers transfer part of their authority to subordinates, for
example school head can pass certain authority to certain staff
15) Why do managers delegate work to their subordinates (4)
-It reduces management work load while the task is still being completed
-empowerment of subordinates thus motivating them
-it is a good method of on the job training as there is an understanding how things work
-allows top management to focus more on important key task while less important tasks
are completed through delegation
16) Explain why managers find it difficult to delegate work their subordinates (6)
-Fear of the unknown, as the future is uncertain managers may find it difficult to
delegate
- In some instance, managers, do lack delegation skills hence it may be difficult for them
to delegate
-some managers feel better doing tasks on their own, this fosters room for power
maintenance
-some managers are also shy and they lack trust in their subordinates
17) What is meant by the term accountability (2)
Is the obligation to carry out responsibility and exercise authority in terms of
performance standards by the supervisors
18) How useful is specialization to a firm in the clothing industry (6)
It is more useful in that
-specialization implies doing the work in which one is talented at, for example marketing
finished product such as (clothes)
-workers become experts in a particular job due to the acquisition of specific skills,
eventually they complete task faster
- quality tends to improve, for example in cutting of clothes thus finished products are
made more appealing to the market
-however, specialization leads to interdependency implying that if a certain task is not
completed the other one might also be affected, for example packaging specialist rely
on finished products. Moreover, doing the same thing is monotonous and boring
therefore may result in demotivation of employees.
19) Explain the term division of labor (2)
Implies that work must be divided to obtain a clear cut specialization with the view to
improve performance of workers
20) Define the following terms
a) centralization (2)
Refers to high a degree of concentration for decision making authority among very few
top managers at the head office
b) decentralization (2)
It is the passing of authority of decision making to lower level management? It is closely
linked to delegation
21) Explain the concept of management by objective (4)
MBO is a process whereby the superior and the subordinates, managers of enterprise
jointly identify its common goals, define individual major areas of influence and
responsibility in terms of results expected of him and use the measures as a guide for
operating the unit and assessing the contribution of each of the members. The
objectives must be SMART (specific, measurable, attainable, reliable and time bond)
22) Define the term management by walking around (2)
It is an unstructured approach to direct participation by the managers in work related
affairs of their subordinates in contrast to distance management. It is related to
management by excerption (MBE)
23) Why do business plan (2)
- planning reduces uncertainty and risk
-it provides a sense of direction in a business
-encourages innovation and creativity
-gives manager the opportunity to identify strengths and weaknesses
24) Differentiate management by objective and management walking around (3)
MBO is the process whereby the superiors and subordinates of an enterprise jointly
identifies common goals, define each individual’s major areas of influence and
responsibility in terms of the results expected of him or her and use the measures as a
guide for operating and assessing performance. Where as in MBWA, managers spend
their time making informed physical visits to the work area and listen to the employees.
25) Explain any three managerial functions (6)
-Planning; it is the establishment of objectives and the foundation, evaluation and
selection of policies, tactics and action required to achieve them
-leading; this involves the use of influence to motivate people to achieve the
organizational goals.
-directing; suggest orders, instructions, supervision and guidance
26) With the help of diagram of a typical functional structure explain the following
a) Span of control (4)
It is the number of people directly, accountable or reporting to a manger. Narrow span
of control means that there are many mid and top level managers who each supervise a
small number of employees reporting to them

Wide span of control means that there are fewer managers of mid and top level within,
each supervising a large number of employees, thus more people report to one
manager
b) Chain of command (3)
Is a plan that satisfies who report to who in the organization? It is a line of authority
through which orders and responsibilities are delegated, thus it is revealed in the above
structure
27) How useful is centralization to a firm in the manufacturing sector (5)
With centralization decisions are taken at the center or at the upper level of the
organization thus easier in communicating when passing information relating to
manufacturing when communicating steps involved in extraction of raw materials.
Greater control also revealed through centralization since decisions are made at the
top. However, centralization results in delay in decision making and it can be less
appropriate especially when there is a need for change in undertaking tasks within a
limited time period. Room for initiativeness is limited when there is centralization
28) What are advantages and disadvantages of decentralization? (6)
Advantages
-Decentralization relieves top managers from work overload so that they concentrate
more on strategic decisions
-quicker and better decision making is taken at the scene of action
-it offers training to junior managers and prepare them for more challenging roles
-decisions in response to market changes become quicker and flexible since head office
will not have to be involved all the time
- increases employee motivation though participation in decision making
-personal development is promoted
Disadvantages
-Coordination by top managers may become difficult
-lack of organizational policy and effective communication may lead to inconsistencies
relating to a weaker organizational policy
-divisions may pursue their own objectives at the expense of corporate goals
-loss of some economies of scale
- Development of narrow departmental view
29) Explain the contributions of McGregor theory to Zimbabwean organization (5)
It reveals worker’s attitude to work and seek responsibility hence workers can be
handled in the appropriate manner in relation to their attitude as theory X assumes, a
worker is reluctant therefore has to be coerced and given extrinsic reward while theory
Y prefers autonomy, responsibility and gains a sense of achievement from work.
Acceptance of theory X result in autocratic leadership and centralization in decision
making because workers are assumed to be reluctant. Acceptance of theory Y results in
democratic leadership, decentralization in decision making and creation of a more
flexible structure
30) How applicable is McGregor theory X and Y in the work situation (6)
The theory is applicable in that it gives mangers yard sticks which they can use so as to
watch workers’ attitude to work in relation to the organizational vision. For example,
theory Y assumes that workers enjoy work and seek responsibility hence
decentralization can be implemented in such an organization. It gives manager room to
use the exact leadership style in relation to worker attitude to work, for example theory
X requires autocratic leadership as workers dislike work.
However, this theory is based on assumptions, so in practical situation it may be less
appropriate, also it may be difficult to depict workers’ attitude to work in some situations
for example in a large organization where there is limited supervision
31) Is functional structure always a good structure (6)
Functional structure offers a high level of specialization since each unit operates as a
self-concerned company concerned with carrying out specific roles. Functional
structures make supervision easier as there are divisions. A worker is an expert in the
functional area, he/she is performing a task with higher level of speed and efficiency
which enhances productivity. However, staff may develop a narrow outlook and be
unable to judge performance in functional structures for example if a new product fails.
32) Distinguish a functional and a matrix structure (4)
A functional structure is where a company is divided into separate units based on roles
such as accounting, marketing or distribution whereas a matrix structure is one in which
a team of specialists from different departments of the organization get together to work
on a special project under supervision of the project manager.
Creativity is often encouraged together with flexibility in a matrix structure while in a
functional structure it may be difficult to prepare managers for a wide range of functions
since there is specialization hence flexibility
33) Illustrate a divisional structure
It involves grouping activities on the basis of common customers or type of customers
and it involves grouping together employees who deal with specific customers. The
assumption is that each division/ group have a common set of problems and needs

34) What are the advantages and disadvantages of a matrix structure (5)
Advantages
-It allows total communication between departments and customers across traditional
boundaries. The knowledge and expertise can be transferred from project to another
-provides flexibility
-effort is channeled towards what is good for the project business instead of individual
or department
Disadvantages
-It encourages power struggles as to who is going to be the project manager
-it is costly to implement
- may affect morale when people are rearranged at the beginning and end of the project
35) With the aid of a diagram, explain a geographical structure (6)
A geographic structure is arranged by region, and activities are divided into divisions,
zones and branches. Such a structure enables the firm to compete even internally and
emphasis on local condition enable good handling of business
36) What are the features of a bureaucratic organization (5)
A bureaucratic organization is characterized by
-a clear chain of command
-the flow of authority
-the level or channel of information
-the reporting structure
-Departmentalization
-Co-ordination
37) What application do you consider McGregor theory X and Y in the work
situation (5)
Theory X states that workers are lazy, they avoid responsibilities, they do not like work
and they run away from work. This is most commonly used at low level workers that is
the shop floor workers/ level and in production department. It can also be used in the
army and security department. Theory Y states that workers are self-directed they take
work as playground and they seek responsibilities. This is mostly used to employees in
the positions such as accountants, lawyers and top management.
38) What are the features of a tall structure (3)
-high delegation, centralization of authority, and long lines of communication
-high degree of functional specialization
39) Distinguish a tall and flat structure (4)
A tall structure is a structure in which the span of control is narrow and as a result, there
is a large number of hierarchical levels whereas a flat structure involves a broad span of
control and relatively few hierarchical levels. In a tall structure there is decentralization
of authority unlike in a flat structure where there is centralization of authority.
40) What are the causes of high labor turnover (12)
High labor turnover is detrimental to an organization especially in a competitive
environment. By definition labor turnover is the proportion of staff leaving a business
over a period of time and it is calculated as follows:
Labor turnover = number of staff leaving over a period of time X 100
Average number of staff

Causes of high labor turnover include relatively low pay levels or remuneration within an
organization which will entirely push internal workforce to leave for better paying jobs as
they seek to satisfy their needs.
Low levels of training and promotional opportunities is another driver of high labor turn
over. The environment in which businesses operate is not static, but is highly dynamic,
especially technological equipment operation changes from time to time as modification
and advancement are made. If workers are not trained to cope up with demands they
may not add significant value to the business hence they can be forced to leave the
organization.
Some businesses are relatively poor in selecting and recruiting the right candidate for
the job, in such circumstances, a worker might perform below the required standard as
he/she will not be suitable for the job. Such a practice can be very costly to the
organization as experience factors is distributed to fully operate in the business
Unfavorable leadership style, incorrect identification of workers’ behavior can result in
the incorrect leadership style being used, for example where workers require autonomy
then the manager intend to use autocratic leadership, in such some situation workers
might not love their work and can leave the organization in search of better favorable
jobs in other organizations.
Closely aligned to the above factors is poor working conditions which result in low job
satisfaction, for example where the organization practices do not favor employees’
safety in risky task such as in mining, if injuries and death levels continue increasing,
workers might leave for better jobs in other organizations which provide sufficient safety
In summation high labor turnover in most cases, is costly as it can disturb business
operations thus resulting in the need for training, and improved interviewing of
employees so as to reduce loss of production time
Essay questions
Explain the concept of management by objective and evaluate its worth (25)
Management by objective is both a philosophy and a technique of management. It
represents a rational and systematic approach where measurable goals are set up in
consultation with subordinates and the contribution of each individual is judged in terms
of such goals. According to George Odiorne, management by objective is a process
whereby the superior and the subordinate’s managers of an enterprise jointly identify its
common goals, define each individual’s major areas of responsibility as guides for
operating the unit and assessing the contribution of each of its members.
The concept consists of a number of steps which include preliminary goal setting which
is to be attained. It also involves setting subordinates’ objectives, the organization
objectives are achieved through individuals therefore each individual must know what
he is expected to achieve
From setting subordinates’ objectives, the firm then requires the objectives under
management by objectives, goal setting is not a direction from the top but rather a two-
way process in which the superior suggests a goal that is acceptable to the
subordinates, goal setting is a joint and interactive process. From time to time firms
conduct periodic performance reviews and then make a final appraisal
The objectives must follow the smart criterion. They need to be specific, measurable,
achievable or attainable, realistic and they need to be time specific. Management by
objective has an operational trust involving linkage between organizational goals and
individual goals.
The benefits of management by objective include improved planning, management by
objective produces clear and measurable performance goals. A network of goals is
created and appropriate action plans are formulated for goal achievement. Research
reveals that people tend to set their goals higher than superiors set them. There is
effective matching of goals and resources, clear goals and action plans generate
concrete thinking and lead to result- oriented and forward planning. However,
management by objective is a time consuming process, in initial stages, several
meetings have to be held and formal periodic reviews and final appraisal sessions also
consume time
Moreover, it facilitates teamwork in an organization. It results in better communication
between superiors and subordinates which reduces conflicts. The whole management
team is actively involved in goal setting. There is integration of lower levels goals with
organizational goals. Different individuals are fused into cooperative team. However,
management by objective may introduce inflexibility in the organization once goals are
set down, superior may not like to modify them due to fear of resistance from
subordinates
In addition, management by objective results in effective self-control. A clear set of
verifiable goals provide effective standards for self-control. Managerial efforts are
concentrated on critical areas of performance. Leadership is fixed from routine task and
therefore concentrate its effort and time on piloting the enterprise through turbulent
environment. However, it is pressure oriented, under MBO managers are forced to
consume a supportive role and in many cases the programs indiscriminately force
improvement on all employees.
Management by objective also permits objective appraisal. MBO permits impartial
appraisal, because employee performance is evaluated against verifiable and mutually
defined criteria. Managers are measured by what they accomplish rather than how they
spend their time. The performance of each individual is evaluated in terms of mutually
agreed target. Under MBO the superiors do not evaluate the subordinates but his
performance. However, it may result in redistribution of power and can alter the status
of the people in the organization and this can therefore generate hostile reactions in the
form of infighting and overt conflicts
In addition, management by objective improves motivation and morale of staff. It leads
to better interpersonal relations through involvement and recognition of people at all
levels. It gives greater opportunities for personal contributions thus improving motivation
and morale. Firms will benefit from a motivated work force but however management by
objective requires goal setting by the superior and subordinates whereas in many cases
the goals are set by the superiors because of the time factor or because he might not be
willing to share his power.
Management by objective also facilitates innovation and creativity on the part of
subordinate’s managers. Superior or managers assume a supportive role and
subordinates are allowed to exercise self-direction and self-control. Due to the freedom
to contribute, individual can introduce new ideas for the betterment of the organization.
However, in the scheme of a management by objective, leadership does not find a
central place. Too much reliance is placed on rational attitudes and intelligent
consensus. It is based on a democratic leadership style which may not be successful at
all times.
In conclusion, management by objective is a result- oriented and rational philosophy. It
permits management by result in place of management by crisis. Firms benefit from
improved planning, motivation, performance evaluation and team work. However, a
clear purpose, of management support, orientation and training, adequate time and
resources and timely feedback are essential for successful MBO
How useful is a functional organizational structure to a manufacturing firm (15)?
As organizations grow in size, line organizations prove inadequate and it becomes
necessary to introduce specialization. The functional organization structure is based on
the concept of functional foremanship suggested by F. Taylor. Functional organization is
defined as a structure where the organization is divided into a number of functional
areas. Each function is managed by a functional expert in that area. For example, the
purchasing department handle purchases for all questions relating to salary, promotion
and transfer for every employee in the organization whether he is in the production
sales or any department.
An individual receives instructions from several function heads. Every functional expert
enjoys functional authority over subordinates. Within a functional department every
operating executive receives orders from several functional specialists for example each
foreman in the factory receives orders from superintendent, chief engineer, chemist etc.
functional structure has the following uses to an organization.
It allows division of work and specialization for an organization. Functional organization
promotes logical division of work. Every functional head is an expert in his area and all
workers get the benefit of his expertise. The importance of a major function is
recognized. Since each unit operates as a type of self-contained, mini –company
charged with carrying out its specific role.
In addition, it leads to the reduction of work load since every functional head looks after
one function and therefore burden on top executive is reduced. Mental and manual
functions are separate workload therefore, recruitment and training is also reducing as
each individual is required to have knowledge of one functional area only
Moreover, functional organizational structure leads to better control. One man is done
away with and there is a joint supervision of work, as a result, functional control
becomes effective, this makes it easy to control because the majority of employees
understand the role of each unit.
Functional organizational structure is also useful as it leads to higher efficiency. Every
individual in the organization concentrates on one function only and receives the expert
guidance from specialists therefore, efficiency of operations is high. There is scope for
functional improvement through application of expert’s knowledge. A worker who is an
expert in his functional area can perform a task with a high level of speed and efficiency
which enhances productivity
In addition, it provides a scope for expansion. The success and growth of the
organization is not limited to the capabilities of few line managers. Standardization and
specialization facilitates mass production. A change can be introduced without
disturbing the entire organization. There is flexibility with in the organization when it
comes to change.
However, the functional organizational structure does not go without limitations. They
result in double command problems. A person is accountable to several superiors. As a
result, his responsibilities and loyalty get divided. In the absence of a unit of command,
responsibility for results cannot easily be fixed. There is erosion of the authority of the
line managers.
It also leads to lack of coordination where functional manager tends to have a limited
perspective. He thinks only in terms of his department rather than of the whole
enterprise. He may be jealous of his prerogative and fight to promote his own specialty.
Inter functional conflicts may arise within the organization.
In addition, it delays decision making process since a decision problem requires the
involvement of several specialists. Therefore, decision making will be slow. Again
because functional managers have to report to central headquarters and it may be
difficult to get quick decisions.
It also results in complexity of tasks since there are many cross relationships which
create confusion. A worker may receive conflicting orders and he cannot easily
understand his place in the organization hence discipline may be poor.
In conclusion, functional organizational structures are useful to an organization as they
allow specialization, lead to better control, high efficiency and expansion prospects. It
should be noted therefore that, this is generally suitable for large to medium sized
businesses and it must be conducted effectively to suppress its limitations
Discuss the factors which influence the level of span of control (25)
The span of control is also known as the span of management and span of supervision.
Span of control refers to the number of subordinates that report directly to a single
manager or superior
It is necessary to decide the appropriate span for every executive if the number of
subordinates reporting directly to a manager is very large, he may not be able to
exercise effective supervision and control
On the other hand, if the number is too small, full use of the manager’s abilities may not
be made and the subordinates may not get adequate autonomy of work. Firms can
have a wide span of control that is a larger number of subordinates reporting to a
manager. wide span has the impact of creating flat organizational structures. They can
also have a narrow span of control that is few subordinates reporting directly to a
manager and this results in tall organizational structures. The choice on the type of span
of control depends on the following factors:
The nature of work has an influence on the level of span of control. When the work
performed by subordinates is simple and repetitive they do not require frequent
guidance. As a result, the manager can supervise a large number of subordinates that
is firms are likely to have wide span of control. However, if the work is difficult or non-
identical, span have to be narrow for proper analysis of procedure of work.
In addition, the type of technology used has an impact when determining the level of
span of control. Firms using mass production and assembly line technology can have a
wide span of control as most of the work is done automatically and supervision is
reduced. However, firms employing batch or process production systems and other low
standard technology can use the narrow span as supervision is needed from time to
time.
Firms also need to consider the degree of decentralization. When a manager does not
delegate adequate authority to subordinates they require frequent consultation and the
manager has to take many decisions himself as a result, he is likely to supervise few
subordinates i.e. there is a tendency towards narrow span of control.
However, if a manager clearly delegates authority, subordinates themselves will take
many decisions and the manager can effectively supervise a large number of people.
Moreover, firms also need to consider the planning status of the organization. If policies,
procedures and rules are clearly defined, subordinates can direct their own work on
these guidelines. Standing plans simplify repetitive decisions and relieves the
manager’s burden thus firms tend to use wide span in such cases. However, in the
absence of clear plans, span of control has to be narrow because subordinates require
much consultation and guidance
Firms should also consider the capacity of the subordinates. Efficient and trained
subordinates may perform their jobs efficiently without much help from the managers,
they only require broad guidelines. In such a case, less time is needed in management
and the span can be larger. However, new and inexperienced employees require more
time of supervision than experienced and dedicated employees, hence managers need
to control a few number of employees.
In addition, the communication technique at the organization is another factor. Where
everything is communicated by face to face contact, it takes much of a manager’s time
and span of control has to be small to allow for effective communication. However, use
of electronic and other devices speed up communication, thereby firms use wide spans
of control as information diffusion is faster
Moreover, firms need to consider the ability of the managers. Managers possessing
qualities like leadership, communication, decision making and also can manage more
subordinates due to the acquired skills. However, those managers that do not possess
such qualities can find it difficult to deal with a large number of employees hence they
tend to favor narrow spans of control. Moreover, the attitude and personality of a
manger also determine the span of control. For instance, an empire builder may have a
greater span of control than a submissive manager.
In conclusion, firms need to consider the manager’s abilities, type of technology,
capacity of subordinates, communication techniques and nature of the work. Firms need
to use a number of factors before deciding on the level of span of control
Discuss the benefits of planning (10)
Planning is deciding in advance what to do, how to do it, when to do it and who to do it.
It involves anticipating the future and consciously choosing the future course of action.
A plan is a blue print for the future course of action, planning is a process, and a plan is
an outcome of this process. A firm can create strategic plans, operational plans and
tactical plans
Planning is of great importance because it reduces the organizational uncertainty and
risks. Uncertainty and change are inevitable and planning cannot eliminate them but
rather assist the firm to cope. With the help of planning, a firm can predict future events
and make due provisions for them, instead of leaving future events to chance, they can
be made to occur in a desired manner.
In addition, planning provides a sense of direction. Planning saves an organization from
drifting and avoids aimless activities. It diverts human efforts into endeavors that
contribute to the accomplishment of goals. It bridges the gap between where we are
and where we want to go.
Moreover, planning encourages planning innovation and creativity. Innovation and
creativity are prerequisites to continuous growth and steady prosperity of an
organization. Through analyzing future events, firms can introduce new methods and
tactics on how to deal with upcoming situations
Planning can also be used to evaluate performance. Firms can analyses the planned
output as compared to actual results produced. This helps in adopting management by
excerption and take corrective action if it is a bigger divergence between the plan and
the actual performance
However, planning suffers from lack of accurate information. planning is done for the
future and the quality of planning depends on the accuracy of information. No manager
can predict completely and accurately events of the future.
It also leads to false sense of security a manager may feel, once the plans are
formulated, action will automatically be efficient. Once policies and procedures are
established, they are considered sacred. Instead of facilitating action these hinder
action unless they are reviewed and revised periodically.
In addition, planning is inflexibility and may result in internal rigidity in managerial work.
Detailed policies and procedures may curb employee initiatives and individual freedom.
Such rigidity leads to delay in work performance. A manager may be bagged down by
procedures and formalities when there is need for quick action.
In conclusion planning allows performance evaluation, helps in co-ordination, reduces
risk of uncertainty and encourages innovation. Firms however need to create a
conducive environment for planning, use of top management support and cost benefit
analysis in order to reduce the negative effects of planning.
Evaluate the influence of informal leadership to businesses (12)
Leadership can be informal in the sense that one person dominates a group because of
their personality position, access to information special knowledge, experience and
such are able to motivate the group and lead them and therefore objectives can be
achieved
The firm can use informal leadership to influence others to accept a change. Suppose
there is resistance to change, leader can use his special character to persuade other
employees to agree, the informal leaders are useful to the firm to persuade the
employees to reach an agreement. Informal leaders also help to save some personal
problems experienced by the workers. For example, family problems affecting workers.
Formal leaders can fail to address some personal problems as they follow channels but
informal leaders are so close to the employees and problems can shared and solved
easily. Once the problems are solved, work productivity improves
Informal leaders also help to satisfy the social needs of employees by organizing parties
and jokes. This improves the morale of the workers and solve some business problems
arising from dissatisfaction such as high labor turnover and absenteeism since this
makes workers feel part the organization
Informal leaders are good communicators and they are closer to workers, so they can
transmit information to subordinates and clarify where they did not understand hence,
all the workers will therefore be will informed and know what is expected from them and
thus they become effective
However, informal leadership can have negative influence on a business. The workers
can make use of the informal leaders to demand unrealistic incentives for example
demanding more wages when the firm is facing serious financial problems.
In addition, sometimes the informal leaders might work against and hence he or she
might influence the other workers to work against the rules. He or she can use his
influential position to satisfy his own needs at the expense of the other workers.
Informal leaders tend to stimulate grapevine meaning that rumors and exaggerations
can increase as they do not follow formal channels but collect information using other
informal ways and can sometimes use their own minds to judge the management.
In conclusion, informal leadership have both positive and negative influences to an
organization. It improves communication, morale, satisfaction of social needs but it also
stimulates grapevine and can influence workers to work against organizational goals.
Therefore, for the achievement of organizational goals, firms need to put in place both
informal and formal leaders.
Evaluate the relevance of Fredrick Taylor scientific management theory to
Zimbabwean organizations (25)
Fredrick Taylor is known as the father of scientific management. He defined
management as the art of knowing exactly what you want men to do and seeing that
they do it in the best and cheapest way. He found out that the main cause of inefficiency
and wastage in factories was ignorance on the part of both workers and management
Taylor’s theory implies that man is a ‘rational economy animal’, in need of maximizing
his gains, thus firms should give workers more pay to increase output. He also
emphasized on selection of the best person for the job that is someone with the right
skills and character. Taylor also pointed that workers need close supervision as they do
not naturally enjoy work and he supported specialization. A manager’s work is to tell
employees what to do and workers should do what they are told to do and get paid
accordingly.
The theory is of relevance to an organization such as Delta Beverages as it promotes
division of work, thus specialization will increase productivity and quality since a worker
is given the opportunity to perform a task he/ she knows best. A company like Delta can
utilize its manpower by dividing its workforce based on the skills e.g. those best at bottle
printing focus on the printing and those who are physically strong focus on loading and
offloading crates of beverages.
In addition, the theory proposed a fair remuneration or pay system. It supports the
piece rate system. Workers are paid depending on output procedures, as the theory
states that man is motivated by money, the workers will work hard to produce more thus
increasing productivity. This is mainly applicable to a Zimbabwean manufacturing firm
such as Bata Shoe Company which can have more output of shoes if it pays its workers
based on the number of shoes each worker produces.
Moreover, the theory leads to efficient production methods. This is because the theory
suggests that employees should be given appropriate tools and enough training for
them to work as efficiently as possible. Managers and workers will be trained so they
will be able to introduce new ideas, innovative and new production methods that will
allow for efficient production.
In addition, Taylor’s approach has close links with the concept of an autocratic
management style i.e. managers make all work related decisions and simply give orders
to their subordinates. This is of importance to the Zimbabwean army where there may
be need to move troops quickly and orders to be obeyed quickly. That makes the theory
more useful since it is supported by other management styles.
Moreover, Taylor’s theory improves motivation and morale of the workforce. Through
training schemes, workers feel that the firm cares for them and they become loyal to the
organization. The theory also emphasizes on more wages and if a worker is paid
accordingly effort towards work is likely be improved.
However, the theory has some limitations, not everyone is motivated by money that is
Taylor overlooked the fact that workers work for different reasons. According to
Herzberg two factor theory, non-financial factors always motivate for example, job
enlargement, job enrichment and others. Abraham Maslow also said once a need is
satisfied it can no longer motivate so if a worker gets pay i.e. more money, he reaches a
point when it does not motivate him/her.
It also ignores the existence of groups and teams, because of individualism, productivity
might be reduced. This is because team working results in effective production as the
workers get to support each other and they also share ideas and can cover for each
other.
In addition, the theory caters for individual preferences and initiatives. Taylor placed
emphasis on autocratic leadership style where the management dictate the pace,
because of that, management might not be aware of some good ideas from the
subordinates that might help the firm to improve productivity.
The ideas of the piece rate system can result in the reduction in quality. This because
every worker will be rushing to reach the target or to produce more output hence quality
can be compromised. The piece rate system is only applicable when the output is
standardized and measurable. This does not have meaning in-service industries such
as teaching.
In conclusion, Taylor’s theory is of great relevance to Zimbabwean firms as it improves
workers’ motivation, improves productivity, provides fairer pay system and promotes
specialization. The firms however require analysis of several theories and consider the
best strategies for the organization.

Evaluate the benefits of workers’ participation in large organizations (20)

Workers play a crucial role in business they are important in a business organization
which is seen as resources conversation in which inputs are combined together to
create outputs. Workers accelerate the organization’s success
Workers’ participation refers to the inclusion of employees in the decision making
process. This has greater benefit to some large organizations such as Delta, Unilever in
the form of increase motivation and total commitment.
Workers’ participation extent democracy in the work place. An organization with
democracy will have increased efficiency and productivity. New ideas will have thrown
up which the management would utilize to its mutual benefits resulting in operational
efficiency
Furthermore, there will be increased satisfaction and personal development. Workers
will be able to be identified with the company and this will make them keen to be at
work. They will be able to stretch their capabilities and achieve more.
In addition, there will be improved motivation and increased employee commitment. By
including workers in decision making, the managers will be able to fulfil their esteem
need as underpinned by Maslow in the hierarchy of needs. This will lead to high
motivation. The prevalence of motivation is seen in high productivity and low labor
turnover in the large organization
Furthermore, through worker participation, there will be improved industrial relations.
There will be less need for trade unions where management policies and decisions are
subject to remove effective challenge and huge bargaining costs.
In addition, worker participation will lead to the development of consensus resulting in
cordial relationship within the organization between management and employees acting
as family gaining a competitive edge over its rivals
However, workers’ participation is time consuming thus delaying business activities
because there will be need to consult workers who usually have different perceptions
that make the decision making process. Too much worker participation always leads to
conflict of interests. Usually management have a profit motivate that usually neglects
workers need and this situation results in conflict of interests between employers and
employees
Further more workers lack technical knowledge so they cannot make technical
decisions. Their participation in decision making will not only stir disagreements but also
interfere with the managers’ rights and duties to make decisions
In conclusion, workers’ participation is of great importance to a large organization
because it improves motivation, increase commitment and improve industrial relations.
The benefits of workers’ participation outweigh its limitations, so it’s of great importance
What considerations might be taken into account when deciding whether or not
centralize decision making (10)
To enable subordinates to carry out the delighted task, it is necessary to confer on them
sufficient authority. Decision need to be carried out in the lower level management if the
business is it to run effectively.
Centralization is when most decisions are taken at the Centre or upper levels of the
organization. This leaves little decision and autonomy for the lower levels. The decision
of whether to or not to centralize decision making is influenced by costs, desire for a
uniform policy and size and geographical dispersion of the organization.
The firm will consider cost as a general rule, that the costlier the decision to be, the
more probable it is that the very decision will be made at the top level of management.
Thus certain major decisions will always remain at the top level. Moreover, the greater
cost, the more top management is likely to centralize decision making.
The desire for a uniform policy will also be taken into account. Consistency and
uniformity is associated with centralization. Hence where top management desire
uniformity it’s likely that decision making will be centralized.
In addition, size and character of the organization is another factor. In very large
organizations, especially those producing a device product range, it is not only possible
but also highly desirable to centralize decision making.
More so management philosophy is also an important factor. The character and ideas of
top management will be reflected in the degree of centralization. The management and
leadership will also determine the decision whether or not to centralize decision making.
The quality and experience of middle and junior managers can also be taken into
account. A shortage of talented middle managers will limit the decentralization process.
In addition, the availability of control techniques can determine whether there is
decentralization in an organization. The development of computer and the availability of
statistical and account data has facilitated the process of decentralization. Top
management can now practice decentralization and retain control over operations.
Moreover, the firm’s management will also consider the geographical dispersion.
Organizations that are dispersed will demand highly decentralized systems in order to
allow efficiency in the organization.
In conclusion the centralization – decentralization spectrum relates to the location of
decision making within the organization. Although it is possible to centralize completely,
a totally decentralized system is impossible, the Centre must retain some control over
planning process.

Evaluate methods a business might employ to promote co-operation between

management and workers (25)
Co-operation is the interaction between all departments within an organization.
Management and workers have the same objectives and they work together as a unit.
This is very important and various method can be employed to promote their co-
operation.
A business can employ a democratic leadership style. In this leadership style, managers
engage in decision making discussions before making decisions. There is worker
participation the management delegates the authority and responsibilities but retain
ultimate responsibility. There are two-way communication and this allows co-operation.
However, to management, there is threat of management takeover and some issues are
too sensitive to be discussed in the presence of workers
It can also use decentralization, this is when workers are allowed to take part in decision
making and give them a chance to hear cut their views. Workers are motivated and this
creates co-operation. However, decentralization may result in workers undermining
management authority and it consumes a lot of time since everyone is consulted.
A business also makes use of delegation, this means that management can pass
responsibility to worker and give them a measure of authority. Also there is need for
objective clarification, management needs to satisfy why certain things are done and
how they are done, this will promote co-operation. However, this may be not useful if
workforce is unwilling to co-operate for it depends on the caliber of the workforce.
Workers become accountable or answerable to management thus co-operation. This
will motivate workers and high interaction levels. However, delegation requires workers
who accept responsibility. Workers may also end up undermining authority of
management.
Not only that, but a business can employ management by objective. Management and
workers set goals and workers expect feedback to management on how their
performance compared set objectives. Management and workers work hand in hand,
hence co-operation. However, this can be useful if the workforce is highly motivated.
Additionally, the environment surrounding business is not static rather dynamic, hence
objectives set today may be of little relevance in future.
Businesses might promote co-operation between workers and management if it
employs the method of quality circles. This whereby a group of shop floor workers
volunteer to meet regularly to discuss work related problems. The results are often
presented to management hence co-operation. However, this is time consuming. it may
also result in conflicts.
A business can also employ total quality management to promote co-operation between
management and workers. This is when the organization adopt quality as the culture if
they have skills and are aware of what is taking place. However, some workers may not
be willing to co-operate if they possess the skills.
All in all, the merits outweigh the demerits and hence the above method should be
employed to promote co-operation between workers and management. These methods
should not be used in isolation but need to be combined to ensure effective cooperation
between workforce and management.
Evaluate the relevance of decentralization of decision making to an organization
(15).
Decentralization is important to an organization to a greater extent. It refers to process
of decision making where subordinates and lower level management are involved, they
are allowed to eir out their ideas, opinions and feelings. This has many benefits even
though there are some few limitations.
Decentralization is useful because it results in quality decisions. When decisions are
being made, there is a lot of consultations and everyone is free to pass suggestions.
This allows the best and quality decisions to be made unlike when managers retain the
authority to make decision for themselves.
It motivates workforce. Decentralization helps to satisfy the esteem needs of workers
because when they are consulted they feel respected and recognized. This will boost
their morale and they become motivated. A motivated workforce ensures overall
success of the business because they are goal oriented, thus reducing costs and work
efficiently
Decentralization also allows team work such that workers have a chance to know each
other’s strengths and weaknesses and are able to unite to overcome challenges as a
unit. More time spent together in decision making results in good relations and boost
morale for the workforce, this leads to overall success and good performance of the
organization.
However, decentralization may result in workers undermining authority. There is close
relationship between workers and management and managers might show their
weaknesses or limitations to the subordinates and subordinates will not respect the
managers, thus undermining authority
It is also time consuming to come to an agreement, there is a lot of consultations and
converging of ideas which takes a long time until a decision is made. It also encourages
more decisions rather than action and this affects organization where there is need to
extent operation.
In conclusion decentralization is important to an organization to a greater extent though
it has its strengths and limitations but limitations outweigh strengths
Explain the reason why managers are reluctant to delegate work to their
subordinates (10)
Delegation is the act of assigning duties to subordinates. Managers may be reluctant to
delegate because of reasons below:
Managers may be lacking the required delegation skills. For managers to effectively
delegate they must have the expertise so that the subordinate will perform as required.
Therefore, if managers lack these skills they become reluctant to delegate.
Managers might also fear outstanding performance by the subordinates. Some
managers do not delegate because they fear that subordinates may perform better than
managers and this may result in lack of the workforce’s respect
Furthermore, managers may not delegate because of lack of trust in their subordinates,
some managers do not believe in the ability of subordinates to perform the required task
and therefore will become reluctant to delegate. Management personality make
managers reluctant to delegate. Therefore, some managers do not want to delegate
because of unexplained reasons.
In conclusion, there are several reasons why managers are reluctant to delegate and
among them are lack of delegation skills, lack of confidence and shyness.

Discuss the factors management should consider to ensure effective delegation

(10)
Effective delegation is when the job assigned to a subordinate is done in a proper way
as interacted by one who assigned it. To ensure effective delegation management
should consider certain factors.
Effective delegation is possible if management possess the delegation skills. If
management do not have the skills, it may result in poor performance by the
subordinates. On the other hand, if management is skilled, subordinates perform as
expected hence effective delegation.

Not only that the objectives must be clarified. Some subordinates may underperform not
because of lack of experience but lack of objective clarification. Management skills need
to be backed up by objective clarification. Therefore, for effective delegation to prevail
management need to clearly state what is to be done, and how and by whom.
Additionally, effective delegation results if there is confidence and trust between workers
and employees. Therefore, management should improve communication between all
levels of authority to get acquainted with everyone thus creating confidence and trust.
In conclusion, managers can ensure effective delegation by adopting delegation as a
culture of work place. This means that management will work towards delegation all
lower level duties need to be delegated.
Discuss the view that informal groups may be favorable to an organization (12)
The early management scholars are more concerned about formal groups which are
officially planned groups within the organization. These groups follow organizational
rules and protocols in order to achieve a set objective as time moves, a network of
personal and social relationship starts to emerge thereby creating a group that is not
officially designed in an organization called informal group. These informal groups lead
to the success of many organizations despite their limitations.
Informal groups are organizational groups which operate without being officially
planned. They arise due to interactions during tea breaks. It is a network between
personal and social relationships without being designed or authorized by anyone. The
leaders of these groups have no legitimate power over the subordinates. In contrast
with formal groups, informal groups do not follow rules or protocols of the organization
to meet their objectives
To an organization, informal groups may be favorable because they enable satisfaction
of employees’ social needs thus leading to motivation of the workforce. This will lead to
quality products being made and an increase in productivity. Informal group enables an
organization to obtain higher profit due to an increase in sales.
Also due to the formation of informal there is fast communication between the manager
and subordinates. This will ensure effective communication with feedback. Fast
communication will give a clear picture based on what is to be done to reach a certain
objective without any rule.
Informal groups reduce an inferiority between subordinates without any official position
in the hierarchy. This is because subordinates are able to mingle with others and
socialize with their managers during tea breaks or lunch breaks. This will give an
opportunity for a worker to feel honored in those places they mingle with their top
official.
Furthermore, informal groups can motivate a worker since the management is based on
natural abilities. This will give everyone a platform to show case their talent. This will
promote teamwork among members. In this case groups will be informed according to
the way they are aiming to achieve a certain objective. However informal groups may
lead to a rise in conflicts. These conflicts may arise since they are no protocols or rules
to be followed in the organization. Also different views may also lead to conflict due to
the scarce nature of resources.
More so these groups may lead to high rate of disrespect and fight in the organization
since everyone will be his or her own boss. Informal groups may lead to the creation of
intergroup. These will lead to a decline in friendships in organization. There will be an
increase in personal traits and will result in hatred in the firm which will result an
accident in the workforce.
In conclusion, informal groups are not favorable to an organization due to the fact that
an organization cannot be able to operate to achieve their objective because workers
will be enjoying to socialize rather than working and an organization to obtain losses.
b) Critically examine the advantage of decentralization (13)
Decentralization is the process whereby decision making power is passed down the
organization to empower subordinates and the regional product managers. It can also
be described as an organization in which there is considerable delegation and
autonomy in the periphery or at the low levels.
A decentralized organization enables personal development within subordinates and
junior manager. For example, clothing retailers with operations in several countries,
often local decisions can be made that reflect different conditions. These managers
who take the decisions will have local knowledge and are likely to have closer contacts
with the customers thereby reducing product failure.
Also decisions made are quicker. In this case decision making response to change for
example in a local market condition should be quicker and more flexible as the head
office will not be involved every time.
More so a decentralized organization enables delegation to be carried out. This will
have a positive effect on motivation since empowerment is made easier and attainable
in the organization. For example, an employee will be motivated knowing that he/she is
being trusted due to assigned tasks by the top management.
Since decentralization is the diffusion of decision making authority from the top level
management to the lower level management, there is generation of new ideas in the
organization. The ideas will enable an organization to partake on something different
from the usual. Furthermore, decentralization enables top management to concentrate
on more important issues and leave the minor issues to lower management. This will
reduce time wastage in discussing on minor issues while there will be major issues to
look at.
On the other hand, decentralization does not only bring merits to an organization but
also it has limitations. A decentralized organization may suffer from loss of control of an
organization. Control is lost due to the fact that these subordinates will underestimate
their top management for letting them decide in their own. They will regard their
managers’ failures.
Also, participation of the whole organization in decision making also result in conflict
because by debates. Debates may arise due to the fact that people have different views
on certain things. Trying to consider everyone’s view is time consuming. This will delay
the operations of the organization if an agreement is not passed on by different
departments.
How might a manager ensure effective delegation at the work place (10)
To enable the management to concentrate on major issues, it is necessary especially
as the organization grows in the size and complexity to delegate decision making and
other tasks to subordinates. Delegation is the act of assigning duties to subordinates
and it has the additional virtue of enlarging and enriching the experience of the
subordinates and providing training opportunities to enable the subordinates to advance
in their careers. It can also be defined as an act of assigning formal authority and
responsibilities for the completion of a specific task by subordinates
Also, the manager must choose subordinates that possess sufficient skills and
experience for the tasks to be carried out. This will reduce wastage of company’s
resources because the employees will be highly driven. The objectives must be clearly
defined by managers and understood by subordinates. In this case, the subordinates
should be clearly aware of the objectives need to be met and achieved. This will ensure
effective delegation.
More so the authority and responsibility of the subordinates should be announced. In
this case the ability to exercise influence over others. Objects, people and situations
should be announced to the subordinates carrying out tasks in order to prevent
confusion. The managers should provide a clear schedule for the completion of the
task. This will give subordinates the maximum time and effort to ensure the deadline of
the task is effectively met. Also to ensure effective delegation the managers must be
able to trust the subordinates. This will provide a sense of belonging to a subordinate
and in turn he/she will carry out the task willingly.
In conclusion, for effective delegation, the manager should clearly communicate with
subordinates to gain trust and clearly define what to be done and how it has to be done.

CHAPTER 7
Marketing management

QUESTION
1) Distinguish between a market and marketing (2)

2) What are the recent trends in marketing (2)

3) Differentiate marketing and selling (3)

4) What roles does the marketing department play to an organization (5)

5) Define the term marketing mix (2)

6) Identify the elements of the marketing mix (4)

7) Explain any three variables of the marketing mix (6)

8) Define the following terms

a) Product (2)

b) Price (2)

c) Promotion (2)
9) State any four features of an actual product (4)

10) Graphically illustrate the product life cycle (5)

11) Explain any three stages of the product life cycle (6)

12) Evaluate the usefulness of the product life cycle to a manufacturer of watches
(25)

13) Outline any two stages of the product life cycle (4)

14) How can a shoe manufacturer extent his product’s life cycle (6)

15) Give reason why firms develop new products (5)

16) Explain the reasons why new products fail to take off (10)

17) Explain the new product development process of a textbook manufacturer (6)

18) State the stages on new product development process (6)

19) What are the possible consequences of developing a new product to a

manufacturing firm (6)

20) Explain any three types of goods (6)

21) Differentiate consumer and durable goods using examples (4)

22) Define the term packaging (2)

23) How useful is packaging to a successful marketing of a product (6)

24) Give reasons why packaging is often regarded as a silent salesman (3)

25) Define the following terms

a) Brand (2)

b) Branding (2)

26) Give 4 level of meanings that are delivered by a successful brand (4)

27) What are the characteristics of most successful brands (4)

28) Explain three types of brands (6)

29) Define the term product positioning (2)

30) Using examples explain any three approaches to a product positioning (6)

31) Evaluate the relevance of product positioning to car manufacturer (6)

32) Define the term pricing (2)

33) Explain any three pricing objectives (6)

34) Define a pricing strategy (2)

35) Evaluate any 4 pricing strategies that shoe manufacturer can use (12)

36) Distinguish market skimming and price penetration (4)

37) Explain any two pricing policies (4)

38) Define the term communication mix (2)

39) State any 4 aspects of the communication mix (4)

40) What factors should be considered when choosing promotional mix (5)

41) Define the term advertising (2)

42) Evaluate any three types of advertising (6)

43) Discuss the factors to be considered when preparing an advertising budget

(12)

44) Evaluate any three advertising medias (6)

45) Discuss the factors to be considered when selecting an advertising media (15)

46) Assess the relevance of advertising to a successful marketing of a product for

a car manufacturing firm (25)

47) What is meant by the term direct marketing (2)

48) How useful is direct marketing to a manufacturer (6)

49) Define the term societal marketing (6)

50) What factors are to be considered when selecting a distribution channel (4)

51) Distinguish a marketing strategy and a marketing tactic (3)

52) Evaluate the usefulness of the Boston matrix group to manufacturing firm (25)

53) Illustrate the BCG matrix (5)

54) What is meant by the following?

a) Stars (2)

b) Dogs (2)

c) question marks (2)

d)cash cows (2)

on the BCG matrix

55) Explain the following terms on Ansoff matrix

a) Market penetration (2)

b) Market development (2)

c) Product development (2)

d) Diversification (2)

56) Explain the following strategies

a) Price – cost leadership (2)

b) Product differentiation (2)

c) Focus/ niche market (2)

57) Define the following terms

a) Product mix (2)

b) Product portfolio (2)
 c) Target marketing (2)

58) How useful is target marketing to a shoe manufacturer (15)

59) Evaluate the relevance of niche marketing to a clothing manufacturer (13)

60) Explain the concept of value addition (3)

61) How can a timber manufacturer add value to his product (5)

62) Evaluate the usefulness of value engineering to a manufacturer (12)

63) Distinguish mass marketing and niche marketing (6)

64) How useful is mass marketing to a clothing manufacturer? (10)

65) What is meant by the term market segmentation (3)

66) Explain any three basis of marketing segmentation (3)

67) How can a cellphone manufacturer segment his market (10)

68) Evaluate the usefulness of market segmentation to a cellphone manufacturer

(15)

69) What are the criterias or requirements for effective segmentation? (4)

70) Define the term forecasting (2)

71) What are the use of forecast information? (5)

72) State any two quantitative and 2 qualitative forecasting technique (4)

73) Explain the following forecasting techniques

a) Panel consensus (2)

b) Delphi method (2)

c) Time series analysis (2)

d) Casual method (2)

74) How useful is panel consensus in forecasting (5)

75) Of what importance is Delphi technique in forecasting (6)

76) Assess the usefulness of casual method in forecasting (6)

77) How can a firm use time series analysis and Delphi technique in forecasting
(15)

78) Discuss the relevance of forecasting to a shoe manufacturing firm (25)

79) Distinguish quantitative and qualitative forecasting (6)

80) How useful is time series analysis to a cement manufacturing firm (15)

81) Name any two probability and non-probability sampling techniques (4)

82) Define the following terms

a) Sample (2)

b) Sampling (2)

c) Sampling error (2)

83) Explain the following methods of sampling

a) Cluster sampling (2)

b) Sampling errors (2)

84) How useful is sampling to a researcher (6)

85) Explain any two problems encountered in sampling (4)

86) Distinguish primary and secondary research (6)

87) How useful is primary research to a cellphone manufacturer (6)

88) What are the advantages and disadvantages of desk research (6)

89) Distinguish qualitative and quantitative research (4)

90) Evaluate the methods available to a researcher when gathering data in the
service industry (25)
91) Discus the role of marketing department to a firm in the manufacturing
industry (25)

ANSWERS

1) Distinguish between a market and marketing (2)

A market is a place where goods and services are traded whilst marketing is a
management process that involves identifying what consumers need and want and to
provide goods and service that satisfy the needs and wants

2) What are the recent trends in marketing (2)

Electronic commerce (e- commerce), societal marketing, direct marketing and use of
social networks

3) Differentiate marketing and selling (3)

Marketing is concerned with first identifying customer requirements whereas selling is

only concerned with making consumers want the product of the company. Marketing
takes the customer as king and believe that best and better products are only
determined by the customer but selling believes that the company best knows the
product that the consumers must buy. Marketing aims at providing products that sell
themselves whereas selling does not involve research into customer specifications but it
allows products to be made first and then the product will be sold. Marketing is product
oriented whereas selling is market oriented

4) What role does the marketing department play to an organization (5)

Research and development, market segmentation and designing of marketing

strategies. Product positioning and differentiation

5) Define the term marketing mix (2)

Marketing mix refers to all controllable variables that are considered by the organization
when coming up with ways of responding to market demand. It consists of price,
product, place and promotion.

6) Identify the elements of the marketing mix (4)

Price, place, promotion and product.

7) Explain any three variables of the marketing mix (6)

Price- it is the monetary value attached to a product. It is the amount a product or a

service is expected to be worthy.

Product – it is the total set of characteristics designed to provide quality to the

customers. It is anything that can be offered on the market for a purchase, acquisition
and attention

Promotion – it is a set of tools or tactics which are used to encourage consumers to

buy the product e.g. sales promotion, advertising and personal selling.

8) State any four features of an actual product (4)

- Quality

- Brand name

- Packaging

- Product life cycle

9) Graphically illustrate the product life cycle (4)

10) explain any three stages of the product life cycle (6)

a) Introduction – this is when a product is introduced into the market. At this stage
there is a risk of product failure due to the uncertainty that consumers will purchase the
product at the required quantity and price.

b) Growth - this stages arises when the product is fully accepted and well received into
the market. The sales will start to grow and profits reach their peak stage.

c) Maturity- it is the stage where the product is well established in the market with a fair
market share.

12) Outline any two stages of the product life cycle (2)

Introduction stage and decline stage

13) How can a shoe manufacturer extends his product life cycle (6)
Extending the product life cycle involves rejuvenating the product to prolong its life. A
shoe manufacturer can add new features to its shoes e.g. flattering the sore or add
belts. The firm can also change its packaging e.g. Bata company can use more fancy
boxes to display its shoes. The firm can also lower its prices, it can increase the outlets
that sell its shoes, it can also increase promotion of its shoes and it can enter new
segments and new markets.

14) Give reasons why firms develop new products (5)

a) To fight competition

b) To replace products that have reached the decline stage

c) To spread risks through diversification

d) To meet the ever-changing consumer preferences and needs

e) To maintain and increase sales revenue or growth rate

15) Explain the new product development process of a textbook manufacturer (6)

i) Idea generation- it involves coming up with the ideas of a new product which are
generated from forecasting and research and development

ii) evaluation- before an idea is developed it is necessary to evaluate the idea in terms
of marketability and profitability

iii) screening- is the process of judging whether it is worthwhile or not to develop the
product.

iv) Product development – after screening process, new product ideas are developed
into product concept in which the market benefits and its position in relation to the firm’s
rivals is tested.

16) State the stages on new product development process (6)

Idea generation, evaluation, screening, product development and test marketing.

17) What are the possible consequences of developing a new product to a

manufacturing firm (6)
Development of new products have consequences in that they are often costly to
develop, the new products are usually difficult to manage, they can tarnish the image of
the firm if they fail to work properly, they tend to demand more promotional funds.
Moreover, new products may be rejected by the customers resulting in loss of sales and
profits. These new products can also pose negative effects to already existing products
in terms of financial support.

18) Explain any three types of goods (6)

i) Consumer goods- these are goods produced for consumption and are ready to be
used or consumed by consumers for example bread, eggs etc.

ii) Capital goods- these are goods produced and used in further manufacturing of other
goods. Examples are tractors and sewing machines

iii) Durable goods- these are goods that have a longer life span for example jersey and
computers.

19) Differentiate consumer goods and durable goods using examples (4)

Consumer goods refer to products or commodities produced for use by consumers

whilst durable goods are products that last long. Examples of consumer goods are
eggs, bread whereas television, cars are examples that fall under durable goods.
Consumer goods are deemed to be cheaper because they are human needs whereas
durable goods may be expensive due to their nature. Consumer goods are necessity
goods whilst durable goods are luxury goods.

20) Define the term packaging (2)

It refers to a cover that is used to protect the product in order for the product to retain its
freshness until its final consumption or use by customers.

21) How useful is packaging to the successful marketing of a product (6)

Usefulness

i) it enhances the firm’s competitiveness by attracting customers

ii) it adds value to the product
 iii) it creates consumer and brand loyalty
iv) makes a product easy to carry and handle. However,
v) packaging increases, the costs of the product thereby raising prices
vi) attractive packaging may cause impulse buying
vii) moreover, it may cause land pollution and injuries which may tarnish the
image of the firm.

22) Give reasons why packaging is often regarded as a silent salesman (3)

Packaging is regarded as a silent salesman because:

i) it protects what it sells and sells what it protects

ii) it adds value to the product
iii) it attracts customers
iv) it plays a dual role that is marketing and protection

23) Define the following terms:

a) Brand (2)

A brand is a name, sign, design, logo, or a combination of these intended to identify the
product of the seller. Examples of a brand names are Nokia, Samsung etc.

b) Branding (2)

Is a process of creating a name or identity for the product of the seller?

24) Give 4 levels of meaning that are delivered by a successful brand (4)

Attributes, benefits, personality and value.

25) What are the characteristics of most successful brands (4)

i) Must be distinctive

ii) Must be easy to pronounce e.g. lux

iii) Easy to remember e.g. OMO, LG

IV) Must suggest quality e.g. Benz

26) Explain any three types of brands (6)

a) Individual brands- these are brands for a particular product e.g. pampers

b) Distributors brands- these are brands established by the distributors of a firm’s

product e.g. supermarkets

c) Family brands – are brands that contain the name of the company e.g. Heinz
company sells Heinz beans, Heinz tomato ketch up, olivine and Dunlop.

27) How useful is branding to a food manufacturer? (6)

Advantages

i) it provides the product with an identity and aids identification by the customer
ii) it provides a sense of security and reassurance about the quality of the goods
inside the package
iii) it adds value to the product making it more appealing

However

Branding may increase costs of the product thus raising the price of the product.

28) Define the term product positioning (2)

It is a process whereby the organization creates an image of the product in the mind of
the customers so that the product will be well received in the market.

29) Using examples, explain any three approaches to product positioning (6)

i) Positioning by attributes

In this approach, products will be positioned by their features for example food stuff can
be positioned as nutritious and appetizing

ii) Positioning by quality or price

Some products are charged high prices as a guarantee of quality e.g. Volvo and
Mercedes Benz.

iii) Positioning by benefits

Firms communicate to individual the benefits of using the product. For example, Colgate
gives white teeth and better breath.

30) Evaluate the relevance of product positioning to a car manufacturer (6)

Relevance

It gives a firm a competitive advantage over its rivals

It creates base for customer loyalty

It enables a firm to attain its marketing objectives

However

It requires highly skilled personnel thereby making it expensive

It is time consuming

31) Define the term pricing (2)

It refers to the amount a product or a service is expected to be worth. It can also be

defined as the process of attaching a monetary value to a product

32) Explain any three pricing objectives (6)

i) Profit maximization

The main objective of attaching a price to a product, is to maximize profit. Profit

maximization is the overriding objective of privately owned businesses

ii) To fight competition

Price may be set to fight competition or to drive out competitors in the market by
charging low prices for the products.

iii) Sales revenue maximizing

Some firms may set prices low so as to maximize sales especially if they seek an early
recovery of cash

33) Define a pricing strategy (2)

It’s a technique of attaching a monetary value to a product e.g. skimming pricing,
destroyer pricing etc.

34) Distinguish market skimming and price penetration (4)

Market skimming is a pricing strategy used by a firm charging high prices for a product
at an early stage and then reduce it with time whereas price penetration is a pricing
strategy where relatively low prices are set and strong promotions takes place in order
to achieve high volume of sales.

Market skimming is usually charged in markets segments where consumers are price
insensitive whilst penetration is usually charged in market segments where consumers
are price sensitive

Price penetration is mostly charged in markets where competition is very stiff whereas
market penetration is charged in market segments where competition is low or no
competition at all. Market skimming is usually charged when a firm is selling a highly
differentiated product with much sort unique features whereas price penetration is
charged when a firm is selling similar products with those offered by other firms

35) Explain any two pricing policies (4)

i) Single pricing policy – it involves the charging of the same price for the same product
in different market segments

ii) Flexible pricing policy- it involves the charging of different prices for the same product
in different market segments

36) Define the term communication mix (2)

It consists of a blend of techniques used to communicate the products available to the

consumers on the market. It is a group of methods used to inform customers.

37) State any 4 aspects of the communication mix (4)

Advertising, direct mail, publicity, public relations, sales promotions, merchandising and
personal selling.

38) What factors should be considered when choosing promotional mix (5)
Nature of the product, the product life cycle, nature of the market and its customers,
availability of other options and market expenditure budget.

39) Define the term advertising (2)

It refers to any form of paid up promotions of goods and services by an identified

sponsor to a targeted audience with the objective of persuading and informing customer
about the products available.

40) Explain any three types of advertising (6)

i) persuasive advertising – it is used to create brand preference, encouraging customers

to buy the brand, persuading customers to purchase and convincing customers to tell
others about the brand.

ii) Informative advertising – it is used to tell the customers about a new product,
explaining how the product works and suggesting ways to use the product. It provides
enough information to the customers about the products available.

iii) Collective advertising – it is used by a number of producers in the same industry who
jointly advertise a product in general without using brand names.

41) Evaluate any three advertising medias (6)

Television

Advantages

Good mass marketing coverage, provides both vision and sound and low cost per
exposure.

Disadvantages

High absolute cost, expensive and adverts can be disturbed by other programs.

Newspaper

Advantages

Flexibility, durable, timeliness, cater for different languages.

Disadvantages

Poor reproduction quality and cannot be used by those who are illiterate

Radio

Advantages

Good local acceptance, wide coverage and cheaper than a television.

Disadvantages

Audio only no vision and low attendance

42) What is meant by the term direct marketing (2)

It refers to connection with carefully targeted individual consumers to both obtain an

immediate and cultivated lasting customer relationships. Selling the products direct to
the consumers.

43) How useful is direct marketing to a manufacturer (6)

Direct marketing involves direct connections with carefully targeted individual

consumers to both obtain an immediate response and cultivate long lasting customer
relationship e.g. direct mail, telephone, direct response etc.

Direct marketing is a useful concept in that, it is convenient to customer, it is also

interactive and immediate. It is a powerful tool of building customer relationship, it offers
sellers a low cost efficient and speedy alternative for reaching their markets.

However direct marketing is time consuming as it involves contacting individuals or

group by group. It is an expensive way of marketing and it is meant for a targeted
customer hence it might leave out other individuals who might be interested in the
product.

44) Define the term societal marketing (6)

This is a principle of enlightened marketing that holds that a company should make
good by considering wants, company requirements and society long run interest

45) What factors are to be considered when selecting a distribution channel (4)

The nature of the product, desire for control, unit value of the product, number of
potential customers, financial strengths of the firm and the need for speed(urgency)

46) Distinguish a marketing strategy and a marketing tactic (3)

A marketing strategy is a board statement of action to be taken to achieve a business

objective whereas marketing tactics are the tools or methods used by the firm to try to
achieve its objective or how to carry out strategies.

47) Illustrate the BCG matrix (5)

48) What is meant by the following?

a) Stars (2)

These are products with a high market share and high growth rate.

b) Dogs (2)

These are products with a low market share and a low growth rate i.e. the product at the
decline stage in the product life cycle

c) question marks (2)

These are products with a small market share but high growth rate i.e. the product at
the introduction stage

d)cash cows (2)

These are products in a low growth rate markets but have a high market share as a
result or high levels of sales.

49) Explain the following terms on Ansoff matrix

a) Market penetration (2)

This involves selling an existing product to an existing market.

b) Market development (2)

This involves the selling of an existing product to a new market

c) Product development (2)

This involves selling a new product to an existing market

d) Diversification (2)

This is when the firm sells a new product to a new market.

50) Explain the following strategies

a) price – cost leadership (2)

This is a strategy where the firm objective is to achieve lower costs in production in all
aspects so that it offers products at a lower price than other competitors.

b) Product differentiation (2)

This is a way or method by which sellers try to make their products look different
/unique from others

c) Focus/ niche market (2)

This is when a firm decides to serve few market segments rather than going after the
whole market.

51) Define the following terms

a) Product mix (2)

This is a combination of all the firms’ product lines

b) Product portfolio (2)

This refers to a range of products offered by an organization

c) Target marketing (2)

This is when the firm decides to serve a number of buyers sharing common needs and
wants.

52) Explain the concept of value addition (3)

Value addition is a process of adding value to the materials i.e. raw materials or
products. It is the difference between the selling price of the product and the value of
producing the product.
53) How can a timber manufacturer add value to his product (5)

-Increase price and improve the quality of timber.

- brand the timber

54) Distinguish the terms mass marketing and niche marketing (6)

a) In mass marketing the firm goes for the whole market and ignore the existence of
segments and offers a single mix to heterogeneous market whereas in niche marketing
the firm target a particular segment and offer products that suit that particular segment

b) In mass marketing firms tend to charge lower prices as they benefit from bulk buying
economies of scale and pass it to customers by reducing prices whereas in niche
marketing the firm charge high prices because of few goods to target a particular
segment letting go of bulk buying economies

c) niche market is a concentrated strategy that can achieve a strong position in the
market because, by focusing on a particular segment it draws greater knowledge on the
needs and wants of its customers whereas mass marketing being an undifferentiated
strategy it can fail to create a strong marketing position because there is no depth
analysis of consumer needs and wants

55) What is meant by the term market segmentation (3)

This is a process of dividing the heterogeneous market into subsets of consumers that
are homogenous or have similar characteristics

56) Explain any three bases for market segmentation (3)

Geographical segmentation- a market is divided into different geographical units such

as nations, regions, cities and neighborhoods

Benefit segmentation- this involves dividing the market according to different benefits
that consumers seek from the product e.g. Colgate consumers might want it for white
teeth, other can take it for curing bleeding gums

Psychographic segmentation – this is dividing a market based on social class lifestyle or

personality characteristics
57) What are the criteria or requirements for effective segmentation? (4)

It should be measurable

The market should be substantial

It should be differentiable

It must be accessible

Actionable

58) Define the term forecasting (2)

It is a systematic process of making future predictions of a given variable such as

profits, costs and sales.

59) What are the uses of forecasting information (5)

Forecasting information can act as a performance assessment tool. The forecasting

results act as guidelines on how to use resources, this also improves the morale and
motivation of subordinates. It aids in resources allocation, provides a sense of direction
to a business and empower employees thus improving rate of interaction and exchange
of information.

60) State any two quantitative and 2 qualitative forecasting techniques (4)

Quantitative factors (2)

causal method and time series analysis

Qualitative techniques (2)

Personal insight, market surveys, Delphi method and panel consensus.

61) Explain the following forecasting techniques

a) Panel consensus (2)

It is a qualitative forecasting method whereby a panel of experts discuss issues to arrive

at an agreed forecast
b) Delphi method (2)

It is a qualitative forecasting technique in which the future behavior of a variable is

predicted by using personal judgment from a group of experts

c) Time series analysis (2)

It is a systematic quantitative process that involves the use of past data to make a
prediction about the future behavior of a given variable

d) Casual method (2)

This is a forecasting method in which a cause and effect relationship is used as a basis
of forecasting the behavior of a variable in the near future

62) How useful is panel consensus in forecasting (5)

A group of panel experts discuss issues to arrive at an agreed forecast. This has high
accuracy over personal insight and high quality marketing decisions are likely to be
made. However, since the decisions are made on mental judgment, there is an element
of subjectivity, poor quality decisions can be made if there are some individuals who
might dominate the discussion i.e. opinion leaders and arguments are likely to drag time
hence it can be time consuming

63) Of what importance is Delphi technique in forecasting (6)

Future behavior of the variable is predicted by using personal judgment from a group of
experts. This reduces the effects of individual dominance, high quality information can
be produced as expert researchers are hired and reliable decisions are possible
outcome. However, this is a costly method compared to other methods, since it needs
to get various views from different respondents. It is time consuming, there is an
element of subjectivity and the expert researchers required are expensive and difficult to
find

64) Assess the usefulness of casual method in forecasting (6)

This uses the cause and effect relationship as a basis of forecasting behavior of a given
variable. It provides an explanation as to why a variable will behave in a certain way,
chances of product failure are reduced and forecasting is more objective as it is
quantitative and based on calculations. However, it is costly, calculations are time
consuming and it involves a lot of work

65) Distinguish quantitative and qualitative forecasting (6)

i) Qualitative forecasting is forecasting based on subjective factors whereas quantitative

forecasting is based on objective factors

ii) Qualitative forecasting involves human estimates whereas quantitative forecasting

involves mathematical calculations

iii) Qualitative forecasting includes casual methods and time series analysis whereas
quantitative forecasting includes Delphi method and personal insight

66) Name any two probability and non-probability sampling techniques (4)

Probability sampling techniques (2)

systematic, stratified random and simple random sampling.

Non probability sampling techniques (2)

quota, cluster and multi-stage sampling.

67) Define the following terms

a) Sample (2)

This is part of the population chosen to represent the whole population

b) Sampling (2)

It is a process of selecting a variable from a population with the idea that a selected
variable will give a true picture about the whole population.

c) Sampling error (2)

This is the difference between the actual population information and the sample
information

68) Explain the following methods of sampling

a) Cluster sampling (2)

This is when the research samples are organized into clusters as they are identified
from the sample frame list

b) Quota sampling (2)

This is when the population under study is divided into sub groups according to different
characteristics and factors e.g. sex etc.

69) How useful is sampling to a researcher (6)

This is a process of selecting representatives from the total population. Sampling

reduces costs of having to survey the whole population, it saves time as fewer members
are used than the whole population, it requires fewer resources as compared to census
and it is a less complicated process. However, a sample is always likely to differ from
population to some extent i.e. sampling error and the representativeness of the sample
depends on the size of the sample

70) Explain any two problems encountered in sampling (4)

i) Sampling error - The sample is always likely to differ from the actual population to
some extent

ii) Substitution problem- there will be a problem when certain elements in a sample are
not available for investigation. It is difficult to determine the replacement to use in such
cases

iii) Convenience against representatives – a good sample is one which is a

representative of the total population. The larger the population sample the more
representative it is and as convenience increase representativeness is likely to
decrease for convenience works out best with small samples

71) Distinguish primary and secondary research (6)

i) Primary research involves collection of information from the actual field whereas
secondary involves gathering information from already existing sources
ii) Information gathered in primary research is firsthand information collected from the
customers and users directly whereas in secondary research the information is second
hand since it can be gathered from desk i.e. published sources like newspaper,
textbook and final accounts

iii) Primary research involves too many complicated procedures that are expensive to
carry out whereas secondary research processes are cheaper since information
sources are readily available

72) How useful is primary research to a cellphone manufacturer (6)

Primary research involves collecting information from the field. This allows the firm to
get a competitive advantage over rivals because information collected is accurate, it
helps the firm to keep in touch with the changes, of getting correct information and
information collected is up to date and relevant and can be used to solve problems of
recency

However, it is very expensive, it increases work on the researcher as compared to

secondary research and a lot of time is needed to prepare for the research

73) What are the advantages and disadvantages of desk research (6)

The advantages of desk research include that, information sources are already existing
which makes it easy to solve the market research problem, it is also cheaper as
compared to primary research, it saves time as there is no need to gather information
from the field and it does not involve a lot of work

However, it has the disadvantages that information used may be less relevant as it was
collected for a different purpose, the information can be outdated and not appropriate to
solve the problem at present and it can be time consuming because of the need to
check different sources

74) Distinguish qualitative and quantitative research (4)

i) Qualitative researches involve in-depth research into the motivations behind the
consumer behavior or attitudes whereas quantitative research is based on numerical
values.
ii) Qualitative research is subjective as it involves human judgment whereas quantitative
research is objective as it is based on mathematical calculations.

Essays

Evaluate the usefulness of the product life cycle to a manufacturer of watches

(25)

The product life cycle is a concept that realized that all product in their commercial life
passes through many stages. This is a derivative from the organic metaphor that all
living things pass through many stages in life, from birth to death. The phases in the
product life cycle include the research and development, introduction, growth, maturity,
decline and extension stage. A product is anything that can be offered to the market for
attention, acquisition and use.

To a watch a manufacturer, the concept is useful in that it assists the firm in determining
the best strategies to use at different periods. In the case that manufacturer introduces
a new clock watch, knowing that a product is in the introduction phase, it can either
decide to use price penetration to enter the market or skimming pricing so that it can
recover all research and development costs incurred in producing the watches.
However, it is usually difficult to determine the stages at which a product is, this involves
a lot of subjectivity to decide, hence the firm can think that its watches are at growth
stage when they are at the maturity phase.

The product life cycle can as well assist the watches manufacturer to determine the
spending pattern or expenditure budget. For example, watches in the research and
development requires more funding into research as watches are more technical and
further studies are required. Again if the product is at the maturity stage the firm can
lower spending or advertising and promotions as the product will already be bought by
the majority. However, it is difficult to predict the time taken by the watches at each
stage of the cycle, a firm can decide to reduce the spending for a year while only three
months is the period that a product take at the phase.
Moreover, this assist firms in planning. To the watch manufacturer, the product life cycle
provides information that can facilitate planning for the product for example say the
watches are at the decline stage e.g. clock watches, the firm can plan on how to
rejuvenate the product into the market or it can decide to replace the clock watches with
digital watches. However, this concept is difficult when dealing with brands or services.

In addition, the product life cycle provides useful information in forecasting the likely
future of the product. For example, if the watches manufactured are at the introduction
phase, the firm can forecast for the year ahead i.e. the coming growth and maturity
phases of the product and make proper decisions ahead of time. However not all the
products follow the same cycle, some goes through from introduction, to decline for
example watches fail to impress its customers and they can go straight to elimination.

The product life cycle assist firms in the timing of product launching and new product
development. This assist preventing product failure, products that have completed the
research and development phase properly can be introduced. This works again when
there is need to replace products that are declining can be replaced. However, this
concept is more theoretical than practical

More over the product life cycle assist companies to take a more productive approach to
maximize profit and sales. With knowledge that of the phases in which a product is
going through the firm can make decisions to maximize revenue and minimize cost, e.g.
at maturity stage, the firm can start to improve packaging and promotion to increase
sales and at the same time it can cut costs of advertising as the product will be bought
by majority. However, producers suffer from fuels in fashion for example the round
clocks can be phased out quickly by fancier wrist watches before they even reach
maturity stage

In conclusion, the product life cycle is useful in planning forecasting, determining

strategies to use and spending patterns but its reliability lies on the accuracy of the
predictions of the phases a product is going through, hence there is need for caution
and expertise to explain the stages

How useful is mass marketing to a clothing manufacturer (10)?

Mass marketing is a strategy in which the firm decides to ignore market segment
differences and go after the whole market with one offer. This involves advertising of
product to a large number of customers. A single product mix is offered to a
heterogeneous market.

To a clothing manufacturer, mass marketing results in economies of scale that would

allow the firm to reduce its cost from bulk buying and charge low prices. A clothes
manufacturer can benefit from bulk purchase or clothe, dyes and thread for
manufacturing

In addition, mass marketing allows firms to focus on high sales and low cost as
compared to niche marketing. With mass marketing, the clothes manufacturer places
more effort on sales of its clothes rather than on setting product to suit clothes in
different segment which can mean more cost e.g. of new clothes design and further
researches into clothes requirement for each segment.

Mass marketing is easier to organize and control. The firm just purchase large
quantities of cloth and make large quantities of clothes with few specifications for
specific people and sell to the market at large unlike niche marketing which is a
complicated process that requires experts to work according to specific clothes’
requirements.

However, mass marketing can result in wastage of resources if the firm produces
clothes for the whole market and the customer repel, the firm will suffer large amounts
of losses i.e. wastage of cloth and time in preparing such a huge volume of clothes.
Mass marketing is vulnerable to competition, more innovative and technical firms can
enter the market and offer better terms to customers and the firm will have no specific
unique tool to chase away competitors unlike niche market where a firm will use specific
factors to defend its market e.eg a manufacturer of football jerseys may have detailed
knowledge on jersey to chase competitors

In conclusion, mass marketing is useful as it reduces stress on management of

complicated researches and product techniques and facilitates cheap production. But
development of the product, i.e. clothes need to be properly monitored as it will be sold
to different customers

How can a cellphone manufacturer segment his market (10)?

Market segmentation is a process of dividing the heterogeneous market into subsets of

customers that are homogenous or have similar characteristics. For effective
segmentation, the segment should be substantial, differentiable, accessible and
measurable

A cellphone manufacturer can make use a number of bases to segment his market.
These include, benefit sought segmentation, geographic segmentation, demographic
segmentation, income segmentation and etc.

The firm can use income to segment its market. For example, Samsung have different
models of cellphones from cheaper models for low income individuals and also offer
expensive luxurious models i.e. android cellphones to high income individuals.

The firm can make use of benefit segmentation i.e. dividing a market according to
different benefits that consumers seek from the product for example some customers
purchase cellphones for torch lights, others for business purposes and some for home
use. The firm can make different models for business people, torch users and for
homes.

In addition, the firm can segment the market on basis of gender that is making models
for men and women. Men have specific requirements from those of women, the firm can
make cellphones with colors, shape and sizes to suit different needs to different sexes
e.g. light, white and small sized cellphone for women.

The firm can also segment on the basis of age, i.e. making different versions for
different ages groups. Young citizens below 20 years can have cellphones with games,
selfies cameras and larger music storage space while for citizens above 25 years of
versions with high light quality, loud speaker services and press buttons are more
appropriate.
The firm can as well make use of geographic segmentation i.e. segmentation by
dividing the market into different units such as regions, cities, nation e.tc for a cellphone
manufacturer, areas like Chimanimani requires cellphones with high network
accessibility and for rocky areas strong and covered cellphones are the best for cases
that can fall on the hard surfaces

In conclusion, the firm uses geographical segmentation, benefit segmentation. Income

segmentation and others but to be more sure of the reliability of a base, the firm can use
more than one basis to segment a market

Evaluate the usefulness of market segmentation to a cellphone manufacturer (15)

Market segmentation means dividing the heterogeneous market into subsets of

customers that are homogenous or have similar characteristics. Market segmentation
works best if the segments are sustainable, accessible and measurable. To segment
the market, the firm can use demographic segmentation, income segmentation benefit
sought segmentation and others.

To a cellphone manufacturer, market segmentation can be of a significant in that it

helps to reduce product failure and it helps an organization in designing an appropriate
marketing mix for a group of customers e.g. the firm can make cellphones for people
under the age of 20 years and they can research properly on the needs of the age
group , features to include and where exactly to launch or sell the cellphone and the
organization will have assurance that the cellphones will be accepted and failure is
avoided.

Segmentation can assist the cellphone manufacturer in reducing costs involved in

marketing a product. This means that instead of designing a model for the whole
market, financial resources can be channeled towards a selected group of consumers
e.g. business people rather than the whole population.

Segmentation in addition helps in improving the corporate image of the organization.

This is because the business will be able to satisfy consumers’ needs and wants by
developing an appropriate product for example Nokia Company has a good corporate
image as it offers different customers’ products of their choice for example to business
people, it offers Nokia landline cellphones to low income individual Nokia X2 cellphones
are available and Nokia tablets for medium to high income groups are also offered.

In addition, market segmentation helps small firms that may not be able to compete in
the whole market and are able to specialize in one or two segments. Cellphone
manufacturers like Samsung and Nokia are big firms that can prevent small firms from
entering the market but however, with market segmentation small firms can turn to
niche markets that might be too small for firms like Nokia to follow.

Moreover, market segmentation helps producers to be tailored to meet demand. It is

easy to estimate demand of a particular segment than the whole market and with a
particular segment research can be done easily and forecasts are more useful.

However, market segmentation has some limitations attached that is, it is a time
consuming process, it takes time to divide the market and to have a deeper research on
specific requirements of individual segment for example, to cellphone manufacturers,
time is taken selecting an appropriate basis and on trying to implement the cellphone
features

Another limitation has to do with the need for highly skilled and specialized research
experts and manufacturers. These experts are not always available and are often
expensive to hire. For instance, cellphones are highly technical and in trying to produce
a cellphone that suit a segment expertise is required.

Moreover, market segmentation is effective only if the market is properly segmented.

This is difficult to achieve as it is more subjective. If the firm fails to properly segment
the market, it can result in product failure and unexpected losses.

In conclusion, market segmentation is of significance to a cellphone manufacturer as

burden of focusing on the whole market is reduced, brand loyalty can be improved and
costs can be reduced. However, the segmentation process needs to be properly done
i.e. the research process needs to be properly done for effective results.

How useful is target marketing to a shoe manufacturer (15)

Target marketing is when the firm decide to serve a set of buyers sharing common
needs or characteristics. It provides goods and services to a specific group of people
e.g. women. kids and working class. A target market is a group of consumers most
likely to use a company product.

Target marketing is useful to a shoe manufacturing firm in that it assists firms or

marketers to match marketing strategies with the core customers for example a
company like Bata shoe company can find the needs of its shoe customers e.g. shades,
sizes and quantities of the shoes and can then match its strategies to the requirements
of its customers

Target market can lead to the identification of niche market that is small profitable
unexploited business slots to a shoe manufacturing firm for example Nike Shoe
Company. It can discover a new niche say sneakers for football supporters and can
start a new business.

In addition, target marketing gives way to price discrimination that is a process where
firms charge different prices for the same product in different market segments. By
targeting specific markets, the firm can maximize revenue by charging different prices to
different buyers for example, the king Shoe Company are expensive in the Harare
C.B.D but considerably cheaper in towns e.g. Kwekwe or Mutare.

Moreover, target marketing assists the firm in cutting costs of having to provide for the
whole market. A shoe manufacturing company can target football players with sneakers,
this means the firm’s budget has to do with researches on football sneakers only and
this cut costs of an extended research into different types of shoes e.g. sneakers.
Wedges. School shoes etc.

However, target marketing is a disadvantage in that it is time consuming, it takes time to

identify a target audience and to prepare especially a specific package for that
audience.

Another disadvantage is that target marketing is expensive, companies spend a lot of

money through primary research. It focuses on understanding particular customers’
needs and wants and to get adequate information so that massive researches are
carried out.

Moreover, there are ethical factors to consider with target marketing. It can be
exploitative to some extent for example a small shoe manufacturing firm target less
educated, poor people with plastic quality shoes

In addition, target marketing is useful as it allows firms to concentrate on particular

customers, save on costs and time to exploit niche markets. However, the firm can
leave out important customers by targeting certain customers hence targeting needs to
be properly done

Evaluate the relevance of niche marketing to a clothing manufacturer (15)

Niche marketing is a market strategy coverage in which a firm goes after a large share
of one or a few segments or niches marketing, a particular segment is targeted

Niche marketing is relevant to a clothing manufacturer in that the firm suffers less
competition as they are small and attract less competitors, the firm will be from large
firms as the niches are small for considerations large firms. For example, huge
companies like Edgars, Barbour’s and others can leave to small firms. Such as fashion
and fabrics Ltd to undertake its production of wedding gowns

In addition, niche marketing is a cost reduction strategy. Instead of the firm to have a
heavy research and development expenditure on the wholesome type of clothes. it can
cut costs by concentrating its research on certain targeted markets. For example, a
clothing firm supplying the niche market e.g. soccer fashion Ltd concentrate its efforts
on cost related to football jerseys and track suits.

To a clothing firm, niche marketing can help the firm in raising more income for the
business. This is because niche marketing offers unique, up to standard goods that are
produced by only one firm and this means the firm can take advantage of this and
charge high prices to its customers without facing an increasing decrease in demand.
For example, sellers of work suits are few, they focus on manufacturing of the work
suits and these work suits are not found in the shops like Jet, Power sales and
Barbour’s, this means that the firm can charge any price for customers will have no
alternative place to find the work suits

Moreover, niche marketing results in improved brand loyalty for the firm. Customers
seek the best value for their money and they want goods produced to their
requirements, a firm that is able to meet these standards is recognized and customers
are loyal to it. For example, the African women enterprise offers good quality African
attires and its customers see no other firm offering African dresses

However, niche marketing has some limitations, since the firm operates a single market
segment. If the segment turns sour, the firm suffers greatly for example in the previous
year niche market used to sell Zimbabwean football jersey had turned sour because of
poor football, such firms suffered greatly they tried to switch to other businesses.

Niche marketing works best if the firm properly segment its market. Failure to segment
the market properly can result in unexpected losses.

Moreover, niche marketing involves long processes which are complex and require
experts. This is expensive to undertake and expert workers required are not easy to find
and this can constrain the firm

In conclusion, niche marketing is relevant to clothing manufacturers for it avoids the

greater competitive force, the firm can go for niche marketing. However, the firm needs
to be innovative and technical so that its product meets the customers’ requirements.

Evaluate the useful ness of the Boston matrix group to a manufacturing firm (25)

Boston matrix group is a grid showing market share of a product plotted on the
horizontal axis with market growth on the vertical. Market growth rate provides a
measure of market attractiveness whereas relative market share serves as a measure
of company strength in the market

The matrix shows the generation of cash within an organization and products are
grouped into cash cows, stars, dogs and question marks and the grid is as follows
 Stars Question marks
High

Growth

Low
Cash cows Dogs

High low

Markets share

To a manufacturing firm, the Boston Consulting Group matrix works as a tool for product
positioning that is defining the location of a product relative to other products in the
market. For example, the Coca Cola Company can say cokes are stars Fanta grape
and cherry are cash cows, coke zero are question marks and sprites are dogs and by
knowing this, the firm is able to position its products for example, the coke has a better
position as they are in high growth rate markets with high market share that is the stars

Moreover, the BCG matrix assists firms in determine the best strategies to undertake.
For its product. For example, Bata shoe company can have a matrix with pump shoes
as starts, sneakers as question marks school shoes as cash cows and sandals as dogs
it can determine the strategies for its product i.e. it can reduce promotional expenditure
on the pumps as they are now known in the market, for sandals it can improve
packaging and try product improvement to rejuvenate the product back into the market
e.g. putting glitters on the sandals.

In addition, the Boston matrix can act as a forecasting tool. For example, the lobels Ltd
Company can have the lobels loose biscuits as stars, the Berger buns as cash cows,
creamy biscuits as dogs and coated biscuits as question marks. It can forecast the
future of lobels’ loose biscuits that is they are stars to day but in the near future they will
be cash cows. For the coated biscuits, it can forecast success or failure as if they
succeed they become the future stars but they become the dogs later.

Moreover, the BCG matrix assists the firm in maintaining a balanced product mix. This
matrix avoids a case where the firm will end up having more dogs and less of stars and
cash cows for example Mama Ltd company can have 10% stars i.e. fruit jam, 15%
peanut butter, i.e. cash cows, 5% question marks i.e. the salads and 70% of dogs i.e.
nuts. The matrix can assist the firm to rebalance its products i.e. it can eliminate and
increase research and development of the question marks and promote stars.

The BCG matrix assists firms in the product planning. For example, the Den Dairy
Company can have a matrix with fresh milk as the stars, lacto as the cash cows,
chocolate milk as the question marks and cereal milk as the dogs. It can decide to use
the cash from the lacto to promote chocolate milk development. The firm can also
change the packaging of lacto as they have done recently and it can decide to eliminate
the cereal milk or introduce a new product to replace it.

However, the matrix has some limitations. It is a more theoretical concept than it is
practical. The firm can say products are stars but in reality they might be far from that.

The matrix demands high level of expertise, which is costly to acquire. Experts are
required to measure the market share and growth rate and to group the products. This
means to a local firm it has to hire these experts and they add to the firm’s costs.

The matrix is time consuming. Important time that can be used for other operations is
used in the process. For example, a company like Bata Shoe Company can use its time
on the matrix, the time that can be used by the firm for marketing its products or
manufacturing

Moreover, the matrix is more subjectively made. The products are grouped on
estimated market shares and growth rates. This can result in improper group of
products and as a result wrong decisions can be made.
The matrix itself provides little information i.e. it only group the product, it does not offer
strategies or solutions or even explanation hence there is need for supplementation
factors such as the product life cycle to come with meaningful results

In conclusion the Boston matrix is useful for it allows firms to maintain a balanced
portfolio, assist firms in forecasting, planning and strategy determination, but the firms
need to take corrective measures to reduce the effects of time wasted, subjectivity,
costs and the practical against theoretical problems.

Discuss the factors to be considered when preparing an advertising budget (12)

Advertising refers to any paid form of promotion of goods and services by an identified
sponsor to a target audience with the objective of persuading and informing customers
about product. It refers to all forms of promotion of goods and services. Advertising can
be informative, persuasive, remainder and generic advertising. The firm can use media
such a s television, newspaper, direct mail and magazines.

When preparing an advertising budget that is the money and other resources allocated
to a product or company advertising program, the firm needs to consider the following
factors:

The firm must consider the stage of the product in the product life cycle. Products at the
introduction stage are new in the market and more advertising is need to build
awareness hence more funds are needed for advertising. However, for products in the
growth stage, they are already bought by the majority and advertising is less crucial
hence demanding a small advertising budget.

Moreover, the firm need to consider its market share that is the proportion of the firm
sales in the total market. a firm with a lower market share is less recognized and to build
awareness it has to undertake a huge campaign hence demand a high advertising
budget. However, for a firm with a higher market share, it means its sales on the market
are already high hence it can need a small advertising expenditure.

In addition, the firm needs to take into account the competition surrounding it. Firms that
has many competitors for example steward bank, there are too many banks undertaking
the same function hence in order to fight competition it needs a larger advertising
budget so as to suppress its competitors. However, firms with few competitors for
example Delta Company is more dominating with few competitors hence it can divert it
funds to other functions and use a small budget.

Firm should also consider the advertising clusters that need a higher advertising budget
so that it can properly market its product and go above all the other advertising areas.
However, for firms in the low advertising cluster, it can just spend less on advertising to
bring awareness.

Firms also need to consider their financial strength. For firms that have enough financial
support it can have a larger advertising budget as funds are not a constraint. However,
for firms that are facing financial crisis, advertising can be allocated few funds as the
funds are constraints.

The firm needs to consider the nature of its product as well, if the firm products are
necessities e.g. salt and sugar, the advertising budget can be a small one because
these goods are needed daily and customers tend to like for them however if the
products are luxurious the firm needs to advertise to a larger extent to inform the public
and persuade them to purchase hence a larger budget is required.

In conclusion, the firm needs to consider its financial strength, the advertising cluster,
competitors, market share and the stage in the product life cycle. For the budget to be
effective the firm needs to consider more than one factor.

How useful is primary research to a shoe manufacturing firm (25)

Before or after a product is launched or manufactured it is necessary to clarify the type

of information required on how to produce and for whom to produce. This is usually
done in essence to the objective of a firm in question. In making this choice
consideration should be given to relative costs and information.

Management scholar defines primary research as data that originates as a result

particular investigations. It also defined as research process or method that involves the
collection of information from the field. Primary research can also be called field
research. Primary research collects first hand data as it is being collected by the firm for
the first time. The result of primary research can have a great impact on decision made
in all areas of the marketing process in the shoe manufacturing firm.

The information collected in primary research is confidential. This means that only the
firm which gathers the information will use the information and other firms cannot have
access to it. For example, data collected for a new shoe product launch.

Data collected can be relevant if it directly addresses the question the business wants
answers to. For example, research might establish the size of the potential market for
new shoe brand. This will in turn helps the business in its pricing promotional decision
for the new shoe product.

Primary research is useful to a shoe manufacturing firm like Bata because it will allow
Bata to gain a competitive advantage over its rivals. A firm will gain a competitive
advantage since it would have collected, record and analyzed data about the
customers, competition and the market. Therefore, Bata will have a greater chance of
knowing its rival’s weaknesses.

Information gathered in primary research is up to date and therefore more useful than
most of the secondary data. Information is up to date since it is collected first hand to be
used specifically for the purpose it is being collected for. For example, if Reebok shoe
company wants to know how many products to produce, they send their researchers to
find about it rather than to use previously collected data primary research helps the
shoe company converse to keep in touch with changes in the consumer preference. In
this case a firm will not make losses but rather accumulate profits. For example, they
will ask a few individuals about their views on certain shoes like sneakers. If the positive
exceeds the negative they will proceed with the same type but if not, they will shift from
the product to fit with customers’ preferences.

There is a greater chance of getting correct information which is more accurate and
chances of making mistakes are slim. This means that since information gathered is up
to date there will be less chances of making a mistake. Since researches will have
channeled towards a certain product, no mistake or wrong researches are bound to
happen.

Resources are allocated efficiently since the shoe firm will be producing according to
researches undertaken. There is usually no wastage of the company resources since
they will be producing in an efficient way for their customers.

However, it is time consuming to carry out field research for example it takes a long
period to go from one house to another to get information concerning an issue on a
certain product.

More so it is expensive to finance primary research since business will be fishing a lot of
money for first hand data. costs incurred will include transport cost and food cost.
Primary research agencies can charge thousands of dollars for a detailed customer
survey and other market research reports.

Moreover, face to face interviews between researching agents and customers increase
false information. Respondent bias which means false answers can give to impress
interviewers.

Also there may be doubts over accuracy and validity of data largely because of the
need to use sampling and the risk that the sample used may not be fully representative
of the population. More so data collected is not always completely accurate if the total
population does not share the same characteristics and preferences of the region
selected.

Field research increase the workload on the research agents which there might be the
risk of wrong researches leading to biased conclusion

In conclusion, the shoe manufacturing company will be greatly affected by primary

research both positively and negatively but the positive outweigh the negative meaning
that primary research have contributed a lot to a shoe manufacturing firm because it
allows a firm to gain a competitive advantage over its rivals and the information
collected is up to date.
Explain any three probability sampling techniques and any three non-probability
sampling techniques (15)

Probability sampling involves the selection of a sample from a population based on the
principle of random chances. There are three methods of probability sampling
techniques which are random, systematic and stratified samples.

Random sampling technique is a sample in which each person or unit has an equal
chance of being selected or not. It can be done by pulling names out of a hat or using a
computer to generate random numbers. This means that a genuine random sample
requires an up to date and comprehensive sample frame.

A systematic sampling technique involves choosing a starting point in a sample frame

and then selecting every nth item thereafter. This is not fully random and will produce a
bias and there is a regulator of recruiting pattern in the frame.

Stratified sampling technique involves the division of the population and is divided into
subgroups and the sample reflect each subgroup in the proportion to their
representation in the population as a whole.

Non probability sampling techniques involve the methods where individuals are selected
on the basis of one or more criteria determined by research. Methods of non-probability
technique which are cluster sample, quota sampling and multi stage sample

Cluster sample involves making the random selection from frame listing not individual
but groups of individual. This method is best when the population is dispersed.

Quota sample, this method involves dividing the population into subsets with quotas
attached that reflect accurately the known characteristics in a variety of respects. The
method is relatively quick and is used when a sample is not available.

Multi stage sampling consists of a series of sample taken at successive stages such as
region, then town, then suburb, then street. It is used when groups selected are
dispersed.
A multinational company is about to launch a new camera in your country.

Discuss a marketing strategy that a company might use to achieve a successful launch (25)

In order for the multinational company to market the new product effectively it must consider
certain marketing mix variables so as to have a successful launch of the new camera

A marketing strategy is referred to as a long term plan established for achieving marketing
objectives which are goals set for marketing department to help business achieve its overall
objectives. Price, product, place and promotion are the elements that the company must use to
have a successful launch of the new camera.

The multinational company must make sure that their product is meeting the needs of their
foreign customers. The company should therefore pay close attention to how the customers will
use the product. Thus the new camera should be designed in a way that suites both indoor and
outdoor since outdoor camera must be portable. The appearance of the camera must be in such a
way will attract customers. The multinational company should also consider to unique the
product’s unique selling point. This is the aspect or feature of the product that may differentiate
it from the rivals. These aspects will help the multinational company gain a competitive
advantage over its competitors thus it will have a successful launch.

However, product analysis in isolation of other marketing mix variables such as price will not
ensure a successful launch of the product. The multinational company can be faced with the risk
of legislation in the country it will be selling the new camera thus the existing laws, rules and
regulations will not permit selling of a certain product. The new product despite having unique
selling point face the risk of failing because of stiff competition from other competitors thus
leading to the launch failing.

Pricing strategies can be used by this multinational company to achieve a successful launch. A
right pricing strategy on the product can reflect the extent to which the company will maximize
profits and sales. The multinational company must consider if the customers are price sensitive
or not. If the customers are not price sensitive therefore they can charge a higher introductory
price that is skimming pricing strategy so as to gain a higher profit margin. By choosing the right
pricing strategy in a competitive environment can lead to the product being successful on the
market.

However, a suitable pricing strategy attached to a product can lead to the product failing. This is
due to the misinterpretation on the behavior and characteristics of the customers in the sense that
a wrong pricing strategy can be adopted which will lead to the customers opting for other models
of cameras which are available on the market therefore the product launch will therefore not be
successful since customers’ will not purchase the cameras.

Promotion is another marketing strategy that the multinational company can adopt in order to
have a successful launch of the new cameras. This is an attempt to draw attention to a product in
order to gain new customers and also retain existing ones. Promotion in the form of advertising
can help increase awareness of the product to the new market in the form of informative
advertising. Sales promotion can also be used by the multinational company in an effort to have
a successful launch of the product. These are incentives offered to customers to encourage them
to buy goods and services. This tactic is used to give short term boost to the sales of the product
thus a successful adoption or promotional mix will lead to the launch of the camera successful. A
successful implementation of the promotional mix will enable the successful launch of the
product.

However, a promotional mix can also lead to a wrong strategy being used. This is due to the fact
that the company might lose sales since a sales promotion will lead to a reduction in the prices of
the product. This will lead to the ‘cherry pickers’ that only purchase products only because they
are on promotion. An ineffective advertising campaign can be costly for an organization since
there is huge expenditure incurred in advertising products.

In conclusion for the multinational company to have a successful launch on the products there is
need to adopt the right marketing strategy which is the marketing and one variable should not be
used in isolation to another since the fusion will straighten the product performance though the
limiting factors cannot have ignored.

Why might a computer manufacturer want to forecast demand for its products (10)
The business environment that organizations are operating is not static but highly dynamic. In
order to survive in this dynamic environment there is need for effective forecasting so that a
computer manufacturer may be able to gain a competitive edge. Forecasting plays a fundamental
role in the success of manufacturing organization.

Management scholars define forecasting as a process of making future predictions about

behavior of a given variable or its occurrence. Therefore, forecasting involves estimating how a
given variable such as demand for its products.

Forecasting, be it quantitative or qualitative can help the computer manufacturer to plan the
production process. The computer manufacturer can be able to predict a rise in demand for the
computer accessories and components. It will therefore be able to produce ahead of demand so as
to meet the expectations in the rise of computer parts. However, the computer manufacturer
might predict a future rise in demand basing on biased information. This will lead to excessive
produced being produced or manufactured which will lead to pilling up of stock leading to stock
holding cost as the components will not be purchased.

Forecasting demand for products will also help the computer manufacturer in workforce
planning. This is when the manufacturer would have forecasted a fall in demand in the computer
products and will therefore have to limit the number of employees to cut on the cost whereby the
workers will be doing anything. The computer manufacturer can also able to predict a higher
demand on the products thus there will be need to increase the employees so as to meet or
produce the required quantity. However, forecasting can lead to keeping too much workers when
falsely predicting a higher demand of the products which will entail production of more products
or keeping a smaller number of employees whilst there will be a higher demand. Both cases are
rather costly to the company as production will halt in the event of too little employees and
excessive cost in the terms of many employees who will be lying idle.

Forecasting will also help the computer manufacturer to forecast profit and cash flow position of
the company. A prediction of a higher demand on the computer will lead to an increase in sales
and the profit will raise thus cash flow position will be improved. The manufacturer will then be
able to able to forecast future cash flow surpluses and put it into efficient use. However, the
environment that the manufacturer operates of computer is rather dynamic since technology is
ever changing. Planning for future cash flows will lead to the manufacturer planning for cash
before it is earned or generated and in the case of a hyper inflationary environment the future
cash flow will not be sufficient to meet the needs of the present events.

In conclusion forecasting is of paramount importance in predicting future variables such as rise

or fall in demand as the manufacturer will be able to plan for a remedial action or correction plan
but however the unreliable of future events can alter the use of forecasted information.

Evaluate the usefulness to the computer manufacturer of time series analysis (15)

A computer manufacturer can predict the occurrence of certain variables in the future by
analyzing past event since it is often said that history often repeats itself and the past often
shapes the future.

This therefore eloquently shades light on the usefulness of time series analysis. This is a
forecasting method which allows a business to predict future levels from past figures. The data is
often known as time series data which is a set of figures are arranged in order, based on the time
they occurred. Thus for example the computer manufacturer may predict future sales by
analyzing sales data over the last ten years.

The computer manufacturer might use the moving averages in forecasting its products. This is a
method which is used to find trends in data by smoothing out fluctuations. It involves calculating
an average number of periods, dropping the first figure and adding the next to calculate the
average that follows. By carefully calculating moving averages of a certain variable, it will show
the trends, for example sales that are they may start or appear to be raising over the period thus
the manufacturer would be able to plan for producing other products. It eliminates any
fluctuations in the sales each year and gives a more obvious picture of the trend that has been
taking place.

Identifying the trend in which certain variables are occurring can also be useful to the
manufacturer. Thus an analysis of figure will tell a business whether there is an upward,
downward or constant trend. This can help the manufacturer to indicate what will happen in the
future. In the event of a down ward trend the manufacturer will be able to predict a fall in
demand of the products and an upward trend will indicate a future rise in the demand. This is
useful since the manufacturer will be able to take corrective action on downward sloping trend.

A cyclical variation is a method that the computer manufacturer might use. In the business world
there might be a cycle of highs’ and lows’ in the sales figures. This is often as a result of
recession-boom-recession of the trade cycle in the economy. The computer manufacturer can
therefore for example to reduce the prices of his products since in a recession people will have
less money to spend so the turnover of the company may fall in that period if he does not adjust
his prices. Therefore, this is useful since a prediction in the cyclical trends in the economy can
help the manufacturer adopt the right pricing strategy in the future.

However, the time series analysis is not of great use to the computer manufacturer due to a
number of limiting factors.

The use of past records in determining certain future variables is rather subjective. Technological
changes and models of computers change from time to time. Thus a model could have had low
sales in the past because it was of poor quality but in the future the company might had upgraded
its products thus sales will raise. If the company had used the past records, then the present
would have been deferred since the marketing strategy will be based on the aspect of products
which generates low sales. The concept of using moving averages is rather prone to criticism
since the managers or people involved in the coming up with data might manipulate it in an
effort to satisfy their personal interest. Therefore, they will be arranging the data biased to their
own interest. This will lead to false information being created on certain future variables which
will lead to wrong strategies being adopted.

The identification of the trend only works when the information to be forecasted is for a short
period of time for six (6) months to say. Thus time series analysis will not be best for long term
prediction of certain future variables such as sales. The use of time series through the moving
averages will need a constant revision as there will be need to make account of new data and
other information thus it needs a close monitoring which is rather time consuming.

In conclusion time series analysis is of great importance to the computer manufacturer since
analyzing past records and identification of trends in sales and demand future variables or future
predictions can be almost accurate though there is need to put into consideration the dynamic
changes in the environment.

Evaluate any five pricing strategies (25)

Pricing decision is crucial to the success of the firm and its products. Before setting prices,
decision makers will clarify the firm’s objectives in relation to the marketing of the product.
Firms will all set prices to achieve objectives such as profit maximization, an increase in the
market share, a target level of profits, profit margin, sales revenue maximization and risk
minimization.

Price in the monetary value attached to a product. It can also be fined as the amount that can be
used in the exchange of goods and services. Therefore, pricing strategies are tools used in
determining the value or price of a certain product. These strategies include penetration pricing,
skimming pricing strategies, economic pricing, competitor based pricing and destroyer pricing.

Penetration pricing is setting a relative low price often supported by strong promotion in order to
achieve a high volume of sales. It is also used when relative low prices are set and heavy
promotions take place in order to increase sales. Penetration pricing strategy is used under the
following circumstances.

It can be used when introducing a new product into the market. By introducing the product at a
low price, the firm can penetrate deep into the market. As volume increase price is raised.

Penetration pricing can also be used in a market where there is stiff competition. In this case if a
product is being sold at a low price a firm will gain a competitive advantage over its rival and it
will maximize sales.

It can also be used in a market segment where consumers are price sensitive. By building up
sales and therefore market share, the firm will benefit greater discretion over price in the long
run. Hence the market share objective involves a sacrifice of profits in the short run to enjoy
higher profits in the long run.

Penetration pricing is a sufficiently an attractive way to obtain a large volume of sales and major
market share. However, it is a high-risk strategy. It is only suitable when the firm possesses the
capacity of high sales volume and when a low price generation sufficient sales to compensate for
low profit margins. If the product is expected to have a short life cycle, penetration does not
provide sufficient time to recover cost.

Price skimming is setting a higher price for a new product when a firm has a unique or highly
differentiated product with low price elasticity of demand.

Skim pricing involves entry to the market at a higher price that is later reduced as the product
becomes more acceptable and the volume of sales increase. With an increase in sales volume, the
firm will enjoy economies of scale and can, therefore afford to reduce price.

Price skimming is used in a market segment where the customers are not price sensitive. These
consumers are after quality of the product or value of the product. The aim of skimming pricing
strategy is to maximize short run profits before competitors enter in the market with a similar
product and to project an exclusive image of the product.

Economic pricing is when very low pricing is charged by the firm in order to cover for
advertising and manufacturing cost. It can also be called loss leading. Often the purpose of loss
leading is to encourage the purchase of closely related complementary goods.

Many retailers adopt loss leader prices for a small range of their products. These goods are sold
at a loss to tempt customers into the shop knowing that profits will be recovered on the items in
the shopping basket.

Another pricing strategy is called competition based pricing. Most of the marketing managers
change prices which are slightly below or slightly above the price charged by their competitors.
This strategy is neither related to cost of production nor to the demands but related to price
charged by the rivals.

Firms may also engage in price wars and this reduces competition might lead to a higher price
eventually and could reduce the pressure on firms to innovate with new products.

Psychological pricing is a pricing strategy used by the firm to capture the minds of the
consumers. It has two aspects. Firstly, it is very common for manufacturers and retailers to set
prices below key price levels in order to make the price appear much lower than it is. It is also
referred to as the use of market research to avoid setting price that consumers consider to be
inappropriate for the style and quality of the product.

However, it would be incorrect to assume that one firm use the same pricing method for all of its
products. This would be unwise as market condition for the different products could greatly vary.

Furthermore, price levels can have a powerful influence on consumer purchasing behavior that
marketing managers should ensure that the market research is used to test the impact of different
price levels on potential demands.

In conclusion, firms must choose the strategy that is most appropriate in view of the objectives,
the situation in the market and their capacity utilization. More so a single pricing strategy may
not be affective but there is a need for the use of two or more strategies so that the strength of
one counters the weakness of the other.

Evaluate the role of packaging and branding to the successful marketing a firm product in
the manufacturing industry (25).

The environment in Zimbabwean organization is highly dynamic and it faces a lot of

competition. For a business to be successful, firms tend to distinguish their product from their
competitors by the use of packaging and branding. Packaging and the branding plays an
important role to the successful marketing a firm product in the manufacturing industry.

Packaging plays a dual role whereby it protects what it sells and sells what it protects. A
package acts like a media by summarizing information about the product. Packaging performs
more than the utilitarian function of containing and protecting the product.

The quality, design and color of materials used in packaging of products can have a very
supportive role to play in the promotion of a product. Packaging can perform the following
function.

It identifies the producer of the product. Distinctive packaging can help to perform the basis of a
promotion theme, which will endure as long as the product. For example, the bright red Coca-
Cola is a feature of advertising for the product, while Pepsi is instantly recognizable with the
blue cans. However expensive and wastage packaging can add cost to the organization which are
unnecessarily that could reduce a products competitiveness.

Packaging helps to identify the product especially when the colors, logos and designs on the
packaging are used as themes in advertising. It therefore offers a unique promotional opportunity
to provide a constant reminder of the product. Firms will seek distinctive packaging so that the
product is instantly recognizable. In contrast, packaging increases the cost of production
therefore increases the price of the product leading to consumer exploitation.

Distinctiveness is a very important when goods are competing with rivals on the shelves of
supermarkets. If advertising informs the customer, then packaging prompts the memory of the
customer. For example, boxes of chocolates are given as presents if the chocolates were wrapped
in a paper bag, they would be less appealing and would not serve the function for which they
were purchased. However, some materials used for packaging may cause injuries to the customer
therefore creating reputation. Cheap and nasty packaging may and will destroy any quality and
status image that the firm is attempting to establish.

Branding is a strategy of differentiating products from those of competitors by creating an

identifiable image and clear expectation about a product. A brand is the name given by a firm to
a product or range of products.

Branding has some features which include that it is supposed to be distinctive. It must suggest
quality and durability for example Benz. It must not carry offensive that is it must be
internationally recognized. They must be easy to pronounce.

Branding creates a pact bond or a strong relationship between the suppliers and customers. In
this case customers will rely on one supplier and they will not easily shift their attention from
one supplier to another. However, it is very expensive to create a brand image. It will add costs
which are unnecessary to a business.

It allows the firm to maximize its profits. Due to branding customers will be attracted to buy a
product for example Pot ‘O’ Gold and this will increase sales thereby yielding up better profits.
On the other hand, branding takes time or even hundreds of years to be built but it can be
destroyed in seconds and will lead to loss customers, sales and profits.
Branding gives a firm competitive advantage over its rivals. In this case, the firm will be able to
maximize its profits due to an increase in sales. The reason firms produce competing brands is to
appeal to different market segment and reduce the chances of losing customers as a result of
brand switching. However, branding requires highly experience marketing research experts to
develop successful brands.

In conclusion, packaging and branding plays an important role in a successful marketing

business because they increase profits. More so, packaging work hand in hand with branding
because of the easy identification and easy to carry around the products.

Evaluate any four methods that a researcher can use to collect data (25)

The environment in which business organization are operating is not static but highly dynamic. It
is characterized by high levels of competition due to technology advancement. Therefore, for a
firm to acquire profits, effective research need to be carried out in order to obtain data about the
behavior of consumers when introducing a product or market an existing product.

There are techniques used in primary research in order to carry out data. Researchers can use
these techniques to collect information and these techniques to collect information and these
techniques are focused group, observation, experiment and surveys. These techniques are
important in marketing because of their possible outcome but henceforth they generate
disadvantages to the firm.

Focus group is a group of people who are asked about their attitude towards a product, service,
advertisement or new style of packaging. In these discussion groups questions are asked and
participation is encouraged to actively discuss their responses. In market research focus groups
are widely used methods of obtaining feedback about new brand names and new advertisement
therefore before they are launched in the market.

This information is often believed to be more accurate and realistic than the responses to
individual’s interviews where respondents do not have discussion opportunity presented by focus
groups. This information collected from the group can have a big impact on the business final
product or advertising decision.
Focus groups involve a group discussion in which people are encouraged to freely express views
and opinions on a selected subjected. In this case there is elimination of bias given that that the
researcher is also participating and collects information from the actual targeted source.

They are very cheap to administer and easy to use when gathering information data compared to
other research techniques such as observation and a lot of data is collected since focus groups
become a sources of different views from customers.

However, it will be costly and time consuming to organize a group and as some members of the
group may discuss issues not directly related to the research. No matter how careful the
researchers are who are present during the focus group discussion there might be the risk of
researchers leading to biased conclusion. Also the may results in high levels of conflicts between
different consumers which may affect the results.

Another research technique used in primary research is observation. An observation technique is

when the research uses the eye to eye to record information relating to marketing for examples
the behavior of the consumers. The researchers look at how consumers behave without asking
questions. There is indirect observation occurs when the consumers under observation is not
aware of the observation and direct observation occurs when the consumers are aware of the
observation. The great advantage of observation technique is that it avoids the subjective element
that is present when people are questioned. Also the data collected is more reliable and it is an
easy technique to administer or use when gathering information related to marketing.
Observation techniques forms the starting point where by data recorded relates to what happened
and maybe important in forecasting.

On the other hand, observation techniques only record information about what has happened and
this data will not gather information about what will happened in the future. Also it is costlier as
compared to other research method. More time is consumed in the research process and this
means that there is need to use observation over a long period of time.

Experimentation is another technique of primary research. It involves gathering information by

carrying out an experimental test. Experiments are used to test and assess the response of
consumer to change in the marketing mix. This might involve changes in the product of
packaging advertising, price and distribution arrangement.

It has the advantage of reducing marketing cost and targeting a particular area before the firm is
committed to a national launch. More reliable data is gathered which is more objective since
consumer’s reaction provides a guide line to the success of the product. Experimentation is less
costly as compared to observation.

The main problem of experimenting in market research relates to the choice of the participation
and the difficulties in controlling random variables. It requires highly skilled and experienced
researchers who are good at carrying out field researches. Experiments are also time consuming
meaning that order to gather accurate there is need for time to carry out the experiments. It
usually records information about what will happen and may not account for what has happened.

Another method that a researcher can use is survey. It involves the gathering of data by the use
of questions. The researchers ask question about a certain marketing problem and the consumers
responds to the questions. Survey is a common research method used by market researchers
collect data. Survey can be delivered in a number of ways such as personal interviewing postal
survey and telephone.

Through the use of postal there is elimination of bias since the interview will be absent when the
interviewee will be responding to questions. When using telephone as a form survey it is quick
and there are immediate responses from the interviewee and marketing decision are quickly
implemented or made. Face to face interviews is cheaper compared to telephone and postal
survey which requires more capital to make research a success.

However, it is more complicated to use telephone survey given that the researcher may not know
the target as their telephone numbers may not be available. When using postal survey there is a
higher degree of heating or exaggerating since the interviewee will be alone. A lot of bias
information can be collected through the face to face interviews.

Therefore, firms carrying out marketing research must use appropriate methods in order to
prevent product failure when launching a new product. More so a single method may not be
effective, so a firm must use different methods or techniques in different marketing segment for a
successful product.

Evaluate the importance of time series analysis to a shoe manufacturing firm (25)

We live in a changing world and therefore there is uncertainty about the future. Despite this
uncertainty and perhaps because of it is important to try and forecast future trends and the course
of events. A shoe manufacturing firm must use time analysis in the production of shoes.

Time series analysis is a method of predicting sales based entirely on past data of sales. Sales
records are kept over time. Time series is a systematic quantitative process that involves the use
of past data to make a prediction about the behavior of a given variable. Time analysis is mostly
used in predicting of the behavior of variables such as sales, profit and cost.

The most basis method of predicting sales based on past results is termed extrapolation, this
means basing future predictions on past results.

A shoe manufacture can predict the occurrence of certain variable in the future by analyzing past
events since it is often said that history often repeats itself and the past often shapes the future.
Thus for example a shoe manufacturer may predict future sales using or by analyzing data from
the past 5 years.

Due to time series there is elimination of human judgement or bias since quantities facts are
determined to predict the future. In this case a shoe manufacturing can use sales data collected
last year to predict the future of their product analyzing the sale, cost and profits.

Identifying the trend in which certain variable like sales and profits can also be useful to a
manufacturer of shoes such as Bata. This will help Bata forecast what will happen in the future.
In the case of an upward trend, a manufacturer will be able to predict a future rise in demand. For
example, if the sales of school shoes generated a lot of profit in 2014 a manufacturer can also be
able to predict that profits will also rise in 2015.

However, time series avoids redundancy importance to shoe manufacture due to a number of
drawback such as time series analysis is affected by factors such as inflation. In this case
historical data used in calculating of moving variable maybe less relevant when making
prediction about the behavior of a variable in the future.

Furthermore, some mistakes forecasting decisions are likely to be made because of

mathematical error. This will lead to product failure resulting in a loss. More so, time series
analysis ignores the use of facts such as consume preference which are also useful in making
prediction about the variables behavior in the future.

In conclusion time series analysis is of great importance to shoe manufacture since it analyses
past records of trends in sales and demand and identify them.

Discuss the usefulness of forecasting to a clothing manufacturing firm (25)

Despite the uncertainty of the changing world, it is important to try to forecast future events and
trends as well as the course of the event. Forecasting is an attempt to predict the future variable
behavior and to provide a basis for planning. Forecasting is used in market testing, planning and
production schedule and investment appraisals. Forecasting techniques can be broadly divided
into groups which are qualitative and quantitative techniques.

Qualitative techniques depend on human judgement and experience. It is often used when the
time frame is so long that data is of limited use and when the data is scarce. Qualitative
techniques involve personal insight, panel consensus, market survey, historical analogy and the
Delphi method.

Quantitative method can be broadly divide into two types which are casual and time series
method. Casual method involves the use of mathematical models to link up the effect of
variables. The aim is to identify the relationship between variables for example price and
income. Time series is a set of data recorded over uniform time periods such as a month or a
year. It shows how a variable behaves over time. Time series analysis uses the trend such as
seasonal fluctuations, random variations a cyclical fluctuation to show how a variable behaves
over time.

Forecasting helps clothing manufactures to plan ahead of demand because it would have
predicted future rise or fall in demand of clothes. This will reduce the risk of loss making in a
firm. Also forecasting reduces the risk of both product and company failure, meaning that
clothing companies will be able to control internal drawbacks as well as anticipating external
drawbacks.

Forecasting also improves the morale of subordinates. In this case workers will be able to work
very hard as they work toward achieving a certain set target. Forecasting will increase the
workers’ commitment to the job which in turn will reduce labor turnover.

Resources are allocated effectively and efficiently since forecasting decision will act as a
guideline on how to use resources. In this case it prevents resources from being idle. This will
help minimize resource wastage in the organization.

Forecasting helps the clothing manufacturers on the screening of ideas in the new product
development. The firm is able to predict future sales of products and profits to be attained
selectively using marketing strategy tools such as product life cycle (PLC).

It also provides a sense of direction to a business which means it becomes easier to run and
control as the confusion can be eliminated and workers would work in department such as
overlooking sewing and cutting the fabrics. Forecasting is an instrumental tool used in
minimizing production cost and overall cost in the day to day running of the business.

However, forecasting can be affected by external factors such as consumer taste and preference
which are dynamic and this will result in losses. This will make forecasting a useless tool since
results have a higher probability of being a mistake. Furthermore, the process is time consuming
since it involves a lot of data collection, analyzing and interpretation of data which requires a lot
of time.

More so qualitative forecasting method involves the implication of human judgement which
leads to the process of being subjective. There is a lot of bias which will lead to wrong
predictions. Forecasting leads to wrong prediction in the sense that the product might be
performing badly because there is an economic depression thus in the future when the economy
is stable the product will start to have a profit.

Forecasting can result in wrong perceptions which will lead to the getting rid of all unwanted
staff but later on realizing that the staff is important as it would have not changed the capital
intensiveness.
In conclusion, forecasting is of great importance to the clothing manufacturing firm because of
predicting future variables and the firm will continue to operate in the foreseeable future.

CHAPTER 8
 Production

QUESTIONS
1) Explain the production function (3)

2) Explain any 4 factors of production (12)

3) Explain the 3 stages of production (6)

4) State 5 methods of production (5)

5) Explain any two methods of production (4)

6) How useful is batch production to manufacturer (6)

7) Discuss the factors to be considered when choosing the method of production

(15)

8) What is meant by the following terms?

a) Project production (2)

b) Batch production (2)
c) Job production (2)
d) Flow production (2)

9) What factors should a manufacturer consider when switching from batch to

flow production (4)

10) Evaluate the methods of production available to a manufacturer (25)

11) What is meant by the term lean production (4)

12) Explain any three aspects of lean production (6)

13) How useful is lean production to a manufacturer (8)

14) Define the term work study (2)

15) Explain any two aspects of work study (4)

16) Evaluate the usefulness of method study to a manufacturer (6)

17) State any two aspects of work measurement (2)

18) Of what importance is the work study programme useful to a manufacturer?

(10)

19) Discuss the importance of cost information to a firm in the manufacturing

industry (13)

20) Outline any 3 costing techniques (3)

21) Differentiate absorption costing and marginal costing (4)

22) How useful is absorption costing as a costing technique (6)

23) Under what circumstances may marginal costing be applied (5)

24) Define the following terms

a) Margin of safety (2)

b) Breakeven point (2)

24) Graphically illustrate the following

a) Margin of safety (2)

b) Breakeven point (2)

25) Evaluate the usefulness of the break-even analysis as decision making tool
(25)

26) Explain any two methods of plant layout (4)

27) Discuss the factors determining the location of a firm (15)

28) Evaluate the methods which can be used by a firm to improve productivity
(25)

29) Define the term quality (2)

30) Evaluate the usefulness of quality control techniques that can be used by a
firm in the manufacturing sector (25)

31) Evaluate the usefulness of work improvement terms (6)

32) How useful is total quality management as a quality control technique (12)

33) Define the following term

a) Productivity (3)

b) Efficiency (3)

c) Effectiveness (3)

34) Distinguish effectiveness and efficiency (3)

35) Discuss the different techniques that a firm can use in inventory/ stock
management (25)

36) Stock usually takes 3 forms. Which are they? (3)

37) Define the term inventory (2)

38) Under what circumstance may just in time technique be appropriate (4)

39) The just in time method of stock management is not compatible with flow
production. Discuss (15)

40) What is meant by the following term?

a) Economic order quantity (2)

b) Economic order point (2)

c) Buffer stock (2)

d) Lead time (2)

41) Using the diagram explain how a manufacturing firm can use a critical path
analysis in decision making (25)

42) How useful is critical path analysis as a decision making tool (25)
43) Define the following terms

a) Critical path (2)

b) Dummy (2)

c) Float activity (2)

d) Preceding event (2)

44) Explain any three types of float activities (6)

ANSWERS

Explain the production function (3)

The production function is a system that consist of inputs, processes and outputs.
Examples of inputs are information, capital, labor and raw materials. Processes
incorporates the conversion or transformation of inputs to output. Output includes goods
and services.

The production function can be shown as follows

Production function
Explain any 4 factors of production (12)

There are four factors of production namely land, labor, capital and enterprise.

Land – refers to the site where production takes place. It may be on the ground, soil,
water or air. The reward for land is rent.

Labor- refers to the human skills or physical effort used in production. The reward for
the labor is salary or wages.

Capital – this is the amount of money or machinery required in the business. The
reward for the capital is interest.

Enterprise/ entrepreneurship these are the skills required to run a business. The reward
for entrepreneurship is profit or loss.

Explain any 3 stages of production (6)

Three stages of production are primary production, secondary production and tertiary
production.

Primary production this involves the use of primary raw materials or the extraction of
natural raw materials e.g. farming, fishing forestry mining and hunting.

Secondary production is the conversion of raw materials from the primary industry to
finished and semi-finished goods. It involves manufacturing and processing. For
example, conversion of wheat from farming to flour or bread.

Tertiary production this is the type of production that provides back up services to both
primary and secondary production. It involves banking, insurance, warehousing,
advertising, communication and others.

State any five methods or form of production (5)

Five methods of production are:

Batch, continuous or flow, line, job or jobbing and project production.

Explain any two methods of production (4)

Batch production – this is the type of production in which products are produced in
totally different batches. This involves production of different types or versions of the
same product e.g. freezits or paint. the process allows the same product to be
differentiated according to color, weight and size.

Continuous/flow production- under this method, goods are produced on continuous

basis such that the production system never stops to operate. Goods are produced on a
24-hour basis. Moreover, this system requires the use of heavy machinery and
equipment.

How useful is the batch production to a manufacturer (6)?

Batch production is a method of production in which the products are produced in totally
different batches in terms of color, size and weight. Batch production is more useful to a
manufacturer for example for paints and freezits. This is because it may result in the
production of variety of goods since consumers are supplied with different batches of
goods. Moreover, the manufacturer of paint or freezits may benefit through increasing
customer goodwill leading to a creation of corporate image thus increasing
organizational competitiveness. In addition, batch production allows the manufacturer of
paint or freezits to incur less costs especially warehousing costs. This is because batch
production requires that goods produced should match the level of demand.

However, batch production might be costly to the manufacturer since there is a strong
need to install warehousing and security mechanisms because of stock. Moreover,
there is a need for labor and machinery to be flexible so that a variety of the product can
be accommodated. This increases costs to the organization. Not only that but most of
the time is wasted when making preparations for the different batches, during change
overs and the maintenance of equipment and machinery.
Therefore, though the batch production has some limitations, the manufacturer of
freezits and paint can benefit more from the method of production through an increase
in customer satisfaction, loyalty and corporate image thus fostering competitiveness.

What is meant by the following terms?

a) Project production (2)

b) Job production (2)

a) Project production is a large scale production technique that involves a unique total
work package which will be completed in phases within a specified period of time. The
method involves establishing projects such as building and construction of roads and
dam construction.

b) Job production is the production method used in the production of goods that are
designed according to order and customers specification. It involves provision of goods
according to customer requirements such that an item is only designed when demand
has arisen. Goods are not produced in advance but the producer will wait until demand
arises.

What factors should be considered when switching from batch to flow production
(4)

When switching from batch to flow production the manufacturer should consider factors
such as

Reliability of supplier since flow production requires continuous supply of raw materials

The lead time that is the time interval between placing an order and receiving that order

Availability of enough labor since flow production requires human resources for 24, so
there is need for shift work.

High capital availability for purchasing effective and heavy machinery

Skilled personnel for the maintenance of the machinery

Level of demand must be high so that the product can be simultaneously purchased
after production
What is meant by the term lean production (4)

It is a production technique which was developed by the Japanese with the aim of
quality maximization and waste minimization. It involves a series of techniques or
aspects such as Just in Time technique (JIT), stock control, quality circles, employee
empowerment, total quality management (TQM), team work and work study.

Explain any three aspects of lean production (6)

Work study is a generic term for a series of analytical techniques used to determine the
most efficient use of labor in relation to other inputs in the production process. It was
developed from the work of FW Taylor’s scientific management. The two aspects of
work study are method study and work measurement.

Quality circles/ work improvement - it is a group of workers from different departments

who meet at prescribed times in order to discuss issues related to work. It is made up of
at least six workers and above. Each and every member participates and contributes on
how to improve quality.

Just in time technique (JIT) this is a stock control technique which involves ordering raw
materials exactly when they are needed in the production line. Raw materials are
scheduled to arrive just in time when they are required for production. It minimizes
possible obsolescence and wastage.

Define the term work study (2)

Work study can be defined as a generic term for series of analytical techniques used to
determine the most effective use of labor in relations to other inputs in the production
process. The two aspects of work study are method study and work measurements.it is
usually done by work study officers.

How useful is lean production to a manufacturer (8)

Lean production is a technique developed by the Japanese with the aim of quality
maximization. It involves a number of techniques such as Just in Time technique (JIT),
stock control, quality circles, employee empowerment, total quality management (TQM),
team work and work study.
The technique of lean production is a more useful to manufacturer. This is because lean
production has led to the development of several techniques to manufacturers such as
shoe manufacturer can employ in order to improve quality of shoes produced and when
the quality of service offered thus improving the image of the company and therefore
improving competitiveness.

Moreover, the manufacturer may also benefit from lean production through reduction of
wastes. Since lean production aims to reduce wastes this may benefit producer of
shoes for he will not be affected by the costs associated with wastes thus improving the
image of the firm and thus increasing market share and customer satisfaction.

In addition to that lean production may also benefit the producer for it has led to the
emergence of several techniques in the production management such as work study,
quality circles, total quality management just in time techniques, team work and cell
production. Those techniques result in an increase in motivation, morale, commitment to
the organizations. It also enhances employee performance and also saving or reduction
of wastes benefiting the manufacturer of shoes.

However, though lean production has a number of benefits to the manufacturer, it has
also received critics from several proponents. Firstly, lean production consists of several
techniques which have been criticized on complexity, confusing and expensive.
Moreover, some of the techniques or aspects such as work study, TQM and JIT are
difficult to the extent that there is need for experts in the organizations who are familiar
with those techniques.

Moreover, those techniques have their own strengths and weaknesses so they cannot
be used in isolation. This makes it very difficult for manufacturers to make a choice on
the best technique. This may require manufacturers to adopt an eclectic approach
which is the fusion of two or more techniques.

In addition, the advocates of lean production such as Edward Deming were from Japan
and when they developed the techniques of lean production, they have not considered
geographical variations. This means that the way in which the organizations in japan are
operating is different from the way they are operating in Zimbabwe.
Therefore, despite the short comings, lean production has contributed a lot to
manufacturers through waste reduction, quality improvement, improving corporate
image, gaining of customer loyalty. This has positively influenced organizational
functionality.

Explain any two aspects of work study (4)

Twos aspects of work study are work measurement and method study

Method study this is a systematic process of recording and evaluation of the ways of
doing work both the existing or proposed ones as a way of developing easier and
efficient methods thereby reducing costs. The implication is that there is a best way of
performing a task and this can only be developed through scientific approach.

Work measurement – it is the application of techniques to establish the time a qualified

worker can take to carry out a particular task. It is done to provide information for
preparing work schedules for example flextime and compressed work week.

Evaluate the effectiveness of method study to a manufacturer (6)

Method study is one of the aspects of work study. It is a systematic process of recording
and evaluating ways of doing work both existing and proposed ones as a way of
developing easier and more efficient methods there by reducing costs. Method study is
of great importance to a manufacturer such as cellphone manufacturer and a timber
manufacturer. This is because method study allows the timber manufacturer to
increase organizational efficiency and this may raise the profits of the timber
manufacturer when a large quantity is produced. Furthermore, due to the use of the
method study the timber manufacturer may be able to reduce costs when the best and
least cost method is selected

However, the timber manufacturer can encounter the bad side or the dark side of the
method study. This is because method study is a process and this process is
expensive, time consuming, complex and laborious to the extent that other
manufacturers can regret using these techniques. These weakness has led to the
decrease in the support of method study from quite a number of manufacturers.
Therefore, there is enough evidence from the above discussion that manufacturers of
timber and shoes benefit from method study. This is because strengths of method study
outweigh the limitation making it more useful to the manufacturers.

State any two aspects of work measurement (2)

Two aspects of work measurement are: standard time and standard performance

Of what importance is the work study program useful to a manufacturer (6)

Work study refers to a generic term for a series of analytical techniques used to
determine the most efficient use of labor in relation to other inputs in the production
process.it was developed from FW Taylor scientific management theory.

The work study programme is of great significance to a manufacturer such as clothes

manufacturer. This is because work study allows the increase in work performance.
This may result in an increase of quality and good quality clothes produced due to
skilled and committed personnel. This may also result in an increase in profitability and
competitiveness of the clothes manufacturer. Furthermore, work study improves the
level of motivation of employees thereby reducing the level of labor turnover. Finally, the
manufactures of clothes can also use work study as a base for incentive pay schemes.

However, the advocates of work study also received serious criticisms from their
successors. These criticisms go against the idea that work-study programme benefit the
manufacturer of clothes. Firstly, if a work study programme is not properly used it may
be a source of demotivation when the task becomes too simple because they are some
workers who are motivated by highly challenging tasks.

Moreover, work-study is usually done by work study officers and requires highly skilled
personnel and sometimes this kind of workers may not be easily found. Furthermore,
work study might be expensive to a clothing manufacturer. In addition to that the
process of work study is time consuming and laborious making it less import to a
clothing manufacturer.
Therefore, the benefits of a work study programme to a clothing manufacturer outweigh
the limitations. This is a strong and enough evidence that a work study programme is of
great importance to a clothing manufacturer such as ENBEE.

Using examples distinguish between fixed costs and variable costs (4)

Fixed costs can also be called indirect costs and these are costs which do not change
or which do not vary with the level of output e.g. rent and insurance. Variable costs can
also be called direct costs as they vary with the level of output. They vary in line with the
level of business activity for example direct materials cost.

Outline any three costing techniques (3)

Marginal, absorption and standard costing.

Differentiate absorption costing and marginal costing (4)

Absorption costing considers all the costs incurred by the firm in production. This means
that it aggregates both fixed and variable costs in the ascertaining the unit cost of
production. Where marginal costing is the technique that only considers the variable
components of the costs such as direct labor. Marginal costing can also be called
contribution costing by the virtue of the emphasis on the contribution. Unlike marginal
costing absorption costing does not endeavor to categorize costs into fixed and variable
costs meaning that absorption costing is less expensive and less complex than marginal
costing.

Marginal costing can also be used in making organizations decisions such as pricing,
buy or make, dropping a product line but absorption costing ignores that.

Unlike marginal costing, absorption costing can be used for income purposes and in
published financial reporting.

How useful is marginal costing as a costing technique (6)

Marginal costing is a costing technique that only considers variable components of the
costs e.g. direct labor. It can also be called contribution costing. This technique is of
paramount importance to an organization. This is because it can be used to determine
the pricing policy that enables the firm to establish a competitive advantage over the
other business and to save guard its market position from its predators.

Moreover, marginal costing enhances the accuracy of decision making resulting in

rational decisions such as in whether to continue or discontinue a product line and when
making a buy or make decision. Finally, marginal costing technique is less complex to
use because it only considers costs incurred in the production and disregard subjective
costs.

However, if marginal costing technique is extended to marginal cost pricing, it may

result in recovering of costs through underpricing since it considers variable costs rather
than total costs. Moreover, marginal costing technique draws a distinction between
variable and fixed costs this may become a difficult process due to the fact that some
costs have both elements of fixed and variable costs (semi variable costs).

Therefore, though marginal costing technique have its limitations, it is of great

importance to a firm because the strengths outweigh the limitations and it can also be
used to make organizational decisions such as pricing which is the only element of the
marketing mix which generates revenue.

Under what circumstances may marginal costing technique be applied (5)

-Making a decision on whether to make or buy a product

-Deciding on whether to continue or discontinue a particular product line

-Making a decision on whether to accept or reject a special order

-Making a pricing decision (pricing policy)

-Optimum use of scarce resources

-Shutting down an entire department

Define the following terms (2)

a) Margin of safety – this is the distance between break even output and the full
capacity. It measures the safety or the riskiness of the business. The closer the
distance to the BEP the greater the risk.
 b) Breakeven point (BEP) it is the point in which total costs are equal to total
revenue.it is obtained at a point where total cost curve and total revenue curve
cross each other.

Graphically illustrate the following

a) Margin of safety (MOS) (2)

b) Breakeven point (BEP) (2)

How useful is the absorption costing as a costing technique (6)?

Absorption costing can also be called total or full costing. It is a costing technique that
considers all the costs incurred by the firm in production. It therefore aggregates both
fixed and variable costs in ascertaining the unit cost of production.

Absorption costing technique is a more useful to a firm in that it absorbs all the costs
incurred by the firm and this helps the firm in reducing underpricing. Moreover, this
costing technique does not endeavor to categorize or divide costs into fixed and
variable cost hence less expensive to use. Finally, absorption costing technique can be
used for income purposes and in the published financial reports.

However, absorption costing technique gives the firm less flexibility in the pricing once
the unit cost of production is established using absorption costing. This is because the
firm should always sell its product at a price that is slightly above unit cost. In addition, it
can be difficult to use in the cases of fluctuations in demand where demand reaches
peak and off peak periods, so the firm needs to avoid such fluctuations. Therefore, from
the above discussion, there is enough evidence that absorption costing is of great use
to a firm though there are some limitations but these limitations are outweighed by the
strengths.

Explain any two methods of plant layout (4)

Layout by fixed position-

Layout by process -

Layout by order. NB: pupils are encouraged to explain any two from these.

Define the term quality (2)

Quality is the degree of appropriateness of a product and its ability to satisfy a particular
need. Quality can also be defined as the fitness for a purpose.

Stock usually takes three forms which are they (3)

raw materials, work in progress (semi-finished goods) and finished goods

Distinguish between effectiveness and efficiency (3)

Efficiency refers to the measure of how inputs have been utilized relative to those inputs
which have been planned to be used whereas effectiveness is the ability to which the
organization has achieved its objectives.

Efficiency measures the variance between those actual inputs used and planned inputs,
whereas effectiveness measure how actual output deviated from planned or expected
output.
Formula for efficiency = actual inputs x 100

Planned inputs

Formula for effectiveness = actual output x 100

Planned output

Define the following terms

a) Productivity (2)
b) Efficiency (2)
c) Effectiveness (2)

a) Productivity refers to the total output divided by the total units used. It is therefore
output per each unit of resource used. It measures the relationship between output
produced and inputs used.

Productivity = total outputs

Total inputs

b) Efficiency is the measure of how inputs have been utilized relative to those inputs
that have been planned to be used. it measures the variance between actual inputs
used and planned inputs.

Efficiency = actual inputs x 100

Planned inputs

c) Effectiveness this is the ability to which an organization has achieved its objective. It
is a measure of how actual output is different from planned or expected output.

Effectiveness = actual output x 100

Planned output
Evaluate the usefulness of work improvement teams (quality circles) (6)

A work improvement team is a group of workers selected from different departments

within the same organization comprising of six or more people but less than twelve
members. These members meet continuously during work hours within the work
premises to discuss the issues related to quality. It can also be called a quality circle.

Quality circles are of great importance to an organization. This is because they increase
the level of employee motivation and morale since there is employee involvement and
participation within the organization. Moreover, it may result in the improvement of
quality of products and this may contribute to reduction of costs incurred in production
as workers find solutions to the problems. In addition, quality circles foster the existence
of good employee relationships resulting in effective communication since all the
departments are involved.

However, work improvement teams may consume more time in discussions meaning
that it is time consuming. Moreover, quality circles may be expensive to run as they
increase costs since the members need to be motivated financially. In addition, quality
circles require some resources meaning that for them to exist forever there is a strong
need to supply adequate resources. Moreover, to some employees whose ideas are
neglected quality circles may be a sources of demotivation.

Therefore, quality circles have quite a number of limitations and strengths, for these
quality circle to be useful to some organizations they need to be used with care so that
the problems with these quality circles may be eliminated and the benefits will be
enjoyed such as motivation.

Define the term inventory (stock) (2)

Inventory or stock refers to the items of raw materials, work in progress and finished
goods held by the organizations at a particular time.

Under what circumstance may Just in Time technique be appropriate (4)

It is appropriate in an organization with:

Highly motivated workforce, Strong financial support, Effective communication, High

level of team work, Worker involvement and participation, Reliable suppliers, Accurate
demand forecasting and Constant lead time.

What is meant by the following terms?

Economic order quantity (EOQ) (2)

It is the order quantity that minimizes total inventory (that is the holding costs and the
ordering costs). It assumes that ordering costs, demand, lead time and purchase price
are constant.

Economic order point (EOP) (2)

It is the point on the economic order quantity (EOQ) graph where holding costs are
equal to ordering cost (total inventory).

Buffer stock (2)

It is the stock reserve. This stock should not be consumed. This is the minimum stock
level that can be kept by the firm. It is the minimum stock levels that should be held to
ensure that production can still take place.

Lead time (2)

It is the time interval between placing an order and receiving that order.

Define the following terms

a) Critical path (2)

It is the shortest route that a project takes until its completion. It is a general term that
defines a number of quantitative techniques used in project monitoring and
implementation. It is the sequence of activities that determines minimum time needed to
complete a project.
b) Dummy (2)

It is the activity that consumes neither time nor resources. It is an imaginary activity in
the network diagram which is shown by the dotted line.

c)float activity (2) this refers to the amount of slack that exist from non-critical
activities.it is the time an activity can be delayed without delaying the completion of the
project.

d)preceding event (2)

it is an event that comes first before another event starts

Explain any three types of floating activities (6)

Total float- it is the amount of time a path of activities can be delayed without affecting
overall project completion.

Free float – it is the amount of time an activity can be delayed when the preceding
activity has been completed as late as possible

Independent float - it is the amount of time an activity can be delayed when the
preceding activity has been completed as late as possible.

Explain ways in which a manufacturer of toys might find break even analysis
useful (6)

Break even analysis is the technique that allows a business to see at what level of
output its total revenue will equal total costs. A toy manufacturer will be able to estimate
the number of toys that he must make and sell to make a profit. Moreover, he or she
can estimate the number of toys to make in order to sell to make targeted profit.
Moreover, breakeven analysis can allow the manufacturer to estimate the effect on
profit of increasing fixed costs overtime (breakeven is useful for forward planning).
Finally break even analysis helps the manufacturer of toys to estimate a margin of
safety that is an indication of how much demand a business could afford to lose before
making a loss. Moreover, the break-even analysis helps the toy manufacturer to see the
effect of changes in selling price or variable costs.
What are the advantages of line production to a company that manufactures soft
drinks (4)?

-high productivity due to intensive use of machinery

-low unit cost as a result of mass production

-less industrial disputes as a result of more work being done by machinery

-ability to meet an increase in demand

- Use of less skilled workers who are cheaper to hire thereby reducing labor costs

How can management raise the productivity of its workforce (3)?

Training, Motivation, Fair remuneration, Performance feedback and Improving work

conditions and worker participation.

What cost are associate with:

a) Holding stock (3)

b) Holding inadequate stock (3)

a) Holding stock

1) Deterioration 2) Obsolescence 3) Warehousing costs (e.g. rental costs, insurance

and security) 4) Opportunity cost (tying up capital in stock)

b) Holding inadequate stock

Loss of sales, Loss of discounts from bulk buying, Poor image or reputation of the
business, Special order could be expensive and Loss of customer goodwill.

A company manufactures product x and the following data is shown

Direct cost per unit $70

Overheads $50 000

Current output 120 000 units

Selling price $140

Full capacity output 150 000units

From the above information, calculate the company’s capacity utilization (2)

Capacity utilization = actual/ current output x 100

Full capacity output

= 120 000 x 100

150 000

= 80%

Assess the significance of maintaining quality in a business organization (5)

Benefits

-loyalty from customers

-good publicity e.g. From consumer pressure groups such as CCZ and ISO

- Reduction of liability claims

-May allow premium pricing since quality can be used a unique selling point

-Attracts a large customer base.

-Improves the firm’s corporate image/ reputation

-repeat purchases, more sales, more profits

Limitations

High training costs, Inspecting and checking costs, Materials costs e.g. sourcing quality
raw materials and reworking defected products is costly and time consuming.
What are the factors to be considered when making a decision to switch from
labor intensive to capital intensive production (5)?

Relative price of labor and capital, Nature of the product, Product image firm wishes to
establish, Size of the firm, Impact of the employees, Impact of quality and Demand
levels

Discuss the factors to be considered when choosing the production method (15)

An effective, competitive and long lasting organization involves from the nature and the
system of the production used. Due to the changes in technology, there is a need to
invest in the production system which is in agreement with the level of technology in
use. There are several factors that need to be considered by the organization when
choosing the method of production to be used and among them are costs, availability of
raw materials, level of demand and to mention a few.

Management scholars defined production as the transformation of raw materials or

inputs into finished or semi-finished goods. Therefore, production is the conversion of
inputs to make final goods. There are a number of production methods such as job,
batch. Flow line and project production. A number of factors need to be considered
when choosing the method of production as fully discussed below.

Manufactures need to first consider the cost of the method of production before making
any choice. Some methods such as flow production and project production are more
expensive for they require the use of heavy machines than other methods such as
batch and job production. So it is advisable for the manufacturer to choose the least
cost method and ignore the expensive ones.

Moreover, manufacturers also need to consider the availability of raw materials when
choosing the method of production. This is because some methods of production such
as flow or continuous production need raw materials for 24 hours because it is non -
stop. However, there are other methods such as line production and batch production
which are not continuous. This therefore means that there is a need for effective
relationship between producer and supplier of raw materials and proper estimation or
constant lead time if the manufacturer goes for flow production.
Another factor to consider when choosing the production method is the quality of staff.
Manufacturers should choose or go for the production method their employees are
familiar with in order to avoid conflicts within the organization. Moreover, there are other
production methods such as job production and project production which need multi
skilled and diversified employees with a diversity of skills. This is because jobs and
projects are different and may require different skills. Furthermore, the manufacturer
need to consider the availability of personnel when choosing the method of production.
This is because there are other methods such as flow production that require a large
number of workforce for shifts. If there are limited employees the firm can adopt other
production methods such as job, batch, line and project which do not require human
resources for 24 hours. However, if there are more employees available, the firm may
go for flow production which requires more labor for shift work.

Conclusively, before the manufacturer chooses the method of production to use there is
a strong need for considering a number of factors such as costs, availability of labor and
raw materials, availability of suppliers, qualifications of the staff and the level of
technology. Therefore, these factors cannot be separated, they need to be considered
together so that an effective and efficient method of production can be selected which
will be more beneficial to the organization as a whole.

Discuss the importance of cost information to a firm in the manufacturing

industry (13)

Importance of cost information

-to select an appropriate sharing strategy

-to determine the stability of the manufacturing firm

-it is used for budgeting purposes and this requires forecasting and the planning for the
future.

-it can be used for controlling purposes

-it enables the manufacturer to choose the least costly technique

Limitations
Cost can be very difficult to separate since there are other cost which have both the
features of variable and fixed.

-moreover some costs may bear the features of fixed costs and this will then change
later to variable costs making decision making difficult.

- moreover the language of costing is very difficult and complex for the manufacturer to
understand since there are several types of costs such as fixed costs, variable costs,
semi variable, stepped, sunk, incremental and overhead costs.

Conclusively, cost information is of great importance to a manufacturing firm. This is

because it determines the firm’s stability, used for controlling purposes, used for
budgeting purposes and when choosing the least costly technique. Moreover, the
manufacturer will be able to identify the cost center, profit Centre and investment
Centre.

Discuss the factors that determine the location of the firm (15)

Candidates are expected to fully discuss the factors given below (giving examples)

-Availability of raw materials especially raw material based firms such as lobels and
national foods.

-Market availability for example newspaper industry, bread industry and milk
producers (companies which produce perishables).

-Level of competition firms locate where there is limited competition.

Accessibility – near the road network for easy transportation of goods, customers, raw
materials. Firms should also be near railway lines for example willovale Mazda motor
industry for easy transportation of bulky and heavy raw materials.

-Other industries for agglomeration industries locate where there are other
industries. This is because industries depend on each other for raw materials, skills and
other things

Labor availability – industries locate near the labor market. For example, most of the
industries in Harare are located in Southerton to get labor from Budiriro, Glen view, High
field, Glen Norah and other industries are in Granite side targeting cheap labor from
Mbare, Sunningdale and Arcadia.

Power / electricity- most of the industries are located where there is power or
electricity availability e.g. Zisco steel in Redcliff

Infrastructure- businesses are located where there is good infrastructure such as

buildings, communication lines, shops, roads and railway lines.

NB discuss these factors please

How useful is total quality management (TQM) as a quality control technique?

(12)

Ensuring quality of goods and services is the secret behind success of a number of
organization be it in the service or manufacturing sector. There is a new shift towards
quality revolution and most firms are now adopting the new philosophy in quality
developed by the Japanese. The best strategy under the philosophy to manage quality
is total quality management (TQM).

Total quality management is a quality control technique which states that quality is
everyone’s responsibility in an organization. It state that’s quality starts from the
consumers. It also assumes that quality can be improved on a gradual basis. The main
idea here is that everyone in the organization must participate in the quality
improvement from top management to lower level workers.

Total quality management is a quality control technique that is more useful to an

organization. This is because it results in the production of high quality output meaning
that high quality products are produced leading to improved customer satisfaction which
may result in good corporate image.

Moreover, total quality management is the technique that improves the flow of
communication within the organization. This is because there is involvement of
everyone within the organization. In addition, employee morale and motivation can also
be enhanced through total quality management. Furthermore, total quality management
can also result in reduced costs through encouraging efficient and effective resource
utilization.

However, the change in terms of quality take a long period of time meaning that total
quality management takes a long time for quality to improve. Moreover, this technique
has been criticized because it requires a total change in organizational culture which
might face resistance of change by the workforce making it very difficult to use.

Furthermore, total quality management is difficult to implement in situations where there

are poor industrial relations and this therefore makes it more laborious and time
consuming. Finally, total quality management is more of an organizational policy rather
than quality control technique.

In conclusion, total quality management has its benefits and limitations. The benefits
outweigh the limitations. This is enough evidence that total quality management is a
more useful technique to an organization. This is because it leads to quality
improvement, boosts morale and motivation of the workforce, improving level of
communication to an organizations and encouraging total participation and team work
which brings efficiency and effectiveness to an organization.

Evaluate the usefulness of break-even analysis as a decision making tool (25)

The secrete behind the success of a number of organizations be it in the manufacturing

or service industry is effective decision making. There are a number of effective
decision making tools which can be used by an organization such as break even
analysis, cost benefits analysis, critical path or network analysis and investment
analysis. Breakeven analysis is of paramount importance to an organization in order to
attain its objectives of profit and sales maximization.

Break even analysis is a production technique used to determine the production output
raised in order for the firm to generate adequate amount of revenue to cover total costs.
The concept aims to obtain the optimum output that will enable the firm to make neither
profit nor loss. The breakeven point is the point at which total cost curve and total
revenue curve cross each other.

The concept of breakeven analysis is also based on the following assumptions. The first
assumption is that price is constant per output level. Moreover, it assumes that fixed
cost are constant for all output levels. Furthermore, it assumes that costs can be easily
be classified into fixed and variable costs. The last assumption of breakeven analysis is
that total revenue and total cost curves take a linear form.

The breakeven analysis can be shown graphically as follows

Breakeven analysis can be calculated using the following formula

BEP = fixed cost X selling price

Contribution per unit

Where contribution per unit = selling price – variable costs

Margin of safety (MOS) Is the distance between breakeven output and full capacity. It
measures the safety or the risk of the business in its operations.

Breakeven analysis is a useful decision making tool. This is because it enables the
business to obtain the level of output at which the firm breaking even so as to obtain the
desired level of profit. Moreover, breakeven analysis enables managers to be conscious
about the costs so that they can find the strategies of minimizing costs so as to
determine the level of profits. Furthermore, the breakeven analysis enables the
managers to identify the margin of safety so that the managers will be able to measure
the degree of riskiness of a firm’s output at full capacity.

In addition, the concept of breakeven analysis provides a guideline to management on

the breakeven point, margin of safety and profit and loss at a different level of output.
Moreover, it can be used to discover how much should be produced to realize a certain
level of profit. Furthermore, breakeven analysis enables comparisons between choices
to show changes in situations hence the equation produces a precise breakeven result.

However, the concept of breakeven analysis assumes that costs can be easily divided
into two groups that is variable costs and fixed costs. In reality it is difficult to classify
these costs because some costs can take both features of fixed and variable costs at
the same time. Other costs can take features of fixed costs at a time and then change to
variable costs at a later stage this then makes decision making difficult for an
organization.

Moreover, the breakeven analysis concept assumes a constant price function which is
not realistic in this world of economic decline with high level of inflation and price
increase. Furthermore, the break-even concept assumes that total cost curve and a
total revenue curve both take linear functions which can lead to the formation of a single
breakeven point. But in reality, total cost and total revenue curves can take curvilinear
functions which may result in two or more breakeven points. This can be graphically
shown below:

Conclusively, though breakeven analysis has been criticized on different grounds, it

remains an important tool necessary in decision making in a number of organizations.
This is because its strengths outweigh its limitations.

Assess the methods which can be used to improve productivity in an

organization (25)

For the success of an organization there is a need to ensure continuous improvement

and a well-motivated workforce to ensure success of the organization. Its overall aims
and objectives reflect what it wishes to achieve thus there is need for improvement of
the level of production.

Management scholars defined productivity as the total number of output produced out of
a number of input used. Production therefore means output from input implemented.

Training of employees leads to the production in an organization rising. Training is the

art of improving and upgrading the skills of the workforce to suit the requirements of the
job. This results in quality goods being produced as well as reducing defective goods.
Total output produced in relation to input used will be high due to reduced cost of
mistakes. However, training yields some demerits to the organization. It is rather costly
to put employees in training programs. In the case of on the job training, mistakes can
be made which can alter the face of the output leading to defects because employees
will be trained as well as they will be performing the job.

Work study is another method an organization can make use of to improve productivity.
This is a method of analyzing the job and assessing the difficult and easiest method of
completing the task. Method study which is evaluating and analyzing and finding the
best method and way of doing a job is of most importance in raising productivity levels.
A task can be completed in the easiest and non-time consuming way. This leads to
output produced being high. Work measurement which is the setting of stipulated time
to complete so as to receive incentives per output produced per time required leads to
productivity levels raising if this is efficiently implemented. However, work study
programs are relatively not easy to implement. Taking for instance method study can
result in staff reducing as their jobs will be replaced by machines, work measurements
can result in unfair pay schemes which will result in demotivation of the workforce. Civil
unrest and industrial disputes can be the outcome which can affect the organization
thus reducing productivity levels and strikes and go slows will come into play thus
slowing down production process.

Non-financial and financial motivation factors can be used to increase productivity levels
in organizations. Appreciation of workforce, job redesign and worker participation are
tools which can be used to motivate the workforce as they feel trusted by the
organization thus they will be propelled to work more thus increasing productivity.
Financial motivational factors such as increment of pay and bonuses means the level on
income of employees will rise thus they would want to work even harder to receive more
rewards. This leads to level of output produced being high as the workforce will be
highly motivated and will be willing to do their jobs. However motivational factors can
lead to demotivation of the workforce if not properly implemented. Taking for instance
an organization which gives employees extra responsibilities and giving them incentives
and bonuses can lead to relaxing as their needs are met and this will generally not be
worthy to the organization.

Type of leadership style in place can increase productivity levels. A leader or a manager
in an organization who uses democratic leadership style is likely to yield many benefits
as this leads to a motivated workforce. This is so because the workers feel trusted and
part of the organization. This increases productivity levels as workers will take their jobs
as their own and will like it, in contrast, democratic leadership style can lead to wrong
decisions being made by the employees which can lead to severe mistakes which will
affect the organization.

Effective stock management in an organization increases productivity levels. The

method of holding stock can ensure that there is enough stock to cater for the
production process and as well as suiting the unexpected rise in demand. If an
organization uses just in time technique it will also be reducing costs of holding stock as
it is delivered when needed. This leads to the continuous supply of raw material to the
organizations in the production process. If there is a delay in the supply of raw materials
which can lead to production being slowed down thus reducing the production levels.

Management by objective which was initiated by Peter Drucker can be put into place to
ensure productivity in an organization. This is the splitting of the overall aims and
objectives of an organization into specific tasks for the different parts in the organization
that is different departments. This leads to a clear motivated workforce as there is
effective delegation in the departments. Productivity levels can raise as each
department has a specific task to complete. However, this can lead to demotivation in
the workplace if delegated jobs to the employees will tend to be only boring. Employees
will feel not wanted in the organization thus their work is irrelevant in the production
process thus productivity levels will be low.

In conclusion a single method of increasing productivity is not effective but there is need
for an interplay of one or two methods so that the strengths of one counters on the
weaknesses of the other.

Under what circumstances do you thing the following production methods will be
appropriate?

a) Process/flow (8)
b) Batch (9)
c) Job/jobbing (8)

a) Process /flow production is when products are manufactured continuously on a large

scale to ensure continuous supply of products. Project production will be appropriate
under a situation where the demand of the product will be high and is usually on a daily
basis. This enables the firm to operate continuously so that it can meet customer
requirements on time.

It is also appropriate in situations where there is availability of capital intensive machine

to ensure continuous supply of products. This include conveyer belts where the work
force is divided into different skills everyone operates on. One type of a job for example
on dress making one will be experienced on setting buttons and another on inserting
collars.

Process production may also be appropriate under a situation where there is availability
of labor force because on process production the workers operate on shift basis so it
requires enough labor force to ensure continuous operation of machines and also
supply of products.

High market share may also be appropriate for process production. If the firm has high
market share, it shows that the firm controls a high proportion of market so this process
production may be appropriate to a firm with high market so that the firm will produce
high amount of products in order to drive their market effectively.
b) Batch production falls between job and flow production and this is the manufacturing
of different versions of the same basic product but in batches for example freezits, paint
and suits. It is appropriate under a situation where there is demand of products and if
those who need the products require in batches of one unit. If the customers need the
products in batches the producers will also pack the products in batches and sell it to
them.

Batch production may be appropriate in situation where there is careful planning and
monitoring of production to reduce costs of change over, including costs of retraining
and to prevent staff and machine lying idle for a long time.

c)job production or jobbing is when a single product is manufactured according to

customer’s specification and also be known as job order or customer production.

Job production may be appropriate under a situation where there is an order from the
customers hence the manufacturer will produce goods according to the order which
they will receive.

It may be appropriate when stocks are kept at a minimum level or where there is no
stock holding because job production rely on customer’s specifications so that they
process the product and render to the person it concern (at the same time).

Job production may be appropriate under a situation when there is availability of skilled
labor because customers may come demanding different types or designs of the
products so there must be skilled persons who must be able to operate all sort of
design or type of products. For example, in a textile industry they should have different
people to meet requirements of their customers as one will be operating on designs and
other on making pattern pieces.

Evaluate the methods a clothes manufacturer might employ to improve

productivity (25)

The objective of a clothes manufacturer might be profitable thus one way of doing this is
to increase efficiency. This is to do with how well resources such as raw materials, labor
and capital can be used in an effort to raise productivity levels.
Productivity is the ratio of output to inputs in a production process such as output of a
given amount of labor or capital. A clothes manufacturer might employ various
techniques such as training programs, work study, financial and non-financial
motivational factors favorable leadership style, management by objectives and effective
stock management.

Training of employees who work in the manufacturing firm can improve the levels of
productivity. Training is the art of equipping and upgrading of work related skills to suit
the required job standards. Employees will be more flexible since they will be able to
change from one job to the other for example they will be able to design the clothes as
well as to over lock the clothes. This will lead to quality goods being produced which will
create lasting impressions to the customer thus sales will rise. However, training yields
some demerits to the organization and can decrease the level of productivity. It is rather
costly to put employees under various training programs. In the event of on the job
training mistake can be made which can alter the face of the output leading to defects
because employees will be trained as they will be doing the job. Therefore, productivity
levels can drop.

Work study is another method that an organization can implement to improve

productivity. This is an attempt to find the best or most efficient way of using labor,
machine and materials and involve two techniques. Method study involves identifying all
the specific activities in a job, analyses them and find the best way to do the job. Thus
the clothes manufacturer can improve job performance by use of sewing machines
which are faster leading to the rise in the output produced. Once the best method has
been found work measurement will then be carried out which is used to find the effort to
carry out a task to an acceptable standard. Incentive schemes can be derived leading to
bonuses given to employees who meet the required targets thus a rise in the output
produced. However, work study programs are relatively not easy to implement for
example method study can result in staff redundancy as the workforce will be replaced
by machines (sewing machine) and work measurement can lead to unfair payment
schemes which will result in demotivation of workforce. Civil unrest and industrial
disputes can be the outcome which can affect the organization due to go slows and
strikes which in turn will lower down productivity.

Non-financial motivational factors and financial motivational factors can be used to

increase productivity levels in an organization. Appreciation of work done, job design
and workers’ participation are tools which can be used to motivate the work force as
they feel trusted by the organizations and will propel to work more. Quality circles can
also be used where quality of goods produced will be everyone’s responsibility thus
employees will be proud of their work and leading to an increase in productivity.
Financial motivational factors such as the 13th cheque and salary will increase the
disposable income of the employees and will stimulate them to work harder so as to
receive more rewards. This will lead to levels of output produced being high as
motivated workforce will be willing to do their jobs. However, motivational factors can
lead to demotivation of the workforce if not properly implemented. Taking for instance
an organization which give employees extra responsibilities and giving them incentives
and bonuses can lead to them relaxing as Maslow advocated in his hierarchy of needs
that once a need is satisfied it no longer continue to be a motivator thus an organization
can add interesting so much in salary increments.

Favorable leadership style in place can increase productivity levels. The clothing
manufacturer business manager can use democratic leadership style and is then likely
to yield many benefits as this leads to a motivated workforce. This is so because there
is greater and improved effective communication which will lead to worker involvement
in policy formulation since they will get hands on experience. This will increase
productivity levels not only because the workers will be doing their job but also because
they take it as their responsibility. In contrast a democratic leadership style is not
effective since basing decision making in the hands of the employees can lead to wrong
decisions being made, leading to mistakes being made thus output produced will be
lowered since there will eliminate of defective products.

Effective stock management in an organization increases productivity levels. The

various methods of holding stock can ensure that there is enough stock to cater for the
production process and meeting the unexpected rise in demand. The clothing
manufacturer can adopt the just in time stock management as stocks are delivered
when they are needed in the production process. The organization can cut costs since
there will not be much capital tied up in the stock thus production will not be halted.
However, stock management is rather costly to implement since massive discount will
be lost as stock is purchased in smaller quantities. Production can also be halted in the
event of having unreliable suppliers who will supply the raw materials at a later date
than required by the organization. Thus longer lead times will stop the production
process leading to lowering production levels.

In conclusion, a single method of increasing productivity is not effective but there is

need for a fusion of one or more methods of improving productivity though the limiting
factors of these methods cannot be ignored.

Evaluate any four methods of production (25)

The environment in which a business is operating is not static but highly dynamic. It is
faced with stiff competition so managers will look for the best method to produce their
products.

Production in the conversion of raw materials into semi-finished or finished goods. It can
be defined as the transformation of inputs into output. There are several different ways
in which goods and services can be produced. They are usually classified into job
production, batch production, flow production and project production.

Job production is normally used for the production of a single once off product. It is also
concerned with the unique nonstandard goods that are made to according orders.
Goods for example of job production would be specially designed e.g. wedding rings
and suits. In order to be called production each individual product has to be completed
before the next product starts.

New small firms often use labor intensive job production before they get the chance to
expand and purchase advanced equipment. Job producers economizes on holding as
they do not to carry stock of finished goods. Job production enables specialized
products to be produced and tends to be motivated for workers because they produce
the whole product and take pride in it.
However, this sort of production takes a long time to complete and it is expensive.
Since it is labor intensive the labor force also needs to be highly skilled and this is not
always easy to achieve. Also specialist equipment is likely to be underutilized and delay
between operating sequences will mean that the total production time will be greater
than processing time.

Another production method is batch production. Batch production involves the

production of products in separate groups, where the products in the first batch go
through the whole production process together. It is also manufacturing of different
version of the same product in batches that is such as color and size. A good example
of this production is a baker making batches of rolls or freezits maker producing
different type of freezits like red, blue or green.

Batch production allows firms to use division of labor in their production process and it
enables some to gain from economies of scale if batch is large enough. It results in the
provision of variety of goods and is most suitable when producing a single unit at a time.
Low costs are incurred in terms of warehousing which is for stock rather than to order. It
also creates or building a corporate image of the organization.

However, batch production tends to have high levels of work in progress stock.
Repetition of work may be boring and demotivating for the workers and this will result in
high levels of labor turnover. There is often a need to clean and adjust machinery after
each batch has passed through thus making it time consuming.

Flow production is another form of production. The process of flow production is used
where individual products move from stage to stage of the production process as soon
as they are ready, without having to wait for any other products. Examples include the
production of steel at Zisco steel company in Zimbabwe or the production of coca cola.

Flow production has a number of advantages over other types of production. Labor cost
tend to be low because much of the process is mechanized and there is little physical
handling of products. Quality tends to be consistent and high and it is easy to check the
quality of product at various parts thought the process.
The main disadvantage of flow production is the high initial set up cost. High
technological production lines are going to cost a greater deal of money. It is time
consuming to switch from one type of production to another and the work involved tends
to be boring demotivating and repetitive.

Another method of production is project production. Project production is used in large

scale projects made to customer requirements. It involves a unique total work package
which will be completed in phases within a specified time. Examples include building or
road construction. Project production creates employment to the local people. There is
full utilization of resources. It motivates workers since it gives diversity or variety of
projects. It is the best method when dealing with huge projects.

However, it is very expensive especially when implementing a big and complicated

project. It requires experienced personnel who should control design and they are
expensive to hire.

In conclusion, if the marketing manager’s decision relating to what is produced, the

manager has responsibilities in relations to the method of production they are likely to
use and also consider the merits and demerits of each production method.

Why might quality be of particular concern to a soap manufacturer? (15)

Quality is a crucial issue at interface between marketing and production. To prosper in

today’s economic climate any organization and its supplier must be dedicated to a never
ending improvement and more efficient ways to obtain products that meet consumer
needs. Essentially quality is about fitness for purpose it is the totality of the feature and
the characteristics of the product that bear on its ability to satisfy implied needs.

The improvement of quality in a soap manufacturing industry can also attract customers
from other competitors. That is, it can be a way of promoting products by reducing
customer to be cherry pickers. Cherry picker are those customers who consume goods
only when they are on promotion. Therefore, high quality goods help the firm to gain
competitive advantage resulting in high market share.
It also decreases cost of reworking defective products since it involves lean production
and the zero defect method. This means that the soap manufacturing company will be
competitive in the market when charging low price resulting from low costs. Therefore,
soap manufacturers will accumulate high profits which will provide room for expansion.

Promotion of quality can be used as a way of building the image of the firm. That is high
quality goods can build a reputation of a firm to a soap manufacturer which may
encourage repeated purchases. This will increase purchases resulting in high revenue
leading to high investment

The government may have certain standards of quality that are expected on its
products. A business may improve quality so as to meet legal requirements of the
government, this will reduce penalties from the state such as high taxes and quality
restrictions

A soap manufacturing company will also be able to meet internationally recognized

standards that are certified by the recognized institutions such as standard association
of Zimbabwe (SAZ). This will reduce risk of the product being rejected in the market
resulting in the product success. Therefore, quality may be guarantee the success of
the soap manufacturer.

Explain how just in time could be used to manage stock in a retailing industry
(10)

Just in Time (JIT) manufacturing is an important part of line production and the Kaizen
approach. It was developed by the Japanese ship building industries in the 1950s and
1960s. Just in Time is a stock management process in which a manufacturing
organization decrease wastes by supplying parts only when they are needed in the
assembly process.

The retail business can use JIT as the supply chain is vital for success of the business.
This is vital since products are distributed and at right time. This will mean that the
business does not purchase for stock and does not incur warehousing costs such as
security rent and risk of absolute.

Therefore, for JIT to be well effective, it requires efficient management of re- order lead
time and it also requires reliable suppliers so a s to avoid risk of stock out, this means
that the firm has to build a good relationship with its suppliers of raw materials and the
stock controllers should ensure that they know the actual lead time to avoid loss of
customers.

JIT also requires subordinates which are highly skilled so much that conflicts are
reduced. This will require the business to retrain its employees on how to use just in
time when managing stock. Therefore, on the job training will improve the quality of its
employees hence productivity will increase.

The firm has to find some methods of motivating some employees which is financial and
non-financial motivation. Since just in time requires workers which are highly active so
these methods will stimulate its employees to behave from a lethargic position to an
energetic one.

A retail firm can also apply total quality management and zero defects stock in stock
management. Total quality management stand for total (mean the whole hearted
commitment of everyone in the organization) this means that it is everyone’s
responsibility to manage stock in a firm.

Evaluate the methods a business might use to ensure the quality of its products
(15)

For a firm to gain a competitive advantage in the market it has to produce high quality
goods which enable it to satisfy consumers. Therefore, quality refers to fitness for
purpose or the totality of features of a product to that bear on its ability to satisfy
consumers’ needs and wants. The firm can ensure its quality through quality control and
quality assurance.

The firm can use quality inspection which is the checking of its product quality by zero
defects in the manufacturing process. This ensures that consumer needs and
expectations are met and that the product conform to safety standard set by the existing
legislation. However, it is rather costly to carry out since there is need for quality
inspectors to carry out the process and often result in wastage of goods since quality is
checked at the end of the production process rather than controlling the production
process to avoid defective goods.

Value engineering is also another effective way which involves the reduction of
unnecessary costs before production begins. This helps the business to design its
products at the lowest cost. This is often carried out through the entire organization.
Fewer component in product can be used but still maintaining the quality of the
products. Therefore, the result is low maintenance and repairing costs. However, costs
can only be reduced if the department takes into account each other’s needs thus the
quality of the products may suffer to an extent that the marketing department may find it
impossible to sell it.

The firm can improve quality by establishing a culture of quality within the organization
that is total quality management. This means that total quality will start from the promise
that quality starts with the consumers. Quality will therefore be improved by focusing on
the requirements of the consumers. The main idea is that everyone in the organization
has to participate in quality improvement. However, it might be difficult to implement in
situations. Where there are bad industrial relations between managers and its workers
therefore workers may resist to change resulting in low quality goods being produced.

Quality can also be improved by the use of standards chosen by the organization. This
is known as benchmarking where the firm can use quality standards adopted from
another firm. This will improve the competitiveness of the firm in the market. However, it
might be difficult to apply practically since it involves research into other organization
strategies which might be very expensive for a firm to follow those techniques.

In conclusion improving quality in an organization may be difficult sometimes therefore it

needs an interplay or a combination of two or more techniques so that the strengths of
the other outweighs the weakness of the other. More than one technique of quality
control must be used.
Discuss factors a firm should take into account when determining levels of stock
to be held (10)

All firms hold stocks of goods and this need to be effectively managed. Without
determining the right levels of stocks to be held, a firm can be face serious problems for
example, if delta held small quantities of beverages there might be insufficient stocks to
cater for the unforeseen changes in demand.

Stock is referred to as materials and goods required to allow for the production and
supply of products to the customer. There are three types of stock which are raw
materials, work in progress and finished goods. A firm should therefore take into
account stock holding costs and the cost of not holding stock when determining the
correct stock to be kept.

A firm should take into account stock holding costs such as opportunity cost of working
capital when determining the right levels of stock to be held. This is working capital tied
up in stock which could be put into any other profitable use. The large quantity of stock
held could have been used to pay off short term obligations than to invest into large
quantities of stock. Thus this should be taken into account when determining the stock
levels held. However, a firm should not put this into consideration since putting a small
quantity of stock can lead to insufficient stock to meet unforeseen changes in demand.
Therefore, a firm can experience loss in sales since customers’ requirements will not be
met.

A firm should also take into account stock cost which are cost incurred when securing
stock in warehouses. A firm such a dairy marketing board of Zimbabwe will often require
special warehousing conditions such as refrigeration when keeping the milk. This is
often expensive and also there should be extra care and caution taken when
transporting the products. A firm should therefore take into account since keeping a
minimum stock level will lead to a reduction in cost of storage. However, a firm such as
the one mentioned above need not to take into consideration the stock levels held since
storage costs will be excessively covered by the profits generated from sales revenue.
The perishability of the products leads to them to be always on demand and the firm
can be able to cover the cost incurred since the returns will be higher.
A firm such as Willow vale Mazda motor industry needs to into account the risk of
wastage and obsolescence when determining the levels of stock to be held. If the stock
of spare parts such as engines, carburetors and alternators are not used rapidly as
expected there is an increasing danger of goods deteriorating and becoming outdated.
This will therefore lower the value of such stocks. Some of the goods might also be
damaged in transit and some destroyed due to natural catastrophes thus the firm should
consider this if the stock is damaged it will be used to produce defective products and
be sold at a lower price than the original value. In contrast the firm can just insure its
stock in preparation of risk, therefore the firm cannot take anything into account when
determining the level of stock held since the insurance company will compensate for
any damage or loss incurred.

In conclusion, a firm should take all the factors into consideration when determining the
level of stock to be held since this is a crucial aspect of operations in firms though some
of the factors are not sound enough in determining the level of stock to be held.

A building contractor specializes in construction of urban houses with the aid of

an appropriate diagram, asses the usefulness of network analysis on such a
project (25)

Efficient firms will always aim for their resources as intensively as possible and avoid
wasted time from idle assets. Keeping assets busy is not always easy as it sounds
especially if the project being worked on is a complex one.

Network analysis or critical path analysis is a planning technique that identifies all the
tasks in a project, set out them in the correct sequence and allows the identification or
indicates the shortest possible time in which the project can be completed. This can
help the building contractor to put all the different tasks in building a house to be put in
place or in order so that the right goods and labor can be employed just at the right
time.

The objective may be to construct a house in forty-two days. To create the network
diagram, the task to be performed in order to build a house has to be broken down into
a number of main activities such as digging foundations and tiling the roof. These
activities must be done in a certain order. The roof cannot be tiled before the walls are
built as illustrated in the table

Activity Preceding activity Duration in days

A - 8
B - 6
C A 12
D B& C 6
E A 14
F E 10
G F& D 3
H B&C 14
I G&H 3
J I 4

Using the diagram to calculate the total project duration allows the business to give an
accurate delivery date. In this case the critical path is A-E-F-G-I-J. The critical path
shows whether the firm can meet the demand of their own customer on time

Calculation of the earliest starting time for each activity allows the operations manager
to order the special equipment or material needed for the task at the correct time. This
ties the use of the network analysis with the JIT strategy and assist in the control of
working capital.
Calculating the latest finishing time of each activity provides a useful control tool for the
project manager. The manager will be able to see whether the project is up to schedule
by checking the actual completion time of activities against latest finishing time.

Knowing the critical path can be useful. If there is a delay on the critical activity, there is
also no float because it is critical and the delay will, unless quick action is taken put
back the whole project. This allows the building contractor to see which activities need
to be speeded up if one has been delayed. For instance, if in the network diagram E is
delayed by two days due to bad weather or non-arrival of equipment, the operations
manager will know that one of the following critical activities need to be accelerated to
cover for the lost time.

The sequence and logical structure of a diagram lends itself well to computer
applications and nearly all business applications of network analysis will now be run on
computer making it less time consuming to decision making on projects

Network analysis give the project managers a positive advantage in showing them the
task that can be undertaken simultaneously in carrying out critical activities. This will
help to reduce the total time taken by the new project and supports the principle of
simultaneous engineering.

However, critical path analysis cannot guarantee a successful project by itself as with
any plan requires skilled and motivated staff. A plan is only as good as the management
putting it into action. If management of the project is poor, then even a good network
analysis diagram will not ensure success.

When using a network analysis for a completely new project there may be considerable
guess work involved in estimating the duration of each activity as there will be no
previous experience to go on.

Although the manipulation of the network, the duration and float time is likely to be aided
by computer, it can take skilled labor to put a complex project on to a computer.

In conclusion, network analysis can be an important tool in assessing project success.

This is because failure to manage the project success can have serious consequences
for any organization. These include loss of future contracts due to bad publicity in the
construction industry.

Evaluate the importance of Just In Time as method of stock management (15)

For a business whether in manufacturing or retail sector or service industry there is

need for effective ways of controlling stock. This aspect of stock control should be
aimed at producing goods and services with minimum wastes while maintaining high
level of quality.

Just in Time is defined by Japanese as that technique when no buffer stock is held,
components arrive just in time when they are needed on the production line and finished
goods are delivered as they are completed. JIT is a stock control method which aims to
avoid holding stock by requiring supplies to arrive just as they are needed in the
production line and complete goods are produced as per order.

Capital invested in inventory is reduced and opportunity cost of stock held is also
reduced. Just in Time will enable the firm to invest in other aspects of the business such
as paying debts and loans and also to purchase equipment since it would have a low
level of stock. The capital it will forego in purchasing large quantities of stock can
therefore be used for other investment opportunities. However, keeping a low level of
stock can have drawbacks to the business. Any failure to receive supplier of materials
or component in time caused by a strike at the supplier factory, transport problems will
lead to expensive production delays. Therefore, JIT is not an important tool in the
management and control of stock.

Costs of storage and other stock holding costs are eliminated, this is due to space
released from holding stock which can be used for more productive purposes. Holding
stocks as they are needed in the production process will mean that less stock will be
kept therefore less storage leading to the firm generating higher profits since it would
have cut down on warehousing costs. However, a firm might end up incurring
unnecessary expenditure since the reduction of stock due to saving up on storage
costs. If demand increases unexpectedly the firm might not be able to meet the
expectations of the customers therefore just in time may not be relevant to the firm.

The mutli- skilled and adaptable staff required for just in time to work may gain improved
motivation since just in time requires flexible workers since they are to change from one
job to another. This will lead to workforce acquiring skills through training to be able to
meet all the job requirements. They will motivate workers since acquiring skills will
enhance productivity

However, training workers is rather costly. In the event of it being on the job training, a
mistake may happen in production which can alter the face of output therefore just in
time will not be appropriate method of controlling stock.

Greater flexibility that the system requires lead to quicker responses in time of change
in customers’ demand and tastes. A successful implementation of the just in time
technique can lead to the production process being carried on each type of batch. In the
event of change in demand another batch can be dispatched and can be manufactured
as it arrives just in time when it is needed in trying to meet customer requirements thus
needs and wants are met thus brand loyalty will result which will enhance sales.
However, there could be a reduction in bulk discount offered by suppliers because each
order likely to be small hence delivery cost will be higher since many orders need to be
processed.

In conclusion, as there is rising global inflation which make stocks of raw materials more
beneficial as it may be cheaper to buy large quantities in bulk now than smaller
quantities in future when process have risen. This therefore draw us the conclusion that
just in time is not important in a hyper inflationary environment but in a more favorable
environment which is more stable and static

Outline the aspects of work study (10)

Work study is an attempt to find the best and most efficient way of using labor,
machines and materials. The endless effort of work of F.W Taylor is said to have formed
the basis work study methods.
Work study has two aspects which try to establish standards which are suitable and
assess the performance of workers. These two aspects are method study and work
measurement. These two technique can work subsequently or simultaneously
depending on the type of production.

Method study is a systematic process of analyzing and recording existing and proposed
methods of doing work to develop more effective and easier methods. This could be an
existing job or new one. This will allow a firm to identity an optional way of doing a task
and improve the lay out of the firm to minimize effort and reduce fatigue to employees.

The second aspect is work measurement which is a technique used to establish the
amount of time a qualified worker takes to complete a job at a given level of
performance to an acceptable standard. This involves standard time which is total time
a job can be completed at standard performance by trained individual. Standard
performance is another aspect of work measurement which is the rate of output which a
competent worker will actually or naturally achieve during average working period. This
is used to design a payment scheme.

These two schemes according to F.W Taylor are of utmost importance as according to
him he then developed the time rate scheme. This can therefore be linked to work
measurement and method study

To what extent do you agree with the statement that product quality guarantees
business success (25)

Quality is a tool used to gain a competitive edge in the market place and all products
and service offered to consumers in the market place are evaluated and compared
against another before a purchase is made. Business profitability and viability hinges on
how well received its products and services are.

Management scholars defined quality as a good or service that meet customers’

expectations and it is regarded as a fitness for purpose. Therefore, quality can be
described as those features of a product or service that allow it to satisfy customer
wants for example consumers buying durable goods may consider physical
appearance, reliability, durability, special features, suitability and after sales service.
These factors will therefore guarantee the success of a business.

Product quality plays a significant role in ensuring success since the product will be
regarded as of higher quality. As business operate on the going concern aspect that is
they will continue to operate in the foreseeable future producing quality products will
lead to brand loyalty an example is in the production of a range of cars by Jaguar. They
are required as quality products and they are largely accepted by consumers still
demanded the new model at even higher price. This ensure continuation in the business
as well as survival in the dynamic market from the competitors thus ensuring or
guaranteeing business success.

A business in the production of cell phones such as Nokia is able to charge higher
prices for its products through a skimming pricing strategy since most of its products
which are smart phones are regarded as higher quality products. Generation of profits
will be very high. Nokia is now able to guarantee business success through the selling
of its products since there is already an established market for the products therefore
the risk of the new products failing is rather low. Therefore, this draws us to the
conclusion that quality products guarantee business success.

Through quality control techniques such as total quality management where quality
product is everyone’s responsibility and quality circles, there has been greater and more
viable products being produced. These techniques also implement the Japanese
technique of minimum wastage of resources that is lean production. Cost of producing
products such as Mazoe orange crush is reduced as there are continuous improvement
just in an effort to ensure quality products are produced and have zero defects. This has
also seen sales of Mazoe orange crush on the market rising since they were awarded
with the ISO certification indicating that their products meet the standards which are
required. Therefore, they are of higher quality. Many customers have since preferred
buying the product as they also want to be associated with quality. Therefore, the
company has managed to eliminate competition and gaining a broader customer base
However underlying factors other than product quality can also guarantee business
success as they are fundamental because they lead to the efficient allocation of
resources thus proper marketing mix can ensure business success.

A proper pricing strategy of the product can ensure business success. A business
should not put into consideration the sensitiveness of customer to change in the price of
goods they offer. For example, if a clothing industry is launching a new clothing line it
can chose penetration pricing where lower introductory prices are charged so as to gain
a larger market share and later raise the price. An electric appliance producer can also
charge higher price on his goods that is skimming since the customers are not price
sensitive solely for the reason of attaining large sales. Both examples if successfully
implemented they can lead to a boost in sales since the price of the product will be
acceptable. Large profits will have gained leading to the expansion of the business
thereby guarantee the success of the business.

Promotional strategies or the successful implementation of the promotional mix can also
help in guaranteeing success of a business. Advertising can ensure that products are
known through informative advertising and can also persuade customers to purchase
them. The awareness created by the advertising strategy makes the product known and
can trigger large volume of sales to happen. Direct selling where a sales team promotes
a product through personal contract like what BOOM washing powder guys can also
ensure that the product is well known and its uses are outlined. Sales promotions which
involves incentives offered to customers to encourage them to buy goods and service
can lead to product line being successful. An example is TM super market which is
using the Geisha promotion where you buy five soaps and get the other two free and
also enter the competition with lots of consolation prices. This can lead to success of a
business since its products are being accepted and broadening the market share base
thereby guarantee the success of the business. Distribution of the product to the right
place at the right time can guarantee the success of an organization. The correct
channel of distribution of the product can lead to the product being delivered in time as it
is needed or demanded in the market. Taking for instance Dairy board Zimbabwe Ltd
which engages in the production of perishable products such as milk, ice cream and
cheese, it is wise to choose a medium of distribution from manufacturer to the customer
as the product is highly demanded in the market and also quickly goes stale. This can
lead to a company minimizing and cutting costs as the risk of wastage of the product is
minimized thereby the product will be attracting a large number of interesting stake
holders thereby leading to the success of the business. In conclusion product quality on
its own cannot guarantee success. So there is need for an interplay of quality and other
factors to ensure business success.

CHAPTER 9

Business finance and accounting

Questions
1) How useful is payback as a technique of investment appraisal (6)

2) Assess the usefulness of NPV as an investment appraisal technique (6)

3) Of what importance are ratios to the following stakeholders?

a) Employees (5)

b) Shareholders (5)

c) Creditors (5)

d) Management (5)

4) Explain the concept of financial gearing (5)

5) Define the following terms

a) Profit Centre (2)

b) Cost Centre (2)

c) Revenue Centre (2)

d) Budgetary control (2)

5) Discus any 4 types of budgets (12)

6) Evaluate the usefulness of budgeting to a cellphone producing firm (12)

7) What are the functions of the Zimbabwean stock exchange? (13)

8) Distinguish between a money market and a capital market (4)

9) Distinguish between primary and secondary market (4)

10) What are the functions of the financial markets (4)

11) Why do companies window dress their accounts (6)

12) How useful is the balance sheet and the profit and loss account to a
manufacturing firm (15)

13) What is a cash flow (2)

14) Distinguish between ordinary and preference shareholders (4)

15) Why may a business require finance (4)

16) Explain the factors a firm may consider when choosing the source of finance
(10)

17) Distinguish between loan (debt) and share (equity) capital (5)

18) State any two internal and two external sources of finance (4)

19) State any two short, two media, and two long term sources of finance (6)

20) What are the differences between short and long term sources of finance (3)

21) Evaluate the sources of finance that are available to a large manufacturing
firm (25)

22) Explain the following sources of finance

a) Debt factoring (2)

b) Financial leasing (2)

c) Sale and lease back (2)

d) Hire purchase (2)

23) How useful is leasing as a source of finance (4)

24) Evaluate the usefulness of hire purchase as a source of finance (25)

25) Explain any 2 methods used when issuing shares (4)

26) Evaluate the methods which a firm can use in managing its working capital
(25)

27) What measures can be taken by the firm to improve its liquidity position (6)

28) Differentiate between financial and management accounting (5)

29) Explain any two methods of depreciation (4)

30) Define the term depreciation (2)

31) Evaluate any two methods of stock valuation (6)

32) Define the term investment appraisal (2)

ANSWERS

How useful is payback as a technique of investment appraisal (6)?

The payback period is the time taken by the project’s cash flow to recover or recoup the
initial capital outlay. This technique is useful because it is easy to calculate and
understand. The method serves as a fast and quick screening device that identifies
projects that should be subject to more rigorous investigation. Also payback techniques
enhance the liquidity position of the business. It favors project that generates cash
within the shortest period hence, it is most appropriate when business is seeking to
improve the liquidity position of the firm. The method is more objective based because it
uses cash flow rather than accounting profits.

Lastly, payback period helps to identify the risks associated with the investment project.
However, it ignores the time value of money. Moreover, it ignores cash flow after
payback. It does not measure the profitability of the firm.

Assess the usefulness of NPV as an investment appraisal technique (6)

Net present value of a project is the difference between the total the present value of
the future cash flow and the project initial outlay. Some of the advantages of the NPV
are it considers the time value of money that is a dollar received today is worth a dollar
received tomorrow. It considers the whole life span of the project that is, it takes into
account all the relevant cash flows associated with the project.

The method discounts future cash flow to their present values which takes into account
the impact of inflation and risk over time. However, NPV has drawbacks associated with
it. It requires the knowledge of cost of capital. The calculation of the cost of capital is in
practice more complex, cash flow is conventional. The method is difficult to explain to
managers because the meaning of NPV requires an understanding of discounting.

Of what importance are the ratios to the following stakeholders?

Employees (5)

Profitability ratio e.g. net profit margin can be used to asses a possible salary. If it is
higher workers’ salary may be increased if they bargain for it. However, if profitability is
low salaries may be affected

They can also use gearing ratio to assess the possibility of continuity of the firm. If
highly geared, possibility of liquidation may occur which puts jobs at risk. However low
gearing ratio is better as there is no likely chance of liquidation hence jobs might be
safe.

Shareholders (5)

To calculate the possible return on the capital they invested into a business using
ROCE.To assess worthiness of investments into a certain firm e.g. if profit levels are
high it may have them to invest whereas profits are avoided. Dividend gearing ratio
helps them to measure return on their dividend at a current price.

Creditors (5)

To assess the credit worthiness of a firm before lending finance using gearing of the
firm it intends to lend to. If low, then lending may be better but if it is too high its risk.
Creditor’s payment period can also be used to assess the time it will take to get back
landed finance. If short period then the better, if longer the business may face problems.
Profitability ratios are used to assess whether they will get their funds back, if low high
risk and if high low risk
Management (5)

Asses the credit risk of a firm. High gearing high risk and low gearing low risk. Used to
compare previous and current performance, if there is a down ward trend, performance
is decreasing and business has to take action and if upward then improvement.

Explain the concept of financial gearing (2)

It is the extent to which a firm is financed by its external sources (debt finance)

Define the following terms

Profit Centre (2)

it is the section of the business in which both costs and sales can be identified

Cost Centre (2)

it is an area of responsibility such as a department in which costs are charged

Revenue Centre (2)

it is the division in a business that gains revenue from product sales or service provided

Budgetary control (2)

Refers to how well managers utilize budgets to monitor and control costs and
operations in a given accounting period. A process for managers to set financial and
performance goals with budget, compare the actual and results and predicted results

Discus any 4 types of budgets (12)

A budget is a plan that forecast future expenses and help companies to effectively
allocate resources to meet those expenses. Firms prepare budgets to plan on how they
will allocate funds for the next budget year.

There are several types of budget that include capital budget, sales budget, operating
budgets and cash budget, fixed incremental and zero based budget
A capital budget estimates all capital acquisitions and summarizes all expenses and
cost of a major purchase for the next year. Capital assets include items that have useful
lives of more than twelve months such as buildings and furniture.

With a capital budget, the organization can plan the optimal time to purchase long term
assets and determine the best method of financing. However, failure to comply with the
budgetary control may lead to overspending and purchase of unnecessary assets.

Another type of budget is the cash budget. A cash budget or cash projection details
short term cash inflow and out flow. It is used in conjunction with the operating budget to
synchronize expenses. The cash budget also functions as a tool to determine cash
shortages or average. Using the information that a cash budget provides about an
organization cash position, financial managers can be prepared to take mitigating steps

It summarizes how much money an organization will receive and spend in each
category usually on a monthly basis. Therefore, an organization can plan the most
opportune time to borrow funds, repay debt and use current assets.

However, the cash budget can sometimes be drafted unrealistically. The budget might
be understated comparing to the actual cash needed to meet all expenses

Then there is also operating budgeting. It is the organization’s annual financial plan that
shows expected revenue and costs for current operations, it supports all current
program activities and related services. The operating budget also consist of the
expenses to be incurred such as salaries, fringe benefits and professional fees. This
helps in the allocation of resources amongst each other.

However, in some cases the operating budget may not include emergency expenses
that occur unexpectedly and this may lead to shortfall in some expenses efficiently
allocated

Finally, there is the sales budget which indicates the sales a firm expects to make in
units and dollars for a budgeted year. A sales budget is a planning instrument and a
control mechanism. This is also because it details the quantities of a product or services
of a firm expected to sell, revenue incurred from those sales and all occurred during
sale

Sales budget serves as the benchmark or yardstick against which actual performance
is measured and variables such as sales volume, profitability and selling expenses are
controlled.

However, sales budget can suffer from wrong predictions because markets are
unpredictable. The sales budget can suffer from unexpected economic factors such as
a falling stock market, decrease consumer demand rendering previous forecast useless

Conclusively, there are quite a number of budgets such as, zero based, flexible,
incremental, and sales, operating and cash budget. Therefore, a firm cannot use a
single type of a budget but should use two or more so that the strengths of one cover for
the weakness of the other.

Evaluate the usefulness of budgeting to a cellphone producing firm (12)

The uptake of budgeting in an organization is essential as it provides an invaluable

insight into the inter related nature of the business activities. For a cell phone
manufacturer like G-Tel, budgeting can be utilized in setting and attaining goals.

Budgeting from the perspective of different scholars is defined as a financial or

quantitative statement prepared and approved prior to a defined period of a policy to be
assured. Therefore, budgeting is a plan of action expressed in quantitative terms.

Budgeting can be used in the planning process. For example, G-Tel can use budgeting
to draft the future operations like expansion that has to be undertaken in the
organization basing it’s on the financial position is the money currently hold.

It also gives unity and direction to the business operations as plans are translated into
financial terms which clarifies and focus on the core aim of the business. So in a
nutshell planning facilitate co-ordination and sense of attaining goals with an
organization.
Effective budgeting improves the level of communication at different levels in the
organization that is from the shop floor workers to the top management, it can also be
used to communicate plans within the organization and stakeholders at large.

Budgeting can be used to control promotional spending. If G-Tel is to introduce a new

model in the market and it has to fully develop and launch the model. Therefore, the
marketing department has to be within the budget’s limit so that resources to be used
should not go beyond the budget limit.

However, the process of budgeting can be complex as it can be affected by inflation and
other economic constraints. Future investment project are made more complicated by
uncertainty about future prices.

It can also be a source of demotivation if participation is not part of the process that is if
a top down approach is used. This may affect the quality of the budget as
communication problems and coordination are likely to arise. The process consumes
time and use more resources meaning that it has a negative impact to the organization
especially in the situation where workers and the other stakeholders are consulted.

In conclusion, G-Tel can use the budget statement to its advantage also taking into
mind risks associated with the whole process.

What are the functions of the Zimbabwe stock exchange? (5)

The ZSE is a market that facilitates the buying and selling of shares. Its acts as a
monitor of performance of companies like Delta and Econet, that is which company is
performing positively or negatively. The Z.S. E also list companies that have available
shares. It also delists companies that are no longer being listed on the stock exchange
market. The market also regulates the trading of shares. This means that buyers are
not prone to unfair transactions by the sellers

Distinguish between money markets and capital markets (4)

Money markets are short term finance such as overdraft whereas capital markets are
long term finance such as mortgage. The financial instruments used in capital markets
include stock and bonds, but the instruments used in the money market include deposit,
collateral loans and bills of exchange. Unlike financial markets, capital markets are
divided into primary and secondary.

Distinguish between primary and secondary markets (4)

Primary markets and secondary markets both fall under capital market. Their difference
is that primary market trade first hand instrument bought from the company issuing
them directly whereas secondary market trade second hand instruments and involves
the third party. When a company is selling new stock and bonds for the first time it does
that on the primary capital market whereas the secondary market is where securities
are traded, after the company has sold all the stock and bonds offered on the primary
market.

What are the functions of financial markets (4)?

Financial markets are involved in debt factoring that is they assist companies that are
facing problems of bad debts. It is also involved in leasing, financial market becomes
the lessor and the leasee is the company facing a financial problem. Also involved in
sale and leaseback, the financial market acts as the owner after buying the asset from a
certain company.

Why do companies window dress their accounts (6)?

Window dressing is when companies either overstate or understate their financial report
figures to mislead stakeholders into thinking that the company is flourishing. Sometimes
companies window dresses their accounts to ward off competition. Some figures
published in accounts mislead competitors who are interested in a company’s financial
status. Now when companies understate their profits in the financial report, it will be a
way of evading high taxes. Lastly, companies can overstate the profits in order to attract
potential investors

How useful is the balance sheet and the profit and loss account to a
manufacturing firm (15)?
Every business has the need to measure its performance and compare it with other
competitors in the same market. In order to do so a firm can use the balance sheet and
the profit and loss statement for easy evaluation.

A balance sheet statement shows a summary of balance of financial accounts. It shows

assets, capital injected and liabilities of a firm. These are all shown on a specific date be
it end of a financial year or so.

The balance sheet helps in ascertaining of capital employed. Under the equity and
liabilities section the balance sheet provides the exact amount invested by the
shareholder, as a result the shareholders can evaluate on whether they are getting a
fair return or not.

It also helps in the calculation of ratios which helps in the better management of the
business. The ratios include the current ratio which compare current assets with current
liabilities. The ratio in a nutshell helps to identify problems in a firm like liquidity
crunches before they become acute

It allows experienced investors to make a well informed opinion of a firm’s risk and
return prospects. They can use the balance sheet to analyze on whether to invest in a
firm or not. However, the balance sheet has its drawback that may limit the use of it
only. This is so because figures alone can be less informative without benchmark data
from the peer companies used for comparison.

Many balance sheet items such as fixed assets are reported at their historical cost
bases which is the amount an asset was purchased at which often has little to do with
their market value which is more meaningful.

Moreover, it is prepared as at a certain date and it’s a snap short of a position at that
date. Therefore, it is possible that position will change fundamentally within a short
period of time.

Moving on to the profit and loss account, the account provides a firm’s summary of
sales both on credit and cash and also the net profit. The profit and loss account is a
combination of trading and expenses account. The trading account will provide the firm
with the gross profit that is generated from the daily operation of the firm, it shows
whether the firm is performing well or not

The expenses portion shows all the expenses incurred by the business. Hence it is
easier for the business to easily identify on which expense they are overspending. Profit
and loss account can also be used for ratio analysis. Opening and closing stock which
is found in the trading account is used for the calculation of average stock turnover rate

However, the profit and loss account included some items that cannot be put into
monetary values such as depreciation, discount received and profit and loss on
disposal. This makes it harder to calculate an appropriate or accurate net profit. Also the
profit and loss does not reveal the actual value of sales bought because it has both
cash and credit sales. Hence the net profit and gross profit are over stated. Moreover,
the profit and loss account need the complementary of a cash flow statement which
does not include non-monetary items

So in a summary, both balance sheet and the trading profit and loss help the
manufacturing firm to know their financial position and on whether they are making a
profit or loss quicker

What is a cash flow (2)?

The total amount of money being transferred into and out of a business, especially as
affecting liquidity. Cash flow is the net amount of cash and cash equivalence moving
into and out of a business

Distinguish between ordinary and preference shareholders (4)

Ordinary shareholders confer voting rights because they are rightful owners of the
business but preference shareholders do not confer voting rights unless their dividends
are in arrears for cumulative preference shares. Ordinary shareholders get fluctuate or
variable rate of dividend whereas preference shareholders get a fixed rate of dividends.

Preference shareholders’ dividends are paid prior to that of ordinary shares on the other
hand ordinary shareholders get their dividends after preference shareholders’ dividends
are paid. If the company is experiencing liquidity, ordinary shareholders are the last to
get their repayments but as for preference shareholders they get their capital repaid
prior to ordinary shareholders

Why may a business require finance (4)

i) To acquire new assets ii) To fund expansion activities iii) Payment of worker’s iv)
Investment purposes v) To develop new products vi) Research and development

Explain the factors a firm may consider when choosing the source of finance (10)

When a firm wants to fund its various activities that it carries out, the source of finance
is chosen based on what type of activity it wants to do and mostly on whether the
business/ firm is large or small in terms of operations

There are a number of factors to be considered when choosing an appropriate source of

finance that include the following. Firstly, the firm has to consider the availability of
difference sources that include sale of its surplus asset, borrowing from banks and
investing in other business sectors to get money.

The second factor is the relative cost of source of finance the firm will have chosen. For
example, if the firm opts for an external source such as a loan, it has to bear in mind
that it will pay a fixed rate of interest either monthly or yearly. If the interest rate is too
high, it’s better to choose a cheaper source of finance. Another factor is the risk element
associated with the source of finance. If the firm fails to pay back the amount of, let’s
say borrowed cash from the bank, it is most likely to sell its assets unwillingly to raise
funds to repay the loan.

The other factor considered is the purpose of finding finance. If the business is to fund
a big project its internal source of finance may not be sufficient. So it might opt for
external source. Furthermore, collateral security of a firm should be acceptable in order
to get a loan from the back or any other money lending institution. Mostly banks require
businesses that have premises and cars to hold as collateral security.

Moreover, the present capital structure of the firm allows a firm to make an analysis on
whether they want to add more capital or not. Low capital implement that there is need
to increase money in the business by either increasing seed capital or venturing in a
loan capital.

In addition, the gearing effect also has to be considered. When the firm outsource
finance mostly, it is likely to be highly geared above 50% hence most investors will not
be willingly to invest in the business. This also lead to low dividend being paid to
shareholders since the business has to pay debt interest

Distinguish between loan (debt) and share (equity) capital (5)

Loan capital is borrowed from external sources whereas share capital is money
invested into the business by owners. Loans have interest cover that has to be paid
annually or monthly whereas share capital does not have any interest attached to it.
Acquiring loan capital requires collateral security for example cars, premises but as for
share capital no collateral security is required since the cash is injected by the owners.
Share capital has no fixed maturity date on the other hand debt finance has a fixed
maturity date. Debt is an external source whereas equity is internal. Share capital
represents ownership whereas loan capital represents debts. Providers of share capital
have power to force liquidation whereas providers of loan capital have no power to force
liquidation of the business

State any two internal and two external sources of finance (4)

i) Internal sources of finance

Sales of surplus assets and Retained earnings

ii) External sources of finance

Debentures, Venture capital, Bank loans and Mortgage

State any two short, two medium, and two long term sources of finance (6)

Short term Medium term Long term

trade credit Hire purchase Debentures
Debt finance Bank loans Long term loan
Short term loan Financial leasing Mortgages

What are the difference between short and long term sources of finance (3)?

Short term sources of finance have a short maturity date that is within a year whereas
long term finance have a long maturity date of more than a year. Short term source
funds for day to day activities whereas long term provide funds for capital projects

Explain the following sources of finance

Debt factoring (2)

A financial arrangement by which a business sells its invoices (trade receivables) to a

third party (factoring company) at a discount.

Financial leasing (2)

Can also be called payout lease because the leasing company recovers the full cost of
the equipment, plus charges, over the period of the lease.

Sales and lease back (2)

It is whereby a firm sells an asset to finance the company which will then make the
asset available for leasing or renting.

hire purchase (2)

An agreement in which the owner of the asset lets them on the hire for regular
instalment paid by the hirer

How useful is leasing as a source of finance (4)

Leasing involves a contract with a finance company to acquire the asset and not to
purchase it. Lease payments are tax deductible from the beginning of the agreement
and the business or customer is treated as the owner of the equipment and so claim
capital allowance. The business’s customer can generally deduct the full cost of the
lease rental from the taxable income as trading expenses. There is no need for a
deposit, since it is more of a renting, and first payment is made towards the monthly
rental payment not a deposit. However, payments may be greater in the long run and
the leasor may place limitations on the use of the asset.

Evaluate the usefulness of hire purchase as a source of finance (25)

Amongst the different sources of finance, hire purchase is mostly used when acquiring
machinery in a business. Hire purchase is an agreement in which the owner of the asset
lets them on hire for a regular instalment paid by the hirer. The frequency of the
instalments may be annually, half yearly or quarterly

Using hire purchase can allow a business to acquire expensive assets and utilize it as
payment is spread over an agreed period of time. Each rental payment which is paid in
installment is considered as charge for hiring the asset

Unlike the other sources of finance, hire purchase allows the immediate use of the asset
without paying the entire amount. There is only need of payment of deposit. The fixed
rental payments make budgeting easier as all the expenditures are known in advance.
A firm can actually extract a budget statement that include the monthly or yearly
instalment they are to pay towards the asset.

Hire purchase has the easy accessibility as it is a secured source of financing. This is
so because the seller and the buyer are contractually bounded by the contract of hire
purchase agreement they sign. There is limited room of unfair transaction.

There is no need to worry about the asset depreciating quickly in value as there is no
obligation to buy the asset yet. Moreover, if hirer does not want to own the asset he can
return the asset any time and is not required to pay any installment that fall due after the
return however once the hirer returns the asset he cannot claim back any payment
already paid as they are the charged towards the hire and use of the asset

Ownership of the asset passes only after the full payment of the agreed amount. It is a
disadvantage to the buyer if the seller decides to breach the contract.
Once the hirer/buyer defaults on any payment, the seller has the right to take back the
asset according to the hire purchase contract agreement. This is however regardless of
the instalment paid by the hirer

Amount paid towards the asset will be higher than the cost of the asset. Hire purchase
has interests attached to each monthly, yearly instalment that are paid towards the
asset hence making it more expensive. Furthermore, the addition of any covenant
increase costs. Taking for instance, if the seller agreed with the buyer that any delay in
payment will result in an increase in interest the buyer has to comply with it.

So in conclusion, hire purchase is useful when a business cannot pay the full amount of
the desired asset but needs it immediately. Besides the drawbacks associated with it,
hire purchase gives time to raise funds to pay for the asset

Explain any methods used when issuing shares (4)

a) Offer for sale – this is when a company which is issuing shares will offer the shares to
an issuing house for example a merchant bank

b) Prospective issue- this is when a company directly issue the shares to the general
public by preparing a document called prospectus which will be used to invite the
general public

Evaluate the methods which a firm can use in managing its working capital (25)

For every business to function, there is need for working capital. Working capital is said
to be the life blood of every organization. It comprises of four pressure points of the
business namely stock, debtors, cash and creditors. Without these lubricants an
organization cannot be effectively managed

According to different scholar’s working capital is defined as the amount of money which
is used in the day to day operations of the business. It represents the firm holding cash
and its investment in goods that are unfinished, unsold and unpaid. In order to maintain
an effective working capital, a firm like Choppies can maintain sufficient stock levels that
is able to meet quantity demanded by the consumers. There are several techniques
used in stock management such as Just in Time, economic order quantity two- bin
method and others.

Stock management techniques like just in time helps the firm to reduce stock holding
costs hence improving choppies’ working capital. However, if the firm opts for the two-
bin method it means that most of the cash is in stock depleting cash reserves.

Another method to manage working capital is the issuing of stock on cash rather than
debt. For example, Mohammed Musa Wholesale, instead of selling its products on
debts which increase debtors, it can sell on cash basis and also offering discounts. This
will attract consumers

However, if Mohammed Musa Wholesale is facing a lot of competition from outsiders, it

is likely to lose customers who will opt for wholesalers that offer products on credit,
hence reducing working capital.

Maintaining good relationship with suppliers can also contribute to good management of
working capital. This is so because if Choppies pays its suppliers on time it reduces its
current liabilities that is debtors to outsiders. If the current liabilities are reduced, it
results in increased working capital.

However, the purchase of fixed assets does not always require prompt payment. The
firm can use hire purchase rather than purchasing on cash which reduces the current
assets leading to the decrease in working capital. Debt factoring and debt collection can
also be used to manage debtors. In this case the firm is assured of the quick cash inflow
and management does not need to worry about tracing debtors and can focus on
managing the business. This somehow results in an increase in cash leading to an
increase in working capital.

However, the method above might be costly to a firm that is not financially stable. It also
causes lack of direct contact between retailers and the customers. In a nutshell, working
capital can be managed by controlling the four pressure points that is cash, stock,
debtors and creditors. This helps a firm to stay alarmed of liquidity crunches by avoiding
bad debts, acquisition of its properties by creditors and also running out of stock.
What measures can be taken by the firm to improve its liquidity position (6)

A firm can reduce its risk of liquidity problems by reducing cash purchases and rather
pay using credit terms for instance, when buying a machine, the firm can take it on
credit and then pay instalments using cash generated by the machine operations
instead.

Also the firm can reduce the debtors’ payment period so that debtors can pay earlier
outstanding balance to reduce bad debts. Issuing of shares can also improve a firm’s
liquidity position. This is so because it involves movement of cash into the business.
Moreover, the firm can sell its surplus and idle assets at a reasonable price above the
cost price of the asset in order to gain

Differentiate between financial and management accounting (5)

Management accounting seeks to support management decision making by the

provision of information whereas financial accounting acts as the steward of financial
resources.

Management accounting emphasizes the control of decision making for financial

accounting relates to` steward of financial resources.in financial accounting, there is
need to comply with regulations but in management accounting there is no need to
comply with regulation. Management accounting is concerned with internal reporting to
the managers and financial accounting is concerned mainly with external reporting to
user of accounting information. Information on financial reporting can be audited
whereas information in management accounting cannot be audited.

Explain any two methods of depreciation (4)

Amongst depreciation methods, there is the reducing balance method /diminishing and
straight line method. The straight line method charges depreciation on the cost of the
asset being depreciated. Depreciation is the same throughout the useful life of the
asset. The reduced balance depreciation is charged on the cost of the asset during the
first year but from the second year onwards depreciation is charged on the net present
value of the asset. Also depreciation decreases as we approach the final year of the
useful life of the asset.

Define the term depreciation (2)

Depreciation is a measure of the wearing out of a fixed asset due to their use, passage
of time or obsolescence

Evaluate any two methods of stock valuation (6)

First in, first out (FIFO) with this method the first goods received are deemed to be the
first to be issued. The closing stock is valued in terms of more recent purchase. This
method is realistic because it is based on the assumption that issues are made in order
of the goods received. However, one of the draw backs of FIFO is that identical items
will be priced differently because they will be from different batches.

Then the other method is the last in first out (LIFO) which is based on the assumption
that issues are drawn from the latest batch. LIFO values closing stock as the price paid
for the oldest existing stock. LIFO makes the value of the closing stock easy to calculate
however it understates the value of the closing stock and thereby reduces both costs of
goods sold and the figure of profits.

Define the term investment appraisal (2)

It is an evaluation or assessment of the economic variables of a project determining

which project to choose. It is a series of techniques designed to provide a solution on a
choice of a project based on alternatives given.

Evaluate the usefulness of ratio analysis to stakeholders when making decisions

(25)

Ratio analysis refers to use of calculated figures in order to see performance and
liquidity of a firm’s stake holders which are institutions that can be directly or indirectly
affected by the actions and activities of the business.
Ratio analysis is of great importance to shareholders as they provide the much needed
information about the company so that an individual investor can see if the investment is
worthwhile. If the gearing ratio is very high, it means it is better to invest in debentures
or not to invest in the company at all since the company will be relying more on external
financing. However, if the gearing ratio is low, the investor can invest in the company
since they will be more likely high return on investment. However, ratio analysis is of low
importance for a potential investor since the financial statement of the company can be
window dressed in order to lure potential investors. For example, a company’s gearing
might be above 50% but window dressing, this can be reducing to below 50%

Ratio analysis is of great importance to the financial institutions as they can base their
decisions on whether to extent a loan or to terminate the loan. Financial institutions, for
example can also see the gearing of the firm and if its above 50% the bank will be
reluctant to extent a loan to the firm but if the gearing is below 50% the bank may be
able to extent a loan to the firm as it may be able to repay the loan at an agreed future
date. However, ratio analysis can be biased as this can be manipulated by the
management in order to secure loans from the bank.

Ratio analysis is also great importance to government as the government will be able to
see profitability of the firm and able to ascertain the level of tax to be charged on profits.
For example, if the gross profit ratio is below 20% the firm will be facing financial
challenges thus the government will be lenient on the level of tax. The government can
also look at the current ratio and if it is below (1:1) it means the business is facing
constraints. The government can subsidize that firm and if the gross profit percentage is
above 80% the government can also put into practice measures to prevent the business
from becoming a monopoly. However, ratios can be manipulated by management. For
example, a company can have a gross of $200 000 but with a provision for depreciation
of $100 000 leaving a net profit of $ 100 000. This will reduce the gross profit ratio
thereby misleading government.

Ratio analysis is of great importance to shareholders as they show dividends per share
and earning yield. For example, let’s assume Makwara General Dealer has got a high
dividend per share. It follows that shareholders have a higher profit attribute at them and
if dividend per share is high while dividend yield is low the shareholders are in a position
to bargain for a higher dividend as company is profitable and if the earning yield is very
low, it portrays failure of the company hence shareholders can leave the company
where earnings per share is low. However, ratio analysis depends on calculated figures
and the reliability of the figures largely rely on the data used to calculate the ratios. Thus
if wrong data is used, wrong information will be given to the shareholders.

Ratio analysis is of great importance to creditors of the company as the creditor’s

payment period and liquidity ratios give the creditors some useful information to trade
with the company. However, the ratio analysis can also be affected by inflation as it
depends on figure which are prone to price changes and this can lead to wrong
information being given causing difficulties in the collection of debts.

Ratio analysis is also of great importance of the company as they show profitability of
the organization which can be compared for two accounting periods in order to make
performance comparisons of the organization for two periods and if the gross profit
percentage has increased from 20% in the year 2008 to 50% in the year 2009, it will
mean the firm has been profitable and this will lead to management of the firm
rewarding the employees with bonuses. According to Henry L Gant, employees should
be rewarded with bonuses in order to motivate them. However, ratio analysis depends
on historical data which become outdated.

As a recommendation ratio analysis is of great importance to shareholders when

making decisions as they provide much needed information. However, ratios should be
audited by accounts so they become realistic.

In conclusion, ratios are of great importance as ratios review the liquidity position of the
business. This is because strengths of ratio analysis outweigh the limitations thus
assuring its effectiveness to stakeholders.

Discuss how can a cement manufacturing company effectively manage its

working capital (25)
Working capital refers to the excess of current assets over current liabilities. It is
calculated using the formula current assets ($)- current liabilities ($). The company
should manage stocks effectively. Stock turn out compared with the rate which might be
expected in an efficient run of business in the same trade. Too high stock levels are
costly because capital will be locked up in the stock which will be lying idle and the
money could be used in other profit generating activities. Stock may also be lost through
deterioration or it may become obsolete. However, keeping little stock may lead to stock
out which will result in failing to meet orders or excessive purchasing department costs
resulting from large volume of small orders

Another method is the efficient management of debtors. Capital is sometimes referred

to being locked to debtors such as financing other business instead of one which it is
intended to. There is need for an effective credit management system.

The cement manufacturing company should manage its debtors wisely so that it
minimizes credit control problems. It involves enquiring into perspective customers
credit worthiness and their past payment records with other suppliers before allowing
them credit terms. Giving cash discounts to encourage prompt payment within
stipulated time is another way of managing the working capital of a business. However,
giving cash discount will reduce the cement manufacturing profits.

Debt factoring is also another factor that a company could use. This is the sale of books
of debts to a manufacturing company which exist to buy other people book debts at a
discount. The selling company receive the money for the debts less the discount at
once. The factoring company collects the debt and the profit comes from the discount.
However, this will reduce the working capital as the factoring company will take part of
the debt as profit

Management of cash is another factor that the cement manufacturing firm could
implement. This is done by the preparation of cash budgets; however, the company
should manage surplus funds. Too much liquidity in a business can be harmful because
cash will be lying idle because the cash could be used in investing in other projects
The cement manufacturing company should manage its creditors wisely. It is important
to recognize the risk of delaying payment of creditors when trying to overcome the
liquidity problems. The company should increase its creditors’ collection period so that
the liquidity position of the firm is increased. However, this will lead to loss of discount,
loss of credit facilities, risks of suppliers, risks of legal action and the reputation of credit
rating which all increases the cost of the company thereby reducing profits

In conclusion the cement manufacturing company should practice debt factoring to

improve its working capital but this will reduce the profit of the company. There is a
strong monitoring of the four pressure points that is cash, creditors, stock and the
debtors to effectively manage the working capital.

Evaluate the usefulness of ratio analysis to a firm (25)

In accounting, ratio analysis refers to the equations and calculations that attempt to
highlight variations between significant items in the accounts of a firm. The use of
profitability, gearing and shareholders’ ratios assist a firm in making a viable water tight
decision.

Knowledge in the profitability of the business is of vital importance to a firm. This shows
the extent to which a firm is gaining profits from the expenses it is incurring. It
guarantees long term survival of the business due to the taking of corrective measures if
the business is operating in an insufficient profit. For example, if the sales have a value
of $2000 and the gross profit if $500 the gross profit percentage which is calculated as
gross profit over sales will indicate that it is 40%. This shows that every $100 gained,
the firm gains $40 thereby it is more profitable thus this is made possible by analyzing
the profitability of the firm

Knowledge on liquidity ratio helps the firm to manage its financial obligation. Liquidity
refers to the ability of a firm to meet its short term financial obligations as they fall due.
This helps the firm to take corrective measures if the business is operating with a cash
flow problem. For example, if total debtors’ collection period is 60 days, the firm will then
be able to reduce credit sales so that they won’t face the risk of having bad debts. There
by liquidity ratios assist a firm in solving cash problem since cash availability smoothens
operations of the firm.

However, this can discourage the lender of money to the business since the longer it
takes for the business to pay them, the higher the risk of them failing to repay the
money. It is also expensive for the business since paying at a later date attracts a huge
interest.

Quick or acid test ratios can also be used by the firm to ensure that liquidity position of
the firm is worthwhile. Since inventory represents 50% of total current asset, its effective
management is vital. Thus a company will need to keep a low level of stock and order
when it wants to use it so as to avoid incurring losses in the event of stock becoming
obsolete or being damaged. This way, too much capital will not be tied up in stock.

However, the quick ratio often misleads since it omits the value of stock. Ordering stock
in smaller lots is too expensive for the firm and a delay by the supplier may lead to the
whole production process being stopped hence leading to the business incurring losses
thus weakening the liquidity position of the firm.

As a recommendation, the effective management of stock, cash, debtors and creditors

is important in improving the position of the firm but it is also considered that external
factors such as inflation and exchange rate they influence the liquidity of the business.

In conclusion, there is need for a combination of all the methods so as to ensure

effective management of working capital.

Evaluate the methods a business might take to improve its liquidity position (25)

Liquidity refers to the ability of a firm to meet its short term financial obligations as they
fall due. Thus a business needs to constantly monitor its cash flow so that the operation
runs smoothly.

The business need to assess its current liquidity position. Liquidity ratio can therefore
improve its liquidity position. By using current ratio which is computed by dividing
current assets by current liabilities, thus provides the direct measure of the ability of the
business to meet its obligations. Thus by the rule of thumb that a 2.0 ratio is needed to
provide a good debt paying ability. If it falls below this level the business might take
corrective measures.

However, this method does not provide a full check on the improvement of liquidity. A
declining current ratio is not necessarily bad particularly if it is falling from a higher
value. A high current ratio may signal excessive investments in current resources hence
by paying up debts this reduces long term debts of the company hence current ratio is
not necessarily effective.

Selling on cash and carry basis can be used by the firm on trying its liquidity position.
This is made possible by using the debtors’ collection period which is computed by
dividing debtors with credit sales. If it shows a range of 60-90 days, this shows that
debtors of a firm take a longer time to pay the company hence working capital of the
firm is tied in debts. Hence by selling on cash basis this ensures an effective cash flow
thereby reducing the risk of bad debts thus there will be cash to settle other debts.

However, this method is not fully appropriate since this can be seen as a downfall in
sales of the business. This is also because customers prefer to purchase goods on
credit basis hence selling on cash basis will scare customers away leading to cash flow
problems.

The business can also use creditors’ payment period which shows the lengthy of time a
business takes to pay its creditors. By analyzing this ratio, a business can ensure that
it’s always have sufficient cash in the business since the longer it takes to pay the
creditors, the more the cash is available in the business to meet other short term
obligations and invest in other projects which yield cash fast.

Gearing ratios are of great significance as they assist the investors in assessing the
degree to which a firm is financed by external funds so as to decide whether to invest in
the firm or not. If the firm is highly geared, that is above 50% which means it is more
financed by external finance. Some investors may be reluctant in the firm due to great
risk involved. On the other hand, a lowly geared firm lures potential investors due to less
risk involved.
Shareholders’ ratios assist investors to make an effective assessment of the return on
their investment. If the return is low or insufficient, the investors may decide not to invest
in the firm. However, if the return is significantly high, he may then decide to invest in
the firm. The use of earnings per share ratio and price earnings facilitates
implementation of effective decision.

However, ratio analysis tends to have disadvantages which render them almost
useless, since they do not fully participate in the effective way of decision making.

Long term comparison of firms may be affected by changes in the value of money that
is inflationary rates as well as whole environment at large for example, a rise in profit
ratio may be caused by effects of inflation rather than actual performance and efficiency
of the firm.

Accounting ratios can easily be affected or distorted by short term fluctuations in the
economic environment. The timing can be a factor, for example liquidity ratios can
easily be affected by seasonality for example tobacco processing companies, during off
season, sales and working capital may be low hence ratios overlook some of these
factors.

Ratios lack precision. Inter firm comparisons tend to be subjective. If the firms adopt
different practices with reference to stock valuations and deprecation for example on
stock valuation, closing stock, FIFO is based on most recent prices whereas LIFO is not
valued on most recent prices

Ratio analysis also neglects qualitative factors, that is skills of workforce, goodwill and
labor relations as having an influence in business hence they are not useful to the firm

As a recommendation, firms ought to use other techniques such as investment

appraisal techniques in order to ensure that viable decisions are made.

In conclusion, although accounting ratios reflect problems which might be faced by a

firm they however do not give lasting solutions to the problem hence they are not
always useful.
Evaluate the possible sources of finance that an incorporated company might use
(25)

Companies need money to get started that is to buy equipment, raw materials, obtain
premises as well as expand their operations. Thus, there is need to have sufficient
funds to cater for the expansion and start up.

Sources of finance that an incorporated company can have include both Internal and
external sources. Internal sources can only be used when a business is established
because money cannot be taken out of the business until revenue has been generated
by trading activities and these include sale of assets and retained profits. External
sources of finance are externally generated and include loan capital which are dentures
and mortgages, leasing, trade credit and share capital.

Retained profit is a source of finance that an incorporated business can use since their
existence is continuous and since the business can only be sued in its name and not of
the owners. This is profit after tax that has not been returned to owners. It is the
cheapest source of finance because the business is not faced with financial charges
such as interest, dividends and administration fees, however there is an opportunity
cost if retained profit is used by the business and it cannot be used by owners. This lead
to conflict between the shareholders of public limited company for example, see that
dividend payment have been frozen because directors have used the profit in the
business

An established incorporated business may be able to sell some unwanted assets that
no longer provide economic benefits of the business as a way of raising finance. Thus a
business can sell its land, machinery and plant if they are no longer required by the
business. The business is able to improve its liquidity position thus potential investors
will be attracted to the business. However, selling unwanted assets can lead to
reduction in efficiency and net worth of the business since the net value of the business
will be significantly reduced.

A company can raise finance from share capital which is selling of shares. Issuing
ordinary shares in the form of right issue can be a source of finance. Existing
shareholders will be given the right to buy a new share at a discounted price. This is
rather cheap and creates free publicity. There will be dilution of share ownership which
means decision making will still be made by owners. However, there is a risk involved to
the shareholders in terms of falling profits since dividends received will be low as
compared to the capital invested into the business.

Mortgages are other sources of external finance the incorporate companies can make
use of, companies can raise money from mortgages, this is usually a long term loan
from say a bank or other financial institutions. Large sums of capital can therefore be
raised through this long term financing. Incorporated companies can be able to
purchase expensive machinery and premised and will pay a fixed rate of interest.
However, the company can face a risk of losing its valuable property since the lender
demand collateral security. The business in the event failing to pay up the interest owed
it might lose its assets as the mortgage holder will claim them in part payment of money
owed to him

Leasing can be another source of finance that incorporate companies may use. This is
a contract in which a business acquires the use of resources as equipment or a property
in return of regular payment. The company can benefit since leasing is useful when
equipment is only required occasionally thus the company will not be supposed to
purchased it. Maintenance of the equipment and repair cost will not be responsible of
the company. However, over a long period of time leasing is rather expensive than the
outright purchase of the asset.

Trade credit is another source of finance that incorporated companies can make use of.
It is usually common to companies which want to buy raw materials and components
and then pay at a later date usually thirty to ninety days. Paying for goods and services
using trade credit is an interest free way of raising finance. It is rather profitable in terms
of inflation. However, many companies may encourage early payment by offering
massive discounts thus it is rather costly for the company if it is to pay at a later date.
Delaying the payment of bills will also result in poor business relations with suppliers.
In conclusion, incorporated companies as they are usually operated on a larger scale
need to make use of external and internal sources of finance as they are of paramount
importance and yield benefits to the company though there are risks involved in them.

Evaluate the different methods that can be used by a private firm in the retail
industry to effectively manage its working capital (25)

The environment in which a business operates is not static but highly dynamic. It is
characterized by high levels of competition and technology changes. No business
activity can take place without some finance for purchasing raw materials or assets
used or needed in the production of goods and services to take place.

Working capital is often described as the life blood of business organizations. It is the
money that is used to finance the day to day running of the business. It is needed by
every business to pay for the day to day expenses such as payment of wages. Working
capital is essential for retail industries such as Edgars, TM and Barbour’s because it
enables a business to be able to pay its short term debts. Without sufficient working
capital, a business will not be able to pay its immediate or short term debts, it is highly
liquid.

Working capital management involves the monitoring of cash flow of business to ensure
that it has access to cash to finance its normal operations. Also a high level of working
capital is a disadvantage because it delays the investing of that idle money tied up in
stocks, debtors to invest in fixed assets. Working capital can be managed by effective
monitoring and controlling the pressure points of the business which are debtors or
trade receivables stock or inventory, trade payables or creditors and cash and bank.
Managing working capital is vital in all businesses in the retail trade.

Accounts receivable is the value payment to receive from customers who have bought
goods on credit. They are also known as trade debtors or trade receivables. The
debtors can be managed in many different ways. A retail industry like TN can manage
its debtors by selling claims on debtors to specialist financial institutions acting as debts
factoring companies in order to have an immediate need for cash. However, selling
claims or debtors to specialist financial institutions will involve a cost because factors
will not pay 100% of the value, this is because the factoring company may have to make
a profit for themselves.

A retail like Barbour’s can manage its debtors by factoring discount to clients who pay
promptly. For example, if Barbours advertise that those who pay debts before one
month will receive discount of about 20% this will make debtors pay cash quickly into
the business thereby reducing the profit margins on the sale.

Furthermore, debtors can be managed by retail industry like Teachers furniture’s by

being careful to discover the credit worthiness of the new customers. This can be done
by requiring references or using services of credit enquiring agency. However, this
process is time consuming and will delay the sale of certain goods.

More so working capital is managed by concentrating on cash, a component of working

capital cycle. Cash can be managed by use of cash flow forecasts. Cash flow forecast is
an estimate of the firm’s future inflow and outflow. A retail industry like Mohamed Musa
can use cash flow forecast in trying to estimate future in flow and out flow of cash. The
manager of Mohammed Musa may start to forecast in inflow first and this will include
owners’ capital injections, bank loans payment and customers’ cash purchases. After
forecasting the cash out flow these will include the cash payment made by the business
which include wages and rent. By forecasting cash inflow and out flow, these will help
the business in the management of cash flow and the working capital needs. However,
cash flow forecasting is expensive since it requires highly skilled experts and it is time
consuming.

Furthermore, creditors are another component managed when concentrating on

working capital. Creditors also known as trade payable and is the values of debtors for
good bought on credit payable to suppliers. A retail industry like Enbee can manage its
creditors by extending the period of time taken up to pay, the larger business is the
easier it is to extend the credit taken. This will improve larger firm’s working capital.
However, payment by large business like Enbee is often a great burden for small
business supply them. Suppliers may be reluctant to supply product offer good service
they consider that business is a late payer
Another technique which can be used to manage credit is by increasing the range of
goods and services bought on credit. This may be easy if a business has good credit
ratings, this will effectively improve a business’s working capital like Bata on the other
hand the danger is that an unpaid creditor may refuse to supply and this will cause
production hold up. Discounts from suppliers for quick payment might be given up.

Lastly working capital can be managed by concentrating on inventory or stock as one

component of the working capital cycle. Inventories are stock held by the business in
the form of material, work in progress and finished goods. A business like TM can
manage its stock level by small inventory levels. This will reduce the risk of having out
dated stock for example fresh foods or fast changing technological products. However,
this method is not effective due to the dynamic nature of the economy. The demand
might arise and there might be a sufficient stock to meet the unforeseen changes in
demand. Furthermore, firms like Edgars can use just in time stock control method which
aims to avoid holding stock by requiring materials to arrive just as they are needed in
the production and completed product to order. In this case by reducing inventory
holding through using just in time technique and by only producing when orders have
been received will reduce working capital being tied up in inventory also getting goods
to customers as quickly as possible will speed up payment received for these goods.
However, this technique may lead to expensive production delays if any failures receive
suppliers of materials or component arises.

In conclusion, there is no correct level of working capital, for all businesses requirement
for working capital will depend on a number of factors especially the length of the
working capital cycle. Managing working capital is vital for a business as has been
discussed in the essay above.
 CHAPTER 10

Information for decision making

QUESTIONS

1) Evaluate any 4 measures of central tendency (20)

2) Using a set of numerical values explain the meaning of the following terms

a) Mean (3)
b) Median (3)
c) Range (3)

3) How useful is the mean and the mode in the making stockholding decisions (8)

4) Evaluate the different methods that can be used by a firm in the manufacturing
sector for data presentation (25)

5) Using illustrations, evaluate the usefulness of a decision tree as decision

making tool (25)

6) In the decision tree what does a square and circle stands for (2)

7) Explain the meaning of blending technique in linear programming (6)

8) Of what importance is linear programming to a firm in the manufacturing sector

(10)

9) Evaluate the relevance of cost benefit analysis to a manufacturing (10)

10) Explain any two types of decisions made by managers (4)

11) Illustrate a decision tree diagram (3)

12) Explain how a decision tree diagram is drawn (6)

ANSWERS

1) Using a set of numerical values explain the meaning of the following terms

a) arithmetic mean (3)

It is the sum of a group of items divided by the number of items and it is calculated
by the formula:

Mean = total value of the items

Number of items

For example, given the data 2, 4,6,7,8,9,10 and the mean is equal to the summation
of the item divided by their total i.e.

Mean = 2+4+6+7+8+9+10 = 6,5

b) Median (3)

It is the value that splits an arranged data into two group with the data arranged either in
ascending order or descending order. The position of the median is the (n+1/2) th term.
For example, given 5,10,15,20,25,30,35 the median is the (n+1/2) th term i.e. (7+1/2)
term i.e. 4th term which is 20

c) Range (3)

This is the difference between the highest and the lowest values in a data set for
example given that daily output varies from 2000kg to 8000kg, the range is 8000-2000
i.e. 6000 kg

d) Mode (3)

This is the value that appears most frequently in a data set. This is found by rating the
term which has the highest frequently for example given 1,2,1,5, 6,1,9,9,1,4,2,1,1 the
mode is 1 because it is occurring more than any other item

2) In the decision tree what does a square and circle stands for (2)
i) square- stands for a point at which a decision has to be made

ii) circle- a point at which one of a number of outcome may occur

4) Explain how a decision tree diagram is drawn (6)

A decision tree diagram is a method of quantifying the best strategy for a business to
use when the outcome of the alternative decision is certain. When drawing a decision
tree diagram, we draw from the left to the right starting with a square representing the
point at which decisions are made e.g. opening a new branch or continuing with existing
branches.

The branches from the square lead to the circles which shows a point where a number
of outcome may occur from a decision taken e.g. success or failure. The circles can be
many as possible depending on the outcomes available.

To show the end point of all the events a black dot is placed at the end of the branches.

5) Evaluate the relevance of cost benefit analysis to a manufacturing firm (10)

When businesses are undertaking projects, they need to weigh the costs and benefits
towards the community. Cost benefit analysis is a collection of techniques which
attempt to find an objective to measure the utility of the proposal based on a range of
values and then measured on a monetary scale. It involves analysis of external and
private benefits and costs i.e. considers social cost and benefits.

To a firm in the manufacturing sector e.g. bakers’ inn company, it can use cost benefit
analysis as a planning tool. For example, if it wants to introduce a new batch production
based methods of making bread, it can observe the benefits of each batch and its cost
and can make endeavors to minimize costs and maximize benefits.

A firm can use cost benefits analysis as a screening device to select the best project.
For example, a company like Zisco steel can be faced with some decisions either to
open a new branch in Masvingo or expanding the one in Kwekwe. A new branch might
mean employment creation in Masvingo, exploitation of new markets, low transport cost
for exports to South Africa and etc. However, expanding the existing will have its own
costs and benefits hence to reach a final decision CB can screen the best method i.e.
the one with the greatest profit.

In addition, cost benefit analysis considers ethical issues. This helps the firm as it will
have better relations with local community, workers and the government e.g. If a
company like Sable chemicals is ethical, it contributes to the payment of pollution that
its chemicals discharge cause water pollution and this means the government and the
firm can be at a good standing.

Cost benefit analysis takes into account qualitative factors that are mostly ignored by
the firm i.e. factors like employment creation, impact on living standards, pollution, land
utilization is given a monetary value. This helps the firm as it avoids ignoring some
qualitative factors that might have negative impact in future.

However, the technique has some draw backs that can affect the firm. Firms may find it
difficult to express some factors in monetary terms, some factors are non-measurable
e.g. pollution hence providing a monetary value can be difficult.

CBA (cost benefit analysis) is based on estimated monetary values, it is more subjective
than objective as calculations are based on estimates, it provides a risk of false
interpretation of the projects

The process of cost benefit analysis is time consuming. it involves many stages that
require a deeper analysis e.g. identifying the costs and benefits, placing a monetary
value and quantifying some qualitative factors.

In conclusion, cost benefit analysis is a useful tool to a firm in the manufacturing sector
as it facilitates better decision making. However, to overcome some of its disadvantages
it can be used with other methods like linear programming and decision trees.

6)How useful is the mean and mode in making stock holding decisions (8)

Measures of central tendency summarizes the attributes of the middle data set. It shows
the average score from a class of variables, examples include the mean, mode and
range.
The mean is the sum of a group of items divided by the number of items. It is the
average; firms can use it for stockholding decisions in that firms can calculate the
average of the previously held stock in order to come up with an average level of that
stock that it needs to hold. This prevents the firm from overstocking and understocking.
It can help firms to determine an economic stock holding level. However, the use of the
mean might give decimal numbers which can be difficult to deal with. The mean can be
affected by extremes values e.g. its values can go high as a result of high stocks that
were just meant for the festive season and this can result in the biased mean.

The mode is the value that appears most likely /frequently in a data set. This can be
used for stock ordering purposes i.e. the items that are frequently bought are the ones
that the firm holds at greater quantity e.g. a shoe size that is bought mostly can be
ordered mostly. However, a firm can find it difficult to make decisions in situations where
there are more than one modes and the arrangement of data is time consuming.

In conclusion, the mean and the mode are useful in making stock holding decisions as
they try to prevent idle stocks and understocking.

7) Define the following terms

a) automation (2)

Refers to a process whereby a firm engages into the use of technologically advanced
equipment in the process and operation.

b) Manufacturing technology (2)

Refers to all machinery used in the conversion of raw materials into semi-finished or
finished products.

c) Office technology (2)

This refers to a set of tools used in offices such as laptops, computers, printers, fax
machines and photocopiers.

Explain any two types of decisions made by managers (4)

i) Managers can either make a decision to introduce a new product or continue with the
promotion of an existing product.

ii) They can make a decision whether to sell off assets for a known price or to continue
using them in conditions of uncertainty.

iii) These are also rationale and irrational decisions.

8)Explain the meaning of blending technique in linear programming (6)

Blending is a linear programming technique used to establish the optimum use of

scarce resources available to a business. Blending is of utmost importance as it is a
vital tool in deciding on the use of limited resources. Firms can effectively plan and
decide the best and profitable use of resources. The possible alternatives are evaluated
then the best is selected which help to limit wastage of resources. However, it only
focuses on product and does not consider its demand on the market which makes some
decisions complex.

Further given competing products for available resources, management may be able to
allocate their resources between the different products. However, blending technique
assumes that resources can be switched between two different products at a constant
rate of productivity which might be unrealistic as some products may be difficult to
blend.

Since it uses numerical data only it may be difficult for enumerate managers to use.
Also it ignores qualitative factors e.g. product quality. However, if it a faster technique
which improves rate of decision making as it can be computerized to speed up the
process.

To what extent is information technology useful in the retail industry (25)

The business environment in which firms operate is subject to change providing both
opportunities and threats. As with the aspect of the business, the successful
organization is the one that is willing and able to adapt to these environmental changes,
these include technological changes.
Information technology is a collective of terms for various technologies involved in the
collection, storage, processing and dissemination of information by electronic means.
For example, it includes computer telephones, transaction machine and fax machines.

Information technology is of paramount importance to a retail industry, which is involved

in the selling of commodities to consumers to a greater extent since it helps the
business to plan, organize, monitor and control its purpose.

The use of word processing leads to paper work being processed quickly in the retail
industry, this can be used for typing, printing all forms of written letters and messages.
For internal and external communication, this can benefit the retail and external
communication, this can benefit the retail, industry since few secretarial staff will be
needed. Business can therefore be conducted at a faster rate since processing of
information is faster.

The retail industry also makes use of page markers and publishing programs which will
be used in marketing products since they will be able to produce their own promotional
materials. They can be able to prepare promotional leaflets which can also be changed
for different countries like what Shoprite and OK do. This reduces the need for
professional firms therefore reducing costs of the business.

Furthermore, database can be used by firms in the retail industry where large bulky
information can be kept by the computers. Firms like OK and Clicks can store details of
all customer addresses number of products purchased and most frequently purchased
products. This helps in reducing quantities of paperwork and records.

In addition, companies can carry out successful promotional campaign through linking
two sets of data, for example customers and preferred products. There will be less risk
of product failure since customers’ expectation are always analyzed through data
obtained by computers.

Furthermore, the firm in the retail industry can handle Its data effectively through
electronic ordering of new supplies and application of just in time stock control
processing. Stock control in retail stores is much more effective with electronic till which
relay information directly to central stock holding computer server systems and then to
the supplier for automatic re –ordering.

In addition, spread sheets program can be used in the retail industry since financial
records can be updated and amended, forecast on sales and demand of the product
being sold can be possibly through the computers which help the business to make
viable and water tight decisions on certain future variables.

In addition, the use of radio paging and video conferencing can be of great help in the
retail industry since managers can conduct meetings with other mangers in different
locations. There will be effective communication within the organization.

However, information technology cannot be of great use in the retail industry as it

possesses its own limitations.

Implementation costs are often high. Cost of installing and purchasing the equipment
are often demanding considering that there is need to take into cognizance the cost of
purchasing user license for each employee operating the system.

Furthermore, the firm will incur high labor training costs since employees need to
receive work related skills to unfamiliar technology. Redundancy costs will rise as
existing staff will be replaced by new technology. The firm have to pay more severance
packages

In addition, break breakdown in an automated stock handling system can lead to the
whole process being halted resulting in the late deliveries. The system is also expensive
to maintain and any system malfunctioning requires business to engage skilled
technicians to trouble shoot and make necessary repairs.

In conclusion, information technology can be of great importance to the retail industry

because it facilitates smooth operations through computer aided data processing, stock
control and stock re-ordering.

Discuss the likely effects of changes in technology to business in your country

(25)
In business, innovation is the commercial exploitation of invention. Invention is not
usually in the form that consumers will buy, but it might be a creative process which
uses human and scientific resources to solve problems and generate better efficiency.

Technology means the use of tools, machines and signs in an industrial context.
Technological change is affecting all businesses and departments in Zimbabwe for
example Delta Beverage Zimbabwe.

A change in technology results in reduction in labor cost as machines replace many

workers. A job that was done by many people can now be done by one person
operating the machine.

Companies like Deltas beverages which are using computer aided manufacturing,
increase their productivity. The variable costs per unit were lower than in non-
computerized processes. More can be produced with less and as a result the business
can gain higher profit in addition, fewer of the environment resources can be used up.

Technology also improves the quality. This is because machines are more precise and
consistent than humans for example, computerized welders in factories like in Willow
vale Mazda industry can maintain a consistent and high quality weld, indefinitely once
they have been programmed. This will help improve the quality of cars they produce.

Introducing new technology often result in time being save and fewer materials used.
For example, technology has created printing machines which waste less paper when
printing. The ways in which resources are used by the new technology makes them
available for use by the future generations.

Statistics on accidents at work show that the working environment is safer as a result of
new technology. Mining and manufacturing in particular have benefited. Modern
equipment has made work easier and tolerable. For example, the introduction of forklift
trucks mean that workers no longer need to work by hand. These improvements also
help to remove worker dissatisfaction.

Many products have come on the market in recent years due to technology. New
technology means wider consumer choice and possibly higher living standards. With
new technology on the production department, this means that the firm can take
corporate social responsibility into account as these machines limit pollution thus going
green.

Technology has improved business communication for example a company like Edgar
in Zimbabwe can be able to communicate with its branches and subsidiaries all over the
world using video conferencing. Faster means of communication has resulted in
business being able to meet the needs of their customer on time.

Technology has also resulted in higher income. If a firm enjoys greater profit, it can
afford to pay higher dividends to shareholders and higher wages to employees thus
improving the level of staff motivation.

However, the introduction of technology can also cause problems for businesses.
Development, installation and maintenance can often be costly. Also businesses may
have to lay off and retain staff leading to redundancy payment and retraining costs of
production may be changes and from batch to flow production. Job description may be
changed in some case a large and smaller plants will be needed.

New technology destroys or disrupts labor relations. Trade unions may resist the
introduction of new technology because of its threat that members might lose their jobs.

Technology creates jobs which require technical skills but replace manual jobs. These
jobs cannot be done by the existing workforce unless it can be retrained which is often
costly to business.

New technology can be affected by information technology problems for example

computer software can become infected by viruses. A computer virus is a program
written to deliberately damage or destroy software files. This will result in firms losing
their important business files.

Breakdown in an automated production or system lead to the whole process being

halted. This will result in shortage of product on the market resulting in a firm losing its
market share and sales revenue.
In conclusion, technology is of great importance in an organization if it is gaining
competitive edge. As the benefits of using new technology outweighs its disadvantages
new technology is being used by firms to enable it to meet its corporate objectives and
goals.

Discuss the benefits of decision trees as analytical tools to an organization (25)

Decision making takes place against a background of uncertainty about the future
course of events. We can represent alternative courses of action in a decision tree in
which account is taken not only expected pay off but also probability of achieving
different level of pay offs

A decision tree is a method of quantifying the best strategy of a business to use when
the outcome of alternative decision is uncertain. They are viewed as mathematical
techniques which enables the decision makers to come up with an understanding of the
factors affecting the outcome of the course of action.

The expected value is equal to the probability multiplied by the expected pay off and for
option 1 is equal to ($90 000 X 0,6) +( $30 000) = $ 66 000. For option 2 it is equal to ($
70 000X 0,5) +($50 000X 0,5) = $ 60 000

With the expected values being $66 000 for option 1 and $60 000 for option 2 the
benefits of improving existing product outweigh that of introducing a totally new product.
The firm use option 1 with the highest expected value of $66 000 which means higher
profit for the firm.

Furthermore, with the aid of a decision tree diagram, the firm will be shown clearly and
logically the alternative course of action in this case the firm will chose option 1

In addition, decision tress also helps managers to quantify alternative actions. This will
eliminate the risk involved in choosing between options. This leads to successful
reaching of goals and the firm gains a competitive edge since a decision tree enables
businesses to carry out a feasibility or cost benefit analysis when choosing between
alternative courses of action. Also by comparing the likely financial result from each
option, the manager can minimize risks involved.
Moreover, decision trees encourage logical thinking and planning i.e. it forces decision
makers to consider all the options and variables related to decision without regulation.
Effective decision will be made resulting in the firm meeting its corporate aim.

In addition, it also allows innovation and initiative in the organization as new ideas are
thrown up leading to the firm developing new products with high quality. This is in
conformity with product of higher quality. This is in conformity with product concept
which holds that consumers will buy goods of high quality and appeals most to their
needs and wants.

However, in decision tree analysis, the probability of events occurring maybe based on
past data, but circumstances change. What was a successful launch of new product last
year may not be repeated in another location? In other words, probability theory is
based on past data or occurrences which cannot be solely used as basis for predicting
the future outcome of events.

More so, it cannot replace either the consideration of risks or the impact of non-
numerical / qualitative factors on a decision. These include impact of the environment
and reaction of the workforce.

Expected values are average returns, assuming that the outcome occurs more than
once, with any single one off(non-routine) decision the average will not, in fact, be the
final result resulting in biased information and distorted decisions.

As a recommendation, rather than just considering decision trees, the firm can also use
cost benefit analysis, which is technique used to give a financial value for all social,
private and external cost/ benefit of choosing alternative courses of action. The cost
benefit analysis is important in that it forces the decision makers to look ahead into the
future to consider on a wide spectrum, the impact of a given decision on the business
and society.

In conclusion, decision trees can be a useful tool in decision making, it aids logical
thinking and planning resulting in high returns. However, there is need for more than
one technique to be used in conjunction with decision trees in order to eliminate the risk
associated with them, these can be cost benefit analysis and linear programming.
Evaluate the appropriateness of different methods that a firm might use in the
presentation of statistical data (25)

Collection of data is the systematic gathering of information and it is becoming collected

in two ways that is primary and secondary research. Data is unprocessed raw
information. Data must be presented in all manners which are clear, accurate and
appropriate so that it will serve its purpose of decision making.

A business can use tables to represent statistical data. This is a non-graphical way of
data presentation. It is important in the presentation of large quantity of statistical data
and they retain originality of data. However, the use of tables as a means of data
presentation is limited by the fact that they lack visual impact of graphical presentation.

In addition, the firm can also use graphs. These are mainly suitable for clear
presentation of rapidly changing figures, for example sales figures and movement in the
share prices. They can be used to show trends over time and to make comparisons
between two organizations or more. However, graphs need further mathematical
calculations in order to come out with clear visual, impression which normally is time
consuming if there is need for quick decision making.

In addition, the firm can also use probability diagrams in order to present statistical data,
decision trees are valued as a mathematical technique which enables the decision
makers to come up with an understanding of factors affecting outcome of a chosen
course of action. However, probabilities of success or failure are opinions which do not
give representation of what is likely to occur resulting in biased information.

Furthermore, the firm can also use bar charts as a method of presenting statistical data.
These are used to summarize and compare figures over a period of time. They can be
presented in a number of ways i.e. multiple bar charts and component bar charts.
However, bar charts maybe difficult to construct and they do not retain the originality of
data i.e. data is converted into bars.

The firm can also make use of pie charts which are easy to interpret and they can show
effective variations. However, they require mathematical calculations to determine the
size of each section if they are to be accurate.
Conclusively, there are several methods which an organization can use in data
presentation. These include charts, graphs and others. For effective results there is
need for a combination of two or more for they cannot be used in isolation.

Evaluate any four measures of central tendency (20)

Measures of central tendency summarize the attributes of the middle data set. It seeks
to determine the average score from a class of variables, most commonly used
measures are the mode, mean, median and range.

A business can use the arithmetic mean. This is the sum of group of items divided by
the number of the items. The mean is easy to calculate, it makes use of all variables in
the data set and there is only one mean for any data set so it may not be confusing.
However, the mean may not represent any element in the given data set and it is
affected by outliers.

In addition, the arithmetic median can be used which is the value that is found at the
middle of the data. It is the value that splits an arranged data into 2 groups. Extreme
items do not affect its value and it is generally represented by an actual item. However,
if the distribution is irregular, the actual location of the median may be indefinite and it is
time consuming to arrange the data.

The firm can make use of the mode which is the value that appears most frequently in a
data set. The mode is simple to find and extreme items do not affect the value of the
mode. However, a firm can find it difficult to make decisions situations where there is
more than one mode.

In addition, the range can be used which is the difference between the highest and the
lowest value in a data set. This is easy to calculate. However, it takes into account two
extremes, both may be untypical, thus distorting the picture of extreme variation.

In conclusion, firms can use the mean, mode, median and the range to make statistical
calculations and these also work best with the help of qualitative data to make informed
decisions.