Chapter 1- HR

What is HRM?
Human Resource Management
(HRM)
• What is the Human Resource Management (HRM)?

• HRM is a new way of thinking about how people

should be managed as employees in the workplace.

• There are two schools of thought, 'hard' HRM and

'soft' HRM.

Hard and Soft HRM

(1) Hard HRM
• Hard HRM focuses on managing and controlling
employees so as to achieve the organization's
strategic goals.

(2) Soft HRM

• Soft HRM gives more recognition to the needs of

employees and the importance of their commitment
to the organization.

UK Personnel Management HRM

Timeline
(1) 1800s

• Employees' welfare is concern of outside

institutions and individuals (e.g. church).
 -1-

(2) 1900- 1938

• Introduction more systematic record keeping and

management of the human resource.

• Role of "looking after" workers.

• The domain of women, develops, respectability at

the higher levels of responsibility as "man's work".

(3) 1939-1945

• Intervention by national government in regulating

employment.

• Improving morale in the workplace.

• Restrictions over trade union activity.

(4) 1946-1959

• Institute of labor changes its name to the Institute of

Personnel Management (IPM).

• Growth of collective bargainin

(5) 1960-1978

• Period of trade union militancy and industrial

relations unrest.

• Increased government legislation on employment

matters.

• Growing unemployment.

(6) 1979-1989
 • Introduction of human resource management as a
prescription for managing the employment
relationship.

• Government legislation reduced the powers of trade

unions.

-2-

(7) 1990-1999

• In 1994, the Institute of Personnel Management

(IPM) and Institute of Training and Development
(ITD) merged to form the Institute of Personnel and
Development (IPD).

• HRM becomes more consolidated as an orthodoxy.

What are the three major features of

HRM models
• The three major features that the various models
of HRM have in common

1. A strategic approach

• They emphasize the importance of managing the

workforce in a strategic way, insisting that policies
and practices concerning the management of
people should be consistent with the long-term
business strategy of the organization.

2- Unitarism

• All of the models are essentially unitarist in that

they stress the common interests between
managers and employees.
 • They have little to say about differences of interest
and tensions between these groups.

3- New social goals

• HRM's advocates benefits for employees as well as

for management where HRM is adopted. (e.g.
improved job security, greater involvement in
decision making, rewards based on performance,
and better training and development.

-3-

Human Resource Management

(HRM)
• What is the Human Resource Management (HRM)?

• HRM is a new way of thinking about how people

should be managed as employees in the workplace.

• There are two schools of thought, 'hard' HRM and

'soft' HRM.

(A) Soft HRM

(1)The Harvard Model, Beer et al.,
(US)
• It argues that an effective HRM depends not on
strategies for controlling employees but on
strategies for winning employees' commitment.

• The model recommends that general managers

must hold greater responsibility for HRM.

The Harvard Model

 • The Harvard model proposes that many of the
diverse personnel activities can be dealt with
under four human resource (HR) categories:

1) Employee influence

2) Human resource flow

3) Reward systems

4) Work systems

-4-

1) Employee influence is the question of how much

responsibility, authority, and power is delegated by
management and to whom.

2) Human resource flow concerns managing the flow of

people into, through, and out of the organization. Managers
and personnel specialists must work together to ensure that
the organization has an appropriate flow of people to
meet its strategic requirements.

3) Reward systems regulate how employees are extrinsically

and intrinsically rewarded for their work.

a)Extrinsic rewards are tangible pay and benefits: pay,

bonuses, profit sharing, pensions, and other benefits, such
as flexible working hours.
 b)Intrinsic rewards are intangible benefits and are
rewards from the work itself (e.g. achievement, challenge,
involvement, self-confidence, self-esteem).

• The Harvard model recommends that employees

should be highly involved in the design of an
organization's reward systems.

4) Work systems are the ways in which people,

information, activities and technology are arranged, at
all levels of the organization, so that work can be performed
efficiently and effectively.

Beer et al claim that, of the four issues discussed,

employee influence is the central feature of an HR system

• Harvard model recommends that, when making HRM

policy decisions, managers should consider the four
Cs,

1) Commitment

2) Competence

3) Congruence (compatibility)

4) Cost-effectiveness. -5-

The Harvard Model Four

C’s
• Managers should work to reach HR outcomes:

• Enhance the commitment of people to their work

and the organization.

• Develop people with the needed competence.

• Maintain congruence (compatibility) between

management and employees.
 • Be cost-effective in terms of wages, employee
turnover.

• The model shows that stakeholder interests and

situational factors are interlinked with HRM policy
choices, which in turn lead to HR outcomes.

• The main stakeholder interests are shareholders,

management, employee groups, and government.

• The situational factors are: workforce

characteristics, business strategy and conditions,
management philosophy, task technology, and laws
societal values.

(A) Soft HRM

(2) Guest (UK)

• A second soft HRM model came from David Guest in

1987 who argued that HRM in the UK should be
designed to achieve four main outcomes:

-6-

1) Strategic integration (planning/ implementation).

2) High employee commitment to the organization.

3) High workforce flexibility and adaptability.

4) High-quality workforce

(2) Guest (UK)

• Strategic integration means ensuring that the
organization's business plans are implemented
 through appropriately designed HR policies and
practices.

• Guest proposed that these four HRM outcomes will

lead to the desirable organizational outcomes of
high job performance and reduces employee
turnover.

• These outcomes will be achieved only if an

organization has a coherent strategy of HRM
policies fully integrated into the business strategy
and supported by all levels of line management.

• Guest's models similar to the Harvard but has

seven HR policy categories instead of four Guest's
three other categories are:

(1) Policy formulation and management of change:

means establishing HR policy to identify the nature of
the change required in a business and manage the
process of change.

(2) Employee appraisal, training and development:

involve both informally and formally evaluating
employee performance and the need for training and
development.

(3) Communication systems: are the various

processes and media that the organization uses to
encourage two-way flows of information between
management and employees.

-7-

(A) Soft HRM

• Guest's model constitutes soft HRM for the same
reasons that the Harvard model does.
 • Both give strong recognition to the needs of
employees (for example, motivation and
development).

• Both are committed to employees' needs as long as

the measures taken to meet those needs remain
consistent with the strategy of the organization
and management aims.

Hard HRM
• The Michigan Model, Fombrun et al. (US)

• Michigan Model is "hard" HRM because it

emphasizes treating employees as a means to
achieving the organization's strategy.

• Hard HRM focuses more than soft HRM does on

using people as a means towards the competitive
success of the organization

Hard HRM
The Michigan Model,
Fombrun et al. (US)
• Organizations exist to accomplish a mission that
strategic management involves consideration of
three interconnected issues:

• First, the mission and strategy must be considered

because these are an organization's reason for
being.

• Second, the organization's structure and tasks,

must be formally laid out, including systems of
accounting and communications.
 • Third, HR systems need to be maintained because
people are recruited to do jobs defined by the
organization's formal structure.
-8-

• Michigan model assumes that performance is a

function of all the human resource components:

1) Selecting people who are best able to perform the

jobs defined by the structure.

2) Appraising their performance to facilitate the

equitable distribution of rewards, motivating
employees.

3) by linking Rewards to high levels of performance, and

4) Developing employees to enhance their current

performance at work as well as to prepare them to
perform in positions they may hold in the future.

• The Michigan model is hard HRM because it is

based on strategic control, organizational
structure and systems for managing people.

• A company practicing hard HRM would have a

style of management that treats employees in a
calculated way, primarily as means to achieving
business goals.

• Its top management would aim to manage the

organization rationally and achieve a "fit"
between the organization's strategy, structure,
and HRM systems
 -9-

Chapter 2: The
Environment of HRM

Introduction
 HRM has grown in popularity during the 1980’s and
1990’s.

 This growth has coincided with changes that have

been taking place in the economic and political
context in which firms trade. One consequence of
these changes has been that competitive pressures
on firms have grown, and they are competing on
international rather than solely national basis.

 In this changing context HRM has appeared to be very

attractive to managers because it promises to provide
a ‘solution’ to these competitive pressures.

 There has been a marked decline in the influence of

trade unions during this period.

Features of the Economic and

Political Environment.
 1.Internationalisation

 2.The Reform of the Public Sector

 3.Deregulation of the Labour Market

 4.Unemployment

Internationalisation
• There are a number of reasons behind the
increase of competition between firms
internationally.

-10-

• First , international trade of goods and services

takes place more intensively and in a wider range of
industries. Freeman notes that international trade
to GDP more than doubled in most advanced
countries between 1960 and 1990.

• Second , whereas for much of the post –war period

the dominant manufacturing nations were in
Western Europe and North America, in recent years
a third block has been added to that list, Asia.
Competition from Asian firms , often producing at
much lower costs than their European and American
counterparts , has intensifies competitive pressures
in the world economy.

• Third , multinational companies , defined as those

which operate in more than one country , have
increased their share of output , employment and
investment in almost all economies.

The Reform of the Public

Sector
 Internationalisation has also increased competitive
pressure on public sector organisations.

 In the UK , a central part of the reform was to

privatize many of the nationalised industries through
floating the companies on the stock market. Thus
British Telecom, British Rail , British Steel, and the
mines were all sold off to the private sector and the
management of these companies were answerable to
shareholders rather than the government.

 The effects of labour management on this were that

trade unions were increasingly marginalised and
issues such as training and recruitment were made
subject to severe cost pressure. Employment levels
fell sharply both in the run up to privatisation and in
the years afterwards.

-11-

 The reform of the public sector was alos achieved

through introducing market pressures into those
public services that were not privatized. This meant
that private firms were able to submit bids for
carrying out the activities such as cleaning, laundry,
catering to hospitals etc.

 What lay behind these changes was the government’s

view of the role of the state. They believed that state
intervention in the economy is rarely beneficial, for 3
reasons.

 1.The absence of the profit motive in the public sector

leads to lower levels of efficiency.
 2. Government spending ‘crowds out 'more efficient
private sector activity.

 3. Regulations by governments impose costs on firms

that lower their competitiveness.

Deregulation of the labour

market
 During the reform period trade unions were very
strong and the employment protection legislation
supported the employees more. Government policies
concerning labour market regulation in the 1980’s
and 1990’s aimed at removing these rigidities. 3
examples illustrate this:

 1. Trade unions were made liable for damages caused

to one employer when they organised industrial
action that related to a dispute with a different
employer.

 2. The statutory procedure by which unions had a

legal right to be recognised by an employer was
abolished.

 3. the practice known as the ‘closed shop’ in which

employees were obliged to join a union , was made
unlawful.

-12-

 The 2nd plank of deregulation was concerned with

weakening the employment protection legislation.3
of them are:

 1. the qualifying period of continous service with an

employer required to bring an unfair dismissal case
was raised from 6 months to 2 years.
 2. the burden of proof was removed from the
employer’s and became’neutral’.

 3. Employees bringing a case were required to lodge

a deposit with the tribunal in order to deter ‘
frivolous’ cases being brought.

 There were other major changes as well during this

period, namely the number of manufacturing jobs
declined tremendously and there was an increase in
the number of women and part time workers.

Unemployment
 Unemployment increased to persistently high levels
during this period.

 This caused a lot of personal distress for those

involved.

 This also strengthened the hands of the employers in

dealing with their workforces, largely because the
pool of available labour was large .Employees became
wary of taking any action which antagonizes
management.

 Thus it became easy for employers to push through

organisational changes.

-13-

Block 2 Section 2 (i)

 The Beginning of the Employer/Employee
Relationship
HUMAN RESOURCE FLOW POLICIES SYSTEMS
& PRACTICES (Pg. 94 Pinnington)

PLANNING & MANAGING THE FLOW OF

PEOPLE INTO THE ORG. (Pg. 16 Binder)
• A major part of the HRM function in the
organization is to ensure that there are enough
people available, with the right skills and training,
to be able to perform the tasks necessary to keep
the organization running and to achieve strategic
objectives.

• Person should be suitable for both job AND

company (e.g. culture)
 -14-

PLANNING & MANAGING THE FLOW OF

PEOPLE INTO THE ORG. (Pg. 17 Binder)
 Recruitment and Selection is one of a number of
activities within human resource management (HRM)
which increasingly is being devolved to line managers
within an organization.

 As jobs are no longer static because new business

processes and structures mean that organizations are
constantly changing. The recruitment and selection
process is now concerned with identifying people who
can cope with these new organizational
environments.

The Old Contract Deal.(Pg. 97

Pinnington)
 -15-

The New Contract Deal .(Pg. 98

Pinnington)

RECRUITMENT (Pg. 17 Binder)

Attracting people to apply to the organization. It is a
process of

mutual exchange and negotiation where both parties will

attempt to

influence each other’s expectations.

The early stages of Recruitment.

(Pg. 106 Readings)
• Authorization
 • Job analysis

• Terms and conditions agreed

• Decide target groups

• Decide appropriate recruitment methods

• Design a job advertisement

-16-

Deciding on Target Groups (Pg. 19

Binder)

INTERNAL RECRUITING:
ADVANTAGES

• Less expensive

• Quicker

• Increases motivation from within

organizations
DISADVANTAGES
 • Misses the diversity

• Misses chances on new ideas of

newcomers bring to the
organization

-17-
EXTERNAL RECRUITING:
ADVANTAGES

• Brings new ideas into the organization

• Source of increasing the number of

employees for expansion etc.

DISADVANTAGES

• Expensive

• Time consuming

• Can reduce moral of employees within

organizations

SELECTION (Pg. 20 Binder)

• Involves the process of identifying the right
candidate from a pool of applicants.

• SELECTION includes two-way process of

communication as each has something to offer.
 Selection methods (Pg. 20
Binder)
The main methods of selection are;

1. Interviews

2. Tests

3. Assessment Centers

-18-
INTERVIEWS (Pg. 20 Binder)
Interviews are the most common type of selection

method. Interviews help in :

• providing qualitative information about an

individual

• to determines whether the candidate is interested

in the job

• is the candidate competent to do the job

• it is used to explain the work of the organization

and the job

• to set expectations on both sides

• to enable the candidate to assess whether they

want the job being offered
 2.TESTS (Pg. 21
Binder)
Provide quantitative information which form part
rather than the whole of a selection process.

There are two main types of tests;

1. Aptitude tests

2. Personality tests

Types of TESTS (Pg. 21

Binder)
1.Aptitude tests: Such as competence on literacy or
numeracy.

2. Personality tests: Help to indicate preferences and

attitudes along certain dimensions such as
extroversion/introversion, sociability and ability to
cope with pressure and thereby predict behaviors at
work e.g. “Psychometric tests”.

-19-

3.ASSESSMENT CENTRE
A process which uses a number of selection
techniques in combination.

Sometimes used as part of succession planning

within an organization, the process whereby managers of
the future are identified

Activity 2.4 (Pg. 22 Binder)

COMPETENCES (Pg. 25
Binder)
 Definition by Boyatzis’ (1982);“A job competency
is an underlying characteristic of a person which results in
effective and/or superior performance in a job”.

JOINING AND MAKING SENSE OF THE

ORGANIZATION (Pg. 28 Binder)

From the organizational side it is a process that

helps to shape and maintain organizational culture; from
the employee’s point of view it is the means by which to
make sense of the job and organization.

Problems facing newcomers are based on (Pg.

26 Binder)

• Change

• Unrealistic expectations

• Surprise

INDUCTION (Pg. 28/29)

A function conducted by the HR department. These are

formal programs for helping the individual understand
what is required. Induction usually constitutes a
sequence of planned activities to enable employees to
acquire the necessary skills, knowledge and capability to
carry out their role and tasks to an acceptable standard.

-20-

Most common forms for Induction

(Pg. 28/29)
1. Tour around the company

2. Handbook or documentation
 3. Short courses

SOCIALIZATION (Pg. 28/29)

Socialization is essentially a social process,
experienced differently by different individuals.
Socialization is a two-way process whereby the
organization attempts to mould individual behavior while
meeting a bid for individuality from the newcomers
concerned.

• It can be seen as a series of stages: getting in

(anticipatory),breaking in (entry) and settling in
(accommodation)

• Read Example 2.1 – Organisational Socialisation as a

trail of clues

Activity 2.6 (Pg. 29 Binder)

• Think about some examples of when you joined a
new organization, either work or social.

• How did you feel as a newcomer?

• What did you do to become part of the org?

• Where you able to influence the way the

organization worked?

-21-
 Psychometric
Activity 2.4 (Pg. 22 Binder)
COMPETENCES (Pg. 25 Binder)
Definition by Boyatzis’ (1982);

“A job competency is an underlying characteristic

of a person which

results in effective and/or superior performance in

a job”.

JOINING AND MAKING SENSE OF THE

ORGANIZATION (Pg. 28 Binder)
From the organizational side it is a process
that helps to shape and maintain organizational
culture; from the employee’s point of view it is the
means by which to make sense of the job and
organization.
 -22

Employee Resourcing and

Careers
3 perspectives on Human Resource Flow
Policies
 Managing HR flow strategically means determining a
flow pattern that takes into account likely effects on
employee commitment to the organisation , the
ability of the organisation to adapt to changing
circumstances, and the culture of the organisation.
The 3 perspectives are.

 1. The individual perspective – Careers

 2. The Organisational Perspective – 4

Cultures

 3. The Societal Perspective – National

Culture

 (Perspective means viewpoint)

The Individual Perspective

 Employees experience HR flow through the way it
affects their employment conditions and career
development. Everett Hughes defined careers as
being both subjective and objective.

 Subjectively, individuals experience a sense of

continuity of purpose and progression in skill or
responsibility as they move through their careers.
 Often people who feel their careers have not taken off
feels their could be more development and change.

 Objectively, one can track the movement of the

individual within the social order of the organisation.
For e.g. from shopfloor worker to supervisor to
middle manager.

 ( In other words, when an employee understands that

there is scope of improvement, he will take interest
for the job

-23-

Individual Perspective
 To help explain individual career choice and success
and failure in careers, Schien introduced the concept
of career anchors. These are self perceived attributes
(characteristic) , motives, attitudes , and values that
shape individual careers. He listed 6 career anchors.

1. Managerial competence

2.Technical functional competence

3.Security

4. Creativity

5.Autonomy

6.Independence

The New Contract Deal .(Pg. 98 Pinnington)

 -24-

The Organisational Perspective – 4

Cultures
 Organisational culture establishes the norms and
expectations of how people should be treated and
serve the needs of the organisation. Culture affects
employee resourcing by influencing the values and
beliefs of owners , management , and other
employees.Trompenaars argues that cultural
differences create 4 distinct corporate cultures.

1. Family

2. Eiffel tower

3.Guided Missile

4.Incubator

Organisational Perspective
 The family culture is dispersed amongst ‘members of
the family ‘, has parent figures in authority, is
intitutive in its decision making, supports leadership
from the top, and expects love and respect from its
employees.HR flow policies are not clearly devised
and depend on decisions by the top management.
Senior management will demand loyalty and in return
employees will demand to be treated like members of
the family; however , flow policies in this culture will
often be ambiguous and to some extent depend on
who is considered by those in authority to be part of
the family.

 The Eiffel Tower culture –is bureaucratic and

mechanistic, placing more emphasis on rational
efficiency and analytical skills than the family culture
does. People are treated as HR and expected to follow
organisational job descriptions , rules and
procedures. Flow policies in this culture are more
likely to be formally laid down in writing.

-25-

They are applied with a systematic logic that

emphasises hierarchical status and function more
than attending to individuals and their feelings.

 In the guided missile structure, work tasks are set

as if they form part of a computer control system.
This task centered culture is tuned to altering path
according to feedback from the environment. The
organisation is structured by projects with clearly
specified goals , and employees are expected to
become specialists or experts in their area of
responsibility. Flow policies are established to
achieve the completion of tasks and projects. Loyalty
 to a project will be seen as more important than
loyalty to the organisation.

 The incubator culture –is characterized by opportunity

for personal growth and change. Relationships
between employees are dynamic , energetic and
dispersed. Management is by example and through
enthusiasm with an emphasis on improvisation and
joint creativity. Flow policies in this organisation are
unlikely to be clearly articulated, the tendency being
for employees to be recruited and laid off according
to work load.

 A formulated , documented business strategy is likely

to be present , at best, in 2 of the 4 organisational
cultures, Eiffel tower and guided missile, where there
is an openness towards systematic methods. In the
family and incubator cultures there is less interest in
the accountability of top management. The belief
system based on these 2 cultures is more concerned
with maintaining a sense of community based on
loyalty and trust. In the family culture loyalty is
primarily to other family members.

 HR flow policies are therefore unlikely to be seen in

these cultures as critical to running an organisation

-26-

The Societal Perspective

 There has been a trend in employee resourcing
throughout Europe toward fewer ‘standard’
 working contracts and more ‘atypical working’.
(different working)

 In 1970’s , Hofstede conducted a well known study

of national cultures . He researched 40 countries to
determine the differences in national culture and
he identified 4 dimensions that distinguish
national cultures from each other.

1. power distance

2.uncertainity avoidance

3.individualism –collectivism

4.masculinity

 Power distance is the extent to which a society

accepts an unequal distribution of power, high power
distance societies accepting a large difference in
status between superior and subordinate while low
power distance societies expect the reverse. The
Philippines and Mexico, for example, have high power
distance , while Australia and Denmark have low
power distance. Uncertainty avoidance is the degree
to which a society attempts to avoid uncertainty in
life through greater career stability, formal rules
intolerance of deviance ,belief in absolute truth, and
attainment of expertise. The cultures of Greece and
Japan shows high uncertainty avoidance, while
Singapore and Sweden have cultures with low
avoidance. Individualism – collectivism is the degree
to which a society is seen as being composed of
individuals , while collectivism is characterised by a
tighter social framework in which individual identity
is bound up with that of the group.
 -27-

The USA and Australia are high in individualism,

while Pakistan and Thailand are high in collectivism.
Finally, masculinity is the extent to which society
favours the supposedly masculine values of a
assertiveness rather than more feminine values of
concern for people and quality of life. Japan and
Australia are high in Masculinity, while Scandanavian
countries and the Netherlands are low.

 These 4 dimensions of national culture help to

explain different styles of management and the
variety of practice in HR flow policies. For employees,
an insight into the influence of culture and society ,
combined with self – insight , will help them to
manage their careers and adapt to situations
confidently so as to sustain their individual
effectiveness and psychological well- being.

Managing Human Resource Flow

1.Managing Inflow

2.Managing Outflow

1.Managing Inflow
 This mainly concerns of recruitment and selection.

 Recruitment is the process of attracting candidates

for vacant jobs and selection is the process of
choosing the right person for the job among a pool of
candidates.
 Good selection and recruitment practices by an
employer is also more likely to create a favourable
impression of the organisation , improving its ability
to attract and retain people . Some estimates say that
reaction to the selection process accounts for 15% -
20% of a candidate’s decision on whether or not to
accept the job.

-28-

2.Managing Outflow
 Beer identified the central strategic dilemma of an
organisation as balancing employees’ need for job
security and employment rights with the
organisation’s use of outflow as a means of cost
reduction and renewal. There follows a brief overview
of the various ways of approaching outflow: lifelong
employment , downward and lateral mobility , early
retirement , and workforce reduction and redundancy.

 Severe reduction of the workforce often has

damaging consequences for the local labour market.

 How an organisation manages HR outflow is a good

indicator of its management style and culture.
Managing outflow is a strong test of the skills and
endurance of managers who are responsible for the
process of making employees redundant, and for
other means of moving people out of the
organisation. The acceptable practice will differ to an
extent according to national culture.

Human Resource Planning

 HR Planning is defined as:

 The systematic and conditioning process of analysing

an organisation’s human resource needs under
changing conditions and developing personnel
policies appropriate to the longer –term effectiveness
of the organisation. It is an integral part of corporate
planning and budgeting procedures since human
resource costs and forecasts both affect and are
affected by longer term corporate plans.

 Practical tools for planning and measuring HR flow

are available and can be useful for assessing HR
performance by making industry comparisons or
benchmarking with ‘best practice’ organisations.

-29-

One such tool is manpower planning , which is used

at both the national and organisational level.

 Clearer policy on HR flow should, through

management’s making long term commitments to
employees careers and development , increase
employee trust, resulting in higher performance at
work. Managers will less likely succeed in their long
term strategic goals where HR planning is given over
to serving solely short – term financial considerations.
 -30-

CHAPTER 7 :
FINANCIAL REWARDS
HRM PERFORMANCE MEASURES Financial
Rewards (Pg. 147
Pinnington & Edwards)
 Financial Rewards – Reward
Systems
 The reward strategy has 3 basic components:

 Financial rewards –Base pay , Employee benefits,

Variable pay

-31-

 Performance Management
 Non financial rewards- to motivate employees
through recognition ,responsibility, achievement
,development and growth.

3 components

 Base Pay- is determined through job evaluation

studies and pay surveys that inform the pay
structure.

 Employee Benefits – Company pensions and

healthcare schemes

 Variable Pay – Profit sharing and bonus payments

 Employee benefits and Variable pay are determined

according to minimum standards set by national
legislation.

 All 3 taken together make up the total remuneration

received by the individual

Pay Structures and Pay Systems

 No matter how important job satisfaction and other
intrinsic rewards are, the essential reward
employees receive for their work is pay.

 Pay structures are different structures for

determining the pay for individuals and groups of
employees.

 Pay systems are the processes of paying employees

within a given structure
 -32

Pay Structure
(pg. 148-152 Pinnington &
Edwards)

 Any pay structure will have certain characteristics

that it rewards in preference to others.

 Graded and Broad banded pay structures place

more significance on such factors such as length of
employment with the organisations

 The other structures place significance on :

 Individual pay range – market rates combined with

individual characteristics

 Job families – occupation and expertise

 Spot rates – external market rates of pay for

particular jobs
 Rate for age – pay adjusted for age

 Graded

 Broad Banded

-33-

 Individual Pay range

 Job Families

 Pay curves

 Spot rate

 Pay Spines

 Integrated Pay Structures

 Rate for age

Payment Systems (pg. 153-158

Pinnington & Edwards)
 -34-

 There are different systems for payment:

 Time rate system

 Rewards for individual or Group Performance

 Reward for Organisational Performance

Time Rate systems reward the employee for a unit of

attendance at work – an hour ,day, week , month or year.
Time rates are one of the most commonly used pay
systems. They are relatively simple and cheap to
administer and help managers forecast human resource
costs. They have the advantage of being easily
understood by employees but they do not motivate
performance well as there is little incentive to improve
productivity or efficiency

Rewards for individual and Group

Performance
 Individual Piecework
 Work Measured Schemes

 Measured Day Work

 Group or Team Incentives

 Individual and Group Bonuses

 Performance related Pay

 Skill based and Competence based pay

 Cafeteria or Flexible Benefit Systems

-35-

Rewards for Organisational Performance

 Gainsharing

 Profit Sharing

 Save as you earn

Top Management Pay

 Managers have been paid more than most
of their subordinates . The structures and
systems for rewarding managers are
similar to those for rewarding employees ,
although for management in many
companies there is a wider range of
schemes available , related to profit
sharing, performance bonuses ,share
options, pensions and other benefits.
Executive share schemes specifically give
 executives options to acquire shares at
fixed prices. These schemes aim to give
executives a stronger sense of ownership
of their organisations and more closely
align their interests with those of the
shareholders.

 The gap between employees’ pay and top

managers’ pay has widened.

-36-

Block 2 Section 3
The organization’s ongoing
relationship with its employees
Agenda
 Changes in HR since 1980’s

 Employment flexibility

 The psychological contract

 Employee involvement
 A model of HRM - Guest, 1992 (Pg.
34 Binder)

-37-

The changing nature of employment

relationship since 1980’s (Pg. 33-34 Binder)
The main changes in HR have occurred over the past 20
years as a result of the increased competition due to
globalization and technological advances which have
obliged many organizations to

 Restructured hierarchies (e.g.

flatter)
  Leaner structures (i.e. teams and
network) for organizations to
function more efficiently

Some implications of the above

 Employees have more responsibility than
in past

 Decreased job security

 Increase in temporary and fixed-term

employment contracts

 Individualization

Unitarist Perspective (Pg. 34-35

Binder)

“an organization is rather like a team or a family.

There is

(or ought to be) one single, shared, set of objectives for

management and employees and thus no place for conflict
between them.”

Pluralist Perspective (Pg. 34-35

Binder)

“Supposes that management and employees may have

different, and

legitimate, views and objectives, which could give rise to

conflict between

them. Trade unions presence.”

-38-
 Implications of Unitarist
Perspective (Pg. 37 Binder)
3 aspects of employee/employer relationships
are common in unitarist environment;

• Individualism

• Flexibility

• Communication

Individualism (Pg. 37 Binder)

This is the relationship existing between
the employer and the individual, rather than between the
employer and groups of individuals who work in the same
job or in the same organization

Individualism (Individual
Performance) (Pg. 37 Binder)
Appraisal System

Pay System

Training & Development

Career Development
 -39-

Flexibility (Pg. 37 & 38 Binder)

This is in order to improve companies’ ability to respond
more effectively to increasedcompetition and rapid
changes in the biz environment. Flexibility in the
workplace via:

• Non-traditional, non-permanent types of

employment, e.g. Short-term contracts

• Growing numbers of workers being offered

non-permanent employment.

Example on Orgal Flexibility

DaimlerChrysler Aerospace (Dasa) Plant (Pg
38 Binder)
Communication (Pg. 38 Binder)
Communication is very essential in developing the
employment relationship and building commitment in an
environment. Two way communication is very important
i.e. Upwards communication as well as downwards
communication is important.

The psychological contract (Pg.

40 Binder)
The psychological contract has been defined as:

The perception of both parties to the employment

relationship, organization and individual, of the
obligations implied in the relationship.
 -40-

Negative Psychological Contracts (Pg.

40 Binder)

Violation of the PC may lead to a shift from:

Relational

Psychological

Contract

Transactional
Psychological
Contract

Positive Psychological Contracts (Pg.

41 Binder)
Fair and effective HRM practices in the
organization lead to positive psychological
contracts with the following outcomes;

• Positive employment relationships.

• Employee commitment

• Motivation

• Job satisfaction
 Employee involvement (Pg. 42 Binder)
Employee involvement is participative activities
which are intended to makeemployees feel more involved
with the org which they work, thereby building their
commitment

-41-

Employee involvement (Pg. 42 & 43 Binder)

Employee involvement can bedivided into four
different kinds of

activities:

• Downward communications

• Upward problem solving

• Task-based participation and team work

• Financial involvement

Downward Communication(Pg. 42 Binder)

Ma
nagement
 Empl
oyees
-42-

Upward Problem Solving(Pg. 42

Binder)
 Management

Employees
-43-

Task-Based Participation & Team Work (Pg. 43

Binder)
This involves using teams to improve working practices by
extending the range

of tasks that individuals undertake and by allowing them

to take greater supervisory role of their work tasks.

• Job Redesign

• Job Enrichment

• Self-directed teams

Financial Involvement(Pg. 43 Binder)

• This involves securing employees’ involvement
by offering Rewards based on their financial
success.

• Profit-sharing Schemes

• Employee Share Ownership Schemes

-44-
 Block 2 Section 4
Developing the Employees Relationship with the
Organization
Agenda
• 4 different types of employees

• Motivation of staff

• Training and development

• Why companies may not to invest in training

• Internationalization – HRM

• Central issues, 4 options

• TMA 02 Discussion

• Announcements

Definition of Career(Pg. 45
Binder)
Career is the individually perceived sequence
of attitudes and behaviors associated with work-related
experiences of activities over the span of the person’s life.

Now there are less opportunities

for:
• Promotion

• Social Advancement

• High Status
 • Fewer permanent contracts for
employees

-45-

• More part-timers

• More fixed term contracts

The Old Contract Deal(Pg. 97

Pinnington)
 -46-

The New Contract Deal .(Pg. 98 Pinnington)

4 different types of employees (Pg.

46 Binder)
• The Climber

• The Expert

• The Influencer

• The Self-Realizer
 The Climber:

• Sees success chiefly in terms of status and

pay,

• especially the level of seniority they achieve

in

• their organization.

-47-

The Expert:

• Defines success primarily in terms of getting

• recognition, respect and acknowledgement

• for being good at their job.

The Influencer:

• Sees success in terms of the impact they

have

• at work and the extent to which they are

able

• to influence what happens there.

The Self-Realizer

• Defines success as personal achievement

and

• self-fulfillment on their own terms

 Motivation of staff (Pg. 46-47
Binder)
Why is it important to know the 4
different types of employees?
Organizations need to know who is
what in order to properly motivate and secure the
commitment of their staff.

-48-

How can an employer motivate:

• Expert?

• Influencer?

• Climber?

• Self-realizer?

Training & development (Pg.

49 Binder)
Purpose of training & development is to:

• assess and develop skills deficiencies

• act as a catalyst for change

• give the org a competitive advantage

 • encourage a learning climate

Kinds of training:

• On-the-job

• Off-the-job

• Mentoring

• Coaching

• Lateral moves/secondments

-49-

Kinds of training (Pg. 50 Binder)

On-the-job

This is generally provided by the line manager

and is therefore dependant on their being
willingness and appropriately skilled to do so.

Off-the-job

This type of training can range from brief in-

house courses to extended learning away from
the org, such as secondment to study full time
for an MBA.

Mentoring

This type is used for developing new recruits

or those identified as having the potential to
become senior manager is paired with an
 experienced colleague, not their line manager,
from whom they gain advice and help about
their work and their careers.

Coaching

This is aimed at improving the performance of

more senior managers, often through the use
of external consultants.

Lateral moves/secondments

Managers can learn by taking up different

kinds of roles at the same grade within the
organization. This can either by on a long-term
or a short-term basis (a secondement)

-50-

Why might some companies choose not

to invest in training(Pg. 50/52 Binder)
• Cost of providing it

• Time it entails

• Lack of necessary training skills

• Difficulty in matching between training and

development and business performance

• National social, economic and political climate

 Internationalization – Growth of MNCs
(Pg. 247 Pinnington)

1967 1973 1980 1988 1995

112 211 551 1,141 2,730

-51-

Internationalization – Growth of MNCs (Pg.

247 Pinnington)
Implications for HRM due to MNC’s growth;

• Employment practices diffused across

borders

• MNC’s must have international, rather

than national, HRM strategies if their
businesses to succeed.

• Have to make decisions on whether to

‘export’ their HRM policies, or
 ‘incorporate’ those which already exist in
their host country

Internationalization Central issues (Pg. 54

Binder)
Four options for approaches:
• Ethnocentric

• Polycentric

• Geocentric

• Regiocentric

Ethnocentric

This approach means that all key positions at

headquarters and subsidiaries are filled by parent country
nationals.

Polycentric

This approach means that the host country nationals are

recruited to manage subsidiaries in their own country and
parent country nationals occupy key positions in corporate
headquarters.
-52-

Geocentric

This approach means that the best people are sought for
key jobs, regardless of their nationality.

Regiocentric
This approach means that people’s careers are limited to a
particular geographical region. Within this region, the
best people are sought for key jobs, regardless of their
nationality.

Imagine that Microsoft company sought to

open up a huge manufacturing facility or branch in Kuwait
and seeks to employ 2,000 people.

• whose careers should be given prominence and who

should occupy senior positions throughout the host
organization? Kuwaitis? Americans?

• What are some of the pros/cons of each option the

company can apply.

Trend of moving away from ethnocentric

(Pg. 54 Binder)
Organizations need to adopt localization because;

• No need for large number of expatriates

• Locals are more sensitive to local cultures and local

market needs

• Image of long-term commitment to host country

operations

• Sometimes the unavailability of competent parent

expatriate managers with international experience

• Expatriates are really expensive (Package almost 3

times as much as home salaries)

• Expatriate approach seen as failure i.e. family find

difficulty to adapt

-53-
 Chapter 6 –HR
Motivating
Employees
Maslow’s hierarchy of
Needs
Maslow’s Hierarchy of Needs

• Human needs in a hierarchy from the most basic

survival to complex psychological.

• Maslow’s theory applies to people in general & not

specific to work & organizational behavior.

1.Physiological Needs

• Good working conditions, attractive wage or salary

subsidized housing, free or subsidized catering.

2.Safety Needs

• Private health insurance cover, attractive pension

provision, safe working conditions.

3.Social Needs

• Company sports an social clubs, office party's

outings, encouraging open communications.

(4) Esteem Needs

• Regular positive feedback, prestige job titles,

photographs in company news sheets, promotions.
 -54-

(5) Self- estimation Needs

• Challenging job assignments, discretion over core

work activities, promotion opportunities encouraging
creativity.

McClelland’s Three Basic Needs

(1) Power Motive

exercising influence and control. Most

management have high need for power which in turn leads
to constructive authoritarianism. The need can lead to
productive and satisfying results.

-55-

( 2) Affiliation Motive

derive pleasure from being loved. people with

a high need for affiliation usually derive pleasure from
being loved and tend to avoid the pain of being rejected
by a social group.

(3) Achievement motive

takes risks, wants to go that extra mile. people

with a high need for achievement like personnel
responsibility, moderate and calculated risks, feedback on
how they are doing.

Herzberg’s Motivators and

Hygiene Factors
(A) Hygiene (maintenance) Factors

• The factors that help prevent dissatisfaction. They do

not lead to higher levels of motivation but
dissatisfaction exists without them. These factors are
necessary to maintain a reasonable level of
satisfaction.

1) Company's policies and administration

2) Quality of supervision

3) Working conditions
 4) interpersonal relations

5) Salary

6) Status

7) Job security

-56-

Herzberg’s Theory
Motivational ( Satisfiers) Factors

The five factors that lead to job satisfaction and higher

levels of motivation. These factors are neutral if they are
not activated. These factors influence job satisfaction to a
great deal

1) Achievement

2) Recognition

3) The work itself

4) Responsibility

5) Advancement

Herzberg’s Motivators and Hygiene

Factors
 -57-

Process Theories – How to Motivate

Employees
• Latham and Locke’s Goal – Directed Theory

• Latham and Locke in 1979 stated that the advantage

of goal theory is that it ahs clear practical
applications for managing and motivating people.
They conducted some experiments and they
concluded 3 steps should be followed to obtain the
best results in goal setting.

• First, goals must be specific rather than vague; clear

time limits must be set for goal accomplishment; and
goals should be challenging and reachable.

• Second managers must ensure that employees accept

and remain committed to the goals. This is best
 achieved when there is an atmosphere of trust
between managers and subordinates and when a
supportive supervisory style is used.

• Third is to give employees support in the form of

adequate resources , money equipment time and hel

Process Theories – Porter AND Lawler’s

Expectancy theory
• Porter and Lawler devised a model of motivation
based on Vroom’s expectancy theory.

• Expectancy theory – In this theory motivation is a

function of each individual’s expectation that his or
her behaviour will result in outcomes that have
psychological value.

• Porter and Lawler’s model describes a person’s

motivation as a function of 3 things:

-58-

1.The attractiveness of the rewards

2.Performance to Reward expectancy

3. Effort to performance expectancy

1. The perceived attractiveness of the rewards:

motivation to exert effort is stimulated by the prospect
of desired awards. Rewards can be extrinsic or intrinsic
and people must value these rewards in order to be
motivated by them.
2. Performance to reward expectancy: This is the
employees' expectation that if the desired performance
is achieved ,then desired awards will be obtained.

3. Effort to performance expectancy: Employees will

make necessary effort only when they believe there is
reasonable profitability of achieving the target
performance.

Bandura’s Self –efficacy

Theory
• This theory proposes that the main influence over
behaviourial change and motivation is self efficacy
which is the strength of belief an individual has in
his or her ability to achieve outcomes through
behaviour. This is a theory of social learning, being
concerned primarily with how individual learning is
affected by social factors such as maintaining self
confidence and making comparisons between
oneself and other people.It proposes that 4 major
sources of informationa re used by individuals in
creating their sense of personal efficacy.

• Performance accomplishment 2.Vicarious

experience 3.Verbal persuasion 4.Physiological
states

-59-

1.Performance accomplishment : raises expectations of

mastery, while repeated failure lowers them. Once self
efficay has been established, it tends to generalise to
other situatutions. Improved self efficacy enables the
individual to transfer effective behaviours to a wide
range of situations and tasks.

2.Vicarious experience: includes the experiences people

have of seein g others perform well, sometimes under
adverse conditions. By comparing themselves with
others people gain a heightened sense of self efficacy;
by seeing that others can do it they believe they can
too.

3.Verbal persuasion is known to have an important

influence on people’s sense of self efficacy.Individuals
can be encouraged to believe they will succeed through
sugesstion and coaching

4. The physiological state that affects self efficacy is

emotional arousal, high arousal usually debilitating
performance. Increased levels of anxiety and fear will
negatively influence individuals’ sense of self efficacy
by provoking imagined threats that far exceed the
actual threat of the situation. Self efficacy is much more
likely to improve if the individual feels that the
successful performance was the result of skill rather
than luck.

• This theory of social learning helps to explain why

some company training programs spend
considerable time motivating employees to hold a
high sense of self efficacy.

Hackman and Oldham on Job Design

• They recommended 3 conditions for internal
motivation. First, the individual must have
knowledge of the results of his or her work;
otherwise it will be difficult to be emotionally
influenced by the outcomes.
 -60-

• Second, the individual must experience

responsibility for the results of work. People must
be allowed to take initiative and feel pride in the
results when they do well, and feel concern when
goals are not achieved.

• Third, the individual must experience work as being

meaningful.

• When all 3 of these factors are present,, strong

internal work motivation will develop and is likely
to persist. Their view is that motivation at work has
more to do with the design of tasks and jobs than it
has to do with the individual dispositions.

• The authors also propose 5 job characteristics that

lead individuals to experience their work as being
meaningful , possessing responsibility, and
enabling knowledge of results. The 5
characteristics are

o Skill Variety

o Task Identity

o Task Significance

o Autonomy

o Feedback from the job

• The first 3 lead to experiencing work as meaningful,

the 4th leads to experiencing responsibility for
outcomes of the work; and the fifth leads to
knowing the actual results of the work.

Motivating Groups
 • 3 theories that focus on the role played in
motivation by the social group.

• Equity Theory

-61-

• Agency Theory

• Stewardship Theory

Equity Theory
• The equity theory of motivation aims to explain the
way that employees agree ‘ a fair rate for the job ‘.
Individuals compare what they contribute to the
employment relationship and what they receive
from it in return.

• Equity theory demonstrates that individuals are

concerned not only with the total reward package
they get but how how this compares with what
other s who are in similar position receive.
Empirical research on equity theory shows that
employees are motivated by a sense of distributive
justice; that is , employees are more motivated
when they perceive rewards to be fairly distributed
between people.

Two theories of Management

motivation
• Agency and Stewardship theories are 2 contrasting
views of what motivates management. Agency theory
has hard HRM’s emphasis on control and rewarding
required behaviour, and stewardship theory has soft
 HRM’s attention to employee commitment and
influence.

• Agency theory predicts that owners ( or principals’)

and managers (or agents’) will behave differently in
serving their own interests and that these will differ
from each other: principals seek to maximise their
wealth and managers follow their own interests,
which will not always be consistent with principals’
interests. The theory advices owners to ‘incentivize’
managers to serve the interests of owners’ capital by
rewarding and controlling the managers to pursue the
owners’ interests

-62-

• Stewardship theory states that the reverse of agency

theory , saying that top management , as stewards ,
or custodians , are motivated in the best interests of
their principals. Stewards place a higher value on
cooperation than they do on independently seeking
their own interests. They prefer cooperation to
conflict and are rational , usually thinking sensibly
about what is expected of them. They are collectivist
in orientation rather than individualist and therefore
work towards the best interests of the group rather
than selfishly seeing to satisfy their own needs in
preference to other people. Stewardship theory warns
against too much of control over managers ( acting as
stewards) by principals because it reduces motivation
and can hinder pro -organisational behaviour by the
stewards.
 -63-

Block 2 Section 5
Relationships with Customers
Transactional Marketing (Pg. 58 Binder)
The concept of transactional marketing, views marketing
as a series of one-off transactions.

Models to adopt this approach:

1. Marketing Mix (4Ps) 2. Cs Model (4Cs)

- Product - Customer needs and wants

- Price - Cost

- Promotion - Convenience
- Place - Communication

4 ways in which Transactional approach affects

organisations
1. The establishment of a marketing department as a
discrete unit and function.

2. The use of Marketing Planning: a structured approach

based on audits, identified objectives, selected
strategies, implementation and evaluation.

3. Market Segmentation: identification of target groups

of consumers with similar sets of needs.

4. Widespread use of Performance measurement,

drawing on market research and measuring success in
terms of market share

-64-

Activity 5.1
Some reasons why transaction approach to
marketing
as presented by the 4Ps may not be adequate;

 It is driven by the interests of the producer

or supplier.

 It assumes the customer is passive.

 It is not driven by customer interests.

 It does not allow for transactions between

customer and supplier.
  It implies that the power is with the
supplier-that it is a seller’s market.

The six market model (Pg. 59 Binder)

This is a different approach to marketing. It
suggests that organizations operate in six
markets. They should be aware of-and-seek to
meet- the needs of each of these markets.

-65-

The six market(Pg. 60 Binder)

Influencer markets
Referral markets
 Organization

Recruitment markets
Supplier markets

Internal markets

-66-

Increased emphasis on relationships

within these markets (Pg.63 Binder)
 Relationship marketing, therefore has emerges
as a response to market and environmental
pressures, but is not equally relevant to all
organizations.
 Although relationships are important in all six
markets, most discussion has focused on the
 relationship between; “organization and its
customers.”

Supplier-customer relationship(Pg. 63
Binder)
Relationship marketing is where

 suppliers view their relationships with

Customers/users as long-term i.e. multiple
interaction

 the objective is to establish, maintain and

enhance the relationship so that the objectives
of both parties are met.
 its objective is to move customers up the
loyalty ladder from prospect to customer, and
to advocate and partner.

-67-

The Loyalty Ladder (Pg. 63 Binder)

Internal markets and the Loyalty ladder (Pg.
64 Binder)
To achieve progression in the loyalty

ladder need to focus on their internal

market activities as:

 All employees within an organization are both

providers and users of internal services.

 Organizations that are successful in providing high

levels of customer services achieve a common goal.

Implications on the structure, processes and

attitudes of an organisation due to the
implementation of the Relationship
Marketing approach
  The role of ‘Marketing’ in the interchange of services
and information becomes much less clearly defined.

 Non marketing staff will be involved in interactions

with customers.

 A successful relationship between supplier and

customer may reduce costs for both parties.

 Establishing a relationship can be divided into 2

parts: attracting the customer , and building the
relationship.

 There is a high element of trust in successful

relationships.
Benefits of relationship marketing (Pg. 68-69
Binder
Benefits

Customer’s Perspectives Supplier’s

Perspectives
Consumer Benefits of relationship marketing (Pg.
68 Binder)

 Consumers LIKE to reduce the choices

available to them by engaging in a continuing
loyalty relationship with suppliers. They do
this in order to achieve greater efficiency in
their purchasing decision making.
 -69-
Suppliers Benefits of relationship marketing (Pg.
69 Binder)

 Marketing productivity is improved by reducing

expenditure on advertising and promotion and by
reducing the risk of price competition.

 The focus on customer service and satisfaction over

time means that customers’ needs are better
addressed, and marketing practices are therefore
likely to become more effective.

 Customer focus helps treat customers as individuals

which encounters proper data processing.

 Improving the company’s image my moving away

from attracting new customers to nurturing existing
ones

RelatioRelationships for all?

(Pg. 71 Binder)

Transactional marketing Relationship marketing

Focus on single features Focus on customer reten

Orientation on product Orientation on product

features benefits

Short time-scale Long-time scale

Little emphasis on High emphasis on custo
customer service service

Limited customer High customer commitm

commitment

Moderate customer High customer contact

contact

Quality is the concern of Quality is the concern of

the production department

Marketing strategy continuum (Pg 70/71

Binder)
Relationship marketing may not be suitable for
all organizations. The more the customer
contact the more suitable relationship
marketing can stand.
Consumer Consumer

Industrial goods

Durables packaged goods

-71-

Purchasing Relationships
 Relationships with suppliers are critical to
the success of most organisations. Good
relationships will contribute to the competitive
advantage of both parties.
 Brassington and Pettitt say that there are
likely to be 2 dimensions to such relationships.
 1. Economic Dimension

 2. Social Dimension

Collaborative vs. Adversarial

Approaches to Suppliers
Adversarial
 1. Multiple Suppliers
 2. Regular Price quotes
 3. Adversarial Negotiations

 4. Sporadic Communication

 5. Little co-operation

 6. Low Quality and time thresholds

 7. Emphasis on lowest unit price

Collaborative
 1. Few Suppliers
 2. Mutual Investment in long term
relationships

 3. Partnerships

 4. Frequent Communication

 5. Integrated Operations

 6. Quality and time scales designed in

 7.Emphasis on lowest overall cost

Critique of the Relationship Approach

 There are situations that are better suited to
relationship approach than the others.There
are broadly 3 situations;

 1. Commodity
 2. Limited Uncertainty

 3. High uncertainty
Relationship marketing is most likely to be
effective in the third situation.

-73-

Critique of the relationship approach

 Despite the criticism, relationship marketing can
genuinely contribute to the involvement of the
consumer in the marketing process provided
certain conditions are met. The conditions are:

 Recognise that consumers can only maintain a

limited number of one - on one relation ships.

 Give friendship, loyalty and respect to customers

as well as ask for it.

 Make sure that the smaller customers so not feel

discriminated.

 Do not create new problems for customers.

 Behave honestly

 Respect and use discreetly customers’ personal

information.
  Avoid false language and overstated claims.

Chapter 1: What do
Marketers Do?
Definitions of Marketing
 Marketing is the management process which
identifies , anticipates, and supplies customer
requirements efficiently and profitably. (UK
Chartered Institute of Marketing)

 Marketing is the process of planning and executing

the conception , pricing, promotion and distribution
of ideas, goods and services to create exchange and
satisfy individual and organisational objectives.
( American Marketing Association 2004)

-74-

The Development of the Marketing

concept
 Production Orientation

 Product Orientation

 Sales Orientation

 Consumer Orientation –This is the basis of

marketing concept

 Societal Marketing
 Relationship Marketing

Production Orientation
 During the 19th century it was often thought
that people would buy anything, provided it
was cheap enough. This belief had some truth
in it , since the invention of the steam engine
allowed very much cheaper mass – produced
items to be made. If the item was on sale at a
cheaper price, customers would opt for it as
they were prepared to accept poorer quality or
an article that didn’t really fit their needs.

 The prevailing attitude among manufacturers

was that getting production right was all that
mattered; this is called production orientation.

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Product Orientation
 Because different people have different needs some
manufacturers thought that an ideal product could be
made, one that all ( or most) customers would want.

 Engineers and designers developed comprehensively

equipped products , with more and ‘ better’ features,
 n an attempt to please everybody. This philosophy is
known as product orientation.

 Product orientation tends to lead to ever more

complex products at ever increasing prices;
customers are being asked to pay for features which
they may not need , or which may even be regarded
as drawbacks.

Sales Orientation
 As manufacturing capacity increases , supply
will tend to outstrip demand . In this scenario, some
manufacturers take the view that a ‘ born salesman’
can sell anything to anybody, and therefore enough
salesman could get rid of the surplus products. This is
called sales orientation.

 Sales orientation takes the view that customers will

not ordinarily buy enough of the firm’s products to
meet the firm’s needs, and therefore they will need to
be persuaded to buy more.

Consumer Orientation
 Modern marketers take the view that the customers
are intelligent enough to know what they need , can
recognise value for money when they see it, and will
not buy again from the firm if they do not get value
for money. This is the basis of the marketing concpt.

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 Putting the customer at the centre is easier said than
done. The marketing concept affects all areas of the
business, from production ( where the engineers and
designers have to produce items that meet
customers’ needs) through to after- sales services
( where customer compalints need to be taken
seriously.)

Societal Marketing
 This concept holds that marketers should take some
responsibility for the needs of the society at large,
and for the sustainability of their production
activities. The orientation moves the focus away from
the immediate exchanges between an organisation
and its customers , and even away from the
relationship between the organisation and its
consumers, and towards the long term effects on
society at large.

 Societal Classification of new products:

1. Salutary Products 2. Desirable Products 3. Deficient

Products 4. Pleasing Products

Relationship Marketing

 During the 1990s , marekting thinking moved towards

the relationship marketing concept.Traditional
Marketing has tended to concentrate on the single
transaction with a short term focus. Relationship
marketing focuses on the ‘ lifetime’ value of the
customer.

 Relationship marketing aims to determine who will be

the most loyal customer throughout his or her life:
 marketers are responsible for establishing and
maintaining these relationships.

 The key elements in relationship marketing are the

creation of customer loyalty, the establishment of a
mutually rewarding connection, and a willingness to
adapt behaviour in order to maintain the relationship.

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Marketing Mix

 Product

 Place

 Promotion

 Price

The 4P model has been useful when applied to the

manufacture and marketing of physical products, but with
the increase in services provision the model does not
provide a full picture. Booms and Bitner proposed a 7p
framework.

 People

 Process

 Physical Evidence

Key Concepts in Marketing

 Managing Exchange –This goes further than

promoting exchange through clever advertising and
sales techniques: it also means ensuring that goods
are where they should be, and ensuring that the
products themselves are worthy of exchange.
 Segmentation and Targeting – This is the idea that
people can be grouped according to their needs ( i.e.
there are groups of potential customers who are
looking for the same type of product) and that we
can, and should, devote our limited resources to
meeting the needs of a few groups rather than trying
to please everybody.

 Positioning – As, marketers , we often seek to create

an appropriate attitude towards our brands , and the
firms we work for.

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This perception needs to be accurate ,at least for

our target customers, other wise they will be
disappointed and will not do business with is again.

The position of our brand occupies in the minds of the

target group is critical and in this context the brand is
the focusing device for all our planning – it is the lens
through which our customers see us.
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Chapter 2 : The Marketing

Environment
The Marketing
Environment
 The marketing environment can be divided into
2 areas :
 The external environment is concerned with
everything that happens outside the
organisation.
 The internal environment is concerned with
those marketing factors that happen within the
organsiation.
 There are 2 basic approaches to dealing with
environmental forces :

 Reactive Manager
  Proactive Manager

The External Environment

 The external environment consists of 2 further
divisions:

 Micro Environment –Factors close to the

organisation

 Macro Environment – Factors common to the

society as a whole
Situational Analysis – Managers need to know
where they are now if they are able to decide
where they are going. This analysis will involve
examining the internal state of health of the
organsiation, and the external environment within
which the organisation operates

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The Marketing Environment SWOT ANALYSIS (17

Marketing textbook)

INTERNAL FACTORS
STRENGTHS

WEAKNESSES
 EXTERNAL FACTORS
NEGATIVE FACTORS

OPPORTUNITIES
THREATS

SWOT ANALYSIS (Pg. 17 Marketing

textbook)
Strengths

 What are we best at?

 What intellectual property do we own?

 What specific skills does the workforce have?

 What financial resources do we have?

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 What connections and alliances do we have?

 What is our bargaining power with both

suppliers and intermediaries?
SWOT ANALYSIS (Pg. 17 Marketing
textbook)
Weaknesses

 What are we worst at doing?

 Is our intellectual property outdated?

 What training does our workforce lack?

 What is our financial position?

 What connections and alliances should we

have, but don’t?
SWOT ANALYSIS (Pg. 17 Marketing
textbook)
Opportunities

 What changes in the external environment can

we exploit?

 What weaknesses in our competitors can we

attack?

 What new technology might become available

to us?

 What new markets might be opened up to us?

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Threats
  What might our competitors be able to do to
hurt us?

 What new legislation might damage our

interests?

 What social changes might threaten us?

 How will the economic (boom-and-bust) cycle

affect us?

Micro-and macro-
environmental forces
 -83-

Competitive Structures
 Perfect Competition – A large number of
suppliers , no one of which is powerful enough
to influence the supply level overall.
Homogenous products. Easy entry to the
market.

 Monopolistic Competition –A situation where

one major supplier has obtained a large share
of the market by the use of a differentiated
marketing approach, but other competitors can
still enter and try to carve out their own share
of the market.

 Oligopoly - A few companies control the

market almost entirely. This happens when the
cost of entry is high and the market is not
great enough to repay the capital costs of
entry of a new firm.

 Monopoly – This exists when a single firm has a

product with no close substitutes.

Michael Porter’s five forces model

1.The bargaining power of suppliers
2.The bargaining power of customers
3.The threat of new entrants.
4.The threat of substitute products and services
5.The rivalry among current competitors.

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The Micro Environment
 Competitors

 Customers

 Suppliers

 Intermediaries

 Micro Environment Publics

The Macro Environment

 Demographic Factors

 Economic Factors

 Political Factors

 Legal Factors

 Socio Cultural Factors

 Ecological and Geographical Factors

 Technological Factors

 Macro Environment Publics

 The Internal Environment
 Internal Publics are the employees of the
company.

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 The members of the organization can give a

positive or negative image of the firm after
they leave work for the day and interact
with their families and friends, and even while
in work they will usually come into contact
with some of the firm’s external publics.

 The employees of the organisation constitute

a market in their own right ;the firm needs
their loyalty and commitment, in exchange for
which staff are offered pay and security.

 Internal marketing is the process of ensuring

that employees know and understand the
firm’s strategic policies , and should feel that
putting these policies into practice will be in
their own best interests.

Chapter 3 : Consumer and Buyer

Behaviour
Consumer Decision Making – Fig
3.1
 • Problem Recognition
• Information Search
• Evaluation of Alternatives
• Purchase
• Post- Purchase Evaluation
• Divestment
Feedback loops occur after post purchase
evaluation

Problem Recognition
• Problem Recognition arises when the consumer realises that there is a
need for some item.

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• This can come about by assortment depletion or assortment extension.
• The needs can be categorised as either utilitarian or hedonic.
• An internal stimulus , or drive , comes about because there is a gap
between the actual and desired states.
• Each individual has an optimal stimulation level(OSL), which is the point
at which the drive is enjoyable and comfortable , without being
uncomfortable.
• Drives lead on to motivation, which is the reason why people take action

Information Search
• Consumers engage in 2 forms of information search:
• The internal search involves remembering previous
experiences of the product category, and thinking about
what he\she has heard about the product category.
• The external search involves shopping around , reading
manufacturers’ literature and advertisements, and perhaps
talking to friends about the proposed purchase.
Evaluation of Alternatives
 • Too much choice leads to decision paralysis, in which the
person finds it impossible to choose., so in the first instance
the individual will select a consideration set, which is the
group of products that would most closely meet the need.
Typically a consumer will use cut –offs to establish a
considerable set; these are the minimum and maximum
acceptable values for the product characteristics.
• Signals are important when making choices; a particular
price –tag, a brand name etc..

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Purchase
The actual purchase comes next; the consumer
will locate the required brand, and perhaps
choose a retailer he or she has faith in, and will
also select an appropriate payment method

Post Purchase Evaluation

• Post purchase evaluation refers to the way the
consumer decides the product purchase has
been a success or not.

• Before the purchase , the consumer will have

formed expectations of the product’s
capabilities in terms of:

• Equitable performance

• Ideal Performance
• Expected performance
• Sometimes this evaluation leads to post purchase dissonance ,
when the product has not lived up to expectations, and
sometimes to post purchase consonance when the product is as
expected or better
Divestment
• Finally, the divestment stage refers to the way the consumer
disposes of the product after use. This could be simple as
throwing an empty container into the bin, or it could be as
complex as the trade in of a second hand car. This stage is of
increasing importance to marketers, both in terms of green
marketing and in terms of the possibility of making sales of
new products.
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• In practice most purchasing decisions are habitual, and the

process is carried out quickly. (Table 3.1 –Habitual vs. Non
Habitual purchase behaviour)
Industrial Buyer Behaviour
• The major areas where organisational buying differs from
consumer buying g are as follows:
• Bigger order values in terms of finance and quantity.
• Reciprocity; the firms may buy each other’s products as
part of a negotiated deal.
• Fewer buyers because there are fewer firms than there are
individuals.

• More people in the decision process.

• Fewer sales in terms of the number of deals.
• More complex techniques exist for buying and negotiating.
Industrial Buyer Behaviour
• The chief consideration of most buyers in the organisation’s
revolves around quality, delivery service and price. Buyers will
be working to a set of specifications and will probably use some
of the following techniques.
• Description, Inspection, Sampling, Negotiation – Table 3.5
• The industrial purchase task might be a new task, straight
rebuy ,modified rebuy.
• Often the demand for industrial products will be dictated by
factors outside the buying organisation’s control. For instance,
Derived demand, Joint Demand and Fluctuating demand.
Decision Making Units
• Industrial buying decisions are rarely made in
isolation. Usually several people are involved
in the process at different stages.
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• Gatekeepers

• Influencers

• Users

• Deciders

• Buyers

Chapter 4:
Segmentation, Targeting and
Positioning

Segmentation
 The aim of segmentation is to identify a group of
people who have a need or needs that can be met by
a single product, in order to concentrate the
marketing firm’s efforts most effectively and
economically.

 Targeting is concerned with choosing which segments

to aim for. Segmentation is essentially about dividing
up the market; targeting is about the practicalities of
doing business within the market

 Positioning is concerned with the brand’s relationship

with other brands aimed at the same segment. It is
about the place the brand occupies in the mind of the
consumers , relative to other brands.

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Reasons for Segmenting Markets

 Each consumer is an individual with individual
needs and wants. On the face of it, this creates a
major problem for the marketer, since it would clearly
be impossible to tailor- make or customise each
product to the exact requirements of each individual.

 Mass marketing ( or undifferentiated marketing) in

which a standard product is produced for all
consumers will only be effective if the consumers
concerned have little choice and do not already own a
product that meets the main needs. This approach is
 less effective in economies where most consumers
already own the core benefits of the product.

 Segmentation deals with finding out how many

people are likely to want each benefit, roughly how
much they will be willing to pay for it, and where they
would like to buy it from. In this way, the firm
approaching a segmented market is able to offer
more functional benefits and more attention to
hedonic needs ( concerned with the pleasurable or
aesthetic aspects of the product.)

Advantages of Segmentation – table

4.1
 Customer Analysis

 Competitor Analysis

 Effective resource allocation

 Strategic Marketing Planning

 Expanding the market

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Segmentation Effectiveness

 If a segment is correctly identified , it should

be possible for the marketer to meet the needs
of the segment members much more
effectively than their competitors can.The firm
 will be able to provide specialist products that
are more nearly right for the consumers in the
segment, and will be able to communicate
better with them.
Targeting

 Having divided the market into segments ,

managers must decide which segment will be
the best to target , given the firm’s overall
objectives.

 The process of selecting a segment to aim for

is called targeting. There are 3 basic strategies
options open to marketers.

 Concentrated Marketing

 Differentiated Marketing

 Undifferentiated Marketing

 Concentrated Marketing ( single segment) –

This is also known as niche marketing; Sock
Shop follow this approach. The niche marketer
concentrates on being the very best within a
single tiny segment.

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 Differentiated Marketing ( Multisegmented)
means concentrating on 2 or more segments,
offering a differentiated marketing mix for
each other. Example. Holiday Inn

 Undifferentiated Marketing is about using a

‘scattergun’ approach. The producers who do
this are usually offering a basic product that
would be used by almost all age groups and
lifestyles. Example : the market for petrol is
largely undifferentiated.

Market Coverage Strategies

Choosing the right market and then targeting
it accurately are possibly the most important
activities a marketer carries out.
Strategies

Product /market concentration

Product Specialisation

Market Specialisation

Selective Specialisation

Full Coverage

Positioning
 Positioning has been defined as: ‘The place a
product occupies in a given market , as
perceived by the relevant group of customers;
that group of customers is known as the target
 segment of the market.’Usually positioning
refers to the place the product occupies in the
consumers’ perceptual map of the market.
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Positioning
Research shows that consumers use a relatively
short list of factors in determining the position of a
product.

 Top of the range

 Service

 Value for money

 Reliability

 Attractiveness

 Country of origin

 Brand name

 Selectivity
-94-