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MANAGEMENT OFBUSINESSFOR CAPE EXAMINATIONSJEROME PITTERSONCAPE is a registered trade mark of theCaribbean Examinations Council (CXC ).MANAGEMENT OF BUSINESS for CAPE EXAMINATIONS is an independentpublication and has not been authorised,sponsored, or otherwise approved by CXC.

Macmillan Education4 Crinan Street, London, N1 9XWA division of Macmillan Publishers LimitedCompanies and representatives throughout the world.www.macmillan-caribbean.comISBN 978-0-230-40043-6ISBN 978-0-230-48319-4 AERText Jerome Pitterson, 2014Design and illustration Macmillan Publishers Limited, 2014The author has asserted his right to be identified as the author of thiswork in accordance with the Copyright, Designs and Patents Act 1988.First published 2014All rights reserved; no part of this publication may be reproduced,stored in a retrieval system, transmitted in any form, or by any means,electronic, mechanical, photocopying, recording, or otherwise, withoutthe prior written permission of the publishers.Designed by Oxford Designers and Illustrators and Macmillan EducationIllustrated by JB IllustrationsCover design by Clare WebberCover photograph by Art Directors and Trip/ Chris KapolkaPicture research by Thomas Bonsu-DartnallTypeset by CjB Editorial PlusThe author and publishers would like to thank Judy Sewsaranfor her assistance in preparing this book.Author’s acknowledgement: I want to thank God for the knowledgeand strength he has bestowed on me to complete this text successfully.Sincere gratitude is also extended to my family, for their supportand inspiration throughout this process, and to the students I havetaught for their encouraging words and who are waiting to seethis publication. Thanks to everyone who had a part to play in thecompletion of this book.The author and publishers would like to thank the following forpermission to reproduce their photographs:Alamy/Rolf Brenner p186, Alamy/Cultura Creative p189,Alamy/Howard Davies p12, Alamy/Martin Floren Emmanuel p16,Alamy/David Kilpatrick p19, Alamy/View Pictures ltd p51:Corbis/Bob Krist p14, Corbis/Roy McMahon p13;Fotolibra/Jana Anderson p33, Fotolibra/Clifford Haroo p21;Getty Images/Mark D Callahan p20;Thinkstock p187.The author and publishers are grateful for permission to reprint thefollowing copyright material:Extract from Functions of the bank by Caribbean Development Bank Caribbean Development Bank. Reprinted by permission of the Bank.Extract from ‘Costing’ by T. Lucey 2000, Cengage Learning EMEALtd. Reproduced by permission of Cengage Learning EMEA Ltd.Extract from planwith permission of Entrepreneur Media, Inc. 2014 by EntrepreneurMedia, Inc. All rights reserved.Extract from ‘Innovation and Entrepreneurship’ by Peter F. Drucker Peter F. Drucker. First published in 2007 by Taylor & Francis Ltd.Extract from ‘Organizational Behaviour’ by Stephen P. Robbins andTimothy A. Judge, 15th Edition, 2013. Reprinted by permission ofPearson Education, Inc., Upper Saddle River, NJ.Extract from info@sbaj.org.jm Small Business Association of Jamaica.Reprinted by permission of the organization.These materials may contain links for third party websites. We haveno control over, and are not responsible for, the contents of such thirdparty websites. Please use care when accessing them.Although we have tried to trace and contact copyright holders beforepublication, in some cases this has not been possible. If contacted we willbe pleased to rectify any errors or omissions at the earliest opportunity.

3ContentsList of figures and tablesIntroduction710UNIT 1 MANAGEMENT PRINCIPLES ANDPROCESSES11MODULE 1 BUSINESS AND ITS ENVIRONMENT 121 Economic and Legal StructuresTypes of economic activityEconomic sectors and legal structuresThe private sectorThe public sectorPrivatisationMultiple Choice QuestionsExtended Essay Questions12121415232627282 Business ObjectivesNature, role and importance of objectivesBusiness ethics and social responsibilityObligations of the firm to stakeholdersGood corporate governanceImportance of business ethics and integrityCode of ethicsGovernment’s response to social irresponsibilityMultiple Choice QuestionsExtended Essay Questions292932343434343535363 Decision MakingEssential features of informationSignificance of qualitative versus quantitativedecision makingThe stages of decision makingFactors affecting decision makingMultiple Choice QuestionsExtended Essay Questions37374 Caribbean Business Environmentand GlobalisationThe nature and structure of Caribbeanbusiness organisationsCaribbean business cultureThe growth of multinational corporationsin the CaribbeanThe impact of trade liberalisation and r barriers to tradeMultiple Choice QuestionsExtended Essay Questions54555657MODULE 2 THE MANAGEMENT OF PEOPLE585 The Functions and Theories of ManagementThe need for and nature of organisationsThe major management theoriesThe functions of managementThe roles of managementMultiple Choice QuestionsExtended Essay Questions585858646567676 The Organisation and its StructureClassification of organisationsFactors influencing the classification of organisationsCharacteristics of the formal organisational structureCentralisation and decentralisationMultiple Choice QuestionsExtended Essay Questions686872737576767 The Theory and Application of MotivationFactors that stimulate and influence motivationTheories of motivationFinancial and non-financial motivational strategiesImplications for managersMultiple Choice QuestionsExtended Essay Questions777778808587878 LeadershipLeadership theoriesTheory X and Theory YThe Trait TheoryLeadership skillsLeadership stylesFactors influencing the choice of leadership styleLeadership rolesInformal leadershipMultiple Choice QuestionsExtended Essay Questions88888889909294959596979 Team Management and ConflictThe nature of teams9898

4 CONTENTSStages of team developmentTypes of formal groupCharacteristics of effective teamsTeam or group cohesivenessEvaluation of team workBenefits of team management to the organisationConflict managementMultiple Choice QuestionsExtended Essay Questions99999910010110110110610610 Management of ChangeFactors that may cause change in the organisationDifferences between leading and managing changeResistance to changeStrategies for managing changeThe importance of communication in themanagement processMultiple Choice QuestionsExtended Essay Questions10710710810811011 Communication in BusinessTypes of communicationThe communication processChannels of communicationFactors influencing the choice of channel usedLines of communicationBarriers to effective communicationReducing barriers to communicationMultiple Choice QuestionsExtended Essay Questions11311311311411611711912012212312 Human Resource ManagementThe role and importance of humanresource managementThe functions of human resource managementLabour–management relationsLaws affecting health and safety in the workplaceMultiple Choice QuestionsExtended Essay Questions124MODULE 3 BUSINESS FINANCE ANDACCOUNTING13 The Need for Capital and Sources of FinanceThe need for capitalSources of financeCriteria for seeking financeHow to choose from these sources of funds?Money and capital markets and internationalfinancial institutionsThe money and capital marketsMultiple Choice QuestionsExtended Essay 014314314514714714 Accounting Information andFinancial StatementsWhy do we need accounting records?Internal users of accounting informationExternal users of accounting informationGetting started with accountingComponents of financial statementsMultiple Choice Questions14814814814914915215815 Financial Statements AnalysisFinancial analysisImportance of financial analysisRatio analysisTypes of ratioMultiple Choice QuestionsExtended Essay Questions15915915915916016616616 Budgetary AccountingProjectionsThe budgeting processCategorisations of budgetsOperational budgetsTypes of budgetBudgetary controlMultiple Choice Questions16716716716816816817017217 Investment AppraisalInvestmentInvestment appraisalAnalytical methods of appraisalLimitations of investment appraisalComparison of methods of appraisalMultiple Choice Questions173173173173178178179END OF UNIT ASSESSMENT180UNIT 2 APPLICATIONS IN MANAGEMENT184MODULE 1 PRODUCTION AND OPERATIONSMANAGEMENT18518 The Nature of ProductionThe production processFactors of productionWhat to produce?Production methodsFactors that influence the method of production usedWhen to produce?Location of productionMultiple Choice QuestionsExtended Essay Questions18518518518618619019119119519519 Forecasting TechniquesForecasting techniques196196

CONTENTSQualitative forecasting techniquesQuantitative forecasting techniquesMultiple Choice QuestionsExtended Essay Question19619920220320 Production Design Strategies andCapacity PlanningProduct design planningProduct design strategiesCapacity planningCapacity utilisationOptions available to increase capacityEconomies and diseconomies of scaleDiseconomies of scaleBusiness layoutMultiple Choice QuestionsExtended Essay Questions20420420420620720820821021021521521 CostingDirect costsIndirect costsFixed costsVariable costsFixed costs per unitSemi-variable costApproaches to costingIncluding stockApplication of marginal costing’Make or buy’ decisionsMultiple Choice QuestionsExtended Essay Question21621621621621621721721721922022122322322 Inventory ManagementImportance of inventoryImportance of inventory controlInventory control managementMultiple Choice QuestionsExtended Essay Question22422422422522822923 Lean Production and Quality ManagementImportance of qualityDimensions of qualityTechniques for improving qualityMultiple Choice QuestionsExtended Essay Questions23023023023123924024 ProductivityFactors that affect productivityMethods of measuring productivityMethods of improving productivityMultiple Choice QuestionsExtended Essay Questions24124124324324624625 Project ManagementCritical Path Analysis (CPA)Decision treesMultiple Choice Questions247247250253MODULE 2 FUNDAMENTALS OF MARKETING 25426 The Concept of MarketingThe core marketing conceptsMultiple Choice QuestionsExtended Essay Question25425426026027 The Marketing EnvironmentThe micro-environmentThe macro-environmentMultiple Choice QuestionsExtended Essay Questions26126126226526528 Marketing ResearchImportance of conducting marketing researchImportance of developing a research planStages of marketing researchLimitations of market researchMultiple Choice QuestionsExtended Essay Questions26626626626627227427529 Principles of SegmentationMarket segmentationCriteria for effective segmentationBases of segmentationConsumer buying behaviourThe consumer decision-making process(the buying process)Factors influencing buying behaviourMultiple Choice QuestionsExtended Essay Questions27627627827828130 Product ManagementThe concept of productDimensions of the product mixProduct line and extensionThe Boston MatrixNew product development processThe product lifecycleBranding and packagingCharacteristics of servicesMultiple Choice QuestionsExtended Essay Questions28528528628628628929029229329629731 Pricing DecisionIntroduction to pricingFactors influencing pricing decisionsPricing strategies2982982993022812832842845