Leadership Styles - Part II

Normally CIE A-level Business candidates assume autocratic leadership style is not a good option for a business as they themselves do not like commanding environment. They consider autocratic leader is the boring one who does not consider opinions and creativity of staffs. Reflecting themselves and standing in their own situation they find any autocratic dean or teacher demotivating. It is true that autocratic leadership style de-motivates creative staffs and labour turnover increases. They are right in their situation but situation varies in business cases. Thus, CIE A-level Business candidates should consider autocratic leadership might be the best in some scenarios. Autocratic leadership will be best in any case where workers are unskilled, dependent, inexperienced and not creative but leader is experienced, skillful and well-known for previous decision-making. In such case, people are not creative enough to be demotivated. Furthermore, autocratic leadership is best in crisis handling situation and war-time situation. It is more significant in handling sensitive issues and in a case where quick decision makes the hit.

CIE A-level Business candidates, on the other hand, assume democratic leadership style to be the best one. They might reflect their own situation thinking ‘freedom and value’ do count for the best. They think democratic leadership of a teacher or department head, where issues are discussed and their own writing pattern and creativity in answers are encouraged, as the most suitable one. They are correct for their situation. Democratic leadership suits where creative people works and are taking responsibilities independently. People are properly communicated about issues, problems or progress in a business. Discussion before making decision provides a platform for workers to forward their creativity. Those creative people provide new ideas that might input in business for its success. For Involvement in decision-making, people find their values. All of these together boost up motivation in people. Further, people will be motivated to give their best. They take the decision as their own as the decision is taken after discussion with them. But as said above, situation varies in business cases. Thus, democratic leadership style might not be best all the time. Decision making might be delayed in democratic leadership style as discussion takes time for conclusion.  Such delayed decision might cause some opportunities to be lost. Similarly, in case of crisis-handling and dealing with sensitive issues, it’s better not to open issues and discuss among people for decision. If people are dependent and not creative, democratic leadership style will be useless. Sometimes conflict in discussion and wrong decision for going with group might impact business negatively.

Note that: laissez-faire leadership style is extreme democratic type. So it is to some extent covered by democratic leadership explanation. To be more specific, in democratic leadership some authority might also be delegated to people but in laissez-faire approximately all the authority will be given to staffs along with a control band to work with. For the freedom to do work, especially research work can have best result. Thus, Laissez-faire is most suitable in research work.

Note that: CIE A-level Business might ask for suitable leadership style or appropriateness of a leadership style. The clue is none of the leadership style is best. Appropriateness of a leadership style depends on given scenario. Sometimes autocratic leadership style might be better; sometimes democratic leadership might be the best. CIE A-level Business candidates must be conscious to find the better leadership style with reference to a case given to them.

If previous case is referred (Leadership styles - Part I), Mrs. Paula’s autocratic leadership style seems inappropriate in ‘Case I’ for Tim and some of his co-worker seems experienced with abilities to bear responsibilities. Mr. Sam’s democratic leadership style seems appropriate in ‘Case II’ for his staffs seems to be creative and team-working. For ‘Case IV’, Laissez-Faire leadership might be okay with Mr. William but referring to other three people, laissez faire might not be suitable.      

Note that: Autocratic and democratic leadership are best explained with Theory X and Theory Y concepts of McGregor. Autocratic leader does not discuss with workers. This might be because he thinks workers are not creative and dependent. They are to make responsible providing proper command and controlling each action with close supervision. Referring to McGregor, Theory X manager thinks workers are not creative, not able to take responsibilities and not liking jobs; therefore, autocratic leadership is considered best. Such thinking might build Theory X culture where workers will really be dependent, and not enthusiast for work until said to do.

The next clue comes over here. Until such Theory X culture is changed, democratic leadership is not possible. If Theory Y culture exists, workers will be independent, motivated and creative. People can be discussed to reach better decision. Under this culture, Theory Y manager is developed. Theory Y manager thinks that workers are creative, able to take responsibilities and enjoying jobs.

If CIE A-level Business candidates are suggesting democratic leadership to improve motivation of experienced staff that is hindered by autocratic leader, they should reflect need of changing from Theory X concept to Theory Y concept.  They should not only outline Theory Y manager should be appointed, but also refer need of Theory Y culture to be developed. 

(Further post is coming soon.)

Leadership Styles (Part I)

Leadership style varies depending on how decisions are made on a business. A leader might be making decision alone or in association with people. Some leadership styles also provide authority to its people to make decision. Let’s take following cases to clarify concepts of various leadership patterns.

Case I: Mrs. Paula owns a shopping mart. She does not prefer to discuss or share anything with her staffs with regard to problem or progress in the mart. The only thing she thinks is she has to yell at the staffs to make them work better and command her staffs each time what they got to do. Tim, the manager at the mart is experienced for years and he is always annoyed for her shouting at him. He and some of his co-workers are looking for job elsewhere.     

 Case II: Mr. Sam is the principal at a school. Since his appointment as a principal, number of students attending the school has been dramatically increased. He develops frequent seminars and meetings with his staffs so that they can be well communicated on the school’s situation. Before making any decision, he develops a discussion table with the relevant staffs. There have been lots of changes in schools since he became the principal. However, he gives credits to relevant staffs whose creativity came forth for the change. Sam has explained the success of school is not only for his effort but also for the efforts of all his team members.

Case III: Mr. Edward owns a small petrol station. His two sons, one daughter along with 3 other staffs work with him. However, the business is under his sole ownership. Last year, he added a workshop for repairing automobiles. Before deciding to open the workshop, he asked for opinion of his sons and daughter for expansion option. His daughter suggested him to add a retail selling additional lubricants required for vehicles. Both on his sons asked him to add on taxi service to serve local people nearby. He listened to all but he made the decision by himself and added the workshop hiring three mechanics as his additional staffs.

Case IV: Miss April has expanded her business to various industries. She owns a retail shop, a diamond shop, a real state and a travel agency. Recently, she took over a bakery house. For the bakery house, she appointed Mr. William and other 3 other people whom she has given whole responsibility to make it a success. All are MBA graduate. Mr. William got specialization in hotel management while others have specializations in other different fields. They have been given full authority to make any decision on their own including hiring of any staffs required. But she outlined the bakery should only be targeting to provide quality items to 4-star or above hotels. Mr. William is so much enthusiast to use his creativity and his decision making power. However, other three are anxious for the extended freedom. They think they neither will have any guidance nor will have any feedback for his work from Miss April. 

Now, let’s analyse all the cases outlined above. ‘Case I’ is case of autocratic leadership style. Paula seems to be authoritarian leader. She has been making decision alone without anyone’s consent. ‘Case II’ refers to democratic leadership style. Mr. Sam is making the decision in consultation with his people. In ‘case III’, Edward listens to his people but makes decision on his own. So, it is the case of paternalist leadership. ‘Case IV’ shows freedom in making decision given a limit of dealing with 4-star or above hotels only. Here, even Miss April has given authority to Mr. William and other three people in making decision within the given limit. Thus there is ‘Laissez- Faire’ style of leadership.

The clue comes over here. Specific leadership style might not be clearly said but implied. CIE A-level Business candidates are required to identify which specific leadership style the case is dealing with.

Note that: Case III is just for simple understanding. CIE A-level Business has not included paternalist leadership in the syllabus. However, CIE A-level candidate can add on that concept in his writing.

CIE A-level Business might also be asking advantages and disadvantages for a leadership style adopted in the case. CIE A-level Business candidate should make sure not to escape what is given in the case along with other possible answers. Such references improve the score in CIE.

Referring to above ‘case I’, with autocratic leadership of Mrs. Paula, Tim and some of his co-workers are leaving the shopping mart. That outlines demotivated staffs as a disadvantage of that leadership style. Similarly, in ‘case II’, with democratic leadership style, Mr. Edward is able to use creativity of staffs for the business success. Most probably, the staffs are motivated for proper communication and consultation in making-decision. Referring to ‘case IV’, for ‘Laissez-fair’ style of leadership, people are motivated to work for freedom to work. Mr. William seems highly motivated to use his creativity and most probably reach self-actualisation. That can be added as advantages for the leadership style. On the other hand, the disadvantages can be outlined with reference to other three people who are anxious for lack of confidence for their doing due to no guidance and feedback provided.  

(‘Leadership Styles - Part II’ will be posted soon.) 

Business Decision and Impacts on Stakeholders

Owners, shareholders, workers, customers, government, suppliers and community are basic stakeholders of a business. Whenever a business takes a decision, these stakeholders will have impacts either positive or negative; however, sometimes stakeholders might have positive as well as negative impacts.

Let’s see how various stakeholders of a business are affected by its decision.

Figure: Business and Its Stakeholders 

Think a Case:

ABC Food is a private limited company that has been manufacturing potato chips branded as ‘AALUZ’ employing 50 staffs. ‘AALUZ’ has been highly demanded in the market for its unique taste. ABC Food has been using local potatoes for its production. Now, it has decided to bring automated machine for producing ‘AALUZ’. Using automated machine, it can double its production and ‘AALUZ’ can be produced easily with consistent quality using 5 skilled staffs only. Now let’

s analyse what might be the impacts on various stakeholders for such decision of ABC Food.

Shareholders are interested in earning divided as a return for their investment. They are also interested to have increased value of their investment. Some are also interested to have control over the business for their investment. In the case of ABC Food, shareholders might be very happy as their interest of gaining higher return will be easily satisfied. Even shareholders might be benefited for increased value of investment. With new machines and few workers, ABC Food can lower its operating cost and can earn higher profit. Higher demand can be easily covered so sales increase which in turn provides higher profit to the business. But, the shareholders’ control might be diluted if new shareholders are added for extra capital investment to bring machinery. If loan is taken, shareholders might have less return for interest to be paid back from prospective profit.

Workers are interested in getting job security. Workers of ABC Food might be worried for the decision as the decision will not secure their jobs. The case of redundancy will be the big concern for them. Surely, 45 staffs will be no longer needed as they will be replaced by automated machine. Remaining staffs either have to go for further training or will be replaced by skilled manpower. Whoever will be fortunate enough to remain, they will also be demotivated for having no job security in the future.

Customers are interested in product’s availability. They might be interested in quality to secure good value from products against their pay. Customers of ABC Food might be benefited for the decision. They will have enough supply of ‘AALUZ’ in the future with consistent quality. They might have low price for the same product if ABC Food transfer their cost saving to customers so as to lead the snacks market.

Community is interested in social welfare. They are interested to have benefit to the society but not to have any harm or disturbance to the society or the surroundings. Their interest in business is also employment. They prefer business to hire at least some local people. Community might be frustrated against ABC Food decision for their people will be out of job and unemployment increases in the society. Further, the machine might be noisy creating noise pollution to the surroundings. However, Community might be happy for more of their potatoes will be purchased by ABC Food.

Government is interested in revenue generation from tax collection, economic growth, lower unemployment level etc.  Government might be happy for higher tax collection from higher profit of ABC Food. ABC food will be supporting economic growth contributing to generate higher GDP of the country producing more ‘AALUZ’. However, replacing men with machine might worry government as the decision will make 45 people unemployed.

Suppliers are interested in long term supply, get proper order, earn profit from supply etc. Suppliers of ABC Food are the local farmers and local warehouses. They will be happy for the decision of ABC Food. They will be supplying more potatoes to ABC Food. With automated machines, ABC might be able to calculate future periodic production and can easily outline exact requirement of potatoes. Thus, they might be providing proper supply order and might also be making long term contract with local farmers as suppliers.    

Note that: CIE A-level Business has frequently asked impacts of business decision on stakeholders. Normally, it asks impact of business decision (in specific case given) on any two stakeholders. A-level candidates are required to select any two stakeholders that can be properly explained. They have to explain impacts on those two selected stakeholder based on given case properly; no matter, the impacts are positive, negative or both.       

What happens if legal structure of a business changes? (Part II)

Think what happens if a sole trader incorporates to a company. The legal structure changes from ‘unincorporated’ to ‘incorporated’. The new legal structure will have specific benefits and limitations for being a company; no matter, private limited company or public limited company.

If you have referred the previous post, you might have already gathered knowledge on sole traders. So this post is not repeating the same.

This time, think a case of a business operating as a company. Say, Laura owns a company.

Here, Laura has incorporated the business as a company following complex legal formalities. She has presented ‘Article of Association (AOA)’, Memorandum of Association (MOA), and Prospectus (as required) to Company Registrar’s Office (CRO) for approval before operating the business. After approval the company has its own legal personality different than Laura herself. It has its own identity including its own name, address, objectives etc. as stated on approved MOA. It has its own working pattern including number of board member, requirement for a decision etc. as outlined by approved AOA. Such separate legal entity encircles any of its liability within its own resources. This has benefited Laura as her personal property is not at risk. The liability of Laura is limited to the amount she has invested in the company.

As the owner, Laura will be a shareholder of the company. She will be purchasing the shares of the incorporated business and providing capital for its operation. She might be the single owner again (similar to the sole trader) or might have other shareholders as owners. If she has other shareholders, the business can raise higher capital required its operation. Other owners might be known (if private limited company) or unknown general people (if public limited company).

Note: Refer to my previous post for an analysis of CIE A-level Business question on the issue: ‘Business with a single owner is a sole trader or a private limited company?’

For the company having separate legal entity different than that of Laura, the benefits also comes in two types. Company will be benefited on one side and Laura will be benefited on other side. CIE A-level Business might query on any part or both. 

In this case, access to higher capital is the benefit to the company. With higher capital, business is able to grab better opportunity and can earn more profit that gives higher return in the form of dividend to Laura or she gains higher value of her investment.

Laura is also glad that her efforts on business will not go in vain. She can transfer the shares to any other and her business continues. Even if she dies, shares will be transferred to her nominees and business continues. 

CIE A-level Business expects such understanding and prefers to ask whether a sole trader should be converted to a company. The recommendation should include benefits or drawbacks to the owner like Laura for being incorporated. Key words like limited liabilities, continuity, higher capital raising option etc. are to be covered for proper evaluation.

Now, let’s think other conversion of legal structure within incorporated ones. Laura is operating Private limited company with three of her friends; however, she is thinking to go public.

With private limited company, Laura along with her three friends are known shareholder and shares are transferable with consent of all. But if it goes public, shareholders will be general people. The company has to go with additional complex legal formalities. It has to be listed under stock exchange as well.

 

Being private limited company, Laura (along with her friends) is privileged with unlimited liabilities and continuity. If company goes public, her privilege will still remain. In addition, Laura will be able to have easy exchange of shares without anyone’s consent that is a requirement in private limited company. For that additional benefit, more investors / shareholders will be enticed and business can easily raise its required capital. Further, growing to public limited company provides higher capital from general people even providing higher status to the business.  However, Laura might be afraid if an outsider takes over and her control from the business might be lost as shares will be floating in the market.  

CIE A-level Business prefers to ask questions on such issue as well. It might ask to evaluate the issue whether to go with public or not. The recommendation should include floating shares, easy exchange of share, capital availability etc.

So here comes The clue. If CIE A-level Business provides issue on conversion of sole traders to private limited company, focus on relative differences being incorporated from being unincorporated. Along with keys like limited liabilities, continuity etc., the recommendation might include higher capital with additional shareholders. If CIE A-level Business questions on issue related with conversion of private limited company to public limited company, try to escape the above mentioned difference between incorporated and unincorporated and cover other keys like easy exchange, higher status, risk of takeover etc.  

 (To be continued... further will be posted soon)

What happens if the legal structure of a business changes? (Part I)

Think what happens if a sole trader joins partners. The legal structure changes from ‘Sole Trader’ to ‘Partnership’. Initially as a sole trader, a single owner exists. But as soon as a partner(s) is added, the owners will be more (at least two).

Take care. You might take sole trader as an unincorporated business but partnership business as an incorporated business. You might be confused with ‘Partnership Company’ referred in accounting. You got to be clear both are unincorporated.

Let’s go step by step.

First, think a case of a business operating as a sole trader. Say, Laura owns a sole trading business.

As sole trader, Laura might be benefited with her full control over the business. Any changes or any decision including working pattern, working hours or even dissolution of business will be solely her decision. Any profit earned goes to her single pocket. There is no one else to share for her single investment involved in the business. She uses her own skills, ideas or creativity for business success and can reach her full potential. She deals with customers and suppliers personally developing good and direct relationship with them. On early operation, she was not following complex legal formalities. Just informing government about business establishment was enough to run her sole trading business.

On the other hand Laura might be limited by her resources as a sole trader.  Sum of her earnings, savings, money from sale of assets, personal loans etc. might be too small to provide adequate capital for her business. Her profit might be limited as she might not have access to most profitable sector due to lack of proficiency, idea or experience in the most profitable sector. For her pressure on securing her investment and higher return, she might be much absorbed by business works and her family life might be a disaster. She will have to bear unlimited liabilities alone. She is responsible to bear any debt or loss of the business alone even by selling her personal owning. Her business loss or loan will not be considered different than her own as the business has no separate legal entity. Thus, business dies with her if she dies or decides to quit the business.

Next, let’s think a case of a business operating as a partnership business. (Take care. It is still unincorporated one.) Say, Laura, Jim and Harry are operating a partnership business.

Establishment was easy. Laura, Jim and Harry were not to follow complex legal formalities; just informing government about partnership was enough for their business operation. Capital was easier for them as each partner injected some capital in the business. Jim and Harry are from different specific profitable sector to make business access to higher profit. Decision making is also easy. Laura, Jim and Harry analyse from different angles for a problem and better solution can be brought by joint discussion. However, once an opportunity was lost for delayed decision.

On contrary, the trio are responsible to bear unlimited liabilities. Any debt or loss of the business is to be covered selling their personal belongings. Any debt or loss from business is no different than their own as there is no separate legal entity of business. if Laura made mistake and loss appeared, Jim and Harry are equally responsible to pay the (unlimited) liability. Laura might feel advantageous for such shared unlimited liabilities. If Jim or anyone decides to quit the business, the partnership collapses. New agreement is required if remaining partners prefer to continue the business, old partnership no more exists. None of the partners is able to control the overall business alone until partnership goes.

Now, let’s think of the other verse. Laura was operating a sole trading business and now she is offered to join Jim and Harry for partnership. Should she join Jim and Harry or go alone?  

CIE A-level Business prefers to ask such question. If Laura prefers to go partnership, Laura would be benefited by relative advantages of partnership over sole trader. The benefits might be access to profitable sector, more capital for business, better decision making etc.   If Laura prefers to go alone, she would be benefited by relative advantages of sole trader over partnership. The benefits might be monopoly on business control, sole claim on profit, self actualisation etc.

So the clue comes over here. If CIE a-level business asks on conversion of legal structure from sole trader to partnership, the answer should cover only relative matters. There should not be inclusion of benefits or drawbacks common to both legal structures. Both sole trader and partnership are unincorporated business and have common benefits like ‘no complex formalities’ and common drawbacks like ‘discontinuity’. Such issues are not to be included in the answer.  But, sole trader has sole unlimited liabilities that are shared in partnership. Thus, this issue is to be outlined in the answer.

(To be continued... Part II will be posted soon.)

CIE A level prefers generalised legal provisions or specific laws outlined?

Cambridge International Examinations (CIE) for a level is an international exam targeted worldwide. It does not prefer to check any local laws and specific country-based or state-based legal provisions. CIE A-level Business candidates are business students rather than law students. Thus, CIE searches business concepts rather than country / state based legal specifications. 

Note that: CIE A-level Business candidates might be only focusing on specific legal provision within a country but escaping to include the impact on a business. This might reduce their score to lower level. CIE A-level Business prefers to check understanding on generalised legal provision rather than specific legal provision within a country. However, CIE A-level Business candidates can exemplify specific legal provision to show his / her better understanding.

For a clear understanding, let's check some examples.

Example 1:

Partnership is an unincorporated business where two or more people undergo an agreement, verbal or written, with a motive to earn profit. The agreement outlines each partner’s investment, profit sharing ratio, responsibility, authority etc. Here, 'CIE a-level Business' prefers to check basic concept. That is, requirement of at least two partners for unincorporated legal structure as a partnership business. CIE a-level business does not prefer to check legal provision of maximum number of partners specific to a country’s law. 

It's also seen that CIE a level has not included limited liability partnership, a common legal structure under UK, in its A-level Business syllabus.

Example 2:

CIE prefers to check the concept of minimum wage rate in general. A business has legal constraint. It must provide minimum wage rage as outlined by law. It is the right of workers to earn minimum wage rage. UK has set minimum wage rate of £6.50 per hour for any workers of 21 years or above. US have variations in minimum wage rate in different states. For large employers in Minnesota State, minimum wage to be paid is USD 9.00 per hour and for small employers it is USD 7.25 per hour. 

Note that: CIE A-level Business does not prefer to check what UK law says or US law says. In fact, CIE wants to check CIE A-level Business candidates understanding on concept of minimum wage rate and its impact on business rather than specific legal outlines. It checks what happens if minimum wage rate is changed or if business moves to country with higher minimum wage rate. It might also check effect on workers’ rights for fixation of minimum wage rate. However, as mentioned above, A-level Business candidate can demonstrate conceptual understanding with illustration of real specific legal provisions.

Example 3:

CIE a-level business might prefer to check conceptual understanding on work time directives. Every country has developed work time directives including maximum working hours. UK has developed maximum working hours of 48 hours per week for adults.  In Netherlands, maximum working hour per day is 12 hours per day and maximum working hour per week is 60 hours. Business cannot enforce anyone to work beyond the limit outlined by work time directives without consent of relevant staffs. Even with consent, he / she has to be paid overtime pay which will be higher than normal pay.

Note that: CIE A-level Business prefers to check general concepts on work time directives and its impact on business and workers’ rights. It will not check specific work time limits in a country and specific overtime pay rate.

Example4:

CIE a level business might prefer to check concepts on age bar relating with availability of specific age groups in the market. There is restriction with regard to consumption of alcoholic beverages, cigarettes etc. for under-aged children. Even purchasing of some products might be limited with age bar. Business has to be conscious for age-bar-limiting product with the size of specific age range in the market. Age bar might vary in different country between 16 years to 21 years. UK and Australia takes age bar of 18 years to purchase alcohol or enter night bar. Pub or night clubs cannot serve people who are 17-year-old or below that.

Note that: CIE A-level Business prefers to check general theme on impact of age bar on business rather than specific age limit of a county. However, if A-level Business candidate explains concept with specific legal reference, it is considered good.

(To be continued... Next posting is coming soon.)