Human Resource Management

Recruitment

• Advertising
• Job Description
• Person Specification
• The process by which a job vacancy is identified and potential employees are notified.
• The nature of the recruitment process is regulated and subject to employment law.
• Main forms of recruitment through advertising in newspapers, magazines, trade papers and internal vacancy lists.
• Job description – outline of the role of the job holder
• Person specification – outline of the skills and qualities required of the post holder
• Applicants may demonstrate their suitability through application form, letter or curriculum vitae (CV)

Selection

• Short Listing
• Interview
• Presentations
• In-Tray Exercises
• Psychometric Testing
• Aptitude Testing
• The process of assessing candidates and appointing a post holder
• Applicants short listed – most suitable candidates selected
• Selection process – varies according to organisation
• Interview – most common method
• Psychometric testing – assessing the personality of the applicants – will they fit in?
• Aptitude testing – assessing the skills of applicants
• In-tray exercise – activity based around what the applicant will be doing, e.g. writing a letter to a disgruntled customer
• Presentation – looking for different skills as well as the ideas of the candidate

Employment Legislation

• Equal Opportunities
• Discrimination
• Union Recognition
• Contracts
• Health and Safety
• EU Directivies
• Increasingly important aspect of the HRM role
• Wide range of areas for attention
• Adds to the cost of the business
• Even in a small business, the legislation relating to employees is important – chemicals used in a hairdressing salon for example have to be carefully stored and handled to protect employees.
  

Discrimination

• Crucial aspects of employment legislation:
  –Race
  –Gender
  –Disability
• Disability is no longer an issue for employers to ignore, they must take reasonable steps to accommodate and recruit disabled workers.
  Copyright: Mela, http://www.sxc.hu

Discipline

• Grievance Procedures
• Dismissal
• External Agencies - ACAS, Tribunals, EU
• Firms cannot just ‘sack’ workers
• Wide range of procedures and stepsbin dealing with workplace conflict
  –Informal meetings
  –Formal meetings
  –Verbal warnings
  –Written warnings
  –Grievance procedures
  –Working with external agencies

Development

• Opportunities
• Promotion
• Personal Development
• Continuing Professional Development (CPD)
• Developing the employee can be regarded as investing in a valuable asset
  –A source of motivation
  –A source of helping the employee fulfil potential +

Training

• New skills
• New systems
• Improve efficiency
• Similar to development:
  –Provides new skills for the employee
  –Keeps the employee up to date with changes in the field
  –Aims to improve efficiency
  –Can be external or ‘in-house’

Rewards Systems

• Pay
• Benefits
• The system of pay and benefits used by the firm to reward workers
• Money not the only method
• Fringe benefits
• Flexibility at work
• Holidays, etc.

Trade Unions

• Role
• Necessity of consultation
• Importance of building relationships with employee representatives
• Role of Trade Unions has changed
• Importance of consultation and negotiation and working with trade unions
• Contributes to smooth change management and leadership

Productivity

• Output per worker per period of time
• Measuring Performance

1. How to value the workers contribution
2. Difficulty in measuring some types of output – especially in the service industry
3. Appraisal
   –Meant to be non-judgmental
   –Involves the worker and a nominated appraiser
   –Agreeing strengths, weaknesses and ways forward to help both employee and organisation
   
   
   
   

Finance and Accounts, 8 May 2007

Finance and Accounts

1. Key Terms
2. Break Even
3. Purpose of Accounts
4. Profit and Loss Account - Flow
5. Balance Sheet - Snapshot

Key Terms

1. Costs
2. Revenue
3. Profit/Loss

Costs

Fixed – are not influenced by the amount produced but can change in the long run e.g., insurance costs, administration, rent, some types of labour costs (salaries), some types of energy costs, equipment and machinery, buildings, advertising and promotion costs

Variable – vary directly with the amount produced, e.g., raw material costs, some direct labour costs, some direct energy costs

• 
  Total Costs (TC) = Fixed Costs (FC) + Variable Costs (VC)
• 
  Average Costs = TC/Output (Q) - AC (unit costs) show the amount it costs to produce one unit of output on average
• Marginal Costs (MC) – the cost of producing one extra or one fewer units of production
  -MC = TCn – TCn-1

Revenue

• Total Revenue – also known as turnover, sales revenue or ‘sales’ = Price x Quantity Sold
• TR = P x Q
• Price – may be a variety of different prices for different products in the portfolio
• Quantity – could be global sales

Profit

1. Profit = TR – TC
2. Normal Profit – the minimum amount required to keep a business in a particular line of production
3. Abnormal/Supernormal Profit – the amount over and above the amount needed to keep a business in its current line of production
   

Break Even

TC=TR

1. Occurs where Total Costs = Total Revenue
   –Start-up costs – fixed costs
   –Running costs – variable costs
   –Revenue stream depends on price charged
   –‘Low’ price – need to sell more to break-even
   –‘High’ price – lower level of sales required before breaking even

Purpose of Accounts

1. Provide Information
2. Monitor Activities
3. Transparency
4. Reduce Chance of fraud

• Provide information for stakeholders – customers, shareholders, suppliers, etc.
• Provides the opportunity for the business to monitor its own activities
• Provides transparency to enable the firm to attract investment
• Reduces the chance for fraud – not 100% successful!!
  

Profit and Loss Account - Flow

1. Gross Profit
2. Net ( operating profit )
3. Profit after Tax
4. Dividend
5. Retained Profit

• Shows the flow of sales and costs over a period
• Shows the level of profit or loss made
• Shows what has been done with the profit or loss
  

• Profit and Loss Account for British Airways plc
  Source: http://www.bized.ac.uk/cgi-bin/ratios/ratiodata.pl
• Turnover – the revenue earned over the year
• Cost of Sales – the variable costs, how much it cost the firm to produce what it has sold – not to be confused with sales revenue!
• Gross Profit = turnover – cost of sales
• Operating Expenses – the fixed costs
• Operating or Net Profit = Gross profit – operating costs
• Subtract other costs and expenses incurred to get profit before tax
• Subtract interest payments to get profit on ordinary activities before tax
• Subtract tax due to get profit on ordinary activities after tax
• Final section called ‘appropriation account’ – shows where the profit/loss is going
• Dividend – the share of the profit returned to shareholders
  Retained Profit – the amount kept back for future investment, etc.

Balance Sheet - Snapshot

1. Source of Funds
2. Use of Funds

• A snapshot of the firm’s position at a point in time
• Shows what a company owns (assets) and what it owes (liabilities)
• Balance Sheet shows what assets a company has (use of funds) and where the money came from to acquire those assets (source of funds)

• Fixed Assets – assets not used up in production or lasting longer than one year – equipment, buildings, machinery, etc.
• Fixed assets can be tangible – i.e. physical items or intangible – i.e. brand name, goodwill.
• Current Assets: assets that are used up during production and which are likely to yield cash in the coming year – for example, stock will be sold and debtors owing the business money will pay up!

• Subtracted from the assets are the money the company owes to creditors – suppliers for example
• And to those who are longer term creditors – loans, mortgage on property etc
• This leaves us with ‘Net Assets’
• The funds to acquire these assets must have come from somewhere – the next section tells us where it came from.
• The funds to acquire these assets must have come from somewhere – the next section tells us where it came from.
• The total capital employed must be the same as the sum of the net assets – hence the term ‘balance’ sheet!
• A guide to the structure of the assets of a company
• Gives a guide as to the degree of working capital – the amount the company has to be able to pay its everyday debts (current assets – current liabilities)
• Shows the total value of a firm at that moment in time
  

Pricing Strategies, 17 April 2007

There are 15 types of pricing:

• Penetration Pricing
• Market Skimming
• Value Pricing
• Loss Leader
• Pyschological Pricing
• Going rate (Price Leadership)
• Tender Pricing
• Price Discrimination
• Destroyer Pricing/Predatory Pricing
• Influence of Elasticity
• Cost-Plus Pricing
• Contribution Pricing
• Target Pricing
• Marginal Cost Pricing
• Absorption/full cost pricing

Penetration Pricing(Low price- High Volume)

• involves the setting of lower, rather than higher prices in order to achieve a large, if not dominant market share.
• It creates cost control abd cost reduction.
• It discourages the entry of competitors.

Market Skimming(High Price-Low Volume)

• Charging a relatively high price for a short time where a new, innovative, or much-improved product is launched onto a market.
• e.g DVD players: DVD players in the late 1990's and early 2000's - in the late 1990's DVD players sold for $500 and $400 when they first came out, then the price dropped to less than $100 by 2001 by 2004 you can get them for $50 or $60 at many different types of stores.

Value Pricing

• usually during difficult economic conditions
• e.g. Value menus at McDonalds

Loss Leader

• selling products/services at a price that will generate little or no profit and in some cases not even cover all associated costs (marketing, overheads, direct costs, etc).
• Microsoft's Xbox video game system, which was sold at a loss of more than $100 per unit to create more potential to profit from the sale of higher-margin video games.

Pyschological Pricing

• to get a customer to respond on an emotional, rather than rational basis.
• e.g 99p not £1.01 ‘price point perspective

Going rate (Price Leadership)

• Situation in which a market leader sets the price of a product or service, and competitors feel compelled to match that price.
• e.g. Banks, petrol, electrical goods, supermarkets…

Tender Pricing

• Mostly done in secret
• Firm (or firms) submit their price for carrying out the work
• Purchaser then chooses which represents best value

Price Discrimination

• charge different prices to different groups of consumers for what is more or less the same good or service! it has become widespread in nearly every market.
• The airlines have become masters at price discrimination as a means of maximising revenue from passengers travelling on the flight networks. Other transport businesses do the same.

Destroyer Pricing/Predatory Pricing

• the practice of a firm selling a product at very low price with the intent of driving competitors out of the market, or create a barrier to entry into the market for potential new competitors.
• difficult to prove that a drop in prices is due to predatory pricing rather than normal competition, difficult to prove due to high legal hurdles designed to protect legitimate price competition.
• Easy Jet believed that British Airways was using destroyer pricing when they introduced the new budget airline Go. Easy Jet argued that British Airways were setting Go™s pricing so low in the hope of forcing existing budget airlines out of business.

Influence of Elasticity

• Any pricing decision must be mindful of the impact of price elasticity
• The degree of price elasticity impacts on the level of sales and hence revenue
• Elasticity focuses on proportionate (percentage) changes

If price increase by 10% and demand for CDs fell by 20% then:

PED = -20/10 = -2

Cost-Plus Pricing

• a pricing method commonly used by firms.
• used primarily because it is easy to calculate and requires little information.
• you first calculate the cost of the product, then include an additional amount to represent profit.
• often used on government contracts

Contribution Pricing

• maximizes the profit derived from an individual product, based on the difference between the product's price and variable costs, and on one’s assumptions regarding the relationship between the product’s price and the number of units that can be sold at that price.
• For example, to cover indirect costs of, say, £7000 and you further expect a profit of £3,000 (totalling £10,000) assuming that 100 of each product A, B and C are to be sold, the following contributions can be included in the selling price:

Target Pricing

• Setting price to ‘target’ a specified profit level
• Estimates of the cost and potential revenue at different prices, and thus the break-even have to be made, to determine the mark-up
• Mark-up = Profit/Cost x 100

Marginal Cost Pricing

• Marginal cost pricing is the principle that the market will, over time, cause goods to be sold at their marginal cost of production.
• In the most general criticism of the theory of marginal cost pricing, economists note that monopoly power may allow a producer to maintain prices above the marginal cost; more specifically, if a good has low elasticity of demand and supply of the product is limited, prices may be considerably higher than marginal cost.

Absorption/full cost pricing

• Full Cost Pricing – attempting to set price to cover both fixed and variable costs
• Absorption Cost Pricing – Price set to ‘absorb’ some of the fixed costs of production