Comprehensive Study Guide for ACCA Business and Technology (BT/FBT)
Defining the Nature and Scope of Organisations
An organisation is defined as a social arrangement which pursues collective goals, controls its own performance, and has a boundary separating it from its environment.
The social aspect is paramount; organisations consist of people who are social animals. This necessitates maintaining relationships with colleagues, respecting superiors, and interacting with customers. Motivations and ambitions vary among individuals.
Collective goals imply that members of the organisation aim for the same results. When goals are not aligned, chaos occurs. Management's role is to ensure all individuals pull in the same direction.
Business organisations typically focus on either profit-making (commercial companies) or improving society (charities).
Systems Theory in Organisational Context
Systems theory defines organizations by their boundaries and environment.
The environment is the context in which the organisation exists, such as a national or international setting.
The boundary separates the system from the external environment.
The basic system model involves Input, Processing, and Output.
Subsystems divide the larger system. For instance, an organisation has departments (sales, accounting, manufacturing). These can be subdivided further; for example, an accounting department consists of the receivables ledger, payables ledger, cash book, and nominal ledger.
Closed systems take no input and provide no output to the environment. These are theoretical and usually short-lived because they fail to adapt to technological advances, rival actions, or customer needs.
Open systems receive input from and send output to the environment. These are the only systems of practical importance in business.
Classification and Types of Organisations
Commercial Organisations: Profit-seeking entities including sole traders, partnerships, limited liability partnerships (LLPs), and limited companies.
Limited liability protects owners if the organisation liquidates; creditors can only pursue assets within the company, not the owners' personal assets.
Sole traders and partners have unlimited liability for business debts.
Classifications:
Primary Sector: Extraction and production of raw materials.
Secondary Sector: Manufacturing.
Tertiary Sector: Provision of sales and services.
Quaternary Sector: Specialized research and development industries (IT, pharmaceutical research).
Not-for-Profit Organisations: Focus on purposes other than profit (e.g., charities, charitable hospitals). Instead of profit/loss accounts, they produce income and expenditure accounts. Survival depends on income matching or exceeding expenditure.
Public Sector Organisations: Owned by the state at national or local levels (e.g., defense, health services, educational systems, state-owned airlines). While some seek profit, many do not.
Non-Governmental Organisations (NGOs): Not-for-profit entities with an international brief, such as United Nations organisations.
Co-operatives: Owned by the employees. Membership and ownership are shared widely (e.g., farmers marketing products together). They generally seek a profit to share among members.
Organisational Structure Models
Entrepreneurial Structure: Simple structure consisting of a boss and workers. Common in small, family-owned businesses where owners and managers are not separated into distinct roles.
Functional Structure: Division by expertise into departments such as Finance, Manufacturing, R&D, and Sales. It allows for economies of scale and concentrated expertise.
Divisional Structure: Splitting the company based on products or geography (e.g., North American vs. European divisions). This allows for specialisation in specific markets or regulatory environments.
Matrix Structure: A complex arrangement where employees have dual reporting lines—one to a functional head and one to a project manager. It promotes cooperation and reflects the reality of project pressures.
Boundaryless Organisations:
Virtual: Creating a temporary external company to respond to market opportunities.
Hollow: Outsourcing all non-core operations (e.g., legal, accounting) to focus on core competencies like design.
Modular: Ordering parts from internal and external providers for final assembly.
Functional Departments and Their Responsibilities
Ordering and Purchasing: Raw material and non-current asset acquisition; supplier negotiation.
Manufacturing/Production: Fabrication of standard or bespoke goods.
Direct Service Provision: Businesses like law or accounting where services cannot be stored as inventory.
Sales and Marketing: Customer acquisition and retention.
Distribution: Logistics (often outsourced to firms like UPS or DHL).
Administration: Record-keeping, correspondence, and office functions.
R&D: Development of new products and processes.
Human Resources: Recruitment, training, and employee retention.
Accounting and Finance: Invoicing, supplier payment, financial statement preparation, and credit control (assessing customer creditworthiness).
Cash and Working Capital Management: Ensuring the availability of cash to pay staff, suppliers, and taxes. Techniques include encouraging faster customer payment, delaying supplier payments (with caution), and reducing inventory levels.
Treasury Management: Concerns long-term capital, foreign exchange risk (e.g., weak US$ impacting domestic receipts), interest rate risk (fixed vs. variable), and tax-mitigation methods.
The Anthony Hierarchy of Organisational Levels
Strategic Level: Top managers and board of directors focusing on five-year plans, global strategy, and major business shifts.
Tactical Level: Departmental managers focusing on meeting annual budgets and expectations. Time horizons are typically one year.
Operational Level: Day-to-day activities with short time horizons (daily or weekly). Focus on transaction processing (invoices, orders, customer queries).
Organisational Shape and Configuration
Tall/Narrow Structure: Many layers with small spans of control (e.g., 2 subordinates per supervisor). Characteristics include close supervision, bureaucracy, and formal job grades. Slow to respond to change.
Wide/Flat Structure: Fewer layers with large spans of control (e.g., 7 subordinates). Characteristics include faster communication, egalitarian culture, and team emphasis.
Delayering: The 1990s trend of moving from tall to flat shapes to reduce costs (removing non-value-adding middle management) and increase flexibility to counter global competition.
Scalar Chain: The chain of command from the top to the bottom of the company.
Centralisation and Decentralisation
Centralisation: Power remains at the top with the managing director or board.
Decentralisation: Power is passed down the hierarchy.
Advantages of Decentralisation:
Reduction in burden for top management.
Increased speed of decision-making.
Utilization of local or specialized expertise (e.g., marketing decisions by marketers).
Improved motivation for junior managers.
Better training and assessment for promotion.
Disadvantage: Dysfunctional decision-making where one division harms the whole (e.g., stopping production of a vital component used elsewhere).
Environmental Influences and PESTEL Model
PESTEL categorizes macro-environmental factors:
Political: War, EU status, change of government.
Economic: Interest rates, exchange rates, inflation, tax rates.
Social: Demographics (aging populations), tastes/fads (veganism), lifestyle expectations (streaming vs. broadcast TV).
Technological: Internet impact, banking automation, data mining/warehousing via loyalty cards, electric vehicle development.
Ecological/Environmental: Green issues, carbon footprints, sustainability, waste disposal, and reputation management.
Legal: Employment protection, safety laws, consumer protection.
Competitive Analysis: Porter’s Five Forces
Rivalry/Competition: Ranges from perfect competition (price-takers) to monopoly. Lower rivalry increases industry attractiveness.
Buyer Power: Powerful buyers pressure prices and quality. Firms combat this by building switching costs.
Supplier Power: Monopoly suppliers can raise prices at will. Multi-sourcing or vertical integration are countermeasures.
Potential Entrants: Barriers to entry include capital requirements, regulations, and know-how.
Substitutes: Created by technological advances (e.g., mobile phones substituting for landlines).
The Value Chain and Value Network
Primary Activities: Inbound logistics, operations, outbound logistics, marketing and sales, service.
Support Activities: Firm infrastructure, technology development, HR management, procurement.
Value-Added/Margin: The difference between the cost of activities ( million) and what the buyer is willing to pay ( million). Value is added through skills, competencies, economies of scale, and convenience.
Value Network: The set of organisations (suppliers, distributors, haulage) contributing to the final product.
SWOT Analysis
Strengths/Weaknesses: Internal factors (e.g., strong finance but weak product portfolio).
Opportunities/Threats: External factors (e.g., weak competitors to take over vs. new overseas rivals).
Strategic Goal: Match strengths to opportunities and address weaknesses to defend against threats.
Stakeholders and Mendelow’s Matrix
Stakeholder Categories:
Internal: Employees, managers.
Connected: Shareholders, lenders, customers, suppliers (contractual ties).
External: Government, local community (no contract).
Stakeholder Conflict: Conflicts arise because wants differ (e.g., higher wages vs. higher profits).
Agency Theory: Shareholders are principals; directors are agents. Agents have a legal duty to act in the principal's best interest, but may prioritize personal gain (stewardship).
Mendelow's Matrix for Stakeholder Analysis:
Low Power, Low Interest: Minimal effort.
Low Power, High Interest: Keep informed.
High Power, Low Interest: Keep satisfied (prevent them from becoming key players).
High Power, High Interest: Key players; keep happy.
Organisational Culture: The Cultural Web and Handy’s Greek Gods
Cultural Web elements: Paradigm (assumptions), Symbols/Titles, Power relations, Org structure, Control systems, Rituals/Routines, Myths/Stories.
Charles Handy’s Classification:
Power Culture (Zeus): Power concentrated in a single leader.
Role Culture (Apollo): Strict job descriptions and hierarchy; process over task.
Task Culture (Athena): Focus on getting the job done; project-team based.
Person Culture (Dionysus): Individuals pursue private ambitions within an organisation (e.g., surgeons).
Schein’s Levels of Culture:
Artifacts: Visible dress codes, office layout.
Espoused Values: Stated goals, missions.
Underlying Assumptions: Unstated, fundamental beliefs about quality and work ethic.
Hofstede’s National Culture Variables:
Power/Distance: Acceptance of hierarchy.
Uncertainty Avoidance: Risk tolerance.
Individualism vs. Collectivism: Groupconformity vs. independent action.
Masculinity: Value of dominance/competition vs. feminine modesty/consensus.
Corporate Governance and Ethics
Corporate Governance: System of direction and control addressing the separation of ownership and control.
OECD Principles: Transparent markets, shareholder rights, stakeholder recognition, timely disclosure, strategic guidance.
UK Corporate Governance Code Principles:
Board Leadership: Effective, collective responsibility.
Division of Responsibilities: Separation of CEO and Chairman roles. Presence of Non-Executive Directors (NEDs) to challenge strategy.
Balance: Roughly 50/50 split between executive and non-executive directors.
Composition: Nomination committee (majority NEDs); 9-year limit for chairmen.
Audit/Control: Audit committee (NEDs) to liaise with auditors. Directors responsible for internal control.
Remuneration: Remuneration committee (NEDs) to set pay; link pay to performance; no director sets their own pay.
Regulatory Approaches:
Principles-based (UK/Europe): "Comply or explain."
Compliance-based (USA): Sarbanes-Oxley Act; strict legal sign-off.
Ethics Theories:
Consequentialism (Utilitarianism): "Greatest good for the greatest number."
Deontology: Duty-based behavior following absolute moral values.
Relativism: Flexibility and tolerance for different ethical standpoints.
Absolutism: Fixed ethical codes regardless of context.
Public Interest: Defined by IFAC as net benefits for society. Accountants have a fundamental obligation to act in the public interest.
Ethical Conflict Resolution Framework:
Consider facts.
Consider ethical principles.
Consider internal procedures.
Consider alternatives (Escalate internally, document, seek legal advice).
Legal Obligations and Data Protection
Sources of Law: EU Regulations (directly applicable), EU Directives (require national legislation), Statute Law (legislation), Case Law (Precedents/Common Law).
General Data Protection Regulation (GDPR) / Data Protection Act 2018 (UK) Principles:
Processed fairly and lawfully.
Specified and lawful purpose.
Not excessive.
Accurate and up-to-date.
Not kept longer than necessary.
Secure processing.
Data Subject Rights: Access, rectification, erasure, portability, right to object to marketing.
Data Risks: Human error, technical failure, catastrophic events (fire/flood), malicious damage/hacking, industrial espionage.
Accountancy, Auditing, and Regulatory Systems
Accounting Spheres: Financial, Auditing, Management, Consulting, Taxation, Government.
Professionalism Attributes: Competence, Integrity, Reliability, Flexibility, Respect, Self-control.
ACCA Fundamental Principles:
Integrity: Honest and straightforward.
Objectivity: Unbiased; fact-based.
Professional Competence and Due Care: Staying up-to-date; diligent work.
Confidentiality: Protecting price-sensitive info (exceptions: legal duty, money laundering).
Professional Behaviour: Complying with law; protecting the profession's reputation.
Management Accounts: Internal, flexible format, forward/backward-looking, ad hoc, not audited. Variances can be favourable or adverse.
Financial Accounts: External (published), regulated by statute, historical, routine/annual, audited. Includes Statement of Profit or Loss, Statement of Financial Position, Cash Flow Statement, Notes, and Statement of Changes in Equity.
External Audit: Independent evidence gathering to report a "true and fair" view.
Limits: No guarantee of absolute correctness; uses sampling; management prepares accounts; not responsible for small fraud detection.
Regulatory Bodies:
IASB: Issued International Financial Reporting Standards (IFRS).
FRC: UK body for standards.
IFAC: Global body for ethics and auditing standards.
GAAP: Generally Accepted Accounting Practice/Principles (combined statute and rules).
Internal Audit: Provides independent assurance on risk management and internal controls. Reports to management/audit committee.
Internal Control and Fraud Prevention
Internal Control components: Control Environment (culture) and Detailed Control Processes.
Control Methods: Physical safeguarding, Authorisation, Segregation of duties, Reconciliations, Arithmetic checks (Trial balance), Internal audit.
Money Laundering Stages:
Placement: Mixing dirty money into legitimate business (e.g., blending funds, gambling).
Layering: Repeated transfers across accounts/jurisdictions to conceal origins.
Integration: Movement into economy via asset purchase (cars, art).
Proceeds of Crime Act 2002 Offences: Concealing, arrangement, acquisition, failure to disclose, tipping off.
Cybersecurity: Protection against viruses, hacking, denial of service attacks, and cyber-espionage. Controls include firewalls, encryption, and passwords.
Management and Leadership Theories
Henri Fayol (Classical): 5 functions—Planning, Organising, Commanding, Coordinating, Controlling.
Frederick Taylor (Scientific Management): Developed the "science of work"; task specialisation, production lines, and scientific selection of workers.
Peter Drucker: Functions—Manage business, manage managers, manage workers/work. Activities—Setting objectives, organising growth, motivating/communicating, measuring, developing people.
Mintzberg Roles: Interpersonal (Figurehead, Liaison, Leader), Information (Monitor, Disseminator, Spokesman), Decisional (Improver, Disturbance handler, Resource allocator, Negotiator).
Power Sources: Rational-legal, Coercive, Reward, Knowledge, Charismatic.
Authority: The right to exercise power.
Responsibility: Accountability ("the buck stops here"); cannot be delegated.
Ashridge Model: Tells (autocratic), Sells, Consults, Joins (democratic).
Blake and Mouton’s Managerial Grid:
1,1 Impoverished: Low people, low task.
1,9 Country Club: High people, low task.
9,1 Authoritarian: Low people, high task.
5,5 Middle of the road.
9,9 Team: High people, high task.
Action-Centred Leadership (Adair): Concern for Task, Group, and Individuals.
Transactional (Manager) vs. Transformational (Leader) (Bennis): Managers maintain status quo; leaders innovate and inspire trust.
Motivation and Learning
Maslow’s Hierarchy: Physiological → Safety → Social → Esteem → Self-actualisation.
Herzberg’s Two-Factor Theory: Hygiene factors (prevent dissatisfaction: money, relations) and Motivators (create satisfaction: praise, achievement).
Theory X and Theory Y (McGregor): X assumes workers are lazy; Y assumes work is natural and rewarding.
Job Design: Job enlargement (horizontal—more of same), Job rotation (horizontal), Job enrichment (vertical—more responsibility).
Honey and Mumford Learning Styles: Theorists (guides), Reflectors (observe), Activists (try it), Pragmatists (practical outcomes).
Kolb’s Cycle: Experience → Reflect → Theory → Try Theory.
Development Methods: Training (current role), Development (future role), Education (gradual knowledge), Coaching (on-the-job), Mentoring (long-term friend/advisor), Counselling.
SMARTER Goals: Specific, Measurable, Agreed, Realistic, Time-bound, Evaluate, Review.
Economics and Markets
Macroeconomics: National/International study.
Inflation types: Demand pull, Cost push, Import cost, Expectation, Money supply increase.
Unemployment types: Real wage, Frictional, Seasonal, Structural, Technological, Cyclical.
Policies:
Fiscal: Government spending, taxation, and borrowing.
Monetary: Interest rates and credit controls (reserve requirements).
Taxation Categories:
Regressive: Higher % from poor (e.g., VAT).
Proportional: Fixed % for everyone.
Progressive: Higher % as income rises.
Ad Valorem: % of price.
Microeconomics:
Arc Elasticity: Uses midpoint of prices and quantities.
Inferior Goods: Negative income elasticity (as income rises, demand falls).
Equilibrium: Where supply meets demand. Excess supply drives prices down; excess demand drives them up.
Cost Curves: Fixed costs per unit (Average Fixed Cost) fall as output rises. Marginal Cost (cost of extra unit) passes through minimum of Average Total Cost.
Competition Types: Perfect Competition (price-takers), Monopolist (one supplier), Oligopoly (few suppliers), Monopolistic Competition (brand-based differentiation).
Marketing Concept and Strategy
Evolution: Product-led (focus on tech) → Sales-led (persuasion) → Marketing-led (meeting customer needs via research).
Segmentation: Age, sex, lifestyle, wealth, geography.
The 7 Ps of the Marketing Mix:
Product: Quality, design, brand.
Price: Level, discounts, terms.
Promotion: Advertising, sales promotion, PR, personal selling.
Place: Distribution chain length, outlet suitability.
People (Services).
Process (Services).
Physical Evidence (Services).
Push vs. Pull Promotion: Push gets product into shops (sales reps); Pull gets public to demand product (advertising).
Link to Strategy: Five-year strategic plans are fundamentally driven by marketing plans (products, prices, and markets).